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 AS PER Q3 2015
Sparebanken Møre's pre-tax profit after the third quarter of 2015 was NOK 522 million, compared with NOK 642 million for the same period in 2014. Total income was NOK 101 million lower than after the same period in 2014. The reduction in total income is attributable to a NOK 109 million reduction in other operating income and a NOK 8 million increase in net interest income. The reduction in other operating income is primarily attributable to the value of bond portfolio being NOK 53 million lower than last year and the fact that the financial statements for the same period last year included a gain of NOK 94 million from the sale of the shares in Nets AS. Compared with the same period in 2014, costs were NOK 9 million higher and losses on loans and guarantees were NOK 10 million higher.
Cost in relation to income after the third quarter of 2015 was 44.4%, compared with 39.4% for the same period last year. Cost in relation to income amounted to 43.2% last year when adjusted for the profit from the sale of Nets AS. The level of costs for the year-to-date is well within Sparebanken Møre's cost in relation to income target of 45%.
The profit after tax was NOK 380 million; NOK 116 million lower than after the same period last year. The result for the year-to-date represents an annualised return on equity of 10.8% compared with 15.0% (12.1% when adjusted for the profit from the sale of shares in Nets AS) after the third quarter of 2014. Sparebanken Møre's strategic return on equity target is a minimum of 10% after tax.
The earnings per equity capital certificate after the first three quarters of 2015 amounted to NOK 19.05, compared with NOK 24.90 for the same period last year.
The Board of Directors is pleased with the results after the third quarter of 2015.
RESULTS FOR Q3 2015
The profit after tax for the third quarter of 2015 amounted to NOK 111 million, or 0.76% of average total assets, compared with NOK 233 million, or 1.71%, for the corresponding quarter of last year. The return on equity in the third quarter of 2015 was 9.3%, compared with 20.8% for the third quarter of 2014 (12.4% adjusted for the profit from the sale of shares in Nets AS).
The earnings per equity capital certificate amounted to NOK 5.50 (NOK 11.65) for the Group and NOK 3.35 (NOK 9.15) for the Parent Bank.
Net interest income
The net interest income of NOK 277 million was NOK 3 million higher than in the corresponding quarter of last year. This represents 1.90% of total assets, which is 0.12 percentage points lower than in the third quarter of 2014.
The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, are affecting the development of net interest income.
Other operating income
Other operating income amounted to NOK 33 million, which is NOK 119 million lower than in the third quarter of last year. Other operating income amounted to 0.22% of average total assets, 0.90 percentage points lower than in the corresponding period in 2014. The main reason for the decrease was the NOK 94 million reduction in profit from the sale of shares and the value of the bond portfolio being NOK 35 million lower than for the same period last year. Income from customers fixed income transactions and from guarantee commissions show an increase of NOK 8 million compared with the third quarter of 2014.
Operating costs in the quarter amounted to NOK 146 million; this is NOK 5 million higher than in the same quarter last year. Other operating costs rose by NOK 3 million. Personnel costs rose by NOK 2 million compared with the corresponding period last year and amounted to NOK 84 million. The Group's total workforce increased by 2 full time equivalents in the last 12 months to 388 full time equivalents.
The cost income ratio for the third quarter of 2015 was 47.3%, which represents an increase of 14.3 percentage points compared with the third quarter of 2014.
Losses and commitments in default
The quarter's financial statements were charged NOK 10 million in losses on loans and guarantees. This amounts to 0.07% of average total assets on an annualised basis. The corresponding figures for the third quarter of 2014 were NOK 1 million (0.01%). The losses on loans and guarantees in the third quarter of 2015 consist of a NOK 36 million increase in collective impairment, a NOK 25 million net recovery in losses in the corporate market, and a NOK 1 million net recovery in losses in the retail market.
At the end of the third quarter of 2015, total impairment for losses amounted to NOK 323 million, equivalent to 0.62% of gross lending (NOK 308 million and 0.65% of gross lending). NOK 17 million of the individual impairment involved commitments in default for more than 90 days (NOK 21 million), which represents 0.03% of gross lending (0.04%). NOK 69 million relates to other commitments (NOK 136 million), which is equivalent to 0.13% of gross lending (0.29%). Collective impairment amounted to NOK 237 million (NOK 149 million) or 0.46% of gross lending (0.31%).
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 an individual impairment for losses) have fallen by NOK 203 million since the end of the third quarter of 2014. At the end of the third quarter of 2015, corporate customers accounted for NOK 84 million of net impaired commitments, and the retail market NOK 65 million. In total this represents 0.29% of gross lending (0.75%).
Lending and deposit growth
At the end of the third quarter of 2015, net lending to customers amounted to NOK 51 419 million (NOK 47 469 million). Net customer lending has increased by a total of NOK 3 950 million, or 8.3%, in the last 12 months. Retail lending has increased by 8.7%, while corporate lending has increased by 7.2% in the last 12 months. Retail lending accounted for 66.3% of lending at the end of the third quarter of 2015 (66.2%).
Customer deposits have increased by 2.6% in the last 12 months. At the end of the third quarter of 2015, deposits amounted to NOK 29 286 million (NOK 28 550 million). Retail deposits have increased by 5.7% in the last 12 months, while corporate deposits have decreased by 2.1% and public sector deposits have increased by 17.7%. The retail market's relative share of deposits amounted to 60.8% (59.2%), while deposits from the corporate market accounted for 36.3% (38.2%) and public sector customers 2.9% (2.6%).
Deposits as a percentage of loans amounted to 57.0% at the end of the third quarter of 2015 (60.1%).
The Group's core Tier 1 capital ratio must comply with the announced regulatory plan for the escalation of capital. Sparebanken Møre has not been defined as a systemically important financial institution.
At the end of the third quarter of 2015, the Group's capital adequacy is reported according to IRB for retail market commitments and based on the IRB foundation approach for the corporate market credit risk. Sparebanken Møre had no capital requirements associated with the transitional scheme for the Basel I floor at the end of the third quarter of 2015.
The Group's capital adequacy at the end of the third quarter of 2015 exceeded the regulatory capital requirements and was in line with the internally set minimum target for the core Tier 1 capital ratio. Primary capital, including 50% of retained earnings in the year-to-date, amounts to 17.2% (15.9%) and core capital 15.7% (14.4%), of which core Tier 1 capital amounts to 13.3% (12.1%).
The aggregate profit of the Bank's three subsidiaries after the first three quarters of 2015 amounted to NOK 138 million after tax (NOK 144 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. To date the company has raised NOK 15.9 billion in funding for the Group. The company has made a NOK 137 million contribution to the result so far in 2015 (NOK 144 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has made a NOK 1 million contribution to the result so far in 2015 (NOK 0 million). At the end of the quarter, the company employed 15 full time equivalents.
Sparebankeiendom AS's purpose is to own and manage the Bank's business properties. The company has made no contribution to the result so far in 2015. The company has no staff.
EQUITY CAPITAL CERTIFICATES
At the end of the third quarter of 2015, there were 5 832 holders of Sparebanken Møre's equity capital certificates. 9 886 954 equity capital certificates have been issued. Equity capital certificates accounts for 49.6% of the Bank's total equity. Note 10 contains an overview of the 20 largest owners of the Bank's equity capital certificates.
As of 30 September 2015, the Bank owned 156 699 of its own equity capital certificates. These were purchased via the Oslo Stock Exchange at market price.
Even with the increasing uncertainty during the year, the general macroeconomic conditions for the county remain satisfactory. This is despite the fact that oil prices have remained low and there is a higher degree of uncertainty about how the international economy will develop. On the other hand, Norges Bank has further reduced the key interest rate, the NOK exchange rate has weakened, and the proposed fiscal policy for 2016 is expansive. These factors will help to sustain demand.
The fall in oil prices and the oil companies' focus on cutting costs indicate that there will be a strong downturn in petroleum investments during this year and the next year. There will also be significant indirect effects through the supplier chain. As a consequence of this, unemployment in the county will probably rise somewhat during the fourth quarter as well. However, the unemployment rate in Møre og Romsdal is still among the lowest in Norway. In September, the registered unemployment rate in the county was 2.6%, compared with 2.9% in the country as a whole.
On the other hand, the weakening NOK exchange rate is helping to improve the competitiveness of our export industries and import-competing businesses. The recent drop in, and persistent low level of interest rates, will contribute to maintain purchasing power in the household sector and reduce interest costs for corporate business. Finally, the drop in the price of oil could be a contributory factor to increased growth for our trading partners. These factors could partly counteract the negative effects of the fall in the oil sector and oil-related activities. Sparebanken Møre's level of losses is expected to remain low and within the Bank's plans in 2015.
Competition in the Bank's markets remains tough. The Bank offers competitive terms and good advisory services and is continuing to register good lending growth in both the retail and corporate markets. A slight decrease in lending growth is expected in both markets in the fourth quarter. There is a constant focus on generating growth through good commitments with an acceptable level of risk.
Sparebanken Møre focuses strongly on cost-effectiveness. This has resulted in a highly satisfactory level of total costs in relation to income. This focus will continue, and the Group's cost-effectiveness will this year remain well within the internal maximum cost income ratio target of 45%. A good result is expected for the year.
Ålesund, 30 September 2015
19 October 2015
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE