Interim report from the Board of Directors
INTERIM REPORT OF THE BOARD OF
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. The levy for the Norwegian Banks Guarantee Fund was recognised on an accruals basis in the first half of 2017. The figures for the first half of 2016 have been made comparable.
RESULTS FOR H1 2017
Sparebanken Møre's pre-tax profit for the first half of 2017 was NOK 349 million, compared to NOK 410 million for the first half of 2016.
Total income was NOK 42 million lower than for the same period in 2016. Net interest income fell by NOK 9 million and other operating income fell by NOK 33 million. The reduction in other operating income was mainly due to the proceeds from the VISA transaction, which amounted to NOK 38 million in the first half of 2016. Capital gains from bonds amounted to NOK 22 million, compared with NOK 10 million in 2016, and income from hedging transactions with customers in the interest rate market was NOK 5 million lower than in the first half of 2016.
Costs were NOK 6 million higher in the first half of 2017 than in 2016. Personnel costs were NOK 5 million higher than at the same time last year. The financial industry tax in the form of higher employers' National Insurance contributions accounted for NOK 6 million of this increase.
Losses on loans and guarantees amounted to NOK 8 million and were NOK 13 million higher than in the same period last year.
The cost income ratio after the first half of the year was 45.7 %. This represents an increase, compared with the first half of 2016, of 3.6 percentage points. The cost income ratio for the year-to-date is slightly higher than Sparebanken Møre's maximum target of 45 %.
The profit after tax of NOK 261 million was NOK 54 million lower than for the first half of 2016. The half-year results show an annualised return on equity of 10.0 %, compared to 12.9 % after the first half of 2016. Sparebanken Møre's target is a return on equity of minimum of 10 % after tax.
The earnings per equity certificate after the first half of the year amounted to NOK 13.10, compared to NOK 15.80 for the same period last year.
The Board of Directors is satisfied with the result for the first half of 2017.
RESULTS FOR Q2 2017
The profit after tax for the second quarter of 2017 amounted to NOK 130 million, or 0.84 % of average total assets, compared to NOK 181 million, or 1.20 %, for the corresponding quarter of last year.
The return on equity in the second quarter of 2017 was 10.0 %, compared to 14.7 % for the second quarter of 2016.
The earnings per equity certificate amounted to NOK 6.50 (NOK 9.10) for the Group and NOK 4.95 (NOK 7.00) for the Parent Bank.
Net interest income
The net interest income of NOK 268 million was the same as in the corresponding quarter of last year. This represents 1.71 % of total assets, which is 0.08 percentage points lower than in the second quarter of 2016.
The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, influences the development of net interest income. Lower volumes together with reduced margins due to the reduced risk in the maritime sector have also resulted in lower net interest income compared with last year.
Other operating income
Other operating income amounted to NOK 63 million, which is NOK 43 million lower than in the second quarter of last year. The reduction was mainly due to the proceeds from the VISA transaction, which amounted to NOK 38 million in the second quarter of 2016.
The change in value of the bond portfolio showed capital gains of NOK 6 million, compared with NOK 9 million in the second quarter of 2016. In addition to this, the value of the equities portfolio fell by NOK 5 million compared with the same period last year.
Operating costs in the quarter amounted to NOK 151 million, which is NOK 4 million higher than in the same quarter last year. Personnel costs rose by NOK 2 million compared with the corresponding period last year and amounted to NOK 85 million. The increase was linked to the financial industry tax, resulting in NOK 3 million higher employers' National Insurance contributions. Staffing has been reduced by 17 full-time equivalents in the last 12 months to 364 full-time equivalents. Other operating costs were NOK 2 million higher than in the corresponding period last year.
The cost income ratio was 45.6 % in the second quarter of 2017. This represents an increase of 6.4 percentage points compared with the second quarter of last year. It is 1.8 percentage points higher when adjusted for the proceeds from the VISA transaction in the second quarter of 2016.
NOK 6 million was recognised as losses on loans and guarantees in the quarter. This amounts to 0.03 % of average total assets on an annualised basis. In the second quarter of 2016, receipts on losses of NOK 3 million (-0.02 %) were recognised. Collective impairments decreased by NOK 40 million, reversal on losses amounted to NOK 2 million in the retail segment, and individual losses amounting to NOK 48 million were recognised in the corporate segment.
At the end of the second quarter of 2017, total impairments for losses amounted to NOK 338 million, equivalent to 0.60 % of gross lending (NOK 332 million and 0.64 % of gross lending). NOK 5 million of the individual impairments involved commitments in default for more than 90 days (NOK 13 million), which represents 0.01 % of gross lending (0.03 %). NOK 92 million relates to other commitments (NOK 58 million), which is equivalent to 0.16 % of gross lending (0.11 %). Collective impairments amounted to NOK 241 million (NOK 262 million) or 0.43 % of gross lending (0.51 %).
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 increased by NOK 131 million in the last 12 months. At the end of the second quarter of 2017, the corporate market accounted for NOK 192 million of net problem loans and the retail market NOK 68 million. In total this represents 0.45 % of gross lending (0.25 %).
Lending to customers
At the end of the second quarter of 2017, lending to customers amounted to NOK 56 040 million (NOK 51 192 million). Customer lending has increased by a total of NOK 4 848 million, or 9.5 %, in the last 12 months. Retail lending has increased by 8.0 %, while corporate lending has increased by 13.3 % in the last 12 months. Retail lending accounted for 68.8 % of lending at the end of the second quarter of 2017 (69.8 %).
Deposits from customers
Customer deposits have increased by 6.1 % in the last 12 months. At the end of the second quarter of 2017, deposits amounted to NOK 33 514 million (NOK 31 595 million). Retail deposits have increased by 6.9 % over the last 12 months, while corporate deposits have increased by 7.3 % and public sector deposits have decreased by 22.7 %. The retail market's relative share of deposits amounted to 59.9 % (59.4 %), while deposits from corporate customers accounted for 37.7 % (37.0 %) and from public sector customers 2.4 % (3.6 %).
Deposits as a percentage of loans amounted to 59.8 % at the end of the second quarter of 2017 (61.7 %).
The Group's capital adequacy at the end of the second quarter of 2017 was above the regulatory capital requirements and the internally set minimum target for Core Tier 1 capital. The Capital Ratio, including 50 % of retained earnings in the year-to-date, was 18.9 % (18.5 %), the Core Capital Ratio was 16.9 % (17.0 %) and the Core Tier 1 capital ratio was 14.3 % (14.5 %).
At the end of the second quarter of 2017, Sparebanken Møre had a capital requirement linked to the transitional scheme for the Basel I floor of NOK 206 million.
The aggregate profit of the Bank's three subsidiaries amounted to NOK 66 million after tax in the first half of 2017 (NOK 81 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 second quarter, the company had net outstanding bonds of NOK 18.5 billion in the market. About 20 % of the borrowing was in a currency other than NOK. The company contributed NOK 66 million to the result in the first half of 2017 (NOK 82 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 2017 of NOK -1 million (NOK -1 million). At the end of the quarter, the company employed 13 full-time equivalents.
Sparebankeiendom AS’ purpose is to own and manage the Bank's own commercial properties. Year to date the company has contributed NOK 1 million to the result. The company has no employees.
At the end of the first half of 2017, there were 5 696 holders of Sparebanken Møre's equity certificates. 9 886 954 equity certificates have been issued. Equity certificate capital accounts for 49.6 % of the Bank's total equity. Note 10 contains an overview of the 20 largest holders of the Bank's equity certificates.
As at 30 June 2017, the Bank owned 50 851 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.
Møre og Romsdal's economic outlook has improved during the spring and summer. Production is rising in industries such as fishing, traditional exports, building and construction, and tourism. The downturn in oil-related industries has become more subdued and there is also a high level of activity in the public sector. The main reasons for the improvement are the adaptability in the corporate sector, low level of interest rates, a weak NOK exchange rate, and an expansionary fiscal policy.
The trend in the county's labour market has been satisfactory this year. Registered unemployment fell by around 500 people in the first half of the year, but levelled off from May to June. At the end of June, unemployment in Møre og Romsdal was 2.7 % (figures from the Norwegian Labour and Welfare Administration). This was 0.1 percentage points higher than the national unemployment rate. Norges Bank's latest regional network report, which covers enterprises, organisations and local authorities, indicates the North West region will see a high level of activity going forward.
Sparebanken Møre's losses are expected to be low in 2017.
Credit growth in Norway has been rising this year, both to households and the corporate sector. The growth in total deposits also increased during the first half of the year in the country seen as a whole.
We continue to experience strong competition in the market, both for lending and deposits, but the Bank is competitive and has registered rising lending growth in both the retail market and the corporate market. Deposits are growing well. Lending growth within both the retail market and the corporate market is expected to slow during the remainder of the year. There is a constant focus on generating growth through profitable commitments with an acceptable level of risk.
The Bank will remain strong and committed in supporting businesses and industries in our region, Nordvestlandet.
Sparebanken Møre is targeting cost-effective operations with a cost income ratio target of less than 45 % in 2017.
Overall, good results are expected in 2017, with a return on equity reaching the target of 10 %.
Ålesund, 30 June 2017
9 August 2017
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
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO