Sparebanken Møre - the Group Presentation Preliminary results 2012
Results The best result ever in 2012 NOK million 600 550 532 Favourable operating environment a strong county in a strong Norwegian economy 500 450 458 Stable development in net interest income 400 350 333 338 335 379 Low loan losses and low volume of loans in default 300 250 200 265 272 264 272 217 205 173 172 180 Growth in all areas total assets above NOK 51,5 billion by year end Good solvency and strong liquidity 150 100 50 0 1 65 78 136 114 120 Still high funding cost due to market uncertainty and strong competition in the deposits market Positive one off effect on costs related to amendments in the Pension scheme 2
Results ROE 1986 2012 per cent 25,7 25 23,9 20 15 10 21,0 14,0 20,2 17,7 16,5 14,9 15,0 17,1 16,4 19,2 17,3 11,5 10,1 10,2 14,0 13,4 15,6 14,1 12,8 16,0 12,2 16,4 5 5,3 0 0,2-5 -10-15 -13,5 3
Area of operation 3
Area of operation Founding and vision Sparebanken Møre was established in 1985 through a merger of several local savings banks. The oldest of these savings banks was established in 1843 Sparebanken Møre is a fully independent bank, and the bank follows the contract banking principle The bank has 23 district banks, with a total of 30 branches The bank's head office is located in Ålesund in Møre og Romsdal county, and the county is defined as Sparebanken Møre's operating area Sparebanken Møre has been listed at Oslo Stock Exchange since 1989 (Primary Capital Certificates/PCCs, now Equity Certificates ECs) Sparebanken Møres`s vision is described within the framework Møre 2016 - a vision based on an extensive effort throughout the organisation - where the bank aims to be the leading financial institution in Møre og Romsdal 5
Area of operation Sparebanken Møre a brief overview Sparebanken Møre is the 6th largest Norwegian bank the bank serves customers from the county of Møre og Romsdal The population of Møre og Romsdal is close to 260 000, and the population in the municipalities where the bank is located is 200 000 The bank serves about 170 000 customers, whereof 160 500 customers in the retail market 9 500 customers in the corporate market The activity is based on traditional banking services Loans to the retail market: 63.3 % Deposits from the reail market: 56,2 % Sparebanken Møre is a fully fledged foreign exchange bank Sparebanken Møre is rated A3 (stable) by Moody`s 6
Area of operation Contract Banking Lev. Prov. av of prod/tj prod/serv. ä nst Kontrakt Contract Lev. Prov. av of prod/tj prod/serv. ä nst Kontrakt Contract Prov. Lev. of av adm.supp. adm.st ö d Kontrakt Contract Kontrakt Contract Prov. Lev. of av adm. adm.st supp. ö d Prod,/serv. Prod/tj ä nster in-house i egen regi Bankens Bank s own egna resources resurser Kontrakt Contract Advisor Kund - Kontrakt Contract ansvarig Relation Relationship v ä rde Kontrakt Contract Adm.st Adm.supp. ö d i in-house egen regi Bankens Bank s total totala resources resurser Customer The business model Contract Banking means that the Bank has opted to conduct operations and manage all development inhouse or together with partners/providers based on what is best for the Bank`s customers and what provides the best revenue generation for the Bank. Contract Banking requires: - Competence to identify partners when this creates value both for our customers and the Bank - Competence to identify partners, enter into agreements with these partners, develop, maintain and discontinue relationships with partners 7
Area of operation Dominant industrial and commercial sectors in Møre og Romsdal Fisheries Fish and fish products/ Foodstuff industry Chemical industry Shipbuilding/Ship equipment industry Furniture industry Shipping/Offshore Oil Tourism 8
A strong county in a strong Norwegian economy 9
Economic environment The Norwegian economy is developing strongly The Norwegian economy is characterised by: - Low unemployment - Record high house prices - Increased private demand - High activity in the oil sector - Public sector growth - Low inflation and interest rates Factors contributing to growth: Expansionary Fiscal policy Expansionary Monetary policy High oil prices Credit policy measures Some growth abroad side 10
Economic environment Norway has a well balanced economy side 11
Economic environment High household debt is the main risk factor side 12
A strong county in a strong Norwegian economy The business sector in Møre og Romsdal is also doing well The most important drivers of growth and activity in 2012 and forward: Private consumption Public expenditures The construction sector Oil production and investment Food production and fish exports The maritime cluster Main reasons for higher growth: - Low interest rates - Expansionary fiscal policy - High oil prices - A competitive business sector - Some export market growth 115 110 105 100 95 115 110 105 100 95 The Private Service Sector in M & R 2009 2010 2011 2012 2013 2014 Production Employment *Investments The Public Sector in M & R 2009 2010 2011 2012 2013 2014 Production Employment Investments side 13
A strong county in a strong Norwegian economy However, the outlook for the manufacturing sector is somewhat weaker The outlook for the manufacturing industry is somewhat weaker due to: - Low export market growth - A high level of costs - A relatively strong NOK Unemployment in M&R will stabilise around 2 ½ per cent in the coming years or rise slightly Increased demand for labour due to increased production of goods and service and limited productivity growth will keep unemployment low 109 107 105 103 101 99 97 95 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Manufacturing in M & R 2009 2010 2011 2012 2013 2014 Production Employment Investments Per cent of total production and employment in M&R Production Employment Prim Constr. Public s. Priv. serv. Manuf. Others side 14
Norwegian housing prices will stay high... 15
Norwegian housing market Continue to outperform The development of house prices combined with high growth in debt are probably the most important risk factors for Norwegian households The strongest segment continues to be apartments, up 10.2 % in 2012, vastly outperforming other segments The rolling 12 month growth, 7.7 % in 2012, seems to be trending slightly down 16
Norwegian housing market Imbalances to disappear? The unsold stock remains at very low levels, and has been low since early 2009. In December houses sold outnumbered houses put on the market Housing starts rose from 2010 after lows during the financial crisis On an annual basis new home construction is up from the record lows in 2009 and 2010, but 2012 ended only slightly above 2011 17
Norwegian housing market Housing prices will remain high Growth in housing prices will probably level out due to uncertainty abroad and gradually rising interest rates in Norway. A downward correction seems likely at some point, nevertheless we believe that housing prices will remain high in the coming years due to the following factors Interest costs in Norway are tax deductible at 28% of interest paid Interest rates will stay low in the foreseeable future 4 out of 5 households own their own home Strong growth in population Unemployment will stay low Good social benefits will help service debt when unemployed Personal liability for debt, gives strong incentive to service debt There are considerable differences in levels- and also developement in prices, both regional, within regions, and between different housingtypes 18
