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.

Third quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 58 million in third quarter 2018, compared to NOK 56 million in third quarter 2017. Net interest income amounted to NOK 66 million, compared to NOK 68 million in the same quarter last year. Costs amounted to NOK 11 million in third quarter 2018, compared with NOK 9 million in the corresponding quarter in 2017. 

The calculation of expected loss (ECL) for Møre Boligkreditt AS resulted in reduced impairments of NOK 2 million in third quarter 2018, compared to no changes in impairments in third quarter of 2017. Profit after tax amounted to NOK 45 million in third quarter 2018, compared to NOK 42 million in the corresponding quarter 2017. 

The transition from IAS 39 to IFRS 9 from 1 January 2018 impacts the company's accounting for basis swap spreads. Basis swap spreads are charged to OCI with NOK 1 million in third quarter 2018.

Møre Boligkreditt AS did not acquire mortgages from Sparebanken Møre in third quarter of 2018, and net lending decreased by NOK 1,527 million in the quarter. One bond loan with outstanding amount of NOK 2,500 million matured in third quarter 2018.

Third quarter end results 
By third quarter end 2018 the financial statements show a profit before tax of NOK 175 million, compared to NOK 144 million by third quarter end 2017. Net interest income amounted to NOK 204 million by third quarter end 2018, compared to NOK 186 million by end of same period last year. Costs in the period ending 30 September 2018 amounted to NOK 32 million, compared with NOK 28 million for the corresponding period 2017. 

There was no change in value of debt securities issued and related derivatives in the first nine monhts of 2018, compared to net loss of NOK 14 million including basis swap spreads in the first nine months of 2017. Basis swap spreads are charged to OCI with NOK 10 million as at 30 September 2018.

Profit after tax amounted to NOK 135 million by third quarter end 2018 compared to NOK 108 million by third quarter end 2017. Tax amounted to NOK 40 million in the first nine months of 2018 compared to NOK 36 million for the same period last year.

Møre Boligkreditt AS had eleven bond loans outstanding at 30 September 2018 with a total bond loan debt of NOK 21,018 million, compared to ten bond loans with NOK 18,692 million outstanding at 30 September 2017. 

Total assets at third quarter end 2018 amounted to NOK 23,975 million compared to NOK 21,518 million at third quarter end 2017. Net lending increased by NOK 1,167 million in the first nine months and amounted to NOK 22,329 million at third quarter end 2018, compared with NOK 20,838 million at third quarter end 2017. The ECL calculation as at 30 September 2018 shows expected credit loss of NOK 19 million for Møre Boligkreditt AS, compared with NOK 5 million allocated for collective impairment as at 30 September 2017. At third quarter end 2018, the mortgages in the cover pool had an average loan-to-value ratio of 57.1 per cent, calculated as mortgage amount relative to the value of the property used as collateral.

At third quarter end 2018, the company's substitute assets included in the cover pool amounted to NOK 1,307 million, compared to NOK 311 million at third quarter end 2017. Over-collateralisation, calculated as the value of the coverpool relative to the value of outstanding covered bond loan debt was 11.8 per cent as at 30 September 2018, compared to 12.9 per cent as at 30 September 2017. 

Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 60 million at 30 September 2018, reporting total LCR of 338.6 per cent by third 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 1,727 million by end of third quarter 2018, compared to NOK 1,611 million by end of third quarter 2017. Risk weighted assets amounted to NOK 9,501 million by end of third quarter 2018. Net equity and subordinated loan capital amounted to NOK 1,575 million by end of third quarter 2018, compared to NOK 1,466 million by end of third quarter 2017. This corresponds to a Common Equity Tier 1 capital ratio of 16.6 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 in 2018 will increase 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 was raised with 0.25 percentage points 21 September 2018 , followed by announcements of mortgage interest rate hikes from banks operating in the Norwegian mortgage market. 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 2.3 per cent in September 2018,  at the same level as the Norwegian national average. We expect unemployment level in the county around national average levels. 

Annual retail lending growth in the Sparebanken Møre Group was 5.5 per cent by the end of third 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 September 2018
23 October 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 ANDRE KJERSTAD, Managing Director