OKO BANK PLC INTERIM REPORT 1 APRIL 30 JUNE 2007 WITH PRESIDENT AND CEO'S COMMENTS

Transcription

1 OKO BANK PLC Company Release 9 August 2007 at 8.00 am OKO BANK PLC INTERIM REPORT 1 APRIL 30 JUNE 2007 WITH PRESIDENT AND CEO'S COMMENTS President and CEO's comments: "In the second quarter, consolidated earnings before tax stood at EUR 100 million. This was a good result, a considerable improvement on the first quarter and the second quarter last year. Consolidated earnings in the second quarter included EUR 13 million more in non-recurring capital gains year-on-year. In Banking and Investment Services, performance and growth remained strong. The loan and guarantee portfolio grew by 6% in the second quarter. In the last 12 months, the growth was 15%. The risk exposure remained favourable in the first half of the year. The balance on technical account in Non-life Insurance was higher than the corresponding period last year. Growth in insurance premium revenue and the number of new customers continued to be brisk, boosted by cooperation with OP Bank Group member cooperative banks. I am confident that the Group will achieve the target of a 10% earnings improvement set for 2007." Helsinki, 9 August 2007 Mikael Silvennoinen 1

2 OKO BANK PLC INTERIM REPORT 1 APRIL 30 JUNE 2007 April June 2007 Earnings before tax stood at EUR 100 million (57). 1) Earnings per share at the end of the year stood at EUR 0.36 (0.21), while equity per share was EUR 8.91 (8.65). 1) The return on equity was 12.2 per cent (2.1). The Group's like-for-like net income increased by 25% and like-for-like expenses by 9%. Insurance premium revenue increased by 9% compared with the same period in The net number of Pohjola's loyal customers increased by 8,400 in April-June. The loan and guarantee portfolio of Banking and Investment Services increased by 6%, and during the last 12 months by 15%. In Non-life Insurance, the combined ratio was 92.3% (94.4). The combined ratio excluding amortisation on intangible assets arising from the corporate acquisition was 89.3.% (91.6%). The Arbitral Tribunal's decision of 2 May 2007 to increase the redemption price payable to Pohjola Group plc's minority shareholders by EUR 1.00 to EUR per share was recognised in the second quarter. The decision had no material effect on earnings. January June 2007 Earnings before tax stood at EUR 165 million (126). 1) Earnings per share at the end of the year stood at EUR 0.61 (0.47), while equity per share was EUR 12.8 (5.2). The Group's like-for-like net income increased by 17% and like-for-like expenses by 4%. Insurance premium revenue increased by 9% compared with the same period in The net number of Pohjola's loyal customers increased by 17,300 in January June. The non-life insurance combined ratio was 97.9% (98.2), while the operating combined ratio was 94.9% (94.8). The figures in this release are unaudited. 1) Year 2006 figures for the corresponding periods are used as comparative figures. Unless otherwise specified, figures at the end of March 2007 are used when comparing balance sheet and other cross-sectional items. 2

3 Key figures Q2/ 2007 Q2/ 2006 H1/ 2007 H1/ Dec Earnings before tax, Profit for the period, Return on equity, % Balance sheet total, EUR billion Risk-weighted items, EUR billion Loan portfolio, EUR billion Assets under management, EUR billion Capital adequacy, % Tier 1 ratio, % Proportion of non-performing receivables Earnings per share, EUR Earnings per share including change in fair value reserve Earnings per share, diluted, EUR Equity per share, EUR Market capitalisation (A + K) Average personnel

4 Earnings by quarter Q1 Q2 Q3 Q4 Q1 Q2 Net interest income Impairment losses on receivables Net interest income after impairment losses Net income from non-life insurance Net commissions and fees Net trading income Net investment income Other operating income Total net income Personnel costs IT expenses Amortisation and depreciation Other expenses Total expenses Share of associates profits/losses Earnings before tax Income tax Profit for the period Change in fair value reserve Earnings for the period at fair value Return on equity, % Tier 1 ratio, % CONSOLIDATED EARNINGS April June OKO Bank Group's earnings before tax increased by 74% to EUR 100 million (57). Earnings before tax at fair value rose to EUR 75 million (12). Consolidated net earnings increased by 32% to EUR 214 million (163), while expenses rose by 9% to EUR 114 million (105). This figure includes capital gains worth EUR 11 million (4) as one-off items for the sale of OMX shares, and the EUR 6 million in capital gains for the sale of the marine hull insurance portfolio and EUR 1 million as interest expenses related to the redemption of Pohjola shares held by minority shareholders. The capital adequacy ratio at the end of the review period was 13.3% (12.7) and the Tier 1 ratio was 8.0% (8.0). Earnings per share at the end of the year stood at EUR 0.36 (0.21), while equity per share was EUR 8.91 (8.65). Annualised return on equity stood at 12.2% (2.1). 4

5 January June OKO Bank Group's earnings before tax amounted to EUR 165 million (126) in the first half of These figures included non-recurring capital gains worth EUR 3 million more than last year for the same period. Earnings were impaired by the liquidated damages of EUR 10 million related to the termination of partnership between Pohjola Group plc and savings banks. Consolidated net earnings increased by 17% to EUR 393 million (336), while expenses rose by 9% to EUR 228 million (209). Earnings per share were EUR 0.61 (0.47). Annualised return on equity stood at 12.8% (5.2). EARNINGS BY BUSINESS LINE Earnings before tax, Q2/2007 Q2/2006 H1/2007 H1/2006 Banking and Investment Services Non-life insurance operations Other Operations Group total April June In Banking and Investment Services, earnings before tax stood at EUR 52 million (37). The figure included capital gains of EUR 11 million recognised on the sale of OMX shares (4). The loan portfolio of Corporate Banking increased by 5% and stood at EUR 8.7 billion at the end of June. The risk exposure remained good. The average level of margins remained stable and was 0.79% at the end of the period. Non-life Insurance showed earnings before tax of EUR 52 million (EUR 24). The figure included EUR 6 million in capital gains on the sale of the marine hull insurance portfolio. Insurance premium revenue grew by 9% to EUR 219 million (200). The second-quarter balance on technical account was better than a year ago. Investment income entered in the income statement increased to EUR 41 million (28). Investment income at fair value totalled EUR 23 million (loss of EUR 10 million). Other Operations made a pre-tax loss of EUR 5 million (4 loss). Earnings before tax from Other Operations included EUR 1 million as interest expenses related to the redemption of Pohjola shares held by minority shareholders. January June In Banking and Investment Services, earnings before tax stood at EUR 97 million (84). The figure included capital gains of EUR 11 million recognised on the sale of OMX shares (12). The loan portfolio of Corporate Banking increased by 11% from the year-end and by 18% from the end of last June. In Non-life Insurance, earnings before tax stood at EUR 83 million (47). This figure included capital gains worth EUR 6 million from the sale of the marine hull insurance portfolio. Insurance premium revenue grew by 9% to EUR 423 million (388). Investment income entered in the income statement increased to EUR 88 million (64). Investment income at fair value totalled EUR 87 million (22). 5

6 Other Operations made a pre-tax loss of EUR 15 million (5 loss). Earnings before tax from Other Operations included EUR 10 million in liquidated damages ruled by the Arbitral Tribunal on 2 April 2007 related to the partnership agreement with savings banks, and EUR 1 million in interest expenses related to the redemption of Pohjola shares held by minority shareholders. Earnings for the same period a year ago included a capital gain of EUR 2 million recognised on the sale of Eurocard shares. INTEGRATION The integration process of OKO Bank's and Pohjola's business operations proceeds according to plan. The results so far support earlier estimates of income and cost synergies, the annual amount of which is estimated to increase to a good EUR 50 million before tax by Decisions made thus far result in annual savings of approximately EUR 29 million, of which decisions worth EUR 1 million were taken in the second quarter of New cost savings are mainly gained from ICT functions in Non-life Insurance. Of the annual cost savings of EUR 29 million, EUR 13 million were gained in The cost savings for 2007 are estimated to total EUR 27 million and the cost savings as of year 2008 EUR 29 million. In Non-life Insurance, the number of loyal customers increased by 8,400 households, over 90% of which was gained through cooperation within OP Bank Group. At the end of June, the number of loyal customers was over 384,000, while the target by the end of 2010 is 500,000. The average annual premiums written per loyal customer household are over EUR 600. Thanks to the long-term partnership agreement between OP Bank Group and Kesko, Pohjola joined Kesko's Plussa loyal customer programme. Integration costs recognised for the period totalled approximately EUR 1 million. In the period from September 2005 to June 2007, the integration expenses pertaining to the acquisition of Pohjola totalled around EUR 22 million. GROUP RESTRUCTURING The Arbitral Tribunal appointed by the Central Chamber of Commerce decided on 2 May 2007 to set the redemption price of the shares in Pohjola Group plc at EUR per share. The Tribunal confirmed the annual interest payable on the redemption price from 13 June to 30 June 2006 at 5.5% and from 1 July 2006 at 6.0%. The per-share redemption price set by the Tribunal is EUR 1.00 higher than the EUR bid by OKO Bank. On 29 June 2006, OKO Bank paid the former minority shareholders of Pohjola Group plc entitled to redemption (15,215,137 shares) EUR 13,35 per share in redemption price and, on this amount, an interest of 2.50% as of 13 June The remainder of the redemption price (EUR 1.00) and interest will be paid to those entitled to it no later than within a month from the effective date of the arbitral award. OKO Bank agreed at the end of June 2007 with the key minority shareholders that the award will remain final between the parties involved and that the parties will not appeal it. This agreement applies to some 66% of all of the disputed Pohjola shares held by minority shareholders. Some other minority shareholders and the special representative have appealed the arbitral award. For this reason, OKO Bank decided to appeal the arbitral award, in respect of matters other than agreed, and demand that the district court confirm the per-share redemption price at EUR Owing to the appeal, OKO Bank will pay the amounts of the arbitral award, plus interest, only to minority shareholders who will notify OKO Bank of accepting the arbitral award. OKO Bank notified the minority shareholders of this in writing in July

