1. The Mortgage Society of Finland
Investor Presentation, May 2014

2. Secure Way for Better Living”

3. The Mortgage Society of Finland
Hypo Group Overview
The Mortgage Society of Finland
1860
Retail banking, no corporate lending
Supervised by the FIN-FSA
Specialised in mortgage financing, residential property always as collateral
Mutual company, governed by member customers
Returns are kept within Hypo
Strong loan book (NPLs 0,16%, 1Q2014)
Well-known and frequent borrower in Finland
Total assets EUR 1,23 billion (1Q2014)
100 %
59,4 %
Deposit taking Bank
2002
Office Building
1912
Pension Fund
A + M Departments
Hypo Credit Update
May 2014

4. Hypo is the leading debater on the Finnish mortgage market
Hypo Credit Update
May 2014

5. Financial Results

6. Hypo Group balance sheet 1 227 m€
Other
ECB
Deposits
Located mostly in Great Helsinki area
No risk concentrations in one specific housing company
One minor capital loss recognised within past 10 years time (10 t€)
Equity
Hypo Credit Update
May 2014

7. Hypo’s capitalisation
Basel II standard approach
EUR 60 million of excess capital over the regulatory minimum
Common Equity Tier 1 (CET1) at 14,7 %
Capital ratios around same levels with Finnish peers, with internal methods
Standard Approach RWA
Lending with Residential collateral, 35% risk weight
Dwellings and land owned, 100% risk weight
The amount of own funds decreased during 1Q2014 due to change in accounting treatment of Tier 2 capital instruments which were exluded from the total capital.
This had a negative effect of EUR 20 million on Hypo’s own funds.
Surplus of own funds still at EUR 39 million
Hypo Credit Update
May 2014

8. Financial Performance - Increasing profitability
The Group operating profit for financial year 2013 reached 6 m€; and 1.5 m€ at the end of 1Q2014
The Group’s comprehensive income for the financial year 2013 was EUR 7.7 million including the operating profit and changes in equity due to changes in fair value reserves.
In 1Q2014 Net Intrest Income exceeded that of 1Q2013 by 21% due to the positive development both in the loan portfolio and interest margins.
Return on equity was 5,8% at ye2013.
Cost-to-income ratio stood at 61% at 1Q2014 (57,4 % ye2013) due to the increase in personnel.
Hypo Credit Update
May 2014

9. Financial Results 1Q2014 - Income Statement
CONSOLIDATED INCOME STATEMENT, IFRS
(1000 €)
1-3/2014
1-3/2013
change-%
Interest income
4 955,3
3 958,0
25,2 %
Interest expenses
-3 425,2
-3 099,0
10,5 %
NET INTEREST INCOME
1 530,1
859,1
78,1 %
Income from equity investments
0,0
0,0 %
Fee and commission income
712,5
586,0
21,6 %
Net income from financial assets available for sale
501,3
-0,1
Net income from investment properties
1 191,3
640,0
86,1 %
Other operating income
-5,2
5,4
-196,8 %
Operating profit
3 930,1
2 090,3
88,0 %
Operating expenses
-2 400,7
-1 605,0
49,6 %
Impairment losses on loans and other commitments
5,7
12,2
-52,8 %
OPERATING PROFIT
1 535,1
497,5
208,6 %
Income taxes
-269,4
-88,6
204,0 %
PROFIT FROM OPERATIONS AFTER TAXES
1 265,7
408,9
209,5 %
PROFIT FOR THE PERIOD
1 888,3
548,1
244,5 %
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME STATEMENT
Hypo Credit Update
May 2014

10. Hypo Loan Book Analysis

11. Loan Book Overview
Mortgage loans secured by residential property, required by the law on mortgage societies
Two main customer groups
Private individuals and households: home mortgage, buy-to-let
Housing companies: renovation loans, construction phase loans
Hypo Credit Update
May 2014

12. Hypo Loan Book Growing Steadily
Hypo’s loan book reached EUR 1,03 billion at the end of 1Q2014.
The amount of non-performing loans increased modestly to EUR 1.6 million, equaling 0,16 % of the total loans
The quality of the loan book well above the Finnish household average NPLs (0,62%)
Non performing loans source: Finnish FSA, original data in EUR over total of Finnish household loans.
Hypo Credit Update
May 2014

13. Loan book quality excellent
Hypo’s loan portfolio is entirely secured by residential property.
The average LTV (loan-to-value) at the end of 1Q2014 was 49,3% (49.98%)
Loan loss recoveries exceeded losses in 2013 as well as in 1Q2014
Financed properties are mainly located in the population dense Helsinki Metropolitan Area.
Hypo Credit Update
May 2014

