Interim report from the Board of Directors
All figures relate to the Group. Figures in brackets refer to the corresponding period last year. The financial statements have been prepared in accordance with IFRS and the interim report has been prepared in conformity with IAS 34 Interim Financial Reporting.
RESULTS FOR FIRST QUARTER 2018
Profit after tax for the first quarter of 2018 amounted to NOK 141 million, or 0.86 % of average total assets, compared with NOK 131 million, or 0.86 %, for the corresponding quarter of last year.
The return on equity for the first quarter of 2018 was 10.1 %, corresponding to that of the first quarter of 2017.
The earnings per equity certificate amounted to NOK 7.00 (NOK 6.55) for the Group and NOK 12.00 (NOK 12.60) for the parent bank.
The Board of Directors is satisfied with Sparebanken Møre's result for the first quarter 2018.
Net interest income
The net interest income of NOK 289 million is NOK 28 million higher than the corresponding quarter of last year. This represents 1.73 % of total assets, which is 0.04 percentage points higher than the first quarter of 2017.
A higher lending volume, in combination with a marked lower cost of the bank's market funding, has yielded increased net interest income both in NOK and percentage compared to the first quarter of last year. This has occurred despite the fact that the generally low interest rates in the market, strong competition in terms of both lending and deposits and reduced risk have contributed to downward pressure on the interest rate margin.
Other operating income
Other operating income amounted to NOK 53 million, which is NOK 13 million lower than for the first quarter of last year. The change in the value of the bond portfolio totals NOK 3 million for the quarter, compared with NOK 16 million for the first quarter of 2017. Revenue from customer operations shows a positive trend while Net gains/losses from financial instruments are at a lower level than last year.
Operating costs for the quarter amounted to NOK 149 million, which is NOK 1 million lower than for the same quarter last year. Personnel costs were reduced by NOK 1 million compared with the corresponding period last year and amounted to NOK 84 million. Financial activity tax in the form of higher employers’ National Insurance contributions amounted to NOK 3 million for the quarter. Staffing has been reduced by 8 full-time equivalent positions (FTEs) in the last 12 months to 363 FTEs. Other costs remain at the same level as last year.
The cost income ratio was 43.6 % for the first quarter of 2018, which represents a reduction of 2.3 percentage points compared with the first quarter of last year.
Impairments for losses and defaults
The quarterly accounts were charged with NOK 2 million (NOK 2 million) for losses on loans and guarantees. This amounts to 0.01 % (0.01 %) of average total assets on an annualized basis. Losses within the corporate segment have increased by NOK 2 million for the quarter, while there is no change to losses within the retail segment.
At the end of the first quarter of 2018, total expected losses amounted to NOK 341 million, equivalent to 0.57 % of lending and guarantees (NOK 335 million and 0.60 %). Based on the individually assessed commitments, NOK 2 million of the impairments involved defaults of more than 90 days (NOK 5 million), which represents 0.01 % of lending and guarantees (0.01 %). NOK 104 million is related to other commitments (NOK 49 million), corresponding to 0.17 % of gross lending and guarantees (0.09 %).
Net doubtful 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 impairment for losses) have in the last 12 months increased by NOK 121 million. At the end of first quarter 2018, net doubtful commitments in the corporate market accounted for NOK 192 million and for the retail market NOK 50 million. In total, this represents 0.40 % of gross lending and guarantees (0.22 %).
Lending to customers
At the end of the first quarter of 2018, lending to customers amounted to NOK 58 194 million (NOK 53 993 million). Customer lending has increased by a total of NOK 4 201 million, or 7.8 %, over the last 12 months. Retail lending has increased by 6.3 %, while lending to corporate customers has increased by 11.8 %. Lending to corporate customers increased by 6.2 % in the first quarter of 2018, while lending to retail customers rose by 1.0 %. Retail lending accounted for 68.9 % of lending at the end of the first quarter of 2018 (70.0 %).
