We believe in this region's potential

Q3 2022 / Interim Report

NLB Group Strategic Members Overview	4
Figures at a Glance	5
Key Financial Indicators	6
Macroeconomic Environment	7
BUSINESS REPORT	8
Key Highlights	9
Key Events	10
NLB Shareholders Structure	12
Strategy	13
Financial Performance	14
Profit	14
Net Interest Income	16
Net Non-Interest Income	17
Total Costs	18
Net Impairments and Provisions	19
Financial Position	20
Capital and Liquidity	23
Capital Liquidity	23 26
Related-Party Transactions	27
Segment Analysis	28
Retail Banking in Slovenia	30
Corporate and Investment Banking in Slovenia	33
Strategic Foreign Markets	36
Financial Markets in Slovenia	39
Non-Core Members	41
Risk Factors and Outlook	42
Risk factors	42
Outlook Outlook 2022	44 44
Risk Management	47
Corporate Governance	52
Management Board	52
Supervisory Board	52
General Meeting	52
Guidelines on Disclosure for Listed Companies	52
Events after 30 September 2022	53
Alternative Performance Indicators	54
Reconciliation of Financial Statements in Business and Financial Part of the Report	64
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS OF NLB GROUP AND NLB 66
Glossary of Terms and Definitions	111

We are – where you are.

Our home is here.

Here are our families, friends, colleagues, neighbours, our favourite athletes, hosts, who know what kind of coffee we like… All this is our home and we believe in it with all our hearts.

Since we are where you are, we know your potential and understand your commitment – even when no one else understands it. Where others merely see a spot on the map, we see a region full of opportunities.

And we believe you deserve each and every one of them.

NLB Group Strategic Members Overview

Slovenia				Serbia			North Macedonia	Bosnia and Herzegovina		Kosovo	Montenegro
	NLB Group	NLB, Ljubljana	N Banka, Ljubljana	NLB Lease&Go, Ljubljana	NLB Skladi, Ljubljana	NLB Komercijalna Banka, Beograd(viii)	KomBank Invest, Beograd	NLB DigIT, Beograd	NLB Banka, Skopje	NLB Liz&Go, Skopje	NLB Banka, Banja Luka	NLB Banka, Sarajevo	NLB Banka, Prishtina	NLB Banka, Podgorica
Market position
Branches	444(i)	71	11	-	-	177	-	-	48	-	47	35	33	22
Active clients	1,746,517(ii)	683,923	48,959	-	-	931,535	-	-	405,964	-	223,860	131,880	218,318	82,572
Total assets(ix) (in EUR million)	23,498	13,358	1,423	195	1,888(iii)	4,607	1.3	2.5	1,756	0.6	963	808	1,035	834
Profit after tax(ix) (in EUR million)	377.8	94.2	9.3	-0.6	6.5	43.0	-0.1	0.1	30.0	-	13.0	8.8	24.6	14.7
Market share (by total assets)	-	26.9%	2.9%	-	38.2%(iv)	10.2%	-	-	16.6%	-	20.1%(v, vii)	5.8%(vi, vii)	16.7%	13.7%(vii)

(i) Including NLB Komercijalna Banka, Beograd and N Banka, Ljubljana.

(ii) The total number of active clients for the Group does not include data for NLB Komercijalna Banka, Beograd and N Banka due to different definitions.

(iii) Assets under management.

(iv) Market share of assets under management in mutual funds.

(v) Market share in the Republic of Srpska.

(vi) Market share in the Federation of BiH.

(vii) Data on market share as of 30 June 2022.

(viii) Komercijalna Banka, Beograd and NLB Banka, Beograd merged and as of 30 April 2022 the merged bank operates under the new name NLB Komercijalna banka a.d. Beograd.

(ix) Data for members on a stand-alone basis as included in the consolidated financial statements of the Group.

Figures at a Glance

Profit a.t. - quarterly (in EUR million)(i) ROE a.t. (in %)(ii)

(i) Komercijalna Banka group included from 2021 on. 2.0% 1.9% 1.7% 1.6% 1.6% 1.5%

30 Jun 2021 30 Sep 2021 31 Dec 2021 31 Mar 2022 30 Jun 2022 30 Sep 2022

(i) Profit in Q1 2022 affected by the acquisition of N Banka. (i) Komercijalna Banka group included from 2021 on.

(ii) ROE for 2022 calculated without negative goodwill from the acquisition of N Banka and effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka not annualized.

(iii) For CoR 2022 calculation effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka are not annualized.

Cost to income ratio - CIR (in %) Cost of risk net (in bps)(iii)

Net interest margin (in %) Operational business margin (in %)

NPE ratio - EBA def. (in %) Total capital ratio (in %)

Key Financial Indicators¹

Table 1: Key Financial Indicators of NLB Group

						in EUR million / % / bps
	1-9 2022	1-9 2021	Change YoY	Q3 2022	Q2 2022	Q3 2021
Key Income Statement Data
Net operating income	563.7	499.9	13%	205.6	183.6	166.0
Net interest income	353.1	302.3	17%	126.7	118.6	103.7
Net non-interest income	210.6	197.5	7%	78.9	65.0	62.3
Total costs	-332.6	-297.2	-12%	-113.9	-116.0	-99.9
Result before impairments and provisions	231.1	202.7	14%	91.7	67.6	66.1
Impairments and provisions	2.3	25.2	-91%	10.0	-3.3	6.3
Impairments and provisions for credit risk	7.5	34.1	-78%	9.8	1.6	3.3
Other impairments and provisions	-5.1	-8.8	42%	0.2	-4.9	2.9
Negative goodw ill	172.8	0.0	-	0.0	0.0	0.0
Result after tax	377.8	205.5	84%	90.8	55.5	65.7
Key Financial Indicators
Return on equity after tax (ROE a.t.)	12.5%	13.3%	-0.9 p.p.
Return on assets after tax (ROA a.t.)	1.2%	1.3%	-0.1 p.p.
Net interest margin (on interest bearing assets)	2.17%	2.07%	0.10 p.p.

Cost of risk net (bps)(ii)	-13	-50	37
		30 Sep 2022 31 Dec 2021 30 Sep 2021		Change YtD	Change YoY
Key Financial Position Statement Data
Total assets	23,497.8	21,577.5	21,296.9	9%	10%
Gross loans to customers	13,244.0	10,903.5	10,593.7	21%	25%
Net loans to customers	12,925.3	10,587.1	10,267.0	22%	26%
Deposits from customers	19,573.1	17,640.8	17,248.6	11%	13%
Equity (w ithout non-controlling interests)	2,339.8	2,078.7	2,140.5	13%	9%
Other Key Financial Indicators
LTD(iii)	66.0%	60.0%	59.5%	6.0 p.p.	6.5 p.p.
Common Equity Tier 1 Ratio	14.5%	15.5%	14.7%	-0.9 p.p.	-0.2 p.p.
Total capital ratio	16.6%	17.8%	17.2%	-1.2 p.p.	-0.6 p.p.
Total risk exposure amount (RWA)	14,283.7	12,667.4	12,824.4	13%	11%
NPL volume(iv)	352.3	367.4	397.5	-4%	-11%
NPL coverage ratio 1(v)	90.7%	86.1%	82.2%	4.6 p.p.	8.5 p.p.
NPL coverage ratio 2(vi)	56.2%	57.9%	58.7%	-1.7 p.p.	-2.5 p.p.
NPL ratio (internal def.)(vii)	2.0%	2.4%	2.6%	-0.4 p.p.	-0.6 p.p.
Net NPL ratio (internal def.)(viii)	0.9%	1.0%	1.1%	-0.1 p.p.	-0.2 p.p.
NPL ratio (EBA def.)(ix)	2.7%	3.4%	3.7%	-0.7 p.p.	-1.1 p.p.
NPE ratio (EBA def.)(x)	1.5%	1.7%	1.9%	-0.2 p.p.	-0.4 p.p.
Employees
Number of employees	8,265	8,185	8,359	80	-94

Net interest margin (on total assets - BoS ratio) 2.08% 1.98% 0.10 p.p. Operational business margin(i) 3.46% 3.25% 0.21 p.p. Cost to income ratio (CIR) 59.0% 59.4% -0.4 p.p.

(i) Operational business net income annualized / average assets.

(ii) Cost of risk = credit impairments and provisions (annualized level) / average net loans to customers. Credit impairments and provisions include impairments on loans from customers and provisions for off balance.

(iii) LTD = Net loans to customers / deposits from customers.

(iv) Non-performing loans include loans to D and E rated clients, i.e. loans at least 90 days past due, or loans unlikely to be repaid without a recourse to collateral (before deduction of loan loss allowances).

(v) Coverage of gross non-performing loans with impairments for all loans.

(vi) Coverage of gross non-performing loans with impairments for non-performing loans.

(vii) NPL ratio as per internal definition is calculated as follows: (i) Numerator: total gross non-performing loans; (ii) Denominator: total gross loans.

(viii) Net NPL ratio as per internal definition is calculated as follows: (i) Numerator: net non-performing loans; (ii) Denominator: total net loans.

(ix) NPL ratio as per EBA definition is calculated as follows: (i) Numerator: gross volume of non-performing loans and advances in Finrep 18 without loans held for sale, cash balances at central banks and other demand deposits; (ii) Denominator: gross volume of loans and advances in Finrep 18 without loans held for sale, cash balances at central banks and other demand deposits.

(x) NPE ratio as per EBA definition is calculated as follows: (i) Numerator: total non-performing exposure in Finrep 18; (ii) Denominator: total exposures in Finrep 18.

International credit ratings NLB	30 Sep 2022	30 Jun 2022	Outlook
Standard & Poor's	BBB	BBB	Stable
Moody's(i)	Baa1	Baa1	Stable

(i) Unsolicited rating.

1 ROE and ROA for 2022 calculated without negative goodwill from the acquisition of N Banka and effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka not annualized; for CoR 2022 calculation effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka not annualized.

Macroeconomic Environment

Macroeconomic summary and outlook

The global economy is experiencing several headwinds with inflation being at its several years peak, tightening financial conditions in majority of economies and geopolitical tensions. The eurozone economy is slowing rapidly as high prices impact business activity and dampen consumer demand. However, GDP grew 2.1% YoY in Q3 2022. Household consumption amid increasing cost of living is being supported by decreased savings. Household saving rate was at 13.7% in Q2, down from 15.2% in Q1 since consumption was increasing at faster rate than gross disposable income. The continuing drop in the eurozone economic sentiment in Q3, from 98.5 in July to 93.7 in September, as well as drops in underlying consumer and business confidence, suggest further slowdown of economy. The eurozone PMI (composite fell to 48.2 in September and hit a 20-month low) indicates that business activity has already been contracting throughout Q3. Worsening performances were observed in both manufacturing and services amid falling demand in both sectors due to intensifying price pressures and growing pessimism regarding outlook. Still, after registering an annual drop of 2.5% in July, industrial production increased by 2.5% in August mainly due to growth in production of capital goods and durable consumer goods. Retail sales growth indicates that demand was slowing in Q3 after retail trade dropped 2% YoY in August, registering a third consecutive month with negative YoY growth. However, the labour market remains strong with unemployment dropping futher down to 6.6% in September. The euro area job vacancy rate increased to 3.2% in Q2 (from 3.1% in Q1), which represents a level significantly above long-term average, indicating tight labour market. In the same period, annual increase in labour costs was at 4.0%, with the wage component of the labour costs increasing by 4.1%, up from the 3.7% annual growth recorded in Q1. Inflation pressures persist with industrial producer prices being up by 41.9% YoY in September, with energy sector recording by far the highest growth rate, followed by intermediate goods and non-durable and durable consumer goods. Prices continue to increase with the euro area annual inflation surprising to the upside and rising further to 9.9% in September, from 8.9% recorded in July. However, heterogeneous country inflationary developments that to some degree reflect also idiosyncratic country measures to limit price increases, further complicate the ECB's task of finding the right monetary policy calibration. Higher prices affect people's standard of living, hence prompting governments to introduce a variety of fiscal measures at national and supra-national level. In September, the EU governments agreed on a EUR 140 billion windfall tax on energy companies. Regarding the monetary policy, the ECB raised its key policy rates by 75 bps at its October meeting and signalled that it expects to further raise interest rates to dampen demand and tame prices. In the USA, demand is softening, and consumers have been eating into the excess savings to offset high prices and fuel spending since saving rate (stable at 3.5% in August) is near levels seen during the 2007-2009 Great Recession. The labour market remains tight with 4 million more job vacancies that there are unemployed persons to fill them. Resilient labour market and strong inflation pressures speak in favour of continuing the rate hiking cycle. In the UK, the Bank of England was forced to intervene in the bonds market to prevent liquidity crisis amongst pension funds due to higher yields.

The global and European economy outlook rests on the successful calibration of monetary policy, the course of the war in Ukraine and continued inflationary pressures. Further risks to the downside consist of global tightening in financial conditions triggering widespread emerging market debt distress, further geopolitical fragmentation and tensions, and, in particular for Europe, further sharp reduction in flows or even a complete cut of gas supplies by Russia weighing on output. The euro area is seen growing 2.9% in 2022 with accumulated savings offering support to economy faced with deteriorating confidence, supply shortages, rising energy prices and rising interest rates. In 2023, growth is expected at 1.0%, largely reflecting spillover effects from the war in Ukraine and tighter financial conditions. Slovenia is expected to grow 5.9% in 2022 and 1.2% in 2023 while the Group's region is expected to grow 4.2% in 2022 and 2.0% in 2023.

	Table 2: Movement of key macroeconomic indicators in the euro area and the NLB Group region
--	---------------------------------------------------------------------------------------------	--	--

grow 5.9% in 2022 and 1.2% in 2023 while the Group's region is expected to grow 4.2% in 2022 and 2.0% in 2023.
Table 2: Movement of key macroeconomic indicators in the euro area and the NLB Group region
	GDP (annual grow th rate in %)					Average inflation (in %, aop)				Unemployment rate (in %, aop)
	2021	Q2 2022	2022	2023	2021	Q3 2022	2022	2023	2021	Q2 2022	2022	2023
Euro area	5.2	4.1	2.9	1.0	2.6	9.3	7.7	5.5	7.7	6.7	6.8	7.0
Slovenia	8.1	8.2	5.9	1.2	2.0	11.3	8.8	5.8	4.8	4.2	4.2	4.3
BiH	7.1	5.9	2.9	2.0	2.0	16.9	14.0	8.5	17.4	15.7	16.2	15.8
Montenegro	13.0	12.7	3.5	2.6	2.4	15.3	11.9	7.3	16.7	14.6	15.5	15.5
N. Macedonia	4.0	2.8	2.3	2.7	3.2	17.2	13.3	8.0	15.7	14.5	14.7	14.7
Serbia	7.4	3.9	3.5	2.4	4.1	13.3	11.4	7.8	11.0	8.9	9.7	9.5
Kosovo	10.8	2.1	3.3	2.9	3.3	13.3	11.8	7.4	21.3(i)	-	22.0	21.5

Source: Statistical offices, NLB ALM.

Note: NLB Forecasts highlighted in grey; (i) Data for 1-9 2021; aop - average of period.

Business Report Business Report

Key Highlights

Financial Performance

Financial Performance Strong business performance marked by continuous loan growth which supported net interest income growth and increased fee and commission income, negatively influenced by increasing costs	• Profit a.t. of EUR 377.8 million including one-off effects from the acquisition of N Banka. Noteworthy, recurring profit before impairments and provisions grew 28% YoY excluding N Banka contribution. • EUR 2,340.5 million increase of the Group's gross loans to customers YtD, with EUR 1,077.6 million increase due to the acquisition of N Banka and strong growth of individual and corporate loan book; impressive new loan production with increasing interest rates supported growth of net interest income. • Increase of the deposit base of the Group YtD, EUR 1,932.3 million, of which EUR 976.6 million due to the acquisition of N Banka. • Net fee and commission income growth continues with strong momentum – 14% YoY growth excluding N Banka's contribution, predominantly due to outstanding results in payment transactions and related services, investment funds and bancassurance products. • Increasing employee costs and general and administrative expenses in large extent related to the overall inflation in the region, however decrease of costs were recorded on QoQ basis. • Net impairments and provisions for credit risk were released in the amount of EUR 7.5 million, with successful NPL resolution and asset quality at N Banka being better than expected at the acquisition. Other impairments and provisions were established in the amount of EUR 5.1 million, of which EUR 4.6 million for reorganization in NLB Komercijalna Banka, Beograd.
Business Overview Leading player in SEE	• A robust and sustainable universal business model with an increased focus on digitalisation and ESG. • Striving to become a regional champion. • Higher availability and use of digital channels – a wider range of 24/7 digital solutions offered to clients. • The merger of Komercijalna Banka, Beograd and NLB Banka, Beograd was completed and from 30 April 2022 the bank operates under the new name NLB Komercijalna banka a.d. Beograd (NLB Komercijalna Banka, Beograd). • The strategic launch of leasing is being concluded with having established presence in three major markets of the Group (Slovenia, Serbia and North Macedonia) and a very ambitious business plan is getting implemented – aiming to make leasing a material part of the Group with asset volumes to exceed EUR 1 billion in the coming years. Funding of leasing operations will be coming from the banks who will also assume key corporate governance positions (both the Bank and the local Group member banks).
Asset Quality Good asset quality trends with well diversified portfolio, prudent credit standards and decisive workout approach	Well-diversified, stable, and robust credit portfolio quality. No large concentration in any specific industry or • client segment. The portfolio remains very stable with increasing Stage 1 exposures. Low NPE (EBA def.) of 1.5% with very comfortable NPL coverage ratio 2 of 56.2%. The Group carefully monitors the most affected client's segments with the intention to detect any significant • increase in credit risk at a very early stage. Direct and indirect exposure of the Group toward Russia and Ukraine is limited. The cost of risk (-13 bps) remains negative, backed by positive contribution of successful NPL resolution in • most of the Group members. The current economic situation led to sluggish growth projections for the Slovenian economy in 2023. On this basis, the Bank formed additional loan loss provisions in Q3 2022. Similar approach is followed in other Group members.
Capital & Liquidity Capital and liquidity position ensuring capital return and continued growth opportunities	• The capital position was above all regulatory requirements (TCR of 16.6%, 1.2 p.p. lower YtD). The acquisition of N Banka had a positive impact on the capital position (its higher RWA was compensated with inclusion of negative goodwill into capital). On the other hand, higher RWAs from an increased lending activity and lower capital due to negative revaluation adjustments had a negative impact on the capital position. 3 • Dividends in the amount of EUR 50 million were paid to shareholders on 28 June. • The liquidity position of the Group remained very strong, with a high level of unencumbered liquid assets in total assets (37.5%). A strong deposit base demonstrated client confidence in the Group.
Strategy Committed to pursue the strategic objectives	• The Group continues to execute its strategic initiatives as well as explore new business opportunities, including business cooperation with local and international fintech companies. • The digital leadership position in Slovenia is being applied to other markets where the Group operates. The goal is to become one of the best data science companies in the region to productively use customer data and evolve a local flexible digital ecosystem offering products and services to clients. • The Group will continue to serve the society by aiming to reduce its carbon footprint and improve the quality of life in this region. It will drive business value through sustainability and commitment to enhance the management of environmental and social risks of its operations as well as meet stakeholders' expectations.

• Acquisition of Slovenian Sberbank banka on 1 March and renaming it to N Banka on 11 April.

² Further information is available in the chapter Key Events.

³ Further information is available in the chapters Outlook 2022 and Events After 30 September 2022.

Key Events

Management Board change

On 20 January, the Supervisory Board appointed Hedvika Usenik, Antonio Argir, and Andrej Lasič as members of the Management Board. They received all necessary approvals to assume their office as Management Board members as of 28 April. The Management Board has thus six members.

Swiss Francs Law

On 2 February, the National Assembly of the Republic of Slovenia adopted the Law on Limitation and Distribution of Foreign Exchange Risk Between Creditors and Borrowers Concerning Loan Agreements in Swiss Francs (CHF Law). The CHF Law affects all loan agreements denominated in Swiss francs (regardless of whether the agreements are still in force) concluded between banks operating in Slovenia (including NLB) as lenders and individuals as borrowers in the period from 28 June 2004 to 31 December 2010. The Constitutional Court of the RoS adopted a decision on 10 March to suspend in whole the implementation of the CHF Law until the final decision of the Constitutional Court on the conformity of the CHF Law with the Constitution. During this time the deadlines set for individual liabilities of the banks do not apply. Until the final decision on the constitutionality of the CHF Law is made by the Constitutional Court, the NLB will act in accordance with the applicable legislation and courts' decisions, and will, at the same time, exercise all legal remedies at its disposal.

New SREP Decision

On 2 February, the ECB issued a new SREP decision for the Bank under which it has reduced the P2R from 2.75% to 2.60%, while P2G remains at 1.00%. The new SREP decision applies as of 1 March. Consequently, the Bank is as of that date required to maintain the OCR at the level of 14.10% on a consolidated basis, consisting of (i) 10.60% TSCR, and (ii) 3.5% CBR.

On 29 April, the BoS issued a new Regulation on determining the requirement to maintain a systemic risk buffer for banks and savings banks which will with 1 January 2023 introduce the systemic risk buffer rates for the sectoral exposures. 4

War in Ukraine

In February, the Russian Federation began a military invasion of Ukraine. The NLB Group has limited direct and indirect exposure to the Russian Federation and Ukraine which mainly derives from NLB's investment in Russian sovereign bonds.

Acquisition of N Banka

On 1 March, the Single Resolution Board (SRB) in coordination with the local regulator, the BoS, decided to adopt a resolution scheme in respect of the Slovenian Sberbank banka. The resolution scheme envisaged the application of the sale of business tool for Sberbank banka and the BoS issued a decision for the sale of 100% shares issued by Sberbank banka. Under the resolution scheme, and following a marketing procedure, the SRB decided to transfer all the shares issued by Sberbank banka to NLB. Therefore, as of 1 March, NLB became a 100% owner of Sberbank banka. On 11 April, Sberbank banka was renamed N Banka and new supervisory board members of the bank were appointed. Activities for the integration of Sberbank banka with the NLB Group are in process.

Supervisory and Management Board transactions with NLBR shares

Between 25 February and 23 March, Primož Karpe, Chairman of the Supervisory Board, Sergeja Kočar, Member of the Supervisory Board, Blaž Brodnjak, CEO, and Andreas Burkhardt, Member of the Management Board, together acquired 468 ordinary shares of NLB (ISIN: SI0021117344, LJSE ticker NLBR).

Between 12 May and 20 May, Blaž Brodnjak, CEO, Antonio Argir, Member of the Management Board, Andreas Burkhardt, Member of the Management Board, Hedvika Usenik, Member of the Management Board, Andrej Lasič,

⁴ Further information is available in the chapter Capital and Liquidity.

Member of the Management Board, and Sergeja Kočar, Member of the Supervisory Board, together acquired 716 ordinary shares of NLB (ISIN: SI0021117344, LJSE ticker NLBR).

On 11 August, Andreas Klingen, member of the Supervisory Board, acquired 100 ordinary shares of NLB (ISIN: SI0021117344, LJSE ticker NLBR).

Notifications of major holdings change

On 7 March, the shareholding of Schroders in the Bank changed from 5.061% to 4.95%.⁵

On 3 June, the shareholding of Brandes Investment Partners, L.P. in the Bank changed to 4.78%.

Merger of Serbian subsidiaries

Serbian subsidiaries, Komercijalna Banka, Beograd and NLB Banka, Beograd, merged and from 30 April 2022 the merged bank operates under the new name NLB Komercijalna banka a.d. Beograd.

Rating upgrade

On 11 May, Standard and Poor's rating agency upgraded the NLB's credit rating to BBB/A-2 from BBB-/A-3 with a stable outlook.

NLB became a 100% owner of NLB Komercijalna Banka, Beograd

On 23 May, the Bank acquired additional 442,799 ordinary shares of NLB Komercijalna banka a.d. Beograd and combined with the existing shareholding reached the ownership of 90.2155% of the basic capital and 91.7294% of shares with voting rights, effectively reaching the squeeze-out threshold. Through the squeeze-out process, NLB additionally acquired 1,528,110 regular shares and 316,260 preferred shares with a total value of EUR 61.7 million. On 13 July 2022, NLB successfully squeezed out the remaining shareholders of NLB Komercijalna banka a.d. Beograd and thereby became a 100% owner of the bank.

NLB officially became a member of the UN-Convened Net-Zero Banking Alliance

On 6 June, the Bank officially joined the Net-Zero Banking Alliance, an industry-led, UN-convened alliance of banks worldwide, committed to aligning their lending and investment portfolios with net-zero emissions by 2050 or sooner, as set by the most ambitious targets of the Paris Climate Agreement.

General Meeting of Shareholders

The General Meeting of Shareholders of NLB took place on 20 June and among others the shareholders decided that a part of the distributable profit in the total amount of EUR 50 million shall be paid out to the shareholders as dividends, which is EUR 2.50 gross per share. The dividends were paid on 28 June.⁶

Fees on high balance

On 1 August, the Bank stopped charging fees on high balances for individuals and corporate clients.

Supervisory Board change

As of 8 July, Janja Žabjek Dolinšek, workers' representative, is no longer a member of the Supervisory Board.

As of 12 September, Bojana Šteblaj, workers' representative, is no longer a member of the Supervisory Board.

Expansion of the Group's leasing activities to Skopje

On 21 September, the leasing company NLB Liz&Go, Skopje was established. 7

Inflationary pressures

Similarly to the global economy, inflation presents headwinds in Slovenia and the SEE region economies where the Group is present. The Group's operations are currently impacted through increasing costs and gradual repricing of the new loan production.

⁵ Further information is available in the chapter Events After 30 September 2022.

⁶ Further information is available in the chapters Outlook 2022 and Events After 30 September 2022.

⁷ Further information is available in the chapter Strategy.

NLB Shareholders Structure⁸

The Bank's issued share capital is divided into 20,000,000 shares. The shares are listed on the Prime Market of the Ljubljana Stock Exchange (ISIN SI0021117344, Ljubljana Stock Exchange trading symbol: NLBR) and the Global Depositary Receipts (GDRs), representing ordinary shares of NLB, are listed on the Main Market of the London Stock Exchange (ISIN: US66980N2036 and US66980N1046, London Stock Exchange GDR trading symbol: NLB and 55VX). Five GDRs represent one NLB share.

Table 3: NLB's main shareholders as of 30 September 2022 (i)

Shareholder	Number of shares	Percentage of shares
Bank of New York Mellon on behalf of the GDR holders(ii)	10,946,534	54.73
• of which European Bank for Reconstruction and Development (EBRD)(iii)	n.a.	>5 and <10
Republic of Slovenia (RoS)	5,000,001	25.00
Other shareholders	4,053,465	20.27
Total	20,000,000	100.00

(i) Information is sourced from the NLB shareholders book available at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) to the CSD members. Information on major holdings is based on self-declarations by individual holders pursuant to the applicable provisions of the Slovenian legislation, which require that the holders of shares in a listed company notify the company whenever their direct and/or indirect holdings go over the present thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50% or 75%. The table provides all self-declared major holders whose notifications have been received. In reliance on this obligation vested in the holders of major holdings, the Bank postulates that no other entities nor any natural persons hold directly and/or indirectly ten or more percent of the Bank's shares.

(ii) The Bank of New York Mellon holds shares in its capacity as the depositary (the GDR Depositary) for the GDR holders and is not the beneficial owner of such shares. The GDR holders have the right to convert their GDRs into shares. The rights under the deposited shares can be exercised by the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either attend the shareholders' meeting or to exercise any voting rights under the deposited shares.

(iii) The information on GDR ownership is based on self-declarations made by individual GDR holders as required pursuant to the applicable provisions of the Slovenian law.

⁸ Further information is available in the chapter Events After 30 September 2022.

Strategy

Become a regional champion	• The Group aims to further strengthen its role as a systemically important financial institution in the SEE region, and strives to become a market leader in all of its core markets and to have a prominent role in the region's development.
Putting clients first	• In retail banking, the Group continues to strive to become closer to its clients by offering anchor products and the most accessible and personalised digital services. In corporate banking, the Bank is looking to provide more complex, cross border products and services, and to find new entry points in order to suit all its clients' financial needs. The Group has made itself available anywhere and anytime by building a strong customer call centre and upgrading its portfolio of digital sales channels.
Digitalization	• The Group is applying its digital leadership position in Slovenia to other markets where the Group operates. • It is implementing comprehensive and substantial strategic efforts toward digital distribution and operating models, supported by quicker and better customer service and better internal processes efficiency. • The main enabler is investing substantially in IT infrastructure and capabilities to deliver services in a safe and efficient manner. These efforts will be aided by the creation of a technological hub DigIT in Belgrade that develops solutions for the whole Group.
Grow our market position	• The Group is continually focused on not only protecting but strengthening its position as a systemic player in Group's home region. This is to be done through engaging with all of the Group's stakeholders and primarily by adding value to three types of its main stakeholders: shareholders, customers, and employees.
Monetize synergies and opportunities	• Significant strategic business efforts are undertaken to achieve business synergies across the Group, including costs and operational efficiency. The Group is fully engaged in re-establishing some of the key financial services, thus diversifying its services on a horizontal level, and cooperating with international fintech players. • The Bank is simultaneously monitoring additional M&A opportunities that could add value to the Bank's shareholders, including within SEE banking consolidation process and the emergence of fintech.
Increased importance of leasing – new business opportunity	• In the Group Strategy, leasing activities represent a significant part of Group's business mix. Leasing operations in Slovenia (Lease&Go) are gaining momentum with increased total assets, new leasing company was established in North Macedonia (NLB Liz&Go) and all regulatory approvals for purchase of leasing entity in Serbia were obtained. • Management and governance structures are being set up in new leasing members, with full implementation of Group's corporate governance principles and two members of NLB Management Board being Chair and Co-chair of Lease&Go, Ljubljana Supervisory Board. • All activities carried out in last months gave us a confidence that leasing will once again become a significant part of the Group. It is planned that in its mature phase, leasing will contribute more than EUR 1 billion to total assets of the Group, through organic and potentially also inorganic growth.
Change management	• To facilitate the strategic focus and support a continuous transformation in an everchanging environment, the Group is following a comprehensive program to deliver its mission and financial targets. • Focused efforts are put into increased operational efficiency, cost management, and the improved utilisation of the Group's capital. Simultaneously, overall operational capabilities are being enhanced by improving human capital, optimising IT infrastructure, digitalizing internal processes, and leveraging information capital. To drive the transformation, a new change management platform was set up.
Sustainability	• Focus on implementation of environmental, social and governance elements in bank's business model is an opportunity for the Group to meet societal expectations, adapt to a changing environment, and mitigate climate and social risks. • The Group is driving business value through sustainability, commitment to enhance the management of environmental, and social risks of its operations as well as continue to serve the society by aiming to reduce its carbon footprint (by joining UNEP FI Net Zero Banking Alliance) and improve the quality of life in this region.

Financial Performance⁹

Table 4: Income statement of NLB Group

										in EUR million
		1-9 2022 1-9 2021		Change YoY o/w N Banka contribution		Q3 2022	Q2 2022	Q3 2021	Change QoQ
Net interest income	353.1	302.3	50.8	17.5	17%	126.7	118.6	103.7	8.1	7%
Net fee and commission income	204.2	172.6	31.6	6.8	18%	70.5	69.1	58.6	1.4	2%
Dividend income	0.2	0.2	0.0	0.0	13%	0.1	0.1	0.1	0.0	70%
Net income from financial transactions	24.0	33.4	-9.5	-8.2	-28%	10.3	8.5	7.4	1.8	22%
Net other income	-17.8	-8.7	-9.1	7.9	-105%	-2.0	-12.7	-3.8	10.6	84%
Net non-interest income	210.6	197.5	13.1	6.5	7%	78.9	65.0	62.3	13.9	21%
Total net operating income	563.7	499.9	63.8	23.9	13%	205.6	183.6	166.0	22.0	12%
Employee costs	-186.4	-168.2	-18.2	-10.3	-11%	-63.7	-65.2	-56.5	1.5	2%
Other general and administrative expenses	-111.0	-94.1	-16.9	-6.0	-18%	-38.3	-39.0	-31.7	0.7	2%
Depreciation and amortisation	-35.2	-34.8	-0.4	-1.3	-1%	-11.9	-11.8	-11.6	-0.1	0%
Total costs	-332.6	-297.2	-35.4	-17.6	-12%	-113.9	-116.0	-99.9	2.2	2%
Result before impairments and provisions	231.1	202.7	28.4	6.4	14%	91.7	67.6	66.1	24.2	36%
Impairments and provisions for credit risk	7.5	34.1	-26.6	5.1	-78%	9.8	1.6	3.3	8.2	-
Other impairments and provisions	-5.1	-8.8	3.7	0.0	42%	0.2	-4.9	2.9	5.1	-
Impairments and provisions	2.3	25.2	-22.9	5.1	-91%	10.0	-3.3	6.3	13.3	-
Gains less losses from capital investments in subsidiaries, associates, and joint ventures	1.1	0.9	0.2	0.0	22%	-0.4	1.0	0.5	-1.4	-
Negative goodw ill	172.8	0.0	172.8	172.8	-	0.0	0.0	0.0	0.0	-
Result before tax	407.4	228.9	178.5	184.3	78%	101.3	65.2	72.9	36.1	55%
Income tax	-21.1	-12.9	-8.2	-2.2	-63%	-10.4	-5.4	-3.3	-5.0	-92%
Result of non-controlling interests	8.5	10.5	-2.0	0.0	-19%	0.1	4.3	3.9	-4.2	-97%
Result after tax	377.8	205.5	172.3	182.1	84%	90.8	55.5	65.7	35.3	64%

Profit

The Group generated EUR 377.8 million of profit after tax, EUR 172.3 million higher YoY, of which most material positive deviation was due to effects related to the acquisition of N Banka. However, a noteworthy result was also recorded with a recurring profit before impairments and provisions with 28% YoY growth without N Banka's contribution.

The result was based on the following key drivers:

Negative goodwill from the acquisition of N Banka in the amount of EUR 172.8 million.
Net interest income increased EUR 33.3 million YoY without N Banka's contribution mostly due to a higher volume of loans. Interest rates on loans and on central bank balances are also gradually increasing and have positive influence on interest income. The increase of net interest income was recorded in all banks; the highest increases were recorded in the Bank (EUR 18.1 million), NLB Komercijalna Banka, Beograd¹⁰ (EUR 8.9 million), and NLB Banka, Prishtina (EUR 4.2 million).
Net fee and commission income increased 14% YoY without N Banka's contribution; the increase was recorded in all the Group banks, in the Bank by EUR 9.4 million due to higher fees from investment funds and bancassurance products, high balance deposit fee, and higher fees from cards and payments. The cancellation of the high balance deposit fee in August has negative effect on the fee and commission income, but is compensated with the interest income for central bank balances.
Total costs increased YoY in most Group banking members, due to increasing employee costs and general and administrative expenses, mostly related to the overall inflation in the region. However, a decrease of costs was recorded on the QoQ basis.
Net impairments and provisions for credit risk were released in the amount of EUR 7.5 million, with successful NPL resolution and asset quality at N Banka being better than expected at the acquisition. Other impairments and

⁹ YoY data are not comparable due to the acquisition of Slovenian Sberbank banka on 1 March 2022, which was renamed to N Banka on 11 April (thereafter in the report referred to as N Banka or the acquisition of N Banka).

¹⁰ Komercijalna Banka, Beograd and NLB Banka, Beograd merged and as of 30 April 2022 the merged bank operates under the new name NLB Komercijalna banka a.d. Beograd; data for joined bank also for 2021.

provisions were established in the amount of EUR 5.1 million, of which EUR 4.6 million for reorganization in NLB Komercijalna Banka, Beograd.

Figure 1: Profit after tax of NLB Group (in EUR million) – evolution YoY

(i) Gains less losses from capital investments in the subsidiaries, associates, and joint ventures.

Net Interest Income

Figure 2: Net interest income of NLB Group (in EUR million)

The net interest income totalled EUR 353.1 million, of which EUR 17.5 million was contributed by N Banka. A higher level of interest income was achieved YoY in all the Group banking members mostly due to a higher volume of loans. TLTRO financing with the ECB at a very favourable interest rate of -1% p.a. was repaid in June and Senior Preferred notes were issued in July. Even after that, the Group's average funding cost was still relatively low due to its funding structure, relying mostly on customer deposits with low interest rates.

On the QoQ basis, the net interest income was higher mostly due to higher volume of loans; however, the key ECB interest rate hike in September also led to higher income from balances at the central bank and higher interest rates on new loans in the Bank.

Figure 3: Net interest margin and Operational business margin of NLB Group (quarterly data, in %)

The net interest margin of the Group was 2.27% in Q3, 0.11 p.p. higher QoQ and 0.24 p.p. YoY, mostly due to volume growth; however, with the rising inflation, the Group started with gradual repricing of the new loan production, which advanced with the key ECB interest rate increase. The operational business margin of 3.60% increased 0.15 p.p. QoQ and 0.42 p.p. YoY, due to higher operating business net income growth (backed by the net fee and commission growth) compared to the net interest income growth.

Net Non-Interest Income

Figure 4: Net non-interest income of NLB Group (in EUR million)

The net non-interest income reached EUR 210.6 million, of which EUR 6.5 million were contributed by N Banka. A major part of the net non-interest income has been derived from the net fee and commission income, which grew YoY, mostly in the Bank (higher fees from investment funds and bancassurance products, high balance deposit fee, higher fees from card and payment services, and advisory services).

The net non-interest income in 1-9 2021 was strongly affected by non-recurring valuation income in the amount of EUR 14.8 million from the repayment of exposure classified as non-performing, and EUR 9.0 million of other operation income from the settlement of a legal dispute, while no major one-offs with influence on non-interest income were recorded this year.

Quarterly dynamics remained positive, with net fee and commission income reaching EUR 70.5 million (up 2% QoQ). This achievement is even more noteworthy, given two important headwinds for the net fee and commission income which emerged in Q3, namely the cancellation of the high balance deposit fees and the Serbian central bank initiative to contain retail fees for a limited period.

Total Costs

Figure 5: Total costs of NLB Group (in EUR million)

The total costs amounted to EUR 332.6 million, of which EUR 17.6 million from N Banka. Without the N Banka's contribution, the total costs increased YoY by 6% due to an increase in the Bank and in most of the SEE banking members. The Group is affected by the inflation and rising employee, material, and energy costs, but has successfully kept them under control. The largest YoY increases were recorded on employee costs (EUR 8.0 million without N Banka contribution) and general and administrative expenses (EUR 10.9 million without N Banka contribution) with increasing marketing cost, especially in the Bank due to the acquisition of N Banka in Slovenia and merger of the Group banks in Serbia (NLB Banka, Beograd and Komercijalna Banka, Beograd), electricity costs (EUR 2.9 million higher YoY), and software maintenance (mostly due to N Banka acquisition).

Despite inflationary pressures, the Group was able to record lower costs on the QoQ basis for 2% both employee as well as other general and administrative costs.

The Group is undertaking several strategic initiatives (channel strategy, digitalization, paperless, lean process, branch network optimisation etc.) to keep costs low. However, given the circumstances and economic situation significant inflationary pressures have been noticed across all cost categories consuming much of successful efficiency measures across the Group and specifically in Serbia. Combined with further planned investments into technology enhancements across the Group upward cost trends are expected for 2023 which will still be a transition year in regards of integration processes in Serbia and Slovenia.

CIR stood at 59.0%, a 0.4 p.p. decrease YoY.

Net Impairments and Provisions

Figure 6: NLB Group impairments and provisions (in EUR million)

Impairments and provisions for credit risk were net released in the amount of EUR 7.5 million. Positive effects from a successful collection of previously written-off receivables (EUR 28.1 million), mostly in the corporate segment, entirely compensated for 12-month expected credit losses recognised at acquisition date for performing portfolio for N Banka and changes in risk parameters in Q2, while in Q3 less favourable macroeconomic forecasts for Slovenia led to deterioration of risk parameters and additional provisioning.

Other impairments and provisions were established in the amount of EUR 5.1 million, of which EUR 4.6 million for reorganization in NLB Komercijalna Banka, Beograd.

Financial Position¹¹

											in EUR million
	30 Sep 2022			30 Jun 2022 31 Dec 2021 30 Sep 2021		Change YtD		Change YoY		Change QoQ
		o/w N Banka
ASSETS											#REF!
Cash, cash balances at central banks, and other demand deposits at banks	4,911.4	191.5(i)	4,321.1	5,005.1	4,947.0	-93.7	-2%	-35.6	-1%	590.3	14%
Loans to banks	210.7	0.0	176.8	140.7	211.7	70.0	50%	-1.0	0%	33.9	19%
Net loans to customers	12,925.3	1,070.0	12,620.2	10,587.1	10,267.0	2,338.2	22%	2,658.4	26%	305.1	2%
Gross loans to customers	13,244.0	1,077.6	12,944.2	10,903.5	10,593.7	2,340.5	21%	2,650.3	25%	299.8	2%
- Corporate	6,321.7	668.6	6,213.5	4,996.0	4,783.9	1,325.6	27%	1,537.7	32%	108.2	2%
- Individuals	6,635.5	378.3	6,445.0	5,621.1	5,487.4	1,014.4	18%	1,148.0	21%	190.4	3%
- State	286.9	30.7	285.7	286.3	322.3	0.5	0%	-35.5	-11%	1.1	0%
Impairments and valuation of loans to customers	-318.7	-7.6	-324.0	-316.3	-326.7	-2.3	-1%	8.0	2%	5.4	2%
Financial assets	4,765.1	63.7	4,919.5	5,208.3	5,264.7	-443.2	-9%	-499.6	-9%	-154.4	-3%
- Trading book	21.3	0.5	14.9	7.7	10.5	13.6	178%	10.9	104%	6.4	43%
- Non-trading book	4,743.8	63.1	4,904.6	5,200.6	5,254.2	-456.8	-9%	-510.4	-10%	-160.8	-3%
Investments in subsidiaries, associates, and joint ventures	11.9	0.0	13.1	11.5	8.5	0.4	3%	3.4	40%	-1.2	-9%
Property and equipment, investment property	293.2	10.3	297.9	294.6	296.2	-1.4	0%	-3.0	-1%	-4.7	-2%
Intangible assets	55.2	1.9	55.3	59.1	53.0	-3.8	-7%	2.3	4%	-0.1	0%
Other assets	325.0	16.8	326.3	271.1	249.0	53.9	20%	76.0	31%	-1.4	0%
TOTAL ASSETS	23,497.8	1,354.2	22,730.3	21,577.5	21,296.9	1,920.3	9%	2,200.9	10%	767.5	3%
LIABILITIES
Deposits from customers	19,573.1	976.6	19,151.1	17,640.8	17,248.6	1,932.3	11%	2,324.5	13%	422.0	2%
- Corporate	5,387.4	457.8	5,091.8	4,463.7	4,276.6	923.7	21%	1,110.8	26%	295.6	6%
- Individuals	13,569.2	427.8	13,498.1	12,680.8	12,495.2	888.5	7%	1,074.0	9%	71.1	1%
- State	616.5	91.1	561.2	496.4	476.8	120.2	24%	139.7	29%	55.3	10%
Deposits form banks and central banks	108.3	0.3	138.0	71.8	82.0	36.5	51%	26.4	32%	-29.7	-22%
Borrow ings	322.0	160.0	326.8	932.6	975.6	-610.5	-65%	-653.5	-67%	-4.8	-1%
Debt securities in issue	302.6	0.0	0.0	0.0	0.0	302.6	-	302.6	-	302.6	-
Other liabilities	504.3	38.2	507.6	427.6	412.5	76.6	18%	91.7	22%	-3.3	-1%
Subordinated liabilities	290.4	0.0	287.8	288.5	290.2	1.9	1%	0.2	0%	2.7	1%
Equity	2,339.8	179.0	2,195.6	2,078.7	2,140.5	261.1	13%	199.3	9%	144.3	7%
Non-controlling interests	57.2	0.0	123.5	137.4	147.6	-80.2	-58%	-90.4	-61%	-66.3	-54%
TOTAL LIABILITIES AND EQUITY	23,497.8	1,354.2	22,730.3	21,577.5	21,296.9	1,920.3	9%	2,200.9	10%	767.5	3%

(I)Excluding funding provided by NLB in the amount of EUR 68.3 million.

