Interim report from the Board of Directors
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 H1 2021
Sparebanken Møre’s profit before after tax the first half of 2021 was NOK 403 million, compared with NOK 342 million after the first half of 2020.
Total income was NOK 19 million higher than for the same period in 2020. Net interest income rose by NOK 4 million and other operating income increased by NOK 15 million. Capital gains from bond holdings amounted to NOK 3 million, compared with capital losses of NOK 13 million in the first half of 2020. Capital gains on equities totalled NOK 12 million, compared with NOK 5 million in the first half of 2020. Income from other financial instruments showed a reduction of NOK 8 million compared with the first half of 2020.
Costs were NOK 6 million lower in the first half of 2021 than in 2020. Personnel costs were on a par with last year, while other operating costs showed a reduction of NOK 6 million in the same period.
Losses on loans and guarantees amounted to NOK 42 million and were NOK 36 million lower than in the same period last year.
The cost income ratio after the first half-year was 41.7 per cent. This represents a decrease of 1.8 percentage points compared with the same period in 2020.
Profit after tax was NOK 313 million, NOK 46 million higher than for the same period in 2020. The half-year results represent an annualised return on equity of 9.4 per cent, compared with 8.2 per cent after the first half of 2020.
Earnings per equity certificate were NOK 15.11 (NOK 12.62) for the Group and NOK 20.92 (NOK 19.23) for the parent bank.
RESULTS FOR Q2 2021
Profit after tax was NOK 143 million for the second quarter of 2021, or 0.71 per cent of average total assets, compared with NOK 150 million, or 0.76 per cent, for the corresponding quarter last year.
Return on equity was 8.5 per cent in the second quarter of 2021, compared with 9.2 per cent in the second quarter of 2020, and the cost income ratio ended at 42.9 per cent compared with 40.3 per cent in the second quarter of 2020.
Earnings per equity certificate were NOK 6.85 (NOK 7.16) for the Group and NOK 4.00 (NOK 4.76) for the parent bank.
Net interest income
Net interest income was NOK 307 million, which is NOK 41 million, or 15.4 per cent, higher than in the corresponding quarter of last year. This represents 1.53 per cent of total assets, which is 0.18 percentage points higher than for the second quarter of 2021.
Strong competition in both lending and deposits, contributed to downward pressure on net interest income, while higher lending and deposit volumes resulted in an increase in net interest income.
The retail market saw a weak increase in the interest spread for lending, while there was a major reduction in the deposit spread compared with the first quarter of 2021. In the corporate market, the interest spread for lending was stable, while the interest spread for deposits saw a reduction compared with the first quarter of 2021.
Other operating income
Other operating income was NOK 66 million in the quarter, which is NOK 58 million lower than in the second quarter of last year. The net income from financial instruments of NOK 12 million was NOK 61 million lower than in the second quarter of 2020. Capital losses from bond holdings were NOK 5 million in the quarter, compared with capital gains of NOK 29 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 2 million compared with capital gains of NOK 12 million in the second quarter of 2020. The positive change in value for fixed-rate lending amounted NOK 1 million compared with NOK 6 million in the same quarter last year. The value of issued bonds increased by NOK 1 million, compared with NOK 8 million in the second quarter of 2020. Income from currency and interest rate business for customers decreased by NOK 5 million compared with the same period last year.
Other operating income, excluding financial instruments, increased by NOK 3 million compared with the second quarter of 2020. The increase was mainly due to guarantee commissions and income from portfolio management.
See Note 7 for a specification of other operating income.
Operating costs were NOK 160 million in the quarter, which is NOK 3 million higher than in the same quarter last year. Personnel costs were NOK 6 million higher than in the corresponding period last year and amounted to NOK 87 million. Staffing has been reduced by 17 FTEs in the past 12 months to 343 FTEs. Other operating costs were NOK 3 million lower than in the same period last year. See Note 8 for a specification of costs.
The cost income ratio for the second quarter of 2021 was 42.9 per cent, 2.6 percentage points higher than in the second quarter of last year.
Provisions for expected losses and credit-impaired commitments
The quarterly accounts were charged NOK 28 million (NOK 42 million) in losses on loans and guarantees. This amounts to 0.14 per cent (0.21 per cent) of average total assets on an annualised basis. Losses in the corporate segment increased by NOK 24 million in the quarter, while losses in the retail segment increased by NOK 3 million.
At the end of the second quarter of 2021, provisions for expected losses totalled NOK 364 million, equivalent to 0.51 per cent of gross loans and guarantee commitments (NOK 446 million and 0.65 per cent). Of the total provisions for expected losses, NOK 18 million concerns credit-impaired commitments more than 90 days past due (NOK 24 million), which amounts to 0.03 per cent of gross loans and guarantee commitments (0.03 per cent). NOK 224 million concerns other credit-impaired commitments (NOK 272 million), which is equivalent to 0.32 per cent of gross loans and guarantee commitments (0.41 per cent).
Net credit-impaired commitments (commitments more than 90 days past due and other commitments in Stage 3) have decreased by NOK 58 million in the past 12 months. At end of the second quarter of 2021, the corporate market accounted for NOK 786 million of net credit-impaired commitments and the retail market NOK 97 million. In total, this represents 1.25 per cent of net gross loans and guarantee commitments (1.41 per cent).
Lending to customers
At the end of the second quarter of 2021, lending to customers amounted to NOK 69,132 million (NOK 65,094 million). Customer lending has increased by a total of NOK 4,038 million, or 6.2 per cent, in the past 12 months. Retail lending has increased by 4.8 per cent and corporate lending has increased by 9.2 per cent in the past 12 months. Lending to corporate customers increased by 2.2 per cent in the second quarter of 2021, while lending to retail customers rose by 2.1 per cent. Retail lending accounted for 67.6 per cent of total lending at the end of the second quarter of 2021 (68.5 per cent).
