Interim report from the Board of Directors

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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 2024
Profit before losses amounted to NOK 350 million for the first quarter of 2024, or 1.42 per cent of average assets, compared with NOK 302 million, or 1.34 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 254 million for the first quarter of 2024, or 1.03 per cent of average assets, compared with NOK 207 million, or 0.92 per cent, for the corresponding quarter last year.

Return on equity was 13.1 per cent for the first quarter of 2024, compared with 11.0 per cent for the first quarter of 2023, and the cost income ratio amounted to 39.5 per cent compared with 39.7 per cent for the first quarter of 2023.

Earnings per equity certificate were NOK 2.41 (NOK 1.96) for the Group and NOK 3.32 (NOK 3.10) for the parent bank.

Net interest income
Net interest income was NOK 508 million for the quarter, which is NOK 63 million, or 14.2 per cent, higher than in the corresponding quarter of last year. This represents 2.07 per cent of total assets, which is 0.09 percentage points higher than for the corresponding quarter last year.

In the retail market, both the interest margin for lending and the deposit margin contracted compared with the first quarter of 2023. In the corporate market, the interest rate margins for both lending and deposits were the same level as in the first quarter of 2023.

Other income
Other income was NOK 70 million in the quarter, which is NOK 15 million higher than in the first quarter of last year. The net result from financial instruments was NOK 16 million for the quarter, which is NOK 16 million higher than in the first quarter of 2023. Capital gains from bond holdings were NOK 5 million in the quarter, compared with capital losses of NOK 12 million in the corresponding quarter last year. Capital losses from equities amounted to NOK 4 million, compared with capital gains of NOK 5 million in the first quarter of 2023. The change in value for fixed-rate lending amounted to NOK 0 million, compared with a negative change in value of NOK 7 million in the same quarter last year. Income from foreign exchange and interest rate business for customers amounted to NOK 11 million in the quarter, NOK 1 million less than in the same quarter last year.

Other income excluding financial instruments amounted to NOK 1 million less than in the first quarter of 2023.

Expenses
Operating expenses amounted to NOK 228 million for the quarter, which is NOK 30 million higher than for the same quarter last year. Personnel expenses accounted for NOK 13 million of the rise in relation to the same period last year and totalled NOK 124 million. Other operating expenseshave increased by NOK 17 million from the same period last year.

Provisions for expected credit losses and credit-impaired commitments
Losses on loans and guarantees amounted to NOK 17 million in the quarter (NOK 33 million), corresponding to 0.07 per cent of average assets (0.15 per cent of average assets). In the corporate segment, losses increased by NOK 26 million in the quarter, while losses in the retail segment decreased by NOK 9 million.

At the end of the first quarter of 2024, provisions for expected credit losses totalled NOK 284 million, equivalent to 0.33 per cent of gross loans and guarantee commitments (NOK 368 million and 0.47 per cent). Of the total provision for expected credit losses, NOK 26 million relates to credit-impaired commitments more than 90 days past due (NOK 16 million), which represents 0.03 per cent of gross loans and guarantee commitments (0.02 per cent), while NOK 92 million relates to other credit-impaired commitments (NOK 198 million), corresponding to 0.11 per cent of gross loans and guarantee commitments (0.25 per cent).

Net credit-impaired commitments (commitments more than 90 days past due and other credit-impaired commitments) have decreased by NOK 640 million in the past 12 months. At end of the first quarter of 2024, the corporate market accounted for NOK 221 million of net credit-impaired commitments and the retail market NOK 155 million. In total, this represents 0.44 per cent of gross loans and guarantee commitments (1.28 per cent).

Lending to customers
At the end of the first quarter of 2024, lending to customers amounted to NOK 83,260 million (NOK 77,867 million). In the past 12 months, customer lending has increased by a total of NOK 5,393 million, equivalent to 6.9 per cent. Retail lending has increased by 5.2 per cent and corporate lending has increased by 9.9 per cent in the past 12 months. Retail lending accounted for 65.3 per cent of total lending at the end of the quarter (66.2 per cent).

Deposits
Deposits from customers have increased by NOK 3,966 million, or 9.0 per cent, in the past 12 months. At the end of the first quarter of 2024, deposits amounted to NOK 48,191 million (NOK 44,225 million). Retail deposits have increased by 10.6 per cent in the past 12 months, while corporate deposits and public sector deposits have increased by 6.4 per cent. The retail market’s relative share of deposits amounted to 61.7 per cent (60.8 per cent), while deposits from the corporate market accounted for 38.3 per cent (39.2 per cent).

