Report from the Board of Directors

OPERATIONS IN 2020
Møre Boligkreditt AS is a wholly owned subsidiary of Sparebanken Møre, a regional Norwegian savings bank operating in the county of Møre og Romsdal. Møre Boligkreditt AS is licensed to operate as a mortgage company and to issue covered bonds. Møre Boligkreditt AS is Sparebanken Møre's most important source of long-term market funding and an important part of the parent bank's funding strategy. Møre Boligkreditt AS is located at Sparebanken Møre's headquarter in Keiser Wilhelmsgate 29/33, in the city of Ålesund.

During 2020, Møre Boligkreditt AS’ net growth in mortgages acquired from Sparebanken Møre was NOK 3,386 million, and the company's net mortgage portfolio amounted to NOK 29,041 million at year-end 2020. Mortgages in the company's cover pool are secured by residential properties, all at the time of acquisition within 75 per cent of the property's estimated value.

In 2020, two new covered bond loans were issued together with tap issue in an existing bond loan. Three covered bond loans matured in 2020. Net growth in outstanding covered bond loans in 2020 was NOK 929 million, and total outstanding covered bond loan volume amounts to NOK 23,991 million at year-end 2020.

RATING
The rating agency Moody's has rated all covered bonds issued by Møre Boligkreditt AS an Aaa-rating.

THE MORTGAGE COMPANY’S ANNUAL FINANCIAL STATEMENTS
The financial statements of Møre Boligkreditt AS show a profit before tax of NOK 294 million, compared to NOK 271 million in 2019. Net interest income amounted to NOK 345 million in 2020, compared to NOK 308 million in 2019. Total operating costs amounted to NOK 49 million, compared to NOK 45 million in 2019.

The ECL calculation as at 31 December 2020 shows expected credit loss of NOK 4 million for Møre Boligkreditt AS, compared to NOK 3 million in ECL as at 31 December 2019.

Profit after tax amounted to NOK 230 million in 2020, compared to NOK 222 million in 2019. Tax amounted to NOK 64 million, compared to NOK 49 million in 2019. Total assets at the end of 2020 amounted to NOK 31,783 million compared to NOK 27,749 million at the end of 2019.

Net cash flow from operating activities amounted to NOK -2,793 million compared to NOK -1,552 million in 2019. The timing of the main outflow and inflow is related to payments for acquiring loans from the parent bank and payments related to installment loans and credit lines to customers.

As at 31 December 2020, the company's substitute assets included in the cover pool amounted to NOK 903 million, compared to NOK 988 million as at 31 December 2019. Net value of financial derivatives included in the cover pool amounted to NOK 1,100 million at year-end 2020, compared to NOK 544 million at year-end 2019. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 27.9 per cent as at 31 December 2020, compared to 15.8 per cent as at 31 December 2019.   

Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 116 million as at 31 December 2020, reporting total LCR of 566 per cent.

It is the opinion of the Board of Directors that the presented financial statements provide correct and adequate information about the company's operations and status as at 31 December 2020.

CAPITAL STRENGTH
Paid in equity and retained earnings amounted to NOK 2,282 million by year-end 2020, compared to NOK 2,274 million by year-end 2019. Risk weighted assets amounted to NOK 7,824 million by year-end 2020. Net equity and subordinated loan capital amounted to NOK 1,996 million by year-end 2020, compared to NOK 2,005 million by year-end 2019. This corresponds to a Common Equity Tier 1 capital ratio of 25.5 per cent as at 31 December 2020. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.

RISKS
Møre Boligkreditt AS is subject to a number of acts, regulations, recommendations and regulatory provisions. These regulations largely stipulate restrictions concerning the scope of the company's various risk exposures. The Board and the Managing Director of Møre Boligkreditt AS are responsible for ensuring that proper risk management is established, and that such risk management is adequate and complies with current laws and regulations. Operational risk management in Møre Boligkreditt AS is maintained by Sparebanken Møre according to a service agreement concluded between Møre Boligkreditt AS and Sparebanken Møre.

Risk management emphasizes identifying, measuring and managing the company's risk elements in a manner that ensures that Møre Boligkreditt AS complies with the professional credit regulations and keeps the various risks at a low level.

CREDIT RISK
Credit risk is defined as the risk of losses associated with customers or other counterparties being unable to fulfill their obligations at the agreed time and pursuant to written agreements, and that the received collateral is not covering outstanding claims.

The credit risk strategy adopted by the company defines which loans can be acquired by the company. The strategy stipulates criteria for both borrowers and the collateral for the loans that can be acquired. At year-end 2020, the mortgages in the cover pool had an average loan-to-value ratio of 56.6 per cent, calculated as mortgage amount relative to the value of the property used as collateral. The Board regards the quality of the loan portfolio as very good and the credit risk as low.

MARKET RISK
Market risk is the risk that will arise due to the mortgage company holding or assuming positions in lending and financial instruments in which the values over time will be affected by changes in market prices. Møre Boligkreditt AS must, pursuant to laws and regulations, have very low market risk and Board approved restrictions concerning its maximum exposure to market risk. The company utilizes financial derivatives to keep this type of risk at a low level. A specific market strategy has been adopted for Møre Boligkreditt AS which establishes the limits for this type of risk. The company's positions in fixed interest and foreign currencies are hedged with financial derivatives. The Board considers the overall market risk as low.

LIQUIDITY RISK
Liquidity risk is the risk that Møre Boligkreditt AS will be unable to fulfill its obligations without substantial extra costs being incurred in the form of decline in asset values, forced sales or more expensive funding. The company has adopted a liquidity risk strategy and established limits for long-term funding and short-term liquidity risk limits. Bonds issued by Møre Boligkreditt AS have a soft bullet structure in which the company has the opportunity to extend the term of its borrowing by up to 12 months. Møre Boligkreditt AS reports LCR of 566 per cent by year-end 2020. The Board regards the company's liquidity risk as low.

OPERATIONAL RISK
Operational risk is the risk of losses due to inadequate or failing internal processes, human error, system failures or external events. Møre Boligkreditt AS has entered into a management agreement with Sparebanken Møre. The services covered by this agreement include administration, production, IT operations, and financial and risk management. Although the operational risk of Møre Boligkreditt AS is dependent of Sparebanken Møre's ability to manage this type of risk, Møre Boligkreditt AS independently bear risk associated with errors in the deliveries and services provided by Sparebanken Møre.

The evaluation of the management and control of operational risk is also afforded considerable space in the Group's ICAAP. The operational and established yearly internal control report, both within Sparebanken Møre and by the Managing Director of Møre Boligkreditt AS, is an important tool for reducing operational risk. The internal control reports will help identifying any operational risk and enable action to be taken. The Board regards the company's operational risk as low.

CORPORATE GOVERNANCE STATEMENT
Møre Boligkreditt AS complies with the latest Norwegian Code of Practice for Corporate Governance. Møre Boligkreditt AS was established as part of Sparebanken Møre's long-term funding strategy with the purpose of funding the bank through issuing covered bonds. Møre Boligkreditt AS helps ensure that the Sparebanken Møre Group properly manages its assets, as well as providing additional assurance that goals and strategies are achieved and realized.

The Board ensures that risk management and internal control are adequate and systematic, and that they have been established in compliance with the law and regulations, articles of association, ethical guidelines, instructions, and external and internal guidelines. The Board sets principles and guidelines for risk management and internal control for the various levels of activity pursuant to the company's risk bearing capacity, in order to assure that the strategies and guidelines are being followed. The Board systematically and regularly assesses the strategies and guidelines for risk management.

In order to ensure that Møre Boligkreditt AS' risk management and internal control are carried out satisfactorily, the Board continuously receives various types of reports throughout the year from Sparebanken Møre's control bodies, as well as from internal and external auditors. The Board actively participates in the annual implementation of the long-term strategic plan. The Board revises and approves all the company's general risk management documents at least once a year. Every year in the 4th quarter, the Managing Director of Møre Boligkreditt AS reports on the structure and efficiency of the company's internal control.

The overall responsibility for ensuring that principles of accounting and financial control are identified, monitored and evaluated is outsourced to the Finance department and the Risk Management department in Sparebanken Møre. The responsibility for the preparation of financial statements, and the reporting of these to the Managing Director in Møre Boligkreditt AS, is assigned to the Finance department in the parent bank.

The Board of Directors and the Chairman of the Board are elected by the General Meeting, and shall consist of four to six members elected for a period of two years. After one year, at least half of the elected members shall step down, based on the drawing of lots, while the remainder shall step down after one more year. Board members can be re-elected.

The Chairman of the Board in Møre Boligkreditt AS shall, by the end of October and in consultation with the Managing Director, set out a proposed annual plan for the Board's work for the coming year and the main items on the agendas of board meetings for the next calendar. Each year, the Board evaluates its own methods and professional competence to see if improvements can be made.

The Chairman of the Board shall ensure that the Board of Directors convenes at least once every quarter and otherwise as often as is called for by the nature of the company's activities, or when requested by a board member. A valid Board resolution is passed by at least three board members voting in favor of the resolution. The annual General Meeting shall be held each year before the end of June.

The company's paid-in equity of NOK 2,050 million consist of 1,500,000 shares of NOK 1,250 fully paid in, together with a share premium of NOK 175 million. With the consent of the Financial Supervisory Authority of Norway, the General Meeting may raise additional share capital, subordinated loan capital and guarantee capital.

Møre Boligkreditt AS is part of the Sparebanken Møre Group. The Group’s corporate governance is based on the Norwegian Code of Practise for Corporate Governance. The corporate governance report is included in Sparebanken Møre’s consolidated annual report, please see www.sbm.no

Statement on ethics and corporate social responsibility in the consolidated annual report for Sparebanken Møre include statement on ethics and social responsibility for Møre Boligkreditt AS, see www.sbm.no

INTERNAL CONTROL
The Managing Director of Møre Boligkreditt AS is responsible for establishing proper risk management and internal control based on the guidelines decided by the Board, making sure that these are adhered to, and providing the Board with information about developments within the various areas. The Managing Director reports on structure and efficiency of the company's internal control in the fourth quarter every year.

Møre Boligkreditt AS bases its internal control on an overall risk management process. The Board has decided upon guidelines for establishing proper risk management and internal control, and ensures that risk management and internal control in Møre Boligkreditt AS are adequate and systematic, and that the processes have been established in compliance with the law and regulations, articles of association, instructions, and external and internal guidelines. The Board systematically and regularly assesses the strategies and guidelines for risk management.

In the financial reports, written procedures relating to critical areas within the company, as well as the level of achievement of both the company's financial goals, and the qualitative goals relating to risk managing are presented. This ensures a close and accurate monitoring of the financial reporting and increases the possibility of early risk detection. The Managing Director of Møre Boligkreditt AS has the primary responsibility for managing risk associated with the company's operational and financial reporting, which is the foundation for satisfactory quality in the financial reporting.

The internal control and risk assessment of the financial reporting is one of the areas of focus in the Managing Director’s annual confirmation on the quality of, and the compliance with internal controls. The Internal Auditor has an important role in the monitoring of internal controls related to financial reporting. The financial statements provide additional information about the risk management and internal control of Møre Boligkreditt AS.

PROFIT DISTRIBUTION POLICY
Møre Boligkreditt AS’ profit distribution policy states the following: ”The company shall make a maximum payment from the profit generated in the fiscal year, either in the form of a dividend or as a group contribution. Such payments, however, shall not conflict with the requirement for liquidity and financial strength of the company, and shall in any case abide by what is considered good and prudent business and accounting practice.”

GENERAL MEETING AND COMPANY BOARD
The General Meeting is the supreme body of Møre Boligkreditt AS. The General Meeting of Møre Boligkreditt AS consists of the Board of Directors of Sparebanken Møre, Sparebanken Møre being the sole owner of the company.

The Board shall consist of four to six members elected for a period of two years.

In electing the members of the Board, the goal is to meet the need for continuity and independence, as well as ensuring a balanced composition of the Board.

