Pohjola Bank Plc Interim Report for January-June 2013

Pohjola Bank plc Stock exchange release 31 July 2013, 8.00 am Interim Report Pohjola Bank Plc Interim Report for January-June 2013 - Consolidated earnings before tax amounted to EUR 252 million (202) and consolidated earnings before tax at fair value to EUR 177 million (433). Return on equity was 14.1% (12.9). Core Tier 1 ratio was 10.6% (10.6). - The loan portfolio held by Banking grew by 6% from its level at the turn of the year and by 9% in the year to June. The average corporate loan portfolio margin was 1.53% (1.52). Impairment loss on receivables totalled EUR 19 million (19) and the bank levy reduced earnings by EUR 8 million  (-). - Within Non-life Insurance, insurance premium revenue increased by 10%. The combined ratio improved to 91.0% (94.6). Excluding changes in reserving bases and amortisation on intangible assets arising from company acquisition, the operating combined ratio was 89.2% (92.6). Return on investments at fair value was 0.4% (5.5). - Within Asset Management, assets under management increased by 6% to EUR 34.9 billion (32.8). - Group's total expenses remained at the previous year's level despite the bank levy of EUR 10 million. Cost savings out of the EUR 25 million estimated for 2013 based on the efficiency-enhancement programme amounted to EUR 15 million. - Outlook towards the year end: Consolidated earnings before tax in 2013 are expected to be higher than in 2012. Within Banking, the loan portfolio is expected to grow in 2013 at the same rate as in 2012, when the growth rate was 9% (previous estimate: growth prospects on the loan portfolio are dimmer than last year). It is estimated that the Non-life Insurance operating combined ratio will vary between 88% and 92% (previous estimate: 89-93%). For more detailed information on outlook, see "Outlook towards the year end" below. April-June - Consolidated earnings before tax amounted to EUR 121 million (99) and consolidated earnings before tax at fair value to EUR 63 million (96). Return on equity was 13.8% (12.2). - Banking corporate customers showed a higher level of activity. Combined net interest income from Corporate Banking and Baltic Banking was up by 18% year on year. The loan portfolio increased by 4% and the average corporate loan portfolio margin by 4 basis points. - Within Non-life Insurance, insurance premium revenue increased by 11%. Combined ratio was 87.9% (87.4) while operating combined ratio was 86.2% (85.5). Return on investments at fair value was -0.6% (0.6). - Earnings posted by the Group Functions were improved by the EUR 12-million interest on cooperative capital from Suomen Luotto-osuuskunta. 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 2012 are used as comparatives. As a result of change in the recognition of defined benefit pension plans, the comparatives have been restated. Earnings before tax, EUR H1/ H1/ Change,  % Q2/ Q2/ Change,  % million       2013 2012 2013 2012 2012 -------------------------------------------------------------------------------   Banking 112 120 -7 58 55 6 221   Non-life Insurance 99 54 82 43 39 11 92   Asset Management 11 12 -1 7 6 10 32   Group Functions 30 16 87 13 -1   27 Total 252 202 25 121 99 22 372 Change in fair value reserve -74 231   -58 -2   418 Earnings before tax at fair value 177 433 -59 63 96 -35 790 Earnings per share, EUR   0.61 0.48   0.29 0.24   0.89 Equity per share, EUR 8.64 7.85         8.67 Average personnel 2,612 3,419   2,569 3,432   3,421 ------------------------------------------------------------------------------- H1/ H1/ Q2/ Q2/ 2012 Target Financial targets 2013 2012 2013 2012 ------------------------------------------------------------------------------- Return on equity, % 14.1 12.9 13.8 12.2 11.2 13 Core Tier 1 ratio, % 10.6 9.8     10.6 > 11 Operating cost/income ratio by Banking, % 38 34 36 34 34 < 35 Operating combined ratio by Non-life Insurance, % 89.2 92.6 86.2 85.5 90.5 < 92 Operating expense ratio by Non-life Insurance, % 19.5 23.1 19.1 22.4 21.5 18 Solvency ratio by Non-life Insurance, % 75 86     81 70 Operating cost/income ratio by Asset Management, % 54 53 51 53 47 < 45 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 Core Tier 1 ratio remains at least 10%         51 > 50 ------------------------------------------------------------------------------- President and CEO Mikael Silvennoinen: Pohjola's second-quarter business performance was in line with our expectations. Consolidated earnings before tax were good, amounting to slightly over EUR 120 million. Our first-half consolidated earnings before tax exceeded EUR 250 million and the return on equity was 14%. Banking showed lower first-half earnings than the year before due to a decrease in trading income generated by Markets and to the bank levy. Demand for corporate loans and the corporate bond markets perked up during the second quarter. During the first half, the loan portfolio increased by 6% and the Corporate Banking net interest income by 11%. Net loan losses and impairment losses remained low, being at the level reported a year ago. Insurance premium revenue continued to grow vigorously within Non-life Insurance. The second-quarter operating combined ratio was 86.2%. Greater operating efficiency manifested itself in the substantially improved expense ratio. Q2 return on investments at fair value was lower than a year ago, due mainly to an increase in market interest rates. Within Asset Management, assets under management increased as a result of growth in OP mutual fund assets and positive developments in market values. Thanks to the efficiency-enhancement programme, total expenses, excluding the bank levy, were 3% lower than a year ago. Cost savings out of the EUR 25 million estimated for 2013 amounted to EUR 15 million during the first half, resulting mainly from a reduction in personnel. The programme is proceeding as planned. Outlook towards the year end Within Banking, the loan portfolio is expected to grow in 2013 at the same rate as in 2012, when the growth rate was 9% (previous estimate: growth prospects on the loan portfolio are dimmer than last year). The operating environment for the corporate sector will remain challenging. The greatest uncertainties related to Banking's financial performance in 2013 are associated with future impairment loss on the loan portfolio. Insurance premium revenue is expected to increase at a rate above the market average. The operating combined ratio for the full year 2013 is estimated to vary between 88% and 92% (previous estimate: 89-93) if the number of large claims is not much higher than in 2012. Expected investment returns are largely dependent on developments in the investment environment. The most significant uncertainties related to Non-life Insurance's financial performance in 2013 pertain to the investment environment and the effect of large claims on claims expenditure. The greatest uncertainties related to Asset Management's financial performance in 2013 are associated with the actual performance-based fee income tied to the success of investments and the amount of assets under management. 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. It is estimated that the Group Functions' net interest income will be lower than in 2012. Consolidated earnings before tax in 2013 are expected to be higher than in 2012. 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, 31 July 2013 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. Analyst meeting, conference call and live webcast Pohjola will hold a briefing in English for analysts and investors on 31 July starting at 3.00 pm Finnish time, EET (2.00 pm CET, 1.00 pm UK time, 8am US EST). The briefing is a combined analyst meeting, conference call and live webcast. Analysts and investors may attend the briefing in one of the following two ways: 1) By viewing the briefing as live webcast via the internet. The link will be available on the IR website before the briefing begins. Questions on the internet are welcome via a question button available in the webcast window. An on-demand webcast of the briefing can be viewed via the IR website afterwards. 2) By dialling one of the regional conference call numbers shown below. Questions are welcome by telephone in the Q&A session according to instructions. To participate via a conference call, please dial in 5-10 minutes before the beginning of the event: UK: +44 1452 555 131 FI: +358 9 23 113 289 SE: + 46 8 506 307 79 US: +1 866 682 8490 Password: Pohjola Press conference Mikael Silvennoinen, Pohjola Bank plc's President and CEO, will present the financial results in a press conference on OP-Pohjola Group's premises (Vääksyntie 4, Vallila, Helsinki), on 31 July, starting at noon. Financial reporting in 2013 Schedule for Interim Reports in 2013: Interim Report Q1-3/2013: 30 October 2013 DISTRIBUTION NASDAQ OMX Helsinki Ltd London Stock Exchange SIX Swiss Exchange Major media www.pohjola.com, www.op.fi For additional information, please contact: Mikael Silvennoinen, President and CEO, tel. +358 (0)10 252 2549 Vesa Aho, CFO, tel. +358 (0)10 252 2336 Niina Pullinen, Senior Vice President, Investor Relations, tel. +358 (0)10 252 4494 Pohjola Bank plc is a Finnish financial services group which provides its customers with banking, non-life insurance and asset management services. Our mission is to promote the prosperity, security and wellbeing of our customers. Profitable growth and an increase in company value form our key objectives. Pohjola Group serves corporate customers in Finland and abroad by providing an extensive range of financial, investment, cash-management and non-life insurance services. We offer non-life insurance and private banking services to private customers. Pohjola Series A shares have been listed on the Large Cap List of the NASDAQ OMX Helsinki since 1989. The number of shareholders totals around 32,000. Pohjola's consolidated earnings before tax came to 374 million euros in 2012 and the balance sheet total amounted to 45 billion euros on 31 December 2012. Pohjola is part of OP-Pohjola Group, the leading financial services group in Finland with over four million customers. www.pohjola.com [HUG#1719980]