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 2024
Sparebanken Møre’s profit before tax after the first three quarters of 2024 was NOK 1,093 million, compared with NOK 937 million for the same period in 2023, an increase of 16.6 per cent.

Total income was NOK 194 million higher than for the same period in 2023. Net interest income rose by NOK 155 million and other income increased by NOK 39 million. Capital gains in the bond portfolio amounted to NOK 15 million, compared with capital losses of NOK 1 million in the first three quarters of 2023. Capital losses from equities amounted to NOK 5 million, compared with capital gains of NOK 6 million after the first three quarters of 2023. Income from foreign exchange and interest rate business for customers amounted to NOK 36 million after the first three quarters, NOK 2 million higher than in the same period last year. Income from other financial instruments increased from NOK 5 million in the first three quarters of 2023 to NOK 13 million in the first three quarters of 2024.

Operating expenses amounted to NOK 720 million and were NOK 103 million higher after the first three quarters of 2024 than after the first three quarters of 2023. Personnel expenses were NOK 47 million higher than last year and other operating expenses NOK 56 million higher.

Losses on loans and guarantees amounted to NOK -1 million and were NOK 65 million lower than in the same period last year.

At the end of the third quarter, the cost income ratio was 39.7 per cent, an increase of 1.6 percentage points in relation to the first three quarters of 2023.

Profit after tax amounted to NOK 835 million, compared with NOK 715 million for the same period last year.

The return on equity after the first three quarters of 2024 was 14.0 per cent, compared with 12.5 per cent after the first three quarters of 2023.

Earnings per equity certificate were NOK 7.92 (NOK 6.84) for the Group and NOK 7.90 (NOK 7.27) for the parent bank.

RESULTS FOR Q3 2024
Profit before losses amounted to NOK 383 million for the third quarter of 2024, or 1.53 per cent of average assets, compared with NOK 367 million, or 1.55 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 280 million for the third quarter of 2024, or 1.11 per cent of average assets, compared with NOK 253 million, or 1.07 per cent, for the corresponding quarter last year.

Return on equity was 13.8 per cent for the third quarter of 2024, compared with 13.1 per cent for the third quarter of 2023, and the cost income ratio amounted to 38.7 per cent compared with 36.2 per cent for the third quarter of 2023. 

Earnings per equity certificate were NOK 2.66 (NOK 2.42) for the Group and NOK 2.21 (NOK 2.25) for the parent bank. 

Net interest income 
Net interest income was NOK 523 million for the quarter, which is NOK 36 million, or 7.4 per cent, higher than in the corresponding quarter of last year. This represents 2.08 per cent of total assets, which is 0.03 percentage points higher than for the corresponding quarter last year.

The interest rate margin for deposits in both the retail market and corporate market contracted compared with the third quarter of 2023, while the lending margin was stable compared with the same period in 2023.

Other income
Other income was NOK 103 million in the quarter, which is NOK 15 million higher than in the third quarter of last year. The net result from financial instruments was NOK 23 million for the quarter, which is on a par with the third quarter of 2023. Capital losses from bond holdings amounted to NOK 1 million in the quarter, compared with capital gains of NOK 15 million in the corresponding quarter last year. Capital losses from equities amounted to NOK 2 million, compared with NOK 0 million in the third quarter of 2023. The change in value for fixed-rate lending amounted to NOK 3 million, compared with a negative change in value of NOK 2 million in the same quarter last year. Income from foreign exchange and interest rate business for customers amounted to NOK 17 million in the quarter, NOK 6 million higher than in the same quarter last year. 

Other income excluding financial instruments increased by NOK 15 million compared with the third quarter of 2023. The increase was mainly attributable to income from Discretionary Portfolio management, real estate agency activities and sundry other income.

Expenses 
Operating expenses amounted to NOK 243 million for the quarter, which is NOK 35 million higher than for the same quarter last year. Personnel expenses are NOK 13 million higher than in the same period last year and totalled NOK 133 million. Other operating expenses have increased by NOK 22 million from the same period last year. 

Provisions for expected credit losses and credit-impaired commitments 
Losses on loans and guarantees amounted to NOK 17 million in the quarter (NOK 34 million), corresponding to 0.07 per cent of average assets (0.14 per cent of average assets). The corporate segment saw a charge for losses of NOK 16 million in the quarter, while NOK 1 million in losses were charged in the retail segment.

At the end of the third quarter of 2024, provisions for expected credit losses totalled NOK 250 million, equivalent to 0.28 per cent of gross loans and guarantee commitments (NOK 396 million and 0.49 per cent).  Of the total provision for expected credit losses, NOK 34 million relates to credit-impaired commitments more than 90 days past due (NOK 21 million), which represents 0.04 per cent of gross loans and guarantee commitments (0.03 per cent), while NOK 74 million relates to other credit-impaired commitments (NOK 205 million), corresponding to 0.08 per cent of gross loans and guarantee commitments (0.25 per cent). 

Net credit-impaired commitments (commitments more than 90 days past due and other credit-impaired commitments) have decreased by NOK 247 million in the past 12 months. At end of the third quarter of 2024, the corporate market accounted for NOK 215 million of net credit-impaired commitments and the retail market NOK 143 million. In total, this represents 0.41 per cent of gross loans and guarantee commitments (0.74 per cent). 

Lending to customers
At the end of the third quarter of 2024, lending to customers amounted to NOK 86,272 million (NOK 79,739 million). In the past 12 months, customer lending has increased by a total of NOK 6,533 million, equivalent to 8.2 per cent. Retail lending has increased by 7.0 per cent and corporate lending has increased by 9.9 per cent in the past 12 months. Retail lending accounted for 65.9 per cent of total lending at the end of the quarter (66.5 per cent).

Customer deposits 
Customer deposits have increased by NOK 2,550 million, or 5.5 per cent, in the past 12 months. At the end of the third quarter of 2024, deposits amounted to NOK 49,203 million (NOK 46,653 million). Retail deposits have increased by 6.3 per cent in the past 12 months, while corporate deposits and public sector deposits have increased by 4.2 per cent. The retail market’s relative share of deposits amounted to 61.5 per cent (61.1 per cent), while deposits from the corporate market accounted for 38.5 per cent (38.9 per cent). 


LIQUIDITY AND FUNDING
Sparebanken Møre’s liquidity and funding are managed based on frameworks for its Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) and deposit-to-loan ratio. The minimum LCR and NSFR requirements are both 100 per cent. The Group has established minimum internal targets that exceed the regulatory requirements for LCR and NSFR as well as an internal target corridor for its deposit-to-loan ratio.

Sparebanken Møre’s LCR was 165 (176) for the Group and 165 (162) for the parent bank at the end of the quarter.

The NSFR ended at 121 (123) at the end of the third quarter of 2024 (consolidated figure), while the bank’s and Møre Boligkreditt AS’s NSFR ended at 126 (123) and 105 (112), respectively.

Both LCR and NSFR meet both external and internal requirements by good margin.

Deposits from customers represent the bank’s main source of funding. The deposit-to-loan ratio was 56.9 per cent (58.2 per cent) at the end of the third quarter, and this is within the established target corridor.

Total net market funding amounted to NOK 43.2 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 1.99 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 3.38 years – overall for market funding in the Group (inclusive of T2 and T3) the remaining term to maturity is 3.18 years.

Møre Boligkreditt AS issues bonds based on the transfer of loans from the parent bank. Gross retail lending transferred to Møre Boligkreditt AS amounted to NOK 35,949 million at the end of the quarter, which corresponds to 41.6 per cent of the bank’s total lending.

