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.
|Impairments||Note 9 Losses on loans and guarantees||IFRS 9, IFRS 7|
|Financial derivatives||Note 25 Financial derivatives||IFRS 9, IFRS 7, IFRS 13|
|Hedging||Note 26 Debt securities||IFRS 9, IFRS 7|
|Classification of financial instruments||Note 22 Classification of financial instruments||IFRS 9, IFRS 7|
|Amortised cost||Note 23 Financial instruments at amortised cost||IFRS 9, IFRS 7|
|Fair value||Note 24 Financial instruments at fair value||IFRS 9, IFRS 13, IFRS 7|
|Operating segments||Note 4 Operating segments||IFRS 8|
|Revenue recognition||Note 16 Net commission and other income||IFRS 15, IFRS 9|
|Leases||Note 30 Leases||IFRS 16|
|Pensions||Note 20 Pension costs and liabilities||IAS 19|
|Fixed assets||Note 31 Fixed assets||IAS 16, IAS 36|
|Intangible assets||Note 32 Other intangible assets||IAS 38, IAS 36|
|Tax||Note 21 Tax||IAS 12|
|Equity||Note 34 ECs and ownership structure||IAS 1|
|Events after the reporting period||Note 36 Events after the reporting period||IAS 10|
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):
|Cash and claims on Norges Bank||AC|
|Loans to and receivables from credit institutions||AC|
|Loans to and receivables from customers||AC/FVPL|
|Certificates, bonds and other interest-bearing securities||FVPL|
|Shares and other securities||FVPL|
|Loans and deposits from credit institutions||AC|
|Deposits from customers||AC|
|Subordinated loan capital||AC|
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.
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.
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.