Interim 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 2023
Profit before losses amounted to NOK 335 million for the fourth quarter of 2023, or 1.39 per cent of average assets, compared with NOK 318 million, or 1.44 per cent, for the corresponding quarter last year.

Profit after tax amounted to NOK 340 million for the fourth quarter of 2023, or 1.42 per cent of average assets, compared with NOK 242 million, or 1.09 per cent, for the corresponding quarter last year.

Return on equity was 17.8 per cent for the fourth quarter of 2023, compared with 13.2 per cent for the fourth quarter of 2022, and the cost income ratio amounted to 42.0 per cent compared with 40.3 per cent for the fourth quarter of 2022. 

Earnings per equity certificate were NOK 3.28 (NOK 2.33) for the Group and NOK 3.07 (NOK 2.17) for the parent bank. 

Net interest income 
Net interest income was NOK 506 million for the quarter, which is NOK 74 million, or 17.1 per cent, higher than in the corresponding quarter of last year. This represents 2.11 per cent of total assets, which is 0.16 percentage points higher than for the corresponding quarter last year.

In the retail market, the interest margin for lending was unchanged and the deposit margin contracted compared with the fourth quarter of 2022. In the corporate market, the interest rate margins for both lending and deposits were at the same level as in the fourth quarter of 2022.

Other income
Other income was NOK 71 million for the quarter, which is NOK 31 million less than in the fourth quarter of last year. The net result from financial instruments of NOK 1 million for the quarter was NOK 34 million less than in the fourth quarter of 2022. Capital gains from bond holdings amounted to NOK 0 million in the quarter, compared with capital gains of NOK 18 million in the corresponding quarter last year. Capital gains from equities amounted to NOK 4 million compared with capital gains of NOK 12 million in the fourth quarter of 2022. The negative change in value for fixed-rate lending amounted to NOK 14 million, compared with a negative change in value of NOK 17 million in the same quarter last year. Income from foreign exchange and interest rate business for customers amounted to NOK 15 million in the quarter, NOK 1 million less than in the same quarter last year.

Other income excluding financial instruments increased by NOK 3 million compared with the fourth quarter of 2022. The increase was mainly attributable to income from insurance and fund sales, active management and money-transfer services.

Expenses 
Operating expenses amounted to NOK 242 million for the quarter, which is NOK 26 million higher than for the same quarter last year. Personnel expenses accounted for NOK 13 million of the rise in relation to the same period last year and totalled NOK 135 million. Other operating expenses increased by NOK 13 million compared with the same period last year. 

Provisions for expected losses and credit-impaired commitments 
Reversal of losses on loans and guarantees amounted to NOK 117 million (NOK 2 million), corresponding to -0.49 per cent of average assets (0.01 per cent of average assets). The corporate segment saw reversal of losses of NOK 121 million in the quarter, while losses in the retail segment increased by NOK 4 million.

PRELIMINARY FINANCIAL STATEMENTS FOR 2023
Profit before losses amounted to NOK 1,336 million, or 1.42 per cent of average assets, compared with NOK 1,009 million, or 1.19 per cent, for 2022.

Profit after tax was NOK 1,055 million, or 1.13 per cent of average assets, compared with NOK 777 million, or 0.91 per cent, for 2022.

Return on equity was 14.0 per cent for 2023, compared with 10.9 per cent for 2022, and the cost income ratio was 39.2 per cent, compared with 42.5 per cent for 2022.

Earnings per equity certificate in 2023 were NOK 10.12 for the Group, and NOK 10.34 for the parent bank. 

Net interest income
Net interest income totalled NOK 1,900 million (NOK 1,517 million) or 2.02 per cent (1.78 per cent) of average assets.

In the retail market, the lending margin decreased while the deposit margin increased compared with 2022. In the corporate market, the interest margin for lending was on a par with 2022, while the interest margin for deposits increased slightly.

Other income
Other income was NOK 295 million in 2023 (0.31 per cent of average assets). This is an increase of NOK 56 million compared with 2022.

Dividends amounted to NOK 1 million, compared with NOK 11 million in 2022. Capital losses from bond holdings were NOK 2 million, compared with losses of NOK 75 million in 2022. Capital gains from equities amounted to NOK 10 million, compared with capital gains of NOK 24 million in 2022. Income from other financial instruments show a reduction of NOK 7 million compared with 2022.

Other income, excluding financial instruments, increased by NOK 4 million compared with 2022.

See Note 7 for a specification of other income.

Expenses
Total expenses were NOK 859 million, which is NOK 112 million higher than in 2022. Personnel expenses increased by NOK 52 million compared with 2022 and were NOK 482 million. Staffing has increased by 26 FTEs in the past 12 months to 400 FTEs. Other operating expenses were NOK 60 million higher than in 2022. See Note 8 for a specification of expenses.