RATING
In a Credit Opinion published on 9 January 2024, the rating agency Moody's confirmed Sparebanken Møre’s counterparty, deposit and issuer ratings as A1 with a stable outlook. Møre Boligkreditt has the same issuer rating as the parent bank, while the mortgage credit company’s issuances are rated Aaa.

CAPITAL ADEQUACY 
On 21 December 2021, Sparebanken Møre applied to the Financial Supervisory Authority (FSA) to make changes to the bank’s IRB models and calibration framework. The interim report for the second quarter of 2023, published on 10 August 2023, stated that a letter from the FSA, dated 22 June 2023, granted Sparebanken Møre permission to adopt changed IRB models for the corporate portfolio. In a letter dated 18 January 2024, the FSA rejected the bank’s application to make changes to the retail market model.

The changes to the model for the corporate portfolio were incorporated in the second half of 2023 and the estimated effect on Common Equity Tier 1 (CET1) capital was an increase of about 0.5 percentage points. At the end of the fourth quarter of 2023, the effect was 0.7 percentage points. After using the new calibration framework up to the end of the second quarter of 2024, the effect of the change proved to be a higher increase in CET1 capital than first assumed and higher than what was stated at the end of the fourth quarter of 2023. Based on the actual figures so far this year, the bank has concluded changes to the calibration to better reflect the portfolio’s development. The changes to the calibration entail a reduction in CET1 capital ratio and are implemented with effect from the end of the third quarter of 2024.

On 16 August 2024, the FSA approved Sparebanken Møre’s application to acquire equity certificates. Authorisation was granted on the condition that the buybacks do not reduce the CET1 capital by more than NOK 78.4 million. Sparebanken Møre will deduct NOK 78.4 million from CET1 capital between the date authorisation was granted until the authorisation expires on 31 December 2024.

At the end of the third quarter of 2024, the CET1 capital ratio was 17.3 per cent (18.1 per cent), including 50 per cent of the result for the year to date. This is 1.15 percentage points higher than the total minimum requirement and the FSA’s expected capital adequacy margin (P2G) totalling 16.15 per cent. The capital adequacy ratio, including 50 per cent of the result for the year to date, was 21.3 per cent (22.5 per cent) and the Tier 1 capital ratio was 19.2 per cent (19.9 per cent).

Sparebanken Møre’s total CET1 capital ratio requirement is 16.15 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 4.5 per cent and a countercyclical buffer of 2.5 per cent. The FSA conducted a SREP in 2023. The individual Pillar 2 requirement for Sparebanken Møre has been set at 1.6 per cent, and the expected capital adequacy margin has been set at 1.25 per cent. At least 56.25 per cent of the Pillar 2 requirement that resulted from the aforementioned SREP must be met with CET1 capital (0.9 per cent) and a minimum of 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at the end of the third quarter of 2024 was 7.3 per cent (7.5 per cent). The regulatory minimum requirement (3 per cent) was met by a good margin. 

MREL
On 1 January 2024, the FSA set Sparebanken Møre’s effective MREL requirement at 35.7 per cent of the risk-weighted assets at any given time. The minimum subordination requirement was set at 28.7 per cent. At the end of the quarter, Sparebanken Møre’s actual MREL level was 39.3 per cent, while the level of subordination was 32.0 per cent of the risk-weighted assets.

Sparebanken Møre had issued NOK 3,750 million in subordinated bond debt at the end of third quarter of 2024.

SUBSIDIARIES 
The aggregate profit of the bank's subsidiaries amounted to NOK 133 million after tax after the first three quarters of 2024 (NOK 109 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 2024, the company had nominal outstanding covered bonds of NOK 34.1 billion in the market. Around 40 per cent was issued in a currency other than NOK. At the end of the quarter, the parent bank held NOK 1,188 million in bonds issued by the company. Møre Boligkreditt AS has contributed NOK 130 million to the Group’s result so far in 2024 (NOK 106 million).

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company has made a profit contribution of NOK 0.6 million so far in 2024 (NOK 1.3 million). At the end of the quarter, the company employed 24 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 2.7 million so far in 2024 (NOK 2 million). The companies have no staff. 

EQUITY CERTIFICATES
At the end of the third quarter of 2024, there were 7,113 holders of Sparebanken Møre's equity certificates. The proportion of equity certificates owned by foreign nationals and enterprises amounted to 5.9 per cent at the end of the third quarter of 2024. 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 the end of the third quarter of 2024, the bank owned 171,658 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.

At the beginning of July, the bank received provisional notice of instructions from the FSA concerning our current accounting practice of recording unpaid gifts for non-profit purposes as other liabilities in the bank’s accounts. Sparebanken Møre disagrees with the FSA’s assessment and responded to the authority by the set deadline of 26 August with a review and assessment of the factual and legal basis for the warned of instructions. Please also see our stock exchange notification dated 5 July 2024.

FUTURE PROSPECTS 
In Western countries, inflation rates continued to fall throughout the summer and autumn. At the same time, there are signs that economic activity is slowing down in a number of countries. Weak economic data from the US has periodically triggered significant, albeit short-term, fluctuations in equity markets.

At the same time, the geopolitical situation in the Middle East remains precarious, and lately the risk of a significant escalation has increased further. This is creating uncertainty about how commodity prices will develop going forward, although so far the impact has been limited.

Overall, the developments over the last few months have given market players cause to believe that interest rates in Western countries will be reduced faster than assumed before the summer. At the same time, expectations concerning policy rates fluctuate widely from week to week and month to month.

Several of the central banks in our neighbouring countries have already started to reduce their policy rates. Sweden has cut interest rates three times since May, while the European Central Bank delivered its second interest rate cut in September. The US Federal Reserve Bank, considered to be among the most influential, has started down the path of reducing interest rates from the tighter level we have seen for a while. Our neighbours are expected to cut their rates further in the coming months.

Expectations concerning Norwegian interest rates have also been influenced by international developments. While before the summer, market rates indicated that three interest rate cuts could be expected by the end of next year, this figure has now increased to between five and six. Meanwhile, Norges Bank is sticking to its message that there are likely to be three to four interest rate cuts next year, largely due to a persistently weak Norwegian krone exchange rate.

The discrepancy between market interest rates and Norges Bank’s interest rate path, and fixed interest rates that are well below the floating interest rate, has helped to increase both corporate and household demand for fixed-rate agreements. This is contributing to greater financial predictability in what is a demanding time for many.

While the prospects for growth in the Norwegian economy remain subdued, the weak Norwegian krone is helping to support the level of activity in high export regions such as Møre og Romsdal. There are prospects that the level of activity will remain high and unemployment low also in the period ahead.

The rate of growth in lending to households and non-financial companies for Norway as a whole continued to edge upwards throughout the third quarter of the year. The trend of declining growth in household debt over the past 2 years ended in March; the 12-month growth rate has increased each month since April and was 3.5 per cent at the end of August.  The total 12-month growth in lending was 3.8 per cent. The growth in total lending is now close to the level seen at the start of the year. This is due, not least, to the fact that the municipalities’ growth in debt has increased markedly.

Sparebanken Møre’s overall lending growth has remained good and is still markedly above the market growth rate. The 12-month growth rate was 8.2 per cent at the end of the quarter, which is higher than the level at the end of 2023 of 7.2 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 9.9 per cent. Deposits have increased by 5.5 per cent in the past 12 months and the deposit-to-loan ratio remains 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 long-term strategic financial performance targets are a return on equity of above 12 per cent and a cost income ratio of under 40. The bank's return on equity for the first three quarters of this year was 14.0 per cent, while its cost income ratio was 39.7. The Board's expectation for 2024 is that the return on equity will remain good also in the fourth quarter.

Ålesund, 30 September 2024
23 October 2024

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