Deposits and loans 20
Deposits and loans Stable growth NOK mill. 50000 45000 40.796 41.391 40000 35.298 35.851 35000 44.441 37.676 48.468 40.305 51.590 43.435 Growth during the last 12 months Total assets 6.4 % Loans (net) 7.8 % 30000 25000 20000 20.672 21.793 24.551 25.325 27.080 Deposits 6.9 % 15000 10000 5000 0 Total assets Loans Deposits 20
Deposits and loans Breakdown of gross lending Mill. kroner 45000 43.740 Annual net lending growth 40000 35000 30000 25000 35.660 36.252 70 14 21.228 22.155 38.083 12 23.647 40.701 10 25.296 20 27.650 2008: 12.7 % 2009: 1.6 % 2010: 5.1 % 2011: 7.0 % 2012: 7.8 % 20000 15000 10000 5000 14.362 14.083 14.424 15.395 16.070 Lending growth last 12 months Gross, retail banking 9.3 % Gross, corporate 4.4 % Gross, public sector - 0 Public sector Retail banking Corporate banking 21
Deposits and loans Loans by sector Other 12.7 % Property 13.0% Supply 3.7% Fisheries 7.4% Retail 63.2% Other 12.7 % Private and public services 3.5 Building/construction 1.6 Financial servives Fishing Industry 1.6 Agriculture 1.1 Other 1,6 1.2 Restaurant/ hotel Retail/wholesale trade 1.3 Ship Yards 0.6 Furniture 0.1 0.2 22
Deposits and loans Breakdown of deposits 30000 25000 20000 15000 NOK mill. 21.793 20.672 1.650 1.558 12.620 11.838 24.551 1.531 25.325 693 14.307 13.274 27.080 704 15.221 Annual deposit growth 2008: 6.6 % 2009: 5.4 % 2010: 12.7 % 2011: 3.2 % 2012: 6.9 % 10000 Deposit growth during the last 5000 7.276 7.523 9.746 10.325 11.155 12 months 0 Corporate banking Retail banking Public sector Retail banking 6.4 % Corporate banking 8.0 % Public sector 1.6 % 23
Funding and hedging 24
Dec 07 mar.08 jun.08 sep.08 Dec 08 mar.09 jun.09 sep.09 Dec 09 mar.10 jun.10 sep.10 Dec. 10 mar.11 jun.11 sep.11 Dec. 11 mar.12 jun.12 sep.12 Dec. 12 Funding and hedging Long term funding in place 110 % 105 % 100 % 95 % 90 % 85 % 80 % Long term financing as a percentage of illiquid assets (defined by the Norwegian FSA) has been the main quantitative target in Sparebanken Møre`s funding strategy since December 2008. The bank`s target is to stay above 100 % By the end of 2012 the indicator stands at 101.4 % We have reported LCR and NSFR to the Norwegian FSA since March 2011 Status by year end LCR: 87,7 NSFR: 105,9 LBI (Target Norwegian FSA): 136,2 Internal targets by year end 2012: LCR >80 NSFR >100 Indicator Minimum 25
Funding and hedging Unrest, but good access to the market Margins Covered Bonds issued by Møre Boligkreditt AS has replaced senior bonds as the Group`s main source of long-term market financing Unrest in the financial markets contributed to higher margins early in 2012. The spread development in Q3 and Q4 has been positive both for Covered and Senior bonds Sparebanken Møre`s refinancing the coming years can primarily be met by issuing Covered Bonds Sparebanken Møre is rated A3 (stable) and Covered Bonds issued by Møre Boligkreditt AS are rated Aaa by Moody's 26
Funding and hedging High deposit to loan ratio - total financing by year end 10.006 147 299 638 5.334 1880 27.080 High deposit to loan ratio, 83.1 % in the bank (62.3 % in the Group) - focus on long term market funding Total market funding close to NOK 18.3 billion approximately 75 % with remaining maturity of more than one year (20-30% of market funding is renewed annually) Senior Bonds: Weighted average maturity of 2.03 years Deposits Covered Bonds Senior Bonds CDs Subordinated Loans Long Term FX Covered Bonds with a weighted average maturity of 3.90 years Other 27
