Danske Bank A/S

Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first half of 2026. My name is Claus Ingar Jensen, and I'm head of Danske Bank's investor relations. With me today, I have our CEO, Carsten Egeriis, and our CFO, Cecile Hillary. We aim to keep this presentation at around 25 minutes. And after the presentation, we will open up for a Q&A session as usual. Afterwards, feel free to contact the Investor Relations Department if you have any more questions. I will now hand over to Carsten. Slide two, please.

Thanks, Claus. And I would also like to welcome you to our Q2 conference call, where I'm pleased to share the highlights of Danske Bank's financial results for the first six months of the year. Q2 was another strong quarter for Danske Bank. We delivered solid earnings. We continued to build commercial momentum and we executed with discipline against our strategic priorities. Commercial momentum is broad-based and encouraging as customer activity remained healthy across the Nordic franchise. Corporate lending grew 6% year on year, which is especially encouraging because it is translating into market share gains across the Nordics. And that tells us that our relationship-led model and sector expertise are resonating with corporate clients. We also continue to see positive momentum in asset management, with an increase of 24% since last year, supported by net inflows of almost 15 billion in Q2. Our financial performance is strong and high quality with core income up 7% year on year with a Q2 net profit of 6.2 billion corresponding to a return on equity of 14.8%. This is above our 2026 target level and also consequently is the strongest quarterly result for Denske Bank in 20 years from an RE perspective. Our Q2 cost-income ratio was 43%, reflecting strong operating leverage, continued cost discipline, and progress versus the 45% target for 2026, which we now expect to be below 45%. An important message today is that our growth is broad-based and high-quality. Customer activity, volume growth across business units, and resilient margins are all contributing while credit quality remains strong. And this gives us confidence in the sustainability of earnings. The CET1 ratio of 17% remains strong. Our capital generation remains a clear strength as we continue to generate capital while growing the balance sheet and accruing for the new dividend policy announced in Q1. Given the stronger income outlook from higher commercial activity and policy rates, we have raised our 26 Net profit outlook from 22 to 24 billion to 23 to 25 billion. And we remain focused on profitable growth, disciplined cost management, strong credit quality, and attractive shareholder returns. So in short, Q2 demonstrates a stronger franchise, profitability that's ahead of target levels, and a continued capital flexibility. And we're really well positioned for the remainder of the year. I'll now give a few comments on the business units performance, and then I'll hand over to Cecile for the financials. Please turn to slide three. So moving from the group overview to our business units, the main message is that momentum is broad-based. Across the three business units, we're seeing high customer activity, we're seeing good volume development, and we're seeing resilient income generation. In personal customers, the trend remains constructive. Customer activity is healthy and we continue to see growth in lending and deposits and also in retail investments. And that tells us we're maintaining relevance with households in their everyday banking needs as well as in larger financial decisions. Income has continued to move in the right direction, supported by customer engagement and a strong deposit base. And importantly, profitability remains very robust and credit quality continues to be a clear strength. Business customers is also showing good commercial traction and strong growth. The underlying trend is one of deeper relationships, so customers are using more of our solutions, including everyday banking, cash management, and broader financing products. Lending and deposits both point to continued activity in the SME and corporate client base. Fee income is also developing well which reflects the value of our platforms and advisory capabilities. Overall, this is a business where relationship depth is increasingly translating into earnings momentum. In LC&I, activity remains solid, particularly in lending and advisory-related areas. We continue to support large clients across the Nordics with financing, capital markets access, and strategic advice. Deposits in this segment can be more seasonal and more sensitive to client liquidity management, so quarter-to-quarter movements should be interpreted in that context. Overall, client demand and activity levels remain supportive and returns are tracking well against our ambitions. So the takeaway is that the franchise is performing consistently across segments. We're seeing customers engage with us across products and channels, and that is supporting volumes, income, and returns. This breadth of momentum gives us confidence in the growth agenda and in our ability to continue delivering against our 2026 targets. And importantly, the execution of our Forward28 strategy continues to deliver strong results and we're able to invest in the technology and AI platform that position us well for the future, as we also detailed at our strategy update in April. In particular, AI investments and their expected outcomes are progressing as planned. And then please go to slide four and then I'll hand over to Cecile.

Thank you, Carsten. Let me now turn to the income statements. Q2 was a strong quarter with good momentum in our core income lines, continued cost discipline and strong credit quality. For the first half, total income was supported by growth in net interest income and fee income, underpinned by customer activity and higher volumes. Trading income was affected by market volatility, while other income benefited from the 231 million one-off in Q2. Compared with Q1, NII remained resilient as volume growth offset lower equity-based income and slightly higher funding costs. Fee income improved within almost all fee categories, and both trading and insurance recovered from a volatile first quarter. Costs remain in line with our guidance and reflect disciplined execution. Credit quality continues to be strong with a well-provisioned portfolio and sustained below-cycle cost of risk. Overall, the quarter shows resilient earnings quality and good operating control. I will now go through the key lines in more detail. Slide 5, please. Turning to net interest income, we delivered a solid result in the first half, with NII up 3% year over year. The key message is that the trajectory remains resilient, supported by positive volume development, constructive margin trends, and the stabilizing contribution from our structural hedge. Looking at the year-on-year bridge, the improvement reflects solid credit demand, while the structural hedge continued to provide an important offset, keeping in mind the four rate cuts we saw in the first half of last year. This is the balance we look to achieve, benefiting from underlying franchise momentum while maintaining stability through disciplined balance sheet management. Q2 again showed a solid NII trajectory. Volume contribution remained supportive, and the margin development was broadly consistent with our expectations. The other line includes treasury allocation effects, while we also had a non-recurring correction, so I would not read that as a change in the underlying trend. Adjusting for this correction, NII was up 1% from Q1. Our structural hedge was impacted by higher short-term rates in Q2, and we also saw lower income from the shareholder equity base following the March and May payouts. The notional of the structural hedge, including bonds and derivatives, was kept broadly stable in Q2 at around 190 billion, and as such, the structural hedge remains a key feature of our NII profile. Finally, our NII sensitivity is unchanged. For a 25 basis points upward move, the year-on impact is approximately plus 450 million, with additional impacts in years 2 and 3 of around plus 300 million and plus 100 million respectively, all else equal. The actual effect will naturally differ depending, for example, on pricing decisions and customer behaviours. So in summary, we see the NII trajectory as solid. Customer volumes are contributing positively, and with the recent rate hike in mind, this supports our raised income expectations for 2026. With a view to addressing questions about expectations for NII for the rest of the year, We now expect NII to be slightly above 38 billion for full year 2026, driven by continued volume growth and based on current market implied rates. Slide six, please. Turning to fee income, this was a strong quarter. Net fee income was up 13% year on year and 4% quarter on quarter, driven by customer activity and continued momentum in our investment offering. In daily banking, we continue to see good demand for our one corporate platform and cash management solutions. The continued growth in house bank mandates is an important indicator of the depth and relevance of our corporate relationships. Lending and guarantee fee income benefited year on year from higher customer activity and continued corporate credit demand. Quarter on quarter, the lower contribution was mainly linked to the timing of refinancing auctions of adjustable rate mortgages, rather than a change in the underlying customer trend. Capital markets fees also contributed positively, supported by good activity across businesses during the quarter. Investment fee income remained a strong driver, supported by growth in assets under management, positive net sales and rising asset prices both year-on-year and quarter-on-quarter. Overall, the fee income development demonstrates the breadth of customer activity across the franchise and the benefit of a diversified fee base. Slide 7, please. Turning to trading income, the quarter was affected by slightly lower customer activity in secondary markets and positive valuation effects in Group Treasury. In LC&I, the year-on-year development was primarily driven by lower customer activity in fixed income. Quarter on quarter, however, we saw an improvement in fixed income customer activity, but this was offset by lower activity in FX and equities. In group functions, the movements mainly reflect unrealized market value adjustments on cross-currency swaps and other balance sheet movements. These items create accounting volatility in group treasury and should be viewed separately from the underlying customer franchise. The key message is that the trading income line was impacted by market activity and valuation effects in the quarter. Our broader commercial momentum and customer activity remain visible in the core income lines. I will now move on to the expense developments. Slide eight, please. Turning to expenses, our cost trajectory remains in line with the full year guidance and the Q2 cost to income ratio was 43%. This reflects continued cost discipline while we keep investing in the capabilities needed for growth. Year on year, expenses were higher, mainly due to staff costs, including performance-based compensation. This was partly offset by lower FCRP and remediation costs, showing continued progress in reducing legacy cost items. Quarter on quarter, the increase was primarily driven by higher resolution fund fees reflecting the higher deposit base. Even including that effect, the underlying cost development remains well controlled. We continue to make targeted Forward28 investments in our digital and technology platform. These investments support AI, future growth and efficiency. At the same time, Group FTEs were down by around 250 compared with Q1. For the first half, the cost-to-income ratio was 44.4% and we reaffirm our full-year 2026 cost outlook of 26 to 26.5 billion. Based on the performance so far, the cost-to-income ratio is now expected to be below 45%. Overall, the message is disciplined cost execution, continued investment in strategic priorities, including tech and AI, and improving operating efficiency. I will now move on to asset quality. Slide 9, please. Turning to asset quality, the picture remains strong. Our diversified and low-risk credit portfolio continues to underpin credit performance, and we remain prudently provisioned given the macro and geopolitical backdrop. In Q2, impairment charges were below cycle at 0.3 billion. We maintain our full year impairment guidance of around 1 billion, corresponding to approximately 5 basis points cost of risk. This reflects both the quality of the portfolio and our disciplined approach to risk management. Macroeconomic charges remain modest. At the same time, our scenarios continue to reflect elevated uncertainty, including geopolitical risks, tariffs and trade tensions, so that we capture the potential impact of a more severe and prolonged adverse environment. Post-model adjustments stood at 5.2 billion, including model-related releases of 160 million in Q2. We continue to take a prudent approach in light of potential disruptions and uncertainty. The total overlay of around 30 basis points is equivalent to almost four years of normalized cost of risk. Overall, asset quality continues to support the earnings profile and capital generation of the Bank. I will now move on to capital. Slide 10, please. Our capital generation remains very strong underpinning the CET1 ratio of 17% at the end of Q2. That 17% level should be seen in the context of the 5 billion payout at the beginning of the quarter and the additional accrual we have taken following the revised ordinary dividend policy announced in April. Risk exposure amounts increased by 11 billion quarter-on-quarter to 848 billion. The increase was mainly driven by higher lending-related credit risk reflecting continued commercial activity and balance sheet growth. This was partly offset by lower market risk as the interest rate volatility we saw in Q1 moderated during the quarter. With respect to the CET1 requirements, we saw a slight reduction in Q2, primarily due to the reduction in the systemic risk buffer related to commercial real estate exposures. As a result, our CET1 headroom stands at around 240 basis points, which gives us a comfortable management buffer in excess of our target of 150 to 200 basis points. As a reminder, we expect 3.5 billion of pillar-to-relief equivalent to around 40 basis points that relates to our SALT legacy cases. This is expected prior to year-end 2026, subject to annual supervisory processes. Looking ahead, our trajectory remains consistent with the glide path we have communicated. We aim to be at around 17% by the end of 2026 and at our stated CET1 target of around 16% by 2028. This keeps us positioned to support growth and execute our capital distribution plan. So in summary, the quarter demonstrates strong capital generation, disciplined balance sheet management, and continued ability to deliver on both growth and distribution. Slide 11, please. Finally, turning to the financial outlook for 2026, we are raising our expectations and now expect net profit in the range of 23 to 25 billion, corresponding to a return on equity of around 14%. The upgrade is solely driven by stronger income expectations. We now expect total income to be somewhat above 59 billion, supported by higher core banking income from stronger customer activity, growing volumes and the effects of recent and expected policy rate hikes. At the same time, we continue to see good commercial momentum across the franchise and our priorities remain consistent with our financial ambitions. We continue to expect operating expenses to be in the range of 26 to 26.5 billion, This reflects our continued growth ambitions and investment span and the same sustained focus on cost management. Overall, we now expect the cost-to-income ratio to be below 45% for the full year 2026. We also continue to expect loan impairment charges to be around 1 billion. This reflects the continued strength of the credit portfolio and discipline underwriting across the bank. Slide 12, please, and back to class.