Norwegian Finans : Report for the first quarter 2021

Report for the first quarter 2021

Norwegian Finans Holding Group

Q1

Table of contents
Letter from the CEO ................................................................................................	3
Report for the first quarter 2021.............................................................................	4
Profit and loss account ...........................................................................................	8
Balance sheet ..........................................................................................................	9
Cash flow statement .............................................................................................	10
Changes in equity..................................................................................................	11
Notes
Note 1	General accounting principles ........................................................	12
Note 2	Segments ............................................................................................	12
Note 3	Capital adequacy and Liquidity Coverage Ratio ............................	13
Note 4	Expected credit loss ..........................................................................	14
Note 5	Loans to customers by product groups .........................................	17
Note 6	Provision for loan losses ..................................................................	19
Note 7	Risk classes........................................................................................	19
Note 8	Net interest income............................................................................	19
Note 9	Net commission and bank services income ...................................	20
Note 10	Net change in value on securities and currency ............................	20
Note 11	General administrative expenses.....................................................	20
Note 12	Debt securities issued and subordinated loan ...............................	20
Note 13	Financial instruments .......................................................................	21
Note 14	Related parties and other investments............................................	21
Quarterly figures....................................................................................................	22
Norwegian Finans Holding ASA...........................................................................	23
Notes
Note 1	General accounting principles ........................................................	25
Note 2	Capital adequacy................................................................................	25
Note 3	Related parties ..................................................................................	25

Report for the first quarter 2021 Norwegian Finans Holding Group 1

Financial highlights

Profit and loss account

	Norw egian Finans Holding Group
Amounts in NOK 1000	Q1 2021	Q1 2020	2020
Interest income	1 355 473	1 580 930	6 115 326
Interest expenses	115 327	186 500	702 272
Net interest income	1 240 146	1 394 430	5 413 054
Net other operating income	13 297	71 817	229 644
Total income	1 253 443	1 466 247	5 642 698
Total operating expenses	335 740	358 550	1 313 162
Provision for loan losses	389 933	620 636	1 830 948
Profit before tax	527 771	487 060	2 498 588
Profit after tax	396 845	368 032	1 886 975

Balance sheet

	Norw egian Finans Holding Group
Amounts in NOK 1000	31.3.21	31.3.20	31.12.20
Total assets	59 453 506	59 955 081	63 192 011
Loans to customers	35 749 207	42 378 471	37 943 688
Liquid assets	22 770 312	16 848 908	24 364 666
Deposits from customers	39 509 888	39 561 112	42 677 703
Debt securities issued	6 107 413	6 813 624	6 034 387
Subordinated loans	840 454	876 073	877 820
Tier 1 capital	635 000	635 000	635 000
Total equity	11 715 906	9 830 304	11 328 161

Key figures and alternative performance measures

	Norw egian Finans Holding Group
	Q1 2021	Q1 2020	2020
Return on equity (ROE) 1,3	14.3 %	15.7 %	18.9 %
Return on assets (ROA)1	2.6 %	2.5 %	3.1 %
Earnings per share (EPS)4	2.08	1.91	9.90
Dividend per share (DPS)	-	-	6.00
Common equity tier 1 (CET 1)	23.5 %	19.6 %	22.0 %
Leverage ratio	15.7 %	14.1 %	14.5 %
Liquidity coverage ratio (LCR)	366 %	234 %	569 %
Net interest margin (NIM)1	8.2 %	9.5 %	8.8 %
Cost/income ratio1	0.27	0.24	0.23
Loan loss provisions to average loans 1	3.7 %	5.5 %	4.1 %
Stage 3 loans to loans 1,2	26.2 %	19.8 %	23.7 %
Stage 3 loan loss allowance to Stage 3 loans 1,2	40.0 %	37.7 %	40.9 %
Loan loss allowance to loans 1	12.1 %	9.9 %	11.5 %

1. Defined as alternative performance measure (APM ). APM s are described on banknorwegian.no/OmOss/InvestorRelations.
2. The APM s " Non-performing loans to loans" and " Loan loss allowance to non-performing loans" , which has been in use since reporting under IAS 39, was in Q2 2020 replaced by the new APM s " Stage 3 loans to loans" and " Loan loss allowance coverage ratio stage 3" due to established market practice and reduced relevance after the implementation of IFRS9.
3. Definition for ROE was updated in Q3 2020 based on established market practice. Previous periods are recalculated.
4. 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 first quarter 2021 Norwegian Finans Holding Group 2

Letter from the CEO

One year ago, I wrote that the first quarter of 2020 had proved to be more turbulent than could have been predicted. The same can certainly be said about the first quarter of 2021, now with more than one year of COVID-19 behind us. The Nordic region has in general handled the pandemic well. Solid state finances have allowed support packages to businesses, and extensive unemployment benefits covering liquidity shortfalls for individuals. Reduced interest levels, lower consumer spending in general, combined with reduced travel activity has provided increased liquidity for consumers. Demand for our unsecured lending and credit card products has as a consequence been reduced.

During the first quarter, governments around the world increased the already strict measures to combat the third wave of COVID-19. While there is a consensus that the first half of 2021 will be challenging, there is a positive sentiment regarding the second half of 2021 as vaccination programs are ramped up and consumers have a pent-up demand for travel and consumption. New consumer behavior adopted during the last year may become a new normal and the digital competence has developed fast in most part of the society. These are all positive drivers for Bank Norwegian going forward.

The lower loan growth levels at the end of last year continues in the first quarter of 2021. Loan demand is weak, particularly in Norway, and a stronger Norwegian Krone lead to reduced balances outside Norway at the end of the quarter. Reduced consumer activity has caused a temporary reduction in demand for unsecured lending, affecting interest income levels negatively. After a couple of months of low credit card activity in the start of the quarter, we note a positive development with increased activity on credit cards during March, particularly in domestic usage while international usage will remain low until travel restrictions ease up.

