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 2018
Sparebanken Møre's pre-tax profit for the first half of 2018 was NOK 415 million, compared with NOK 349 million for the first half of 2017.
Total income was NOK 53 million higher than for the same period in 2017. Net interest income rose by NOK 51 million and other operating income rose by NOK 2 million. Capital losses from the bond portfolio amounted to NOK 3 million, compared with capital gains of NOK 22 million in the first half of 2017.
Following the formal approval of the merger between Vipps, BankAxept and BankID Norge, the valuation of Sparebanken Møre's stake in the merged company has been updated. The Bank's stake is measured in the same way as earlier, at fair value in the Bank's balance sheet. The updated valuation results in a gain of approximately NOK 10 million in the financial statements for the second quarter of 2018.
Costs were NOK 2 million lower in the first half of 2018 than in 2017. Personnel costs were NOK 1 million lower than last year and financial activity tax in the form of higher employers' National Insurance contributions amounted to NOK 6 million.
Net reversals on losses on loans and guarantees amounted to NOK 3 million, NOK 11 million lower than in the corresponding period last year.
The cost income ratio was 42.1 per cent by end of the period. This represents a decrease of 3.6 percentage points compared to the same period in 2017. In the strategic plan for 2019-2022, the Board has decided to change the Group's maximum cost income ratio target from 45 per cent to 40 per cent.
Profit after tax was NOK 315 million, NOK 54 million higher than for the same period in 2017. The half-year results show an annualised return on equity of 11.2 per cent, compared with 10.0 per cent after the first half of 2017. In the strategic plan for 2019-2022, the Board has decided to increase the minimum target for the return on equity from 10 per cent to 11 per cent.
Earnings per equity certificate amounted to NOK 15.45 (NOK 13.10) for the Group and NOK 18.40 (NOK 17.60) for the Parent Bank. The Board of Directors is pleased with the results for the first half of 2018.
RESULTS FOR Q2 2018
Profit after tax for the second quarter of 2018 amounted to NOK 174 million, or 1.00 per cent of average total assets, compared to NOK 130 million, or 0.84 per cent, for the corresponding quarter last year.
The return on equity in the second quarter of 2018 was 12.3 per cent, compared to 10.0 per cent for the second quarter of 2017.
Earnings per equity certificate amounted to NOK 8.50 (NOK 6.50) for the Group and NOK 6.40 (NOK 4.95) for the Parent Bank.
Net interest income
The net interest income of NOK 291 million was NOK 23 million higher than in the corresponding quarter of last year. This represents 1.68 per cent of total assets, which is 0.03 percentage points lower than in the second quarter of 2017.
A higher lending volume combined with increased contribution from deposits as well as the Bank’s high CET1-level resulted in higher net interest income in Norwegian kroner compared with the same quarter last year. This occurred in spite of the fact that the low level of interest rates in the market, strong competition on both lending and deposits and lower risk have contributed to pressure on the net interest margin.
Other operating income
Other operating income amounted to NOK 78 million, which is NOK 15 million higher than in the second quarter of last year. The change in value in the bond portfolio amounted to NOK -6 million in the quarter, compared with NOK 6 million in the second quarter of 2017. Capital gains from equities amounted to NOK 15 million compared with capital losses of NOK 4 million in the second quarter of 2017. Approximately NOK 10 million of this was due to the change in value associated with the merger between Vipps, BankAxept and BankID Norge.
Operating costs in the quarter amounted to NOK 150 million, which is NOK 1 million lower than in the same quarter last year. Personnel costs were on a par with the corresponding period last year and amounted to NOK 85 million. Financial activity tax in the form of higher employers' National Insurance contributions amounted to NOK 3 million for the quarter. Staffing has been reduced by 8 full-time equivalents in the last 12 months to 356 full-time equivalents. Other operating costs were NOK 1 million lower than in the same period last year.
The cost income ratio was 40.6 per cent in the second quarter of 2018, a reduction of 5.0 percentage points compared with the second quarter last year.
NOK 5 million was recognised as net reversals on losses on loans and guarantees (costs of NOK 6 million recognised in the corresponding period last year).This amounts to -0.03 per cent (0.03 per cent) of average total assets on an annualised basis. Losses in the corporate segment were reduced by NOK 7 million in the quarter, while losses of NOK 2 million were recognised in the retail segment.
At the end of the second quarter of 2018, total expected losses amounted to NOK 335 million, equivalent to 0.55 per cent of loans and guarantees (NOK 338 million and 0.60 per cent). Of the individually assessed commitments, NOK 5 million of the impairments were linked to commitments in default for more than 90 days (NOK 5 million), which amounts to 0.01 per cent of loans and guarantees (0.01 per cent). NOK 93 million relates to other commitments (NOK 92 million), which is equivalent to 0.15 per cent of gross loans and guarantees (0.16 per cent).
