PART I STRATEGY AND MARKET POSITION Strategy
Vision Customers Personnel Investors The most attractive and successful bank in Finland. Growth Profitability Shareholder value
Mission To create economic value for customers and shareholders.
Leading positions across key product areas in Finland OKO Bank Pohjola OKO Bank/Pohjola Target Corporate banking No. 2 - No. 2 No. 2 Non-life insurance - No. 2 No. 2 No. 1 Asset management No. 3 No. 5 No. 2 No. 1 Source: Company data, Financial Supervision, Federation of Finnish Insurance Companies
Key Figures 1-3/2006 IFRS 2005 IFRS 2004 IFRS OKO Bank Group Return on equity (ROE), % 11.8 19.8 13.9 13.9 18.5 10.0 13.0 Tier I ratio, % 8.8 9.6 7.6 7.1 7.0 7.0 7.4 Earnings per share (EPS), *) 0.34 1.96 0.86 0.81 1.03 0.52 0.65 Dividend payout ratio, % *) - 30 48 50 82 55 65 Banking and Investment Services Cost / income ratio, % 39 41 47 47 47 47 47 Non-Life Insurance **) Combined ratio (CR), % ***) 98 92 91 92 105 109 114 Return on investments, % 6.3 8.5 8.7 8.2 9.9 1.6 0.2 2004 FAS 2003 FAS 2002 FAS 2001 FAS *) Per-share key ratios have been issue adjusted **) Pohjola Non-Life Insurance became a part of the OKO Bank 18 October 2005. ***) Excluding depreciation on intangible assets
PART I STRATEGY AND MARKET POSITION Market Position
Banking and Investment Services
Corporate Banking Growth - Loan portfolio billion 8 7 6 5 4 3 2 1 0 6% 13% 7% 19% 13% 5% 12/2000 12/2001 12/2002 12/2003 12/2004 12/2005 3/2006 The percentages describe the change of loan portfolio from the end of the previous period.
Market share of corporate loans % 20 16 12 16.5% 31 March 2006 8 4 6.7% 31 March 1999 0 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02 9/02 12/02 *) **) 3/03 6/03 9/03 12/03 3/04 6/04 9/04 12/04 3/05 6/05 9/05 12/05 3/06 *) Until December 2002 deposit banks' corporate loan portfolio. **) Since January 2003 according to the new statistics of the Bank of Finland. Central Cooperative / Research
Corporate Banking The average margin of loans % 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Corporations Institutions 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02 9/02 12/02 3/03 6/03 9/03 12/03 3/04 6/04 9/04 12/04 3/05 6/05 9/05 11/05 12/05 3/06
OP Bank Group's share of voluntary life and pension insurance premiums written and share of mutual funds % 30 25 20 15 10 5 0 Voluntary life and pension insurance premiums written *) Mutual funds, capital invested **) Mutual fund investors **) 12/1999 12/2000 12/2001 12/2002 12/2003 12/2004 12/2005 3/2006 *) February 2006 **) Mutual funds registered in Finland.
Corporate Banking Growth - Transmitted payment transfers millions of transfers 160 140 120 35% 19% 10% 100 80 60 40 7% 7% 1% 7% January-December January-March 20 0 1999 2000 2001 2002 2003 2004 2005 2006 The percentages describe the change of transfers from the end of the same period a year earlier.
Non-life Insurance
Non-life Insurance Growth - Insurance premium revenue million 200 180 7% 160 140 120 100 80 2% 7% 1-3/2005 *) 1-3/2006 60 40 20 70% 0 Private Customers Corporate Customers Baltic Total *) The comparative figures from the first quarter of 2005 are Pohjola Non-life Insurance segment's figures before OKO Bank's holding in Pohjola.
Market shares of non-life insurance Gross premiums written *) % 40 35 30 If Pohjola 25 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Tapiola Fennia Local insurance Others *) Market shares of domestic first premium Source: The Federation of Finnish Insurance Companies
Market shares of non-life insurance Gross premiums written 1-12/2005 *) % 35 30 25 28.6 26.0 20 18.2 15 10 5 9.8 8.5 8.9 0 If Pohjola Tapiola Fennia Local Insurance Group *) Market shares of domestic first premium Other Source: The Federation of Finnish Insurance Companies
PART II FINANCIAL INFORMATION OKO Bank Group
Operations in Brief January-March 2006 OKO Bank Group s earnings before tax amounted to 69 million (39). Earnings from Banking and Investment Services amounted to 47 million (34), while Non-life Insurance generated earnings of 23 million (0). Return on equity was 11.8% (16.4). Earnings per share totalled 0.26 (0.24). The capital adequacy ratio was 11.7% (12.8) and Tier I ratio was 8.8% (9.6). During the period under review, the loan portfolio of Corporate Banking increased by 5% to 7.0 billion (6.7). Annual growth was 16%. OKO Bank s position as a corporate bank continued to strengthen. The amount of client funds under management was 28.9 billion (27.5) at the end of the period under review. The amount increased by 5% since the yearend. Insurance premium revenue amounted to 187 million (175). Gross underwriting reserves for non-life insurance amounted to 2.1 billion (1.9), and long-term pension-type liabilities accounted for 1.2 billion (1.2) of the total.
Integration of OKO Bank s ja Pohjola s operation decisions to simplify OKO Bank Group structure made Pohjola Life Assurance Company, Pohjola Asset Management Ltd and Pohjolan Systeemipalvelut (IT-service company) sold Asset Management operations combined to OKO Asset Management OKO s subsidiary Opstock will be merged with OKO Bank before year end more precise integration plans completed except within IT-operations as consequence of decisions already made cost savings of 10 million this year and of 20 million from 2007 annually 31 Pohjola offices combined with OP offices. Before year end 70 offices will be combined. integration costs thus far 1 million the first offer to customers who concentrate their banking and insurance affairs in OP Bank Group has increased the number of Pohjola s customers by 7600 households
Key figures 1-3/2006 1-3/2005 Change Earnings before tax, million 69 39 30 million Capital adequacy ratio, % 11.7 11.3 0.4 percentage point Average personnel 3 113 1 310 1 803 Total assets, billion 23.1 17.6 5.5 billion
Ratios 1-3/2006 1-3/2005 Change Return on equity (ROE), % 11.8 16.4-4.6 percentage point Return on assets (ROA), % 0.95 0.75 0.20 percentage point Earnings per share (EPS), *) 0.26 0.24 0.02 Earnings per share (EPS) diluted, *) 0.26 0.24 0.02 Equity per share, *) 8.33 6.03 2.30 *) Pershare key ratios have been issue adjusted
Income statement million 1-3/2006 1-3/2005 Net interest income 23 38 Impairment losses on receivables -1 1 Net interest income after impairment losses 24 37 Net income from non-life insurance 86 - Net income from life assurance - - Net commissions and fees 26 24 Net trading income 5 3 Net income from investments 20 11 Other operating income 12 2 Total income 173 77 Personnel costs 42 17 IT expenses 11 7 Depreciation on intangible assets from acquisition 9 - Other depreciation 6 3 Other expenses 37 12 Total expenses 104 38 Share of affiliate profits/losses 0 0 Earnings before tax 69 39 Income tax expense 16 8 Profit for the period 53 31
Pro forma - Income statement *) million 1-3/2006 1-3/2005 Net interest income 23 26 Impairment losses on receivables -1 1 Net interest income after impairment losses 24 26 Net income from non-life insurance 86 - Net income from life assurance - - Net commissions and fees 26 16 Net trading income 5 3 Net income from investments 10 6 Other operating income 12 2 Total income 163 53 Personnel costs 42 11 IT expenses 11 4 Depreciation on intangible assets from acquisition 9 - Other dereciation 6 2 Other expenses 37 8 Total expenses 104 25 Earnings before tax 59 28 *) The earnings effect of Retail Banking on the earnings for the comparison period have been eliminated. In addition, sales earnings occurring only once and consolidated earning shares from the sold affiliated companies have been reduced from both periods.
Quarterly performance I/2005 - I/2006 million I/05 II/05 III/05 IV/05 I/06 Net interest income 38 40 38 26 23 Impairment losses on receivables 1 0 1 2-1 Net interest income after impairment losses 37 40 38 24 24 Net income from non-life insurance - - - 69 86 Net income from life assurance - - - -2 - Net commissions and fees 24 24 24 24 26 Net trading income 3-1 7 6 5 Net income from investments 11 7 3-2 20 Other operating income 2 3 2 16 12 Total income 77 73 74 135 173 Personnel costs 17 16 14 39 42 IT expenses 7 7 6 9 11 Depreciation on intangible assets from acquisition - - - 6 9 Other depreciation 3 3 3 5 6 Other expenses 12 13 11 39 37 Total expenses 38 38 34 100 104 Share of affiliate profits/losses 0 1 0 0 0 Earnings before tax 39 36 40 35 69 Income tax expense 8 9 11 5 16 Gain on Sale of discontinued operation, net of tax - - - 153 - Profit for the period 31 26 29 184 53
Balance sheet - Loans and investments billion Receivables from Member Cooperative Banks 26 24 22 20 18 16 14 12 10 8 6 4 2 0 16.5 billion 16% 19% 53% 19.7 billion 18% 17% 47% 22.3 billion 12% 17% 30% 13% 26% 26% 23.1 billion 13% 21% 31% 13% 31.12.2004 30.9.2005 31.12.2005 31.3.2006 Receivables from other financial institutions Financial assets for trading Receivables from customers Non-life insurance assets Life assurance assets Investment assets Other items
Balance sheet - Funding billion 26 24 22 20 18 16 14 12 10 8 6 4 2 0 16.5 billion 19% 7% 25% 37% 19.7 billion 25% 16% 10% 17% 44% 22.3 billion 7% 31.12.2004 30.9.2005 31.12.2005 31.3.2006 9% 9% 9% 7% 41% 23.1 billion 6% 9% 8% 10% 49% Liabilities to Member Cooperative Banks Liabilities to other financial institutions Liabilities to customers Non-life insurance liabilities Life assurance liabilities Debt securities issued to the public Subordinated liabilities Capital loans Shareholders' equity and minority interests Other items
Own funds and capital adequacy million 1 600 1 400 % 28 24 1 200 1 000 800 600 400 200 0 356 421 364 355 349 370 12.8 12.5 12.8 11.4 11.1 11.0 11.0 9.6 7.3 7.0 7.4 7.0 7.0 7.6 550 481 11.7 8.8 448 504 530 561 620 751 1002 964 12/99 12/00 12/01 12/02 12/03 12/04 12/05 3/06 20 16 12 8 4 0 Tier II Tier I Tier I ratio, % Capital adequacy ratio, % Deductions of own funds are not disclosed.
Earnings before tax by business lines million 80 70 60 50 40 30 1-3/2005 1-3/2006 20 10 0-10 Banking and Investment Services Non-life Insurance Other Operations Discontinued operations OKO Bank Group
Operations in Brief Outlook The operating environment of Banking and Investment Services is estimated to remain as it was last year. The interest rate level is expected to remain low. The rise in share prices is estimated to slow down. Investing in mutual funds is expected to remain popular. OKO Bank s corporate loan portfolio is expected to continue to grow faster than the market and the objective is also to increase commissions and fees significantly. The risk situation will seemingly continue to be good. The asset management operations of OKO Bank and Pohjola has been integrated, which will reinforce OKO Bank's position as an asset manager. The earnings of the Banking and Investment Services amounted to 137 million in 2005.The corresponding earnings are expected to be bigger in 2006 than in 2005.
Operations in Brief Outlook Demand for Non-life Insurance cover is expected to increase by a growing number of storms and other natural catastrophes.price competition is expected to remain unchanged. Comparable growth in insurance premium revenue is forecast to exceed the GDP in 2006, as in the previous year. The combined ratio is forecast at 90.0 to 95.0 per cent before amortisation of intangible rights. The effect of unwinding of discount on profits is estimated to be on a par with that of the previous year. The 2006 equity allocation target in Non-life Insurance is set at around 14 per cent. The overall return on the investment portfolio is expected to be less in 2006 than in 2005.
Banking and Investment Services
Banking and Investment Services Main items of income million 80 70 60 50 40 30 1-3/2005 1-3/2006 20 10 0 Net interest income Net comissions and fees Net trading income Net income from investments Other operating income
Banking and Investment Services January-March 2006 Earnings before tax increased by more than one third on the comparison period to 47 million (34). All business segments improved their earnings. Loan portfolio grew by 4% on year-end, and exceeded 7 billion. In a year loan portfolio increased by 1 billion or 16%. OKO Bank s market position as a corporate lender strengthened during the review period. The number of payment transfers was 8% more than year earlier. Due to the continued intense price competition, commission income from payment transactions remained on a par with the comparison period. Net sales from foreign exchange and fixed income trading increased by one fourth. OKO Bank s market share of equity brokerage at the Helsinki Stock Exchange was 2.0% of the amount in euro and 4.2% of the number of trades.
Banking and Investment Services January-March 2006 OKO Bank acted as manager in four bond emissions. These generated funding to customers worth a total of 1.5 billion. Furthermore OKO Bank arranged the institutional issue of Ahlstrom Corporation and was the lead manager for the retail issue. The funding requirement of OP Bank Group retail banks from OKO Bank continued to increase. At the end of March, OKO Bank s net receivables from the Group s retail banks amounted to 2.7 billion (2.0). In February, OKO Bank sold shares in OMX Ab and received a total of 7.9 million in capital gains. OKO Asset Management s assets under management stood at 28.9 billion (27.5) at the end of the review period. Capital in OP Bank Group mutual funds accounted for 10.6 billion of the total.
Banking and Investment Services Key figures I/06 IV/05 III/05 II/05 I/05 Return on equity (ROE), % *) 17.3 12.4 17.8 15.8 17.2 Cost / income ratio, % *) 39 50 33 39 38 Return on equity (ROE), % **) 15.4 14.7 Cost / income ratio, % **) 40 41 Impairment losses on receivables, million -1 2 0 1 1 Proportion of problem receivables to loans and quarantees, % 0.25 0.21 0.40 0.26 0.21 *) Annualised (quarterly) **) 12 month moving average
Banking and Investment Services Income statement million 1-3/2006 1-3/2005 Net interest income 27 26 Impairment losses on receivables -1 1 Net interest income after impairment losses 28 25 Net commissions and fees 23 16 Net trading income 5 3 Net income from investments 14 9 Other operating income 7 2 Total income 76 56 Operating expenses 29 22 Depreciation on intangible assets from acquisition 1 - Earnings before tax 47 34
Banking and Investment Services Quarterly performance I/2005 - IV/2006 million I/05 II/05 III/05 IV/05 I/06 Net interest income 26 29 28 29 27 Impairment losses on receivables 1 1 0 2-1 Net interest income after impairment losses 25 28 28 27 28 Net commissions and fees 16 17 17 28 23 Net trading income 3 0 7 6 5 Net income from investments 9 7 3-3 14 Other operating income 2 3 2 5 7 Total income 56 55 57 62 76 Operating expenses 22 22 19 32 29 Depreciation on intangible assets from acquisition - - - 0 1 Profit for the period 34 33 38 30 47
Banking and Investment Services Earnings before tax by division million 50 40 30 20 1-3/2005 1-3/2006 10 0 Corporate Banking Capital Markets Central Banking Operations Treasury Asset Management Banking and Investment Services
Banking and Investment Services Net interest income by division million Asset Management 35 30 25 20 26 29 28 29 27 Treasury Central Banking Operations 15 Capital Markets 10 5 Corporate Banking 0 1-3/2005 4-6/2005 7-9/2005 10-12/2005 1-3/2006 Banking and Investment Services
Banking and Investment Services Net comissions & fees million 10 On lending 8 On payment transfers 6 On securities brokerage 4 On securities issuance 2 0 1-3/05 4-6/05 7-9/05 10-12/05 1-3/06 On asset management and legal services Other
Banking and Investment Services Net trading income million 32 28 24 20 16 12 8 4 0-4 -8-12 -16-20 -24-28 -32 29 15 15 11 6 2 2 2 0 2 3 0 1 1 0-1 -5-12 -16-30 1-3/05 4-6/05 7-9/05 10-12/05 1-3/06 Notes and bonds Shares and holdings Foreign exchange operations Derivatives
Banking and Investment Services Net income from investments million 16 14 15 12 10 10 Notes and bonds 8 6 4 2 0-2 6 3 1 1 1 0 0 0 0 0-1 1 Shares and holdings Investment properties -4-3 -6 1-3/05 4-6/05 7-9/05 10-12/05 1-3/06
Banking and Investment Services Corporate exposure by industry % 20 18 16 14 12 10 8 6 4 2 0 31.12.2003 (6.6 billion) 31.12.2004 (7.9 billion) 31.12.2005 (8.6 billion) 31.3.2006 (9.3 million) Metal industry Wholesale and retail trade Forest industry Construction Energy Transport and traffic Other industry Food industry Real-estate investment companies Services Telecommunications and electronics Communications and publishing Other industries
Banking and Investment Services Corporate exposure by credit rating *) % 50 45 40 35 30 25 20 15 10 5 0 1-2 3-4 5-6 7-8 9-10 11-12 *) excluding collateral and quarantees Non-rated 31.12.2003 31.12.2004 31.12.2005 31.3.2006 1-2 (AAA-A-) 3-4 (BBB+ - BBB-) 5-6 (BB+ - BB) 7-8 (BB- - B+) 9-10 (B - C) 11-12 (D)
Banking and Investment Services Loan and guarantee portfolio billion 10 9 8 % 11 9 Loan and guarantee portfolio *) 7 6 5 4 3 7 5 3 Impairment losses on receivables / Loan and quarantee portfolio, % 2 1 0 0.3 0.2 0.3 0.1 0.2 0.2 0.3 0.3 0.0-0.2-0.1 0.0 0.0 0.0 0.0 0.0 12/99 12/00 12/01 12/02 12/03 12/04 12/05 3/06 1-1 Problem receivables / Loans and guarantee portfolio, % *) Loan portfolio including Leasing assets and Repos, Guarantees and Guarantee commitments.
Banking and Investment Services Impairment losses on receivables million 15 10 New impairment losses 5 0-5 -10-15 Loan loss recoveries and revaluation of impairment losses Net loan and impairment losses 2000 2001 2002 2003 2004 2005 1-3/2006
Central Banking Operations Receivables and liabilities between OKO Bank and OP Bank Group Retail million 5 500 4 500 3 500 2 500 1 500 500-500 -1 500-2 500-3 500 Capital investments and perpetual bonds Other loans Reserve deposits Cash reserve deposits Other deposits Net position 1/04 2/04 3/04 4/04 5/04 6/04 7/04 8/04 9/04 10/04 11/04 12/04 1/05 2/05 3/05 4/05 5/05 6/05 7/05 8/05 9/05 10/05 11/05 12/05 1/06 2/06 3/06
Asset Management Assets under management by asset class March 31, 2006 22% 14% 24% 40% Money market Fixed asset Shares Other investments
Performance of Asset management Mutual funds ranked in the best quarter of their classes on the basis of the annual return calculated over the last three years. Company Number of mutual funds 31.3.2006 31.12.2005 OP Bank Group 15 6 FIM 5 7 Sampo 5 5 Gyllenberg 4 5 Nordea 3 4 Evli 3 3 Source: Mutual fund report of Finnish Association of Mutual Funds March 31, 2006 and December 31, 2005. Includes categories: equity funds Finland, Europe and the whole world, Finnish and international balanced funds, long and short fixed-income funds in euro area.
Capital Markets Transactions brokered (double counted) Transactions brokered % 600 000 550 000 500 000 450 000 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 10 9 8 7 6 5 4 3 2 1 0 Transactions brokered Market share 2001 2002 2003 2004 2005 1-3/2005 1-3/2006
Non-life Insurance
Non-life Insurance Marked annual fluctuation 110 100 90 80 70 1-3/2005 4-6/2005 7-9/2005 10-12/2005 Combined ratio Cumulative combined ratio
Non-life Insurance January-March 2006 Pohjola's market position strengthened Number of private customers has, in particular, increased markedly. Long-lasting downward trend in market share of motor liability and comprehensive motor vehicle insurance for private customers has turned upwards. Combination of business functions proceeds according to plans Joint sales of banking and insurance services has started successfully. Combination of Pohjola branches with cooperative bank branches proceeds as planned
Non-life Insurance January-March 2006 Profitability improved significantly owing to growth and favourable claims trend in major losses. Balance on technical account before amortisation on intangible assets related to Pohjola acquisition was 3 million (-9). Combined ratio was 98% (105). Profitability is expected to develop favourably for the whole year, provided that the normal claims trend prevails and that the set targets are reached as estimated. In a normal year, profitability for the first quarter of the year is lower than for the whole year.