14. Lending – collateral characteristics
Non-Allocated Aggregate
Collateral Value > 3 b€
(in control)
Allocated Aggregate
Collateral Value 2 b€
Loan Book 1 b€
Loan Book vs. Apartment &
Residential Property Collateral
Hypo Credit Update
May 2014

15. Funding and Liquidity

16. ”Put us in the middle”
Hypo Credit Update
May 2014

17. Well diversified funding base
Senior Unsecured under our Own Legal Framework
Borrower is the Group Parent
Effectively, since lending is against residential collateral, “cover pool” exists
No creditor ranks senior to the Holder of Senior Unsecured Creditor
Solid Strategy, Solid Financial Performance
IFRS, transparent and timely financial Information
Track record in bond issuances since year 1862
First issuance to international market 1864 in Prussian Thaler, deposited as collateral to the Bank of Finland for launching Finnish Markka
No intension to issue covered bonds
”In the Middle of” Covered Bonds and Senior Unsecured
Senior Unsecured but
No creditors rank senior to holder of senior unsecured note
Effectively, since lending is always against residential collateral, cover pool exists
Loyal Finnish Investor Base
Credit Update held semi-annually
Frequent issuer in the Finnish market
In floating rate EUR or hedged to EUR
Hypo Credit Update
May 2014

18. Hypo Funding Strategy
Main funding through EUR denominated senior unsecured issues
All bonds listed on the NASDAQ OMX Helsinki Oy trading list
Issued under domestic EMTN programme
In future aiming at larger issue sizes, min. EUR 100 million
Well received in the markets, guarantees better liquidity
Latest issue on April 23, 2014 (not included in the above table/figures)
Senior unsecured, EUR 75 million, FRN 6M + 1,00
Maturity 30 October 2017 (3.5 years)
Other Instruments
Commercial Deposits
Commited credit lines from other financial institutions
Deposit funding through the AsuntoHypoPankki subsidiary around 35% of total funding
Hypo’s issues in 2013, currently aiming at larger issue sizes due to positive market response
ISIN
Issue Date
Maturity Date
Type
Nominal (m€)
Coupon FI
Senior Unsecured 40
FRN 6M +1,10 FI 50
FRN 6M +0,60 FI
(SEK) 250
FRN 3M (STIBOR) +1,38 FI
FRN 6M +0,95 FI
FRN 6M +0,67 FI
100 FI 75
FRN 6M +1,00
Hypo Credit Update
May 2014

19. Solid Liquidity position
Liquidity portfolio at EUR 161 million at
Conservative investment policy
Over 50% invested in counterparties with rating AA-/Aa3 or better
Only EUR denominated exposure
Hypo’s domestic MTN and the CD programme support the liquidity management
Basel III compliant
Hypo Credit Update
May 2014

20. Outlook for 2014
The general economic sentiment is considered to modestly improve but the economic growth is nevertheless expected to remain subdued in 2014.
The economic cycle and interest rates are not expected to bring any substantial changes to the prevailing situation in the Finnish housing market.
Hypo remains very confident that as a specialized mortgage institution, it has good possibilities to continue growing its business in a profitable manner while managing risks also in 2014.
The management expects the Group operating profit for 2014 to remain at the same level or improve compared to 2013 (Interim report )
Core Strategy unchange
Reserves and Buffers for “a Rainy Day”
Pension Fund A-Department has excess funds of around EUR 7 million
Forms buffer to the Capital Ratio
Fair values of owned dwellings and plots EUR 14 million above book values
Excess of Own Funds EUR 40 million (Standard Approach)
Hypo Credit Update
April 2014

21. Director, Funding and Treasury Petteri Bollmann
Contact information
CEO Ari Pauna
Tel
CFO Aija Kontinen
Tel
CRO Mikko Huopio
Tel
Director, Funding and Treasury Petteri Bollmann
Tel
DISCLAIMER
To the extent the Information relating to The Mortgage Society of Finland (“Hypo”) or its group members (“Hypo Group”) is prepared by Hypo or another member of Hypo Group, the following limitations apply:
All official financial information of Hypo Group, including without limitation profit and loss statement, balance sheet, and annexes is available at web address This document is not official financial information Hypo Group.
Opinions and statements of or concerning Hypo Group are made in good faith at the time of giving such statement and may be subject to change without notice.
Investing in a financial instrument issued by Hypo may contain risks, such as (without limitation) operational and financial condition of Hypo Group and general market conditions. Changes in them may have an adverse effect on the price or value of the instrument. At the time of this document (April 2013), Hypo does not issue to the public financial instruments which have a guarantee or collateral. Therefore, the investor is exposed to the risk of loosing all or part of the investment in a financial instrument issued by Hypo.
Opinions or statements regarding future performance are based on assumptions that may not be realised. Past performance of Hypo Group is not a sign or a promise of future performance.