OP Mortgage Bank - Financial Statement Release

OP Mortgage Bank plc : Financial Statements Bulletin for 2013

OP Mortgage Bank plc : Financial Statements Bulletin for 2013 

OP Mortgage Bank
Financial Statements Bulletin for 2013
6 February 2014, 9.45 am EET
 

OP MORTGAGE BANK
 
Financial Statements Bulletin for 2013
 
 
Financial Standing
 
The loan portfolio of OP Mortgage Bank decreased to EUR 7,930 million (8,678).
The company increased its loan portfolio by buying mortgage-backed loans from
OP-Pohjola Group's member banks with a total of EUR 483 million. No new bonds
were issued in the report period. 
 
The company's financial standing remained stable throughout the review period.
Earnings before tax for the fourth quarter came to EUR 2.0 million (3.6) and
those for the full year to EUR 11.8 million (14.2). A total of EUR 500 million
funding for overcollateral concerning bonds issued to the public was converted
in May into long-term funding and EUR 125 million in September to reduce the
funding risk. Extending the term to maturity reduced profitability slightly. 
 
OPA has hedged against the interest-rate risk associated with its housing loan
portfolio through interest-rate swaps, i.e. base rate cash flows from the
housing loans to be hedged are swapped to Euribor cash flows. OPA has also
swapped the fixed interest rates of the bonds it has issued to short-term
market rates. All derivative contracts have been concluded for hedging
purposes. Pohjola Bank plc is the counterparty to all derivative contracts. 
 
 
Collateralisation of bonds issued to the public
 
Mortgages collateralising covered bonds issued before 1 August 2010, under the
Finnish Act on Mortgage Credit Banks (1240/1999), are included in Cover Asset
Pool A. The balance of Pool A was EUR 3,000 million at the end of December. 
 
Mortgages collateralising covered bonds issued after 1 August 2010, under the
Finnish Covered Bonds Act (688/2010), are included in Cover Asset Pool B. The
balance of Pool B was EUR 4,559 million at the end of December. 
 
 
Capital adequacy
 
OPA's capital adequacy ratio stood at 10.3% on 31 December. Capital ratio
excluding transition rules stood at 115.6%. 
 
 
Joint Responsibility and Joint Security
 
Under the Act on Cooperative Banks and Other Cooperative Credit Institutions,
the amalgamation of the cooperative banks comprises the organisation's central
institution (OP-Pohjola Group Central Cooperative), the Central Cooperative's
member credit institutions and the companies belonging to their consolidation
groups. This amalgamation is monitored on a consolidated basis. The Central
Cooperative and its member banks are ultimately responsible for each other's
liabilities and commitments. The Central Cooperative's members at the end of
the report period comprised OP-Pohjola Group's 183 member banks as well as
Pohjola Bank plc, Helsinki OP Bank Plc, OP Mortgage Bank, OP-Kotipankki Oyj and
OP Process Services Ltd. OP-Pohjola Group's insurance companies do not fall
within the scope of joint responsibility. 
 
The central institution is obligated to provide its member credit institutions
with instructions on their internal supervision and risk management, their
operations in securing liquidity and capital adequacy, and compliance with
uniform accounting principles in preparing the amalgamation's consolidated
financial statements. 
 
 Comparatives for 2012 are given in brackets. For income-statement and other
aggregated figures, January-December 2012 figures serve as comparatives. For
balance-sheet and other cross-sectional figures, figures at the end of the
previous reporting period (31 December 2012) serve as comparatives. 
The central institution and its member credit institutions are jointly
responsible for the liabilities of the central institution or a member credit
institution placed in liquidation or bankruptcy that cannot be paid from its
assets. The liability is divided between the central institution and the member
credit institutions in the ratios following the balance sheet total. 
 
In spite of the joint responsibility and the joint security, pursuant to
Section 25 of the Finnish Covered Bonds Act, the holder of a bond with mortgage
collateral shall, notwithstanding the liquidation or bankruptcy of a mortgage
credit bank, have the right to receive payment, before other claims, for the
entire loan period of the bond, in accordance with the contract terms, from the
funds entered as collateral for the bond. 
 
 
Personnel
 
On 31 December, OPA had six employees. It purchases all key support services
from OP-Pohjola Group Central Cooperative and its Group companies, which
reduces the need for more staff. 
 
 
Administration
 
The Board composition is as follows:
 
Chairman	Harri Luhtala	Chief Financial Officer, OP-Pohjola Group Central
Cooperative 
Vice Chairman	Elina Ronkanen-Minogue	Senior Vice President, OP-Pohjola Group
Central Cooperative 
Members	Lars Björklöf	Managing Director, Osuuspankki Raasepori
 	Sakari Haapakoski	Bank Manager, Oulun Osuuspankki
 	Mika Helin	Executive Vice President, Hämeenlinnan Seudun Osuuspankki
 	Hanno Hirvinen	Group Treasurer, Pohjola Bank plc
 	Jari Tirkkonen	Senior Vice President, OP-Pohjola Group Central Cooperative
 
 
OPA's Managing Director is Lauri Iloniemi.
 
 
Risk Exposure
 
The most significant types of risk related to OPA are credit risk, structural
funding risk, liquidity risk and interest-rate risk. The key indicators in use
shows that OPA's credit risk exposure is stable and the limit for liquidity
risk set by the Board of Directors has not been exceeded. The liquidity buffer
for OP-Pohjola Group, managed by Pohjola Bank Plc, is exploitable by OPA. OPA
has hedged against the interest-rate risk associated with its housing loan
portfolio through interest-rate swaps, i.e. base rate cash flows from housing
loans to be hedged are swapped to short-term Euribor cash flows. The interest
rate risk may be considered to be low. 
 
 
Outlook
 
The existing issuance programme will make it possible to issue new covered
bonds in 2014. It is expected that the Company's capital adequacy will remain
strong, risk exposure will be favourable and the overall quality of the credit
portfolio will remain strong. 
 
.
 
 
 
Accounting Policies
 
The Financial Statements Bulletin for 1 January-31 December 2013 has been
prepared in accordance with IAS 34 (Interim Financial Reporting). 
 
This Financial Statements Bulletin is based on unaudited figures. Given that
all of the figures have been rounded off, the sum total of individual figures
may deviate from the presented sums. 
 
The Financial Statements 2013 contain a description of the accounting policies,
which have been applied in the preparation of this Financial Statements
Bulletin. 
 
Since 1 January 2013, OPA has applied the amendments to IAS 19 Employee
Benefits. The revised standard removes the option for entities to apply the
so-called corridor method in the recognition of actual gains and losses and
changes the calculation of net interest income on the net defined benefit
liability.Under the revised standard, the expected return on plan assets used
in the calculation of net interest income is calculated based on the discount
rate of the plan liability. 
 
The cash flow statement presents the cash flows for the period on a cash basis,
divided into cash flows from operating activities, investing activities and
financing activities. Cash flows from operating activities include the cash
flows generated from day-to-day operations. Cash flow from investing activities
includes payments related to PPE and intangible assets, investments held to
maturity and shares that are not considered as belonging to cash flow from
operating activities. Cash flow from financing activities includes cash flows
originating in the financing of operations either on equity or liability terms
from the money or capital market. Cash and cash equivalents include liquid
assets and receivables from credit institutions payable on demand.  The
statement has been prepared using the indirect method. 
 
 
Capital adequacy
OPA uses the Internal Ratings Based Approach (IRBA) to measure its capital
adequacy requirement for credit risk and and uses the Standardised Approach to
measure its capital adequacy for operational risk. The increase in
shareholders' equity arising from the measurement of pension liabilities and
the assets covering them, under IFRS, is not included in the capital base.
Furthermore, intangible assets were deducted from the capital base. 
 
 
Related-party transactions
OPA's related parties include OP-Pohjola Group Central Cooperative and its
subsidiaries, the OP Bank Group pension insurance organisation OP Bank Group
Pension Fund and OP Bank Group Pension Foundation, and the company's
administrative personnel. Standard loan terms and conditions apply to loans
granted to the related parties. Loans are tied to generally used reference
rates. Related-party transactions did not undergo any substantial changes
during the reporting period. 
 
Debt securities issued to the public are carried at amortised cost. The fair
value of these debt instruments has been measured using information available
in markets and employing commonly used valuation techniques. The difference
between the fair value and carrying amount is presented as valuation difference
in the Classification of financial assets and liabilities table. The carrying
amounts of other balance-sheet items substantially correspond to their fair
values. 
 
 
All derivative contracts have been entered into for hedging purposes,
regardless of their classification in accounting. 
 
 
Calculation of key ratios
 
Return on equity, % = Annualised profit for the period / Equity capital
(average equity capital at the beginning and end of the period) × 100 
 
Cost/income ratio, % = (Personnel costs + Other administrative expenses + Other
operating expenses) / (Net interest income + Net commissions and fees + Net
trading income + Total net investment income+ Other operating income) × 100 
 
Income statement                              TEUR	Q4/2013	Q4/2012	2013	2012
 	 	 	 	 
Interest income	20,244	23,603	81,047	121,246
Interest expenses	13,229	15,705	49,855	91,362
Net interest income	7,014	7,897	31,192	29,884
Impairment loss on receivables	-29	-17	19	-53
Net commissions and fees	-4,115	-3,426	-16,070	-11,992
Net trading income	0	0	0	0
Net investment income	0	0	1	-186
Other operating income	0	0	0	0
Personnel costs	124	121	449	400
Other administrative expenses	380	390	1,570	1,586
Other operating expenses	371	300	1,302	1,459
Earnings before tax	1,996	3,644	11,821	14,209
Income tax expense	482	893	2,887	3,478
Profit for the period	1,514	2,752	8,934	10,731
 
Statement of comprehensive income        TEUR	Q4/2013	Q4/2012	2013	2012
 	 	 	 	 
Profit for the period	1,514	2,752	8,934	10,731
 	 	 	 	 
Items that will not be reclassified to profit or loss	 	 	 	 
Gains/(losses) arising from remeasurement of defined benefit
plans	-38	-50	-38	-50 
Income tax on gains/(losses) on arising from remeasurement of defined benefit
plans	-6	12	-6	12 
Total comprehensive income	1,469	2,714	8,889	10,693
 
Key ratios	Q4/2013	Q4/2012	2013	2012
Return on equity (ROE), %	1.8	3.5	2.7	3.7
Cost/income ratio, %	30	18	22	19
 
Cash flow statement                     TEUR	Q1-Q4/2013	Q1-Q4/2012
Cash and cash equivalents 1 Jan.	53,300	82,434
Total comprehensive income for the period	8,889	10,693
Adjustments to profit for the period	3,141	3,390
Increase (-) or decrease (+) in operating assets	869,905	-1,245,004
Increase (+) or decrease (-) in operating liabilities	-828,177	600,673
A. Cash flow from operating activities	53,759	-630,247
Purchase of intangible assets	-776	-813
B. Cash flow from investing activities	-776	-813
Increases in debt securities issued to the public	6,268	1,563,926
Decreases in debt securities issued to the public	0	-1,020,000
Reserve for invested unrestricted equity	0	60,000
Dividends paid	-2,001	-2,001
C. Cash flow from financing activities	4,267	601,925
Net increase/decrease in cash and cash equivalents (A+B+C)	57,250	-29,134
Cash and cash equivalents 31 Dec.	110,550	53,300
 
 
Balance sheet                                TEUR	31 Dec  2013	30 Sep  2013	30
June 2013	31 March 2013	31 Dec  2012 
 	 	 	 	 	 
Receivables from credit institutions	110,550	59,971	38,589	52,881	53,300
Derivative contracts	198,086	211,255	219,616	276,403	318,473
Receivables from customers	7,929,630	8,202,201	8,535,321	8,847,903	8,677,652
Investments assets	17	17	17	17	17
Intangible assets	1,668	1,579	1,303	1,128	1,101
Other assets	76,362	79,324	77,636	117,146	77,854
Tax assets	630	26	32	33	35
Total assets	8,316,944	8,554,373	8,872,515	9,295,512	9,128,431
Liabilities to credit
institutions	1,885,000	2,107,000	2,420,000	2,747,000	2,570,000 
Derivative contracts	8,767	8,522	10,448	10,867	16,382
Debt securities issued to the
public	5,991,695	6,003,280	6,010,497	6,068,986	6,109,687 
Provisions and other liabilities	99,628	104,538	102,227	142,136	106,964
Tax liabilities	0	649	899	704	435
Total liabilities	7,985,090	8,223,990	8,544,071	8,969,693	8,803,467
Shareholders' equity	 	 	 	 	 
  Share capital	60,000	60,000	60,000	60,000	60,000
  Reserve for invested unrestricted           .
equity	235,000	235,000	235,000	235,000	235,000 
  Retained earnings	36,853	35,383	33,444	30,819	29,964
Total equity	331,853	330,383	328,444	325,819	324,964
Total liabilities and shareholders'
equity	8,316,944	8,554,373	8,872,515	9,295,512	9,128,431 
 
 
Off-balance-sheet commitments  TEUR	31 Dec  2013	30 Sep  2013	30 June 2013	31
March 2013	31 Dec 2012 
Irrevocable commitments given on behalf of
customers	4,568	6,437	9,854	11,352	7,976 
 
 
Statement of changes in equity    TEUR	Share capital	Other reserves	Retained
earnings	Total equity 
 	 	 	 	 
Shareholders' equity 1 Jan 2012	60,000	175,000	21,271	256,271
Reserve for invested unrestricted  equity	-	60,000	-	60,000
Profit for the period	-	-	10,731	10,731
Total comprehensive income	 	 	-38	-38
Other changes	-	-	-2,001	-2,001
Shareholders' equity 31 Dec 2012	60,000	235,000	29,964	324,964
 	 	 	 	 
Shareholders' equity 1 Jan 2013	60,000	235,000	29,964	324,964
Reserve for invested unrestricted equity	-	-	-	-
Profit for the period	-	-	8,934	8,934
Total comprehensive income	 	 	-44	-44
Other changes	-	-	-2,001	-2,001
Shareholders' equity 31 Dec 2013	60,000	235,000	36,853	331,853
 
 
 
Capital  base                                      TEUR	31 Dec 2013	30 Sep
2013	31 Dec 2012 
 	 	 	 
Equity capital	331,853	330,383	324,964
Intangible assets	-1,668	-1,579	-1,101
Excess funding of pension liability and fair value measurement of investment
property and deferred tax assets on previous losses	0	-12	-13 
Planned dividend distribution	0	-1,500	-2,001
Impairments - shortfall of expected losses	-1,077	-3,470	-3,705
Shortfall of other Tier 1 capital	-1,077	-3,470	-3,705
Core Tier 1 capital	328,031	320,351	314,440
Shortfall of Tier 2 capital	-1,077	-3,470	-3,705
Transfer to Core Tier 1 capital	1,077	3,470	3,705
Tier 1 capital	328,031	320,351	314,440
Debenture loans	-	-	-
Impairments - shortfall of expected losses	-1,077	-3,470	-3,705
Transfer to Tier 1 capital	1,077	3,470	3,705
Tier 2 capital	0	0	0
Total capital base	328,031	320,351	314,440
Capital adequacy ratio, %	10.3	9.9	9.2
Tier 1 ratio	10.3	9.9	9.2
Core Tier 1 ratio	10.3	9.9	9.2
Capital ratio excluding IRBA transition rules	 	 	 
Capital adequacy ratio, %	115.6	46.3	41.9
Tier 1 ratio	115.6	46.3	41.9
Core Tier 1 ratio	115.6	46.3	41.9
 
Shortfall of difference between impairment losses and expected losses totals
EUR 2 million. 
 
 
 
Risk-weighted assets investments and off-balance-sheet commitments,    TEUR	31
Dec 2013	30 Sep 2013	31 Dec 2012 
 	 	 	 
Credit risk	263,881	671,977	735,840
Market risk	0	0	0
Operational risks	19,941	19,941	14,043
Requirement for period of transition	2,908,024	2,549,775	2,656,632
Risk-weighted assets, investments and off-balance-sheet commitments,
total	3,191,845	3,241,693	3,407,573 
 
 
Classification of financial assets and liabilities TEUR	 	 
Financial assets	Loans and  other receivables	Recognised at fair value through
profit or loss 	Available   for sale	Total 
Receivables from credit institutions	110,550	-	-	110,550
Derivative contracts	-	198,086	-	198,086
Receivables from customers	7,929,630	-	-	7,929,630
Shares and participations	-	-	17	17
Other receivables	76,362	-	-	76,362
Other assets	2,298	-	-	2,298
Balance at 31 December 2013	8,118,840	198,086	17	8,316,944
Balance at 31 December 2012	8,809,941	318,473	17	9,128,431
 	 	 	 	 
Financial liabilities	 	Recognised at fair value through profit or loss 	Other
liabilities	Total 
Liabilities to credit institutions	-	-	1,885,000	1,885,000
Derivative contracts	-	8,767	-	8,767
Debt securities issued to the public	-	-	5,991,695	5,991,695
Other liabilities	-	-	99,628	99,628
Balance at 31 December 2013	-	8,767	7,976,323	7,985,090
Balance at 31 December 2012	-	16,382	8,787,085	8,803,467
Valuation difference of debt securities issued to the public (difference
between fair value and carrying amount) 31 December 2013	 	 	255,852	255,852 
 
 
Derivative contracts 31 Dec 2013  TEUR	Nominal values/residual term to maturity
 	Less than 1 year	1-5 years	More than 5 years	Total
Interest rate derivatives	 	 	 	 
Hedging	2,936,007	11,644,865	396,000	14,976,872
Trading	0	0	0	0
Total	2,936,007	11,644,865	396,000	14,976,872
 	 	 	 	 
 	             Fair values	 	Credit	 
 	Assets	Liabilities	equivalent	 
Interest rate derivatives	 	 	 	 
Hedging	198,086	8,767	325,316	 
Trading	-	-	-	 
Total	198,086	8,767	325,316	 
 	 	 	 	 
 	 	 	 	 
Derivative contracts 31 Dec 2012  TEUR	Nominal values/residual term to maturity
 	Less than 1 year	1-5 years	More than 5 years	Total
Interest rate derivatives	 	 	 	 
Hedging	585,259	12,947,452	2,330,000	15,862,711
Trading	-	-	-	-
Total	585,259	12,947,452	2,330,000	15,862,711
 	 	 	 	 
 	           Fair values	Credit	 
 	Assets	Liabilities	equivalent	 
Interest rate derivatives	 	 	 	 
Hedging	318,473	16,382	328,295	 
Trading	-	-	-	 
Total	318,473	16,382	328,295	 
 
Grouping of the balance sheet according to the valuation method, TEUR	 
 	 	 	 	 
31 Dec 2013	Valuation of fair value at the end of the period
 	Balance sheet value	Level 1	Level 2	Level 3
Assets recognised at fair value	 	 	 	 
Derivate contracts	198,086	-	198,086	-
Total	198,086	-	198,086	-
Liabilities recognised at fair value	 	 	 	 
Derivate contracts	8,767	-	8,767	-
Total	8,767	 	8,767	 
Financial liabilities not recognised at fair value	 	 	 	 
Debt securities issued to the public	5,991,695	6,139,724	107,822	 
Total	5,991,695	6,139,724	107,822	-
 	 	 	 	 
 	 	 	 	 
31 Dec 2012	Valuation of fair value at the end of the period
 	Balance sheet value	Level 1	Level 2	Level 3
Assets recognised at fair value	 	 	 	 
Derivate contracts	318,473	-	318,473	-
Total	318,473	-	318,473	-
Liabilities recognised at fair value	 	 	 	 
Derivate contracts	16,382	-	16,382	-
Yhteensä	16,382	 	16,382	 
Financial liabilities not recognised at fair value	 	 	 	 
Debt securities issued to the public	6,109,687	6,107,110	389,875	 
Total	6,109,687	6,107,110	389,875	-
 	 	 	 	 
OPA does not hold any transfers between the levels of fair value valuation.	 
 
 
Helsinki, 6 February 2014
 
OP Mortgage Bank
Board of Directors
 
For more information, please contact Managing Director Lauri Iloniemi, tel.
+358 (0)10 252 3541 
 
DISTRIBUTION 
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OAM, Officially Appointed Mechanism
Major media
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