Bank Norwegian : Report for the second quarter 2021

Report for the second quarter 2021

Bank Norwegian Group

Q2

Table of contents
Letter from the CEO ................................................................................................	3
Report for the second quarter 2021.......................................................................	4
Profit and loss account ...........................................................................................	8
Balance sheet ........................................................................................................	10
Cash flow statement .............................................................................................	12
Changes in equity..................................................................................................	14
Notes
Note 1	General accounting principles ........................................................	15
Note 2	Segments ............................................................................................	15
Note 3	Capital adequacy and Liquidity Coverage Ratio ............................	16
Note 4	Expected credit loss ..........................................................................	17
Note 5	Loans to customers by product groups .........................................	20
Note 6	Provision for loan losses ..................................................................	22
Note 7	Risk classes........................................................................................	22
Note 8	Net interest income............................................................................	22
Note 9	Net commission and bank services income ...................................	23
Note 10	Net change in value on securities and currency ............................	23
Note 11	General administrative expenses.....................................................	23
Note 12	Debt securities issued and subordinated loan ...............................	23
Note 13	Financial instruments .......................................................................	24
Note 14	Related parties and other investments............................................	25
Note 15	Completed merger .............................................................................	25
Quarterly figures....................................................................................................	26
Statement pursuant to section 5-6 of the Securities Trading Act ....................	28

Report for the second quarter 2021 Bank Norwegian Group 1

Financial highlights

Profit and loss account

		Bank Norw egian Group
Amounts in NOK 1000	Q2 2021	Q2 2020	2020
Interest income	1 290 282	1 565 620	6 115 326
Interest expenses	107 170	179 319	702 272
Net interest income	1 183 113	1 386 301	5 413 054
Net other operating income	19 103	123 190	229 644
Total income	1 202 215	1 509 491	5 642 698
Total operating expenses	340 819	288 741	1 313 162
Provision for loan losses	370 664	447 027	1 830 948
Profit before tax	490 733	773 723	2 498 588
Profit after tax	367 792	582 087	1 886 975

Balance sheet

		Bank Norw egian Group
Amounts in NOK 1000	30.6.21	30.6.20	31.12.20
Total assets	58 351 162	61 124 733	63 192 011
Loans to customers	35 654 342	40 101 034	37 943 688
Liquid assets	21 983 970	20 221 995	24 364 666
Deposits from customers	39 143 018	41 090 855	42 677 703
Debt securities issued	6 181 276	6 679 216	6 034 387
Subordinated loans	856 909	876 143	877 820
Tier 1 capital	635 000	635 000	635 000
Total equity	11 145 514	10 407 468	11 328 161

Key figures and alternative performance measures

		Bank Norw egian Group
	Q2 2021	Q2 2020	2020
Return on equity (ROE) 1, 2	13.3 %	24.0 %	18.9 %
Return on assets (ROA)1	2.5 %	3.9 %	3.1 %
Earnings per share (EPS)3	1.92	3.06	9.90
Dividend per share (DPS)	-	-	6.00
Common equity tier 1 (CET 1)	24.0 %	20.7 %	22.0 %
Leverage ratio	16.2 %	14.3 %	14.5 %
Liquidity coverage ratio (LCR)	425 %	385 %	569 %
Net interest margin (NIM)1	8.1 %	9.3 %	8.8 %
Cost/income ratio1	0.28	0.19	0.23
Loan loss provisions to average loans 1	3.7 %	3.9 %	4.1 %
Stage 3 loans to loans 1	26.3 %	21.3 %	23.7 %
Stage 3 loan loss allowance to Stage 3 loans 1	39.7 %	40.0 %	40.9 %
Loan loss allowance to loans 1	11.8 %	10.3 %	11.5 %

1. Defined as alternative performance measure (APM ). APM s are described on banknorwegian.no/OmOss/InvestorRelations.
2. Definition for ROE was updated in Q3 2020 based on established market practice. Previous periods are recalculated.
3. Definition for EPS was updated in Q3 2020 based on establised market practice. EPS is calculated based on profit after tax excluding interest on additional Tier 1 capital. Previous periods are recalculated.

Report for the second quarter 2021 Bank Norwegian Group 2

Letter from the CEO

The second quarter and the weeks into the third quarter has been an eventful period for Bank Norwegian. We are approaching the launch of our European expansion in the fourth quarter in Spain and Germany with full speed. On July 14, Nordax Bank AB (publ) launched a public voluntary offer for the shares in the bank after completing a thorough due diligence. At the time of our announcement of second quarter result, the outcome of this process is not concluded. On June 28, CEO Tine Wollebekk resigned, and I was offered the interim CEO position by the Board.

In the second quarter we continue to see negative effects of the COVID-19 pandemic on our profit, through lower loan growth and customer credit card spending resulting in lower interest and commission income. However, we do see a positive development after soon 1,5 year with pandemic restrictions; unemployment is coming down, and all the economies are gradually improving; real estate prices have increased, and people have saved record high amounts due to high level of liquidity paired with low consumption. Now spending and consumption is picking up. The start of the quarter was affected by improved macro outlook, which continued during May. At end of June, we experience steady progress on reopening and eased restrictions going hand in hand with massive vaccination program.

For the Bank we experience a positive shift this quarter; we see increased usage of our credit card, in all the four Nordic markets, and we expect this to improve even further during the second half of 2021 as a result of reopening and increased activity level. Loan demand is still low but has gradually come up the last months. The Norwegian Krone remain strong affecting our figures negatively compared to same period last year.

In May the Bank paid our first dividend of NOK 5 per share, and still plan to execute the last NOK 1 during the fourth quarter. During the summer, the reversed parent-subsidiary merger between Norwegian Finans Holding ASA and Bank Norwegian ASA was finalized. The Bank has a solid and liquid balance sheet and have a very strong capital position. Our sales of debt collection credit cards portfolios in Sweden and Denmark during April, as well as debt collection unsecured lending portfolio in Denmark in July, which will be accounted for in the third quarter, and our work on ECL models updates gives us additional comfort that our loan loss provisioning levels are adequate. We see effects from the pandemic on our income level the last few quarters, but together with the launch of our Europe expansion and the increased activity level in the Nordics, we are confident that this will provide long-term profitable growth and high earnings.

We all have full focus on our European expansion and important milestones have been achieved on all areas, while simultaneously working on projects. I am proud of the efforts and stamina of our employees. I am particularly happy to see that our cost ambitions for entering new markets as communicated in our Capital Markets Day in March through our digital and lean operating model, have been confirmed the last couple of months.

What remains the same after an eventful period, is our continued focus on supporting our customers in all parts of our business. Delivering sustainable products and services, easy to use, transparent and digital, is key for us. We are humble and grateful for the high customer satisfaction feedback we get, and do not take this for granted. We need to continue to prove our relevance to our customers and focus our development activities with the clear ambition to continue delivering high customer value.

Bærum, August 12, 2021

Klara-Lise Aasen

Interim CEO

Report for the second quarter 2021 Bank Norwegian Group 3

Report for the second quarter 2021

During the second quarter the partial lockdowns and restrictions observed in the first quarter have gradually been lifted and we have seen improvement in economic activity and credit card usage, particularly during the end of the quarter as both restrictions have been relieved and the approaching of summer months with its seasonal increased spending. The quarter has also seen a more stable development in exchange rates resulting in smaller effects on the accounts.

At the end of the second quarter 2021 the BN Group had a customer base of 1 706 700 customers, which can be broken down into 1 216 900 credit card customers, 204 500 instalment loan customers and 285 300 deposit customers. During the second quarter the Bank sold two credit card debt collection portfolios in Sweden and Denmark which explains the 35 300 reduction in the customer base from the first quarter.

During July, the group-internal merger between Norwegian Finans Holding ASA and Bank Norwegian ASA was completed and the merger was implemented with a retrospective effect as of January 1, 2021 for both accounting and tax purposes. The comparable figures in the following sections are thus unchanged and represent the NFH Group figures.

Profit and loss as of June 30, 2021

The BN Group's profit after tax for the first half year amounted to NOK 764.6 million, compared with NOK 950.1 million for the same period in 2020. The decrease is mainly caused by lower interest income through lower loan portfolios and a strengthened NOK, lower net commission income, partly offset by lower interest expense from reduced deposit rates and lower provisions for loan losses due to higher provisions for loan losses last year related to the uncertain outlook of COVID- 19.

Net interest income totaled NOK 2 423 million, net other operating income amounted to NOK 32.4 million, while total operating expenses were NOK 676.6 million. Provisions for loan losses were NOK 760.6 million.

Profit and loss for the second quarter 2021

The BN Group's profit after tax in the quarter amounted to NOK 367.8 million compared with NOK 396.8 million in the first quarter and down from NOK 582.1 million in the same quarter last year. The decrease from the previous quarter is mainly caused by lower interest income, mainly in Norway from a lower loan portfolio and Sweden and Denmark due to portfolio sales, in addition to lower commission income due to seasonal kick-back from Visa in the first quarter, partly offset by lower provision for loan losses. Compared to the same quarter last year, the main reason for the decrease of net profit is reduced interest income from both lower instalment loans volumes and credit cards loan portfolios, particularly in Norway. In addition, reduced interest income from a strengthened NOK and a net gain on securities and currency of

NOK 105.0 million last year, partly offset by reduced interest income from deposit rates reductions.

Return on equity was 13.3%, compared with 14.3% in the first quarter and the return on assets was 2.5%, compared with 2.6% in the first quarter.

Net interest income amounted to NOK 1 183 million, a decrease of NOK 57.0 million from the first quarter, mainly due to lower interest income from credit cards in Sweden and Denmark due to the portfolio sales and from lower interest income from both instalment loans and credit cards in Norway. Net interest income was also negatively affected by currency and lower income from certificates and bonds mainly in Norway and Finland, partly offset by lower interest on customer deposits from both reduced deposit rates and reduced deposits volumes in Norway. The net interest margin was 8.1%, compared with 8.2% in the first quarter.

Net other operating income amounted to NOK 19.1 million compared with NOK 13.3 million in the first quarter. Net commission income decreased NOK 10.2 million to NOK 31.5 million mainly due to seasonal kick-back from Visa accounted for in the first quarter. The decrease was partly offset by insurance incentives in the second quarter, in addition to higher commission income from increased credit card activity, particularly towards the last part of the second quarter. Net

loss on securities and	currency amounted	to
NOK 12.4 million,	compared	with a net loss of
NOK 28.4 million in	the first	quarter. The increase	is

mainly due to a net gain on currency of NOK 9.7 million in the quarter, compared with a net loss of NOK 4.2 million in the previous quarter.

Total operating expenses amounted to NOK 340.8 million, an increase of NOK 5.1 million compared to the first quarter. Personnel expenses increased NOK 1.8 million. Administrative expenses increased NOK 2.8 million mainly due to increased digital marketing spending partly offset by reduced sales costs. Depreciation decreased by NOK 3.7 million. Other operating expenses increased NOK 4.2 million.

Provisions for loan losses were NOK 370.7 million, a decrease of NOK 19.3 million in the second quarter compared to the previous quarter. The Bank sold two debt collection portfolios in April resulting in combined net gains of approximately NOK 29.5 million reducing the loan loss provisions in the quarter. While the first quarter's loan loss provision included an NOK 22 million implementation of the new definition of default effect, an implementation of a new Loss Given Default (LGD) model change resulting in a steeper stage 3 LGD curve in Finland with an implementation effect of increased loan loss provision of NOK 38 million included in the second quarter. The effect of the new definition of default, implemented on January 1, 2021, is now showing a stable effect on "lazy payers" migrating to stage 3. The loan loss provision is based on

Report for the second quarter 2021 Bank Norwegian Group 4