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 2024
Sparebanken Møre’s profit before tax after the first half of 2024 was NOK 727 million, compared with NOK 604 million after the first half of 2023, an increase of 20.4 per cent.

Total income was NOK 143 million higher than for the same period in 2023. Net interest income rose by NOK 119 million and other income increased by NOK 24 million. Capital gains in the bond portfolio amounted to NOK 16 million, compared with capital losses of NOK 16 million in the first half of 2023. Capital losses from equities amounted to NOK 3 million compared with capital gains of NOK 6 million in the first half of 2023. Income from foreign exchange and interest rate business for customers amounted to NOK 19 million in the first half-year, NOK 4 million less than in the same period last year. Income from other financial instruments decreased from NOK 7 million in the first half of 2023 to NOK 0 million in the first half of 2024.

Costs amounted to NOK 477 million, NOK 68 million higher in the first half of 2024 than in the first half of 2023. Personnel costs were NOK 34 million higher than last year and other operating costs NOK 34 million higher.

Losses on loans and guarantees amounted to NOK -18 million and were NOK 48 million lower than in the same period last year.

The cost income ratio amounted to 40.3 per cent, which represents an increase of 1.0 percentage points compared with the first half of 2023.

Profit after tax amounted to NOK 555 million, compared with NOK 462 million for the same period last year.

The return on equity in the first half of 2024 amounted to 14.1 per cent, compared with 12.2 per cent after the first half of 2023.

Earnings per equity certificate were NOK 5.26 (NOK 4.42) for the Group and NOK 5.69 (NOK 5.02) for the parent bank.

RESULTS FOR Q2 2024
Profit before losses amounted to NOK 359 million for the second quarter of 2024, or 1.46 per cent of average assets, compared with NOK 332 million, or 1.39 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 301 million for the second quarter of 2024, or 1.22 per cent of average assets, compared with NOK 255 million, or 1.07 per cent, for the corresponding quarter last year.

Return on equity was 15.1 per cent for the second quarter of 2024, compared with 13.6 per cent for the second quarter of 2023, and the cost income ratio amounted to 41.0 per cent compared with 38.9 per cent for the second quarter of 2023. 

Earnings per equity certificate were NOK 2.85 (NOK 2.46) for the Group and NOK 2.37 (NOK 1.92) for the parent bank. 

Net interest income 
Net interest income was NOK 518 million for the quarter, which is NOK 56 million, or 12.1 per cent, higher than in the corresponding quarter of last year. This represents 2.12 per cent of total assets, which is 0.16 percentage points higher than for the corresponding quarter last year.

The interest rate margin for deposits in both the retail market and corporate market contracted compared with the second quarter of 2023, while the lending margin was stable compared with the same period in 2023.

Other income
Other income was NOK 70 million in the quarter, which is NOK 10 million higher than in the second quarter of last year. The net result from financial instruments of NOK 20 million for the quarter was NOK 1 million less than in the second quarter of 2023. Capital gains from bond holdings were NOK 11 million in the quarter, compared with capital losses of NOK 4 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 1 million compared with capital gains of NOK 1 million in the second quarter of 2023. The change in value for fixed-rate lending amounted NOK -1 million, compared with a positive change in value of NOK 13 million in the same quarter last year. Income from foreign exchange and interest rate business for customers amounted to NOK 8 million in the quarter, NOK 3 million less than in the same quarter last year. 

Other income excluding financial instruments increased by NOK 10 million compared with the second quarter of 2023. The increase was mainly attributable to income from Discretionary Portfolio management, real estate agency activities and sundry other income.

Expenses 
Operating expenses amounted to NOK 249 million for the quarter, which is NOK 38 million higher than for the same quarter last year. Personnel expenses accounted for NOK 21 million of the rise in relation to the same period last year and totalled NOK 137 million. Other operating expenses have increased by NOK 17 million from the same period last year. 

Provisions for expected credit losses and credit-impaired commitments 
Losses on loans and guarantees amounted to NOK -35 million in the quarter (NOK -3 million), corresponding to -0.14 per cent of average assets (-0.01 per cent of average assets). In the corporate segment, losses decreased by NOK 9 million in the quarter, while losses in the retail segment decreased by NOK 26 million.

At the end of the second quarter of 2024, provisions for expected credit losses totalled NOK 240 million, equivalent to 0.28 per cent of gross loans and guarantee commitments (NOK 365 million and 0.45 per cent).  Of the total provision for expected credit losses, NOK 27 million relates to credit-impaired commitments more than 90 days past due (NOK 19 million), which represents 0.03 per cent of gross loans and guarantee commitments (0.02 per cent), while NOK 74 million relates to other credit-impaired commitments (NOK 210 million), corresponding to 0.09 per cent of gross loans and guarantee commitments (0.26 per cent). 

Net credit-impaired commitments (commitments more than 90 days past due and other credit-impaired commitments) have decreased by NOK 296 million in the past 12 months. At end of the second quarter of 2024, the corporate market accounted for NOK 221 million of net credit-impaired commitments and the retail market NOK 130 million. In total, this represents 0.39 per cent of gross loans and guarantee commitments (0.79 per cent). 

