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 51 million in second quarter 2018, compared to NOK 46 million in second quarter 2017. Net interest income amounted to NOK 66 million, compared to NOK 61 million in the same quarter last year. Costs amounted to NOK 11 million in second quarter 2018, compared with NOK 9 million in the corresponding quarter in 2017.

The ECL calculation of expected loss for Møre Boligkreditt AS resulted in increased impairments of NOK 2 million in second quarter 2018, compared to no changes in impairments in second quarter of 2017. Profit after tax amounted to NOK 40 million in second quarter 2018, compared to NOK 34 million in the corresponding quarter 2017.

The transition from IAS 39 to IFRS 9 from 1 January 2018 impacts the company's accounting for basisswap spreads. Basisswap spreads are charged to OCI with NOK 4 million in second quarter 2018.

Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in the second quarter of 2018, and net lending increased by NOK 611 million. One new bond loan of EUR 250 million was issued in June 2018. No outstanding bond loans matured in second quarter 2018.

Half year end results
By half year end 2018 the financial statements show a profit before tax of NOK 117 million, compared to NOK 88 million by half year end 2017. Net interest income amounted to NOK 138 million by half year end 2018, compared to NOK 118 million by end of same period last year. Costs in the period ending 30 June 2018 amounted to NOK 21 million, compared with NOK 19 million for the corresponding period 2017.

Net losses in value of debt securities issued and related derivatives was NOK 1 million for the first six monhts of 2018, compared to net loss of NOK 11 million including basisswap spreads at first six months of 2017. Basisswap spreads are charged to OCI with NOK 9 million as at 30 June 2018.

Profit after tax amounted to NOK 90 million by half year end 2018 compared to NOK 66 million by half year end 2017. Tax amounted to NOK 27 million in the first six months of 2018 compared to NOK 22 million for the first six months of 2017.

Møre Boligkreditt AS had twelve bond loans outstanding at 30 June 2018 with a total bond loan debt of NOK 23 609 million, compared to twelve bond loans with NOK 18 615 million outstanding at 30 June 2017. 

Total assets at half year end 2018 amounted to NOK 26 385 million compared to NOK 21 315 million at half year end 2017. Net lending increased by NOK 2 694 million in the first six months and amounted to NOK 23 856 million at half year end 2018, compared with NOK 20 535 million at half year end 2017. The ECL model calculation as at 30 June 2018 shows expected credit loss of NOK 22 million for Møre Boligkreditt AS, compared with NOK 5 million allocated for collective impairment as at 30 June 2017. At half year end 2018, the mortgages in the cover pool had an average loan-to-value ratio of 56.8 per cent, calculated as mortgage amount relative to the value of the property used as collateral.

At half year end 2018, the company's substitute assets included in the cover pool amounted to NOK 2 101 million, compared to NOK 270 million at half year end 2017. Over-collateralisation, calculated as the value of the coverpool relative to the value of outstanding covered bond loan debt was 10.0 per cent as at 30 June 2018, compared to 13.0 per cent as at 30 June 2017. 

Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 60 million at 30 June 2018, reporting total LCR of 327.3 per cent by second quarter end 2018. 

Rating
The rating agency Moody's has assigned Aaa-rating to all covered bond loans issued by Møre Boligkreditt AS.
 
Capital strength
Paid in equity and retained earnings amounted to NOK 1 683 million by end of second quarter 2018, compared to NOK 1 569 million by end of second quarter 2017. Risk weighted assets amounted to NOK 10 094 million by end of second quarter 2018. Net equity and subordinated loan capital amounted to NOK 1 575 million by the end of second quarter 2018, compared to NOK 1 465 million by end of second quarter 2017. This corresponds to a Common Equity Tier 1 capital ratio of 15.6 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.

Outlook
The slowdown of the oil related part of the Norwegian economy is levelling out, and Norwegian oil investments are expected to increase in 2018 for the first year since 2014. A strong household sector due to record low interest rates, low unemployment levels, together with a solid public sector has kept the production levels high in several other sectors. The still weak NOK is positive for the competitiveness of the export industry and the tourist industry. 

The development of house prices, together with growth in debt, is the most important risk factors to Norwegian households. The Norwegian key policy rate will most likely be raised in second half of 2018, and we will also probably see upward pressure on mortgage interest rates. Important risk factors going forward are also the oil price development, macroeconomic growth in export markets, the growing concern for a global trade war and the NOK exchange rate. 

The combined activity of businesses located in the county of Møre og Romsdal remains high despite recent years decline in the petroleum related industries. The registered unemployment rate in the county of Møre og Romsdal is 2.2 per cent in June 2018, down from 2.7 per cent in June 2017, compared to the Norwegian national average also of 2.2 per cent in June 2018, down from 2.6 per cent in June 2017. We expect unemployment in the county to stay around national average levels. 

Annual retail lending growth in the Sparebanken Møre Group was 5.6 per cent by the end of second quarter 2018. 

The Board believes that the reduction in unemployment, still 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 2018
14 August 2018

THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS

KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
ELISABETH BLOMVIK 
GEIR TORE HJELLE
SANDRA MYHRE HELSETH

OLE KJERSTAD, Managing Director