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. 

Fourth quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 65 million in fourth quarter 2019, compared to NOK 58 million in fourth quarter 2018. Net interest income amounted to NOK 82 million, compared to NOK 70 million in the same quarter last year. Costs amounted to NOK 12 million in fourth quarter 2019, compared to NOK 10 million in the corresponding quarter in 2018.

The calculation of expected credit loss (ECL) for Møre Boligkreditt AS resulted in an increase of impairments of NOK 1 million in the fourth quarter 2019, the same as in the corresponding quarter in 2018. Profit after tax amounted to NOK 61 million in fourth quarter 2019, compared to NOK 42 million in the corresponding quarter 2018.

Basis swap spreads are added to OCI with NOK 1 million after tax in fourth quarter 2019, compared to charged OCI with NOK 5 million in fourth quarter of 2018.

Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in fourth quarter of 2019, and net mortgage volume increased by NOK 2,394 million in the quarter. One new covered bond loan of EUR 250 million was issued in fourth quarter 2019, and partial early redemtions of NOK 1,770 million was made in bond loan maturing in January 2020.

Fourth quarter end results
By fourth quarter end 2019 the financial statements show a profit before tax of NOK 271 million, compared to NOK 230 million by fourth quarter end 2018. Net interest income amounted to NOK 308 million by fourth quarter end 2019, compared to NOK 274 million by end of same period last year. Costs in the period ending 31 December 2019 amounted to NOK 45 million, compared with NOK 42 million for the corresponding period 2018.

Net loss in value of debt securities issued and related derivatives in 2019 was NOK 4 million, compared to net loss of NOK 1 million in 2018.

Profit after tax amounted to NOK 222 million by fourth quarter end 2019 compared to NOK 174 million by fourth quarter end 2018. Tax amounted to NOK 49 million in 2019 compared to NOK 56 million in 2018.

Basis swap spreads are added to OCI with NOK 2 million after tax as at 31 December 2019, compared to charged OCI with NOK 13 million after tax at fourth quarter end of 2018.

Møre Boligkreditt AS had thirteen bond loans outstanding at 31 December 2019 with a total bond loan debt of NOK 23,062 million, compared to twelve bond loans with NOK 22,384 million outstanding at 31 December 2018.

Total assets at fourth quarter end 2019 amounted to NOK 27,749 million compared to NOK 25,557 million at fourth quarter end 2018. Net lending to customers increased by NOK 2,246 million in 2019 and amounted to NOK 25,655 million at fourth quarter end 2019, compared with NOK 23,409 million at fourth quarter end 2018. The ECL calculation as at 31 December 2019 shows expected credit loss of NOK 3 million for Møre Boligkreditt AS, compared with NOK 15 million in ECL as at 31 December 2018. At fourth quarter end 2019, the mortgages in the cover pool had an average loan-to-value ratio of 59.3 per cent, calculated as mortgage amount relative to the value of the property used as collateral.

At fourth quarter end 2019, the company's substitute assets included in the cover pool amounted to NOK 988 million, compared to NOK 1,300 million at fourth quarter end 2018. Net value of financial derivatives included in the cover pool amounted to NOK 544 million at fourth quarter end 2019, compared to NOK 602 million at end of fourth quarter 2018. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt, was 15.8 per cent as at 31 December 2019, compared to 11.1 per cent as at 31 December 2018.

In addition to liquid assets included in the cover pool, Møre Boligkreditt AS’ Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 293 million at 31 December 2019, reporting total LCR of 117 per cent by fourth quarter 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 amounted to NOK 2,274 million by end of fourth quarter 2019, compared to NOK 1,767 million by end of fourth quarter 2018. Risk weighted assets amounted to NOK 6,068 million by end of fourth quarter 2019. Net equity and subordinated loan capital amounted to NOK 2,005 million by end of fourth quarter 2019, compared to NOK 1,567 million by end of fourth quarter 2018. This corresponds to a Common Equity Tier 1 capital ratio of 33 per cent. 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 unchanged at 1.50 per cent 19 December 2019, and in the Norges Bank’s Executive Board assessment the policy rate is expected to stay close to the current level ahead. The development of housing prices, together with the growth in debt, are the most important risk factors for 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 in December 2019, below the Norwegian national average of 2.2 per cent. We expect the unemployment rate in the county to remain around the national average level also going forward.

Retail lending in Sparebanken Møre Group increased with 4.5 per cent in 2019. 

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, 31 December 2019
 29 January 2020   

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