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2010-11-03 07:00:00 CET 2010-11-03 07:01:44 CET REGLERAD INFORMATION Pohjola Pankki Oyj - Interim report (Q1 and Q3)Pohjola Bank plc Interim Report for 1 January-30 September 2010Pohjola Bank plc Company Release, 3 November 2010, 8.00 am Release category: Interim report Pohjola Bank plc Interim Report for 1 January-30 September 2010 January-September - Year on year, consolidated earnings before tax improved to EUR 242 million (211). Earnings include EUR 88 million (95) in impairment charges on receivables. - Earnings before tax at fair value amounted to EUR 273 million (424) and return on equity at fair value stood at 11.7% (21.8). - Banking posted earnings before tax of EUR 93 million (99), with impairment charges on receivables affecting its earnings by EUR 89 million (84). - Non-life Insurance's operating combined ratio stood at 88.6% (86.7). Within Non-life Insurance, return on investments at fair value was 5.2% (9.0). - Asset Management reported earnings of EUR 18 million (11) and assets under management increased to EUR 35.2 billion (33.1). - Capital gains on notes and bonds improved earnings before tax posted by the Group Functions. - Outlook: Consolidated earnings before tax in 2010 are expected to be at the same level as or higher than in 2009 (previous estimate: at the same level). It is estimated that Non-life Insurance's operating combined ratio will vary between 89 and 92% (previous estimate: 89-93%). For more detailed information on outlook, see "Outlook towards the year end" below. July-September - Consolidated earnings before tax came to EUR 103 million (87). Earnings included EUR 27 million (41) in impairment charges on receivables and EUR 7 million in one-time amortisation on intangible assets. - Earnings before tax at fair value were 165 million (196). - Non-life Insurance's operating combined ratio stood at 82.8% (83.1). Within Non-life Insurance, return on investments at fair value was 2.6% (4.3). - Pohjola Insurance Ltd and Pohjantähti Mutual Insurance Company are planning to merge. +-------------------------------+-----+-----+---------+----+----+---------+----+ |Consolidated earnings before |Q1-3/|Q1-3/| |Q3/ | Q3/| | | |tax, € million1) |2010 |2009 |Change, %|2010|2009|Change, %|2009| +-------------------------------+-----+-----+---------+----+----+---------+----+ | Banking | 93| 99| -6| 38| 24| 61| 117| | | | | | | | | | | Non-life Insurance | 84| 89| -6| 42| 43| -3| 102| | | | | | | | | | | Asset Management | 18| 11| 68| 6| 4| 25| 21| | | | | | | | | | | Group Functions | 48| 11| 320 | 18| 16| 12| 25| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Total | 242| 211| 15| 103| 87| 18| 265| | | | | | | | | | |Change in fair value reserve | 31| 213| -86| 62| 109| -44| 243| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings before tax at fair | | | | | | | | |value | 273| 424| -36| 165| 196| -16| 508| +-------------------------------+-----+-----+---------+----+----+---------+----+ +-----------------------------------------+-----+-----+-----+-----+-----+------+ | |Q1-3/|Q1-3/| Q3/ | Q3/ | | | |Key indicators1) |2010 |2009 |2010 |2009 |2009 |Target| +-----------------------------------------+-----+-----+-----+-----+-----+------+ |Earnings before tax, € million | 242| 211| 103| 87| 265| | | | | | | | | | |Profit for the period, € million | 179| 155| 76| 65| 194| | | | | | | | | | |Return on equity, % | 11.7| 21.8| 21.1| 27.1| 19.2| 13.0| | | | | | | | | |Balance sheet total, € billion | 35.9| 34.1| | | 35.5| | | | | | | | | | |Shareholders' equity, € billion | 2.4| 2.2| | | 2.3| | | | | | | | | | |Tier 1 ratio, % | 12.3| 11.3| | | 11.8| >9.5| | | | | | | | | |Earnings per share, € | 0.56| 0.54| 0.24| 0.20| 0.66| | | | | | | | | | |Earnings per share, incl. change in fair | | | | | | | |value, € | 0.63| 1.09| 0.38| 0.46| 1.27| | | | | | | | | | |Equity per share, € | 7.39| 6.90| | | 7.09| | | | | | | | | | |Average personnel |2,996|2,955|3,007|2,961|2,966| | +-----------------------------------------+-----+-----+-----+-----+-----+------+ 1) Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago. Unless otherwise specified, balance- sheet and other cross-sectional figures on 31 December 2009 are used as comparatives. President and CEO Mikael Silvennoinen: Pohjola Group's third-quarter earnings before tax were the best ever recorded, exceeding EUR 100 million, and January-September earnings were also better than a year ago. Our earnings before tax grew by 15%. Net interest income continued its growth, thanks to the strong growth reported by Corporate Banking in particular. January-September impairment charges on receivables were almost at the same level as the year before but were markedly lower in the third quarter than a year ago. The third quarter saw favourable developments in capital markets. With greater demand for corporate loans, the loan and guarantee portfolio has begun to grow. In line with our expectations, the trend of the rising average corporate loan margin has come to an end and tougher competition is sending the margin on new loans down. Slightly higher impairment charges year on year and the normalisation of the Markets division's financial performance were offset by the strong growth in net interest income recorded by Corporate Banking in January-September. Earnings reported by Banking in January-September were almost at the same level as in the previous year but markedly higher in the third quarter than the year before. Within Non-life Insurance, the balance on technical account remained good despite the claims filed in the aftermath of the late summer storms. Thanks to our reinsurance cover, they did not have any major effect on the Non-life Insurance results. Insurance premium revenue grew and its growth among private customers in particular remained strong throughout January-September. We had set a strategic target in 2005 of serving 450,000 loyal customer households by the end of 2010, but reached it already in August. As early as March, we achieved the annual level of EUR 17 million in the revenue synergies resulting from growth in the number of loyal customer households. In late September, we announced that Pohjola Insurance Ltd and Pohjantähti Mutual Insurance Company were planning to merge. The extraordinary general meetings of these insurers will decide in early December whether the merger plan will be rejected or approved. The purpose of the merger is to strengthen the competitiveness in the Finnish non-life insurance market of the new entity formed by the insurance business of Pohjola Insurance and Pohjantähti. We will provide Pohjantähti's customers with a comprehensive range of financial services and the best loyalty benefits and offer Pohjantähti staff with new career and development opportunities. In addition to the existing staff, we will hire at least another 50 people for the new service centre that will be established in Hämeenlinna. We are confident that the merger will benefit not only customers but also employees and owners. Within Asset Management, assets under management increased to more than EUR 35 billion and earnings before tax also showed a marked year-on-year improvement. Pohjola Capital Partners Ltd, a private equity firm, will be bought by its existing management by the end of this year. As a result of our good financial performance in January-September and a more stable operating environment, we expect to improve our full-year earnings from their previous year's level. Operating environment On the whole, global economic recovery slowed down somewhat in the third quarter. The recovery has been uneven from region to region and every region faces 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 remain slow owing, for example, 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 second half of the year and next year looks relatively 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. The improved economic outlook is also manifested in that the number of people employed rebounded 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. Growth in the corporate loan portfolio that began in the first half of 2010 evened out towards the autumn. Loans to households continued to grow steadily in the third quarter, while the housing market was still lively. Capital market jitters caused by concerns over government bonds and economic growth eased off at 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 equity markets that started in the spring bottomed out, with the weight capped OMX Helsinki CAP index in Finland rising by almost 14% during the third quarter. An increase in 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, on the one hand, and a higher number of reported losses owing to greater economic activity, on the other hand. Consolidated earnings +----------------------+----+----+------+----+----+------+----------------+----+ |Earnings analysis |2010|2009|Change|2010|2009|Change| |2009| | | | | | | | | | | |€ million |Q1-3|Q1-3| % | Q3| Q3| % |Rolling 12-month| | +----------------------+----+----+------+----+----+------+----------------+----+ |Net interest income | | | | | | | | | | | | | | | | | | | | Corporate Banking | 128| 101| 26| 43| 36| 21| 165| 138| | | | | | | | | | | | Markets | 13| 24| -44| 3| 2| 93| 17| 27| | | | | | | | | | | | Other operations | 48| 53| -8| 16| 21| -25| 71| 75| | | | | | | | | | | | Total | 189| 177| 7| 62| 58| 7| 253| 241| | | | | | | | | | | |Net commissions and | | | | | | | | | |fees | 118| 102| 15| 37| 36| 3| 159| 143| | | | | | | | | | | |Net trading income | 34| 60| -44| 18| 27| -32| 45| 71| | | | | | | | | | | |Net investment income | 21| -8| | 6| 1| | 17| -13| | | | | | | | | | | |Net income from Non- | | | | | | | | | |life Insurance | | | | | | | 0| | | | | | | | | | | | | Insurance operations| 279| 291| -4| 106| 107| 0| 371| 382| | | | | | | | | | | | Investment | | | | | | | | | |operations | 69| 48| 41| 26| 19| 37| 84| 64| | | | | | | | | | | | Other items | -34| -32| 5| -11| -11| 4| -45| -44| | | | | | | | | | | | Total | 314| 307| 2| 120| 114| 5| 410| 402| | | | | | | | | | | |Other operating income| 32| 33| -3| 11| 11| 0| 49| 50| | | | | | | | | | | |Total income | 708| 671| 6| 255| 247| 3| 932| 895| | | | | | | | | | | |Personnel costs | 144| 142| 1| 44| 47| -5| 192| 190| | | | | | | | | | | |IT expenses | 56| 56| 1| 18| 19| -5| 76| 75| | | | | | | | | | | |Depreciation and | | | | | | | | | |amortisation | 57| 50| 13| 23| 17| 35| 78| 72| | | | | | | | | | | |Other expenses | 121| 118| 3| 40| 36| 9| 167| 164| | | | | | | | | | | |Total expenses | 378| 366| 3| 125| 119| 5| 513| 501| | | | | | | | | | | |Earnings before | | | | | | | | | |impairments of | | | | | | | | | |receivables | 330| 305| 8| 130| 128| 1| 419| 394| | | | | | | | | | | |Impairments of | | | | | | | | | |receivables | 88| 95| -7| 27| 41| -35| 122| 129| | | | | | | | | | | |Earnings before tax | 242| 211| 15| 103| 87| 18| 297| 265| | | | | | | | | | | |Change in fair value | | | | | | | | | |reserve | 31| 213| | 62| 109| | 60| 243| | | | | | | | | | | |Earnings before tax at| | | | | | | | | |fair value | 273| 424| -36| 165| 196| -16| 357| 508| +----------------------+----+----+------+----+----+------+----------------+----+ January-September earnings Earnings before tax amounted to EUR 242 million (211), up by 15% on a year earlier. Earnings before impairment charges on receivables totalled EUR 330 million (305), or 8% higher than a year ago. Impairment charges on receivables were EUR 7 million lower than a year ago, amounting to EUR 88 million (95). With slightly more active capital markets in the third quarter, earnings before tax at fair value came to EUR 273 million (424). Total income increased by 6% to EUR 708 million (671) and expenses by 3% to EUR 378 million (366). Net interest income rose to EUR 189 million (177), up by 7% year on year. Net interest income from Corporate Banking showed strong growth, thanks to growth in the loan portfolio and a rise in the average margin. Net commissions and fees increased to EUR 118 million (102), up by 15% year on year, due mainly to higher net commissions and fees reported by Asset Management. The report period also saw an increase in net commissions and fees from securities issuance and brokerage. Net trading income amounted to EUR 34 million (60). Income reported a year ago was exceptionally high because of the market situation. Net investment income totalled EUR 21 million (-8). This figure includes realised capital gains of EUR 22 million recognised on the notes and bonds. Adjustments for real property acquisition costs reduced net investment income a year ago. Total net income from Non-life Insurance totalled EUR 314 million (307), or 2% higher than in the previous year. Non-life Insurance showed favourable developments in net income although it was slightly lower than a year ago. Realised capital gains contributed to higher income from investment operations. Expenses rose by 3% to EUR 378 million (366), due mainly to the EUR 7 million one-time amortisation on insurance systems. Excluding this item, expenses grew by 1%. Personnel costs rose by EUR 2 million year on year. Provisions recognised for performance-based bonuses were down. The number of Group employees increased by 28 from their level on 31 December 2009. The fair value reserve before tax grew by EUR 23 million (158) from its level on 31 December 2009. On 30 September, the fair value reserve after tax stood at EUR 23 million, as against EUR 0 million on 31 December 2009. July-September earnings Earnings before tax amounted to EUR 103 million (87), up by 18% on a year earlier. Earnings before impairments of receivables were at the previous year's level, coming to EUR 130 million (128). Impairments of receivables decreased by EUR 14 million year on year to EUR 27 million (41). Earnings before tax at fair value were EUR 165 million (196). Capital markets perked up slightly and the fair value reserve grew markedly during the third quarter. Total income rose by 3% to EUR 255 million (247) and expenses by 5% to EUR 125 million (119). Excluding one-time amortisation on insurance systems, expenses were at the previous year's level. Consolidated net interest income was slightly higher a year ago, amounting to EUR 62 million (58). Within Corporate Banking, net interest income increased by one-fifth on a year earlier, thanks to higher margins. Net commissions and fees amounted to EUR 37 million (36). Asset Management showed strong growth during the third quarter too. Net investment income totalled EUR 6 million (1). This figure includes realised capital gains of EUR 6 million recognised on the notes and bonds within the liquidity buffer. Net trading income was one-third lower than a year ago, or EUR 18 million (27). Net income from Non-life Insurance amounted to EUR 120 million (114). Growth in insurance premium revenue accelerated in the third quarter and insurance profitability was excellent. +------------------------------------------+---------------+-----------+ |Earnings analysis by quarter | 2009 | 2010 | | | | | |€ million | Q1 Q2 Q3 Q4| Q1 Q2 Q3| +------------------------------------------+---+---+---+---+---+---+---+ |Net interest income | | | | | | | | | | | | | | | | | | Corporate Banking | 32| 33| 36| 37| 40| 44| 43| | | | | | | | | | | Markets | 10| 12| 2| 4| 6| 4| 3| | | | | | | | | | | Other operations | 10| 22| 21| 23| 14| 19| 16| | | | | | | | | | | Total | 52| 67| 58| 63| 60| 67| 62| | | | | | | | | | |Net commissions and fees | 30| 36| 36| 41| 40| 41| 37| | | | | | | | | | |Net trading income | 25| 8| 27| 11| 7| 8| 18| | | | | | | | | | |Net investment income | -9| 0| 1| -5| 18| -3| 6| | | | | | | | | | |Net income from Non-life Insurance | | | | | | | | | | | | | | | | | | Insurance operations | 83|101|107| 92| 74| 99|106| | | | | | | | | | | Investment operations | -2| 32| 19| 15| 17| 26| 26| | | | | | | | | | | Other items |-11|-11|-11|-11|-11|-11|-11| | | | | | | | | | | Total | 70|122|114| 96| 79|114|120| | | | | | | | | | |Other operating income | 11| 11| 11| 17| 11| 10| 11| | | | | | | | | | |Total income |179|245|247|224|215|239|255| | | | | | | | | | |Personnel costs | 45| 50| 47| 48| 47| 52| 44| | | | | | | | | | |IT expenses | 19| 18| 19| 20| 19| 19| 18| | | | | | | | | | |Depreciation and amortisation | 17| 17| 17| 21| 18| 16| 23| | | | | | | | | | |Other expenses | 41| 40| 36| 45| 39| 43| 40| | | | | | | | | | |Total expenses |122|125|119|135|123|130|125| | | | | | | | | | |Earnings before impairments of receivables| 57|119|128| 89| 92|109|130| | | | | | | | | | |Impairments of receivables | 21| 33| 41| 34| 33| 29| 27| | | | | | | | | | |Earnings before tax | 36| 87| 87| 55| 59| 80|103| | | | | | | | | | |Change in fair value reserve | 4|100|109| 30| 61|-92| 62| | | | | | | | | | |Earnings/loss before tax at fair value | 41|186|196| 84|119|-11|165| +------------------------------------------+---+---+---+---+---+---+---+ Group risk exposure The Group's risk exposure remained favourable as impairment charges continued to decrease and investment-grade exposures remained high. The improved economic situation was reflected in higher creditworthiness among corporate customers although some corporate customers continued to feel the effects of the economic crisis. Doubtful receivables decreased further and remained low relative to the loan and guarantee portfolio. The financial and liquidity position remained strong. Both short-term and long- term funding performed well. Pohjola strengthened its financial position by issuing in early September senior bonds with a maturity of seven years and worth EUR 750 million. Pohjola Bank plc maintains OP-Pohjola Group's liquidity portfolio, which mainly consists of notes and bonds eligible as collateral for central bank refinancing. The liquidity portfolio totalled EUR 9.7 billion (11.7) on 30 September 2010. This liquidity portfolio plus other items included in OP-Pohjola Group's balance sheet and eligible for central bank refinancing constitute the total liquidity buffer, which can be used to cover OP-Pohjola Group's wholesale funding maturities for some 24 months. Determining the value of the available-for-sale financial assets at fair value through profit or loss and included in the liquidity portfolio is based on mark- to-market valuations. Pohjola did not recognise any impairment charges on the liquidity portfolio during the period. Pohjola kept market risks moderate during the period. Net loan losses and impairment losses recognised for January-September reduced earnings by EUR 88 million (95), accounting for 0.63% (0.68) of the loan and guarantee portfolio. Final loan losses recognised for the period totalled EUR 41 million (15) and impairment charges EUR 98 million (111). Loan loss recoveries and allowances for impairments totalled EUR 51 million (32). The majority of the impairments were those recognised on an individual basis. Doubtful receivables fell by EUR 9 million to EUR 29 million in the third quarter and were at a low level, accounting for 0.21% (0.32) of the loan and guarantee portfolio. Past due payments came to EUR 20 million (70), representing 0.14% (0.51) of the loan and guarantee portfolio. Despite the economic recovery and lower impairment charges and doubtful receivables, some of our corporate customers still face a challenging operating environment. Capital adequacy Capital adequacy under the Act on Credit Institutions showed a marked improvement. The capital adequacy ratio stood at 13.9% (13.5) as against the statutory minimum requirement of 8%. Tier 1 ratio was 12.3% (11.8). Pohjola Group's Tier 1 target ratio stands at a minimum 9.5% over the economic cycle. Excluding hybrid capital, Tier 1 ratio stood at 10.2% (9.7). Tier 1 capital came to EUR 1,601 million (1,541) and the total capital base amounted to EUR 1,806 million (1,753). Hybrid capital accounted for EUR 274 million of Tier 1 capital. The minimum regulatory capital requirement to cover credit risk amounted to EUR 942 million (957), that to cover market risk EUR 34 million (36) and that to cover operational risks EUR 61 million (49). On 30 September 2010, risk-weighted assets totalled EUR 12,960 million, as against EUR 13,024 million on 31 December 2009. Pohjola Group belongs to OP-Pohjola Group whose capital adequacy is supervised in accordance with the Act on the Supervision of Financial and Insurance Conglomerates. Pohjola Group's capital adequacy ratio under the Act, measured using the consolidation method, stood at 1.84 (1.73). Accordingly, the capital base totalled EUR 2,230 million (2,103) and the minimum capital requirement EUR 1,213 million (1,213), i.e. the total capital base exceeded the minimum regulatory requirement by EUR 1,017 million (890). As a result of the financial crisis, the regulatory framework for banks' capital requirements is becoming more rigorous 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. From Pohjola Group's viewpoint, the most significant changes in the new regulations are related to allowances for insurance company holdings and liquidity risk requirements whose treatment will most likely be finalised only in national legislation. Credit ratings Pohjola Bank plc's credit ratings remained unchanged, as follows: Rating agency Short-term debt Long-term debt Standard & Poor's A-1+ AA- Moody's P-1 Aa2 Fitch F1+ AA- Pohjola's credit rating outlook issued by Standard & Poor's is stable. Moody's Investor Service has affirmed negative outlook on Pohjola's credit rating. Fitch Rating has issued a negative outlook for the long-term debt ratings of Pohjola but the outlook for the short-term debt ratings is stable. The main reason for the negative outlook is the rapid deterioration of the Finnish economy last year and its potential effects on Pohjola and OP-Pohjola Group mainly operating in Finland. Financial targets and actuals +------------------------------------------------------+-----+-----+----+------+ | |Q1-3/|Q1-3/| | | |Financial targets |2010 |2009 |2009|Target| +------------------------------------------------------+-----+-----+----+------+ |Group | | | | | | | | | | | | Return on equity, % | 11.7| 21.8|19.2| 13| | | | | | | | Tier 1 ratio, % | 12.3| 11.3|11.8| >9.5| | | | | | | |Banking | | | | | | | | | | | | Operating cost/income ratio, % | 35| 34| 35| <40| | | | | | | |Non-life Insurance | | | | | | | | | | | | Operating combined ratio, % | 88.6| 86.7|87.7| 92| | | | | | | | Operating expense ratio, % | 21.3| 21.7|22.2| <20| | | | | | | | Solvency ratio, % | 99| 89| 88| 70| | | | | | | |Asset Management | | | | | | | | | | | | Operating cost/income ratio, % | 52| 60| 53| <50| | | | | | | |Rating | | | | | | | | | | | | AA rating affirmed by at least two credit rating | | | | | |agencies | 3| 3| 3| ≥2| | | | | | | |Dividend policy | | | | | | | | | | | | Dividend payout ratio a minimum of 50%, provided | | | | | |that Tier 1 a minimum of 9.5%. | | | 51| >50| +------------------------------------------------------+-----+-----+----+------+ The financial targets are set over the economic cycle. Performance by business line Banking - Earnings before tax amounted to EUR 93 million (99), affected by EUR 89 million (84) in impairment charges on receivables. Earnings before these impairments were at the level reported a year ago. - The average corporate loan margin was 17 basis points higher than the year before but this upward trend came to an end after the first quarter. - Thanks to higher margins, Corporate Banking net interest income rose by 26%. The loan portfolio grew by 6% from the level of 30 December 2009 and by 4% in the year to September. - The Markets division's financial performance remained good although it weakened from the exceptionally good level posted a year ago. - Operating cost/income ratio stood at 34% (34). Banking: financial results and key figures and ratios +-------------------------------+-----+-----+---------+----+----+---------+----+ |Financial results, € million |Q1-3/|Q1-3/|Change, %|Q3/ |Q3/ |Change, %|2009| | |2010 |2009 | |2010|2009| | | +-------------------------------+-----+-----+---------+----+----+---------+----+ |Net interest income | | | | | | | | | | | | | | | | | | Corporate Banking | 128| 101| 26| 43| 36| 21| 138| | | | | | | | | | | Markets | 13| 24| -44| 3| 2| 95| 27| | | | | | | | | | | Total | 141| 125| 13| 46| 37| 24| 165| | | | | | | | | | |Net commissions and fees | 69| 65| 5| 21| 22| -1| 85| | | | | | | | | | |Net trading income | 45| 64| -29| 21| 27| -22| 78| | | | | | | | | | |Other income | 22| 22| -1| 8| 8| 9| 30| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Total income | 277| 276| 0| 97| 93| 4| 358| | | | | | | | | | |Expenses | | | | | | | | | | | | | | | | | | Personnel costs | 39| 39| 0| 12| 13| -4| 50| | | | | | | | | | | IT expenses | 17| 16| 11| 5| 5| 9| 21| | | | | | | | | | | Depreciation and amortisation| 19| 20| -6| 6| 7| -5| 28| | | | | | | | | | | Other expenses | 20| 19| 6| 7| 6| 29| 25| | | | | | | | | | |Total expenses | 95| 94| 2| 31| 30| 4| 125| | | | | | | | | | |Earnings before impairments of | | | | | | | | |receivables | 182| 183| 0| 65| 63| 4| 234| | | | | | | | | | |Impairments of receivables | 89| 84| 7| 28| 39| -30| 117| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings before tax | 93| 99| -6| 38| 24| 61| 117| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings before tax at fair | | | | | | | | |value | 92| 101| -8| 38| 25| 54| 120| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Loan and guarantee portfolio, €| | | | | | | | |billion | 14.0| 13.6| 3| | | |13.3| | | | | | | | | | |Margin on corporate loan | | | | | | | | |portfolio, % | 1.38| 1.21| | | | |1.33| | | | | | | | | | |Ratio of doubtful receivables | | | | | | | | |to | | | | | | | | | | | | | | | | | |loan and guarantee portfolio, %| 0.21| 0.37| | | | |0.32| | | | | | | | | | |Ratio of impairments of | | | | | | | | |receivables to | | | | | | | | | | | | | | | | | |loan and guarantee portfolio, %| 0.64| 0.62| | | | |0.88| | | | | | | | | | |Operating cost/income | | | | | | | | | | | | | | | | | |ratio, % | 34| 34| | 33| 32| | 35| | | | | | | | | | |Personnel | 654| 607| 8| | | | 607| +-------------------------------+-----+-----+---------+----+----+---------+----+ January-September earnings Earnings before tax amounted to EUR 93 million (99), affected by EUR 89 million (84) in impairment charges on receivables. Earnings before these impairments were at the same level as a year ago. Lending took off, with the loan portfolio growing by 6% from its year-end level to over EUR 11.3 billion. The loan portfolio grew by 4% in the year to September. The market share of corporate loans in late September was at the same level as at the beginning of 2010. The guarantee portfolio decreased by less than EUR 0.1 billion to EUR 2.6 billion from its year-end level, being EUR 0.2 billion lower than a year earlier. The average corporate loan margin of 1.38% was 17 basis points higher on 30 September than the year before and rose by 5 basis points from its level on 31 December 2009. Thanks to the higher average margin, Corporate Banking net interest income improved by 26%. Due to fiercer competition, margins stopped rising. Net commissions and fees were 5% higher than a year ago. Pohjola holds a strong position as an arranger of new issues and a securities broker. Net commissions from securities issuance and securities brokerage rose by a total of EUR 7 million. Tougher price competition was reflected in lower commission income from loans. The Markets division's earnings performance normalised from its exceptionally high level a year ago. Companies increased their hedging measures due to jittery markets and customer trading volumes grew over the previous year in fixed-income and foreign exchange products. The cost/income ratio remained good, standing at 34%. Total expenses were on a par with those in the previous year. July-September earnings Earnings before tax were EUR 38 million, or EUR 14 million higher than the year before. Income increased by EUR 4 million and expenses by EUR 2 million. Impairment charges on receivables were EUR 11 million lower than a year ago. On 30 September, the loan and guarantee portfolio was at the same level as on 30 June. As a result of higher margins, Corporate Banking net interest income was a fifth higher than a year ago. The average margin on loans remained at the same level as in the previous quarter. Risk exposure by Banking Within Banking, key risks are associated with credit risk arising from customer business, and market risks. During January-September, total exposure grew by EUR 0.5 billion to EUR 21.6 billion. The ratio of investment-grade exposure - i.e. ratings 1-5 - to total exposure, excluding households, remained at a healthy level, standing at 67% (64). The share of ratings 11-12 was 1.8% (1.6) and that of non-rated exposure 0.8% (0.8). Corporate exposure (including housing corporations) accounted for 75% (78) of total exposure within Banking. Of corporate exposure, the share of investment- grade exposure stood at 60% (57) and the exposure of the lowest two rating categories amounted to EUR 368 million (321), accounting for 2.3% (2.0) of the total corporate exposure. Significant corporate customer exposure totalled EUR 3.1 billion (2.9). The distribution of corporate exposure by industry remained highly diversified. The most significant industries included Letting and Operation of Dwelling representing 11.9% (11.2), Trade 9.6% (10.9) and Manufacture of Machinery and Equipment 8.7% (9.7). January-September net loan losses and impairment losses within Banking came to EUR 89 million (84), accounting for 0.64% (0.61) of the loan and guarantee portfolio. On 30 September, Baltic Banking exposures totalled EUR 110 million (89), accounting for less than 1% of the loan and guarantee portfolio. The Baltic Banking net loan losses and impairment losses for January-September amounted to EUR 1.5 million (4.7). Third-quarter interest rate risk exposure averaged EUR 4.5 million (6.6), based on the 1-percentage-point change in the interest rate. Non-life Insurance - Earnings before tax amounted to EUR 84 million (89). - Non-life Insurance recorded very good profitability. The operating combined ratio stood at 88.6% (86.7). - Insurance premium revenue grew at a higher rate, increasing by 2% in January- September and by 4% in July-September. - The period saw the achievement of the strategic target of 450,000 loyal customer households. - Return on investments at fair value was 5.2% (9.0). Non-life Insurance: financial results and key figures and ratios +------------------------------+-----+-----+---------+----+----+---------+-----+ |Financial results, € million |Q1-3/|Q1-3/|Change, %|Q3/ |Q3/ |Change, %|2009 | | |2010 |2009 | |2010|2009| | | +------------------------------+-----+-----+---------+----+----+---------+-----+ |Insurance premium revenue | 723| 712| 2| 250| 241| 4| 943| | | | | | | | | | |Claims incurred | -486| -463| 5|-157|-149| 5| -617| | | | | | | | | | |Operating expenses | -154| -154| 0| -50| -51| -3| -210| | | | | | | | | | |Amortisation adjustment of | | | 34| | | | -28| |intangible assets | -25| -19| | -12| -6| 102| | +------------------------------+-----+-----+---------+----+----+---------+-----+ |Balance on technical account | 58| 76| -24| 30| 34| -12| 88| +------------------------------+-----+-----+---------+----+----+---------+-----+ |Net investment income | 65| 48| 34| 23| 19| 22| 61| | | | | | | | | | |Other income and expenses | -38| -35| 10| -11| -10| 15| -46| +------------------------------+-----+-----+---------+----+----+---------+-----+ |Earnings before tax | 84| 89| -6| 42| 43| -3| 102| +------------------------------+-----+-----+---------+----+----+---------+-----+ |Earnings before tax at fair | | | | | | | | |value | 164| 247| -33 | 94| 126| -26| 291| +------------------------------+-----+-----+---------+----+----+---------+-----+ |Operating combined ratio, % | 88.6| 86.7| |82.8|83.1| | 87.7| | | | | | | | | | |Operating expense ratio, % | 21.3| 21.7| |20.0|21.3| | 22.2| | | | | | | | | | |Return on investments at fair | | | | | | | | |value, % | 5.2| 9.0| | 2.6| 4.3| | 10.7| | | | | | | | | | |Solvency ratio , % | 99| 89| | | | | 88| | | | | | | | | | |Personnel |2,059|2,059| | | | |2,070| +------------------------------+-----+-----+---------+----+----+---------+-----+ January-September earnings Earnings before tax amounted to EUR 84 million (89). 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. Growth remained strong within Private Customers and the decline in insurance premium revenue from Corporate Customers levelled off. The balance on technical account before amortisation on intangible assets stood at EUR 83 million (95). This year has been volatile for capital markets. Net investment income amounted to EUR 65 million (48) and net investment income at fair value reached EUR 145 million (205). When the non-life insurance business was acquired, Pohjola set a strategic target 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 customer households numbered 454,651. 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 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. In 2005, Pohjola set a target of achieving annual revenue synergies of EUR 17 million by the end of 2010, resulting from growth in the number of loyal customer households, which Pohjola already achieved in March. Insurance business Profitability was excellent and the operating combined ratio, excluding amortisation on intangible assets arising from the corporate acquisition, stood at 88.6% (86.7%). Insurance premium revenue increased by 2% to EUR 723 million (712). Insurance premium revenue from Private Customers improved by 11% to EUR 355 million (320). The number of loyal customer households grew by 29,937 (22,782) during January-September. Insurance policies sold well both in OP-Pohjola Group member banks and at car dealerships. Private Customers strengthened its position as the largest division within Non-life Insurance. Insurance premium revenue from Corporate Customers dropped 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 strongly affected the insurance market in the Baltic region with the result that the total market in the region shrank by almost one fifth during January-September. Claims incurred increased to EUR 486 million (463), or by 5%, owing to growth in the private customer insurance portfolio, the large number of losses reported within motor liability and motor vehicle insurance 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). Operating expenses amounted to EUR 154 million (154). The expense ratio was 21.3% (21.7). The cost ratio (incl. loss adjustment expenses) stood at 27.2% (27.6). The operating balance on technical account within Private Customers improved to EUR 62 million (42) because growth in claims incurred was lower than that in insurance premium revenue. The operating balance on technical account within Corporate Customers fell to EUR 22 million (49) as a result of lower insurance premium revenue and the normalisation of claims developments with respect to the exceptionally favourable developments a year ago. The balance on technical account recorded by the Baltic States stood at EUR -1 million (3). Investment Return on investments at fair value was 5.2% (9.0). Net investment income recognised in the income statement amounted to EUR 65 million (48) and net investment income at fair value was EUR 145 million (205). Impairment charges recognised in the income statement totalled EUR 29 million. On 30 September, the investment portfolio totalled EUR 2,971 million (2,851), bonds and bond funds accounting for 77% (76) and listed equities for 7% (10). Unlisted equity investments plus the aforementioned equities represented a total of 10% (13). The fixed-income portfolio by credit rating remained healthy, considering that investments under "investment-grade" represented 89% (94) and 75% of the investments were rated at least A-. The average residual term to maturity of the fixed-income portfolio was 5.1 years and the duration 3.9 years (3.4). July-September earnings Earnings before tax amounted to EUR 42 million (43). The balance on technical account before amortisation on intangible assets stood at EUR 43 million (41). Favourable developments in the capital market during the third quarter were reflected in investment performance. Net investment income amounted to EUR 23 million (18) and net investment income at fair value came to EUR 75 million (102). Earnings were eroded by the EUR 7 million one-time amortisation performed on insurance systems purchased in connection with the Pohjola acquisition. Insurance business Third-quarter profitability was excellent and the operating combined ratio, excluding amortisation on intangible assets arising from the corporate acquisition, stood at 82.8% (83.1%). Growth in insurance premium revenue accelerated in the third quarter, increasing by 4% to EUR 250 million (241). Growth in insurance premium revenue continued to remain strong among Private Customers, rising by 11% to EUR 125 million (113). The growth rate of the number of loyal customer households accelerated, their number increasing by 12,070 (8,730) in July-September. The decline in insurance premium revenue from Corporate Customers decelerated and insurance premium revenue decreased by 2% to EUR 111 million (113). With the exception of statutory workers' compensation insurance, all lines of insurance recorded premium revenue that was already at the level reported a year ago. In the Baltic States, insurance premium revenue decreased by 11% to EUR 13 million (14). Claims incurred rose by 5% to EUR 157 million (149). The loss ratio stood at 62.8% (61.8) and the risk ratio (excl. loss adjustment expenses) was 58.3% (57.2). Excess of loss reinsurance protecting from loss accumulation reduced claims incurred retained for own account resulting from storm damage and other major losses in the third quarter. 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 54 (54) in July-September, with their claims incurred retained for own account totalling EUR 28 million (23). Operating expenses amounted to EUR 50 million (51). The expense ratio was 20.0% (21.3). The cost ratio (incl. loss adjustment expenses) stood at 26.6% (28.5). The operating balance on technical account within Private Customers improved to EUR 30 million (16) because claims incurred were lower than a year ago. The operating balance on technical account within Corporate Customers decreased to EUR 15 million (25) as a result of the normalisation of claims developments with respect to the exceptionally favourable developments a year ago. This fall combined with lower premium income weakened the balance on technical account. In the Baltic States, the balance on technical account was EUR -3 million (0), this fall being due to a single large claim. Investment Return on investments at fair value was 2.6% (4.3). Net investment income recognised in the income statement amounted to EUR 23 million (19) and net investment income at fair value was EUR 75 million (102). Impairment charges recognised in the income statement totalled EUR 2 million. Risk exposure by Non-life Insurance Major risks within Non-life Insurance include underwriting risks associated with claims developments and market risks associated with investment portfolios covering technical provisions. In their joint actuarial project, the Federation of Accident Insurance Institutions and the Finnish Motor Insurers' Centre assess whether the mortality model applied to motor liability insurance and statutory workers' compensation insurance is up to date considering that the average life expectancy has increased. This project is due for completion by the summer of 2011. A one-year increase in the average life expectancy would increase technical provisions by EUR 31 million. On 30 September, Non-life Insurance solvency capital came 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). Pohjola Insurance Ltd's credit ratings have remained unchanged: A2 by Moody's and A+ by Standard & Poor's. No major changes occurred in investment risk exposure. Pohjola reduced equity risk and interest rate risk increased slightly. Asset Management - Earnings before tax improved by 68% to EUR 18 million (11). - Assets under management increased by 6% to EUR 35.2 billion (33.1) from their end-2009 level. - Operating cost/income ratio improved to 52% (63). Asset Management: financial results and key figures and ratios +-------------------------------+-----+-----+---------+----+----+---------+----+ |Financial results, € million |Q1-3/|Q1-3/|Change, %|Q3/ |Q3/ |Change, %|2009| | |2010 |2009 | |2010|2009| | | +-------------------------------+-----+-----+---------+----+----+---------+----+ |Net commissions and fees | 39| 29| 34| 12| 11| 14| 50| | | | | | | | | | |Other income | 2| 2| -14| 1| 1| 15| 2| | | | | | | | | | |Total income | 41| 32| 30| 13| 11| 14| 52| | | | | | | | | | | Personnel costs | 14| 12| 18| 4| 4| 11| 17| | | | | | | | | | | Other expenses | 10| 10| 5| 3| 3| 2| 13| | | | | | | | | | |Total expenses | 24| 21| 12| 7| 7| 7| 30| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings before tax | 18| 11| 68| 6| 4| 25| 21| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings before tax at fair | | | | | | | | |value | 18| 11| 68| 6| 4| 25| 21| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Assets under management, € | | | | | | | | |billion | 35.2| 31.4| 12| | | |33.1| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Operating cost/income ratio, % | 52| 60| | 51| 54| -6| 53| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Personnel | 168| 160| 5| | | | 162| +-------------------------------+-----+-----+---------+----+----+---------+----+ January-September earnings Earnings before tax increased by 68% to EUR 18 million (11) year on year and the operating cost/income ratio stood at 52% (60). Year on year, assets under management increased by 12%, standing at EUR 35.2 billion (33.1) at the end of the reporting period. A good net assets inflow and favourable market developments contributed to this increase. Of the assets under management, institutional clients accounted for EUR 20.1 billion (19.2), OP mutual funds for EUR 11.8 billion (11.4) and Pohjola Private for EUR 3.2 billion (2.5). Of the assets under management, money-market investments represented 14% (11), bonds 40% (42), equities 27% (27) and other investments 20% (20). July-September earnings Earnings before tax amounted to EUR 6 million (4). Year on year, net commissions and fees increased by 14% and earnings improved by 25%. The operating cost/income ratio improved to 51% (60). Assets under management increased by around 5%. All of the share capital of Pohjola Capital Partners Ltd within Asset Management was bought by the existing management. The transaction should be finalised in December 2010. This management buyout will have no major effect on Asset Management's financial results. Group Functions - Earnings before tax totalled EUR 48 million (11). Capital gains on notes and bonds and lower impairment charges year on year contributed to this improvement. - Earnings before tax at fair value fell by EUR 67 million year on year. - Liquidity and the availability of funding remained good. - Long-term funding increased by EUR 2.3 billion aimed at strengthening the financial position. Group Functions: financial results and key figures and ratios +-------------------------------+-----+-----+---------+----+----+---------+----+ |Financial results, € million |Q1-3/|Q1-3/|Change, %|Q3/ |Q3/ |Change, %|2009| | |2010 |2009 | |2010|2009| | | +-------------------------------+-----+-----+---------+----+----+---------+----+ |Net interest income | 51| 51| 0| 17| 21| -17| 75| | | | | | | | | | |Net trading income | -9| -4| | 0| 0| | -7| | | | | | | | | | |Net investment income | 21| -8| | 6| 1| | -13| | | | | | | | | | |Other income | 9| 10| -14| 2| 3| -41| 17| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Total income | 72| 49| 46 | 25| 25| 0| 72| | | | | | | | | | | Personnel costs | 10| 10| 7| 4| 3| 16| 13| | | | | | | | | | | Other expenses | 15| 17| -15| 4| 4| 2| 23| | | | | | | | | | |Total expenses | 25| 27| -7| 8| 7| 8| 36| | | | | | | | | | |Earnings before impairments of | 47| 22| 109| 17| 18| -3| 36| |receivables | | | | | | | | | | | | | | | | | |Impairments of receivables | -1| 11| | -1| 2| | 12| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings before tax | 48| 11| 320 | 18| 16| 12 | 25| +-------------------------------+-----+-----+---------+----+----+---------+----+ |Earnings/loss before tax at | -1| 66| | 28| 41| -31| 76| |fair value | | | | | | | | +-------------------------------+-----+-----+---------+----+----+---------+----+ |Liquidity portfolio, € billion | 9.7| 9.5| 3| | | |11.7| | | | | | | | | | |Receivables and liabilities | | | | | | | | |from/to OP-Pohjola Group | | | | | | | | |entities, net position, € | | | | | | | | |billion | 3.7| 3.8| -2.6| | | | 2.9| | | | | | | | | | |Personnel | 121| 137| -12| | | | 136| +-------------------------------+-----+-----+---------+----+----+---------+----+ January-September earnings Earnings before tax rose by EUR 37 million year on year. Net interest income from the liquidity portfolio has continued its strong upward trend during the current year too. Net investment income included EUR 22 million in capital gains on notes and bonds. Impairments recognised on shares and participations included in available-for-sale financial assets totalled EUR 4 million (4). Impairments recognised on bonds amounted to EUR -1 million (11), or EUR 12 million lower than a year ago. The availability of funding remained good. During the period, Pohjola increased its long-term funding by issuing bonds totalling EUR 2.3 million in international capital markets. Debt instruments issued to the public totalled EUR 17 billion on September 30, equalling the amount at the end of 2009. Average funding costs will rise when maturing long-term debt is renewed at higher market rates. At the end of the reporting period, the average wholesale funding margin was 17 basis points (14). Pohjola Bank plc's net receivables from OP-Pohjola Group retail banks and entities increased to EUR 3.7 billion. On 31 December 2009, the net position amounted to EUR 2.9 billion. Earnings before tax at fair value fell by EUR 67 million year on year from their exceptionally good level reported a year ago. July-September earnings Earnings before tax were EUR 18 million, or EUR 2 million higher than the year before. Net investment income included EUR 6 million in capital gains on notes and bonds within the liquidity buffer. Year on year, impairment charges went down by EUR 3 million. Uncertainty over the euro-area economic development was reflected in widening credit spreads and shrinking market liquidity. As a result, the fair value of bonds and notes fell year on year and earnings before tax at fair value declined to EUR 28 million (41) over the previous year. Risk exposure by Group Functions Major risks within the Group Functions include those associated with the fair value change of assets included in the liquidity portfolio, and liquidity risks. The Group Functions exposure totalled EUR 17.4 billion (18.3), consisting of assets held in the liquidity portfolio to secure OP-Pohjola Group's liquidity and of receivables from OP-Pohjola Group member banks. The liquidity portfolio amounted to EUR 9.7 billion (11.7), comprising primarily investments in notes and bonds issued by governments, municipalities, financial institutions and companies all showing good credit ratings, and in securitised assets. Interest rate risk exposure averaged EUR 10.3 million (11.9) in the third quarter, based on the 1-percentage-point change in the interest rate. Shares and shareholders On 30 December 2010, the number of Pohjola Bank plc shares totalled 319,551,415 and votes conferred by the shares 593,077,995. On the same date, the number of Series A shares listed on NASDAQ OMX Helsinki Ltd totalled 251,169,770, representing 78.6% of all Pohjola shares and 42.4% of all votes. The number of unlisted Series K shares totalled 68,381,645. On 30 September, one Series A share closed at EUR 8.93, as against EUR 7.55 on 31 December 2009. In January-September, the share price reached a high of EUR 9.79 (3 August 2010) and a low of EUR 6.97 (7 May 2010). In January-September, trading in Pohjola shares in euro terms increased by 16% year on year, from EUR 885 million a year ago to EUR 1,028 million. In volume terms, share trading decreased from 138 million shares reported a year ago to 123 million. On 30 September, Pohjola Bank plc had 35,270 shareholders, down by 1,730 from the beginning of the year, private individuals accounting for 95% of all shareholders. The largest shareholder was OP-Pohjola Group Central Cooperative, representing 29.98% of all shares and 57.05% of all votes. The number of nominee-registered shares increased by 11.5 million and they accounted for 20.2% of Series A shares on 30 September (15.6% on 31 December 2009). On 23 August 2010, the proportion of Pohjola shares held by Suomi Mutual Life Assurance Company fell below one-tenth and that of the votes conferred by all shares fell below one twentieth. Management Jouko Pölönen, CFO of Pohjola Group, has been appointed a new President of Pohjola Insurance Ltd, a Pohjola Bank plc subsidiary. He will succeed Tomi Yli- Kyyny who announced on 8 September 2010 that he would leave the company. Jouko Pölönen will take up his duties on 1 January 2011. Until that date, Tomi Yli- Kyyny will act as the President. Group restructuring 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. The merger plan specifies the amount of the merger consideration offered to Pohjantähti's shareholders, its distribution and other terms and conditions governing the merger. The aggregate amount of the merger consideration comes to EUR 80 million, comprising the amount payable to the policyholder/shareholders and the owner of the guarantee capital. The consideration will be paid in cash in its entirety. In the merger, Pohjantähti's insurance portfolio and agreements as such would transfer to Pohjola and Pohjantähti's customers would become those of Pohjola Insurance. Pohjola was the initiator of the merger. According to Pohjantähti's Board of Directors, the merger bid is financially justified and its terms and conditions are in the interests of both customers and personnel. The extraordinary general meetings of both companies will decide whether the merger plan will be rejected or approved. In addition to approval by the general meetings, the merger will require regulatory approval from relevant authorities. Policyholder/shareholders and Ilmarinen Mutual Pension Insurance Company, the owner of the guarantee capital, exercise voting rights at the general meeting of Pohjantähti. The extraordinary general meeting will be held on 8 December 2010. The purpose of the merger is to strengthen the competitiveness in the Finnish non-life insurance market of the new entity formed by the insurance business of Pohjola Insurance and Pohjantähti. The merger is aimed at enhancing growth potential and profitability of the combined insurance businesses. The new entity will be able to more efficiently manage product and service development, ICT development, staff recruitment and training, and capital, given the increasingly demanding operating and regulatory environment. Pohjantähti is currently headquartered in Hämeenlinna. Pohjola aims to increase the number of insurance experts in Hämeenlinna and establish a Pohjola Insurance service centre in the town. According to the merger plan, the merger should be executed in the spring of 2011. Post-merger business development measures are now only under preparation. However, based on a decision already made, further plans will not involve any redundancies, changing full-time employment contracts to part-time contracts or layoffs. If implemented, the merger will have no major effect on Pohjola Group's financial results. Management buyout of Pohjola Capital Partners Ltd The existing management of Pohjola Capital Partners Ltd and its present majority shareholder, Pohjola Bank plc, have agreed on a management buyout whereby the existing management acquires all of the company's shares. Pohjola Capital Partners Ltd will continue its investments as before but it will be renamed Vaaka Partners after the transaction. The transaction should be finalised in December 2010. The management buyout will have no major effect on Pohjola Bank plc's financial results. Events after the balance sheet date Pohjola Bank plc to redeem Lower Tier 2 subordinated notes of EUR 70 million Pohjola Bank plc will redeem Lower Tier 2 subordinated notes of EUR 70 million which it issued in November 2004. According to the terms and conditions, the notes will mature in 2015 but with the Finnish Financial Supervisory Authority's permission the issuer has the right to call in the notes prematurely in November 2010. The notes are quoted on the London Stock Exchange. This redemption will have no effect on Pohjola's Tier 1 ratio but will reduce the capital adequacy ratio by 0.5 percentage points. Removing a provision for the guarantee scheme under statutory workers' compensation insurance and motor liability insurance The joint guarantee scheme for statutory accident insurance was introduced in 1997. In accordance with the Insurance Companies Act, insurers providing statutory insurance policies are jointly liable for claims paid out under these lines of insurance which would remain unpaid to claimants as a result of an insurer's liquidation or bankruptcy. Insurers have prepared for this by including a provision for the guarantee scheme in their balance sheet. A Government bill to amend the Insurance Companies Act was presented before Parliament on 1 October 2010. Accordingly, insurers will not need to make such a provision in their balance sheet. The amended Act will should come into force on 31 December 2010. Removing this provision will improve Pohjola Group's earnings by EUR 16 million on a non-recurring basis and the amount is expected to be recognised in the fourth quarter income statement. Life expectancy in accounting for technical provisions In their joint actuarial project launched in the spring of 2010, the Federation of Accident Insurance Institutions and the Finnish Motor Insurers' Centre examine whether the mortality model commonly used by Finnish insurers and applied to motor liability insurance and statutory workers' compensation insurance is up to date. The preliminary findings based on the first stage of the project reveals that life expectancy has increased in Finland and the commonly used mortality model needs some update. This project is due for completion by the summer of 2011. A one-year increase in the average life expectancy would increase Pohjola's technical provisions by EUR 31 million. The effect on Pohjola's technical provisions will be specified in the spring of 2011, but Pohjola is prepared to recognise a non-recurring increase of EUR 30-40 million in its technical provisions as early as the fourth quarter. Outlook towards the year end The economic recovery underway has been reflected in demand for corporate loans, with the result that the corporate loan portfolio has begun to grow. The trend of the rising average corporate loan margin has come to an end and tougher competition is sending the margin on new loans down. Given that the business environment is still challenging for companies, it is estimated that impairment charges will remain higher than usual. Enabled by the economic recovery, impairment charges are, however, expected to remain lower than a year ago. The greatest uncertainties related to Banking's financial performance in 2010 are associated with impairment charges on the loan portfolio. Insurance premium revenue is expected to continue to increase at an above-the- market-average rate among private customers. The downward trend in insurance premium revenue from corporate customers is expected to come to a halt during the rest of the year. In Non-life Insurance, the operating combined ratio is estimated to vary between 89% and 92% (previous estimate: 89-93%) in 2010 if the number of large claims is not much higher than in 2009. Expected long-term returns on investment within Non-life Insurance stand at 5.4%. Returns will largely depend on developments in the investment environment. The most significant uncertainties related to Non-life Insurance's financial performance in 2010 pertain to the investment environment and the effect of large claims on claims expenditure as well as the non-recurring items arising from changes in the joint guarantee provision and the mortality model. These non-recurring items will have no impact on the operating combined ratio. Within Asset Management, the upward trend in assets under management is expected to continue, their amounts being affected by market developments and the net inflow of assets. The greatest uncertainties related to Asset Management's financial performance in 2010 are associated with the actual performance-based fees tied to the success of investments and the amount of assets under management. The key determinants affecting the Group Functions' result include net interest income arising from assets in the liquidity portfolio and impairment charges recognised on notes and bonds in the income statement. Pohjola estimates that it will recognise non-recurring items in its fourth quarter income statement resulting from the removal of the joint guarantee provision and the effects of increased life expectancy. Despite these non- recurring items, consolidated earnings before tax in 2010 are expected to be at the same level as or higher than (previous estimate: at the same level) in 2009. There is still great uncertainty about future economic development and the overall operating environment, and these factors are beyond the Group management's control. All forward-looking statements in this report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view of the future development in the operating environment and the future financial performance of Pohjola Group and its various functions, and actual results may differ materially from those expressed in the forward- looking statements. FINANCIAL STATEMENTS AND NOTES Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equityCapital base and capital adequacy Capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates Consolidated cash flow statement Segment information Formulae for key figures and ratios 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 commissions and fees Note 6. Net trading income Note 7. Net investment income Note 8. Other operating income Note 9. Classification of financial instruments Note 10. Non-life Insurance assets Note 11. Intangible assets Note 12. Non-life Insurance liabilities Note 13. Debt securities issued to the public Note 14. Fair value reserve after income tax Notes to risk management: Note 15. Risk exposure by Banking Note 16. Risk exposure by Non-life Insurance Note 17. Risk exposure by Group Functions Other notes: Note 18. Collateral given Note 19. Off-balance-sheet commitments Note 20. Derivative contracts Note 21. Other contingent liabilities and commitments Note 22. Related-party transactions Consolidated income statement EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Net interest income (Note 2) 62 58 189 177 Impairments of receivables (Note 3) 27 41 88 95 Net interest income after impairments 36 17 101 83 Net income from Non-life Insurance (Note 4) 120 114 314 307 Net commissions and fees (Note 5) 37 36 118 102 Net trading income (Note 6) 18 27 34 60 Net investment income (Note 7) 6 1 21 -8 Other operating income (Note 8) 11 11 32 33 Total income 228 206 620 576 Personnel costs 44 47 144 142 IT expenses 18 19 56 56 Depreciation/amortisation 23 17 57 50 Other expenses 40 36 121 118 Total expenses 125 119 378 366 Share of associates' profits/losses 0 0 0 0 Earnings before tax 103 87 242 211 Income tax expense 27 23 63 55 Profit for the period 76 65 179 155 Attributable to owners of the Parent 76 65 179 155 Attributable to minority interest 0 Total 76 65 179 155 Earnings per share (EPS), basic, EUR Series A 0.25 0.21 0.57 0.55 Series K 0.22 0.18 0.54 0.52 Consolidated statement of comprehensive income EUR million Profit for the period 76 65 179 155 Change in fair value reserve 62 109 31 213 Translation differences 0 0 0 0 Income tax on other comprehensive income 16 28 8 55 Total comprehensive income for the period 122 146 201 314 Total comprehensive income attributable to owners of the Parent 122 146 201 314 Total comprehensive income attributable to minority interest 0 Total 122 146 201 314 Consolidated balance sheet 30 Sept 31 Dec EUR million 2010 2009 Cash and cash equivalents 968 3,102 Receivables from credit institutions 7,723 7,630 Financial assets at fair value through profit or loss Financial assets held for trading 971 1,224 Financial assets at fair value through profit or loss at inception 12 55 Derivative contracts 2,120 1,443 Receivables from customers 11,771 11,323 Non-life Insurance assets (Note 10) 3,316 3,156 Investment assets 6,481 5,415 Investment in associates 2 2 Intangible assets (Note 11) 930 960 Property, plant and equipment (PPE) 101 117 Other assets 1,486 1,068 Tax assets 31 15 Total assets 35,910 35,510 Liabilities to credit institutions 4,013 4,984 Financial liabilities at fair value through profit or loss Financial assets held for trading 0 71 Derivative contracts 2,483 1,456 Liabilities to customers 4,430 4,133 Non-life Insurance liabilities (Note 12) 2,518 2,279 Debt securities issued to the public (Note 13) 16,598 17,295 Provisions and other liabilities 1,723 1,291 Tax liabilities 468 434 Subordinated liabilities 1,315 1,300 Total liabilities 33,549 33,244 Shareholders' equity Capital and reserves attributable to owners of the Parent Share capital 428 428 Fair value reserve (Note 14) 23 0 Other reserves 1,093 1,093 Retained earnings 818 746 Minority interest Total shareholders' equity 2,361 2,267 Total liabilities and shareholders' equity 35,910 35,510 Consolidated statement of changes in equity EUR million Attributable to owners of Pohjola Group Share Fair value Other Retained Total capital reserve reserves earnings equity Balance at 1 January 2009 428 -180 795 597 1,640 Rights issue 308 308 Issue expenses -10 -10 Transfer of reserves 0 0 Profit distribution -45 -45 EUR 0.23 per Series A share* -37 -37 EUR 0.20 per Series K share* -9 -9 Total comprehensive income for the period 158 155 314 Equity-settled share-based transactions 0 0 Other 0 0 Balance at 30 September 2009 428 -22 1,093 707 2,206 Attributable to owners of Pohjola Group Share Fair value Other Retained Total capital reserve reserves earnings equity Balance at 1 January 2010 428 0 1,093 746 2,267 Profit distribution -107 -107 EUR 0.34 per Series A share -85 -85 EUR 0.31 per Series K share -21 -21 Total comprehensive income for the period 23 178 201 Equity-settled share-based transactions 0 0 Other 0 0 Balance at 30 September 2010 428 23 1,093 818 2,361 *Due to Pohjola Bank plc's rights issue and new shares entered in the Trade Register on 4 May 2009, the number of shares has been adjusted in such a way that the adjusted dividend per share is as follows: 2009: EUR 0.19 per Series A share and EUR 0.16 per Series K share. Capital base and capital adequacy 30 Sept 31 Dec EUR million 2010 2009 Capital base Equity capital 2,361 2,267 Elimination of insurance companies' effect in equity capital (equity capital and Group eliminations) -15 92 Minority interest 0 Hybrid capital 274 274 Intangible assets -145 -145 Fair value reserve, excess funding of pension liability and change in fair value of investment property -14 -49 Dividend distribution proposed by Board of Directors -107 Planned dividend distribution -89 Insurance company investments 50% -703 -715 Investments in other credit and financial institutions 50% -2 Impairments - expected losses 50% -66 -76 Tier 1 capital 1,601 1,541 Fair value reserve -17 18 Subordinated liabilities included in upper Tier 2 299 299 Subordinated liabilities included in lower Tier 2 696 687 Insurance company investments 50% -703 -715 Investments in other credit and financial institutions 50% -2 Impairments - expected losses 50% -66 -76 Tier 2 capital 206 212 Total capital base 1,806 1,753 Risk-weighted assets, excl. transitional rules 12,960 13,024 Risk-weighted assets according to transitional rules 12,960 13,024 Ratios, excl. transitional rules: Capital adequacy ratio, % 13.9 13.5 Tier 1 ratio, % 12.3 11.8 Ratios according to transitional rules: Capital adequacy ratio, % 13.9 13.5 Tier 1 ratio, % 12.3 11.8 Capital base and capital adequacy measurement is based on approaches under Basel II. Pohjola has used the Internal Ratings Based Approach for corporate exposures. Capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates 30 Sept 31 Dec EUR million 2010 2009 Pohjola Group's equity capital 2,361 2,267 Business-segment-specific items 1,318 1,309 Goodwill and intangible assets -844 -869 Equalisation provision -327 -309 Other items included in equity capital and business-segment-specific items, but not included in the conglomerate's capital resources -277 -296 Conglomerate's capital base, total 2,230 2,103 Regulatory capital requirement for credit institutions 1,037 1,042 Regulatory capital requirement for insurance operations 177 171 Total minimum amount of conglomerate's capital base 1,213 1,213 Conglomerate's capital adequacy 1,017 890 Conglomerate's capital adequacy ratio (capital resources/minimum of capital resources) 1.84 1.73 OP-Pohjola Group's capital adequacy ratio under the Act on Credit Institutions stood at 12.7% and Tier 1 ratio at 12.7%. OP-Pohjola Group's capital adequacy ratio calculated using the consolidation method, under the Act on the Supervision of Financial and Insurance Conglomerates, was 1.70. Consolidated cash flow statement EUR million Q1-3/ Q1-3/ 2010 2009 Cash flow from operating activities Profit for the period 179 155 Adjustments to profit for the period 301 403 Increase (-) or decrease (+) in operating assets -1,444 -2,785 Receivables from credit institutions 206 -907 Financial assets at fair value through profit or loss 635 1,635 Derivative contracts -49 -35 Receivables from customers -566 688 Non-life Insurance assets -154 -328 Investment assets -1,100 -3,623 Other assets -416 -215 Increase (+) or decrease (-) in operating liabilities -104 1,216 Liabilities to credit institutions -982 496 Financial liabilities at fair value through profit or loss -71 -21 Derivative contracts 55 -13 Liabilities to customers 297 162 Non-life Insurance liabilities 163 169 Provisions and other liabilities 434 423 Income tax paid -54 -7 Dividends received 23 9 A. Net cash from operating activities -1,099 -1,010 Cash flow from investing activities Increases in held-to-maturity financial assets -170 Decreases in held-to-maturity financial assets 110 155 Acquisition of subsidiaries and associates, net of cash acquired 0 0 Disposal of subsidiaries and associates, net of cash disposed 2 Proceeds from sale of investment securities 2 Purchase of PPE and intangible assets -10 -13 Proceeds from sale of PPE and intangible assets 0 0 B. Net cash used in investing activities 101 -26 Cash flow from financing activities Increases in subordinated liabilities 77 146 Decreases in subordinated liabilities -60 -168 Increases in debt securities issued to the public 33,933 38,672 Decreases in debt securities issued to the public -34,678 -39,049 Increases in invested unrestricted equity 298 Dividends paid -107 -45 C. Net cash used in financing activities -835 -147 Net increase/decrease in cash and cash equivalents (A+B+C) -1,833 -1,183 Cash and cash equivalents at period-start 3,250 2,435 Cash and cash equivalents at period-end 1,417 1,252 Interest received 1,196 1,582 Interest paid -896 -1,495 Adjustments to profit for the period Non-cash transactions Impairments of receivables 89 97 Unrealised net earnings in Non-life Insurance 151 143 Change in fair value for trading 419 103 Unrealised net gains on foreign exchange operations -336 -39 Change in fair value of investment property 7 Planned amortisation /depreciation 57 50 Share of associates' profits 0 0 Other -78 41 Items presented outside cash flow from operating activities Capital gains, share of cash flow from investing activities 0 0 Total adjustments 301 402 Cash and cash equivalents Liquid assets * 974 884 Receivables from credit institutions payable on demand 444 368 Total 1,417 1,252 *Of which EUR 6 million (6) consists of Non-life Insurance cash and cash equivalents. Segment information +---------------------------------+---------+-----------------+----------------+ | | | Non-life | | |Q3 earnings | Banking | Insurance |Asset Management| | | | | | |EUR million |2010 2009|2010 2009|2010 2009| +---------------------------------+---------+-----------------+----------------+ |Net interest income | | | | | | | | | | From Corporate Banking | 43 36| | | | | | | | | From Markets | 3 2| | | | | | | | | From other operations | | -2 0| 0 0| | | | | | | Total | 46 37| -2 0| 0 0| | | | | | |Net commissions and fees | 21 22| 5 5| 12 11| | | | | | |Net trading income | 21 27| 0| 0 0| | | | | | |Net investment income | 0| | | | | | | | |Net income from Non-life | | | | |Insurance | | | | | | | | | | From insurance operations | | 106 107| | | | | | | | From investment operations | | 23 19| | | | | | | | From other items | | -11 -11| | | | | | | | Total | | 118 115| | | | | | | |Other operating income | 8 8| 1 1| 0 0| | | | | | |Total income | 97 93| 122 119| 13 11| | | | | | |Personnel costs | 12 13| 24 27| 4 4| | | | | | |IT expenses | 5 5| 10 11| 1 1| | | | | | |Amortisation on intangible assets| | | | |related to company acquisitions | | 7 8| 1 1| | | | | | |Other depreciation/amortisation | | | | |and impairments | 6 7| 8 1| 0 0| | | | | | |Other expenses | 7 6| 30 29| 2 2| | | | | | |Total expenses | 31 30| 80 76| 7 7| | | | | | |Earnings/loss before | | | | |impairment of receivables | 65 63| 42 43| 6 4| | | | | | | Impairments of receivables | 28 39| | | | | | | | |Earnings before tax | 38 24| 42 43| 6 4| | | | | | |Change in fair value reserve | 0 1| 52 83| 0 | | | | | | |Earnings/loss before tax | | | | |at fair value | 38 25| 94 126| 6 4| +---------------------------------+---------+-----------------+----------------+ +----------------------------------+---------------+------------+-----------+ |Q3 earnings |Group Functions|Eliminations|Group total| | | | | | |EUR million |2010 2009|2010 2009|2010 2009| +----------------------------------+---------------+------------+-----------+ |Net interest income | | | | | | | | | | From Corporate Banking | | | 43 36| | | | | | | From Markets | | | 3 2| | | | | | | From other operations | 17 21| 0 1| 16 21| | | | | | | Total | 17 21| 0 1| 62 58| | | | | | |Net commissions and fees | 0 0| -1 -1| 37 36| | | | | | |Net trading income | 0 0| -2 0| 18 27| | | | | | |Net investment income | 6 1| | 6 1| | | | | | |Net income from Non-life Insurance| | | | | | | | | | From insurance operations | | | 106 107| | | | | | | From investment operations | | 3 0| 26 19| | | | | | | From other items | | | -11 -11| | | | | | | Total | | 3 0| 120 114| | | | | | |Other operating income | 2 3| -1 -1| 11 11| | | | | | |Total income | 25 25| -1 -2| 255 247| | | | | | |Personnel costs | 4 3| | 44 47| | | | | | |IT expenses | 2 2| 0 0| 18 19| | | | | | |Amortisation on intangible assets | | | | |related to company acquisitions | | | 8 8| | | | | | |Other depreciation/amortisation | | | | |and impairments | 0 0| | 15 9| | | | | | |Other expenses | 2 2| -1 -2| 40 36| | | | | | |Total expenses | 8 7| -1 -2| 125 119| | | | | | |Earnings/loss before | | | | |impairment of receivables | 17 18| 0 0| 130 128| | | | | | | Impairments of receivables | -1 2| | 27 41| | | | | | |Earnings before tax | 18 16| 0 0| 103 87| | | | | | |Change in fair value reserve | 10 25| 0 | 62 109| | | | | | |Earnings/loss before tax | | | | |at fair value | 28 41| 0 | 165 196| +----------------------------------+---------------+------------+-----------+ +---------------------------------+---------+-----------------+----------------+ | | | Non-life | | |Q 1-3 earnings | Banking | Insurance |Asset Management| | | | | | |EUR million |2010 2009|2010 2009|2010 2009| +---------------------------------+---------+-----------------+----------------+ |Net interest income | | | | | | | | | | From Corporate Banking | 128 101| | | | | | | | | From Markets | 13 24| | | | | | | | | From other operations | | -4 -1| 1 1| | | | | | | Total | 141 125| -4 -1| 1 1| | | | | | |Net commissions and fees | 69 65| 14 13| 39 29| | | | | | |Net trading income | 45 64| | 0 0| | | | | | |Net investment income | 0 0| | 0 0| | | | | | |Net income from Non-life | | | | |Insurance | | | | | | | | | | From insurance operations | | 279 291| | | | | | | | From investment operations | | 65 48| | | | | | | | From other items | | -34 -32| | | | | | | | Total | | 310 306| | | | | | | |Other operating income | 22 22| 2 2| 1 1| | | | | | |Total income | 277 276| 321 319| 41 32| | | | | | |Personnel costs | 39 39| 81 81| 14 12| | | | | | |IT expenses | 17 16| 32 32| 2 2| | | | | | |Amortisation on intangible assets| | | | |related to company acquisitions | | 22 23| 2 2| | | | | | |Other depreciation/amortisation | | | | |and impairments | 19 20| 11 4| 1 1| | | | | | |Other expenses | 20 19| 91 91| 5 5| | | | | | |Total expenses | 95 94| 237 230| 24 21| | | | | | |Earnings/loss before | | | | |impairment of receivables | 182 183| 84 89| 18 11| | | | | | | Impairments of receivables | 89 84| 0 | | | | | | | |Earnings before tax | 93 99| 84 89| 18 11| | | | | | |Change in fair value reserve | 0 2| 80 157| 0 | | | | | | |Earnings/loss before tax | | | | |at fair value | 92 101| 164 247| 18 11| +---------------------------------+---------+-----------------+----------------+ +----------------------------------+---------------+------------+-----------+ |Q 1-3 earnings |Group Functions|Eliminations|Group total| | | | | | |EUR million |2010 2009|2010 2009|2010 2009| +----------------------------------+---------------+------------+-----------+ |Net interest income | | | | | | | | | | From Corporate Banking | | | 128 101| | | | | | | From Markets | | | 13 24| | | | | | | From other operations | 51 51| 1 2| 48 53| | | | | | | Total | 51 51| 1 2| 189 177| | | | | | |Net commissions and fees | -1 -1| -3 -5| 118 102| | | | | | |Net trading income | -9 -4| -2 0| 34 60| | | | | | |Net investment income | 21 -8| | 21 -8| | | | | | |Net income from Non-life Insurance| | | | | | | | | | From insurance operations | | | 279 291| | | | | | | From investment operations | | 4 0| 69 48| | | | | | | From other items | | | -34 -32| | | | | | | Total | | 4 0| 314 307| | | | | | |Other operating income | 10 11| -3 -3| 32 33| | | | | | |Total income | 72 49| -4 -6| 708 671| |Personnel costs | 10 10| 0 |144 142| | | | | | |IT expenses | 5 7| 0 0| 56 56| | | | | | |Amortisation on intangible assets| | | | |related to company acquisitions | | | 24 25| | | | | | |Other depreciation/amortisation | | | | |and impairments | 1 1| | 32 26| | | | | | |Other expenses | 8 10|-4 -6|121 118| | | | | | |Total expenses | 25 27|-4 -6|378 366| | | | | | |Earnings/loss before | | | | |impairment of receivables | 47 22| 0 0|330 305| | | | | | | Impairments of receivables | -1 11| | 88 95| | | | | | |Earnings before tax | 48 11| 0 0|242 211| | | | | | |Change in fair value reserve |-49 54|-1 | 31 213| | | | | | |Earnings/loss before tax | | | | |at fair value | -1 66|-1 |273 424| +---------------------------------+------+-----+-------+ +---------------------------+--------------+------------------+----------------+ |Balance sheet | Banking |Non-life Insurance|Asset Management| | | | | | | |30 Sept 31 Dec|30 Sept 31 Dec|30 Sept 31 Dec| |EUR million | 2010 2009| 2010 2009| 2010 2009| +---------------------------+--------------+------------------+----------------+ |Receivables from customers | 11,523 10,880| | | | | | | | |Receivables from credit | | | | |institutions | 184 278| 2 | 7 5| | | | | | |Financial assets at fair | | | | |value | | | | |through profit or loss | 581 932| | | | | | | | |Non-life Insurance assets | | 3,578 3,202| | | | | | | |Investment assets | 62 18| 16 0| 17 17| | | | | | |Investments in associates | | 2 2| | | | | | | |Other assets | 2,797 2,012| 800 829| 124 131| | | | | | |Total assets | 15,147 14,119| 4,399 4,033| 148 153| | | | | | |Liabilities to customers | 1,288 1,263| | | | | | | | |Liabilities to credit | | | | |institutions | 1,017 747| | | | | | | | |Non-life Insurance | | | | |liabilities | | 2,518 2,279| | | | | | | |Debt securities issued to | | | | |the public | | | | | | | | | |Subordinated liabilities | | 50 50| | | | | | | |Other liabilities | 3,355 1,872| 134 108| 15 15| | | | | | |Total liabilities | 5,659 3,882| 2,703 2,437| 15 15| | | | | | |Shareholders' equity | | | | | | | | | |Average personnel | 654 607| 2,059 2,070| 168 162| | | | | | |Capital expenditure, EUR | | | | |million | 4 7| 6 9| 0 1| +---------------------------+--------------+------------------+----------------+ +-------------------------------+---------------+---------------+--------------+ |Balance sheet |Group Functions| Eliminations | Group total | | | | | | | |30 Sept 31 Dec|30 Sept 31 Dec|30 Sept 31 Dec| |EUR million | 2010 2009| 2010 2009| 2010 2009| +-------------------------------+---------------+---------------+--------------+ |Receivables from customers | 334 527| -87 -84| 11,771 11,323| | | | | | |Receivables from credit | | | | |institutions | 8,519 10,468| -22 -20| 8,691 10,732| | | | | | |Financial assets at fair value | | | | |through profit or loss | 402 347| | 984 1,279| | | | | | |Non-life Insurance assets | | -263 -47| 3,316 3,156| | | | | | |Investment assets | 6,396 5,387| -11 -6| 6,481 5,415| | | | | | |Investments in associates | | | 2 2| | | | | | |Other assets | 1,033 691| -87 -58| 4,667 3,604| | | | | | |Total assets | 16,685 17,421| -469 -215| 35,910 35,510| | | | | | |Liabilities to customers | 3,170 2,915| -28 -45| 4,430 4,133| | | | | | |Liabilities to credit | | | | |institutions | 3,083 4,320| -87 -84| 4,013 4,984| | | | | | |Non-life Insurance liabilities | | | 2,518 2,279| | | | | | |Debt securities issued to the | | | | |public | 16,781 17,323| -183 -28| 16,598 17,295| | | | | | |Subordinated liabilities | 1,265 1,250| | 1,315 1,300| | | | | | |Other liabilities | 1,341 1,318| -171 -59| 4,674 3,253| | | | | | |Total liabilities | 25,641 27,126| -469 -216| 33,549 33,244| | | | | | |Shareholders' equity | | | 2,361 2,267| | | | | | |Average personnel | 121 136| | 3,002 2,975| | | | | | |Capital expenditure, EUR | | | | |million | 0 1| | 11 18| +-------------------------------+---------------+---------------+--------------+ +-----------------+---------+-------------+-----------+-------------+ | | |Earnings/loss| |Earnings/loss| |Banking | Income | before tax | Income | before tax | +-----------------+----+----+----+--------+-----+-----+-----+-------+ | | Q3/| Q3/| Q3/| Q3/|Q1-3/|Q1-3/|Q1-3/| Q1-3/| | |2010|2009|2010| 2009| 2010| 2009| 2010| 2009| +-----------------+----+----+----+--------+-----+-----+-----+-------+ |Corporate Banking| 66 64| 20 7| 196 178| 50 42| | | | | | | |Markets | 29 28| 19 18| 77 95| 46 65| | | | | | | |Baltic Banking | 2 1| -1 -2| 4 3| -4 -7| +-----------------+---------+-------------+-----------+-------------+ |Total | 97 93| 38 24| 277 276| 93 99| +-----------------+---------+-------------+-----------+-------------+ +-----------------+--------------+--------------+---------------+--------------+ | | Insurance | Balance on | | Balance on | |Non-life | premium | technical | Insurance | technical | |Insurance | revenue | account |premium revenue| account | | +----+---------+----+---------+-----+---------+-----+--------+ | | Q3/| Q3/| Q3/| Q3/|Q1-3/| Q1-3/|Q1-3/| Q1-3/| | |2010| 2009|2010| 2009| 2010| 2009| 2010| 2009| +-----------------+----+---------+----+---------+-----+---------+-----+--------+ |Private Customers| 125 113| 31 16| 355 320| 62 42| | | | | | | |Corporate | | | | | |Customers | 111 113| 15 25| 331 347| 22 49| | | | | | | |Baltic States | 13 14| -3 0| 37 44| -1 3| | | | | | | |Amortisation | | | | | |adjustment | | | | | |of intangible | | | | | |assets | | -12 -6| | -25 -19| +-----------------+--------------+--------------+---------------+--------------+ |Total | 250 241| 30 34| 723 712| 58 76| +-----------------+--------------+--------------+---------------+--------------+ +-----------------------------------------+-------+------+-----+-----+ | | Q3/| Q3/|Q1-3/|Q1-3/| |Group Functions | 2010| 2009| 2010| 2009| +-----------------------------------------+-------+------+-----+-----+ |Central Banking earnings | | | |before tax, EUR million | 2 3| 9 14| | +-------+------+-----------+ | |30 Sept|31 Dec| | | 2010| 2009| | +-------+------+ |Receivables from OP-Pohjola Group | | |entities, EUR million | 6,958 6,314| | | | |Liabilities to OP-Pohjola Group entities,| | |EUR million | 3,238 3,412| +-----------------------------------------+--------------+ FORMULAS FOR KEY FIGURES AND RATIOS Return on equity (ROE) at fair value, % Profit for the period + Change in fair value reserve after tax / Shareholders' equity (average of the beginning and end of period) x 100 Earnings/share (EPS) Profit for the period attributable to owners of the Parent / Average share-issue adjusted number of shares during the period Earnings/share (EPS) at fair value (Profit for the period attributable to owners of the Parent + Change in fair value reserve) / Average share-issue adjusted number of shares during the period Equity/share Shareholders' equity / Share-issue adjusted number of shares on the balance sheet date Dividend per share (DPS) Dividends paid for the financial year/ Share-issue adjusted number of shares on the balance sheet date Market capitalisation Number of shares x closing price on the balance sheet date Capital adequacy ratio under the Act on the Supervision of Financial and Insurance Conglomerates Conglomerate's total capital / Conglomerate's total minimum capital requirement Capital adequacy ratio, % Total capital / Total minimum capital requirement x 8 Tier 1 ratio, % Total Tier 1 capital / Total minimum capital requirement x 8 KEY RATIOS FOR NON-LIFE INSURANCE The key ratio formulas for Non-life Insurance are based on regulations issued by the Finnish Financial Supervisory Authority, using the corresponding IFRS sections to the extent applicable. The ratios are calculated using expenses by function applied by non-life insurance companies, which are not presented on the same principle as in the Consolidated Income Statement. Loss ratio 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 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 Combined ratio (excl. unwinding of discount) Loss ratio + expense ratio Risk ratio + cost ratio Solvency ratio (+ Non-life Insurance net assets + Subordinated loans + Net tax liability for the period - Deferred tax to be realised in the near future and other items deducted from the solvency margin - Intangible assets)/ Insurance premium revenue x 100 OPERATING KEY RATIOS Operating cost/income ratio (+ Personnel costs + Other administrative expenses + Other operating expenses excl. amortisation on intangible assets and goodwill related to Pohjola acquisition) / (+ Net interest income + Net income from Non-life Insurance + Net commissions and fees + Net trading income + Net investment income + Other operating income) x 100 Operating loss ratio, % Claims incurred, excl. changes in reserving bases/ Insurance premium revenue, excl. net changes in reserving bases x 100 Operating expense ratio Operating expenses / Net insurance premium revenue x 100 Operating combined ratio, % Operating loss ratio + Operating expense ratio Values used in calculating the ratios (€ million) 30 Sep 2010 31 Dec 2009 -------------------------------------------------------------------------------- Non-life Insurance Net tax liabilities for the period -24 -14 Own subordinated loans 50 50 Deferred tax to be realised in the near future and other 7 6 items deducted from the solvency margin of the companies Intangible assets 772 800 Notes Note 1. Accounting policies The Interim Report for 1 January-30 September 2010 has been prepared in accordance with IAS 34 (Interim Financial Reporting), as approved by the EU. In the preparation of its Interim Report, 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 information. Since all figures in the Report have been rounded off, the sum of single figures may differ from the presented sum total. Summary of presentation of income statement: +------------------------+-----------------------------------------------------+ |Net interest income |Received and paid interest on fixed-income | | |instruments, the | | |recognised difference between the nominal value and | | |acquisition value, interest on interest-rate | | |derivatives | | |and fair value change in fair value hedging | +------------------------+-----------------------------------------------------+ |Net income from |Premiums written, claims paid, change in provision | |Non-life Insurance |for | | |unearned premiums and for unpaid claims, investment | | |income, expenses (interest, dividends, realised | | |capital | | |gains and losses) and impairments | +------------------------+-----------------------------------------------------+ |Net commissions and fees|Commission income and expenses, and the recognition | | |of | | |Day 1 profit related to illiquid derivatives | +------------------------+-----------------------------------------------------+ |Net trading income |Fair value changes in financial instruments at fair | | |value | | |through profit or loss, excluding accrued interest, | | |and capital gains and losses, as well as dividends | +------------------------+-----------------------------------------------------+ |Net investment income |Realised capital gains and losses on available-for- | | |sale | | |financial assets, 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, central banking service fee | +------------------------+-----------------------------------------------------+ |Personnel costs |Wages and salaries, pension costs, social expenses | +------------------------+-----------------------------------------------------+ |Other administrative |Office expenses, IT costs, other administrative | |expenses |expenses | +------------------------+-----------------------------------------------------+ |Other operating expenses|Depreciation/amortisation, other Non-life Insurance | | |expenses, rents | +------------------------+-----------------------------------------------------+ Notes to the income statement and balance sheet Note 2. Net interest income EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Loans and other receivables 75 86 221 341 Receivables from credit institutions and central banks 29 43 93 165 Notes and bonds 67 70 300 170 Derivatives held for trading (net) 32 24 29 25 Liabilities to credit institutions -13 -11 -40 -47 Liabilities to customers -4 -4 -10 -28 Debt securities issued to the public -49 -82 -211 -299 Subordinated debt -8 -9 -24 -28 Hybrid capital -1 -2 -6 -12 Financial liabilities held for trading 0 -1 -1 -4 Other (net) 0 0 -2 0 Net interest income, excluding derivatives for hedging purposes 127 114 349 282 Derivatives under hedge accounting (net) -64 -56 -160 -105 Total net interest income 62 58 189 177 Note 3. Impairments of receivables EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Receivables eliminated as loan or guarantee losses 2 14 41 15 Recoveries from receivables eliminated as loan or guarantee losses 0 -1 0 -2 Increase in impairment provisions 29 50 98 111 Decrease in impairment provisions -4 -22 -50 -29 Total impairments of receivables 27 41 88 95 Note 4. Net income from Non-life Insurance EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Net insurance premium revenue Premiums written 186 160 850 839 Insurance premiums ceded to reinsurers -4 2 -38 -42 Change in provision for unearned premiums 75 87 -94 -91 Reinsurers' share -7 -8 4 6 Total 250 241 723 712 Net Non-life Insurance claims Claims paid 153 140 477 443 Insurance claims recovered from reinsurers -2 -5 -19 -9 Change in provision for unpaid claims 9 -8 -19 -17 Reinsurers' share -17 6 4 4 Total 144 134 443 421 Net investment income, Non-life Insurance Interest income 16 17 48 54 Dividend income 1 1 19 7 Investment property 2 1 4 3 Realised fair value gains and losses Notes and bonds 18 3 53 -5 Shares and participations -11 16 -16 19 Loans and receivables 0 -1 0 Investment property 0 2 0 Derivatives 2 -18 -22 -17 Unrealised fair value gains and losses Notes and bonds 0 1 0 1 Shares and participations -7 4 -23 -10 Loans and receivables -1 -2 -3 -3 Investment property 1 -1 1 1 Derivatives 4 -5 4 -3 Other 1 2 3 2 Total 26 19 69 48 Unwinding of discount -11 -11 -34 -32 Other 0 0 -1 -1 Total net income from Non-life Insurance 120 114 314 307 Note 5. Net commissions and fees EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Commission income Lending 8 10 26 32 Payment transfers 4 3 10 9 Securities brokerage 6 6 21 16 Securities issuance 1 1 8 3 Asset management and legal services 14 12 44 32 Insurance operations 5 5 14 13 Guarantees 4 4 12 12 Other 1 1 4 6 Total commission income 43 42 139 124 Commission expenses Payment transfers 0 1 2 2 Securities brokerage 2 2 8 6 Securities issuance 2 1 4 7 Asset management and legal services 0 2 5 5 Other 1 1 2 2 Total commission expenses 6 6 21 21 Total net commissions and fees 37 36 118 102 Note 6. Net trading income EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Financial assets and liabilities held for trading Realised changes in fair value Notes and bonds 7 6 19 35 Shares and participations 0 0 0 0 Derivatives 4 19 -13 115 Unrealised changes in fair value Notes and bonds -1 6 2 -15 Shares and participations 0 0 0 0 Derivatives 3 -9 10 -84 Financial assets and liabilities at fair value through profit or loss Realised changes in fair value Notes and bonds 0 -9 Unrealised changes in fair value Notes and bonds 0 1 2 9 Net income from foreign exchange operations 5 3 14 9 Total net trading income 18 27 34 60 Note 7. Net investment income EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Available-for-sale financial assets Capital gains and losses Notes and bonds 5 0 22 0 Shares and participations 0 1 1 0 Dividend income 0 0 3 2 Impairments 0 -4 -4 Carried at amortised cost Capital gains and losses Loans and other receivables 1 0 Total 6 1 21 -1 Investment property 0 0 0 -7 Total net investment income 6 1 21 -8 Note 8. Other operating income EUR million Q3/ Q3/ Q1-3/ Q1-3/ 2010 2009 2010 2009 Central banking service fees 2 2 7 7 Realisation of repossessed items 0 0 1 0 Rental income from assets rented under operating lease 6 6 18 19 Other 2 2 6 7 Total 11 11 32 33 Note 9. Classification of financial instruments At fair value Loans through and Held to profit or Available Hedging receivables maturity loss* for sale derivatives Total Assets, EUR million Cash and balances with central banks 968 968 Receivables from credit institutions and central banks 7,723 7,723 Derivative contracts 1,995 125 2,120 Receivables from customers 11,771 11,771 Non-life Insurance assets** 706 88 2,521 3,316 Notes and bonds*** 982 984 5,392 7,357 Shares and participations 83 83 Other receivables 2,549 24 2,573 Total 30 September 2010 23,716 982 3,092 7,996 125 35,910 Total 31 December 2009 24,986 1,086 2,767 6,613 59 35,510 At fair value through profit or Other Hedging loss liabilities derivatives Total Liabilities, EUR million Liabilities to credit institutions 4,013 4,013 