OP Mortgage Bank
Financial Statements Bulletin for 2010
9 February 2011, 9.00 am Finnish time (GMT+2)
FINANCIAL STATEMENTS BULLETIN FOR 2010
Earnings Development
| EUR thousand | Q4/2010 | Q4/2009 | 2010 | 2009 |
| Income | ||||
| Net interest income | 4,577 | 4,675 | 16,350 | 14,030 |
| Net commissions and fees | -2,055 | -2,127 | -8,450 | -7,970 |
| Net income from trading | 0 | -4 | -1 | 0 |
| Net income from investments | 1 | 0 | 2 | 1 |
| Other operating income | 11 | 0 | 19 | 26 |
| Total | 2,534 | 2,544 | 7,920 | 6,086 |
| Expenses | ||||
| Personnel costs | 65 | 152 | 288 | 297 |
| Other administrative expenses | 374 | 376 | 1,396 | 983 |
| Other operating expenses | 424 | 214 | 1,398 | 864 |
| Total | 864 | 743 | 3,082 | 2,145 |
| Earnings before tax | 1,670 | 1,801 | 4,839 | 3,941 |
Earnings before tax for October-December amounted to EUR 1,670 thousand (1,801). The net interest income decreased to EUR 4,577 thousand (4,675). Net commissions and fees were negative, as in the previous year, with commission income increasing to EUR 720 thousand (596) and commission expenses to EUR 2,775 thousand (2,723). Commission expenses stem mainly from commissions paid to OP-Pohjola Group member banks for servicing housing loans. The bank's expenses amounted to EUR 864 thousand (743).
Earnings before tax for January-December amounted to EUR 4,839 thousand (3,941). Net interest income rose to EUR 16,350 thousand (14,030) due to the growth of the loan portfolio.
The bank's expenses increased to EUR 3,082 thousand (2,145). Growth in expenses derived largely from the ICT-services and the professional services purchased in connection with the new covered note programme. OPA did not recognise any loan losses in 2010.
Balance Sheet and Off-balance Sheet Commitments
OPA's balance sheet total amounted to EUR 5,191 million on 31 December (EUR 4,555 million).
Change in Major Asset and Liability Items
| EUR Million | 31 Dec 2010 | 30 Sep 2010 | 30 June 2010 | 31 March 2010 | 31 Dec 2009 |
| Balance Sheet | 5,191 | 4,418 | 4,624 | 4,450 | 4,555 |
| Receivables from customers | 5,008 | 4,213 | 4,398 | 4,203 | 4,360 |
| Receivables from financial institutions | 62 | 48 | 89 | 56 | 55 |
| Debt securities issued to the public | 3,287 | 3,330 | 3,332 | 3,336 | 3,311 |
| Liabilities to financial institutions | 1,640 | 840 | 1,070 | 840 | 1,000 |
| Shareholders' equity | 159 | 143 | 142 | 141 | 140 |
| Off-balance sheet commitments | 7 | 9 | 10 | 12 | 15 |
On December 2010, households accounted for 99 per cent (99) of the loan portfolio and housing corporations for 1 per cent (1). The bank's non-performing loans increased but remained at low levels totalling EUR 1,4 million (0,8) on December 2010. No impairment losses on loans were recognised.
The carrying amount of the bonds issued to the public totalled EUR 3,287 million (3,311) on 31 December. OPA issued its fourth covered bond at a nominal value of EUR 1,000 million on international capital markets in June. Moody's Investor Services and Standard & Poor's Rating Services have given the bond their highest credit ratings of Aaa and AAA. The covered bond, issued in 2008 at a nominal value of EUR 1,000 million, matured and were paid off in June. In addition to bonds, OPA funded its operations through financing loans taken out with Pohjola Bank plc. On 31 December, financing loans totalled EUR 1,640 million (1,000).
Shareholders' equity increased to EUR 159 million (140). Shareholders' equity increased by EUR 15 million after OP-Pohjola Group Central Cooperative made an additional investment in the company in October. Retained earnings amounted to EUR 13,8 million (10,2) on 31 December.
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. OPA has also swapped the fixed interest rates of the bonds it has issued to short-term variable rates. OPA's interest-rate derivative portfolio totalled EUR 9,622 million (7,832). All derivative contracts have been concluded for hedging purposes. Pohjola Bank plc is the counterparty to all derivative contracts.
Development of Capital Adequacy
OPA's capital adequacy ratio stood at 9,7 % on 31 December. Shareholder's equity increased by EUR 15 million in October when OP-Pohjola Group Central Cooperative made an additional investment in OPA. OPA calculates its capital adequacy in compliance with Basel II. The capital requirement for credit risk is calculated using the Standardised Approach. With respect to the capital adequacy requirement for operational risks, OPA adopted the Standardised Approach in the report period.
| OWN FUNDS, EUR thousand | 31 Dec 2010 | 30 Sep 2010 | 30 June 2010 | 31 March 2010 | 31 Dec 2009 |
| Tier I | 157,669 | 141,513 | 140,764 | 140,057 | 139,067 |
| of which capital loans | |||||
| Tier II | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 |
| Decreases | |||||
| Total | 177,669 | 161,513 | 160,764 | 160,057 | 159,067 |
| Risk-weighted receivables, investments and off-balance sheet commitments | 1,836,279 | 1,556,949 | 1,627,208 | 1,562,989 | 1,622,243 |
| Capital adequacy ratio, % | 9.7 | 10.4 | 9.9 | 10.2 | 9.8 |
| Tier I ratio to risk-weighted receivables, investments and off-balance sheet commitments | 8.6 | 9.1 | 8.7 | 9.0 | 8.6 |
The increase in shareholders' equity arising from the measurement of pension liabilities and the assets covering them, under IFRS, is not considered own funds. Furthermore, intangible assets was also deducted from own funds.
| Risk-weighted receivables, investments and off balance-sheet commitments, EUR thousand | 31 Dec 2010 | 30 Sep 2010 | 30 June 2010 | 31 March 2010 | 31 Dec 2009 |
| Receivables and investments | 1,824,798 | 1,543,476 | 1,613,851 | 1,548,950 | 1,610,079 |
| Off-balance-sheet items | 2,748 | 2,621 | 2,505 | 3,187 | 4,039 |
| Market risk | - | - | - | - | - |
| Operational risks | 8,733 | 10,852 | 10,852 | 10,852 | 8,125 |
| Risk-weighted receivables, investments and off balance-sheet commitments, total | 1,836,279 | 1,556,949 | 1,627,208 | 1,562,989 | 1,622,243 |
The increase in the amount of risk-weighted receivables was due to an increased loan portfolio.
Joint Responsibility and Joint Security
Under the Act on Cooperative Banks and Other Cooperative Credit Institutions, the amalgamation of the cooperative banks comprises the organisation's central institution (OP-Pohjola Group Central Cooperative), the Central Cooperative's member credit institutions and the companies belonging to their consolidation groups. This amalgamation is supervised on a consolidated basis. The Central Cooperative and its member banks are ultimately responsible for each other's liabilities and commitments. The Central Cooperative's members at the end of the report period comprised OP-Pohjola Group's 213 member banks as well as Pohjola Bank plc, Helsinki OP Bank Plc, OP Mortgage Bank and OP-Kotipankki Plc. OP-Pohjola Group's insurance companies do not fall within the scope of joint responsibility.
The central institution is obligated to provide its member credit institutions with instructions on their internal supervision and risk management, their operations in securing liquidity and capital adequacy, and compliance with uniform accounting principles in preparing the coalition's consolidated financial statements.
The central institution and its member credit institutions are jointly responsible for the liabilities of the central institution or a member credit institution placed in liquidation or bankruptcy that cannot be paid from its assets. The liability is divided between the central institution and the member credit institutions in ratios following the balance sheet total.
Inspite of the joint responsibility and the joint security, pursuant to Section 25 of the Act on Mortgage Credit Bank Operations, 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 five employees. It purchases all key support services from Central Cooperative and its Group companies, which reduces the need for more staff.
Administration
The General Meeting held in August confirmed the composition of the new Board of Directors. Mr. Harri Luhtala, Chief Financial Officer, OP-Pohjola Group Central Cooperative was elected as a new member of the Board of Directors and Mr. Harri Nummela was left out of the Board of Directors. The Board composition is as follows:
Chairman Harri Luhtala Chief Financial Officer, OP-Pohjola Group Central Cooperative
Vice Chairman Mikko Hyttinen Senior Vice President, OP-Pohjola Group Central Cooperative
Members Sakari Haapakoski Bank Manager, Oulun Osuuspankki
Jari Himanen Managing Director, Etelä-Karjalan Osuuspankki
Hanno Hirvinen Executive Vice President, Pohjola Bank plc
Heikki Kananen Managing Director, Mäntsälän Osuuspankki
Matti Nykänen Senior Vice President, OP-Pohjola Group Central Cooperative
Mikko Rosenlund Managing Director, Tampereen Seudun Osuuspankki
Managing Director Lauri Iloniemi.
Outlook
The existing issuance programme will make it possible to issue new covered bonds in 2011. The overall quality of the credit portfolio is expected to remain strong.
Income Statement
| EUR thousand | Q4/2010 | Q4/2009 | 2010 | 2009 |
| Interest income | 19,407 | 14,005 | 63,314 | 68,928 |
| Interest expenses | 14,829 | 9,330 | 46,963 | 54,899 |
| Net interest income | 4,577 | 4,675 | 16,350 | 14,030 |
| Net commissions and fees | -2,055 | -2,127 | -8,450 | -7,970 |
| Net income from trading | 0 | -4 | -1 | 0 |
| Net income from investments | 1 | 0 | 2 | 1 |
| Other operating income | 11 | 0 | 19 | 26 |
| Personnel costs | 65 | 152 | 288 | 297 |
| Other administrative expenses | 374 | 375 | 1,396 | 983 |
| Other operative expenses | 424 | 214 | 1,398 | 864 |
| Earnings before tax | 1,670 | 1,801 | 4,839 | 3,941 |
| Income taxes | 505 | 469 | 1,264 | 1,017 |
| Profit for the period | 1,164 | 1,333 | 3,574 | 2,924 |
Key Ratios
| Q4/2010 | Q4/2009 | 2010 | 2009 | |
| Return on equity (ROE), % | 3.1 | 4.7 | 2.4 | 2.6 |
| Cost/income ratio, % | 34 | 29 | 39 | 35 |
Calculation of key ratios
Return on equity, % = Annualised profit for the period / Equity capital (average equity capital at the beginning and end of the period) × 100
Cost/income ratio, % = Personnel costs + Other administrative expenses + Other operating expenses / Net interest income + Net commission income + Net income from trading + Total net income from investments + Other operating income × 100
Balance Sheet
| EUR thousand | 30 Dec 2010 | 30 Sep 2010 | 30 June 2010 | 31 March 2010 | 31 Dec 2009 |
| Receivables from financial institutions | 61,673 | 48,373 | 88,815 | 56,093 | 55,017 |
| Derivative contracts | 71,255 | 95,897 | 103,945 | 94,378 | 75,934 |
| Receivables from customers | 5,008,381 | 4,212,596 | 4,398,089 | 4,202,733 | 4,360,036 |
| Investments assets | 17 | 17 | 17 | 17 | 17 |
| Intangible assets | 914 | 954 | 942 | 886 | 942 |
| Tangible assets | 3 | 4 | 4 | 5 | 5 |
| Other assets | 48,790 | 59,985 | 32,441 | 95,524 | 63,177 |
| Tax receivables | |||||
| Total assets | 5,191,034 | 4,417,826 | 4,624,252 | 4,449,634 | 4,555,128 |
| Liabilities to financial institutions | 1,640,000 | 840,000 | 1,070,000 | 840,000 | 1,000,000 |
| Derivative contracts | 21,835 | 5,417 | 12,012 | 5,756 | 11,971 |
| Debt securities issued to the public | 3,286,747 | 3,329,640 | 3,331,736 | 3,336,060 | 3,310,811 |
| Reserves and other liabilities | 63,513 | 80,000 | 48,390 | 106,233 | 71,727 |
| Tax liabilities | 140 | 135 | 219 | 450 | 395 |
| Subordinated debt securities | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 |
| Total liabilities | 5,032,235 | 4,275,192 | 4,482,356 | 4,308,500 | 4,414,904 |
| Shareholders' equity | |||||
| Share capital | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 |
| Reserve for invested unrestricted . equity | 85,000 | 70,000 | 70,000 | 70,000 | 70,000 |
| Retained earnings | 13,799 | 12,635 | 11,896 | 11,135 | 10,224 |
| Total equity | 158,799 | 142,635 | 141,896 | 141,135 | 140,224 |
| Total liabilities and shareholders' equity | 5,191,034 | 4,417,826 | 4,624,252 | 4,449,634 | 4,555,128 |
Off-balance Sheet Commitments
| EUR thousand | 30 Dec 2010 | 30 Sep 2010 | 30 June 2010 | 31 March 2010 | 31 Dec 2009 |
| Binding credit commitments | 7,456 | 8,820 | 9,939 | 12,245 | 15,108 |
Change Calculation on Shareholders' Equity
| EUR thousand | Share capital | Other reserves | Retained earnings | Total equity |
| Shareholders' equity 1 Jan 2009 | 60,000 | 20,000 | 7,317 | 87,317 |
| Reserve for invested unrestricted equity | 50,000 | 50,000 | ||
| Profit for the period | 2,924 | 2,924 | ||
| Other changes | -18 | -18 | ||
| Shareholders' equity 31 Dec 2009 | 60,000 | 70,000 | 10,224 | 140,224 |
| EUR thousand | Share capital | Other reserves | Retained earnings | Total equity |
| Shareholders' equity 1 Jan 2010 | 60,000 | 70,000 | 10,224 | 140,224 |
| Reserve for invested unrestricted equity | 15,000 | 15,000 | ||
| Profit for the period | 3,574 | 3,574 | ||
| Other changes | 0 | |||
| Shareholders' equity 31 Dec 2010 | 60,000 | 85,000 | 13,799 | 158,799 |
Cash Flow Statement
| EUR thousand | 2010 | 2009 |
| Liquid assets 1 January | 41,128 | 18,379 |
| Cash flow from operations | 10,597 | -1,256,212 |
| Cash flow from investments | -246 | -440 |
| Cash flow from financing | 10,193 | 1,279,401 |
| Liquid assets 31 December | 61,672 | 41,128 |
The cash flow statement presents the cash flows for the period on the cash basis, divided into cash flows from operations, investments and financing. Cash flows from operations includes the cash flows generated from day-to-day operations. Cash flow from investments includes payments related to tangible and intangible assets, investments held to maturity and shares that are not considered as belonging to cash flow from operations. Cash flow from financing includes cash flows originating in the financing of operations either on equity or liability terms from money or capital market. Liquid assets include cash in hand and receivables from financial institutions payable on demand. The statement has been prepared using the indirect method.
| Fair values of financial assets and liabilities | ||||
| EUR Thousand | Loans and receivables | Recognised at fair value through profit or loss | Available for sale | Total |
| Financial assets | ||||
| Receivables from financial institutions | 61,673 | 61,673 | ||
| Derivative contracts | 71,255 | 71,255 | ||
| Receivables from customers | 5,008,381 | 5,008,381 | ||
| Equities | 17 | 17 | ||
| Other receivables | 48,790 | 48,790 | ||
| Balance at 31 December 2010 | 5,118,844 | 71,255 | 17 | 5,190,117 |
| Balance at 31 December 2009 | 4,478,235 | 75,934 | 17 | 4,554,186 |
| EUR Thousand | Recognised at fair value through profit or loss | Other liabilities | Total | |
| Liabilities to financial institutions | - | 1,640,000 | 1,640,000 | |
| Derivative contracts | - | 21,835 | 21,835 | |
| Debt securities issued to the public | - | 3,286,747 | 3,286,747 | |
| Subordinated liabilities | - | 20,000 | 20,000 | |
| Other liabilities | - | 63,653 | 63,653 | |
| Balance at 31 December 2010 | - | 21,835 | 5,010,399 | 5,032,235 |
| Balance at 31 December 2009 | - | 11,971 | 4,402,933 | 4,414,904 |
Debt securities issued to the public are carried at amortised cost. On 31 December 2010, the fair value of these debt instruments was approximately EUR 63 343 thousand higher than their carrying amount, based on information available in markets and employing commonly used valuation techniques. Subordinated liabilities are carried at amortised cost. Their fair value are substantially lower than their carrying amount, but determining fair values realiably is difficult in the current market situation.
Derivative Contracts 31 December 2010
| EUR thousand | Nominal values/the remaining maturity | Fair values | Credit counter-value | ||||
| Less than 1 year | 1-5 years | More than 5 years | Total | Assets | Liabilities | ||
| Interest rate derivatives | |||||||
| Hedging | 364,261 | 9,258,120 | - | 9,622,381 | 71,255 | 21,835 | 144,451 |
| Trading | |||||||
| Total | 364,261 | 9,258,120 | - | 9,622,381 | 71,255 | 21,835 | 144,451 |
Derivative Contracts 31 December 2009
| EUR thousand | Nominal values/the remaining maturity | Fair values | Credit counter-value | ||||
| Less than 1 year | 1-5 years | More than 5 years | Total | Assets | Liabilities | ||
| Interest rate derivatives | |||||||
| Hedging | 2,227,376 | 5,605,061 | - | 7,832,436 | 75,934 | 11,971 | 156,431 |
| Trading | |||||||
| Total | 2,227,376 | 5,605,061 | - | 7,832,436 | 75,934 | 11,971 | 156,431 |
All derivative contracts have been entered into for hedging purposes, regardless of their classification in accounting.
Related-party transactions
OPA's related parties include OP-Pohjola Group Central Cooperative and its subsidiaries, the OP-Pohjola Group pension insurance organisations OP-Pension Fund and OP-Pension Foundation, and the company's administrative personnel. Standard terms and conditions for credit are applied to loans granted to the related parties. Loans are tied to generally used reference rates. Related-party transactions have not undergone any substantial changes since 31 December 2009.
The Financial Statements Bulletin for 1 January - 31 December 2010 has been prepared in accordance with IAS 34 (Interim Financial Reporting), as approved by the EU. The Financial Statements 2010 contain a description of the accounting policies applied. Given that all figures have been rounded off, the sum total of individual figures may deviate from the presented sums.
Helsinki, 9 February 2011
OP Mortgage Bank
Board of Directors
For further information, please contact Mr Lauri Iloniemi, Managing Director, tel. +358 10 252 3541
[1] For balance sheet and other cross-sectional figures, the point of comparison is the figure at the end of 2009. Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago.