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 2016
Sparebanken Møre's pre-tax profit after the first half of 2016 was NOK 397 million, compared to NOK 356 million after the first half of 2015.
Total income was NOK 25 million higher than for the same period in 2015. Net interest income fell by NOK 5 million and other operating income rose by NOK 30 million. The increase in other operating income was primarily attributable to NOK 38 million in proceeds from the Visa transaction, capital gains from bonds of NOK 10 million, compared with capital losses of NOK 9 million in the corresponding period last year, and income from interest transactions with customers being NOK 9 million lower than in the first half of 2015.
Costs were NOK 4 million higher while losses on loans and guarantees were NOK 20 million lower than in the corresponding period last year.
The cost income ratio after the first half of the year was 42.9 %. This represents a decrease of 1.1 percentage points compared with the first half of 2015. The cost income ratio for the year-to-date is well within Sparebanken Møre's target of 45 %.
The profit after tax was NOK 306 million, NOK 45 million higher than for the first half of 2015. The half-year results show an annualised return on equity of 12.6 %, compared to 11.2 % after the first half of 2015. Sparebanken Møre's strategic return on equity target is a minimum of 10 % after tax.
Earnings per equity certificate after the first half of the year amounted to NOK 15.40 (NOK 13.10) for the Group and NOK 20.10 (NOK 17.70) for the Parent Bank.
The Board of Directors is pleased with the result for the first half of 2016.
The Visa transaction
Please refer to the information already provided in the 2015 annual report and the stock notification of 29 June 2016 on the agreement between Visa Europe Ltd and Visa Inc. concerning the sale of all of the shares in Visa Europe. Sparebanken Møre has an interest in this transaction due to its stake in Visa Norge FLI, which owns one share in Visa Europe Ltd. The transaction consists of a cash payment upon implementation, a cash payment payable after 3 years, and convertible preference shares.
On 28 June 2016, Visa Norge confirmed that Sparebanken Møre's share of the cash payment amounted to EUR 4.4 million. The effect on the pre-tax profit of this first part of the cash payment amounted to NOK 38 million in the second quarter.
RESULTS FOR Q2 2016
The profit after tax for the second quarter of 2016 amounted to NOK 186 million, or 1.26 % of average total assets, compared to NOK 139 million, or 0.98 %, for the corresponding quarter last year. The return on equity in the second quarter of 2016 was 15.2 %, compared with 11.9 % for the second quarter of 2015.
Earnings per equity certificate amounted to NOK 9.30 (NOK 7.00) for the Group and NOK 7.30 (NOK 4.80) for the Parent Bank.
Net interest income
Net interest income of NOK 275 million was on a par with the corresponding quarter of last year. This represents 1.86 % of total assets, which is 0.05 percentage points lower than in the second quarter of 2015.
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 106 million, which is NOK 41 million higher than in the second quarter of last year. Other operating income amounted to 0.70 % of average total assets, compared with 0.46 % in the corresponding period in 2015. The effect on the pre-tax profit of the first part of the cash payment from the Visa transaction amounted to NOK 38 million in the second quarter. Capital gains on bonds amounting to NOK 8 million were also posted, compared with capital losses of NOK 2 million for the second quarter of 2015.
Operating costs in the quarter amounted to NOK 147 million, which is NOK 3 million higher than in the corresponding quarter last year. The increase was attributable to a NOK 3 million rise in other operating costs. Personnel costs were on a par with the corresponding period last year and amounted to NOK 83 million. Staffing has been reduced by 4 full-time equivalents in the last 12 months to 381 full-time equivalent positions.
The cost income ratio amounted to 38.5 % in the second quarter of 2016, which represents a reduction of 3.9 percentage points compared with the second quarter last year.
Losses on lending and guarantees was positive for the quarter and amounted to NOK 3 million. This amounts to 0.02 % of average total assets on an annualised basis. The corresponding figure for the second quarter of 2015 was a cost of NOK 7 million (0.05 %). Collective impairment remained unchanged in the second quarter: losses on loans in the retail segment were positive and amounted to NOK 2 million and losses on loans in the corporate segment was positive and amounted to NOK 1 million.
At the end of the second quarter of 2016, total impairment for losses amounted to NOK 332 million, equivalent to 0.64 % of gross lending (NOK 314 million and 0.62 % of gross lending). NOK 13 million of the individual impairment involved commitments in default for more than 90 days (NOK 18 million), which represents 0.03 % of gross lending (0.04 %). NOK 58 million relates to other commitments (NOK 95 million), which is equivalent to 0.11 % of gross lending (0.18 %). Collective impairment amounted to NOK 262 million (NOK 201 million) or 0.51 % of gross lending (0.40 %).
Net problem loans (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 impairment for losses) have decreased by NOK 131 million in the last 12 months. At the end of the second quarter of 2016, the corporate market accounted for NOK 81 million of net problem loans and the retail market NOK 48 million. In total this represents 0.25 % of gross lending (0.52 %).
