Note 1

Accounting principles

1.1 GENERAL INFORMATION
Sparebanken Møre, which is the Parent company of the Group, is a savings bank registered in Norway. The bank’s Equity Certificates (ECs) are listed on the Oslo Stock Exchange.

The Group consists of Sparebanken Møre (the Parent Bank) and its subsidiaries Møre Boligkreditt AS, Møre Eiendomsmegling AS and Sparebankeiendom AS.

The Sparebanken Møre Group provides banking services for retail and corporate customers and real estate brokerage through a large network of branches in Nordvestlandet, which is the region defined as the bank’s geographic home market.

The company’s Head Office is located at Keiser Wilhelmsgt. 29/33, P.O.Box 121 Sentrum, 6001 Ålesund, Norway.

Figures are presented in MNOK unless otherwise stated.

The preliminary annual accounts were approved for publication by the Board of Directors on 11 February 2021. The final annual accounts were presented by the Board of Directors on 18 February 2021.

The Group’s operations are described in note 4.

1.2 ACCOUNTING PRINCIPLES
The Group’s annual accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), which have been stipulated by the International Accounting Standards Board, and implemented by the EU as at 31 December 2020.

How to read the Group`s accounting principles:
Sparebanken Møre describes the accounting principles in conjunction with each note. See the table below for an overview of the various principles and the notes in which they are described, as well as reference to relevant and important IFRS standards.   

Accounting principleNoteIFRS-standard
ImpairmentsNote 9 Losses on loans and guaranteesIFRS 9, IFRS 7
Financial derivativesNote 25 Financial derivativesIFRS 9, IFRS 7, IFRS 13
HedgingNote 26 Debt securitiesIFRS 9, IFRS 7
Classification of financial instrumentsNote 22 Classification of financial instrumentsIFRS 9, IFRS 7
Amortised costNote 23 Financial instruments at amortised costIFRS 9, IFRS 7
Fair valueNote 24 Financial instruments at fair valueIFRS 9, IFRS 13, IFRS 7
Operating segmentsNote 4 Operating segmentsIFRS 8
Revenue recognitionNote 16 Net commission and other incomeIFRS 15, IFRS 9
LeasesNote 30 LeasesIFRS 16
PensionsNote 20 Pension costs and liabilitiesIAS 19
Fixed assetsNote 31 Fixed assetsIAS 16, IAS 36
Intangible assetsNote 32 Other intangible assetsIAS 38, IAS 36
TaxNote 21 TaxIAS 12
EquityNote 34 ECs and ownership structureIAS 1
Events after the reporting periodNote 36 Events after the reporting periodIAS 10
   
   
   
   
   

Calculation basis
The calculation basis for preparing the financial statements is historical cost, with the exception of the following items (AC = Amortised Cost, FVPL= Fair Value through Profit and Loss):

 

 

ASSETSCategory
Cash and claims on Norges BankAC
Loans to and receivables from credit institutionsAC
Loans to and receivables from customersAC/FVPL
Certificates, bonds and other interest-bearing securitiesFVPL
Financial derivativesFVPL
Shares and other securitiesFVPL
  
LIABILITIESCategory
Loans and deposits from credit institutionsAC
Deposits from customersAC
Bonds issuedAC
Financial derivativesFVPL
Subordinated loan capitalAC

Consolidation principles
The consolidated financial statements comprise Sparebanken Møre and all companies in which Sparebanken Møre has control through ownership. An entity is controlled when the owner is exposed to or has rights to returns from the entity and has the opportunity to influence these returns through its influence over the entity. This applies to subsidiaries mentioned in note 29.

Companies which are bought or sold during the year are included in the Group accounts from the time at which control is obtained and until control ceases.

The Group accounts are prepared as if the Group is one financial unit.

All transactions between companies in the Group, have been eliminated in the consolidated financial statements. Uniform accounting principles have been applied for all companies in the Group. In the Parent Bank’s accounts, investments in subsidiaries are valued at cost. The acquisition method is applied when recognising acquired units/entities. The acquisition cost relating to an acquisition is assessed as the fair value of the items involved, such as assets, equity instruments issued and liabilities taken over. Identifiable assets bought, liabilities taken over and debt obligations are assessed at fair value at the time of the acquisition. Any acquisition cost in excess of fair value of the Group’s equity stake of identifiable net assets is, according to IFRS 3, incorporated as goodwill. Transaction costs related to acquisitions are recognised in the income statement as incurred.

Changes in accounting principles and presentation (classifications)
There are no significant changes in accounting principles or presentation for 2020.

New or amended standards
The Group has not implemented any new or amended standards in 2020.

Future standards
At the time of issuance of the consolidated financial statements, no standards or interpretations, with future date of entry into force, having material impact on the financial position or the profit for the Sparebanken Møre Group, have been adopted.         

Annual improvements
Minor changes have been made in a number of standards during IASB`s annual improvement projects. None of these changes are considered to have significant impact on the financial position or performance of the Sparebanken Møre Group.

1.3 FOREIGN EXCHANGE
The Group presents its accounts in Norwegian kroner (NOK). The functional currency for the Parent Bank and its subsidiaries is NOK.

All monetary items in foreign currencies have been recalculated into the bank’s functional currency (NOK) according to foreign exchange rates provided by Norges Bank as at 31.12.2020. Current income and costs have been translated into NOK at the foreign exchange rates ruling at the time of the transactions, and the effects of changes in foreign exchange rates have been included in the income statement on an ongoing basis during the accounting period.

1.4 JUDGMENTS IN APPLYING ACCOUNTING PRINCIPLES
Financial assets and liabilities are allocated to the different categories in IFRS 9, which subsequently determine the measurement in the statement of financial position. The bank has clear procedures for the categorisation, and the process normally requires only limited use of judgment. Reference is made to note 22 for measurement principles. The Group makes no significant judgement regarding to the use of accounting principles.

1.5 USE OF ESTIMATES AND JUDGMENT IN THE PREPARATION OF THE ANNUAL FINANCIAL STATEMENTS
Certain accounting principles are regarded as particularly important in order to illustrate the Group’s financial position due to the fact that management is required to make difficult or subjective assessments, applying estimates which mainly relate to matters which are initially uncertain.

In the opinion of the management, the most important areas which involve critical estimates and assumptions are as follows:

Expected credit loss on loans
Measurement of ECL (Expected Credit Loss) according to IFRS 9 requires an assessment when it comes to significant increase in credit risk and determining the level of impairment, particularly with regards to estimates of amounts and timing of future cash flows and collateral. These estimates are driven by a number of factors, where changes can result in different levels of provisions.

Sparebanken Møre has developed an ECL-model based on IRB parameters in the Group. ECL-calculations are output from complex models with several underlying prerequisites related to the choice of variable inputs and the dependency ratio. Elements of the ECL-model containing assessments and estimates include: 

  • The internal credit model, which specifies PDs (PD = Probability of Default)
  • The criteria assessing whether there’s been a significant increase in credit risk, so that lifetime ECL (ECL = Expected Credit Loss) is calculated
  • The development of the ECL-model, including various formulas and choice of inputs
  • Choice of connection between macroeconomic scenarios and economic inputs, such as unemployment level and value of collateral, and the effect on PD, exposure and LGD (Loss Given Default)
  • Choice of future-oriented macro-economic scenarios and weighting of probability

Further information on the Group’s ECL model, loss calculations and associated sensitivities is presented in note 9.

Fair value of financial instruments – including derivatives
For financial instruments which are not traded in active markets, various evaluation methods are applied in order to ascertain fair value. Further information and a description of the techniques used may be found in note 24. Reference is also made to notes 11-14 and 22-27, dealing with financial instruments.

 

 

 

 

Note 2

Risk management

Strategy
Sparebanken Møre’s long-term strategic development and target achievement are supported by high quality risk- and capital management. The overall purpose of risk management and -control is to ensure that goals are achieved, to ensure effective operations and the handling of risks which can prevent the achievement of business related goals, to ensure internal and external reporting of high quality, and to make sure that the Group operates in accordance with relevant laws, rules, regulations and internal guidelines. Risk-taking is a fundamental aspect of banking operations, which is why risk management is a central area in the day-to-day operations and in the Board of Directors’ ongoing focus.

Sparebanken Møre’s Board of Directors has agreed overall guidelines for management and control throughout the Group. The Group shall have a low to moderate risk profile and revenue generation shall be a product of customer-related activities, not financial risk taking. In addition, the bank has introduced separate policies for each significant risk area: credit risk, counterpart risk, market risk, funding risk and operational risk. The risk strategies are agreed by the Board of Directors and revised at least once a year, or when special circumstances should warrant it. The Group has established a follow-up and control structure, which shall ensure that the overall framework of the strategic plan is adhered to.

Corporate culture, organisation and responsibility
The risk management process is based on the bank’s and Group’s corporate culture. This includes management philosophy, management style and the people in the organisation. Staff’s integrity, value basis and ethical attitudes represent fundamental elements in a well-functioning corporate culture. Well-developed control and management measures cannot compensate for poor corporate culture. Against this background, Sparebanken Møre has established clear ethical guidelines and a clear value basis, which have been made well known throughout the organisation.

Sparebanken Møre attaches a great deal of importance to independence in the risk management. The responsibility for, and execution of risk management and control is therefore shared between the Board of Directors, management and operative units.

The Board of Directors of Sparebanken Møre bears the overall responsibility for ensuring the bank and the Group having adequate primary capital based on the desired levels of risk and the Group's activities, and for ensuring that Sparebanken Møre is adequately capitalized based on regulatory requirements. The Board shall also ensure that risk management and internal control is adequate and systematic, and that this is established in compliance with laws and regulations, articles of association, instructions, and external and internal guidelines. The Board also sets out the principles and guidelines for risk management and internal control for the various levels of activity, and regularly revises and adopts, at least once a year, various strategies and guidelines for risk management.

The Audit and Risk Committees are elected by and amongst the members of the Board of Directors. The committees are sub-committees of the Board. Their purpose is to carry out more thorough assessments of designated areas and report the results to the Board. The Audit and Risk Committees shall ensure that the institution has independent and effective external and internal auditors, and satisfactory financial statement reporting and risk management routines, complying with pertinent laws and regulations.

The CEO is responsible for ensuring the establishment of appropriate risk management and internal control based on assessments, agreed principles and guidelines introduced by the Board. The CEO is responsible for ensuring that good control environments are established in all levels of the bank and shall continuously monitor changes to the bank's risks and ensure that these are properly addressed in accordance with the Board's guidelines. The CEO shall ensure that the bank's risk management and internal control is documented according to current laws, rules, regulations and statutes, and shall, at least once a year, prepare an overall assessment of the risk situation, which shall be presented to the Board for their consideration.

The Risk Management department is responsible for preparing and designing systems, guidelines and procedures for identifying, measuring, reporting and following up the bank’s most important inherent risks. The department is responsible for ensuring that the total risk exposure of Sparebanken Møre, including results of conducted stress tests, is reported to the CEO and the Board of Directors. Further, the department bears the primary responsibility for the IRB process in the Group. It is also a key setter of conditions and adviser in the strategy process concerning risk assessments, risk tolerance and operationalisation of the bank's overall goals with regards to risks. The department is also responsible for working with the ICAAP and the Recovery Plan. The department forms part of the Risk Management and Compliance unit, reporting directly to the CEO.

Pursuant to the requirements in the Financial Institutions Act, Sparebanken Møre has an own compliance function. Each year, the Board of Directors of Sparebanken Møre approves compliance instructions, and an annual work- and action plan is prepared for the function. The department is responsible for coordinating annual internal control confirmations from the operational managers. The head of Compliance reports to the CEO in Sparebanken Møre, but is organizationally subordinate to the EVP of the Risk management and Compliance unit.

Finance and Accounting is responsible for the Group's total financial management/reporting and accounting and is part of the unit Finance and Facilities Management.

Sparebanken Møre`s operative managers of important business areas shall actively involve themselves in the process surrounding the assessment of whether or not the established risk management and internal control is being conducted as assumed. It is assumed that all managers at every level of the organisation are monitoring the approved control measures within their area of responsibility.

Sparebanken Møre`s Credit Committee deals with larger commitments and matters of a special nature and shall provide an independent proposal to the person holding the power of attorney. The Credit Committee attaches special importance to the identification of risk in connection with each credit application and makes its own assessment regarding credit risk. In addition, consideration is made whether commitments are in accordance with the Group’s credit risk strategy, credit policy, credit-granting rules and regulations and credit handling routines.

The internal auditing is a monitoring function which, independent of the rest of the bank’s administration, deals with systematic risk assessments, control and examination of the Group’s internal control in order to ascertain whether it works according to its purpose and in a reassuring manner. The bank`s Board approves the resources and annual plans of the internal auditing. The internal auditor should also discuss the plan and scope of the audit work with the Audit and Risk Committee. The internal audit in Sparebanken Møre is outsourced to EY.

Capital structure
Sparebanken Møre’s equity and related capital is composed with regards to several considerations. The most important considerations are the Group’s size, the internationally orientated industry and commerce in Nordvestlandet and a stable market for long-term funding. Furthermore, the Group’s long-term strategic plan is a significant provider of conditions with regards to which capital structure Sparebanken Møre should adopt.

Assessments of risk profile, capital requirements and profitability are always based on the Group's long-term strategic plan. The Group's capital requirements are calculated at least in the annual ICAAP. The Group's total capital shall comply with the Group`s accepted risk tolerance. The ICAAP clarifies alternatives the Group can implement if the Group's capital adequacy is subject to stress. The alternatives are listed in a prioritized order, with description of measures and indication of planned implementation if necessary.

Sparebanken Møre's aim is to achieve financial results which provide a good and stable return on equity. The results shall ensure that all equity owners receive a competitive long-term return in the form of dividends and capital appreciation on the equity. The equity owners' share of the annual profits set aside as dividend funds, shall be adjusted to the equity situation. Sparebanken Møre's allocation of earnings shall ensure that all equity owners are guaranteed equal treatment.

Capital adequacy rules and regulations
The capital adequacy regulations aim to strengthen the stability in the financial system through more risk-sensitive capital requirements, better risk management and control, more stringent supervision and more information provided for the market.

The capital adequacy directive is based on three pillars:

• Pillar I – Minimum requirement for equity and related capital

• Pillar II – Assessment of aggregate capital requirements and regulatory follow-up (ICAAP)

• Pillar III – Publication of information

Sparebanken Møre`s capital adequacy is calculated according to the IRB Foundation Approach for credit risk. Calculations related to market risk are based on the Standard Approach and operational risk on the Basic Approach. Sparebanken Møre’s Board of Directors insists that the Group must be well capitalised, both during economic downturns and periods of strong economic expansion. Capital assessments (ICAAP) are conducted every year, and the Group’s capital strategy is based on the risk in the Group’s operations, taking into account different stress scenarios.

Reference is also made to note 3 concerning "Capital adequacy" for further descriptions, as well as comments related to changes in the regulations.

Risk exposure and strategic risk management
Sparebanken Møre is exposed to several different types of risk. The most important risk groups are:

• Credit risk: This is the Group’s biggest area of risk. Credit risk is defined as the risk of loss due to customers or other counterparties being unable to meet their obligations at the agreed time, and in accordance with written agreements, and due to the collateral security held not covering the outstanding claims. Counterparty risk and concentration risk are also included in this area of risk.

• Market risk: The risk of loss involving market values relating to portfolios of financial instruments as a result of fluctuations in share prices, foreign exchange rates and interest rates.

• Funding risk: The risk of the Group being unable to meet its obligations and/or fund increases in assets without incurring significant extra costs in the form of fall in prices of assets which have to be sold, or in the form of particularly expensive funding. The level of the institution`s capital is a key condition to attract necessary funding at any time.

• Operational risk: The risk of loss due to insufficient or failing internal processes and systems, or due to human error or external events.

Sparebanken Møre tries to take account of the interaction between the various risk areas when setting desired levels of exposure. Overall, it is the internal conditions, general conditions, customer base, etc. within the Group which form the basis for setting the desired overall risk exposure.

Based on an evaluation of the risk profile, management and control, Sparebanken Møre has set the following overall levels of risk exposure for the various risk areas:

• Credit risk: A moderate level of risk is accepted

• Market risk: A low level of risk is accepted

• Funding risk: A moderate level of risk is accepted

• Operational risk: A low level of risk is accepted

The Group’s risk is quantified partly through calculations of expected credit loss and the requirement for capital in order to be able to cover unexpected losses. Expected losses and financial capital are calculated for all main groups of risks, and for different business areas within the Group. Expected credit loss describes the amount which in statistical context the bank must expect to lose during a 12-month period. Financial capital describes the amount of capital the Group deems to be required in order to cover the actual risk which has been incurred by the Group. Statistical methods for the computation of financial capital have been used as a basis. Please also refer to note 3 regarding capital adequacy for further comments concerning financial capital.

Credit risk
Credit risk represents Sparebanken Møre’s biggest risk area. Included in this risk area are counterparty risk and concentration risk. The Group is exposed to this type of risk through its lending products for the retail market and corporate customers, and through the activities of Sparebanken Møre's Treasury and Markets unit.

The credit risk strategy is revised and agreed each year by the Board of Directors. The strategy focuses on risk sensitive limits, which have been designed in such a way that they manage the Group’s risk profile within the credit area in the most appropriate and effective manner. Furthermore, limits, guidelines, and power of attorney-related rules and regulations have been established, which underpin and support Sparebanken Møre’s credit risk strategy and long-term strategic plan.

The core values of Sparebanken Møre are “Close, Committed and Capable”. These values are to be reflected in all contact with the market, create added value for the customers and help create a positive view of Sparebanken Møre. The credit policy is intended to promote a credit culture in which creditworthiness is viewed in a long-term perspective, where general and industry economic fluctuations are taken into account. Sparebanken Møre shall conduct itself in accordance with high ethical standards, and shall not be associated with activities, customers or industries of dubious repute. The Group is open to all types of customers within defined market areas, and discrimination based on the customer`s age, gender, nationality, religion or marital status shall not occur.

Sparebanken Møre's geographic core region is Nordvestlandet. However, it is allowed to financially support investments/businesses outside its core region when, from an ownership perspective, they are linked to individuals or companies in/from Nordvestlandet. Commitments outside the Group's market area will also be considered as part of the deliberate diversification of the portfolio in terms of segment and geographical exposure. In such cases the Group's strategy sets clear limits for the maximum risk level for an individual commitment.

The Risk Management department has established monthly portfolio management reports which ensure that any discrepancies from the strategic targets incorporated in the credit risk strategy are identified. The EVPs of the Corporate Division and the Retail Division respectively, have independent responsibility for the ongoing monitoring of the position, in order to identify discrepancies in relation to the same strategic targets, and in order to implement measures in the case of any discrepancies having occurred.

The Board of Directors is responsible for the Group’s granting of loans and credits. Within certain limits, power of attorney is delegated to the bank’s CEO for the operational responsibility with regards to decisions in credit matters. Within his powers of attorney, the CEO may further delegate powers of attorney. The grant authorisations are personal and graded after criteria like the size of grant, the limit of the commitment (corporate customers), the customers total debt (retail customers), and class of risk. Further, the power of attorney is related to the employee`s job level.

Sparebanken Møre actively uses internal reports in order to monitor the level and development of the Group’s credit portfolio. Each member of staff with customer responsibility has access to reports which show the position and development in the credit risk in his or her portfolio. The reports are prepared on a hierarchical basis, enabling the bank’s management to monitor the development within their own area of responsibility. The reports are also used to analyse customers, portfolios and different sectors.

The Group has prepared separate risk models for the corporate and retail markets, which are used in monthly measuring and reporting of credit risk. The Group has also developed application score models for the two customer segments, which are being used in the credit granting process.

There are mainly three central parameters within credit risk for which models are applied:

1. Probability of default (PD): PD is calculated per customer and states the probability of the customer defaulting on his or her outstanding commitment during the next 12 months. A separate PD is calculated for each customer, based on statistical models using variables of both external and bank-internal information, in the form of both financial key figures and non-financial criteria.

2. Degree of loss in the case of default (LGD): LGD indicates how big a part of the commitment is expected to be lost in the case of default. The assessments take into consideration the values of the collateral provided by the customer, and the costs which would be incurred in the case of the recovery/collection of commitments in default.

3. Expected exposure in the case of default (EAD): EAD indicates the level of exposure which is expected in connection with a commitment if, and when it goes into default.

The abovementioned parameters form the basis for calculation of expected loss (EL) and are included in the computation of financial capital. By classifying customers according to probability of default, and by estimating the level of loss and the requirement for financial capital at customer level, the Group obtains information about the level and development of the aggregate credit risk in the total portfolio. In-house migration analyses show the development of the number of customers and EAD between different risk classes during different periods.

Treasury risk
Treasury risk is part of Sparebanken Møre's total credit risk. Board-adopted limits for the Group's credit exposure in this area have been defined.

Credit exposure is linked to bonds and certificates in the Group's liquidity portfolio, short-term lending to other banks, including accounts held in foreign banks, and exposure in connection with financial derivatives which are signed to neutralise already present interest and currency risk which the bank has assumed. The portfolio consists of reputable domestic and foreign relationships. Credit quality is considered high, mainly due to exposures towards issuers with high ratings and low capital weight. See note 7 for an overview of the credit quality of the Group’s liquidity portfolio.

Sparebanken Møre's policy is that, especially in relation to placements in international banks and other debtors outside Norway, the Group shall use assessments carried out by the major official ratings agencies. The credit risk shall be at a minimum, and if a counterparty's status is changed to a negative outlook or their rating falls, Sparebanken Møre carries out a new internal assessment of existing lines of credit. If necessary, the line of credit, and any exposure, is reduced or eliminated.

Treasury risk is also viewed in connection with the funding indicators LCR and NSFR. The LCR regulations entail a movement towards lower risk weighted counterparties, including state and state guaranteed papers and covered bonds.

The pre-classification process emphasises considering banks with which Sparebanken Møre has a mutual (reciprocity) and long business relationship. It is also necessary to have sufficient competition in products and instruments that are traded, as well as diversification in market and geography for Sparebanken Møre.

If changes occur in general conditions, the market, economic trends or Sparebanken Møre's activities which have a material effect on the Group's risk positions, limits must be assessed and possibly set for investment opportunities. This involves, for example, not investing in some countries, groups of countries, individual counterparties, counterparties with certain attributes, etc.

Sparebanken Møre and Møre Boligkreditt AS require the signing of CSA (Credit Support Annex) agreements before trading of derivatives against any counterparties. CSA agreements are part of an ISDA agreement and help to regulate the counterparty risk associated with changes in market conditions. This provides Sparebanken Møre with collateral for any given exposure. The agreements with counterparties define when the collateral shall be transferred between the parties. Sparebanken Møre practices cash collateral in relation to its counterparties. The market value of all derivatives signed between Sparebanken Møre and the counterparty is settled according to the different CSA-agreements and the counterparty risk will then largely be eliminated. EMIR - European Market Infrastructure Regulation –will ensure regulation and control of the market for derivatives traded outside regulated markets by requiring reporting of transactions to transaction records, and requirements for settlement (clearing) through central counterparties (CCPs). Sparebanken Møre has entered into an agreement with SEB as a clearing broker and clears derivatives through the London Clearing House.

Market risk
Sparebanken Møre’s market risk is managed through defined position limits for each risk area. Management of market risk is set out in Sparebanken Møre’s market risk strategy. The strategy is adopted by the Board of Directors and provides the overall guidelines for the Group’s activities in the capital market, including the framework for Sparebanken Møre’s total exposures within currency, interest rate and shares.

The Group’s market risk can be divided into the following areas:

• Interest rate risk: Consists of market risk associated with positions in interest-bearing financial instruments, including derivatives with underlying interest instruments. Interest rate risk related to the liquidity portfolio, as well as hedging transactions related to it, are considered separately and will have its own set of risk parameters. See note 12 for the Group's interest rate risk.

• Equity risk: Consists of market risk on positions in equity instruments. Shares in subsidiaries are not included. Sparebanken Møre has no trading portfolios. The financial risk of Sparebanken Møre is considered to be low. See note 24 for the equity risk of the Group.

• Currency risk: Consists of the risk of losses when exchange rates change. All financial instruments and other positions with currency risk are included in the assessment. Currency risk on the banking book, that is, foreign exchange risk arising as a result of hedging customer trading, including lending/deposit business, is considered separately and has its own set of risk parameters.

Sparebanken Møre`s exposure to currency risk is a result of mismatch between the underlying business and hedging transactions, as well as the necessary reserves of the Group's bank accounts in foreign banks. Changes in exchange prices in the market cause changes in the value of Sparebanken Møre`s currency position. The currency position also includes Sparebanken Møre`s cash holdings of notes denominated in foreign currencies. Sparebanken Møre has no trading portfolio of FX contracts. Sparebanken Møre`s currency risk is low and well within the limits specified in the regulations. See note 13 for the Group's currency risk.

• Spread risk: Defined as the risk of changes in market value of bonds and commitments as a result of general changes in credit spreads.

• Total market risk: The overall risk assessment is obtained by comparing the assessments of areas of interest rates, equities and foreign exchange. The FSA`s methodology in this area form the basis for assessing the overall market risk. Assessments are based on three risk factors:

• Exposure

• Risk spreading

• Market liquidity

Any diversification effects between asset classes are not taken into account.

Based on the recommendation from the CEO's Balance Board Committee, the Board of Directors annually approves a total limit for the market risk of Sparebanken Møre. The framework is adapted to the Group's activity level and risk tolerance. If required, the overall framework may be changed more frequently than the annual review.

Total limit for market risk is defined as the maximum loss on a stress scenario where the FSA`s methodology is applied. The approved overall market risk limit is delegated to the CEO, while the EVP of Treasury and Markets has administrative authority for the overall market risk limit. The EVP is responsible for administration of the limits within the various sub-portfolios being in compliance at all times.

Treasury and Markets has an independent responsibility for ongoing monitoring of positions within the various portfolios and daily follow up, or with the frequency required in relation to the level of activity. The Risk Management department has the primary responsibility for monitoring, reporting and control of the market risk area. If activities exceed limits or strategy, written reporting instructions are to be followed. Back Office is responsible for transaction control and processing of payment transactions.

SimCorp Dimension (SCD) is the principal risk management system in Sparebanken Møre within the market risk area. The system provides current status of market development. All financial instruments are recorded in the system and monitored continuously. The Risk Management department is responsible for good quality in the valuation of financial instruments.

Reporting of the market activity is part of Sparebanken Møre`s periodic "Risk Report" to management, Risk Committee and Board of Directors. Monthly earnings performance reports are prepared, as well as actual risk exposure within each portfolio, both individually and in aggregate. The reports are compared to maximum activity frame and overall market risk limit (stress frame). The Board is also given a quarterly record of any violation of the framework, the strategy or laws and regulations.

There is no performance-based compensation to any person working in the market risk area beyond what is included in Sparebanken Møre`s general bonus scheme which deals with, and is equal to, all employees of the Group.

Funding risk
Liquidity may be defined as the Group’s ability to fund increases in assets and to meet its obligations as funding requirements occur. Sparebanken Møre is liquid when it is able to repay its debt as it falls due.

Management of the Group’s funding risk is based on the overall financing strategy, which is evaluated and approved by the Board of Directors at least once a year. The strategy reflects the moderate risk level accepted for this risk area.

The Group's funding risk requires special monitoring. This is due to the Group's special position as a manager of deposits for small and non-professional participants, as well as the central role the Group plays in payment systems. The banks’ duty to accept deposits from a non-specific base of depositors and the fact that these deposits are normally available on the same day, means that they face considerably greater risk than other financial institutions. The authorities' loan schemes and safety net for banks are based on these precise factors. The costs of reducing funding risk must be viewed in the context of the advantages lower funding risk provides. One fundamental prerequisite for maintaining the trust of depositors and other lenders is that the institutions always have sufficient liquidity to cover current liabilities.

LCR measures the bank's ability to survive a 30-day stress period. LCR has increased the importance of high-quality liquid assets. NSFR measures the longevity the bank's funding and has resulted in a greater proportion of stable and long-term funding. In this context, deposits are not regarded as an equally stable source of funding, which means that the quality of the deposits will increase in importance. This also means that the bank to a greater extent, fund themselves through bond issues with a higher maturity.

The Group also regularly reports on the trends for liquidity indicators to the supervisory authorities in line with the disclosure requirements.

The Group's long-term strategic plan, "Møre 2024", sets out a liquidity strategy protecting the structure and volume of the LCR requirement. The Authority’s requirements for LCR amounts to 100 per cent.

At year-end 2020, the LCR indicator for the Group was 138 per cent and NSFR 114 per cent. In the composition of the external funding, priority is given to having a relatively high share of maturities above one year.

The funding section of Sparebanken Møre is organised within the Treasury and Markets unit. The unit controls the funding on a day-to-day basis, and has the responsibility to meet the funding requirements in Sparebanken Møre, including utilization of the mortgage company Møre Boligkreditt AS.

Liquidity control management is maintained by both the Treasury and Markets unit and by the Risk Management department. In this respect, there is a distinction between the overall and the daily operational cash management and control. The daily operational management responsibility is handled by the Treasury and Markets unit, while the overall risk management, including strategies and framework controls, are handled by the Risk Management department.

Upon the occurrence of abnormal situations regarding liquidity, either in the market or within Sparebanken Møre, the bank's emergency task group comes together. The group consists of the following persons:

• CEO (leader)

• EVP Treasury and Markets

• EVP Information and Administration

• EVP Finance and Facilities Management

• EVP Risk Management and Compliance

• Head of Risk Management

• Head of Finance

The Board receives monthly reports on the liquidity situation. This report includes several key figures. In addition, early warning signals are reported by viewing the development of financial strength, balance sheet- and income statement-development, losses/defaults and the development of cost of funds.

The funding risk is attempted reduced by spreading funding on different markets, sources, instruments and maturities. In order to ensure the Group's funding risk is kept at a low level, lending to customers must primarily be financed by customer deposits and long-term securities issued. There is a major focus on efforts to increase ordinary deposits in all customer-related activities throughout the bank. The deposit-to-loan ratio in Sparebanken Møre was 58,1 per cent at year-end.

The Board shall be informed of the bank’s liquidity situation on a monthly basis, and immediately of any important events which may affect the bank’s current or future liquidity situation. The reporting tries to identify the funding situation during normal operations, identify any “early warning” signs and assess the bank’s stress capacity.

Møre Boligkreditt AS has a license from the FSA to operate as a mortgage company, and it provides the Group with increased diversification of its funding sources.

Operational risk
Operational risk includes all the potential sources of losses related to Sparebanken Møre's current operations. The Group has classified various types of operational risk into the following main categories:

• Internal fraud

• External fraud

• Employment conditions and safety at work

• Customers, products and business conduct

• Damage to assets

• Interruptions to operations and/or systems

• Settlements, delivery or other transaction processing

The Board of Directors of Sparebanken Møre has decided that a low risk profile is accepted related to operational risk. An overall strategy for this risk area is established, and there are several documents which support the Group’s risk management. These documents include the ICT-area, contingency plans for personnel and property, security handbooks, authorisation structures, ethical guidelines and insurance strategies.

For the Compliance department, board-adopted instructions, work plans and action plans have been established.

Operational responsibility for managing and controlling operational risk, and thus also the quality of Sparebanken Møre's operations, is borne by each manager involved. This responsibility follows from job descriptions and various guidelines and routines. All managers annually confirm to the CEO the quality of and compliance with internal controls within the risk areas stipulated in this document. They also suggest areas for improvement which are incorporated into special action plans. The CEO presents the report to the Risk Committee and the Board of Directors. The annual ICAAP also involves a review of the Group's material risk areas, including operational risk.

The Group’s established internal control routines are an important tool for reducing operational risk with regards to both identification and follow-up.

Climate risk
Climate risk is the impact resulting from climate change. Climate risk will also affect the bank's credit risk. It is therefore crucial that the bank understands how climate risk will affect the business model and profitability of corporate customers. At the same time, the bank wants to be a driving force behind ensuring that customers do not have a negative impact on the climate, but rather choose a greener direction (low emission).

When assessing climate risk, two types of risks in particular must be assessed: physical risk and transitional risk:

  • Physical climate risk arises as a result of more frequent and severe episodes of drought, flooding, precipitation, storms, landslides and avalanches, as well as rising sea levels.
  • Transitional risk is the risk associated with changes to, and escalation of, climate policy/regulations, the development of new technologies and changed customer preferences (consumers) and investor requirements that may result in sudden changes in the market value of financial assets and in especially assets associated with carbon-intensive activities (high consumption of energy from fossil fuel: coal, oil, natural gas, oil shale and tar sands).

In 2020, the bank started a project aimed at establishing guidelines and requirements for ESG assessments in connection with granting credit to the bank’s corporate customers. A special assessment tool has been developed for this work, which should help to map the bank’s customers in relation to ESG. Analyses and assessments must be documented and included in the basis for making decisions when granting credit or conducting annual reviews of credit commitments. All of the dimensions (ESG) will be included, although the main focus will still be on the customers’ impact on the environment and climate. This work will continue in 2021.

Internal control
Internal control must be designed in order to provide reasonable certainty with regard to the achievement of goals and targets within the areas of strategic development, targeted and effective operations, reliable reporting and adherence to relevant laws, rules and regulations, including compliance with Group-internal guidelines and policies. Furthermore, a well-functioning internal control shall ensure that the bank’s risk exposure is kept within the agreed risk profile.

The internal control in Sparebanken Møre is organised in a decentralized manner with Risk Management and Compliance as the coordinating unit and responsible for the annual reporting to the Risk Committee and the Board of Directors. The Compliance department monitors how the Group operationalises relevant laws, rules and regulations in operational context, and how the Group’s staff adhere to relevant rules and regulations, laws, licenses, agreements, standards for different industrial and commercial sectors, internal instructions etc. in the day-to-day operations. The Risk Management department is responsible for developing systems, guidelines and procedures in order to identify, measure, report and follow up on the Group’s most important inherent risks.

Reports on the Group’s operations and risk situations throughout the year are submitted to the Risk Committee and the Board of Directors on an ongoing basis. The bank’s CEO annually submits an overall assessment to the Board regarding the risk situation and whether the established internal control features function in a satisfactory manner. This report is based on confirmations received from managers at different levels throughout Sparebanken Møre.

Sparebanken Møre’s Internal Auditor reports on a regularly basis to the Risk Committee and the Board of Directors on the Group’s internal control.

Discretionary Asset Management
The Group provides portfolio management for investment clients. The portfolio management is performed on behalf of clients, and related assets belong to the clients and not the Group.

Financial derivatives
Sparebanken Møre utilizes financial derivatives in order to handle risk incurred as a result of the bank’s ordinary operations. In the case of customer transactions, these shall as a main principle immediately be covered by an opposite transaction in the market.

The following derivatives are in use in Sparebanken Møre:

• Forward exchange contracts

An agreement to buy or sell a certain amount in a foreign currency, against a certain amount in another currency, at a rate agreed in advance, with payment at a certain time later than two working days after the agreement was entered into.

• Swaps

A transaction in which two parties agree to swap cash flows for an agreed amount over a certain period of time. In an interest rate swap, only the interest rate involved is swapped. In the case of an interest rate and currency swap, both the interest rate and currency conditions are swapped.

• FRAs

A legally binding agreement concerning a rate of interest which shall apply for a future period for a defined principal amount. Upon settlement, only the difference between the agreed interest rate and the actual market interest rate is exchanged.

• Options

A right, but not an obligation, to buy (a call option) or sell (a put option) a certain product at a rate agreed in advance (strike price). When entering into an option contract, the person or company buying a call or put option will have to pay a premium to the person or company writing the option. Options can be offered on the basis of a financial instrument.

The risk relating to these financial instruments involves the credit risk of covering counterparts which are given prior credit clearance by the Board of Directors as well as operational risk.

These instruments are primarily utilized to provide the bank's customers with reliable cash flows and a desired risk position in the various markets. Limits for financial instruments involving customers are established by the staff responsible for the customers in question. The limits shall fix a maximum amount for the bank’s exposure against each individual customer in relation to the customer’s business volume in financial instruments and the market-related development in these. Each member of staff responsible for the customer in question, is responsible for the establishment of the limit and must make sure that such a limit has been subject to the necessary formal credit-handling procedures, and that a sufficient level of collateral and/or other security has been established to cover the limit. Furthermore, the member of staff responsible for the customer in question, together with the dealer involved, are both responsible for making sure that the credit risk as a result of the customer’s exposure to financial instruments is at all times within the limits which have been agreed. For all customers trading in financial instruments, a set-off agreement must be obtained. The purpose of this agreement is to reduce the bank’s credit exposure to the customer by having all contracts netted so that the bank ends up with just a net exposure towards the customer. It is the member of staff responsible for the customer in question who is responsible for establishing a set-off agreement with the customer, making sure that all customers using this type of financial instrument are made aware of the bank’s usual business terms and conditions.

The Risk Management department is responsible for follow-up and for all internal reporting and reporting to the relevant authorities relating to the bank’s exposure to different counterparts as a result of trading in financial instruments.

Reporting
Sparebanken Møre focuses on correct, complete and timely reporting of the risk and capital situation. Based on this, a number of different types of periodic reporting have been established, which are intended for the Group's management and Board, as well as reporting intended for the individual segments and departments, including customer account managers. The most important reports during the year are as follows:

ICAAP is carried out and reported at least once a year. The Board actively participates in the review and establishes ownership of the process, including through ICAAP's key role in the long-term strategic planning. Specific guidelines have been prepared for ICAAP in Sparebanken Møre. ICAAP is reviewed by the bank's management team, the Risk Committee and the Board of Directors.

A balanced scorecard report is prepared every month. This illustrates the status and performance of the most important factors for Sparebanken Møre's target attainment. The report is being submitted to bank managers and the bank`s management team, and it is an integral part of the financial reporting to the Board of Directors.

A risk report is prepared every month. This is a key element of Sparebanken Møre's continuous monitoring of its risk situation. At the end of the quarter the risk report will also be expanded with supplementary comments from various disciplines within the Group. The report is dealt with by the bank`s management team, the Risk Committee and the Board of Directors.

Internal control reports are prepared annually. In this, an assessment is made of whether or not the internal control is adequate in relation to the risk tolerance. This includes an assessment of and comments on their own work on internal control, a review of all important risk areas, an assessment of their own compliance with external and internal regulations, and suggestions for and planned improvement measures. The internal control reports are dealt with by the bank`s management team, the Risk Committee and the Board of Directors.

Compliance reports are prepared regularly and contain elements linked to an assessment of compliance risk and control, testing of compliance and the results of these tests, reassessments and plans for implementing guidelines, the follow-up of observations from external and internal auditors, the follow-up of observations from the FSA, deviation management in internal control, etc. The compliance reports are dealt with by the bank`s management team, the Risk Committee and the Board of Directors.

Reports from external and internal auditors are dealt with by the bank`s management team, the Audit and Risk Committees and the Board of Directors. Both internal and external auditors have regular meetings with the committees.

Reports on mortgages are prepared quarterly for the bank`s Board of Directors.

A reporting portal has been established in Sparebanken Møre, in which each member of staff with customer responsibility has access to reports which show the position and development of credit risk in his or her portfolio. The portal has a hierarchical structure, allowing managers in Sparebanken Møre to monitor performance within their area of responsibility. 

 

Note 3

Capital adequacy

Sparebanken Møre calculates and reports capital adequacy in compliance with the EU’s capital requirements regulation and directive (CRR/CRD IV). The Group’s capital adequacy is calculated according to IRB Foundation for credit risk. Calculations regarding market risk are performed using the standard method and for operational risk the basic method is used.

The countercyclical capital buffer was reduced from 2.5 per cent to 1.0 per cent effective from 13 March 2020. The level is set by the Ministry of Finance based on advice from Norges Bank. The Ministry of Finance has decided to increase the system risk buffer to 4.5 per cent for the financial institutions using IRB Advanced from 31 December 2020. For other institutions, including Sparebanken Møre, the change comes into effect from 31 December 2022. At the next determination of the Pillar 2 requirement, the Financial Supervisory Authority of Norway (FSA) will also express an expectation of a capital requirement margin beyond the total risk-weighted capital requirement.

The minimum requirement for the Common Equity Tier 1 capital ratio (CET1) for Pillar 1 is 11.0 per cent. The requirement consists of a minimum requirement of 4.5 per cent, a capital conservation buffer of 2.5 per cent, a system risk buffer of 3.0 per cent and a countercyclical capital buffer of 1.0 per cent. In addition, the FSA has set an individual Pillar 2 requirement of 1.7 per cent for Sparebanken Møre, though a minimum of NOK 590 million. The Ministry of Finance has set a minimum requirement for the Leverage ratio of 3 per cent, and in addition a Tier 1 capital buffer of at least 2 per cent.

At the end of 2020, Sparebanken Møre has a capital ratio well above the regulatory requirements and the internally set minimum target for Common Equity Tier 1 capital (CET1) of 15.2 per cent. Capital adequacy ratio amounts to 21.3 per cent (21.5 per cent), Tier 1 capital 19.2 per cent (19.3 per cent), of which CET1 amounts to 17.5 per cent (17.7 per cent). At the end of 2020, the Leverage ratio for Sparebanken Møre was 8.0 per cent (8.1 per cent), which gives a good margin to the total requirement of 5 per cent.

The Board of Sparebanken Møre has set a minimum target for the Group's CET1 of 15.2 per cent. It is emphasised that the various units in the Group at all times have adequate capitalisation. Moreover, assessments of the risk profile, capital requirements and profitability must always be based on the Group's long-term strategic plan. The Group's capital requirements are calculated in the annual ICAAP.

Analyses conducted as part of Sparebanken Møre's 2020 ICAAP show that the Group has a very good capital situation in terms of dealing with potential stress events.

The Group's Pillar 3 document, which is available on Sparebanken Møre's website, provides further information.

Sparebanken Møre calculates financial capital used in the day-to-day management of the bank and provides a basis for business decisions. A risk adjusted equity figure that is distributed across the different segments, departments and customers is calculated based on the distribution of financial capital. It is this risk adjusted equity that provides the basis for, among other things, assessing a department's performance in relation to achieving its return on equity target.

MREL
The FSA has in 2020 established an MREL requirement (Minimum Requirement for Own Funds and Eligible Liabilities) for Sparebanken Møre in accordance with the Crisis Management Directive (CRM). The requirement expresses the minimum requirement for the sum of subordinated capital and convertible debt, and amounts to NOK 9.2 billion, corresponding to 31.4 per cent of adjusted Risk-Weighted Assets (RWA). The requirement entails a preliminary estimated need for issuance of Senior Non-Preferred bonds (SNP) of NOK 4.2 billion. The MREL-requirement must be met in full by 1 January 2024. Sparebanken Møre must meet the requirement by 31 March 2021, but during the transition period the bank may use Senior Preferred capital (SP) with remaining maturity above one year to fulfill the requirement. The bank will submit a plan for phasing in MREL-qualifying debt to the FSA by 31 March 2021.