Deposits from customers
Customer deposits have increased by 2.7 % over the last 12 months. At the end of first quarter 2018, deposits amounted to NOK 33 539 million (NOK 32 656 million). Retail deposits have increased by 5.3 %, while deposits from the corporate market have increased by 1.7 % and public sector deposits have decreased by 26.6 %. The retail market’s relative share of deposits amounted to 59.4 % (58.0 %), while deposits from corporate customers totalled 38.4 % (38.8 %) and from public sector customers 2.2 % (3.2 %).
The deposit to loan ratio amounted to 57.6 % at the end of the first quarter of 2018 (60.5 %).
The Group's capital adequacy at the end of the first quarter of 2018 was above the regulatory capital requirements and the internal minimum target set for Common Equity Tier 1 (CET1). The primary capital ratio, including 50 % of retained earnings for the year to date, amounts to 18.6 % (18.6 %), the Tier 1 capital ratio amounts to 16.6 % (17.1 %) and CET1 amounts to 15.1 % (14.9 %).
Sparebanken Møre has a capital requirement linked to the transitional scheme associated with the Basel I floor at the end of the first quarter of 2018 amounting to NOK 101 million, which corresponds to a basis for calculation (RWA) of NOK 1 265 million.
The aggregate profit of the bank's three subsidiaries amounted to NOK 50 million after tax for the 1st quarter of 2018 (NOK 31 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. At the end of the first quarter of 2018, the company had net outstanding bonds of NOK 19.8 billion in the market, about 15 % of the borrowing was in a currency other than NOK. The company contributed NOK 50 million to earnings in the first quarter of 2018 (NOK 32 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has not made any contribution to earnings in the first quarter of 2018 (NOK -1 million in first quarter of 2017). At the end of the quarter, the company employed 14 full-time equivalents.
The purpose of Sparebankeiendom AS is to own and manage the Bank’s business properties. The company has not made any contribution to earnings in the first quarter of 2018 (NOK 0 million in first quarter of 2017). The company has no employees.
At the end of the first quarter of 2018, there were 5 766 holders of Sparebanken Møre's equity certificates. 9 886 954 equity certificates have been issued. Equity certificate capital accounts for 49.6 % of the Bank’s total equity. Note 10 includes a list of the 20 largest holders of the Bank's equity certificates.
As at 31 March 2018, the Bank owned 45 562 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.
The economic outlook for Møre og Romsdal remains good. Production is high in most industries and the downturn in oil-related industries appears to be changing to a slight upturn. Stable oil prices, low interest rates, a weak NOK and good growth in the export markets are important contributors to this. It also seems that the decline in house prices is about to level out. However, the danger of increased protectionism represents a risk factor in respect of the prospects for global trade.
The upturn in production and demand has, together with significant restructuring in the labour market, led to lower unemployment. Unemployment in the county has thus dropped almost continuously since the beginning of 2017. At the end of March, registered unemployment in Møre og Romsdal was 2.6 % (figures from the Norwegian Labour and Welfare Administration). The unemployment rate for the country as a whole was 2.5 %.
The growth in credit for households and the corporate sector has declined slightly during the current year for the country as a whole.
Competition in the market remains strong, both for loans and deposits. The bank is competitive and recorded good, but still slightly declining, growth in loans to the retail market. The annual growth in loans to the corporate market is slightly higher than at the end of the fourth quarter. The deposit growth from the retail market is good and improving growth is recorded in deposits from the corporate market. The deposit to loan ratio is high. Lending growth within both the retail and corporate markets is expected to be slightly lower in 2018 compared to the growth rate at the end of 2017. The focus is always on effective operations and increased profitability.
The Bank will remain strong and committed in supporting businesses and industries in our region, Nordvestlandet.
Sparebanken Møre is targeting cost-effective operations, with a cost income ratio target below 45 % in 2018.
Sparebanken Møre's losses are expected to be low also in 2018. Overall, good results are expected for 2018, with a return on equity above 10 %.
Ålesund, 31 March 2018
23 April 2018
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chairman
ROY REITE, Deputy Chairman
RAGNA BRENNE BJERKESET
ANN MAGRITT BJÅSTAD VIKEBAKK
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO