OP Financial Group's earnings analysis and some key balance sheet indicators

Earnings analysis


€ million 2014 2013 Change, %
Banking 587 404 45.1
Non-life Insurance 223 166 34.4
Wealth Management 161 113 42.5
Earnings before tax 915 701 30.6
Gross change in fair value reserve 152 -39  
Earnings before tax at fair value 1,067 662 61.2
       
Return on economic capital, % *) 16.5 15.2 1,3*
Return on economic capital at fair value, % *) 19.1 15.0 4,2*
       
Income


Net interest income 1,043 915 14.0
  Net income from Non-life Insurance 593 524 13.2
  Net income from Life Insurance 197 175 12.5
  Net commissions and fees 727 694 4.8
  Net trading and investment income 162 182 -10.8
  Other operating income 67 85 -21.6
Other income, total 1,746 1,660 5.2
Total income 2,789 2,575 8.3
       
Expenses      
Personnel costs 741 791 -6.4
Other administrative expenses 414 384 7.6
Other operating expenses 437 422 3.6
Total expenses 1,592 1,598 -0.4
       
Impairment loss on receivables 88 84 5.4

     
Returns to owner-members and OP bonus customers      
Bonuses 189 182 3.6
Interest on ordinary and supplementary cooperative capital 6 11 -48.1
Total returns 195 193 0.7
         

*) 12-month rolling, change in percentage

Key balance sheet items


€ million 31 Dec 2014 31 Dec 2013 Change, %
Receivables from customers 70,683 68,142 3.7
Life Insurance assets 11,238 9,872 13.8
Non-life Insurance assets 3,797 3,479 9.1
Liabilities to customers 51,163 50,157 2.0
Debt securities issued to the public 24,956 21,428 16.5
Equity capital 7,213 7,724 -6.6
Total assets 110,427 100,991 9.3

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.

January–December

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.

OP Financial Group's long-term financial targets



31 Dec 2014 31 Dec 2013 Target
Capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates 1.89 2.19 1.6
Return on economic capital, % (12-month rolling) 16.5 15.2 20%
Growth differential between income and expenses, pps (within 3 years) 13.8 -2.8 >0 %-points

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%.


 

Key income statement items by quarter



2014 2014 2013 Change
€ million Q1 Q2 Q3 Q4
%
Net interest income 251 254 269 269 1,043 915 14.0
Net income from Non-life Insurance 151 159 143 139 593 524 13.2
Net income from Life Insurance 80 41 47 29 197 175 12.5
Net commissions and fees 197 173 177 179 727 694 4.8
Other income 56 75 52 46 229 267 -14.3
Total income 736 703 688 663 2,789 2,575 8.3
Personnel costs 195 190 166 190 741 791 -6.4
Other administrative expenses 112 102 98 101 414 384 7.6
Other operating expenses 113 107 107 110 437 422 3.6
Total expenses 420 400 371 401 1,592 1,598 -0.4
Impairment loss on receivables 10 23 17 38 88 84 5.4
Returns to owner-members and OP bonus customers 49 49 49 48 195 193 0.7
Earnings before tax 257 231 251 176 915 701 30.6