Non-life insurance Key figures Rolling 1-3/2006 1-3/2005 change % 12 months 1-12/2005 change % Insurance premium revenue 187,1 175,0 6,9 % 756,3 744,2 1,6 % Loss ratio, % 74,3 83,9-11,4 % 69,3 71,5-3,1 % Expense ratio excl. PPA depreciation, % 23,8 21,3 11,7 % 21,5 20,8 3,4 % Combined ratio, % 98,2 105,1-6,6 % 90,8 92,3-1,6 % Risk ratio, % 67,8 77,0-11,9 % 63,0 65,1-3,2 % Cost ratio excl. PPA depreciation, % 30,3 28,1 7,8 % 27,7 27,2 1,8 % Combined ratio, excl. PPA depreciation, % 98,2 105,1-6,6 % 90,8 92,3-1,6 % ROI % p.a. 6,3 ROE % p.a. 5,9
Non-life insurance Profit IFRS 2006 2005 Rolling 2005 EUR mill. 1-3 1-3 12 months 1-12 Insurance premium revenue 187,1 175,0 756,3 744,2 Claims incurred -139,1-146,7-524,2-531,8 Depreciation on intangible assets -8,4-8,4 Operating expenses -44,8-37,2-162,7-155,1 Balance on technical account -5,2-9,0 60,9 57,3 Investment income and expenses 43,7 34,6 159,3 150,2 -Adjustment of realised gains -6,7-6,7 Fee income and expenses 1,0-1,0 1,1-0,9 Other income and expenses 0,0 20,1-4,2 15,9 Operating profit 32,9 44,7 210,4 222,5 Unwinding of discount -9,1-9,5-36,9-37,3 Finance costs -0,5-0,4-2,2-2,1 Share of profit (loss) of associates 0,0 0,0 0,0 0,0 Profit (loss) before tax 23,3 34,8 171,3 183,2 Combined ratio excl. depreciation on intangible assets 98,2 105,1 90,8 92,3
Private customers Balance on technical account IFRS 2006 2005 Rolling 2005 EUR mill. 1-3 1-3 12 months 1-12 Insurance premium revenue 72,6 70,9 294,8 293,1 Claims incurred -51,5-45,0-199,1-192,6 Depreciation on intangible assets -3,7-3,7 Operating expenses -20,3-18,1-80,4-78,2 Balance on technical account -2,9 7,8 11,6 22,3 Combined ratio excl. depreciation on intangible assets 98,9 89,0 94,8 92,4
Corporate Customers Balance on technical account IFRS 2006 2005 Rolling 2005 EUR mill. 1-3 1-3 12 months 1-12 Insurance premium revenue 104,6 98,1 426,9 420,4 Claims incurred -81,5-97,9-309,9-326,3 Depreciation on intangible assets -4,3-4,3 Operating expenses -21,5-17,5-72,9-68,9 Balance on technical account -2,8-17,3 39,8 25,3 Combined ratio excl. depreciation on intangible assets 98,5 117,6 89,7 94,0
Baltic Balance on technical account IFRS 2006 2005 Rolling 2005 EUR mill. 1-3 1-3 12 months 1-12 Insurance premium revenue 10,1 5,9 34,7 30,6 Claims incurred -6,1-4,0-18,5-16,4 Depreciation on intangible assets -0,3-0,3 Operating expenses -2,7-1,4-8,9-7,6 Balance on technical account 0,9 0,5 6,9 6,5 Combined ratio excl. depreciation on intangible assets 87,7 91,6 79,1 78,6
Non-life Insurance Combined ratio by division *) % 140 120 100 80 60 40 Private Customers 89.0% Corporate Customers Baltic Total 117.6% 98.9% 98.5% 91.6% 87.7% 105.1% 98.1% Operating expenses / Insurance premium revenue Claims handling expenses / Insurance premium revenue 20 0 Claims incurred / Insurance premium revenue 1-3/2005 1-3/2006 1-3/2005 1-3/2006 1-3/2005 1-3/2006 1-3/2005 1-3/2006 *) The comparative figures from the first quarter of 2005 are Pohjola Non-life Insurance segment's figures before OKO Bank's holding in Pohjola. Combined ratios in the first quarter of 2006 including depreciation on intangible assets from acquisition: Private Customers (104.0%), Corporate Customers (102.6%), Baltic (91.0%) and Total (102.6%).
Non-life Insurance Allocation of investment portfolio million 3200 2800 2400 2 562 million 8% 2 825 million 14% Money market *) Bonds and bond funds *) 2000 1600 1200 70% 66% Shares 800 400 16% 15% Alternative investments 0 Fair value, 31 Dec. 2005 Fair value, 31 March 2006 Properties *) The figures include accrued interest income on interest-bearing instruments.
Sensitivity analysis of insurance contract liabilities Risk Total Change Effect Effect on parameter rolling in risk million combined 12 months parameter 1) ratio Q1/2006 Insurance 756 Increases +8 Improves portfolio or million by 1% million by 1 %-point premium revenue Increase in claims 524 Increases -5 Deteriorates incurred by 1% million by 1% million by 1 %-point Major loss 1 major loss -5 Deteriorates million by 1 %-point Staff expenses 95 Increases -8 Deteriorates million by 8% million by 1 %-point Expenses by 210 Increases -8 Deteriorates function 2) million by 4% million by 1 %-point 1) Effect on underwriting result and solvency capital. 2) Expenses by function in Non-life Insurance excluding expenses for investment management and expenses for other services rendered. Increase in longevity would increase insurance contract liabilities by 27 million and deteriorate combined ratio by 4 %-points.
Sensitivity analysis of insurance contract liabilities Sensitivity of discounted insurance contract liabilities to changes in discount rate Q1/2006 2005 Total insurance 1 184 1 172 contract liabilities million million for annuities Decrease in 13 13 discount rate million million by 0.1 %-point Effect on 2 %-points 2 %-points combined ratio* * Decrease in applied discount rate increases total insurance contract liabilities and deteriorates combined ratio.
