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 2021
Profit after tax was NOK 170 million for the first quarter of 2021, or 0.84 per cent of average assets, compared with NOK 117 million, or 0.61 per cent, for the corresponding quarter last year.
Return on equity was 10.4 per cent in the first quarter of 2021, compared with 7.1 per cent in the first quarter of 2020, and the cost/income ratio amounted to 40.5 per cent compared with 47.2 per cent in the first quarter of 2020.
Earnings per equity certificate were NOK 8.26 (NOK 5.46) for the Group and NOK 17.20 (NOK 14.47) for the parent bank.
Net interest income
Net interest income was NOK 305 million, which is NOK 37 million, or 10.8 per cent, lower than in the corresponding quarter of last year. This represents 1.51 per cent of total assets, which is 0.29 percentage points lower than in the first quarter of 2021. Adjusted for the number of interest days, net interest income in NOK in the first quarter of 2021 was on a par with net interest income in the fourth quarter of 2020.
Slightly higher interest rates resulted in higher funding costs. This, combined with strong competition in both lending and deposits, contributed to downward pressure on net interest income, while higher lending and deposit volumes resulted in an increase in net interest income.
The retail market saw a weak increase in the interest margin for lending, while there was a major reduction in the deposit margin compared with the first quarter of 2020. In the corporate market, the interest margin for lending was slightly weaker, while the interest margin for deposits saw a significant reduction compared with the first quarter of 2020.
Other operating income
Other operating income amounted to NOK 85 million in the quarter, which is NOK 73 million higher than in the first quarter of last year. The net income from financial instruments of NOK 34 million was NOK 75 million higher than in the first quarter of 2020. Capital gains from bond holdings were NOK 8 million in the quarter, compared with capital losses of NOK 42 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 10 million compared with capital losses of NOK 7 million in the first quarter of 2020. The positive change in value for fixed-rate lending amounted to NOK 8 million (NOK -10 million). The value of issued bonds changed by NOK -6 million, on a par with the same period last year. Income from currency and interest rate business for customers decreased by NOK 4 million compared with the same period last year.
Other operating income, excluding financial instruments, decreased by NOK 2 million compared with the first quarter of 2020. The reduction was mainly due to less income from money-transfer services.
See Note 7 for a specification of other operating income.
Operating costs in the quarter amounted to NOK 158 million, which is NOK 9 million lower than in the same quarter last year. Salaries and wages were NOK 6 million lower than in the corresponding period last year and amounted to NOK 83 million. Staffing has been reduced by 11 FTEs in the past 12 months to 343 FTEs. Other operating costs were NOK 3 million lower than in the same period last year. See Note 8 for a specification of costs.
The cost/income ratio was 40.5 per cent in the first quarter of 2021, which represents a reduction of 6.7 percentage points compared with the first quarter last year.
Provisions for expected losses and credit-impaired commitments
The quarterly accounts were charged NOK 14 million (NOK 36 million) in losses on loans and guarantees. This amounts to 0.07 per cent (0.19 per cent) of average total assets on an annualised basis. Losses in the corporate segment increased by NOK 11 million in the quarter, while losses in the retail segment increased by NOK 3 million.
At the end of the first quarter of 2021, total expected losses amounted to NOK 339 million, equivalent to 0.49 per cent of gross loans and guarantees (NOK 406 million and 0.61 per cent). Of the total expected losses, NOK 16 million concern credit-impaired commitments more than 90 days past due (NOK 23 million), which amounts to 0.02 per cent of gross loans and guarantees (0.03 per cent). NOK 212 million concerns other credit-impaired commitments (NOK 231 million), which is equivalent to 0.30 per cent of gross loans and guarantees (0.35 per cent).
Net credit-impaired commitments (commitments more than 90 days past due and other commitments in stage 3) have increased by NOK 85 million in the past 12 months. At end of the first quarter of 2021, the corporate market accounted for NOK 717 million of net credit-impaired commitments and the retail market NOK 115 million. In total, this represents 1.19 per cent of gross loans and guarantees (1.12 per cent).
Lending to customers
At the end of the first quarter of 2021, lending to customers amounted to NOK 67,711 million (NOK 65,145 million). Customer lending has increased by a total of NOK 2,566 million, or 3.9 per cent, in the past 12 months. Retail lending has increased by 3.6 per cent and corporate lending has increased by 4.7 per cent in the past 12 months. Lending to corporate customers increased by 2.3 per cent in the first quarter of 2021, while lending to retail customers rose by 0.8 per cent. Retail lending accounted for 67.6 per cent of total lending at the end of the first quarter of 2021 (67.7 per cent).
Deposits from customers
Customer deposits have increased by NOK 2,869 million, or 7.7 per cent, in the past 12 months. At the end of the first quarter of 2021, deposits amounted to NOK 40,301 million (NOK 37,432 million). Retail deposits have increased by 6.2 per cent in the past 12 months, while corporate deposits have increased by 8.0 per cent and public sector deposits by 40.6 per cent. The retail market’s relative share of deposits amounted to 58.8 per cent (59.6 per cent), while deposits from the corporate market accounted for 38.3 per cent (38.1 per cent) and from the public sector market 2.9 per cent (2.3 per cent). The deposit-to-loan ratio was 59.3 per cent at the end of the first quarter of 2021 (57.5 per cent).
In a letter to Sparebanken Møre dated 14 December 2020, the Financial Supervisory Authority of Norway set the bank’s minimum requirement for own funds and eligible liabilities (MREL) at 31.4 per cent of the adjusted risk weighted assets. In its letter, the Financial Supervisory Authority of Norway added that the Group must meet the requirement by 31 March 2021 and that the bank must have submitted a plan for phasing in non-preferred liabilities by the same date.