7 The arbitral award will have no material impact on consolidated earnings. The redemption price was entered as an additional share acquisition cost in the second quarter. On 19 April 2007, OKO savings banks which had a majority shareholding in Nooa Savings Bank Ltd acquired the shareholding of OKO Bank in Nooa Savings Bank for EUR 6.3 million. OKO Bank had a 25% shareholding in Nooa Savings Bank. OKO Bank obtained possession of Nooa Savings Bank shares at the end of 2006 once the earlier holder of the shares, Pohjola Group plc, merged with OKO Bank. In accordance with the Articles of Association of Nooa Savings Bank, the other shareholders of the company, in that connection, became entitled to redeem the shares transferred to OKO Bank. The redemption did not have any impact on OKO Bank Group's earnings. Pohjola Non-Life Insurance Company Ltd (Pohjola), a subsidiary of OKO Bank plc, sold its marine hull insurance portfolio to Codan Forsikring A/S. An agreement was signed on the deal on 21 March 2007 and the transaction was carried out in the second quarter. The sale resulted in capital gains of EUR 6 million. Premiums written for Pohjola's marine hull insurance totalled EUR 18 million in PERSONNEL At the end of June, the Group employed 2,995 people, up by 27 from the end of March. A total of 736 employees (734) worked for Banking and Investment Services and a total of employees (2 182) for Non-life Insurance. The Group Administration employed a total of 54 people (52). CAPITAL EXPENDITURE Gross investments totalled EUR 5 million in the second quarter, EUR 1 million allocated to Banking and Investment Services, EUR 3 million to Non-life Insurance and EUR 1 million to Group Administration. Investments were made in IT systems to develop network services and streamline internal processes. CAPITAL ADEQUACY The capital adequacy ratio as per the Act on Credit Institutions was 13.3% (12.7), whereas the statutory minimum requirement is 8%. The Tier 1 ratio of OKO Bank's own funds on risk-weighted items was 8.0% (8.0). The risk-weighted items increased from EUR 12,239 million to EUR 12,465 million, i.e. 2% mainly as a result of growth in the loan portfolio. Own funds grew from EUR 1,550 million to EUR 1,663 million mainly owing to an increase in earnings and an issue included in upper Tier 2 own funds. Tier 1 own funds totalled EUR 999 million (975). Capital loans accounted for EUR 224 million of Tier 1 own funds, i.e. 22.4% (22.9). The requirement of own funds related to the coverage of market risks was EUR 103 million (104). A new set of capital adequacy requirements entered into force in the EU at the beginning of The amended Act on Credit Institutions was approved on 9 February 2007 and entered into force on 15 February OKO Bank will make use of the new calculation methods made available by the transitional provisions in the capital adequacy reform. OKO Bank's capital adequacy for 2007 will be calculated under the existing requirements, i.e. the same way as in In the calculation of capital adequacy requirements for credit risk, OKO aims to phase in the internal ratings-based approach (IRBA), with the first items such as corporate responsibility and capital adequacy requirements calculated using IRBA in The capital adequacy requirement of operational risks will be calculated using the basic method from 2008 onwards. 7

8 RISK EXPOSURE Banking and Investment Services In Banking and Investment Services, the risk exposure remained good. Total exposure fell during the second quarter by EUR 1.2 billion to EUR 26.8 billion. The decline was mainly caused by repayment of credit granted to OP Mortgage Bank. Total liability rose by EUR 0.5 billion from the beginning of the year. The relative share of investment-grade exposure that is, ratings 1 to 4, excluding private customers in total exposures remained stable at 73% (75), the share of ratings 11 to 12 was 0.2% (0.3) and that of non-rated exposure 3% (3). Of the corporate exposure, the share of investment-grade corporate exposure rose to 52% (51). The corporate exposure of the two lowest rating classes was EUR 58 million (64), i.e. 0.6% of the corporate exposure. The amount of significant customer exposure remained stable at EUR 3.1 billion (3.0). The proportion of non-performing receivables of the loan and guarantee portfolio remained very low, at EUR 16 million (23), or 0.2% (0.2). The effect on the result by loan and guarantee losses and impairment losses was EUR 0.5 million during the first half of the year. Market risks were kept at a moderate level despite growth in the volume of derivatives trading. The amount of liquidity reserves totalled EUR 5.2 billion (5.3) at the end of June. The average maturity of funding has extended, because certificate-of-deposit funding with a term less than 12 months reduced by EUR 1.8 billion. The effect of operational risks reducing earnings was EUR 0.6 million in the first half. The immediate risks related to American sub-prime housing loans are very small. Non-life insurance operations The capital adequacy of Non-life Insurance amounted to EUR 666 million (623) at the end of June. The ratio of solvency capital to insurance premium revenue (solvency ratio) was 81% (77). In Non-life Insurance, there were 53 (44) major or medium-sized losses (losses in excess of EUR 0.1 million), with the claims incurred of these losses retained for own account totalling EUR 17 million (19). During the first half, there were 106 (85) major or medium-sized losses, with the claims incurred of these losses retained for own account totalling EUR 33 million (31). Of the investment portfolio, bonds and bond funds accounted for 67% (72) and equities for 17% (18). The duration of the fixed-income portfolio shortened during the first half from 4.8 to 3.6 years. Investment income at fair value stood at 1.0% in April June and 3.5 % in January June. The immediate risks related to American sub-prime housing loans are very small. Credit ratings OKO Bank's credit ratings are as follows: Rating agency Short-term debt Long-term debt Standard & Poor's A-1+ AA- Moody's P-1 Aa1 Fitch F1+ AA- In April, Moody's revised OKO Bank s Long-Term Issuer Rating to Aa1 (Aa2 on 31 December 2006). Outlook has been confirmed stable by all rating agencies. 8