The Board's responsibilities and tasks are set forth in a separate document which is discussed and revised by the Board regularly. The document contains the dividing of responsibilities and tasks between the Board and the Managing Director of the company. Each year, the Board evaluates its own methods and professional competence.

GOING CONCERN ASSUMPTION
The Board is of the opinion that the prerequisites for the going concern assumption exist, and the Board confirms that the 2020 annual financial statements are prepared on the basis of the going concern assumption.

EMPLOYEES
Møre Boligkreditt AS had no employees at year-end 2020. One man-year from Sparebanken Møre is dedicated full time to the mortgage company. Furthermore, a number of services are outsourced to Sparebanken Møre, regulated by a specific agreement between the mortgage company and the bank.

No special work environment measures have been implemented in Møre Boligkreditt AS.

EQUAL OPPORTUNITIES
The Sparebanken Møre Group strives for gender-neutral employment – and wage policy. The Board and management in Sparebanken Møre systematically and actively work to promote equality. The Board of Møre Boligkreditt AS consists of two men and two women.

POLLUTION OF THE EXTERNAL ENVIRONMENT
The activities of Møre Boligkreditt AS do not pollute the external environment.

OTHER FACTORS
As far as the Board is aware, no events have occurred after the end of the financial year 2020 of material importance to the position and result of Møre Boligkreditt AS.

RESEARCH AND DEVELOPMENT
Møre Boligkreditt AS has no research and development activities.

CORPORATE SOCIAL RESPONSIBILITY
For information on corporate social responsibility, Møre Boligkreditt AS being a wholly owned subsidiary of Sparebanken Møre, we refer to Sparebanken Møre Group's Annual Report.

FUTURE PROSPECTS
Seasonal adjusted mainland Norway GDP expanded by 1.9 percent quarter-over-quarter in the final quarter of 2020, which was better than expected. GDP contracted only 3.1 percent for the full year 2020, and the activity level in December 2020 was just 1.1 percent lower than seen prior to the crisis. Although we still see reports of new Covid-19 cases in Norway, the effects of the vaccination program is likely to gradually wound down the strict measures taken to contain the virus.

In December, national level of unemployment was reported at 3.8 per cent, and 2.9 per cent in the county of Møre og Romsdal. Central eastern parts of Norway report somewhat higher levels of unemployment, with 5.7 per cent in Oslo, due to both higher concentration of service sector employment combined with stricter local Covid-19 restrictions.

Norges Bank kept the key policy rate unchanged at zero in their last meeting, 20 January 2021. Core inflation rose by 0.1 percentage point in December to 3.0 per cent year-over-year, which is below inflation projections. Core inflation is expected to fall below target of 2 per cent by mid-2021. The published policy rate path indicates a hike of 0.25 percentage points in first quarter of 2022.

Housing prices increased by 8.7 per cent as a national average in 2020. In the county of Møre og Romsdal, the 12 months growth in housing prices was 9.7 per cent by end of 2020. Housing prices are expected to increase further due to low mortgage interest rates and improving labour market, but at a slower pace.

We expect unemployment levels, both on national levels and in the county of Møre og Romsdal, to further decline, but at a more moderate pace. It is expected that the entire grown population of Norway will be offered a Covid-19 vaccine in the first half of 2021. Most of the temporarily laid off are likely to come back to work in 2021, but we still expect to see higher unemployment levels going forward than before Covid-19.

The long-term financial implications of the virus are difficult to predict, but the Board believes that the efforts to minimise the potential negative consequences of the outbreak have been successful. The financial implications for Møre Boligkreditt AS, as consequence of Covid-19 measures, have not been significant.

DISTRIBUTIONS
Profit after tax amounted to NOK 230 million in 2020. Total comprehensive income after tax amounted to NOK 232 million in 2020. The recommendation from the Board of Directors to the annual General Meeting is a dividend payment of NOK 232 million.

Ålesund, 31 December 2020 

17 February 2021     

THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS

  KJETIL HAUGE, Chairman 
ELISABETH BLOMVIK
  GEIR TORE HJELLE
  SANDRA MYHRE HELSETH 

OLE ANDRE KJERSTAD, Managing Director