Interim report from the Board of Directors

About the company
Møre Boligkreditt AS is a wholly owned subsidiary of Sparebanken Møre. The company is licensed to operate as a mortgage company, issuing covered bonds. Møre Boligkreditt AS is Sparebanken Møre's most important source of market funding and an important part of the parent bank's long term funding strategy.

The accounts have been prepared in accordance with IFRS.

Second quarter results
The financial statements of Møre Boligkreditt AS show a pre tax profit of NOK 46 million in second quarter 2017, compared to NOK 54 million in second quarter 2016. Net interest income amounted to NOK 61 million, compared to NOK 62 million for the same period last year. Costs amounted to NOK 9 million in second quarter 2017, compared with NOK 9 million in the corresponding quarter in 2016. Net gain in value of debt securities issued and related derivatives was NOK -6 million at second quarter 2017, compared to NOK 1 million at second quarter 2016.

Møre Boligkreditt AS has not established losses or impairment for individual losses in second quarter 2017, nor made any changes to the collective impairment. Profit after tax amounted to NOK 34 million in second quarter 2017, compared to NOK 40 million in the corresponding quarter 2016.

Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in the second quarter of 2017, and net lending increased by NOK 2 001 million.

A partly early redemption of NOK 600 million was made in second quarter 2017 in one covered bond loan maturing in December 2017, and one covered bond loan with NOK 131 million remaining outstanding matured in second quarter 2017. Møre Boligkreditt AS issued one new EUR 250 million covered bond loan in second quarter 2017.

Half year end results
By half year end 2017 the financial statements show a profit before tax of NOK 88 million, compared to NOK 110 million by half year end 2016. Net interest income amounted to NOK 118 million by half year end 2017, compared to NOK 122 million by end of same period last year. Costs in the period ending 30 June 2017 amounted to NOK 19 million, compared with NOK 17 million for the corresponding period 2016.

The amount allocated for collective impairment was NOK 5 million at half year end 2017 compared to NOK 4 million at half year end 2016. Profit after tax amounted to NOK 66 million by half year end 2017, compared to NOK 82 million by half year end 2016. Tax amounted to NOK 22 million in the first six months of 2017, compared to NOK 28 million the first six months of 2016.

Møre Boligkreditt AS had twelve covered bond loans outstanding at 30 June 2017 with a total bond loan debt of NOK 18 615 million, compared to eleven covered bond loans with NOK 15 931 million outstanding at 30 June 2016.

Total assets at second quarter end 2017 amounted to NOK 21 315 million compared to NOK 19 280 million at second quarter end 2016. Net lending amounted to NOK 20 535 million at second quarter end 2017, compared with NOK 18 137 million at second quarter end 2016. At end of second quarter 2017, the mortgages in the cover pool had an average loan-to-value ratio of 55 per cent, calculated as mortgage amount relative to the value of the property used as collateral.  

At second quarter end 2017, the company's substitute assets included in the cover pool amounted to NOK 270 million, compared to NOK 226 million at second quarter end 2016. Over-collateralisation, calculated as the value of the coverpool relative to the value of outstanding covered bond loan debt was 13.4 per cent as at 30. June 2017, compared to 18.0 per cent as at 30. June 2016.   

Møre Boligkreditt AS' liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 50 million at 30 June 2017, reporting LCR of 156 per cent by second quarter end 2017.

Rating
The rating agency Moody's has assigned Aaa-rating to all covered bonds issued by Møre Boligkreditt AS.

Capital strength
Paid in equity and other equity amounted to NOK 1 503 million by end of second quarter 2017, compared to NOK 1 353 million by end of second quarter 2016. Risk weighted assets amounted to NOK 9 044 million by end of second quarter 2017. Net equity and subordinated loan capital amounted to NOK 1 465  million by the end of second quarter 2017, compared to NOK 1 314 million by end of second quarter 2016. This corresponds to a capital adequacy/core capital ratio of 16.2 per cent by the end of second quarter 2017. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.

Outlook
The Norwegian economy, and especially the oil related part of the economy, has experienced a slowdown also in 2017, and we will see lower and selective growth also in the coming quarters. This is mainly due to the low oil price and the decline in petroleum related investments. A strong household sector due to record low interest rates, low unemployment levels, together with a solid public sector will however keep the production levels high in several sectors. The weak NOK is positive for the competiveness of the export industry, and for the tourist industry.

Should the Norwegian economy be hit harder than expected, monetary and financial policy will be moved in an even more expansive direction. The development of house prices, together with growth in debt, is the most important risk factors to Norwegian households. Important risk factors going forward are also the oil price development, macro-economic growth in export markets and the NOK exchange rate.

The combined activity of businesses located in Møre og Romsdal County remains high despite the decline in the petroleum related industries, and the growth in unemployment is reversed by second quarter 2017. The registered unemployment rate in Norway was 2.6 per cent in June 2017. The unemployment rate in the county of Møre og Romsdal in June 2017 was 2.7 per cent. We expect unemployment in the county of Møre og Romsdal to stay on or just above national average levels in 2017.

Retail lending growth in Sparebanken Møre Group is 8.0 per cent the last twelve months, but in line with weaker national growth in household debt, we also see the Group retail lending growth rate slowing down somewhat in second quarter 2017.

The Board believes that despite the slowdown of the economy, both in Norway and in the county of Møre og Romsdal, the low interest rates 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 further mortgage loan portfolios from the parent bank, and further increase the volume of outstanding bond loans from Møre Boligkreditt AS.

Ålesund, 30 June 2017

9 August 2017

THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS

KJETIL HAUGE, Chairman

BRITT IREN TØSSE AANDAL

TROND NYDAL

GEIR TORE HJELLE

SANDRA MYHRE HELSETH

OLE KJERSTAD, Managing Director