Deposits from customers
Customer deposits have increased by NOK 2,429 million, or 6.2 per cent, in the past 12 months. At the end of the second quarter of 2021, deposits amounted to NOK 41,484 million (NOK 39,055 million). Retail deposits have increased by 5.2 per cent in the past 12 months, while corporate deposits have increased by 6.1 per cent and public sector deposits by 35.1 per cent. The retail market’s relative share of deposits amounted to 60.0 per cent (60.6 per cent), while deposits from the corporate market accounted for 37.1 per cent (37.1 per cent) and from the public sector 2.9 per cent (2.3 per cent).
The deposit-to-loan ratio was 59.7 per cent at the end of the second quarter of 2021 (59.7 per cent).
Sparebanken Møre is well capitalised. At the end of the second quarter, the Common Equity Tier 1 capital ratio was 16.9 per cent (17.3 per cent), incl. 50 per cent of the result for the year to date. This is 4.2 percentage points higher than the total regulatory minimum requirement of 12.7 per cent for the Common Equity Tier 1 capital ratio. The primary capital ratio, including 50 per cent of the result for the year to date, was 20.6 per cent (21.2 per cent) and the Tier 1 capital ratio was 18.6 per cent (19.1 per cent).
Capital adequacy is calculated in line with the EU’s Capital Requirements Directive (CRD) IV and Capital Requirements Regulation (CRR), which were introduced with effect from 31 December 2019.
The total regulatory minimum requirement for Sparebanken Møre’s Common Equity Tier 1 capital ratio, including the Pillar 2 supplement, was 12.7 per cent at the end of the second quarter of 2021. In its assessment of Sparebanken Møre’s Pillar 2 supplement in 2018, the Financial Supervisory Authority of Norway set it at 1.7 per cent, although it was made subject to a minimum of NOK 590 million with effect from 31 March 2019.
Sparebanken Møre’s internal target for its Common Equity Tier 1 capital ratio is 15.2 per cent.
The leverage ratio (LR) at the end of the second quarter of 2021 was 7.6 per cent, 0.1 percentage points lower than at the end of the second quarter of 2020. The regulatory minimum requirement (3 per cent) and buffer requirement (2 per cent), 5 per cent in total, were met by a good margin.
The aggregate profit of the bank’s three subsidiaries amounted to NOK 122 million after tax in the first half of 2021 (NOK 96 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 second quarter of 2021, the company had outstanding bonds of NOK 26 billion in the market. Around 30 per cent was issued in a currency other than NOK. NOK 1,732 million of the volume of bonds issued by the company was held by the parent bank at the end of the second quarter of 2021. Møre Boligkreditt AS contributed NOK 121 million to the Group’s result in the first half of 2021 (NOK 94 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK 0.1 million to the result in the first half of 2021 (NOK 0.7 million). At the end of the quarter, the company employed 17 full-time equivalents.
Sparebankeiendom AS’s purpose is to own and manage the bank’s commercial properties. The company contributed NOK 0.8 million to the result in the first half of 2021 (NOK 0.9 million). The company has no employees.
At the end of the second quarter of 2021, there were 5,615 holders of Sparebanken Møre’s equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 5.4 per cent at the end of the quarter. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6 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 30 June 2021, the bank owned 22,111 of its own equity certificates. These were purchased on the Oslo Børs at market prices.
Despite periodic shutdowns in parts of the service sector, unemployment in Møre og Romsdal fell throughout the second quarter. This indicates that activity in the county remained high during the spring. At the end of June, the number of unemployed people registered at job centres totalled to 2.4 per cent of the workforce according to NAV. In comparison, the national unemployment rate was 2.9 per cent. There has been a clear increase in the number of jobs adverts in recent months, including in the health sector, tourism, construction and transport.
In the longer term, there is reason to expect a further increase in output and demand in the county. The outlook for the Norwegian and international economies has improved as a result of infection control measures and because an increasing proportion of the population has been vaccinated. Moreover, it is possible that the financial support measures for business will be maintained for as long as this is deemed necessary. Nevertheless, there is a risk that the after-effects of the pandemic could result in more bankruptcies.
The growth rate for household lending for Norway as a whole has increased slightly so far in 2021. The growth in lending to the corporate market has also been accelerating and total 12-month retail lending growth is now at 5.3 per cent compared with 4.8 per cent at the end of last year.
The bank noted good activity throughout the first half-year with an accelerating growth rate in retail lending and a markedly higher growth rate in corporate lending compared with the annual growth rates at the end of 2020. The 12-month figures for growth were 4.8 per cent for retail lending and 9.2 per cent for corporate lending. Deposits increased by 6.2 per cent in the past 12 months up to the end of the first half of 2021, and the deposit-to-loan ratio remains high.
Sparebanken Møre expects lending growth for the bank in 2021 to be slightly higher than the growth in 2020 and end at up at around 5 per cent. Deposit growth is expected to remain 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.
Sparebanken Møre’s strategic financial performance targets are a return on equity exceeding 11 per cent and a cost income ratio below 40 per cent. The activity-reducing measures due to the coronavirus pandemic have impacted and will continue to affect the market so that the targets will not be achieved in 2021. The Board expects an improvement in our target figures in the second half of 2021, and steps have been taken aimed at achieving the targets in 2022.
Ålesund, 30 June 2021
11 August 2021
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chair of the Board
HENRIK GRUNG, Deputy Chair
ANN MAGRITT BJÅSTAD VIKEBAKK
KÅRE ØYVIND VASSDAL
THERESE MONSÅS LANGSET
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO