Report from the Board of Directors

OPERATIONS IN 2021
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.

Net mortgage lending to customers decreased by NOK 70 million in 2021 and amounted to NOK 28,971 million at year-end 2021, compared 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 2021, two new covered bond loans were issued, including a successful EUR 250 million inaugural green covered bond transaction with solid investor demand. One covered bond loan matured in 2021. Møre Boligkreditt AS had thirteen bond loans outstanding as at 31 December 2021 with a total bond loan debt of NOK 25,603 million, compared to twelve bond loans with NOK 23,991 million outstanding of 31 December 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 306 million, compared to NOK 294 million in 2020. Net interest income amounted to NOK 360 million in 2021, compared to NOK 345 million in 2020. Total operating costs amounted to NOK 51 million, compared to NOK 49 million in 2020.

The ECL calculation as at 31 December 2021 shows expected credit loss of NOK 4 million, which is unchanged from 31 December 2020.

Profit after tax amounted to NOK 239 million in 2021, compared to NOK 230 million in 2020. Tax amounted to NOK 67 million, compared to NOK 64 million in 2020. Total assets at the end of 2021 amounted to NOK 31,223 million compared to NOK 31,783 million at the end of 2020.

Net cash flow from operating activities amounted to NOK 593 million compared to NOK -2,793 million in 2020. The timing of the main outflow and inflow is related to payments for acquiring loans from the parent bank and payments related to instalment loans and credit lines to customers.

As at 31 December 2021, the company's substitute assets included in the cover pool amounted to NOK 1,455 million, compared to NOK 903 million as at 31 December 2020. Net value of financial derivatives included in the cover pool amounted to NOK 461 million at year-end 2021, compared to NOK 1,100 million at year-end 2020. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 19.9 per cent as at 31 December 2021, compared to 27.9 per cent as at 31 December 2020.

Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 104 million as at 31 December 2021, reporting total LCR of 525 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 2021.

CAPITAL STRENGTH
A share capital reduction of NOK 500,000,000 was approved by the Norwegian FSA 11 June 2021. The capital reduction was registered in the Norwegian register of business enterprises 12 August 2021 and NOK 500,000,000 was subsequently paid back to the sole owner of Møre Boligkreditt AS, Sparebanken Møre.

Paid-in equity and retained earnings amounted to NOK 1,791 million by year-end 2021, compared to NOK 2,282 million by year-end 2020. Risk weighted assets amounted to NOK 7,686 million by year-end 2021. Net equity and subordinated loan capital amounted to NOK 1,489 million by year-end 2021, compared to NOK 1,996 million by year-end 2020. This corresponds to a Common Equity Tier 1 capital ratio of 19.4 per cent as at 31 December 2021 compared to 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.

Norges Bank has decided to increase the countercyclical capital buffer requirement to 1.5 per cent effective from 30 June 2022, and to 2.0 per cent effective from 31 December 2022. A further increase to 2.5 per cent is expected effective from first half of 2023. The Ministry of Finance has announced an increase in the systemic risk buffer requirement from 3.0 to 4.5 per cent effective from 31 December 2022.

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 fulfil 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 2021, 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 fulfil 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 525 per cent by year-end 2021. 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 bears 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 annual 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.

CLIMATE RISK
Climate risk is the impact resulting from climate change, and climate risk will impact the company’s credit risk. When assessing climate risk, two types of risks in particular must be assessed: physical risk and transitional risk.

• Physical climate risk arises as a result of more frequent and severe episodes of drought, flooding, precipitation, storms, landslides and avalanches, as well as rising sea levels.
• Transitional risk is the risk associated with changes to, and the escalation of, climate policies/regulations, the development of new technologies and changed customer preferences (consumers) and investor requirements that may result in sudden changes in the market value of financial assets.

LEGISLATION
On 17 December 2021, the Ministry of Finance published a legislative proposal on the implementation of the new EU legislation on covered bonds, being the Directive (EU) 2019/2162 (the Covered Bond Directive) and Regulation (EU) 2019/2160 implementing certain amendments to Art. 129 of Regulation (EU) 575/2013 (collectively, the EU Covered Bond Rules). The legislative proposal is based on a consultative paper published by the NFSA on 13 January 2020 and is intended to take effect no later than 8 July 2022. Implementation of the EU Covered Bond Rules will impose new requirements on the Issuer such as, inter alia, a new liquidity buffer requirement of 180 days and objective requirements for exercise of extendable maturity rights by the Issuer. It is uncertain whether the EU Covered Bond Rules will be implemented in the Norwegian legislation by 8 July 2022. Firstly, certain regulations which are needed to complete the Norwegian implementation of the EU Covered Bond Rules are still outstanding. Secondly, the EU Covered Bond Rules is not yet implemented in the EEA-Agreement.

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 favour 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 1,550 million consist of 1,100,000 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 also includes 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.

The insurance does not cover losses as a result of the insured's intentional actions or omissions, or cases where the insured individual has obtained unjustified personal gain. In addition, the terms of the insurance also stipulate other cases where the insurance will not apply. The insurance excludes liability in connection with breaches of money laundering rules. The insurance does not cover claims for payment of fines, fees and taxes, or other non-insurable matters in accordance with current legislation.

GOING CONCERN ASSUMPTION
The Board is of the opinion that the prerequisites for the going concern assumption exist, and the Board confirms that the 2021 annual financial statements are prepared based on the going concern assumption.

EMPLOYEES
Møre Boligkreditt AS had no employees at year-end 2021. 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 2021 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
There are uncertainties associated with the economic outlook and growth expectations in the world economy. Risk of new and extensive pandemic outbreaks, rising inflation and interest rates, as well as concerns related to the real estate sector in China are valid also in 2022. These factors in addition to geopolitical tensions will have an impact on the stock-, fixed income-, foreign exchange- and oil markets. In Norway, the possibility of a fall in house prices, significantly higher interest rates and more bankruptcies as the government support measures are phased out are important risk factors to consider.

Mainland Norway GDP rose 0.7 per cent month-over-month in November. CPI rose 5.3 per cent from December 2020 to December 2021 according to Statistic Norway. CPI growth adjusted for tax changes and excluding energy products was 1.8 per cent in the same period, and above Norges Bank expectations of 1.3 per cent. In December, the national level of unemployment was reported at 2.2 per cent, compared with 2.0 per cent in the county of Møre og Romsdal.

Despite the uncertainty in response to the Omicron variant of the Covid-virus, Norges Bank delivered the second rate-hike in 2021 at its December-meeting. The published policy rate path indicates three hikes of 0.25 percentage points in 2022, the first hike in 2022 is expected in March.

Twelve-month growth in household loan debt was 5.0 per cent by December 2021, and housing prices increased by 5.2 per cent as a national average in 2021. Housing prices are expected to stay at present levels or increase at a slower pace in 2022, and growth in household debt is expected to dampen going forward due to the increase in mortgage interest rates.

We expect unemployment levels, both on national level and in the county of Møre og Romsdal, to further decline, and we expect to see lower unemployment levels than before Covid-19.

The Board believes that the low level of unemployment, still low interest rate level on mortgages and high disposable household income will contribute to further mortgage loan growth in Sparebanken Møre. This mortgage growth will position Møre Boligkreditt AS to acquire mortgage loan portfolios from Sparebanken Møre and increase the volume of outstanding bond loans from Møre Boligkreditt AS.

DISTRIBUTIONS
Profit after tax amounted to NOK 239 million in 2021. Total comprehensive income after tax amounted to NOK 241 million in 2021. The recommendation from the Board of Directors to the annual General Meeting is a dividend payment of NOK 241 million.

Ålesund, 31 December 2021 
15 February 2022     

THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
 KJETIL HAUGE, Chair of the Board
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH

OLE ANDRE KJERSTAD, Managing Director