OP Financial Group's earnings analysis and balance sheet

January–December

Earnings before tax increased by 20.4% to EUR 1,101 million (915), being almost 10% higher than the previous record figure for 2007. This improvement was due especially to a 9% increase in other income. Net income posted by Life Insurance and Non-life Insurance increased as a result of improved insurance profitability. Net commissions and fees were at the level reported a year ago. Estate agent fees and lending fees were lower than a year ago whereas fees related to mutual funds and payment transaction fees increased. Net trading income rose due to income from derivatives trading. Capital gains on securities added to net investment income.

Net interest income decreased by 1.7% to EUR 1,026 million. Net interest income from retail and corporate banking increased but that from Markets and the liquidity buffer decreased. Net interest income from the liquidity buffer was reduced by narrower credit spreads of bonds and the Group's preparation for tighter liquidity regulation. The reduced net interest income from Markets was compensated by an increase in its other income.

Total expenses decreased by 2.3%, being EUR 35 million lower than a year ago. Higher personnel costs were explained by a EUR 40 million increase in pension costs and a non-recurring EUR 9 million in expenses related to the reorganisation of the central cooperative consolidated. Higher pension costs were explained, among other things, by amended pension laws adopted at the end of the year. Wages and salaries were at the previous year's level. In addition to business expansion, the non-recurring expenses of EUR 18 million related to intra-Group ownership reorganisation and the reconstruction of the Vallila premises increased other expenses. ICT costs increased by 5.7%, being EUR 11 million higher than in the previous year. A year ago, statutory contributions to the Deposit Guarantee Fund and the bank levy, totalling EUR 72 million, and non-recurring expenses of EUR 12 million, related to the purchase of Pohjola Bank plc shares, increased other expenses.

Impairment losses recognised under various income statement items that reduced earnings amounted to EUR 114 million (113), of which EUR 78 million (88) concerned loans and receivables. Net impairment loss on loans and receivables were low, at 0.10% (0.12) of the loan and guarantee portfolio.

The Group's income tax amounted to EUR 251 million (337). The effective tax rate was 22.5% (33.6). The Group's income tax after changes in deferred tax totalled EUR 249 million (308). The effective tax rate was increased by the capital gains tax of EUR 37 million (109) arising from transactions related to intra-Group ownership reorganisation.

Earnings before tax recorded by Banking amounted to EUR 642 million (571). The earnings performance by Banking was supported by higher income and lower expenses. Higher net interest income from Banking was due to growth in the loan portfolio and a rise in its average margin as well as a decrease in deposit funding costs. Net commissions and fees increased as a result of higher fees from Wealth Management and Non-life Insurance. Expenses decreased by 2.5% to EUR 1,037 million. Statutory contributions to the Deposit Guarantee Fund and the bank levy, totalling EUR 70 million in Banking, increased other operating expenses a year ago.

Non-life Insurance earnings before tax amounted to EUR 259 million (223). The operating combined ratio was 87.3% (89.4). Premiums written increased faster than claims incurred. The change in the discount rate for insurance liability increased claims incurred by EUR 62 million (62), which weakened the operating combined ratio by 4.5 percentage points. The expense ratio decreased by 0.7 percentage points to 17.7%. Net investment income recognised in the income statement decreased by EUR 7 million year on year.

Earnings before tax posted by Wealth Management were EUR 213 million (167). This year-on-year earnings improvement was a result of improved Life Insurance profitability. The segment's net commissions and fees decreased by 5.6% year on year.

On 19 May 2015, six former POP Group member banks joined OP Financial Group. Their accounts have been consolidated into the Group's accounts since they joined the Group. As a result of the consolidation, the Group's net interest income grew by EUR 9 million, net commissions and fees by EUR 3 million and expenses by EUR 10 million. As a whole, the effect on earnings was slightly positive. As a result of the consolidation, the Group's loan portfolio grew by EUR 643 million and deposit portfolio by EUR 694 million on the date of transfer.

Earnings before tax at fair value amounted to EUR 883 million (1,067). OP Financial Group’s fair value reserve before tax totalled EUR 302 million (531) on 31 December.

Equity capital amounted to EUR 9.3 billion (7.2) on 31 December. This increase was due to both Group earnings and the issues of Profit Shares. On December 31, EUR 2.5 billion (1.6) in Profit Shares were included in equity, terminated Profit Shares accounting for EUR 0.3 billion. In March 2015, the central cooperative's Executive Board decided to raise the target level of Profit Shares by EUR 0.4 billion to EUR 2.3 billion. This target amount has virtually been met.

OP Financial Group's financial targets

OP Financial Group achieved all of its key financial targets at the end of the financial year.