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 2022
Profit before losses amounted to NOK 209 million for the first quarter of 2022, or 1.02 per cent of average total assets, compared with NOK 232 million, or 1.17 per cent, for the corresponding quarter last year.
Profit after tax amounted to NOK 163 million for the first quarter of 2022, or 0.80 per cent of average total assets, compared with NOK 170 million, or 0.86 per cent, for the corresponding quarter last year.
Return on equity was 9.3 per cent for the first quarter of 2022, compared with 10.2 per cent for the first quarter of 2021, and the cost income ratio amounted to 46.0 per cent compared with 39.9 per cent for the first quarter of 2021.
Earnings per equity certificate were NOK 7.85 (NOK 8.26) for the Group and NOK 17.34 (NOK 17.20) for the parent bank.
Net interest income
Net interest income was NOK 334 million, which is NOK 30 million, or 9.9 per cent, higher than in the corresponding quarter of last year. This represents 1.62 per cent of total assets, which is 0.09 percentage points higher than for the first quarter of 2021.
In the retail market, the interest margin for lending contracted and the deposit margin widened compared with the fourth quarter of 2021. In the corporate market, the interest margin for lending was stable, while the interest margin for deposits widened compared with the same period.
Fierce competition contributed to pressure on net interest income, while higher lending and deposit volumes resulted in an increase in net interest income.
Other income was NOK 53 million in the quarter, which is NOK 30 million lower than in the first quarter of last year. The net result from total financial instruments of NOK -2 million was NOK 36 million lower than in the first quarter of 2021. Capital losses from bond holdings amounted to NOK 31 million in the quarter, compared with capital gains of NOK 8 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 11 million compared with capital gains of NOK 10 million in the first quarter of 2021. The positive change in value for fixed-rate lending amounted NOK 9 million, compared with a positive change in value of NOK 8 million in the same quarter last year. The value of issued bonds decreased by NOK 5 million, compared with a decrease of NOK 6 million in the first quarter of 2021. Income from currency and interest rate business for customers amounted to NOK 14 million, which was on a par with the same period last year.
Other income, excluding financial instruments, increased by NOK 6 million compared with the first quarter of 2021. The increase was mainly attributable to guarantee commissions, income from discretionary portfolio management and money-transfer services.
See Note 7 for a specification of other operating income.
Operating costs were NOK 178 million in the quarter, which is NOK 23 million higher than in the same quarter last year. Personnel costs were NOK 19 million higher than in the corresponding period last year and amounted to NOK 105 million. Staffing has increased by 27 FTEs in the past 12 months to 370 FTEs. Other operating costs have increased by NOK 4 million from the same period last year. See Note 8 for a specification of costs.
The cost income ratio for the first quarter of 2022 was 46.0 per cent, 6.1 percentage points higher than in the first quarter of last year.
Provisions for expected credit losses and credit-impaired commitments
No losses on loans and guarantees were charged to the quarter’s accounts (NOK 14 million/0.07 per cent of average total assets). The corporate segment saw receipts on losses of NOK 3 million in the quarter, while losses in the retail segment amounted to NOK 3 million.
At the end of the first quarter of 2022, provisions for expected credit losses totalled NOK 366 million, equivalent to 0.51 per cent of gross lending and guarantee commitments (NOK 339 million and 0.49 per cent). Of the total provisions for expected credit losses, NOK 14 million concerns credit-impaired commitments more than 90 days past due (NOK 16 million), which amounts to 0.02 per cent of gross lending and guarantee commitments (0.02 per cent). NOK 238 million concerns other credit-impaired commitments (NOK 215 million), which is equivalent to 0.33 per cent of gross lending and guarantee commitments (0.30 per cent).
Net credit-impaired commitments (commitments more than 90 days past due and other commitments in Stage 3) have decreased by NOK 58 million in the past 12 months. At end of the first quarter of 2022, the corporate market accounted for NOK 709 million of net credit-impaired commitments and the retail market NOK 62 million. In total, this represents 1.07 per cent of gross lending and guarantee commitments (1.19 per cent).
Lending to customers
At the end of the first quarter of 2022, lending to customers amounted to NOK 70,380 million (NOK 67,711 million). In the past 12 months, customer lending has increased by a total of NOK 2,669 million, or 3.9 per cent. Retail lending has increased by 4.1 per cent and corporate lending has increased by 3.8 per cent in the past 12 months. Lending to corporate customers increased by 0.8 per cent in the first quarter of 2022, while lending to retail customers rose by 0.6 per cent. Retail lending accounted for 67.7 per cent of total lending at the end of the first quarter of 2022 (67.6 per cent).
Deposits from customers
Customer deposits have increased by NOK 3,200 million, or 7.9 per cent, in the past 12 months. At the end of the first quarter of 2022, deposits amounted to NOK 43,501 million (NOK 40,301 million). Retail deposits have increased by 7.1 per cent in the last 12 months, while corporate deposits have increased by 11.1 per cent and public sector deposits have decreased by 15.8 per cent. The retail market’s relative share of deposits amounted to 58.3 per cent (58.8 per cent), while deposits from the corporate market accounted for 39.4 per cent (38.3 per cent) and from the public sector market 2.3 per cent (2.9 per cent).
The deposit-to-loan ratio was 61.5 per cent at the end of the first quarter of 2022 (59.3 per cent).
Sparebanken Møre is well capitalised. At the end of the first quarter, the Common Equity Tier 1 capital ratio was 17.2 per cent (16.9 per cent), including 50 per cent of the result for the year to date. This is 4.5 percentage points higher than the total regulatory minimum requirement for the Common Equity Tier 1 capital ratio of 12.7 per cent. The primary capital ratio, including 50 per cent of the result for the year to date, was 20.8 per cent (20.6 per cent) and the Tier 1 capital ratio was 18.8 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). 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 2022. 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 next time it sets the Pillar 2 requirement in 2022, the Financial Supervisory Authority of Norway will also express its expectation concerning the Pillar 2 Guidance (P2G) in excess of the total risk-weighted capital requirement.
The leverage ratio (LR) at the end of the first quarter of 2022 was 7.7 per cent, the same as it was at the end of the first quarter of 2021. The regulatory minimum requirement (3 per cent) and buffer requirement (2 per cent), 5 per cent in total, were met by a good margin.
One key element of the BRRD2 is that capital instruments and debt can be written down and/or converted to equity (bail-in). The Financial Institutions Act, therefore, requires the bank to meet a minimum requirement regarding the sum of its own funds and convertible debt at all times (MREL – minimum requirement for own funds and eligible liabilities) such that the bank has sufficient primary capital and convertible debt to cope with a crisis without the use of public funds.
The MREL requirement must be covered by own funds or debt instruments with a lower priority than ordinary, unsecured, non-prioritised debt (senior debt). The subordination requirement (lower priority) must be met in full by no later than 1 January 2024. Until then, senior debt with a remaining term to maturity of more than one year can be used to help meet the subordination requirement.
The overall subordination requirement must as a minimum be phased in linearly. From 1 January 2022, the effective subordination requirement is 20 per cent of the adjusted risk-weighted assets.
Sparebanken Møre had issued NOK 2,000 million in subordinated bond debt at the end of first quarter of 2022.
The aggregate profit of the bank’s three subsidiaries was NOK 52 million after tax in the first quarter of 2022 (NOK 59 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 2022, the company had outstanding bonds of NOK 24.1 billion in the market. Around 43 per cent of this was issued in a currency other than NOK. Of the volume of bonds issued by the company, NOK 500 million (nominal values) was held by the parent bank at the end of the first quarter of 2022. Møre Boligkreditt AS contributed NOK 51 million to the Group’s result in the first quarter of 2022 (NOK 59 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 2022 (NOK -0.3 million). At the end of the quarter, the company employed 19 FTEs.
Sparebankeiendom AS’s purpose is to own and manage the bank’s commercial properties. The company contributed NOK 1.2 million to the result in the first quarter of 2022 (NOK 0.3 million). The company has no employees.
At the end of the first quarter of 2022, there were 5,617 holders of Sparebanken Møre’s equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 3.6 per cent at the end of the first quarter of 2022. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.66 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 2022, the bank owned 22,414 of its own equity certificates. These were purchased on the Oslo Børs at market prices.
The outlook for global economic growth has weakened due to the war between Russia and Ukraine. The sanctions that have been adopted will result in reduced international trade. The high inflation rate will also have a dampening effect on growth. This is because high inflation reduces household purchasing power and increases business costs. In the US, 12-month consumer price inflation was 8.5 per cent in March. In the eurozone and in Norway, inflation was 7.5 and 3.7 per cent, respectively.
The US Federal Reserve raised interest rates by 0.25 percentage points at its policy rate meeting on 16 March in order to curb inflationary pressures and several other central banks have started raising their key policy rates.
Norges Bank increased its key policy rate by 0.25 percentage points to 0.75 per cent at its interest rates meeting on 24 March. Furthermore, its interest rate path, i.e. the central bank’s prognosis regarding its key policy rate, was raised considerably. The new interest rate path indicates three further rate hikes this year and four rates hikes in 2023. The main reasons for the increase in the interest rate path were the prospect of higher wages and price inflation, higher oil and gas prices and expectations of higher interest rates abroad.
The level of activity in both Norway and Møre og Romsdal is high. As a result, unemployment has fallen almost continuously since society was first reopened in spring 2020. At the end of March, the number of unemployed in the county accounted for 1.8 per cent of the workforce. The corresponding unemployment rate for the country as a whole was 2.0 per cent. Following the end of the infection control rules in February, output picked up well in service industries such as transport, hotels, restaurants and tourism.
Growth in lending to households levelled off during the first quarter of this year for Norway as a whole, while growth in lending to the corporate market slowed somewhat. At the end of February 2022, the overall 12-month growth in lending to the public was around 4.8 per cent, compared with 5.0 per cent at the end of 2021.
During the first quarter of the year, the bank registered slightly slower growth in total lending compared with the end of last year. The 12-month growth rate was 3.9 per cent, compared with 4.6 per cent at the end of 2021. The 12-month growth rate for lending in the retail market amounted to 4.1 per cent at the end of the quarter, while the growth rate for corporate market lending was 3.8 per cent. Deposits increased by 7.9 per cent in the past 12 months up to the end of the first quarter of 2022, and the deposit-to-loan ratio remains 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.
Sparebanken Møre’s strategic financial performance targets are a return on equity of above 11 per cent and a cost income ratio of under 40 per cent. The Board of Directors expects the financial target figures to be achieved in 2022.
Ålesund, 31 March 2022
27 April 2022
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chair of the Board
HENRIK GRUNG, Deputy Chair
KÅRE ØYVIND VASSDAL
THERESE MONSÅS LANGSET
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO