OP Yrityspankki Oyj - Half Year financial report

OP Financial Group's Interim Report for 1 January-30 June 2016: Excellent earnings, strong growth and updated strategy with a bold approach

OP Financial Group
Stock Exchange Release 3 August 2016 at 9.00 am EEST
Interim Report for 1 January-30 June 2016

OP Financial Group's Interim Report for 1 January-30 June 2016: Excellent
earnings, strong growth and updated strategy with a bold approach

Good half-year business performance: earnings at record levels and the lending
growth rate above the market average
  * Earnings before tax were EUR 614 million (627), or the second best half-year
    figure ever recorded.
  * Banking and Non-life Insurance earnings decreased while those by Wealth
    Management and Other Operations improved.
  * In the second quarter, OP Financial Group reported earnings before tax of
    EUR 331 million, including non-recurring items, which is an all-time
    quarterly high.
  * Net interest income and net insurance income increased but net commissions
    and fees decreased. Expenses were at the previous year's levels.
  * The CET1 ratio was 19.4% (19.5) on 30 June 2016.
  * The home loan portfolio increased by 4%, the corporate loan portfolio by 5%
    and deposits by 5% in the year to June. Home and corporate loans drawn down
    increased by over 12%.
  * Non-life Insurance recorded an operating combined ratio of 88.2% (87.8).
    Insurance premium revenue rose by 3%.
  * Assets managed by Wealth Management increased by 4% over the previous year.
  * Full-year earnings for 2016 are expected to be of about the same size as the
    record earnings reported in 2015.

190,000 new OP Financial Group owner-customers and a new strategy leading the
Group into the 2020s
  * 77,000 new banking customers, or 17% more than a year ago. The increase
    focused on the second quarter.
  * The number of owner-customers increased by 190 thousand to almost 1.7
    million.
  * In April, the Group launched a new #Suominousuun (Putting Finland on a new
    growth path) initiative targeted at families with children, under which OP
    offers health and living allowance insurance for an unborn child for 12
    months free of charge.
  * New OP bonuses totalled over EUR 100 million, up by almost 5% year on year.
  * OP Financial Group confirmed a new strategy that is to respond to the
    historically drastic transformation underway in the sector, on the basis of
    which OP will gradually change from a plain financial services provider to a
    diversified services company of the digital era.

OP Financial Group's key indicators
                             Q1-2/2016    Q1-2/2015    Change, % Q1-4/2015

 Earnings before tax, EUR
 million                     614          627          -2.1      1,101

   Banking                   295          356          -17.3     642

   Non-life Insurance        117          144          -18.8     259

   Wealth Management         141          128          10.4      213

 New OP bonuses accrued to
 owner-customers             102          97           4.8       197

                             30 June 2016 30 June 2015 Change, % 31 Dec. 2015

 Common Equity Tier 1 (CET1)
 ratio, %                    19.4         18.1         1.3*      19.5

 Return on economic capital,
 % **)                       22.4         20.1         2.2*      21.5

 Ratio of capital base to
 minimum amount of capital
 base (under the Act on the
 Supervision of Financial
 and Insurance
 Conglomerates), % ***       163          158          4*        191

 Ratio of impairment loss on
 receivables to loan and
 guarantee portfolio, %      0.06         0.10         0.0*      0.10

 Joint banking and insurance
 customers (1,000)           1,695        1,618        4.8       1,656


Comparatives deriving from the income statement are based on figures reported
for the corresponding period in 2015. Unless otherwise specified, balance-sheet
and other cross-sectional figures on 31 December 2015 are used as comparatives.
* Change in ratio
** 12-month rolling, change in percentage
*** The FiCo ratio has been calculated under Solvency II transitional provisions
and the comparatives have been adjusted


Comments by Reijo Karhinen, President and Group Executive Chairman

OP Financial Group posted an excellent first-half financial performance. Our
strategic goal is to strengthen our capital base through good financial results.
We did well in that respect. Our strong financial position was also witnessed by
the results of the stress test conducted by the European Banking Authority. We
rank among the strongest banks in Europe.

The favourable development in overall profitability was supported by an increase
in net interest income and net insurance income, successful cost control and low
loan losses. However, capital market uncertainty reduced income generation.

The stress test results prove that we will withstand instability. Enabled by our
strong capital base, we have for several years now reported vigorous growth in
customer lending despite the unstable operating environment. In the first half
of 2016, the growth rate of our home loans and corporate financing was again
above the market average. This development was supported by an exceptionally
brisk growth in the number of owner-customers and banking customers.

The #Suominousuun (Putting Finland on a new growth path) initiatives with a
broad impact that we have implemented in our social role represent concrete
actions and true examples of our strength. At the same time, they show our will
to commit ourselves to the success of our operating region and the promotion of
our customers' prosperity.

The successful first-half was crowned by our forward-looking strategy published
in June. We will have a long and profound transformation process ahead of us
from a plain financial services provider to a diversified services company. Our
basic assumption is that the actors with the courage to genuinely and boldly
reinvent themselves by listening to their customers will be winners.

Like OP Financial Group, the whole of Finland is in the face of a new beginning.
With an open-minded approach, we will need to build something completely new on
the strong foundation. Meanwhile, it is necessary to have the courage to leave
behind many patterns that have been adopted in a Finland that no longer exists.
Norms in society and the structures of various actors must be updated swiftly so
as to respond to changes arising from profound digital transformation and
consumer behaviour while being sustainable for future generations. We have the
world's best society in place. I believe that new unconventional initiatives and
a forward-looking approach will form the key to success for Finland's journey
into the next 100 years.

January-June

OP Financial Group's earnings before tax were EUR 614 million (627), or the
second best half-year figure ever recorded. A year ago, the Group recorded its
all-time high half-year EBT.

Net interest income increased by 3.3% to EUR 528 million and net insurance
income rose by 4.4% to EUR 272 million. Net commissions and fees decreased by
2.3% to EUR 437 million. Net commissions and fees were reduced by lower
brokerage fees due to the Invest in Finland initiative as part of the
#Suominousuun (Putting Finland on a new growth path) initiative, and to higher
commission expenses.

Net investment income decreased by 36.8% to EUR 182 million. This decline was
affected by lower net investment income in Banking and Non-life Insurance and
lower market valuations in the unstable market situation. Net income from
securities trading was reduced by negative value changes in Credit Valuation
Adjustment (CVA) in derivatives owing to market changes. Lower returns on equity
instruments and impairment losses had an effect on a reduced net income from
available-for-sale assets.

Other operating income rose by EUR 69 million year on year to EUR 94 million. In
January 2016, OP Cooperative's Executive Board, for its part, approved a bid
submitted by Visa Inc. in November 2015 to acquire Visa Europe Ltd. In the
second quarter, OP Financial Group recognised EUR 71 million in non-recurring
gain as a result of the transaction.

Total expenses of EUR 779 were at the same level as a year ago (776). Purchased
services increased by EUR 19 million to EUR 54 million and ICT costs by EUR 17
million to EUR 115 million. The Group has increased its development expenditure
on services significantly.

A non-recurring provision recognised in the first quarter a year ago for
personnel costs totalled EUR 9 million, related to the reorganisation of the
central cooperative consolidated. In addition, other operating expenses a year
ago included the non-recurring expenses totalling EUR 19 million related to the
intra-Group ownership reorganisation and the reconstruction of the Vallila
premises.

Impairment losses recognised under various income statement items that reduced
earnings amounted to EUR 62 million (52), of which EUR 23 million (37) concerned
loans and receivables. Net impairment loss on loans and receivables were low, at
0.06% (0.10) of the loan and guarantee portfolio.

The Group's income tax before change in deferred tax amounted to EUR 122 million
(156). The effective tax rate was 19.8% (24.9). A year ago, OP Financial Group's
tax rate was increased by capital gains tax on OP Financial Group's internal
transactions.

Equity capital amounted to EUR 9.6 billion (9.3) on 30 June 2016. Group earnings
added to equity capital. On June 30 2016, EUR 2.5 billion (2.5) in Profit Shares
were included in equity, terminated Profit Shares accounting for EUR 0.2 billion
(0.3).

Outlook towards the year end

The Finnish economy has begun a slight rebound in the first half of the year.
This has been based on a recovery in the domestic market, especially
construction. Weak world economic growth has not been sufficient to stimulate
Finnish exports. A number of major uncertainties are threatening the fragile
economic growth in the euro area and Finland: Brexit, the situation in the
Italian banking sector, economic slowdown in emerging countries and greater
political instability. In addition, the slow progress of structural reforms in
the Finnish economy will slow down Finnish economic recovery. On the whole, the
Finnish economy is expected, however, to continue its recovery although risks of
growth coming to a halt have mounted during the summer.

The continued reduction in market interest rates that have in part turned
negative places a further burden on the net interest income of banks and erodes
the investment income of insurance institutions. Then again, low interest rates
support customers' loan repayment capacity, which has kept banking impairment
loss low despite the prolonged period of slow economic growth. Digitisation in
the financial sector, upgrading fragmented information system infrastructures
and change in customer behaviour will require significant development
investments in the sector in the next few years that will increase expenses and
weaken profitability in the short term. Changes in the operating environment
will highlight the role of operational efficiency and profitability as well as a
strong capital base.

OP Financial Group's full-year 2016 earnings before tax are expected to be of
about the same size as the record earnings reported in 2015. Greater uncertainty
related to the operating environment has further increased short-term earnings
volatility, which will also have an effect on the predictability of the entire
OP Financial Group's full-year earnings performance. The most significant
uncertainties are related to changes in the interest rate and investment
environment.

All forward-looking statements in this interim report expressing the
management's expectations, beliefs, estimates, forecasts, projections and
assumptions are based on the current view of developments in the economy, and
actual results may differ materially from those expressed in the forward-looking
statements.

Press conference

OP Financial Group's financial performance will be presented to the media by
President and Group Executive Chairman Reijo Karhinen in a press conference on
3 August 2016 at 11 am at Gebhardinaukio 1, Vallila, Helsinki.

OP Corporate Bank plc will publish its own Financial Statements Bulletin.

Financial reporting in 2016

Schedule for Interim Reports in 2016:

Interim Report Q1-3/2016 2 November 2016

Helsinki, 3 August 2016

OP Cooperative
Executive Board

Additional information:
Reijo Karhinen, President and Group Executive Chairman, tel. +358 (0)10 252 4500
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Executive Vice President, Corporate Communications, tel.
+358 (0)10 252 8394

DISTRIBUTION
Nasdaq Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media
op.fi and pohjola.fi

OP Financial Group is Finland's largest financial services group whose mission
is to create sustainable prosperity, security and wellbeing for its owner-
customers and in its operating region by means of its strong capital base and
efficiency. OP Financial Group consists of about 180 member cooperative banks,
its central cooperative OP Cooperative, and the latter's subsidiaries and
affiliates. The Group has a staff of 12,000 and approximately 1.7 million owner-
customers and 4.3 million customers. www.op.fi


[HUG#2032730]

Attachments:

OP Financial Group Q2 2016 background material.pdf

OP Financial Group s interim report Q2 2016.pdf