DNB Bank : Quarterly Report DNB Group 3Q22

DNB Group

Third quarter report 2022

Unaudited

Financial highlights

Income statement	3rd quarter	3rd quarter	Jan.-Sept.	Jan.-Sept.	Full year
Amounts in NOK million	2022	2021	2022	2021	2021
Net interest income	12 253	9 766	34 223	28 405	38 690
Net commissions and fees	2 742	2 448	8 415	7 962	11 011
Net gains on financial instruments at fair value	706	1 585	3 892	2 916	3 621
Net financial and risk result, life insurance	83	147	14	587	790
Other operating income	344	396	1 044	1 412	1 803
Net other operating income	3 875	4 577	13 365	12 877	17 225
Total income	16 128	14 343	47 588	41 281	55 915
Operating expenses	(6 458)	(5 738)	(18 812)	(17 423)	(23 834)
Restructuring costs and non-recurring effects	(15)	(14)	(150)	(184)	(200)
Pre-tax operating profit before impairment	9 655	8 591	28 625	23 674	31 881
Net gains on fixed and intangible assets	1	0	2	(106)	(82)
Impairment of financial instruments	148	200	946	1 143	868
Pre-tax operating profit	9 803	8 791	29 573	24 712	32 667
Tax expense	(2 255)	(1 934)	(6 802)	(5 437)	(7 462)
Profit from operations held for sale, after taxes	26	26	143	(75)	150
Profit for the period	7 575	6 883	22 914	19 200	25 355
Balance sheet			30 Sept.	31 Dec.	30 Sept.
Amounts in NOK million			2022	2021	2021
Total assets			3 485 388	2 919 244	3 146 308
Loans to customers			1 959 268	1 744 922	1 723 214
Deposits from customers			1 470 882	1 247 719	1 233 576
Total equity			251 011	243 912	252 497
Average total assets			3 486 536	3 404 104	3 367 262
Total combined assets			3 963 986	3 463 482	3 667 016

Key figures and alternative performance measures

3rd quarter	3rd quarter	Jan.-Sept.	Jan.-Sept.	Full year
2022	2021	2022	2021	2021

Return on equity, annualised (per cent) 1)	12.7	11.4	13.0	10.8	10.7
Earnings per share (NOK)	4.77	4.29	14.39	11.95	15.74
Combined weighted total average spreads for lending and deposits
(per cent) 1)	1.16	1.16	1.18	1.18	1.17
Average spreads for ordinary lending to customers (per cent) 1)	1.25	1.97	1.53	1.99	1.94
Average spreads for deposits from customers (per cent) 1)	1.05	0.11	0.72	0.08	0.14
Cost/income ratio (per cent) 1)	40.1	40.1	39.8	42.7	43.0
Ratio of customer deposits to net loans to customers at end of period,
adjusted (per cent) 1)	76.7	73.9	76.7	73.9	74.2
Net loans at amortised cost and financial commitments in stage 2, per
cent of net loans at amortised cost 1)	8.58	9.28	8.58	9.28	8.30
Net loans at amortised cost and financial commitments in stage 3, per
cent of net loans at amortised cost 1)	1.32	1.63	1.32	1.63	1.55
Impairment relative to average net loans to customers at amortised
cost, annualised (per cent) 1)	0.03	0.05	0.07	0.09	0.05
Common equity Tier 1 capital ratio at end of period (per cent)	18.1	19.2	18.1	19.2	19.4
Leverage ratio (per cent)	6.4	6.8	6.4	6.8	7.3
Share price at end of period (NOK)	172.85	199.95	172.85	199.95	202.00
Book value per share	152.06	151.55	152.06	151.55	146.21
Price/book value 1)	1.14	1.32	1.14	1.32	1.38
Dividend per share (NOK)					9.75
Sustainability:
Finance and facilitate sustainable activities (NOK billion, accumulated)	345.2	159.2	345.2	159.2	220.8
Total assets invested in mutual funds with a sustainability
profile (NOK billion)	25.2	26.0	25.2	26.0	28.4
Score from Traction's reputation survey in Norway (points)	60	61	60	61	63
Customer satisfaction index, CSI, personal customers in Norway (score)	72.9	72.7	73.4	73.5	73.3
Female representation at management levels 1-4 (%)	38.1	39.0	38.1	39.0	39.8

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

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

Contents
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.

DNB GROUP - THIRD QUARTER REPORT 2022 (UNAUDITED) / 3

Directors' report

The high activity levels in the Norwegian economy continued into the third quarter. The labour market remained tight during the quarter, while inflation rose rapidly. The interest rate hikes introduced by the Norwegian central bank, Norges Bank, which amounted to 1.0 percentage point in the quarter, and a restrictive monetary policy had a contractionary effect, and there were clear signs that the economy is now cooling down. At the same time, the forecasts are uncertain.

DNB's results in the period were strong, driven by profitable volume growth and repricing effects. The capital situation remained solid and the portfolio is well-diversified and robust with net reversals of impairments in the quarter. The Group is well positioned to deliver on its ambitions and goals going forward.

Third quarter financial performance

The Group delivered strong profits in the quarter of NOK

7 575 million, an increase of NOK 692 million from the third quarter of 2021. Compared with the second quarter of 2022, profits decreased by NOK 210 million.

Earnings per share were NOK 4.77 in the quarter, compared with NOK 4.29 in the year-earlier period and NOK 4.91 in the second quarter of 2022.

The common equity Tier 1 (CET1) capital ratio was 18.1 per cent, down from 19.2 per cent a year earlier, but up from 18.0 per cent in the second quarter of 2022.

The leverage ratio was 6.4 per cent, down from 6.8 per cent in the year-earlier period, and from 6.5 per cent in the previous quarter.

Strong performance in the customer segments resulted in a return on equity (ROE) of 12.7 per cent, positively impacted by increased net interest income and net commissions and fees. The corresponding figures were 11.4 per cent in the third quarter of 2021, and 13.3 per cent in the second quarter of 2022.

Profitable volume growth and positive effects from repricing led to an increase in net interest income of NOK 2 487 million, or 25.5 per cent, from the third quarter of 2021, and NOK 728 million, or 6.3 per cent, from the previous quarter this year.

Net other operating income amounted to NOK 3 875 million in the third quarter, down NOK 702 million from the corresponding period in 2021. Net commissions and fees showed strong performance with an all-time high third quarter result, and were up NOK 294 million from the corresponding quarter last year. Compared with the second quarter of 2022, net other operating income was down NOK 919 million, mainly due to negative mark-to- market effects on equity investments.

Operating expenses amounted to NOK 6 473 million in the third quarter, up NOK 721 million from the corresponding period a year earlier. This was mainly due to a greater number of full-time employees as a result of the acquisition of Sbanken. Compared with the previous quarter, the operating expenses were at the same level.

Impairment of financial instruments showed net reversals of NOK 148 million in the third quarter. This was a decrease in net reversals of NOK 53 million and NOK 61 million compared with the third quarter of 2021 and the second quarter of 2022, respectively. The net reversals in the quarter were mainly driven by reversals in stage 3 in the corporate customers segment within the oil, gas and offshore industry segment.

Sustainability

In the third quarter, DNB Markets reached an important milestone, as 2022 to date has proven to be a new record year for DNB's activities in the sustainable bond market. So far this year, every fifth

Norwegian krone DNB has helped to raise in the bond market has had a sustainable label.

Furthermore, in this quarter, it was announced that customers using DNB Regnskap will gain access to an integrated, fully automated carbon accounting service through third-party provider Energi.AI. The service will provide customers with an efficient tool for converting financial data into a climate footprint. In the same vein, DNB Ventures announced that DNB is becoming the main investor in the latest capital raising of NOK 20 million by the startup company Celsia, which develops software that simplifies sustainability reporting, focusing on the EU taxonomy. Celsia has previously been part of the DNB NXT accelerator programme.

