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 2021
Sparebanken Møre’s profit before tax for the first three quarters of 2021 was NOK 632 million, compared with NOK 540 million for the same period in 2020.
Total income was NOK 27 million higher than for the same period in 2020. Net interest income rose by NOK 18 million and other operating income increased by NOK 9 million. No changes were recognised in the value of bond holdings as per 30 September 2021, compared with capital losses of NOK 6 million after the first three quarters of 2020. Capital gains on equities totalled NOK 11 million, compared with NOK 6 million at the end of the third quarter of 2020. Income from other financial instruments showed a reduction of NOK 8 million compared with the same period in 2020.
Costs were NOK 5 million higher in the first three quarters of 2021 than in 2020. Personnel costs were NOK 6 million higher than last year, while other operating costs showed a reduction of NOK 1 million in the same period.
Losses on loans and guarantees amounted to NOK 44 million and were NOK 70 million lower than in the same period last year.
The cost income ratio amounted to 41.4 per cent after the third quarter this year. This represents a decrease of 0.6 percentage points compared with the same period in 2020.
Profit after tax was NOK 489 million, NOK 69 million higher than for the same period in 2020. The results at the end of the third quarter show an annualised return on equity of 9.8 per cent, compared with 8.6 per cent after the first three quarters of 2020.
Earnings per equity certificate were NOK 23.71 (NOK 20.00) for the Group and NOK 25.99 (NOK 22.95) for the parent bank.
RESULTS FOR Q3 2021
Profit after tax was NOK 176 million for the third quarter of 2021, or 0.86 per cent of average total assets, compared with NOK 153 million, or 0.78 per cent, for the corresponding quarter last year.
Return on equity was 10.5 per cent in the third quarter of 2021, compared with 9.4 per cent in the third quarter of 2020, and the cost income ratio was 40.9 per cent compared with 39.0 per cent in the third quarter of 2020.
Earnings per equity certificate were NOK 8.60 (NOK 7.38) for the Group and NOK 5.00 (NOK 3.72) for the parent bank.
Net interest income
Net interest income was NOK 320 million, which is NOK 14 million, or 4.6 per cent, higher than in the corresponding quarter of last year. This represents 1.58 per cent of total assets, which is 0.04 percentage points higher than for the third quarter of 2020.
In the retail market, the interest margin for lending contracted and the deposit margin increased compared with both the second quarter of 2021 and the third quarter of 2020. In the corporate market, the interest margin for lending was stable, while the interest margin for deposits increased compared with the same periods.
Strong competition in both lending and deposits, contributed to downward pressure on net interest income, while higher lending and deposit volumes resulted in an increase in net interest income.
Other operating income
Other operating income was NOK 71 million in the quarter, which is NOK 6 million lower than in the third quarter of last year. The net income from financial instruments of NOK 13 million was NOK 11 million lower than in the third quarter of 2020. Capital losses from bond holdings were NOK 3 million in the quarter, compared with capital gains of NOK 7 million in the corresponding quarter last year. Capital losses on equities totalled NOK 1 million, compared with gains of NOK 1 million in the third quarter of 2020. The positive change in value for fixed-rate lending amounted NOK 3 million, compared with NOK 1 million in the same quarter last year. The value of issued bonds increased by NOK 5 million, compared with a negative change in value of NOK 6 million in the third quarter of 2020. Income from currency and interest rate trading increased by NOK 1 million compared with the same period last year.
Other operating income, excluding financial instruments, increased by NOK 5 million compared with the third quarter of 2020. The increase was mainly attributable to insurance sales, income from discretionary asset management and money-transfer services.
See Note 7 for a specification of other operating income.
Operating costs were NOK 160 million in the quarter, which is NOK 11 million higher than in the same quarter last year. Personnel costs were NOK 6 million higher than in the corresponding period last year and amounted to NOK 87 million. Staffing has increased by eight full-time equivalents in the past 12 months, to 361 FTEs. Other operating costs have increased by NOK 5 million from the same period last year. See Note 8 for a specification of costs.
The cost income ratio for the third quarter of 2021 was 40.9 per cent, 1.9 percentage points higher than in the third quarter of last year.
Provisions for expected losses and credit-impaired commitments
The quarterly accounts were charged NOK 2 million (NOK 36 million) in losses on loans and guarantees. This amounts to 0.01 per cent (0.18 per cent) of average total assets on an annualised basis. Losses in the corporate segment increased by NOK 9 million in the quarter, while losses in the retail segment decreased by NOK 7 million.
At the end of the third quarter of 2021, provisions for expected losses totalled NOK 365 million, equivalent to 0.51 per cent of gross loans and guarantee commitments (NOK 481 million and 0.72 per cent). Of the total provisions for expected losses, NOK 18 million concerns credit-impaired commitments more than 90 days past due (NOK 22 million), which amounts to 0.03 per cent of gross loans and guarantee commitments (0.03 per cent). NOK 231 million concerns other credit-impaired commitments (NOK 312 million), which is equivalent to 0.32 per cent of gross loans and guarantee commitments (0.46 per cent).
Net credit-impaired commitments (commitments more than 90 days past due and other commitments in stage 3) have decreased by NOK 9 million in the past 12 months. At end of the third quarter of 2021, the corporate market accounted for NOK 774 million of net credit-impaired commitments and the retail market NOK 96 million. In total, this represents 1.22 per cent of net gross loans and guarantee commitments (1.31 per cent).
Lending to customers
At the end of the third quarter of 2021, lending to customers amounted to NOK 69,423 million (NOK 65,367 million). In the past 12 months, customer lending has increased by a total of NOK 4,056 million, or 6.2 per cent. Retail lending has increased by 4.3 per cent and corporate lending has increased by 10.3 per cent in the past 12 months. Lending to corporate customers increased by 0.6 per cent in the third quarter of 2021, while lending to retail customers rose by 0.3 per cent. Retail lending accounted for 67.5 per cent of total lending at the end of the third quarter of 2021 (68.7 per cent).
Deposits from customers
Customer deposits have increased by NOK 1,451 million, or 3.7 per cent, in the past 12 months. At the end of the third quarter of 2021, deposits amounted to NOK 40,780 million (NOK 39,329 million). Retail deposits have increased by 5.3 per cent in the past 12 months, while corporate deposits have increased by 1.1 per cent and public sector deposits by 3.9 per cent. The retail market’s relative share of deposits amounted to 60.1 per cent (59.2 per cent), while deposits from the corporate market accounted for 37.6 per cent (38.5 per cent) and from the public sector market 2.3 per cent (2.3 per cent).
The deposit-to-loan ratio was 58.5 per cent at the end of the third quarter of 2021 (59.9 per cent).
The bank’s dividend policy implies cash dividends for 2020 of NOK 13.50 per equity certificate. Based on the extraordinary situation and the authorities’ expectations, the General Meeting in March, decided to distribute NOK 4.50 per equity certificate and NOK 45 million in dividends to the local communities. In addition, the General Meeting issued board authorisation for an additional distribution of dividends of up to NOK 9.00 per equity certificate, as well as distribution of dividends of up to NOK 91 million to the local communities.
In its meeting on 25 October 2021, the Board used this authorization and decided on additional dividends of NOK 9.00 per equity certificate, as well as distribution of dividend funds of NOK 90 million to the local communities. This dividend payment will not affect the bank’s Common Equity Tier 1(CET1).
The Board’s decision on 25 October 2021 is based on an assessment of the prudence of approving and making dividend payments in accordance with Section 10-6, first subsection, of the Financial Institutions Act, including the results as at the end of the third quarter of 2021.
Sparebanken Møre is well capitalised. At the end of the third quarter, the Common Equity Tier 1 capital ratio was 17.1 per cent (17.5 per cent), incl. 50 per cent of the result for the year to date. This is 4.4 percentage points higher than the total regulatory minimum requirement for the Common Equity Tier 1 capital ratio of 12.7 per cent. The primary capital ratio, including 50 per cent of the result for the year to date, was 20.8 per cent (21.4 per cent) and the Tier 1 capital ratio was 18.8 per cent (19.3 per cent).
Capital adequacy is calculated in line with the EU’s Capital Requirements Directive (CRD) IV and Capital Requirements Regulation (CRR), which were introduced with effect from 31 December 2019.
The total regulatory minimum requirement for Sparebanken Møre’s Common Equity Tier 1 capital ratio, including the Pillar 2 supplement, was 12.7 per cent at the end of the third quarter of 2021. In its assessment of Sparebanken Møre’s Pillar 2 supplement in 2018, the Financial Supervisory Authority of Norway set it at 1.7 per cent, although it was made subject to a minimum of NOK 590 million with effect from 31 March 2019. Sparebanken Møre’s internal target for its Common Equity Tier 1 capital ratio is 15.2 per cent.
The leverage ratio (LR) at the end of the third quarter of 2021 was 7.6 per cent, 0.3 percentage points lower than at the end of the third quarter of 2020. The regulatory minimum requirement (3 per cent) and buffer requirement (2 per cent), 5 per cent in total, were met by a good margin.
The aggregate profit of the bank’s three subsidiaries amounted to NOK 191 million after tax after the first three quarters of 2021 (NOK 167 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 third quarter of 2021, the company had outstanding bonds of NOK 29 billion in the market. Around 37 per cent was issued in a currency other than NOK. Of the volume of bonds issued by the company, NOK 2,347 million (nominal value) was held by the parent bank at the end of the third quarter of 2021. Møre Boligkreditt AS contributed NOK 190 million to the Group’s result so far in 2021 (NOK 164 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has not made a profit contribution so far in 2021 (NOK 2.2 million). At the end of the quarter, the company employed 17 full-time equivalents.
Sparebankeiendom AS’s purpose is to own and manage the bank’s commercial properties. The company has made a profit contribution of NOK 1 million so far in 2021 (NOK 1 million). The company has no employees.
At the end of the third quarter of 2021, there were 5,625 holders of Sparebanken Møre’s equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 5.11 per cent at the end of the quarter. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6 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 30 September 2021, the Bank owned 22,111 of its own equity certificates. These were purchased on the Oslo Børs at market prices.
Unemployment continued to fall in Møre og Romsdal during the third quarter. At the end of September, the number of unemployed people registered at job centres totalled to 2.0 per cent of the workforce according to NAV. In comparison, the national unemployment rate was 2.4 per cent. The unemployment rate is now close to the level it was prior to the start of the shutdown of the Norwegian economy in March 2020.
There has been a clear rise in the number of jobs advertised in the autumn, particularly in the health and care sector, manufacturing and service occupations. Many jobs have also been advertised within retail and sales work. Several sectors are reporting difficulties recruiting labour. This too is an indication that output and demand are rising in the county.
The growth rate for household lending for Norway as a whole has increased slightly in 2021, but levelled off during the third quarter. The growth in lending to the corporate market accelerated in this quarter as well and total 12-month retail lending growth is now at 5.3 per cent compared with 4.8 per cent at the end of last year.
The bank has noted good activity so far this year with an accelerating rate of growth compared with the end of 2020. The 12-month growth rate was 6.2 per cent compared with 4.4 per cent at the end of 2020. The 12-month growth for lending in the retail market was 4.3 per cent at the end of the third quarter, while the growth rate for the corporate market was 10.3 per cent. Deposits increased by 3.7 per cent in the past 12 months up to the end of the third quarter of 2021, and the deposit-to-loan ratio remains high.
Sparebanken Møre expects lending growth for the bank in 2021 to be slightly higher than the growth in 2020 and end up at around 5 per cent. Deposit growth is expected to remain 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.
Sparebanken Møre’s strategic financial performance targets are a return on equity exceeding 11 per cent and a cost income ratio below 40 per cent. The activity-reducing measures due to the Covid-19 pandemic have affected the market so that the targets will not be achieved in 2021. The Board of Directors expects both further improvements with respect to the targets in the fourth quarter and that implemented measures will lead to achieved targets in 2022.
Ålesund, 30 September 2021
25 October 2021
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chair of the Board
HENRIK GRUNG, Deputy Chair
ANN MAGRITT BJÅSTAD VIKEBAKK
KÅRE ØYVIND VASSDAL
THERESE MONSÅS LANGSET
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO