Very strong year for OP-Pohjola Group: significant

OP-Pohjola Group Stock Exchange Release 6 February 2014 at 8.00 am (EEST) Financial Statements Bulletin Very strong year for OP-Pohjola Group: significant improvement in earnings, capital adequacy and market position * The Group's earnings before tax increased by 20% to EUR 705 million (586). * Earnings before tax in the last quarter amounted to EUR 91 million (104), eroded by changes in the calculation bases of Non-life Insurance's insurance liability worth EUR 38 million. * Banking improved its earnings before tax towards the year end but they were, however, slightly lower than a year ago. * A decrease in net interest income slowed down and the fourth-quarter net interest income was already clearly higher than the year before. * Non-life Insurance improved its earnings before tax by 82%. * Wealth Management earnings before tax improved by 12%. * Total income increased by 6% and total expenses, excluding the bank levy, decreased by 1%. * The Core Tier 1 ratio before the transition provisions improved markedly, being 17.3% (14.8) on 31 December. * The Group strengthened its market position on a wide front. The loan portfolio grew by 4.8%, deposits by 5.2%, mutual fund assets by 20% and non- life insurance premiums written by 11%. * The number of joint banking and non-life insurance customers increased by 94,000 in the year to December. * New, more challenging capital adequacy and profitability targets have been confirmed for OP-Pohjola Group. * Earnings before tax in 2014 are expected to be higher than in 2013. For more information, see "Outlook for 2014". * The central institution of OP-Pohjola Group decided today to make a public voluntary bid for all shares issued by Pohjola Bank plc. OP-Pohjola will issue a separate stock exchange release related to the matter. OP-Pohjola Group's key indicators -------------------------------------------------------------------------------   2013 2012 Change, % ------------------------------------------------------------------------------- Earnings before tax, € million 705 586 20.4    Banking 411 424 -3.1    Non-life Insurance 167 92 81.7    Wealth Management 113 101 12.1 Returns to owner-members and OP bonus 193 192 0.7 customers   31 Dec 2013 31 Dec 2012 Change, % Core Tier 1 ratio before the transition 17.3 14.8 2.5* provisions, % Core Tier 1 ratio, % 14.3 14.1 0.2* Ratio of capital base to minimum amount of 1.90 1.90 0.00* capital base (under the Act on the Supervision of Financial and Insurance Conglomerates) Ratio of non-performing receivables to loan 0.42 0.46 -0.04* and guarantee portfolio, % Joint banking and 1,518 1,425 6.6 insurance customers  (1,000) ------------------------------------------------------------------------------- * Change in ratio Comments by Reijo Karhinen, Executive Chairman and CEO OP-Pohjola Group's year 2013 was successful for us in many ways. We recorded our third-best annual results of all time, our capital adequacy increased to a new record height and our market position improved in all of our main business lines. While strengthening our foundation, we also made dedicated efforts to build our future. Our smart wallet Pivo and Omasairaala hospital as part of our health and wellbeing business were both instant successes among our customers. Both of them involved a lot of positive thinking and faith in the future. The strong growth of our customer business created the foundation for our result that was much better than a year ago. Non-life Insurance, which is in great form, reached record earnings. Banking, too, showed better earnings than expected, supported by net interest income that turned upward in the second half of the year. Despite our many efficiency-enhancement measures, we were not quite able to stop our expenses from increasing. However, if we exclude the effect of the bank levy, our expenses decreased. We will continue to work on restraining expense growth. The increasing requirements for efficiency are affecting our choices more and more. Tightening regulation requires us to have better and better capital adequacy and consequently better financial performance. Capital adequacy has been a clear competitive advantage to OP-Pohjola Group for a long time. In order for us to retain this advantage, to ensure operational stability and long-termism and to fulfil the regulatory requirements, we have decided to raise our capital adequacy target (CET1) from 15% to 18%. Our primary method for maintaining a high level of capital adequacy is to show good financial performance to enhance our capital base. The fact that our market position in terms of home loans and corporate financing has continued to strengthen is a clear proof that we are carrying our responsibility to an increasing extent for the effectiveness of the Finnish financing system. Another sign that we stress customer benefits is that we made a new record in 2013 in the number of customers using OP-Pohjola as their main bank and insurer. The fact that more than 85,000 new customers rely on us for their banking and insurance needs gives us renewed faith that we have been doing the right things, respecting and listening to our customers. I believe that by making bold reforms yet respecting traditional values we can continue to be successful in