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 2021
Profit before losses was NOK 206 million for the fourth quarter of 2021, or 1.00 per cent of average total assets, compared with NOK 229 million, or 1.17 per cent, for the corresponding quarter last year.
Profit after tax was NOK 153 million for the fourth quarter of 2021, or 0.74 per cent of average total assets, compared with NOK 147 million, or 0.75 per cent, for the corresponding quarter last year.
Return on equity was 9.0 per cent for the fourth quarter of 2021, compared with 9.1 per cent for the fourth quarter of 2020, and the cost income ratio amounted to 45.7 per cent compared with 40.2 per cent for the fourth quarter of 2020.
Earnings per equity certificate were NOK 7.00 (NOK 7.10) for the Group and NOK 5.00 (NOK 3.88) for the parent bank.
Net interest income
Net interest income was NOK 335 million, which is NOK 21 million, or 6.7 per cent, higher than in the corresponding quarter of last year. This represents 1.62 per cent of average total assets, which is 0.03 percentage points higher than for the fourth quarter of 2020.
In the retail market, the interest margin for lending contracted and the deposit margin increased compared with the third quarter of 2021. In the corporate market, the interest margin for lending was stable, while the interest margin for deposits increased compared with the third quarter 2021.
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 income was NOK 45 million in the quarter, which is NOK 26 million lower than in the fourth quarter of last year. The net result from total financial instruments of NOK -16 million was NOK 34 million lower than in the fourth quarter of 2020. Capital losses from bond holdings amounted to NOK 23 million in the quarter, compared with capital gains of NOK 2 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 7 million, compared with capital losses of NOK 10 million in the fourth quarter of 2020. The negative change in value for fixed-rate lending amounted NOK 6 million, compared with a positive change in value of NOK 4 million in the same quarter last year. The value of issued bonds decreased by NOK 6 million, compared with a decrease of NOK 1 million in the fourth quarter of 2020. Income from currency and interest rate trading decreased by NOK 2 million compared with the same period last year.
Other income, excluding financial instruments, increased by NOK 8 million compared with the fourth quarter of 2020. The increase was mainly attributable to insurance sales, income from discretionary asset management and money-transfer services.
Operating costs were NOK 174 million in the quarter, which is NOK 18 million higher than in the same quarter last year. Personnel costs were NOK 15 million higher than in the corresponding period last year and amounted to NOK 97 million. Other operating costs have increased by NOK 3 million from the same period last year.
Provisions for expected losses and credit-impaired commitments
The quarterly accounts were charged NOK 5 million (NOK 35 million) in losses on loans and guarantees. This amounts to 0.03 per cent (0.18 per cent) of average total assets on an annualised basis. Losses in the corporate segment increased by NOK 1 million in the quarter, while losses in the retail segment increased by NOK 4 million.
Lending and deposit growth
Total assets decreased to NOK 82,797 million, a 1.7 per cent change compared with the end of the third quarter of 2021. Lending increased by 0.7 per cent to NOK 69,925 million and deposits from customers rose by 2.6 per cent to NOK 41,853 million. Lending to corporate customers increased by 0.1 per cent in the fourth quarter of 2021, while lending to retail customers rose by 1.0 per cent. For further comments concerning volume trends in the past 12 months, please see the comments for the full year 2021.
PRELIMINARY FINANCIAL STATEMENTS FOR 2021
Sparebanken Møre’s profit before losses was NOK 882 million, or 1.08 per cent of average total assets, compared with NOK 883 million, or 1.13 per cent, for 2020.
Profit after tax was NOK 642 million, or 0.78 per cent of average total assets, compared with NOK 567 million, or 0.73 per cent, for 2020. The results for 2021 represent a return on equity of 9.5 per cent, compared with 8.6 per cent for 2020.
Earnings per equity certificate in 2021 were NOK 31.10 (NOK 27.10) for the Group, and NOK 30.98 (26.83) for the parent bank.
Net interest income
Net interest income totalled NOK 1,266 million (NOK 1,227 million) or 1.56 per cent (1.57 per cent) of average total assets. Net interest income accounted for 82.9 per cent of total income in 2021 (81.4 per cent).
In the retail market, the lending margin decreased while the deposit margin increased compared with 2020. In the corporate market, the interest margin for lending was on a par with 2020, while the interest margin for deposits increased slightly.
Lower interest rates in 2021 reduced funding costs, while also significantly reducing the net interest contribution from the bank’s equity. Interest rates have risen since the second quarter of 2021 and the rates for both lending and deposits were adjusted from November 2021.
Strong competition in both lending and deposits, and reduced risk in the lending portfolio, contributed to downward pressure on net interest income, while higher lending and deposit volumes resulted in an increase in net interest income.
In 2020, the lending and deposit margins were heavily affected by the interest rate changes implemented during the second and third quarters. Lending rates were reduced before deposit rates and this significantly affected the net interest income and margins for the year.
Other income was NOK 261 million in 2021 (0.32 per cent of average total assets). This is a decrease of NOK 19 million compared with 2020.
Dividends amounted to NOK 3 million, compared with NOK 22 million in 2020. Capital losses from bond holdings were NOK 23 million, compared with losses of NOK 4 million in 2020. Capital gains from equities amounted to NOK 18 million compared with capital losses of NOK 4 million in 2020. Income from other financial instruments show a reduction of NOK 15 million compared with 2020.
Other income, excluding financial instruments, increased by NOK 12 million compared with 2020.
See Note 7 for a specification of other income.
Total costs were NOK 645 million, which is NOK 21 million higher than in 2020. Personnel costs increased by NOK 23 million compared with 2020 and ended at NOK 360 million. Staffing has increased by 18 FTEs in the past 12 months to 364 FTEs. Other operating costs were NOK 2 million lower than in 2020. See Note 8 for a specification of costs.
The cost income ratio for 2021 was 42.2 per cent, which represents an increase of 0.8 percentage points compared with 2020.
Provisions for expected losses and credit-impaired commitments
In 2021, the income statement was charged NOK 49 million (NOK 149 million) in losses on loans and guarantees. This represents 0.06 per cent (0.19 per cent) of average total assets.
At the end of 2021, provisions for expected losses totalled NOK 368 million, equivalent to 0.51 per cent of gross loans and guarantee commitments (NOK 326 million and 0.47 per cent). Of the total provisions for expected losses, NOK 15 million concerns credit-impaired commitments more than 90 days past due (NOK 18 million), which amounts to 0.02 per cent of gross loans and guarantee commitments (0.03 per cent). NOK 248 million concerns other credit-impaired commitments (NOK 191 million), which is equivalent to 0.34 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 commitments in stage 3) have decreased by NOK 8 million in the past 12 months. At year end 2021, the corporate market accounted for NOK 762 million of net credit-impaired commitments and the retail market NOK 71 million. In total, this represents 1.16 per cent of gross loans and guarantee commitments (1.22 per cent).
Lending to customers
At year end 2021, lending to customers amounted to NOK 69,925 million (NOK 66,850 million). In the past 12 months, customer lending has increased by a total of NOK 3,075 million, or 4.6 per cent. Retail lending has increased by 4.3 per cent and corporate lending has increased by 5.4 per cent in the past 12 months. Retail lending accounted for 67.7 per cent of lending at year end 2021 (68.2 per cent).
Deposits from customers
Customer deposits have increased by NOK 2,830 million, or 7.3 per cent, in the past 12 months. At year end 2021, deposits amounted to NOK 41,853 million (NOK 39,023 million). Retail deposits have increased by 5.6 per cent in the past 12 months, while corporate deposits have increased by 9.5 per cent and public sector deposits by 15.1 per cent. The retail market’s relative share of deposits amounted to 58.9 per cent (59.9 per cent), while deposits from the corporate market accounted for 38.8 per cent (38.0 per cent) and from the public sector market 2.3 per cent (2.1 per cent).
The deposit-to-loan ratio was 59.6 per cent at year end 2021 (58.1 per cent).
Sparebanken Møre is well capitalised. At year end 2021, the Common Equity Tier 1 capital ratio was 17.2 per cent (17.0 per cent), which is 4.5 percentage points higher than the total minimum regulatory requirement for the Common Equity Tier 1 capital ratio of 12.7 per cent. Primary capital amounted to 20.9 per cent (20.8 per cent) and Tier 1 capital 18.9 per cent (18.7 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 minimum regulatory 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 2021. In its assessment of Sparebanken Møre’s Pillar 2 supplement in 2018, the Financial Supervisory Authority of Norway (FSA) 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 year end 2021 was 7.7 per cent, the same as at year end 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.
When CRR 2, CRD V and BRRD 2 are enacted in Norwegian regulations, probably with effect from 30 June 2022, the SME discount will be expanded. It is estimated that the effect will be an improvement in the Group’s Common Equity Tier 1 capital ratio of 1.3 percentage points. On 9 June 2021, the Financial Supervisory Authority of Norway announced requirements for IRB models in circular 03/2021. An assessment has been made under the auspices of the IRB banks that the circular breaches EU regulations, which has been communicated to the Ministry of Finance. Sparebanken Møre has estimated that the effect of changes to the benchmark model for home mortgages will amount to a reduction in its Common Equity Tier 1 capital ratio of 0.4 percentage points. The effect has not been incorporated into the bank’s capital reporting. Sparebanken Møre has applied to the FSA for approval of changes to the IRB models and calibration framework and is awaiting a reply.
The FSA has stipulated that Sparebanken Møre will be subject to a risk-weighted MREL requirement of 25.9 per cent of the adjusted risk-weighted assets based on the relevant capital requirements as at 31 December 2020. Since the Common Equity Tier 1 capital used to fulfill the risk-weighted MREL requirement cannot at the same time be used to fulfil the combined buffer requirement, the estimated actual need for primary capital and MREL is effectively 31.4 per cent of the adjusted risk-weighted assets.
Based on the above, Sparebanken Møre’s effective MREL requirement will amount to NOK 9,284 million and the total subordination requirement will amount to NOK 7,658 million. The overall subordination requirement must as a minimum be phased in linearly and be met in full from 1 January 2024 onwards. From 1 January 2022, the effective subordination requirement is 20 per cent of the adjusted risk-weighted assets. For Sparebanken Møre, this will amount to NOK 5,914 million. The calculated primary capital available to meet the effective MREL requirement and overall minimum subordination requirement amounts to NOK 5,094 million. Sparebanken Møre had issued NOK 1,000 million in senior non-preferred debt (SNP) at the end of 2021.
The aggregate profit of the bank’s three subsidiaries amounted to NOK 240 million at the end of 2021 (NOK 232 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 2021, the company had outstanding bonds of NOK 25.1 billion in the market. Around 41 per cent of this was issued in a currency other than NOK. Of the volume of bonds issued by the company, NOK 510 million (both nominal values) was held by the parent bank at the end of 2021. Møre Boligkreditt AS contributed NOK 239 million to the Group’s result in 2021 (NOK 230 million).
Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company did not make a profit contribution in 2021 (NOK 0.5 million). At the end of 2021, the company employed 17 FTEs.
Sparebankeiendom AS’s purpose is to own and manage the bank’s commercial properties. The company made a profit contribution of NOK 1 million in 2021 (NOK 2 million). The company has no employees.
Covid-19 has presented challenges for some of the bank’s customers. After returning to more normal everyday lives (albeit with elevated preparedness) in autumn 2021, the omicron variant led to a new shutdown. Although we are now on our way back to more normality again, some uncertainty associated with the expected development in both Norway and the global economy remains, and the picture is constantly changing. Some industries have undergone fundamental changes due to the rapid digitalisation that has occurred during Covid-19. There will be changes in the economy also due to the climate issue and focus on sustainability.