Bank Norwegian has during the quarter held its first Capital Markets Day where the bank's business model and strategy was presented. I am excited to have had the opportunity to present our ambitions, growth strategies and to communicate our long-term financial targets.

During the quarter, Bank Norwegian has focused on supporting our customers in all parts of our business. Our unique and fully digital operating model combined with our strong market position and growth strategy, will provide long-term profitable growth and high earnings. We have a strong foundation with a resilient balance sheet and a strong capital position, I believe Nordic growth and income levels will improve during second half of 2021, supported by our European expansion, which is well on track to launch in the fourth quarter.

Bærum, April 27, 2021

Tine Wollebekk

CEO

Report for the first quarter 2021 Norwegian Finans Holding Group 3

Report for the first quarter 2021

The start of 2021 was highly affected by an increased pandemic growth rate after the holiday season and with ambition to combat the third wave of COVID-19, the society has suffered from partial lockdowns and strict social restrictions throughout the first quarter. The shutdown has in turn resulted in further reduced economic activity in the quarter, resulting in even lower volumes of credit card purchases, particular in the first two months while some improvements are visible in the usage during March. The strengthening of the Norwegian Krone at end of March affect volumes in our operations outside Norway and is, together with reduced demand, the main reason for reduced instalment loan volumes.

At the end of the first quarter 2021 the NFH Group had a customer base of 1 742 000 customers, which can be broken down into 1 254 000 credit card customers, 204 200 instalment loan customers and 283 800 deposit customers.

Profit and loss for the first quarter 2021

The NFH Group's net profit in the quarter amounted to NOK 396,8 million compared with NOK 436.2 million in the fourth quarter and improved 7.8% from NOK 368 million in the same quarter last year. The decrease from the previous quarter is mainly caused by lower interest income due to reduced activity level and FX effects, and VISA dividend received last quarter, partly offset by seasonal provision income from kick-back in the current quarter. Compared to the same quarter last year, the main reason for the increase of net profit is lower loan loss provisions compared to the management override last year.

Return on equity was 14.3%, compared with 16.4% in the fourth quarter and the return on assets was 2.6%, compared with 2.7% in the fourth quarter.

Net interest income amounted to NOK 1 240 million, a decrease of NOK 71.1 million from the fourth quarter. Half of the decrease relates to FX effect due to a strengthening of NOK. The remaining reduced net interest income compared to the previous quarter relates mainly to lower new sales of instalment loans, particular in January and February. The reduced deposit interest rates communicated early in 2021 will give full effect from the second quarter. The net interest margin was 8.2%, unchanged from the fourth quarter.

Net other operating income amounted to NOK 13.3 million compared with NOK -11.1 million in the fourth quarter. Net commission income increased NOK 20.4 million to NOK 41.7 million mainly due to seasonal kick back from VISA accounted for in March, while low credit card activity level, particular international usage due to COVID-19, still gives subdued net commission income in the start of 2021. Net loss on securities and currency amounted to NOK 28.4 million, compared with a net loss of NOK 56.4 million in the fourth quarter. This is mainly due to net negative change in value

of securities of NOK 22.5 million in the Finnish, Swedish and Norwegian portfolios and lower net loss on currency of NOK 4.2 million in the first quarter.

Total operating expenses amounted to NOK 335.7 million, an increase of NOK 4.9 million compared to the fourth quarter. Personnel expenses decreased NOK 1.8 million due to accrual effects. Administrative expenses increased NOK 4.3 million, mainly due to lower digital marketing spending in the fourth quarter. Depreciation was increased by NOK 2.9 million. Other operating expenses decreased NOK 0.5 million.

Provisions for loan losses were NOK 389.9 million, a decrease of NOK 7.7 million in the first quarter compared to the previous quarter. Included in the loan loss provision in the quarter is also the implementation effect regarding new definition of default from January 2021, of NOK 22 million. The loan loss provision at the end of the first quarter is based on the latest updated macro assumptions utilized in the ECL-models as well as continued adoption of the probability weighting of the scenarios introduced in the fourth quarter. The macro assumptions include updated effects of COVID-19 at quarter end. Provision equalled 3.7% of average gross loans, compared with 3.6% in the fourth quarter.

Stage 3 loans were NOK 10 634 million, compared with NOK 10 146 million at the end of the fourth quarter. Stage 3 loans accounted for 26.2% of gross loans, compared with 23.7% as of December 31, 2020. The Stage 3 ratio has increased mainly due to further negative loan growth in the quarter and FX effects with strengthened NOK. Actions have been taken to reduce the Stage 3 ratio of gross loans. Examples include sales of two credit card debt collection portfolios in Sweden and Denmark, with an immaterial positive result which will be accounted for in April and reduce Stage 3 accordingly at next reporting of second quarter figures.

The implementation of a new definition of default gave a one-off migration implementation effect of increased Stage 3 volumes of approximately NOK 200 million as of January 1, 2021. The main change relates to more customers being classified in Stage 3 compared to the previous default definition, as future deviating payment discipline will impact the migration to Stage 3 at an earlier stage in the credit cycle, as well as a higher degree of "stickiness" before considering the exposure as performing again. The bank has initiated actions and activities to encourage a better payment discipline to mitigate potential migration, with current positive results. The underlying Stage 3 develop as expected, also including the new definition of default and the seasoning of our portfolio. Stage 3 volume will, because of the new definition, also consist of volumes where the claim towards the customer not necessarily has entered debt collection yet, due to local regulation. The Stage 3 volumes will have more exposures with lower LGD due to improved credit quality in the portfolio flowing into Stage 3,

Report for the first quarter 2021 Norwegian Finans Holding Group 4