Sparebank 1 SMN
OSE:MING
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Good afternoon, and welcome to this presentation of the results for SpareBank 1 SMN for the fourth quarter and the full year of 2022. My name is Trond Soraas, and I'm the CFO at SMN. And I will go through the main figures and events from the report that we released earlier today.
Very glad to start to announce that we had a very strong end to the year. Return on equity in the last quarter, quarter 4, about 13%. We see through the year, and also in the fourth quarter, strong revenue increase in both the banking operations and in the subsidiaries. Still a situation where we see low net loan losses and still an improvement in the segment of offshore. And the bank is very solid and in a very good position to meet its target for dividend payout ratio. So with the good efforts and the good results that we have seen both through the whole year of 2022 and in the last quarter, SMN has fortified its position as a leading financial group within its region.
A few words about some main events. First, one, a very unfortunate one that took place actually after the year-end regarding the embezzlement in the bank. As it's probably known by now that the SMN reported, the 19th of January, an employee to the police for gross embezzlement. This was a hired replacement that has been with the bank for more than 2 years. It was the bank itself that came aware or became aware of the embezzlement and reported it to the police and the Norwegian FSA. Both the police investigation and the bank's own investigation confirms that the embezzlement total just below NOK 75 million. And the accused has returned just about NOK 9 million of this before the arrest. So the net amount is just about NOK 65 million, whereof NOK 15 million is discovered and secured, leaving approximately NOK 50 million of the embezzled amount assumed to be lost.
The bank has an insurance coverage against economic crime committed by an employee, including embezzlement, and the deductible here is NOK 5 million. This is still a police -- ongoing police investigation, but the main takeaway from this is that the embezzlement itself, the amounts involved does not affect any customers, does not affect the bank's operations and does not affect the bank's financial situation in any significant way.
Moving on to a more positive event. A few words about the merger process with SpareBank 1 and Søre Sunnmøre. Both banks are now approved the merger in their general assemblies, and both banks has also received an approval from the Norwegian Competition Authority, leaving us awaiting a formal approval from the Norwegian FSA. So the merger project is moving along fine, and we expect the legal merger to take place in the beginning of May.
Moving on to the financial information. As already stated, a very strong last fourth quarter with a profit of NOK 768 million, leaving the profit for the full year close to NOK 2.8 billion, which amounts to a very strong return on equity in the last quarter of 13.1% and 12.3% for the full year.
With this quarter, SMN continued to deliver high returns, building capital. The bank has a very strong capital position, and there is still a few signs of negative developments in the loan book. So yet another quarter with low loan losses as well.
The Board of Directors has proposed a dividend payout of NOK 6.5 per equity certificate. That leaves the total dividend amount to NOK 840 million and also a community dividend of NOK 474 million, of which NOK 230 million is set aside for nonprofit causes. The payout amounts to a payout dividend payout ratio of 50.7%. And this is in accordance with the bank's targeted payout ratio of around 50%.
A few words about growth, both lending and deposits. We see that we have a total loan book now at the end of the year of just about NOK 211 billion, after a year-on-year growth of 8.1%, which means that we are taking market shares both in the retail market and in the corporate market. The market growth is expected to fall, is already falling. So growth will be slower for the next year, but SMN is still targeting to build market shares in both segments.
When it comes to deposits, total deposits, just about NOK 122 billion, after a growth year-on-year of 9.6%, leaving us with deposit-to-loan ratio now of 58%, up 1% from last year.
This has been a year with high activity and strong results across the group. Perhaps this quarter, in particular, worth to mention the accountancy firm, which has succeeded very good with new accounting-related services to the customers and also with twisting more of their business towards advisory.
Also worth to mention that SpareBank 1 Markets, the capital market's activities in our group, has had a very strong quarter. This is the capital market activities that are soon to be merged with the same activities in SpareBank 1 SR-Bank and SpareBank 1 Nord-Norge, a nice pickup in the results from the last quarter, mainly driven by high income from investment banking and also a stronger results from interest and currency business.
We see an increased contribution from the ownership interest this quarter. For the year as a whole, SpareBank 1 Gruppen has have had a weak result, but has had its best quarter, the last quarter in quarter 4, with a strong results, mainly driven by a stronger result in SpareBank 1 Forsikring and also a gain from the merger with -- between [ Kreditt Norge ] and Moody Finance. And we also see that we have a strong and consistent high return from the ownership interest in BN Bank.
The bank has a robust income platform. We see good results, both for the whole year and the last quarter and above the financial target.
Looking at the fourth quarter in particular. We see that there is a very strong uptick in net interest income, driven by higher margins on deposits and growth. We see a reduction in commissions income, mainly driven by a lower commission from the covered bond company in the alliance. Operating expenses up, both in the subsidiaries and in the banking operation, where in the banking operation, we see that almost half of the increase stems from one-offs related to the merger project with Søre Sunnmøre.
Low to moderate loan losses this quarter as well. And as stated, a pickup in the income from ownership interest, leaving us with a total result of NOK 768 million and a return on equity of 13.1%.
Looking closer to the commission income. We see still a very stable and a high level on the commission coming from the product companies in the group, but also a good contribution from the bank subsidiaries. But as we see the reduction in commissions from the last quarter is mainly driven by the lower margins in the covered bond companies, SpareBank 1 and Boligkreditt, where the bank transfers some mortgages.
Costs, up both in subsidiaries and in the bank. Looking at the parent bank in particular, we see that half of this cost increase stems from one-offs due to the planned merger with SpareBank 1 and Søre Sunnmøre. In addition, we see some increased costs in IT development and the use of consultants.
SpareBank 1 SMN has a strong and a very conservative loan book. More than 67% of the loan book is towards wage earners in a very attractive region of Norway, where the unemployment rate is very low. And we still have low energy prices. And we also have a diversified corporate portfolio across both sectors and geographies.
No signs to impaired credit quality in the loan book as of now. We still have the situation where we see an improvement in the offshore segments, where higher demand from oil and gas and offshore wind is creating a better market balance in that segment. So there has been a reversal of loans in that segment. But we are, due to the higher macroeconomic uncertainty driven by increased interest rates and inflation, seeing IFRS 9 losses in the other part of the corporate loan book and also somewhat in the retail loan book. So that leaving total losses for the fourth quarter at NOK 19 million.
Very strong solidity, CET1 ratio at the end of the quarter and the year of 18.9%, combine that with a leverage ratio of 7.1% and the very strong earnings, the banking group SMN undoubtedly solid.
In a few weeks' time, we will publish our annual report for the full year. There, we will announce our public climate accounting. And for the first time, we will also announce the emissions that we have from the total loan book. We have estimated emissions from that loan book to be 1.1 million tonne CO2 equivalents. And that amounts to more than 98% of the group's total climate emissions. A very concentrated emission profile where agriculture and shipping-related segments are dominant.
When we calculate these emissions, we estimate the emission based on the PCAF standard. So it's very important to say that we are on a very low level of the standard when it comes to data quality. So it could be the case that as we grow, as we get more information, more knowledge, these emission figures will change. But this is a very important starting point for the transition towards the group's ambition of net zero by 2050.
A very important tool in achieving this goal is, of course, transition plans made for each segment in the loan book. We have established transition plans now for the main segments, and we will have in place transition plans for all segments of the loan book by the end of this year.
A very good year in SpareBank 1 SMN in 2022. We have seen good results, and we have established a good platform for further profitable growth. The aim of the group is to be among the best performers in the Nordic regions. Hence, the Board of Directors has decided to increase the target for return on equity from 12% to 13%. And it also has revised the efficiency target as to a cost/income target for the bank.
So in conclusion, just a few words about why it's attractive to invest in SpareBank 1 SMN. An investment in the MING is an investment in high returns over time, in sustainable growth; in efficient banking operations, where there are still synergies to take out within the group. It's a well-capitalized bank, and the bank has a very shareholder-friendly dividend policy.
We are in a strong position to -- in a very attractive region on Norway. We have market growth in all business lines and a diversified customer portfolio and income base; a very good brand where there is still potential based on the ownership model, the presence, the local presence that we have in this region; substantial underlying value, both through ownership positions within the alliance and outside. And we are still well positioned in regards to the consolidation processes that we expect to be -- to come among Norwegian savings banks. Thank you so much.