9 SHARE CAPITAL AND SHAREHOLDERS At the end of June, a total of million Series A shares were quoted on the Helsinki Stock Exchange. Series A shares represented 78.4% of all shares and 42.1% of votes. The number of Series K shares totalled around 44 million. At the end of the review period, the Series A share price was EUR while the share-issue adjusted price was EUR a year earlier. In April June, the share price reached a high of EUR and a low of EUR Around 37,7 million shares changed owners during the second quarter. In the first quarter of 2006, the corresponding number was 24.2 million. At the end of June, OKO Bank had some 31,000 shareholders, down by 1,000 during the second quarter. Around 95% of the shareholders were private individuals. No significant changes occurred in the holdings of the major shareholders. The largest shareholder was the OP Bank Group Central Cooperative, which held 30% of OKO Bank shares and 56.9% of the votes. The number of nominee registered shares in proportion to all Series A shares increased in the second quarter from 18.7% to 20.4%. EVENTS AFTER THE REPORTING PERIOD A total of 112,860 Series K shares were converted into Series K shares in July. The conversions were entered in the Trade Register on 13 July The conversions did not affect the total number of shares outstanding or the amount of equity capital. OUTLOOK TOWARDS THE YEAR-END Growth in the corporate loan market is expected to continue but at a slower rate than in the first half. Lending margins are not expected to decrease significantly. The corporate loan portfolio of OKO Bank's Banking and Investment Services is forecast to grow faster than the market average. The risk exposure should remain good and impairment losses on receivables at a lower level than normally. OKO Bank's commission income is expected to increase further especially as a result of high demand for asset management services and structured product and service packages. Provided that the operating environment remains as expected, 2007 earnings before tax from Banking and Investment Services are anticipated to be better than in In addition to market growth, intense cooperation with OP Bank Group member cooperative banks, which is expected to improve the market share in the household customer base in particular, will boost insurance premium revenue in Non-life Insurance. Growth in the Group's insurance premium revenue is expected to exceed GDP growth this year, despite the sale of the marine hull insurance portfolio. The unfavourable trend in major losses in the latter half of 2006 is expected to normalise. In Nonlife Insurance, the combined ratio excluding changes in reserving bases and the amortisation on intangible assets arising from the acquisition is estimated to be less than 94.0% if the trend in major losses is similar to that in the first half of the year. The long-term return expectation for the investment portfolio in Non-life Insurance is 5.2%. Earnings from Other Operations, excluding the liquidated damages of EUR 10 million ruled by the Arbitral Tribunal, are expected to be on a par with earnings in OKO Bank is anticipated to have every prospect of improving earnings before tax at fair value by at least 10% in 2007, provided that no radical changes take place in equity and bond markets. 9

10 The main risks related to the materialisation of the near-future outlook stated above concern the general operating environment and the development of interest rates and share prices. The management of the Group has no influence on the general operating environment. However, the management may influence the effects of interest rate changes and the equity market on investments and trading by investing assets securely, by diversifying risks, by ensuring the professional skills of its personnel, and by effective risk management. In addition, the management may influence the appropriate pricing of customer-specific risk and consequently the financial performance of the Group. All the estimates presented in this report are based on the current understanding of the financial development of the Group and its different operations; actual performance may vary significantly. 10

11 BUSINESS OPERATIONS The table below presents the actual earnings of the Group and its business lines before tax, as well as the strategic targets and their actuals. The calculation of key ratios is presented on pages Q2/2007 Q2/2006 H1/2007 H1/ Target 2009 Banking and Investment Services Earnings before tax, Operating return on equity (ROE), % > 18 Operating cost/income ratio, % Non-life insurance operations Earnings before tax, Operating return on equity (ROE), % > 20 Operating combined ratio, % < 94 Other Operations Earnings before tax,

12 BANKING AND INVESTMENT SERVICES Banking and Investment Services comprises the following divisions: Corporate Banking Markets Group Treasury Asset Management Q1 Q2 Q3 Q4 Q1 Q2 Income statement, Net interest income Impairment losses on receivables Net interest income after impairment losses Net commissions and fees Net trading income Net investment income Other operating income Total net income Total expenses Amortisation on intangible assets from acquisition Earnings before tax Change in fair value reserve Earnings before tax at fair value Key ratios, % Operating return on equity (ROE) p.a Operating cost/income ratio Proportion of non-performing receivables to receivables from customers and guarantees, % Information on volumes, EUR billion Receivables from customers Unused standby credit facilities Guarantees Assets under management Notes and bonds Receivables from member cooperative banks Liabilities to member cooperative banks Risk-weighted items Debt securities issued to the public Average personnel Average margins, % Margin on corporate loan stock Margin on institutional loan stock Margin on member cooperative banks' loan stock Margin on member cooperative banks' deposits

