Interim report from the Board of Directors
All figures relate to the Group. Figures in brackets refer to the corresponding period last year. Fee to the Norwegian Banks` Guarantee Fund for 2016 has been expensed in full during the first quarter of 2016. The figures for the first quarter of 2015 have been made comparable.
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 2016
The profit after tax for the first quarter of 2016 amounted to NOK 120 million, or 0.80 % of average total assets, compared with NOK 122 million, or 0.85 %, for the corresponding quarter of last year. The return on equity in the first quarter of 2016 was 10.0 %, compared to 10.5 % for the first quarter of 2015.
The Group's target is a return on equity of a minimum of 10%.
The earnings per equity certificate amounted to NOK 6.05 (NOK 6.10) for the Group and NOK 12.75 (NOK 12.90) for the Parent Bank.
The Board of Directors is satisfied with the results for the first quarter of 2016.
Net interest income
The net interest income of NOK 250 million was NOK 5 million lower than in the corresponding quarter of last year. This represents 1.67 % of total assets, which is 0.13 percentage points lower than in the first quarter of 2015. Fee to the Norwegian Banks` Guarantee Fund amounted to NOK 27 million in the first quarter of 2016 compared to NOK 24 million in the corresponding quarter of 2015.
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 56 million, which is NOK 11 million lower than in the first quarter of last year. Other operating income accounted for 0.37 % of average total assets, 0.10 percentage points lower than in the corresponding period in 2015. The reduction is primarily attributable to the reduction in income of NOK 10 million from interest hedging transactions with customers. The change in the value of the bond portfolio shows capital gains of NOK 1 million compared with capital losses of NOK 7 million at the same time last year.
Operating costs in the quarter amounted to NOK 148 million, which is NOK 1 million higher than in the first quarter of last year. Personnel costs increased by NOK 1 million compared with the corresponding period last year and amounted to NOK 82 million. The Group's total workforce increased by 8 full time equivalents in the last 12 months to 388 full time equivalents. Other operating costs remained unchanged compared to the same period last year.
The cost income ratio for the first quarter of 2016 was 48.4 %, which represents an increase of 2.5 percentage points compared with the first quarter of 2015.
The quarter includes a recovery of losses amounting to NOK 2 million on lending and guarantees, corresponding to -0.01% of average assets. Comparable figures for Q1 2015 were NOK 8 million (0.06 %). Collective impairment remained unchanged in the first quarter, within the retail segment there is a recovery of losses amounting to NOK 2 million and no losses were charged within the corporate segment.
At the end of the first quarter of 2016, total impairment for losses amounted to NOK 334 million, equivalent to 0.65 % of gross lending (NOK 315 million and 0.62 % of gross lending). NOK 11 million of the individual impairment involved commitments in default for more than 90 days (NOK 22 million), which represents 0.02 % of gross lending (0.04 %). NOK 61 million relates to other commitments (NOK 118 million), which is equivalent to 0.12% of gross lending (0.23%). Collective impairment amounted to NOK 262 million (NOK 176 million) or 0.51% of gross lending (0.35%).
Net problem loans (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 impairment for losses) have decreased by NOK 109 million in the last 12 months. At the end of the first quarter of 2016, the corporate market accounted for NOK 96 million of net problem loans and the retail market NOK 45 million. In total, net problem loans represent 0.27% of gross lending (0.50%).
Lending and deposit growth
At the end of the first quarter of 2016, lending to customers amounted to NOK 51 440 million (NOK 50 454 million). Customer lending has increased by NOK 986 million, or 2.0%, in the last 12 months. Retail lending has increased by 6.8 %, while corporate lending has decreased by 7.0 % in the last 12 months. Retail lending accounted for 67.7 % of total lending at the end of the first quarter of 2016 (64.6 %).
Customer deposits have increased by 4.4 % in the last 12 months. At the end of the first quarter of 2016, deposits amounted to NOK 29 738 million (NOK 28 477 million). Retail deposits have increased by 3.9 % in the last 12 months, while corporate deposits have increased by 5.3 % and public sector deposits have increased by 11.5 %. The retail market's relative share of deposits amounted to 59.7 % (60.0 %), while deposits from corporate customers accounted for 37.3 % (37.4 %) and public sector customers 3.0% (2.6 %).
The deposit to loan ratio amounted to 57.8 % at the end of the first quarter of 2016 (56.4 %).
The Group's capital adequacy at the end of the first quarter of 2016 was above the regulatory capital requirements and in line with the internally set minimum target for Core Tier 1 capital at 13.5%. Primary capital, including 50% of earnings in the year-to-date, amounts to 18.2% (17.8%), core capital amounts to 16.6% (16.1%) and Core Tier 1 capital amounts to 14.2% (13.6%).
Sparebanken Møre has a capital requirement of NOK 26 million associated with the transitional scheme for the Basel I floor at the end of the first quarter of 2016.
The aggregate profit of the bank's three subsidiaries amounted to NOK 41 million after tax in Q1 2016 (NOK 55 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 15.5 billion in funding for the Group. The company contributed NOK 42 million to the result in the first quarter of 2016 (NOK 55 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has so far experienced a loss of NOK 1 million in 2016 (NOK 0 million). At the end of the quarter, the company employed 18 full time equivalents.
Sparebankeiendom AS' purpose is to own and manage the bank's business properties. The company has made no contribution to the overall result to date in 2016 (NOK 0 million). The company has no employees.
At the end of the first quarter of 2016, there were 5 882 holders of Sparebanken Møre's equity certificates (ECs). 9 886 954 equity certificates have been issued. The EC holders` share of the banks` total equity amounts to 49.6%. Note 10 contains an overview of the 20 largest owners of the bank's equity certificates.
As of 31 March 2016, the bank owned 120 485 of its own equity certificates. These have been purchased via the Oslo Stock Exchange at market price.
The economic outlook for Møre og Romsdal has not changed significantly the last months. Admittedly, growth in the international economy is expected to be somewhat lower this year than originally assumed. On the other hand, the oil price has increased this year, the Norwegian krone remains weak and The Central Bank of Norway has reduced its key interest rate to 0.50 per cent. This will contribute to a reduction in the anticipated upturn in unemployment for the remainder of the year. Production continues to fall within oil-related businesses but the fall in oil investments is expected to be reduced going forward. At the same time, there are favourable developments within fisheries, tourism and traditional exports.
The level of losses in Sparebanken Møre is anticipated to remain low this year.
In total, unemployment in the county rose during the first quarter and stood at 3.4% in March, compared with 3.3% in the country as a whole. Parts of Møre og Romsdal are affected by the activity in the oil sector. As a result, there is a certain risk that unemployment for a while will continue to increase in our county compared to the country as a whole. Low interest rates, a favorable NOK exchange rate and an expansionary fiscal policy will on the other hand reduce the increase in unemployment in Møre og Romsdal. The county has a high export share. In the long term, the weak Norwegian krone could therefore also contribute to the labour market developing better in Møre og Romsdal than in the country as a whole.
Credit growth in Norway has been declining for some time. We are experiencing further strong competition in the market for both lending and deposits, particularly within the retail market, but the bank is competitive and is still seeing strong growth in lending in this market. Competition is increasing within certain business sectors. It is anticipated that the growth in lending within the retail market will slow down to some extent during the year, while the growth in the corporate market will remain at a low level. There is a constant focus on generating growth through good commitments with an acceptable level of risk.
Sparebanken Møre focuses strongly on cost-effectiveness. This has resulted in a highly satisfactory cost income ratio. This focus will continue, and the Group's cost-effectiveness will this year remain within the internal target of 45%.
Overall, good results are expected this year, with a return on equity exceeding the target of 10 per cent.
Ålesund, 31 March 2016
20 April 2016
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE