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 2019
Sparebanken Møre’s pre-tax profit for the first three quarters of 2019 was NOK 680 million, compared with NOK 607 million for the same period in 2018.
Total income was NOK 131 million higher than for the same period in 2018. Net interest income rose by NOK 105 million and other operating income increased by NOK 26 million. Capital losses from the bond portfolio amounted to NOK 1 million, compared with capital losses of NOK 11 million in the first three quarters of 2018. Capital gains on equities totalled NOK 12 million, compared with NOK 16 million at the end of the third quarter of 2018. Income from other financial investments showed an increase of NOK 16 million compared with the same period in 2018.
Costs were NOK 27 million, or 6.0 per cent higher in the first three quarters of 2019 than in 2018. Personnel costs were NOK 9 million higher than last year and financial activity tax in the form of higher employers’ National Insurance contributions amounted to NOK 10 million, the same as in 2018. Other operating costs increased by NOK 18 million in the same period.
Losses on loans and guarantees amounted to NOK 35 million and were NOK 31 million higher than in the same period last year.
The cost income ratio amounted to 40.1 per cent after the third quarter this year. This represents a decrease of 2.4 percentage points compared with the same period in 2018.
Profit after tax was NOK 521 million, NOK 57 million higher than for the same period in 2018. The results at the end of the third quarter show an annualised return on equity of 11.6 per cent, compared with 10.9 per cent after the first three quarters of 2018.
Earnings per equity certificate amounted to NOK 25.60 (NOK 22.85) for the Group and NOK 25.90 (NOK 23.30) for the Parent Bank.
The Board is pleased with the results after the first three quarters of 2019.
RESULTS FOR Q3 2019
The profit after tax for the third quarter of 2019 amounted to NOK 180 million, or 0.98 per cent of average total assets, compared with NOK 149 million, or 0.84 per cent, for the corresponding quarter last year.
The return on equity in the third quarter of 2019 was 11.8 per cent compared with 10.3 per cent in the third quarter of 2018, and the cost income ratio amounted to 39.0 per cent compared with 43.4 per cent in the third quarter of 2018.
Earnings per equity certificate amounted to NOK 8.80 (NOK 7.35) for the Group and NOK 5.30 (NOK 4.90) for the Parent Bank.
Net interest income
Net interest income amounted to NOK 351 million, which is NOK 61 million, or 21.0 per cent, higher than in the corresponding quarter of last year. This represents 1.91 per cent of total assets, which is 0.28 percentage points higher than for the third quarter of 2018.
The Bank implemented a change in interest rates with effect from 9 August in which both lending and deposit rates were increased by up to 0.25 percentage points. A similar increase in interest rates has been announced and will become effective from 13 November 2019.
Rising interest rates have over the course of the year led to increased funding costs and reduced margins on lending. The interest rate hikes that have been implemented in 2019 have kept the lending margin at about the same level as in the third quarter of 2018. Compared with the third quarter of 2018, the margin for deposits increased and overall this improved net interest income in the third quarter of 2019 compared with the third quarter of 2018.
In addition to this, higher lending and deposit volumes, as well as better interest contributions from the Bank’s equity, increased net interest income in NOK compared with the corresponding quarter last year.
Strong competition in both lending and deposits, and reduced risk in the lending portfolio, have contributed to downward pressure on net interest income.
Other operating income
Other operating income amounted to NOK 63 million in the quarter, which is NOK 2 million higher than in the third quarter of last year. Other operating income , excluding financial instruments, decreased by NOK 1 million compared with the third quarter of 2018. The changes in value in the bond portfolio and equities constitute capital losses of NOK 4 million in the quarter, compared with capital losses of NOK 5 million in the third quarter of 2018.
Operating costs in the quarter amounted to NOK 161 million, which is NOK 9 million higher than in the same quarter last year. Personnel costs were NOK 3 million higher than in the corresponding period last year and amounted to NOK 88 million. Staffing has been reduced by 9 full-time equivalents in the last 12 months, to 354 FTEs. Other operating costs increased by NOK 6 million from the same period last year.
The cost income ratio amounted to 39.0 per cent in the third quarter of 2019, which represents a reduction of 4.4 percentage points compared with the third quarter last year.
The quarterly accounts were charged NOK 16 million (NOK 7 million) in losses on loans and guarantees. This amounts to 0.09 per cent (0.04 per cent) of average total assets on an annualised basis. Losses in the corporate segment increased by NOK 8 million in the quarter. Losses in the retail segment also increased by NOK 8 million.
At the end of the third quarter of 2019, total expected losses amounted to NOK 370 million, equivalent to 0.57 per cent of loans and guarantees (NOK 340 million and 0.56 per cent). Of the individually assessed commitments, NOK 18 million of the impairments were linked to commitments in default for more than 90 days (NOK 6 million), which amounts to 0.03 per cent of loans and guarantees (0.01 per cent). NOK 217 million relates to other commitments (NOK 89 million), which is equivalent to 0.33 per cent of gross loans and guarantees (0.15 per cent).
Net problem loans (commitments in default for more than 90 days and other problem loans which have been subject to individual impairments) have increased by NOK 444 million the last 12 months due to the recognition of individual impairments for commitments previously in Stage 3 in the Group’s ECL model. At the end of the third quarter of 2019, the corporate market accounted for NOK 632 million of net problem loans and the retail market NOK 67 million. In total this represents 1.07 per cent of gross loans and guarantees (0.42 per cent).
Lending to customers
At the end of the third quarter of 2019, lending to customers amounted to NOK 63,647 million (NOK 59,624 million). Customer lending has increased by a total of NOK 4,023 million, or 6.7 per cent, in the last 12 months. Retail lending has increased by 5.8 per cent, while corporate lending has increased by 8.9 per cent in the last 12 months. Lending to corporate customers increased by 4.3 per cent in the third quarter of 2019, while lending to retail customers rose by 0.7 per cent. Retail lending accounted for 68.3 per cent of total lending at the end of the third quarter of 2019 (69.1 per cent).
Deposits from customers
Customer deposits have increased by NOK 1,463 million, or 4.2 per cent, in the last 12 months. At the end of the third quarter of 2019, deposits amounted to NOK 36,147 million (NOK 34,684 million). Retail deposits have increased by 4.4 per cent in the last 12 months, while corporate deposits have increased by 4.6 per cent and public sector deposits have decreased by 6.3 per cent. The retail market’s relative share of deposits amounted to 59.8 per cent (59.7 per cent), while deposits from the corporate market accounted for 37.9 per cent (37.8 per cent) and from the public sector market 2.3 per cent (2.5 per cent).
The deposit-to-loan ratio was 56.8 per cent at the end of the third quarter of 2019 (58.2 per cent).
The Group’s capital adequacy at the end of the third quarter of 2019 was above the regulatory capital requirement and the internally set minimum target for Common Equity Tier 1 capital (CET1). The primary capital ratio, including 50 per cent of year-to-date profit, was 19.0 per cent (19.4 per cent), the core capital ratio was 17.0 per cent (17.4 per cent) and the CET1 ratio was 15.4 per cent (15.8 per cent).
At the end of the third quarter of 2019, Sparebanken Møre’s basis for calculation was NOK 2,169 million and it was subject to a capital requirement of NOK 174 million due to the transitional scheme associated with the Basel I floor. The basis for calculation including the Basel I floor amounted to NOK 36,089 million, an increase of NOK 1,635 million since the same point in 2018.
The aggregate profit of the Bank’s three subsidiaries amounted to NOK 161 million after tax in the first three quarters of 2019 (NOK 139 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 2019, the company had net outstanding bonds of NOK 22.9 billion in the market. Around 25 per cent of the borrowing was in currencies other than NOK. The company has contributed NOK 161 million to the result so far in 2019 (NOK 135 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 2019 (NOK 1.5 million). At the end of the quarter, the company employed 14 full-time equivalents.
Sparebankeiendom AS’s purpose is to own and manage the Bank’s commercial properties. The company has contributed NOK -0.8 million to the result so far in 2019 (NOK 2 million). The company has no employees.
At the end of the third quarter of 2019, there were 5,448 holders of Sparebanken Møre's equity certificates. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6 per cent of the Bank’s total equity.
Note 11 includes a list of the 20 largest holders of the Bank’s equity certificates. As at 30 September 2019, the Bank owned 24,832 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market prices.
The growth in output and demand in the county is expected to be moderate going forward. Continued low interest rates, a weak Norwegian krone and the rise in oil investments this year will contribute to this. Higher activity in the oil sector will also have positive ripple effects for other parts of the business sector. On the other hand, the uncertainty related to Brexit and the trade war between the US and China are contributing to a slowdown in market growth for our export companies.
Unemployment in the county has dropped markedly since the beginning of 2017. According to NAV, registered unemployment at job centres in Møre og Romsdal amounted to 2.0 per cent of the workforce at the end of September. In comparison, the national unemployment rate was 2.2 per cent. With moderate production growth going forward, the unemployment rate is expected to stabilise around the current level for the remainder of the current year.
For Norway as a whole, we have seen a slight decrease in household credit growth so far this year, while lending growth in the non-financial sector is on a par with the level seen at the end of last year.
Competition in our market remains strong, both for lending and deposits.
The Bank is competitive and enjoyed a high, albeit moderately slower, pace of growth in lending to households compared with the end of the second quarter. The growth rate in the corporate market remains high. Deposit growth is good and the deposit-to-loan ratio is high. Lending growth in both the retail market and the corporate market will be around 5-6 per cent in 2019. This implies growth on a par with or above market growth. There is a constant focus on good operations and increased profitability.
The Bank will remain strong and committed in supporting business and industries in our region, Nordvestlandet.
Sparebanken Møre’s target for cost-effective operations is a cost income ratio of less than 40 per cent.
Sparebanken Møre’s losses are also expected to be low in 2019. Overall, a good result is expected for 2019. The Bank’s strategic target is for the return on equity to exceed 11 per cent.
Ålesund, 30 September 2019
23 October 2019
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