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 2023
Sparebanken Møre’s profit before tax after the first three quarters of 2023 was NOK 937 million, compared with NOK 697 million for the same period in 2022, an increase of 34.4 per cent.

Total income was NOK 396 million higher than for the same period in 2022. Net interest income rose by NOK 309 million and other income increased by NOK 87 million. Capital losses from the bond portfolio amounted to NOK 1 million, compared with capital losses of NOK 93 million in the first three quarters of 2022. Capital gains from equities amounted to NOK 6 million, compared with capital gains of NOK 12 million after the first three quarters of 2022. Income from foreign exchange and interest rate business for customers amounted to NOK 34 million after the first three quarters, NOK 7 million less than in the same period last year. Income from other financial instruments was NOK 7 million higher than in the same period last year.

Costs amounted to NOK 617 million and were NOK 86 million higher after the first three quarters of 2023 than in 2022. Personnel costs were NOK 39 million higher than last year and other costs NOK 47 million higher.

Losses on loans and guarantees amounted to NOK 64 million and were NOK 70 million higher than in the same period last year.

The cost income ratio was 38.1 per cent after the third quarter, a reduction of 5.4 percentage points compared with the same period in 2022.

Profit after tax amounted to NOK 715 million, compared with NOK 535 million for the same period last year.

Return on equity after the first three quarters of 2023 ended at 12.5 per cent compared with 10.1 per cent for the same period in 2022.

Earnings per equity certificate were NOK 6.84 (NOK 5.17) for the Group and NOK 7.27 (NOK 6.31) for the parent bank.

RESULTS FOR Q3 2023
Profit before losses amounted to NOK 367 million for the third quarter of 2023, or 1.55 per cent of average assets, compared with NOK 254 million, or 1.19 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 253 million for the third quarter of 2023, or 1.07 per cent of average assets, compared with NOK 189 million, or 0.89 per cent, for the corresponding quarter last year.

Return on equity was 13.1 per cent for the third quarter of 2023, compared with 10.5 per cent for the third quarter of 2022, and the cost income ratio was 36.2 per cent compared with 41.4 per cent for the third quarter of 2022. 

Earnings per equity certificate were NOK 2.42 (NOK 1.82) for the Group and NOK 2.25 (NOK 1.41) for the parent bank. 

Net interest income 
Net interest income was NOK 487 million, which is NOK 89 million, or 22.4 per cent, higher than in the corresponding quarter of last year. This represents 2.05 per cent of total assets, which is 0.18 percentage points higher than for the corresponding quarter last year. In the retail market, the interest margin for lending has contracted and the deposit margin has widened compared with the third quarter of 2022. In the corporate market, the interest margin for lending was stable, while the interest margin for deposits widened compared with the same period.

Other income
Other income was NOK 88 million in the quarter, which is NOK 53 million higher than in the third quarter of last year. Net result from financial instruments was positive for the quarter and NOK 53 million higher than in the third quarter of 2022. Capital gains from bond holdings were NOK 15 million in the quarter, compared with capital losses of NOK 27 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 0 million, compared with capital losses of NOK 13 million in the third quarter of 2022. The negative change in value for fixed-rate lending amounted to NOK 2 million, compared with a negative change in value of NOK 1 million in the same quarter last year. Income from foreign exchange and interest rate business for customers amounted to NOK 11 million in the quarter, NOK 2 million less than in the same quarter last year.

Other income, exclusive of financial instruments, was on a par with the third quarter of 2022. 

Costs 
Operating costs amounted to NOK 208 million for the quarter, which is NOK 29 million higher than for the same quarter last year. Personnel costs accounted for NOK 17 million of the increase in relation to the same period last year and totalled NOK 120 million. The workforce has increased by 10 FTEs in the past 12 months and numbered 390 FTEs at the end of the quarter. Other costs have increased by NOK 11 million from the same period last year. 

Provisions for expected losses and credit-impaired commitments 
Losses on loans and guarantees increased by NOK 34 million (NOK 2 million), corresponding to 0.14 per cent of average assets (0.01 per cent of average assets). The corporate segment was charged NOK 19 million in losses in the quarter, while losses in the retail segment increased by NOK 15 million.

