Interim Report from the Board of Directors
All figures relate to the Group. Figures in brackets refer to the corresponding period last year.
Financial statements are prepared in accordance with IFRS and the interim report has been prepared in conformity with IAS 34 Interim Financial Reporting.
RESULTS FOR H1 2015
Sparebanken Møre's pre-tax profit after the first half of 2015 was NOK 368 million, compared to NOK 358 million after the first half of 2014. The total income was NOK 15 million higher than for the same period in 2014. The increase in total income is attributable to an increase of NOK 5 million in net interest income and NOK 10 million in other income. Compared with the first half of 2014, costs were NOK 4 million higher while losses on loans and guarantees were NOK 1 million higher compared with the corresponding period last year.
The cost/income ratio after the first half of the year was 43.2%. This is a reduction of 0.4 percentage points in relation to first six months of 2014. The level of costs for the year-to-date is well within Sparebanken Møre's target of a maximum cost/income ratio of 50%.
The profit after tax was NOK 269 million, NOK 6 million higher than for the first half of 2014. The half-year results show an annualised return on equity of 11.6%, compared to 12.1% after the first half of 2014. Sparebanken Møre's strategic return on equity target is a minimum of 10% after tax.
The earnings per equity certificate after the first half of the year amounted to NOK 13.50, compared to NOK 13.15 for the same period last year.
The Board of Directors is pleased with the result for the first half of 2015.
RESULTS FOR Q2 2015
The profit after tax for the second quarter of 2015 amounted to NOK 134 million, or 0.95% of average total assets, compared to NOK 131 million, or 0.99%, for the corresponding quarter last year. The return on equity in the second quarter of 2015 was 11.5%, compared with 12.1% for the second quarter of 2014.
The earnings per equity certificate amounted to NOK 6.75 (NOK 6.60) for the Group and NOK 4.60 (NOK 4.20) for the Parent Bank.
Net interest income
The net interest income of NOK 269 million was NOK 1 million higher than in the corresponding quarter of last year. This represents 1.89% of total assets, which is 0.12 percentage points lower than in the second quarter of 2014.
The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, is affecting the development of net interest income.
Other operating income
Other operating income amounted to NOK 65 million, which is NOK 3 million higher than in the second quarter of last year. Other operating income amounted to 0.46% of average total assets, the same as in the corresponding period in 2014. The increase was primarily attributable to increased income from hedging transactions with customers in the interest rate market, and increased income from guarantee commissions. The change in the value of the bond portfolio shows capital losses of NOK 9 million compared with capital gains of NOK 9 million at the same time last year.
Operating costs amounted to NOK 144 million in the quarter, unchanged from the same quarter last year. Other operating costs were reduced by NOK 2 million and staff costs were NOK 2 million higher compared with the same period last year. The Group's total workforce has increased by 5 full time equivalents in the last 12 months to 385 full time equivalents.
The cost/income ratio for the second quarter of 2015 was 42.7%, which represents a decrease of 0.7 percentage points compared with the second quarter of 2014.
The quarter's financial statements were charged NOK 7 million in losses on loans and guarantees. This amounts to 0.05% of average total assets on an annualised basis. The corresponding figure for the second quarter of 2014 was NOK 8 million (0.06%). The losses on loans and guarantees in the second quarter of 2015 consist of a NOK 25 million increase in group write-downs and a NOK 18 million contraction in losses in the corporate segment, with no losses in the retail segment.
At the end of the second quarter of 2015, total write-downs for losses amounted to NOK 314 million, equivalent to 0.62% of gross lending (NOK 308 million and 0.65 % of gross lending). NOK 18 million of the individual write-downs involved commitments in default for more than 90 days (NOK 19 million), which represents 0.04% of gross lending (0.04%). NOK 95 million relates to other commitments (NOK 143 million), which is equivalent to 0.18% of gross lending (0.30%). Group write-downs amounted to NOK 201 million (NOK 144 million) or 0.40% of gross lending (0.31%).
Net impaired commitments (loans that have been in default for more than 90 days and loans that are not in default but which have been subject to an individual write-down for losses) have decreased by NOK 95 million in the last 12 months. At the end of the second quarter of 2015 the corporate market accounted for NOK 199 million of net impaired commitments, and the retail market NOK 61 million. In total this represents 0.52% of gross lending (0.76%).
Lending and deposit growth
At the end of the second quarter of 2015, net lending to customers amounted to NOK 50 458 million (NOK 46 766 million). Net customer lending has increased by a total of NOK 3 692 million, or 7.9%, in the last 12 months. Retail lending has increased by 7.8%, while corporate lending has increased by 8.1% in the last 12 months. Retail lending accounted for 66.2% of lending at the end of the second quarter of 2015 (66.4%).
Customer deposits have increased by 3.0% in the last 12 months. At the end of the second quarter of 2015, deposits amounted to NOK 29 959 million (NOK 29 095 million). Retail deposits have increased by 6.3% in the last 12 months, while corporate deposits have decreased by 2.1% and public sector deposits have decreased by 12.3%. The retail market's relative share of deposits amounted to 60.8% (59.0 %), while deposits from corporate customers accounted for 36.1% (38.0%) and public sector customers 3.1% (3.0%).
