DNB Bank : Quarterly Report DNB Group 1Q22

DNB Group

First quarter report 2022

Unaudited

Financial highlights

DNB Group
Income statement
1st quarter	1st quarter	Full year
Amounts in NOK million	2022	2021	2021
Net interest income	10 445	9 230	38 690
Net commissions and fees	2 844	2 631	11 011
Net gains on financial instruments at fair value	1 562	799	3 621
Net financial and risk result, life insurance	32	212	790
Other operating income	257	474	1 803
Net other operating income	4 695	4 116	17 225
Total income	15 141	13 346	55 915
Operating expenses	(5 966)	(5 705)	(23 834)
Restructuring costs and non-recurring effects	0	(112)	(200)
Pre-tax operating profit before impairment	9 175	7 528	31 881
Net gains on fixed and intangible assets	1	(3)	(82)
Impairment of financial instruments	589	110	868
Pre-tax operating profit	9 765	7 636	32 667
Tax expense	(2 246)	(1 680)	(7 462)
Profit from operations held for sale, after taxes	36	(71)	150
Profit for the period	7 555	5 885	25 355
Balance sheet
31 March	31 Dec.	31 March
Amounts in NOK million	2022	2021	2021
Total assets	3 147 909	2 919 244	2 989 220
Loans to customers	1 840 303	1 744 922	1 685 685
Deposits from customers	1 321 825	1 247 719	1 171 527
Total equity	244 481	243 912	240 020
Average total assets	3 380 804	3 404 104	3 244 940
Total combined assets	3 655 640	3 463 482	3 471 415
Key figures and alternative performance measures
1st quarter	1st quarter	Full year
2022	2021	2021
Return on equity, annualised (per cent) 1)	12.9	10.0	10.7
Earnings per share (NOK)	4.71	3.65	15.74
Combined weighted total average spreads for lending and deposits
(per cent) 1)	1.18	1.19	1.17
Average spreads for ordinary lending to customers (per cent) 1)	1.69	1.95	1.94
Average spreads for deposits from customers (per cent) 1)	0.50	0.13	0.14
Cost/income ratio (per cent) 1)	39.4	43.6	43.0
Ratio of customer deposits to net loans to customers at end of period, adjusted (per cent) 1)	73.8	71.1	74.2
Net loans at amortised cost and financial commitments in stage 2, per
cent of net loans at amortised cost 1)	8.03	9.66	8.30
Net loans at amortised cost and financial commitments in stage 3, per
cent of net loans at amortised cost 1)	1.39	1.64	1.55
Impairment relative to average net loans to customers at amortised
cost, annualised (per cent) 1)	0.14	0.03	0.05
Common equity Tier 1 capital ratio at end of period (per cent)	18.1	19.2	19.4
Leverage ratio (per cent)	6.5	6.9	7.3
DNB finances the climate transition and is a driving force for sustainable value creation:
Finance and facilitate sustainable activities, NOK billion accumulated	382	313
Total assets in mutual funds with a sustainability profile, NOK billion	26	28
Share price at end of period (NOK)	200.10	182.00	202.00
Book value per share	150.18	143.02	146.21
Price/book value 1)	1.33	1.27	1.38
Dividend per share (NOK)	9.75
Score from Traction's reputation survey in Norway (points) 2)	63	66	63
Customer satisfaction index, CSI, personal customers in Norway (score)	73.9	75.3	73.3
Female representation at management levels 1-4 (%)	39.8	37.6	39.8

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

2)Due to the decomissioning of RepTrak Norway going forward DNB will measure its reputation score through a new survey; Traction.See more information in the Directors Report.

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

First quarter report 2022

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 G1	Basis for preparation ................................................................................................................. 16
Note G2	Acquisition of Sbanken ............................................................................................................. 16
Note G3	Segments .................................................................................................................................. 18
Note G4	Capital adequacy ...................................................................................................................... 19
Note G5	Development in gross carrying amount and maximum exposure ........................................... 21
Note G6	Development in accumulated impairment of financial instruments .......................................... 22
Note G7	Loans and financial commitments to customers by industry segment .................................... 23
Note G8	Financial instruments at fair value ............................................................................................ 25
Note G9	Debt securities issued, senior non-preferred bonds and subordinated loan capital ................ 26
Note G10	Contingencies ........................................................................................................................... 27

Accounts for DNB Bank ASA (parent company)

Income statement ........................................................................................................................................ 28

Comprehensive income statement ............................................................................................................. 28

Balance sheet ............................................................................................................................................. 29

Statement of changes in equity ................................................................................................................... 30

Note P1	Basis for preparation ................................................................................................................ 31
Note P2	Capital adequacy ...................................................................................................................... 31
Note P3	Development in accumulated impairment of financial instruments .......................................... 32
Note P4	Financial instruments at fair value ............................................................................................ 33
Note P5	Information on related parties ................................................................................................... 33

Information about DNB ................................................................................................................. 34

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.

Directors' report

The Norwegian economy continued to recover in the first quarter as the infection control measures were lifted in February. The level of activity was high, with the lowest recorded unemployment rate since 2008, in addition to high inflation and capacity utilisation during the quarter. The Norwegian key policy rate was raised by an expected 0.25 percentage points to 0.75 per cent in March. DNB's strong capital position makes the Group well placed for further growth, and the approval of the acquisition of Sbanken is expected to strengthen the Group's position within retail banking in the Norwegian market.

During the first quarter, the world witnessed Russia's invasion of Ukraine, which led to volatility and heightened uncertainty in the financial markets.

First quarter financial performance

The Group delivered strong profits in the quarter of NOK 7 555 million, an increase of NOK 1 670 million from the year-earlier period. Compared with the previous quarter, profits increased by NOK 1 400 million.

Earnings per share were NOK 4.71 in the quarter, compared with NOK 3.65 in the year-earlier period and NOK 3.79 in the fourth quarter of 2021.

The common equity Tier 1 (CET1) capital ratio was 18.1 per cent, down from 19.2 per cent a year earlier, and from 19.4 per cent in the fourth quarter of 2021. The decrease in CET1 capital ratio in the quarter was mainly due to the acquisition of Sbanken.

The leverage ratio was 6.5 per cent, down from 6.9 per cent in the first quarter of 2021, and from 7.3 per cent in the fourth quarter of 2021.

Strong performance in the customer segments resulted in a return on equity (ROE) at 12.9 per cent, positively impacted by increased net interest income and net reversals of impairment of financial instruments. The corresponding figures were 10.0 per cent in the first quarter of 2021 and 10.3 per cent in the fourth quarter of 2021.

Profitable volume growth, higher interest on equity and positive effects from repricing led to an increase in net interest income of NOK 1 216 million, or 13.2 per cent from the first quarter of 2021, and NOK 160 million, or 1.6 per cent from the fourth quarter of 2021.

Net other operating income amounted to NOK 4 695 million in the first quarter, up NOK 579 million from the corresponding period in 2021. Net commissions and fees increased by NOK 213 million. Compared with the fourth quarter of 2021, net other operating income was up NOK 347 million, due to positive effects on other mark-to-market adjustments and basis swaps.

Operating expenses amounted to NOK 5 966 million in the first quarter, up NOK 149 million from the same period a year earlier, due to higher activity. Compared with the previous quarter, operating expenses were down NOK 461 million, reflecting a seasonally slower quarter.

Impairment of financial instruments showed net reversals of NOK 589 million in the first quarter. This was an improvement compared with both the previous quarter and the first quarter of last year, which saw impairment provisions of NOK 275 million and net reversals of NOK 110 million, respectively. The net reversals of NOK 589 million in the quarter were mainly caused by reversals in the corporate customers segment, within the oil, gas and offshore industry segment.

Acquisition of Sbanken

On 15 April 2021, DNB announced an agreement with Sbanken on an offer to acquire 100 per cent of the shares in Sbanken. On 14 June 2021, DNB had received the prior acceptance of 81 per cent of the shareholders of Sbanken, which, together with the shares owned by DNB, meant that DNB had an acceptance rate ofmore than 90 per cent. The Ministry of Finance approved the transaction on 1 July 2021. However, the transaction was also subject to the approval of the Norwegian Competition Authority (NCA), and the NCA first rejected DNB's application to complete the acquisition. DNB submitted a complaint to the Norwegian Competition Appeals Tribunal, and the acquisition was approved on 16 March 2022. The share purchase was completed 10 business days later, and Sbanken became a fully owned subsidiary of DNB on 30 March 2022. As of end-March, DNB held 91.78 per cent of the shares in Sbanken. DNB announced that it would carry out a compulsory acquisition of the remaining shares. At the end of the first quarter, Sbanken was fully consolidated into the DNB Group, with the redemption of the remaining 8.22 per cent presented under other liabilities.

