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 2023
Profit before losses amounted to NOK 302 million for the first quarter of 2023, or 1.34 per cent of average l assets, compared with NOK 209 million, or 1.02 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 207 million for the first quarter of 2023, or 0.92 per cent of average l assets, compared with NOK 163 million, or 0.80 per cent, for the corresponding quarter last year.

Return on equity was 11.0 per cent for the first quarter of 2023, compared with 9.3 per cent for the first quarter of 2022, and the cost income ratio amounted to 39.7 per cent compared with 46.0 per cent for the first quarter of 2022. 

Earnings per equity certificate were NOK 1.96 for the Group and NOK 3.10 for the parent bank. 

Net interest income 
Net interest income was NOK 445 million, which is NOK 111 million, or 33 per cent, higher than in the corresponding quarter of last year. This represents 1.98 per cent of total assets, which is 0.36 percentage points higher than for the corresponding quarter last year.

In the retail market, the interest margin for lending has contracted and the deposit margin has widened compared with the first quarter of 2022. In the corporate market, the interest margin for lending was stable, while the interest margin for deposits widened compared with the same period.

Other income
Other income was NOK 55 million in the quarter, which is NOK 2 million higher than in the first quarter of last year. The net result from financial instruments was slightly positive in the quarter and about NOK 2 million higher than in the first quarter of 2022. Capital losses from bond holdings were NOK 12 million in the quarter, compared with capital losses of NOK 31 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 5 million compared with capital gains of NOK 11 million in the first quarter of 2022. The negative change in value for fixed-rate lending amounted NOK 7 million, compared with a positive change in value of NOK 9 million in the same quarter last year. The value of issued bonds increased by NOK 4 million, compared with a negative change in value of NOK 5 million in the first quarter of 2022. Income from foreign exchange and interest rate business for customers amounted to NOK 12 million in the quarter, NOK 2 million lower than in the same quarter last year.

Other income, exclusive of financial instruments, was on a par with the first quarter of 2022. 

Costs
Operating costs amounted to NOK 198 million for the quarter, which is NOK 20 million higher than for the same quarter last year. Personnel costs accounted for NOK 6 million of the rise in relation to the same period last year and totalled NOK 111 million. The workforce increased by 17 full-time equivalents (FTEs) in the past 12 months and numbered 387 FTEs at the end of the quarter.  Other operating costs have increased by NOK 13 million from the same period last year. 

Provisions for expected losses and credit-impaired commitments
The quarter’s accounts were charged NOK 33 million in losses on loans and guarantees (NOK 0 million), equivalent to 0.15 per cent of average assets (0.00 per cent of average assets). The corporate segment was charged NOK 29 million in losses in the quarter, while NOK 4 million in losses were charged in the retail segment.

At the end of the first quarter of 2023, provisions for expected credit losses totalled NOK 368 million, equivalent to 0.47 per cent of gross lending and guarantee commitments (NOK 366 million and 0.51 per cent). Of the total provisions for expected credit losses, NOK 16 million concerns credit-impaired commitments more than 90 days past due (NOK 14 million), which amounts to 0.02 per cent of gross lending and guarantee commitments (0.02 per cent). NOK 198 million concerns other credit-impaired commitments (NOK 238 million), which is equivalent to 0.25 per cent of gross lending and guarantee commitments (0.33 per cent). 

Net credit-impaired commitments (commitments more than 90 days past due and other credit-impaired commitments) have increased by NOK 245 million in the past 12 months. At end of the first quarter of 2023, the corporate market accounted for NOK 867 million of net credit-impaired commitments and the retail market NOK 149 million. In total, this represents 1.28 per cent of gross lending and guarantee commitments (1.07 per cent). 

Lending to customers
At the end of the first quarter of 2023, lending to customers amounted to NOK 77,867 million (NOK 70,380 million). In the past 12 months, customer lending has increased by a total of NOK 7,487 million, or 10.6 per cent. Retail lending has increased by 8.3 per cent and corporate lending has increased by 15.5 per cent in the past 12 months. Retail lending accounted for 66.2 per cent per cent of total lending at the end of the quarter (67.7 per cent).

Deposits from customers
Customer deposits have increased by NOK 724 million, or 1.7 per cent, in the past 12 months. At the end of the first quarter of 2023, deposits amounted to NOK 44,225 million (NOK 43,501 million). Retail deposits have increased by 8.1 per cent in the past 12 months, while corporate deposits have decreased by 2.5 per cent and public sector deposits have decreased by 36.0 per cent. The retail market’s relative share of deposits amounted to 60.8 per cent (58.3 per cent), while deposits from the corporate market accounted for 37.7 per cent (39.4 per cent) and from the public sector market 1.5 per cent (2.3 per cent). 

The deposit-to-loan ratio was 56.5 per cent at the end of the first quarter (61.5 per cent).

LIQUIDITY AND FUNDING
The regulatory minimum LCR and NSFR requirements are both 100 per cent. The Group has established internal minimum targets that are above the regulatory requirements.

Sparebanken Møre’s liquidity coverage ratio (LCR) was 177 for the Group and 167 for the parent bank at the end of the quarter.  The EUR is a significant currency for the Group and Møre Boligkreditt AS. A currency is considered a ‘significant currency’ when liabilities denominated in that currency amount to 5 per cent of total liabilities. When the EUR and/or USD are significant currencies, a minimum requirement for NOK of 50 per cent applies.

The EU banking package was introduced in Norway from 1 June 2022. This entails, among other things, the introduction of a binding requirement that the net stable funding ratio (NSFR) must be more than 100 at all reporting levels. CRR2 sets new weights for asset and liability items, and for off-balance sheet items. The bank has measured and reported NSFRs for several years, and the NSFR was 121 at the end of the first quarter of 2023 (consolidated figure), while the NSFRs for the bank and Møre Boligkreditt AS were 122 and 108, respectively.

Total net market funding amounted to NOK 36.8 billion at the end of the quarter. Senior bonds with a remaining term to maturity of more than 1 year have a weighted remaining term to maturity of 2.62 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 3.16 years – overall for market funding in the Group (inclusive of T2 and T3) the remaining term to maturity is 3.17 years.

Møre Boligkreditt AS issues bonds based on the transfer of loans from the parent bank. The loans transferred to Møre Boligkreditt AS amounted to NOK 32.250 million at the end of the month, equal to around 40 per cent of the bank’s total lending.

RATING
In an update dated 25 July 2022, Moody’s Investor Service confirmed Sparebanken Møre’s counterparty, deposit and issuer rating of A1 with a stable outlook. The rating of the bank’s senior non-preferred liabilities in local currency was also maintained at Baa1.

Bonds issued by Møre Boligkreditt AS are also credit rated by Moody’s Investor Service and have a rating of Aaa.

CAPITAL ADEQUACY 
Sparebanken Møre is well capitalised. At the end of the first quarter of 2023, the Common Equity Tier 1 capital ratio was 17.7 per cent (17.2 per cent). This is 2.25 percentage points higher than the total minimum regulatory requirement and the Financial Supervisory Authority of Norway’s expected capital requirement margin (P2G) totalling 15.45 per cent. Primary capital amounted to 22.2 per cent (20.8 per cent) and Tier 1 capital 19.5 per cent (18.8 per cent). 

The banking package was enacted in Norway from 1 June 2022 and resulted in several changes such as the expansion of the SME discount and the introduction of a minimum NSFR requirement. On 21 December 2021, Sparebanken Møre applied to the Financial Supervisory Authority to make changes to the bank’s IRB models and calibration framework. The bank received a preliminary response to the application on 13 July 2022 and responded to this on 14 December 2022. The Board is awaiting a final response from the Financial Supervisory Authority to the application that has been submitted.

Sparebanken Møre’s total Common Equity Tier 1 capital ratio requirement is 14.2 per cent. This is composed of a minimum requirement of 4.5 per cent, a capital conservation buffer of 2.5 per cent, a systemic risk buffer of 3.0 per cent and a countercyclical buffer of 2.5 per cent. In addition to this, the Financial Supervisory Authority of Norway has added an individual Pilar 2 requirement for Sparebanken Møre of 1.7 per cent. It has also set an expected capital adequacy margin(P2G) of 1.25 per cent. The Financial Supervisory Authority has informed the bank that it plans to implement SREP this year. At least 56.25 per cent of the new Pillar 2 requirement that results from the aforementioned SREP must be met with Common Equity Tier 1 capital, while 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at the end of the first quarter was 7.4 per cent (7.7 per cent). The regulatory minimum requirement (3 per cent) was met by a good margin. 

MREL
The Financial Supervisory Authority has set Sparebanken Møre’s effective MREL requirement as at 1 January 2023 at 32.4 per cent and the minimum requirement for subordination at 23.5 per cent. Based on the set capital requirements and announced changes that will come into force by 1 January 2024, Sparebanken Møre will operate on the basis of an effective MREL requirement of 35.9 per cent and a subordination requirement of 28.9 per cent.

Sparebanken Møre had issued NOK 2,000 million in senior non-preferred capital (SNP) at the end of first quarter of 2023.

SUBSIDIARIES 
The aggregate profit of the bank’s subsidiaries amounted to NOK 39 million after tax in the first quarter of 2023 (NOK 52 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 2023, the company had nominal outstanding covered bonds of NOK 26.6 billion in the market, of which almost 40 per cent were denominated in a currency other than NOK. At the end of the quarter, the parent bank held no bonds issued by the company. Møre Boligkreditt AS contributed NOK 38 million to the Group’s result in the first quarter of 2023 (NOK 51 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 2023 (NOK -0.3 million). At the end of the quarter, the company employed 20 FTEs. 

The purpose of Sparebankeiendom AS and Storgata 41-45 Molde AS is to own and manage the bank’s own commercial properties. The companies contributed NOK 0.7 million to the result in the first quarter of 2023 (NOK 1.2 million). The companies have no staff. 

EQUITY CERTIFICATES 
At the end of the first quarter of 2023, there were 6,456 holders of Sparebanken Møre's equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 2.6 per cent at the end of the quarter. 49,434,770 equity certificates have been issued. Equity certificate capital accounts for 49.65 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 2023, the bank owned 87,232 of its own equity certificates. These were purchased on the Oslo Børs at market prices.

FUTURE PROSPECTS 
Banking turmoil in the US and Europe resulted in major fluctuations in the financial markets in the first quarter. Stock markets fell and so did long-term US and European interest rates. The fall in interest rates was due to markets expecting that policy rates would rise less than previouslyanticipated. Meanwhile, towards the end of the quarter, the markets calmed down as no more negative news came from the banking sector. Otherwise, the first quarter was one of very high inflation and interest rate increases from the leading central banks.

The European Central Bank (ECB) increased its key policy rate by 0.50 percentage points twice in the first quarter, most recently at its monetary policy meeting on 16 March. Its key policy rate was raised to 3.00 per cent. Given that the markets were very nervous at this time due to a drop in confidence in the banks, no signals were given about future interest rate developments. However, it was underscored that going forward rates would be set based on economic data, not least the development in inflation.

The US Federal Reserve also raised its policy rate twice in the first quarter, most recently on 22 March. At that meeting, the US Federal Reserve increased the target zone for its policy rate by 0.25 percentage points to 4.75-5.00 per cent. The median value of the range therefore reached 4.875 per cent. The Chair of the Federal Reserve, Jerome Powell, indicated that a further hike would probably be appropriate. Otherwise, the Federal Reserve’s interest rate forecast was unchanged from December 2022, meaning that the median value would peak at 5.1 per cent towards the end of this year.

Norges Bank increased its key policy rate by 0.25 percentage points to 3.00 per cent in connection with its decision on the policy rate on 23 March. Furthermore, its interest rate path, that is the central bank’s prognosis regarding its key policy rate, was raised considerably. According to the new interest rate path, rate hikes are likely in both May and June. Consequently, the rate would peak at 3.50 per cent. There is also a slight chance that the rate will be increased further sometime before the end of the year.

Developments in the labour market indicate that output and demand in the Norwegian economy and in Møre og Romsdal are holding up. At the end of March, the number of unemployed people in Møre og Romsdal accounted for 1.7 per cent of the labour force according to the Norwegian Labour and Welfare Administration (NAV). The national unemployment rate was 1.8 per cent. In the past year, unemployment has fallen by 8 per cent in the county and has been well below 2 per cent. Statistics Norway estimates that the county’s total labour supply will increase by slightly more than the employment rate this year and next. As a result, the unemployment rate will probably rise slightly.

Overall, growth in lending to households in Norway continues to edge downwards in 2023, while growth in lending to the corporate market remains high. At the end of February, the overall 12-month growth in lending to the public was 5.4 per cent, compared with 5.5 per cent at the start of the year. As a consequence of higher interest rates and the weaker development of house prices, a further slowdown in the growth of lending to households is expected going forward, while corporate investments, including petroleum investments, are helping to keep the rate of growth in corporate lending up.

The bank’s overall lending growth is holding up well. The 12-month rate ended at 10.6 per cent at the end of the quarter, markedly above the level at the end of 2022 of 8.8 per cent. The year-on-year growth in lending to the retail market ended at 8.3 per cent at the end of the first quarter, while lending growth in the corporate market amounted to 15.5 per cent. Deposits have increased by 1.7per cent in the last 12 months and the deposit-to-loan ratio is high but slightly decreasing.

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.

The bank’s return on equity was 11.0 per cent for the first quarter of 2023, while the cost income ratio was 39.7 per cent. Sparebanken Møre’s financial performance targets are a return on equity of above 11 per cent and a cost income ratio of under 40 per cent. The financial targets are also expected to be achieved for the year as a whole.

Ålesund, 31 March 2023
26 April 2023

THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
ROY REITE, Chair of the Board
KÅRE ØYVIND VASSDAL, Deputy Chair
JILL AASEN
THERESE MONSÅS LANGSET
TERJE BØE
BIRGIT MIDTBUST
MARIE REKDAL HIDE
BJØRN FØLSTAD

TROND LARS NYDAL, CEO