Deposits as a percentage of loans amounted to 59.4% at the end of the second quarter of 2015 (62.2%).
The Group's Core Tier 1 capital must comply with the announced regulatory plan for the escalation of capital. Sparebanken Møre has not been defined as a systemically important financial institution (SIFI). Regardless of the level of the countercyclical buffer, the Core Tier 1 capital shall amount to a minimum of 13.5% according to the Group's internal strategy.
As at the end of the second quarter of 2015, the Group's capital adequacy is reported according to IRB for retail market commitments and IRB Foundation for the corporate market for credit risk. Sparebanken Møre had no capital requirements associated with the transitional scheme for the Basel I floor at the end of the second quarter of 2015.
The Group's capital adequacy at the end of the second quarter of 2015 was above the regulatory capital requirements and in line with the internally set minimum target for Core Tier 1 capital. Primary capital, including 50% of retained earnings in the year-to-date, amounts to 17.4% (16.4%), core capital 15.8% (15.2%), of which Core Tier 1 capital amounts to 13.5% (12.3%).
The aggregate profit of the Bank's three subsidiaries amounted to NOK 97 million after tax in the first half of 2015 (NOK 95 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. To date the company has raised NOK 14.2 billion in funding for the Group. The company contributed NOK 96 million to the result in the first half of 2015 (NOK 95 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has made a NOK 1 million (NOK 0 million) contribution to the Group's profit to date in 2015. At the end of the quarter, the company employed 16 full time equivalents.
Sparebankeiendom AS's purpose is to own and manage the Bank's business properties. The company has not made any contribution to the Group's profit to date in 2015. The company has no employees.
EQUITY CAPITAL CERTIFICATES
At the end of the first half of 2015, there were 5 834 holders of Sparebanken Møre's equity capital certificates. 9 886 954 equity capital certificates have been issued. Equity capital certificates accounts for 49.6% of the Bank's total equity. Note 10 contains an overview of the 20 largest owners of the Bank's equity capital certificates.
As at 30 June 2015, the Bank owned 150 666 of its own equity capital certificates. These were purchased via the Oslo Stock Exchange at market price.
Even with increasing uncertainty through the quarter, the aggregate general macroeconomic conditions for the county remain satisfactory.
There are signs of a downturn in petroleum investments during the year due to the fall in oil prices and the oil companies' focus on cutting costs. There will also be significant indirect effects through the supplier chain. As a consequence of this, unemployment in the county will probably increase somewhat over the next year. Unemployment in Møre og Romsdal will however remain among the lowest in Norway. In June, the registered unemployment rate in the county was 2.4%, compared with 2.8% in the country as a whole.
On the other hand, the weakening of the NOK exchange rate is helping to improve the competitiveness of our export industries and import-competing businesses. The recent drop in, and continued low level of, interest rates will improve purchasing power in the household sector and reduce interest costs for business. Finally, the fall in oil prices could contribute to increased growth in the eurozone's economy through lower costs for business. These factors could partly counteract the negative effects of the fall in the oil sector and oil-related activities. Sparebanken Møre's level of losses is expected to remain low and within the Bank's plans in 2015.
The competitive situation in the Bank's markets is tough and getting more intense, but the Bank is competitive and continues to show good growth in lending in both the retail and corporate markets. Overall, lending growth is expected to decrease through the year and will be weaker in 2015 than we have seen in the last few years within the retail market, but remain the same within the corporate market. There is a constant focus on generating growth through good commitments with an acceptable level of risk.
Together with a number of Norwegian banks, Sparebanken Møre's official Moody’s rating was set on review in the first quarter prior to a possible upgrading. Moody’s then upgraded Sparebanken Møre on 11 May 2015. The Bank's standalone rating (BCA) was upgraded to baa1. None of the Norwegian regional banks has a higher credit rating. The Bank's long-term rating is now A2 (stable). Møre Boligkreditt AS maintains the best rating (Aaa) on its issues. The Group is enjoying good access to stable long-term financing in the Norwegian and international funding markets. As well as official credit ratings, this is also a reflection of the Group's strong capital base and consistently good results over time. Long-term financing in the Norwegian and international funding markets will be balanced with good deposit growth also in the future.
Sparebanken Møre focuses strongly on cost-effectiveness. This has resulted in a highly satisfactory level of total costs in relation to income. This focus will continue, and the Group's cost-effectiveness will this year remain well within the internal target. Overall the year's result is expected to be good.
Ålesund, 30 June 2015
5 August 2015
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chairman
ROY REITE, Deputy Chairman
RAGNA BRENNE BJERKESET
RITA CHRISTINA SÆVIK
ANN MAGRITT BJÅSTAD VIKEBAKK
HELGE KARSTEN KNUDSEN
OLAV ARNE FISKERSTRAND, CEO