Comparatives deriving from the income statement are based on figures reported for the corresponding period in 2013. 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.
OP Financial Group's earnings before tax grew by 31% to EUR 915 million (701). Earnings were boosted especially by an increase in net interest income and Non-life Insurance's net income. Net commissions and fees and net income from Life Insurance increased, too. Expenses no longer increased, which improved results of the entire Group.
Net interest income increased by 14%. The increase in net interest income was the result of an increase in the average margin and the growth of the balance sheet. The favourable development of net interest income from capital market products and the decrease in deposit funding costs also promoted the growth of net interest income.
The Group's total expenses decreased by 0.4%, being EUR 6 million lower than a year ago. Other operating expenses were increased in the financial year by non-recurring expenses incurred by the purchase of Pohjola Bank plc shares, amounting to a total of EUR 12 million. Without these non-recurring items' effect on comparability, the decrease in expenses was 1.1%.
Because of efficiency-enhancement measures and the outsourcing of ICT services, the Group's personnel costs decreased by 6.4%, being EUR 50 million lower than a year ago. Outsourcing and the reform of related operating models, on the other hand, increased ICT and other costs.
Impairment losses recognised under various income statement items that reduced earnings amounted to EUR 113 million (131), of which EUR 88 million (84) concerned loans and receivables. Net impairment loss on loans and other receivables were low, at 0.12% (0.12) of the loan and guarantee portfolio. A cumulative EUR 65 million of collective provisions, that is, incurred but not reported losses was recorded, representing a growth of EUR 7 million from the beginning of the year.
OP Financial Group's taxes for the financial year 2014 increased by EUR 217 million to EUR 337 million. The Group's income taxes, following a change in the deferred taxes, were EUR 308 million (36). The effective tax rate is 33.6% (5.1). The effective tax rate was increased during the financial year by the capital gains tax on the purchase of Pohjola Bank plc shares within the Group, and the income tax resulting from the liquidation of equalisation provisions related to OP Bank Group Mutual Insurance Company. The effective tax rate decreased considerably in the comparison period as a result of tax rate changes.
Earnings before tax recorded by Banking amounted to EUR 587 million (404). Banking's performance was particularly supported by an increase in net interest income. Net commissions and fees were also higher than a year ago. Expenses decreased by 0.8% to EUR 1,082 million (1,090). Personnel costs decreased by 5.6% to EUR 456 million (483). ICT costs were EUR 12 million higher than in the previous year.
Non-life Insurance's operating combined ratio for the whole year was historically low at 84.7% (86.9). Excluding the effect of changes in reserving bases, profitability improved due to an increase in insurance premiums and favourable claims development. Changes in reserving bases of insurance liability recorded during the financial year reduced earnings by EUR 62 million (38). The expense ratio also developed favourably. Net investment income increased by EUR 40 million year on year.
Earnings before tax posted by the Wealth Management segment improved as net commissions and fees and net investment income by Life Insurance increased year on year. The segment's net commissions and fees were 19% higher than a year ago owing to a higher volume of wealth under management.
OP Financial Group’s fair value reserve before tax totalled EUR 531 million (409) on 31 December. Earnings before tax at fair value were EUR 1,067 million (662).
Equity capital amounted to EUR 7.2 billion (7.7) on 31 December. The purchase of Pohjola Bank plc shares in the financial year reduced the Group's equity capital by EUR 2.4 billion. On the other hand, equity capital was increased by the Group's earnings and the issuance of Profit shares. On 31 December, EUR 1.6 billion (0) of Profit shares were included in the equity.
Return on economic capital decreased as a result of capital gains tax of EUR 109 million related to the purchase of Pohjola Bank plc shares within the Group and the EUR 50 million income tax resulting from the liquidation of equalisation provisions related to OP Bank Group Mutual Insurance Company. Excluding the tax effect of these internal measures, return on economic capital would have increased to 19.9%.