GROUP PARENT BANK
31.12.201931.12.2020 31.12.202031.12.2019
989989EC capital989989
-3-2- ECs owned by the bank-2-3
357357Share premium357357
599599Additional Tier 1 capital (AT1)599599
1 5591 768Dividend equalisation fund1 7681 559
125125Gift fund125125
2 8193 029Primary capital fund3 0292 819
13844Proposed dividend44138
14045Proposed dividend for the local community45140
246254Other equity00
6 9707 208Total equity6 9546 724
Tier 1 capital (T1)  
-53-56Goodwill, intangible assets, other deductions-56-53
-14-16Value adjustments of financial instruments at fair value-12-13
-599-599Additional Tier 1 capital (AT1)-599-599
-352-480Expected IRB-losses exceeding ECL acc. to IFRS 9-424-304
-138-44Deduction for proposed dividend-44-138
-140-45Deduction for proposed dividend for the local community-45-140
5 6735 968Total Common Equity Tier 1 capital (CET1)5 7745 476
599599Additional Tier 1 capital - classified as equity599599
00Additonal Tier 1 capital - classified as debt00
6 2726 567Total Tier 1 capital (T1)6 3736 075
Tier 2 capital (T2)  
704702Subordinated loan capital of limited duration702704
704702Total Tier 2 capital (T2)702704
     
6 9767 269Net equity and subordinated loan capital7 0756 779
     
RISK WEIGHTED ASSETS (RWA) BY EXPOSURE CLASSES  
Credit risk - standardised approach
31.12.201931.12.2020 31.12.202031.12.2019
00Central governments or central banks00
188248Regional governments or local authorities248188
7399Public sector companies9973
342538Institutions (banks etc)3 5421 504
00Companies (corporate customers)116120
373454Covered bonds498326
148173Equity173148
666640Other items2 6172 647
1 7902 152Total credit risk - standardised approach7 2935 006
     
Credit risk - IRB Foundation
31.12.201931.12.2020 31.12.202031.12.2019
8 6849 932Retail - Secured by real estate4 0464 134
431411Retail - Other410431
17 96918 419Corporate lending18 14917 784
27 08428 762Total credit risk - IRB-F22 60522 349
     
535396Credit value adjustment risk (CVA) - market risk2583
2 7352 840Operational risk (basic method)2 6372 546
32 14434 150Risk weighted assets (RWA)32 56029 984
     
1 4461 537Minimum requirement Common Equity Tier 1 capital (4.5 %)1 4651 349
     
Buffer Requirements
31.12.201931.12.2020 31.12.202031.12.2019
804854Capital conservation buffer, 2.5 %814750
9641 025Systemic risk buffer, 3.0 %977900
804342Countercyclical buffer, 1 % (2.5 % in 2019)326750
2 5722 220Total buffer requirements2 1162 399
1 6552 212Available Common Equity Tier 1 capital after buffer requirements2 1921 728
     
Capital adequacy as a percentage of the weighted asset calculation basis
31.12.201931.12.2020 31.12.202031.12.2019
21.721.3Capital adequacy ratio21.722.6
19.519.2Tier 1 capital ratio19.620.3
17.717.5Common Equity Tier 1 capital ratio17.718.3
     
Leverage ratio(LR)
31.12.201931.12.2020 31.12.202031.12.2019
77 55282 643Basis for calculation of leverage ratio82 08458 580
8.18.0Leverage Ratio7.810.4
 

Note 4

Operating segments

The operations in the Group are divided into three strategic business areas/segments, according to type of services, customers and products involved, also being reporting segments according to IFRS 8. The classification corresponds to the structure in the ongoing reporting to the CEO and the Board of Directors, defined as the primary decision makers. The different operating segments partly sell different products, have a somewhat different risk profile, but target many of the same groups of customers.

The classification into different operating segments and financial information relating to segments are presented in the table below. Most of the income and operating costs involved apply to the bank’s different operating segments according to actual usage or according to activity-based distribution formulae. Key distribution keys are FTEs, activity capital, lending, deposits, number of customers and customer transactions, which are used for example for charging the units’ costs.

Customer income that is recognised as income at head office and is generated by the segments (e.g. currency gains, interest rate hedging income, income from Discretionary Asset Management, etc.) is allocated to the segments based on customer affiliation. This customer income is distributed across the segments net (less associated costs) and is presented under internal income. The costs remain at head office under other and contribute to a negative result.

The Group does not carry out trading on its own account, meaning that all income is a result of external customer transactions. Dividends from securities, changes in the value of shares, bonds and financial derivatives are not allocated by customer segment.

Segment profit is presented before tax. Tax is not allocated to the segments.

Transactions between different operating segments are based on market values/prices, similar to transactions with subsidiaries. Please see note 29 for additional information on terms.

The Group is divided into following three reporting segments:
Reporting segmentsCompany nameProduct/operations
CorporateSparebanken MøreFinancing, payment transmissions, saving/placement, advisory services etc.
RetailSparebanken MøreFinancing, payment transmissions, saving/placement, advisory services etc.
 Møre Boligkreditt AS 1)Financing (mortgage loans)
Real estate brokerageMøre Eiendomsmegling ASReal estate brokerage services
1) Loans from Møre Boligkreditt AS to housing associations are recognised in the corporate segment.

Geographical segments
The Group’s operations are mainly limited to Nordvestlandet which is defined as the Group’s home market. In view of this, balance sheet and income statement figures are not split into geographical segments. Activities in areas other than the home county are not different from the Group’s other activities with regards to risk or return. Please see note 2 and note 6 for further information. 

Result - 2020GroupEliminationsOther 2)CorporateRetail 1)Real estate brokerage
Net interest income1 2282154857260
Other operating income285-5611510110223
Total income1 513-5413058682823
Operating costs630-5513912839622
Profit before impairment8831-94584321
Impairment on loans, guarantees etc.1490014900
Pre tax profit7341-93094321
Taxes167     
Profit after tax567     
       
       
Key figures - 31.12.2020GroupEliminationsOther 2)CorporateRetail 1)Real estate brokerage
Loans to customers 1)66 850-1161 31220 69044 9640
Deposits from customers 1)39 023-2665113 66524 7330
Guarantee liabilities1 530001 52550
Deposit-to-loan ratio58.10.049.666.055.00.0
Man-years34601564913011
       
       
Result - 2019GroupEliminationsOther 2)CorporateRetail 1)Real estate brokerage
Net interest income1 314255097980
Other operating income293-511109911520
Total income1 607-4911560891320
Operating costs646-5015312739719
Profit before impairment9611-384815161
Impairment on loans, guarantees etc.500040100
Pre tax profit9111-384415061
Taxes200     
Profit after tax711     
       
       
Key figures - 31.12.2019GroupEliminationsOther 2)CorporateRetail 1)Real estate brokerage
Loans to customers 1)64 029-1201 37219 69343 0840
Deposits from customers 1)36 803-2171113 13422 9790
Guarantee liabilities1 360001 35550
Deposit-to-loan ratio57.20.051.866.753.30.0
Man-years35701565113713
       
1) The subsidiary, Møre Boligkreditt AS, is part of the bank’s Retail segment. The mortgage company's main objective is to issue covered bonds for both national and international investors, and the company is part of Sparebanken Møre's long-term financing strategy. Key figures for Møre Boligkreditt AS are displayed in a separate table.
2) Consists of head office activities not allocated to reporting segments, customer commitments towards employees as well as the subsidiary Sparebankeiendom AS, which manages the buildings owned by the Group.
 MØRE BOLIGKREDITT AS
Statement of income20202019
Net interest income345308
Other operating income-1-3
Total income344305
Operating costs4945
Profit before impairment on loans295260
Impairment on loans, guarantees etc.1-11
Pre tax profit294271
Taxes6449
Profit after tax230222
   
   
Statement of financial position31.12.202031.12.2019
Loans to and receivables from customers29 04125 655
Equity2 2822 274
Country-by-country reporting  
GROUP (NOK million)31.12.202031.12.2019
Name of the companySparebanken MøreSparebanken Møre
Area of operationNorwayNorway
Geografical locationNorwayNorway
Revenue/total income1 5131 607
Man-years346357
Pre tax profit734911
Taxes167200
Government grants/subsidies receivedNone receivedNone received
 

Note 5

Loans broken down according to sectors

In the financial statements, the loan portfolio with agreed floating interest rate is measured at amortised cost, while the loan portfolio with fixed-interest rate is measured at fair value. For more information about classification and measurement, see note 22.
       
2020GROUP
Sector/industryGross loans assessed at amortised costECL Stage 1ECL Stage 2ECL Stage 3Loans assessed at fair valueNet loans
Agriculture and forestry5690-2-153619
Fisheries3 449-2-2033 448
Manufacturing2 690-8-6-7132 682
Building and construction965-3-6-16961
Wholesale and retail trade, hotels686-1-2-26687
Supply/offshore1 488-3-16-12201 347
Property management7 516-7-5-81867 682
Professional/financial services909-1-1024931
Transport and private/public services/abroad2 941-2-3-5302 961
Total corporate customers21 213-27-43-14632121 318
Retail customers41 541-6-34-204 05145 532
Loans to and receivables from customers62 754-33-77-1664 37266 850
       
       
2019GROUP
Sector/industryGross loans assessed at amortised costECL Stage 1ECL Stage 2ECL Stage 3Loans assessed at fair valueNet loans
Agriculture and forestry5150-2-253564
Fisheries3 502-1-1003 500
Manufacturing2 338-10-7-882 321
Building and construction911-3-5-24905
Wholesale and retail trade, hotels618-1-3-13616
Supply/offshore1 042-1-32-860923
Property management7 562-8-6-41307 674
Professional/financial services1 161-1-20251 183
Transport and private/public services/abroad2 542-50-3272 561
Total corporate customers20 191-30-58-10625020 247
Retail customers39 900-5-36-243 94743 782
Loans to and receivables from customers60 091-35-94-1304 19764 029
       
       
2020PARENT BANK
Sector/industryGross loans assessed at amortised costECL Stage 1ECL Stage 2ECL Stage 3Loans assessed at fair valueNet loans
Agriculture and forestry5370-2-153587
Fisheries3 434-2-2033 433
Manufacturing2 685-8-6-7132 677
Building and construction901-3-6-16897
Wholesale and retail trade, hotels645-1-2-26646
Supply/offshore1 488-3-16-12201 347
Property management7 311-7-5-81867 477
Professional/financial services844-1-1024866
Transport and private/public services/abroad2 707-2-3-5302 727
Total corporate customers20 552-27-43-14632120 657
Retail customers12 578-4-27-194 74017 268
Loans to and receivables from customers33 130-31-70-1655 06137 925
       
       
2019PARENT BANK
Sector/industryGross loans assessed at amortised costECL Stage 1ECL Stage 2ECL Stage 3Loans assessed at fair valueNet loans
Agriculture and forestry5020-2-253551
Fisheries3 487-1-1003 485
Manufacturing2 330-10-7-882 313
Building and construction860-3-5-24854
Wholesale and retail trade, hotels597-1-3-13595
Supply/offshore1 042-1-32-860923
Property management7 435-8-6-41307 547
Professional/financial services1 113-1-20251 135
Transport and private/public services/abroad2 364-50-3272 383
Total corporate customers19 730-30-58-10625019 786
Retail customers9 880-4-30-228 88418 708
Loans to and receivables from customers29 610-34-88-1289 13438 494
 

Note 6

Loans and deposits broken down according to geographical areas

 Møre og RomsdalRemaining parts of NorwayForeign countriesTotal
GROUP as at 31.12.20202019202020192020201920202019
Gross loans57 34450 9849 42212 93536036967 12664 288
In percentage85.479.314.120.10.50.6100.0100.0
Deposits31 36628 8096 6777 47498052039 02336 803
In percentage80.478.317.120.32.51.4100.0100.0
         
PARENT BANK as at 31.12.20202019202020192020201920202019
Gross loans35 21331 3302 6737 11430530038 19138 744
In percentage92.280.97.018.30.80.8100.0100.0
Deposits31 39228 8306 6777 47498052039 04936 824
In percentage80.478.317.120.32.51.4100.0100.0
 

Note 7

Commitments broken down according to risk classes

Commitments (EAD) broken down into risk classes (PD):
GROUP 20200-0,5 %0,5-2,5 %2,5-5 %5-99,9 %Credit-impaired commitmentsProvision for expected credit lossesTotal
Retail customers47 2651 64027322383-6049 424
Corporate customers11 7379 125858921967-26623 342
Total commitments59 00210 7651 1311 1441 050-32672 766
        
        
GROUP 20190-0,5 %0,5-2,5 %2,5-5 %5-99,9 %Credit-impaired commitmentsProvision for expected credit lossesTotal
Retail customers44 5462 063370315162-6547 391
Corporate customers11 4188 1461 2791 059814-31022 406
Total commitments55 96410 2091 6491 374976-37569 797
        
        
PARENT BANK 20200-0,5 %0,5-2,5 %2,5-5 %5-99,9 %Credit-impaired commitmentsProvision for expected credit lossesTotal
Retail customers18 30479416414983-5019 444
Corporate customers11 6528 756858921967-26622 888
Total commitments29 9569 5501 0221 0701 050-31642 332
        
        
PARENT BANK 20190-0,5 %0,5-2,5 %2,5-5 %5-99,9 %Credit-impaired commitmentsProvision for expected credit lossesTotal
Retail customers19 2411 048204167162-5620 766
Corporate customers11 3387 8531 2791 059814-31022 033
Total commitments30 5798 9011 4831 226976-36642 799
Credit quality on certificates, bonds and other interest-bearing securities
GROUP 2020AAAAA+AA-A-Total
Public sectors1 802877  2 679
Credit institutions4 46535453 4 872
Other financial companies96052  1 012
Certificates, bonds and other interest-bearing securities7 2271 28353-8 563
      
GROUP 2019AAAAA+AA-A-Total
Public sectors1 73365249472 481
Credit institutions3 540313  3 853
Other financial companies604   604
Certificates, bonds and other interest-bearing securities5 87796549476 938
      
PARENT BANK 2020AAAAA+AA-A-Total
Public sectors1 75687753 2 686
Credit institutions4 898354  5 252
Other financial companies96052  1 012
Certificates, bonds and other interest-bearing securities7 6141 28353-8 950
      
PARENT BANK 2019AAAAA+AA-A-Total
Public sectors1 58862249472 306
Credit institutions3 113237  3 350
Other financial companies604   604
Certificates, bonds and other interest-bearing securities5 30585949476 260
Total credit risk
GROUP PARENT BANK
31.12.201931.12.2020 31.12.202031.12.2019
     
996475Cash and claims on Norges Bank475996
1 0881 166Loans to and receivables from credit institutions5 9253 259
64 02966 850Loans to and receivables from customers37 92538 494
6 9388 563Certificates, conds and other interest-bearing securities8 9506 260
1 1761 793Financial derivatives677586
74 22778 847Credit risk on balance sheet items53 95249 595
     
1 3601 530Guarantee liabilities to customers1 5301 360
4 8455 134Undrawn credit facilities3 6543 470
6 2056 664Total guarantee liabilities and undrawn credit facilities5 1844 830
     
80 43285 511Total credit risk59 13654 425
 

Note 8

Loans broken down into level of security

Collateral and other risk reducing measures
In addition to the assessment of debt servicing level, the Group accepts different kinds of collateral in order to reduce risk depending upon the market and type of transaction involved.

The main principle for value assessment of collateral is based on the realisation value of the asset in question, and what that value is deemed to be when the bank needs the security. Except of commitments where individual loss assessment has been made in stage 3, the value of the collateral is calculated on the assumption of a going concern. When assessing the value of collateral, estimated sales costs are taken into consideration.

In this year’s calculation of expected credit loss on loans, the bank's valuation of the security objects is considered. The bank uses the IRB-system as a proxy to develop the model calculating expected credit loss (the ECL-model) according to IFRS 9. The model takes into account the internal and external costs related to follow-up of non-performing commitments and costs related to realization of collateral (LGD model). This implies, that even though a commitment is fully secured, all customers have an expected credit loss calculation.

Additional information is presented in note 9.

The main types of collateral used: mortgage on property (residential and commercial), guarantees, surety, registered moveable property (chattels), charge on goods (stocks), operating equipment and licenses or set-off agreements. Guarantees represent a minor part of the bank’s risk exposure; guarantors relating to private persons (consumer guarantees), companies (professional), guarantee institutes and banks are accepted.

Collateral and other security is updated at least once every year or, in the case of the retail customers, when a new credit proposal is dealt with. In the case of corporate customers, the security involved is updated either when a new credit proposal is dealt with or when certain commitments are followed up. Value assessment is part of the credit decision.

When calculating capital requirement for credit risk, the bank does not apply set-off relating to exposure on, or off, the balance sheet.

In addition to an assessment of debt servicing level and future realisation value of collateral, the financial commitment terms (covenants) are included in most credit agreements for large corporate customers. These conditions are a supplement to reduce risks and to ensure proper monitoring and control of commitments.

Information regarding repossessed assets are presented in note 33.

The table below shows the percentage distribution of commitments with different levels of security. For example, the line 0 % - 60 % implies that the commitments are less than 60 % of the security object. Above 100 % implies that the loan amount exceeds the value of the security object. The bank's guidelines for valuation of collateral objects are utilized. This means that the security objects have been carefully considered in relation to the market value.

Level of security GROUP - 31.12.2020Retail customers (NOK million)Retail customers as percentage of totalCorporate (NOK million)Corporate as percentage of totalTotal (NOK million)Total in percentage
0 % - 60 %20 10144.0910 49848.7530 59945.58
60 % - 70 %9 53120.901 0314.7910 56215.73
70 % - 80 %8 76219.224 11619.1112 87819.18
80 % - 90 %3 3257.291 4886.914 8137.17
90 % - 100 %1 4133.108033.732 2163.30
Above 100 %2 2014.833 42115.895 6228.38
Not secured2590.571770.824360.65
Total45 592100.0021 534100.0067 126100.00
       
       
Level of security GROUP - 31.12.2019Retail customers (NOK million)Retail customers as percentage of totalCorporate (NOK million)Corporate as percentage of totalTotal (NOK million)Total in percentage
0 % - 60 %17 18139.1810 13849.6027 31842.49
60 % - 70 %7 94218.111 3726.719 31514.49
70 % - 80 %9 31421.241 8989.2911 21217.44
80 % - 90 %3 9709.051 8298.955 7999.02
90 % - 100 %2 0194.611 9909.744 0096.24
Above 100 %3 1237.123 00014.686 1239.52
Not secured2980.682141.055120.80
Total43 847100.0020 441100.0064 288100.00
Collateralisation is a variable that indicates the level of over-collateralisation in relation to the volume of outstanding covered bonds.
Cover pool related to covered bonds issued by Møre Boligkreditt AS31.12.202031.12.2019
Pool of eligible loans28 68425 182
Supplementary assets903988
Financial derivatives applied in hedge accounting(assets)1 176589
Financial derivatives applied in hedge accounting(debt)-76-45
Total collateralised assets 1)30 68726 714
Collateralisation in %127.9115.8
1) NOK 357 million of total gross loans are not eligible for the cover pool as at 31 December 2020 (NOK 476 million in 2019).
 

Note 9

Losses on loans and guarantees

Methodology for measuring expected credit loss (ECL) according to IFRS 9
Sparebanken Møre has developed an ECL-model based on the IRB-parameters in the Group, dividing the commitments into three stages when calculating expected credit loss (ECL) on loans to customers and financial guarantees in accordance with IFRS 9:

Stage 1: At initial recognition and if there’s no significant increase in credit risk, the commitment is classified in stage 1 with 12-months ECL.

Stage 2: If a significant increase in credit risk since initial recognition is identified, but without objective evidence of loss, the commitment is transferred to stage 2 with lifetime ECL measurement.

Stage 3: If the credit risk increases further and there’s objective evidence of, the commitment is transferred to stage 3 with lifetime ECL measurement. The commitment is considered to be credit-impaired. As opposed to stage 1 and 2, the effective interest rate in stage 3 is calculated on net impaired commitments (total commitments less expected credit losses) instead of gross commitments.

Staging is performed at account level and implies that two or more accounts held by the same customer can be placed in different stages.

An increase in credit risk, reflects both customer-specific circumstances and development in relevant macro factors for the particular customer segment. The assessment of what is considered to be a significant increase in credit risk is based on a combination of quantitative and qualitative indicators, as well as “backstops” (see separate section regarding “backstops”).

The calculation of expected credit losses is based on the following principles:

  • The loss provision for commitments which are not individually assessed is calculated as the present value of EAD multiplied by the probability of default (PD) multiplied by loss given default (LGD). PD, LGD and EAD use the IRB framework as a starting point but are converted into being point-in-time and forward-looking as opposed to through the cycle and conservative.
  • Past, present and forward-looking information is used to estimate ECL. The bank’s data warehouse has a history of observed PD and LGD on the loan portfolio. This forms the basis for creating estimates of future values for PD and LGS. In line with IFRS 9, the bank groups its lending into three stages. For this purpose, Sparebanken Møre’s loan portfolio is divided into 4 segments (retail portfolio and 3 industry spesific corporate portfolios). All customers within a segment are exposed to the same risk drivers. Loans to PM are mainly secured with collateral in real estate and the volume of unsecured loans is marginal.

  • For commitments with evidence of loss, an individual assessment is carried out and the commitments are placed in stage 3.

The model used for calculating ECL follows four steps: Segmentation, determination of macro adjustments, staging/migration and calculation of ECL.

Segmentation and macro adjustments
The assessment of significant increase in credit risk and the calculation of ECL incorporates past, present and forward-looking information.  Each segment is subject to separate macro adjustments.

Regression analysis of changes in the default rate on changes in relevant macro time series have been performed. Regression analyses are statistical analysis methods to describe the relationship between one or more independent variables (e.g. wealth, arrears/overdraft, income, liquidity, etc) and a dependent variable (default). It is based on the established subpopulations in the ECL model and the macrotime series used at present. The regression analyses are based on the bank’s customer data base and historical observations of PD and selected macroeconomic factors published by Statistics Norway and Norges Bank.

Four macro models have been developed for use in the ECL model, one model for the retail customers and three industry models for the corporate customers. The following macroeconomic sizes have been used to develop macro factors for retail and corporate customers respectively:

Retail customers:

  • Unemployment rate
  • Consumer price index
  • Household interest rate burden

Corporate customers:

  • Money market rate
  • Euro exchange rate
  • Export market indicator
  • Gross investment in dwellings
  • Unemployment rate

Probability of default (PD)
Sparebanken Møre applies several different models to determine a customer’s PD. The choice of model depends on whether it is a retail or corporate customer. PD models are key components both in calculating the ECL and in assessing whether a significant increase in credit risk has occurred since initial recognition. These models fulfil the IFRS 9 requirement to provide an unbiased probability-weighted estimate of ECL. Sparebanken Møre has been granted permission to use internal rating-based approach (IRB) models for determining PD in capital adequacy calculations. In order to apply these PDs for IFRS 9, modifications have been made to allow that the PDs used for IFRS 9 reflect management’s current view of expected cyclical changes.

Loss given default (LGD)
LGD represents the percentage of exposure which the Group expects to lose if the customer fails to meet his obligations, taking the collateral provided by the customer, future cash flows and other relevant factors into consideration.

Similar to PDs, Sparebanken Møre uses IRB LGDs for capital adequacy calculations. In order to convert the IRB LGDs to IFRS LGDs, modifications have been made to remove the margin of conservatism to produce unbiased projections rather than downturn projections as well as removing the effect of regulatory floors.

These modifications imply that the LGDs used for IFRS 9 should reflect management’s current view and that all LGD estimates are unbiased.

Exposure
Exposure is the share of the approved credit that is expected to be drawn at the time of any future default. The exposure is adjusted to reflect contractual payments of principal and interest. The proportion of undrawn commitments expected to have been drawn at the time of default is reflected in the credit conversion factor. 

Significant increase in credit risk
The assessment of a significant increase in credit risk is based on a combination of quantitative and qualitative indicators and backstops. A significant increase in credit risk has occurred when one or more of the criteria below are met:

Quantitative criteria
A significant increase in credit risk is determined by comparing the PD at the reporting date with the PD at initial recognition. If the actual PD is higher than initial PD, an assessment is made of whether the increase is significant.

Significant increase in credit risk since initial recognition is considered to have occurred when either

  • PD has increased by 100 % or more and the increase in PD is more than 0.5 percentage points, or
  •  PD has increased by more than 2.0 percentage points

A 12-month PD is used to determine whether the risk has increased significantly.

Qualitative criteria
In addition to the quantitative assessment of changes in the PD, a qualitative assessment is made to determine whether there has been a significant increase in credit risk, for example if the commitment is subject to special monitoring.

«Backstops»
Credit risk is always considered to have increased significantly if the following events, “backstops”, have occurred:

  • the customer’s contractual payments are 30 days past due
  • the customer has been granted forbearance measures due to financial distress, though it is not severe enough to be individually assessed in stage 3 

Significant reduction in credit risk – recovery
A customer migrates from stage 2 to stage 1 if:

  • The criteria for migration from stage 1 to stage 2 is no longer present, and
  • This is satisfied for at least one subsequent month (total 2 months)

A customer migrates from stage 3 to stage 1 or stage 2 if the customer no longer meets the conditions for migration to stage 3:

  • The customer migrates to stage 2 if more than 30 days in default.
  • Otherwise, the customer migrates to stage 1.

Customers who are not subject to the migration rules above are not expected to have significant change in credit risk and retain the stage from previous month.

Definition of default, credit-impaired and forbearance
A commitment is defined to be in default and credit-impaired (non-performing) if a claim is more than 90 days overdue and the overdue amount exceeds NOK 1 000. The definition of default is similar to the one used in the capital adequacy regulations.

A commitment is also considered to be credit-impaired (non-performing) if the commitment, as a result of a weakening of the debtor’s creditworthiness, has been subject to an individual assessment, resulting in a lifetime ECL in stage 3. A financial asset is credit-impaired when one or more events that have a negative impact on the estimated future cash flows of the financial asset has taken place. Indications that a financial asset is credit-impaired include observable data on the following events:

a) the debtor having significant financial problems,

b) breaches of contract, for example default or overdue payments,

A financial asset is considered as defaulted if the borrower does not pay overdue instalments, or overdrafts are not covered, maximum within 90 days

c) when the borrower's lender, for financial or contractual reasons related to the borrower's financial difficulties, has given the borrower concessions that the lender would otherwise not have considered,

d) when it becomes likely that the borrower will go bankrupt or be subjected to another form of financial reorganization,

e) when an active market for the financial asset disappears due to financial difficulties, or

f) purchase or creation of a financial asset with a significant discount that reflects accrued credit losses.

It may not be possible to identify a single separate event - instead, the overall impact of several events may have led to a deterioration of financial assets.

Provisions for guarantee liabilities are made if the liability is likely to be settled and the liability can be estimated in a reliable manner. Best estimate is applied when determining the amount of the provisions to be made. Claims for recourse related to guarantees where provisions have been made are capitalized as an asset maximum equal to provisions made.

A commitment is defined to be subject to forbearance if the bank agrees to changes in the terms and conditions because the debtor is having problems meeting payment obligations. A performing (not defaulted) forbearance is placed in stage 2, whereas a non-performing forbearance (defaulted) is placed in stage 3.

Sensitivity analysis
Macro factors and weighting of scenarios are important input factors in the bank’s ECL model that can contribute to significant changes in the calculation of losses and subject to large degree of judgment. A framework has been drawn up for determining macro factors and scenarios in the ECL model to satisfy the requirement to be expectation-oriented and forward-looking.

Staging of the expected credit losses requires both information about intrusive events and current conditions, as well as expected events and future financial conditions. The calculations and use of forward-looking information require a high degree of judgment. Each macroeconomic scenario includes a five-year period projection. The bank’s chief economist reports quarterly on expected values of macro factors used in the ECL model for best-, base- and worst-case scenarios.

The bank uses forecasts from SSB (Statistics Norway)/Norges Bank as basis for the base case scenario and for macro-pahts, further supplemented by own forecasts.

Individually assessed commitments in stage 3 constitute a relatively large share of the total ECL. In the sensitivity analysis, individual assessments of scenarios and weightings for these commitments are made, based on the bank’s best estimates. In the sensitivity analysis, macro factors and choice of scenario have no impact on the migration between stages in the ECL model.

The scenarios are weighed based on our best estimate of the probability of the different outcomes represented. The estimates are updated quarterly and estimates as of 31 December 2020 were used. Both the best and the worst case are considered to occur every 25 years. “Best” and “worst” meaning the strongest and weakest economic development. High global debt and the risk of new economic shocks mean that there is a greater risk of worst case than best case. The base scenario is weighted 70 per cent and assumes that no significant shutdowns occur going forward. Thus, the economy will continue the recovery which began early last summer. This implies a sharp recoil in the economy in 2021.

The accounted ECL as of 31.12.2020 is based on a 70 per cent base scenario, 20 per cent worst case and 10 per cent best case scenario (normal development). If the worst-case scenario is increased from 20 per cent to 80 per cent and the base scenario reduced to 10 per cent (negative development), this would result in an increase in the provision for losses of NOK 165 million. A corresponding change in the best- case scenario (positive development), would result in a reduction in the loss provisions of NOK 61 million. The losses on loans in 2020 are primarily in the oil-related industry, and the future prospects in this industry are still uncertain. Changes in scenario weightings have the greatest impact on the supply/oil-related portfolio. For the oil-related portfolio, special assessments have been made with respect to the probability of default under different scenarios and associated realisation values.

Management override
Quarterly review meetings evaluate the basis for the accounting of ECL losses. If there are significant events that will affect an estimated loss which the model has not taken into account, relevant factors in the ECL model will be overridden.

Validation
The Group continuously develops and reviews the risk management system and the credit granting process to ensure high quality over time.

An independent quantitative and qualitative validation of the Group’s IRB-model and the ECL-model is carried out. The quantitative validation shall ensure that the estimates used for measuring probability of default, exposure at default and loss given default maintain a sufficiently good quality. Analysis are carried out, assessing the models’ ability to rank the customers according to risk (discrimination capability), and the ability to set the correct level on the risk parameters. In addition, the stability of the estimates in the models and the cyclical sensitivity of the models are analysed. The quantitative validations will in some cases be supplemented by more qualitative assessments. This is especially true if the capture of statistical data is limited.

The results of the validation processes are included in the further development of the ECL-model.

Individual assessment in stage 3 
If there is an indication that a loan is credit-impaired, an individual assessment in stage 3 is made.

In case of individual assessment in stage 3, the impairment amount is calculated as the difference between the carrying amount (principal + accrued interest at the valuation date) and the present value of future cash flows, discounted at the effective interest method over the commitments` expected lifetime.

The discounting rate for loans with floating interest rates is equal to the effective rate of interest at the time of assessment. For loans with fixed interest rates, the discounting rate is equal to the original, effective interest rate. For commitments which have altered interest rates as a result of debtors’ financial problems, the effective rate of interest ruling before the commitment’s interest rate was altered is applied. When estimating future cash flows, a possible takeover and sale of related collateral is taken into consideration, also including costs relating to the takeover and sale.

Impairment of commitments is recognised in the income statement as losses on loans. Reversal of impairment will result in reversal of amortised cost and is recognised as a correction of losses. Estimates of future cash flows from a loan should also consider the acquisition and sale of related collateral. When evaluating security coverage there should be a qualified assessment of the collateral`s nature and market value, taking into account the costs of the acquisition and sale. Realisation values for different collateral in a realizable situation are determined by the use of best judgment. Timing for liquidation of loans with impairment is based on judgment and experiences from other liquidation engagements and bankruptcies.

Write-off
When all collateralized assets have been realised and it is undoubtedly that the bank will receive more payments on the commitment, the loss is confirmed. The claim against the customer will, however, still exist and followed up, unless the bank has agreed to debt forgiveness for the customer.

Loans and debt securities are also written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level. Recoveries of amounts previously written off are included in “Impairment on loans, guarantees etc.” in the Statement of income. Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. Commitments subject to enforcement activities amount to NOK 13 million as at 31.12.2020 (NOK 15 million). 

Consequences of Covid-19 and measurement of expected credit loss (ECL) for loans and guarantees
The bank’s loss provisions reflect expected credit loss (ECL) pursuant to IFRS 9. When assessing ECL, the relevant conditions at the time of reporting and expected economic developments are taken into account.

Covid-19 has resulted in an extraordinary situation for the bank’s customers. Many corporate and retail customers have seen their income decline in the short term, and the level of uncertainty associated with estimating the future cash flows and debt servicing capacity of these customers is high. On the other hand, other industries have seen a positive economic development in 2020.

In the group’s calculations of expected credit loss (ECL), the macroeconomic scenarios and the weightings have been impacted by the changes in economic conditions through 2020. During the first quarter of 2020, the possibility of a pessimistic scenario increased from 10 to 40 per cent, while the base case scenario was reduced from 80 per cent to 50 per cent probability.

During the fourth quarter, the outlook was more positive and clearer. The macroeconomic conditions improved. A public vaccination programme started. There were very few bankruptcies and the level of default was relatively low. The authorities announced new stimulus packages aimed at the hardest hit industries. In addition, oil prices rose markedly during the fourth quarter.

The bank granted payment relief in the first and second quarters of 2020 due to the consequences of Covid-19. Customers who applied were granted 6-month interest-only periods until the second half of 2020. Most of the customers granted interest-only periods are now paying their instalments in line with their original agreement.

As part of the process of granting payment relief, a specific, individual assessment is made of whether the application for payment relief is ‘forbearance’ and whether the loan should thus migrate to stage 2 (performing) or stage 3 (non-performing) in the Group’s ECL model.

This has been further supplemented by a more portfolio- or segment based (hotels, tourism, travel industry, personal services industry) approach to assess significantly increased credit risk and migration to stage 2. This is due to the fact that changes in future prospects are not fully captured by the ECL model.

The positive changes in the economic conditions have been reflected in the macro-economic scenarios and weightings as of 31.12.2020 compared to the third quarter of 2020. The probability of a pessimistic scenario is reduced from 40 to 20 per cent, while the base case scenario is increased from 50 per cent to 70 per cent probability. Best case scenario is kept unchanged at 10 per cent.

Losses on loans and guarantees  
GROUP PARENT BANK
20192020Specification of losses on loans, guarantees etc.20202019
10-3Changes in ECL - stage 1-312
37-15Changes in ECL - stage 2-1746
-138-3Changes in ECL - stage 3-2-139
225Increase in existing expected losses in stage 3 (individually assessed)252
155113New expected losses in stage 3 (individually assessed)113155
12161Confirmed losses, previously impaired16112
-30-165Reversal of previous expected losses in stage 3 (individually assessed)-165-30
1044Confirmed losses, not previously impaired4410
-8-8Recoveries-8-8
50149Total impairment on loans and guarantees14860
Changes in ECL in the period    
GROUP 2020Stage 1Stage 2Stage 3Total
ECL 01.01.20203699240375
New commitments1320134
Disposal of commitments and transfer to stage 3 (individually assessed)-12-17-6-35
Changes in ECL in the period for commitments which have not migrated-3-22-2-27
Migration to stage 13-220-19
Migration to stage 2-427-122
Migration to stage 30-154
Changes stage 3 (individually assessed)---28-28
ECL 31.12.20203384209326
- of which expected losses on loans to retail customers6342060
- of which expected losses on loans to corporate customers2743146216
- of which expected losses on guarantees074350
     
GROUP 2019Stage 1Stage 2Stage 3Total
ECL 01.01.20192661251338
New commitments1511127
Disposal of commitments and transfer to stage 3 (individually assessed)-5-12-125-142
Changes in ECL in the period for commitments which have not migrated2204
Migration to stage 11-22-1-22
Migration to stage 2-360-2136
Migration to stage 30-187
Changes stage 3 (individually assessed)--127127
ECL 31.12.20193699240375
- of which expected losses on loans to retail customers5362465
- of which expected losses on loans to corporate customers3058106194
- of which expected losses on guarantees15110116
     
     
PARENT BANK 2020Stage 1Stage 2Stage 3Total
ECL 01.01.20203593238366
New commitments1219334
Disposal of commitments and transfer to stage 3 (individually assessed)-12-16-6-34
Changes in ECL in the period for commitments which have not migrated-2-24-1-27
Migration to stage 13-190-16
Migration to stage 2-424-119
Migration to stage 30-132
Changes stage 3 (individually assessed)---28-28
ECL 31.12.20203276208316
- of which expected losses on loans to retail customers4271950
- of which expected losses on loans to corporate customers2743146216
- of which expected losses on guarantees074350
     
     
PARENT BANK 2019Stage 1Stage 2Stage 3Total
ECL 01.01.20192347250320
New commitments1511430
Disposal of commitments and transfer to stage 3 (individually assessed)-4-10-125-139
Changes in ECL in the period for commitments which have not migrated2406
Migration to stage 11-14-1-14
Migration to stage 2-256-2133
Migration to stage 30-143
Changes stage 3 (individually assessed)--127127
ECL 31.12.20193593238366
- of which expected losses on loans to retail customers4302256
- of which expected losses on loans to corporate customers3058106194
- of which expected losses on guarantees15110116
Changes in ECL in the period divided into Retail and Corporate    
GROUP 2020Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
ECL 01.01.2020531366324216375
New commitments2114160134
Disposal of commitments and transfer to stage 3 (individually assessed)-1-11-10-7-4-2-35
Changes in ECL in the period for commitments which have not migrated0-30-220-2-27
Migration to stage 103-9-1300-19
Migration to stage 20-41413-1022
Migration to stage 300-10504
Changes stage 3 (individually assessed)-----4-24-28
ECL 31.12.2020627345020189326
        
GROUP 2019Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
ECL 01.01.2019521313019232338
New commitments213651027
Disposal of commitments and transfer to stage 3 (individually assessed)-1-4-6-6-4-121-142
Changes in ECL in the period for commitments which have not migrated-1320-994
Migration to stage 101-12-100-1-22
Migration to stage 20-316440-2136
Migration to stage 300-10807
Changes stage 3 (individually assessed)----9118127
ECL 31.12.2019531366324216375
        
PARENT BANK 2020Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
ECL 01.01.2020431306322216366
New commitments0114162134
Disposal of commitments and transfer to stage 3 (individually assessed)0-12-9-7-4-2-34
Changes in ECL in the period for commitments which have not migrated0-2-2-221-2-27
Migration to stage 103-6-1300-16
Migration to stage 20-41113-1019
Migration to stage 300-10302
Changes stage 3 (individually assessed)-----4-24-28
ECL 31.12.2020427275019189316
        
PARENT BANK 2019Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
ECL 01.01.2019221182919231320
New commitments213654030
Disposal of commitments and transfer to stage 3 (individually assessed)0-4-4-6-8-117-139
Changes in ECL in the period for commitments which have not migrated0231-116
Migration to stage 101-5-90-1-14
Migration to stage 20-213430-2133
Migration to stage 300-10403
Changes stage 3 (individually assessed)----4123127
ECL 31.12.2019431306322216366
Changes in exposure during the period       
GROUP 2020Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
Commitments at 01.01.202040 38418 8681 3802 2849887863 892
New commitments10 4014 59618975701015 953
Disposal of commitments-9 062-3 182-299-648-27-5-13 223
Migration to stage 1525914-524-914-100
Migration to stage 2-969-1 2399871 239-1800
Migration to stage 3-130-28-4100
Other changes743-1 410-50-4531856-1 096
Commitments at 31.12.2020*42 00918 5471 6552 26511193965 526
        
GROUP 2019Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
Commitments at 01.01.201938 78616 4171 9002 073451 20660 427
New commitments8 8315 7402264613115 262
Disposal of commitments-7 621-2 545-380-312-15-7-10 880
Migration to stage 11 0711 110-1 071-9940-1160
Migration to stage 2-689-7676941 239-5-4720
Migration to stage 3-270-49-37630
Other changes33-1 08760-180-6263-917
Commitments at 31.12.2019*40 38418 8681 3802 2849887863 892
        
PARENT BANK 2020Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
Commitments at 01.01.202011 73218 2696922 2905891833 959
New commitments3 0534 4019581216108 387
Disposal of commitments-3 802-3 106-166-648-21-5-7 748
Migration to stage 1166896-166-896000
Migration to stage 2-371-1 1973791 197-800
Migration to stage 3-40-50900
Other changes590-1 387-29-4705716-1 223
Commitments at 31.12.2020*11 36417 8768002 28511193933 375
        
PARENT BANK 2019Stage 1Stage 2Stage 3 
 RetailCorporateRetailCorporateRetailCorporateTotal
Commitments at 01.01.201912 03815 9371 0891 980391 20332 286
New commitments4 0705 60311151025110 320
Disposal of commitments-4 133-2 492-252-277-22-20-7 196
Migration to stage 14301 087-430-9710-1160
Migration to stage 2-255-7572581 229-3-4720
Migration to stage 3-40-18-32230
Other changes-414-1 109-66-178-3319-1 451
Commitments at 31.12.2019*11 73218 2696922 2905891833 959
*) The tables above are based on exposure (incl. undrawn credit facilities and guarantees) at the reporting date. The tables do not include loans assessed at fair value. The figures are thus not reconcilable against balances in the statement of financial position.
Commitments (exposure) divided into risk groups based on probability of default
GROUP 2020Stage 1Stage 2Stage 3Total 31.12.2020
Low risk (0 % - < 0.5 %)52 268569-52 837
Medium risk (0.5 % - < 3 %)7 5322 239-9 771
High risk (3 % - <100 %)7561 112-1 868
Credit-impaired commitments--1 0501 050
Total commitments before ECL60 5563 9201 05065 526
- ECL-33-84-209-326
Net commitments *)60 5233 83684165 200
     
GROUP 2019Stage 1Stage 2Stage 3Total 31.12.2019
Low risk (0 % - < 0.5 %)50 157171-50 328
Medium risk (0.5 % - < 3 %)7 3692 489-9 858
High risk (3 % - <100 %)1 7261 004-2 730
Credit-impaired commitments--976976
Total commitments before ECL59 2523 66497663 892
- ECL-36-99-240-375
Net commitments *)59 2163 56573663 517
     
PARENT BANK 2020Stage 1Stage 2Stage 3Total 31.12.2020
Low risk (0 % - < 0.5 %)21 609544-22 153
Medium risk (0.5 % - < 3 %)6 9421 567-8 509
High risk (3 % - <100 %)689974-1 663
Credit-impaired commitments--1 0501 050
Total commitments before ECL29 2403 0851 05033 375
- ECL-32-76-208-316
Net commitments *)29 2083 00984233 059
     
PARENT BANK 2019Stage 1Stage 2Stage 3Total 31.12.2019
Low risk (0 % - < 0.5 %)21 951161-22 112
Medium risk (0.5 % - < 3 %)6 4211 978-8 399
High risk (3 % - <100 %)1 629843-2 472
Credit-impaired commitments--976976
Total commitments before ECL30 0012 98297633 959
- ECL-34-93-238-365
Net commitments *)29 9672 88973833 594
*) The tables above are based on exposure (incl. undrawn credit facilities) at the reporting date. The tables do not include loans assessed at fair value. The figures are thus not reconcilable against balances in the statement of financial position.
Sensitivity analysis    
GROUP - 2020Scenario weights 
 WorstBasisBestCalculated ECL (NOK million)
Normal development20%70%10%326
Negative development80%10%10%491
Positive development10%10%80%265
Forbearance split into ECL stages    
GROUP/PARENT BANK 2020Stage 1Stage 2Stage 3Total
Forbearance Retail041743460
Forbearance Corporate02468231 069
Total forbearance as at 31.12.202006638661 529
 

Note 10

Credit-impaired commitments

The accounting policies regarding assessments of loans are disclosed in note 9.Defaulted loans and overdrafts are continuously supervised. Commitments, where a probable deterioration of customer solvency is identified, are considered credit-impaired and transferred to stage 3 with lifetime ECL measurement.