The Group's total assets were EUR 23,497.8 million, a EUR 1,920.3 million increase YtD due to the acquisition of N Banka (EUR 1,354.2 million).

Cash, cash balances at central banks, and other demand deposits in the banks increased by EUR 590.3 million in the last quarter, due to the issuance of Senior Preferred notes in the amount of EUR 300 million in July.

Equity increased in the last quarter due to the issue of Additional Tier 1 notes in the amount of EUR 82 million in September.

The Group's gross loans to customers increased by EUR 2,340.5 million YtD, with a EUR 1,077.6 million increase due to the acquisition of N Banka. Without N Banka, a EUR 1,262.9 million YtD growth in gross loans to customers was recorded, EUR 636.1 million to individuals and EUR 657.0 million to corporate. Quarterly dynamics in terms of new production in corporate segment in Slovenia tilted to shorter term loans, indicating prudent reactions from corporates (and higher working capital needs), while new production of housing and consumer loans remained solid.

An increase of the deposit base of the Group YtD without N Banka's deposits was EUR 955.7 million. Around half of it accounted growth from individual deposits (EUR 460.7 million without N Banka), most of which occurred in H1, when in addition to the seasonal effect (payment of holiday allowances), the precautionary savings of households may also have contributed to this, due to the uncertainty of rising prices and the expected impact on their financial situation in the future. Other half (EUR 465.9 million without N Banka) derived from the increase of corporate deposits, distributed throughout the year.

The LTD ratio (net) was 66.0% at the Group level, a 6.0 p.p. increase YtD and 6.5 p.p. YoY, as a result of the acquisition of N Banka, with a higher LTD, as well as a higher increase of gross loans compared to deposits.

¹¹ YoY data are not comparable due to the acquisition of Slovenian Sberbank banka on 1 March 2022, which was renamed to N Banka on 11 April (thereafter in the report referred to as N Banka or the acquisition of N Banka).

Figure 7: NLB Group gross loans to customers and interest rates on loans YtD dynamics (in EUR million and %)

(i) On the stand-alone basis.

(ii) Includes the Bank and N Banka; interest rates only for the Bank. (iii) Includes only the banks.

The lending activity is still in the growing trend and gross loans to individuals recorded a 12% YtD increase in the Bank and 10% in the Strategic foreign markets while the gross loans to the corporate and state recorded a 17% and 7% growth in the Bank and in Strategic foreign markets respectively.

The production of new loans in the Group was high, with almost EUR 880 million of new housing loans and over EUR 820 million of new consumer loans approved in 1-9, while over EUR 2.6 billion of new corporate loans were approved in this period. After a long period of low interest rates, the interest rates on the new production started to increase to fight the rising inflation.

Figure 8: NLB Group deposits from customers and interest rates on deposits YtD dynamics (in EUR million and %)

(i) On the stand-alone basis.

(ii) Includes NLB and N Banka; interest rates only for NLB.

(iii) Includes only banks.

The deposit base in the Bank increased YtD; to individuals and to the corporate and state by 8% and 16% respectively; however, in Q3, the growth of deposits from individuals was minimal, while substantial inflow of corporate and state deposits in August was recorded. On the other hand, a minor outflow of deposits from individuals (-1% YtD) was recorded in the Strategic foreign markets, due to outflows in Q1 as a response to the Ukraine war and its influence on

prices and consumer behaviour, with a positive trend perceived in Q2 and Q3. The majority, 87%, of all deposits represented sight deposits due to low interest rate environment.

Figure 9: Total assets of NLB Group by the location of NLB Group entities (in %)

Figure 10: NLB Group off-balance sheet items (in EUR million)

Off-balance sheet items in the Group amounted to EUR 5,628.8 million and were comprised of commitments to extend credit and other risky commitments (39%), derivatives (34%), guarantees (26%), and letters of credit (0.4%).

Commitments to extend credit and other risky commitments were divided between loans (98% corporate), overdrafts (59% retail and 41% corporate) and cards (89% retail). A majority of the Group's derivatives were concluded by the Bank either for the hedging of the banking book or trading with customers.

Capital and Liquidity Capital

Figure 11: NLB Group capital (in EUR million)

Figure 12: NLB Group capital ratios and regulatory thresholds

The Overall Capital Requirement (OCR) for the Group was 14.10%, consisting of:

10.60% TSCR (8.00% Pillar 1 Requirement and 2.60% Pillar 2 Requirement); and
3.50% CBR (2.50% Capital Conservation Buffer, 1.00% O-SII Buffer¹² and 0.00% Countercyclical Buffer).

On 29 April 2022, the BoS issued a new Regulation on determining the requirement to maintain a systemic risk buffer for banks and savings banks, which will with 1 January 2023 introduce the systemic risk buffer rates for the sectoral exposures:

1.00% for all retail exposures to natural persons secured by residential real estate,
0.50% for all other exposures to natural persons.

Pillar 2 Guidance is 1.00%, which should be comprised entirely of CET1 capital.

¹² As of 1 January 2023, the O-SII Buffer will amount to 1.25%.

The Group's capital covers all the current and announced regulatory capital requirements, including capital buffers and other currently known requirements, as well as the Pillar 2 Guidance.

		2022	2021	2020
	CET1	4.5%	4.5%	4.5%
Pillar 1 (P1R)	AT1	1.5%	1.5%	1.5%
	T2	2.0%	2.0%	2.0%
	CET1	1.46%	1.55%	1.55%
Pillar 2 (SREP req. - P2R)	Tier 1	1.95%	2.06%	2.06%
	Total Capital	2.60%	2.75%	2.75%
	CET1	5.96%	6.05%	6.05%
Total SREP Capital requirement (TSCR)	Tier 1	7.95%	8.06%	8.06%
	Total Capital	10.60%	10.75%	10.75%
Combined buffer requirement (CBR)
Conservation buffer	CET1	2.5%	2.5%	2.5%
O-SII buffer	CET1	1.0%	1.0%	1.0%
Countercyclical buffer	CET1	0.0%	0.0%	0.0%
	CET1	9.46%	9.55%	9.55%
Overall capital requirement (OCR) = MDA threshold	Tier 1	11.45%	11.56%	11.56%
	Total Capital	14.10%	14.25%	14.25%
Pillar 2 Guidance (P2G)	CET1	1.0%	1.0%	1.0%
	CET1	10.46%	10.55%	10.55%
OCR + P2G	Tier 1	12.45%	12.56%	12.56%
	Total Capital	15.10%	15.25%	15.25%

Table 6: NLB Group capital requirements and buffers

As at 30 September 2022, the TCR for the Group stood at 16.6% (or 1.2 p.p. lower YtD), and the CET1 ratio for the Group stood at 14.5% (0.9 p.p. lower YtD). The lower total capital adequacy derives from higher RWA (EUR 1,616.3 million YtD), which was not compensated by higher capital (EUR 117.1 million YtD). The capital is higher mainly due to the inclusion of negative goodwill from the acquisition of N Banka in retained earnings in the amount of EUR 172.8 million and a partial inclusion of Q1 2022 profit in the amount of EUR 32.2 million, which compensated the negative revaluation adjustments on FVOCI securities (EUR -96.3 million YtD). In accordance with CRR 'Quick fix' from June 2020, temporary treatment of FVOCI for sovereign securities was implemented by the Group in September 2022, which increased the capital by EUR 60.6 million (i.e. accumulated other comprehensive income amounted EUR -106.4 million instead of EUR -167.0 million).

In September 2022, the Bank issued Additional Tier 1 notes in the amount of EUR 82 million which will improve regulatory capital and total capital ratio by approximately 50 bps after receiving the ECB approval.

The capital calculation does not include a part of the 2021 result in the amount of EUR 50 million which is proposed to be paid as the second instalment of dividend distribution in December 2022 subject to General Meeting of Shareholders decision. Therefore, there will be no effect on the capital once the dividends in this amount are paid.

					in EUR million
		Change
	30 Sep 2022	31 Dec 2021	30 Sep 2021	YtD	YoY
Total risk exposure amount (RWA)	14,283.7	12,667.4	12,824.4	1,616.3	1,459.4
RWA for credit risk	11,722.4	10,205.2	10,648.0	1,517.3	1,074.4
Central governments or central banks	1,100.3	1,158.5	1,842.8	-58.2	-742.5
Regional governments or local authorities	94.9	99.8	126.0	-5.0	-31.1
Public sector entities	46.3	47.0	212.7	-0.7	-166.4
Institutions	287.2	310.2	355.1	-23.1	-67.9
Corporates	3,579.5	2,748.7	2,312.4	830.8	1,267.1
Retail	4,373.8	4,171.0	4,190.7	202.9	183.2
Secured by mortages on immovable property	939.3	453.0	397.1	486.2	542.2
Exposures in default	168.2	179.4	191.8	-11.3	-23.7
Items associated w ith particulary high risk	567.4	442.5	444.1	124.9	123.4
Covered bonds	34.6	41.1	40.3	-6.5	-5.7
Claims in the form of CU	16.9	19.4	17.6	-2.5	-0.7
Equity exposures	89.2	88.5	79.7	0.7	9.5
Other items	424.8	446.0	437.7	-21.1	-12.9
RWA for market risk + CVA	1,317.3	1,218.2	1,229.0	99.1	88.3
RWA for operational risk	1,244.0	1,244.0	947.3	0.0	296.7

Table 7: Total risk exposure for NLB Group (in EUR million)

RWAs in the Group increased by EUR 1,616.3 million YtD. RWAs for credit risk increased by EUR 1,517.3 million, where EUR 858.9 million of the increase relates to N Banka. The remaining part of RWA increase in the amount of EUR 658.4 million was mainly the consequence of increased lending activity in all the banks in the Group, mostly in the Bank and NLB Komercijalna Banka, Beograd. Higher RWAs for high-risk exposures was the result of a new loan given to a venture capital company, new loans for project financing as well as drawing of loans for project financing granted in the previous year. RWA growth was partially mitigated by assuring CRR eligibility for real estate collaterals from Bosnia and Herzegovina, Serbia and North Macedonia. Furthermore, RWA decrease was observed for liquidity assets due to a lower exposure to the Serbian central bank and maturity of some Serbian bonds; both in NLB Komercijalna Banka, Beograd. The lower exposure to institutions also resulted in a reduced RWA in almost all Group banks, the most in NLB Komercijalna Banka, Beograd, NLB Banka, Banja Luka and NLB Banka, Podgorica. The repayments as well as the upgrade of some clients contributed to a lower RWA for the exposures in default.

The increase in RWAs for market risks and CVA (Credit Value Adjustments) in the amount of EUR 99.1 million YtD is mainly the result of higher RWA for CVA risk in the amount of EUR 77.1 million (a consequence of an adjustment of calculating exposure in the CVA calculation due to the change of a methodology from a mark to market method to the original exposure method (OEM), and due to the conclusion of longer term and higher size of derivatives by Bank) and higher RWA for FX risk in the amount of EUR 20.6 million.

MREL requirement for the Group is based on the Multiple Point of Entry (MPE) approach.

As of 1 January 2022, NLB must comply with MREL requirement on a consolidated basis at resolution group level (i.e., NLB Resolution Group, consisting of NLB and other members of the Group excluding banks), which amounts to: • 28.69% of TREA (consisting of (i) 25.19% of TREA and (ii) 3.5% CBR),

• 8.03% of LRE.

On 30 September 2022, MREL ratio amounted to 33.58%.¹³

NLB has to ensure a linear build-up of own funds and eligible liabilities towards MREL requirement applicable as of 1 January 2024, which amounts to:

• 31.38% of TREA + applicable CBR,

• 9.97% of LRE.

¹³ MREL buffer was strengthened in July with Senior Preferred notes issuance of EUR 300 million and in September with Additional Tier 1 notes issuance of EUR 82 million.

Liquidity

The liquidity position of the Group remains strong, with the LTD ratio (net) of 66.0% (31 December 2021: 60.0%), thus meeting the liquidity indicators high above the regulatory requirements, as well as confirming the low liquidity risk tolerance of the Group.

Unencumbered liquidity reserves of the Group amounted to EUR 8.6 billion (37.5% of total assets; 31 December 2021: EUR 8.3 billion, 38.3% of total assets). Encumbered liquidity reserves, used for operational and regulatory purposes, are excluded from the liquidity reserves portfolio and amount to EUR 0.1 billion (excluding obligatory reserves; 31 December 2021: EUR 0.9 billion). The decrease of the encumbered liquidity reserves is due to the early repayment of additional financing via the central bank secured funding at the end of H1 2022. The market value of debt securities partly diminished due to the rising yields environment and disinvestment.

Figure 13: NLB Group unencumbered liquidity reserves structure reflects a robust liquidity position (in EUR million)

The banking book securities, which accounted for 51.7% of the Group's liquidity reserves (31 December 2021: 55.9%), were dispersed across issuers, geographies, and the remaining average maturity profile, with the aim of adequate liquidity and interest risk management. The investment activity continues with a balanced approach which follows a clear focus on finding attractive market opportunities and at the same time pursuing well-managed credit risk and capital consumption.

The customer deposits base grew by EUR 1.9 billion YtD (1.0 billion as a result of the acquisition of N Banka). Sight customer deposits, which account for 72.2% of the total assets (31 December 2021: 71.0%), remain the key funding base.

Related-Party Transactions

A number of banking transactions have been entered into with related parties in the normal course of business. The volume of related-party transactions mainly consists of loans issued and deposits received. Further information on transaction volumes is available in the Financial Part of this report under point 7.

Segment Analysis

				Core Segments			Non-Core Segment
		Retail Banking in Slovenia	Corporate and Investment Banking in Slovenia	Strategic Foreign Markets	Financial Markets in Slovenia	Other	Non-Core Members
		includes banking with individuals and micro companies (the Bank and N Banka), asset management (NLB Skladi), and a part of NLB Lease&Go, Ljubljana subsidiary that includes operations with retail clients as well as the contribution to the result of the associated company Bankart.	includes banking with Key Corporate Clients, SMEs, Cross-Border Corporate financing, Investment Banking and Custody, Restructuring and Workout in the Bank and N Banka and a part of the NLB Lease&Go, Ljubljana subsidiary that includes operations with corporate clients.	include the operations of strategic Group banking members in the strategic markets (North Macedonia, Bosnia and Herzegovina, Kosovo, Montenegro, and Serbia) as well as investment company KomBank Invest, Beograd, NLB DigIT, Beograd, to which IT services from NLB Banka, Beograd were transferred, and newly established leasing company NLB Liz&Go, 14 Skopje.	include treasury activities and trading in financial instruments, while they also present the results of asset and liabilities management (ALM) in both, the Bank and N Banka.	in the Bank and N Bank for the categories whose operating results cannot be allocated to specific segments, including negative goodwill from acquiring N Banka in March 2022, as well as subsidiaries NLB Cultural Heritage Management Institute and Privatinvest (acquired in March 2022).	includes the operations of non core Group members, i.e. REAM and leasing entities (except NLB Lease&Go), NLB Srbija, and NLB Crna Gora.
(in EUR million)	NLB Group
Profit b.t.	407.4	38.6	51.9	142.2	21.7	158.2	-5.2
Contribution to Group's profit b.t.	100%	9%	13%	35%	5%	39%	-1%
Total assets	23,498	3,632	3,395	9,838	6,207	352	74
% of total assets	100%	15%	14%	42%	26%	1%	0%
CIR	59.0%	67.4%	57.6%	54.2%	23.7%	187.5%	335.1%
Cost of risk (bps)	-13	44	-84	-17	/	/	/

NLB Group's main indicator of a segment's efficiency is net profit before tax. No revenues were generated from transactions with a single external customer that would amount to 10% or more of the Group's revenues.

¹⁴ Komercijalna banka Banja Luka was sold outside the NLB Group on 9 December 2021, so it is not included in the result of the segment for the first nine months of 2022.

Figure 14: Segment results of NLB Group (in EUR million)

The core markets and activities made a profit before tax of EUR 412.6 million, strongly affected by the segment Other with EUR 158.2 million due to the effects from the acquisition of N Banka (negative goodwill and established 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka). Besides this the Strategic Foreign Markets contributed the most important share to the Group's profit before tax in the amount of EUR 142.2 million, followed by Corporate and Investment Banking in Slovenia with EUR 51.9 million, Retail Banking in Slovenia with EUR 38.6 million, and Financial Markets in Slovenia with EUR 21.7 million. The Non-Core Members recorded a loss of EUR 5.2 million.

