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 2022
Profit before losses amounted to NOK 318 million for the fourth quarter of 2022, or 1.44 per cent of average assets, compared with NOK 206 million, or 1.00 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 242 million for the fourth quarter of 2022, or 1.09 per cent of average assets, compared with NOK 153 million, or 0.74 per cent, for the corresponding quarter last year.

Return on equity was 13.2 per cent for the fourth quarter of 2022, compared with 8.9 per cent for the fourth quarter of 2021, and the cost income ratio amounted to 40.3 per cent compared with 45.9 per cent for the fourth quarter of 2021. 

Earnings per equity certificate were NOK 2.33 for the Group and NOK 2.17 for the parent bank. 

Net interest income 
Net interest income was NOK 432 million, which is NOK 97 million, or 29.0 per cent, higher than in the corresponding quarter of last year. This represents 1.95 per cent of total assets, which is 0.33 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 fourth quarter of 2021. 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 102 million in the quarter, which is NOK 57 million higher than in the fourth quarter of last year. The net result from financial instruments was NOK 35 million and this is NOK 51 million higher than in the fourth quarter of 2021. Capital gains from bond holdings were NOK 18 million in the quarter, compared with capital losses of NOK 23 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 12 million compared with capital gains of NOK 7 million in the fourth quarter of 2021. The negative change in value for fixed-rate lending amounted NOK 17 million, compared with a negative change in value of NOK 6 million in the same quarter last year. The value of issued bonds decreased by NOK 4 million, compared with a negative change in value amounting to NOK 6 million in the fourth quarter of 2021. Income from foreign exchange and interest rate hedging business amounted to NOK 16 million, NOK 4 million more than in the same quarter last year.

Other income, excluding financial instruments, increased by NOK 6 million compared with the fourth quarter of 2021. The increase was mainly attributable to income from guarantee commissions, sales of insurance cover and money-transfer services.

Costs
Operating costs amounted to NOK 216 million for the quarter, which is NOK 42 million higher than for the same quarter last year. Personnel costs accounted for NOK 25 million of the rise in relation to the same period last year and totalled NOK 122 million. Other operating costs have increased by NOK 17 million from the same period last year. 

Provisions for expected losses and credit-impaired commitments
The quarter’s accounts were charged NOK 2 million in losses on loans and guarantees (NOK 5 million), equivalent to 0.01 per cent of average assets (0.03 per cent of average assets). The corporate segment saw recoveries on losses of NOK 16 million in the quarter, while NOK 18 million in losses were charged in the retail segment.

PRELIMINARY FINANCIAL STATEMENTS FOR 2022
Sparebanken Møre’s profit before losses was NOK 1,009 million, or 1.19 per cent of average assets, compared with NOK 882 million, or 1.09 per cent, for 2021.

Profit after tax was NOK 777 million, or 0.91 per cent of average assets, compared with NOK 642 million, or 0.79 per cent, for 2021.

Return on equity was 10.9 per cent for 2022, compared with 9.5 per cent for 2021, and the cost income ratio amounted to 42.5 per cent, compared with 42.2 per cent for 2021.  Earnings per equity certificate in 2022 were NOK 7.50 for the Group, and NOK 8.48 for the parent bank. 

Net interest income
Net interest income totalled NOK 1,517 million (NOK 1,266 million) or 1.78 per cent (1.57 per cent) of average assets.

In the retail market, the lending margin decreased while the deposit margin increased compared with 2021. In the corporate market, the interest margin for lending was on a par with 2021, while the interest margin for deposits increased slightly.

Other income
Other income was NOK 239 million in 2022 (0.28 per cent of average assets). This is a decrease of NOK 22 million compared with 2021.

Dividends amounted to NOK 11 million, compared with NOK 3 million in 2021. Capital losses from bond holdings were NOK 75 million, compared with losses of NOK 23 million in 2021. Capital gains from equities amounted to NOK 24 million, compared with capital gains of NOK 18 million in 2021. Income from other financial instruments increased by NOK 16 million compared with 2021.

Other income, excluding financial instruments, increased by NOK 28 million compared with 2021.

See Note 7 for a specification of other income.

Costs
Total costs were NOK 747 million, which is NOK 102 million higher than in 2021. Personnel costs increased by NOK 70 million compared with 2021 and were NOK 430 million. Staffing has increased by 10 FTEs in the past 12 months to 374 FTEs. Other operating costs were NOK 32 million higher than in 2021. See Note 8 for a specification of costs.

The cost income ratio for 2022 was 42.5 per cent, which represents an increase of 0.3 percentage points compared with 2021.

Provisions for expected credit losses and credit-impaired commitments 
In 2022, the accounts were credited with recoveries on losses on loans and guarantees of NOK 4 million, while the accounts for 2021 were charged NOK 49 million, corresponding to 0.00 per cent of average assets and 0.06 per cent, respectively.

At the end of 2022, provisions for expected credit losses totalled NOK 341 million, equivalent to 0.44 per cent of gross loans and guarantee commitments (NOK 368 million and 0.51 per cent). Of the total provisions for expected credit losses, NOK 12 million concerns credit-impaired commitments more than 90 days past due (NOK 15 million), which amounts to 0.02 per cent of gross lending and guarantee commitments (0.02 per cent). NOK 179 million concerns other credit-impaired commitments (NOK 248 million), which is equivalent to 0.23 per cent of gross lending and guarantee commitments (0.34 per cent). 

Net credit-impaired commitments (commitments more than 90 days past due and other commitments in Stage 3) have increased by NOK 99 million in the past 12 months. At year end 2022, the corporate market accounted for NOK 770 million of net credit-impaired commitments and the retail market NOK 162 million. In total, this represents 1.20 per cent of gross lending and guarantee commitments (1.16 per cent). 

Lending to customers
At year end 2022, lending to customers amounted to NOK 76,078 million (NOK 69,925 million). In the past 12 months, customer lending has increased by a total of NOK 6,153 million, or 8.8 per cent. Retail lending has increased by 6.9 per cent and corporate lending has increased by 12.7 per cent in the past 12 months. Retail lending accounted for 66.5 per cent of lending at year end 2022 (67.7 per cent).

Deposits from customers
Customer deposits have increased by NOK 2,028 million, or 4.8 per cent, in the past 12 months. At year end 2022, deposits amounted to NOK 43,881 million (NOK 41,853 million). Retail deposits have increased by 6.8 per cent in the past 12 months, while corporate deposits have increased by 3.9 per cent and public sector deposits have decreased by 29.3 per cent. The retail market’s relative share of deposits amounted to 60.0 per cent (58.9 per cent), while deposits from the corporate market accounted for 38.5 per cent (38.8 per cent) and from the public sector market 1.5 per cent (2.3 per cent). 

The deposit-to-loan ratio was 57.4 per cent at year end 2022 (59.6 per cent).

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

Sparebanken Møre’s liquidity coverage ratio (LCR) was 185 for the Group and 142 for the parent bank at the end of the year. 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 other things, 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 bank has measured and reported NSFRs for several years, and the NSFR was 123 at the end of 2022 (consolidated figure), while the NSFRs for the bank and Møre Boligkreditt AS were 124 and 110, respectively.

Total net market funding amounted to NOK 35.2 billion at the end of the year. Senior bonds with a remaining term to maturity of more than 1 year have a weighted remaining term to maturity of 2.17 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 3.13 years – overall for market funding in the Group (inclusive of T2 and T3) the remaining term to maturity is 3.11 years.

Møre Boligkreditt AS issues bonds based on the transfer of loans from the parent bank. The loans transferred to the mortgage  company amounted to NOK 29,534 million at the end of 2022, equal to around 39 per cent of the bank’s total lending.

RATING
In an update dated 25 July 2022, Moody’s Investor Service confirmed Sparebanken Møre’s counterparty, deposit and issuer rating of A1 with a stable outlook. The rating of the bank’s senior non-preferred liabilities in local currency was also maintained at Baa1.

Bonds issued by Møre Boligkreditt AS are also credit rated by Moody’s Investor Service and have a rating of Aaa.

CAPITAL ADEQUACY
Sparebanken Møre is well capitalised. At the end of 2022, the Common Equity Tier 1 capital ratio was 17.9 per cent (17.2 per cent). This is 2.95 percentage points higher than the total minimum requirement and the Financial Supervisory Authority of Norway’s expected margin totalling 14.95 per cent. Primary capital amounted to 22.1 per cent (20.9 per cent) and Tier 1 capital 19.7 per cent (18.9 per cent). 

The ‘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. On 21 December 2021, Sparebanken Møre applied to the Financial Supervisory Authority to make changes to the bank’s IRB models and calibration framework. The bank received a preliminary response to the application on 13 July 2022 and responded to this on 14 December 2022. The Board is awaiting a final response from the Financial Supervisory Authority to the application that has been submitted.

Sparebanken Møre’s total Common Equity Tier 1 capital ratio requirement is 13.7 per cent. The requirement consists of a minimum requirement of 4.5 percent, a capital conservation buffer of 2.5 per cent, a systemic risk buffer of 3.0 per cent and a countercyclical buffer of 2.0 per cent. In addition, the Financial Supervisory Authority of Norway has set an individual Pilar 2 requirement for Sparebanken Møre of 1.7 per cent, as well as an expected capital adequacy margin(P2G) of 1.25 per cent. The Financial Supervisory Authority has informed the bank that it plans to implement SREP in 2023. At least 56.25 per cent of the new Pillar 2 requirement that results from the aforementioned SREP must be met with Common Equity Tier 1 capital, while 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at year end 2022 was 7.6 per cent (7.7 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 has issued NOK 2,000 million in senior non-preferred debt (SNP) at the end of 2022.

SUBSIDIARIES 
The aggregate profit of the bank’s subsidiaries was NOK 143 million after tax in 2022 (NOK 240 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 2022, the company had outstanding bonds of NOK 26.8 billion in the market, of which almost 40 per cent were denominated in a currency other than NOK. At the end of the year, the parent bank held no bonds issued by the company. Møre Boligkreditt AS contributed NOK 138 million to the Group’s result in 2022 (NOK 239 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 2022 (NOK 0 million). At year end, the company employed 18 full-time equivalents. 

The purpose of Sparebankeiendom AS and Storgata 41-45 Molde AS is to own and manage the bank’s own commercial properties. The companies contributed NOK 4 million to the result in 2022 (NOK 1 million). The companies have no staff. 

EQUITY CERTIFICATES 
At year end 2022, there were 6,145 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 year. 49,434,770 equity certificates have been issued. Equity certificate capital accounts for 49.65 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 2022, the bank owned 150,927 of its own equity certificates. These were purchased on the Oslo Børs at market prices.

DIVIDEND POLICY
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 EC 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 53.4 per cent of the Group’s profit (47.2 per cent in the parent bank) 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, 49.65 per cent of the profit will be allocated to equity certificate holders and 50.35 per cent to the primary capital fund. The Group posted earnings per equity certificate of NOK 7.50 in 2022 (NOK 8.48 in the parent bank). The Board of Directors is also planning to propose to the Annual General Meeting a cash dividend per equity certificate for the 2022 financial year set at NOK 4.00, which will come to NOK 198 million in total. The corresponding provision for dividend funds for local communities will amount to NOK 200 million.

Proposed allocation of profit in the parent bank (figures in NOK millions):

Profit for the year                                                          875

Share allocated to AT 1 instrument holders                      31

Dividend funds (53.4%):

To cash dividends                                      198

To dividend funds for local communities    200               398

Strengthening of equity: (46.6%):

To the dividend equalisation fund              221

To the primary capital fund                       225               446

Total allocated                                                             875

 FUTURE PROSPECTS
High inflation, interest rate hikes and geopolitical uncertainty impacted the economic outlook both abroad and domestically throughout the fourth quarter of 2022. Additionally, parts of the proposed Norwegian national budget resulted in further uncertainty, both nationally and in our region. The outlook for growth is poor. The US Federal Reserve, the European Central Bank (ECB) and Norges Bank all raised their rates twice in order to curb inflationary pressures.

At its monetary policy meeting on 14 December, the US Federal Reserve raised the target zone for Federal Funds by 0.50 percentage points to 4.25-4.50 per cent, with a mean value of 4.375 per cent. It also forecasts a mean value for the rate of 5.1 per cent by the end of 2023. The bank made it clear that its main objective going forward will be to bring inflation down even if this could cause higher unemployment.

In December, the overall 12-month consumer price inflation in the US was 6.5 per cent. The peak was reached in June 2022 with an inflation rate of 9.1 per cent. Core inflation, which is defined as the total growth in consumer prices, excluding food and energy, was at 5.7 per cent. The US Federal Reserve’s inflation target is 2 per cent. In other words, inflation has fallen to some extent.

At the same time, the New York Fed’s Global Supply Chain Pressure Index shows that inflation could fall further going forward. This is due to factors such as lower energy prices and transport costs, as well as shorter delivery times for factor inputs in industry.

The ECB also signalled significant interest rate rises in 2023 at its last monetary policy meeting in the fourth quarter. The central bank expects rates to rise by 0.50 percentage points over a future period of time. The bank has stated that inflation is far too high and is expected to remain above target for a long time.

Domestically, Norges Bank increased its key policy rate by 0.25 percentage points to 2.75 per cent at its monetary policy meeting on 15 December. There were only marginal changes to this year’s projected path for interest rates. Norges Bank stated that its key policy rate will most likely be raised further in the first quarter of 2023. The projected path for interest rate indicates that the key policy rate will then most likely have peaked at 3.0 per cent.

The level of activity in the Norwegian economy is high. Since output can fluctuate somewhat from month to month, it may be appropriate to look at trends over a 3-month period. On this basis, Mainland Norway’s GDP grew by 1.0 per cent from June-August to September-November 2022.

As a result of the persistent high demand for goods and services, unemployment in the county has remained low. At the end of December, the number of unemployed people in Møre og Romsdal accounted for 1.5 per cent of the workforce. The national unemployment rate was 1.6 per cent.

Overall, growth in lending to households fell in 2022 for Norway as a whole, while growth in lending to the corporate market increased markedly. At the end of November last year, the overall 12-month growth in lending to the public was 5.4 per cent, compared with 5.0 per cent at the start of this year. As a consequence of higher interest rates and the weaker development of house prices, a further slowdown in the growth of lending to households is expected going forward, while corporate investments, including petroleum investments, are helping to keep the rate of growth in corporate lending up.

The bank’s overall lending growth remained good throughout 2022. The 12-month growth rate ended at 8.8 per cent at the end of the year, markedly above the level at the end of 2021 of 4.6 per cent. The year-on-year growth in lending to the retail market ended at 6.9 per cent at the end of 2022, while lending growth in the corporate market amounted to 12.7 per cent. Deposits increased by 4.8 per cent in 2022 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.

The bank’s return on equity for the 4th quarter of 2022 was 13.2 per cent, while the return on equity for the year as a whole ended at 10.9 per cent. The cost income ratio for December 2022 was below 40 per cent. Sparebanken Møre’s strategic financial performance targets are a return on equity above 11 per cent and a cost income ratio below 40 per cent. The financial targets are expected to be achieved in 2023.

Ålesund, 31 December 2022
  25 January 2023 

THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE 
LEIF-ARNE LANGØY, Chair of the Board   
HENRIK GRUNG,  Deputy Chair   
JILL AASEN
KÅRE ØYVIND VASSDAL
THERESE MONSÅS LANGSET
SIGNY STARHEIM
BJØRN FØLSTAD
MARIE REKDAL HIDE

TROND LARS NYDAL, CEO