DNB Bank : Group Quarterly Report 2Q21

DNB Group

Second quarter and first half report 2021

(Unaudited)

Q2

Financial highlights

Income statement					DNB Group
2nd quarter	2nd quarter		January-June	Full year
Amounts in NOK million	2021	2020	2021	2020	2020
Net interest income	9 409	9 451	18 639	19 846	38 623
Net commissions and fees	2 883	2 396	5 514	4 634	9 500
Net gains on financial instruments at fair value	532	1 672	1 331	4 900	5 902
Net financial and risk result, life insurance	228	131	440	(115)	659
Other operating income	541	473	1 015	401	1 714
Net other operating income	4 184	4 673	8 300	9 821	17 776
Total income	13 593	14 123	26 939	29 666	56 399
Operating expenses	(5 980)	(5 698)	(11 685)	(10 994)	(22 759)
Restructuring costs and non-recurring effects	(58)	(12)	(170)	(196)	(643)
Pre-tax operating profit before impairment	7 555	8 414	15 084	18 476	32 998
Net gains on fixed and intangible assets	(103)	2	(106)	782	767
Impairment of financial instruments	833	(2 120)	943	(7 892)	(9 918)
Pre-tax operating profit	8 285	6 295	15 921	11 366	23 847
Tax expense	(1 823)	(1 259)	(3 503)	(2 273)	(4 229)
Profit from operations held for sale, after taxes	(30)	(17)	(101)	(73)	221
Profit for the period	6 432	5 019	12 317	9 020	19 840
Balance sheet			30 June	31 Dec.	30 June
Amounts in NOK million			2021	2020	2020
Total assets			3 080 095	2 918 943	3 053 973
Loans to customers			1 710 930	1 693 811	1 703 905
Deposits from customers			1 230 931	1 105 574	1 104 224
Total equity			245 548	248 396	239 599
Average total assets			3 322 383	3 230 354	3 231 476
Total combined assets			3 597 409	3 363 166	3 444 445

Key figures and alternative performance measures

2nd quarter	2nd quarter		January-June	Full year
2021	2020	2021	2020	2020

Return on equity, annualised (per cent) 1)	11.1	8.7	10.5	7.6	8.4
Earnings per share (NOK)	4.01	3.06	7.66	5.34	12.04
Combined weighted total average spreads for lending and deposits
(per cent) 1)	1.18	1.25	1.18	1.32	1.27
Average spreads for ordinary lending to customers (per cent) 1)	2.05	2.14	2.00	2.04	2.04
Average spreads for deposits from customers (per cent) 1)	0.02	(0.07)	0.07	0.20	0.12
Cost/income ratio (per cent) 1)	44.4	40.4	44.0	37.7	41.5
Ratio of customer deposits to net loans to customers at end of period 1)	72.6	64.8	72.6	64.8	67.3
Net loans at amortised cost and financial commitments in stage 2, per
cent of net loans at amortised cost 1)	9.38	12.49	9.38	12.49	10.51
Net loans at amortised cost and financial commitments in stage 3, per
cent of net loans at amortised cost 1)	1.54	1.83	1.54	1.83	1.55
Impairment relative to average net loans to customers at amortised
cost, annualised (per cent) 1)	0.20	(0.51)	0.12	(0.96)	(0.60)
Common equity Tier 1 capital ratio at end of period (per cent) 2)	19.1	18.2	19.1	18.2	18.7
Leverage ratio (per cent) 2)	6.7	6.8	6.7	6.8	7.1
Share price at end of period (NOK)	187.60	127.10	187.60	127.10	168.00
Book value per share	147.35	142.66	147.35	142.66	148.30
Price/book value 1)	1.27	0.89	1.27	0.89	1.13
Dividend per share (NOK) 3)					9.00
Score from RepTrak's reputation survey in Norway (points)	74.4	74.5	74.4	74.5	76.7
Customer satisfaction index, CSI, personal customers in Norway (score)	72.5	72.3	73.9	72.7	73.6
Female representation at management levels 1-4 (%)	38.0	39.3	38.0	39.3	39.5

1. Defined as alternative performance measure (APM). APMs are described on ir.dnb.no.
2. Dividends for 2019 and 2020 have been deducted.
3. Dividends for 2019 were paid on 4 March 2021. The Board of Directors was given an authorisation at the Annual General Meeting on 27 April 2021 to pay a dividend of up to NOK 9.00 per share for 2020, for distribution after September 2021.

For additional key figures and definitions, please see the Factbook on ir.dnb.no.

Second quarter and first half report 2021

Directors' report..................................................................................................................................	4
Accounts for the DNB Group
Income statement........................................................................................................................................	12
Comprehensive income statement .............................................................................................................	12
Balance sheet .............................................................................................................................................	13
Statement of changes in equity...................................................................................................................	14
Cash flow statement....................................................................................................................................	15
Note 1	Basis for preparation.................................................................................................................	16
Note 2	Segments..................................................................................................................................	16
Note 3	Capital adequacy ......................................................................................................................	17
Note 4	Development in gross carrying amount and maximum exposure ...........................................	19
Note 5	Development in accumulated impairment of financial instruments..........................................	20
Note 6	Loans and financial commitments to customers by industry segment ....................................	21
Note 7	Financial instruments at fair value............................................................................................	23
Note 8	Debt securities issued, senior non-preferred bonds and subordinated loan capital................	24
Note 9	Contingencies and subsequent events ....................................................................................	25
Accounts for DNB ASA
Income statement........................................................................................................................................	26
Balance sheet .............................................................................................................................................	26
Statement of changes in equity...................................................................................................................	26
Basis for preparation ..................................................................................................................................	26
Statement pursuant to the Securities trading Act .......................................................	27
Information about DNB .................................................................................................................	28

There has been no full or partial external audit of the quarterly directors' report and accounts, though the report has been reviewed by the Audit Committee.

DNB GROUP - SECOND QUARTER AND FIRST HALF REPORT 2021 (UNAUDITED) / 3

Directors' report

DNB's financial performance continued to improve in the second quarter, supported by a gradual reopening of the Norwegian economy and strong liquidity in most households. The increase in earnings per share gives a firm foundation for delivering on the company's dividend policy.

The vaccine rollout in Norway has picked up speed, and as more restrictions are being lifted, there is a sense of optimism about the second half of the year, backed by brisk activity in the Norwegian housing, saving and capital markets. A clear upturn in economic activity is expected in the second half of 2021, and the Norwegian central bank, Norges Bank, has signalled a rise in the key policy rate as soon as in September.

Second quarter financial performance

The profit in the quarter was NOK 6 432 million, an increase of NOK 1 413 million from the year-earlier period. Compared with the previous quarter, profits increased by NOK 548 million.

Earnings per share were NOK 4.01 in the quarter, an increase from NOK 3.06 in the year-earlier period and NOK 3.65 in the first quarter of 2021.

The common equity Tier 1 (CET1) capital ratio was 19.1 per cent, up from 18.2 per cent a year earlier, and down from 19.2 per cent in the first quarter of 2021.

The leverage ratio for the Group was 6.7 per cent, down from

6.8 per cent in the second quarter of 2020, and from 6.9 per cent in the first quarter of 2021, due to higher deposits with central banks.

Return on equity (ROE) was positively impacted by net reversals of impairment of financial instruments and strong results from net commissions and fees, and ended at 11.1 per cent. The comparable figures were 8.7 per cent in the second quarter of 2020 and 10.0 per cent in the first quarter of 2021.

Net interest income was at the same level as the second quarter of 2020. Deposit volumes and margins contributed positively, but were offset by negative exchange rate effects. Compared with the first quarter of 2021, net interest income was up NOK 180 million, mainly due to increased deposit and lending volumes from both the personal customers and corporate customers portfolios and an additional interest day.

Net other operating income amounted to NOK 4 184 million in the second quarter, down NOK 489 million from the corresponding period in 2020, affected by a negative effect on basis swaps and a financial market returning to more normalised levels. Net commis- sions and fees showed a strong result and increased by NOK

486 million, or 20.3 per cent, from the year-earlier period, due to higher income from real estate broking, investment banking, asset management and custodial services, as well as insurance. Com- pared with the first quarter of 2021, net other operating income was at the same level. Net commissions and fees increased by NOK

252 million or 9.6 per cent, due to higher income from real estate broking and investment banking services, where there was a high level of activity.

Operating expenses amounted to NOK 6 038 million in the second quarter, up NOK 329 million from the same period a year earlier, affected by increased activity within IT projects following the reopening of the society, and higher salaries and other personnel expenses. Compared with the previous quarter, operating expenses were up NOK 221 million.

Impairment of financial instruments showed net reversals of NOK 833 million in the second quarter. This is an improvement compared with both the second quarter of last year and the first quarter of 2021, which saw impairment provisions of NOK

2 120 million and net reversals of NOK 110 million, respectively. The net reversals of NOK 833 million in the quarter are mainly due to reversals in the corporate customers industry segments. The

personal customers industry segment saw a small net reversal in the quarter.

Completion of intragroup merger

On 30 November 2020, it was decided at the extraordinary general meetings of DNB ASA and DNB Bank ASA to merge the two companies, with DNB Bank ASA as the surviving company. The completion of the merger was conditional on obtaining the necessary regulatory permissions, which were granted on 27 May 2021 by the Norwegian Ministry of Finance. The merger was completed on 1 July 2021. The shares in DNB Bank ASA were listed on Oslo Børs (Oslo Stock Exchange) on the same date.

At DNB Bank ASA's Annual General Meeting on 27 April 2021, and with effect from the merger date, a new Board of Directors of DNB Bank ASA was elected. In accordance with the principle of continuity, DNB Bank ASA's Board of Directors will be responsible for ensuring that the company's obligations are fulfilled. The com- pany's interim accounts have therefore been approved by the new Board of Directors of DNB Bank ASA.

New ESG/sustainability targets towards 2030

In the second quarter, DNB presented a revised sustainable strategy establishing that the Group will be a driving force for sustainable transition. The strategy builds on a materiality analysis, which identifies three priority areas where DNB can have the greatest impact on long-term value creation for the company, as well as for the key stakeholders.

DNB finances the climate transition and is a driving force for sustainable value creation

In order to support the goal of being a net-zero emissions bank in 2050, the Group has set quantifiable targets for emissions from its credit and investment activities, as well as for sustainable financing at portfolio level towards 2030. The targets are concrete, measureable and dynamic and show how DNB will take a leading role in the financing of the green transition in the Nordics.

DNB is a driving force for diversity and inclusion

In recent years, DNB has put gender equality higher on the agenda both within the Group and through its products, services and procurements. The Group will continue this work in the time ahead, while at the same time seeking to boost the efforts to promote diversity and inclusion.

DNB combats financial crime and contributes to a secure digital economy

The principal goal of DNB's efforts to fight financial crime is to reduce financial loss for society, customers and for the Group itself, while maintaining trust in the bank's products and services. This work is essential for fulfilling DNB's social responsibility and ensuring compliance.

The full list of targets can be found on https://www.dnb.no/en/about-us/loans-investments.html

Other events in the second quarter

As announced on 17 June 2021, DNB received acceptances from shareholders of its offer representing approximately 81.3 per cent of the outstanding shares and votes in Sbanken. In addition, DNB has a holding of approximately 9.9 per cent of the shares and votes in Sbanken. Following the completion of the acquisition, this holding will be approximately 91.2 per cent. Following a positive recommendation from Finanstilsynet (the Financial Supervisory Authority of Norway) on 25 June, on 1 July the Ministry of Finance authorised DNB to acquire Sbanken on the condition that the merger with DNB Bank ASA is completed by 1 January 2023. The acquisition is

4 / DNB GROUP - SECOND QUARTER AND FIRST HALF REPORT 2021 (UNAUDITED)

subject to the Norwegian Competition Authority (NCA) not making any objections. The NCA has opened a phase II review to assess the proposed acquisition, and will now carry out an in-depth assessment of the potential effects of the proposed transaction on the distribution of mutual funds. The final deadline for the NCA's review is 7 October 2021.

In June, DNB's associated company Vipps signed a merger agreement with the Danish company MobilePay and the Finnish company Pivo, to create a joint digital wallet. The merger will enable cross-border mobile payments and better solutions for people and businesses in Denmark, Finland and Norway. The transaction is subject to the approval of the relevant authorities, such as the European Commission.

In May, DNB launched Norway's first bank card made from recycled materials. Initially, this type of card will be available to the around 300 000 members of DNB's programme for young customers, DNB Ung, but the goal is to offer this to all customers. The cards are made of 75 per cent recycled PVC plastic from industrial waste.

In December 2020, DNB received a preliminary report from Finanstilsynet following an ordinary AML inspection in February 2020. According to the report, DNB had not been complicit in money laundering, but Finanstilsynet criticised the bank for inadequate compliance with the Norwegian Anti-Money Laundering Act. On the basis of this criticism, Finanstilsynet wrote that it was considering imposing an administrative fine of NOK 400 million on the bank. In May, Finanstilsynet announced that it was maintaining the administrative fine.

Every year, Universum ranks Norway's most attractive employers among students, as well as the career preferences of students at Norwegian universities and university colleges. This year, just under 14 000 students expressed their opinion. DNB still has the top ranking among business students in the Universum survey. The bank has also retained its title as the financial indu- stry's best in the category of banks. In addition, DNB is ranked in the top 4 among IT students and number 12 among law students.

In June, the Ministry of Finance decided to raise the counter- cyclical capital buffer for banks to 1.5 per cent, with effect from 30 June 2022.

Half-year financial performance

DNB recorded profits of NOK 12 317 million in the first half of 2021, up NOK 3 297 million from the previous year. Return on equity was

1. per cent, compared with 7.6 per cent in the year-earlier period, and earnings per share were NOK 7.66, up from NOK 5.34 in the first half of 2020.
   Net interest income decreased by NOK 1 207 million from the same period last year, driven by negative exchange rate effects and a negative contribution from spreads. There was an average de- crease in the healthy loan portfolio of 0.2 per cent in parallel with a
2. per cent increase in average deposit volumes from the first half of 2020. Both lending and deposit volumes increased towards the end of the quarter and showed growth compared to end-June 2020 of 1.0 per cent and 12.7 per cent, respectively. The combined spreads narrowed by 13 basis points compared with the year-earlier period. Average lending spreads for the customer segments narrowed by 4 basis points, and deposit spreads narrowed by
   13 basis points.
   Net other operating income decreased by NOK 1 521 million from the first half of 2020, mainly due to negative exchange rate effects on AT1 capital and basis swaps. Net commissions and fees showed a strong development and increased by NOK 880 million, or 19.0 per cent, compared with the first half of 2020. The increase was due to higher income from investment banking services.
   Total operating expenses were up by NOK 665 million from the first half of 2020 due to increased salaries and other personnel expenses.
   There were net reversals of financial instruments of NOK
   943 million in the first half of 2021, a decrease of NOK 8 835 million

from the previous year. The large decrease is explained by the COVID-19 pandemic's impact on the economy last year, in combination with the effect of the oil price fall.

For the corporate customers industry segments there were

reversals across all stages and spreads across different segments. About half of the reversals were in stages 1 and 2 and can be explained by improved underlying credit quality and a slightly improved macro outlook. The remaining stage 3 reversals were mainly driven by a few specific customers. The reversals for the personal customers industry segment amounted to NOK 15 million, driven by customers in stages 1 and 2, but were curtailed by increased impairment provisions in stage 3.

Second quarter income statement - main items

Net interest income

Amounts in NOK million	2Q21	1Q21	2Q20
Lending spreads, customer segments	8 067	7 572	8 454
Deposit spreads, customer segments	65	353	(180)
Amortisation effects and fees	884	941	909
Operational leasing	535	529	510
Contributions to the deposit guarantee
and resolution funds	(277)	(280)	(217)
Other net interest income	133	115	(26)
Net interest income	9 409	9 230	9 451

Net interest income was at the same level as the second quarter of 2020. Deposit volumes and margins contributed positively, but were offset by negative exchange rate effects. There was an average decrease of NOK 10.2 billion, or 0.6 per cent, in the healthy loan portfolio compared with the second quarter of 2020. Adjusted for exchange rate effects, volumes were up NOK 35.6 billion, or 2.2 per cent, and lending volumes showed an upturn towards the end of the quarter, both within the personal customers and corporate customers portfolios. During the same period, deposits were up NOK 115.2 billion, or 10.8 per cent. Adjusted for exchange rate effects, there was an increase of NOK 151.0 billion, or 14.2 per cent. Average lending spreads narrowed by 9 basis points, and deposit spreads widened by 9 basis points compared with the second quarter of 2020. Volume-weighted spreads for the customer segments narrowed by 7 basis points compared with the same period in 2020.

Compared with the first quarter of 2021, net interest income increased by NOK 180 million, or 1.9 per cent, mainly due to increased deposit and lending volumes from both the personal customers and corporate customers portfolios and an additional interest day. In addition, spreads contributed positively, but were offset by decreased interest income on equity. There was an average increase of NOK 7.3 billion, or 0.5 per cent, in the healthy loan portfolio, and deposits were up NOK 42.4 billion, or 3.7 per cent. Volume-weighted spreads for the customer segments were at the same level compared with the previous quarter. Spreads on lending and deposits reflected the 19-basis-point decrease in average NOK money market rates. The volume-weighted spreads were negatively affected by portfolio mix effects with higher growth in deposits compared to loans.

Net other operating income

Amounts in NOK million	2Q21	1Q21	2Q20
Net commissions and fees	2 883	2 631	2 396
Basis swaps	(212)	(345)	(19)
Exchange rate effects on additional Tier 1 capital	59	29	(1 343)
Net gains on other financial instruments
at fair value	685	1 115	3 034
Net financial and risk result, life insurance	228	212	131
Net profit from associated companies	260	86	174
Other operating income	281	389	299
Net other operating income	4 184	4 116	4 673

Net other operating income decreased by NOK 489 million from the second quarter of 2020, and was affected by a negative effect on

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