Other Operations
Other Operations January-March 2006 The earnings comprise dividends and capital gains from investments, Group Administration expenses, as well as earnings of Pohjola Group plc, Kaivokadun PL Hallinto Oy and Pohjolan IT-Hankinta Oy. The earnings before tax were EUR -1 million (-1). Earnings included dividend of EUR 2.4 million paid by OP Life Assurance and EUR 0.6 million paid by OP-Kotipankki. Capital gains of EUR 2.3 million were recognised on the sale of Eurocard shares. Net interest income was burdened by the financing costs arising from the Pohjola acquisition, amounting to slightly more than EUR 5 million.
Other Operations Quarterly performance I/2005 - IV/2006 million I/05 II/05 III/05 IV/05 I-IV/05 I/06 Net interest income 0 0-2 -5-8 -3 Impairment losses on receivables 0 0 0-1 -1 0 Net interest income after impairment losses 0 0-2 -5-7 -3 Net income from non-life insurance - - - 0 0-1 Net income from life assurance - - - 0 0 - Net commissions and fees 0 0 0-6 -7 0 Net trading income 0 0 0 0 0 0 Net income from investments 2 0 0 0 2 6 Other operating income 0 0 0 2 1 2 Total income 1-1 -2-9 -11 4 IT expenses 1 1 1 3 5 4 Depreciation on intangible assets from acquisition - - - - - - Other depreciation 0 0 0 2 2 1 Other expenses 1 1 1-2 1-4 Total expenses 3 3 2 8 16 5 Share of affiliate profits/losses 0 1 0 0 1 0 Earnings before tax -1-3 -4-17 -26-1
PART III OKO BANK SHARE INFORMATION
OKO Bank's shareholders Major shareholders 31.3.2006 31.3.2006 31.3.2005 31.3.2005 % of shares % of votes % of shares % of votes OP Bank Group Central Cooperative 30.2 57.0 38.9 55.9 Ilmarinen Mutual Pension Insurance Company 10.4 5.6 0.1 0.1 Suomi Mutual Life Assurance Company 10.3 5.5 0.0 0.0 Oulun Osuuspankki 1.1 1.7 1.8 3.1 OP Bank Group Pension Fund 0.9 0.5 0.0 0.0 OP Bank Group Pension Foundation 0.9 0.5 1.8 1.0 Pohjola Finland Value Sijoitusrahasto 0.5 0.3 0.7 0.4 Etelä-Karjalan Osuuspankki 0.4 0.2 0.9 0.5 Turun Seudun Osuuspankki 0.4 0.2 1.2 0.7 Pohjolan Osuuspankki 0.3 0.5 0.5 0.8 Nominee-registered shareholders 16.8 9.0 18.2 9.6 OP Bank Group member cooperative banks total 11.7 12.0 22.0 23.4
OKO Bank's shareholders Major shareholders (Series A) 31.3.2006 31.3.2005 % of Series A shares % of Series A shares OP Bank Group Central Cooperative 14.1 28.5 Ilmarinen Mutual Pension Insurance Company 13.4 0.1 Suomi Mutual Life Assurance Company 13.2 0.0 OP Bank Group Pension Fund 1.2 0.0 OP Bank Group Pension Foundation 1.1 2.3 Oulun Osuuspankki 0.8 1.0 Pohjola Finland Value Sijoitusrahasto 0.7 0.9 Etelä-Karjalan Osuuspankki 0.5 1.1 Turun Seudun Osuuspankki 0.5 1.5 The State Pension Fund 0.4 0.3 Nominee-registered shareholders 21.5 23.4 OP Bank Group member cooperative banks total 11.6 21.2 31.3.2006 31.3.2006 31.3.2005 31.3.2005 Share information Series A Series K Series A Series K Numbers of shares 157 638 808 44 006 352 77 132 217 22 086 776 % of shares 78.2 21.8 77.7 22.3 % of votes 41.7 58.3 41.1 58.9
OKO Bank (Series A) weekly turnover and price *) Turnover 15,00 15 000 000 12,00 12 000 000 9,00 6,00 9 000 000 6 000 000 Turnover Price 3,00 3 000 000 0,00 0 3/02 6/02 9/02 12/0 3/03 6/03 9/03 12/0 3/04 6/04 9/04 12/0 3/05 6/05 9/05 12/0 3/06 *) Share price adjusted to correspond the amount of shares after registration of share issue, 23 November 2005.
Market capitalization (OKO Bank series A and K) million 3 000 2 800 2 600 2 400 2 200 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 365 523 643 659 675 871 1 022 2 386 2 698 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 3/06 The price for A shares is used for K shares as well.
The comparison of yield (including dividends) OKO Bank vs. stock market Index 350 300 250 200 150 100 50 313 231 176 OKO Bank Series A *) OMX Helsinki Financials OMX Helsinki Portfolio Index 0 12/00 12/01 12/02 12/03 12/04 12/05 4/06 *) Share price adjusted to correspond the amount of shares after registration of share issue, 23 November 2005. Source: OMX / 21.4.2006
Value creation 12/00 12/01 12/02 12/03 12/04 12/05 4/06 Market capitalization (OKO A and K), million 643 659 675 871 1 022 2 386 2 615 Dividends paid, million 59 51 35 106 52 120 million The change in market capitalization Dec. 2000-April 2006 1 972 Issue of shares Oct. 2005-Nov. 2005 724 The change in market capitalization without issue of shares 1 248 Dividens paid Dec. 2000-April 2006 423 Value creation 1 671
Share Price of European Banks Price Base 100 for Okobank (FI) in EUR as of 02/05/06 300 250 200 150 100 50 0 H2 2000 H1 2001 H2 2001 H1 2002 H2 2002 H1 2003 H2 2003 H1 2004 H2 2004 H1 2005 H2 2005 H1 2006 Okobank Eur Banks Mcap > 40 bn Eur Banks Mcap 20-40 bn Eur Banks Mcap 5-20 bn Eur Banks Mcap 0,5-5 bn Source: JCFQuant 2.5.2006
PART IV BACKGROUND INFORMATION OP Bank Group s structure
The Structure of OP Bank Group and OKO Bank Group Mutual Funds Retail Bank in in Helsinki Area Life Insurance Other OP Bank Group Central Cooperative OKO Bank 236 Member Cooperative Banks Non-life Insurance Banking and Investment Services Private Customers Corporate Customers Corporate Baltic Customers Corporate Banking Capital Markets Group Treasury Asset Manageme Legal structure: OP Bank Group has joint and several liability for each others commitments.