The table Credit-impaired commitments consists of total commitments in default above 90 days and other credit-impaired commitments (not above 90 days).   

Credit-impaired commitments      
The table shows total commitments in default above 90 days and other credit-impaired commitments (not above 90 days).
 31.12.202031.12.2019
GROUPTotalRetailCorporateTotalRetailCorporate
       
Gross commitments in default above 90 days8372111627686
Gross other credit-impaired commitments9673992881434780
Gross credit-impaired commitments1 050111939976110866
       
ECL on commitments above 90 days1812624195
ECL on other credit-impaired commitments19181832165211
ECL on credit-impaired commitments2092018924024216
       
Net commitments in default above 90 days656051385781
Net other credit-impaired commitments7763174559829569
Net credit-impaired commitments8419175073686650
       
Gross credit-impaired commitments as a percentage of loans/guarantees1.530.244.091.480.253.96
Net credit-impaired commitments as a percentage of loans/guarantees1.220.203.271.120.202.98
       
PARENT BANKTotalRetailCorporateTotalRetailCorporate
       
Gross commitments in default above 90 days8372111627686
Gross other credit-impaired commitments9673992881434780
Gross credit-impaired commitments1 050111939976110866
       
ECL on commitments above 90 days1812624195
ECL on other credit-impaired commitments19181832143211
ECL on credit-impaired commitments2092018923822216
       
Net commitments in default above 90 days656051385781
Net other credit-impaired commitments7763174560031569
Net credit-impaired commitments8419175073888650
       
Gross credit-impaired commitments as a percentage of loans/guarantees2.640.644.172.430.594.05
Net credit-impaired commitments as a percentage of loans/guarantees2.120.533.331.870.053.06
Quantitative information on collateral and other credit enhancements on credit-impaired commitments
GROUP/PARENT BANK   
2020Credit-impaired commitmentsProvision for expected credit lossesAssessed value of collateral
Retail111-2094
Corporate939-189705
Total1 050-209799
    
    
GROUP/PARENT BANK   
2019Credit-impaired commitmentsProvision for expected credit lossesAssessed value of collateral
Retail110-2497
Corporate866-216590
Total976-240687
 

Note 11

Market risk

The bank’s Board of Directors stipulates the long-term targets with regards to the bank`s risk profile. These targets are made operational through powers of attorney and limits delegated within the organisation. Sparebanken Møre manages market risk and handles powers of attorney, limits and guidelines relating to financial instruments based on board adopted strategy documents. The strategy documents are subject to periodical reviews and are revised/adopted once every year by the bank’s Board of Directors. In addition, the documents shall be passed on to, approved and understood by the operative units, the bank’s control functions and administration. In order to ensure the necessary quality and independence, the development of risk management tools and the execution of the risk reporting are organised in a separate unit, independent of the operative units.

Market risk in the Group is measured and monitored based on conservative limits, renewed and approved by the Board at least annually. 

Interest rate risk is presented in note 12, foreign exchange risk in note 13 and financial derivatives is described in note 25.

 

Note 12

Interest rate risk

Interest rate risk occurs due to the fact that the Group may have different interest rate periods on its assets and liabilities. Sparebanken Møre measures interest rate risk through analyses, showing the impact on the overall result of a 1 percentage point parallel shift in the yield curve. In this way, it is possible to quantify the risk incurred by the bank and the effect it has on the result there being changes in the interest rates in the market. The analysis shows effective maturity for the interest-bearing part of the balance sheet. The longer funds are fixed in the case of a placement, the bigger is the potential loss or gain following an increase or a fall in the interest rates in the market. The Group has a short interest-fixing period overall and the interest rate risk is deemed to be low. The table below shows the potential impact on the overall result of changes in value of financial assets and liabilities for the Group by an increase in interest rates of one percentage point. The calculation is based on the current positions and market interest rates at 31 December and confirms the bank's low risk tolerance for changes in value due to interest rate developments.

The bank also performs sensitivity calculations in an earnings perspective, and a potential effect on the profit and loss over a 1-year period of an interest rate change of 1 percentage point is NOK 46 million for the Group. 

Interest rate risk  
GROUP PARENT BANK
31.12.201931.12.2020 31.12.202031.12.2019
  Maturity  
99Up to 1 month-2-1
1221 - 3 months1618
7113 - 12 months96
-19-81 - 5 years2-16
-5-2Above 5 years-1-4
412Total243
     
-10-13Certificates, bonds and other interest-bearing securities-13-9
-21-11Loans to and receivables from customers, with fixed interest rate3-21
-77-78Other loans-48-47
7372Deposits from customers7273
3936Bonds issued47
06Other balance sheet items60
412Total243
 

Note 13

Foreign exchange risk

Sparebanken Møre measures foreign exchange risk on the basis of its net positions in the different currencies involved. It is a main principle that all transactions involving customers shall immediately be hedged by doing opposite transactions in the market so that the bank’s foreign exchange risk is reduced to a minimum level. The bank does not trade on its own account as far as foreign currency instruments are concerned. All balance sheet items in foreign currencies are converted into Norwegian kroner at the middle rate from Norges Bank as at 31 December. For notes and coins, approximate purchase prices are applied. Current income and costs are converted into Norwegian kroner at the prices ruling on transaction date. Net realised and unrealised gains or losses are included in the income statement. Throughout the year, unintentional foreign exchange risk has been at a minimum level.  

GROUP - 31.12.2020TotalNOKCurrencyOf which: USDEURJPYCHFOther
Cash and claims on Norges Bank5425420     
Loans to and receivables from credit institutions1 16683732983129101106
Loans to and receivables from customers66 85063 9272 9231 20844712527729
Certificates and bonds8 5637 4021 161 687  474
Other assets2 3652 3442179 23
Total assets79 48675 0524 4341 2981 272225301 312
Loans and deposits from credit institutions2 2092 199108   2
Deposits from customers39 02338 22879513454910 102
Debt securities issued28 77420 1168 658 8 658   
Other liabilities1 5701 564622  2
Subordinated loan capital7027020     
Equity7 2087 2080     
Total liabilities and equity79 48670 0179 4691449 209100106
Forward exchange contracts  5 049-1 1497 938-12-527-1 201
Net exposure foreign exchange  1451035
Effect of a 10 per cent change in price (MNOK)2       
         
         
GROUP - 31.12.2019TotalNOKCurrencyOf which: USDEURJPYCHFOther
Cash and claims on Norges Bank1 0721 0720     
Loans to and receivables from credit institutions1 0889191697847 1232
Loans to and receivables from customers64 02960 9283 1011 22144025791624
Certificates and bonds6 9385 992946 607  339
Other assets1 7481 661872947 74
Total assets74 87570 5724 3031 3281 14125810999
Loans and deposits from credit institutions817806118   3
Deposits from customers36 80336 4743291381691 21
Debt securities issued28 27120 1718 100 8 100   
Other liabilities1 3101 26743439   
Subordinated loan capital7047040     
Equity6 9706 9700     
Total liabilities and equity74 87566 3928 4831508 3081024
Forward exchange contracts  4 196-1 1767 169-24-803-970
Net exposure foreign exchange  1622075
Effect of a 10 per cent change in price (MNOK)2       
         
         
PARENT BANK - 31.12.2020TotalNOKCurrencyOf which: USDEURJPYCHFOther
Cash and claims on Norges Bank5425420     
Loans to and receivables from credit institutions5 9255 59632983129101106
Loans to and receivables from customers37 92535 0022 9231 20844712527729
Certificates and bonds8 9507 7891 161 687  474
Other assets3 2763 2552179 23
Total assets56 61852 1844 4341 2981 272225301 312
Loans and deposits from credit institutions3 1133 103108   2
Deposits from customers39 04938 25479513454910 102
Debt securities issued5 2865 2860     
Other liabilities1 5141 508622  2
Subordinated loan capital7027020     
Equity6 9546 9540     
Total liabilities and equity56 61855 807811144551100106
Forward exchange contracts  -3 609-1 149-720-12-527-1 201
Net exposure foreign exchange  1451035
Effect of a 10 per cent change in price (MNOK)2       
         
         
PARENT BANK - 31.12.2019TotalNOKCurrencyOf which: USDEURJPYCHFOther
Cash and claims on Norges Bank1 0721 0720     
Loans to and receivables from credit institutions3 2593 0901697847 1232
Loans to and receivables from customers38 49435 3933 1011 22144025791624
Certificates and bonds6 2605 314946 607  339
Other assets3 1863 099872947 74
Total assets52 27147 9684 3031 3281 14125810999
Loans and deposits from credit institutions1 5191 508118   3
Deposits from customers36 82436 4953291381691 21
Debt securities issued5 2095 2090     
Other liabilities1 2911 24843439   
Subordinated loan capital7047040     
Equity6 7246 7240     
Total liabilities and equity52 27151 8883831502081024
Forward exchange contracts  -3 904-1 176-931-24-803-970
Net exposure foreign exchange  1622075
Effect of a 10 per cent change in price (MNOK)2       
 

Note 14

Liquidity risk

The management of Sparebanken Møre’s funding structure is defined in an overall liquidity strategy which is evaluated and agreed by the Board of Directors at least once every year. In this strategy document, the bank’s targets relating to the maintenance of its financial strength are described, and actual limits for the bank’s liquidity management within different areas are defined. Liquidity management also includes stress tests according to which the liquidity effect of different scenarios is simulated by quantifying the probability of refinancing from the various sources of funding involved. Part of the bank’s strategy is to apply diversification to its funding with regards to sources, markets, financial instruments and maturities, the object being to reduce the overall risk.

To ensure the Group's liquidity risk being kept at a low level, lending to customers should primarily be funded by customer deposits and long-term debt securities. Liquidity risk is managed through both short-term limits that restrict net refinancing needs, and a long-term management target.

The Group`s deposit-to-loan ratio, calculated including transferred mortgages to Møre Boligkreditt AS, amounted to 58.1 per cent at the end of 2020, opposed to 57.2 per cent by the end of 2019.

The average residual maturity of the portfolio of senior bonds and covered bonds were respectively 3.2 years and 3.7 years at the end of 2020, compared with 1.9 years and 4.0 years a year earlier.

The bank also has holdings of securities, which are included as part of the ongoing liquidity management. See additional information in note 22 and 24.

The tables below show contractual undiscounted cash flows. The figures can therefore not be reconciled with the figures in the balance sheet.
Liquidity risk 31.12.2020      
GROUPUp to 1 month1 to 3 months3 to 12 months1 to 5 yearsAbove 5 yearsTotal
Assets      
Cash and claims on Norges Bank5420000542
Loans to and receivables from credit institutions1 16600001 166
Loans to and receivables from customers8 5047262 32015 59051 85378 993
Certificates and bonds1751961 2046 6194828 676
Total assets10 3879223 52422 20952 33589 377
Liabilities      
Loans and deposits from credit institutions1 7101551302 229
Deposits from customers37 43761198521039 054
Debt securities issued53703 85523 3471 67629 253
Subordinated loan capital211055735803
Total liabilities39 1549834 85523 9362 41171 339
Financial derivatives      
Cash flow in2492377912341 313
Cash flow out8742497211861 238
Total financial derivatives-6-25-12704875
       
       
Liquidity risk 31.12.2019      
GROUPUp to 1 month1 to 3 months3 to 12 months1 to 5 yearsAbove 5 yearsTotal
Assets      
Cash and claims on Norges Bank1 07200001 072
Loans to and receivables from credit institutions1 08800001 088
Loans to and receivables from customers11 2982351 67815 86248 43177 504
Certificates and bonds1224069495 8506507 977
Total assets13 5806412 62721 71249 08187 641
Liabilities      
Loans and deposits from credit institutions3182105260856
Deposits from customers35 1724761 17124036 843
Debt securities issued2366023 66520 3035 00429 810
Subordinated loan capital421896786906
Total liabilities35 7301 0824 86420 9495 79068 415
Financial derivatives      
Cash flow in14622719413911 679
Cash flow out26953591 2193372 036
Total financial derivatives-12-33-88-27854-357
       
       
Liquidity risk 31.12.2020      
PARENT BANKUp to 1 month1 to 3 months3 to 12 months1 to 5 yearsAbove 5 yearsTotal
Assets      
Cash and claims on Norges Bank5420000542
Loans to and receivables from credit institutions5 92500005 925
Loans to and receivables from customers4 2636391 92113 10424 09344 020
Certificates and bonds1761971 1367 0864829 077
Total assets10 9068363 05720 19024 57559 564
Liabilities      
Loans and deposits from credit institutions2 6141551303 133
Deposits from customers37 41161198521039 028
Debt securities issued53316834 43805 457
Subordinated loan capital211055735803
Total liabilities40 0329441 6835 02773548 421
Financial derivatives      
Cash flow in231131393124681
Cash flow out445147443130769
Total financial derivatives-2-14-16-50-6-88
       
       
Liquidity risk 31.12.2019      
PARENT BANKUp to 1 month1 to 3 months3 to 12 months1 to 5 yearsAbove 5 yearsTotal
Assets      
Cash and claims on Norges Bank1 07200001 072
Loans to and receivables from credit institutions3 25900003 259
Loans to and receivables from customers7 1142351 60115 55027 34651 846
Certificates and bonds1214044715 6416507 287
Total assets11 5666392 07221 19127 99663 464
Liabilities      
Loans and deposits from credit institutions1 02021052601 558
Deposits from customers35 1514761 17124036 822
Debt securities issued4521834 81805 426
Subordinated loan capital421896786906
Total liabilities36 1791 0011 2825 46478644 712
Financial derivatives      
Cash flow in1447174538202975
Cash flow out1048168515202943
Total financial derivatives4-1623032
 

Note 15

Net interest income

Interest income is recognised as income using the effective interest rate method. This implies interest income being recognised when received plus amortisation of establishment fees. The effective interest rate is set by discounting contractual cash flows within the expected term.

Recognition of interest income using the effective interest rate method is used for both balance sheet items valued at amortised cost, and balance sheet items valued at fair value through the income statement, with the exception of establishment fees on loans at fair value which are recognised as income when earned. Interest income on impaired loans is calculated as the effective interest rate on the impaired value. Interest income on financial instruments is included in the line item "Net interest income". 

Net interest income
GROUP PARENT BANK
2020 2020
Assessed at fair valueAssessed at amortised costTotal TotalAssessed at amortised costAssessed at fair value
   Interest income from:   
-77Loans to and receivables from credit institutions3232-
911 7551 846Loans to and receivables from customers1 1721 10864
101-101Certificates, bonds and other interest-bearing securities105-105
1921 7621 954Total interest income1 3091 140169
   Interest expenses:   
-1212Liabilities to credit institutions2222-
-280280Deposits from and liabilities to customers280280-
-370370Debt securities issued6565-
-1717Subordinated loan capital1717-
-4747Other interest expenses4242-
-726726Total interest expenses426426-
1921 0361 228Net interest income883714169
       
       
GROUP PARENT BANK
2019 2019
Assessed at fair valueAssessed at amortised costTotal TotalAssessed at amortised costAssessed at fair value
   Interest income from:   
-1717Loans to and receivables from credit institutions3434 
1132 0682 181Loans to and receivables from customers1 4461 333113
130-130Certificates, bonds and other interest-bearing securities132-132
2432 0852 328Total interest income1 6121 367245
   Interest expenses:   
-1313Liabilities to credit institutions3131-
-396396Deposits from and liabilities to customers396396-
-530530Debt securities issued104104-
-3333Subordinated loan capital3333-
-4242Other interest expenses4141-
-1 0141 014Total interest expenses605605-
2431 0711 314Net interest income1 007762245
 

Note 16

Net commission and other income

Guarantee commissions are recognised as they occur, equal to interest income.

All fees related to payment transactions are recognised as income when the transaction occurs. Fees and charges from sales or brokerage of equities, equity funds, insurance, property or other investment objects that do not generate balance sheet items in the bank’s accounts, are recognised as income after the income generating activity has been executed. Customer trades involving financial instruments will generate income in the form of margins and broker’s commissions, which is recognised as income after the trade has been executed. Dividends on equities is recognised as income after the dividend has been finally approved.

 

GROUP PARENT BANK
20192020 20202019
2836Guarantee commission3628
2223Income from the sale of insurance services2322
1111Income from the sale of shares in unit trusts/securities1111
3636Income from Discretionary Asset Management3636
9781Income from payment transfers8197
2723Other fees and commission income2226
221210Commission income and income from banking services209220
-26-26Commission expenses and expenses from banking services-26-26
2023Income from real estate brokerage00
44Other operating income4438
2427Total other operating income4438
219211Net commision and other income227232

The following table lists commission income and costs covered by IFRS 15 broken down by the largest main items and allocated per segment.

 

Result - 2020GroupOtherCorporateRetailReal estate brokerage
Guarantee commission3603600
Income from the sale of insurance services2302210
Income from the sale of shares in unit trusts/securities1100110
Income from Discretionary Asset Management36418140
Income from payment transfers811317510
Other fees and commission income2347120
Commission income and income from banking services21021801090
Commission expenses and expenses from banking services-26-8-1-170
Income from real estate brokerage2300023
Other operating income43100
Total other operating income2731023
Net commision and other income21116809223
      
      
Result - 2019GroupOtherCorporateRetailReal estate brokerage
Guarantee commission2802800
Income from the sale of insurance services2201210
Income from the sale of shares in unit trusts/securities83080
Income from Discretionary Asset Management36019170
Income from payment transfers861116700
Other fees and commission income2526190
Commission income and income from banking services20516701350
Commission expenses and expenses from banking services-260-1-250
Income from real estate brokerage2000020
Other operating income44000
Total other operating income2440020
Net commision and other income219206911020
 

Note 17

Net gains and losses from financial instruments

GROUP  PARENT BANK
20192020 Note20202019
1222Dividends29 249184
-2478Change in value on fixed interest loans24 103-24
28-77Derivatives related to fixed interest loans -10428
79-600Change in value of issued bonds and certificates -146
-77596Derivatives related to issued bonds and certificates 13-7
16-3Gains/losses on shares -316
-17-7Gains/losses on bonds -5-10
4152Trading in foreign exchange (on behalf of customers) 5241
1615Other income 1315
7474Net gains/losses from financial instruments 303249
Changes in value of financial instruments in fair value hedging recognised in the income statement
GROUP PARENT BANK
20192020 20202019
73-658Value secured debt securities with changes in value recognised in the income statement-143
-76664Financial derivatives applied in hedge accounting13-7
-36Total-1-4
 

Note 18

Salaries

GROUP PARENT BANK
20192020(NOK million)20202019
248247Wages, salary and other cash-based benefits233236
32Fees paid to members of the Board of Directors and the General Meeting23
150Bonus/profit sharing 1)015
2221Pension costs (note 20)2122
3838Employers' social security contribution3838
1514Financial activity tax1415
1310Other personnel costs911
354332Total wages and salary costs317340
     
20192020Manning levels:20202019
357346Number of man-years as at 31.12335344
358354Number of man-years employed in the financial year341345
     
1) Part of the bonus (about 50 per cent) for 2019 was given in the form of ECs (MORG), purchased at share price in the market. The total number of ECs purchased was about 28.000.

As at 31.12.2020, the bank had no obligations in relation to its Chief Executive Officer (CEO), the members of the Board of Directors or other employees regarding any special payment on termination or change of employment or positions, except a 6-month severance pay for the CEO. Furthermore, there are no accounting-related obligations relating to bonuses, profit sharing, options or similar for any of the abovementioned persons. Regarding the bonus schemes in the Group, see the discussion in the NUES document paragraph 12. The CEO’s contract includes a 6-month period of notice. Reference is also made to note 20, containing a description of pension schemes. All salaries and other remuneration for the Group’s employees and related parties are charged to the income statement at the end of the accounting year. Pension costs are an accounting-related expense for the bank, including the payment of premiums relating to the various pension schemes.

GROUP – Wages, salaries, other remuneration, pensions
Salaries to the CEO amounted to NOK 2,992,032 in 2020 (2019: NOK 2,887,144). The estimated value of benefits in kind totalled NOK 277,805 (2019: NOK 245,082). In addition, NOK 324,909 has been charged to the income statement related to the CEO’s pension agreement (2019: NOK 318,812) (note 20). The CEO has a retirement age of 65 and during the period from 65 to 67 years, it will be paid an annual pension corresponding to 70 per cent of the final salary. The CEO is also included in the bank’s ordinary defined contribution pension scheme.                                               

 

Wages and salaries/fees to elected bodies      
GROUP (NOK thousand)    20202019
General Meeting    180315
Board of Directors *)    1 8962 512
*) Payments from previous years are included in wages and salaries for 2019.   
       
Loans, deposits and guarantees      
GROUP (NOK million)31.12.202031.12.2019  
 LoansDepositsLoansDeposits  
General Meeting58175815  
Board of Directors267206  
Employees1 0561481 037131  
       
Ordinary customer terms and conditions have been applied to loans and other commercial services provided for members of the bank's General Meeting and the Board of Directors.
       
No guarantees have been issued to any of the members of the General Meeting, the Board of Directors or employees.
       
Interest rate subsidy of loans to the employees 
The total benefit in kind relating to loans provided at a rate of interest lower than the interest rate (average 2.17 per cent in 2020) which triggers a basis for taxing such benefits in kind to the employees has been estimated at NOK 5,138,288 compared to NOK 2,004,361 in 2019.
       
       
Interest income and interest costs related to the General Meeting and Board of Directors
(NOK million)    20202019
Interest income    22
Interest costs    00
Wages, salaries and other remuneration - PARENT BANK 
(NOK thousand)Wages/salariesOther remuneration
 2020201920202019
General Meeting    
Jan Kåre Aurdal5457  
Other members 3)126258  
Total180315  
Board of Directors    
Leif-Arne Langøy, Board Chair422581  
Ragna Brenne Bjerkeset, Deputy Board Chair208294  
Henrik Grung242343  
Jill Aasen242254  
Ann Magritt Bjåstad Vikebakk229319  
Kåre Øyvind Vassdal120-  
Helge Karsten Knudsen, employee representative 1)188227  
Marie Rekdal Hide, employee representative 2)170168  
     
Former member    
Roy Reite75328  
Total 4)1 8962 51200
CEO    
Trond Lars Nydal2 9922 887278245
     
Remuneration to Executive Management    
EVP, Retail Banking Division, Elisabeth Blomvik1 4851 462141130
EVP, Corporate Banking Division, Terje Krøvel1 5961 583134153
EVP, Organizational Development, Kjetil Hauge 6)1 2901 2688795
EVP, Treasury and Markets, Runar Sandanger 5)1 7921 613120154
EVP, Finance and Facilities Management, Idar Vattøy 6)1 4011 3819198
EVP, Risk Management and Compliance, Erik Røkke 5)1 3911 375116119
EVP, Business Support, Perdy Lunde1 5971 49292103
EVP, Communications and Group Support, Tone S. Gjerdsbakk1 2851 262118124
EVP, Customer Experience, Arild Sulebakk1 3081 27699104
Total remuneration to Executive Management13 14512 7129981 080
     
Other employess with tasks of significant importance for the bank's risk exposure    
Managing Director Møre Boligkreditt AS, Ole Kjerstad1 0541 0363440
     
Other employees with controller responsibilites    
Head of Compliance, Olav Heggheim8568452535
Head of Risk Management, Leif Kylling1 0401 0314848
Head of Operational Risk, Laila Hurlen9686412726
Head of HR, Anton Flåen1 0911 0901660
     
1) Ordinary salary amounts to NOK 540,196 (2019: NOK 541,957)  
2) Ordinary salary amounts to NOK 607,644 (2019: NOK 610,492)  
3) Deputy Board Chair and members of the General Meeting are compensated with NOK 3,000 per meeting in 2020. 1 meeting has been held in 2020.
4) Payments from previous years are included in wages and salaries for 2019. 
5) Employees with tasks of significant importance for the bank's risk exposure    
6) Employees with controller responsibility    
Loans  
(NOK thousand)Loans
 31.12.202031.12.2019
General Meeting  
Jan Kåre Aurdal2 0572 458
Other members (43 members in 2020 and 43 members in 2019)56 17355 919
Board of Directors  
Leif-Arne Langøy, Board Chair00
Ragna Brenne Bjerkeset, Deputy Board Chair2 2982 877
Henrik Grung00
Jill Aasen00
Ann Magritt Bjåstad Vikebakk6 9997 645
Kåre Øyvind Vassdal7 173-
Helge Karsten Knudsen, employee representative3 6603 568
Marie Rekdal Hide, employee representative5 3985 515
   
Former member of the Board  
Roy Reite00
CEO  
Trond Lars Nydal2 9713 722
Employees1 056 2271 037 279
   
Ordinary customer terms and conditions have been applied to loans and other commercial services provided for members of the bank's General Meeting and Board of Directors.
No guarantees have been issued to the members of the General Meeting, Board of Directors, CEO or employees.  
Loans to the CEO and employee representatives are given according to staff conditions.
 

Note 19

Operating costs excl. personnel costs

The table gives an overview of key cost items. Other costs are included in the line Other operating costs.
GROUP PARENT BANK
20192020(NOK million)20202019
109118IT-costs118109
2414Telephone/postage/office supplies/travel expenses1424
2125Marketing costs2521
2622Depreciation and impairment of fixed- and intangible assets2730
2424Depreciation and impairment - IFRS 16 (leases)2424
3232Property costs4646
-26-26Property costs IFRS 16 (leases)-26-26
169Costs relating to fixed assets916
55Capital tax55
6175Other operating costs (incl. fee to external auditor)4328
292298Total operating costs excl. personnel costs285277
     
     
Specification of fees paid to External Auditor (including value added tax)  
GROUP PARENT BANK
20192020(NOK thousand)20202019
1 3941 391Fees for statutory audit1 022973
394330Fees for other attestation services612
259221Fees regarding tax consulting88140
1 052636Fees for other non-audit services6181 001
3 0992 578Fees to External Auditor (including value added tax)1 7342 126
 

Note 20

Pension costs and liabilities

The Group has two pension plans, a defined benefit plan and a defined contribution plan. The Group also participates in the statutory early retirement pension (SERP) scheme.

The Group`s pension plans meet the requirements in the regulations regarding pensions.

Defined benefit pension scheme in own pension fund
The existing benefit-based pension plan was closed to new members as at 31 December 2009. With effect from 31.12.2015, the benefit-based scheme was further closed by transferring all employees born in 1959 or later from the defined benefit scheme to the defined contribution scheme.

Pension costs and pension liabilities relating to the defined benefit scheme are recognised in accordance with IAS 19.

The pension liabilities are valued annually by an actuary, based on assumptions determined by the bank.

The pension liabilities are calculated as the current value of future, probable pension payments and are based on financial and actuarial calculations and assumptions. The difference between the estimated accrued liability and the value of the pension assets is recognised in the statement of financial position. Actuarial gains and losses due to changed assumptions or deviations between expected and actual return on the pension assets are recognised in Other income and cost in the statement of comprehensive income in the period in which they occur.

The discount rate is based on the interest rate on corporate bonds with high credit ratings. The Norwegian covered bond market is deemed to possess the characteristics required for use as the basis for calculating the discount rate.

Expected return on pension resources is calculated using the same interest rate used for discounting pension liabilities. Return in excess of the discount rate is recognised in Other income and costs in comprehensive income.

The portion of the Group’s pension scheme which is defined benefit, entitles employees to agreed future pension benefits equal to the difference between 70 per cent of leaving salary at vesting age of 67 years and estimated benefits from the Norwegian National Insurance Scheme, assuming full vesting (30 years). This liability comprises 31 (2019: 42) active members and 285 (2019: 279) pensioners by the end of 2020.

Contribution based pension scheme
The Group`s contribution-based pension schemes are delivered by DNB and a percentage of income is paid into the scheme, depending on the individual's level of income, and the payments are expensed as they occur. The contribution based pension scheme has contribution rates of 7 per cent of salary in the range up to 7.1 times the national insurance basic amount (G) and 15 per cent of salary in the range from 7.1 to 12 G. Pension payments are expensed as they occur and are recognised in Wages, salaries etc. in the income statement.

The bank's subsidiary Møre Eiendomsmegling AS has provided a contribution-based pension scheme for its employees. The contribution represents 3 per cent of the employee's salary.

The Group`s costs related to the contribution-based pension schemes amounted to NOK 14 million in 2020 (NOK 13 million in 2019).

Pension agreement for the bank`s CEO
The CEO has a retirement age of 65 years and during the period between 65 to 67 years, it will be paid an annual pension amounting to 70 per cent of final salary. The CEO is also included in the bank’s ordinary defined contribution pension scheme.

Statutory early retirement pension (SERP)
The SERP scheme is not an early retirement scheme, but a scheme that provides a lifelong addition to the ordinary pension. Employees covered by the scheme, and who meets the requirements, can choose to join the SERP scheme from the age of 62, including in parallel with staying in work, and by working until 67 years old it provides additional earnings. The SERP scheme is a defined benefit based multi-enterprise pension scheme and is funded through premiums which are determined as a percentage of pay. The premium for 2019 was set at 2.5 per cent of total payments between 1 G (G = the national insurance basic amount) and 7.1 G to the company`s employees between 13 and 61 years old. For 2021 the premium is set at 2.5 per cent. The scheme does not involve the building up of a fund and the level of premiums is expected to increase in the coming years. At the moment, there is no reliable measurement and allocation of the liabilities and funds in the scheme. The scheme is treated in the financial statements as a contribution-based pension scheme in which premium payments are recognised as costs on an ongoing basis and no provisions are made in the financial statements. Premium payments amount to NOK 4 million in 2020 (NOK 4 million in 2019).

The figures in the table below are equal for the Parent Bank and the Group.

Financial and actuarial assumptions    
 LiabilitiesCosts
 31.12.202031.12.201920202019
Rate of discounting/expected return on pension resources1.502.302.302.80
Wages and salary adjustment2.002.252.252.75
Pension adjustment0000
Adjustment of the National Insurance`s basic amount1.752.002.002.50
Employers` social security contribution19.1019.1019.1019.10
Table for mortality rate etcK 2013BEK 2013BEK 2013BEK 2013BE
Disability tariffIR02IR02IR02IR02
Pension costs in ordinary result20202019
Present value of pension accruals during the year including administration costs35
Interest cost of incurred pension liabilities78
Expected return on pension resources-7-9
Net pension cost for the pension fund34
Change in present value of pension accruals relating to other pension schemes-2-1
Pension costs charged to the profit and loss, incl. payments to the defined-benefit- and the SERP-schemes2019
Total pension costs2122
   
   
Specification of estimate deviations in comprehensive income20202019
Change in the rate of discounting-38-21
Change in other financial assumptions43
Estimate deviations on pension funds-2-11
Total estimate deviations-36-29
   
   
Total pension liabilities/-funds31.12.202031.12.2019
Pension liabilities342320
Value of pension resources-315-317
Net pension liabilities/-funds relating to the pension fund273
Net pension liabilities relating to members of the bank's executive management/bank managers3029
Total net pension liabilities/-funds5732
Sensitivity analysisChange in the rate of discounting in %Effect on the liability in % as at 31.12.2020Effect on the pension cost in % in 2020
The funded plan (Pension Fund)0.5-6.1-6.0
The funded plan (Pension Fund)-0.56.66.6
Unfunded schemes (Other schemes)0.5-5.2-5.8
Unfunded schemes (Other schemes)-0.55.86.2
    
The sensitivity analysis above is based on a change in the discount rate, given that all other factors remain constant.
Sensitivity calculations are performed using the same method as the actuarial calculation for the calculation of the pension liability in the statement of financial position.

Management of the Pension Fund`s resources
Sparebanken Møre has its own pension fund managing payments of the pension benefits at a vesting age of 67 years.

The capital shall be managed in consideration of security, the diversification of risk, return and liquidity. The Pension Fund shall manage the assets in such a way that the correct compliance with the insurance liabilities involved is secured and safeguarded. In particular, the management of the Pension Fund shall ensure security over time against the background of the Pension Fund’s long-term liabilities.

The Pension Fund has invested in 1,950 (2,752) ECs issued by Sparebanken Møre. Beyond this, the Pension Fund has not invested in financial instruments issued by Sparebanken Møre or in properties owned or used by the bank.

The Pension Fund has a deposit of NOK 56 million in Sparebanken Møre in 2020 (NOK 21 million in 2019). 

Investment profile - pension resources31.12.202031.12.2019
 Fair value%Fair value%
Shares8314.49116.0
Fund shares7212.5478.3
Bonds/certificates33958.937866.7
Bank deposits8214.2519.0
Total pension resources576100.0567100.0
NOK 315 million (NOK 317 million) of the total pension resources of NOK 576 million (NOK 567 million) are related to the defined benefit scheme in Sparebanken Møre. The remaining pension resources (excluding the paid-in equity of NOK 69 million in the Pension Fund) are related to issued paid-up policies, administered by Sparebanken Møre's Pension Fund.
     
     
     
Return on pension resources in %  31.12.202031.12.2019
Total pension resources  3.106.92
 

Note 21

Tax

Taxes consist of payable income tax and change in deferred tax.

Deferred tax/tax benefit is calculated on basis of the temporary differences, existing between the accounting-related and tax-related value of assets and liabilities at the end of the accounting year. Temporary negative and positive differences which are reversed or which may be reversed during the same period, have been offset and included in the accounts on a net basis.

Deferred tax benefit is included in the accounts when it is likely that the Group will have sufficient tax-related profits in the future to be able to utilize it. On each balance sheet day, the Group reviews the deferred tax benefit included in the accounts and its stated value. The Group will reduce the amount of deferred tax benefit to the amount that the Group may be able to utilize.

Payable tax and deferred tax/tax benefits are recognised in comprehensive income to the extent that this relates to items which are recognised in comprehensive income. Temporary differences, including calculated deferred tax related to pension estimate deviations have been recognised in comprehensive income, in addition to payable tax related to changes in value on basis spreads recognised in comprehensive income.

Deferred tax and deferred tax benefits are calculated on basis of the expected future tax rates applicable to the companies in the Group where temporary differences have materialised. Deferred tax and deferred tax benefits are incorporated in the accounts irrespective of when the differences are going to be reversed. Deferred tax benefit is at nominal value.

Sparebanken Møre is subject to financial tax and has therefore a tax rate of 25 per cent both for 2019 and 2020. The subsidiaries, however, has a tax rate of 22 per cent both for 2019 and 2020. For the Parent bank this means that both tax payable and deferred tax are calculated at a tax rate of 25 per cent for all the years, while the tax rate applied for the subsidiaries is 22 per cent.

The entire tax cost is related to Norway.

Tax expense recognised in the income statement  
GROUP PARENT BANK
20192020 20202019
151111Tax payable on profit for the period10988
6056Changes in deferred taxes in the income statement *)-765
-110Changes in estimates related to prior years0-3
200167Taxes102150
22.022.8Effective tax rate (tax expense as a percentage of pre tax profit)15.418.5
*) The tax reporting for previous years was amended in 2019. This resulted in a reduction in deferred tax assets and a corresponding reduction in tax payable, of which NOK 51 million, related to the subsidiary Møre Boligkreditt AS, was still outstanding as at 31.12.2019.
     
Tax expense recognised in the comprehensive income  
GROUP PARENT BANK
20192020 20202019
-7-9Changes in deferred taxes due to pension estimate deviations-9-7
01Tax effect on tax payable related to changes in value on basis spreads00
-7-8Tax expense in comprehensive income-9-7
     
     
Specification of the difference between the pre-tax profit and the income subject to tax
GROUP PARENT BANK
20192020 20202019
911734Pre tax profit663811
-27-14Non-taxable income and non-deductable costs related to shares-242-199
-23-27Deductable interests on Additional Tier 1 capital treated as equity-27-23
1410Other non-taxable income and non-deductable costs1125
-239-308Changes in temporary differences *)31-262
636395Taxable income436352
151111Tax payable on ordinary profit (25 % for the Parent Bank and 22 % for the subsidiaries)10988
00Tax payable on comprehensive income (25 % for the Parent Bank and 22 % for the subsidiaries)00
151111Tax payable *)10988
*) The tax reporting for previous years was amended in 2019. This resulted in a reduction in deferred tax assets and a corresponding reduction in tax payable, of which NOK 51 million, related to the subsidiary Møre Boligkreditt AS, was still outstanding as at 31.12.2019.
     
     
Specification of temporary differences and the computation of deferred tax
GROUP PARENT BANK
31.12.201931.12.2020 31.12.202031.12.2019
  Temporary differences relating to:  
-40-30Fixed assets-37-52
217227Pension liabilities227217
686974Other temporary differences347402
8631 171Net negative (-) / positive differences recognised in the income statement537567
-248-284Share of net pension liability recognised in other comprehensive income-284-248
45Limited partnerships54
619892Total negative (-) / positive differences258323
146-47Loss carried forward081
146194Deferred tax asset (-) or liability (25 per cent for the Parent Bank and 22 per cent for the subsidiaries)6581
     
     
Reconciliation of tax expense and pre-tax profit
GROUP PARENT BANK
20192020 20202019
22017525 % of pre-tax profit (22 % for the subsidiaries)166203
-7-4Equities 25 % (22 %)-61-50
-2-4Other non-taxable income and non-deductable costs 25 % (22 %)-41
-110Changes in estimates related to prior years0-3
200167Total taxes102150
 

Note 22

Classification of financial instruments

Financial assets and financial liabilities are recognised in the balance sheet at the date when the Group becomes a party to the contractual provisions of the instrument. A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or the company transfers the financial asset in such a way that risk and profit potential of the financial asset is substantially transferred. Financial liabilities are derecognised from the date when the rights to the contractual provisions have been fulfilled, cancelled or expired.

CLASSIFICATION AND MEASUREMENT
The Group’s portfolio of financial instruments is at initial recognition classified in accordance with IFRS 9. Financial assets are classified in one of the following categories: 

  • Amortised cost
  • Fair value with value changes through the income statement

The classification of the financial assets depends on two factors:

  • The purpose of the acquisition of the financial instrument
  • The contractual cash flows from the financial assets

Financial assets assessed at amortised cost
The classification of the financial assets assumes that the following requirements are met:

  • The asset is acquired to receive contractual cash flows
  • The contractual cash flows consist solely of principal and interest

All lending and receivables are recorded in the accounts at amortised cost, based on expected cash flows. The difference between the initial cost and the settlement amount at maturity, is amortised over the lifetime of the loan.

Loans and receivables
All loans and receivables are valued in the balance sheet at fair value at first assessment, with the addition of directly attributable transaction costs for instruments which are not assessed at fair value with value changes recognised in the income statement. Fair value when first assessed is normally the same as the transaction price. When determining the loan’s value at the time of transaction (transaction price), direct transaction costs are deducted and subject to accrual accounting over the lifetime of the loan as part of the loan’s effective interest rate. Loans are subsequently assessed at amortised cost by applying the effective interest rate method. The effective rate of interest is the rate at the signing time which exactly discounts estimated, future cash flows over the loan’s expected lifetime, down to the net value of the loan as shown in the balance sheet. By conducting this calculation, all cash flows are estimated, and all contract-related terms and conditions relating to the loan are taken into consideration.

Financial liabilities assessed at amortised cost
Debt securities, including debt securities included in fair value hedging, loans and deposits from credit institutions and deposits from customers, are valued at amortised cost based on expected cash flows. The portfolio of own bonds is shown in the accounts as a reduction of the debt.

Financial instruments assessed fair value, any changes in value recognised through the income statement
The Group's portfolio of bonds in the liquidity portfolio is classified at fair value through the income statement. The portfolio is held solely for liquidity management and is traded to optimize returns within current quality requirements of the liquidity portfolio. The Group’s portfolio of fixed interest rate loans is assessed at fair value to avoid accounting mismatch in relation to the underlying interest rate swaps.

Financial derivatives are contracts signed to mitigate an existing interest rate or currency risk incurred by the bank. Financial derivatives are recognised at fair value through the income statement and recognised gross per contract as an asset or liability.

The Group’s portfolio of shares is assessed at fair value with any value changes through the income statement.

Losses and gains as a result of value changes on assets and liabilities assessed at fair value, with any value changes being recognised in the income statement, are included in the accounts during the period in which they occur.

