Nordea Bank : Interim report Nordea Mortgage Bank January-June 2024

Half-year financial report January-June 2024

Nordea Mortgage Bank Plc

Nordea Mortgage Bank Plc

Introduction

Nordea Mortgage Bank Plc operates as an issuer of covered bonds in the Finnish market. Bonds issued by Nordea Mortgage Bank are covered by a pool of loans consisting mainly of Finnish housing loans.

Throughout this report, "Nordea Mortgage Bank" and "NMB" refer to Nordea Mortgage Bank Plc, business identity code 2743219-6. The registered office of the company is in Helsinki. Nordea Mortgage Bank Plc is a wholly owned subsidiary of Nordea Bank Abp, the listed parent company of the Nordea Group. The Nordea Group is referred to as "Group".

This half-year financial report is unaudited.

Result summary January-June 2024

Operating income in the first half of 2024 decreased by 2% and amounted to EUR 135.2m (January-June 2023 137.4). Operating expenses decreased by 6% to EUR 70.7m (75.1). Net loan losses amounted to EUR 7.1m (7.9).

NMB's operating profit was EUR 57.4m (54.5). Net profit increased by 6% and totalled EUR 46.0m (43.6). Return on equity was 5.6% (5.5) and the cost/income ratio 52% (55).

Macroeconomic environment

Outlook for the global economy has improved during the spring, slowing down the interest rate cuts. Unemployment is still low and the demand for labour remains high. Global GDP growth is expected to be 3.1% in 2024 as a whole.

In the Euro area, the GDP has not grown and inflation pressures are expected to remain moderate. Geopolitical risks have remained high on the agenda, as they have the potential to disrupt global supply chains and weaken both business and consumer sentiment.

Market performance in Finland in January-June 2024

High interest rates have sent the Finnish economy into a recession. Energy and food prices are lower than last year and inflation is mainly kept up by an increase in the prices of services, driven by the wage rises in 2023.

Nordea Research forecasts negative growth of 1.0% in Finland for 2024. Household purchasing power is expected to improve this year as the interest rates and inflation are expected to go down. The slump in the housing market has resulted in a clear slowdown in residential construction and the volume of construction will continue to fall.

Mortgage business development in the first half of 2024

We saw a small uptick in the Finnish housing market over the spring. The decline in house prices has come to an end especially outside the Greater Helsinki area. Transaction volumes are still below normal and sales of new homes, in particular, are sluggish.

In the whole country the prices of old apartments were down 2.8% in May compared to the previous year but rose by 1.0% from the previous month. In the larger cities, prices were down 3.2%, whereas in the rest of Finland the prices were down 2.2%. Prices of old single- family houses decreased by 9.9% in the larger cities and by 6.0% in the rest of Finland in January to March compared to previous year

House sales are expected to gradually pick up towards the end of the year. New supply in the market is declining sharply, as the number of new residential construction starts has fallen by 50% year-on-year and was 70% lower than in 2022. This may indicate a steep increase in prices within a few years when the current oversupply has dissipated.

Average maturity of new loans was 23 years during the first half of 2024. Nordea has capped maturity at origination at 30 years with a 10% flex feature.

The Board of the FIN-FSA has decided to keep the loan cap for residential mortgage loans at 90%. For the first- home loans the level will stay at 95%. In addition, the FIN-FSA recommends limiting the stressed debt-service-to-income (DSTI) ratio at 60% of the applicant's net income.

The Finnish tradition of steady amortisation continues, with relatively short and few interest-only periods during the lifetime of the loan. The demand for instalment-free

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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periods and flexi credit has stayed at normal levels and the volumes remain low compared to total lending. Also the development of loans in arrears and the movements remain within the range of normal fluctuation.

Comments on the income statement

(Comparison figures in brackets refer to the corresponding period in 2023.)

Operating income

Net interest income in January-June 2024 decreased 3% compared to last year, amounting to EUR 135.8m (139.6). Interest income was EUR 698.4m (535.0) and interest expenses were EUR 562.6m (395.4).

The interest rates have remained relatively stable during the first half of 2024, with 12 month Euribor slightly above and shorter rates slightly below the 2023 end situation. Comparing to the first half of 2023, the interest rates have been significantly higher. This has increased both the interest income from the mortgages and the funding costs for NMB's operations. The pressure towards mortgage margins has remained high.

Net fee and commission income was EUR 2.9m (3.2). Commission income relates mainly to lending and amounted to EUR 6.3m (6.7). Commission expenses relate mainly to the guarantee and liquidity facility provided by Nordea Bank Abp and were EUR 3.4m (3.6).

Net result from items at fair value was EUR -3.5m(-5.4) representing ineffective portion of hedging of financial instruments.

Operating expenses

Total operating expenses were EUR 70.7m (75.1), of which staff costs amounted to EUR 0.9 (1.1). The number of employees was 14 (15) at the end of June 2024.

Other operating expenses decreased to EUR 69.8m

(74.0). These expenses consist mostly of payments for the intra-group outsourced services. The Single Resolution Board decided not to collect resolution fee in 2024. In 2023 the resolution fee amount collected was EUR 7.1m.

The cost/income ratio was 52% (55) in the first half of 2024.

Loan losses

Net loan losses totalled EUR 7.1m (7.9) corresponding to a loan loss ratio of 4.6 basis points (5.0). Realised loan losses were EUR 2.2m (3.9) during the first half of 2024. More information can be found in Note 6 "Net loan losses" and Note 7 "Loans and impairment".

Taxes

The effective tax rate for the first half of 2024 was 20% (20).

Net profit

Net profit amounted to EUR 46.0 (43.6), corresponding to a return on equity of 5.6% (5.5) in the first half of the year.

Comments on the balance sheet

(Comparison figures in brackets refer to year-end 2023 figures.)

NMB's balance sheet remained stable compared to year- end 2023. Total assets amounted to EUR 32.5bn (32.5).

Total lending to the public decreased 0.2% compared to the end of 2023, amounting to EUR 31.0bn (31.1).

Positive market values of derivatives amounted to EUR 0.4bn (0.4). NMB's derivatives mainly pertain to interest rate swaps.

Total liabilities amounted to EUR 30.8bn (31.0) and equity to EUR 1.8bn (1.6).

Deposits by credit institutions increased to EUR 10.6bn (10.3).

Debt securities in issue consist of covered bonds issued under the EUR 25bn Covered Bond Programme and an internal MREL loan of 0.6bn received from Nordea Bank Abp. Covered bond funding at the end of June 2024 was EUR 19.4bn (19.7).

During the first half year of 2024 NMB issued three new covered bonds totalling to EUR 2.8bn. EUR 3.0bn of the EUR 6bn covered bond retained by Nordea Bank Abp was redeemed. The combined size of the cover pools at the end of June 2024 was EUR 24.4bn (25.1) and the overcollateralization 26.1% (27.4).

Capital position and capital management

At the end of June 2024, NMB's risk exposure amount (REA) was EUR 4.1bn, compared to EUR 3.9bn at year- end 2023.

In July 2024 the Group received ECB approval for new capital models for retail exposures. New models are expected to be implemented in the third quarter of this year and they will increase NMB's risk weights significantly. In May 2024, NMB received a capital injection of EUR 300m from Nordea Bank Abp, increasing the amount of invested unrestricted equity to EUR 1,350m. For further details on the impact of the new capital models, see Group half-year results page 13.

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Excluding profit for the period, the Common Equity Tier 1 capital ratio stood at 42.1% and total capital ratio at 42.6% at the end of June 2024.

NMB has not included the interim profits net of any foreseeable charges or dividend in Common Equity Tier 1 capital.

Lending

Total lending to the public was EUR 31.0bn (31.1) at the end of June 2024. Lending to households was 95% (94) of the total lending and totalled EUR 29.3bn (29.4). Corporate lending was EUR 1.7bn (1.7).

The level of impaired loans increased by 15.9% to EUR 313.0m from EUR 270.1m at year-end 2023.

Allowances amounted to EUR 85.2m (80.4), representing 0.26% (0.25) of total loans before allowances.

