BackInterim report from the Board of Directors
About the Company
Møre Boligkreditt AS is a wholly-owned subsidiary of Sparebanken Møre. The company is licensed by the Norwegian FSA to operate as a mortgage company and issue 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 63 million in the second quarter of 2019, compared to NOK 51 million in the second quarter 2018. Net interest income amounts to NOK 77 million, compared to NOK 66 million in the same quarter last year. Costs amounts to NOK 13 million in the second quarter of 2019, compared to NOK 11 million in the corresponding quarter in 2018.
Calculations of expected credit loss (ECL) for Møre Boligkreditt AS resulted in a reduction of impairments of NOK 1 million in the second quarter 2019 compared to an increase of NOK 2 million in the corresponding quarter in 2018.
Net change in value of debt securities in second quarter 2019 is negative with NOK 2 million, which is equal to the change reported in the corresponding quarter of 2018.
Møre Boligkreditt AS acquired mortgages in the amount of NOK 2,980 million from Sparebanken Møre in the second quarter of 2019. Net loans to- and receivables from customers increased by NOK 1,311 million in the second quarter of 2019. In the second quarter of 2019 one bond loan with outstanding amount of NOK 2.5 billion matured, and one new bond loan of NOK 2.5 billion was successfully placed in the market.
Profit after tax amounts to NOK 50 million in the second quarter of 2019, compared to NOK 40 million in the corresponding quarter 2018. Taxes amounts to NOK 13 million in the second quarter of 2019 compared to NOK 11 million in the corresponding quarter in 2018.
Half year end results
By half year end 2019 the financial statements show a pre-tax profit of NOK 124 million, compared to NOK 115 million by half year end 2018. Net interest income amounts to NOK 146 million by half year end 2019, compared to NOK 138 million by end of same period last year. Costs in the period ending 30 June 2019 amounts to NOK 23 million, compared with NOK 21 million for the corresponding period 2018.
Net losses in value of debt securities issued and related derivatives is NOK 1 million at half year end 2019, equal to the reported net losses in value of debt securities issued and related derivatives at half year end 2018.
Profit after tax amounts to NOK 97 million in the first six months of 2019, compared to NOK 89 million in the corresponding period in 2018. Taxes amounts to NOK 27 million in the first six months of 2019 compared to NOK 26 million in the first six months of 2018.
Changes in value of basis swap spreads are added to other comprehensive income (OCI) with NOK 1 million after tax by half year end 2019, compared to being charged with NOK 7 million by half year end 2018.
Financial position
Møre Boligkreditt AS has twelve bond loans outstanding at 30 June 2019 with total debt securities issued of NOK 22,371 million, compared to twelve bond loans and NOK 23,609 million outstanding at 30 June 2018.
Total assets at half year end 2019 amounts to NOK 25,851 million compared to NOK 26,390 million at half year end 2018. Net lending amounts to NOK 24,993 million at half year end 2019, compared to NOK 23,863 million at half year end 2018. ECL model calculations as at 30 June 2019 shows expected credit loss of NOK 13 million for Møre Boligkreditt AS, compared with NOK 15 million as at 30 June 2018.
At half year end 2019, the mortgages in the cover pool has an average loan-to-value ratio of 57 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At half year end 2019, the company's substitute assets included in the cover pool amounts to NOK 5 million, compared to NOK 2,101 million at half year end 2018. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 13.2 per cent as at 30 June 2019, compared to 10.0 per cent as at 30 June 2018.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounts to NOK 80 million at 30 June 2019, reporting total LCR of 397 per cent by half year end 2019.
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 amounts to NOK 2,148 million by end of half year 2019, compared to NOK 1,689 million by end of half year 2018. Risk weighted assets amounts to NOK 10,427 million by end of half year 2019. Net equity and subordinated loan capital amounts to NOK 2,011 million by end of half year 2019, compared to NOK 1,582 million by end of half year 2018. This corresponds to a Common Equity Tier 1 capital ratio of 19.3 per cent as at 30 June 2019. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
A strong household sector due to the still low interest rate level, low unemployment levels, together with a solid public sector has kept Norwegian production levels high. The weak NOK is positive for the competitiveness of the export industry and the tourist industry.
The Norwegian key policy rate was announced raised with 0.25 percentage points to 1.25 per cent 21 June 2019, followed by announcements of mortgage interest rate hikes from banks operating in the Norwegian mortgage market. The development of housing prices, together with the growth in debt, are the most important risk factors to Norwegian households. Important risk factors going forward are also the oil price development, macroeconomic growth in export markets, the 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. The registered unemployment rate in the county of Møre og Romsdal is 2.0 per cent at the end of June 2019, just below the Norwegian national average of 2.1 per cent. We expect unemployment level in the county to be around national average levels also going forward.
Retail lending in Sparebanken Møre Group increased with 6.2 per cent the last twelve months.
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.
Ålesund, 30 June 2019
13 August 2019
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director