Funding and hedging The quality of the liquidity portfolio is good Rating Market Value (NOK 1000) Country Market Value (NOK 1000) AAA 4.326.671 Norway 3.296.459 AA+ 176.713 Sweden 784.183 AA 60.446 Germany 274.102 AA- 220.037 Finland 265.374 A+ 172.471 Luxembourg 252.245 A 29.562 Denmark 249.633 A- 367.118 Great Britain 183.999 BBB+ 155.941 Int`l organisations 142.775 BBB 14.978 Austria 50.302 BBB- 15.403 Netherlands 40.268 Total 5.539.341 Total 5.539.341 and no exposure towards the most vulnerable European economies 28
Funding and hedging Off-balance activity - quarterly NOK MLN. 40000 35000 30000 25000 20000 15000 10000 5000 Moderate risk profile in the interest rate, equity and FX markets Sparebanken Møre has no trading portfolio in these or other similar markets/instruments Client's positions are hedged in the market The bank's positions are hedged 0 IRS (NOK & Curr.) Forward FX Cross Currency Swap FRA (NOK & Curr.) Caps/Floors FX-Options 30
Funding and hedging Payments No of SWIFT Commercial payments No of outgoing SWIFT commercial payments pr currency Outgoing Incoming THB; 2137 GBP; 2500 LTL; Others; 2126 1604 19.040 20.929 21.213 21.097 22.028 21.541 DKK; 4371 PLN; 5197 SEK; 5322 USD; 6252 NOK; 18855 EUR; 18222 43.778 51.145 53.994 56.771 60.259 68.370 2007 2008 2009 2010 2011 2012 31
Results 31
Results Main figures 2012 2011 Change during last 12 months From the Profit and Loss Account NOK mill. % NOK mill. % NOK mill. P. points % Net interest income/av. int. margin 936 1.93 909 1.96 27-0.03 3.0 Net return, financial investments 110 0.23 41 0.09 69 0.14 168.3 Other income 180 0.37 173 0.38 7-0.01 4.0 Total income 1,226 2.53 1,123 2.43 103 0.10 9.2 Personnel costs 342 0.70 315 0.67 27 0.03 8.6 Pension -166-0.34-166 -0.34 Other costs 262 0.54 244 0.53 18 0.01 7.4 Total ordinary operating costs 438 0.90 559 1.20-121 -0.30-21.6 Result before credit losses 788 1.63 564 1.23 224 0.40 39.7 Losses on loans and guarantees 47 0.10 40 0.09 7 0.01 17.5 Result before tax cost 741 1.53 524 1.14 217 0.39 41.4 Tax cost 209 0.43 145 0.31 64-0.12 44.5 Result after tax cost 532 1.10 379 0.83 153 0.27 40.2 From the Balance Sheet Total assets 51,590 48,468 3,122 6.4 Net lending 43,435 40,305 3,130 7.8 Deposits 27,080 25,325 1,755 6.9 Capital adequacy ratio 4,790 14.60 4,175 13.60 615 14.7 Core capital ratio 13.70 12.01 Pure Core Capital 10.65 10.40 Percentage return on equity capital 16.4 12.2 Percentage return on equity capital (corr.) 12.6 12.2 Costs as a percentage of income 35.3 49.5 Costs as a percentage of income (corr.) 48.8 49.5 Earnings per EC (the Bank) 27.80 23.27 32
Results Result as a percentage of average assets 2,25 2,2 1,95 1,93 1,75 1,25 1,65 1,09 1,10 1,68 1,34 1,54 1,44 1,41 1,32 1,40 1,44 1,35 1,27 1,32 1,15 1,52 1,45 1,23 1,14 1,63 1,53 Result from ordinary operations before losses Result before taxation 0,75 0,86 0,83 0,25 0,55 0,34 0,1 0-0,01 0,17 0,2 0,07 0,09 0,1 Losses -0,25 33
Results Stable and high net interest income 3,00 AS A PERCENTAGE OF AVERAGE ASSETS Net interest income in 2012 was higher than in 2011 2,50 2,00 2,17 1,97 2,03 1,96 1,93 Lower measured against average assets, 0.03 p.p. Changes: 1,50 Strong competition on loan and deposits 1,00 More liquidity on the balancesheet with higher quality 0,50 Unrest and still high margins in the funding market Low interest rate level: Less return on free capital 0,00 34
Results Other operating income 1,00 AS A PERCENTAGE OF AVERAGE ASSETS Higher other operating income, NOK 290 million against NOK 214 million in 2011 0,75 0,72 Higher income 0,50 0,52 0,63 0,46 0,6 Mark to market evaluation of the liquidity portfolio FX and IRS business Payment services Gains on sale of buildings 0,25 Lower income e.g. from Dividend 0,00 Part of fair value valuation - IFRS 35
Results Strong Cost/Income ratio 55 50 45 46,4 46,7 44,8 49,5 48,8 40 35 30 25 20 36
Results Losses at a very low level Losses totalled NOK 47 million 0,40 Corporate NOK 56 million Retail NOK -3 million Group of loans NOK 9 million Other NOK -15 million 0,20 Total provisions amounted to NOK 306 million by 31.12.2012 0,17 0,2 0,00 0,07 0,09 0,1 37
Results Losses - details 60 56 50 40 37 30 20 17 18 15 10 0 9 1 0 8 5 0 4-10 -3-20 -12-15 38
Results Problem Loans and loan loss reserves Problem loans & Provisions 3,5 % 52.7 % 60,0 % The volume of Problem loans has declined over the last years 3,0 % 2,5 % 50,0 % 40,0 % As a percentage of gross loans this figure ended up at 1.34 % by year end 2012 2,0 % 1,5 % 1,0 % 1,34% 30,0 % 20,0 % The Bank`s loan loss reserve coverage ratio shows a similar positive development from 50.3 % by YE 2011 up to 52.7 % by YE 2012 0,5 % 10,0 % 0,0 % 2007 2008 2009 2010 2011 2012 0,0 % Problem loans % of gross loans Provisions in % of bad and doubtful
Equity and ECs 40
Equity Equity and related capital: Strong capital 4800 4400 4000 3600 3200 2800 2400 2000 1600 1200 800 400 0 NOK mill. 4,790 4,175 91 299 3,925 3,658 72 479 1002 32 479 52 3,030 479 494 482 473 477 200 1698 1835 1446 1560 1347 362 482 593 393 317 186 187 186 186 123 587 647 784 784 784 Miscellaneous Supplementary capital Capital Bonds Savings Bank's Fund Dividend Equalisation Fund Premium Fund ECs % 15,00 14,00 13,00 12,00 11,00 10,00 9,00 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0,00 14.60 13.72 13.35 13.57 0,27 0,28 0,90 0,16 0,18 1,67 1,56 10.81 1,75 3,06 1,68 1,61 1,70 1,69 0,71 5,27 5,45 5,53 5,60 4,80 1,43 1,27 1,57 1,81 1,13 0,65 0,68 0,61 0,57 0,44 2,09 2,36 2,74 2,64 2,39 Target ratio for core capital: 11.0 % - Q4 2012: Actual Core Capital 13.70% 41
Equity Pure Tier 1 Capital and IRB 16 14 12 10 8 6 Pure Tier 1 Capital (CT1) 10,65 11,05 11,85 14,45 Sparebanken Møre has adopted the Basel II Standardised approach when reporting credit risk and market risk, the Basic Indicator Approach for operational risk. The bank has applied to the Norwegian FSA to use IRB basic methods pursuant to the requirements in the Capital Requirements Regulations. The implementation process has started The final requirements related to Core Capital is not in place 4 2 Sparebanken Møre is well within current requirements for pure Tier 1 Capital (9%) 0 Standarised Approach IRB (35 % floor, mortgageloans) IRB transition floor IRB (15 % weight mortgage loans) If the requirements for pure Tier 1 Capital is changed to 12.5% and the floor for calculating mortgage risk is changed to 35%, this means a major change in the banks operational environment side 42
Future prospects Summing up and outlook From the CEO: Increased growth on loans and continued strong competition on deposits Cost/income ratio less than 50% remains a key management target Low losses and low level of loans in defaults. The level of losses will be moderate also going forward Good solvency and strong liquidity. Strong focus on these areas in the future side 43
Appendix 44
Management New organisation structure The bank's management focuses heavily on underlying cost drivers One instrument in this process is the adoption of a new organisation structure in the bank. This will come into effect during spring 2013 (the new structure is shown on the next page) The organisational changes will simplify the management structure and permit an even greater focus on customers since a greater proportion of the work processes and staffing resources will become more market-oriented. Among the things this will allow Sparebanken Møre to do is improve our advice services for the corporate market 15/02/2012 side 45
Management Board of Directors and Senior Management Leif-Arne Langøy (Chairman) Roy Reite (Dep. Chairman) Stig Remøy Ragna B. Bjerkeset Ingvild Vartdal Elisabeth M. Støle Turid Håndlykken Sylte side 46
NOK min Funding and hedging Long term funding - maturity 31.12.12 6.000 5.000 977 The maturity profile shows the main funding instruments for the Group in the long term market 4.000 3.000 300 146,82 634 300 700 We assume resale of Covered Bonds from the swap arrangement (CB Swaps, NOK 1,681 million) 2.000 1.000 1047 1855 1488,5 1850 2785 1000 1500 3810 Other market funding includes bilateral loan agreements and subordinated and hybrid instruments 0 2013 2014 2015 2016 2017 Covered Bonds Senior Bonds CB Swap Other mkt funding side 47
Equity Certificates Dividend policy Based on the fact that new legal rules relating to capital and organisation forms in the savings bank sector etc. were sanctioned at a Cabinet Meeting on 19.06.2009 on the basis of coming into force on 01.07.2009, Sparebanken Møre changed its dividend policy with effect from the 2009 accounting year. The new dividend policy reads as follows: Sparebanken Møre s aim is to achieve financial results which provide a good and stable return on the Bank s equity capital. The results shall ensure that the owners of the equity capital receive a competitive, long-term return in the form of dividends and increase in the value of the equity capital. The equity capital owners share of the net result being set aside as dividend funds, will be adapted to the Bank s equity capital situation. Sparebanken Møre s allocation of earnings shall ensure that all equity capital owners are guaranteed equal treatment. side 48
Equity Certificates Dividend and EC-price The PCCs/ECs of Sparebanken Møre have been listed at Oslo Stock Exchange since 1989 Total EC capital: NOK 784 million by December 2012 Dividend pr. EC: 1990 10 2001 17 1991 0 2002 15 1992 0 2003 16 1993 13 2004 18 1994 12 2005 20 1995 13 2006 20 1996 13 2007 23 1997 13 2008 20 1998 15 2009 12 1999 16 2010 12 2000 17 2011 8 2012 (proposed) 12 side 49
Contact Head Office Keiser Wilhelmsgt. 29-33 P.O.Box 121 6001 Ålesund Tel: +47 70 11 30 00 Telex: Reuters Dealing: 42 193 spare n MORE Fax: General Management +47 70 12 26 70 Corporate Division +47 70 12 44 67 Retail Customers Division +47 70 12 98 85 Treasury/Markets +47 70 12 13 01 International Payments +47 70 12 99 12 www.sbm.no Treasury and Markets Division Head of Division Runar Sandanger, EVP, e-mail: runar.sandanger@sbm.no + 47 70 11 31 73 + 47 95 04 36 60 Chief Economist Inge Furre, e-mail: inge.furre@sbm.no + 47 70 11 31 44 Treasury Ove T. Ness, VP, e-mail: ove.ness@sbm.no + 47 70 11 31 74 Aud Janne Myklebust, VP, e-mail: aud.janne@sbm.no + 47 70 11 31 75 Møre Boligkreditt AS: Ole Andre Kjerstad, CEO, e-mail: ole.andre.kjerstad@sbm.no + 47 41 40 09 55 Markets Martin H. Skuseth (SVP), e-mail: martin.skuseth@sbm.no +47 70 11 31 85 Louis Helge Nordstrand, e-mail: louis.nordstrand@sbm.no + 47 70 11 31 55 Hilde Sveen, e-mail: hilde.sveen@sbm.no + 47 70 11 32 80 Roger Lervik, e-mail: roger.lervik@sbm.no + 47 70 11 31 77 Tove Lunde, e-mail: tove.lunde@sbm.no + 47 70 11 31 90 Svein Arne Tynes, e-mail: svein.tynes@sbm.no + 47 70 11 31 82 Discretionary Asset Management Trond Moldskred, VP, Head, e-mail: trond.moldskred@sbm.no +47 70 11 31 87 International Payments and Settlements Karl Otto Hessen, VP, Head, e-mail: karl.otto.hessen@sbm.no + 47 40 20 09 54 side 50