The requirement must be met using senior non-preferred capital (SNP) by 1 January 2024. Prior to this date, the Group can include senior preferred debt (SP), issued by Sparebanken Møre with a remaining term to maturity of at least 1 year, to meet the minimum requirement.
The phasing in designed to satisfy the requirement must, as a minimum, be linear in 2021, 2022 and 2023, such that during 2021 the Group will, as a minimum, phase in one third of the remaining need in the phasing in period 2021-2023, calculated as at 31 December 2020.
Sparebanken Møre sent a letter to the Financial Supervisory Authority of Norway dated 26 March concerning the bank’s plan for phasing in SNP.
The bank issued its first SNP bond in the first quarter. The NOK 750 million bond (with a six non-call five structure) was issued in the market at interest of 3-month NIBOR + 0.67 percentage points.
Sparebanken Møre is well capitalised. At the end of the first quarter, the Common Equity Tier 1 capital ratio was 16.9 per cent (16.9 per cent), including 50 per cent of the result for the year to date. This is 4.2 percentage points higher than the total regulatory minimum requirement of 12.7 per cent for the Common Equity Tier 1 capital ratio. The primary capital ratio, including 50 per cent of the result for the year to date, was 20.6 per cent (20.7 per cent) and the Tier 1 capital ratio was 18.6 per cent (18.6 per cent). Capital adequacy is calculated in line with the EU’s Capital Requirements Directive (CRD) IV and Capital Requirements Regulation (CRR), which were introduced with effect from 31 December 2019.
The total regulatory minimum requirement for Sparebanken Møre’s Common Equity Tier 1 capital ratio, including the Pillar 2 supplement, was 12.7 per cent at the end of the first quarter of 2021. In its assessment of Sparebanken Møre’s Pillar 2 supplement in 2018, the Financial Supervisory Authority of Norway set it at 1.7 per cent, although it was made subject to a minimum of NOK 590 million with effect from 31 March 2019.
Sparebanken Møre’s internal target for its Common Equity Tier 1 capital ratio is 15.2 per cent.
The leverage ratio (LR) at the end of the first quarter of 2021 was 7.7 per cent, 0.1 percentage points lower than at the end of the first quarter of 2020. The regulatory minimum requirement (3 per cent) and buffer requirement (2 per cent), 5 per cent in total, were met by a good margin.
The aggregate profit of the bank’s three subsidiaries was NOK 59 million after tax in the first quarter of 2021 (NOK 48 million).
Møre Boligkreditt AS was established as part of the Group’s long-term funding strategy. The main purpose of the covered bond company is to issue covered bonds for sale to Norwegian and international investors. At the end of the first quarter of 2021, the company had outstanding bonds of NOK 26 billion in the market. Around 30 per cent was issued in a currency other than NOK. NOK 1,633 million of the volume of bonds issued by the company was held by the parent bank at the end of the first quarter of 2021. Møre Boligkreditt AS contributed NOK 59 million to the Group’s result in the first quarter of 2021 (NOK 48 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK -0.3 million to the result in the first quarter of 2021 (NOK -0.4 million). At the end of the quarter, the company employed 14 full-time equivalents.
Sparebankeiendom AS’s purpose is to own and manage the bank’s commercial properties. The company contributed NOK 0.4 million to the result in the first quarter of 2021 (NOK 0.4 million). The company has no employees.
At the end of the first quarter of 2021, there were 5,617 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 14 includes a list of the 20 largest holders of the bank’s equity certificates. As at 31 March 2021, the bank owned 22,111 of its own equity certificates. These were purchased on the Oslo Børs at market prices.
Developments in the labour market in Møre og Romsdal indicate that the trends in output and employment in the county were stable during the first quarter of 2021. Unemployment has fallen since the start of the year. At the end of March, the number of unemployed people registered at job centres amounted to 2.8 per cent of the workforce according to NAV. In comparison, the national unemployment rate was 4.2 per cent. Furthermore, almost 7,000 new jobs were added in the public and private sectors in the first quarter.
The long-term economic prospects have improved. This is due to comprehensive infection control measures, the rollout of vaccines and sustained financial support measures. Nevertheless, a number of industries are facing serious economic situations. This is particularly true for the hotel and restaurant industry, personal services, maritime industries and their suppliers and oil-related industries. Therefore, there is a risk that the number of bankruptcies will increase as financial support measures are discontinued.
The growth rate for household lending for Norway as a whole has been stable so far in 2021. Growth in corporate lending has been increasing and is now slightly higher than it was at the end of last year.
The bank noted good activity during the first quarter of the year with a slightly lower growth rate both in retail- and corporate lending compared with the annual growth rates at the end of 2020. The 12-month figures for growth were 3.6 per cent for retail lending and 4.7 per cent for corporate lending. Deposits increased by 7.7 per cent in the past 12 months up to the end of the first quarter of 2021, and the deposit-to-loan ratio remains high.
Sparebanken Møre expects lending growth for the bank in 2021 to be slightly higher than the growth in 2020 and end up at around 5 per cent. Deposit growth is expected to remain high.
The bank has a solid capital base and good liquidity, and will remain a strong and committed supporter of our customers also going forward. The focus will always be on good operations and profitability.
Although Sparebanken Møre’s strategic financial performance targets were not achieved in 2020 and activity reducing measures related to the Covid-19 pandemic are expected to have an impact on the market also in 2021, our targets of a return on equity above 11 per cent and a cost/income ratio of less than 40 per cent stand. The bank has taken steps to achieve these targets.
Ålesund, 31 March 2021
28 April 2021
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chair of the Board
HENRIK GRUNG, Deputy Chair
ANN MAGRITT BJÅSTAD VIKEBAKK
KÅRE ØYVIND VASSDAL
THERESE MONSÅS LANGSET
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO