Dnb bank : 2Q21

DNB Bank

A company in the DNB Group

Second quarter and first half report 2021

(Unaudited)

Q2

Financial highlights

Income statement				DNB Bank Group
	2nd quarter	2nd quarter		January-June	Full year
Amounts in NOK million	2021	2020	2021	2020	2020
Net interest income	9 544	9 638	18 909	20 253	39 285
Net commissions and fees	1 993	1 601	3 785	3 049	6 266
Net gains on financial instruments at fair value	534	1 667	1 328	4 933	5 938
Other operating income	543	588	1 131	973	2 374
Net other operating income	3 070	3 856	6 244	8 955	14 578
Total income	12 614	13 494	25 153	29 208	53 862
Operating expenses	(5 806)	(5 548)	(11 358)	(10 731)	(22 103)
Restructuring costs and non-recurring effects	(58)	(12)	(170)	(27)	(474)
Pre-tax operating profit before impairment	6 750	7 934	13 625	18 450	31 286
Net gains on fixed and intangible assets	1	0	(1)	(0)	(1)
Impairment of financial instruments	833	(2 120)	943	(7 892)	(9 918)
Pre-tax operating profit	7 584	5 814	14 567	10 559	21 366
Tax expense	(1 668)	(1 163)	(3 205)	(2 112)	(3 926)
Profit from operations held for sale, after taxes	(30)	(17)	(101)	(73)	221
Profit for the period	5 885	4 634	11 261	8 374	17 661

Balance sheet

	30 June	31 Dec.	30 June
Amounts in NOK million	2021	2020	2020
Total assets	2 723 430	2 582 304	2 728 738
Loans to customers	1 722 129	1 703 524	1 709 736
Deposits from customers	1 237 374	1 112 058	1 108 804
Total equity	232 245	236 161	229 557
Average total assets	2 973 601	2 905 570	2 913 612

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)	10.7	8.4	10.3	7.4	7.8
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)	46.5	41.2	45.8	36.8	41.9
Ratio of customer deposits to net loans to customers at end of period 1)	72.5	64.9	72.5	64.9	67.3
Net loans at amortised cost and financial commitments in stage 2, per
cent of net loans at amortised cost 1)	9.27	12.35	9.27	12.35	10.39
Net loans at amortised cost and financial commitments in stage 3, per
cent of net loans at amortised cost 1)	1.53	1.81	1.53	1.81	1.53
Impairment relative to average net loans to customers at amortised
cost, annualised (per cent) 1)	0.20	(0.51)	0.11	(0.95)	(0.60)
Common equity Tier 1 capital ratio at end of period (per cent)	19.9	18.0	19.9	18.0	19.6
Leverage ratio (per cent)	6.9	6.6	6.9	6.6	7.3
Number of full-time positions at end of period	8 747	8 502	8 747	8 502	8 643

1. Defined as alternative performance measure (APM). APMs are described on ir.dnb.no.

Second quarter and first half report 2021

Directors' report..................................................................................................................................	4
Accounts
Income statement DNB Bank ASA .............................................................................................................	12
Comprehensive income statement DNB Bank ASA ...................................................................................	12
Balance sheet DNB Bank ASA ...................................................................................................................	13
Income statement DNB Bank Group ..........................................................................................................	14
Comprehensive income statement DNB Bank Group ................................................................................	14
Balance sheet DNB Bank Group ................................................................................................................	15
Statement of changes in equity...................................................................................................................	16
Cash flow statement....................................................................................................................................	18
Note 1	Basis for preparation.................................................................................................................	20
Note 2	Segments..................................................................................................................................	20
Note 3	Capital adequacy ......................................................................................................................	21
Note 4	Development in gross carrying amount and maximum exposure............................................	24
Note 5	Development in accumulated impairment of financial instruments..........................................	25
Note 6	Loans and financial commitments to customers by industry segment.....................................	27
Note 7	Financial instruments at fair value............................................................................................	29
Note 8	Debt securities issued, senior non-preferred bonds and subordinated loan capital................	31
Note 9	Information on related parties...................................................................................................	33
Note 10	Contingencies and subsequent events ....................................................................................	33
Statement pursuant to the Securities Trading Act .......................................................	34
Information about DNB .................................................................................................................	35

There has been no full or partial external audit of the quarterly directors' report and accounts.

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

Directors' report

DNB Bank Group's1) 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 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 5 885 million, an increase of NOK 1 251 million from the year-earlier period. Compared with the previous quarter, profits increased by NOK 509 million.

The common equity Tier 1 (CET1) capital ratio was 19.9 per cent, up from 18.0 per cent a year earlier, and down from 20.1 per cent in the first quarter of 2021.

The leverage ratio for the banking group was 6.9 per cent, up from 6.6 per cent in the second quarter of 2020, and down from 7.1 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 10.7 per cent. The comparable figures were 8.4 per cent in the second quarter of 2020 and

9.8 per cent in the first quarter of 2021.

Net interest income was down NOK 94 million from the second

quarter of 2020. Deposit volumes contributed positively, but were offset by negative exchange rate effects. Compared with the first quarter of 2021, net interest income was up NOK 178 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 3 070 million in the second quarter, down NOK 786 million from the corresponding

1. DNB Bank ASA is a subsidiary of DNB ASA and part of the DNB Group. The DNB Bank Group, hereinafter called "the banking group", comprises the bank and the bank's subsidiaries. Other companies owned by DNB ASA, including DNB Livsforsikring and DNB Asset Management, are not part of the banking group. Operations in DNB ASA and the total DNB Group are not covered in this report but described in a separate report and presentation.

period in 2020, affected by a negative effect on basis swaps and a financial market returning to more normalised levels. Net commissions and fees showed a strong result and increased by NOK 392 million, or 24.5 per cent, from the year-earlier period, due to higher income from real estate broking and investment banking services. Compared with the first quarter of 2021, net other operating income was down NOK 104 million. Net commissions and fees increased by NOK 200 million or 11.2 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 5 864 million in the second quarter, up NOK 304 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 200 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.

As decided at DNB Bank ASA's Annual General Meeting on

27 April 2021, the new Board of Directors is effective from the merger date and has approved the company's interim accounts.

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

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 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, the banking group'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 industry'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

The banking group recorded profits of NOK 11 261 million in the first half of 2021, up NOK 2 888 million from the previous year. Return on equity was 10.3 per cent, compared with 7.4 per cent in the year-earlier period

Net interest income decreased by NOK 1 344 million from the same period last year, driven by negative exchange rate effects and a negative contribution from spreads. There was an average decrease in the healthy loan portfolio of 0.2 per cent in parallel with a

12.6 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 2 711 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 736 million, or 24.1 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 770 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	268	251	161
Net interest income	9 544	9 365	9 638

Net interest income decreased by NOK 94 million, or 1.0 per cent, from the second quarter of 2020. Deposit volumes 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 178 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 ave- rage NOK money market rates. The volume-weighted spreads were negatively affected by portfolio mix effects with higher growth in deposits compared to loans.

DNB BANK - SECOND QUARTER AND FIRST HALF REPORT 2021 (UNAUDITED) / 5