OP-Mortgage Bank Interim Report for January 1 March 31 2008 OP Mortgage Bank's (OPA) loan portfolio decreased from EUR 1,531 million on 31 December to EUR 1,481 million on 31March 2008, since the amount of new housing loans granted directly from OPA's balance sheet to customers was lower than the total amount of repaid loans. During the reporting period, OPA neither issued covered bonds nor purchased housing loans from OP- Pohjola Group member banks to be recognised in OPA's balance sheet. The bank has no nonperforming or zero-interest receivables, nor did it recognise any impairment losses on loans. Earnings before tax for January-March increased to EUR 1006 thousand (945) 1. Improvements in net interest income and earnings were due to growth in the loan portfolio. Earnings Performance EUR 1,000 Q1/2008 Q1/2007 Change, % 2007 Income Net interest income 2,533 1,553 63 8,274 Net commissions and fees -1,219-479 - -3,950 Net trading income 7 18-61 87 Net investment income 1 1-1 Other operating income - - 4 Total 1,322 1,093 21 4,416 Expenses Personnel costs 68 61 11 257 Other administrative expenses 152 64-337 Other operating expenses 97 23-782 Total 316 148-1,376 Earnings before tax 1,006 945 6 3,039 Net interest income totalled EUR 2,533 thousand (1 553). Net commissions and fees were negative, as in the previous year, with commission income increasing to EUR 113 thousand (68) and commission expenses to EUR 1,332 thousand (548). Commission expenses stem mainly from commissions paid to OP-Pohjola Group member banks for servicing housing loans. In the review period, the banks expenses rose to EUR 316 (148) due largely to risk management and ICT services purchased from the OP Bank Group Central Cooperative and its Group companies. 1 For balance sheet and other cross-sectional figures, the point of comparison is the figure at the previous balance sheet date (31 December 2007). For income statement and other cumulative figures, the point of comparison is the figure for the January March period in the previous year. 1
Balance Sheet and Off-balance Sheet Commitments OPA's balance sheet total amounted to EUR 1,545 million on (1704) 2. Change in major assets and liabilities EUR million 2008 31 Dec 2007 Change, % 2007 Balance sheet 1,545 1,704-9 1,537 Receivables from customers 1,481 1,531-3 1,521 Receivables from financial institutions 8 138 9 Debt securities issued to the public 1,054 1,060-1 138 Liabilities to financial institutions 346 516-33 1,310 Shareholders' equity 64 64-62 Off-balance-sheet commitments 20 17 18 30 OPA did not purchase any new housing loans from member banks in January March. The loan portfolio decreased from EUR 1,531 million on 31 December to EUR 1,481 million on 31March 2008, since the amount of new housing loans granted directly from OPA's balance sheet to customers was lower than the total amount of repaid loans. On, households accounted for 95 % (94) of the loan portfolio and housing corporations for 5 % (6). The bank had no non-performing or zero-interest receivables, nor did it recognise any impairment losses on loans. The carrying amount of bonds issued to the public totalled EUR 1,054 million (1060) on. In addition to bonds, other funding was based on financing loans granted by Pohjola Bank plc (Pohjola). On, financing loans totalled EUR 346 million (516). Shareholders' equity rose to EUR 64.4 million (63.7). Retained earnings amounted to EUR 4.4 million (3.7) at the end of the review period. 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 2,565 million (2661). All derivative contracts have been concluded for hedging purposes. Pohjola is the counterparty to all derivative contracts. 2 For balance sheet and other cross-sectional figures, the point of comparison is the figure at the previous balance sheet date (31 December 2007). For income statement and other cumulative figures, the point of comparison is the figure for the January March period in the previous year. 2
Capital Adequacy OPA's capital adequacy ratio stood at 12,8 % on. OPA for the first time reports riskweighted assets according to the new capital adequacy rules (Basel II) as of March 2008. In 2008 credit risk is calculated according to the standardised approach and the capital requirement for operational risk is calculated using the basic approach. The capital adequacy ratio increased primarily because the home mortgage capital requirement was reduced as the standardised approach (Basel II) was adopted. Basel II Basel I OWN FUNDS, EUR thousand 2008 31 Dec 2007 Tier I 64,211 62,932 of which hybrid capital - - Tier II 20,000 20,000 Decreases - - Total 84,211 82,932 Risk-weighted receivables, investments and off-balance sheet commitments 659 926 789,555 Capital adequacy ratio, % 12,8 10,5 Tier I ratio to risk-weighted receivables, investments and off-balance-sheet commitments 9,7 8,0 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. Joint Responsibility and Joint Security OPA is a member of OP Bank Group Central Cooperative, which is the central institution of the amalgamation of OP-Pohjola Group. Within the amalgamation, the resources of OP-Pohjola Group secure the operations of all member banks since, according to Chapter 2, Section 3 of the Act on Cooperative Banks and Other Cooperative Credit Institutions, the Central Cooperative and its member credit institutions are jointly and severally responsible for each other s liabilities and commitments that cannot be paid from the funds of the Central Cooperative or the member credit institution in question. In addition to OPA, Central Cooperative members at the end of December 2007 included 229 cooperative banks, Pohjola Bank plc, Helsinki OP Bank plc, and OP-Kotipankki Oyj. Central Cooperative provides its member banks with instructions governing operations to secure liquidity, capital adequacy and risk management, as well as shared accounting policies. However, pursuant to Section 17 of the Act on Mortgage Credit Banks, 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. 3
Personnel On, OPA had four permanent employees on an employment contract basis. It purchases all key support services from Central Cooperative and its Group companies, which reduces the need for more staff. Administration The Annual General Meeting held in March confirmed the composition of the new Board of Directors. Mr. Matti Nykänen, was elected as a new member of the Board of Directors, after which the composition of the Board of Directors is as follows: Chairman Harri Nummela Executive Vice President, OP Bank Group Central Cooperative Vice Chairman Mikko Hyttinen Senior Vice President, OP Bank Group Central Cooperative Members Sakari Haapakoski Bank Manager, Oulun Osuuspankki Hanno Hirvinen Executive Vice President, Pohjola Bank plc Heikki Kananen Managing Director, Mäntsälän Osuuspankki Risto Korpela Managing Director, Turun Seudun Osuuspankki Matti Nykänen Senior Vice President, OP Bank Group Central Cooperative Jarmo Viitanen Managing Director, Länsi-Uudenmaan Osuuspankki Mr. Lauri Iloniemi acted as OPA's Managing Director. Prospects for the rest of the year Earnings before tax in 2008 are expected to equal or exceed the 2007 figure. The estimate is based on the assumption that the demand for housing loans will remain good and that there will be no major disturbances on the capital markets. OPA is planning to issue a new bond with real estate collateral to the international capital markets this year. 4
Income Statement EUR 1000 Q1/2008 Q1/2007 Change, % 2007 Interest income 19,955 9,631-62,594 Interest expenses 17,422 8,078-54,320 Net interest income 2,533 1,553 63 8,274 Net commissions and fees -1,219-479 - -3,950 Net trading income 7 18-61 87 Net investment income 1 1 10 1 Other operating income 0 4 Personnel costs 68 61 11 257 Other administrative expenses 152 64-337 Other operating expenses 97 23-781 Earnings before tax 1,006 945 6 3,039 Income tax expense 257 244 5 798 Profit for the period 749 699 7 2,241 Key Ratios Q1/2008 Q1/2007 2007 Return on equity (ROE), % 4,7 6,8 5,3 Cost/income ratio, % 24 14 31 Formulae for key ratios Return on equity, % = Annualised profit for the period / Shareholders' equity (average of the beginning and end of period) 100 Cost/income ratio, % = Personnel costs + Other administrative expenses + Other operating expenses / Net interest income + Net commission income + Net trading income + Net investment income + Other operating income 100 5
Balance Sheet EUR 1,000 2008 2007 Change, % 31 Dec 2007 Receivables from financial institutions 7,664 8,576-11 138,266 Derivative contracts 13,494 0-883 Receivables from customers 1,481,030 1,521,378-3 1,531,475 Investment assets 17 17 0 17 Intangible assets 512 34-542 Property, plant and equipment 0 0-0 Other assets 42,628 6,968-32,956 Tax assets 0 0 - Total assets 1,545,345 1,536,974 1 1,704,140 Liabilities to financial institutions 346,200 1,310,400-74 516,200 Derivative contracts 1,118 1,346-17 3,165 Debt securities issued to the public 1,053,873 137,967-1,059,989 Provisions and other liabilities 59,566 4,972-40,493 Tax liabilities 157 150 5 611 Subordinated debt securities 20,000 20,000 0 20,000 Total liabilities 1,480,914 1,454,834 2 1,640,459 Shareholders equity Share capital 60,000 60,000 0 60,000 Retained earnings 4,431 2,140-3,681 Total equity 64,431 62,140 4 63,681 Total liabilities and shareholders equity 1,545,345 1,536,974 1 1,704,140 Off-balance-sheet Commitments EUR 1,000 2008 2007 31 Dec 2007 Irrevocable credit commitments 20,104 29,487 17,272 Statement of Changes in Shareholders' Equity EUR 1000 Share capital Retained earnings Total equity Balance at 1 January 2007 19,148 1,440 20,588 Profit distribution - - - Profit for the period - 699 699 Other 40,852-40,852 Balance at 2007 60,000 2,140 62,140 EUR 1,000 Share capital Retained earnings Total equity Balance at 1 January 2008 60,000 3,681 63,681 Profit distribution - - - Profit for the period - 749 749 Other - - - Balance at 2008 60,000 4,431 64,431 6
Cash Flow Statement EUR thousand Q1/2008 Q1/2007 Cash and cash equivalents 1 January 15,266 11,196 Cash flow from operating activities 14,744-55,289 Cash flow used in investing activities 1 0 Cash flow used in financing activities -22,348 52,689 Cash and cash equivalents 7,664 8,596 The cash flow statement presents cash flows for the period on a cash basis, divided into cash flow from operating activities and cash flow used in investment activities and financing activities. Cash flow from operating activities includes that generated by daily operations. Cash flow used in investing activities includes payments related to property, plant and equipment and intangible assets, investments held to maturity and shares not regarded as belonging to cash flow from operating activities. Cash flow used in financing activities includes cash flows based on the financing of operations either on equity or liability terms in the money or capital market. Cash and cash equivalents include cash in hand and callable receivables from financial institutions. The statement is prepared using the indirect method. Derivative Contracts 2008 EUR 1,000 Nominal values/remaining maturity Fair values Less than 1 year 1 5 years More than 5 years Total Assets Liabilities Credit countervalue Interest-rate derivatives Hedging 85,000 2,480,299-2,565,299 13,494 1,118 47,420 Trading - - - - - - - Total 85,000 2,480,299 0 2,565,299 13,494 1,118 47,420 Derivative Contracts 2007 EUR 1,000 Nominal values/remaining maturity Fair values Less than 1 year 1 5 years More than 5 years Total Assets Liabilities Credit countervalue Interest-rate derivatives Hedging 120,600 42,500 1,521,224 1,684,324-1,346 23,031 Trading - - - - - - - Total 120,600 42,500 1,521,224 1,684,324-1,346 23,031 All derivative contracts have been concluded for hedging purposes, regardless of their classification in accounting This interim report is based on unaudited figures. Helsinki, 8 May 2008 OP Mortgage Bank Board of Directors 7