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 accordance with IAS 34 ‘Interim Financial Reporting’.
RESULTS FOR Q4 2017
The profit after tax for the fourth quarter of 2017 amounted to NOK 157 million, or 0.95 % of average total assets, compared to NOK 113 million, or 0.75 %, for the corresponding quarter of last year.
The return on equity in the fourth quarter of 2017 was 11.5 %, compared to 8.8 % for the corresponding quarter of 2016.
The earnings per equity certificate amounted to NOK 7.70 (NOK 5.60) for the Group and NOK 4.80 (NOK 4.15) for the Parent Bank.
Net interest income
The net interest income of NOK 290 million was NOK 17 million higher than in the corresponding quarter of last year. This represents 1.76 % of total assets, which is 0.03 percentage points lower than in the fourth quarter of 2016.
The general low level of interest rates in the market, combined with strong competition on both loans and deposits, is influencing the development of net interest income. Lower volumes together with reduced margins due to the reduced risk in the maritime sector have also resulted in lower net interest income compared with last year. A higher lending volume resulted in higher net interest income in NOK.
Other operating income
Other operating income amounted to NOK 58 million, which is NOK 13 million higher than in the fourth quarter of last year. Capital gains from the bond Portfolio amounted to NOK 1 million in the quarter, compared to a loss of NOK 4 million in the fourth quarter of 2016.
Operating costs in the quarter amounted to NOK 144 million, which is NOK 1 million higher than in the same quarter last year. Personnel costs decreased by NOK 3 million compared to the corresponding period last year and amounted to NOK 82 million. Financial activity tax in the form of higher employers’ National Insurance contributions amounted to NOK 3 million for the quarter. Staffing has been reduced by 19 full-time equivalents in the last 12 months, to 359 full-time equivalents. Other costs were NOK 7 million higher than at the same time last year.
The cost income ratio equalled 41.7 % in the fourth quarter of 2017, which represents a reduction of 3.4 percentage points compared to the fourth quarter last year.
Reversals on losses and guarantees of NOK 1 million were posted during the quarter. This amounts to 0.01 % of average total assets on an annualised basis. The corresponding figure for the fourth quarter of 2016 was NOK 22 million (0.14 %). Collective impairments decreased by NOK 11 million in the quarter; losses of NOK 7 million were posted in the retail segment and losses on loans and guarantees amounting to NOK 3 million were recognised in the corporate segment in the fourth quarter.
Lending and deposit growth
Total assets grew by 0.5 % during the fourth quarter of 2017 to NOK 66 491 million. Lending increased by 0.7 % to NOK 56 867 million and deposits from customers fell by 0.8 % to NOK 32 803 million. For further notes on volume trends in the last 12 months, please see the comments for the full year 2017.
PRELIMINARY FINANCIAL STATEMENTS FOR 2017
The profit before losses on loans and guarantees amounted to NOK 752 million, or 1.18 % of average total assets, compared to NOK 777 million, or 1.28 % for 2016.
The profit before tax amounted to NOK 739 million, or 1.16 % of average total assets, compared to NOK 755 million, or 1.24 % for 2016.
The profit after tax amounted to NOK 557 million, or 0.88 % of average total assets, compared to NOK 574 million and 0.94 % in 2016.
Earnings per equity certificate in 2017 amounted to NOK 27.70 (NOK 28.80) for the Group and NOK 27.50 (NOK 29.85) for the Parent Bank.
Net interest income
Net interest income ended at NOK 1 100 million (1 082 million); as a proportion of average total assets, this amounted to 1.72 % (1.79 %). Net interest income accounted for 82.0 % of total income in 2017.
The generally low level of interest rates in the market, combined with strong competition on both loans and deposits, is influencing the development of net interest income. Lower volumes together with reduced margins due to the reduced risk in the maritime sector have also resulted in lower net interest income compared with last year. A higher lending volume resulted in higher net interest income in NOK.
Other operating income
Other operating income amounted to NOK 242 million (0.38 % of average total assets) in 2017. This is a decrease of NOK 39 million compared to 2016.
Capital gains from the bond Portfolio amounted to NOK 23 million in 2017, the same as in 2016.