Lending to customers
At the end of the second quarter of 2016, lending to customers amounted to NOK 51 192 million (NOK 50 458 million). Net customer lending has increased by a total of NOK 734 million, or 1.5 %, in the last 12 months. Retail lending has increased by 6.5 %, while corporate lending has decreased by 8.7 % in the last 12 months. Retail lending accounted for 69.8 % of lending at the end of the second quarter of 2016 (66.2 %).
Customer deposits have increased by 5.5 % the last 12 months. At the end of the second quarter of 2016, deposits amounted to NOK 31 595 million (NOK 29 959 million). Retail deposits have increased by 4.1 % in the last 12 months, while corporate deposits have increased by 8.4 % and public sector deposits have increased by 9.8 %. The retail market's relative share of deposits amounted to 59.4 % (60.8 %), while deposits from the corporate market accounted for 37.0 % (36.1 %) and public sector customers 3.6 % (3.1 %).
The deposit to loan ratio amounted to 61.7 % at the end of the second quarter of 2016 (59.4 %).
The Group's capital adequacy ratio at the end of the second quarter of 2016 was above the regulatory capital requirements and in line with the internally set minimum target for the core tier 1 capital ratio.
Regardless of the level of the countercyclical buffer, the Group's core tier 1 capital ratio shall amount to a minimum of 13.0 %. The Financial Supervisory Authority of Norway will carry out a new assessment of the Group's risk and capital needs in 2016 and set an individual Pillar 2 buffer.
The primary capital ratio, including 50 % of retained earnings in the year-to-date, amounts to 18.5 % (17.4 %), the core capital ratio amounts to 17.0 % (15.8 %) and the core tier 1 capital ratio amounts to 14.5 % (13.5 %).
Sparebanken Møre was subject to a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 63 million at the end of the second quarter of 2016, which corresponds to a basis for calculation of NOK 793 million.
The aggregate profit of the Bank's three subsidiaries amounted to NOK 81 million after tax in the first half of 2016 (NOK 97 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. At the end of the first half of the year, the company had raised NOK 15.8 billion in funding for the Group. The company contributed NOK 82 million to the result in the first half of 2016 (NOK 96 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has made a negative contribution to the result so far in 2016 of NOK 1 million (NOK 1 million). At the end of the quarter, the company employed 16 full-time equivalents.
Sparebankeiendom AS' purpose is to own and manage the Bank's business properties. The company has made no contribution to the result so far in 2016. The company has no staff.
At the end of the first half of 2016, there were 5 860 holders of Sparebanken Møre's equity certificates. 9 886 954 equity certificates have been issued. The EC holders` share of the bank`s total equity amounts to 49.6 %. Note 10 contains an overview of the 20 largest owners of the Bank's equity certificates.
As at 30 June 2016, the Bank owned 125 485 of its own equity certificates. These were purchased via the Oslo Stock Exchange at market price.
The economic outlook for Møre og Romsdal has become more stable during the last few months. On the one hand, growth in the international economy will be a bit lower this year than originally estimated. On the other hand, oil prices have stabilized at a slightly higher level than by the end of Q1, the Norwegian krone remains weak, interest rates are low, and fiscal policy has been expansionary. We are in the midst of a period of significant restructuring in the Norwegian economy that, so far, appears to have been generally successful. These factors will have a positive effect on unemployment through the remaining part of the year. However, output in oil-related industries is expected to fall further. At the same time, the developments within fisheries, tourism and traditional exports of goods and services are favourable.
The level of losses in Sparebanken Møre is expected to remain low this year.
The unemployment rate in the county has fallen in the last 3 months, including when adjusted for normal seasonal variations. In June, unemployment fell to 2.9 %. This is the same rate as the nationwide rate. However, parts of Møre og Romsdal are still being affected by the decreasing level of activity in the oil sector. Therefore, there is some risk that unemployment will rise slightly going forward. Low interest rates, a weak Norwegian krone, an expansionary fiscal policy, and the aforementioned restructuring are expected to moderate a possible rise in unemployment, also in Møre og Romsdal. The county also has a high export share. In the long term, the weak Norwegian krone could therefore also contribute to the labour market developing better in Møre og Romsdal than in the country as a whole.
Credit growth in Norway has decreased slightly through the first half of the year. We are experiencing continued strong competition in the market for both lending and deposits, but the Bank is competitive and is still seeing strong growth in lending. Competition is increasing within certain business sectors. There is a constant focus on generating growth through good commitments with an acceptable level of risk.
The Bank will remain strong and committed in supporting the business sectors in our region, Nordvestlandet.
Sparebanken Møre focuses strongly on cost-effectiveness. This has resulted in a highly satisfactory level of costs. This focus will continue, and the Group's cost income ratio this year is expected to remain within the internal target of 45 %.
Overall, good results are expected this year, with a return on equity exceeding the target of 10 per cent.
Ålesund, 30 June 2016
9 August 2016
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chairman
ROY REITE, Deputy Chairman
RAGNA BRENNE BJERKESET
ELISABETH MARÅK STØLE
ANN MAGRITT BJÅSTAD VIKEBAKK
HELGE KARSTEN KNUDSEN
OLAV ARNE FISKERSTRAND, CEO