Credit Ratings
Credit ratings, long-term debt Standard & Poor s Moody s Investors Service Fitch Ratings Prime High grade Upper medium grade Lower medium grade Speculative Default AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+...B- CCC...C D Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1...Ba3 B1...B3 Caa...Ca C AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+...BB- B+...B- CCC...C D
OKO Bank's credit ratings Fitch Ratings Long- term Effective Short-term Effective A 21 October 1994 F1 21 October 1994 A+ 13 October 2000 F1+ 14 May 2002 AA- 14 May 2002 Moody's Investors Service Long-term Effective Short-term Effective Aa2 2 November 1987 P-1 19 June 1986 Aa3 26 March 1992 A2 29 October 1992 A1 1 October 1999 Aa3 3 October 2000 Aa2 4 July 2003 Standard & Poor's Long-term Effective Short-term Effective A+ 9 September 2002 A-2 23 June 1992 A-1 17 May 2001 AA- 27 July 2005 A-1+ 27 July 2005
Long - term credit ratings December 2005 Moody's Investors Service *) Standard & Poor's *) Fitch Ratings Danske Bank Handelsbanken OKO Bank Nordea Swedbank DnB NOR SEB Sampo Bank plc Sampo plc Aa1 Aa1 Aa2 Aa3 Aa3 Aa3 Aa3 A1 Baa1 AA- AA- AA- AA- A A+ A A - AA- AA- AA- AA- A+ - A+ - - If **) A2 A - Pohjola **) A3 A+ - Finnish Sovereign Aaa AAA AAA *) After the acquisition of Pohjola, outlook changed from stable to negative. **) Insurer financial strenght Source: Companies' Internet pages / 31.1.2006
OKO Bank Group as a part of OP Bank Group
Income statement OP Bank Group OKO Bank Group million 1-3/2006 1-3/2005 1-3/2006 1-3/2005 Net interest income 199 198 23 38 Impairment losses -2 2-1 1 Net interest income after impairment losses 200 195 24 37 Net income from non-life insurance 86-86 - Net income from life assurance 34 15 - - Net commissions and fees 110 91 26 24 Net income from trading 12 6 5 3 Net income from investments 39 22 20 11 Other operating income 23 15 12 2 Total income 505 345 173 77 Personnel costs 134 97 42 17 IT expenses 23 15 11 7 PPA depreciation 12-9 - Other depreciation 20 16 6 3 Other expenses 89 59 37 12 Total expenses 278 187 104 38 Returns to owner-members 14 13 - - Share in affiliate profits/losses -1 0 0 0 Earnings before tax 211 145 69 39
Balance sheet OP Bank Group OKO Bank Group million 31.3.2006 31.3.2005 31.3.2006 31.3.2005 ASSETS Receivables from financial institutions 187 735 4 584 3 970 Financial assets for trading 5 001 3 441 4 943 3 302 Receivables from customers 35 859 31 648 7 039 8 796 Non-life insurance assets 3 101-3 101 - Life assurance assets 5 672 3 081 - - Investment assets 1 714 1 593 412 239 Other items 4 583 2 543 2 991 1 269 TOTAL 56 118 43 041 23 070 17 576 LIABILITIES Liabilities to financial institutions 2 062 1 620 3 364 4 666 Liabilities to customers 26 131 24 144 1 830 2 994 Non-life insurance liabilities 2 292-2 292 - Life assurance liabilities 5 232 2 800 - - Debt securities issued to the public 11 469 7 799 11 275 7 595 Capital loans 56 56 211 116 Other liabilities 4 290 3 109 2 419 1 435 Shareholders's equity 4 587 3 511 1 679 770 TOTAL 56 118 43 041 23 070 17 576
Key figures OP Bank Group's OP Bank Group OKO Bank Group long-term targets 1-3/2006 1-3/2005 1-3/2006 1-3/2005 Profit for the period, million 141 115 53 31 Cost / income ratio, % 55 55 54 39 *) 38 *) Average personnel 12 085 9 188 3 113 1 310 Return on equity (ROE), % 10 12.3 13.7 11.8 16.4 Return on assets (ROA), % 1.05 1.11 0.95 0.75 March 31, 2006 March 31, 2005 March 31, 2006 March 31, 2005 Tier I ratio, % 13.9 15.5 8.8 7.9 Proportion of impairment losses to loans and quarantees, % 0.25-0.02 0.03-0.01 0.01 Problem receivables, OP Bank Group billion and OKO Bank million 0.2 0.2 22 22 Total assets, billion 56.1 43.0 23.1 17.6 Risk-weighted items, billion 31.0 27.0 10.9 10.4 *) Cost/income ratio in Banking and Investment Services, %
Market shares of banking market Euroloans Eurodeposits Life and pension Mutual Total insurance funds savings OP Bank Group 30.8% 32.8% 12.2% 21.3% 27.7% OKO Bank 5.9% 1.6% 0.0% 9.1% 4.7% Market total, billion 116 78 27 51 273 Euroloans and Eurodeposits at March 2006, Life and pension insurance savings at December 2005 and Mutual funds at March 2006. Central Cooperative / Research
OP Bank Group's market share of financial institutions' eurodenominated corporate loans % 30.0 25.0 20.0 15.0 10.0 Other OP Bank Group OKO Bank 5.0 0.0 12/00 12/01 *) 12/02 **) 12/03 12/04 12/05 3/06 *) Until December 2001 loans to housing corporations excluded. **) Since December 2002 market share according to the new statistics of the Bank of Finland.
Financial institutions' average interest rate of euro-denominated corporate loan portfolio % 15 13 11 9 OP Bank Group Financial institutions 7 5 3 90 91 92 93 94 95 96 97 98 99 00 01 02 *) 03 04 05 **) 3/06 *) Until December 2002 deposit banks' corporate loan portfolio. **) Since January 2003 according to the new statistics of the Bank of Finland. Central Cooperative / Research
OP Bank Group s market share of financial institutions eurodenominated deposits and housing loans % 40 35 30 25 20 15 10 Financial institutions eurodenominated deposits Financial institutions housing loans 5 0 12/00 12/01 *) 12/02 **) 12/03 12/04 12/05 3/06 Figures do not include loans for free time residentials. *) Until December 2001 deposit banks' euro-denominated deposits and housing loans. **) Since December 2002 market share according to the new statistics of the Bank of Finland.
OKO Bank s long-term key financial information
Key Figures *) 1-3/2006 IFRS 2005 IFRS 2004 IFRS 2004 FAS 2003 FAS 2002 FAS 2001 FAS Profit for the period, million 53 271 108 102 126 62 79 Return on equity (ROE), % 11.8 19.8 13.9 13.9 18.5 10.0 13.0 Return on assets (ROA), % 0.95 1.40 0.69 0.66 0.92 0.50 0.67 Total income, million 173 360 271 291 335 255 270 Cost / income ratio, % (Banking and Investment services) 39 41 47 51 50 53 50 *) Following the Pohjola transaction, OKO Bank published new financial targets. OKO Bank Group: ROE 12%. Banking and Investment Services: ROE 14% and C/I ratio below 40%. Non-life insurance: ROE 12% and CR below 99% in all phases of economic cycle.
Key Figures 1-3/2006 IFRS 2005 IFRS 2004 IFRS 2004 FAS 2003 FAS 2002 FAS 2001 FAS Total assets, billion 23.1 22.3 16.5 16.4 14.8 12.7 12.6 Risk-weighted items, billion 10.9 10.5 10.0 9.9 8.8 8.0 7.2 Loan portfolio, billion 7.1 6.8 8.7 8.7 7.4 6.7 5.9 Proportion of problem receivables to loans and quarantees, % 0.3 0.3 0.2 0.2 0.2 0.2 0.3 Proportion of impairment losses to loans and quarantees, % 0.0 0.0 0.0 0.0 0.0 0.0-0.1 Client funds, billion 28.9 27.5 10.9 10.9 8.2 5.9 5.3 Capital adequacy ratio, % 11.7 12.8 11.0 10.8 11.0 11.1 12.8 Tier I ratio, % 8.8 9.6 7.6 7.1 7.0 7.0 7.4
Key Figures 1-3/2006 IFRS 2005 IFRS 2004 IFRS 2004 FAS 2003 FAS 2002 FAS 2001 FAS Earnings per share (EPS), *) 0.26 1.96 0.86 0.81 1.03 0.52 0.65 Equity per share, *) 8.33 8.76 6.15 5.84 5.93 5.27 5.15 Dividends (A and K), million 120.00 52 52 106 35 51 Dividend per share, *) 0.59 0.41 0.41 0.85 0.29 0.43 Dividend payout ratio, % 30.00 48 50 82 55 65 Effective dividend yield, % (OKO Bank Series A) *) 5.10 5.1 5.1 12.2 5.2 7.8 Market capitalisation (A and K), million 2 698 2 386 1 022 1 022 871 675 659 *) Per-share key ratios have been issue adjusted
Economic outlook 2006-2007 OPK / Research / Economic outlook / 13.3.2006 billion Change, % 2005 2005 2006 forecast 2007 forecast GDP 155.3 2.1 3.5 2.5 Imports 54.6 10.3 7.0 6.0 Exports 60.1 7.0 8.0 5.0 Consumption 116.3 2.9 2.5 2.5 - Private 81.3 3.4 3.0 3.0 - Public 35.0 1.5 1.5 1.5 Investment 29.8 1.7 4.5 3.5 - Private 25.4 3.1 5.0 4.0 - Public 4.4-6.2 2.0 0.5 Consumer prices, % *) 0.9 1.3 1.4 Level of earnings, % *) 3.6 3.0 2.7 Unemployment rate, % 8.4 7.9 7.6 Current account, % of GDP 2.4 2.6 2.0 General government - Budget balance, % of GDP 2.6 2.3 2.1 - Public debt, % of GDP 41.1 40.5 39.9 *) annual change on average
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