INTERIM REPORT Q3 2015

Transcription

1 INTERIM REPORT Q3 2015

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3 Key figures FIGURES IN NOK 000s INCOME STATEMENT Profit/loss after taxation Net interest margin 1,37 % 1,68 % 1,64 % Profit/loss after tax as a % of average total assets 0,93 % 1,25 % 1,19 % KEY BALANCE SHEET FIGURES Gross loans to customers Impairment provisions Equity Total assets Average total assets OTHER KEY FIGURES Cost-to-income ratio 6,47 % 4,43 % 4,59 % Impairment charge as a % of gross loans 0,01 % 0,06 % 0,05 % Impairment provisions as a % of gross loans 0,07 % 0,10 % 0,10 % Return on equity after tax *) 12,75 % 15,43 % 15,07 % Capital adequacy ratio 21,47 % 18,17 % 16,75 % YEAR-ON-YEAR BALANCE SHEET GROWTH Growth in total assets 24,00 % 8,70 % 13,20 % Growth in customer lending 24,23 % 10,40 % 11,33 % Information about the loan portfolio Surplus value of cover pool (NOK millions) Surplus value of cover pool (%) 26,4 % 24,7 % 24,9 % Committed surplus (%) 11,0 % 11,0 % 11,0 % Loan-to-value ratio, indexed 51,6 % 56,5 % 55,7 % Loan-to-value ratio, not indexed 57,2 % 58,8 % 58,0 % Face value of covered bonds issued (NOK millions) Substitute assets other than loans (NOK millions) 591,3 493,0 755,3 Weighted average time since issue of loans (years) 3,1 3,0 3,1 Weighted average remaining term of loans (years) 16,3 16,3 16,3 Proportion of variable-rate loans 100 % 100 % 100 % Proportion of flexible mortgages 25,5 % 27,9 % 27,3 % Average loan value (NOK millions) 1,17 1,15 1,17 Number of loans Proportion of loans secured by an overseas property 0 % 0 % 0 % *) Calculated using the opening equity balance adjusted for capital increases. Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 3

4 Interim report 30 September 2015 HIGHLIGHTS Bustadkreditt Sogn og Fjordane AS is a wholly-owned subsidiary of Sparebanken Sogn og Fjordane, with its head office in Førde. Bustadkreditt Sogn og Fjordane AS has given the Sparebanken Sogn og Fjordane group access to long-term funding on competitive terms. It finances itself by issuing covered bonds. Services such as customer care, loan servicing, management and administrative services are supplied by Sparebanken Sogn og Fjordane. At the end of September 2015, the Company had 9,749 mortgages with a total face value of NOK 11.4 billion. The loans in the cover pool were issued by Sparebanken Sogn og Fjordane, and subsequently bought by Bustadkreditt Sogn og Fjordane. All of the Company s loans were subject to a variable interest rate. 25.5% of the loan book was made up of flexible mortgages. The weighted average loan-to-value ratio was 51.6 percent, the weighted average loan term was 16.3 years and the weighted average time since the loans were granted was 3.1 years. The average loan per customer was NOK 1.17 million. The Company s total loan portfolio grew by NOK 2,223 million over the past year. The volume of covered bonds issued by the Company was NOK 9.46 billion. RATING OF COVERED BONDS In the third quarter of 2011, Bustadkreditt Sogn og Fjordane s covered bond programme was given a long term rating of Aaa by the ratings agency Moody s. This rating has remained unchanged since then. After Moody s revised its rating system earlier this year, and after Sparebanken Sogn og Fjordane was upgraded to A2, Bustadkreditt Sogn og Fjordane s Aaa rating is considered stronger than before. CHANGE IN CALCULATION OF LOAN-TO-VALUE RATIOS All Norwegian credit institutions use Eiendomsverdi to provide valuations of the collateral in their cover pools. Eiendomsverdi provides two estimates: one unbiased estimate, and one adjusted estimate that downwardly adjusts the unbiased estimate for the riskiest assets. At the recommendation of the Norwegian committee on covered bonds, in the first quarter of 2015 Bustadkreditt Sogn og Fjordane AS went from using the downwardly adjusted estimate to the unbiased estimate for collateral. This has resulted in a reduction in the reported loan-to-value ratio. KEY FIGURES (Figures in brackets are for the year-earlier period) Profit after taxation of NOK 75.3 million (85.2 million) Net interest income of NOK million (115.0 million) Operating expenses of NOK 7.0 million (5.1 million) Net change in the value of financial instruments of NOK -3.0 million (0.0 million) Impairment charge of NOK -1.4 million (-6.0 million) Annualised return on equity of 12.7% (15.4%) after tax Core capital adequacy ratio of 21.47% (18.17%) FINANCIAL RESULTS In the first nine months of 2015, the Company made a pre-tax profit of NOK million. Profit after tax was NOK 75.3 million, giving an annualised return on equity of 12.7%. The equivalent figures for the previous year were NOK million in pre-tax profit, NOK 85.2 million in profit after tax and return on equity of 15.4 %. Profit after tax was equivalent to 0.93% of average total assets, compared with 1.25% the previous year. NET INTEREST INCOME Net interest income totalled NOK million. The net interest margin for the nine months to 30 September 2015 was 1.37%. The equivalent figures for the yearearlier period were NOK million and 1.68%. The reduction in interest income was due to margins on loans to customers falling as a result of strong competition in the banking market. When interest rates on loans fall, margins will in general fall more at a credit provider than at a bank, which can recover part of the fall by paying lower interest rates on customer deposits. OPERATING EXPENSES Operating expenses were NOK 7.0 million, compared with NOK 5.1 million for the same period last year. The purchase of services from Sparebanken Sogn og Fjordane is the Company s biggest expense item. Other major expense items include issuing bonds, credit rating agency fees and the purchase of services from Eiendomsverdi. The cost/income ratio rose to 6.5% in the second quarter of 2015, up from 4.4% in the year-earlier period. This was related to a slight increase in the cost of services bought from the parent company, combined with somewhat lower interest income than last year. The weak Norwegian krone and greater volume of covered bonds also resulted in higher expenses associated with credit rating. IMPAIRMENT PROVISIONS FOR LOANS AND GUARANTEES The Company follows Sparebanken Sogn og Fjordane s guidelines for assessing loan impairment. At 30 September 2015, one loan was more than 90 days in arrears, but no losses had been realised. Credit risk is low, and no individually assessed impairment provisions have been made. Collectively assessed provisions are estimated using a model that takes the quality, size and composition of 4 Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited)