13 Earnings In Banking and Investment Services, earnings before tax stood at EUR 52 million (37). Net interest income before impairment losses was EUR 34 million (28). Impairment losses on receivables burdened earnings by a net sum of EUR 0.5 million (0). Net commission income increased to EUR 30 million (22). Net trading income was EUR 2 million (2). Net investment income amounted to EUR 13 million (8). The income included capital gains of EUR 11 million recognised on the sale of OMX shares (4). Operating return on equity was 17.7% (14.0) and the cost/income ratio was 38.2% (43.1). Corporate Banking OKO Bank's market position in Corporate Banking strengthened further. In Corporate Banking, the aggregate amount of loans and guarantees increased in the second quarter by 6% to EUR 10.7 billion. The annual growth was 16%. The loan portfolio of Corporate Banking increased by 5% in April June and stood at EUR 8.7 billion. The annual growth was EUR 1.3 billion or 18%. At the end of June, OKO Bank's market share in corporate loans went up to 17.8%, which represented growth of 0.6 percentage point from the year end. In Corporate Banking, net interest income increased by 28% to EUR 26 million (20). The margin level in the corporate loan portfolio remained stable and was 0.79% at the end of the second quarter. The margins of institutional loans remained unchanged in the second quarter. Despite long-lasting and brisk growth in the loan portfolio, the risk exposure is still considered to be good. Net impairment losses totalled EUR 0.5 million (0). In Corporate Banking, earnings before tax improved to EUR 23 million (19). Markets In Markets, earnings before tax increased to EUR 9 million (4), which is mainly explained by larger volumes of customer trading and structured products and growth in the arrangement of debt issues to customers. In April June, OKO Bank acted as the mandated lead arranger in three corporate bond issues, worth a total of EUR 450 million. In May, OP Bank also acted as the mandated lead arranger in a Finnish government bond issue worth four billion euros. In June, OKO Bank was the mandated lead arranger in a covered bond issued by OP Mortgage Bank, worth over one billion euros. OKO Bank was the mandated lead arranger in the initial public offering of Suomen Terveystalo Oyj in April and that of SRV Yhtiöt Oyj in June. 13

14 Central Banking In February, OP Mortgage Bank acquired a mortgage loan portfolio of EUR 1.3 billion from OP Bank Group member cooperative banks, which used the proceeds from the sale to pay back loans totalling around EUR 1.1 billion to OKO Bank. OP Mortgage Bank financed the acquisition of the loan portfolio by taking out a temporary loan from OKO Bank, which it paid back in June. OP Mortgage Bank financed the loan portfolio purchases mainly directly from the capital markets with a covered bond issue in June as OKO acted as one of the mandated lead arrangers. At the end of June, OKO Bank's net receivables from OP Bank Group member cooperative banks totalled EUR 2.6 billion, which was EUR 0.8 billion less than at the end of In Central Banking, earnings before tax were at the same level as in the previous year, EUR 4 million (4). Group Treasury In June, OKO Bank prematurely called in a debenture loan classified as upper Tier 2 own funds (EUR 50 million) and issued a new debenture loan worth GBP 100 million, also classified as upper Tier 2 capital (approx. EUR 148 million). Group Treasury earnings before tax rose to EUR 12 million (7), of which net investment income totalled EUR 13 million (7.5). Earnings included a capital gain of EUR 11 million recognised on the sale of OMX Group shares (4). Asset Management In Asset Management, assets under management increased by EUR 1.2 billion in April June and stood at EUR 32.5 billion (31,3) on 30 June. Growth in customer assets in the review period came from net sales and an increase in market value. Of the amount, institutional customers accounted for EUR 16.6 billion (16.8), OP mutual funds for EUR 14.2 billion (13.1) and OKO Private for EUR 1.0 billion (0.7). In Asset Management, earnings rose to EUR 5 million (3) as a result of increased management fees and materialised cost synergies. January June In Banking and Investment Services, earnings before tax stood at EUR 97 million (84). Net interest income before impairment losses was EUR 64 million (58). Impairment losses on receivables burdened earnings by a net amount of EUR 0.5 million (decrease in impairment loss provisions of EUR 0.8 million) In January June, the loan portfolio of Corporate Banking increased by 11% and stood at EUR 8.7 billion. Net commission income increased to EUR 56 million (45). Commission income was evenly distributed between Corporate Banking, Capital Markets and Asset Management. Net trading income was EUR 9 million (5). Income increased as a result of growth in earnings related to notes and bonds in the first quarter. Net investment income amounted to EUR 18 million (21). The figure included capital gains of EUR 11 million recognised on the sale of OMX shares (12). Operating return on equity was 17.7% (16.4) and the cost/income ratio was 38.6% (40.3). 14

15 NON-LIFE INSURANCE OPERATIONS Non-life Insurance includes the following divisions: Corporate Customers Private Customers Baltic States Q1 Q2 Q3 Q4 Q1 Q2 Income statement, Insurance premium revenue Claims incurred Loss adjustment expenses Operating expenses Amortisation/adjustment of intangible assets related to acquisition Balance on technical account Net investment income Other income and expenses Operating profit Unwinding of discount Finance costs Earnings before tax Change in fair value reserve Earnings before tax at fair value Key ratios, % Operating return on equity Loss ratio Operating expense ratio Operating combined ratio Expense ratio Combined ratio Return on investments Mar 30 Jun 30 Sep 31 Dec 31 Mar 30 Jun Volume data, EUR billion Insurance contract liabilities Discounted insurance contract liabilities Other insurance contract liabilities Investment portfolio Bonds Money market investments Equities Investment property Alternative investments Average personnel

16 April June Earnings Earnings before tax stood at EUR 52 million (24). The figure included capital gains of EUR 6 million from the sale of the marine hull insurance portfolio. The operating return on equity was 26.9% (-14.4). Insurance premium revenue Insurance premium revenue grew by 9% to EUR 219 million (200). The growth was strongest in the Private Customers division where insurance premium revenue increased to EUR 93 million (82) as a result of cooperation within the OP Bank Group and of upgraded service offerings. In the Corporate Customers division, premium revenue of comprehensive motor vehicle and motor liability insurance generated the largest monetary and proportional growth. Premium revenue generated by the Baltic business increased by 21% to EUR 14 million (11). Claims incurred and operating expenses The operating combined ratio was 89.3% (91.6), of which claims incurred represented 61.2 percentage points (63.6). Operating expenses and loss adjustment expenses (cost ratio) increased to 28.1 percentage points (28.0). Claims incurred (excluding loss adjustment expenses) increased to EUR 136 million (129), of which major and medium-sized losses (in excess of EUR 0.1 million) accounted for EUR 17 million (19). The number of major losses of over EUR 2 million retained for own account was 0 (2). The unfavourable trend in motor liability and motor vehicle insurance claims continued in the second quarter. This is explained by the greater incidence of road accidents and increases in car repair prices markedly above those in the general price level. The current economic upswing can also be seen in the sharp rise in traveller's insurance claims. Operating expenses and loss adjustment expenses grew to EUR 60 million (55). Operating expenses amounted to EUR 48 million (43) and loss adjustment expenses to EUR 12 million (11). The higher expenses can be primarily attributed to the rising costs in insurance sales and loss adjustment. Investment operations In Non-life Insurance, the fair value of investments at the end of June was EUR 2.4 billion (2.4). Of the amount, equities accounted for 17% (18) and money market instruments for 1% (1). Return on investments at fair value was 1.0%. Net investment income entered under earnings was EUR 41 million (28). Net investment income at fair value was EUR 23 million. The discount rate for the EUR 1.2 billion pension liabilities was 3.3% (3.3). The unwinding of discount is recognised as a post-balance-on-technical-account item. January June Earnings before tax stood at EUR 83 million (47). 16

17 Insurance premium revenue grew by 9% to EUR 423 million (388). The growth was strongest in the Private Customers division where insurance premium revenue increased to EUR 173 million (154) as a result of cooperation within OP Bank Group and of upgraded service offerings. The operating combined ratio was 94.9% (94.8), of which claims incurred represented 66.0 percentage points (65.6). Operating expenses and loss adjustment expenses (cost ratio) stood at 28.9% (29.1). Claims incurred (excluding loss adjustment expenses) increased to EUR 283 million (258), of which major and medium-sized losses (in excess of EUR 0.1 million) accounted for EUR 33 million (EUR 31 million in 2006). The number of major losses of over EUR 2 million retained for own account was 2 (2). Operating expenses and loss adjustment expenses grew to EUR 119 million (110). Operating expenses amounted to EUR 95 million (88) and loss adjustment expenses to EUR 24 million (22). Operating expenses include integration expenses of EUR 0.7 million (1.6) Return on investments at fair value was 3.5% and net investment income entered under earnings was EUR 88 million (64). Net investment income at fair value was EUR 87 million. The operating return on equity was 30.7% (4.5). OTHER OPERATIONS Earnings from Other Operations consist of Group administrative expenses and funding costs of Pohjola shares Q1 Q2 Q3 Q4 Q1 Q2 Income statement, Net interest income Other net income Income Expenses Earnings before tax April June Other Operations showed a loss of EUR 5 million before tax (a loss of EUR 4 million). Earnings in the second quarter included EUR 1 million in interest expenses related to the redemption of Pohjola shares held by minority shareholders. January June Other Operations showed a loss of EUR 15 million before tax (a loss of EUR 5 million). Earnings in the first quarter were burdened by the liquidated damages ruled by the Arbitral Tribunal on 2 April 2007 for OKO Bank concerning the shareholder agreement dispute over Nooa Savings Bank Ltd. The effect of this was EUR 10 million. Earnings for the same period a year ago included a capital gain of EUR 2 million recognised on the sale of Eurocard shares. 17

18 FORMULAE FOR KEY RATIOS Return on equity (ROE) at fair value Profit for the period + Change in fair value reserve after tax x 100 Shareholders' equity (average of the beginning and end of the period) Cost/income ratio, % Personnel costs + Other administrative expenses + Other operating expenses x 100 Net interest income + Net income from Non-life Insurance + Net commissions and fees + Net trading income + Net investment income + Other operating income Earnings/share (EPS) Profit for the period attributable to parent company owners Share-issue adjusted average number of shares during the financial period Earnings/share (EPS), diluted The denominator is the average share-issue adjusted number of shares during the financial period plus the number of shares which is obtained if all stock options are converted into shares. Subtracted from the figure thus obtained is the number of shares that can be obtained through the exercise of all stock options multiplied by the share subscription price and divided by the average share price during the financial period. Earnings/share at fair value Profit for the period attributable to parent company owners + Change in fair value reserve Share-issue adjusted average number of shares during the financial period Equity/share Shareholders' equity 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, % Own funds x 100 Risk-weighted items 18

19 Tier 1 ratio, % Tier 1 own funds x 100 Risk-weighted items KEY RATIOS IN NON-LIFE INSURANCE The key ratios for Non-life insurance have been calculated in accordance with Insurance Supervisory Authority regulations using the corresponding IFRS sections as applicable. The key figures have been calculated using activity-based expenses applied by non-life insurance companies, which are not presented on the same principle as in the consolidated Income statement. Loss ratio (excl. unwinding of discount) Claims and loss adjustment expenses x 100 Net insurance premium revenue Expense ratio Operating expenses + amortisation/adjustment of intangible assets related to acquisition 100 Net insurance premium revenue x Risk ratio (excl. unwinding of discount) Claims excl. loss adjustment expenses x100 Net insurance premium revenue Cost ratio Operating expenses and loss adjustment expenses x100 Insurance premium revenue Combined ratio (excl. unwinding of discount) Loss ratio + expense ratio Risk ratio + cost ratio 19

20 OPERATING KEY RATIOS, % Operating return on equity (ROE), % Banking and Investment Services: + Profit for the period + Amortisation and write-downs on intangible assets and goodwill related to acquisition of Pohjola Asset Management and their tax effect + Change in fair value reserve after tax x %of risk-weighted commitments + Shareholders' equity of OKO Asset Management and Pohjola Property Management - Subordinated loans allocated to business lines (average of the beginning and end of the financial period) Non-life Insurance: + Profit for the period + Amortisation and write-downs on intangible assets and goodwill related to acquisition of non-life business, and their tax effects + Change in fair value reserve after tax x % solvency ratio - Subordinated loans allocated to business lines (average of the beginning and end of the financial period) or minimum capital required by the authorities, if this is larger Operating cost/income ratio + Personnel costs + Other administrative expenses + Other operating expenses excl. amortisation and write-downs on intangible assets and goodwill related to Pohjola acquisition x Net interest income + Net income from Non-life Insurance + Net commissions and fees + Net trading income + Net investment income + Other operating income Operating expense ratio Operating expenses Net insurance premium revenue x100 Operating combined ratio Loss ratio + operating expense ratio 20

21 OKO Bank Group income statement, 1 April 30 June 2007 Q2/ 2007 Q2/ 2006 Interest income Interest expenses Net interest income (Note 1) Impairment losses on receivables (Note 2) 1 0 Net interest income after impairment losses Net income from Non-life insurance (Note 3) Net commissions and fees (Note 4) Net trading income (Note 5) 3 2 Net investment income (Note 6) 13 9 Other operating income (Note 7) Total net income Personnel costs (Note 8) Other administrative expenses (Note 9) Other operating expenses (Note 10) Total expenses Earnings before tax Income tax Profit for the period Basic earnings per share, EUR Series A Series K Diluted earnings per share, EUR Series A Series K

22 OKO Bank Group income statement, 1 January 30 June 2007 H1/ 2007 H1/ 2006 Interest income Interest expenses Net interest income (Note 1) Impairment losses on receivables (Note 2) 0-1 Net interest income after impairment losses Net income from Non-life Insurance(Note 3) Net commissions and fees (Note 4) Net trading income (Note 5) 10 5 Net investment income (Note 6) Other operating income (Note 7) Total net income Personnel costs (Note 8) Other administrative expenses (Note 9) Other operating expenses (Note 10) Total expenses Earnings before tax Income tax Profit for the period Basic earnings per share, EUR Series A Series K Diluted earnings per share, EUR Series A Series K

23 OKO Bank Group balance sheet 30 Jun Dec 2006 Liquid assets Receivables from financial institutions Financial assets for trading (Note 11) Derivative contracts Receivables from customers Non-life Insurance assets (Note 12) Investment assets (Note 13) Investments in associates 2 8 Intangible assets (Note 14) Tangible assets Other assets Tax receivables Total assets Liabilities to financial institutions Derivative contracts Liabilities to customers Non-life Insurance liabilities (Note 15) Debt securities issued to the public (Note 16) Provisions and other liabilities Tax liabilities Subordinated liabilities (Note 17) Total liabilities Shareholders' equity Share of parent company's owners Share capital Mutual Funds Retained earnings Total equity capital Total liabilities and equity capital

24 Statement of changes in shareholders' equity, 1 January 30 June Attributable to equity holders of the parent Share capital Fair value reserve Other reserves Retained earnings Minority interest Total equity capital Equity capital 1 January Adjusted shareholders' equity on 1 January Available-for-sale financial assets Valuation gains and losses Share transferred to the income statement Deferred taxes Net income recognised under shareholders' equity Profit for the period Total income and expenses for the period Share issue expenses -1-1 Stock options exercised Dividends paid to series A share to series K share Acquisitions of subsidiaries Equity capital 30 June Attributable to equity holders of the parent Share capital Fair value reserve Other reserves Retained earnings Minority interest Total equity capital Shareholders' equity, 1 January Adjusted shareholders' equity on 1 April Available-for-sale financial assets Valuation gains and losses Share transferred to the income statement Deferred taxes 3 3 Net income recognised under shareholders' equity Profit for the period Total income expenses for the period Dividends paid Series A Series K Transfer of reserves 4-4 Shareholders' equity, 30 June