Off-balance sheet commitments

NMB's off-balance sheet items consist of credit commitments amounting to EUR 183.2m (195.7) at the end of June 2024.

Risks and uncertainties

Nordea Mortgage Bank's main risk exposure is credit risk. The company also assumes liquidity risk, market risk and operational risk. For further information on risk composition, see the Annual report.

NMB has maintained its strong financial position. None of the exposures and risks above are expected to have a significant adverse effect on the company or its financial position in the next six months.

There are no disputes or legal proceedings in which material claims have been lodged against the company.

Subsequent events

No events have occurred after the balance sheet date that might affect the assessment of the half-year financial statements.

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Summary of items included in own funds
	30 Jun	31 Dec	30 Jun
EURm	20242	20233	20232
Calculation of own funds
Equity in the consolidated situation	1,717.2	1,644.2	1,552.0
Anticipated dividend		-81.4	-
Common Equity Tier 1 capital before regulatory adjustments	1,717.2	1,562.8	1,552.0
Deferred tax assets	-	-	-
Intangible assets	-	-	-
IRB provisions shortfall (-)	-16.2	-15.3	-19.9
Deduction for investments in credit institutions (50%)	-		-
Pension assets in excess of related liabilities1	-	-	-
Other items, net	7.5	12.0	24.7
Total regulatory adjustments to Common Equity Tier 1 capital	-8.8	-3.3	4.8
Common Equity Tier 1 capital (net after deduction)	1,708.4	1,559.5	1,556.7
Additional Tier 1 capital before regulatory adjustments	-	-	-
Total regulatory adjustments to Additional Tier 1 capital	-	-	-
Additional Tier 1 capital	-	-	-
Tier 1 capital (net after deduction)	1,708.4	1,559.5	1,556.7
Tier 2 capital before regulatory adjustments	0.0	0.0	0.0
IRB provisions excess (+)	21.5	20.8	20.8
Deduction for investments in credit institutions (50%)	-	-	-
Deductions for investments in insurance companies	-	-	-
Pension assets in excess of related liabilities	-	-	-
Other items, net	-	-	-
Total regulatory adjustments to Tier 2 capital	21.5	20.8	20.8
Tier 2 capital	21.5	20.8	20.8
Own funds (net after deduction)	1,729.9	1,580.3	1,577.5

1. Based on conditional FSA approval
2. Excluding profit of the period
3. Including profit of the period

Capital ratios
	30 Jun	31 Dec	30 Jun
Percentage	20241	20232	20231
CRR/CRDIV
Common Equity Tier 1 capital ratio	42.1	39.8	39.7
Tier 1 capital ratio	42.1	39.8	39.7
Total capital ratio	42.6	40.3	40.2

1. Excluding profit of the period.
2. Including profit of the period.

Leverage ratio
	30 Jun	31 Dec	30 Jun
	20241	20232	20231
Tier 1 capital, EURm	1,708.4	1,559.5	1,556.7
Leverage ratio exposure, EURm	32,636.1	32,558.8	32,541.8
Leverage ratio, percentage	5.2	4.8	4.8

1. Excluding profit of the period.
2. Including profit of the period.

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Minimum capital requirement and risk exposure amount
			30 Jun	30 Jun	31 Dec	31 Dec	30 Jun	30 Jun
			2024	2024	2023	2023		2023	2023
			Minimum		Minimum			Minimum
			Capital		Capital			Capital
EURm			requirement	REA	requirement	REA	requirement	REA
Credit risk			290.3	3,628.3	280.6	3,508.1		280.7	3,509.3
IRB			287.3	3,590.8	277.4	3,467.3		276.8	3,460.6
- sovereign			-	-	-	-		-	-
- corporate			28.3	354.0	28.0	349.7		28.8	359.7
- advanced			28.3	354.0	28.0	349.7		28.8	359.7
- retail			258.9	3,236.8	249.4	3,112.5		247.5	3,093.4
- secured by immovable property collateral	187.9	2,349.1	182.7	2283.8		179.8	2,247.3
- other retail			71.0	887.7	66.7	833.7		67.7	846.1
- other			0.0	0.0	0.0	0.0		0.6	7.5
Standardised			3.0	37.5	3.3	40.8		3.9	48.7
- sovereign			3.0	37.5	3.3	40.8		3.9	48.7
Operational risk (Standardised)	33.8	423.1	32.3	403.8		32.3	403.8
Additional risk exposure amount related to
Swedish RW floor due to Article 458 CRR	0.7	8.4	0.8	10.5		1.0	12.0
Total			324.8	4,059.8	313.8	3,922.5		314.0	3,925.1
Minimum Capital Requirement & Capital Buffers
				Capital Buffers
	Minimum						Capital
	Capital						Buffers
Percentage	requirement	CCoB	CCyB	SII	SRB	total1	Total
Common Equity Tier 1 capital	4.5		2.5	0.0	-	-		2.5	7.0
Tier 1 capital	6.0		2.5	0.0	-	-		2.5	8.5
Own funds	8.0		2.5	0.0	-	-		2.5	10.5
EURm
Common Equity Tier 1 capital	187.7		101.5	0.9	-	-		102.4	285.1
Tier 1 capital	243.6		101.5	0.9	-	-		102.4	346.0
Own funds	324.8		101.5	0.9	-	-		102.4	427.2

1Only the maximum of the SRB and SII is used in the calculation of the total capital buffers.

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Management bodies

The composition of the Board of Directors during the year has remained as follows:

As from 1 January 2024 until 30 June 2024

• Jani Eloranta, Chair
• Kaj Blomster
• Ola Littorin
• Minna Martikainen
• Timo Nyman
• Ilkka Salonen
• Tina Sandvik, Deputy Chair

Kaj Blomster, Minna Martikainen and Ilkka Salonen are independent of Nordea Mortgage Bank Plc.

Andrea Falck was appointed as the Senior Compliance Officer in June 2024. There were no other changes in the Management Group.

Helsinki, 15 July 2024

Board of Directors

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Income statement

	Jan-Jun	Jan-Jun	Change	Full year
EURm	2024	2023	%	2023
Net interest income	135.8	139.6	-3	265.7
Net fee and commission income	2.9	3.2	-9	7.4
Net result from items at fair value	-3.5	-5.4	-35	-10.9
Other operating income	0.0	0.0		0.0
Total operating income	135.2	137.4	-2	262.2
Staff costs	-0.9	-1.1	-13	-1.9
Other expenses	-69.8	-74.0	-6	-142.1
Total operating expenses	-70.7	-75.1	-6	-144.0
Profit before loan losses	64.5	62.4	3	118.2
Net loan losses	-7.1	-7.9	-10	-16.4
Operating profit	57.4	54.5	5	101.8
Income tax expense	-11.4	-10.9	4	-20.4
Net profit for the period	46.0	43.6	-16	81.4

Business volumes, key items1

	30 Jun	30 Jun	Change	31 Dec	Change
EURm	2024	2023	%	2023	%
Loans to the public	30,995.4	31,541.1	-2	31,066.0	0
Debt securities in issue	19,474.1	21,062.6	-8	19,931.4	-2
Equity	1,763.1	1,595.5	11	1,562.8	13
Total assets	32,513.5	32,831.9	-1	32,524.3	0

1 End of period

Ratios and key figures1

	Jan-Jun	Jan-Jun	Full year
	2024	2023	2023
Return on equity2 %	5.6	5.5	5.1
Cost/income ratio2, %	52	55	55
Loan loss ratio, basis points2	4.6	5.0	5.3
Common Equity Tier 1 capital ratio2, %	42.1	39.7	39.8
Tier 1 capital ratio2, %	42.1	39.7	39.8
Total capital ratio2, %	42.6	40.2	40.3
Tier 1 capital2, EURm	1,708.4	1,556.7	1,559.5
Risk exposure amount, EURm	4,059.8	3,925.1	3,922.5
Number of employees (full-time equivalents)2	14	15	14

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

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Half-year financial report January-June 2024