5 the loan portfolio into account. The model used is the same one as is used by Sparebanken Sogn og Fjordane. In the first nine months of 2015, the Company recognised a NOK 1.4 million gain in relation to collectively assessed impairment provisions. This gain was the result of the validation of the scoring model in autumn This pushed customers into lower risk classes, which in turn led to a reduction in collectively assessed impairment provisions. BALANCE SHEET The Company had total assets of NOK 11,992 million at 30 September This represented an increase of NOK 2,321 million over the past 12 months (+24.0%). The increase in total assets was primarily due to increased lending to customers. CUSTOMER LOANS AND OTHER SUBSTITUTE ASSETS In addition to the NOK 11,400 million of mortgage loans, NOK 591 million of other substitute assets have been established. The total value of the (adjusted) cover pool is NOK 11,960 million, which is 26.4% higher than the volume of covered bonds issued. In the third quarter, a new bond with a face value of NOK 2 billion was issued. The Company also repurchased and repaid NOK 544 million of loans. One NOK 302 million loan reached its maturity date. 60.5% of Bustadkreditt Sogn og Fjordane s loan portfolio has a loan-to-value ratio of less than 60%. The Company considers its loan portfolio to be low-risk. The figure below shows the weighted loan-to-value ratio for the loans held by the Company. Weighted loan-to-value ratio 40% 35% 30% 25% 20% 15% 10% 5% 0% 26% Under 40% 14% 40-50% 20% 50-60% 36% 60-75% over 75% The geographic distribution of our mortgage portfolio, based on where the main borrower lives, was as follows: Region Share Western Norway 80,4 % Eastern Norway 17,9 % Central Norway 0,8 % Southern Norway 0,4 % Northern Norway 0,5 % Overseas 0,0 % Total 100,0 % 4% 5 largest counties measured by loan volume County Share Sogn og Fjordane 51,3 % Hordaland 25,5 % Oslo 9,0 % Akershus 5,8 % Rogaland 2,2 % Rest of Norway 6,2 % Total 100,0 % 5 largest municipalities measured by loan volume Municipality Share Bergen 21,7 % Førde 13,3 % Flora 11,5 % Oslo 9,0 % Sogndal 3,3 % Rest of Norway 41,2 % Total 100,0 % Other information about the loan portfolio Distribution by loan value Loan value Volume (NOK millions) 0 1 mill mill mill over 3 mill Total The combined volume of the five biggest loans was NOK 52.2 million. SHAREHOLDERS EQUITY AND CAPITAL ADEQUACY At 30 September 2015, Bustadkreditt Sogn og Fjordane AS had NOK 1,077 million of equity. The capital adequacy ratio was 21.47%. The equivalent figures for the previous year were NOK 761 million of equity and a capital adequacy ratio of 18.17%. A dividend of NOK million was paid to the parent company during the reporting period. In September 2015 the share capital was increased by NOK 325 million through the parent company buying new shares in the Company. The purpose of the capital increase was to give the Company scope to grow its loan book. LIQUIDITY At the close of the third quarter, Bustadkreditt Sogn og Fjordane AS had NOK million of deposits held at Sparebanken Sogn og Fjordane, as well as a total of NOK million of substitute assets made up of short-term government bonds and covered bonds issued by other banks. Bustadkreditt Sogn og Fjordane AS has excellent credit facilities with Sparebanken Sogn og Fjordane. These will allow the Company to make interest and principal payments to the owners of covered bonds, enable it to make advances to customers with flexible mortgages, provide bridge financing when loans are being transferred from the parent bank to it, and fund the necessary surplus in the cover pool. Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 5

