Pohjola Group Performance for January-June Pohjola Bank plc

Pohjola Bank plc Stock exchange release 6 August 2014, 8.00 am Interim Report Pohjola Group Performance for January-June - Consolidated earnings before tax amounted to EUR 336 million (254) and consolidated earnings before tax at fair value to EUR 393 million (179). The return on equity was 17.2% (13.9). The Common Equity Tier 1 (CET1) ratio was 11.9% (11.9*) as against the target of 15%. - Strong growth in income improved Banking earnings. The loan portfolio grew by 2% to EUR 14.5 billion (14.2). The average margin on the corporate loan portfolio was 1.51% (1.57). Earnings included EUR 8 million (19) in impairment loss on receivables. - Within Non-life Insurance, insurance premium revenue increased by 7% (10). The combined ratio improved to 86.1% (91.0). Excluding changes in reserving bases and amortisation on intangible assets arising from company acquisition, the operating combined ratio was 84.5% (89.2). Return on investments at fair value was 3.4% (0.4). - Within Asset Management, assets under management increased by 7% to EUR 40.6 billion (37.9). - OP-Pohjola Group Central Cooperative executed a public voluntary bid for Pohjola Bank plc shares. It holds 98.41% of the shares and 99.14% of the votes conferred by the shares. OP-Pohjola Group Central Cooperative initiated a squeeze-out procedure for the remaining shares in Pohjola under the Limited Liability Companies Act. - Events after the reporting period: The reduction in the discount rate for Non- life Insurance pension liabilities from 2.8% to 2.5% will reduce Q3 consolidated earnings by roughly EUR 62 million. - Unchanged outlook: Consolidated earnings before tax in 2014 are expected to be higher than in 2013. For more detailed information on the outlook, see "Outlook towards the end of 2014" below. April-June - Consolidated earnings before tax amounted to EUR 177 million (122) and consolidated earnings before tax at fair value to EUR 230 million (65). - Banking showed considerable improvement in its earnings before tax. Net interest income grew by 30% year on year. The loan portfolio increased by 2% and the average corporate loan portfolio margin decreased by 3 basis points. Earnings included EUR 4 million (13) in impairment loss on receivables. - Within Non-life Insurance, insurance premium revenue increased by 6%. The combined ratio was 81.4% (87.9) while the operating combined ratio was 79.8% (86.2). Return on investments at fair value was 2% (-0.6). Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago. Unless otherwise specified, balance- sheet and other cross-sectional figures on 31 December 2013 are used as comparatives.  Comparative figures have been restated as a result of the adoption of IFRS 10 Consolidated Financial Statements. *) In accordance with the EU capital requirement regulation and directive (EU 575/2013) (CRR) entered into force on 1 January 2014. **) According to the Solvency II draft (EU 138/2009) Earnings before tax, EUR H1/2014 H1/2013 Change, % Q2/ Q2/ 2013 million      2014 2013 -------------------------------------------------------------------------------   Banking 167 112 50 85 58 251   Group Functions 22 32 -30 15 14 39   Non-life Insurance 133 99 34 71 43 166   Asset Management 14 11 21 7 7 24 Group total 336 254 33 177 122 479 Change in fair value reserve 57 -75   53 -57 -16 Earnings before tax at fair value 393 179   230 65 463 Earnings per share, EUR    0.84 0.61   0.45 0.30 1.33 Equity per share, EUR 9.81 8.65       9.54 Average personnel 2,592 2,657   2,591 2,625 2,632 ------------------------------------------------------------------------------- The above figures describe Pohjola Group as a whole without the division into continuing and discontinued operations. Financial targets H1/2014   H1/2013 Q2/ Q2/ 2013 Target 2014 2013 ------------------------------------------------------------------------------- Return on equity, % 17.2 13.9 18.6 13.6 14.4 13 Common Equity Tier 1 ratio (CET1), % *) 11.9       11.9 15 Operating cost/income ratio by Banking, % 32 38 31 36 36 < 35 Operating combined ratio by Non- life Insurance, % 84.5 89.2 79.8 86.2 86.9 < 92 Operating expense ratio by Non-life Insurance, % 18.1 19.5 17.7 19.1 18.7 18 Non-life Insurance solvency ratio (under Solvency II framework), % **) 137 127     125 120 Operating cost/income ratio by Asset Management, % 49 54 47 51 53 < 45 Total expenses in 2015 at the same level as at the end of 2012 297 291 146 146 581 569 AA rating affirmed by at least two credit rating agencies or credit ratings at least at the main competitors' level 2 2     2 2 Dividend payout ratio at least 50%, provided that CET 1 ratio is at least 15%. Dividend payout ratio is 30% until CET1 ratio of 15% has been achieved.         50 > 50 (30) ------------------------------------------------------------------------------- President and CEO Jouko Pölönen: Our consolidated earnings before tax improved in the second quarter by EUR 55 million to EUR 177 million. Strong growth in income reported by Banking and Non- life Insurance and controlling costs at the level a year ago lay behind these all-time high quarterly results. Demand for loans within Banking remained sluggish. Growth in the loan portfolio remained weak and, as a result of fiercer competition, the average corporate loan portfolio margin decreased by a few basis points. Income from Banking increased as a result of higher net interest income and net trading income. The quality of the loan portfolio remained good and impairment losses on receivables were low. Insurance premium revenue continued to grow vigorously within Non-life Insurance. The balance on technical account improved as claims incurred increased more slowly than insurance premium revenue as a result of favourable developments in frequency claims and of changes related to prior years' claims. A reduction in the main refinancing rate performed by the ECB, a negative deposit rate and the ECB's exceptional liquidity-provided operations sent market interest rates to a record low level. As a result of lower interest rates, return on investment a fair value was good but the low interest rates will present challenges to reinvestment. As a result of exceptionally low interest rates, the Group decided to reduce the Non-life Insurance discount rate, which will affect third-quarter earnings. Assets under management by Asset Management increased and Asset Management earnings before tax improved as a result of higher net commissions and fees. Major uncertainty is still associated with the operating environment due to the Ukraine crisis and related sanctions. The new regulatory framework and supervision will set ever-tightening requirements for the financial sector. Pohjola Group's businesses are in good condition. Following the bid executed by OP-Pohjola Group Central Cooperative, Pohjola's businesses will be more closely integrated with a more efficient and competitive OP-Pohjola Group wholly owned by its customers. This will create excellent opportunities to provide the entire OP-Pohjola Group's resources for our customers. Outlook towards the end of 2014 In Banking, the loan portfolio is expected to be at the same level as in 2013. Due to the operating environment, corporate investments are expected to remain below their normal level. The greatest uncertainties related to Banking's financial performance are associated with volume developments and future impairment loss on the loan portfolio. Banking earnings before tax in 2014 are expected to be at the same level as or higher than in 2013. Insurance premium revenue is expected to increase at a rate above the market average. It is estimated that the Non-life Insurance operating combined ratio for the full year will vary between 87 and 91%, if the number of large claims is not much higher than in 2013. Expected investment returns are largely dependent on developments in the investment environment. The most significant uncertainties related to Non-life Insurance's financial performance pertain to developments in bond and capital markets and to the effect of large claims on claims expenditure. Non-life Insurance earnings before tax in 2014 are expected to be higher than in 2013. The greatest uncertainties related to Asset Management's financial performance are associated with the actual performance-based commissions and fees tied to the success of investments and the amount of assets under management. Asset Management earnings before tax in 2014 are expected to be at the same level as or higher than in 2013. The key determinants affecting the Group Functions' financial performance include net interest income arising from assets in the liquidity buffer, any capital gains or losses on notes and bonds and any impairment loss that may be recognised on notes and bonds in the income statement. Group Functions earnings before tax in 2014 are expected to be lower than in 2013 due to low interest rates and tighter liquidity regulation. Consolidated earnings before tax in 2014 are expected to be higher than in 2013. There is still great uncertainty about the economic outlook and the operating environment. All forward-looking statements in this report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view of the future development in the operating environment and the future financial performance of Pohjola Group and its various functions, and actual results may differ materially from those expressed in the forward- looking statements. Helsinki, 6 August 2014 Pohjola Bank plc Board of Directors This Interim Report is available at www.pohjola.com > Media > Releases, where background information on the Report can also be found. Financial reporting in 2014 Schedule for Interim Reports in 2014: Interim Report Q1-3/2014: 29 October 2014 DISTRIBUTION NASDAQ OMX Helsinki Ltd London Stock Exchange SIX Swiss Exchange Major media www.pohjola.com, www.op.fi For additional information, please contact Jouko Pölönen, President and CEO, tel. +358 (0)10 253 2691 Vesa Aho, CFO, tel. +358 (0)10 252 2336 Niina Pullinen, Senior Vice President, Investor Relations, tel. +358 (0)10 252 4494 Pohjola is a Finnish financial services group that offers its customers banking, non-life insurance and asset management services. Pohjola's mission is to promote the prosperity, security and wellbeing of its customers. Key targets include profitable growth and increasing the company's value. Pohjola Group serves corporate customers in Finland and abroad by providing an extensive range of financial, investment, cash management and non-life insurance services. For private customers, the Group provides non-life insurance and private banking services. Pohjola's consolidated earnings before tax amounted to 473 million euros in 2013 and the balance sheet total amounted to 44 billion euros on 31 December 2013. Pohjola is part of OP-Pohjola Group, the leading financial services group in Finland with 4.3 million customers. www.pohjola.com [HUG#1846721]