The deposit-to-loan ratio was 57.7 per cent at the end of the first quarter (56.5 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 173 for the Group and 160 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 NSFR was 124 at the end of the first quarter of 2024 (Group), while the bank’s and Møre Boligkreditt AS’s NSFR was 125 and 112, respectively.

Total net market funding amounted to around NOK 37.8 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 2.50 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 3.05 years – overall for market funding in the Group (inclusive of T2 and T3) the remaining term to maturity is 3.02 years.

Møre Boligkreditt AS issues bonds based on the transfer of loans from the parent bank. Gross retail lending transferred to Møre Boligkreditt AS amounted to NOK 31,970 million at the end of the quarter, which corresponds to 38.3 per cent of the bank’s total lending.

RATING
In a Credit Opinion published on 9 January 2024, the rating agency Moody's confirmed Sparebanken Møre’s counterparty, deposit and issuer ratings as A1 with a stable outlook. Møre Boligkreditt has the same issuer rating as the parent bank, while the mortgage credit company’s issuances are rated Aaa.

CAPITAL ADEQUACY
Sparebanken Møre is well capitalised. At the end of the first quarter of 2024, the Common Equity Tier 1 capital ratio (CET1) was 18.5 per cent (17.7 per cent), including 50 per cent of the result for the year to date. This is 2.35 percentage points higher than the total minimum requirement and the Financial Supervisory Authority of Norway’s expected capital adequacy margin (P2G) totalling 16.15 per cent. The capital adequacy ratio, including 50 per cent of the result for the year to date, was 23.1 per cent (22.2 per cent) and the Tier 1 capital ratio was 20.8 per cent (19.5 per cent).

On 15 June 2023, the Financial Supervisory Authority approved an application for the acquisition of equity certificates. The authorisation was granted on the condition that the buybacks do not reduce Common Equity Tier 1 capital by more than NOK 64.9 million. Sparebanken Møre deducted NOK 64.9 million from Common Equity Tier 1 capital from the date authorisation was granted until the authorisation expired on 12 March 2024. Thus, no deductions were made in relation to the limit as at 31 March 2024. A new application for the acquisition of equity certificates has been submitted to the Financial Supervisory Authority for approval.

The EU’s ‘banking package’ was enacted in Norway on 1 June 2022 and resulted in several changes such as the expansion of the SME discount and the introduction of a minimum NSFR requirement. Sparebanken Møre has previously applied to the Financial Supervisory Authority of Norway for model and calibration changes. A letter from the Financial Supervisory Authority dated 22 June 2023 granted approval for the proposed models for the corporate market. Sparebanken Møre incorporated the new models in the fourth quarter of 2023. The model changes increased the CET1 capital ratio by 0.7 percentage points. In a letter dated 18 January 2024, the Financial Supervisory Authority rejected the bank's application concerning changes to the model for the retail market. The bank will submit a new application that takes account of the Financial Supervisory Authority's feedback.

Sparebanken Møre’s total CET1capital ratio requirement is 16.15 per cent. The requirement consists of a minimum requirement of 4.5 per cent, a capital conservation buffer of 2.5 per cent, a systemic risk buffer of 4.5 per cent and a countercyclical buffer of 2.5 per cent. The Financial Supervisory Authority conducted a SREP in 2023. The individual Pilar 2 requirement for Sparebanken Møre has been set at 1.6 per cent, and the expected capital adequacy margin has been set at 1.25 per cent. At least 56.25 per cent of the new Pillar 2 requirement that resulted from the aforementioned SREP must be met with Common Equity Tier 1 capital (0.9 per cent), and a minimum of 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at the end of the first quarter of 2024 was 7.7 per cent (7.4 per cent). The regulatory minimum requirement (3 per cent) was met by a good margin.

MREL
On 1 January 2024, the Financial Supervisory Authority of Norway set Sparebanken Møre’s effective MREL requirement at 35.7 per cent of the risk-weighted assets at any given time. The minimum subordination requirement was set at 28.7 per cent. At the end of the quarter, Sparebanken Møre’s actual MREL level was 40.5 per cent, while the level of subordination was 32.7 per cent of the risk-weighted assets.

Sparebanken Møre had issued NOK 3,000 million in Senior Non-Preferred debt at the end of first quarter of 2024.

SUBSIDIARIES
The aggregate profit of the bank's subsidiaries amounted to NOK 41 million after tax in the first quarter of 2024 (NOK 39 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 2024, the company had nominal outstanding covered bonds of NOK 28.2 billion in the market. Around 28 per cent was issued 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 41 million to the Group’s result in the first quarter of 2024 (NOK 38 million).

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company made a NOK -1 million contribution to the result in the first quarter of 2024 (NOK 0 million). At the end of the quarter, the company employed 24 FTEs.

The purpose of Sparebankeiendom AS and Storgata 41-45 Molde AS is to own and manage the bank’s own commercial properties. The company contributed NOK 1 million to the result in the first quarter of 2024 (NOK 1 million). The companies have no staff.

EQUITY CERTIFICATES
At the end of the first quarter of 2024, there were 6,973 holders of Sparebanken Møre's equity certificates. The proportion of equity certificates owned by foreign nationals and enterprises amounted to 2.3 per cent at the end of the first quarter of 2024. 49,434,770 equity certificates have been issued. Equity certificate capital accounts for 49.7 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 2024, the bank owned 117,106 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.

FUTURE PROSPECTS
Global inflationary pressures continue to decline, albeit at a slightly slower pace than before. At the same time, the real economies of a number of western countries appear able to withstand current interest rates better than expected. This is especially true of the US, where growth remains good and the labour market is relatively tight.

In light of this situation, western central banks have continued to call for patience regarding the timing of the first interest rate cut. The fear of reducing interest rates prematurely, and thus helping inflation speed up again, is clear.

The conditions described above contributed to the market’s interest rate expectations rising markedly throughout the first quarter. At the beginning of the year, six or seven interest rate cuts were expected from both the European and US central banks in 2024. This has been reduced to expectations of two to three interest rate cuts.

Furthermore, the geopolitical risks associated with the situations in Ukraine and the Middle East remain. There have been recent signs of escalation in the conflict in the Middle East, which has resulted in, among other things, oil prices being at their highest levels since autumn 2022.

The rise in US and European expectations concerning interest rates has also spread to Norwegian interest rates. At the same time, there are some domestic conditions that suggest that the policy rate may remain at its current level for some time to come.

Output in the Norwegian economy remains high and unemployment is low. However, there are big differences between the various sectors. Companies with exposure to the petroleum sector are seeing increasing activity as a result of high levels of investment on the Norwegian continental shelf. On the other hand, building and construction activity is expected to be subdued throughout 2024.

A weak Norwegian krone is making it more expensive to import goods and services, and thus harder to reduce inflation. Meanwhile, this is also contributing to higher wage growth thanks to the Norwegian front runner model. This year’s wage settlement was 5.2 per cent and thus higher than Norges Bank’s estimates. Seen in isolation, this is helping to delay the first interest rate cut.

Norges Bank’s latest interest rate path assumes that there will be one interest rate cut this year, in the fourth quarter. The implicit expectations concerning market rates roughly align with this.

The rate of growth in lending to households and non-financial companies for Norway as a whole fell further during the first quarter of 2024. With a growth rate in household lending down at around 3 per cent at the end of February and a growth rate in loans to non-financial companies of 2.5 per cent, the 12-month growth in lending was the lowest measured in almost 30 years. At the end of February, the overall 12-month growth in lending to the public was around 3.5 per cent. Although the growth rate is still falling, a flattening of this trend is expected at around these levels.

Sparebanken Møre’s overall lending growth has remained good. The 12-month growth rate was 6.9 per cent at the end of the quarter, slightly below the level at the end of 2023 of 7.2 per cent. The year-on-year growth in lending to the retail market ended at 5.2 per cent at the end of the first quarter, while lending growth in the corporate market amounted to 9.9 per cent. Deposits have increased by 9.0 per cent in the past 12 months 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.

The bank's return on equity for the first quarter of 2024 was 13.1 per cent, while its cost income ratio was 39.5 per cent. Sparebanken Møre’s long-term strategic financial targets are a return on equity of above 12 per cent and a cost income ratio of under 40 per cent.

Ålesund, 31 March 2024
24 April 2024

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