Interim report from the Board of Directors

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All figures relate to the Group. Figures in brackets refer to the corresponding period last year. Financial statements are prepared in accordance with IFRS and the interim report has been prepared in conformity with IAS 34 Interim Financial Reporting.

RESULTS FOR Q4 2016
The profit before losses on loans and guarantees amounted to NOK 181 million, or 1.19 % of average total assets, compared to NOK 201 million, or 1.35 %, for the corresponding quarter last year.

The profit after losses on loans and guarantees amounted to NOK 159 million, or 1.05 % of average total assets, compared to NOK 176 million, or 1.18 %, for the corresponding quarter last year.

The profit after tax for the fourth quarter of 2016 amounted to NOK 116 million, or 0.77 % of average total assets, compared to NOK 128 million, or 0.86 %, for the corresponding quarter of last year. The return on equity in the fourth quarter of 2016 was 9.2 %, compared to 10.7 % for the fourth quarter of 2015.

Earnings per equity certificate amounted to NOK 5.80 (NOK 6.45) for the Group and NOK 4.35 (NOK 4.40) for the Parent Bank.

Net interest income
The net interest income of NOK 279 million was NOK 6 million lower than in the corresponding quarter of last year. This represents 1.83 % of total assets, which is 0.08 percentage points lower than in the fourth quarter of 2015.

The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, is affecting the development of net interest income.

Other operating income
Other operating income amounted to NOK 45 million, which is NOK 5 million higher than in the fourth quarter of last year. Other operating income amounted to 0.30 % of average total assets, compared with 0.27 % in the corresponding quarter in 2015. Capital losses in the bond portfolio amounted to NOK 4 million in the fourth quarter, compared with capital losses of NOK 10 million in the fourth quarter of 2015.

Costs
Operating costs in the quarter amounted to NOK 143 million, which is NOK 19 million higher than in the same quarter last year. Personnel costs rose by NOK 25 million compared with the same quarter last year. The increase is primarily attributable to the fact that we in the fourth quarter of 2015 saw changes to the Bank's pension scheme that reduced personnel costs by NOK 24 million. Other operating costs were reduced by NOK 6 million compared with the corresponding period last year and amounted to NOK 57 million. Staffing has been reduced by 10 full-time equivalents in the last 12 months to 378 full-time equivalents.

The cost income ratio for the fourth quarter of 2016 was 44.2 %, which represents an increase of 6.1 percentage points compared with the fourth quarter of 2015.

Losses and defaults
Losses on loans and guarantees amounting to NOK 22 million were booked in the quarter. This amounts to 0.14 % of average total assets on an annualised basis. The corresponding figures for the fourth quarter of 2015 were NOK 25 million and 0.17 %. Collective impairments rose by NOK 14 million in the fourth quarter, no losses were booked in the retail segment and losses increased by NOK 8 million in the corporate segment.

Lending and deposit growth
Total assets were reduced by 0.3 % in relation to the third quarter of 2016 to NOK 61 593 million. Lending increased by 1.8 % to NOK 52 691 million and deposits from customers rose by 0.7 % to NOK 32 562 million. For further comments concerning volume trends in the last 12 months, please see the comments for the full year 2016.

PRELIMINARY ANNUAL FINANCIAL STATEMENTS FOR 2016
The profit before losses on loans and guarantees amounted to NOK 777 million, or 1.28 % of average total assets, compared to NOK 742 million, or 1.28 %, for 2015.

The profit after losses on loans and guarantees amounted to NOK 755 million, or 1.24 % of average total assets, compared to NOK 692 million, or 1.19 %, for 2015.

The profit after tax for 2016 amounted to NOK 574 million, or 0.94 % of average total assets, compared to NOK 503 million, or 0.87 %, for 2015. The return on equity in 2016 was 11.6 %, compared to 10.7 % in 2015.

Earnings per equity certificate in 2016 amounted to NOK 28.80 (NOK 25.25) for the Group and NOK 29.85 (NOK 25.70) for the Parent Bank.

Net interest income
Net interest income totalled NOK 1 082 million (NOK 1 098 million). In relation to average total assets, net interest income was 1.79 % (1.89 %). Net interest income accounted for 79.4 % (84.3 %) of total income in 2016.

The generally low level of interest rates in the market, combined with strong competition for both loans and deposits, is affecting the development of net interest income.

Other operating income
Other operating income amounted to NOK 281 million (0.46 % of average total assets) in 2016. This represents an increase of NOK 76 million compared with 2015. Capital gains on the bond portfolio amounted to NOK 24 million in 2016, compared with capital losses of NOK 51 million in 2015.

The effect of the Visa transaction on profit before tax amounted to NOK 45 million in 2016.

Costs
Total costs amounted to NOK 586 million (0.97 % of average total assets). This represents an increase of NOK 25 million compared with 2015. This is primarily attributable to the fact that we in the fourth quarter of 2015 saw changes to the Bank's pension scheme that reduced personnel costs by NOK 24 million for 2015. Other operating costs were reduced by NOK 1 million compared with 2015 and amounted to NOK 251 million. Staffing has been reduced by 10 full-time equivalents in the last 12 months to 378 full-time equivalents.

The cost income ratio was 43.0 % in 2016, which is the same as in 2015.

Problem loans
In 2016, the income statement was charged with NOK 22 million (NOK 50 million) in losses on loans and guarantees. This represents 0.04 % (0.09 %) of average total assets. The losses on loans and guarantees were due to a NOK 19 million increase in collective impairments, a NOK 9 million increase in the corporate segment, and a NOK 6 million reduction in the retail segment.

At year-end 2016, total impairments for losses amounted to NOK 360 million, equivalent to 0.68 % of gross lending (NOK 341 million and 0.66 % of gross lending). NOK 15 million of the individual impairments involved commitments in default for more than 90 days (NOK 14 million), which represents 0.02 % of gross lending (0.03 %). NOK 64 million relates to other commitments (NOK 65 million), which is equivalent to 0.12 % of gross lending (0.13 %). Collective impairments amounted to NOK 281 million (NOK 262 million) or 0.53 % of gross lending (0.51 %).

Net problem loans (loans that have been in default for more than 90 days and loans that are not in default but which have been subject to an individual impairment for losses) have increased by NOK 367 million in the last 12 months. At year-end 2016, the corporate market accounted for NOK 476 million of net problem loans, and the retail market NOK 56 million. In total this represents 1.01 % of gross lending (0.32 %).

Net commitments in default for more than 3 months at the end of 2016 amounted to NOK 50 million (NOK 60 million), which represents a reduction from 0.11 % of lending at year-end 2015 to 0.09 % at year-end 2016.

The Visa transaction
Please refer to the information already provided in the 2015 annual report and the Stock Notification of 29 June 2016 on the agreement between Visa Europe Ltd and Visa Inc. concerning the sale of all of the shares in Visa Europe. Sparebanken Møre has an interest in this transaction due to its stake in Visa Norge, which owns one share in Visa Europe Ltd., as well as a smaller interest through the sale of Nets/Teller in 2014. The transaction consists of a cash payment upon implementation, as well as a cash payment payable after 3 years, and convertible preferred shares.

The effect on the profit before tax from this first tranche of the cash payment amounted to NOK 45 million in 2016, with NOK 38 million originating from the stake in Visa Norge and NOK 7 million from the interest in Nets/Teller.

Lending to customers
At year-end 2016, lending to customers amounted to NOK 52 691 million (NOK 51 286 million). Net customer lending has increased by a total of NOK 1 405 million, or 2.7 %, in the last 12 months. Retail lending has increased by 6.6 %, while corporate lending has decreased by 4.8 % in the last 12 months. Retail lending accounted for 70.2 % of lending at year-end 2016 (67.5 %).

Customer deposits
Customer deposits have increased by 10.8 % in the last 12 months. At year-end 2016, deposits amounted to NOK 32 562 million (NOK 29 389 million). Retail deposits have increased by 4.7 % in the last 12 months, while corporate deposits have increased by 19.9 % and public sector deposits have increased by 20.7 %. The retail market's relative share of deposits amounted to 57.4 % (60.8 %), while deposits from corporate customers accounted for 39.2 % (36.3 %) and from public sector customers 3.4 % (2.9 %).

The deposit to loan ratio amounted to 61.8 % (57.3 %) at year-end 2016.

CAPITAL ADEQUACY
The Group's capital adequacy ratio at the end of the fourth quarter of 2016 exceeded the regulatory capital requirements and the internally set minimum target for the Core Tier 1 capital ratio.

In the fourth quarter, the Financial Supervisory Authority of Norway assessed the Group's risk and capital requirements in 2016 and set an individual Pillar 2 supplement of 1.8 %.

As of 31 December 2016, primary capital amounted to 18.6 % (18.1 %) and core capital amounted to 17.0 % (16.6 %), of which Core Tier 1 capital amounted to 14.7 % (14.1 %).

Sparebanken Møre was subject to a capital requirement linked to the transitional scheme associated with the Basel I floor amounting to NOK 25 million at the end of the fourth quarter of 2016, which corresponds to a basis for calculation of NOK 295 million.

SUBSIDIARIES
The aggregate profit of the Bank's three subsidiaries amounted to NOK 153 million after tax in 2016 (NOK 179 million).

Møre Boligkreditt AS was established as part of the Group's long-term funding strategy. The mortgage company’s main purpose is to issue covered bonds for sale to Norwegian and international investors. At the end of the year, the company had raised a net NOK 16.1 billion in funding for the Group. The company contributed NOK 156 million to the result in 2016 (NOK 176 million).

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company's result in 2016 was NOK -1.9 million (NOK 0.2 million). At the end of the year, the company employed 14 full-time equivalents.

The object of Sparebankeiendom AS is to own and manage the Bank's own commercial properties. The company made no contribution to the result in 2016. The company has no employees.

EQUITY CERTIFICATES
At year-end 2016, there were 5 715 holders of Sparebanken Møre's equity certificates (ECs). 9 886 954 equity certificates have been issued. The EC holders’ share of the Bank’s total equity amounts to 49.6 %. Note 10 contains an overview of the 20 largest holders of the Bank's equity certificates.

As of 31 December 2016, the Bank owned 29 847 of its own equity certificates. These were purchased via the Oslo Stock Exchange at market price.

PROPOSED ALLOCATION OF THE PROFIT FOR THE YEAR
In line with the rules for equity certificates, etc., and in accordance with Sparebanken Møre's dividend policy, it is proposed that 49 % of the Group's profit be allocated to cash dividends and dividend funds for local communities. Based on the accounting breakdown of equity between the EC holders’ share of the equity and the primary capital fund, 49.6 % of the profit will be allocated to equity certificate holders and 50.4 % to the primary capital fund. Earnings per equity certificate amounted to NOK 28.80 in 2016. It has been proposed to the General Meeting that the cash dividend per equity certificate for the 2016 financial year be set at NOK 14.00.

Proposed allocation of the profit:

Profit for the year NOK 574 million

Dividend funds (48.6 %):

Cash dividends NOK 138 million
Social dividends NOK 141 million

Strengthening of equity (51.4 %):

The dividend equalisation fund NOK 156 million
The primary capital fund NOK 159 million
Other funds NOK -20 million

Total allocated NOK 574 million

FUTURE PROSPECTS
In line with the outlook for the Norwegian economy, Møre og Romsdal's economic outlook appears to have stabilised during the autumn and winter. Most businesses and industries are currently seeing increased activity. The most important reasons for this are the weak Norwegian krone, low level of interest rates and an expansive fiscal policy. The rise in oil prices has also helped to reduce uncertainty for oil-related industries. The situation in this industry will, however, remain challenging in 2017. As a consequence of this, unemployment in the county might continue to rise slightly.

In December, registered unemployment in Møre og Romsdal amounted to 3.1 % of the labour force, according to the Norwegian Labour and Welfare Administration (NAV). The unemployment rate for the country as a whole was 2.8 %.

Sparebanken Møre's losses are expected to remain low also in 2017.

The growth in credit in Norway slowed slightly throughout 2016, while the growth in total deposits was positive, but weak. We continue to experience strong competition in the market, both for lending and deposits, but the Bank is competitive and continues to record good lending and deposit growth. It is anticipated that the growth in lending within the retail market will decrease somewhat during the year, while the growth in the corporate market will increase. There is a constant focus on generating growth through good commitments with an acceptable level of risk.

The Bank will remain strong and committed in supporting businesses and industries in our region, Nordvestlandet.

Sparebanken Møre is focusing on cost-effective operations. This has resulted in a highly satisfactory level of costs. This focus will continue, and the Group's cost income ratio in 2017 is again expected to remain within the target of 45 %.

Overall, good results are expected in 2017, with a return on equity exceeding the target of 10 %.

Ålesund, 31 December 2016

25 January 2017

THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE

LEIF-ARNE LANGØY, Chairman
ROY REITE, Deputy Chairman
RAGNA BRENNE BJERKESET
HENRIK GRUNG
ELISABETH MARÅK STØLE
ANN MAGRITT BJÅSTAD VIKEBAKK
HELGE KARSTEN KNUDSEN

OLAV ARNE FISKERSTRAND, CEO