SPAREBANKEN ØST 180th year
Quarterly report
Q3 2022
Interim financial statements - Q3 2022 | ||
Key figures - Group…………………………………………………………………………………… | 3 | |
Events in the quarter………………………………………………………………………………… | 4 | |
Board of Directors' Report…………………………………………………………………………… | 5 | |
Financial statements for the Sparebanken Øst Group | ||
Income Statement ………………………………………………….…………………………….. | 14 | |
Balance Sheet ……………………………… | 15 | |
Changes in Equity | 16 | |
Cash Flow Statement …………… | 17 | |
Note 1 | Basis for preparation of the financial statements | 18 |
Note 2 | Operating segments ………………………...................................................................................... 19 | |
Note 3 | Capital adequacy ……………………………… | 20 |
Note 4 | Losses on loans, unused credit and guarantees | 22 |
Note 5 | Non-performing commitments, customers | 25 |
Note 6 | Deposits from customers by sector and industry ……………………………………………………… | 26 |
Note 7 | Lending, guarantees and credit facilities by sector and industry………………………...…………… | 26 |
Note 8 | Geographical distribution of lending, customers ……………………………………………………… | 26 |
Note 9 | Credit risk ……………………………………………………….………………………………………… | 27 |
Note 10 | Classification of financial instruments | 29 |
Note 11 | Financial instruments at fair value ……………………………………………………………………… | 31 |
Note 12 | Securities issued and subordinated loan capital ……………………………………………………… | 33 |
Note 13 | Net interest income ………………………………………………………………………………………… 34 | |
Note 14 | Net changes in value and gains/losses on financial instruments ……………………..……………… | 34 |
Note 15 | Operating costs …………………………………………………………………………………………… 34 | |
Note 16 | Pledged assets and preferential rights…………………………………………………………………… | 34 |
Note 17 | Equity certificates ………………………………………………………………………………………… | 35 |
Additional Information - Sparebanken Øst Group | ||
Changes in key figures …………………………………………………………………………………………………… 36 | ||
Definition of key figures and alternative performance indicators …………………………………………………… | 37 | |
Financial performance ………...………………………………………………………………………………………… 38 | ||
Balance sheet performance ……...……………………………………………………………………………………… 39 | ||
Financial Statements for Sparebanken Øst - Parent bank | ||
Income Statement ………………………………………………….……………………………………………………… 40 | ||
Balance Sheet ……………………………… | 41 | |
Changes in Equity | 42 | |
Cash Flow Statement | 43 | |
Note 1 | Basis for preparation of the financial statements | 44 |
Note 2 | Capital adequacy……………………………… | 45 |
Note 3 | Losses on loans, unused credit and guarantees | 47 |
Note 4 | Financial instruments at fair value……………………………………………………………….. | 50 |
Note 5 | Securities issued and subordinated loan capital ……………………………………………………… | 52 |
Note 6 | Transactions with group companies……………………………………………………………………. 53 |
2 | Sparebanken Øst | Interim Report Q3 2022 |
Key figures - Group
Income Statement (Amounts in NOK millions) | Q3 2022 | Q3 2021 | 01.01-30.09.202201.01-30.09.2021 | Full year 2021 | |
Net interest income | 176,6 | 165,5 | 496,8 | 468,5 | 631,3 |
Net commission income | 8,7 | 6,6 | 28,5 | 21,3 | 33,3 |
Net result from financial assets | -20,7 | -2,6 | -40,2 | 70,7 | 89,8 |
Other operating income | 0,5 | 0,2 | 1,9 | 5,9 | 6,4 |
Total net income | 165,1 | 169,8 | 487,0 | 566,4 | 760,8 |
Total operating costs | 79,8 | 79,5 | 227,5 | 226,6 | 305,7 |
Profit/loss before losses | 85,3 | 90,2 | 259,6 | 339,8 | 455,2 |
Losses on loans, unused credit and guarantees | 3,3 | -1,7 | 4,3 | 1,5 | 0,5 |
Profit/loss before income tax | 82,1 | 91,9 | 255,3 | 338,3 | 454,7 |
Income tax | 20,4 | 20,2 | 53,8 | 60,6 | 79,3 |
Profit/loss after tax | 61,7 | 71,7 | 201,5 | 277,7 | 375,4 |
Key figures | Q3 2022 | Q3 2021 | 01.01-30.09.202201.01-30.09.2021 | Full year 2021 | |
Profitability | |||||
Return on equity* | 5,21 | 6,44 | 5,89 | 8,71 | 8,86 |
Net interest income as a % of average total assets | 1,55 | 1,35 | 1,43 | 1,33 | 1,34 |
Profit/loss after income tax as a % of average total assets | 0,54 | 0,58 | 0,58 | 0,79 | 0,79 |
Costs as a % of average total assets | 0,70 | 0,65 | 0,66 | 0,64 | 0,65 |
Costs as a % of income (before losses on loans/guarantees)* | 48,32 | 46,85 | 46,70 | 40,01 | 40,17 |
Costs as a % of income (excl. return on financial investments)* | 42,94 | 46,14 | 43,14 | 45,72 | 45,55 |
Balance sheet figures | |||||
Net lending to customers | 37.207,7 | 40.093,4 | 37.207,7 | 40.093,4 | 39.386,7 |
Lending growth (quarter/12 months) | -1,22 | -0,82 | -7,20 | 27,82 | 11,12 |
Deposits | 16.806,2 | 17.852,6 | 16.806,2 | 17.852,6 | 17.578,9 |
Deposit growth (quarter/12 months) | -3,81 | 3,09 | -5,86 | 22,77 | 18,42 |
Average equity | 4.341,9 | 4.204,2 | 4.276,2 | 4.104,7 | 4.076,5 |
Average total assets | 45.338,4 | 48.805,3 | 46.388,7 | 47.020,8 | 47.242,1 |
Loan loss provisions on impaired and non-performing commitments | |||||
Losses as a % of net lending to customers (OB)* | 0,03 | -0,02 | 0,01 | 0,01 | 0,00 |
Loan loss provisions as a % of gross lending to customers* | 0,35 | 0,32 | 0,35 | 0,32 | 0,32 |
Net payments over 90 days past due as a % of net lending* | 0,21 | 0,20 | 0,21 | 0,20 | 0,20 |
Other net non-performing commitments (Stage 3) as a % of net lending* | 0,10 | 0,13 | 0,10 | 0,13 | 0,31 |
Financial strength | |||||
CET1 capital ratio incl. 50% of retained earnings (%) | 20,44 | 17,62 | 20,44 | 17,62 | 18,24 |
CET1 capital ratio (%) | 19,95 | 17,00 | 19,95 | 17,00 | 18,24 |
Tier 1 capital ratio (%) | 21,77 | 18,62 | 21,77 | 18,62 | 19,89 |
Capital adequacy ratio (%) | 23,83 | 20,48 | 23,83 | 20,48 | 21,78 |
Risk-weighted volume (calculation basis) | 19.324,7 | 21.490,8 | 19.324,7 | 21.490,8 | 21.190,0 |
Leverage ratio incl. 50% of retained earnings (%) | 9,31 | 8,34 | 9,31 | 8,34 | 8,60 |
Tier 1 leverage ratio (%) | 9,11 | 8,07 | 9,11 | 8,07 | 8,60 |
Liquidity | |||||
Deposit coverage ratio | 45,17 | 44,53 | 45,17 | 44,53 | 44,63 |
LCR (%) | 273,80 | 193,19 | 273,80 | 193,19 | 249,72 |
Branches and FTEs | |||||
No. of branches | 30 | 29 | 30 | 29 | 29 |
FTEs | 179 | 184 | 179 | 184 | 187 |
Equity certificates | |||||
Ownership fraction (parent bank) (%)** | 28,59 | 29,59 | 28,59 | 29,59 | 29,59 |
No. of equity certificates | 20.731.183 | 20.731.183 | 20.731.183 | 20.731.183 | 20.731.183 |
Book equity per equity certificate* | 60,26 | 61,49 | 60,26 | 61,49 | 61,51 |
Earnings per equity certificate* | 0,79 | 0,97 | 2,60 | 3,82 | 5,16 |
Dividend per equity certificate | 0,00 | 0,00 | 0,00 | 0,00 | 3,85 |
Turnover rate | 14,22 | 24,17 | 17,97 | 23,82 | 28,53 |
Price | 46,10 | 52,80 | 46,10 | 52,80 | 57,20 |
- Defined as alternative performance target
- For ownership fraction as at 01.01.2022, see Note 17
For the definitions of key figures and a review of alternative performance targets, see page 37.
3 | Sparebanken Øst | Interim Report Q3 2022 |
Board of Directors'
Report
In Q2, the bank can point to continued higher net interest income, increased commission income and a stably low level of costs. The quarterly result was affected by substantial negative changes in the value of the bank's portfolio of bonds and certificates, which is held for liquidity purposes, as well as negative changes in value from ownership interests in other companies.
Profit for the quarter amounted to NOK 77.6 million, and NOK 139.8 million for the first half-year. The turbulence in the financial markets is having a negative impact on the results, and the decreases in market values totalled NOK 56.4 million in the quarter. The dividend income received from Frende Holding AS amounted to NOK 49.1 million in the quarter. The return on equity for the quarter was 6.87 per cent, and 6.24 per cent for the first half-year.
In a market where competition for loan customers is fierce and margins very low, both in the retail market and the business market, the bank has prioritised maintaining lending margins. This explains the bank's negative growth in lending in the past 12 months. The bank can point to a stable deposits portfolio during the same period.
With effect from mid-May, interest rate increases were applied to large parts of the bank's loan portfolio, and further changes were decided in the Q2 that will take effect in mid- August. The bank's deposit margins increased in the first half- year and are expected to increase going forward due to anticipated rises in money market rates.
At the end of the first half-year, the bank's losses on loans are very low and it is financially very strong with a CET1 capital ratio of 20.04 per cent (inclusive of 50 per cent of retained earnings).
Results for the quarter in brief
Profit for the quarter amounted to NOK 77.6 million, down NOK
-
million compared with Q2 2021. Compared with Q1 2022, profit increased by NOK 15.4 million.
The return on equity (ROE) amounted to 6.87 per cent. The corresponding figures were 13.49 per cent for Q2 2021 and
- per cent for Q1 2022.
Earnings per equity certificate were NOK 1.01, down from NOK 1.97 in Q2 2021 and up from NOK 0.80 in Q1 2022.
The CET1 capital ratio, inclusive of 50 per cent of retained earnings, was 20.04 per cent, up from 17.26 per cent in Q2 2021 and 19.01 per cent in Q1 2022.
The leverage ratio, inclusive of 50 per cent of retained earnings, was 9.14 per cent, up from 8.20 per cent in Q2 2021 and 8.95per cent in Q1 2022.
Net interest income amounted to NOK 158.3 million, up NOK 6.5 million from Q2 2021. Compared with Q1 2022, net interest income, measured as a percentage of average total assets, was stable at 1.38 per cent.
5
Net other operating income amounted to NOK 3.0 million, down by NOK 77.1 million compared with Q2 2021. Compared with Q1 2022, net other operating income increased by NOK 4.3 million. The turbulence in the financial markets has resulted in significant decreases in value. The bank's portfolio of bonds and certificates, which is held for liquidity purposes, saw a negative change in value amounting to NOK 26.8 million. Unrealised negative changes in value from ownership interests amounted to NOK 24.3 million, of which the shareholding in Norwegian Block Exchange AS (NBX) accounted for NOK 21.2 million. By comparison, the positive change in the value of the shareholding in NBX amounted to NOK 26.8 million in Q4 2021. The dividend income received from Frende amounted to NOK
49.1 million, a decrease of NOK 19.9 million compared with Q2 2021.
Operating costs totalled NOK 66.6 million, a reduction of NOK 1.6 million from Q2 2021. Operating costs as a percentage of average total assets were stable at 0.58 per cent compared with 0.57 per cent in Q2 2021.
Losses amounted to NOK 0.8 million and were stable with an increase of NOK 0.2 million from Q2 2021. By comparison, losses amounted to NOK 0.2 million in Q1 2022.
New dividend policy - equal distribution
On 15.07.2022, the Board of Directors approved changes to the bank's dividend policy that will result in the maintenance of a stable ownership fraction over time. The changes result in a policy that aims to prevent any future reduction of the equity certificate holders' share of the equity and ensure the same distribution ratio of up to 50 per cent for both the primary capital and the equity certificate capital going forward. The bank's ownership fraction as at 01.01.2022 and at the end of Q2 was 28.59 per cent. The bank's new dividend policy is:
-
Our financial targets for our operations are to achieve results that provide a good and stable return on the
Bank's equity and create value for equity certificate holders as competitive returns in the form of dividends and equity certificate appreciation. We will strive to ensure that our dividend policy results in a stable ownership fraction over time. - The profit for the year will be divided between equity certificate holders and social capital in accordance with their respective shares of the bank's equity. We will aim to pay out up to 50 per cent of the profit allocated to equity certificate holders as dividends.
- We will also aim to distribute up to 50 per cent of the profit allocated to primary funds in the form of donations to good causes, a donation fund and/or a charitable foundation.
- When the dividend is set, due consideration will be taken of the bank's financial performance, market situation, dividend stability and need for Tier 1 capital.
Sparebanken Øst | Interim Report Q2 2022
Adjusted target for the return on equity (ROE)
Sparebanken Øst calculates its capital adequacy using the standard method and therefore, given the current regulations, uses very high capital weights for its lending to retail and business customers when compared with banks that fully or partly use IRB models. Treating identical customers with equal risk differently shows that capital weights based on the standard method result in significantly lower lending capacity in relation to the level of equity, which in turn results in a lower return on equity. Given the current regulatory framework conditions, on 15.07.2022 the Board of Directors voted to adjust the target return on equity (ROE) from 10 per cent to 9 per cent.
Over time, Sparebanken Øst has achieved a good return on equity and adjusting the target return does not entail a change to the bank's business model. Given the current regulatory framework conditions and its status as a standard method bank, in the opinion of the Board a target return of 9 per cent for the next few years represents a realistic level of ambition for Sparebanken Øst.
Changed financial strength target for CET1 capital ratio
The applicable Pillar 2 requirement for Sparebanken Øst is 1.8 per cent, with a minimum of NOK 360 million. The requirement came into effect on 30.06.2020. Given the current level of the countercyclical buffer of 1.5 per cent, this entails a total CET1 capital requirement of at least 13.3 per cent. Based on the announced increase in the systemic risk buffer from 31.12.2022, as well as the announced increases in the countercyclical buffer, Sparebanken Øst's total regulatory requirement for CET1 capital will increase to 15.8 per cent under the applicable Pillar 2 requirement at the end of Q1 2023.
The Board has voted to change the CET1 capital target from
14.75 per cent to expressing the capital target as follows: The Sparebanken Øst Group's target for CET1 capital shall be equal to the regulatory requirement plus a capital margin of 1.0 per cent.
More about the results for the quarter
NET INTEREST INCOME
Net interest income amounted to NOK 158.3 million, up NOK
6.5 million from Q2 2021, and down NOK 3.6 million compared with Q1 2022. Higher interest rates generally result in increased interest income and higher interest costs for the bank. The increase in net interest income compared with Q2 2021 was mainly due to increased deposit margins, although rising money market rates are also resulting in higher interest costs
6
for the bank's market funding. The marginal reduction in net interest income compared with Q1 2022 was mainly attributable to a slightly lower lending volume and the fact that interest rate changes for loans were implemented with a significant time lag compared with interest costs for the bank's market funding.
Netto renteinntekter | |||
Beløp i NOK mill. | Q2 22 | Q1 22 | Q2 21 |
Utlån til & fordringer på kredittinstitusjoner | 1,0 | 0,6 | 0,0 |
Utlån til kunder | 264,5 | 250,2 | 221,4 |
Sertifikater og obligasjoner | 30,5 | 25,9 | 13,9 |
Sum renteinntekter | 296,0 | 276,6 | 235,3 |
Gjeld til kredittinstitusjoner | 1,7 | 1,7 | 1,5 |
Innskudd fra kunder | 25,8 | 25,1 | 21,0 |
Verdipapirgjeld | 104,0 | 81,8 | 56,5 |
Ansvarlig lånekapital | 2,7 | 2,3 | 1,8 |
Sikringsfondsavgift | 3,6 | 3,8 | 2,8 |
Sum rentekostnader | 137,7 | 114,8 | 83,5 |
Netto renteinntekter | 158,3 | 161,9 | 151,8 |
Rentenetto i % av GFK | 1,38 | 1,38 | 1,28 |
NET OTHER OPERATING INCOME
Net other operating income comprises commission income and costs, dividends, net value changes and gains/losses on financial instruments and other income. Net other operating income amounted to NOK 3.0 million, down by NOK 77.1 million compared with Q2 2021. Compared with Q1 2022, net other operating income increased by NOK 4.3 million.
Net commission income amounted to NOK 8.5 million, up NOK 1.4 million from Q2 2021. The increase is mainly due to increased activity in money-transfer services.
Dividends received totalled NOK 50.1 million, of which dividends from Frende Holding AS accounted for NOK 49.1 million and dividends from Kraft Bank AS accounted for NOK
0.7 million. In Q2 2021, the dividends from Frende Holding AS amounted to NOK 69.0 million.
Net value changes and gains/losses on financial instruments amounted to NOK -56.4 million, down NOK 58.5 million from Q2 2021. Market turbulence due to the war in Ukraine persisted in Q2, although the focus has shifted more towards rising inflation and fears of a recession. The value of the liquidity portfolio fell by NOK 26.8 million, compared with a reduction of NOK 5.3 million in Q2 2021. Following a muted improvement in the credit market at the start of Q2, credit premiums increased towards the end of the quarter. The turbulence in the financial markets has also resulted in higher volatility and falls in value in the stock exchanges. The negative change in value of the bank's shares in Norwegian Block
Exchange AS (NBX) amounted to NOK 21.2 million. The bank saw a positive change in the value of the shareholding in NBX amounting to NOK 26.8 million in Q4 2021. The value of the bank's shares in Kraft Bank ASA fell by NOK 3.0 million, against a rise of NOK 2.0 million in Q2 2021. Positive value changes related to shares and options in Visa Inc. amounted to NOK 0.5 million compared with an increase of NOK 5.4 million in Q2 2021. The negative profit effects from foreign exchange,
Sparebanken Øst | Interim Report Q2 2022
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Sparebanken Øst published this content on 16 December 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 December 2022 07:32:04 UTC.
