Interim report from the Board of Directors

About the company
Møre Boligkreditt AS is a wholly owned subsidiary of Sparebanken Møre. The purpose of the company is to issue covered bonds backed by mortgages acquired from the owner. 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.

Third quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 54 million in third quarter 2016, compared to NOK 56 million in third quarter 2015. Net interest income amounted to NOK 61 million, compared to NOK 66 million for the same period last year. Costs amounted to NOK 8 million in third quarter 2016, compared with NOK 7 million in the corresponding quarter in 2015. Net change in value of debt securities issued and related derivatives was NOK 1 million in third quarter 2016.

Møre Boligkreditt AS has not established losses or impairment for individual losses in third quarter 2016, nor made any changes to the collective impairment. Profit after tax amounted to NOK 41 million in third quarter 2016, the same as in the corresponding quarter in 2015.

Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in the third quarter of 2016, but net lending was reduced with NOK 132 million.

No new bond loan volume was issued, and no outstanding bond loans matured in third quarter 2016.

Third quarter end results
By third quarter end 2016 the financial statements show a pre-tax profit of NOK 164 million, compared to NOK 187 million by third quarter end 2015. Net interest income amounted to NOK 183 million by third quarter end 2016, compared to NOK 208 million by the end of same period last year. Costs in the period ending 30 September 2016 amounted to NOK 25 million, compared with NOK 23 million for the corresponding period in 2015.

The amount allocated for collective impairment was NOK 4 million at third quarter end 2016, the same as at third quarter end 2015. Profit after tax amounted to NOK 123 million by third quarter end 2016, compared to NOK 137 million by third quarter end 2015. Tax amounted to NOK 41 million in the first nine months of 2016, compared to NOK 50 million the first nine months of 2015.

Møre Boligkreditt AS had eleven bond loans outstanding at 30 September 2016 with a total bond loan debt of NOK 15 805 million, compared to thirteen bond loans with NOK 16 112 million outstanding at 30 September 2015.

Total assets at third quarter end 2016 amounted to NOK 18 817 million compared to NOK 18 924 million at third quarter end 2015. Net lending amounted to NOK 18 005 million at third quarter end 2016, compared with NOK 16 940 million at third quarter end 2015.

At third quarter end 2016, the company's substitute assets included in the cover pool amounted to NOK 20 million, compared to NOK 1 478 million in substitute assets at third quarter end 2015.

Møre Boligkreditt AS` liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 373 million at 30 September 2016.

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

Capital strength
Net equity and subordinated loan capital amounted to NOK 1 315 million by end of third quarter 2016, compared to NOK 1 117 million by end of third quarter 2015. This corresponds to a capital adequacy/core capital ratio of 16.4 per cent. Risk-weighted assets amounted to NOK 8 007 million by end of third quarter 2016.

Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk. The Board regards the company's interest bearing capacity as satisfactory.

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 that can be acquired by the company. The strategy stipulates criteria for both borrowers and the collateral for the loans that can be acquired. At end of third quarter 2016, the mortgages in the cover pool had an average loan-to-value ratio of 54 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’s 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 the Financial Institution Act, have very low market risk and Board approved restrictions concerning it’s 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. A 12 month’s rolling revolving credit facility guarantee from Sparebanken Møre ensures timely payments to derivative counterparties and owners of bonds issued by Møre Boligkreditt AS. Furthermore the bonds 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 180 per cent by third quarter end 2016. 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 attention in the Group's annual 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.

Outlook
The Norwegian economy is showing signs of somewhat stronger growth and higher capacity utilisation. New national accounts figures also show that growth in the Norwegian economy in second quarter 2016 has been slightly higher than expected. Inflation expectations remain well anchored and close to the target, and Norges Bank at its September meeting decided to keep the key policy rate unchanged at 0.50 %. The unemployment rate in Norway is falling, and the total number of unemployed has probably peaked.

Growth in house prices has accelerated and is higher than projected, particularly in Oslo and surrounding areas. Household debt growth has remained stable, but continued high growth in house prices may lead to even higher debt accumulation and increased household vulnerabilities. A still strong household sector, due to record low interest rates, relative low unemployment levels, together with a solid public sector will keep the production levels high in several sectors. Despite of the recent strengthening of the NOK, the still relative weak NOK against EUR and USD is positive for the competiveness of the export industry and also tourism.

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, macroeconomic growth in export markets and the NOK exchange rate.

The combined activity of businesses, especially export oriented and tourist related, located in Møre og Romsdal County remains high despite the decline in the petroleum related industries. The registered unemployment rate in Norway was down 0.2 per cent from last month to 2.8 per cent in September 2016. In the county of Møre og Romsdal the similar figure was down 0.1 per cent to 3.0 per cent. We expect the unemployment rate in the county on, or just above, national average levels in the coming quarters.

The retail lending growth in Sparebanken Møre Group was 6.2 per cent the last twelve months. The Board believes that the low interest rates and high disposable household income, will contribute to further mortgage loan growth in Sparebanken Møre and position Møre Boligkreditt AS to acquire mortgage loan portfolios from the parent bank.

Ålesund, 30 September 2016

19 October 2016

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