DNB believes that Sbanken will further strengthen its position within retail banking in the Norwegian market. Sbanken will comple-ment DNB within the savings area, a growth area for DNB, in addi-tion to adding highly skilled technology resources. The transaction is expected to be accretive and will positively impact DNB's earnings per share and return on equity.

Sustainability in DNB

In the first quarter, DNB published its annual report, which for the first time included reporting on the updated sustainable strategy. The strategy still positions DNB as a driving force for sustainable transition, and the annual report's in-depth descriptions of the efforts made provide stronger evidence of DNB's progress in this area.

The three priority areas for DNB's sustainability work are: DNB finances the climate transition and is a driving force for sustainable value creation; DNB is a driving force for diversity and inclusion; and DNB combats financial crime and contributes to a secure digital economy. Several targets have been set within these areas, and progress on each of them was reported in the annual report and the Sustainability Factbook. The Group is on track to achieve the financing target, but the emissions intensity targets are proving harder to reach. DNB Livsforsikring is an exception here, as the company is on track to reach a 55 per cent reduction by 2030. The Group's transparent reporting and preliminary taxonomy reporting have been well received by key stakeholders.

As regards the financing target of NOK 1 500 billion to sustainable activities, DNB has increased the financing of activities of this kind by NOK 70.2 billion in the first quarter of 2022. The accumulated financing for these activities has thus reached NOK 382.4 billion. The sustainable products offered by the Group are still in high demand.

The increase in assets under management invested in mutual funds with a sustainability profile slowed down in the first quarter of 2022. The holdings in mutual funds of this kind have decreased slightly from NOK 28.4 billion in the fourth quarter of 2021 to NOK 26.1 billion in the first quarter of 2022. The net flow is still positive, but it has nevertheless declined from 2021 levels.

The Group Sustainability Committee has proven to be a good arena for coordinating the Group's sustainability work and imple-mentation of the strategy. Several efforts have been made to strengthen the sustainability competence and expert teams in the business areas, and this will be paramount going forward. A key task in this context is to develop a position on biodiversity. Several of the Group's peers are increasing their level of ambition. DNB's strategy will be reviewed before the summer with a view to assessing the need to increase the Group's ambitions or include more targets to remain relevant as a driving force for transition.

4 / DNB GROUP - FIRST QUARTER REPORT 2022 (UNAUDITED)

Other events in the first quarter

DNB is following the situation in Ukraine closely. The bank has very limited exposure to Russia and Ukraine. During the first quarter, the bank increased its emergency preparedness as a matter of routine, so as to be able to respond quickly to any changes in the situation that could affect DNB's customers, employees or financial services.

The Group focused on promoting financial inclusion for customers during the first quarter, and established new procedures to make it easier for refugees to gain access to basic banking services and insurance products as quickly as possible, regardless of which country they come from. This also applies to people without a passport or other proof of identity, which in the past has been extremely challenging or even impossible.

DNB launched its own tax strategy in the first quarter. The tax strategy sets out DNB's approach to managing its tax affairs in all the jurisdictions in which the Group does business or has custo-mers, investors or other stakeholders. The tax strategy applies to the worldwide DNB Group of companies and will be reviewed regularly.

On 31 March, DNB Markets was named 'Norway M&A Financial Adviser of the Year' at the Mergermarket Europe M&A Awards in London. Mergermarket is a leading research agency that monitors the market for M&A transactions.

Following the decision made by the Norwegian central bank, Norges Bank, to raise the key policy rate from 0.50 per cent to 0.75 on 23 March, DNB decided to increase its interest rate on home mortgages by up to 0.25 percentage points. The new interest rates are effective from 4 April for new customers and from 13 May for existing customers.

DNB has decided to stop using RepTrak Norway for measuring its reputation score, and will from now on measure its reputation score through Traction, a new measurement and analysis tool for reputation building, branding and communication. Over the last year, the results of the Traction surveys have been recorded quarterly in parallel with the RepTrak results. In Traction's repu-tation survey for the first quarter of 2022, DNB scored 63.0 points. The goal is a result over 65 points, which would indicate that DNB is a well-liked bank.

First quarter income statement - main items

Net interest income

Amounts in NOK million	1Q22	4Q21	1Q21
Lending spreads, customer segments	6 784	7 300	7 572
Deposit spreads, customer segments	1 535	946	353
Amortisation effects and fees	1 010	1 090	941
Operational leasing	580	569	529
Contributions to the deposit guarantee
and resolution funds	(301)	(267)	(280)
Other net interest income	837	647	115
Net interest income	10 445	10 285	9 230

Net interest income increased by NOK 1 216 million, or 13.2 per cent, from the first quarter of 2021. This was mainly due to in-creased volumes, reduced long-term funding costs, higher interest on equity, and positive effects from repricing. There was an average increase of NOK 51.2 billion, or 3.3 per cent, in the healthy loan portfolio compared with the first quarter of 2021. Adjusted for ex-change rate effects, volumes were up NOK 49.5 billion, or 3.1 per cent. During the same period, deposits were up NOK 108.2 billion, or 9.5 per cent. Adjusted for exchange rate effects, there was an increase of NOK 103.7 billion, or 9.1 per cent. Average lending spreads narrowed by 26 basis points, and deposit spreads widened by 37 basis points compared with the first quarter of 2021. Volume-weighted spreads for the customer segments narrowed by 1 basis point compared with the same period in 2021.

Compared with the fourth quarter of 2021, net interest income increased by NOK 160 million, or 1.6 per cent, despite two fewer interest days, driven by higher volume growth, interest on equity and positive effects from repricing. There was an average increaseof NOK 11.1 billion, or 0.7 per cent, in the healthy loan portfolio, and deposits were up NOK 10.5 billion, or 0.8 per cent. Volume-weighted spreads for the customer segments widened by 3 basis points compared with the previous quarter.

Net other operating income

Amounts in NOK million	1Q22	4Q21	1Q21
Net commissions and fees	2 844	3 049	2 631
Basis swaps	629	100	(345)
Exchange rate effects on additional Tier 1 capital	(138)	125	29
Net gains on other financial instruments
at fair value	1 071	480	1 115
Net financial and risk result, life insurance	32	203	212
Net profit from associated companies	(15)	(6)	86
Other operating income	272	397	389
Net other operating income	4 695	4 348	4 116

Net other operating income increased by NOK 579 million from the first quarter of 2021, mainly due to positive exchange rate effects on basis swaps and increased trading revenues in Markets, partly offset by negative credit spread effects on financial instruments. Net commissions and fees increased by NOK 213 million, or 8.1 per cent, from the year-earlier period, mainly driven by solid income from investment banking, asset management and custodial services, as well as money transfer and banking services, as travel activity increased in the quarter.

Compared with the previous quarter, net other operating income was up NOK 347 million, due to positive effects on other mark-to-market adjustments, basis swaps and increased trading revenues from Markets. Net commissions and fees showed strong perfor-mance across product areas and high activity in a quarter that is usually slow. However, there was a decrease compared with the previous quarter, when income from investment banking and asset management services was at an all-time high.

Operating expenses

Amounts in NOK million	1Q22	4Q21	1Q21
Salaries and other personnel expenses	(3 346)	(3 687)	(3 254)
Restructuring expenses	1	(20)	(83)
Other expenses	(1 772)	(1 856)	(1 658)
Depreciation of fixed and intangible assets	(850)	(860)	(822)
Impairment of fixed and intangible assets	(4)
Total operating expenses	(5 966)	(6 427)	(5 817)

Operating expenses were up NOK 149 million, or 2.6 per cent, due to higher fees and salary expenses as a result of a greater number of full-time employees and investment in technology and compliance competence. However, this was partly offset by lower pension expenses reflecting lower costs associated with the defined-benefit pension scheme.

Compared with the fourth quarter of 2021, operating expenses were down NOK 461 million, or 7.2 per cent. This can be ascribed to a seasonally slower quarter with somewhat lower activity affecting variable salaries, fees and other personnel expenses. In addition, there were lower pension expenses reflecting the lower return on the closed defined-benefit scheme. The scheme is hedged, and a corresponding loss is recognised in net gains on financial instruments.

The cost/income ratio was 39.4 per cent in the first quarter.

Impairment of financial instruments by industry segment

Amounts in NOK million	1Q22	4Q21	1Q21
Personal customers	(36)	(64)	(24)
Commercial real estate	12	(7)	46
Shipping	(12)	65	155
Oil, gas and offshore	760	133	127
Other industry segments	(134)	(402)	(193)
Total impairment of financial instruments	589	(275)	110