Retail Banking in Slovenia

Financial Highlights

Increase of net interest income due to higher volume of loans, gradually increasing interest rates, and changes on financial markets.
Cancellation of high balance fee from August on.
Changes in risk parameters/models and weights resulted in additional impairments and provisions for credit risk.

Business Highlights

Introduction of digital only Mastercard debit cards.
Further expanding ESG product portfolio.
Record production of new housing loans.
20 years of Private Banking.

Financial Performance

									in EUR million consolidated
	1-9 2022	1-9 2021	o/w	Change YoY N Banka contribution		Q3 2022	Q2 2022		Q3 2021 Change QoQ
Net interest income	70.7	58.9	11.8	6.7	20%	27.1	22.9	20.2	19%
Net interest income from Assets(i)	72.6	61.1	11.5	5.8	19%	24.3	25.0	21.1	-3%
Net interest income from Liabilities(i)	-1.9	-2.2	0.3	0.9	14%	2.8	-2.2	-0.9	-
Net non-interest income	77.4	64.7	12.7	4.7	20%	30.7	20.6	25.3	49%
o/w Net fee and commission income	84.6	70.4	14.2	4.7	20%	29.9	28.1	24.5	7%
Total net operating income	148.1	123.6	24.5	11.4	20%	57.8	43.4	45.5	33%
Total costs	-99.9	-82.9	-17.0	-10.5	-20%	-35.1	-35.4	-27.7	1%
Result before impairments and provisions	48.2	40.7	7.5	1.0	19%	22.7	8.0	17.8	183%
Impairments and provisions	-10.8	-4.2	-6.6	0.7	-158%	-5.0	-3.9	-1.5	-26%
Net gains from investments in subsidiaries, associates, and JVs'	1.1	0.9	0.2	0.0	22%	-0.4	1.0	0.5	-
Result before tax	38.6	37.5	1.1	1.6	3%	17.3	5.0	16.8	-
			30 Sep 2022 30 Jun 2022 31 Dec 2021 30 Sep 2021		Change YtD		Change YoY		Change QoQ
Net loans to customers	3,548.1	3,434.7	2,731.6	2,637.8	816.6	30%	910.3	35%	3%
Gross loans to customers	3,597.2	3,481.5	2,769.7	2,675.4	827.5	30%	921.9	34%	3%
Housing loans	2,132.5	2,037.5	1,815.5	1,740.1	317.0	17%	392.4	23%	5%
Interest rate on housing loans	2.26%	2.24%	2.34%	2.37%		-0.08 p.p.	-0.11 p.p.		0.02 p.p.
Consumer loans	636.8	635.3	635.6	642.1	1.2	0%	-5.4	-1%	0%
Interest rate on consumer loans	6.97%	6.92%	6.70%	6.69%		0.27 p.p.	0.28 p.p.		0.05 p.p.
N Banka, Ljubljana	465.6	481.1	0.0	0.0	0.0	0 %	0.0	0 %	-3%
NLB Lease&Go, Ljubljana	63.1	56.4	40.4	31.2	22.8	56%	32.0	103%	12 %
Other	299.3	271.2	278.2	262.0	21.0	8%	37.3	14%	10%
Deposits from customers	8,780.6	8,747.4	7,703.6		7,608.2 1,077.0	14%	1,172.4	15%	0%
Interest rate on deposits (ii)	0.04%	0.03%	0.03%	0.03%	0.01 p.p.		0.01 p.p.		0.01 p.p.

N Banka, Ljubljana	510.7	519.8							-2%

	1-9 2022		1-9 2021 Change YoY
Cost of risk (in bps)	44	22	22
CIR	67.4%	67.1%	0.4 p.p.
Interest margin(ii)	1.54%		1.55% -0.01 p.p.
(i) Net interest income from assets and liabilities w	ith the use of FTP.
(ii) Interest rates only for NLB.

(iii) Contribution profit (annualized) /contribution capital requirement (=15.25% RWA).

Net interest income was EUR 11.8 million higher YoY, of which EUR 6.7 million was contributed by N Banka. The interest income of the retail segment increased mostly due to a higher volume of housing loans and overdrafts, however the interest rates also started to increase due to the key ECB interest rate increase. The high production of new housing loans continued, with EUR 622.0 million of new loans approved in 1-9 (EUR 600.2 million without N Banka; 1-9 2021: EUR 406.4 million) and resulted in the increase of the portfolio. The consumer lending stayed on the same level YtD, with EUR 197.6 million newly approved consumer loans in 1-9 (EUR 187.0 million without N Banka; 1-9 2021: EUR 174.1 million). The portfolio of overdrafts and cards recorded a YtD increase due to seasonal components and also YoY, due to higher consumption and attractive new products. In Q3, the net interest income also increased due to changes in financial markets (higher interests for balances at central banks).

Net non-interest income increased YoY due to fee and commission income growth of EUR 14.2 million, with N Banka contributing EUR 4.7 million. The growth derived from all categories, higher fees from the asset management and bancassurance, the income from high balance fee and lower card expenses. From August on, the high balance deposit fee was cancelled, which has an influence on the fee income for approximately EUR 0.2 million each month, but is compensated with the interest income from the central bank balances.

Higher costs by EUR 6.5 million without N Banka's contribution, mostly due to higher operating costs resulting from inflationary pressures.

Net impairments and provisions were established due to a higher new production of loans, changes in risk parameters/models and weights reflecting higher risk due to inflationary pressures and increasing interest rates.

Deposits from customers increased by EUR 1,077.0 million YtD and EUR 1,172.4 million YoY, of which N Banka contributed EUR 510.7 million. Most of the increase occurred in H1, when in addition to the seasonal effect (payment of holiday allowances), the precautionary savings of households may also have contributed to this, due to the uncertainty of rising prices and the expected impact on their financial situation in the future.

Business Performance

The Bank continued to strengthen its leading position with a market share of 26.0% in retail lending (30 September 2021: 24.4%) and 31.5% (30 September 2021: 30.5%) in deposit-taking.

The Bank further increased the market share for housing loans, namely to 26.3% (30 September 2021: 24.0%). The increase was not only triggered by a record production of new housing loans in the period 1-9 2022 (48% increase YoY), but also due to dedicated sales teams supported by successful marketing campaigns which also played an important role in boosting the sales results.

The Bank as the first in Slovenia had a clear vision of an exclusive offer of asset management for wealthy individuals and families. Today, 20 years later, this successful story of Private Banking is an integral part of the offer with more than EUR 1.2 billion assets under management for more than 1,900 clients.

Environmental and social sustainability is an important goal of the Group. It is being incorporated in the Group also with a growing ESG product portfolio. Different financing products help its customers to implement sustainability measures in the development of their own lasting environmental solutions. The ESG-oriented offer includes NLB Green housing loan to finance construction or purchase of a passive house and finance the purchase of solar panels, heat pumps and central ventilation also in cooperation with vendors.

The number of digital users increased in Q3 by 14% YoY. The number of m-bank Klikin and e-bank NLB Klik users YoY increase remains stable at 17% (17,682 new users in Q3) and 7% (5,918 new users in Q3) respectively, which is also well proven by the digital penetration of active clients (see the figure below). The total volume of payments processed digitally through e-bank and m-bank increased by 17% YoY. With targeted workshops, the Bank also encourages elderly population to use digital banking more often.

(i) Share of active e-/m-bank and digital users in # of active clients of the Bank.

The 24/7 Contact Centre is firmly positioned as a sales channel and further strengthened the role in proactive customer outbound calling. In Q3, its share of concluded basic financing products of the Bank (such as consumer loans and overdrafts) was 11.5%. In Q3, Contact Centre processed 42% more video calls YoY.

In 2022, Mastercard's personal debit card was introduced in a digital form only, enabling the card and PIN to be issued instantly and can be used immediately after the client digitizes their card in the NLB Pay m-wallet. From May onwards, on-line purchases are no longer possible without strong authentication. Therefore, the use and download of NLB Pay mwallet is even more important, and proven with continued increase of usage at a significant pace also in Q3.

The market share of NLB Skladi increased to 38.2% (30 September 2021: 37.2%) despite the global geopolitical circumstances. The latter affected net inflows in Q3, which experienced a YoY drop of 26%. Nevertheless, the company remains the largest asset management company and mutual funds management company in Slovenia. The total assets under management amounted to EUR 1,883.5 million (30 September 2021: EUR 1,983.3 million), of which EUR 1,460.3 million consisted of mutual funds (30 September 2021: EUR 1,471.5 million) and EUR 423.2 million of the discretionary portfolio (30 September 2021: EUR 511.8 million).

Despite demanding market conditions, the Bank recorded good results in both auxiliary product areas, asset management and bankassurance.

In the Bank's distribution network, bancassurance products of the insurance companies Vita and GENERALI Zavarovalnica are sold. The Bank is the top sales channel among Slovenian banks with savings and investment insurance products, risk and health insurance products from Vita's offer and home and car insurance from Generali's offer.