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 Q1 2019
The profit after tax for the first quarter of 2019 amounted to NOK 162 million, or 0.92 per cent of average total assets, compared to NOK 141 million, or 0.86 per cent, for the corresponding quarter last year.
The return on equity in the first quarter of 2019 was 11.0 per cent, compared to 10.1 per cent for the first quarter of 2018.
Earnings per equity certificate amounted to NOK 7.95 (NOK 7.00) for the Group and NOK 14.10 (NOK 12.00) for the Parent Bank.
The Board of Directors is satisfied with Sparebanken Møre's results for the first quarter of 2019.
Net interest income
The net interest income of NOK 304 million was NOK 15 million higher than in the corresponding quarter of last year. This represents 1.69 per cent of total assets, which is 0.04 percentage points lower than in the first quarter of 2018.
An increasing level of interest rate has led to increased funding costs and reduced margins on loans, but higher margins on deposits compared to the first quarter of 2018. In total this reduced net interest income in NOK. On the other hand, higher lending and deposit volumes, as well as better interest contributions from the Bank's equity, increased net interest income in NOK compared to the corresponding quarter last year.
Strong competition on both lending and deposits, and reduced risk in the lending portfolio, have contributed to downward pressure on net interest income in percentage.
Other operating income
Other operating income amounted to NOK 77 million, which is NOK 24 million higher than in the first quarter of last year. Other income apart from financial instruments showed an increase of NOK 3 million compared to the first quarter of 2018. The changes in value of the bond portfolio and equities constitute a capital gain of NOK 12 million in the quarter, compared to a NOK 1 million gain in the first quarter of 2018. The valuation of other financial derivatives shows an increase of NOK 8 million.
Operating costs in the quarter amounted to NOK 157 million, which is NOK 8 million higher than in the same quarter last year. Personnel costs were NOK 1 million higher than in the corresponding period last year and amounted to NOK 85 million. Financial activity tax in the form of higher employers’ National Insurance contributions amounted to NOK 3 million for the quarter, the same as in 2018. Staffing has been reduced by 7 full-time equivalents in the last 12 months, to 356 FTEs. Other operating costs increased by NOK 7 million from the same period last year.
The cost income ratio amounted to 41.2 per cent in the first quarter of 2019, which represents a reduction of 2.4 percentage points compared to the first quarter last year.
The quarterly accounts were charged with NOK 13 million (NOK 2 million) for losses on loans and guarantees. This amounts to 0.07 per cent (0.01 per cent) of average total assets on an annualised basis. Losses in the corporate segment increased by NOK 14 million in the quarter, while losses of NOK 1 million were recognised in the retail segment.
At the end of the first quarter of 2019, total expected losses amounted to NOK 348 million, equivalent to 0.56 per cent of loans and guarantees (NOK 334 million and 0.57 per cent). Of the individually assessed commitments, NOK 9 million of the impairments were related to commitments in default for more than 90 days (NOK 2 million), which amounts to 0.01 per cent of loans and guarantees (0.01 per cent). NOK 139 million relates to other commitments (NOK 104 million), which is equivalent to 0.22 per cent of gross loans and guarantees (0.17 per cent).
Net problem loans (loans which have been in default for more than 90 days and loans which are not in default but which have been subject to an individual impairment) have in the last 12 months increased by NOK 162 million. At the end of the first quarter of 2019, the corporate market accounted for NOK 343 million of net problem loans, and the retail market NOK 61 million. In total this represents 0.64 per cent of gross loans and guarantees (0.40 per cent).
Lending to customers
At the end of the first quarter of 2019, lending to customers amounted to NOK 61,270 million (NOK 58,247 million). Customer lending has increased by a total of NOK 3,023 million, or 5.2 per cent, in the last 12 months. Retail lending has increased by 5.5 per cent, while lending to corporate customers has increased by 4.6 per cent in the last 12 months. Lending to corporate customers increased by 2.4 per cent in the first quarter of 2019, while lending to retail customers increased by 1.2 per cent. Retail lending accounted for 69.2 per cent of total lending at the end of first quarter 2019 (68.9 per cent).
