DNB Bank ASA

Earnings Release • Jul 12, 2023

Results DNB Group

Second quarter 2023

Kjerstin R. Braathen (CEO)

Continued strong performance and solid asset quality

Return on equity (ROE) of 15.6 per cent in the quarter Solid result across customer segments.

Net interest income (NII) up 4.3 per cent from 1Q23 and 32.2 from 2Q22 Driven by profitable lending growth in all segments, higher deposit volumes in personal customers segment and higher interest rates.

Net commissions and fees (NCF) up 10.2 per cent from 2Q22 All-time high second quarter, strong deliveries across product areas. Robust and diversified fee platform.

Impairment provisions of NOK 871 million NOK 653 million relating to a legacy foreign currency portfolio in Poland. Overall robust asset quality – 99.2 per cent in stages 1 and 2.

Earnings per share (EPS) up 18.1 per cent from 2Q22 EPS of NOK 5.93 for the quarter.

Robust Norwegian economy

• Healthy activity levels in first half of 2023 moderate growth in mainland economy anticipated going forward
• Latest forecast from Norges Bank indicates further hikes in key policy rate to 4.25 per cent
• Inflation expected to peak this year and gradually decline in forecasting period

1) Consumer price index.

Sources: Statistics Norway, DNB Markets, Norges Bank (Norwegian central bank).

Resilient Norwegian households

• Debt-servicing ratio edging higher Norwegian households generally robust
• Unemployment rates expected to remain low throughout forecasting period
• Negative real wage development of 1.5 per cent expected for 2023 with return to positive growth in 2024

Sources: Statistics Norway, DNB Markets, Norges Bank (Norwegian central bank), NAV (Norwegian Labour and Welfare Administration).

Personal customers – profitable lending and deposit growth

Pre-tax operating profit

Highlights of the quarter

• NOK million Growth in loans and deposits of 0.5 and 3.7 per cent, respectively
  • NII down 0.8 per cent from 1Q23, affected by increased NOK money market rates and lag effects
  • Total income up 2.0 per cent from 1Q23 and 26.2 per cent from 2Q22
  • Personal customers remain committed to savings schemes

Solid development in savings

Savings volumes at end of period, NOK billion

Corporate customers – high activity level and solid results

• NOK million Profitable growth in average performing loans of 3.3 per cent from 1Q23, NII up 7.0 per cent
  • Other operating income1 up 5.9 per cent from 2Q22
  • Robust asset quality impairment provisions of NOK 653 million relating to a legacy foreign currency portfolio in Poland

NOK million

Continued profitable growth in loans

• Loan growth of 1.4 per cent in the quarter1 Personal customers up 0.5 and Corporate customers up 2.2 per cent
• Deposits down 3.4 per cent in the quarter2 Personal customers up 3.7 and Corporate customers down 7.9 per cent
  • ‒ reduction in Corporate customers' deposits affected by dividend payments across industries and tax payments in oil and gas industry

2) -3.8 per cent currency-adjusted.

Strong development in net interest margin

1) Total net interest income relative to average loans and deposits in the customer segments.

Net interest income driven by volume growth and increased interest rates

• Net interest income up NOK 633 million or 4.3 per cent
• Following Norges Bank's key policy rate hikes in May and June, DNB announced repricings with effect from mid-June and early August
• Full effect of repricings from end-January, and partial effect of repricings from mid-May and end-June, respectively

Net interest income from 1Q23 to 2Q23 NOK million

Commissions and fees up 10.2 per cent from 2Q22 – all-time high second quarter

Stable operating expenses

Robust and well-diversified portfolio – 99.2 per cent in stages 1 and 2

• Personal customers portfolio continued low impairment provisions
• Corporate customers portfolio increase in stage 3 impairment provisions related to customer-specific situations offset by increased reversals led to moderate increase in net impairment provisions
• Other related to a legacy foreign currency portfolio in Poland from pre-2012 constitutes 75 per cent of total impairment provisions

Impairment of financial instruments by industry segment NOK million				Maximum exposure1 Changes from 1Q23 in parentheses
	2Q23	1Q23	2Q22	Stage 1 NOK 2 563 billion (+37)	Stage 2 NOK 181 billion (+1)
Personal customers
- Stages 1 and 2	34	11	(49)
- Stage 3	(37)	(81)	(45)
Corporate customers
- Stages 1 and 2	(22)	(87)	149	92.7%	6.6%
- Stage 3	(193)	236	154
Other	(653)
Total	(871)	79	209

1) On- and off-balance sheet items, net of accumulated impairment provisions.

Continued strong capital position

• Profits contributed to 50 basis-point increase in CET1 capital ratio, offset by 20 basis-point decrease from volume growth and other effects
• CET1 capital ratio of 18.9 per cent with ~180 basis-point headroom to FSA's expectations
• Approval from Financial Supervisory Authority of Norway (FSA) for buy-back programme still pending

1) The FSA's current expectation.

2) The FSA's current requirement.

Strong second quarter performance

Return on equity Per cent				Earnings per share NOK			Cost/income ratio Per cent
14.2	17.2	15.6	5.02	6.59	5.93	38.9	34.0	35.1
2Q22	1Q23	2Q23	2Q22	1Q23	2Q23	2Q22	1Q23	2Q23

Appendix

Income statement

NOK million	2Q23	1Q23	2Q22	Change from 1Q23	Change from 2Q22
Net interest income	15 232	14 600	11 525	633	3 707
Other operating income	4 971	5 936	4 863	(965)	108
Total income	20 203	20 536	16 388	(333)	3 815
Operating expenses	(7 083)	(6 976)	(6 370)	(107)	(713)
Pre-tax operating profit before impairment	13 120	13 560	10 018	(440)	3 102
Impairment of loans and guarantees and gains on assets	(856)	79	209	(936)	(1 066)
Pre-tax operating profit	12 263	13 639	10 227	(1 376)	2 036
Tax expense	(2 821)	(3 137)	(2 351)	316	(469)
Profit from operations held for sale, after taxes	19	(30)	81	49	(62)
Profit for the period	9 462	10 472	7 957	(1 011)	1 505
Portion attributable to shareholders	9 149	10 192	7 783	(1 043)	1 366

Other operating income

NOK million	2Q23	1Q23	2Q22	Change from 1Q23	Change from 2Q22
Net commissions and fees	2 819	2 634	2 557	185	262
Customer revenues in DNB Markets	771	781	680	(10)	91
Trading revenues in DNB Markets	401	324	132	77	270
Hedging of defined-benefit pension scheme	48	62	(141)	(14)	190
Credit spreads on bonds	27	72	(78)	(45)	105
Credit spreads on fixed-rate loans	58	(235)	(253)	293	312
CVA/DVA/FVA	36	78	(19)	(42)	55
Other mark-to-market adjustments	(326)	859	(120)	(1 185)	(205)
Basis swaps	53	(4)	428	56	(376)
Exchange rate effects on additional Tier 1 capital	209	527	997	(318)	(788)
Net gains on financial instruments at fair value	1 277	2 464	1 624	(1 186)	(347)
Net life insurance result	338	154	277	184	61
Profit from investments accounted for by the equity method	76	164	165	(88)	(89)
Other	460	520	239	(60)	221
Net other operating income, total	4 971	5 936	4 863	(965)	108

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this presentation may include forward-looking statements, such as statements of future expectations. These statements are based on the management's current views and assumptions and involve both known and unknown risks and uncertainties.

Although DNB believes that the expectations implied in any such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct.

Actual results, performance or events may differ materially from those set out or implied in the forward-looking statements. Important factors that may cause such a difference include, but are not limited to: (i) general economic conditions, (ii) performance of financial markets, including market volatility and liquidity, (iii) the extent of credit defaults, (iv) interest rate levels, (v) currency exchange rates, (vi) changes in the competitive climate, (vii) changes in laws and regulations, (viii) changes in the policies of central banks and/or foreign governments, or supranational entities.

DNB assumes no obligation to update any forward-looking statement.

This presentation contains alternative performance measures, or non-IFRS financial measures. Definitions and calculations are presented on ir.dnb.no.