OP-Pohjola Group's earnings before tax improves by 15% - business continues to grow strongly

6 februari 2013 OP-Pohjola Group Stock Exchange Release 6 February 2013 at 8.00 am (EEST) Financial Statements Bulletin OP-Pohjola Group's earnings before tax improves by 15% - business continues to grow strongly - OP-Pohjola Group's 2012 earnings before tax came to EUR 601 million (525). The Non-life Insurance and Wealth Management segments improved their performance significantly. Banking's performance was in the previous year's level. - Earnings before tax at fair value soared to a new record at EUR 1,299 million thanks to a rise in the value of investments. - The Group's income increased by a total of 10%. Net interest income contracted by 3%, while other income increased by 21%. Expenses increased by 9%. - Impairments charges on receivables came to EUR 99 million (101). - Earnings before tax in the last quarter amounted to EUR 108 million (37). - Core Tier 1 ratio was a strong 14.1% (14.0). Without the effect of transition provisions limiting risk-based calculation methods, it stood at 14.8% (14.0). - The joint customers of Banking and Non-life Insurance increased by a record 126,000. - The corporate loan portfolio increased in the year to December by 9%, home loans by 8% and deposits by 9%. Within Non-life Insurance, insurance premium revenue rose by 10% during the financial year. - The information and consultation of employees process related to the reorganisation of OP-Pohjola Group Central Cooperative Consolidated was concluded in December. As a result, the Central Cooperative decided to cut 561 jobs, with another 150 jobs to be outsourced. - 2013 earnings before tax are expected to be about the same or slightly lower than in 2012. For more details, see "Outlook for 2013". OP-Pohjola Group's key indicators -------------------------------------------------------------------------------   2012 2011 Change, % ------------------------------------------------------------------------------- Earnings before tax, EUR million 601 525 14.5    Banking 437 447 -2.2    Non-life Insurance 92 8    Wealth Management 101 47 Returns to owner-members and OP bonus 192 176 8.8 customers   31 Dec 2012 31 Dec 2011 Change, % Ratio of capital base to minimum amount of 1.90 1.80 0.10* capital base (under the Act on the Supervision of Financial and Insurance Conglomerates) Core Tier 1 ratio, % 14.1 14.0 0.1* Ratio of non-performing receivables to loan 0.46 0.47 -0.02* and guarantee portfolio, % Joint banking and 1,425 1,299 9.7 insurance customers (1,000) ------------------------------------------------------------------------------- * Change in ratio Comparatives deriving from the income statement are based on the corresponding figures in 2011. Unless otherwise specified, balance-sheet and other cross- sectional figures on 31 December 2011 are used as comparatives. Comments by Reijo Karhinen, Executive Chairman and CEO 2012 was an eventful year for OP-Pohjola. The conditions were difficult, but our performance was better than a year ago, just as we had expected. We enjoyed strong growth and retained our solid capital adequacy. The integration of our banking and non-life insurance operations continued at accelerated pace, resulting in a record number of new joint customers. This is a clear indication of our personnel's expertise and the competitiveness of our products and services. Considering the circumstances, I am very happy with our results in 2012. Slow economic growth, historically low interest rates and a number of regulatory changes created a challenging operating environment. We owe our earnings improvement to success in non-life insurance and wealth management operations. Investment income increased, but our net interest income dipped, just as we expected it would. Performance by Banking was somewhat short of that a year ago. In the second half of 2012, income increased significantly, so income increased more than expenses for the whole year. The favourable investment environment pushed the Group's earnings at fair value to a new record. OP-Pohjola Group is Finland's largest provider of home and corporate loans. In my opinion, we managed the responsibility that comes with this position very well again last year. Our credit portfolio growth figures were very impressive. Our lending grew at a clearly higher rate than the industry average, underlining our role in the Finnish economy as a promoter of economic activity and employment. Our ability to meet our customers' financing needs was translated into a stronger market position. These excellent growth figures stem from our solid capital adequacy and our basic mission to respond to our customers' needs and expectations. The current major transformation of the financial sector demands from us great vigilance, continuous adaptation and proactive measures to ensure our successful business operations in the future. We also purposefully built a foundation in case of even more demanding years. The reorganisation programme in OP-Pohjola Group Central Cooperative Consolidated that we began last autumn and the Vallila 2015 business premises investment should bring us major cost savings in the near future. Two thirds of these savings arise from other than personnel costs. Changes in our operating environment are dictated by more rigorous regulation and taxation both in the EU and in Finland. However, no coordinated plan to control these exists. The changes put the sector under greater pressure to succeed, and banks' financing opportunities are weakening as customer financing is being reallocated. It is particularly the small and medium-sized companies whose financing is at risk and whose expenses are rising that will bear the brunt of this. So those who should be helping our economy to grow and to create more jobs are becoming the victims of more stringent regulation and taxation. 