At the end of the third quarter of 2023, provisions for expected credit losses totalled NOK 396 million, equivalent to 0.49 per cent of gross loans and guarantee commitments (NOK 350 million and 0.46 per cent). Of the total provision for expected credit losses, NOK 21  million relates to credit-impaired commitments more than 90 days past due (NOK 11 million), which represents 0.03 per cent of gross loans and guarantee commitments (0.01 per cent), while NOK 205 million relates to other credit-impaired commitments (NOK 213 million), corresponding to 0.25 per cent of gross loans and guarantee commitments (0.28 per cent).

Net credit-impaired commitments (commitments more than 90 days past due and other credit-impaired commitments) have increased by NOK 53 million in the past 12 months. At end of the third quarter of 2023, the corporate market accounted for NOK 450 million of net credit-impaired commitments and the retail market NOK 155 million. In total, this represents 0.74 per cent of gross loans and guarantee commitments (0.73 per cent). 

Lending to customers
At the end of the third quarter of 2023, lending to customers amounted to NOK 79,739 million (NOK 73,689 million). In the past 12 months, customer lending has increased by a total of NOK 6,050 million, equivalent to 8.2 per cent. Retail lending has increased by 7.0 per cent and corporate lending has increased by 10.9 per cent in the past 12 months. Retail lending accounted for 66.5 per cent of total lending at the end of the second quarter (67.3 per cent).

Customer deposits 
Customer deposits have increased by NOK 1,967 million, or 4.4 per cent, in the past 12 months. At the end of the third quarter of 2023, deposits amounted to NOK 46,653 million (NOK 44,686 million). Retail deposits have increased by 9.4 per cent in the past 12 months, while corporate deposits have decreased by 2.1 per cent and public sector deposits have decreased by 12.7 per cent. The retail market’s relative share of deposits amounted to 61.1 per cent (58.3 per cent), while deposits from the corporate market accounted for 37.5 per cent (40.0 per cent) and from the public sector market 1.4 per cent (1.7 per cent). 

The deposit-to-loan ratio was 58.2 per cent at the end of the third quarter (60.4 per cent).

LIQUIDITY AND FUNDING
The regulatory minimum LCR and NSFR requirements are both 100 per cent. The Group has established internal minimum targets above the regulatory requirements.

Sparebanken Møre’s liquidity coverage ratio (LCR) was 176 for the Group and 162 for the parent bank at the end of the quarter.  The EUR is a significant currency for the Group and Møre Boligkreditt AS. A currency is considered a ‘significant currency’ when liabilities denominated in that currency amount to 5 per cent of total liabilities. When the EUR and/or USD are significant currencies, a minimum requirement for NOK of 50 per cent applies.

The EU banking package was introduced in Norway from 1 June 2022. This entails, among inter alia, the introduction of a binding requirement that the net stable funding ratio (NSFR) must be more than 100 at all reporting levels. CRR2 sets new weights for asset and liability items, and for off-balance sheet items. The NSFR ended at 123 at the end of the third quarter (consolidated figure), while the bank’s and Møre Boligkreditt AS’s NSFR ended at 123 and 112, respectively.

Total net money market funding amounted to almost NOK 36.5 billion at the end of the quarter. Senior bonds with a remaining term to maturity of more than 1 year have a weighted remaining term to maturity of 2.82 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 2.96 years – overall for market funding in the Group (inclusive T2 and T3) the remaining term to maturity is 3.01 years.

Møre Boligkreditt AS issues bonds based on the transfer of loans from the parent bank. Loans transferred to Møre Boligkreditt AS amounted to NOK 33,728 million at the end of the third quarter, corresponding to approximately 42 per cent of the bank's total lending.

RATING
On 2 October 2023, Møre Boligkreditt AS received a specific issuer rating. Moody's Investor Service assigned the covered bond company the same rating as the bank, A1. This rating of Møre Boligkreditt AS does not affect the Aaa rating of bonds issued by the covered bond company.

In a report published on 5 October this year, and following Moody's rating of Møre Boligkreditt AS, the rating agency confirms Sparebanken Møre's counterparty, deposit and issuer ratings as A1 with a stable outlook. The rating of the bank’s Junior Senior Unsecured debt in domestic currency was also maintained at Baa1.