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 individual impairment for losses) have decreased by NOK 13 million in the last 12 months. At the end of the second quarter of 2018, the corporate market accounted for NOK 185 million of net impaired commitments and the retail market NOK 62 million. In total, this represents 0.41 per cent of gross loans and guarantees (0.45 per cent).
Lending to customers
At the end of the second quarter of 2018, lending to customers amounted to NOK 58,869 million (NOK 56,040 million). Customer lending has increased by a total of NOK 2,829 million, or 5.0 per cent, in the last 12 months. Retail lending has increased by 5.6 per cent, while lending to corporate customers has increased by 4.2 per cent in the last 12 months. Lending to corporate customers increased by 0.2 per cent in the second quarter of 2018, while lending to retail customers rose by 1.5 per cent. Retail lending accounted for 69.0 per cent of the total lending at the end of the second quarter of 2018 (68.8 per cent).
Deposits from customers
Customer deposits have increased by 2.2 per cent over the last 12 months. At the end of the second quarter of 2018, deposits amounted to NOK 34,239 million (NOK 33,514 million). Retail deposits have increased by 3.9 per cent in the last 12 months, while corporate deposits have increased by 0.6 per cent and public sector deposits have decreased by 2.9 per cent. The retail market's relative share of deposits amounted to 60.9 per cent (59.9 per cent), while deposits from corporate customers accounted for 36.9 per cent (37.7 per cent) and from public sector customers 2.2 per cent (2.4 per cent).
The deposit-to-loan ratio was 58.2 per cent at the end of the second quarter of 2018 (59.8 per cent).
The Group's capital adequacy at the end of the second quarter of 2018 was above the regulatory capital requirements and the internally set minimum target for CET1. The primary capital ratio, including 50 per cent of year-to-date retained earnings, was 19.1 per cent (18.9 per cent), the Tier 1 capital ratio was 17.1 per cent (16.9 per cent) and the CET1 ratio was 15.5 per cent (14.3 per cent).
Sparebanken Møre has a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 189 million at the end of the second quarter of 2018, corresponding to a basis for calculation of NOK 2,363 million.
The aggregate profit of the Bank's three subsidiaries amounted to NOK 92 million after tax in the first half of 2018 (NOK 66 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 of 2018, the company had net outstanding bonds of NOK 21.3 billion in the market. About 25 per cent of the borrowing was in a currency other than NOK. The company contributed NOK 90 million to the result in the first half of 2018 (NOK 66 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 half of 2018 (NOK -1 million in the first half of 2017). At the end of the quarter, the company employed 14 full-time equivalents.
Sparebankeiendom AS's purpose is to own and manage the Bank's commercial properties. The company contributed NOK 2 million to the result in the first half of 2018 (NOK 1 million in the first half of 2017). The company has no employees.
At the end of the first half of 2018, there were 5,305 holders of Sparebanken Møre's equity certificates. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6 per cent of the Bank's total equity. Note 10 provides an overview of the 20 largest owners of the Bank's equity certificates.
As at 30 June 2018, the Bank owned 52,184 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.
The economic outlook for Møre og Romsdal remains good. Higher production and employment are expected in most industries and sectors going forward. Low interest rates, a weak NOK, satisfactory oil prices, good growth in export markets and significant restructuring in the labour market are important contributors.
The unemployment is now so low that the rate of decrease will probably start to level off relatively soon. Registered unemployment in the county in June was 2.2 per cent according to the Norwegian Labour and Welfare Administration (NAV), the same as the national unemployment rate. The risk of a significant drop in house prices appears to have decreased. Meanwhile, the risk of growth-hampering obstacles to international trade appears to have grown somewhat.
Credit growth in Norway, both in households and business, slowed during the first half of the year and is currently at its lowest growth rate so far this year.
Competition in the market remains strong, both for lending and deposits. The Bank is competitive and recorded good, but somewhat lower growth rate in loans in both the retail market and the corporate market. Deposit growth in the retail market is good and the deposit-to-loan ratio is high, especially in the corporate market. Lending growth within both the retail market and the corporate market is expected to be somewhat lower in 2018 compared with the growth rate at the end of in 2017. The focus is always on effective operations and increased profitability.
The Bank will remain strong and committed in supporting businesses and industries in our region, Nordvestlandet.
Sparebanken Møre's target for cost-effective operations for the strategy period 2019-2022 is a cost income ratio target below 40 per cent. Cost income ratio will be clearly lower than 45 per cent in 2018.
Sparebanken Møre's losses are also expected to be low in 2018. Overall, good results are expected in 2018 with a return on equity above 10 per cent. The Bank's strategic target for the return on equity is a minimum of 11 per cent for the strategy period 2019-2022.
Ålesund, 30 June 2018
14 August 2018
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chairman
ROY REITE, Deputy Chairman
RAGNA BRENNE BJERKESET
ANN MAGRITT BJÅSTAD VIKEBAKK
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO