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 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.

Third quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 89 million in the third quarter of 2021, compared to NOK 90 million in the third quarter of 2020.  Net interest income amounts to NOK 96 million, compared to NOK 100 million in the same quarter last year. Costs amount to NOK 12 million in the third quarter of 2021, compared to NOK 11 million in the corresponding quarter in 2020.

Expected credit loss (ECL) for Møre Boligkreditt AS is unchanged in the third quarter of 2021 compared to a reduction in ECL with NOK 1 million in the corresponding quarter in 2020.

Net gain from financial instruments in the third quarter of 2021 is NOK 5 million, compared to losses of NOK 1 million in the corresponding quarter of 2020.

Møre Boligkreditt AS acquired mortgages in the amount of NOK 2,070 million from Sparebanken Møre in the third quarter of 2021. Net loans to and receivables from customers were reduced by NOK 4 million in the third quarter of 2021.

21 September Møre Boligkreditt AS successfully issued a EUR 250 million inaugural green covered bond transaction, and the green element caught a solid investor demand. No bond loan matured in the third quarter of 2021.

Profit after tax amounts to NOK 69 million in the third quarter of 2021, compared to NOK 70 million in the third quarter of 2020. Taxes amount to NOK 20 million in the third quarter of 2021, the same amount as in the corresponding quarter in 2020. 

Third quarter end results
By third quarter end 2021 the financial statements show a pre-tax profit of NOK 244 million, compared to NOK 210 million by third quarter end 2020. Net interest income amounts to NOK 274 million by third quarter end 2021, compared to NOK 250 million by end of the same period last year. Costs in the period ending 30 September 2021 amount to NOK 39 million, compared to NOK 37 million for the corresponding period in 2020.

Net gain from financial instruments is NOK 9 million at third quarter end 2021, compared to a loss of NOK 2 million at third quarter end 2020.

Profit after tax amounts to NOK 190 million in the first nine months of 2021, compared to NOK 164 million in the corresponding period of 2020. Taxes amount to NOK 54 million in the first nine months of 2021 compared to NOK 46 million in the first nine months of 2020.

Changes in value of basis swap spreads are charged to other comprehensive income (OCI) with NOK 4 million after tax by third quarter end in 2021, compared to being charged with NOK 6 million by third quarter end in 2020.

Financial position
Møre Boligkreditt AS has fourteen bond loans outstanding at 30 September 2021 with total debt securities issued of NOK 28,926 million, compared to NOK 24,871 million outstanding at 30 September 2020.  

Total assets at third quarter end 2021 amount to NOK 32,757 million compared to NOK 30,871 million at third quarter end 2020. Net lending amounts to NOK 29,531 million at third quarter end 2021, compared to NOK 26,724 million at third quarter end 2020. ECL model calculations as at 30 September 2021 show expected credit loss of NOK 4 million for Møre Boligkreditt AS, compared to NOK 5 million as at 30 September 2020. 

At third quarter end 2021, the mortgages in the cover pool show an average loan-to-value ratio of 53 per cent, calculated as mortgage amount relative to the value of the property used as collateral. At third quarter end 2021, substitute assets and derivatives included in the cover pool amount to NOK 2,906 million, compared to NOK 2,620 million at third quarter end 2020. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 11.5 per cent as at 30 September 2021, compared to 16.2 per cent as at 30 September 2020. 

Assets held to calculate the liquidity coverage ratio (LCR) amount to NOK 45 million, reporting total LCR of 211 per cent by the end of third quarter 2021. Additional high-quality liquid assets included as substitute assets at third quarter end amount to NOK 640 million.

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

Capital strength
A share capital reduction of NOK 500,000,000 was approved by the Norwegian FSA 11 June 2021. The capital reduction was registered in the Norwegian register of business enterprises 12 August 2021 and NOK 500,000,000 was subsequently paid back to the sole owner of Møre Boligkreditt AS, Sparebanken Møre.

Paid in equity and retained earnings amount to NOK 1,736 million by end of third quarter 2021, compared to NOK 2,208 million by end of third quarter 2020. Risk weighted assets amount to NOK 7,927 million by end of third quarter 2021. Net equity and subordinated loan capital amount to NOK 1,483 million by end of third quarter 2021, compared to NOK 2,001 million by end of third quarter 2020. This corresponds to a Common Equity Tier 1 capital ratio of 18.7 per cent as at 30 September 2021. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.

Outlook
The economic outlook has continued improving in the last quarter. The handling of Covid-19 and the effectiveness of the vaccine will be important going forward. The most important financial risk factors are still related to the possibility of increased unemployment, increase in bankruptcies, fall in house prices and a correction in the stock market.

Mainland GDP rose by 1.1 per cent in August, slightly above Norges Banks forecast of 1.0 per cent. Norges Bank increased the key policy rate to 0.25 per cent in their September meeting, and tilts towards faster normalisation indicating that the policy rate most likely will be hiked again in December 2021.

In September, the national level of registered unemployment was reported further down to 2.4 per cent, and 2.0 per cent in the county of Møre og Romsdal. Central eastern parts of Norway still report somewhat higher levels of unemployment, with 3.1 per cent in Oslo.

House prices increased by 8.0 per cent as a national average the last twelve months by end of September 2021. Growth in house prices is expected to slow down due to expectations of increase in mortgage interest rates.

We expect unemployment levels to further decline as most of the temporarily laid off are likely to come back to work in 2021, and we expect to see unemployment at levels seen before Covid-19.

The Board believes that the low level of unemployment in the county of Møre og Romsdal, together with the still low interest rate level, 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 going forward.

Ålesund, 30 September 2021
25 October 2021

THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH

OLE ANDRE KJERSTAD, Managing Director