DNB's own sustainability reporting was given the top score (A) for the second year running in the annual analysis of the ESG reporting of the 100 largest companies on Oslo Børs (the Oslo Stock Exchange) performed by sustainability consultancy Position Green. To further strengthen the Group's climate reporting, DNB joined the Partnership for Carbon Accounting Financials (PCAF) in the third quarter. PCAF is a global cooperation between financial institutions to harmonise the measurement of and reporting on financed emissions. The membership will give DNB access to tools and methods to enhance the Group's efforts to mitigate transition risk, improve ESG data collection, and report on climate targets.

Once more, DNB's work on gender diversity in management teams was acknowledged in research published by DBRS Morningstar in the third quarter. The research, based on data from 43 European banks, showed, among other things, that DNB was the only institution to have women in the positions of Group Chief Executive Officer and Chair of the Board.

On the regulatory side, the Norwegian Transparency Act entered into force on 1 July. The Act requires large Norwegian companies to carry out due diligence activities to ensure respect for human rights and decent working conditions, and introduces related transparency requirements. DNB is well prepared to meet the requirements of the Act, and has, among other things, launched a web page that sums up the Group's work on human rights to meet the transparency requirements under the Act.

As of 30 September, DNB has facilitated a cumulative total of NOK 345 billion in sustainable financing volumes, and is on track to reach the target of NOK 1 500 billion by 2030. With regard to DNB Asset Management's target of NOK 200 billion in assets in mutual funds with a sustainability profile by 2025, NOK 25.2 billion has been invested as of September 30.

Other events in the third quarter

The merger plan with Sbanken was signed in the third quarter. Furthermore, DNB decided to submit an application to keep the Sbanken brand in addition to the DNB brand.

DNB NXT, a meeting place for startups, growth companies and investors, was held on 29 September for the seventh year in a row. The main event, which was held in Oslo, had 35 external speakers, over 1 000 physical attendees, and more than 4 000 digital viewers. The event also included 'Oslo Innovation Week - 100 pitches', where startup companies competed to make the best pitch and win NOK 200 000. The pitch competition had 280 registered companies, both Norwegian and international.

On 22 September, DNB was awarded 'the Stockman Prize' in two categories: open class and best investor relations team. The Stockman Prize is awarded to listed companies in Norway that set themselves apart in the way they provide ongoing updates and engage in their financial reporting.

In September, DNB Markets achieved a first-place ranking in the annual Prospera benchmarking for 2021, in the category Back Office FI, FX & Derivatives, both in Norway and in the Nordics.

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

Following the decisions made in the third quarter by the Norwegian central bank, Norges Bank, to raise the key police rate twice by a total of 1.0 percentage point to 2.25 per cent, DNB decided to increase its interest rate on mortgages by up to 1.0 percentage point in the same period.

In Traction's reputation survey for the third quarter of 2022, DNB scored 60 points. The goal is a result over 65 points, indicating that DNB is a well-liked bank.

Compared with the second quarter of 2022, net interest income increased by NOK 728 million, or 6.3 per cent, driven by volume growth, one additional interest day, higher interest on equity and positive effects from repricing. There was an average increase of NOK 49.2 billion, or 2.8 per cent, in the healthy loan portfolio, and deposits were up NOK 71.5 billion, or 5.3 per cent. Volume- weighted spreads for the customer segments narrowed by 3 basis points compared with the previous quarter.

Financial performance in the three first quarters

DNB recorded profits of NOK 22 914 million in the first three quarters of 2022, up NOK 3 714 million from the previous year. Return on equity was 13.0 per cent, compared with 10.8 per cent in the year-earlier period, and earnings per share were NOK 14.39, up from NOK 11.95.

Net interest income increased by NOK 5 819 million from the corresponding period last year, driven by volume growth, higher interest on equity and repricing effects. Compared with 2021, there was an average increase in the healthy loan portfolio of 9.1 per cent, and a 12.9 per cent increase in average deposit volumes. The combined spreads were at the same level, compared with the year- earlier period. Average lending spreads for the customer segments narrowed by 46 basis points, and deposit spreads widened by

64 basis points.

Net other operating income increased by NOK 488 million, or

3.8 per cent, from the corresponding period in 2021. Net commissions and fees showed a strong development and increased by NOK 453 million, or 5.7 per cent.

Total operating expenses were up NOK 1 355 million from 2021, due to higher activity and a greater number of full-time employees.

There were net reversals of impairment of financial instruments of NOK 946 million in the first three quarters of 2022, compared with net reversals of NOK 1 143 million in the previous year.

For the corporate customers industry segments, reversals could be seen in stages 2 and 3, mainly driven by stage 3 reversals in the oil, gas and offshore industry segment. The personal customers industry segment showed impairment provisions of NOK 266 million.

Third quarter income statement - main items

Net interest income

Amounts in NOK million	3Q22	2Q22	3Q21
Lending spreads, customer segments	5 682	7 302	7 951
Deposit spreads, customer segments	3 739	1 925	330
Amortisation effects and fees	1 046	1 097	955
Operational leasing	627	599	559
Contributions to the deposit guarantee
and resolution funds	(296)	(337)	(268)
Other net interest income	1 455	939	238
Net interest income	12 253	11 525	9 766

Net interest income increased by NOK 2 487 million, or 25.5 per cent, from the third quarter of 2021. This was mainly driven by increased volumes, higher interest on equity and positive effects from repricing. There was an average increase of NOK 205.0 billion, or

12.8 per cent, in the healthy loan portfolio compared with the third quarter of 2021. Adjusted for exchange rate effects, volumes were up NOK 185.6 billion, or 11.6 per cent. During the same period, deposits were up NOK 189.2 billion, or 15.5 per cent. Adjusted for exchange rate effects, there was an increase of NOK 162.7 billion, or 13.3 per cent. Average lending spreads narrowed by 72 basis points, and deposit spreads widened by 94 basis points compared with the third quarter of 2021. Volume-weighted spreads for the customer segments were at the same level compared with the corresponding period in 2021.

Net other operating income

Amounts in NOK million	3Q22	2Q22	3Q21
Net commissions and fees	2 742	2 829	2 448
Basis swaps	369	428	147
Exchange rate effects on additional Tier 1 capital	783	997	274
Net gains on other financial instruments
at fair value	(447)	199	1 164
Net financial and risk result, life insurance	83	(102)	147
Net profit from associated companies	5	144	185
Other operating income	338	299	212
Net other operating income	3 875	4 794	4 577

Net other operating income decreased by NOK 702 million from the third quarter of 2021, mainly due to negative mark-to-market effects on equity investments. However, customer revenues from Markets, exchange rate effects on additional Tier 1 (AT1) capital and basis swaps contributed positively. Net commissions and fees showed strong performance with an all-time high third quarter result, and were up NOK 294 million, or 12.0 per cent, compared with the corresponding period last year. This was mainly driven by money transfer services delivering higher than pre-pandemic levels and solid performance across products areas.

Compared with the previous quarter, net other operating income was down NOK 919 million, mainly due to negative mark-to-market effects on equity investment. Net commissions and fees had solid performance, despite a seasonally slower quarter.

Operating expenses

Amounts in NOK million	3Q22	2Q22	3Q21
Salaries and other personnel expenses	(3 617)	(3 626)	(3 301)
Restructuring expenses	(8)	(1)	(1)
Other expenses	(1 947)	(2 022)	(1 608)
Depreciation of fixed and intangible assets	(902)	(877)	(844)
Impairment of fixed and intangible assets	1	3	2
Total operating expenses	(6 473)	(6 524)	(5 752)

Operating expenses were up NOK 721 million, or 12.5 per cent, from the third quarter of 2021. This was due to higher fees and salary expenses as a result of a greater number of full-time employees and investments in technology and compliance competence.

Compared with the second quarter of 2022, operating expenses were at the same level.

The cost/income ratio was 40.1 per cent in the third quarter.

Impairment of financial instruments by industry segment

Amounts in NOK million	3Q22	2Q22	3Q21
Personal customers	(136)	(94)	(26)
Commercial real estate	(0)	26	35
Shipping	43	30	101
Oil, gas and offshore	333	313	90
Other industry segments	(93)	(65)	0
Total impairment of financial instruments	148	209	200

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