Deposits from customers
Customer deposits have increased by 4.6 per cent over the last 12 months. At the end of first quarter 2019, deposits amounted to NOK 35,066 million (NOK 33,539 million). Retail deposits have increased by 4.6 per cent in the last 12 months, while corporate deposits have increased by 3.9 per cent and public sector deposits have increased by 13.4 per cent. The retail market’s relative share of deposits amounted to 59.5 per cent (59.4 per cent), while deposits from corporate customers accounted for 38.2 per cent (38.4 per cent) and from public sector customers 2.3 per cent (2.2 per cent).
The deposit-to-loan ratio was 57.2 per cent at the end of the first quarter of 2019 (57.6 per cent).
The Group’s capital adequacy at the end of the first quarter of 2019 was above the regulatory capital requirements and the internally set minimum target for CET1 capital. The primary capital ratio, including 50 per cent of year-to-date retained earnings, amounted to 19.4 per cent (18.6 per cent), the Tier 1 capital ratio was 17.3 per cent (16.6 per cent) and the CET1 ratio was 15.9 per cent (15.1 per cent).
Sparebanken Møre has a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 50 million at the end of first quarter 2019, corresponding to a basis for calculation of NOK 630 million.
The aggregate profit of the Bank's three subsidiaries amounted to NOK 48 million after tax for the first quarter of 2019 (NOK 49 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 2019, the company had net issued bonds of NOK 22.3 billion in the market. About 25 per cent of the borrowing was in a currency other than NOK. The company contributed NOK 47 million to the result in the first quarter of 2019 (NOK 49 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK 0.4 million to the result in the first quarter of 2019 (NOK 0 million). At the end of the quarter, the company employed 14 full-time equivalents.
Sparebankeiendom AS’ purpose is to own and manage the Bank’s commercial properties. The company contributed NOK 0.3 million to the result in the first quarter of 2019 (NOK 0.4 million). The company has no employees.
At the end of first quarter 2019, there were 5,445 holders of Sparebanken Møre's equity certificates. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6 per cent 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 2019, the Bank owned 24,832 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market prices.
Prospects for production and demand in the county are good. The interest rate level remains relatively low, the Norwegian krone is still weak, there is growth in our export markets and activity in the public sector is still at a high level. The growth in oil investments will also have positive ripple effects, and the level of activity in the housing market is satisfactory. However, there is still uncertainty regarding the effects of the UK’s withdrawal from the EU and the outcome of the trade war between the USA and China.
The upturn in the level of activity, together with significant restructuring in the labour market in recent years, have resulted in low unemployment. At the end of March, registered unemployment in Møre og Romsdal amounted to 2.3 per cent according to the Norwegian Labour and Welfare Administration (NAV). This is marginally lower than the rate for the country as a whole. Given the prospect of moderate production growth in the county, unemployment will probably stabilise at today’s level over the year.
Credit growth in Norway, both in households and the corporate sector, has increased slightly so far this year.
Sparebanken Møre is still experiencing strong competition in the market, both for lending and deposits.
The Bank is competitive and recorded a good, and slightly increasing, growth rate in lending to the retail market. A reduction in the growth rate for lending to the corporate market was registered in the first quarter of 2019. Deposit growth is good and the deposit-to-loan ratio is high, especially in the corporate market. Lending growth within both the retail market and the corporate market in 2019 is expected to be on a par with the growth rate in 2018. This implies growth on a par with or above market growth. There is a constant focus on good operations and increased profitability.
The Bank will remain strong and committed in supporting business and industries in our region, Nordvestlandet.
Sparebanken Møre’s target for cost-effective operations for the strategy period 2019-2022 is a cost income ratio of less than 40 per cent.
Sparebanken Møre’s losses are expected to be low also in 2019. Overall, a good result is expected for 2019. The Bank’s strategic target is that a return on equity above 11 per cent will be achieved in the strategy period 2019-2022.
Ålesund, 31 March 2019
24 April 2019
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