CAPITAL ADEQUACY 
Sparebanken Møre is well capitalised. At the end of the third quarter of 2023, the Common Equity Tier 1(CET1) capital ratio was 18.1 per cent (18.2 per cent), including 50 per cent of the result for the year to date. This is 2.65 percentage points higher than the total minimum requirement and the Financial Supervisory Authority of Norway’s expected capital adequacy margin (P2G) totalling 15.45 per cent. The capital adequacy ratio, including 50 per cent of the result for the year to date, was 22.5 per cent (22.5 per cent) and the Tier 1 capital ratio was 19.9 per cent (20.1 per cent).

The EU’s banking package was enacted in Norway on 1 June 2022 and resulted in several changes such as the expansion of the SME discount and the introduction of a minimum NSFR requirement. Sparebanken Møre has previously applied to the Financial Supervisory Authority of Norway for model and calibration changes. A letter from the Financial Supervisory Authority dated 22 June 2023 grants approval for the proposed models for the corporate market. Sparebanken Møre will incorporate the new models in the fourth quarter of 2023. The model changes are estimated to result in an improved CET1 capital ratio of about 0.5 percentage points. The Financial Supervisory Authority also states that it is aiming to finalise its consideration of the model changes for retail market lending during the course of 2023.

Sparebanken Møre’s total CET1 capital ratio requirement is 14.2 per cent. The requirement consists of a minimum requirement of 4.5 per cent, a capital conservation buffer of 2.5 per cent, a systemic risk buffer of 3.0 per cent and a countercyclical buffer of 2.5 per cent. In addition, the Financial Supervisory Authority of Norway has set an individual Pillar 2 requirement (P2R) for Sparebanken Møre of 1.7 per cent, as well as an expected capital adequacy margin of 1.25 per cent. The Financial Supervisory Authority has informed the bank that it plans to implement SREP this year. At least 56.25 per cent of the new Pillar 2 requirement that results from the aforementioned SERP must be met with CET1 capital, while 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at the end of the third quarter was 7.5 per cent (7.6 per cent). The regulatory minimum requirement (3 per cent) was met by a good margin. 

MREL
The Financial Supervisory Authority has set Sparebanken Møre’s effective MREL requirement as at 1 January 2023 at 32.4 per cent and the minimum requirement for subordination at 23.5 per cent. Based on the set capital requirements and announced changes that will come into force by 1 January 2024, Sparebanken Møre will operate on the basis of an effective MREL requirement of 35.9 per cent and a subordination requirement of 28.9 per cent.

Sparebanken Møre had issued NOK 2,000 million in Senior Non-Preferred debt at the end of third quarter of 2023.

SUBSIDIARIES 
The aggregate profit of the bank's subsidiaries amounted to NOK 109 million after tax after the first three quarters of 2023 (NOK 127 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 2023, the company had nominal outstanding covered bonds of NOK 28.2 billion in the market. Around 30 per cent was issued in a currency other than NOK. At the end of the quarter, the parent bank held NOK 388 million in bonds issued by the company. Møre Boligkreditt AS has contributed NOK 106 million to the Group’s result so far in 2023 (NOK 122 million).

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has made a profit contribution of NOK 1.3 million so far in 2023 (NOK 2 million).

At the end of the quarter, the company employed 20 FTEs.  The purpose of Sparebankeiendom AS and Storgata 41-45 Molde AS is to own and manage the bank’s own commercial properties. The companies have made a profit contribution of NOK 2 million so far in 2023 (NOK 3 million). The companies have no staff. 

EQUITY CERTIFICATES
At the end of the third quarter of 2023, there were 6,527 holders of Sparebanken Møre's equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 2.6 per cent at the end of the quarter. 49,434,770 equity certificates have been issued. Equity certificate capital accounts for 49.7 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 2023, the bank owned 86,565 equity certificates. These were purchased on the Oslo Stock Exchange at market prices.

FUTURE PROSPECTS
Central banks continued to hike interest rates in the third quarter in order to curb inflationary pressures. However, policy rates are now at or near their peak. This is because interest rates have risen sharply at the same time as global inflationary pressures have decreased. Inflation remains, however, far above the central banks’ inflation targets. Interest rates are, therefore, likely to remain high for some time.

The US Federal Reserve raised its policy rate for the eleventh time at its monetary policy meeting on 26 July. The interval for the money market Fed Funds Rate thus rose to 5.25-5.50 per cent. However, at its monetary policy meeting on 21 September, the US Federal Reserve kept its policy rate unchanged. The central bank indicated there will be another rate hike this year and ‘just’ two rate cuts next year instead of four as previously signalled.

The European Central Bank (ECB) raised its policy rates twice in the third quarter. This included raising the deposit policy rate from 3.75 to 4.00 per cent in September. The hike in interest rates was based on a desire to prevent inflation from remaining too high for too long. The central bank noted that interest rates are now considered high enough to bring inflation down towards the target of 2.0 per cent, provided that they remain at the current level for a sufficiently long period. This indicates that interest rates in the eurozone may have peaked.

Norges Bank increased its policy rate by 0.25 percentage points to 4.25 per cent at its monetary policy meeting on 21 September. The interest rate path was also raised for both the short and long term. Norges Bank stated that “Whether additional tightening will be needed depends on economic developments. There will likely be one additional policy rate hike, most probably in December.”

The interest rate path indicates that the policy rate will remain at 4.50 percent through 2024. The interest rate path was raised due to the prospects of higher price and wage inflation, higher domestic demand, higher oil prices and petroleum investments and higher interest rates abroad. At the same time, the likelihood that the policy rate will be reduced by 0.25 percentage points by March 2025 has been fully priced into the interest rate forecast. Thereafter, there are prospects of a gradual fall in interest rates in the period up to 2026. Norges Bank emphasises that there is considerable uncertainty related to the forecasts.

Output has levelled off since last autumn. Norway’s Mainland GDP, which is a measure of the total output of goods and services in the Norwegian economy excluding oil activities and international shipping, was at about the same level in August as it was at the beginning of 2023. Nevertheless, the level of economic activity must be characterised as high. This is reflected in the labour market, which remains tight.

At the end of September, the number of unemployed people in Møre og Romsdal accounted for 1.5 per cent of the workforce according to the Norwegian Labour and Welfare Administration (NAV). The national unemployment rate was 1.8 per cent. It is common for unemployment to fall in September due to seasonal factors. However, even when adjusted for normal seasonal variations, the month saw a clear fall. One of the reasons for the decrease was more people switching to labour market schemes.

The rate of growth in lending to households and non-financial companies for Norway as a whole fell during the third quarter. With a rate of growth in lending to households of well under 4 per cent, the 12-month growth is the lowest measured in the 2000s. At the end of August this year, the overall 12-month growth in lending to the public was 4.0 per cent, compared with 5.5 per cent at the start of the year. As a result of higher interest rates and weaker growth in house prices, a further reduction in the growth rate for lending to households is expected in the coming period. The tighter monetary policy is beginning to have an effect and it appears that taking out new loans is no longer as attractive for Norwegian households and enterprises.

The bank’s overall lending growth has remained good. The 12-month growth rate was 8.2 per cent at the end of the quarter, slightly below the level at the end of 2022 of 8.8 per cent. The year-on-year growth in lending to the retail market ended at 7.0 per cent at the end of the third quarter, while lending growth in the corporate market amounted to 10.9 per cent. Deposits have increased by 4.4 per cent in the past 12 months and the deposit-to-loan ratio was high but edging slightly downwards during the third quarter.

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 of above 11 per cent and a cost income ratio of under 40 per cent. The bank's return on equity for the first three quarters of this year was 12.5 per cent and its cost income was 38.1 per cent. The Board’s expectation for 2023 is that these financial results will be in line with the results as per the third quarter. 

Ålesund, 30 September 2023
25 October 2023
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
ROY REITE, Chair of the Board
KÅRE ØYVIND VASSDAL, Deputy Chair
JILL AASEN
THERESE MONSÅS LANGSET
TERJE BØE
BIRGIT MIDTBUST
MARIE REKDAL HIDE
BJØRN FØLSTAD

TROND LARS NYDAL, CEO