Capital losses on shares recognised through profit and loss amount to NOK 10 million in 2017, compared to a capital gain of NOK 41 million in 2016. The proceeds from the VISA transaction amounted to NOK 45 million in 2016.
Total costs were NOK 590 million, NOK 4 million higher than in 2016. Personnel costs are unchanged compared to 2016, at NOK 335 million. The financial activity tax in the form of higher employers’ National Insurance contributions amounted to NOK 14 million in 2017. Staffing has been reduced by 19 full-time equivalents in the last 12 months, to 359 full-time equivalents. Other operating costs were NOK 4 million higher than in 2016.
The cost income ratio for 2017 was 44.0 %, which represents an increase of 1.0 percentage points compared to 2016.
In 2017, the income statement was charged with NOK 13 million (NOK 22 million) in losses on loans and guarantees. This represents 0.02 % (0.04 %) of average total assets. The losses on loans and guarantees were due to a NOK 45 million reduction in collective impairments, a NOK 59 million increase in the corporate segment, and a NOK 1 million decrease in the retail segment.
At the end of 2017, total impairments amounted to NOK 336 million, equivalent to 0.57 % of lending and guarantees (NOK 360 million and 0.66 %). NOK 4 million of the individual impairments involved commitments in default for more than 90 days (NOK 15 million), which represents 0.01 % of lending and guarantees (0.03 %). NOK 96 million of individual impairments relate to other commitments (NOK 64 million), which is equivalent to 0.16 % of gross lending and guarantees (0.12 %). Collective impairments for losses amounted to NOK 236 million (NOK 281 million) or 0.40 % of gross lending and guarantees (0.51 %).
Net problem loans (loans that have been in default for more than 90 days and loans that are not in default but which have been subject to an individual impairment) have decreased by NOK 296 million in the last 12 months. At the end of 2017, corporate customers accounted for NOK 181 million of net problem loans, and the retail market NOK 55 million. In total this represents 0.40 % of gross lending and guarantees (0.98 %).
Lending to customers
At year-end 2017, lending to customers amounted to NOK 56 867 million (NOK 52 691 million). Customer lending has increased by a total of NOK 4 176 million, or 7.9 %, in the last 12 months. Retail lending has increased by 7.2 %, while lending to corporate customers has increased by 9.1 % in the last 12 months. Lending to corporate customers decreased by 1.2 % in the fourth quarter of 2017, while lending to retail customers rose by 1.5 %. Retail lending accounted for 70.0 % of lending at the end of 2017 (70.2 %).
Deposits from customers
Customer deposits have increased by 0.7 % in the last 12 months. At year-end 2017, deposits amounted to NOK 32 803 million (NOK 32 562 million). Retail deposits have increased by 5.4 % in the last 12 months, while corporate deposits have decreased by 3.1 % and public sector deposits have decreased by 33.3 %. The retail market’s relative share of deposits amounted to 60.0 % (57.4 %), while deposits from corporate customers totalled 37.8 % (39.2 %) and from public sector 2.2 % (3.4 %).
The deposit to loan ratio amounted to 57.7 % at the end of 2017(61.8 %).
The Group’s capital adequacy at the end of 2017 was above the regulatory capital requirements and the internally set minimum target for Core Tier 1 capital. Primary capital amounted to 18.4 % (18.6 %), Core capital 16.8 % (17.0 %), and Core Tier 1 Capital ended at 15.0 % (14.6 %).
Sparebanken Møre was subject to a capital requirement linked to the transitional scheme for the Basel I floor amounting to NOK 135 million at the end of 2017, which corresponds to a basis for calculation of NOK 1 688 million.
The total profit of the Bank’s three subsidiaries amounted to NOK 166 million after tax in 2017 (NOK 153 million).
Møre Boligkreditt AS was established as part of the Group’s long-term funding strategy. The company’s main purpose is to issue covered bonds for sale to Norwegian and international investors. At the end of 2017, the company had net outstanding bonds of NOK 18.4 billion in the market. About 16 % of the borrowing was in a currency other than NOK. The company has contributed NOK 165 million to the result in 2017 (NOK 156 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company made no contribution to the overall result in 2017 (NOK -2 million in 2016). At year end, the company employed 13 full-time equivalents.
