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 2018
Sparebanken Møre’s pre-tax profit for the first three quarters of 2018 was NOK 607 million, compared to NOK 534 million for the same period in 2017.
Total income was NOK 68 million higher than for the same period in 2017. Net interest income rose by NOK 60 million and other operating income increased by NOK 8 million. Capital losses from the bond portfolio amounted to NOK 11 million, compared with capital gains of NOK 23 million in the first three quarters of 2017. Capital gains from shares totalled NOK 16 million, against a capital loss of NOK 9 million in the first three quarters of 2017.
Costs were NOK 5 million higher in the first three quarters of 2018 than in 2017. Personnel costs were NOK 1 million higher and other costs NOK 4 million higher than last year.
Losses on loans and guarantees amounted to NOK 4 million, NOK 10 million lower than in the corresponding period last year.
The cost income ratio was 42.5 per cent after the third quarter this year. This represents a decrease of 2.4 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 464 million, NOK 64 million higher than for the same period in 2017. The Q3 results show an annualised return on equity of 10.9 per cent, compared with 10.2 per cent after the first three quarters 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 22.85 (NOK 20.10) for the Group and NOK 23.30 (NOK 22.30) for the Parent Bank. The Board is pleased with the results after the first three quarters of 2018.
RESULTS FOR Q3 2018
Profit after tax for the third quarter of 2018 amounted to NOK 149 million, or 0.84 per cent of average total assets, compared to NOK 139 million, or 0.85 per cent, for the corresponding quarter last year.
The return on equity in the third quarter of 2018 was 10.3 per cent, compared to 10.5 per cent for the third quarter of 2017.
Earnings per equity certificate amounted to NOK 7.35 (NOK 6.95) for the Group and NOK 4.90 (NOK 4.75) for the Parent Bank.
Net interest income
The net interest income of NOK 290 million was NOK 9 million higher than in the corresponding quarter of last year. This represents 1.63 per cent of total assets, which is 0.09 percentage points lower than in the third 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. Strong competition on both lending and deposits and reduced risk have contributed to pressure on the net interest margin.
Other operating income
Other operating income amounted to NOK 61 million, which is NOK 6 million higher than in the third quarter of last year. The change in value in the bond portfolio amounted to NOK -8 million in the quarter (no change in the third quarter of 2017). Other income apart from financial instruments shows an increase of NOK 5 million compared with the third quarter of 2017.
Operating costs amounted to NOK 152 million in the quarter, which is NOK 7 million higher than in the same quarter last year. Personnel costs were NOK 2 million higher than in 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 is unchanged in terms of the number of full-time equivalents in the last 12 months, totalling 363 FTEs. Other operating costs increased by NOK 5 million from the same period last year.
The cost income ratio was 43.4 per cent in the third quarter of 2018, a reduction of 0.8 percentage points compared with the third quarter last year.
NOK 7 million was recognised as losses on loans and guarantees in the quarter. This amounts to 0.04 per cent of average total assets on an annualised basis. The corresponding figure for the third quarter of 2017 was NOK 6 million (0.04 per cent). Losses in the corporate segment increased by NOK 13 million in the quarter, offset by reversal of losses of NOK 6 million in the retail segment.
At the end of the third quarter of 2018, total expected losses amounted to NOK 344 million, equivalent to 0.56 per cent of loans and guarantees (NOK 342 million and 0.58 per cent). Of the individually assessed commitments, NOK 6 million of the impairments were related to commitments in default for more than 90 days (NOK 4 million), which amounts to 0.01 per cent of loans and guarantees (0.01 per cent) NOK 89 million relates to other commitments (NOK 91 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 6 million in the last 12 months. At the end of the third quarter of 2018, the corporate market accounted for NOK 189 million of net impaired commitments and the retail market NOK 66 million. In total, this represents 0.42 per cent of gross loans and guarantees (0.45 per cent).