Income statement

		Jan-Jun	Jan-Jun	Full year
EURm	Note	2024	2023	2023
Operating income
Interest income		698.4	535.0	1,206.1
Interest expense		-562.6	-395.4	-940.5
Net interest income	2	135.8	139.6	265.7
Fee and commission income		6.3	6.7	13.7
Fee and commission expense		-3.4	-3.6	-6.3
Net fee and commission income	3	2.9	3.2	7.4
Net result from items at fair value	4	-3.5	-5.4	-10.9
Other operating income		0.0	0.0	0.0
Total operating income		135.2	137.4	262.2
Operating expenses
General administrative expenses:
- Staff costs		-0.9	-1.1	-1.9
- Other expenses	5	-69.8	-74.0	-142.1
Depreciation of tangible assets		0.0	0.0	0.0
Total operating expenses		-70.7	-75.1	-144.0
Profit before loan losses		64.5	62.4	118.2
Net loan losses	6	-7.1	-7.9	-16.4
Operating profit		57.4	54.5	101.8
Income tax expense		-11.4	-10.9	-16.4
Net profit for the period		46.0	43.6	81.4
Attributable to shareholders of Nordea Mortgage Bank Plc		46.0	43.6	81.4

Statement of comprehensive income

		Jan-Jun	Jan-Jun	Full year
EURm	2024	2023	2023
Net profit for the period		46.0	43.6	81.4
Items that may be reclassified subsequently to the income statement
Cash flow hedges:
-Valuation gains/losses during the period, net of recycling	5.4	2.1	15.8
-Tax on valuation gains/losses during the period	-1.1	-0.4	-3.2
Items that may not be reclassified subsequently to the income statement
Defined benefit plans:
-Remeasurement of defined benefit plans	0.0	0.0	0.0
-Tax on remeasurement of defined benefit plans	0.0	0.0	0.0
Other comprehensive income, net of tax		4.4	1.7	12.6
Total comprehensive income		50.4	45.3	94.1
Attributable to shareholders of Nordea Mortgage Bank Plc		50.4	45.3	94.1

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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Balance sheet

		30 Jun	31 Dec	30 Jun
EURm	Note	2024	2023	2023
Assets
Cash and balances with central banks		257.1	201.4	0.1
Loans to credit institutions1	7	1,112.0	1,042.1	813.9
Loans to the public	7	30,995.4	31,066.0	31,541.1
Fair value changes of the hedged items in portfolio hedges of interest rate
risk		-302.0	-288.2	-526.2
Interest bearing securities		-	-	305.6
Derivatives1		401.4	449.8	546.3
Property and equipment		0.0	0.0	0.0
Deferred tax assets		15.0	16.3	19.5
Other assets1		21.8	27.9	125.7
Prepaid expenses and accrued income1		12.8	9.0	6.1
Total assets		32,513.5	32,524.3	32,831.9
Liabilities
Deposits by credit institutions1		10,619.0	10,297.3	9,114.5
Debt securities in issue2		19,474.1	19,931.4	21,062.6
Derivatives1		610.4	588.8	964.5
Current tax liabilities		1.8	0.5	0.5
Other liabilities1		25.7	96.5	63.8
Accrued expenses and prepaid income1		19.3	46.9	30.3
Provisions		0.0	0.1	0.0
Retirement benefit liabilities		0.1	0.0	0.2
Total liabilities		30,750.4	30,961.5	31,236.4
Equity
Share capital		250.0	250.0	250.0
Other reserves		1,339.2	1,184.8	1,174.0
Retained earnings		173.9	128.0	171.5
Total equity		1,763.1	1,562.8	1,595.5
Total liabilities and equity		32,513.5	32,524.3	32,831.9

1. Loans to credit institutions, Derivatives, Other assets, Prepaid expenses and accrued income and Deposit by credit institutions comprise solely items where the counterparty is Nordea Bank Abp. Other liabilities and Accrued expenses and prepaid income comprise mainly items where the counterparty is Nordea Bank Abp.
2. Debt securities in issue comprises EUR 3.0bn covered bond retained by Nordea Bank Abp and EUR 0.6bn MREL loan issued to Nordea Bank Abp in addition to the externally issued covered bonds.

Nordea Mortgage Bank Plc - Half-year financial report January - June 2024

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