Nordea Bank : Interim report Nordea Direct Bank Third Quarter 2022

Interim Report 3rd quarter 2022

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 2022	Jan-Sep 2021	Year 2021
Net interest income	479,137	533,688	691,973
Net commission income and other operating income	-15,638	28,681	16,728
Total income	463,499	562,369	708,700
Staff costs	20,004	70,277	85,409
Other expenses	169,872	154,910	230,076
Total operating expenses	189,876	225,187	315,484
Loan losses (negative figures are reversals)	36,367	14,539	28,295
Operating profit	237,256	322,643	364,921
Income tax expense	59,314	80,661	92,074
Net profit for the period	177,942	241,982	272,847

Summary of balance sheet

NOKt	30 Sep 2022	30 Sep 2021	31 Dec 2021
Loans to the public (gross)	50,946,131	52,654,516	53,792,297
Allowance for loan losses	-148,774	-176,026	-184,142
Deposits and borrowings from the public	12,178,794	13,855,881	13,458,770
Total assets	55,973,220	57,375,507	58,528,746
Equity	4,558,795	4,417,129	4,449,692

Ratios and key figures

		Jan-Sep 2022	Jan-Sep 2021	Year 2021
Net interest margin, annualised	%	1,10	1,26	1,21
Loss rate	%	0,09	0,04	0,05
Non-performing loans in % of gross lending1	%	0,21	0,37	0,40
Return on equity, annualised	%	5,06	7,48	6,21
Deposit-to-loan ratio at the end of the period	%	23,9	26,3	25,0
Capital adequacy ratio2	%	20,8	19,1	20,2
Tier 1 capital ratio2	%	20,4	18,7	19,7
Common equity Tier 1 capital ratio2	%	20,0	18,0	19,1
Cost/income ratio	%	41,0	40,0	44,5
Liquditiy Coverage Ratio	%	444	319	401
Net Stable Funding Ratio	%	147	121	134
Average total assets	NOKt	58,281,678	56,721,211	57,159,723
Number of employees	Number	13	93	20
Total deposit above NOK 2 million	NOK billion	1,05	1,90	1,69

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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 fully owned subsidiary of Nordea Bank Abp. The bank was established in 2007 and has administrative offices in Oslo and Førde.

The integration and merger between Nordea Direct Bank ASA and Nordea Bank Abp is ongoing and the merge date is set for November 1, 2022.

Income statement

Operating profit was NOK 237.3m (NOK 322.6m). The decrease was a result of higher funding cost, reduced gains from financial instruments and reduced other operating income versus 2021 due to a one time booking from the closing of pre-paid cards in 2021.

Total income amounted to NOK 463.5m (NOK 562.4m).

Net interest income amounted to NOK 479.1m (NOK 533.7m). There reasons for the reduction were higher cost of funding and negative portfolio growth. The latter as a result of the transfer of mortgage market new sales to Nordea Bank Abp in Q1 2022 (see below under Lending and portfolio growth).

Net commission income and other income amounted to minus NOK 15.6m (positive NOK 28.7m). The decrease was caused by reduced fair values on financial instruments and a prior year one-time booking related to a portfolio of pre-paid cards.

The net interest margin1 was 1.10% (1.26%). Higher funding cost from increases in NIBOR led to the decrease in margin.

Operating expenses were NOK 189.9m (NOK 225.2m).

The cost/income ratio was 41.0% (40.0%), mainly as a result of the reduced net interest margin.

Total write-downs and losses amounted to NOK 36.4m (NOK 14.5m).

The development of the collective loan loss allowance correlates with the development of the economic outlook, but with a delay. In the third quarter of 2022, the collective loan loss allowance decreased with NOK 10,9m due to the portfolio performance and macro input. The bank decided to increase the level of the management judgement up to NOK

65,1m considering that the economic outlook remains uncertain, due to several factors such as inflation and decreased purchasing power, supply chain imbalances and the war in the Ukraine.

Total write-downs and losses were 0.09% (0.04%) of average gross lending. Nordea Direct implemented a new loan loss provisioning model for the mortgage portfolio in q3 2022. This change led to a decrease of 6 mNOK in provisions. Due to the still remaining uncertainty in the global markets an additional 6 mNOK management judgement was built to offset the diffe- rence.

Gross lending in default over 90 days decreased to NOK 105.6m (NOK 197.2m). The decrease was driven by the sale of a delinquent portfolio in September 2022. Gross loans in default over 90 days were at 0.21% (0.37%) of total gross lending.

The weighted average loan-to-value ratio2 was estimated to be 60.9% (61.6%) for the mortgage portfo- lio.

Lending and deposits growth

Gross lending decreased by 3.2% and amounted to NOK 50,946.1m (NOK 52,654.5m) as of September 30, 2022. The decrease was mainly caused by parts of the partner agreement mortgage sales being transferred to Nordea Bank Abp on March 1, 2022 in line with the integration plan of the forthcoming

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merger. Deposits decreased by 12.1% to NOK 12,178,8m (NOK 13,855.9 m) mainly driven by deposits transferred to Nordea Bank Abp, also as part of the integration plan.

Capital position

As of 30 September 2022, the Nordea Direct Bank Group had a capital adequacy ratio of 20.8% (19.1%). The total capital held by the bank was NOK 4,478.2m (NOK 4,270.7m), of which NOK 4,303.0m (NOK 4,025.8m) was common equity Tier 1 capital. The common equity Tier 1 capital ratio was 20.0% (18.0%).

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-collateralization 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 9,201.7m (NOK 16,317.0) as of September 30, 2022. The total face value of the securities issued by the bank was NOK 9,296.5m.

Repayments through ordinary maturity and buy back of bonds from investors were NOK 4,649.0m in the period

Liquidity

As of September 30, 2022, Nordea Direct Bank Group had net liquid assets of NOK 4,935.9m, divided between NOK 403.8m in bank deposits and NOK 4,654.1 in debt securities. Nordea Direct Bank ASA has no placements in covered bonds issued by Nordea Direct Boligkreditt AS. The net liquid assets were at an adequate level that covers the bond debt that is due in the next eleven 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 444% (319%) at end of the third quarter.

Key risk and uncertainty factors

The bank's financial risk mainly comprises credit, liquidity and interest rate risk. The risk is reported on a monthly basis and assessed in accordance with the principles, strategies and risk thresholds defined by the Board.

Credit risk represents the risk of losses arising as a result of customers and other counterparties failing to repay their debts when upon due date. The bank uses risk classification models to calculate the risk associated with its exposure to customers. The lending performance is monitored closely and is considered to be satisfactory.

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 based on the exposure on the reporting date and the property valuation, including any higher priority pledge(s), at the time the loan was approved and taking into account any corrections done manually thereafter to reflect accurate valuation.

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Liquidity risk is the risk that the bank will be unable to meet all its financial obligations when they fall due or be unable to fund its lending activities. In order to reduce the risk, liquidity forecasts are continuously updated and reviewed. The bank's current liquidity reserve gives adequate time to implement necessary measures in a situation of an acute liquidity freeze.

Interest rate risk refers to the risk of losses as a result of changes in the interest rate level. Risk limits, given certain changes in interest rate level, are set to control and manage the interest rate risk. In the management of this risk both assets and liabilities (borro- wing) are incorporated. Derivatives are used for hedging purposes.

Organisation changes

During November 2021, a large share of the Nordea Direct Bank ASA organization was moved into Nordea Bank Abp. In order to maintain stable operations for the bank, Nordea Bank Abp has and continues to provide the services by the departments that were moved. This arrangement is formally regulated through an intra group agreement between Nordea Direct and Nordea Bank Abp.

Events after the balance sheet date

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

Nordea Direct Bank ASA

Oslo, 27 October 2022

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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