Financial liabilities held for trading (excl. derivatives) 0 0 Derivative conctracts 2,205 278 2,483 Liabilities to customers 4,430 4,430 Non-life Insurance liabilities 1 2,517 2,518 Debt instruments issued to the public 16,598 16,598 Subordinated liabilities 1,315 1,315 Other liabilities 2,191 2,191 Total 30 September 2010 2,206 31,064 278 33,549 Total 31 December 2009 1,377 31,716 150 33,244 *Assets at fair value through profit or loss include financial assets held for trading, financial assets at fair value through profit or loss at inception and investment property. ** Non-life Insurance assets are specified in Note 10. *** On 30 September 2010, notes and bonds included EUR 12 million (55) in notes and bonds recognised using the fair value option. Debt securities issued to the public are carried at amortised cost. On 30 September 2010, the fair value of these debt instruments was EUR 76 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 10. Non-life Insurance assets 30 Sept 31 Dec EUR million 2010 2009 Investments Loans and other receivables 270 424 Shares and participations 362 387 Property 75 78 Notes and bonds 1,544 1,392 Derivatives 5 1 Other participations 623 530 Total 2,880 2,811 Other assets Prepayments and accrued income 33 37 Other From direct insurance 251 214 From reinsurance 87 89 Cash in hand and at bank 6 4 Other receivables 58 44 Total 436 389 Total Non-life insurance assets 3,316 3,200 Note 11. Intangible assets 30 Sept 31 Dec EUR million 2010 2009 Goodwill 516 516 Brands 173 173 Customer relationships 185 203 Other 55 68 Total 930 960 Note 12. Non-life Insurance liabilities 30 Sept 31 Dec EUR million 2010 2009 Provision for unpaid claims Provision for unpaid claims for annuities 1,066 1,058 Other provision for unpaid claims 732 726 Total 1,798 1,784 Provision for unearned premiums 457 361 Derivatives 1 0 Other liabilities 263 134 Total 2,518 2,279 Note 13. Debt securities issued to the public 30 Sept 31 Dec EUR million 2010 2009 Bonds 6,858 6,549 Certificates of deposit, commercial papers and ECPs 9,487 10,519 Other 252 227 Total 16,598 17,295 Note 14. Fair value reserve after income tax 30 Sept 31 Dec EUR million 2010 2009 Loans and other receivables Reclassified notes and bonds -10 -17 Available-for-sale financial assets Notes and bonds -6 53 Equities and mutual funds with equity risk 44 -35 Other funds -4 0 Other -1 Total 23 0 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 totalled EUR 30 million (-0) and the related deferred tax liability amounted to EUR 8 million (0). On 30 September, positive mark-to-market valuations of equity instruments before tax in the fair value reserve totalled EUR 73 million and negative mark-to-market valuations EUR 22 million. In Q1-3, impairments recognised from the fair value reserve in the income statement totalled EUR 33 million. Notes to risk management Note 15. Risk exposure by Banking Total exposure by rating category*, EUR billion Rating 30 Sept 31 Dec category 2010 2009 Change 1-2 2.6 2.2 0.5 3-5 11.3 10.9 0.4 6-7 4.1 4.2 -0.1 8-9 2.2 2.4 -0.2 10 0.1 0.1 0.0 11-12 0.4 0.3 0.0 Non-rated 0.2 0.2 0.0 Total 20.8 20.3 0.5 *) excl. private customers Sensitivity analysis of market risk 30 Sept 2010 31 Dec 2009 Effect on Effect on share- share- Banking, Risk Effect on holders' Effect on holders' EUR million parameter Change results equity results equity Interest-rate 1 percen- risk Interest tage point 5 5 Currency Market 20 percen- risk value tage points 1 1 Volatility risk Interest-rate 20 percen- volatility Volatility tage points 6 4 Currency 10 percen- volatility Volatility tage points 0 0 Credit risk Credit 0.5 percen- premium *) spread tage points 9 1 12 Sensitivity figures have been calculated as the sum of the currencies' intrinsic value. *) The credit risk premium has been calculated on notes and bonds at fair value through profit or loss and available for sale, included in liquidity reserves. Note 16. Risk exposure by Non-life Insurance Total Effect on amount share- 30 Sept Change Effect on holders' 2010, in risk combined equity, Risk parameter EUR million parameter ratio EUR million Insurance portfolio or insurance Up 0.9 premium revenue*) 954 Up 1% percentage point 10 Down 0.7 Claims incurred*) 641 Up 1% percentage points -6 Major loss of over EUR 5 Down 0.5 million 1 loss percentage points -5 Down 0.9 Personnel costs*) 106 Up 8% percentage points -9 Down 1.1 Expenses by function*) **) 267 Up 4% percentage points -11 Up 0.25 Inflation for collective percentage Down 0.3 liability 492 points percentage points -3 Life expectancy for discounted insurance contract Down 3.2 liability 1,337 Up 1 year percentage points -31 Discount rate for discounted Down 0.1 insurance contract percentage Down 1.7 liability 1,337 point percentage points -16 *) Moving 12-month **) Expenses by function in Non-life Insurance excluding expenses for investment management and expenses for other services rendered Non-life Insurance investment portfolio by allocation EUR million Fair value Fair value 30 Sept 31 Dec Portfolio allocation 2010 % 2009 % Money market instruments 81 3 % 101 4 % Bonds and bond funds 2,221 75 % 2,067 72 % Equities 284 10 % 364 13 % Alternative investments 199 7 % 155 5 % Real property 186 6 % 164 6 % Total 2,971 100 % 2,851 100 % Non-life Insurance fixed-income portfolio by maturity and credit rating on 30 September 2010* EUR million Year(s) 0-1 1-3 3-5 5-7 7-10 10- Total % Aaa 20 121 208 73 56 73 551 24 % Aa1−Aa3 51 117 137 44 47 33 429 19 % A1−A3 83 212 211 71 74 58 708 31 % Baa1−Baa3 24 104 90 37 53 0 308 14 % Ba1 or lower 58 59 59 29 6 13 225 10 % Internally rated 5 4 12 1 0 7 28 1 % Total 242 618 716 255 235 184 2,250 100 % * Excludes credit derivatives. The table below shows the sensitivity of investment risks and their effect on shareholders' equity: Effect on Risk shareholders' equity, Non-life Insurance parameter Change EUR million 30 Sept 31 Dec 2010 2009 Interest 1 percentage Bonds and bond funds1) rate point 92 73 Market 20 percentage Equities 2) value points 55 73 Venture capital funds Market 20 percentage and unquoted equities value points 16 14 Market 20 percentage Commodities value points 5 5 Market 10 percentage Real property value points 19 16 Value of 20 percentage Currency currency points 48 21 0.5 percentage Credit risk premium 3) Credit spread points 47 39 10 percentage Derivatives 4) Volatility points 1 0 1) Include money-market investments, convertible bonds and interest-rate derivatives 2) Include hedge funds and equity derivatives 3) Includes bonds and money-market investments, including government bonds and interest-rate derivatives issued by developed countries 4) 20 percentage points for equity derivatives, 10 percentage points for interest-rate derivatives and 5 percentage points for currency derivatives. Note 17. Risk exposure by Group Function Total exposure by rating category*, EUR billion Rating 30 Sept 31 Dec category 2010 2009 Change 1-2 12.5 13.6 -1.1 3-5 4.8 4.6 0.2 6-7 0.1 0.0 0.1 8-9 0.0 0.0 0.0 10 0.0 0.0 0.0 11-12 Non-rated 0.0 0.0 0.0 Total 17.4 18.3 -0.8 Sensitivity analysis of market risk 30 Sept 2010 31 Dec 2009 Effect on Effect on Group share- share- Functions, Effect on holders' Effect on holders' EUR million Risk parameter Change results equity results equity Interest-rate Interest 1 percen- risk rate tage point 18 0 2 3 20 percen- Interest-rate tage volatility Volatility points 0 1 0.5 percen- Credit risk Credit tage premium *) spread points 0 115 0 68 Price risk 20 percen- Equity Market tage portfolio value points 2 2 20 percen- Private Market tage equity funds value points 6 6 10 percen- Property Market tage risk value points 3 3 Sensitivity figures have been calculated as the sum of the currencies' intrinsic value. *) The credit risk premium has been calculated on notes and bonds at fair value through profit or loss and available for sale, included in liquidity reserves. Financial assets included in liquidity reserve by maturity and credit rating on 30 September 2010 EUR million Year 0-1 1-3 3-5 5-7 7-10 10- Total % Aaa 1,162 948 1,973 853 663 11 5,609 58 % Aa1−Aa3 635 1,094 599 132 124 105 2,689 28 % A1−A3 100 650 222 18 2 0 991 10 % Baa1−Baa3 55 61 48 5 4 171 2 % Ba1 or lower 0 20 27 27 5 80 1 % Internally rated 88 51 42 26 208 2 % Total 2,039 2,824 2,911 1,060 798 116 9,748 100 % The residual maturity of liquidity reserves averages 3.7 years. Other notes Note 18. Collateral given 30 Sept 31 Dec EUR million 2010 2009 Given on behalf of own liabilities and commitments Mortgages 1 1 Pledges 5,987 5,839 Other 512 308 Total collateral given 6,500 6,147 Total collateralised liabilities 662 1,023 Note 19. Off-balance-sheet commitments 30 Sept 31 Dec EUR million 2010 2009 Guarantees 1,165 1,296 Other guarantee liabilities 1,335 1,283 Loan commitments 3,654 4,140 Commitments related to short-term trade transactions 116 98 Other 465 447 Total off-balance-sheet commitments 6,735 7,264 Note 20. Derivative contracts Nominal values/residual term 30 Sept 2010 to maturity Total Fair values EUR million <1 year 1-5 years >5 years Assets Liabilities Interest rate derivatives 47,553 62,720 24,751 135,023 1,832 1,952 Currency derivatives 13,475 1,797 499 15,771 268 592 Equity and index 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 65,020 65,935 25,376 156,331 2,228 2,569 Nominal values/residual term 31 Dec 2009 to maturity Total Fair values EUR million <1 year 1-5 years >5 years Assets Liabilities Interest rate derivatives 44,063 51,231 13,013 108,307 1,167 1,235 Currency derivatives 11,513 1,959 489 13,962 243 338 Equity and index derivatives 177 814 41 1,032 87 Credit derivatives 56 178 234 4 2 Other derivatives 3,850 252 4,102 3 24 Total derivatives 59,660 54,435 13,543 127,638 1,505 1,599 Note 21. Other contingent liabilities and commitments On 30 September 2010, Banking commitments to venture capital funds amounted to EUR 14 million and Non-Life Insurance commitments to EUR 115 million. They are included in the section 'Off-balance-sheet commitments'. Note 22. Related-party transactions Pohjola Group's related parties comprise its parent company OP-Pohjola Group Central Cooperative, subsidiaries consolidated into the Group, associates and administrative personnel and other related-party entities. Pohjola Group's administrative personnel comprises Pohjola Bank plc's President and CEO, members of the Board of Directors and their close family members. Related parties also include companies over which a person among administrative personnel or his close family member exercises significant influence. Other related-party entities include OP Pension Fund, OP Pension Foundation and sister companies within OP-Pohjola Group Central Cooperative Consolidated. Normal loan terms and conditions apply to loans granted to related parties. These loans are tied to generally used reference rates. Related-party transactions have not undergone any substantial changes since 31 December 2009. Helsinki, 3 November 2010 Pohjola Bank plc Board of Directors This Interim Report is available at www.pohjola.fi/english > Media. Background information on the Report can also be found at the same address. Analyst meeting, conference call and live webcast As an exception to our previous practice, we will hold a collective briefing in English for analysts and investors on Pohjola Asset Management Ltd premises on November 3 starting at 3.00 pm Finnish time, EET (2.00 pm CET, 1.00 pm UK time, 8am US EST). The briefing is a combined analyst meeting, conference call and live webcast. Analysts and investors may attend the briefing in one of the following two ways: 1) By viewing the briefing as live webcast via the internet. The link will be available on the IR website before the briefing begins. Questions on the internet are welcome via a question button available in the webcast window. An on-demand webcast of the briefing can be viewed via the IR website afterwards. 2) By dialling one of the regional conference call numbers shown below. Questions are welcome by telephone in the Q&A session according to instructions. To participate via a conference call, please dial in 5-10 minutes before the beginning of the event: UK, International +44 203 043 24 36 US +1 866 458 40 87 FIN +358 923 101 527 Password: Pohjola Press conference Mikael Silvennoinen, Pohjola Bank plc's President and CEO, will present the financial results in a press conference, Teollisuuskatu 1 b, Vallila, Helsinki, on 3 November, starting at noon. Financial reporting in 2011 Schedule for Financial Statements Bulletin for 2010 and Interim Reports in 2011: Financial Statements Bulletin 2010 9 February 2011 Interim Report Q1/2011 4 May 2011 Interim Report H1/2011 3 August 2011 Interim Report Q1−3/2011 2 November 2011 DISTRIBUTION NASDAQ OMX Helsinki Ltd London Stock Exchange Major media www.pohjola.fi, www.op.fi For additional information, please contact Mikael Silvennoinen, President and CEO, tel. +358 (0)10 252 2549 Jouko Pölönen, CFO, tel. +358 (0)10 252 3405 Tarja Ollilainen, Senior Vice President, Investor Relations, tel. +358 (0)10 252 4494 [HUG#1458246] |
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