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 AS PER Q3 2016
Sparebanken Møre's profit after losses after the third quarter of 2016 was NOK 596 million, compared with NOK 516 million for the same period in 2015.
Total income was NOK 61 million higher than for the same period in 2015. Net interest income fell by NOK 10 million and other operating income rose by NOK 71 million. The increase in other operating income was primarily attributable to NOK 45 million in proceeds from the VISA transaction, capital gains from bonds of NOK 27 million, compared with capital losses of NOK 41 million last year, and income from interest transactions with customers being NOK 14 million lower than after the third quarter of 2015.
Costs were NOK 6 million higher while losses on loans and guarantees were NOK 25 million lower than in the corresponding period last year.
The cost income ratio after the third quarter this year was 42.6 %. This represents a decrease of 2.1 percentage points compared to the same period in 2015. The cost income ratio for the year-to-date is better than Sparebanken Møre's maximum target of 45 %.
The profit after tax was NOK 458 million, NOK 83 million higher than after the same period last year. This year's result shows an annualised return on equity of 12.4 %, compared to 10.8 % after the third quarter of 2015. Sparebanken Møre's strategic return on equity target is a minimum of 10 % after tax.
The earnings per equity certificate after the third quarter of 2016 amounted to NOK 22.95, compared with NOK 18.80 for the same period last year.
The Board of Directors is satisfied with the results after the third quarter of 2016.
The Visa transaction
Please refer to the information already provided in the 2015 annual report and the stock notification of 29 June 2016 on the agreement between Visa Europe Ltd and Visa Inc. concerning the sale of all of the shares in Visa Europe. Sparebanken Møre has an interest in this transaction due to its stake in Visa Norge, which owns one share in Visa Europe Ltd., as well as a smaller interest through the sale of Nets/Teller in 2014. The transaction consists of a cash payment upon implementation, as well as a cash payment payable after 3 years, and convertible preferred shares.
The effect on the profit before tax from this first tranche of the cash payment amounts to NOK 45 million after the third quarter, with NOK 38 million originating from the stake in Visa Norway and NOK 7 million from the interest in Nets/Teller.
RESULTS FOR Q3 2016
The profit after tax for the third quarter of 2016 amounted to NOK 152 million, or 0.99 % of average total assets, compared to NOK 114 million, or 0.77 %, for the corresponding quarter last year. The return on equity in the third quarter of 2016 was 12.1 %, compared with 9.6 % for the third quarter of 2015.
Earnings per equity certificate amounted to NOK 7.60 (NOK 5.70) for the Group and NOK 5.50 (NOK 3.75) for the Parent Bank.
Net interest income
Net interest income of NOK 278 million was NOK 5 million lower than in the corresponding quarter of last year. This represents 1.82 % of total assets, which is 0.11 percentage points lower than in the third quarter of 2015.
The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, is affecting the performance of net interest income.
Other operating income
Other operating income amounted to NOK 74 million, which is NOK 41 million higher than in the third quarter of last year. Other operating income amounted to 0.48 % of average total assets, compared with 0.22 % in the corresponding quarter in 2015. Capital gains on the bond portfolio amounted to NOK 17 million in the third quarter, compared with capital losses of NOK 32 million in the third quarter of 2015.
Operating costs in the quarter amounted to NOK 148 million, which is NOK 2 million higher than in the same quarter last year. Personnel costs were unchanged from the same quarter last year and other operating costs increased by NOK 2 million compared with the corresponding period last year and amounted to NOK 64 million. Staffing has been reduced by 10 full-time equivalents in the last 12 months to 378 full-time equivalent positions.
The cost income ratio amounted to 42.3 % in the third quarter of 2016, which represents a reduction of 4.1 percentage points compared to third quarter last year.
Losses on lending and guarantees amounted to NOK 5 million in the quarter. This amounts to 0.03 % of average total assets on an annualised basis. The corresponding figure for the third quarter of 2015 was NOK 10 million (0.07 %). Collective impairments rose by NOK 5 million. No losses were booked in the retail segment or corporate segment in the quarter.
At the end of the third quarter of 2016, total impairments for losses amounted to NOK 337 million, equivalent to 0.65 % of gross lending (NOK 323 million and 0.62 % of gross lending). NOK 13 million of the individual impairments involved commitments in default for more than 90 days (NOK 17 million), which represents 0.02 % of gross lending (0.03 %). NOK 57 million relates to other commitments (NOK 69 million), which is equivalent to 0.11 % of gross lending (0.13 %). Collective impairments amounted to NOK 267 million (NOK 237 million) or 0.51 % of gross lending (0.46 %).
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 6 million in the last 12 months. At the end of the third quarter of 2016, the corporate market accounted for NOK 106 million of net problem loans, and the retail market NOK 49 million. In total this represents 0.30 % of gross lending (0.29 %).
Lending to customers
At the end of the third quarter of 2016, lending to customers amounted to NOK 51 753 million (NOK 51 419 million). Net customer lending has increased by a total of NOK 334 million, or 0.6 %, in the last 12 months. Retail lending has increased by 6.2 %, while corporate lending has decreased by 9.8 % in the last 12 months. Retail lending accounted for 70.1 % of lending at the end of the third quarter of 2016 (66.3 %).
Deposits from customers have increased by 10.5 % in the last 12 months. At the end of the third quarter of 2016, deposits amounted to NOK 32 350 million (NOK 29 286 million). Retail deposits have increased by 5.2 % in the last 12 months, while corporate deposits have increased by 20.0 % and public sector deposits have increased by 21.4 %. The retail market's relative share of deposits amounted to 57.3 % (60.8 %), while deposits from corporate customers accounted for 39.5 % (36.3 %) and from public sector customers 3.2 % (2.9 %).
The deposit to loan ratio amounted to 62.5 % at the end of the third quarter of 2016 (57.0 %).
The Group's capital adequacy ratio at the end of the third quarter of 2016 was above the regulatory capital requirements and the internally set minimum target for the core Tier 1 capital ratio.
The primary capital ratio, including 50 % of retained earnings in the year-to-date, amounts to 18.8 % (17.2 %), the core capital ratio amounts to 17.3 % (15.7 %) and the core Tier 1 capital ratio amounts to 14.9 % (13.3 %).
Sparebanken Møre was subject to a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 203 million at the end of the third quarter of 2016, which corresponds to a basis for calculation of NOK 2 537 million.
The aggregate profit of the Bank's three subsidiaries amounted to NOK 122 million after tax after the first three quarters of 2016 (NOK 138 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 quarter, the company had raised NOK 15.6 billion in funding for the Group. The company has made a NOK 123 million contribution to the result so far in 2016 (NOK 137 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 2016 of NOK 1 million (NOK 1 million). At the end of the quarter, the company employed 14 full-time equivalents.
The object of Sparebankeiendom AS is to own and manage the Bank's own commercial properties. The company has made no contribution to the result so far in 2016. The company has no employees.
At the end of the third quarter of 2016, there were 5 765 holders of Sparebanken Møre's equity certificates. 9 886 954 equity certificates have been issued. The EC holders' share of the bank's total equity amounts to 49.6 %. Note 10 contains an overview of the 20 largest holders of the Bank's equity certificates.
As at 30 September 2016, the Bank owned 70 485 of its own equity certificates. These were purchased via the Oslo Stock Exchange at market price.
Due to the continued low interest rates, a weak Norwegian krone, and an expansive fiscal policy, the level of activity in the county will probably remain stable for the rest of the year before possibly rising slightly next year. Output is high in a number of industries. This includes fishing, traditional goods and services exports, building and construction, and tourism. Nevertheless, parts of Møre og Romsdal are still being affected by the falling level of activity in the oil sector.
Sparebanken Møre's losses this year are expected to remain low and end up at a lower level than in 2015.
At the end of September, registered unemployment in Møre og Romsdal was 3.0 % according to figures from the Norwegian Labour and Welfare Administration (NAV). This was 0.2 percentage points higher than the national rate.
Credit growth slowed slightly in Norway during the first three quarters, while deposit growth has increased slightly. We continue to experience strong competition in the market, both for lending and deposits, but the Bank is competitive and continues to record good lending and deposit growth. Competition is still strong within certain business sectors. There is a constant focus on generating growth through good commitments with an acceptable level of risk.
The Bank will remain strong and committed in supporting the business sectors in our region, Nordvestlandet.
Sparebanken Møre is focusing on cost-effective operations. This has resulted in a highly satisfactory level of costs. This focus will continue, and the Group's cost income ratio this year is expected to remain within the internal target of 45 %.
Overall, good results are expected this year, with a return on equity exceeding the target of 10 %.
Ålesund, 30 September 2016
19 October 2016
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
OLAV ARNE FISKERSTRAND, CEO