AKTIA REAL ESTATE MORTGAGE BANK PLC
ANNUAL REPORT 2013
Contents Report of the Board of Directors for the year 2013
1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Model of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Income and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Debts to credit institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Issued covered bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Funds and capital adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Risk management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Finnish mortgage market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Events after the reporting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Outlook for 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Proposal for the distribution of profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Five-year review, 31 December
6
Basis of calculation for key figures
6
Income statement
7
Comprehensive income
7
Balance sheet
8
Cash flow statement
9
Statement of changes in equity
10
Notes 11 Note 1 Overview of Aktia Real Estate Mortgage Bank plc’s significant accounting principles 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Note 2 Risk management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Notes to the income statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Notes to the balance sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Notes to the accounts concerning collateral and contingent liabilities . . . . . . . . 30 Other notes to the accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Auditor’s report
33
Corporate Governance Report for Aktia Real Estate Mortgage Bank plc
34
Report of the Board of Directors
Report of the Board of Directors for the year 2013 General
Aktia Bank plc Group
Aktia Real Estate Mortgage Bank plc is a Finnish credit institution that specialises in the granting of mortgages, the operations of which are regulated by the Act on Mortgage Credit Bank Operations and the Credit Institutions Act.
The shares of Aktia Bank plc are listed by NASDAQ OMX Helsinki. Aktia Bank plc has 45 988 shareholders, and on 31 December 2013 its market value stood at EUR 540 million.
The year 2013 was Aktia Real Estate Mortgage Bank’s twelfth complete financial year. At the end of the year the ownership of Aktia Real Estate Mortgage Bank was as follows: Aktia Bank owned 50.9 per cent of the shares and controlled 70 per cent of the votes; 28 savings banks owned 37.2 per cent of the shares and controlled 20 per cent of the votes; and 33 POP Banks owned 11.9 per cent of the shares and controlled 10 per cent of the votes. At the end of the year, in addition to Aktia Bank, 52 local banks had concluded a distribution agreement with Aktia Real Estate Mortgage Bank. Loans from Aktia Real Estate Mortgage Bank are sold in about 300 branches of distributing banks throughout Finland. Since October 2012 Aktia Real Estate Mortgage Bank has focused on the maintenance and refinancing of its existing loan portfolio, and the owner banks have granted new housing loans through their own operations. During 2013 Real Estate Mortgage Bank has sold distributed loans back to the distributing banks, to finance the covered bonds that mature.
Model of operations All the 53 partner banks that have concluded a distribution agreement can sell loans from the Real Estate Mortgage Bank to their customers. All customer service, including loan origination, is handled locally by the partner bank. Funding, risk management, credit process management, and bank administration are handled centrally by Aktia Real Estate Mortgage Bank’s own personnel. Aktia Real Estate Mortgage Bank has financed its operations primarily through issuing covered bonds. The mortgage-backed loans granted constitute the collateral of the bonds issued. Moody’s Investors Service Ltd has assigned an Aa3 credit rating to Aktia Real Estate Mortgage Bank’s covered bonds. The distributing partner banks are committed to maintaining Aktia Real Estate Mortgage Bank’s capitalisation at a sufficient level.
Aktia Real Estate Mortgage Bank plc is part of the Aktia Bank plc Group. The other subsidiaries of the Aktia Bank plc Group are Oy Aktia Asset Management Ab, Aktia Fund Management Company Ltd, Aktia Invest Ltd, Aktia Corporate Finance Ltd, Aktia Kiinteistövälitys Ltd, Vasp-Invest Ltd and Saaristosäästöpankki Ltd. Aktia Bank plc is a Finnish bank with about 60 branch offices providing services for approximately 300,000 private customers, mainly in Finland’s coastal regions and inland growth centres. The Group’s lending stood at about EUR 6.8 billion at the end of 2013.
Local Finnish banks The Local savings and co-operative banks are solid, independent banks with branches throughout Finland. The Savings Bank Group consists of 29 savings banks and POP Banks consists of 35 banks. Together the local banks have more than 360 branches. On 29 November 2013 the Savings Bank Group announced its intention to form an alliance of 25 banks, which aims to begin activity in the beginning of 2015.
Products Aktia Real Estate Mortgage Bank’s loan portfolio consists mainly of loans for private customers and households, which all have real estate as collateral. The Mortgage Bank is specialised in granting housing loans. The loans granted always have residential real estate or a share of stock in a housing cooperative as security, and all securities are placed in Finland.
Result Operating profit before taxes stood at EUR 0.6 million (EUR 2.3 million). The net income from hedging accounting and the net income from financial instruments available for sale amounted to EUR 0.2 million (EUR -0.9 million). The 2013 result after tax was EUR 0.4 million (EUR 1.7 million).
Aktia Real Estate Mortgage Bank plc Annual Report 2013
1
Income and expenses
Geographical breakdown by collateral assets
During the year 2013 there has been no origination of new loans in Aktia Real Estate Mortgage Bank. The interest margin decreased to EUR 7.0 million (EUR 9.8 million) due to the reduced loan portfolio, but commission income increased to EUR 2.2 million (EUR 1.8 million). The majority of commission expenses consist of housing loan commissions paid to partner banks. Commission expenses increased to EUR 6.1 million (EUR 5.6 million). Personnel and administrative costs decreased to EUR 2.8 million (EUR 2.9 million).
32 % 56 % 5% 5% 1%
Southern Finland Western Finland Eastern Finland Oulu area Other regions
No impairment losses were recognised during the accounting period.
Debts to credit institutions
Balance sheet
Aktia Real Estate Mortgage Bank’s short-term financing is handled primarily via the EUR 300 million liquidity facility granted by Aktia Bank. At the end of the year, EUR 0.0 million (EUR 265.0 million) of the facility was in use.
Aktia Real Estate Mortgage Bank’s balance sheet total on 31 December 2013 was EUR 3,045.0 million (EUR 4,113.9 million).
Loan portfolio Aktia Real Estate Mortgage Bank’s customer base continues to consist mainly of retail customers and households. At the end of 2013, the total amount of loans granted to housing companies stood at EUR 77.4 million. The Bank has not granted loans to commercial real estate companies or public corporations. The loan portfolio has decreased EUR 1,034.4 million due to normal amortizations as well as the selling of loans to the distributing banks. The loan portfolio stood at EUR 2,882.4 million (EUR 3,916.8 million) on 31 December 2013. At the end of the year the Bank had 39,128 loans in its portfolio. At the end of the year, the average size of loans was approximately EUR 74,000 (EUR 78,000). The largest single loan was EUR 1.5 million (EUR 1.5 million), and the total amount of the ten largest loans comprised 0.4% of the entire portfolio (0.3%). The largest loans are typically loans granted to housing cooperatives for renovation purposes, with a relatively low loanto-value ratio. The quality of the loan portfolio of Aktia Real Estate Mortgage Bank is excellent. The Bank did not have any loans at the end of the year that had payments overdue by more than three months. Late payments of less than three months totalled 0.49% (0.52%) of the loans. Portfolio breakdown by loan size
In 2013, Aktia Real Estate Mortgage Bank collected unsecured funding of EUR 60.9 million from its owners. The funding is an account receivable and does not have a maturity date. The arrangement covers the required overcollateralisation demanded by the rating agency. The parts of the loans having a state guarantee granted by the Housing Finance and Development Centre of Finland that cannot be used as collateral for covered bonds are also covered by this arrangement. A total of EUR 480.8 million of funding has been collected. In addition, Aktia Real Estate Mortgage Bank has access to a EUR 250 million financing facility granted by Aktia Bank and an account overdraft facility for normal everyday operations. Neither of these facilities was in use on 31 December 2013. At the end of the year, financing from credit institutions totalled EUR 535.8 million (EUR 770.9 million), including derivative contracts. The collateral had a market value of EUR 55 million.
Issued covered bonds Aktia Real Estate Mortgage Bank’s long-term financing has been acquired by issuing covered bonds under the Bank’s EMTCN programme. At the end of the year 2013, the number of outstanding covered bonds was six and their total nominal value was EUR 2.175 million. Moody’s Investors Service Ltd has assigned an Aa3 credit rating to Aktia Real Estate Mortgage Bank’s covered bonds. All of the Mortgage Bank’s covered bonds are subject to public trading on the Luxembourg Stock Exchange.
35 % 30 %
The investor base of Aktia Real Estate Mortgage Bank’s outstanding bonds is international. Subscribers reside in 25 different countries, of which the most significant in relation to the investments are: Finland (31%), Germany (26%), Denmark (12%), Norway (7%) and Austria (6%).
25 % 20 % 15 % 10 % 5% 0%
2
0–49
50–99
100–149
150–199
Aktia Real Estate Mortgage Bank plc Annual Report 2013
> 200
Under the Registered Covered Bond loan programme (Gedeckte Namensschuldverschreibung) directed at the German market, covered bonds with a total nominal value of EUR 83 million have been issued. The issued loans were directed at German institutional investors. Their characteristics include a long loan period, a call option and a tailor-made structure, taking into consideration the needs of the investor.
Report of the Board of Directors
Collateral for covered bonds According to the Act on Mortgage Credit Bank Operations (688/2010), loans and parts of loans with a maximum collateral value of 70 % can be used as collateral for covered bonds.. Aktia Real Estate Mortgage Bank has two cover pools. On 31 December 2013, there were loans or parts of loans qualifying as collateral in the cover pool1 that was formed in 2010 totalling EUR 1,175.5 million (EUR 2,034.0 million). Pool 1 also included additional collateral in securities issued by other banks of EUR 10.0 million. The total amount of collateral stood at EUR 1,185.5 million (EUR 2,044.0 million). Registered Collateral in Pool 1 1,175.5
LTV -70% Supplementary Collateral
eral rate of 108.5%. The sum of all the collateral in cover pool 0 stood at EUR 1,680.2 million, including all acceptable collateral in the EMTCN programme. Therefore, the collateral rate was 124.5%. All loans granted to private individuals have first lien on the real estate collateral and all the collateral is located in Finland. All eligible loans and additional collateral are registered in the statutory register of bonds as required by the change in the act described above. The highest acceptable loan-to-value ratio of the loans is 70% (ratio of the capital of the loan to the fair value of the collateral). This loan-to-value ratio can only be exceeded if the loan is guaranteed by the Housing Finance and Development Centre of Finland. The average non-indexed loan-tovalue ratio of the total loan portfolio was 53.0% and the average indexed loan-to-value ratio was 51.3%.