Lending to customers
At the end of the third quarter of 2018, lending to customers amounted to NOK 59,620 million (NOK 56,488 million). Customer lending has increased by a total of NOK 3,132 million, or 5.5 per cent, in the last 12 months. Retail lending has increased by 5.1 per cent, while lending to corporate customers has increased by 7.0 per cent in the last 12 months. Lending to corporate customers increased by 1.8 per cent in the third quarter of 2018, while lending to retail customers rose by 1.1 per cent. Retail lending accounted for 69.1 per cent of the total lending at the end of the third quarter of 2018 (69.1 per cent).
Deposits from customers
Customer deposits have increased by 4.8 per cent over the last 12 months. At the end of the third quarter of 2018, deposits amounted to NOK 34,684 million (NOK 33,082 million). Retail deposits have increased by 5.2 per cent in the last 12 months, while corporate deposits have increased by 5.3 per cent and public sector deposits have increased by 9.8 per cent. The retail market’s relative share of deposits amounted to 59.7 per cent (59.5 per cent), while deposits from corporate customers accounted for 37.8 per cent (38.1 per cent) and from public sector customers 2.5 per cent (2.4 per cent).
The deposit-to-loan ratio was 58.2 per cent at the end of the third quarter of 2018 (58.6 per cent).
The Group’s capital adequacy was above the regulatory capital requirements and the internally set minimum target for CET1 at the end of the third quarter of 2018. The primary capital ratio, including 50 per cent of year-to-date retained earnings, was 19.4 per cent (19.1 per cent), the Tier 1 capital ratio was 17.4 per cent (17.1 per cent) and the CET1 ratio was 15.8 per cent (14.5 per cent).
Sparebanken Møre has a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 139 million at the end of the third quarter of 2018, corresponding to a basis for calculation of NOK 1,711 million.
The aggregate profit of the Bank’s three subsidiaries amounted to NOK 139 million after tax in the first three quarters of 2018 (NOK 109 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 third quarter of 2018, the company had net outstanding bonds of NOK 20.4 billion in the market. About 25 per cent of the borrowing was in currencies other than NOK. The company has contributed NOK 135 million to the result so far in 2018 (NOK 108 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has contributed NOK 1.5 million to the result so far in 2018 (NOK -0.4 million in the first three quarters of 2017). 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 commercial properties. The company has contributed NOK 2 million to the result so far in 2018 (NOK 1 million in the first three quarters of 2017). The company has no employees.
At the end of the third quarter of 2018, there were 5,371 holders of Sparebanken Møre’s equity certificates 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6% of the Bank’s total equity. Note 10 includes a list of the 20 largest holders of the Bank’s equity certificates.
As at 30 September 2018, the Bank owned 52,184 of its own equity certificates These were purchased on the Oslo Stock Exchange at market price.
The level of activity in Møre og Romsdal is high in most industries and sectors. This is due to the rise in oil prices and several new investment projects in the petroleum sector, low interest rates, a weak NOK and good growth in export markets. The level of activity in the public sector is also high. The trend in the housing market is stable. Based on the current economic condition, the economic outlook for the county appears to be good.
The increase in production and demand, along with significant restructuring in the labour market, has resulted in lower unemployment. Registered unemployment in Møre og Romsdal in September was 2.3 per cent according to the Norwegian Labour and Welfare Administration (NAV), the same as the national unemployment rate. Unemployment is now so low that the decrease will probably level off in the future.
Credit growth in Norway, both in households and business, slowed during the first half of the year. While lending growth in the corporate market has recovered slightly, lending growth to households dropped further in the third quarter.
Competition in the market remains strong, both for loans and deposits. The Bank is competitive and recorded a good, but somewhat lower, growth rate in loans in the retail market. For loans to the corporate market, we have recorded an increase in the growth rate during the last quarter. 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. There is a constant focus on good operations and increased profitability.
The Bank will remain a strong and committed supporter of the business sector in our region, Nordvestlandet.
Sparebanken Møre's target for cost-effective operations for the strategy period 2019-2022 is a cost income ratio of less than 40 per cent. The cost income ratio will be clearly lower than 45 per cent in 2018.
Sparebanken Møre’s losses are expected to be low also 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 September 2018
23 October 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