25 Own funds and capital adequacy 30 Jun Mar Dec 2006 Own funds Equity capital Minority interest Hybrid capital *) Intangible assets Fair value reserve, excess funding of pension liability, change in equalisation provision and change in fair value of properties Dividend distribution proposed by Board of Directors Planned profit distribution Tier 1 own funds Fair value reserve Subordinated liabilities included in upper Tier 2 own funds Subordinated liabilities included in lower Tier 2 own funds Tier 2 own funds**) Investments in insurance companies Other deduction items Deduction items, total Total own funds ***) Risk-weighted receivables, investments and off-balance-sheet commitments Loan and guarantee portfolio excl. intra-group items of OP Bank Group Binding standby credit facilities Inter-group items of OP Bank Group Market risk Other items (equities incl. Pohjola, properties, other assets etc Risk-weighted receivables, investments and off-balance-sheet items, total Capital adequacy ratio, % Ratio of Tier 1 own funds to the aggregate amount of risk-weighted items, % Capital adequacy ratio under the Act on Supervision of Financial and Insurance Conglomerates

26 The capital adequacy ratio of the OP Bank Group as per the Credit Institutions Act was 14.3% and the Tier 1 ratio was 12.6%. The capital adequacy ratio of the OP Bank Group calculated by the consolidation method as per the Act on the Supervision of Financial and Insurance Conglomerates was *) OKO has four loans under hybrid capital that can be classified as Tier 1 own funds: Hybrid capital of 10 billion Japanese yen of which EUR 74 million has been regarded as Tier 1 funds. Interest on the loan is fixed at 4.23% until 2034 and thereafter variable 6-month Yen LIBOR %. If interest cannot be paid for a given interest period, the obligation to pay interest will lapse. The loan may be called in at the earliest in Hybrid capital of EUR 50 million, which is a perpetual loan without interest rate step-ups, but with an 8% interest rate cap. The loan was issued on 31 March 2005, and the interest rate for the first year is 6.5%. Thereafter, the interest rate will be CMS 10 years + 0.1%. Interest payments are annual. Subject to authorisation by the Financial Supervision Authority, the loan may be called in at the earliest in Hybrid capital of EUR 60 million, which is a perpetual loan. The loan was issued on 30 November 2005, and the interest rate is variable 3-month EURIBOR +0.65% until 2015 and thereafter variable 3-month EURIBOR 1.65%. Interest payments are quarterly. If interest cannot be paid for a given interest period, the obligation to pay interest will lapse. Subject to authorisation by the Financial Supervision Authority, the loan may be called in at the earliest in Hybrid capital of EUR 40 million, which is a perpetual loan. The loan was issued on 30 November 2005, and the interest rate is variable 3-month EURIBOR 1.25%. Interest payments are quarterly. If interest cannot be paid for a given interest period, the obligation to pay interest will lapse. Subject to authorisation by the Financial Supervision Authority, the loan may be called in at the earliest in The hybrid capital has been hedged against the interest rate and currency risk by interest rate and currency swaps at the date of issue. **) Issue and repayment of loans considered Tier 2 funds 1 April 30 June 2007: "A EUR 50 million upper Tier 2 funds perpetual loan was repaid 19 June 2007, authorised by the Financial Supervision Authority. A perpetual loan of GBP 100 million, regarded as upper Tier 2 own funds was issued on 28 June 2007, with EUR 148 million included in upper Tier 2 funds. Subject to authorisation by the Financial Supervision Authority, the loan may be called in at the earliest in **) The following investments in venture capital funds, totalling EUR 5 million and managed by OKO Venture Capital Ltd, have not been deducted from own funds according to the exception provided by the Financial Supervision Authority in line with the order in 75, clause 5 o the Act on Credit Institutions: Promotion Equity I Ky, Promotion Capital I Ky, Promotion Rahasto II Ky and Promotion Bridge I Ky. 26

27 Cash flow statement H1/ 2007 H1/ 2006 Cash flow from operating activities Profit for the period Adjustments to reconcile profit for the period to cash used in operating activities Increase (-) or decrease (+) in operating assets Receivables from financial institutions Financial assets held for trading Derivative contracts Receivables from customers Non-life insurance assets Investment assets Other assets Increase (+) or decrease (-) in operating liabilities Liabilities to financial institutions Financial liabilities held for trading 0-3 Derivative contracts Liabilities to customers Non-life Insurance liabilities Provisions and other liabilities Income tax paid Dividends received A. Total cash flow from operating activities Cash flow from investing activities Acquisition of subsidiaries net of cash and cash equivalents acquired Disposal of subsidiaries net of cash and cash equivalents disposed of Acquisition of tangible and intangible assets Disposal of tangible and intangible assets 16 1 B. Net cash provided by (used in)investing activities Cash flow from financing activities Increase in subordinated loans Decrease in subordinated loans Increase in debt securities issued to the public Decrease in debt securities issued to the public Increase in share capital - 1 Dividends paid C. Total cash flow from financing activities Net increase/decrease in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period