Interim Report from of the Board of Directors
All figures relate to the Group. Amounts and percentages in brackets refer to the corresponding period last year.
Financial statements are prepared in accordance with IFRS and the interim report has been prepared in conformity with IAS 34 Interim Financial Reporting.
RESULTS FOR Q1 2015
The profit after tax for the first quarter of 2015 amounted to NOK 135 million, or 0.95 % of average total assets, compared with NOK 132 million, or 0.98 %, for the corresponding quarter last year. The return on equity in the first quarter of 2015 was 11.7 %, compared with 12.1 % for the first quarter of 2014. The Group's target is a return on equity at a minimum of 10 %.
The earnings per equity certificate amounted to NOK 6.75 (NOK 6.62) for the Group and NOK 13.55 (NOK 11.77) for the Parent Bank.
The Board of Directors is satisfied with the results for the first quarter of 2015.
NET INTEREST INCOME
The net interest income of NOK 273 million was NOK 4 million higher than in the corresponding quarter last year. This represents 1.93 % of total assets, which is 0.05 percentage points lower than in the first quarter of 2014.
The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, is affecting the development of net interest income.
OTHER OPERATING INCOME
Other operating income amounted to NOK 67 million, which is NOK 7 million higher than in the first quarter last year. Other operating income amounted to 0.47 % of average total assets, 0.03 percentage points higher than in the corresponding period in 2014. The increase was primarily attributable to increased income from interest rate contracts with customers, financial derivatives, and increased income from guarantee commissions. The change in the value of the bond portfolio shows capital losses of NOK 7 million compared with capital gains of NOK 4 million at the same time last year.
Operating costs in the quarter amounted to NOK 147 million, which is NOK 4 million higher than in the same quarter last year. The increase was linked to changes in other operating costs. Personnel costs decreased by NOK 1 million compared with the corresponding period last year and amounted to NOK 81 million. The Group's total workforce has been reduced by 2 full time equivalents in the last 12 months to 380 full time equivalents.
The cost/income ratio for the first quarter of 2015 was 43.2 %, which represents a decrease of 0.3 percentage points compared with the first quarter of 2014.
The quarter's financial statements were charged NOK 8 million in losses on loans and guarantees. This amounts to 0.06 % of average total assets on an annualised basis. The corresponding figures for the first quarter of 2014 were NOK 6 million, or 0.04 %. The losses on loans and guarantees in the first quarter of 2015 consist of a NOK 10 million increase in group write-downs and a NOK 2 million contraction in losses in the corporate segment. There were no losses in the retail segment in the quarter.
At the end of the first quarter of 2015, total write-downs for losses amounted to NOK 315 million, equivalent to 0.62 % of gross lending (NOK 310 million and 0.67 % of gross lending). NOK 22 million of the individual write-downs involved commitments in default for more than 90 days (NOK 29 million), which represents 0.04 % of gross lending (0.06 %). NOK 118 million relates to other commitments (NOK 141 million), which is equivalent to 0.23 % of gross lending (0.31 %). Group write-downs amounted to NOK 176 million (NOK 140 million) or 0.35 % of gross lending (0.30 %).
Net impaired commitments (loans that have been in default for more than 90 days and loans that are not in default but which have been subject to an individual write-down for losses) have in the last 12 months decreased by NOK 137 million. At the end of the first quarter of 2015, the corporate market accounted for NOK 187 million of net impaired commitments and the retail market NOK 63 million. In total this represents 0.50 % of gross lending (0.84 %).
LENDING AND DEPOSIT GROWTH
At the end of the first quarter of 2015, net lending to customers amounted to NOK 50 454 million (NOK 46 072 million). Net customer lending has increased by a total of NOK 4 382 million, or 9.5 %, the last 12 months. Retail lending has increased by 6.8 %, while corporate lending has increased by 14.6 % the last 12 months. Retail lending accounted for 64.6 % of lending at the end of the first quarter of 2015 (66.4 %).
Customer deposits have increased by 0.2 % in the last 12 months. At the end of the first quarter of 2015, deposits amounted to NOK 28 477 million (NOK 28 434 million). Retail deposits have increased by 5.9 % the last 12 months, while corporate deposits have decreased by 7.0 % and public sector deposits have decreased by 8.6 %. The retail market's relative share of deposits amounted to 60.0 % (58.0 %), while deposits from corporate customers accounted for 37.4 % (39.4 %) and public sector customers 2.6 % (2.6 %).
Deposits as a percentage of loans amounted to 56.4 % at the end of the first quarter of 2015 (61.7 %).
The Group's Core Tier 1 capital must comply with the announced regulatory plan for the escalation of capital. Sparebanken Møre has not been defined as a systemically important financial institution. Regardless of the level of the countercyclical buffer, the Group's Core Tier 1 capital shall amount to a minimum of 12 %.
Sparebanken Møre has permission from the Financial Supervisory Authority of Norway to use the IRB Foundation Approach for calculating capital requirements for corporate commitments and retail marked
As at the end of the first quarter of 2015, the Group's capital adequacy is reported according to the IRB in Basel II for retail market commitments and IRB Foundation for the corporate market for credit risk. Sparebanken Møre had no capital requirements associated with the transitional scheme for the Basel I floor at the end of the first quarter of 2015.
The Group's capital adequacy at the end of the first quarter of 2015 was above the regulatory capital requirements and in line with the internally set minimum target for core tier 1 capital. Primary capital, including 50 % of retained earnings in the year-to-date, amounts to 17.8 % (17.3 %), core capital 16.1 % (15.8 %), of which Core Tier 1 capital amounts to 13.6 % (12.8 %).
The aggregate profit of the Bank's three subsidiaries after the first three months of 2015 amounted to NOK 55 million after tax (NOK 48 million).
Møre Boligkreditt AS was established as part of the Group's long-term funding strategy. The mortgage company’s main purpose is to issue covered bonds for sale to Norwegian and international investors. To date the company has raised NOK 14.5 billion in long term funding for the Group. The company contributed NOK 55 million to the result in the first quarter of 2015 (NOK 48 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has made no contribution to the overall result to date in 2015. At the end of the quarter, the company employed 16 full time equivalents.
Sparebankeiendom AS's purpose is to own and manage the Bank's business properties. The company has made no contribution to the overall result to date in 2015. The company has no employees.
EQUITY CAPITAL CERTIFICATES
At the end of the first quarter of 2015, there were 5 904 holders of Sparebanken Møre's equity capital certificates. 9 886 954 equity capital certificates have been issued. Equity capital certificates accounts for 49.6 % of the Bank's total equity. Note 10 contains an overview of the 20 largest owners of the Bank's equity capital certificates.
As at 31 March 2015, the Bank owned 104 420 of its own equity capital certificates. These were purchased via the Oslo Stock Exchange at market price.
The general macroeconomic conditions for the county remain satisfactory. However, current conditions indicate there will be a downturn in petroleum investments during the year due to the fall in oil prices and the oil companies' focus on cutting costs. Reduced investments also gives indirect effects through the supplier chain. As a consequence of this, unemployment in the county will probably increase somewhat over the next year. Unemployment in Møre og Romsdal will however remain among the lowest in Norway. In March, the registered unemployment rate in the county was 2.5 %, compared with 3.0 % in the country as a whole.
On the other hand, the weakening of the NOK exchange rate will help improve the competitiveness of our export industries and import-competing businesses. The recent drop in customer interest rates will improve purchasing power in the household sector and reduce interest costs for business. Finally, the fall in oil prices could contribute to increased growth among our trading partners inter alia through lower costs. These factors could partly counteract the negative effects of the fall in the oil sector and oil-related activities. Sparebanken Møre's level of losses is expected to remain low and within the Bank's plans in 2015.
The competitive situation in the Bank's market area is high and has intensified. Lending growth is expected to be decreasing in 2015 both in the retail and corporate market. There is a constant focus on generating growth through good commitments with an acceptable level of risk.
Together with a number of Norwegian banks, Sparebanken Møre's official Moody’s rating (A3) was set on review in the first quarter prior to a possible upgrading. The Group is enjoying good access to long-term, stable funding in the Norwegian and international funding markets. This is also due to the Group's good financial strength and good stability in results over time. Funding margins in the long-term market have fallen markedly both for the Bank and Møre Boligkreditt AS, and the Group will make greater use of this source of funding in the future. This is expected to make a positive contribution to the Group's total net interest income.
Sparebanken Møre focuses strongly on cost-effectiveness. This has resulted in a highly satisfactory level of total costs in relation to income. This focus will continue, and the Group's cost-effectiveness will this year remain well within the internal target of a maximum cost/income ratio of 50 %. Overall the year's result is expected to be good.
Ålesund, 31 March 2015
29 April 2015