DNB Group DNB Group – Annual report 2019 Annual report 2019 Creating value for customers, shareholders, employees and society at large. Contents Strategic report 22 About this report The macro economic situation 25 In this integrated annual report, we show how we Goals and strategic priorities 27 in DNB work to create value in the short and long Strategy and business model 28 term for our employees, shareholders and society More on our work with the strategic priority areas 32 at large. Sustainability and corporate responsibility ambitions 42 → DNB is a driving force for equality and diversity 44 Through integrated reporting, we expound on → DNB finances sustainable growth through loans the connection between our strategic goals, the and investments 50 topics we have defined as the most important → DNB combats financial crime and contributes to prioritise, the activities we implement and to a safe digital economy 62 the results that are of significance to our value → DNB helps its customers manage their own finances 68 creation and long-term viability. We use the framework from the International Governance 72 Integrated Reporting Council (IIRC) and meet Board of Directors of DNB ASA 74 the require ments of the sustainability reporting Board of Directors of DNB Bank ASA 76 standard prepared by the Global Reporting Organisation 77 Initiative (GRI). Our process of identifying the Group Management 79 most significant sustainability topics is based Corporate governance 82 on the industry standards prepared by the SASB Responsible purchasing 102 (Sustain ability Accounting Standards Board). Working conditions 103 The sustain ability data has been verified by a statutory auditor. Directors' report and annual accounts 104 We clarify the link between our business Directors' report 106 operations and our corporate responsibility in the Annual accounts 119 Sustainability Factbook at the back of this report. Auditor's report 212 The Factbook contains an overview of relevant key Auditor's assurance report, CR 217 figures for all the topics identified in the materiality analysis. The indicators used in the Factbook are taken from the GRI Standards where relevant, and Appendix we have also defined our own DNB indicators. Sustainability Factbook On our website you will find more relevant news about our corporate responsibility, and our sustainability library contains reports and results, key figures and other useful facts and documents. The annual report is available in English and Norwegian and can be downloaded as a PDF from DNB Investor Relations’ website. There you will also find more information on risk and capital management in our Pillar 3 report. Links More on corporate responsibility on our website: dnb.no/om-oss/social responsibility.html Sustainability library: dnb.no/en/about-us/csr/sustainability-library.html Investor Relations website: ir.dnb.no/press-and-reports/financial-reports Financial ambitions Financial ambitions 2020–2022 Achieved 2019 Return on equity (ROE) (Principal target) > 12% 11.7% Cost/income ratio (Key performance indicator) < 40% 42.2% Common equity Tier 1 capital ratio¹⁾ (Capitalisation level) ~ 17.9% 18.6% Payout ratio (Dividend policy) > 50% 57% / 78%²⁾ 1) In accordance with the EU capital requirements regulations (CRR/CRD IV) and with management buffer included. 2) 78 per cent includes the share buy-back programme of 2.0 per cent. Sustainability DNB is a driving force for equality DNB finances sustainable growth and diversity through loans and investments (read more on page 44) (read more on page 50) DNB combats financial crime and DNB helps its customers manage contributes to a safe digital economy their personal finances (read more on page 62) (read more on page 68) Annual report 2019 3 Financial highlights Financial highlights The DNB Group's market capitalisation and equity NOK billion 300 258 246 250 242 224 217 220 209 206 200 190 179 150 100 50 Earnings per share: 0 NOK 15.54 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 2015 2016 2017 2018 2019 Market capitalisation Equity Share dividend and payout ratio NOK Per cent 78%¹⁾ 14 80 73% 73% 12 70 3.31 10 2.43 60 50% 2.34 > 50% 8 50 6 40 30% 4 30 2 4.50 5.70 7.10 8.25 9.00 20 0 10 2015 2016 2017 2018 2019 Target Share buy-back programme (NOK) Dividend per share (NOK) Total payout ratio (per cent) 1) The payout ratio is based on the assumption that the full 2.0 per cent share buy-back programme is completed before the Annual General Meeting. 4 DNB Group Financial highlights Income statement DNB Group Amounts in NOK million 2019 2018 2017 2016 2015 Net interest income 39 202 36 822 35 422 34 110 35 358 → Net commissions and fees 9 716 9 310 8 448 8 280 8 862 → Net gains on financial instruments at fair value 3 183 1 342 4 548 6 513 8 683 → Net financial and risk result, life insurance 1 129 969 1 295 664 (389) → Net insurance result, non-life insurance 622 683 648 534 → Other operating income 1 628 1 302 744 1 948 959 Net other operating income, total 15 655 13 546 15 718 18 053 18 648 Total income 54 857 50 368 51 140 52 163 54 006 Operating expenses (22 608) (21 490) (21 429) (20 693) (21 068) Restructuring costs and non-recurring effects (525) (567) (1 165) (639) 1 157 Pre-tax operating profit before impairment 31 724 28 311 28 547 30 830 34 096 Net gains on fixed and intangible assets 1 703 529 738 (19) 45 Impairment of financial instruments (2 191) 139 (2 428) (7 424) (2 270) Pre-tax operating profit 31 235 28 979 26 858 23 387 31 871 Tax expense (5 465) (4 493) (5 054) (4 140) (7 048) Profit from operations held for sale, after taxes (49) (204) (1) 4 (51) Profit for the year 25 721 24 282 21 803 19 251 24 772 Balance sheet DNB Group Amounts in NOK million 31 Dec. 2019 31 Dec. 2018 31 Dec. 2017 31 Dec. 2016 31 Dec. 2015 Total assets 2 793 294 2 634 903 2 698 268 2 653 201 2 598 530 Loans to customers 1 667 189 1 597 758 1 545 415 1 509 078 1 542 744 Deposits from customers 969 557 927 092 971 137 934 897 944 428 Total equity 242 255 223 966 216 897 206 423 190 425 Average total assets 2 906 775 2 771 998 2 856 988 2 841 117 2 946 119 Total combined assets 3 176 655 2 950 748 3 026 065 2 930 891 2 900 714 Annual report 2019 5 Financial highlights Return on equity Cost/income ratio Per cent Per cent 44.2 15 14.5 45 43.8 42.2 40.9 < 40.0 13 40 > 12.0 11.7 11.7 36.9 10.8 11 35 10.1 9 30 7 25 5 20 2015 2016 2017 2018 2019 Target 2015 2016 2017 2018 2019 Target CET1 Capital ratio Leverage ratio Per cent Per cent 20 8 7.5 7.4 19 18.6 7.3 7.2 ~17.9 18 17.6 7 6.7 17.2 17 16.7 16.0 6.0 16 6 15 14 5 13 12 4 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. Target 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. Require- 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 ment 6 DNB Group Financial highlights Reputaion¹⁾ Points 75 72.5 72.5 70.1 66.3 Customer 64.0 satisfaction (CSI): 60 72.8 points 45 30 2015 2016 2017 2018 2019 1) Score from RepTrak's reputation survey in Norway in the fourth quarter. Key figures and alternative performance measures DNB Group 2019 2018 2017 2016 2015 Return on equity, annualised (per cent)¹⁾ 11.7 11.7 10.8 10.1 14.5 Earnings per share (NOK) 15.54 14.56 12.84 11.46 14.99 Combined weighted total average spread for lending and deposits (per cent)¹⁾ 1.33 1.30 1.30 1.32 1.33 Average spread for ordinary lending to customers (per cent)¹⁾ 1.84 1.94 2.07 2.04 2.17 Average spread for deposits from customers (per cent)¹⁾ 0.51 0.29 0.17 0.21 0.01 Cost/income ratio (per cent)¹⁾ 42.2 43.8 44.2 40.9 36.9 Ratio of customer deposits to net loans to customers at end of period¹⁾ 58.2 58.0 62.8 62.0 61.2 Net loans and financial commitments in stage 2, per cent of net loans¹⁾ 6.69 6.99 Net loans and financial commitments in stage 3, per cent of net loans¹⁾ 1.09 1.45 1.12 1.65 0.91 Impairment relative to average net loans to customers (per cent)¹⁾ (0.13) 0.01 (0.15) (0.48) (0.15) Common equity Tier 1 capital ratio at end of period (per cent) 18.6 17.2 16.7 17.6 16.0 Leverage ratio (per cent) 7.4 7.5 7.2 7.3 6.7 Share price at end of period (NOK) 164.00 138.15 152.10 128.40 109.80 Price/book value¹⁾ 1.20 1.06 1.23 1.10 0.98 Dividend per share (NOK) 9.00 8.25 7.10 5.70 4.50 Score from RepTrak's reputation survey in the fourth quarter (points) 72.5 72.5 66.3 64.0 70.1 Dialogues with companies where various ESG-related topics have been discussed (number) 209 176 176 72 27 Customer satisfaction index, CSI, personal customers in Norway (score) 72.8 74.7 69.5 70.2 73.9 Number of full-time positions at end of period 9 020 9 225 9 144 11 007 11 380 Female representation at management levels 1–4 (%) 38.0 38.1 37.0 33.5 31.3 1) Defined as alternative performance measure (APM).