Lending to customers
At the end of the second quarter of 2024, lending to customers amounted to NOK 85,076 million (NOK 78,999 million). In the past 12 months, customer lending has increased by a total of NOK 6.077 million, equivalent to 7.7 per cent. Retail lending has increased by 6.2 per cent and corporate lending has also increased by 10.1 per cent in the last 12 months. Retail lending accounted for 65.8 per cent of total lending at the end of the quarter (66.4 per cent).

Customer deposits 
Customer deposits have increased by NOK 2,901 million, or 6.3 per cent, in the past 12 months. At the end of the second quarter of 2024, deposits amounted to NOK 49,240 million (NOK 46,339 million). Retail deposits have increased by 9.4 per cent in the past 12 months, while corporate deposits and public sector deposits have increased by 1.3 per cent. The retail market’s relative share of deposits amounted to 62.8 per cent (61.0 per cent), while deposits from the corporate market accounted for 37.2 per cent (39.0 per cent). 

LIQUIDITY AND FUNDING
Sparebanken Møre’s liquidity and funding are managed based on frameworks for its liquidity coverage ratio (LCR), Net Stable Funding Ratio (NSFR) and the deposit-to-loan ratio. The regulatory minimum LCR and NSFR requirements are both 100 per cent. The Group has established minimum internal targets that exceed the regulatory requirements for LCR and NSFR as well as an internal target corridor for its deposit-to-loan ratio.

Sparebanken Møre’s liquidity coverage ratio (LCR) was 156 (183) for the Group and 144 (171) for the parent bank at the end of the quarter.

The NSFR ended at 122 (127) at the end of the second quarter of 2024 (consolidated figure), while the bank’s and Møre Boligkreditt AS’s NSFR ended at 126 (125) and 106 (118), respectively.

Both LCR and NSFR meet both external and internal requirements by good margin.

Deposits from customers represent the bank’s main source of funding. The deposit-to-loan ratio was 57.7 per cent (58.4 per cent) at the end of the second quarter, and this is within the established target corridor.

Total net market funding amounted to NOK 37.7 billion at the end of the first half-year. Senior bonds with a remaining term to maturity of more than 1 year have a weighted remaining term to maturity of 2.25 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 2.81 years – overall for market funding in the Group (inclusive of T2 and T3) the remaining term to maturity is 2.83 years.

Møre Boligkreditt AS issues bonds based on the transfer of loans from the parent bank. Gross retail lending transferred to Møre Boligkreditt AS amounted to NOK 31,981 million at the end of the quarter, which corresponds to 37.5 per cent of the bank’s total lending.

RATING
In a Credit Opinion published on 9 January 2024, the rating agency Moody's confirmed Sparebanken Møre’s counterparty, deposit and issuer ratings as A1 with a stable outlook. Møre Boligkreditt has the same issuer rating as the parent bank, while the mortgage credit company’s issuances are rated Aaa.

CAPITAL ADEQUACY 
Sparebanken Møre is well capitalised. At the end of the second quarter of 2024, the Common Equity Tier 1 capital ratio (CET1) was 19.1 per cent (17.6 per cent), including 50 per cent of the result for the year to date. This is 2.95 percentage points higher than the total minimum requirement and the Financial Supervisory Authority of Norway’s expected capital adequacy margin (P2G) totalling 16.15 per cent. The capital adequacy ratio, including 50 per cent of the result for the year to date, was 23.4 per cent (22.0 per cent) and the Tier 1 capital ratio was 21.1 per cent (19.4 per cent).

Sparebanken Møre’s total CET1 capital ratio requirement is 16.15 per cent. The requirement consists of a minimum requirement of 4.5 per cent, a capital conservation buffer of 2.5 per cent, a systemic risk buffer of 4.5 per cent and a countercyclical buffer of 2.5 per cent. The Financial Supervisory Authority conducted a SREP in 2023. The individual Pilar 2 requirement for Sparebanken Møre has been set at 1.6 per cent, and the expected capital adequacy margin has been set at 1.25 per cent. At least 56.25 per cent of the Pillar 2 requirement that resulted from the aforementioned SREP must be met CET1 capital (0.9 per cent), and a minimum of 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at the end of the second quarter of 2024 was 7.7 per cent (7.4 per cent). The regulatory minimum requirement (3 per cent) was met by a good margin. 

MREL
On 1 January 2024, the Financial Supervisory Authority of Norway set Sparebanken Møre’s effective MREL requirement at 35.7 per cent of the risk-weighted assets at any given time. The minimum subordination requirement was set at 28.7 per cent. At the end of the quarter, Sparebanken Møre’s actual MREL level was 43.2 per cent, while the level of subordination was 35.3 per cent of the risk-weighted assets.

Sparebanken Møre had issued NOK 3,750 million in Senior Non-Preferred debt at the end of second quarter of 2024.

SUBSIDIARIES 
The aggregate profit of the bank's subsidiaries amounted to NOK 89 million after tax in the first half of 2024 (NOK 93 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 first half of 2024, the company had nominal outstanding covered bonds of NOK 28.2 billion in the market. Around 29 per cent was issued in a currency other than NOK. At the end of the quarter, the parent bank held no bonds issued by the company. Møre Boligkreditt AS contributed NOK 88 million to the result in the first half of 2024 (NOK 90 million).

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK -1 million to the result in the first half of 2024 (NOK 1 million). At the end of the quarter, the company employed 24 FTEs. 

The purpose of Sparebankeiendom AS and Storgata 41-45 Molde AS is to own and manage the bank’s own commercial properties. The company contributed NOK 2 million to the result in the first half of 2024 (NOK 2 million). The companies have no staff. 

EQUITY CERTIFICATES
At the end of the second quarter of 2024, there were 7,009 holders of Sparebanken Møre's equity certificates. The proportion of equity certificates owned by foreign nationals and enterprises amounted to 2.5 per cent at the end of the second quarter of 2024. 49,434,770 equity certificates have been issued. Equity certificate capital accounts for 49.7 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 the end of the second quarter of 2024, the bank owned 117,106 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.

At the beginning of July, the bank received an advance notice of instructions from the Financial Supervisory Authority (FSA) concerning our current accounting practice of recognising unpaid gifts for non-profit purposes as other liabilities in the bank’s accounts. Sparebanken Møre disagrees with the FSA's assessment, and in the period up to the response deadline to the FSA of 26 August, we will conduct a review and assessment of the factual and legal basis for the advance notice.

Please also see our stock exchange report dated 5 July 2024.

FUTURE PROSPECTS
The last few months have provided further confirmation that global inflationary pressures continue to ease. This is paving the way for interest rate cuts by several Western central banks. So far, the Swiss, Swedish, European and UK central banks have started to reduce interest rates from the contractionary levels that have been seen in recent years.

At the same time, there are signs that inflation is falling at a slower rate than before, and so far it appears that the economies of several countries are better able to withstand current interest rates than previously assumed. Unemployment remains at low levels and wage growth is high. This suggests that the expected decrease in interest rates will be gradual.

Major movements were seen in the international financial markets at the start of August. The turbulence was triggered by signs that the US economy is slowing down, after having performed better than expected for a long time. The signs were enough to make market players nervous that they had previously been too optimistic about economic developments. Stock indices around the world fell, and market rates decreased significantly.

The situation calmed down in the following days and parts of the falls in the stock and interest rate markets were rapidly reversed. Meanwhile, the market believes that interest rates will be reduced somewhat faster than was envisioned before the summer. However, given the prevailing mood in the financial markets, the possibility of major fluctuations in the future as well cannot be ruled out.

After a year of almost flat growth, there are signs that the level of activity in the Norwegian economy is starting to see a modest rise. Updated figures from Norges Bank’s regional network survey indicate that the recovery is broadly based, although the situation in some industries remains challenging. An increasing proportion of companies report that access to labour is holding back output.

For Norwegian households, there is the prospect of wage growth exceeding inflation, both this year and in the coming years. Along with low unemployment, this has been a contributory factor to the housing market continuing to do well. Low levels of housebuilding in recent years will help to support prices in the used homes market going forward.

Given the backdrop described above, interest rates in Norway will probably remain at the current level for some time to come. In its latest forecasts, Norges Bank indicates that its policy rate will be cut at the start of next year. Market rates suggest that the first cut in interest rates is expected to come at the very end of the year.

The rate of growth in lending to households and non-financial companies for Norway as a whole saw a weak rise towards the end of the second quarter of 2024. With a growth rate in household lending of 3.3 per cent at the end of June and a growth rate in loans to non-financial companies of 2.3 per cent, the 12-month growth in lending was still lower than what we have seen in recent years. At the end of June, the overall 12-month growth in lending to the public was 3.6 per cent. The growth in total lending is now close to the level seen at the start of the year. This is due to the fact that municipalities’ growth in debt, unlike that of households and non-financial companies, has increased markedly throughout the year.

Sparebanken Møre’s overall lending growth has remained good and is still markedly above the market growth rate. The 12-month growth rate was 7.7 per cent at the end of the quarter, slightly above the level at the end of 2023 of 7.2 per cent. The year-on-year growth in lending to the retail market ended at 6.2 per cent at the end of second quarter, while lending growth in the corporate market amounted to 10.1 per cent. Deposits have increased by 6.3 per cent in the past 12 months and the deposit-to-loan ratio remains 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.

The bank's return on equity for the first half of 2024 was 14.1 per cent, while its cost income ratio was 40.3 per cent. Sparebanken Møre’s long-term strategic financial performance targets are a return on equity of above 12 per cent and a cost income ratio of under 40 per cent.

Ålesund, 30 June 2024
13 August 2024

THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE 

ROY REITE, Chair of the Board
KÅRE ØYVIND VASSDAL, Deputy Chair
JILL AASEN
THERESE MONSÅS LANGSET
TERJE BØE
BIRGIT MIDTBUST
MARIE REKDAL HIDE
BJØRN FØLSTAD

TROND LARS NYDAL, CEO