6 RISK Under its licence as a credit provider, Bustadkreditt Sogn og Fjordane is subject to laws, regulations and rules that limit the level of risk to which it can be exposed. The Board of Directors and CEO are responsible for establishing risk management procedures, and for ensuring that they are adequate and in compliance with laws and regulations. Bustadkreditt Sogn og Fjordane is exposed to credit risk, operational risk, liquidity risk and interest rate risk. The Board considers it a priority for the Company to maintain a low risk exposure. Limits have been set on exposure to the various classes of risk, and a system has been established for measuring, managing and monitoring each of them. Credit risk Credit risk is the danger of losing money as a result of customers or counterparties being unable or unwilling to meet their obligations to Bustadkreditt Sogn og Fjordane. The Company has its own rules on which loans it can buy from its parent company. The rules are strict, which means that in principle the credit risk is low. The rules specify requirements relating to the type of loan, loan-to-value ratio, risk class and type of collateral. At the end of the third quarter of 2015, the Company s average loan-to-value ratio was 51.6%, measured using the approved valuation of the collateral by Eiendomsverdi AS. The Board of Directors considers the loan portfolio to be of high quality, and to be associated with a low credit risk. Market risk Market risk is the risk arising from the Company s open positions relating to loans and financial instruments whose values fluctuate over time in response to changes in market prices. Bustadkreditt Sogn og Fjordane AS does not have any investments in shares or foreign currencies, so all of its market risk is related to interest rate risk. The Company s risk management framework sets limits on the Company s exposure to market risk. The Board of Directors considers it important for Bustadkreditt Sogn og Fjordane AS to maintain a low exposure to market risk. Liquidity risk Liquidity risk is the risk that the Company will be unable to fulfil its obligations and/or finance an increase in assets without significant additional cost, either because it has to realise losses on the sale of assets or because it has to make use of unusually expensive financing. The Board has decided that the Company s exposure to liquidity risk should be kept low. This is, amongst other things, reflected in the size of the required liquidity buffer. The Company s credit agreements with its parent also play an important role in reducing its liquidity risk. Operational risk Operational risk is defined as the risk of losses due to human error, external actions or failures and defects in the Company s systems, procedures and processes. Bustadkreditt Sogn og Fjordane AS has signed an agreement with Sparebanken Sogn og Fjordane on the provision of services in areas such as customer service, administration, IT, finance and risk management. In these areas, the parent company is responsible for resolving any mistakes and for handling the operational risk. The Board believes that it handles this area well. OUTLOOK Falling margins resulted in a slightly lower profit than in the equivalent period last year. Interest rates are expected to remain low, which will probably result in lower average margins than we have experienced over the past two years. Nevertheless, with costs and loan losses at current levels, the Board believes that the Company can continue to make a healthy profit. In September 2015, Norges Bank lowered its key rate to 0.75%. The interest rate path for the coming three years was also adjusted down. Viewed in isolation, lower interest rates should mean that house prices will continue to rise. On the other hand, a key rate approaching 0% and a falling interest rate path suggest that the economy will perform worse over the coming years. Unemployment has risen in recent months, which may reduce overall demand and put downward pressure on house prices. Statistics Norway expects house prices to fall in the fourth quarter of 2015, and then to rise slightly in Unemployment is expected to peak in Bustadkreditt Sogn og Fjordane AS s risk exposure will increase if customers with loans from the Company become unemployed. However, interest rates are extremely low, and collateral is strong. Overall, the Board therefore considers the risks to be low, even if the macroeconomic situation becomes somewhat more challenging in the immediate future. Funding obtained in the market for covered bonds will continue to play a vital role in helping the Sparebanken Sogn og Fjordane banking group to remain competitive. We are therefore working to ensure that Bustadkreditt Sogn og Fjordane can buy a larger proportion of Sparebanken Sogn og Fjordane s mortgage portfolio in the coming years. Førde, 26 October 2015 The Board of Directors of Bustadkreditt Sogn og Fjordane AS Frode Vasseth Chair Hallvard Klakegg Peter Midthun Ingeborg Aase Fransson Harald Slettvoll CEO 6 Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited)

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8 Income Note Interest income Interest expenses Net interest income Commission income Net commission income Net gains/losses on financial instruments Total other operating income Net other operating income Total operating income Wages, salaries, etc Administration expenses Other operating expenses Total operating expenses Operating profit/loss before loan impairment charge Loan impairment charge 3, 4, Operating profit/loss Tax expense Profit/loss for the reporting period COMPREHENSIVE INCOME Profit/loss for the reporting period Other comprehensive income Comprehensive income Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited)

9 Balance ASSETS Note Loans and advances to credit institutions Loans to customers 3, 4, Commercial paper and bonds Deferred tax assets Other receivables/accrued income Total assets SHAREHOLDERS EQUITY AND LIABILITIES Paid-up equity Share capital Total paid-up equity Retained earnings Other equity Allocated for dividends Total retained earnings Total equity Liabilities Debt to credit institutions Debt securities in issue Tax payable Accrued costs Total liabilities Total liabilities and equity Førde, 26 October 2015 The Board of Directors of Bustadkreditt Sogn og Fjordane AS Frode Vasseth Chair Hallvard Klakegg Peter Midthun Ingeborg Aase Fransson Harald Slettvoll CEO Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 9

10 Cash flow statement Profit/loss before taxation Loan impairment charge Tax paid Reduction/increase in loans and advances to customers Other non-cash transactions A) Net cash flow from operating activities Reduction/increase in investments in commercial paper and bonds B) Net cash flow from investment activities Increase/reduction in loans from credit institutions Increase/reduction in debt securities Increase/reduction in paid-up share capital Dividends C) Net cash flow from financing activities D) Net cash flow during the year (A+B+C) Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents Breakdown of cash and cash equivalents Deposits at other financial institutions Total Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited)

11 Equity statement PAID-UP UT EQUITY RETAINED EARNINGS Other Allocated for Total Share capital equity dividends equity Opening balance Dividends paid Profit/loss for the reporting period Equity transactions New paid-up equity Closing balance Opening balance Dividends paid Profit/loss for the reporting period Equity transactions New paid-up equity Closing balance Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 11

12 Notes to the financial statements NOTE 1 WAGES, SALARIES, ETC. Bustadkreditt Sogn og Fjordane AS s financial statements have been prepared using the simplified application of IFRS. These interim financial statements have been presented in accordance with IAS 34 Interim Financial Reporting. The Company has used the same accounting policies and calculation methods as at 31 December The Ministry of Finance issued new regulations on the simplified application of IFRS on 3 March The new regulations came into force as of the 2014 financial year, but a transition arrangement allows the old regulations to be used for the 2014 and 2015 financial years. The Company has chosen to make use of the transition arrangement, and has therefore prepared the financial statements for Q using the old regulations. For more detailed information about our accounting principles and critical accounting estimates, please see Bustadkreditt Sogn og Fjordane s annual report for See: All figures are stated in thousands of NOK, unless otherwise specified. NOTE 2 SEGMENTS The Company has one segment. This segment consists of loans to retail customers and a small volume of loans to private businesses. All of the loans have been bought from Sparebanken Sogn og Fjordane. The Company does not have any operations outside Norway. Customers with overseas addresses are classified as part of the Norwegian operations. NOTE 3 LOAN IMPAIRMENT CHARGE Increase/reduction in individually assessed impairment provisions Increase/reduction in collectively assessed impairment provisions Losses realised during the period for which impairment provisions had previously been made Losses realised during the period for which impairment provisions had not previously been made Recoveries against previous years realised losses Loan impairment charge for the period NOTE 4 IMPAIRMENT PROVISIONS Individually assessed impairment provisions at the start of the period New ind. ass. provisions against previously impaired loans Release of individually assessed provisions from past periods Loan loss provisions against previously unimpaired loans Losses realised for which individually assessed provisions had been made Individually assessed impairment provisions at the end of the period Collectively assessed impairment provisions at start of period Change in collectively assessed provisions for the period Collectively assessed impairment provisions at end of period Total impairment provisions at end of period Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited)

13 NOTE 5 OANS IN DEFAULT AND AT RISK OF DEFAULT Loans in default Loans more than 90 days in arrears individually assessed impairment provisions Net loans in default Coverage ratio 0 % 0 % 0 % Other loans at risk of default Loans at risk of default (not in default) Individually assessed impairment provisions Net other loans at risk of default Coverage ratio 0 % 0 % 0 % NOTE 6 DEBT SECURITIES IN ISSUE Commercial paper and other short-term borrowings Bonds in issue Own commercial paper/bonds, not amortised Total debt securities in issue Term to maturity Remaining term to maturity (face value) Total New borrowings in Repaid during the reporting period MATURITY BOOK VALUE ISIN NUMBER FACE VALUE INTEREST RATE SPREAD DATE *) NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, NO MND. NIBOR 0, Amortisation Total debt securities in issue The table shows the agreed maturity date. *) The terms of the loan allow for the maturity date to be extended by one year. All loans are denominated in NOK. All loan agreements are subject to standard loan terms. Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 13