The cost income ratio for 2023 was 39.2 per cent, which represents a decrease of 3.3 percentage points compared with 2022.

Provisions for expected credit losses and credit-impaired commitments 
The accounts were credited with net reversal of losses on loans and guarantees of NOK 53 million in 2023, while the accounts for 2022 were credited with net reversal of NOK 4 million.

At the end of 2023, provisions for expected credit losses totalled NOK 266 million, equivalent to 0.32 per cent of gross loans and guarantee commitments (NOK 341 million and 0.44 per cent). Of the total provision for expected credit losses, NOK 26 million relates to credit-impaired commitments more than 90 days past due (NOK 12 million), which represents 0.03 per cent of gross loans and guarantee commitments (0.02 per cent), while NOK 72 million relates to other credit-impaired commitments (NOK 186 million), corresponding to 0.09 per cent of gross loans and guarantee commitments (0.23 per cent).

Net credit-impaired commitments (commitments more than 90 days past due and other credit-impaired commitments) have increased by NOK 35 million in the past 12 months. At year end 2023, the corporate market accounted for NOK 151 million of net credit-impaired commitments and the retail market NOK 176 million. In total, this represents 0.39 per cent of gross loans and guarantee commitments (1.19 per cent). 

Lending to customers
At the end of 2023, net lending to customers amounted to NOK 81,572 million (NOK 76,078 million). In the past 12 months, customer lending has increased by a total of NOK 5,494 million, equivalent to 7.2 per cent. Retail lending has increased by 5.9 per cent, while corporate lending has increased by 9.6 per cent in the last 12 months. Retail lending accounted for 66.0 per cent of total lending at the end of the second quarter (65.5 per cent).

Customer deposits 
Customer deposits have increased by NOK 3,529 million, or 8.0 per cent, in the past 12 months. At year end 2023, deposits amounted to NOK 47,410 million (NOK 43,881 million). Retail deposits have increased by 10.9 per cent in the past 12 months, while corporate deposits have increased by 3.9 per cent and public sector deposits have decreased by 1.8 per cent. The retail market’s relative share of deposits amounted to 61.7 per cent (60.0 per cent), while deposits from the corporate market accounted for 36.9 per cent (38.5 per cent) and from the public sector market 1.4 per cent (1.5 per cent). 

The deposit-to-loan ratio was 57.9 per cent (57.4 per cent) at year end 2023.

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 174 for the Group and 155 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 NSFR ended at 124 at the end of 2023 (consolidated figure), while the bank’s and Møre Boligkreditt AS’s NSFR ended at 128 and 109, respectively.

Total net market funding amounted to NOK 37.7 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 2.74 years, while covered bond funding through Møre Boligkreditt AS correspondingly has a weighted remaining term to maturity of 2.95 years – overall for market funding in the Group (inclusive T2 and T3) the remaining term to maturity is 3.01 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 32,369 million at year end, which corresponds to 39.6 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 
Sparebanken Møre is well capitalised. At the end of 2023, the Common Equity Tier 1 capital ratio (CET1) was 18.2 per cent (17.9 per cent). This is 2.09 percentage points higher than the total minimum requirement and the Financial Supervisory Authority of Norway’s expected capital adequacy margin (P2G) totalling 16.15 per cent. The capital adequacy ratio ended at 22.2 per cent (22.1 per cent) and Tier 1 capital at 20.0 per cent (19.7 per cent).

The EU’s ‘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. Sparebanken Møre has previously applied to the Financial Supervisory Authority of Norway for model and calibration changes. A letter from the Financial Supervisory Authority dated 22 June 2023 granted approval for the proposed models for the corporate market. Sparebanken Møre incorporated the new models in the fourth quarter of 2023. The model changes increased the Common Equity Tier 1 capital ratio by 0.7 percentage points. In a letter dated 18 January 2024, the Financial Supervisory Authority rejected the bank’s application of model changes for the retail market, and the bank will send a new application taking into account the feedback from the FSA.

Sparebanken Møre’s total Common Equity Tier 1 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 Financial Supervisory Authority 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 new Pillar 2 requirement that resulted from the aforementioned SREP must be met with Common Equity Tier 1 capital (0.9 per cent), and minimum 75 per cent must be met with Tier 1 capital.

The leverage ratio (LR) at year end 2023 was 7.5 per cent (7.6 per cent). The regulatory minimum requirement (3 per cent) was met by a good margin. 

MREL
On 1 January 2024, the Financial Supervisory Authority of Norway 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 year, Sparebanken Møre’s actual MREL level was 40.1 per cent, while the level of subordination was 32.3 per cent of the risk-weighted assets.

Sparebanken Møre had issued NOK 3,000 million in Senior Non-Preferred debt at the end of fourth quarter of 2023.

SUBSIDIARIES 
The aggregate profit of the bank’s subsidiaries amounted to NOK 130 million after tax in 2023 (NOK 143 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 2023, the company had nominal outstanding covered bonds of NOK 28.3 billion. Around 30 per cent were issued 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 128 million to the Group’s result in 2023 (NOK 138 million).

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK 0 million to the result in 2023 (NOK 1 million). At year end, the company employed 23 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 company contributed NOK 2 million to the result in 2023 (NOK 4 million). The companies have no staff. 

EQUITY CERTIFICATES
At year end 2023, there were 6,775 holders of Sparebanken Møre's equity certificates. The proportion of equity certificates owned by foreign nationals amounted to 2.4 per cent at the end of the year. 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 31 December 2023, the bank owned 186,565 of its own equity certificates. These were purchased on the Oslo Stock Exchange at market price.

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 74.1 per cent of the Group’s profit (72.6 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, 49.66 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 10.12 in 2023 (NOK 10.34 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 2023 financial year set at NOK 7.50, which will come to NOK 371 million in total. The corresponding provision for dividend funds for local communities will amount to NOK 376 million.

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

Profit for the year                                                                                  1,077

Share allocated to AT1 instrument holders                                                   48

Dividend funds (74.1 per cent):

To cash dividends                                                                   371

To dividend funds for local communities                                 376             747

Strengthening of equity (25.9 per cent):

To the dividend equalisation fund                                            140

To the primary capital fund                                                     142           282

Total allocated                                                                                    1,077

FUTURE PROSPECTS 
A further slowdown in economic activity, combined with falling inflationary pressures, has made both the central banks and fixed income market more confident that interest rates have now peaked in most places. The focus of market participants has, therefore, gradually shifted to the timing of the first interest rate cut.

It takes time from when a central bank changes its key rate until the change has its full effect on the real economy. Given this, some uncertainty remains with respect to how the sharp rise in interest rates over the past 2 years will affect global growth prospects. The central banks’ forecasts demonstrate a continued belief that inflation will be brought under control without this triggering a substantial fall in output and a corresponding increase in unemployment.

The fixed income market and central banks' expectations concerning interest rate developments during 2024 are strikingly different. While the US Federal Reserve has signalled a total of three interest rate cuts during the next year, the fixed income market expects as many as six rate cuts. In the euro area, the fixed income market is also pricing in six interest rate cuts over the course of the coming year. This divergent view of interest rates is partly attributable to differing assessments of how fast inflation will fall and/or how much the interest rate hikes that have been implemented will curb economic activity.

The war in Ukraine and the geopolitical situation in Europe pose persistent risks to further growth. The escalating conflict in the Middle East is also adding to geopolitical uncertainty, although the conflict so far appears to be having a limited effect on developments in commodity prices and financial markets.

A weak NOK has made bringing down inflation in Norway more demanding. The NOK exchange rate was, therefore, one of the main reasons why Norges Bank, somewhat surprisingly, raised its policy rate to 4.50 per cent at its monetary policy meeting in December. In the wake of the interest rate hike, the NOK exchange rate appreciated markedly, which will help to reduce inflationary pressures in the coming period.

In spite of the sharp rise in interest rates in a short space of time, output in the Norwegian economy remains at a relatively high level. Measured by mainland GDP, growth in mainland Norway is expected to be around 1.0 per cent for 2023. Registered unemployment in Norway was low at 1.9 per cent in December and has thus risen by a moderate three-tenths over the past year. In Møre og Romsdal, unemployment is even lower at 1.7 per cent.

The rate of growth in lending to households and non-financial companies for Norway as a whole fell further during the fourth quarter. With a growth rate in lending to households approaching 3 per cent at the end of November, the 12-month growth rate is the lowest measured since 1995. At the end of November, the overall 12-month growth in lending to the public was 3.7 per cent, compared with 5.5 per cent at the start of the year. As a result of higher interest rates and weaker growth in house prices, a further reduction in the growth rate for lending to households is expected in the coming period. The tighter monetary policy is beginning to have an effect and it appears that taking out new loans is no longer as attractive for Norwegian households and enterprises.

The bank’s overall lending growth remained good during the fourth quarter. The 12-month growth rate was 7.2 per cent at the end of the year, slightly below the level at the end of 2022 of 8.8 per cent. The year-on-year growth in lending to the retail market ended at 5.9 per cent at the end of 2023, while lending growth in the corporate market amounted to 9.6 per cent. Deposits increased by 8.0 per cent in 2023 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 2023 ended at 14.0 per cent and its cost income ratio at 39.2 per cent. In December, the bank raised its long-term minimum return on equity target from 11 per cent to 12 per cent. At the same time, the long-term target of a cost income ratio below 40 per cent was maintained.

Ålesund, 31 December 2023
24 January 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