Note 1

Accounting principles

Møre Boligkreditt AS’ interim accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted by the EU as of 30.09.2018. The interim report has been prepared in accordance with IAS 34 Interim Financial Reporting (compressed). The accounts are prepared using the same principles and with the same methodology as the annual accounts for 2017, except for IFRS 9 replacing IAS 39 from 1 January 2018.

Accounting principles for classification in accordance with IFRS 9 are presented in Note 4. Tables showing the transition effects of the implementation of IFRS 9 are presented in Note 1.13 of the Annual Report for 2017. The methodology for measuring expected credit losses (ECL) in accordance with IFRS 9 is explained in the Q1 2018 interim report. In addition, reference is made to the Annual Report 2017 for further description of accounting principles.

All amounts are stated in NOK million unless stated otherwise.

 

 

Note 2

Operating segments

Møre Boligkreditt AS has only one business segment and the customers derive mainly from the retail banking market. The following tables contain details of loans to customers by sector.

(NOK million)Loans
Broken down according to sectors30.09.201830.09.201731.12.2017
Commercial sector520373380
Retail customers21 82820 44720 759
Accrued interest income02325
Loans, nominal amount22 34820 84321 164
Expected credit loss (ECL) - Stage 1-2--
Expected credit loss (ECL) - Stage 2-17--
Expected credit loss (ECL) - Stage 30--
Collective impairment--5-2
Loans to and receivables from customers22 32920 83821 162
(NOK million)Net interest income
 30.09.201830.09.201731.12.2017
Interest income from:   
Loans to and receivables from credit institutions512
Loans to and receivables from customers437388525
Certificates, bonds and other interest-bearing securities333
Interest income445392530
Interest expenses in respect of:   
Loans from credit institutions111317
Debt securities issued230193252
Interest expenses241206269
Net interest income204186261
 

Note 3

Impairment, losses and non-performance

Møre Boligkreditt applies a three-stage approach when assessing ECL on loans to customers in accordance with IFRS 9.

  • Stage 1: At initial recognition and if there’s no significant increase in credit risk, the commitment is classified in stage 1 with 12-months ECL.
  • Stage 2: If a significant increase in credit risk since initial recognition is identified, but without objective evidence of loss, the commitment is transferred to stage 2 with lifetime ECL measurement.
  • Stage 3: If the credit risk increases further and there’s objective evidence of loss or if individual impairments have been made, the commitment is transferred to stage 3.

    The methodology for measuring expected credit losses (ECL) in accordance with IFRS 9 is explained in Note 1 in the interim report for the 1st quarter. Tables showing the transition effects of the implementation of IFRS 9 are presented in Note 1.13 in the Annual Report 2017.
Specification of credit loss expense (NOK thousand)Q3 2018Q3 201730.09.201830.09.201731.12.2017
Changes in collective impairment during the period (IAS 39)-0-0-3 000
Changes in Expected Credit Loss (ECL) during the period stage 1-19-96--
Changes in Expected Credit Loss (ECL) during the period stage 2-2 295-4 849--
Changes in Expected Credit Loss (ECL) during the period stage 3119--7 778--
Total impairment on loans in the period-2 1950-2 8330-3 000
Changes in ECL in the period (NOK thousand)Stage 1Stage 2Stage 3Total
31.12.2017 according to IAS 39   2 000
Effect of transition to IFRS 9   20 258
ECL 01.01.2018 according to IFRS 91 56812 6658 02422 258
New loans4103 608-4 018
Disposal of loans-209-2 278-1 293-3 780
Changes in ECL in the period for loans which have not migrated-118-1 218--1 336
Migration to stage 198-3 537-726-4 165
Migration to stage 2-848 274-6 0062 184
Migration to stage 3-1-247246
ECL 30.09.20181 66417 51424719 425
Commitments (exposure) divided into risk groups based on probability of default (NOK million)Stage 1Stage 2Stage 3Total
Low risk (0 % - < 0.5 %)21 484947-22 431
Medium risk (0.5 % - < 3 %)390613-1 003
High risk (3 % - <100 %)191395
Total loans before ECL21 8751 651323 529
- ECL-2-17--19
Loans and receivables from customers 30.09.2018 *)21 8731 634323 510
*) The table shows exposures at reporting date and can therefore not be reconciled against carrying amount.
 

Note 4

Financial instruments

CLASSIFICATION AND MEASUREMENT 
The company’s portfolio of financial instruments is at initial recognition classified in accordance with IFRS 9. Financial assets are classified in one of the following categories:

• Fair value with any changes in value through the income statement

• Amortised cost 

The classification of the financial assets depends on two factors:

• The purpose of the acquisition of the financial instrument

• The contractual cash flows from the financial assets

Financial assets assessed at amortised cost
The classification of the financial assets assumes that the following requirements are met: 

• The asset is acquired to receive contractual cash flows

• The contractual cash flows consist solely of principal and interest

All lending and receivables are recorded in the accounts at amortised cost, based on expected cash flows. The difference between the issue cost and the settlement amount at maturity, is amortised over the lifetime of the loan.

Financial liabilities assessed at amortised cost 
Debt securities, including debt securities included in fair value hedging and loans and deposits from credit institutions, are assessed at amortised cost based on expected cash flows.

Financial instruments assessed at fair value, any changes in value recognised through the income statement
The company's portfolio of bonds in the liquidity portfolio is classified at fair value with any value changes through the income statement, as this portfolio is managed based on fair value.

Financial derivatives are instruments used to mitigate any interest- or currency risk incurred in the company. Financial derivatives are recorded at fair value, with any changes in value through the income statement, and recognised gross per contract, as either asset or debt.

Losses and gains as a result of value changes on assets and liabilities assessed at fair value with any value changes being recognised in the income statement, are included in the accounts during the period in which they occur.

LEVELS IN THE VALUATION HIERARCHY
Financial instruments are classified into different levels based on the quality of market data for each type of instrument.

Level 1 – Valuation based on prices in an active market
Level 1 comprises financial instruments valued by using quoted prices in active markets for identical assets or liabilities. This category includes bonds and certificates in LCR-level 1, traded in active markets.

Level 2 – Valuation based on observable market data
Level 2 comprises financial instruments valued by using information which is not quoted prices, but where prices are directly or indirectly observable for assets or liabilities, including quoted prices in inactive markets for identical assets or liabilities. This category mainly includes debt securities issued, derivatives and bonds which are not included in level 1.

Level 3 – Valuation based on other than observable market data
Level 3 comprises financial instruments which can not be valued based on directly or indirectly observable prices. This category mainly includes loans to customers. 

CLASSIFICATION OF FINANCIAL INSTRUMENTSFinancial instruments at fair value through profit or lossFinancial instruments carried at amortised cost
 30.09.201830.09.201730.09.201830.09.2017
Loans to and receivables from credit institutions  1 154194
Loans to and receivables from customers  22 32920 838
Certificates and bonds213168  
Financial derivatives273318  
Total assets48648623 48321 032
Loans from credit institutions  1 1721 168
Debt securities issued  21 01818 692
Financial derivatives2415  
Total liabilities241522 19019 860
FAIR VALUE OF FINANCIAL INSTRUMENTS AT AMORTISED COST30.09.201830.09.2017
 Fair valueBook valueFair valueBook value
Loans to and receivables from credit institutions1 1541 154194194
Loans to and receivables from customers22 32922 32920 83820 838
Total assets23 48323 48321 03221 032
Loans from credit institutions1 1721 1721 1681 168
Debt securities issued21 09521 01818 76618 692
Total liabilities22 26722 19019 93419 860
FINANCIAL INSTRUMENTS AT AMORTISED COST - 30.09.2018Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Loans to and receivables from credit institutions 1 154 1 154
Loans to and receivables from customers  22 32922 329
Total assets-1 15422 32923 483
Loans from credit institutions 1 172 1 172
Debt securities issued 21 095 21 095
Total liabilities-22 267-22 267
     
     
FINANCIAL INSTRUMENTS AT AMORTISED COST - 30.09.2017Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Loans to and receivables from credit institutions-194-194
Loans to and receivables from customers--20 83820 838
Total assets-19420 83821 032
Loans from credit institutions-1 168-1 168
Debt securities issued-18 766-18 766
Total liabilities-19 934-19 934
     
     
FINANCIAL INSTRUMENTS AT FAIR VALUE - 30.09.2018Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Certificates and bonds213  213
Financial derivatives 273 273
Total assets213273-486
Financial derivatives 24 24
Total liabilities-24-24
     
     
FINANCIAL INSTRUMENTS AT FAIR VALUE - 30.09.2017Based on prices in an active marketObservable market informationOther than observable market information 
 Level 1Level 2Level 3Total
Certificates and bonds168--168
Financial derivatives-318-318
Total assets168318-486
Financial derivatives-15-15
Total liabilities-15-15
 

Note 5

Issued covered bonds

Securities issued at floating interest rates are measured at amortised cost. Fair value hedge accounting is used for the company's securities issued at fixed rate terms, and changes in fair value (due to the hedged risk) is recognised in profit and loss. 

Covered bonds (NOK million)      
ISIN codeCurrencyNominal value 30.09.2018InterestIssueMaturity30.09.201830.09.201731.12.2017
NO0010588072NOK1 050fixed NOK 4.75 %201020251 1901 2411 235
NO0010657232NOK-3M Nibor + 0.65 %20122018-2 5042 503
NO0010676018NOK2 5003M Nibor + 0.47 %201320192 5012 5022 502
XS0968459361EUR25fixed EUR 2.81 %20132028280283295
XS0984191873EUR306M Euribor + 0.20 %20132020284282295
NO0010696990NOK2 5003M Nibor + 0.45 %201320202 4982 4972 497
NO0010720204NOK3 0003M Nibor + 0.24 %201420202 9992 9982 998
NO0010730187NOK1 000fixed NOK 1.50 %20152022982994993
NO0010777584NOK3 0003M Nibor + 0.58 %201620213 0023 0033 003
XS1626109968EUR250fixed EUR 0.125 %201720222 3682 3542 450
NO0010819543NOK2 5003M Nibor + 0.42 %201820242 499--
XS1839386577EUR250fixed EUR 0.375 %201820232 378--
Total securities issued  20 98118 65818 771
Accrued interest  373452
Total borrowings raised through the issue of securities  21 01818 69218 823
Cover pool (NOK million)30.09.201830.09.201731.12.2017
Pool of eligible loans 1)21 94220 48720 814
Supplementary assets1 30731185
Financial derivatives to hedge issued securities (liabilities)-24-15-4
Financial derivatives to hedge issued securities (assets)273318439
Total collateralised assets23 49821 10121 334
Collateralisation in %111.8112.9113.3
1) NOK 387 million of total gross loans are not eligible for the cover pool as at 30.09.18. 
 

Note 6

Transactions with related parties

Møre Boligkreditt AS purchases services from Sparebanken Møre. There are also transactions between the parties related to the acquisition of loan portfolio and the fact that Sparebanken Møre provides loans and credits to the mortgage company.

Loans from Sparebanken Møre are transferred at market value. If the purchased mortgage loans have fixed interest rates, the price is adjusted according to the value above / below par. Sparebanken Møre is responsible for ensuring that the loans to be transferred to Møre Boligkreditt AS are properly established and in accordance with the requirements specified in the agreement between the mortgage company and the Parent Bank. In case of a violation of these requirements, the Parent Bank will be liable for any losses that the mortgage company would experience as a result of the error. Sparebanken Møre and Møre Boligkreditt AS have formalised the settlement of interest for transaction days from date of transfer of loan portfolio to date of settlement of the consideration. 

If Møre Boligkreditt AS should have difficulties obtaining financing, a revolving guarantee from Sparebanken Møre is established with the purpose of ensuring timely payments to owners of bonds and derivative counterparties.

The pricing of the services provided by Sparebanken Møre to Møre Boligkreditt AS distinguishes between fixed and variable costs for the mortgage company. Fixed costs are defined as costs the mortgage company must bear regardless of the activity related to the issuance of covered bonds, the acquisition of portfolio, etc. Variable costs are defined as costs related to the size of the portfolio acquired from Sparebanken Møre and the work that must be exercised by the Bank's employees to deliver satisfactory services given the number of customers in the portfolio.

Møre Boligkreditt AS is billed for costs related to the lease of premises at Sparebanken Møre. It is assumed that regardless of operations, a certain area of the bank attributable to the mortgage company is utilised during the year. Regardless of the extent of the activity and the loan portfolio acquired by Møre Boligkreditt AS, charges related to accounting, financial reporting, risk management, cash management, financing, governance and general legal services will incur.

Sparebanken Møre bills the mortgage company based on actual salary costs, including social security contribution, pension costs and other social costs. Parts of the mortgage company's expenses related to services provided by Sparebanken Møre relates to the size of the portfolio acquired from Sparebanken Møre. Management fee is calculated and billed monthly, in which the month's average portfolio size forms the basis of billing.

The interest rate of the mortgage company's deposit and credit limit in Sparebanken Møre is based on 3 months NIBOR + a premium.  

The most important transactions are as follows:  
(NOK million)30.09.201830.09.201731.12.2017
Statement of income   
Interest and credit commission income from Sparebanken Møre related to deposits512
Interest and credit commission income paid to Sparebanken Møre related to loan/credit facility111317
Interest paid to Sparebanken Møre related to bonded debt171011
Management fee paid to Sparebanken Møre252230
    
Statement of financial position   
Deposits in Sparebanken Møre1 15419485
Covered bonds held by Sparebanken Møre as assets5560425
Loan/credit facility in Sparebanken Møre1 1721 1681 202
Accumulated transferred loan portfolio from Sparebanken Møre22 34820 84321 164
 

Note 7

Equity and related capital

Tier 1 capital and supplementary capital30.09.201830.09.201731.12.2017
Share capital and share premium1 6001 5001 500
Retained earnings03167
Total equity1 6001 5031 667
Dividends00-152
Expected IRB-losses exceeding ECL-25-37-40
Common Equity Tier 1 capital1 5751 4661 476
Supplementary capital000
Net equity and subordinated loan capital1 5751 4661 476
    
Risk-weighted assets (calculation basis for capital adequacy ratio)30.09.201830.09.201731.12.2017
Credit risk loans and receivables (Standardised Approach)348200217
Credit risk loans and receivables (Internal Ratings Based Approach)4 2753 9743 898
Operational Risk (Basic indicator Approach)486505505
Total risk exposure amount for credit valuation adjustment (CVA) (SA)215295320
Risk-weighted assets less transitional rules5 3244 9744 941
Additional RWA from transitional rules 1)4 1774 1263 995
Total risk-weighted assets9 5019 0998 936
Minimum requirement Common Equity Tier 1 capital (4.5%)428409402
1) Transitional rules require that RWA can not be less than 80 per cent of the corresponding Basel I requirement
    
Buffer Requirement30.09.201830.09.201731.12.2017
Countercyclical buffer (2.0%)190136134
Capital conservation buffer (2.5%)238227223
Systemic risk buffer (3.0%)285273268
Total buffer requirements713637626
Available Common Equity Tier 1 capital after buffer requirements435420448
    
Capital adequacy as a percentage of the weighted asset calculation basis30.09.201830.09.201731.12.2017
Capital adequacy ratio16.6 %16.1 %16.5 %
Tier 1 capital ratio16.6 %16.1 %16.5 %
Common Equity Tier 1 capital ratio16.6 %16.1 %16.5 %
    
Leverage ratio30.09.201830.09.201731.12.2017
Leverage ratio6.4 %6.6 %6.6 %
    
Liquidity Coverage Ratio30.09.201830.09.201731.12.2017
Liquidity Coverage Ratio - Total338.6 %175%295%
Liquidity Coverage Ratio - NOK338.4 %-295%
Liquidity Coverage Ratio - EUR106.9 %--
    
Møre Boligkreditt AS' capital requirements at 30th September 2018 are based on IRB-Foundation for commercial commitments and IRB-Retail for retail commitments.