The purpose of Sparebankeiendom AS is to own and manage the Bank’s business properties. The company contributed NOK 1 million to the result in 2017. The company has no employees.
At year-end 2017, there were 5 698 holders of Sparebanken Møre’s equity certificates. 9 886 954 equity certificates have been issued. Equity certificates and related capital accounts for 49.6 % of the Bank’s total equity. Note 10 contains an overview of the 20 largest holders of the Bank's equity certificates.
As at 31 December 2017, the Bank owned 44 215 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.
The aim of Sparebanken Møre is to achieve financial results providing a good and stable return on the Bank’s equity. The results shall ensure that the owners of the equity receive a competitive long-term return in the form of cash dividends and capital appreciation on their equity.
Dividends consist of cash dividends for equity certificate holders and dividends to the local community. The proportion of profits allocated to dividends is adapted to the Bank’s capital strength. Unless the capital strength dictates otherwise, it will be aimed at distributing about 50 % of the profit.
Sparebanken Møre’s allocation of earnings shall ensure that all equity owners are guaranteed equal treatment.
PROPOSED ALLOCATION OF PROFIT FOR THE YEAR
In line with the rules for equity certificates etc., and in accordance with Sparebanken Møre’s dividend policy, it is proposed that 50.6 % of the Group’s profit should be allocated to cash dividends and dividends to the local community. Based on the accounting breakdown of equity between equity certificate capital and the primary capital fund, 49.6 % of the profit will be allocated to equity certificate holders and 50.4 % to the primary capital fund. Earnings per equity certificate amounted to NOK 27.70 in 2017. The recommendation to the General Meeting is that the cash dividend per equity certificate for the 2017 financial year should be set at NOK 14.00.
Proposed allocation of profit (figures in NOK millions):
Profit for the year
Allocated to holders of Additional Tier 1 capital
Dividend funds (50.6 %):
To cash dividends
Dividends to the local community
Retained earnings (49.4 %):
To the dividend equalisation fund
To the primary capital fund
To other funds
EFFECT OF TRANSITION TO IFRS 9
The Group’s equity will at 01.01.2018 be charged with NOK 5 million after tax as a consequence of increased impairments due to the implementation of IFRS 9. The implementation of IFRS 9 will have no effect on the Group’s primary capital, as expected loss according to the capital adequacy requirements already exceeds the expected losses according to IFRS 9. Sparebanken Møre will therefore have no need to apply the transitional rule.
See note 1 for further information.
The economic outlook for Møre og Romsdal looks good at the beginning of 2018. Production is high in most sectors, the decline in oil-related industries is about to turn, and there is a high level of activity in the public sector. Higher oil prices, low interest rates, a weak Norwegian krone and good export market growth are major factors behind this. Housing prices have continued to fall, however, and there is uncertainty regarding future price trends.
The upturn in production and demand within non-oil-related industries, along with significant restructurings in the labour market, have resulted in a decrease in unemployment. The average unemployment in the county is at its lowest since the spring of 2015. At the end of December, registered unemployment in Møre og Romsdal was 2.4 % according to the Norwegian Labour and Welfare Administration (NAV). This is equal to the nationwide rate.
Figures for the whole country show that lending growth to households was relatively stable through 2017, while the growth rate in loans to the corporate sector was increasing. The rate of growth in deposits has also been increasing in the last months of 2017.
We are still experiencing strong competition in the market, both for lending and deposits. The Bank is competitive and has recorded good, but slightly declining, lending growth both in the retail market and in the corporate market through 2017. Deposit growth in the retail market is good and deposit coverage is high. It is expected that lending growth within both the retail and corporate markets will be slightly lower in 2018 compared to the growth rate at the end of 2017. There is a constant focus on effective operations and increased profitability.
The Bank will remain strong and committed in supporting businesses and industries in our region, Nordvestlandet.
Sparebanken Møre is targeting cost-effective operations, with a cost income ratio target of less than 45 % 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 %.
Ålesund, 31 December 2017
24 January 2018
THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE
LEIF-ARNE LANGØY, Chairman
ROY REITE, Deputy Chairman
RAGNA BRENNE BJERKESET
ELISABETH MARÅK STØLE
ANN MAGRITT BJÅSTAD VIKEBAKK
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE
TROND LARS NYDAL, CEO