14 NOTE 7 CAPITAL ADEQUACY Equity and subordinated debt Share capital and share premium account Other equity Share of interim profit/loss Equity Other core capital Deductions: Deferred tax assets Net core capital Core Tier 1 capital Net supplementary capital Net equity and subordinated loan capital BASIS FOR CALCULATION Credit risk Institutions Retail loans Residential mortgage loans Overdue advances Covered bonds Other advances Total calculation basis for credit risk Operational risk Total calculation basis Excess equity and subordinated debt CAPITAL ADEQUACY Capital adequacy ratio 21,47 % 18,17 % 16,75 % Core capital adequacy ratio 21,47 % 18,17 % 16,75 % Core Tier 1 capital adequacy ratio 21,47 % 18,17 % 16,75 % Unweighted core capital ratio 7,95 % 6,65 % 7,74 % The capital adequacy ratio has been calculated using the new capital adequacy regulations (Basel II). The standardised approach has been used for credit risk and market risk, whilst the basic indicator approach has been used for operational risk. There are three pillars to the Basel II regulations. Pillar 1 relates to minimum capital adequacy requirements, and builds on the previous regulations in Basel I. Pillar 2 relates to the institution s internal assessment of total capital requirements (ICAAP), whilst Pillar 3 covers disclosure requirements for financial information. 14 Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited)

15 NOTE 8 TRANSACTIONS WITH RELATED PARTIES Intra-group transactions Interest received from Sparebanken Sogn og Fjordane Interest paid to Sparebanken Sogn og Fjordane Interest paid to Sparebanken Sogn og Fjordane on covered bonds Services bought from Sparebanken Sogn og Fjordane Deposits at Sparebanken Sogn og Fjordane Liabilities to Sparebanken Sogn og Fjordane Covered bonds held by Sparebanken Sogn og Fjordane Bustadkreditt Sogn og Fjordane AS has no employees. An agreement has been signed with Sparebanken Sogn og Fjordane on the supply of loan servicing and administrative services. All of the Company s loans have been acquired from Sparebanken Sogn og Fjordane, and an agreement has been signed with the bank on the servicing of the portfolio. Bustadkreditt Sogn og Fjordane AS takes on all of the risk associated with the loans that it acquires from its parent. Bustadkreditt Sogn og Fjordane AS has been given access to excellent credit facilities with Sparebanken Sogn og Fjordane. These will allow the Company to make interest and principal payments to the owners of covered bonds, enable it to make advances to customers with flexible mortgages, provide bridge financing when loans are being transferred, and fund the necessary surplus in the cover pool. Further details of the credit facilities: Bustadkreditt Sogn og Fjordane AS has four credit facilities with Sparebanken Sogn og Fjordane (SSF): a) A 3-year credit that matures in June The credit facility is to be used for buying mortgage loans from SSF. It has a limit of NOK 750 million. b) A credit agreement to ensure that owners of covered bonds will be paid even if the mortgage credit subsidiary is unable to meet its obligations. The limit on the facility at 30 September 2015 was NOK 154 million. Under the agreement, the obligations of the Bank relate to all payments due to the owners of the covered bonds over the coming year. c) A credit facility that can be used to finance advances to customers with available credit within their flexible mortgages. At 30 September 2015 the limit on the facility was NOK 1,189 million d) A credit facility related to overcollateralisation. The facility shall only be used to buy loans for inclusion in the cover pool, and to buy instruments that qualify as part of a liquidity buffer. At 30 September 2015, the limit on the facility was NOK 1,419 million, but this limit depends on the volume of covered bonds issued at any given time. All agreements and transactions adhere to arm s length principles. NOTE 9 OFF BALANCE SHEET ITEMS Unused credit facilities Total contingent liabilities The unused credit facilities are available financing in flexible mortgages. Company has no other off-balance-sheet obligations. NOTE 10 SUBSTITUTE ASSETS Deposits at the parent company Government-guaranteed commercial paper Other commercial paper and bonds Total substitute assets Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 15

16 INFORMATION ABOUT THE COMPANY Address: Bustadkreditt Sogn og Fjordane AS Langebruvegen 12 N-6800 Førde Tel. no: Organisation number: Management: Harald Slettvoll CEO Board of Directors: Frode Vasseth Hallvard Klakegg Peter Midthun Ingeborg Aase Fransson Chair Board member Board member Board member Contact person: Harald Slettvoll, CEO, GRAPHIC DESIGN: Sparebanken Sogn og Fjordane / E. Natvik Prenteverk AS English translation: Språkverkstaden 16 Bustadkreditt Sogn og Fjordane AS INTERIM REPORT Q (unaudited) 16