Komplett Bank annual report 2019

TABLE 2: INCOME NOK million 2019 2018 Change Interest income 1,282 1,100 17% Interest expense -167 -141 18% Net interest income 1,115 959 16% Net comm. and fees 59 74.1 -21% Other gains/losses 2 -2 Total income 1,176 1,031 14% Operating expenses Operating expenses excluding marketing were NOK 358 million, up 54% fromNOK 232 million in 2018. The higher expenses were partly the result of an increased number of employees from 89 to 140 and higher depreciation, both of which increased largely as a result of organisational changes in Norway, new product launches and the scale-up of lending and credit card operations in Sweden and Finland. In addition, Komplett Bank incurred NOK 32 million in non-recurring costs during the year, primarily related to external support for implementation work following the FSA report and the exploration of strategic growth opportunities. In addition, in the last two quarters of the year, the Bank made loss provisions due to a supply agreement. On 1 July 2019, Komplett Bank received an AML administrative fee of NOK 18 million, which was recognised in the second quarter. Marketing expenses in 2019 were NOK 84 million, a decrease from NOK 107 million in 2018, primarily as a result of the Bank actively managing loan growth, particularly during the second half of the year. TABLE 3: OPERATING EXPENSES NOK million 2019 2018 Change Salary & personnel 135 109 24% General admin 172 170 1% Direct marketing 84 107 -22% Depreciation 55 29 91% Other 79 31 155% Total OPEX incl. marketing 442 339 30% Losses on loans Losses on loans were NOK 454 million in 2019, up from NOK 249 million in 2018. In the fourth quarter of 2019, following a thorough review of the underlying performance of the Bank’s NPL portfolios and secondary market conditions, management and the Board of Directors decided to update the estimates for expected credit losses (ECL) and revise model parameters across the entire product portfolio in Norway, Sweden and Finland. This revision resulted in additional loan loss provisions of NOK 105 million in the fourth quarter 2019. Komplett Bank has entered into a forward flow agreement with Axactor for the sale of non-performing consumer loans in Norway. The agreement has a duration of 12 months fromMarch 2020. Adjusted for the additional provisions made in the fourth quarter of 2019, losses on loans were NOK 350 million in 2019, which corresponds to a loan loss ratio of 4.3%. The increased loan loss ratio was the result of several factors, including consumer loan growth in Sweden and Finland through- out the year, for which provisioning levels were higher compared to the Norwegian portfolio. In addition, underlying loan losses increased substantially in the fourth quarter of the year, driven by the expiration of the Bank’s forward flow contract in the quarter as well as an increase in non-performing loans, primarily for credit cards and consumer loans in Norway. Approximately 45% of loans that defaulted in Norway in the fourth quarter 2019 originated in 2018. Initiated in Q4 2018 and through- out 2019, the Bank continuously worked to improve its customer acquisition process and to strengthen its credit risk strategy. Profits and taxes Pre-tax operating profit was NOK 280 million, down from NOK 443 million in 2018. As pre-tax operating profit decreased in 2019, tax expenses for the full year were NOK 77 million, down from NOK 112 million in 2018. The resulting profit after tax for the year was NOK 203 million, down from NOK 331 million in 2018. This corresponds to a return on equity (ROE) of 12%, which is a decrease from 23% in 2018 and below the Bank’s long-term target of 20%. Adjusted for the additional loan loss provisions made in the fourth quarter and the NOK 18 million AML fee received in the second quarter, profit after tax was NOK 299 million, corresponding to ROE adj. of 17.2%. Cash flow In 2019, cash flow from operating activities was NOK -197 million, compared to NOK 929 million in 2018 significantly impacted by changes in loans to customers and deposits from and debt to customers as well as the placement of surplus liquidity in certifi- cates and bonds. Komplett Bank Annual Report 2019 25