Nordea Bank : Interim report Nordea Direct Bank Third Quarter 2021

Interim Report 3rd quarter 2021

Nordea Direct Bank

Nordea Direct Bank ASA is part of the Nordea Group. Nordea build strong and close relationships through our engagement with customers and society. Whenever people strive to reach their goals and realise their dreams, we are there to provide relevant financial solutions. We are one of the largest banks in the Nordic region and among the ten largest financial groups in Europe in terms of total market capitalisation with around 10 million customers. The Nordea share is listed on the Nasdaq Helsinki, Nasdaq Copenhagen and Nasdaq Stockholm exchanges.

Read more about us on Nordea.com.

Key financial figures

Summary of income statement

NOKt	Jan-Sep 2021	Jan-Sep 2020	Year 2020
Net interest income	533,688	532,263	724,630
Net commission income and other operating income	28,681	-38,831	-43,938
Total income	562,369	493,432	680,693
Staff costs	70,277	77,184	101,396
Other expenses	154,910	140,333	196,121
Total operating expenses	225,187	217,517	297,517
Loan losses (negative figures are reversals)	14,539	127,175	86,810
Operating profit	322,643	148,740	296,365
Income tax expense	80,661	37,185	75,328
Net profit for the period	241,982	111,554	221,037

Summary of balance sheet

NOKt	30 Sep 2021	30 Sep 2020	31 Dec 2020
Loans to the public (gross)	52,654,516	50,447,984	50,708,573
Allowance for loan losses	-176,026	-476,156	-169,591
Deposits and borrowings from the public	13,855,881	15,180,007	14,391,542
Total assets	57,375,507	56,085,402	56,003,342
Equity	4,417,129	4,075,003	4,179,280
Assets under management		119,503

Ratios and key figures

		Jan-Sep 2021	Jan-Sep 2020	Year 2020
Net interest margin, annualised	%	1.26	1.36	1.36
Loss rate	%	0.04	0.37	0.18
Non-performing loans in % of gross lending1	%	0.37	1.41	0.19
Return on equity, annualised	%	7.48	3.69	5.53
Deposit-to-loan ratio at the end of the period	%	26.3	30.1	28.4
Capital adequacy ratio2	%	19.1	18.5	20.2
Tier 1 capital ratio2	%	18.7	17.6	19.2
Common equity Tier 1 capital ratio2	%	18.0	16.9	18.6
Cost/income ratio	%	40.0	44.1	43.7
Liquditiy Coverage Ratio	%	319	292	409
Average total assets	NOKt	56,721,211	52,106,607	53,235,728
Number of employees	Number	93	105	108
Total deposit above NOK 2 million	NOK billion	1.90	2.54	2.04

1. Gross default over 90 days
2. The profit for the period is not included in the calculation for the quarters, with the exception of fourth quarter

For more detailed information regarding ratios and key figures defined as Alternative performance measures, see www.nordea.com/en/investor-relations/.

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Nordea Direct Bank ASA

Introduction

(Previous year comparable figures for the company are shown in brackets)

Nordea Direct Bank ASA is a wholly owned subsidiary of Nordea Bank Abp. The bank was established in 2007 and has administrative offices in Oslo and Førde.

The merger between Nordea Direct Bank ASA and Nordea Bank Abp is ongoing and the target completion date is 1 November 2022. Completion is subject to regulatory approval.

Income statement

Operating profit was NOK 322.6m (NOK 148.7m). The increase was a result of improved gains from financial instruments, one time bookings on the total Income, as well as improved write-down and losses.

Total income amounted to NOK 562.4m (NOK 493.4m).

Net interest income amounted to NOK 533.7m (NOK 532.3m). The positive effect of the portfolio growth was offset by the decreased net interest margin.

Net commission income and other income amounted to NOK 28.7m (NOK 38.8m). The increase was primarily driven by gains on financial instruments and a one-time booking related to a portfolio of pre-paid cards. The one-time booking relates to the closing of pre-paid cards issued by Gjensidige Bank ASA (now Nordea Direct Bank ASA) for a third party. The prepaid cards have expired already before the acquisition of Gjensidige Bank ASA by Nordea Bank Abp and the board decided to write-off the balance of these cards, in close dialogue with the third party and after taking all necessary steps to pay out customer dues.

Net interest margin1 was 1.26% (1.36%). The change in the portfolio composition led to a decrease in the rate.

Operating expenses were NOK 225.2m (NOK 217.5m).

The cost/income ratio was 40.0% (44.1%), a result of improved total Income.

Total write-downs and losses amounted to NOK 14.5m (NOK 127.2m). Three main factors contributed to the decrease: the sale of an unsecured lending portfolio at the end of 2020, tightening of credit rules during 2020 as well as improved economic outlook.

The development of the collective loan loss allowance is correlated with the development of the economic outlook. During the second quarter of 2021, the economic outlook improved, indicating a release of the allowance. Covid-19 still creates an uncertain environment and can have unexpected effects. In addition, a set of new models for calculating the collective loan loss allowance is under development. Considering the early stage, the effect they will have on the collective loan loss allowance was still unk- nown. With these two arguments in mind, the bank passed on a management judgement that mitigated the positive impact of the release. The bank also partially released the management judgement build in the second quarter of 2020. The release was related to forbearance, which was not included in the model for collective loan loss allowance at that time. During 2021, the model was updated to take forbearance into consideration and therefore the management judgement was released.

In the third quarter of 2021, the collective loan loss allowance increased due to the portfolio perfor- mance. The bank kept the level of the management judgement unchanged and will evaluate the next steps before year-end closing.

Write-downs and losses were 0.04% (0.37%) of average gross lending. The decrease was driven by lower write-downs and losses following the delinquent portfolio sale, tightened credit rules and the economic outlook, as well as the change in the portfolio composition.

Gross lending in default over 90 days decreased to NOK 197.2m (NOK 712.5m). As a result, gross loans in default over 90 days were 0.37% (1.41%) of total gross lending.

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The weighted average loan-to-value ratio2 was estimated to be 61.6% (61.4%) for the mortgage portfo- lio.

Lending and deposits growth

Gross lending increased by 4.4% and amounted to NOK 52,654.5m (NOK 50,448.0m) as of 30 September 2021. The growth was due to the bank entering an agreement with The Confederation of Unions for Professionals (UNIO), the second biggest labour union in Norway, during 2020. The favourable situation on the property market also contributed to the development. During the second quarter of 2021, the bank sold all the lending contracts with its agriculture customers and also transferred most of their outstanding relationships. Deposits decreased by 8.7%, reaching NOK 13,855.9m (NOK 15,180.0m).

Capital position

As of 30 September 2021, the Nordea Direct Bank Group had a capital adequacy ratio of 19.1% (18.5%). The total capital held by the bank was NOK 4,270.7m (NOK 4,149.3m), of which NOK 4,025.8m (NOK 33,804.5m) was common equity Tier 1 capital. The common equity Tier 1 capital ratio was 18.0% (16.9%).

Rating

Nordea Direct Bank ASA and its subsidiary Nordea Direct Boligkreditt AS had a long-term and short- term counterparty credit rating of AA-/A-1+. The covered bonds portfolio issued by Nordea Direct Boligkreditt AS had a long-term rating of AAA.

Nordea Direct Boligkreditt AS will hold the amount of over-collateralisation required to maintain the current rating for Nordea Direct Boligkreditt AS`s covered bond program.

Debt securities issued

Net issues of debt securities, including subordinated loan capital, amounted to NOK 16.317.0m (NOK 22.365.7) as of 30 September 2021. The total face value of the securities issued by the bank was NOK 16,246.5m.

Repayments through ordinary maturity and buy back of bonds from investors were NOK 4,711.0m in the period.

Liquidity

As of 30 September 2021, Nordea Direct Bank Group had net liquid assets of NOK 4,656.9m, divided between NOK 183.8m in bank deposits and NOK 4,473.1m in debt securities. Nordea Direct Bank Group had no longer any investments in the covered bonds issued by Nordea Direct Boligkreditt AS. The net liquid assets were at an ade¬quate level that covers the bond debt that is due in the next 7 months.

Norwegian financial institutions are required to maintain a Liquidity Coverage Ratio (LCR) on 100 %, in order to be able to cover net liquidity outflow during periods with limited access to market funding. The LCR for Nordea Direct Bank Group was 319% (292%) at end of third quarter.

1 The net interest margin is calculated as net interest income as a percentage of average total assets, annualised.

2 The loan-to-value ratio estimate is calculated on the basis of the exposure on the reporting date and the property valuation, including any higher priority pledge(s), at the time the loan was approved.

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Covid-19 Measures

During September 2021 Norway saw the society opening up due to the good progress of the vaccination programme run by the Norwegian authorities. Considering the development, Nordea Direct Bank ASA no longer sees the need or special measures and follow-ups due to Covid-19. The bank will continue to monitor the overall economic situation for any unexpected developments that could have negative impact on its operations.

Organisation changes

During November 2021, a large share of the Nordea Direct Bank ASA organisation will be moved into Nordea Bank Abp. In order to secure stable operations for the bank, Nordea Bank Abp will provide the services performed by the departments moved and the relationship will be governed through intragroup agreements between the two legal entities.

Events after the balance sheet date

No significant events have occurred after the end of the quarter.

Nordea Direct Bank ASA

Oslo, 21 October 2021

Randi Marjamaa	Sjur Loen	Ulf Andre Bjørnhaug
Chairman	Board member	Board member
Mona Eek-Jensen	Per Kumle	Hans-Jacob Starheim
Board member	Board member	Employee representative
	Krister G. Aanesen
	Chief Executive Officer

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