Report for 2nd quarter 2025

KBN has a strong market position and seeks to use this to promote communities that are sustainable, both economically, socially and environmentally. We are committed to ensuring municipalities make future oriented choices when investing, and we offer a slightly lower interest rate on loans for projects that are ambitious from a climate perspective. We also use some of our resources to improve knowledge of interest rates, as well as economy and debt management, and climate change and risk for municipalities’ elected representatives and administrative teams.

KBN finances its lending to the local government sector by borrowing money directly in the capital markets. KBN is today one of the largest Norwegian borrowers in the international capital markets, with a yearly borrowing program of around NOK 100 billion. KBNs green bonds finance the transition to a low-carbon, climate resilient future in Norwegian local societies. KBN has more than ten years’ history as an issuer of green bonds.

KBN has a conservative risk profile and is one of the few AAA-rated financial institutions in the world. KBN has never suffered any losses on its lending. As a state-owned company with a public mandate, strong capital base, robust operations and low risk appetite, KBN holds the highest possible credit rating from both Standard and Poor’s and Moody’s.

_{* Aggregate customer financing is the sum of KBN’s lending portfolio and KBN’s portfolio of municipal bonds in the liquidity portfolio, which are included as a part of KBN’s financing of customers.}

KBN’s net interest income totalled NOK 568 million in the second quarter of 2025, compared to NOK 550 million in the second quarter of 2024. KBN’s aggregate customer financing¹ Principal amounts. Aggregate customer financing is the sum of KBN’s lending portfolio and KBN’s portfolio of municipal bonds in the liquidity portfolio, which are included as a part of KBN’s financing of customers. grew by NOK 2 billion in the second quarter of 2025, of which the growth in green lending amounted to NOK 1 billion. Green lending represented 20.1% of KBN’s total lending portfolio at the end of the quarter.

KBN’s core earnings² Profit after tax adjusted for net unrealised gain/(loss) on financial instruments (in accordance with note 2) adjusted for estimated tax at 25% tax rate, and adjusted for Portion allocated to owners of additional Tier 1 capital. This result measure is included to give relevant information about the company's underlying operations. totalled NOK 305 million in the second quarter of 2025, compared to NOK 330 million in the second quarter of 2024. The decrease in core earnings was due to an increase in KBN’s operating costs in combination with lower realised gains relative to the corresponding period in 2024. KBN’s net interest income totalled NOK 568 million in the second quarter of 2025, as compared to NOK 550 million in the corresponding period of 2024. Norges Bank cut its key policy rate by 0.25 of a percentage point at its June monetary policy committee meeting. The rate now stands at 4.25%, while the money market interest rate at the end of the quarter was 4.34%.

KBN’s result for the accounting period, in the second quarter of 2025, was a profit of NOK 378 million, compared to a profit of NOK 493 million in the same period in 2024. In the second quarter of 2025, KBN recognised a net gain on financial instruments totalling NOK 44 million, as compared to a net gain of NOK 193 million in the second quarter of 2024. KBN’s net gains/losses on financial instruments comprise the sum of the realised and unrealised gains and losses recognised by KBN. There was a net realised gain from market transactions of NOK 4 million for the second quarter of 2025, while there was a net realised gain from market transactions of NOK 28 million in the second quarter of 2024. Unrealised gains amounted to NOK 40 million in the second quarter of 2025, compared to unrealised gains of NOK 164 million in the same period in 2024. KBN’s fixed rate lending and associated hedging instruments contributed a net unrealised gain of NOK 134 million in the second quarter of 2025, primarily as a result of a moderate decrease in credit spreads for the local government sector. There was an equivalent net unrealised gain on fixed rate lending and associated hedging instruments of NOK 171 million in the second quarter of 2024. KBN started to apply hedge accounting to all its new fixed rate lending with effect from 1 January 2022. KBN’s introduction of hedge accounting to its fixed rate lending will over time reduce the size of the portfolio of fixed rate loans carried at fair value, and this will reduce the net unrealised gains and losses included in KBN’s earnings. At the end of the second quarter of 2025, 32.5% of KBN’s portfolio of fixed lending was carried at fair value.

KBN’s liquidity portfolio and associated hedging instruments contributed a net unrealised gain of NOK 18 million for the second quarter of 2025, while KBN's own bonds and associated hedging instruments contributed a net unrealised loss of NOK 112 million to its result from ordinary activities in the same period. KBN’s unrealised gains and losses are expected to reverse, either as market conditions normalise or as the instruments approach maturity.

KBN’s provision for expected credit losses is relatively limited. This is because the Norwegian Local Government Act states that municipalities cannot be declared insolvent. KBN’s liquidity management portfolio is also of very high credit quality. KBN increased its provision for expected credit losses by NOK 1 million in the second quarter of 2025, bringing the total to NOK 46 million at the end of the quarter.

KBN’s total operating costs for the second quarter of 2025 were NOK 112 million, compared to NOK 88 million in the same period in 2024. This increase was in accordance with the plans adopted by KBN and was primarily due to wage growth, a higher level of activity in developing and improving KBN’s operations, the latter of which has led to increased staffing and hiring in temporary employees pending new appointments.

KBN’s core earnings³ Profit after tax adjusted for net unrealised gain/(loss) on financial instruments (in accordance with note 2) adjusted for estimated tax at 25% tax rate, and adjusted for Portion allocated to owners of additional Tier 1 capital. This result measure is included to give relevant information about the company's underlying operations. for the first six months of 2025 totalled NOK 597 million, compared to NOK 638 million in the first six months of 2024. KBN’s net interest income in the first six months of 2025 was NOK 1,121 million, as compared to NOK 1,104 million in the first six months of 2024.

KBN’s result for the accounting period in the first six months of 2025 was a profit of NOK 815 million as compared to a profit of NOK 884 million in the first six months of 2024. KBN recognised net gains on financial instruments totalling NOK 206 million in the first six months of 2025, compared with NOK 273 million in the first six months of 2024.

KBN’s total operating costs for the first six months of 2025 were NOK 211 million, compared to NOK 184 million in the first six months of 2024. This increase was in accordance with the plans adopted by KBN and was primarily due to wage growth, a higher level of activity in developing and improving KBN’s operations, the latter of which has led to increased staffing and hiring in temporary employees pending new appointments. KBN’s cost-to-income ratio⁴ Operating expenses as a percentage of the total of Net interest income and Total other operating income adjusted for Net unrealised gain/(loss) on financial instruments (in accordance with note 2). for the first six months of 2025 was 19.7%, compared to 16.7% in the first six months of 2024.

KBN’s annualised return on equity in the first six months of 2025 was 7.9%, compared to 8.9% in the same period in 2024. Based on its core earnings, KBN’s annualised return on equity in the second quarter of 2025 was 6.5%, compared to 7.1% in the same period in 2024. The decrease was due to somewhat lower core earnings as well as to an increase in retained earnings. KBN’s annualised return on equity based on its core earnings increased from 6.3% in the first quarter to 6.5% in the first six months of 2025. The return target set by KBN by its Board of Directors for the 2025-2027 period is at least 7%.

KBN’s total comprehensive income in the first six months of 2025 was NOK 919 million, compared to NOK 652 million in the first six months of 2024. KBN’s total comprehensive income includes gains and losses on KBN’s own bonds resulting from changes to KBN’s own credit risk. For the first six months of 2025, there was an unrealised gain after tax from changes to KBN’s own credit risk of NOK 104 million, as compared to an unrealised gain after tax of NOK 231 million in the same period in 2024.

Table 1: Result for the period and total comprehensive income

KBN’s lending portfolio totalled NOK 375 billion⁵ Principal amount at the end of the second quarter of 2025, while aggregate customer financing⁶ Aggregate customer financing is the sum of KBN’s lending portfolio and KBN’s portfolio of municipal bonds in the liquidity portfolio, which are included as a part of KBN’s financing of customers. totalled NOK 382 billion⁷ Principal amount at the end of the second quarter of 2025. KBN's aggregate customer financing increased by NOK 2 billion in the second quarter of 2025, as compared to an increase of NOK 3 billion in the second quarter of 2024. The main reason for the reduction in growth in KBN’s aggregate customer financing was the favourable terms available to local government sector borrowers in the capital markets.

KBN’s portfolio of green loans increased by NOK 1 billion in the second quarter of 2025, as compared to NOK 1 billion in the same period in 2024. KBN's green lending in the second quarter of 2025 included green loans for the municipalities of Fredrikstad and Sandefjord. At the end of the second quarter of 2025, KBN’s green lending represented 20.1% of its overall lending portfolio.

The annual rate of debt growth in the local government sector as at the end of June 2025 was calculated to be 8.6%. After adjusting for borrowing from the Norwegian State Housing Bank, the rate of debt growth was 8.1%. After adjusting for borrowing from the Norwegian State Housing Bank, KBN’s market share based on its aggregate customer financing⁸ KBN’s market share based on total loans to customers of sector code 6500 divided by total lending to the same sector, based on Statistics Norway's K2 reporting, plus foreign ownership of local government sector outstanding securities. Lending from the Norwegian State Housing Bank is not included as KBN does not compete for these loans. as at the end of the second quarter of 2025 was 49.9%.

Chart 1: Quarterly growth in aggregate customer financing in billion kroner

The rate of inflation in Norway was running at 3.0% at the most recent assessment in June, while core inflation was 3.1%. The goal of monetary policy is for the annual rate of growth in the consumer price index to be as close as possible to 2% annual growth.

The change of President in the USA and the associated change in economic policy caused sizeable fluctuations in the fixed income and foreign exchange markets in the first half of 2025, and there is significantly more uncertainty than usual regarding future growth both nationally and internationally. The American dollar weakened against most currencies in the quarter, including the Norwegian krone.

The Euro strengthened against the Norwegian krone towards the end of the second quarter. Credit spreads on local government and covered bonds decreased somewhat over the quarter.

KBN enjoyed good access to the international capital markets in the first six months of 2025 and completed all its funding transactions as planned. KBN’s new borrowings in the first six months of 2025 totalled approximately NOK 103 billion through 40 bond issues in 8 currencies, as compared to NOK 62 billion in the second quarter of 2024.

KBN continues to enjoy low borrowing costs and good market access thanks to its AAA/Aaa rating.

Chart 2: New borrowings by currency in 2025

KBN’s liquidity portfolio totalled NOK 130 billion⁹ Principal amount at the end of the second quarter of 2025, as compared to NOK 121 billion at the end of the second quarter of 2024. KBN’s liquidity portfolio is managed with the aim of matching its financing requirements, including lending growth, for the subsequent twelve months, and it is managed on the basis of a low-risk investment strategy.

The liquidity portfolio is largely held in zero-risk weighted assets that are particularly liquid. Investments denominated in foreign currencies represented 57% of the portfolio at the end of the second quarter of 2025. Fluctuations in the value of the Norwegian krone relative to other currencies will therefore result in fluctuations in the size of the liquidity portfolio in NOK terms.

KBN has a long-term goal of reducing its own emissions by at least 55% by 2030 compared to the 2019 level. This emissions trajectory implies that KBN’s CO₂e emissions in 2025 should be a maximum of 65% of the 2019 level, which corresponds to approximately 124 tonnes of CO₂e for the year. KBN is well positioned to achieve this goal. KBN has calculated that its own CO₂e emissions¹⁰ KBN’s greenhouse gas accounting is based on the Greenhouse Gas Protocol Corporate Standard. For the purposes of this greenhouse gas accounting, KBN's own emissions consist of calculations regarding its Scope 1 and Scope 2 emissions, as well as its indirect emissions in Scope 3 from waste and business travel. in the first six months of 2025 were 21 tonnes of CO₂e, which is a decrease from 52 tonnes of CO₂e in the same period in 2024. The reduction is due to lower energy consumption in new office premises as well as reduced travel activity in the first six months of 2025.

At its monetary policy committee meeting in June 2025, Norges Bank stated that a restrictive monetary policy was still required, but that the outlook for the coming year indicates lower inflation than previously expected. Norges Bank stated that a cautious normalisation of the policy rate would pave the way for inflation to return to the target of 2% without restricting the economy more than necessary. The future path of the policy rate thereafter will depend on economic developments.

There is greater uncertainty than normal and worsening expectations regarding the outlook for the global economy, including due to the effect of changes to the USA’s economic policy.

KBN has good access to liquidity and will continue to provide its customers with attractive financing for local government sector projects across Norway.

Oslo, 7 August 2025

The Board of Directors and Chief Executive Officer of Kommunalbanken AS

Kommunalbanken AS (KBN) prepares its financial statements in accordance IFRS® Accounting Standards as adopted by the EU. The condensed interim financial statements as of 30 June 2025 are prepared in accordance with IAS 34 Interim Financial Reporting and follow the same accounting policies and methods of computation as presented in the annual financial statements for 2024. The interim financial statement does not include all the information required in a full annual financial statement and should be read in conjunction with the annual financial statement for 2024.

The company has only one operating segment. There is thus no segment information beyond the note information provided on lending to customers and the business as a whole.

The preparation of financial statements in accordance with IFRS requires management to make estimates and judgments and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses. Estimates and judgments are based on historical experience and expectations about future developments.

The fair value of financial instruments not traded in an active market or lacking readily available quoted prices on the balance sheet date is determined using valuation models. When inputs into valuation models cannot be directly derived from observable market data, management makes assessments and uses assumptions related to credit risk and liquidity risk in financial instruments. Although judgmental assessments and assumptions are largely based on actual market conditions on the balance sheet date, they may introduce uncertainty into the recognised amounts.

(Amounts in NOK 1 000 000)

Changes in fair value of liabilities due to changes in own credit risk are not included in the line net gain/(loss) on financial instruments in the table above. Such fair value changes are recognised in other comprehensive income in the statement of comprehensive income. The change in fair value arising from debt securities issued presented in the above table, is due to changes in parameters other than own credit risk.

Changes in fair value are the result of changes in market parameters - mainly prices on bonds, interest rates, credit spreads, basis swap spreads and FX rates, and are reflected in carrying amounts in the statement of financial position and in the income statement. As KBN has limited currency and interest rate risk, the changes in relevant parameters will mostly be symmetric on the asset and liabilities sides of the statement of financial position and will therefore only to a small extent cause net effects in the income statement. Changes in credit spreads for investments in the liquidity portfolio, fixed interest-rate loans to customers measured at fair value and issued debt securities, as well as changes in basis swap spreads, may on the other hand lead to significant effect in income statement and in the statement of comprehensive income.

KBN hedges currency risk. The bank's guidelines require hedging of all currency risk associated with positions in foreign currency. However, short-term net positions may arise related to income statement and balance sheet items in USD and EUR. KBN's framework for currency risk in these currencies is set at 1.6% of regulatory capital. This means that net income effects from short-term exchange rate fluctuations are limited. Effects from the currency conversion of principal amounts from non-derivative interest-bearing instruments in foreign currency as well as from interest and fees are presented net in the income statement. This includes certificates and bonds and debt securities issued. Corresponding changes in fair value from FX derivatives used as hedging instruments in the economic hedging of the mentioned currency exposure, are presented net along with exchange differences from the hedged item. In the tables above, only the effects of exchange rate changes on fair value changes and changes in hedging value are presented.

Methods used for the determination of fair value is categorised within three levels, which reflect different degrees of valuation uncertainty:

Level 1 - Quoted prices in active markets for identical assets and liabilities
Level 2 - Valuation techniques with observable inputs
Level 3 - Valuation techniques where inputs are to a significant degree unobservable

See Note 9 in the Annual Report for further information about valuation techniques, inputs, value change analysis and sensitivities. Level 2 includes fixed rate loans to customers granted before 1 January 2022. Fixed rate loans to customers are granted on an individual basis and are not traded in an active market. Fair value is calculated using the discounted cash flows method where discount rates are derived from observable money market interest rate yield curves. Discount rates are adjusted for credit and liquidity risk linked to the relevant securities based on observable credit spreads for Norwegian municipalities at the balance sheet date. For fixed rate loans to customers with an installment structure, a discretionary liquidity premium is added to the valuation, but this does not constitute a significant part of the input data in the valuation.

Financial instruments measured at fair value in KBN's Statement of financial position are distributed in the following levels:

(Amounts in NOK 1 000 000)

Reconciliation of changes in Level 3

The transfers into and out of Level 3 are mainly due to changes in market conditions that affect the assessment of inputs to the valuation techniques during the reporting period. In 2025, net assets amounting to NOK 1.7 billion has been transferred from Level 1 to Level 2.

Effects from the currency conversion of principal amounts from non-derivative interest-bearing instruments in foreign currency and from interest and fees, are presented net in the income statement. Corresponding changes in fair value from currency derivatives used as hedging instruments in the economic hedging of the mentioned currency exposure, are presented net along with FX differences from the hedged item.

Net unrealised fair value changes for loans to customers, commercial paper issued, debt securities issued as well as subordinated loans are included in the income statement in net gain/(loss) on financial instruments, with the exception of unrealised fair value changes due to a change in own credit risk. Unrealised fair value changes due to a change in own credit risk are included in the statement of comprehensive income as other comprehensive income.

Sensitivity analysis, level 3

The table below shows the impact of a 10 bp increase in the discount rate for financial assets and liabilities in Level 3.

The below table shows expected credit loss as part of the carrying amount of loans to customers and commercial paper and bonds at the end of the period.

The below table shows a specification of the period’s change in expected credit loss that is recognised in the income statement.

All assets are allocated to stage 1 at initial recognition. On subsequent reporting dates, stage 1 allocation means that there has been no significant increase in credit risk since initial recognition for that particular asset. An allocation to stage 2 on a subsequent reporting date represents a significant increase in credit risk since initial recognition, while stage 3 implies that the asset is credit impaired. Stage 1 requires the calculation of a 12-month expected credit loss that is recognised in the income statement and statement of financial position. Assets allocated to stages 2 and 3 require the calculation of a lifetime expected credit loss, recognised in the income statement and statement of financial position. The assets are allocated back to lower stages if the credit risk is since reduced. Actual credit losses have never taken place during KBN’s history.

All exposures are assessed to be in stage 1, both as of 30 June 2025, 30 June 2024 and 31 December 2024.

(Amounts in NOK 1 000 000)

Amounts in the tables below represent actual credit exposure.

Primary capital has been calculated under Capital Requirements Regulation (CRR). Unrealised gain/(loss) on liabilities that is due to changes in own credit risk is related to debt securities issued.