2013 has, thanks to measures by the ECB, got off to a somewhat more positive start. I am nevertheless more and more concerned about Finland's economic development. We are on a treacherous path. With no economic growth, there will be no new jobs. We need bold political decisions that provide people and businesses with the right incentives. We cannot continue to raise taxes, that is for sure. OP-Pohjola Group's financial buffers are good and our customer lending is on a sound basis. We will continue to do our part to help the Finnish economy grow. Indeed, our cooperative principles oblige us to do so. Financial performance in the report period OP-Pohjola Group's earnings before tax came to EUR 601 million (525). Performance in the report period was boosted by good Non-life investment performance, better performance by Life Insurance and higher net trading income. Earnings were eroded by lower net interest income as a result of low interest rates, lower wealth management commissions and fees year on year and higher expenses incurred by the Group. Bonuses to owner-members and OP bonus customers recognised in the income statement grew by 6.7% year on year to EUR 173 million. The Group's fair value reserve increased by EUR 698 million in the report period thanks to investment market performance, whereas a year ago it decreased by EUR 400 million. Earnings before tax at fair value came to EUR 1,299 million (125). Outlook for 2013 The global economy is expected to continue to grow moderately in 2013. The euro area economy fell into a recession in 2012 and this year its growth is expected to be negative or zero. The Finnish economy too contracted in the second half of 2012. However, it is expected to begin to grow at a slow pace in 2013. The financial sector operating environment is expected to be difficult this year. Historically low market interest rates are decreasing banks' net interest income and weakening insurance companies' return on investments, while the weak market conditions will reduce demand for financial services and the bank tax confirmed in late 2012 will cause major costs to Finnish banks. Adjusting to the more rigorous regulatory environment in the financial sector will reduce profitability even further. Despite some stabilisation in the last six months, there is still a risk of the exacerbation of the European sovereign debt crisis, which would have an adverse effect on the entire financial sector. Uncertainties related to the operating environment and the radically changing regulatory environment make it difficult to estimate OP-Pohjola Group's performance in 2013. Unless the operating environment turns out to be considerably weaker than expected, OP-Pohjola Group's financial performance is expected to be at about the same level as in 2012, or somewhat lower. The primary uncertainties affecting the financial performance in 2013 relate to the rate of business growth, impairment loss on receivables and changes in the investment environment. All forward-looking statements in this statement expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view on developments in the economy, and actual results may differ materially from those expressed in the forward-looking statements. Press conference OP-Pohjola Group's financial performance will be presented to the media by Executive Chairman and CEO Reijo Karhinen in a press conference on 6 February 2013, starting at noon at Vääksyntie 4, Vallila, Helsinki. Pohjola Bank plc will publish its own Financial Statements Bulletin. Financial reporting in 2013 Schedule for Interim Reports in 2013: Interim Report Q1/2013: 2 May 2013 Interim Report H1/2013: 31 July 2013 Interim Report Q1-3/2013: 30 October 2013 OP-Pohjola Group Central Cooperative Executive Board Additional information Executive Chairman and CEO Reijo Karhinen, tel. +358 (0)10 252 4500 Harri Luhtala, CFO, tel. +358 (0)10 252 2433 Carina Geber-Teir, Chief Communications Officer, tel. +358 (0)10 252 8394 Distribution NASDAQ OMX Helsinki Ltd London Stock Exchange SIX Swiss Exchange Major media op.fi and pohjola.fi OP-Pohjola Group is Finland's leading financial services group providing a unique range of banking, investment and insurance services. The Group has the mission of promoting the sustainable prosperity, well-being and security of its owner-members, customers and operating regions through its local presence. Its objective is to offer the best and most versatile package of loyal customer benefits on the market. OP-Pohjola Group consists of some 200 member cooperative banks and the Group's central institution, OP-Pohjola Group Central Cooperative, with its subsidiaries and closely-related companies, the largest of which is the listed company Pohjola Bank plc. With a staff of more than 13,000 OP-Pohjola Group posted consolidated earnings of 601 million euros before tax in 2012 and had total assets of 99.8 billion euros on 31 December 2012. The group has over four million customers. www.op.fi OP_Pohjola_Q4_2012: http://hugin.info/142911/R/1675782/545953.pdf OP_Pohjola_backgroundmaterial_Q4_2012: http://hugin.info/142911/R/1675782/545955.pdf This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Pohjola Pankki Oyj via Thomson Reuters ONE [HUG#1675782]