GROUP - 31.12.2020Financial instruments at fair value in the income statementFinancial derivatives in hedgingFinancial instruments assessed at amortised costTotal book value
Cash and claims on Norges Bank  542542
Loans to and receivables from credit institutions  1 1661 166
Loans to and receivables from customers4 372 62 47866 850
Certificates and bonds8 563  8 563
Shares and other securities178  178
Financial derivatives5891 204 1 793
Total financial assets13 7021 20464 18679 092
Loans and deposits from credit institutions  2 2092 209
Deposits from customers  39 02339 023
Financial derivatives52512 537
Debt securities issued  28 77428 774
Subordinated loan capital and Additional Tier 1 capital  702702
Total financial liabilities5251270 70871 245
     
GROUP - 31.12.2019Financial instruments at fair value in the income statementFinancial derivatives in hedgingFinancial instruments assessed at amortised costTotal book value
Cash and claims on Norges Bank  1 0721 072
Loans to and receivables from credit institutions  1 0881 088
Loans to and receivables from customers4 197 59 83264 029
Certificates and bonds6 938  6 938
Shares and other securities194  194
Financial derivatives683493 1 176
Total financial assets12 01249361 99274 497
Loans and deposits from credit institutions  817817
Deposits from customers  36 80336 803
Financial derivatives26325 288
Debt securities issued  28 27128 271
Subordinated loan capital and Additional Tier 1 capital  704704
Total financial liabilities2632566 59566 883
     
     
PARENT BANK - 31.12.2020Financial instruments at fair value in the income statementFinancial derivatives in hedgingFinancial instruments assessed at amortised costTotal book value
Cash and claims on Norges Bank  542542
Loans to and receivables from credit institutions  5 9255 925
Loans to and receivables from customers5 061 32 86437 925
Certificates and bonds8 950  8 950
Shares and other securities178  178
Financial derivatives64829 677
Total financial assets14 8372939 33154 197
Loans and deposits from credit institutions  3 1133 113
Deposits from customers  39 04939 049
Financial derivatives50912 521
Debt securities issued  5 2865 286
Subordinated loan capital and Additional Tier 1 capital  702702
Total financial liabilities5091248 15048 671
     
     
PARENT BANK - 31.12.2019Financial instruments at fair value in the income statementFinancial derivatives in hedgingFinancial instruments assessed at amortised costTotal book value
Cash and claims on Norges Bank  1 0721 072
Loans to and receivables from credit institutions  3 2593 259
Loans to and receivables from customers9 134 29 36038 494
Certificates and bonds6 260  6 260
Shares and other securities194  194
Financial derivatives586  586
Total financial assets16 174-33 69149 865
Loans and deposits from credit institutions  1 5191 519
Deposits from customers  36 82436 824
Financial derivatives2411 242
Debt securities issued  5 2095 209
Subordinated loan capital and Additional Tier 1 capital  704704
Total financial liabilities241144 25644 498
 

Note 23

Financial instruments at amortised cost

Loans are assessed at fair value at first assessment, with the addition of direct transaction costs. When determining the loan’s value at the time of transaction (transaction price), direct transaction costs are deducted and subject to accrual accounting over the lifetime of the loan as part of the loan’s effective interest rate. Loans are subsequently assessed at amortised cost by applying the effective interest rate method. The effective rate of interest is the rate at the signing time which exactly discounts estimated, future cash flows over the loan’s expected lifetime, down to the net value of the loan as shown in the balance sheet. By conducting this calculation, all cash flows are estimated, and all contract-related terms and conditions relating to the loan are taken into consideration. Fair value of the instruments traded in active markets is based on traded price on the balance sheet date. For those financial instruments not traded in an active market, own valuations based on current market conditions are applied, alternatively valuations from another market player.

GROUP31.12.202031.12.2019
 Fair valueBook valueFair valueBook value
Cash and claims on Norges Bank5425421 0721 072
Loans to and receivables from credit institutions1 1661 1661 0881 088
Loans to and receivables from customers62 47862 47859 83259 832
Total financial assets64 18664 18661 99261 992
Loans and deposits from credit institutions2 2092 209817817
Deposits from customers39 02339 02336 80336 803
Debt securities issued28 90728 77428 36228 271
Subordinated loan capital and Additional Tier 1 capital714702714704
Total financial liabilities70 85370 70866 69666 595
     
     
PARENT BANK31.12.202031.12.2019
 Fair valueBook valueFair valueBook value
Cash and claims on Norges Bank5425421 0721 072
Loans to and receivables from credit institutions5 9255 9253 2593 259
Loans to and receivables from customers32 86432 86429 36029 360
Total financial assets39 33139 33133 69133 691
Loans and deposits from credit institutions3 1133 1131 5191 519
Deposits from customers39 04939 04936 82436 824
Debt securities issued5 3005 2865 2245 209
Subordinated loan capital and Additional Tier 1 capital714702714704
Total financial liabilities48 17648 15044 28144 256
 

Note 24

Financial instruments at fair value

LEVELS IN THE VALUATION HIERARCHY
Financial instruments are classified into different levels based on the quality of market data for each type of instrument.

Level 1 – Valuation based on prices in an active market
Level 1 comprises financial instruments valued by using quoted prices in active markets for identical assets or liabilities. This category includes listed shares and mutual funds, as well as bonds and certificates in LCR-level 1.

Level 2 – Valuation based on observable market data
Level 2 comprises financial instruments valued by using information which is not quoted prices, but where prices are directly or indirectly observable for assets or liabilities, including quoted prices in inactive markets for identical assets or liabilities. This category mainly includes debt securities issued, derivatives and bonds which are not included in level 1.

Level 3 – Valuation based on other than observable market data
Level 3 comprises financial instruments which cannot be valued based on directly or indirectly observable prices. This category mainly includes loans to and deposits from customers, as well as shares.

Approach to valuation of financial instruments in Level 3 of the fair value hierarchy:

Fixed rate loans
There have been no significant changes in the approach to the valuation of fixed-rate loans in 2020. Fair value is calculated based on contractual cash flows discounted at a market interest rate matching the rates applicable to the corresponding fixed-rate loans at the balance sheet date. In the income statement, the change in value is presented under Net gains/losses from financial instruments. A change in the discount rate of 10 basis points would result in a change of approximately NOK 15 million on fixed rate loans.

Shares
Shares presented in level 3 of the valuation hierarchy are primarily the bank's investment in Eksportfinans ASA (NOK 75 million) and the bank's ownership interest in Vipps AS (NOK 47 million).

The tables below show financial instruments at fair value. 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROUP - 31.12.2020Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Cash and claims on Norges Bank   -
Loans to and receivables from credit institutions   -
Loans to and receivables from customers  4 3724 372
Certificates and bonds6 1212 442 8 563
Shares14 164178
Financial derivatives 1 793 1 793
Total financial assets6 1354 2354 53614 906
Loans and deposits from credit institutions   -
Deposits from customers   -
Debt securities issued   -
Subordinated loan capital and Additional Tier 1 capital   -
Financial derivatives 537 537
Total financial liabilities-537-537
     
     
GROUP - 31.12.2019Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Cash and claims on Norges Bank   -
Loans to and receivables from credit institutions   -
Loans to and receivables from customers  4 1974 197
Certificates and bonds4 7412 197 6 938
Shares6 188194
Financial derivatives 1 176 1 176
Total financial assets4 7473 3734 38512 505
Loans and deposits from credit institutions   -
Deposits from customers   -
Debt securities issued   -
Subordinated loan capital and Additional Tier 1 capital   -
Financial derivatives 288 288
Total financial liabilities-288-288
     
     
     
PARENT BANK - 31.12.2020Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Cash and claims on Norges Bank   -
Loans to and receivables from credit institutions   -
Loans to and receivables from customers  5 0615 061
Certificates and bonds6 0042 946 8 950
Shares14 164178
Financial derivatives 677 677
Total financial assets6 0183 6235 22514 866
Loans and deposits from credit institutions   -
Deposits from customers   -
Debt securities issued   -
Subordinated loan capital and Additional Tier 1 capital   -
Financial derivatives 521 521
Total financial liabilities-521-521
     
     
PARENT BANK - 31.12.2019Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Cash and claims on Norges Bank   -
Loans to and receivables from credit institutions   -
Loans to and receivables from customers  9 1349 134
Certificates and bonds4 4701 790 6 260
Shares6 188194
Financial derivatives 586 586
Total financial assets4 4762 3769 32216 174
Loans and deposits from credit institutions   -
Deposits from customers   -
Debt securities issued   -
Subordinated loan capital and Additional Tier 1 capital   -
Financial derivatives 242 242
Total financial liabilities-242-242
GROUP - Level 3 reconciliationLoans to and receivables from customersShares
Book value as at 31.12.20194 197188
Purchases/additions1 2044
Sales/reduction-1 058-17
Transferred to Level 300
Transferred from Level 300
Net gains/losses in the period29-11
Book value as at 31.12.20204 372164
   
   
PARENT BANK - Level 3 reconciliationLoans to and receivables from customersShares
Book value as at 31.12.20199 134188
Purchases/additions5334
Sales/reduction-4 619-17
Transferred to Level 300
Transferred from Level 300
Net gains/losses in the period13-11
Book value as at 31.12.20205 061164
Shares and other securities   
GROUP/PARENT BANKStakeNumber of sharesAcquistion costBook value/ market value
Eksportfinans ASA1.3 %3 5514675
Vipps AS1.1 %12 6301947
VN Norge AS1.6 % -16
Solstad Offshore ASA1.3 %965 728229
Visa Norge Forvaltning AS0.3 % -6
Novela Kapital I AS15.0 % 55
Sparebank 1 Søre-Sunnmøre4.8 %48 07055
Sparebank 1 Nordvest1.7 %37 756-4
Other  3411
Total  131178
Certificates and bonds  
GROUP PARENT BANK
31.12.201931.12.2020 31.12.202031.12.2019
  Public sectors  
2 4442 675Acquistion cost2 6282 270
2 4812 732Book value2 6862 307
     
  Credit institutions  
3 8144 732Acquistion cost5 1593 313
3 8534 819Book value5 2523 349
     
  Other financial companies  
603993Acquistion cost993603
6041 012Book value1 012604
     
  Total certificates and bonds  
6 8618 400Acquistion cost8 7806 186
6 9388 563Book value8 9506 260
 

Note 25

Financial derivatives

Financial derivatives are contracts entered into in order to hedge an already existing interest- or foreign exchange risk incurred by the bank. Financial derivatives are recognised at fair value, with value changes recognised in the income statement, and are capitalized on a gross basis per contract as assets or liabilities respectively. Changes in value of basis swaps in hedge accounting which is caused by changes in basis spreads are recognised in other comprehensive income as a cost of hedging. The estimated fair value of financial OTC derivatives is adjusted for counterparty credit risk (CVA) or for the Group's own credit risk (DVA).

Calculation of fair value of financial derivatives is based on valuation models in which the price of underlying interest and currency are obtained in the market.

The table shows the financial derivatives’ nominal values and their market values. In the accounts, financial derivatives are presented as an asset or as a liability, depending on whether the derivative has a positive or a negative value.

The table shows the value of derivative contracts, covered by set-off agreements or secured by cash under Credit Support Annex (CSA). For customer transactions, limits are established based on necessary formal credit-handling procedures where sufficient security is demanded for the limit. For banking counterparties, the counterparty risk associated with changes in market conditions is regulated through CSA agreements. Sparebanken Møre requires the signing of CSA (Credit Support Annex) agreements before trading of derivatives against any interbank counterparty. This provides Sparebanken Møre with collateral for any given exposure. The agreements with counterparties define when the collateral shall be transferred between the parties. Sparebanken Møre practices cash collateral to these counterparties. The market value of all derivatives signed between Sparebanken Møre and the counterparty is settled according to the different CSA-agreements and the counterparty risk will then largely be eliminated. As at 31.12.2020, Sparebanken Møre has a cash collateral of NOK 838 million (NOK 200 million). The subsidiary Møre Boligkreditt AS has received a cash collateral of NOK 546 million (NOK 125 million). 

 

 20202019
GROUPNominal valueAssetLiabilityNominal valueAssetLiability
Interest rate instruments      
Interest rate swaps11 33118832810 127153121
Total interest rate instruments11 33118832810 127153121
       
Foreign exchange instruments      
Foreign exchange swaps1 86701501 6645193
FX Forward exchange contracts8 827440475 45947949
Total financial derivatives10 6944401977 123530142
       
Hedging instruments      
Interest rate swaps4 775300123 77535715
Foreign exchange swaps7 78286507 53713610
Total hedging instruments12 5571 1651211 31249325
       
Total financial derivatives34 5821 79353728 5621 176288
       
       
       
 20202019
PARENT BANKNominal valueAssetLiabilityNominal valueAssetLiability
Interest rate instruments      
Interest rate swaps13 97820532610 12794125
Total interest rate instruments13 97820532610 12794125
       
Foreign exchange instruments      
Foreign exchange swaps1 54931361 3941367
FX Forward exchange contracts8 827440475 45947949
Total financial derivatives10 3764431836 853492116
       
Hedging instruments      
Interest rate swaps1 725291272501
Foreign exchange swaps000000
Total hedging instruments1 725291272501
       
Total financial derivatives26 07967752117 705586242
As of 31 December 2020, the following swaps were used in fair value hedging of interest rate risk:
GROUP - 2020CurrencyUp to 1 month1-3 months3-12 months1-5 yearsOver 5 years
Nominal amountNOK   3 7751 000
Average fixed interest rate    2.5 %2.8 %
Nominal amountEUR   7 865262
Average fixed interest rate    0.2 %2.8 %
       
GROUP - 2019CurrencyUp to 1 month1-3 months3-12 months1-5 yearsOver 5 years
Nominal amountNOK   1 7252 050
Average fixed interest rate    1.9 %3.8 %
Nominal amountEUR   5 8251 712
Average fixed interest rate    0.2 %0.4 %
       
PARENT BANK - 2020CurrencyUp to 1 month1-3 months3-12 months1-5 yearsOver 5 years
Nominal amountNOK   1 725 
Average fixed interest rate    1.7 % 
       
PARENT BANK - 2019CurrencyUp to 1 month1-3 months3-12 months1-5 yearsOver 5 years
Nominal amountNOK   725 
Average fixed interest rate    2.4 % 
Maturity of financial derivatives, nominal value 
     
GROUP20202019
MaturityInterest rate and foreign exchange swapsForward exchange contractsInterest rate and foreign exchange swapsForward exchange contracts
2020  2 0845 196
20212 1878 6332 258178
20225 1991194 99937
20234 883214 3428
20243 732113 4098
20254 187111 6658
20261 200111 1988
202743711629
20281 67871 6144
202992139922
20301 112 250 
2032219 229 
 25 7558 82723 1025 458
     
     
     
PARENT BANK20202019
MaturityInterest rate and foreign exchange swapsForward exchange contractsInterest rate and foreign exchange swapsForward exchange contracts
2020  1 8145 196
20212 1878 6332 258178
20221 7071191 58537
20232 385211 9238
20241 172119288
20253 137116158
20261 200111 1988
202711911629
202844773914
202992139922
20303 758 250 
2032219 229 
 17 2528 82712 2455 458
 

Note 26

Debt securities

The debt securities in the Parent bank consist of bonds quoted in Norwegian kroner. Møre Boligkreditt AS has issued covered bonds quoted in NOK and EUR.

The bank’s loans at floating interest rates are assessed at amortised cost. Loans at fixed interest rates are assessed by using fair value hedging for changes in fair value due to changes in market rates, with value changes recognised in the income statement. The bank hedges the value of interest rate and FX-risk on an individual basis. There is a clear, direct and documented connection between value changes relating to the hedging instrument and the hedged object. This connection is documented through a test of the hedging effeciency when entering into the transaction and through the hedging period. Hedging gains and losses result in an adjustment of the book value of hedged loans. The hedging adjustments are amortised over the remaining period of the hedging by adjusting the loans’ effective interest rate if the hedging no longer is effective, if hedging is discontinued or by other termination of hedging. By applying this principle, a correct accounting presentation is established, in accordance with the bank’s interest rate and FX management and the actual financial development.

Changes in debt securities     
GROUPBalance at 31.12.19IssuedOverdue/redeemedOther changesBalance at 31.12.20
Bonds and certificates, nominal value27 6605 821-5 912 27 569
Accrued interests73  -1360
Value adjustments538  6071 145
Total debt securities28 2715 821-5 91259428 774
      
      
PARENT BANKBalance at 31.12.19IssuedOverdue/redeemedOther changesBalance at 31.12.20
Bonds and certificates, nominal value5 1992 500-2 438 5 261
Accrued interests13  -112
Value adjustments-3  1613
Total debt securities5 2092 500-2 438155 286
Maturity of securities-based debt, nominal value  
GROUP PARENT BANK
NOKCurrencyTotalMaturityNOKCurrencyTotal
3 961 3 9612021961 961
1 8002 3634 1632022800 800
1 0002 3753 37520231 000 1 000
4 5002 4986 99820241 500 1 500
7 550 7 55020251 000 1 000
  -2026   
 3213212027   
1 0002011 2012028   
19 8117 75827 569Total5 261-5 261
       
An overview of contractual non-discounted cash flows is presented in note 14.  
 

Note 27

Subordinated loan capital and Additional Tier 1 capital

GROUP AND PARENT BANK   
ISINCurrencyIssueMaturityTerms31.12.2020
NO0010809304NOK31.10.201720233 mnth NIBOR + 1.55502
NO0010791692NOK03.05.201720223 mnth NIBOR + 1.46200
Subordinated loan capital702
      
      
ISINCurrencyIssueMaturityTerms31.12.2020
NO0010796154NOK15.06.201720223 mnth NIBOR + 3.25349
NO0010856495NOK12.06.201920243 mnth NIBOR + 3.50250
Additional Tier 1 Capital599

Additional Tier 1 capital NO0010796154 and Additional Tier 1 capital NO0010856495 are classified as equity in the balance sheet and are included in the Tier 1 capital. Based on the fact that the bank has a unilateral right not to pay interest or principal to investors, they do not qualify as debt according to IAS 32. The interest cost is not presented in the income statement, rather as a reduction of retained earnings. The cost is recognised by payment. Interests totalling NOK 27 million has been paid in 2020. NOK 27 million of the profit after tax are allocated to the owners of Additional Tier 1 capital.

There is no option to convert the subordinated loan capital/Additional Tier 1 capital to equity certificate capital. The Group had no investments in subordinated loan capital in other enterprises (including credit institutions) at the end of 2020. Loan agreements are made available on the bank's website.

Changes in subordinated loan capital   
GROUP AND PARENT BANKBook value 31.12.19IssuedMatured/redeemedOther changesBook value 31.12.20
Subordinated loan capital, nominal value700   700
Accrued interest4  -22
Value adjustments0   0
Total subordinated loan capital704  -2702
      
Changes in Additional Tier 1 capital (classified as equity)   
GROUP AND PARENT BANKBook value 31.12.19IssuedMatured/redeemedOther changesBook value 31.12.20
Additional Tier 1 capital, nominal value600   600
Accrued interest0   0
Value adjustments-1   -1
Total Additional Tier 1 capital (classified as equity)599   599
 

Note 28

Deposits from customers

Deposits with agreed floating interest rate and agreed fixed-interest rate are measured at amortised cost. For more information about classification and measurement, see note 22.
     
DEPOSITS FROM CUSTOMERSGroupParent Bank
Sector/industry31.12.202031.12.201931.12.202031.12.2019
Agriculture and forestry196187196187
Fisheries1 4461 2521 4461 252
Manufacturing2 3211 6592 3211 659
Building and construction909841909841
Wholesale and retail trade, hotels1 0828391 082839
Property management1 8021 6481 8021 658
Transport and private/public services4 7735 4484 7995 459
Public entities822777822777
Activities abroad2525
Miscellaneous2 3042 4622 3042 462
Total corporate/public entities15 65715 11815 68315 139
Retail customers23 36621 68523 36621 685
Total deposits from customers39 02336 80339 04936 824
 

Note 29

Subsidiaries

GROUP STRUCTURE      
Parent bankHome countryCore operations    
Sparebanken MøreNorwayBanking    
       
Ownerhship in credit institutions    
CompanyHome countryCore operationsOwnership shareVoting shareBook value 2020Book value 2019
Møre Boligkreditt ASNorwayFunding100 %100 %2 0502 050
       
Ownership in other subsidiaries    
CompanyHome countryCore operationsOwnership shareVoting shareBook value 2020Book value 2019
Møre Eiendomsmegling ASNorwayReal estate brokerage100 %100 %99
Sparebankeiendom ASNorwayReal estate management100 %100 %1212
  Total ownership in other subsidiaries2121
       
  Total ownerhip in subsidiaries2 0712 071

Transactions involving subsidiaries
These are transactions between the Parent Bank and wholly owned subsidiaries made at arm’s length and at arm’s length’s prices.

Settlement of financing costs and -income between the different segments is done on an ongoing basis using the Parent Bank’s funding cost. The internal rate of interest for this is defined as the effective 3-month NIBOR + a funding supplement for long-term financing (1.46 per cent in 2020 and 2.33 per cent in 2019).

Rent is allocated according to the floor space used for each segment, based on the same principles and the same prices as those applicable to the Parent Bank, at market rent.

Other services (office supplies, IT-equipment etc.) are bought by the segment involved from the Parent Bank at the same price as the Parent Bank obtains from external suppliers.

There are transactions between Sparebanken Møre and Møre Boligkreditt AS related to the transfer of loan portfolio to Møre Boligkreditt AS, as well as Sparebanken Møre providing loans and credits to the mortgage company. The economic conditions for the transfer of loans from Sparebanken Møre are market value. If mortgages with fixed interest rates are purchased, the price will be adjusted for premium/discount.

Sparebanken Møre is responsible for ensuring that loans transferred to Møre Boligkreditt AS are properly established and in accordance with the requirements set forth in the agreement between the mortgage company and the Parent Bank. In case of violation of these requirements, the bank will be liable for any losses that the mortgage company would experience as a result of the error. Sparebanken Møre and Møre Boligkreditt AS have formalised settlement of interest for transaction days from the date of transfer of the portfolio of loans to the date of settlement of the consideration.

To ensure timely payment to holders of covered bonds (OMF) and associated derivatives, a revolving credit facility (" Revolving Credit Facility Agreement ") is established between Sparebanken Møre and Møre Boligkreditt AS. Sparebanken Møre guarantees timely coupon payments and payments linked to derivatives on outstanding covered bonds from Møre Boligkreditt AS, and repayment of principal on the covered bonds maturing in the ongoing next 12 months. In addition to the revolving credit facility, Møre Boligkreditt AS has a credit facility in Sparebanken Møre with an allocated limit of NOK 5 billion.

The pricing of services provided to Møre Boligkreditt AS from Sparebanken Møre distinguishes between fixed and variable costs for the mortgage company. Fixed costs are defined as costs which the mortgage company must bear, regardless of the activity related to the issuance of covered bonds, acquisition of portfolio etc. Variable costs are defined as costs related to the size of the portfolio acquired from Sparebanken Møre, and the work that must be exercised by the bank`s staff to provide adequate services given the number of customers in the portfolio. 

The most important transactions that have been eliminated in the Group accounts are as follows:
PARENT BANK20202019
Statement of income  
Net interest and credit commission income from subsidiaries2410
Received dividend from subsidiaries227172
Administration fee received from Møre Boligkreditt AS4136
Rent paid to Sparebankeiendom AS1413
   
Statement of financial position at 31.12.  
Claims on subsidiaries4 8762 290
Covered bonds5030
Liabilities to subsidiaries1 475848
Intragroup right-of-use of properties in Sparebankeiendom AS96107
Intragroup hedging60-
Accumulated loan portfolio transferred to Møre Boligkreditt AS29 04525 658
 

Note 30

Leases and rental agreements

Rental of business premises
The bank rents 26 of its business premises from external lessors, as well as 2 from the bank’s wholly-owned real estate management company, Sparebankeiendom AS. Please see note 31 for further information about the business premises.

 

PARENT BANK20202019
Rent paid to:  
Sparebankeiendom AS1615
Other external lessors1111

Duration of rental agreements
Rental agreements with external lessors are mainly of 5- and 10-years duration (some of 1 year) with a mutual 12 months’ notice period and at market prices. Rental agreements with the subsidiary Sparebankeiendom AS have a 10-year duration. Rent is at market price.

Rental agreements according to IFRS 16
The Group implemented IFRS 16 Leases in 2019. The new standard requires lessees to recognise assets and liabilities for most leases, which is a significant change from previous requirements. The standard affects the Group's accounting for lease of property.

Sparebanken Møre has taken advantage of the opportunity not to capitalise leases related to low-value assets and/or assets with short lifetimes (less than 1 year). These include, for example, office machines and coffee makers. The discount rate used is equivalent to the bank’s marginal loan rate and amounts to 2.04 per cent. Right-of-use assets are presented in the Statement of financial position under the accounting line “Fixed assets”, while the related lease liabilities are presented under the accounting line “Other liabilities”.

As a consequence of the new rules, the rental expense in the Group is reduced by NOK 12.8 million in 2020 (NOK 13.6 million), while interest expense has increased by NOK 1.2 million (NOK 1.4 million) and depreciation has increased by NOK 11.2 million (NOK 12.5 million). In the Parent Bank, rental expense is reduced by NOK 26.4 million in 2020 (NOK 27.0 million), while interest expense has increased by NOK 3.3 million (NOK 3.7 million) and depreciation has increased by NOK 23.9 million (NOK 24.6 million). 

Right-of-use assets according to IFRS 16  
GROUP PARENT BANK
20192020 20202019
065Right-of-use assets OB1720
780Implementation effects0197
00Additions10
1312Depreciations2425
6553Right-of-use assets CB149172
     
Lease liability according to IFRS 16  
GROUP PARENT BANK
20192020 20202019
066Lease liability OB1740
780Implementation effects0197
00Additions10
1415Lease payments2627
12Interests34
6653Lease liabilities CB152174
PARENT BANK - Maturity analysis, undiscounted cash flow 
 2020
Less than 1 år26
1-2 years25
2-3 years23
3-4 years21
4-5 years20
More than 5 years49
Total undiscounted cash flow164

Other significant agreements
The Group has outsourced most of the operations within the IT-area. Sparebanken Møre has an agreement with TietoEVRY, for delivery of the bank`s IT services. The agreement has an annual fixed cost of NOK 67 million. The agreement was extended in December 2018 and expires 2021. Sparebanken Møre continues the cooperation of a complete range of banking solutions and operating services from TietoEVRY.

TietoEVRY delivers solutions that support key banking services such as deposits, financing, card and payment processing, accounting and reporting, message distribution and customer interaction services, self-service channels and solutions for branch offices. In addition, TietoEVRY delivers operation of all banking systems and infrastructure.  

 

Note 31

Fixed assets

Fixed assets are valued at historical cost, including direct attributable cost, less accumulated depreciation and impairment. When assets are sold or disposed of, the cost price and accumulated depreciations are reversed in the accounts, and any gains or losses from the sale are recognised in the income statement. The cost price of fixed assets is defined as the purchase price, including levies, indirect taxes and direct acquisition costs relating to preparing the asset for use. Expenses incurred after the bank has started using the asset, including repairs and maintenance, are expensed.

If the acquisition cost of a component is substantial in relation to the total acquisition cost, and the time of usage involved is significantly different, substantial fixed assets are broken down into separate components for depreciation purposes.

Depreciation is calculated by applying the straight-line method over the following time periods, taking into account the residual value:  

Fixed assetsTime profile depreciation
Building plots and sitesNo depreciaton
Holiday propertiesNo depreciaton
Buildings50 years
Technical installations10 years
Fixtures and fittings8-10 years
Cars5 years
Office machines5 years
IT-equipment3-5 years

An annual reassessment is made of remaining life and residual values for each separate asset. At each reporting date, fixed assets are assessed as to whether there are indications of impairment. If there are such indications, the assets’ recoverable amounts are calculated. The recoverable amount is the higher of fair value less sales costs, and the value of use. When assessing impairment, the fixed assets are grouped together at the lowest level in which it is possible to separate independent cash flows (cash generating units). A cash generating unit is defined as the smallest identifiable group generating cash flows, which to a very large extent is independent of other assets or groups. The book value of an asset is immediately impaired to the recoverable amount, if the book value is higher.

Similarly, an assessment is made in order to ascertain whether the basis for previous impairment still exists. If the basis for previous years’ impairment no longer is present, the previous years’ impairments are reversed and included in the income statement. Fixed assets are thus shown at their historical value, less accumulated depreciation and accumulated losses in the case of impairment.

Assets which separately are of minor importance, for instance PCs and other office equipment, are not assessed individually for residual values, economic life or permanent impairment, rather assessed as groups.

Gains or losses from sales of fixed assets are recognised through profit or loss as they occur.

Fully impaired fixed assets in use consist of fixtures and fittings and office machines.

Buildings and plots are fully owned by the bank’s subsidiary, Sparebankeiendom AS. The buildings are intended for own use relating to the operations of the bank and are therefore not defined as investment properties. The buildings are also including holiday properties used by the employees. The buildings related to the operations of the bank are located in the Group’s geographical home market, Nordvestlandet. The aggregate floor space is about 7.500 square meters. Only smaller parts of the premises are vacant, and there are only commercial premises in the buildings. The buildings are recognised in the accounts at historical cost less accumulated depreciation and impairment. There is no evidence of impairment of the Group`s buildings.

GROUP    
31.12.2020TotalBuildings, incl. tech.install. , building plots/holiday cabinsCars/IT/office machinesFixtures and fittings
Acquisition cost as at 01.013742802767
Additions15834
Disposals2002
Acquisition cost as at 31.123872883069
Accumulated depreciation and impairment as at 01.012031182659
Depreciation during the year161213
Impairment during the year0000
Disposals2002
Accumulated depreciation and impairment as at 31.122171302760
Carrying amount as at 31.12171158310
Straight-line depreciation period (years) 10-503-58-10
Fully depreciated fixed assets in use (acquisition cost)6302538
     
     
GROUP    
31.12.2019TotalBuildings, incl. tech.install. , building plots/holiday cabinsCars/IT/office machinesFixtures and fittings
Acquisition cost as at 01.013722802765
Additions2002
Disposals0000
Acquisition cost as at 31.123742802767
Accumulated depreciation and impairment as at 01.011851082453
Depreciation during the year181026
Impairment during the year0000
Disposals0000
Accumulated depreciation and impairment as at 31.122031182659
Carrying amount as at 31.1217116218
Straight-line depreciation period (years) 10-503-58-10
Fully depreciated fixed assets in use (acquisition cost)6202537
     
     
PARENT BANK    
31.12.2020TotalBuildings, incl. tech.install. , building plots/holiday cabinsCars/IT/office machinesFixtures and fittings
Acquisition cost as at 01.01122332663
Additions15834
Disposals2002
Acquisition cost as at 31.12136412966
Accumulated depreciation and impairment as at 01.0197172556
Depreciation during the year8313
Impairment during the year0000
Disposals2002
Accumulated depreciation and impairment as at 31.12103202656
Carrying amount as at 31.123421310
Straight-line depreciation period (years) 10-503-58-10
Fully depreciated fixed assets in use (acquisition cost)6102536
     
     
PARENT BANK    
31.12.2019TotalBuildings, incl. tech.install. , building plots/holiday cabinsCars/IT/office machinesFixtures and fittings
Acquisition cost as at 01.01121332662
Additions1001
Disposals0000
Acquisition cost as at 31.12122332663
Accumulated depreciation and impairment as at 01.0187142351
Depreciation during the year10325
Impairment during the year0000
Disposals0000
Accumulated depreciation and impairment as at 31.1297172556
Carrying amount as at 31.12261718
Straight-line depreciation period (years) 10-503-58-10
Fully depreciated fixed assets in use (acquisition cost)6002535
 

Note 32

Intangible assets

Intangible assets consist of capitalised costs relating to the acquisition and development of software, licenses etc.

Capitalised assets are carried at cost, reduced by any depreciation and impairment. Intangible assets are depreciated on a straight-line basis over estimated useful life. Estimated useful life is normally 5 years.

Purchased software is capitalised at acquisition cost plus the costs incurred in order to prepare the software for use. Impairment assessments are conducted annually. Expenses relating to the maintenance of software and IT-systems are expensed on an ongoing basis.

GROUP PARENT BANK
20192020 20202019
139170Acquisition cost as at 01.01169138
3122Additions2231
00Disposals00
170192Acquisition cost as at 31.12191169
97116Accumulated depreciation and impairment as at 01.0111596
1919Depreciations1919
00Impairments00
00Disposals00
116135Accumulated depreciation and impairment as at 31.12134115
4253Carrying amount as at 01.015342
5356Carrying amount as at 31.125653
2020Straight-line depreciation rate2020
55Economic life – number of years55
 

Note 33

Other assets

GROUP PARENT BANK
31.12.201931.12.2020 31.12.202031.12.2019
1011Repossessed assets1110
5969Paid-in equity in Sparebanken Møre`s Pension Fund6959
2034Other receivables3115
89114Total other assets11184

In connection with the legal recovery of non-performing loans and guarantees, the bank in some cases repossesses assets which have been provided as security for such commitments. Such assets are assessed at their estimated realisation value at the time of repossession. Any deviation from the carrying amount of the non-performing or impaired commitment at the time of acquisition, is classified as impairment.

Repossessed assets amount to NOK 11 million (NOK 10 million in 2019). This consists of residential properties of NOK 7 million (NOK 6 million in 2019) and plots of NOK 4 million (NOK 4 million in 2019). These properties have mainly been acquired/repossessed as part of the bank’s realisation of collateral security. Sparebanken Møre does not wish to remain the owner of repossessed properties. In the event of not obtaining an acceptable price, effort is made to rent out the properties.

Capital contributions to Sparebanken Møre’s Pension Fund are not included as part of the pension funds in the defined benefit scheme. This is equity that Sparebanken Møre as a sponsor has provided to satisfy the Pension Fund’s financial strength requirements.

 

Note 34

ECs and ownership structure

The basic earnings per equity certificate (EC) is calculated as the ratio between the year’s profit accruing to the bank’s EC holders according to the EC fraction as per 1 January, and the number of issued ECs at year-end, adjusted for any issues that do not entitle to full dividend. The diluted earnings per EC is no different to the basic earnings per EC. 

 

 

GROUP20202019
Earnings per EC (NOK) 2)27.1034.50
Diluted earnings per EC (NOK)27.1034.50
EC-holders' share of the profit:  
Profit540688
EC-holders' share of the profit according to the EC-fraction 1)268341
Weighted number of ECs - the bank's own portfolio22 54025 440
Number of own ECs as at 31.1222 11125 251
Number of own ECs as at 01.0125 25128 183
Weighted average of outstanding ECs9 864 4149 861 514
Number of outstanding ECs as at 31.129 864 8439 861 703
Number of outstanding ECs as at 01.019 861 7039 858 774
Weighted average number of ECs issued9 886 9549 886 954
Number of ECs as at 31.129 886 9549 886 954
Number of ECs as at 01.019 886 9549 886 954

1) The EC ratio has been computed based on figures for the Parent Bank which provide the basis for allocation of profit to the EC holders. The ratio is calculated as the sum of the EC capital, the share premium fund and the dividend equalisation fund, divided by the Parent Bank’s total equity excluding Additional Tier 1 capital and proposed dividend and gift fund (other equity). The EC ratio was 49.6 per cent both in 2020 and 2019.

2) Earnings per Equity Certificate (EC) is calculated as the EC holders' proportion of the result divided by the number of issued ECs at year-end, adjusted for any issues that are not entitled to full dividend.

 

 

 

Equity Certificates (ECs)
At the end of 2020, Sparebanken Møre’s EC capital totalled NOK 989 million, consisting of 9,886,954 Equity Certificates, each with a nominal value of NOK 100. In addition to this, the EC holders’ capital consists of the dividend equalisation fund, amounting to NOK 1.768 million and the share premium fund, totalling NOK 357 million. According to the bank’s by-laws, there are no limitations with regards to voting rights. Furthermore, no rights/options exist that may result in the issuance of new ECs.

Own Equity Certificates
Nominal value of own ECs is shown in the balance sheet separately, as a reduction to issued ECs. Purchase price in excess of nominal value is posted against the primary capital fund and the dividend equalisation fund in accordance to historically adopted distribution. Losses and gains from transactions involving own ECs are posted directly against the primary capital fund and the dividend equalisation fund according to their mutual relationship.

Costs relating to equity transactions
Transaction costs relating to an equity transaction are posted directly against equity.

Dividend policy
Sparebanken Møre aims to achieve financial results providing a good and stable return on the bank’s equity. The results shall ensure that the owners of the equity receive a competitive long-term return in the form of dividends and capital appreciation on their equity. Dividends consist of cash dividends for equity certificate holders and dividends to the local community. The proportion of profits allocated to dividends is adapted to the bank’s capital strength. Sparebanken Møre’s allocation of earnings shall ensure that all equity owners are guaranteed equal treatment.

There are no special agreements between the bank and its owners. The Board of Directors cannot refuse purchase or sale of ECs unless this is covered by the stipulations contained in the Companies Act.

Classification of dividends
Dividends on ECs and dividend funds for the local community are classified as other equity until the Board of Directors’ proposal has been agreed by the bank’s annual General Meeting.

EC capital
Sparebanken Møre’s EC capital totals NOK 988,695,400, consisting of 9,886,954 certificates, each with nominal value of NOK 100.

The EC capital was raised through nine separate issues: 

YearIssueChanges in EC capitalTotal EC capitalNumber of ECs
1988Public issue100.0100.01 000 000
1993Public issue100.0200.02 000 000
1994Public issue150.0350.03 500 000
1996Public issue100.0450.04 500 000
1996Issue, the bank's staff1.7451.74 516 604
1998Public issue100.0551.75 516 604
1998Issue, the bank's staff0.9552.65 526 154
2008Dividend issue42.3594.95 949 153
2009Rights issue58.5653.46 534 264
2010Scrip issue130.7784.17 841 116
2013Rights issue148.6932.79 327 603
2013Repair issue54.1986.89 868 144
2013Issue, the bank's staff1.9988.79 886 954

EC holders' share of the profit
Earnings per equity certificate (EC) is calculated as the EC holders' proportion of the profit divided by the number of issued ECs at year-end, adjusted for any issues during the year, not entitled to full dividend. The EC holders' proportion of the profit corresponds to the EC capital's, the dividend equalisation fund's and the share premium fund's proportion of the bank's total equity, excluding Additional Tier 1 capital and proposed dividend and gift fund (other equity), at the beginning of the year. If EC capital is expanded during the year in the form of an offering, a time-weighted proportion of the increase is included from and including the payment date.  

 

 

 

 

 

 

The 20 largest EC holders in Sparebanken Møre as at 31.12.20Number of ECsShare of EC capital in %
Sparebankstiftelsen Tingvoll994 80010.06
Cape Invest AS863 8138.74
Verdipapirfond Nordea Norge Verdi390 3433.95
Wenaasgruppen AS380 0003.84
MP Pensjon339 7813.44
Pareto AS305 1893.09
Verdipapirfond Pareto Aksje Norge279 2492.82
Wenaas Kapital AS250 0002.53
Verdipapirfondet Eika egenkapital245 4352.48
FLPS - Princ All Sec204 7282.07
Beka Holding AS150 1001.52
Lapas AS (Leif-Arne Langøy)123 5001.25
Forsvarets personell pensjonskasse80 7600.82
Stiftelsen Kjell Holm79 7000.81
PIBCO AS75 0000.76
BKK Pensjonskasse58 8280.60
Malme AS55 0000.56
U Aandals Eftf AS50 0000.51
Spesialfondet Borea utbytte44 0290.45
Storebrand Norge I Verdipapirfond41 9050.42
Total 20 largest EC holders5 012 16050.69
Total9 886 954100.00
Key financial figures (Parent Bank)     
 20202019201820172016
Price at OSE296317283262254
Number of ECs issued9 886 9549 886 9549 886 9549 886 9549 886 954
EC capital (NOK mill.)989989989989989
EC percentage (annual average)49.649.649.649.649.6
EC percentage 31.1249.649.649.649.649.6
Dividend per EC, in NOK4.5014.0015.5014.0014.00
Dividend per EC, in NOK as a % of price at OSE 31.121.54.45.55.35.5
Effective return (%) 3)-5.217.013.48.741.2
Dividend in % of EC-owners share of adjusted profit 1)16.843.654.751.848.6
Profit per EC, in NOK 1)26.8332.0028.3527.0029.85
Book value per EC, in NOK 1) 2)332320303289275
P/E 1) 4)10.99.29.59.48.8
P/BV 1) 2)0.890.990.930.910.93
1) Fund for unrealised gains has been excluded from the calculation (up to 31.12.2017)
2) Group figures, incl. proposed dividend
3) Calculated as the total of this year's change in stock price and dividend paid this year, divided by the stock price at the end of previous year.
4) Calculated based on the Group's profit  
 Number of ECsEC capitalShare premium
 202020192020201920202019
Change in ECs and share premium:      
Ordinary ECs as at 01.01.9 886 9549 886 954989989357356
Changes000001
Ordinary ECs as at 31.129 886 9549 886 954989989357357
Bank's own ECs:      
Own ECs as at 01.0125 25128 18333  
Changes-3 140-2 932-10  
Own ECs as at 31.1222 11125 25123  
Distributed and proposed dividend 
 Total amount (NOK thousand)
Dividend paid on ECs 
NOK 14.00 per EC in 2017138 417
NOK 14.00 per EC in 2018138 417
NOK 15.50 per EC in 2019153 248
NOK 14.00 per EC in 2020138 417
Proposed dividend 
NOK 14.00 per EC in 2017138 417
NOK 15.50 per EC in 2018153 248
NOK 14.00 per EC in 2019138 417
NOK 4.50 per EC in 202044 491
 

Note 35

Transactions with related parties

In 2020, Sparebanken Møre has paid fees to the following companies affiliated with the bank’s Board members:

 

Board member Ragna Brenne Bjerkeset is employed as Process Manager in ProtoMore Knowledge Park. In 2020, the company has invoiced Sparebanken Møre for its services a total of NOK 161.250 (NOK 334.103).

 

Board member Henrik Grung was until 1 March 2020 a Partner in the law firm SANDS DA. In this period, SANDS invoiced Sparebanken Møre for legal services of NOK 103.322 (NOK 459.058).

 

The transactions have been entered into on ordinary market terms as if they were carried out between independent parties.

 

For further information on transactions between the Parent Bank and subsidiaries, see note 29. For information on remuneration to executive management and elected representatives, see note 18.

Elected representatives of the bank owning/representing EC owners as at 31.12.2020
 No of ECs No of ECs
Renate Austrheim15 145Jan Petter Larsen251 339
Ragna Brenne Bjerkeset1 450Lars Martin Lunde339 781
Mette Brit Bjordal25 150Christin Pedersen863 813
Nils Petter Drønnen1 960Turid Sand1 358
Randi Walderhaug Frisvoll20Åsmund Skår305 389
Paulus Giørtz9 560Karianne Røsberg Slagnes1 248
Linda Rafteseth Grimstad81Alf Sollid1 100
Ann Magrit Grønningsæter2 954Finn Moe Stene994 800
Karoline Hansen587Roger Lunden Strand110
Marie Rekdal Hide341Linda Strømmen620
Rolf Hjellegjerde5 500Svein Arild Sættem4 003
Elisabeth Husøy9 273Solfrid Teigen1 411
Ester Sørdal Klungre278Ole-Viggo Tynes109
Helge Knudsen1 344Ann Magritt Bjåstad Vikebakk6 805
Ruben Kvalsvik11Trude Wenaas17 500
Leif-Arne Langøy123 500Kaj Bang Westre13 565
Berit Larsen229  
 

Note 36

Events after the reporting date

No events have occurred after the reporting period that will materially affect the figures presented as of 31 December 2020.

There is still great uncertainty associated with the Covid-19 situation. This uncertainty has been taken into account in the calculations of the expected credit losses. Reference is made to the Directors' report and information in note 9.