Okay, good morning to you all. Hope you can hear me. Spring is finally upon us, and the beautiful cherry trees are blooming outside the DNB headquarters. In other words, it's time for us to share all the customer activities and the results of them from the first quarter, and we are very happy to see you all. We know it's a busy week for you analysts with all the Scandinavian banks lining up within 24-48 hours, so we'll just get to it. As usual, Kjerstin and Ida will take you through the financial results, and in about 30 minutes we'll open up for questions. If you are following us online, you are more than welcome to type any questions in the form below the screen, and we'll get back to you. Kjerstin, please.
Thank you, Thomas, and a very good morning and welcome to this Presentation of our First Quarter Results. As Thomas mentioned, spring is in the air, but it feels very natural to start by a few comments on what goes on in the world around us. Because the world around us finds itself in a turbulent territory given the war in Ukraine. The war has significant consequences on the world economy, on the financial and capital markets, but it needs to be acknowledged that the suffering inflicted on the Ukrainian people is far worse. Norway is in many ways shielded from the negative consequences of the war, and in fact see some opposite and even positive effects due to the material element of natural resources in our economy. Today, we present a solid set of numbers and results for the first quarter.
They reflect high activity across the group and customer segments, and they reflect a strong economy where recovery continues after all restrictions after the pandemic now have been lifted. Return on equity continues to be our most important financial target, and it strengthens in first quarter with the return on equity for the quarter coming in at 12.9%. We also see a growth in the twelve-month rolling return on equity, which is now at 11.4%. High activity across customer segments. I would like to highlight the growth in corporate banking, where both the growth in SME and for larger corporates are at 2.5% or above, slightly above currency adjusted for the quarter.
We also see high activity across the fee generating areas with an all-time high results for fees and commissions, and a growth of 8.1% compared to the same quarter last year. Many areas contributes, but I would like to highlight the particularly strong performance across our investment banking group. We see positive jaws, meaning a higher growth in revenue than in cost, both compared to the first quarter last year and compared to the previous quarter. Losses come in as a net positive contributor this quarter. While that should not be expected over time when in banking, it is important to highlight that this stems from a robust development of our portfolio.
Maybe even more importantly, also the very hard work that has been put down together with our customers in finding solutions to restructuring the capital structure for companies who have been struggling. We continue to generate solid capital from our business. Our current headroom is 170 basis points compared to the current required and expected level, and core equity tier one is at 18.1% after deducting the capital costs for the Sbanken transaction. Earnings per share, a strong start to the year with a close to 30% growth, comes in at 4.71 for the quarter. The acquisition of Sbanken was finally approved in the midst of March. We were pleased of the outcome, as well as the unanimous decision from the committee.
We are excited about the opportunity to combine two leading institutions in innovation and technology. Our sense of the business case has even strengthened in the 12 months that we have put in asking for the approval of fulfilling the transaction. We were impressed by Sbanken and the team and what they had achieved prior to involving more closely with them and looking at it from a distance. I can share with you that after having started closer discussions on how we shall ensure that this combination will benefit our customers, we are even more impressed with what we find in the team and Sbanken as a company. They did deliver a strong growth in the first quarter, 5.6%, and there is no meaningful customer churn after the transaction was announced.
More specifically, as the transaction came through at the end of the quarter, you will find the Sbanken numbers in our end of quarter balance sheet numbers, but the results that we present here today only reflects the results from DNB in the quarter. The activity level in the Norwegian economy is high. The recovery continues after lifting of all restrictions, and GDP is expected to come in at 3.8% for the year before normalizing closer to the area of 1.5% in the following year. Unemployment is back at pre-pandemic level. As in other countries, we see a steep increase in number of available positions, and many companies are looking to hire more people. There's more than 50% growth in vacant positions compared to the previous year.
On the basis of high activity level and a strong economy, the central bank started hiking interest rates in September last year. They, as expected, hiked the interest rates for a third time in the month of March, bringing now the key policy rate up to 75 basis points. Both the central bank and DNB Markets have published their expectations for the period ahead of us, and expects another 7 interest rate hikes to come until the end of 2023, which brings us to a key policy rate level of 2.5%. We see a somewhat higher inflation in Norway, but they are far from the levels that are observed in the U.S. and across many European countries. Core inflation was at 2.1% in March, almost exactly at the longer term targeted level by the central bank.
Expected to slightly uptick, but we can comfortably say that the current level of core inflation, as well as the expected level ahead of us, are at comfortable levels. The investment sentiment in the business sector is strong, both in the mainland economy and also in the petroleum-related areas, with expectations of increased investments as of next year. The housing market we continue to see or to expect to see growth in prices in the area of 5.8% is DNB Markets estimate for next year, before cooling somewhat off more towards 2%, which we believe is also a more sustainable level. No doubt increasing interest rates will dampen the growth in house prices and might reduce the demand. This is expected to be offset by a somewhat lower activity in construction of new entities.
We do acknowledge that the war in Ukraine has increased the level of uncertainty in the economy surrounding us. The development in the conflict and the response from the communities around the world will impact the economic situation of the world and Norway in the period ahead of us. This said, the Norwegian economy has proven its resilience in the past few years with powerful stabilizing tools that can be used, and authorities that have proven their willingness to use these tools if it should become necessary. In today's environment, we still feel that this is a very solid backdrop for our business going forward. I'd like to make a few comments on the key business areas. Personal customers, we see a 10.3% increase in pre-tax operating profits for the quarter.
Continued growth in deposits, and an increase in NII by 5.3%, which is positively impacted by, repricing, and the activity in the, quarter. We see a high level of activity and higher revenue from payments, which offsets a somewhat slower quarter in the real estate brokerage area. We're very pleased to see continued inflow from saving schemes, even in the more turbulent markets we have been, surrounded by, and believes that this underlines the more resilient and longer term nature of these type of assets. It's been interesting to see that a new record has been made in terms of digital sales this quarter, with a record high number of, savings, products being sold through our, Spare app.
The increase of these volumes under the schemes combined deposits and mutual funds are up by 10% in the past 12 months behind us. Corporate banking all-time high quarterly results for corporate banking. All-time high first quarter results for DNB Markets leads to a very strong performance in this area. Pre-tax profits are up by 15.8%. Growth already highlighted 2.5% underlying for SME, 2.6% underlying for large corporates. Maybe even more importantly, the growth is diversified across all the industry sectors. Very high activity between and in cooperation between corporate banking and DNB Markets. We saw a calmer ECM and debt capital markets activity towards the end of the quarter, naturally, given the war.
Have strong contributions from M&A activity and FICC activity, which all in all leads to a very strong quarter for investment banking and that underlines also the resilience in earnings that are impacted by the market, but we have demonstrated increased diversification across products and geographies, which can clearly be seen in a market such as the first quarter this year. Net positive contribution from losses. A lot of hard work being put in together with the customers in finding good solutions has led to reversals in corporate banking this quarter.
The area is also positively impacted by a positive mark-to-market value from positions that we hold in companies that are still or have come out of restructuring, which shows that we continue to work on the upside when we convert in certain cases, debt to equity. All in all, a very strong quarter. One point two billion pre-tax profit for DNB Markets and a return on allocated capital in corporate banking, very strong, of close to twenty percent for the quarter. With those remarks, I will leave the floor to our excellent CFO, Ida Lerner.
Thank you, Kjerstin, and good morning to everyone here. Total loan growth in the customer segments, currency adjusted, comes in at 1.1% in the quarter. There was a solid growth in the corporate customer segment of 2.6% and a stable development in personal customers, slightly down 0.3%. Moving to the right-hand side of the slide where you can see the average loans and deposits are excluding Sbanken. From the light green light, you can see the average deposit on the customer segments continuing to show a positive development. There was a solid growth in personal customers and a stable development in corporate customers. In corporate customers, this is natural, showing the seasonal decrease of payout of VAT and tax during the quarter. Currency-adjusted deposits increased by 0.5%.
This leads to a very strong deposit to loan ratio of 75.4%. We reiterate our ambition of a long-term organic loan growth of between 3 to 4% on an annual basis. The net interest margin increased by 4 basis points in the quarter. As a result of an increased average NOK money market rates and also the repricing. The two repricings, the first one being implemented mid-November, and the second one being implemented end of January. The combined spreads are relatively stable, but we see a reduction in lending spreads driven by lag effects. NII increased by NOK 160 million, up 1.6% despite two fewer interest days. To see the full effect from the repricings, you need to look at the combination of spreads and interest on equity.
The first two customer repricings, with effect from mid-November and end of January, contributed to income of spreads of NOK 202 million. Interest on equity increased NII by NOK 191 million as a result of higher money market rates. As commented earlier, we are overall NII NIBOR neutral. NII effects come from rates. The notice period on repricing to loans to customers gives lag effects. While we now see the full effect from the first repricing, we only recognize part of the second repricing, as mentioned, coming into place end of January. In Q2, we will experience the same lag effect when NII will reflect the full effect from the second repricing, but only part of the third repricing being implemented mid-May. The first two rate hikes were each estimated to have an annual effect of NOK 1.5 billion.
For the third rate hike, we expect the annual effect to be approximately NOK 1.2 billion. We cannot give any guidance on future rate hikes, but we're looking at historical development, the annual NII effect of a 25 basis point interest rate hike have been between NOK 800 million and NOK 1.2 billion on an annual basis and tapering over time. Higher average loans and deposit volumes positively contributed to NII by NOK 42 million. Amortization effects and fees decreased NII by NOK 80 million in the quarter, mainly as a result of the lower activity within refinancing and compared to the fourth quarter, which was exceptionally strong. Net commission and fees were up 8.1% in the quarter, from the corresponding quarter in 2021, driven by strong performance across the product areas.
As Kjerstin mentioned, this is an all-time high Q1 for markets or for corporate commission and fees. For real estate broking, the first quarter was weaker. Keep in mind that the activity for the corresponding quarter in 2021 was high. In addition to that, there were fewer properties out for sale in the quarter in the private market due to the new Disposal Act, which has led to bottlenecks. We have from March started to see an increase in number of properties out for sale, but still fewer than what we have seen in previous years. Investment banking fees up 7.3%. This reflects continued strong performance from markets, in particular, high activity within mergers and acquisitions.
The activity level within equity capital markets and debt capital markets were negatively impacted by the market turbulence brought on towards the end of the quarter. Asset management and custodial services increased by 8%. Positive development and underlying growth with asset under management up 6.3% from the. As Kjerstin mentioned, we see stable development in saving schemes in asset under management, and this proves there is stickiness and also our customers' long-term commitment to their long-term savings. Fees from sale of insurance products decreased by 1.8%. We see positive contribution from non-life pension, non-life insurance Fremtind, but reduced contribution from the guaranteed pension products in run-off. The costs comes down by NOK 460 million compared to the previous quarter.
Variable salaries decreased by NOK 142 million, reflecting a seasonally slower quarter compared to the fourth quarter last year. The lower pension expenses is due to a positive market-to-market effect related to the closed defined benefit scheme, driven by lower returns in the stock market. The scheme is partly hedged, and the corresponding loss is recognized in net gains on financial instruments. Fees decreased by NOK 100 million, as did other personnel expenses, reflecting a somewhat lower activity level. As mentioned before, we expect to enter into a period with higher inflation and increased activity level, which will impact our cost levels. In addition to that, we also continue to invest in critical areas such as technology and compliance. Nevertheless, we remain committed to our communicated target of a cost income ratio below 40% towards the end of 2023.
We had net reversals of impairments of NOK 589 million in the quarter, mainly driven by successful restructuring in customer specific cases in stage three within corporate customers. Our portfolio is robust. 98.9% of the portfolio is in stage one and two. For personal customers, net impairments was NOK 36 million, reflecting the continued solid portfolio. We recognize the uncertainty related to the macroeconomic outlook Kjerstin mentioned, and we have to date, however, not seen any negative development in our portfolio and remain comfortable with the outlook. We continue to monitor the development very closely and of course focus on this going forward. We also have marginal, if any, exposure toward Russia and Ukraine, and have assessed the sensitivity in our portfolio by conducting thorough individual analysis of our largest customers and most affected segments.
This ensures insights into the individual customer cases, but also the overall state of the portfolio. SME continues to show low impairment levels, and the same applies to large corporates. We reiterate that the overall portfolio is robust and well-diversified, but please bear in mind that losses will vary from quarter to quarter. While being in a relatively strong position, Norway will be also affected by the geopolitical and macroeconomic development globally. Our capital position remains strong. The acquisition of Sbanken reduced the Tier 1 capital ratio by approximately 125 basis points, well in line with what we communicated before. The portfolio mix with an increased share of exposure in Norway as a result of the inclusion of Sbanken increased the systemic risk and countercyclical buffer, and that gives a long-term capital expectation of 17.7%.
Norges Bank announced full countercyclical capital buffer of 2.5% with effect from the 31st of March, 2023. From 1% today up to 1.5% on the thirtieth of June, and 2% with effect from year end 2022. In our capital planning, however, we assume full pre-COVID countercyclical capital buffers across geographies, and therefore land at 17.7 long-term. DNB aims to operate above the long-term expectation with some headroom. We do not quantify a specific number for this headroom, as it will vary with currency effects and other short-term fluctuations. The leverage ratio is 6.5% in the quarter. The acquisition of Sbanken reduced the leverage ratio by 40 basis points.
To summarize, the headroom to the regulatory requirements together with a solid return on equity will ensure capacity for further growth and to continue delivering on our dividend policy. Summing up, we deliver a strong result driven by underlying performance across customer segments and product areas, as well as a robust credit quality. Cost income ratio for the quarter ends up at 39.4% with positive development supporting the trailing 12 months cost income ratio of 42%. Return on equity improved, positively affected by income driven by NII and financial instruments, lower expenses and net reversals of impairments. Earnings per share came in at 4.71 NOK, up 29% from the same quarter last year. With that, I would like to thank you for your attention and open up for questions, I guess.
Thank you, Ida and Kjerstin, for the presentation, and we'll open up for questions and start with Jan Erik Gjerland. If we have the microphone. Thank you.
Yes. Thank you. A couple of questions from my side. What is your plan with Sbanken, and when should we expect you to have more details on synergies, revenues, which you could say some more into, if you can today, that would be great. What's your plan with names, et cetera? You have only one brand name today. Would you then start to diversify that? When it come to corporate growth, it looks like you have a very strong set of numbers. What is the real driver here? Is it so that you have still things on your books because it has been hard to syndicate or give them up to the bond market, or is it sort of permanent growth we should be looking at, including then in the net interest income?
Thirdly, on the mortgage side, it was a little bit weak, as you mentioned, Ida, but margin was strong. Is that sort of a mixed effect that you have prioritized, margin over volume as you then got Sbanken along? Think you can start with those.
We can start with those. We will not give any further details on the plans and numbers that we believe in in terms of synergies related to Sbanken. We affirm that it's a very solid business case, and our view on the financial attractiveness in the deal are equal, if not even stronger, given the positive development of the macro environment during the past year. What we focus on now is working together with the team, ensuring that Sbanken continues to be a strong success with DNB as its owner, and thinking through how we can ensure that this comes out as a positive development for customers in terms of our offerings of products and services, which we are confident that it will.
With regards to the name and the brand, we recognize the very strong attractiveness of the Sbanken name and have agreed that we will explore the opportunities on how to continue to build on that and in what way we can continue to build on that within the regulatory framework that is around us. With regards to corporate growth, it's a very strong growth in the quarter. That said, we continuously focus on originate to distribute, and the gross number of volumes that pass through our corporate banking book are much higher than what you will see in terms of net growth in a single quarter. It was a very active quarter, and some of these transactions we've been working on for much more than three months.
It's a healthy growth, and we expect to continue to grow, but the actual growth in corporate banking will vary from quarter to quarter, whereas in SME, you should expect a more gradual development. There we also see a very good growth of 2.5%, and as you know, we prioritize growth in the SME area. With regards to the mortgage market, as we stated, we see some short-term effects of the new regulations regarding required documentation for selling a house. That has led to a slower activity in the market. We, as the largest player, do focus on both profitability and growth and have stated that we aim to ensure that growth is profitable.
We do not, however, see any longer term structural changes and remain confident that we will take our relative share of, or we will take a representative share of the growth in the mortgage market, in the longer term.
Thank you. Just one follow-up on the corporate lending. Is any of the corporate lending linked to the strong activity in the investment banking transactions? You mentioned M&A as one area. Is this a lot of?
Uh, we-
financing around that?
There's no funding things around it at all. We systematically work to combine our offerings towards customers across investment banking and corporate lending to structure capital structures for companies. In some occasions, we will use the capital markets. In some occasions, it's a combination between bank debt and capital markets. Yes, there is a strong cooperation between the two entities during the quarter. This is particularly, I think, what we have improved over the recent years that has led to a more resilient growth and increase in both of these areas.
Okay. Thank you.
Next in line is Joakim Svingen from Arctic Securities. He's blending in with the corporate banking bench. Please go ahead.
Thanks. First of all, congrats with a great Q1 result. I also have a few questions. I'll start with Sbanken, and follow up from Jan Erik's question. Is there any way you can merge Sbanken with DNB and convert it also to internal models while keeping the brand name Sbanken? That's the first question. Then, I couldn't find in the report or the presentation the buybacks mentioned at all. Could you say something about when we can expect the buybacks and the authorization to be executed? The final one was just regarding the development in risk-weighted assets going forward and before Basel IV. Do you expect them to move in the same pace as lending? Or could you shed some light on that, please?
Thank you. I'll answer the first one, and I'll hand the 2 others over to Ida. With regards to Sbanken, over time, we will need to merge the 2 organizations, as under Norwegian regulation you're not allowed to have a 100% owned subsidiary by way of another financial institution. That said, we have flexibility in terms of how we solve the technical facing to the customers in terms of how we register the exposure in the models, and there's no requirement that all of these things needs to happen at the same time.
That being said, we do not give any concrete horizon as to when we will be taking out the potential of passing volumes from a standard models over to IRB models, but that is clearly, again, an important part of the business case that we still work on.
When it comes to share buybacks, as you know, the general assembly approved the authorization on Tuesday, so we have, in line with what we have done previous years, also sent an application to the NFSA on that. Then of course that will take some time, and we'll come back to that when the board makes decision on it. We, as we also mention, see that we have a strong capital position still. Sorry.
Risk-weighted assets.
Risk-weighted assets.
Yes. When it comes to the banking package and also the Basel IV, we have said and reiterate that we aren't seeing any major effects from that in for us. Really marginal.
The answer is in line with lending.
Yes.
Yeah. Thanks.
Okay. Thank you. We have a few questions from our online audience. If you could get a microphone to Rune Helland, he will ask the questions on your behalf.
Okay. We got the question from Johan Strøm. What is the group's expected cost inflation?
Oh, that was it. Sorry. I mean, we don't, we haven't communicated a specific cost inflation for the group, but we of course look at what we see in terms of the overall inflation pressure in the Norwegian economy as also stated by Kjerstin, and of course the underlying wage inflation that we also see as being now coming in closer to between 3.9%, 4%, which of course impacts our cost basis.
We continue to target, just to be clear on that, the communicated target of having a cost base of less than 40% of our revenue. Say very clearly as Ida is saying, the development on inflation will have an impact, but we still believe that the target we're working towards the end of 2023 is realistic and reachable.
We also have a cost related question from Nils Kristian Røine from... Could you comment on merger costs related to the acquisition of Sbanken?
Well, some of the merger costs have been taken in the first quarter, and we will then look to see if there are any additional costs that will come during the second quarter, but don't have a specific number for that at this point. We have also not stated that should be a very significant cost impacting the results.
Excellent. We have a question from Thomas Svendsen from SEB. Would you expect Stage 3 loans to continue to decline throughout the year given the increased optimism within the oil offshore space?
I think what we have said before is that the main part of the impairments we took in 2020 was related to offshore, and offshore is in no way completely out of the challenges. We are seeing some positive development for some of our customers, and that's also reflected in the numbers. We are not foreseeing significant changes or continued reversals, and as far as we can see today, and that's also what you can see in the numbers that we have today.
I believe we should add that what you need to look at is of course what happens in the macro environment surrounding us, and these are times where changes happens quickly. We're describing the overall trend. It looks very strong for Norway. We have a very strong portfolio, but in such an environment also with higher price increases in certain areas than others, there is always a risk that this will impact customer-specific situations.
Very good. We have one question from Vegard Toverud from Pareto Securities. You reiterate the 3%-4% long-term loan growth ambition. Will you achieve this excluding Sbanken also for 2022?
I mean, from the second quarter, Sbanken will be fully integrated in our numbers, and will therefore be part of the 3%-4% organic loan growth estimate.
We're not counting in the portfolio of Sbanken within the 3%-4%. We are talking about underlying organic growth in the combined two entities.
Yes.
Very good. I think that's.
Thank you, Thomas, Johan, and Vegard. We have a follow-up question from Jan Erik Gjerland, ABG. Microphone is on its way.
Thank you. If I could have three, please. First on the funding cost, NOK 80 million better Q-on-Q, is that something we should sort of have as a running base going forward, and where is it coming from? Secondly, you have 90 more employees, Q-on-Q Sbanken. Is that a number we should continue to see rising? Forget that. Those two things. Thank you.
Should I start with the funding cost?
Sure.
Yeah. In terms of the funding cost, as we have seen during the quarter, the funding cost has, or the market has, been quite volatile. We have, however, a very strong name in the marketplace and have also been able to fund ourselves in relation to that. We don't have any guidance in terms of saying that the overall funding cost will decrease because that's not how we perceive it. The main bulk of the funding has been related to achieve the MREL requirement this quarter.
With regards to number of employees, we do not give specific guidance on development of number of employees, nor do we run the company targeting a specific number of employees. Naturally, there is a development when we include Sbanken. We have also clearly stated that we're mindful of investing sufficiently in certain areas. On the technology side, for one, we continuously replace external consultants and partners with internal tech specialists. On the regulatory side is another area where we look to invest.
We find that, in a world with increasing competition on competence, we're actually very much focused on making sure that we do get the right people on board, and that we are training our people well enough to deliver value and believe that we are in an attractive position to be able to continue to perform in this area. The focus is on the long-term cost-to-income target that we have communicated.
Okay. I think that was it from the live audience. If you want more from DNB, I'm unsure, some of you will, Kjerstin will be live on Bloomberg Television in about 20 minutes, and we remind you that we have an investor call this afternoon at 1:30 P.M. CET. That's Oslo time. Thank you for spending this morning with us, and have a fantastic day.