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 FOR Q4 2018
The profit after loss in the fourth quarter of 2018 amounted to NOK 201 million, or 1.15 per cent of average total assets, compared to NOK 205 million, or 1.24 per cent, for the corresponding quarter last year.
The profit after tax for the fourth quarter of 2018 amounted to NOK 141 million, or 0.81 per cent of average total assets, compared to NOK 157 million, or 0.95 per cent, for the corresponding quarter last year.
The return on equity in the fourth quarter of 2018 was 9.7 per cent, compared to 11.5 per cent for the fourth quarter of 2017.
Earnings per equity certificate amounted to NOK 7.00 (NOK 7.70) for the Group and NOK 5.00 (NOK 4.80) for the Parent Bank.
Net interest income
The net interest income of NOK 309 million was NOK 19 million higher than in the corresponding quarter of last year. This represents 1.76 per cent of total assets, the same as in the fourth quarter of 2017.
A higher lending volume combined with increased contribution from deposits as well as the Bank’s high CET1 level resulted in higher net interest income in Norwegian kroner compared to the same quarter last year. Strong competition on both lending and deposits and reduced risk have contributed to pressure on the net interest margin.
Other operating income
Other operating income amounted to NOK 56 million, which is NOK 2 million lower than in the fourth quarter of last year. The changes in value in the bond portfolio and equities constitute capital losses of NOK 14 million in the quarter, compared to capital losses of NOK 1 million in the fourth quarter of 2017. Other operating income apart from financial instruments was on a par with the fourth quarter of 2017.
Operating costs in the quarter amounted to NOK 152 million, which is NOK 8 million higher than in the same quarter last year. Personnel costs were NOK 4 million higher than in the corresponding period last year and amounted to NOK 86 million. Staffing has increased by two full-time equivalents in the last 12 months to 361 full-time equivalents. Other operating costs increased by NOK 4 million from the same period last year.
The cost income ratio was 41.6 per cent in the fourth quarter of 2018, which represents a reduction of 0.1 percentage points compared to the fourth quarter last year.
NOK 12 million was recognised as losses on loans and guarantees in the quarter. This amounts to 0.07 per cent of average total assets on an annualised basis. The corresponding figure for the fourth quarter of 2017 was reversals of NOK 1 million kroner (-0.01 per cent). Losses in the corporate segment increased by NOK 6 million in the quarter, and losses totalling NOK 6 million were recognised in the retail segment.
Lending and deposit Growth
In relation to the end of the third quarter of 2018, total assets grew by 1.7 per cent to NOK 71,074 million. Lending has increased by 1.2 per cent to NOK 60,346 million and deposits from customers has been reduced by 0.8 per cent to NOK 34,414 million. For further comments concerning volume trends in the last 12 months, please see the comments for the full year 2018.
PRELIMINARY FINANCIAL STATEMENTS FOR 2018
The profit before loss on loans and guarantees amounted to NOK 824 million, or 1.19 per cent of average total assets, compared to NOK 752 million, or 1.18 per cent, for 2017.
The profit before tax amounted to NOK 808 million, or 1.17 per cent of average total assets, compared to NOK 739 million, or 1.16 per cent, for 2017.
The profit after tax amounted to NOK 605 million, or 0.88 per cent of average total assets, compared to NOK 557 million and 0.88 per cent in 2017.
Earnings per equity certificate in 2018 amounted to NOK 29.80 (NOK 27.70) for the Group and NOK 28.35 (27.00) for the Parent Bank.
Net interest Income
Net interest income ended at NOK 1,179 million (1,100 million) or 1.70 per cent (1.72 per cent) of average total assets. Net interest income accounted for 82.6 per cent of total income in 2018.
A higher lending volume combined with increased contribution from deposits as well as the Bank’s high CET1 level resulted in higher net interest income in Norwegian kroner compared to last year. Strong competition in both lending and deposits and reduced risk have contributed to pressure on the net interest margin.
Other operating income
Other operating income amounted to NOK 248 million (0.36 per cent of average total assets) in 2018. This is an increase of NOK 6 million compared to 2017.
The value of the bond portfolio was reduced by NOK 19 million in 2018, compared to a gain of NOK 23 million in 2017.
Capital gains from equities totalled NOK 10 million in 2018, compared to capital losses of NOK 10 million in 2017.
Total costs amounted to NOK 603 million, which is NOK 13 million higher than in 2017. Personnel costs increased by NOK 5 million compared to 2017 and amounted to NOK 340 million. Financial activity tax in the form of higher employers’ National Insurance contributions amounted to NOK 14 million in 2018, the same as in 2017. Staffing has increased by two full-time equivalents in the last 12 months to 361 full-time equivalents. Other operating costs were NOK 8 million higher than in 2017.
The cost income ratio was 42.3 per cent in 2018. This represents a decrease of 1.7 percentage points compared to 2017. In the strategic plan for 2019-2022, the Board has decided to change the Group’s maximum target for the cost income ratio from 45 per cent to 40 per cent.
In 2018, NOK 16 million (NOK 13 million) in losses on loans and guarantees was recognised in the income statement. This represents 0.02 per cent (0.02 per cent) of average total assets.
At the end of 2018, total expected losses amounted to NOK 338 million, equivalent to 0.55 per cent of loans and guarantees (NOK 336 million and 0.57 per cent). Of the individually assessed commitments, NOK 11 million of the impairments were related to commitments in default for more than 90 days (NOK 4 million), which amounts to 0.02 per cent of loans and guarantees (0.01 per cent). NOK 327 million relates to other commitments (NOK 332 million), equivalent to 0.53 per cent of gross loans and guarantees (0.56 per cent).
Net impaired commitments (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 in the last 12 months decreased by NOK 47 million. By the end of 2018, the corporate market accounted for NOK 220 million of the net impaired commitments and the retail market NOK 63 million. In total this represents 0.46 per cent of gross loans and guarantees (0.40 per cent).
Lending to customers
At year-end 2018, lending to customers amounted to NOK 60,346 million (NOK 56,867 million). Customer lending has increased by a total of NOK 3,479 million, or 6.1 per cent, over the last 12 months. Retail lending has increased by 5.3 per cent, while lending to corporate customers has increased by 8.4 per cent in the last 12 months. Retail lending accounted for 69.2 per cent of the lending by the end of 2018 (70.0 per cent).
Deposits from customers
Customer deposits have increased by 4.9 per cent over the last 12 months. At year-end 2018, deposits amounted to NOK 34,414 million (NOK 32,803 million). Retail deposits have increased by 4.8 per cent in the last 12 months, while corporate deposits have increased by 5.1 per cent, and public sector deposits have increased by 7.9 per cent. The retail market’s relative share of deposits amounted to 59.9 per cent (60.0 per cent), while deposits from corporate customers accounted for 37.9 per cent (37.8 per cent) and from public sector customers 2.2 per cent (2.2 per cent).
The deposit-to-loan ratio was 57.0 per cent by the end of 2018 (57.7 per cent).
At the end of 2018, the Group’s capital adequacy was above the regulatory capital requirements and the internally set minimum target for CET1 capital. The primary capital ratio amounts to 19.6 per cent (18.4 per cent), the Tier 1 capital ratio 17.6 per cent (16.8 per cent), and the CET1 ratio was 16.0 per cent (15.0 per cent).
Sparebanken Møre has a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 37 million at the end of 2018, corresponding to a basis for calculation of NOK 460 million.
The aggregate profit of the Bank’s three subsidiaries amounted to NOK 177 million after tax in 2018 (NOK 166 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 2018, the company had net outstanding bonds of NOK 22.4 billion in the market. About 25 per cent of the borrowing was in a currency other than NOK. The company contributed NOK 174 million to the result in 2018 (NOK 165 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK 1 million to the result in 2018 (NOK 0 million in 2017). At year end, the company employed 13 full-time equivalents.
Sparebankeiendom AS’s purpose is to own and manage the Bank’s commercial properties. The company contributed NOK 2 million to the result in 2018 (NOK 1 million in 2017). The company has no employees.
At year-end 2018, there were 5,402 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 10 includes a list of the 20 largest holders of the Bank’s equity certificates.
As at 31 December 2018, the Bank owned 28,183 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 which provide 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 per cent 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 52 per cent 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 per cent of the profit will be allocated to equity certificate holders and 50.4 per cent to the primary capital fund. Earnings per equity certificate in the Group amounted to NOK 29.80 in 2018. The recommendation to the General Meeting is that the cash dividend per equity certificate for the 2018 financial year should be set at NOK 15.50.
|Proposed allocation of profit (figures in NOK million):|
|Profit for the year||605|
|Allocated to holders of Additional Tier 1 capital||11|
|Dividend funds (50.6 %):|
|To cash dividends||153|
|Dividends to the local community||156||309|
|Retained earnings (49.4 %):|
|To the dividend equalisation fund||127|
|To the primary capital fund||129|
|To other funds||29||285|
Production and demand remain high in the county. This is due to low interest rates, a weak NOK, high activity levels in the public sector and continued growth in our export markets. In addition to this, there has been an upturn in important oil-related industries. The level of activity in the housing market is also satisfactory. Nevertheless, the uncertainty has increased somewhat due to unease in the financial markets and the prospects of lower growth in the global economy than previously anticipated.
The upturn in the level of activity, together with significant restructuring in the labour market in recent years, has resulted in low unemployment. At the end of December, registered unemployment in Møre og Romsdal was 2.3 per cent according to the Norwegian Labour and Welfare Administration (NAV), the same as the national unemployment rate. Given the prospect of moderate production growth in the county, unemployment will probably stabilise at today’s level over the year.
Credit growth in Norway, both in households and the corporate sector, slowed throughout 2018 and the annual percentage growth figure at year-end 2018 was around 1.0 percentage point lower than at year-end 2017.
Competition in the market remains strong, both for lending and deposits. The Bank is competitive and recorded a good, but somewhat lower, growth rate in lending to the retail market. An increase in the growth rate for lending to the corporate market was registered in the last quarter. Deposit growth in the retail market is good and the deposit-to-loan ratio is high, especially in the corporate market. Lending growth within both the retail market and the corporate market in 2019 is expected to be on a par with the growth rate in 2018. This implies growth on a par with or above market growth. 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’s target for cost-effective operations for the strategy period 2019-2022 is a cost income ratio target of less than 40 per cent.
Sparebanken Møre’s losses are expected to be low also in 2019. Overall, a good result is expected for 2019. The Bank’s strategic target is that a return on equity above 11 per cent will be achieved in the strategy period 2019-2022.
Ålesund, 31 December 2018
23 January 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