the future too. In addition to new regulations, the use of digital technologies is a major challenge to the financial sector. We at OP-Pohjola Group see digitalisation as a great opportunity to improve customer contacts and customer experience not only in the mobile and online channels but also in our branch offices. OP-Pohjola Group has been owned by its customers right from the start and this is what we will be keeping in mind as we develop the Group's operations today and in the future. Our mission stresses the importance of creating conditions where our customers and operating environment can be successful. The financial crisis and the years following it have shown the significance of a strong national player whose success derives from prioritising the needs of its customers. I am proud of our value base that stems from customer ownership. I believe that the way we have operated in the past and will continue to operate in the future is a key component of our continued success. I have complete confidence that our solid financial foundation and focus on customers will help us to build an even more competitive OP-Pohjola Group. Financial performance in the report period OP-Pohjola Group's earnings before tax amounted to EUR 705 million (586). Earnings were improved especially because of a solid increase in investment income due to capital gains on securities, the good performance of Non-life Insurance and an increase in net commissions and fees. The good performance of Non-life Insurance was the result of premiums written that have been increasing for a long time and of lower operating expenses. Likewise, the Life Insurance earnings were higher than a year ago, especially because of capital gains and the acquisition of Aurum Investment Insurance Ltd. Due to low interest rates, net interest income decreased by 8.9% year on year. A decrease in net interest income slowed down during the period and the fourth- quarter net interest income was already clearly higher than the year before. Total expenses increased by 2.4% as a result of the bank levy of EUR 46 million and growth in business volumes. Excluding the effect of the bank levy, total expenses would have decreased by less than 1%. Aurum Investment Insurance Ltd, which started its operations in autumn 2012, accounted for EUR 9 million of the growth in expenses, and Omasairaala Oy, which opened its doors on 1 January 2013, for EUR 4 million. Thanks to measures taken in the efficiency-enhancement programme, wages and salaries decreased by 3.3%. Because pension costs increased, personnel costs as a whole decreased by 1.5%. OP-Pohjola Group's fair value reserve before tax totalled EUR 406 million (449) on 31 December. Earnings before tax at fair value were EUR 662 million (1,283). Bonuses to owner-members and OP bonus customers recognised in the income statement increased by 5.2% year on year to EUR 182 million (173). Outlook for 2014 The global economy is strengthening but economic growth will remain slower than usual. The euro-area economy has begun to recover. An increase in exports will make the Finnish economy recover slowly. The European Central Bank will continue to pursue its expansionary monetary policy, which will keep interest rates low for an extended period. In spite of the gradual economic recovery, there is still a fairly high risk of the reversal of the budding upward trend and new financial market disruptions. As a result of the slowly strengthening economy, the operating environment in the financial sector is gradually improving although historically low interest rates will continue to erode banks' net interest income and weaken insurance institutions' investment income. Changes in the operating environment and the more rigorous regulatory framework will highlight the role of measures to strengthen the capital base and improve profitability. Unless the operating environment turns out to be considerably weaker than expected, OP-Pohjola Group's earnings before tax are expected to be higher than in 2013. The most significant uncertainties affecting earnings in 2014 relate to the rate of business growth, impairment loss on receivables and changes in the investment environment. All forward-looking statements in this Financial Statements Bulletin 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 2014, starting at noon at Vääksyntie 4, Vallila, Helsinki. Pohjola Bank plc will publish its own Financial Statements Bulletin. Financial reporting in 2014 Schedule for Interim Reports in 2014: Interim Report Q1/2014 29 April 2014 Interim Report H1/2014 6 August 2014 Interim Report Q3/2014 29 October 2014 OP-Pohjola Group Central Cooperative Executive Board ADDITIONAL INFORMATION Carina Geber-Teir, Chief Communications Officer, tel. +358 (0)10 252 8394 Harri Luhtala, CFO, tel. +358 (0)10 252 2433 Reijo Karhinen, Executive Chairman and CEO, t DISTRIBUTION NASDAQ OMX Helsinki Ltd London Stock Exchange SIX Swiss Exchange Major media op.fi and pohjola.com 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 180 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 12,000 OP-Pohjola Group posted consolidated earnings of 705 million euros before tax in 2013 and had total assets of 101 billion euros on 31 December 2013. The group has 4.3 million customers. www.op.fi [HUG#1759609]