While the omicron variant did result in a new shutdown, the future prospects have become more positive and clearer. Large proportions of the population are vaccinated, and macroeconomic conditions are improving. There are still very few bankruptcies and credit-impaired commitments remain low.
Changes in economic conditions have had consequences for macroeconomic scenarios and weights in the Group’s calculations for expected credit loss (ECL) in 2020 and 2021. See Note 5 for further information.
At year end 2021, there were 5,617 holders of Sparebanken Møre’s equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 5.28 per cent at the end of the year. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.66 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 31 December 2021, the bank owned 22,111 of its own equity certificates. These were purchased on the Oslo Børs at market prices.
The aim of Sparebanken Møre is to achieve financial results which provide a good and stable return on the bank’s equity capital. The results should 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 dividend funds for local communities. The proportion of profits allocated to dividends is in line with the bank’s capital strength. Unless the bank’s capital strength dictates otherwise, it is expected that about 50 per cent of this year’s surplus can be distributed as dividends.
Sparebanken Møre’s allocation of earnings should ensure that all equity holders 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, the Board of Directors is planning to propose that 51.5 per cent of the Group’s profit allocated to equity certificate holders be set aside for cash dividends and dividend funds for local communities.
Based on the accounting breakdown of equity in the parent bank between equity certificate capital and the primary capital fund, 49.66 per cent of the profit will be allocated to equity certificate holders and 50.34 per cent to the primary capital fund. The Group posted earnings per equity certificate of NOK 31.10 in 2021. The Board of Directors is planning to propose to the Annual General Meeting a cash dividend per equity certificate for the 2021 financial year to be set at NOK 16.00, which will come to NOK 158 million in total. The corresponding provision for dividend funds for local communities will amount to NOK 160 million.
Proposed allocation of profit (figures in NOK millions):
Profit for the year 642
Share allocated to AT1 instrument holders 23
Dividend funds (51.5%):
To cash dividends 158
To dividend funds for local communities 160 318
Strengthening of equity: (48.5%):
To the dividend equalisation fund 148
To the primary capital fund 150
To other funds 3 301
Total allocated 642
Unemployment began to rise in Møre og Romsdal in December as a result of the introduction of more comprehensive infection control measures. In the middle of the month, the number of people registered as completely or partially unemployed, or as participants in various labour market measures, accounted for 3.7 per cent of the labour force. The proportion of completely unemployed was 2.0 per cent. The corresponding unemployment rate for the country as a whole was 2.2 per cent.
Unemployment particularly rose within service industries like hotels, restaurants, tourism and culture towards the end of the fourth quarter. These are industries that had also been hit hard by the pandemic before. However, when the infection control measures are phased out, it is expected that the service production in the county will rise. Unemployment could then drop again towards the level it was prior to the pandemic.
The growth rate for lending to households for Norway as a whole increased slightly during the first two quarters of the year but levelled off in the second half of the year. The growth rate for lending to the corporate market was accelerating up to the end of October, before it fell back slightly. The overall 12-month growth in lending to the public was 5.1 per cent at the end of November, compared with 4.8 per cent at the end of 2020.
The bank registered good activity throughout 2021 with an accelerating rate of growth compared with the end of 2020. The 12-month growth rate was 4.6 per cent, compared with 4.4 per cent at the end of 2020. The 12-month growth rate for lending in the retail market amounted to 4.3 per cent at the end of the year, while the growth rate for the corporate market lending was 5.4 per cent. Deposits increased by 7.3 per cent in the past 12 months up to the end of 2021, 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 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 activity-dampening measures due to the Covid-19 pandemic impacted the market meaning that the targets were not achieved in 2021. The Board of Directors expects improvement in the target figures and the measures implemented to result in the targets being achieved in 2022.
Ålesund, 31 December 2021
26 January 2022
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