Distribution of exposures by LTV band* 100 %
10.0
80 %
The old Act on Mortgage Credit Banks stipulates that loans and parts of loans with a maximum collateral value of 60 % can be used as collateral for covered bonds. Collateral in accordance with the Act on Mortgage Credit Banks will remain as collateral for the outstanding covered bonds in the initial cover pool (pool 0). At year-end, the Bank had loans of this type or parts of loans in pool 0 totalling EUR 1,551.1 million (EUR 1,654.6 million).
60 % 40 % 20 % 0%
0–50 % 31.12.2013
50–60 %
60–70 %
70–80 %
80–85 %
85 %
31.12.2012
Registered Collateral in Pool 0
1,551.1 8§1 (max 60 %) 8§2 (60–70 %) Guaranteed by the Republic of Finland Supplementary Collateral
0
43.7
85.4
The Act on Mortgage Credit Banks and the Act on Mortgage Credit Bank Operations stipulate that the amount of approved collateral must always exceed the total amount of bonds issued. The Act on Mortgage Credit Bank Operations stipulate that the net present value of the amount of collateral of covered bonds shall continuously exceed by at least two per cent the total net present value of the payment liabilities resulting from the covered bonds. At the end of 2013, Aktia Real Estate Mortgage Bank had issued EUR 2,258 million (EUR 3,008 million) in outstanding covered bonds and debt instruments issued under a separate loan programme. Of these, EUR 1,350 million was issued under the EMTCN programme compliant with the Act on Mortgage Credit Banks, and EUR 908 million under the EMTCN programme compliant with the Act on Mortgage Credit Bank Operations and under the new Registered Cover Bond programme. Aktia Real Estate Mortgage Bank’s EMTCN programme compliant with the Act on Mortgage Credit Banks requires a collateral rate of 112 %. The sum of collateral in cover pool 1 stood at EUR 1,185.5 million and the collateral rate was 130.6%. The net present value of the amount of collateral of covered bonds exceeded the total net present value of the payment liabilities resulting from the covered bonds by 34,51 %. Aktia Real Estate Mortgage Bank’s EMTCN programme compliant with the old Act on Mortgage Credit Banks requires a collat-
* The chart shows the distribution of exposures by LTV band. Example: In a mortgage exposure of EUR 60,000 with an LTV ratio of 60%, the distribution is EUR 50,000 to the ”LTV 0-50%” pool and EUR 10,000 to the ”LTV 50-60%” pool.
Derivatives Aktia Real Estate Mortgage Bank’s total interest derivative portfolio was EUR 3,263.2 million (EUR 4,329.7 million). All derivative contracts have been concluded for hedging purposes pursuant to the Act on Mortgage Credit Bank Operations. Derivatives are valued at fair value. Aktia Bank acts as the counterparty in all derivative contracts. Currency derivatives have not been concluded. All the assets and liabilities are euro-denominated.
Equity capital Aktia Real Estate Mortgage Bank has two share series: A and B. There are 24,050 series A shares and 83,650 series B shares. Each series A share produces one vote. Series B shares do not have voting rights.
Funds and capital adequacy In keeping with an exemption granted by the Financial Supervisory Authority, the process of managing the bank’s capital adequacy is handled as part of the Aktia Bank plc Group’s capital management.
Aktia Real Estate Mortgage Bank plc Annual Report 2013
3
The Aktia Bank plc Group’s asset management process and the outcome of this process are detailed in the consolidated annual report. The capital adequacy ratio for the year 2013 was 14.2% (11.3%) and Tier 1 own funds made up 13.3% (9.7%) of the risk-weighted balance sheet total. Aktia Real Estate Mortgage Bank has filed an application (IRBA = Internal RiskBased Approach) with the Finnish Financial Supervisory Authority regarding an internal credit classification. The Board of Directors is preparing for the approval of the application and for taking into use the internal credit classification. The adoption of these is likely to increase the capital adequacy to exceed 15%. Aktia Real Estate Mortgage Bank’s own funds stood at EUR 140.3 million (EUR 152.4 million) on 31 December 2013, of which EUR 107.7 million (EUR 107.7 million) comprised share capital, EUR 9.0 million (EUR 21.0 million) subordinated Tier 2 own funds, and EUR 23.6 million (EUR 23.8 million) provisions and untied equity. The Bank’s risk-weighted balance sheet total stood at EUR 990.7 million (EUR 1,352.1 million). At the end of 2013, the capital adequacy ratio was 14.2% (11.3%) and Tier 1 own funds made up 13.3% (9.7%) of the risk-weighted balance sheet total.
Administration
Aktia Real Estate Mortgage Bank is a credit institution under the supervision of the Finnish Financial Supervisory Authority.
Risk management Aktia Real Estate Mortgage Bank’s risk taking and risk management principles are based on the Act on Mortgage Credit Banks and the Act on Mortgage Credit Bank Operations. The Bank’s operations are characterised by low, stable risk and the predictability of the result. The Board of Directors approves the Bank’s risk management policy annually. The Aktia Group’s Risk Control unit, which is independent from Aktia Real Estate Mortgage Bank, monitors the risk taking and risk management of the Bank. A more detailed description of risk management and the net interest gap is found in Note 2 of the Annual Report.
The Finnish mortgage market The mortgage debt of Finnish households increased to EUR 88.3 billion by the end of 2013. At the end of 2012, mortgage debt in Finland stood at EUR 86.1 billion. Sales of houses have decelerated and sales periods have become slightly longer due to the slow development of the economy and the increase in the average interest margin of mortgages.
Board of Directors The Board of Directors is responsible for Aktia Real Estate Mortgage Bank’s administration and operations. The Articles of Association state that the Board of Directors must have at least three and at most five members. The following persons were elected to the Board of Directors at the Annual General Meeting held in spring 2013: Stefan Björkman, Deputy Managing Director, Aktia Bank plc Pasi Kämäri, Managing Director, the Finnish Savings Banks Association Heikki Suutala, Managing Director, POP Bank Alliance Jussi Laitinen, Managing Director, Aktia Bank plc Stefan Björkman acted as Chairman of the Board of Directors.
The prices of houses have developed slowly and positively at an annual level, but at a monthly level there have been some decreases when considering the whole of Finland. At an annual level, the prices of old apartments and terraced houses increased by 2.5 per cent in the metropolitan area and 0.8 per cent in the rest of the country. During the fourth quarter, house prices in the metropolitan area showed an increase of 0.3 per cent, but elsewhere in the country there was a decline of 0.1 per cent.
Events after the reporting period Stefan Björkman, the Chairman of the Board of Directors of Aktia Real Estate Mortgage Bank, resigned from Aktia Real Estate Mortgage Bank’s Board of Directors on 13 February 2014.
Operational management Aktia Real Estate Mortgage Bank’s Managing Director is responsible for the bank’s day-to-day management and acts as the presenting official during Board meetings. Timo Ruotsalainen acted as Managing Director. Stefan Björkman acted as Deputy Managing Director.
Audits The Annual General Meeting (22 March 2013) appointed KPMG Oy Ab as auditor, with Jari Härmälä, Authorised Public Accountant, as the principal auditor. The task of internal auditing is to supervise Aktia Real Estate Mortgage Bank’s operations, and the audits have been carried out by the internal audit unit of Aktia plc. The head of the unit reports directly to Aktia Real Estate Mortgage Bank’s Board of Directors.
4
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Outlook for 2014 The growth of Finland’s national economy will be slightly positive in the year 2014, but the uncertainty of the households’ economies will slow down the mortgage market. The average interest margin of mortgages increased in the year 2013, but the trend has leveled , and there is no longer pressure for further increase. The short term reference rates are expected to remain low, which will keep the interests of mortgage loans low. This will revive sales of houses during the year 2014 and support the repayment of already granted mortgages. The guidelines and procedures prepared by the regulators on Banking Supervision for regulating the stability of the financial market will be enforced in stages this year. There will most likely be country-specific regulations that restrict the mortgage banking operations.
Report of the Board of Directors
Upon the decision by the Bank’s Board of Directors made in September 2012, Aktia Real Estate Mortgage Bank’s operations are limited to maintenance and refinancing of the existing mortgage loan portfolio. In addition to regular repayments, the loan portfolio will further decrease due to additional repurchases of the loan portfolio by partner banks. The Mortgage Bank reserves the capital received from repayments and repurchased loans for the repayment of covered bonds and interest on loans.
Proposal for the distribution of profits Aktia Real Estate Mortgage Bank’s distributable funds were EUR 24,160,758.63. The Board of Directors proposes to the Annual General Meeting that the distributable funds be used as follows: a dividend of EUR 5.35 per share will be paid, totalling EUR 576,195.00. EUR 23,584,563.63 is retained in equity. There have been no material changes in the company’s financial position following the end of the financial period. The company’s liquidity is good, and the Board of Directors believes that the proposed distribution of profit will not endanger the company’s solvency.
13 February 2014 Board of Directors
Aktia Real Estate Mortgage Bank plc Annual Report 2013
5
Five-year review, 31 December (EUR 1,000)
2013
2012
2011
2010
2009
Net interest income Net commission income Net income from financial transactions Other operating income Total operating income Staff costs IT-expenses Depreciation of tangible and intangible assets Other operating expenses Total operating expenses
7,037 -3,896 242 29 3,412 -574 -828 -1 -1,395 -2,798
9,835 -3,790 -857 33 5,222 -646 -628 -1 -1,645 -2,919
10,307 -3,460 -1,046 9 5,810 -778 -620 -10 -1,745 -3,153
8,674 456 -68 8 9,070 -672 -503 -21 -1,081 -2,277
2,522 -2,900 1,840 7 1,470 -523 -395 -24 -1,125 -2,067
614
2,303
2,657
6,793
-598
3,045,028
4,113,942
4,039,837
3,405,226
2,786,464
Cost-to-income ratio
0.82
0.56
0.54
0.25
1.41
Earnings per share, EUR Total earnings per share, EUR
3.51 8.44
17.13 24.11
23.32 9.84
77.45 89.02
-14.26 -10.15
Return on equity (ROE), % Return on assets(ROA), % Capital adequacy, % Capital adequacy ratio, %
0.29 0.01 3.67 14.2
1.41 0.04 3.23 11.3
1.93 0.05 3.10 10.22
6.40 0.16 2.85 9.88
-1.15 -0.03 2.73 10.27
Operating profit Balance sheet total
Basis of calculation for key figures Cost-to-income ratio (C / I figure)
Return on assets(ROA), %
Staff costs + IT-expenses + depreciation and write-downs + other operating expenses Net interest income + net commision income + net income from financial transactions + other operating income
Profit for the period (on annual basis) x 100 Average balance total (average for the beginning and the end of the period)
Earnings per share, EUR Profit for the period after taxes attributable to the shareholders Average number of shares over the period (adjusted for new issue)
Capital adequacy, % Equity + minority interest x 100 Average balance total (average for the beginning and the end of the period)
Capital adequacy ratio, % Total earnings per share, EUR Total earnings for the reporting period after taxes Average number of shares over the period (adjusted for new issue)
Return on equity (ROE), % Profit for the period (on annual basis) Average equity
6
x 100
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Capital base ( Tier 1 capital + Tier 2 capital) Risk-weighted commitments
x 100
Income statement
Income statement (EUR 1,000)
Note
Interest income Interest expenses Net interest income Commission income Commission expenses Net commission income Net income from financial transactions Other operating income Total operating income Staff costs IT-expenses Depreciation of tangible and intangible assets Other operating expenses Total operating expenses Operating profit Taxes Profit for the reporting period
3 3
Earnings per share (EPS), EUR There is no dilution effect to earnings per share.
9
4 4 5
6
7
8
2013
2012
65,234 -58,197 7,037 2,190 -6,086 -3,896 242 29 3,412 -574 -828 -1 -1,395 -2,798 614 -236 378
95,603 -85,767 9,835 1,779 -5,570 -3,790 -857 33 5,222 -646 -628 -1 -1,645 -2,919 2,303 -564 1,739
3.51
17.13
2013
2012
378
1,739
50 480 531 909
356 353 709 2,448
8.44
24.11
Comprehensive income (EUR 1,000)
Note
Profit for the reporting period Other comprehensive income after taxes: Change in valuation of fair value for financial assets available for sale Change in valuation of fair value for cash flow hedging Comprehensive income from items which can be transferred to the income statement Comprehensive income for the reporting period Total earnings per share, EUR
9
Aktia Real Estate Mortgage Bank plc Annual Report 2013
7
Balance sheet (EUR 1,000) Assets Interest-bearing securities Financial assets available for sale Derivative instruments Lending to credit institutions Lending to the public and public sector entities Loans and other receivables Tangible assets Accrued income and advance payments Total other assets Income tax receivables Deferred tax receivables Tax receivables Total assets Liabilities Liabilities to credit institutions Liabilities to credit institutions total Derivative instruments Debt securities issued Subordinated liabilities Other financial liabilities Accrued expenses and income received in advance Other liabilities Total other liabilities Income tax liabilities Deferred tax liabilities Tax liabilities Total liabilities Equity Share capital Fund at fair value Restricted equity Unrestricted equity reserve Retained earnings 1 January Dividends to shareholders Profit for the reporting period Unrestricted equity
Note
10 11 12 12 13 14
15
16 11 17 18 19 19
15
20
20
Equity Total liabilities and equity
Off-balance sheet commitments Unused credit arrangements Total off-balance sheet commitments
8
Aktia Real Estate Mortgage Bank plc Annual Report 2013
31.12.2013
31.12.2012
10,021 10,021 82,138 52,277 2,897,248 2,949,525 1 3,230 3,230 113 113 3,045,028
10,028 10,028 132,383 20,305 3,943,857 3,964,162 2 6,940 6,940 110 317 428 4,113,942
535,803 535,803 21,938 2,304,831 9,000 2,313,831 41,775 42 41,817 155 71 226 2,913,615
770,909 770,909 40,665 3,104,357 21,000 3,125,357 44,960 38 44,999 155 155 3,982,085
107,700 -448 107,252 15,699 9,437 -1,353 378 24,161
107,700 -978 106,722 15,699 9,549 -1,851 1,739 25,136
131,413 3,045,028
131,857 4,113,942
-
1,097 1,097
25
Cash flow statement
Cash flow statement (EUR 1,000)
2013
2012
614
2,303
-240 1 281 -55 600
863 1 -632 -171 2,364
1,038,440 73 1,037,128 1,239
-16,929 11,005 -29,798 1,865
-991,016 -235,106 -746,852 -9,058
16,900 304,262 -276,866 -10,496
Total cash flow from operating activities
48,025
2,335
Cash flow from financing activities Subordinated liabilities, decrease Increase in share capital Increase in unrestricted equity reserve Paid dividends Total cash flow from financing activities
-12,000 -1,353 -13,353
-2,000 13,327 2,692 -1,851 12,168
34,672
14,504
17,605 52,277
3,102 17,605
52,277 52,277
17,605 17,605
Cash flow from operating activities Operating profit Adjustment items not included in cash flow for the period: Change in fair values Depreciation and impairment of intangible and tangible assets Unwinded cash flow hedging Paid income taxes Cash flow from operating activities before change in operating receivables and liabilities Increase (-) or decrease (+) in receivables from operating activities Financial assets available for sale Loans and other receivables Other assets Increase (+) or decrease (-) in liabilities from operating activities Liabilities to credit institutions total Debt securities issued Other liabilities
Change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Cash and cash equivalents in the cash flow statement consist of the following items: Repayable on demand claims on credit institutions Total
Aktia Real Estate Mortgage Bank plc Annual Report 2013
9
Statement of changes in equity
(EUR 1,000) Equity at 1 January 2012 Share issue Dividends to shareholders Profit for the reportingperiod Financial assets available for sale Cash flow hedging Comprehensive income for the reporting period Equity at 31 December 2012 Equity at 1 January 2013 Dividends to shareholders Profit for the reportingperiod Financial assets available for sale Cash flow hedging Comprehensive income for the reporting period Equity at 31 December 2013
Share capital 94,373 13,327
Fund at fair value -1,687
Unrestricted equity reserve 13,006 2,692
Retained earnings 9,549 -1,851 1,739
107,700
356 353 709 -978
15,699
107,700
-978
15,699
107,700
50 480 531 -448
15,699
1,739 9,437 9,437 -1,353 378
378 8,462
Share holders’ share of equity 115,241 16,019 -1,851 1,739 356 353 2,448 131,857 131,857 -1,353 378 50 480 909 131,413
One share issue was carried out in June 2012. 13,327 B series shares were registered in the Trade Register on 19 June 2012 and the issue raised a total of EUR 16.0 million in equity. Of this EUR 13.3 million was booked as share capital and EUR 2.7 million in the unrestricted equity reserve.
10
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
Notes Note 1 Overview of Aktia Real Estate Mortgage Bank plc’s significant accounting principles 2013 The report by the Board of Directors and the financial statements for the financial year 1 January - 31 December 2013 were approved by the Board of Directors on 13 February 2014 and are to be adopted by the Annual General Meeting on 21 March 2014. The annual report will be published on 7 March 2014. A copy of the financial statement is available from Aktia Real Estate Mortgage Bank plc, Mannerheimintie 14, 00100 Helsinki, Finland or from Aktia’s website www.aktia.fi.
Basis for preparing financial statements Real Estate Mortgage Bank’s financial statement is prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS), as adopted by the EU. In preparing the notes to the accounts, the applicable Finnish accounting and corporate legislation and regulatory requirements have also been taken into account. Figures in the accounts are presented in thousands of euros, unless indicated otherwise. The accounts have been prepared in accordance with original acquisition values, unless otherwise indicated in the accounting principles. During the year, the figures in the interim reports are presented so that income statement items are compared with the corresponding period of the previous year, while the comparison of balance sheet items relates to the previous year-end unless specified otherwise.
is required according to other IFRS standards. The standard is mandatory as of 1 January 2013, and the notes have been drawn up in accordance with new disclosure requirements.
New and amended standards in 2014 or later that may have an impact on the Real Estate Mortgage Bank’s result and financial position IFRS 9 Financial Instruments (draft published in November 2009) is the first stage in the process to replace IAS 39 Financial Instruments: Recognition and measurement. IFRS 9 introduces new requirements for recognition and measurement of financial assets and liabilities. Real Estate Mortgage Bank’s model for risk management and the characteristics of financial instruments in respect of future cash flows will have an impact on categories applied by Real Estate Mortgage Bank. The standard is under development and it is expected to be mandatory earliest as of 1 January 2017. Real Estate Mortgage Bank follows development of the standard and will evaluate its full impact on financial reporting at a later stage. Real Estate Mortgage Bank does not expect other new or revised IFRSs or interpretations from IFRIC (International Financial Reporting Interpretations Committee) to have an impact on the Real Estate Mortgage Bank’s future results, financial position or disclosures.
Segment-based reporting New or amended standards in 2013 that had no impact on the Real Estate Mortgage Bank’s result or financial position
Real Estate Mortgage Bank has only one business segment and therefore there is no separate segment report.
The following IFRSs and interpretations may affect the reporting of future transactions and business, but had no impact on the Real Estate Mortgage Bank’s result or financial position in 2013:
Foreign currency translation
IAS 1 Presentation of Financial Statements (amended) requires that items that can be transferred to the income statement and items that cannot be transferred to the income statement to be reported separately in the comprehensive income. The standard is mandatory as of 1 July 2012, and Real Estate Mortgage Bank reports comprehensive income according to the amended IAS 1.
Real Estate Mortgage Bank’s assets and liabilities are all denominated in euros.
Revenue and expenses recognition
Interest and dividends IFRS 7 Financial instruments: Disclosures (amended). The standard specifies disclosure on netting regarding financial instruments and from corresponding agreements. Comparison data are required, and the standard is mandatory as of 1 January 2013. The amendment has not had any significant impact on Real Estate Mortgage Bank’s disclosures. IFRS 13 Fair Value Measurement defines fair value and contains guidance for the definition of fair value measurement and specifies disclosure requirements. IFRS 13 contains definitions of valuation at fair value when this
Interest income and expenses are allocated over the lifetime of the agreement by using the effective interest rate method. This method recognises income and expenses from the instrument evenly in proportion to amounts outstanding over the period until maturity. Interest income and expenses attributable to Financial assets held for trading are reported in the income statement as Net income from financial transactions.
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When a financial asset is written down due to a reduction in value, the original effective interest rate is used when calculating interest income. Dividends paid on shares and participations are reported as income for the reporting period during which the right to receive payment is noted.
Financial assets For financial assets, Real Estate Mortgage Bank applies the IFRS rules whereby financial assets are divided into four valuation categories, of which Real Estate Mortgage Bank has financial assets in two valuation categories, financial assets available for sale and loans and other receivables.
Commissions Financial assets available for sale The basic principle for commission income and commission expenses is that they are reported in accordance with the accruals convention.
Depreciation Tangible and intangible assets are subject to linear planned depreciation at acquisition value, according to the financial lifetime of the assets. As a rule, the residual value of these tangible and intangible assets is assumed to be zero. The estimated financial lifetimes for eac h asset category are as follows:
Debt securities, shares and participations that have neither been held for active trading nor retained until maturity are reported in the category Financial assets available for sale. The unrealised value change is recognised in the comprehensive income with deductions for deferred tax until sold or impaired. When sold or impaired, the accumulated unrealised profit or loss is transferred to the income statement and included in Net income from financial assets available for sale which is included in Net income from financial transactions.
Loans and other receivables Tangible assets Intangible assets
3–5 years 3–5 years
Receivables from credit institutions and receivables from the public and public sector entities are reported in the category Loans and other receivables. These receivables are entered at accrued acquisition value.
Employee remuneration Reclassification Pension plans The Real Estate Mortgage Bank reports all pension plans as defined-contribution plans. For defined-contribution pension plans, the Real Estate Mortgage Bank makes fixed payments to external pension insurance companies. After this, the Real Estate Mortgage Bank has no legal or actual obligation to make further payments if the pension insurance companies do not have sufficient assets to pay the employees’ pensions for current or preceding periods. According to the Employees’ Pensions Act, basic insurance coverage is the most important defined-contribution pension plan. The pension insurance premiums for those arrangements which are classified as defined-contribution plans have been allocated to correspond to performance pay in the financial statements.
Taxes Taxes in the income statement consist of direct and deferred taxes for the year and previous years. The tax cost is reported in the income statement, except where this relates to items which are reported directly against shareholders’ equity, where the tax effect is also reported as part of shareholders’ equity. Income taxes are reported on the basis of estimated taxable income for the year. Deferred tax is entered in relation to differences between the book value of assets and liabilities, compared with their taxation value. A deferred tax receivable is reported where it is likely that future taxable income will arise against which the temporary difference can be utilised. As of 1 January 2014, the tax rate for corporations in Finland changed from 24.5% to 20.0%. Deferred tax receivables and liabilities per 31 December 2013 are calculated according to the new tax rate 20.0%. The change of 4.5% is reported either via deferred tax in the income statement or directly against own equity in the fund at fair value.
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Aktia Real Estate Mortgage Bank plc Annual Report 2013
Financial assets, excluding derivatives, available for sale may be reclassified to assets held until maturity if Real Estate Mortgage Bank intends and has the opportunity to hold the financial assets for the foreseeable future or until maturity. At the time of reclassification, the assets to be reclassified shall comply with the definitions of the category to which they are reclassified. A prerequisite for reclassification to the category Financial assets held until maturity is that Real Estate Mortgage Bank has changed the purpose of the holdings and has the opportunity to hold the financial assets until maturity. Reclassification is made at fair value at the time of reclassification. The fair value will be the original acquisition value or accrued acquisition value. Securities to be reclassified from financial assets available for sale to financial assets held until maturity shall be pledgeable with the central bank and have good creditworthiness. When reclassified the financial assets shall fulfil the minimum rating of Aa3/AA-.
Financial liabilities Liabilities to credit institutions and debt securities to the public are reported in the category Financial liabilities. Financial liabilities are included in the balance sheet at their acquisition value on entering into the agreement, and subsequently at their accrued acquisition value. In the cash flow statement, issued debts are deemed to belong to the Real Estate Mortgage Bank’s operating activities, while subordinated liabilities are deemed to belong to financing activities.
Notes
Valuation of financial instruments at fair value The fair value of listed shares and other financial instruments that are traded on an active market is based on the latest listed purchase price. Should the listed price of a financial instrument not represent actual market transactions occurring with regularity, or if listed prices cannot be obtained, the fair value is established with an appropriate valuation technique. The valuation techniques may vary from a simple analysis of discounted cash flow to complex option valuation models. The valuation models have been drawn up so that observable market prices and rates are used as input parameters in the evaluated cases, but unobservable model parameters may also be used. A hierarchy of fair values of financial instruments established based on quoted market prices available on an active market for the same instrument (level 1), valuation techniques based on observable market data (level 2), and valuation techniques not using observable market data (level 3) is presented on Note 22 Financial assets and liabilities.
The value of the receivable has been weakened if the estimated incoming cash flow from the receivable, with regard to the fair value of the security, is less than the sum of the book value of the receivable and the unpaid interest on the receivable. The estimated incoming cash flow is discounted by the credit’s original effective interest rate. If the credit has a variable rate of interest, the agreed rate of interest at the time of review is used as the discount rate. The write-down is entered as the difference between the lower of the current value of the recoverable cash flow and the book value of the credit.
Accounting for the acquisition and disposal of financial assets When acquiring or selling financial assets, these are entered in accordance with the trade date.
Derivative instruments Impairment of financial assets The impairment of Financial assets available for sale is recognised through the income statement if the financial position of the company in which the investment has been made has deteriorated significantly. The criteria are as follows: the company has entered into bankruptcy or is de facto insolvent and unable to make payments the company has entered into a corporate reorganisation agreement, or has sought protection against its creditors, or is undergoing significant restructuring which affects creditors.
.. ..
All derivative instruments are reported in the balance sheet and are valued at fair value. Derivatives with a positive fair value are reported as assets in Derivative instruments. Derivatives with a negative fair value are reported as liabilities in Derivative instruments. Derivative instruments are reported in the income statement according to the classification of the derivatives. When hedge accounting is applied for derivative instruments, the value change is entered as fair value hedges or cash flow hedges according to the following accounting principles.
Hedge accounting If any of the above criteria are met, an impairment is recognised through the income statement. The impairment reported is the difference between the market value and the acquisition value at the time of reporting. If no market value is available, or if there are specific reasons for assuming that the market value does not represent the fair value of the security, or if the Real Estate Mortgage Bank holds a controlling stake in the company, a decision is made on reporting an impairment in accordance with a separate assessment made by the Board of Directors. In addition to default, interest-bearing securities are reviewed individually to assess the need for write-downs if the price of the security has fallen by more than 50% and the instrument rating has fallen below investment grade (BB+, Ba1 or lower).
Write-downs of loans and other receivables Write-downs of loans and other receivables are entered individually. A write-down is entered individually if there is objective evidence that the customer’s ability to pay has been weakened after the receivable was originally entered in the balance sheet. Objective evidence exists where the debtor is experiencing significant financial difficulties, a breach of contract such as delayed payment of interests or capital occurs, concessions are granted for financial or legal reasons which the lender had not otherwise considered, or the debtor enters bankruptcy or other financial restructuring.
All derivatives are valued at fair value. In accordance with the IFRS rules, Real Estate Mortgage Bank has documented hedge accounting either as fair value hedges or cash flow hedges. The aim is to neutralise the potential changes in fair value of assets and liabilities. Real Estate Mortgage Bank’s policy for hedge accounting is that the hedging relationship between the hedging instrument and the hedged item, along with the risk management aim and the strategy, are documented when hedging. In order to apply hedge accounting, the hedge must be highly efficient. A hedge is deemed to be highly efficient if, at the time of hedging and throughout the entire hedging period, it can be expected that changes in the fair value of the hedge item will be significantly neutralised by changes in the fair value of the hedging instrument. The outcome should be within the range of 80-125%. When subsequently assessing the efficiency of the hedging, Real Estate Mortgage Bank values the hedging instrument at fair value and compares the change in this value with the change in the fair value of the hedged item. The efficiency is measured on a cumulative basis. If the hedging relationship between the derivatives and the hedged items is not a 100 per cent match, the ineffective part is reported in the income statement as Net income from financial transactions. If the hedging relationship fails to meet the above requirements, the hedge accounting ceases. The change in the unrealised value of the derivative is reported at fair value in the income statement as net interest income with effect from the time when the hedging was latest deemed to be efficient.
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Fair value hedging
Tangible and intangible assets
Fair value hedging is applied for derivatives which are used in order to hedge changes in fair value for a reported asset or liability which is attributable to a specific risk. The risk of changes in fair value for assets and liabilities reported by Real Estate Mortgage Bank relates primarily to loans, securities and fixed-interest borrowing, giving rise to interest rate risk.
Tangible and intangible assets are included in the balance sheet at their acquisition price less planned depreciation. Planned depreciation is based on the financial lifetime of the assets.
Equity Changes in the fair value of derivatives are, like changes in the fair value of the hedged item, reported separately in the income statement as Net income from financial transactions. If the hedging is efficient, both changes in fair value mostly cancel each other out, which means that the net result is virtually zero. In the balance sheet, the change in value of the hedged item is reported as adjusted value of the hedged balance sheet item. Interest rate swaps and forward rate agreements are used as hedging instruments. Fair value hedging is no longer applied in the following situations:
.. the hedging instrument expires, is sold, terminated or revoked .. the hedge no longer qualifies for hedge accounting .. hedging is discontinued.
When hedging ceases, accumulated profit or loss, adjusting the value of the item hedged in the income statement, is allocated. Allocation is made over the hedged item’s remaining period until maturity or over the terminated hedging instrument’s original lifetime.
Cash flow hedging Cash flow hedging is applied in order to hedge future interest streams, such as future interest payments on assets or liabilities with variable interest rate. The efficient element of the year’s change in fair value is reported in comprehensive income and the inefficient element in the income statement as Net income from financial transactions. The accumulated change in fair value is transferred from Cash Flow hedging in shareholders’ equity to the income statement during the same period as the hedged cash flows have an impact on the income statement. Interest rate swaps, forward rate agreements and interest rate options are used as hedging instruments. The change in time value for interest rate options is reported through the income statement.
Costs which are directly attributable to the issue of new shares are included in shareholders’ equity as a deduction from the balance within the Unrestricted equity reserve. Dividend payments to shareholders are reported in shareholders’ equity when the annual general meeting decides on the pay out.
Accounting principles requiring management discretion When preparing reports in accordance with the IFRSs certain estimations and assessments are required by management which have an impact on the income, expenses, contingent assets and contingent liabilities presented in the report. The Real Estate Mortgage Bank’s central assumption relates to the future and key uncertainty factors in connection with balance date estimations, and depends on factors such as fair value estimations, the impairment of financial assets, the write-down of loans and other receivables and also impairment of tangible and intangible assets.
Estimates and valuation of fair value Valuation of unquoted financial assets or other financial assets where access to market information is limited requires management discretion. The principles of valuation at fair value are described in the section Valuation of financial instruments at fair value. The fair value of financial assets held until maturity is also sensitive to both changes in interest rate levels and the liquidity and risk premiums of the instrument.
Impairment of financial assets Cash flow hedging ceases in the same situations as fair value hedging. When cash flow hedging ceases, but an inward cash flow is expected, accumulated profit or loss concerning the hedging instrument is reported as separate item in shareholders’ equity. Accumulated profit or loss is then reported in the income statement under the same periods as previously hedged interest streams are reported in the income statement.
Cash and balances with central banks Loans to credit institutions repayable on demand are included in Loans and other receivables. Cash and cash equivalents in the cash flow statement include cash and balances with central banks and loans to credit institutions repayable on demand.
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Aktia Real Estate Mortgage Bank plc Annual Report 2013
The Real Estate Mortgage Bank performs an impairment test for every balance sheet date to see whether there is objective evidence of a need to make impairments on financial assets, except for financial assets that are valued at fair value through the income statement. The principles are described above in the section Impairment of financial assets.
Notes
Note 2 Risk management Aktia Real Estate Mortgage Bank’s risk taking and risk management principles are based on the Act on Mortgage Credit Bank Operations. The bank’s operations are characterised by low and stable risk and the predictability of the result. The Board of Directors approves the bank’s risk management policy annually. The Aktia Group’s Risk control unit, which is independent from Aktia Real Estate Mortgage Bank, monitors the risk taking and risk management of the bank.
Management of credit risk The management of credit risk refers to a procedure intended to prevent a situation in which the counterparty cannot meet its obligations and thus causes losses for Aktia Real Estate Mortgage Bank, and also to ensure that the collateral set covers the bank’s receivables.
bonds. A report of Mortgage Credit Bank Operations is submitted to the Finnish Financial Supervision Authority once per every quarter of the year.
Management of market risks Aktia Real Estate Mortgage Bank’s assets and liabilities are all denominated in euros, so there is no currency risk. Market risk refers exclusively to the effect of fluctuations in interest rates on the bank’s result. The objective of the management of market risk is the steady and predictable development of net interest income. Risk arises when the interest rate structures of the bank’s assets and liabilities do not correspond to each other.
Aktia Real Estate Mortgage Bank plc only grants loans to private individuals and households. Loans are not granted for commercial real estate projects. Loans are only granted against sufficient security. Good assessment practice is used in assessing collateral. The local knowledge of the intermediary partner bank increases the accuracy of the assessment.
Aktia Real Estate Mortgage Bank hedges its interest rate position on a weekly basis using interest rate swaps and forward rate agreements. This helps to ensure that the flow of interest from bonds and the housing loan stock match each other in the best way possible. The bank also hedges 95% of the nominal value of the interest rate caps sold along with the mortgage by buying interest rate cap options to cover the sale.
Every customer and customer group is evaluated before a decision is made to grant credit. Credit classification using a scoring model is performed for all new private individual credits. The credit rating of a borrower is evaluated on the basis of the following criteria: a solvency analysis, whereby loan servicing costs are calculated at an interest rate of 6% over a term of 25 years, proceeds, the cost of living, any delayed payments, and prior customer relationships. Aktia Real Estate Mortgage Bank only grants loans to customers with good creditworthiness. All partner banks use the same methodology to evaluate the creditworthiness of customers.
Risk is measured by regularly calculating the expected net interest income for the next 12 month period. In addition, the net interest income for the following years is simulated. To ensure that future interest rate changes do not affect net interest income, the calculations for expected net interest income are carried out under the assumption that the market interest rates will rise or fall by one percentage point, either as an immediately-felt parallel shock, a linear change or as a nonlinear change over the year in relation to the rate trends implied by forward contract interest rates. Net interest income must be positive in all forecasting scenarios.
Assessment of collateral According to Aktia Real Estate Mortgage Bank’s rules, collateral must always be verified and assessed in line with good real estate assessment practices. The assessment of a real estate property located near a partner bank is carried out by the bank’s personnel, if the fair value of the debt-free collateral of a residential property is a maximum of EUR 0.5 million and the debt-free fair value of a recreational property is a maximum of EUR 0.3 million. An appraisal document prepared by an independent real estate appraiser or a sales contract between independent parties is required for all other collateral. The appraisal criteria are documented in the credit manual. Aktia Real Estate Mortgage Bank only accepts real estate collateral located in Finland. All collateral must also have fire insurance.
Decisions about hedging measures are made by Aktia Real Estate Mortgage Bank on the basis of the reports described above. Balance sheet management services are purchased from ALM Partners Ltd. Aktia Bank is the counterparty in hedging transactions.
Net Interest Rate Gap 31.12.2013 25 000 000 15 000 000 5 000 000 0 -5 000 000 -15 000 000 -25 000 000
0–1 1–2 2–3 3–4 4–5 5–6 6–7 7–8 8–9 9–10 years years years years years years years years years years
Register of bonds Aktia Real Estate Mortgage Bank maintains a register of bonds that is continually updated. Loans recorded in the register of bonds can be used as collateral for bonds issued under the Mortgage Bank Act up to a maximum of 60% of the fair value of the collateral and for bonds issued under the Act on Mortgage Credit Bank Operations, which entered into force on 1 August 2010, up to a maximum of 70% of the collateral’s fair value. All supplementary collateral and hedging derivatives are also recorded in the register of
Financing and liquidity Financing risk and liquidity risk refer to the bank’s ability to meet its obligations to its customers and investors. Aktia Real Estate Mortgage Bank does not take risks in its operations that would endanger the bank’s solvency. The Board of Directors approves the bank’s financing plan annually.
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Aktia Real Estate Mortgage Bank has access to several sources of financing. Nevertheless, the bulk of its long-term financing is obtained through covered bonds. Other possible sources of financing include unsecured bonds, debenture loans, and financing from other banks.
Funding structure 76 %
Outstanding CB’s Liabilities to banks Other liabilities Total equity Subordinated debts
18 %
0% 4% 2%
Management of liquidity risk The good management of liquidity risk ensures solvency in all situations. In addition to a EUR 15 million account overdraft facility, Aktia Real Estate Mortgage Bank has access to a EUR 300 million liquidity facility granted by Aktia Bank and a EUR 250 million financing facility. The account and liquidity facilities are intended to protect operations under normal circumstances. In managing liquidity, the company ensures that refinancing of bonds is handled flexibly and promptly.
Methods for valuing financial assets The majority of Aktia Real Estate Mortgage Bank´s financial assets are valued at fair value. Valuations are either based on prices from an active market or on valuation methods using observable market data. A more detailed description of valuation techniques and hierarchies is found in Note 22 of the Annual Report.
Operational risks Operational risk refers to the risk of losses resulting from inappropriate or inadequate procedures, human error, and defective systems or external factors. The objectives of risk management are to improve the quality and stability of operations and to improve Aktia Real Estate Mortgage Bank’s opportunities to produce competitive products. To prevent the realisation of operational risks, authorisations and guidelines are confirmed in writing. The key processes are documented in the process description. Outsourced processes are documented and are based on contracts. The Board of Directors and Chief Executive Officer carry overall responsibility, while operational managers ensure that the risk management principles and guidelines concerning operational risks are adhered to.
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Aktia Real Estate Mortgage Bank plc Annual Report 2013
The Bank’s own funds and capital adequacy In keeping with an exemption granted by the Financial Supervisory Authority, the process of managing the bank’s capital adequacy is handled as part of the Aktia Group’s capital management. The Aktia Group’s asset management process and the outcome of this process are detailed in the consolidated annual report. The capital adequacy target set by the Bank for the year 2013 was 10% for total capital adequacy.The Board of Directors decided in spring 2011 to increase the Tier 1 capital adequacy to 10% by the year 2013. Aktia Real Estate Mortgage Bank’s own funds stood at EUR 140.3 million (EUR 152.4 million) on December 31 2013, of which EUR 107.7 million (EUR 107.7 million) was share capital, EUR 9.0 million (EUR 20.9 million) subordinated Tier 2 own funds, and EUR 23.6 million (EUR 23.8 million) provisions and untied equity. The bank’s risk-weighted balance sheet total stood at EUR 990.7 million (EUR 1 352.1 million). At the end of 2013, the capital adequacy ratio was 14.2% (11.3%) and Tier 1 own funds made up 13.3% (9.7%) of the risk-weighted balance sheet total.
Notes
Appendix to note 2. Capital adequacy
(EUR 1,000)
Summary Tier 1 capital Tier 2 capital Capital base Risk-weighted amount for credit and counter-party risks Risk-weighted amount for market risks 1) Risk-weighted amount for operational risks Total risk-weighted commitments Capital adequacy ratio, % Tier 1 capital ratio, % Minimum capital requirement Capital buffer (difference between capital base and minimum requirement)
2013
2012
131,285 9,003 140,287 981,075 9,609 990,684 14.2 13.3 79,255 61,032
131,483 20,952 152,435 1,339,031 13,085 1,352,116 11.3 9.7 108,169 44,266
2013
2012
107,700 15,699 8,084 378
107,700 15,699 7,698 1,739
-576 131,285 131,285 3 9,000 9,003 140,287
-1,353 131,483 131,483 -48 21,000 20,952 152,435
1) No capital requirement as the Bank has no trading book and no currency positions.
Capital base Share capital Other funds Retained earnings Profit for the reporting period ./. provision for dividends to shareholders Total ./. intangible assets Tier 1 capital Fund at fair value Lower Tier 2 Instruments Tier 2 capital Total capital base
Risk-weighted commitments, credit and counter-party risks Total exposures 31.12.2013 Risk-weight 0% 10% 20% 35% 50% 75% 100% 150% Total Derivatives *) Total *) derivative agreements credit conversion factor
Risk-weighted exposures
Balance assets
Offbalance sheet items
Total
2013
2012
183,104 21,276 2,730,166 28,328 15 2,962,890 2,962,890
-
183,104 21,276 2,730,166 28,328 15 2,962,890 77,080 3,039,970
4,255 955,558 21,246 15 981,075 981,075
5,226 1,301,398 32,398 9 1,339,031 1,339,031
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Risk-weighted amount for operational risks Year
2013
2012
2011
Gross income - average 3 years
3,507 5,125
6,057
5,810
Capital requirement for operational risk Risk-weighted amount
2013
2012
769 9,609
1,047 13,085
The capital requirement for operational risk is 15 % of average gross income during the last three years. The risk-weighted amount is calculated by dividing the capital requirement by 8 %. In calculating the capital requirement for operational risks, the bank uses the basic indicator approach in accordance with Finnish Financial Supervision Authority Standard 4.3i. Operational risks relate to those loss risks which the banks may be caused due to insufficient or incorrect internal processes, staff, systems or external events. The capital requirements for operational risks for banks which use the indicator approach are calculated based on the financial statements drawn up for the last three financial years.
Appendix to note 2. Capital adequacy
(EUR 1,000)
Total exposures by exposure class 2013
Exposure classes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Total
Exposure to states and central banks Exposure to regional and local authorities Exposure to public bodies Exposure to multinational development banks Exposure to international organisations Institutional exposure Institutional exposure Corporate exposure Households exposure Exposure to property collateral Unregulated items High-risk items Exposure in the form of covered bonds Securitisation positions Short-term corporate exposure Exposure to funds Other items
The table shows the final capital requirement at 8 % by exposure class.
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Aktia Real Estate Mortgage Bank plc Annual Report 2013
Risk weight %
Total exposure
0% 0% 0% 20% 75% 35% 100%
120,311 10,031 129,842 21,276 28,328 2,730,166 15 3,039,970
Deductions -
-
-
Riskweighted exposures
Riskweighted exposures percentage distribution
Capital requirement 8%
0 0 0 4,255 21,246 955,558 15 981,075
0.0 % 0.0 % 0.0 % 0.4 % 2.2 % 97.4 % 0.0 % 100.0 %
0 0 0 340 1,700 76,445 1 78,486
Notes
Appendix to note 2. Capital adequacy
(EUR 1,000)
Maturity breakdown by exposure class 2013
Exposure classes 1 Exposure to states and central banks 2 Exposure to regional and local authorities 3 Exposure to public bodies 4 Exposure to multinational development banks 5 Exposure to international organisations 6 Institutional exposure 7 Corporate exposure 8 Households exposure 9 Exposure to property collateral 10 Unregulated items 11 High-risk items 12 Exposure in the form of covered bonds 13 Securitisation positions 14 Short-term corporate exposure 15 Exposure to funds 16 Other items Total
Less than 3 months
3–12 months
1–5 years
5–10 years
More than 10 years
Total
113 52,411 1 565 0 15 53,104
9 27 2,748 2,783
175 10,031 77,197 1,931 107,116 196,450
1,727 353 4,563 303,047 309,691
118,288 21,156 21,807 2,316,690 2,477,941
120,311 10,031 151,118 28,328 2,730,166 0 15 3,039,970
In the breakdown by maturity, the total remaining liability for housing loans and other receivables is included in the category according to final due date.
Customer groups broken down by exposure class 2013 Main customer groups
Exposure classes 1 Exposure to states and central banks 2 Exposure to regional and local authorities 3 Exposure to public bodies 4 Exposure to multinational development banks 5 Exposure to international organisations 6 Institutional exposure 7 Corporate exposure 8 Households exposure 9 Exposure to property collateral 10 Unregulated items 11 High-risk items 12 Exposure in the form of covered bonds 13 Securitisation positions 14 Short-term corporate exposure 15 Exposure to funds 16 Other items Total
Households
Housing associations
Other
Total
120,199 21,627 27,454 2,653,492 2,822,772
874 76,674 77,548
113 10,031 129,491 15 139,650
120,311 10,031 151,118 28,328 2,730,166 15 3,039,970
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Notes to the income statement Note 3.
(EUR 1,000)
Interest income and expenses
2013
2012
-32 3,678 61,588 65,266 65,234
162 1,124 94,317 95,441 95,603
-4,987 -78,543 -269 -78,812 33,093 -7,491 -58,197
-4,543 -92,548 -561 -93,109 20,295 -8,410 -85,767
7,037
9,835
2013
2012
2,024 166 2,190
1,605 174 1,779
Commission expenses Other commission expenses Total
-6,086 -6,086
-5,570 -5,570
Net commission income
-3,896
-3,790
2013
2012
-95 -95 -95
6 -841 -835 -835
Interest income Interest income from financial assets available for sale Interest income from claims on credit institutions Interest income from claims on public and public sector entities Interest income from loans and other receivables Total Interest expenses Interest expenses for liabilities to credit institutions Interest expenses for debt securities issued to the public Interest expenses for subordinated liabilities Interest expenses from securities issued and subordinated liabilities Interest expenses for hedging instruments Other interest expenses Total Net interest income
*)
*)
*) Balance sheet items that are valued at the accrued acquisition cost
Note 4.
Commission income and expenses
Commission income Lending Other commission income Total
Note 5.
Net income from securities and currency trading
Financial assets and liabilities reported at fair value via the income statement Capital gains and losses Interest-bearing securities Derivative instruments Total Total
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Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
Net result from hedge accounting Ineffective share of the cash flow hedging
-
49
12,706 -53,143 -40,437 -11,900 52,674 40,774 337
-10,838 36,910 26,072 8,758 -34,901 -26,143 -71
Total net result from hedge accounting
337
-71
Net income from financial transactions
242
-857
2013
2012
-474 -85 -15 -100 -574
-542 -88 -16 -104 -646
6 1 7
8 1 9
2013
2012
-43 -332 -114 -3 -280 -115 -510 -1,395
-72 -312 -91 -5 -285 -120 -760 -1,645
6 6 12
8 0 5 14
Fair value hedging Financial derivatives hedging repayable on demand liabilities Financial derivatives hedging issued bonds Changes in the actual value of the hedge instrument, net Repayable on demand liabilities Bonds issued Changes in the fair value of items that are hedged, net Total
Note 6.
Staff costs
Salaries and fees Pension costs Other indirect employee costs Indirect employee costs Total Number of employees 31 December Full-time Part-time Temporary Total
Note 7.
Other operating expenses
Other staff expenses Office expenses Communication expenses Representation and marketing expenses Other administrative expenses Monitoring, control and membership fees Other operating expenses Total Auditors’ fees During the financial period, the auditors have been remunerated for the following services. The sums do not include VAT. Statutory auditing Services related to auditing Other services Total
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Note 8.
Taxes
Income taxes on the ordinary business Income taxes from previous financial years Changes in deferred taxes Total
2013
2012
-321 0 85 -236
-409 -0 -155 -564
614 150 -16 99 -0 -0 3 236
2,303 564 0 -0 0 -0 564
2013
2012
378 909
1,739 2,448
107,700
101,510
3,51 8,44
17,13 24,11
More information on deferred taxes is presented in note 15. The tax on Aktia Real Estate Mortgage Bank plc’s profit before tax deviates from the theoretical value that should arise when using the tax rate for the parent company as follows: Profit before tax Tax calculated on a 24.5% tax rate Effect from change af deferred tax from 24.5% to 20.0% Non-deductible expenses Unused write-downs for tax purposes Income taxes from previous financial years Other Total taxes Taxes that are booked directly against the equity is attributable to the fund at fair value and is specified in note 20.
Note 9.
Earnings per share
Profit for the reporting period attributable to shareholders Total comprehensive income attributable to shareholders Average number of shares Earnings per share (EPS), EUR Total earnings per share, EUR
Notes to the balance sheet
(EUR 1,000)
Note 10. Financial assets available for sale Interest bearing securities, credit institutions Interest-bearing securities Total financial assets available for sale
2013
2012
10,021 10,021 10,021
10,028 10,028 10,028
Note 11. Derivative instruments Derivative instruments, book value
Assets
2013 Liabilities
Assets
2012 Liabilities
Interest rate derivatives Fair value hedging Total
82,138 82,138 82,138
21,938 21,938 21,938
132,383 132,383 132,383
40,665 40,665 40,665
Total
82,138
21,938
132,383
40,665
22
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
Derivative instruments 31 December 2013
Interest rate swaps Interest rate option agreements Purchased Total interest rate derivatives Total hedging derivative instruments
Less than 1 year 1,057,850 85,675 85,675 1,143,525 1,143,525
31 December 2012
Interest forward rate agreements Interest rate swaps Interest rate option agreements Purchased Total interest rate derivatives Total hedging derivative instruments
Nominal values/term remaining More than 5 1-5 years years 1,767,210 194,510 157,927 157,927 1,925,137 194,510
Less than 1 year 75,000 990,300 146,320 146,320 1,211,620
1,925,137
194,510
Nominal values/term remaining More than 5 1-5 years years 2,534,460 200,210 383,418 383,418 2,917,878 200,210
1,211,620
2,917,878
200,210
Fair value Total 3,019,570 243,602 243,602 3,263,172
Assets 82,039 99 99 82,138
Liabilities 21,938 21,938
3,263,172
82,138
21,938
Fair value Total 75,000 3,724,970 529,738 529,738 4,329,708
Assets 132,243 140 140 132,383
Liabilities 31 40,634 40,665
4,329,708
132,383
40,665
2013
2012
52,277 52,277 2,897,248 2,897,248 2,949,525
17,605 2,700 20,305 3,943,857 3,943,857 3,964,162
2,819,837 77,411 2,897,248
3,850,211 93,646 3,943,857
2013
2012
33 33 -31 -1 -32 1
33 33 -31 -1 -31 2
Derivative instruments’ fair values include accrued interest.
Note 12. Loans and other receivables Repayable on demand claims on credit institutions Other claims on credit institututions that are not repayable on demand Lending to credit institutions Transaction account credits, general and corporate Loans Lending to the public and public sector entities Total The Real Estate Mortgage Bank has in the category receivables from the public and public sector entities only receivables other than those repayable on demand. A sector-by-sector analysis of receivables from the public and public sector entities as well as write-downs and reversed write-downs for these Households Housing associations Total Description of collateral obtained is commented on in note 2, Risk management and information on the fair values is given in note 22.
Note 13. Tangible assets Machines and equipment Acquisition cost at 1 January Acquisition cost at 31 December Accumulated depreciations and impairments at 1 January Planned depreciation Accumulated depreciations and impairments at 31 December Book value at 31 December
Aktia Real Estate Mortgage Bank plc Annual Report 2013
23
Note 14. Other assets total
2013
2012
Interest receivables and paid interest expenses Other accrued income and advance payments Total accrued income and advance payments Total
3,082 148 3,230 3,230
4,630 2,310 6,940 6,940
Note 15. Deferred taxes
2013
2012
163 85
548 -155
-16
-115
-189 42
-115 163
1 70 71
155 155
113 113
15 302 317
85 85
155 155
2013
2012
535,803 535,803 535,803
770,909 770,909 770,909
Book value 3,104,357 3,104,357
2012 Nominal value 3,008,000 3,008,000
Interest -% 1.69
Due date 11.5.2019
Deferred tax liabilities/receivables, net Net deferred tax liabilties/receivables, net at 1 January Changes during the financial year booked via the income statement Financial assets available for sale: - Valuation of fair value direct to equity Cash flow hedging - Valuation of fair value direct to equity Net deferred tax liabilties/receivables,net at 31 December Deferred tax liabilities Financial assets available for sale Fair value hedging - terminated derivative contracts Total Deferred tax receivables Financial assets available for sale Cash flow hedging Total Specification of changes during the financial year booked via the income statement Fair value hedging - terminated derivative contracts Total
Note 16. Liabilities to credit institutions Other than repayable on demand from credit institutions Liabilities to credit institutions Total
Note 17. Debt securities issued
Bonds Total
Book value 2,304,831 2,304,831
2013 Nominal value 2,258,000 2,258,000
Book value 9,000 9,000
Nominal value 9,000 9,000
Note 18. Subordinated liabilities
31 December 2013 Debenture loans Total
24
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
31 December 2012 Debenture loans Debenture loans Debenture loans Total
Book value 2,000 10,000 9,000 21,000
Nominal value 2,000 10,000 9,000 21,000
Interest -% 1.52 2.07 2.47
Due date 11.6.2013 11.5.2018 11.5.2019
Terms and conditions of early redemption: The Bank reserves the right to decide whether all loans can be redeemed, either in part or in full, before maturity. The only exception from this is the loan matured 11 June 2013. Early redemption is only possible with the consent of the Finnish Financial Supervision Authority, with the exception of minor inputs which the bank sells shortly after the input. Rules concerning priority of liability and any conversion to shares: Loans have been issued as debenture loans in accordance with section 34 of the Act on Bonds (622/1947). Loans are subordinate to the issuer’s other liabilities.
Note 19. Other liabilities total
2013
2012
41,217 15 41,232 542 41,775 38 4 42 41,817
42,614 1,664 44,278 682 44,960 34 4 38 44,999
2013
2012
Share capital Fund at fair value Restrickted equity Unrestricted equity reserve Retained earnings 1 January Dividens to shareholders Profit for the reporting period Unrestricted equity
107,700 -448 107,252 15,699 9,437 -1,353 378 24,161
107,700 -978 106,722 15,699 9,549 -1,851 1,739 25,136
Equity
131,413
131,857
Other accrued interest expenses and interest income received in advance Advance interest received Accrued interest expenses and interest income received in advance Other accrued expenses and income received in advance Accrued expenses and income received in advance Cash items in the process of collection Other liabilities Other liabilities Total other liabilities
Note 20. Equity
Share capital and shares At the end of the reporting period, the bank’s paid-up share capital as entered in the Finnish Trade Register was EUR 107,700,000 (2012; EUR 107,700,000). The total number of shares at the end of the reporting period was 107,700 (107,700 in 2012). Fund at fair value The fund at fair value contains changes in fair value after tax on the financial assets available for sale and on financial derivatives that are held for cash flow hedging. Financial assets reported via the fund at fair value are transferred to the income statement on sale or write-down of the assets. Unrestricted equity reserve Items entered in the unrestricted equity reserve are the amounts paid, that exceed the counter value of a new issue. Retained earnings Retained earnings contains retained earnings from previous reporting periods, dividends to shareholders and profit for the reporting period.
Aktia Real Estate Mortgage Bank plc Annual Report 2013
25
Share capital and unrestricted equity reserve
1 January 2012 Share issue 1) 31 December 2012 31 December 2013
Number of shares
Share capital
Unrestricted equity reserve
94,373 13,327 107,700 107,700
94,373 13,327 107,700 107,700
13,006 2,692 15,699 15,699
1) Directed issue to Aktia Bank plc (7,678 shares), Savings Banks (4,156 shares) and Local Cooperative Banks (1,493 shares) at 19 June 2012
The company has two different types of shares: A shares entitle the holder to the right to vote on all matters dealt with at the General Meeting and to all other rights granted to shareholders. There are 24 050 A shares and the amount has not changed during 2012 or 2013. B shares entitle neither to voting rights nor the right to request an Extraordinary General Meeting. At the beginning of 2012, there were 70,323 B shares and at the end of 2013 83,650 B shares.
Specification of change in fund at fair value
2013
2012
Fund at fair value at 1 January Profit/loss on the evaluation of the fair value, interest bearing securities Deferred taxes on profit/loss on the evaluation of the fair value Profit/loss on the evaluation of the fair value for cash flow hedging derivative contracts Deferred taxes on profit/loss on the evaluation of the fair value Fund at fair value at 31 December
-978 66 -16 670 -189 -448
-1,687 471 -115 468 -115 -978
Distributable assets
2013
2012
9,437 -1,353 378 15,699 24,161
9,549 -1,851 1,739 15,699 25,136
Total unrestricted equity Retained earnings 1 January Dividends to shareholders Profit for the reporting period Unrestricted equity reserve Total Total unrestricted equity is distributable.
Dividend to shareholders The Board’s proposal for the dividend for the year 2013, to the Annual General Meeting, on 21 March 2014, is EUR 5.35 per share or EUR 576,195.00. The dividend to shareholders is entered in 2014 against the equity, as a reduction in the retained earnings.
26
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
Note 21. Classification of financial instruments Assets
31 December 2013 Interest-bearing securities Derivative instruments Lending to credit institutions Lending to the public and public sector entities Tangible assets Accrued income and advance payments Deferred tax receivables Total
31 December 2012 Interest-bearing securities Derivative instruments Lending to credit institutions Lending to the public and public sector entities Tangible assets Accrued income and advance payments Income tax receivables Deferred tax receivables Total
10 11 12 12 13 14 15
Held for sale 10,021
Loans and receivables
Non-financial assets
82,138 52,277 2,897,248
10,021
10 11 12 12 13 14
Derivatives used for hedging
Held for sale 10,028
82,138
2,949,525
1 3,230 113 3,343
Derivatives used for hedging
Loans and receivables
Non-financial assets
132,383 20,305 3,943,857
15 10,028
132,383
3,964,162
Derivatives used for hedging
Other financial liabilities 535,803
2 6,940 110 317 7,369
Total 10,021 82,138 52,277 2,897,248 1 3,230 113 3,045,028
Total 10,028 132,383 20,305 3,943,857 2 6,940 110 317 4,113,942
Liabilities
31 December 2013 Liabilities to credit institutions Derivative instruments Debt securities issued Subordinated liabilities Accrued expenses and income received in advance Other liabilities Income tax liabilities Deferred tax liabilities Total
31 December 2012 Liabilities to credit institutions Derivative instruments Debt securities issued Subordinated liabilities Accrued expenses and income received in advance Other liabilities Deferred tax liabilities Total
16 11 17 18 19 19
21,938 2,304,831 9,000
15
16 11 17 18 19 19 15
Non-financial liabilities
21,938
2,849,634
Derivatives used for hedging
Other financial liabilities 770,909
41,775 42 155 71 42,043
Non-financial liabilities
40,665 3,104,357 21,000
40,665
3,896,266
44,960 38 155 45,154
Total 535,803 21,938 2,304,831 9,000 41,775 42 155 71 2,913,615
Total 770,909 40,665 3,104,357 21,000 44,960 38 155 3,982,085
Aktia Real Estate Mortgage Bank plc Annual Report 2013
27
Note 22. Financial assets and liabilities Fair value Financial assets Financial assets available for sale Derivative instruments Loans and other receivables Total
Book value 10,021 82,138 2,949,525 3,041,685
2013 Fair value 10,021 82,138 2,896,843 2,989,002
Book value 10,028 132,383 3,964,162 4,106,573
2012 Fair value 10,028 132,383 3,880,786 4,023,196
Financial liabilities Liabilities to credit institutions Derivative instruments Debt securities issued Subordinated liabilities Total
Book value 535,803 21,938 2,304,831 9,000 2,871,572
2013 Fair value 535,803 21,938 2,331,389 9,035 2,898,165
Book value 770,909 40,665 3,104,357 21,000 3,936,931
2012 Fair value 769,022 40,665 3,124,690 21,070 3,955,447
In the table, the fair value and the book value of the financial assets and liabilities, are presented by balance sheet item. The fair values are determined both for agreements with fixed and variable interest rates. The fair values are calculated without accrued interest and without the effect of possible hedging derivatives attributable to the balance sheet item. Fair values on investment assets are determined by market prices quoted on the active market. If quoted market prices are not available, the value of the balance sheet items is mainly determined by discounting future cash flow using market interest rates on the day the accounts were closed. In addition to the credit risk profile of current stock, costs for re-financing are considered in the discount rate when determing fair values on loans. For cash and balances with central banks, the nominal value is used as fair value. The fair value of issued debts is mainly determined based on quotes on the market. In the discount rate for unquoted issued debts and subordinated liablilites, a marginal corresponding the seniority of the instrument is applied. Derivatives are valued at fair value corresponding to quotes on the market.
Set off of financial assets and liabilities 31.12.2013
Assets 31.12.2012
31.12.2013
Liabilitities 31.12.2012
Financial assets and liabilitties included in general agreements on set off or similar agreements Derivative instruments, gross amount Set off amount Value recorded in the balance sheet
82,138 82,138
132,383 132,383
21,938 21,938
40,665 40,665
Amount not set off but included in general agreements on set off or similar Derivative instruments Collateral assets and liabilities Total amount of sums not set off in the balance sheet Net
21,938 55,000 76,938 5,200
40,665 86,000 126,665 5,718
-21,938 -21,938 43,876
-40,665 -40,665 81,330
The table shows financial assets and liabilities that are presented net in the balance sheet or with potential rights to set-off associated with enforceable master netting arrangements or similar arrangements, together with related collateral. The net amounts show the exposure in normal business as well as in the events of default or bankruptcy.
28
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
Measurement of financial assets at fair value
(EUR 1,000)
Level 1 consists of financial instruments that are valued using prices listed on an active market. In an active market transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis. This category includes listed bonds and other securities, listed equity instruments and derivatives, for which tradable price quotes exist. Level 2 consists of financial instruments that do not have directly accessible listed prices from an effective market. The fair value has been determined by using valuation techniques, which are based on assumptions supported by observable market prices. Such market information may for example be listed interest rates or prices for closely related instruments. This category includes the majority of OTC derivative instruments, as well as many other instruments that are not traded on an active market. Level 3 consists of financial instruments for which the fair value cannot be obtained directly from quoted market prices or indirectly by using valuation techniques or models supported by observable market prices on rates. This category mainly includes unlisted equity instruments and funds, and other unlisted funds and securities where there currently are no fixed prices. 31.12.2013
31.12.2012
Fair value classified into
Fair value classified into
Financial instruments measured at fair value
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets available for sale Interest-bearing securities Total
10,021 10,021
0 0
0 0
10,021 10,021
10,028 10,028
0 0
0 0
10,028 10,028
0 0
60,200 60,200
0 0
60,200 60,200
0 0
91,718 91,718
0 0
91,718 91,718
10,021
60,200
0
70,221
10,028
91,718
0
101,746
Derivative instrument, net Total Total
Transfers between level 1 and 2 Transfers between levels may occur when there are indications of changes in market conditions, e.g. when instruments cease to be actively traded. During the reporting period no transfers between level 1 and level 2 has occurred. Parent company’s Risk control has the responsibility for classifying financial instrument into level 1, 2 or 3. The valuation process, which is made on an ongoing basis, is the same for financial instruments in all levels. The process determines to which level a financial instrument will be classified. In cases where internal assumptions have a material impact on fair value, the financial instrument is reported in level 3. The process also includes an evaluation based on the quality of the valuation data, if a class of financial instrument is to be transferred between levels.
Note 23. Breakdown by maturity of financial assets and liabilities by balance sheet item Note Financial assets 31 December 2013 Financial assets available for sale Loans and other receivables Total
31 December 2012 Financial assets available for sale Loans and other receivables Total
10 12
10 12
Under 3 months 101,522 101,522
3-12 months 165,084 165,084
1-5 years 10,021 803,274 813,296
5-10 years 807,286 807,286
over 10 years 1,072,359 1,072,359
Total 10,021 2,949,525 2,959,546
Under 3 months 79,153 79,153
3-12 months 211,039 211,039
1-5 years 10,028 1,011,011 1,021,039
5-10 years 1,086,541 1,086,541
over 10 years 1,576,418 1,576,418
Total 10,028 3,964,162 3,974,190
Aktia Real Estate Mortgage Bank plc Annual Report 2013
29
Financial liabilities 31 December 2013 Liabilities to credit institutions Debt securities issued Subordinated liabilities Total
31 December 2012 Liabilities to credit institutions Debt securities issued Subordinated liabilities Total
16 17 18
16 17 18
Under 3 months 55,000 0 55,000
3-12 months 605,879 605,879
1-5 years 1,513,213 7,200 1,520,413
5-10 years 101,642 1,800 103,442
over 10 years 480,803 84,097 564,900
Total 535,803 2,304,831 9,000 2,849,634
Under 3 months 216,000 216,000
3-12 months 135,000 749,297 2,000 886,297
1-5 years 2,161,560 13,400 2,174,960
5-10 years 103,941 5,600 109,541
over 10 years 419,909 89,560 509,468
Total 770,909 3,104,357 21,000 3,896,266
Notes to the accounts concerning collateral and contingent liabilities
(EUR 1,000)
Note 24. Collateral
For the bank 31 December 2013 Debt securities issued to the public Total
For the bank 31 December 2012 Debt securities issued to the public Total
Type of security Mortgage / security / other
The nominal value The value of the liability of the security 2,258,000 2,865,724 2,258,000 2,865,724
Type of security Mortgage / security / other
The nominal value The value of the liability of the security 3,008,000 3,886,981 3,008,000 3,886,981
For other liabilities The Real Estate Mortgage Bank has not provided collateral for other parties.
Note 25. Breakdown of off-balance sheet commitments
2013
2012
Unused credit arrangements Total
0
1,097 1,097
Breakdown by maturity Under 3 months 3-12 months Total
0
49 1,049 1,097
Off-balance sheet commitments, exclude rental commitments.
30
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Notes
Other notes to the accounts Note 26. Pension commitments The personnel’s retirement plan is organised via the pension insurance company Veritas and there are no pension commitments that have a liability deficit.
Note 27. Credits and guarantees extended to members of the governing and supervisory bodies No credits or guarantees have been extended to the Board of Directors.
Note 28. Close relations Aktia Real Estate Mortgage Bank plc’s key personnel in management positions refers to Aktia Real Estate Mortgage Bank plc’s Board of Directors and Management (MD and deputy MD). Close relations include key personnel in management positions according to the above and close family members and companies that are under the dominating influence (over 20% of the shares) of a key person in a management position. Aktia Real Estate Mortgage Bank plc’s parent company, Aktia Bank plc, is also a part of close relations. Lending to close relations is based on the standard customer qualification process, with the normal evaluation of the debtor risk and with the same security requirement and requirement on return as applies to the bank’s customers in general. Business transactions with Aktia Bank plc Receivables Liabilities
2013 84,357 516,301
2012 52,364 602,563
Aktia Bank plc has been counterparty in Aktia Real Estate Mortgage Bank plc’s hedging transactions (note 11). There has been no other significant business transactions with close relations in 2013 and 2012. Salaries and fees Members of the Board have not received salary or remuneration. The Managing Director receives a monthly salary and an annual bonus based on the monthly salary.
Note 29. Events after the end of the financial year Stefan Björkman, the Chairman of the Board of Directors of Aktia Real Estate Mortgage Bank, resigned from Aktia Real Estate Mortgage Bank’s Board of Directors on 13 February 2014.
Aktia Real Estate Mortgage Bank plc Annual Report 2013
31
Note 30. The owners of Aktia Real Estate Mortgage Bank plc (31 December 2013) Aktia Bank plc
Savings Banks: Aito Savings Bank Ltd Avain Säästöpankki Etelä-Karjalan Säästöpankki Eurajoen Säästöpankki Helmi Säästöpankki Oy Huittisten Säästöpankki Kalannin Säästöpankki Kantasäästöpankki Oy Kristinestads Sparbank Kvevlax Sparbank Lammin Säästöpankki Liedon Säästöpankki Länsi-Uudenmaan Säästöpankki Mietoisten Säästöpankki Myrskylän Säästöpankki Nooa Savingsbank Ltd Närpes Sparbank Oma Savingsbank Ltd Pyhärannan Säästöpankki Skärgårdssparbanken Ab Someron Säästöpankki Suodenniemen Säästöpankki Suomenniemen Säästöpankki Sysmän Säästöpankki Säästöpankki Optia Säästöpankki Sinetti Ylihärmän Säästöpankki Yttermark Sparbank
32
Aktia Real Estate Mortgage Bank plc Annual Report 2013
Local Cooperative Banks: Hannulan Osuuspankki Honkajoen Osuuspankki Isojoen Osuuspankki Joroisten Osuuspankki Kannonkosken Osuuspankki Keiteleen Osuuspankki Keuruun Osuuspankki Konneveden Osuuspankki Kosken Osuuspankki Kurikan Osuuspankki Kyrön Seudun Osuuspankki Kyrönmaan Osuuspankki Kyyjärven Osuuspankki Laihian Osuuspankki Lammin Osuuspankki Lanneveden Osuuspankki Lappajärven Osuuspankki Lapuan Osuuspankki Liedon Osuuspankki Multian Osuuspankki Nivalan Järvikylän Osuuspankki Osuuspankki Poppia Petäjäveden Osuuspankki Piikkiön Osuuspankki Pohjanmaan Osuuspankki Pyhäselän Paikallisosuuspankki Reisjärven Osuuspankki Sievin Osuuspankki Siilinjärven Osuuspankki Suupohjan Osuuspankki Tiistenjoen Osuuspankki Tuusniemen Osuuspankki Vaskion Osuuspankki
Auditor's report
Auditor’s report This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding.
To the Annual General Meeting of Aktia Hypoteekkipankki Oyj
ing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company.
We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Aktia Hypoteekkipankki Oyj for the year ended 31 December, 2013. The financial statements comprise the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows, and notes to the financial statements.
Responsibility of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
Auditor’s Responsibility Our responsibility is to express an opinion on the financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors or the Manag-
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the company’s financial statements and the report of the Board of Directors In our opinion, the financial statements give a true and fair view of the company’s financial position, financial performance, and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of the company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
Helsinki 27 February 2014 KPMG OY AB
Jari Härmälä Authorized Public Accountant
Aktia Real Estate Mortgage Bank plc Annual Report 2013
33
Corporate Governance Report for Aktia Real Estate Mortgage Bank plc This report was approved by Aktia Real Estate Mortgage Bank plc’s Board of Directors on 13 February 2014. The report has been prepared separately from the report by the Board of Directors.
The most important elements of the internal control and risk management system associated with the financial reporting process Internal controls in the financial reporting process are based on the following underlying principles: having clear roles, a clear division of responsibility, sufficient understanding of operations in the parts of the organisation concerned and comprehensive and regular reporting procedures. To ensure that the financial reporting is accurate, system-based internal controls, duality and reconciliation have also been built into all key processes where information is recorded. Internal control is supported by observations from Aktia Bank plc Group’s internal audit unit which, by means of random sampling, verifies the accuracy of information flows and the sufficiency of the level of control. The internal audit report directly to the Bank’s Board of Directors. The Bank’s operational organisation for financial reporting comprises a finance unit which, supported by the Group’s finance unit, is in charge of budgeting, upholding accounting principles and internal reporting guidelines and instructions. The Bank’s current accounting activities have been outsourced to an external company providing accountancy services. These accountancy services also include the maintenance of securities, purchasing and fixed asset ledgers and the preparation of accounts in accordance with Finnish accounting standards. The services are rendered in accordance with agreements entered into between the parties and comply with the guidelines and directives issued by the Financial Supervisory Authority and other authorities. Within the Bank, duties and responsibilities have been organised so that people involved in the financial reporting process only have very restricted rights of use to the different production systems and business applications in the respective business area. The person responsible for internal and external financial reporting does not participate in making direct business decisions.
34
Aktia Real Estate Mortgage Bank plc Annual Report 2013
The Bank’s internal reporting and monthly financial statements are based on the same structure and are prepared using the same standards as applied to the official interim financial statements and annual accounts. The monthly reports, supplemented by analysis, are currently distributed to the Bank’s Board of Directors and management, selected key personnel as well as the auditors. The Bank’s financial development and performance is addressed each month by the Bank’s Board of Directors. The Board of Directors addresses the interim reports and annual reports in the same detailed manner. The half-year report and annual report is scrutinised by the Bank’s external auditors who report their observations to the Board of Directors. New or revised accounting principles are to be dealt with and approved by the Bank’s Board of Directors. The Aktia Bank plc Group’s risk control unit, which is a part of the bank’s internal process for risk management but independent of business operations, oversees and evaluates risk management in the bank and reports to the management and Board of Directors. The unit is responsible for measuring, analysing and monitoring risks within the bank.
