LHV is the largest
domestic
capital provider
in Estonia

The Annual General Meeting of Shareholders of AS LHV Group (LHV Group) was held on 20 March 2024 at Hilton Tallinn Park Hotel. It was possible to participate in the meeting also electronically and vote remotely on the draft decisions on the agenda, including watch the meeting via video broadcast. Shareholders entitled to participate in the meeting could also vote before the meeting.

A total of 2,649 shareholders participated in the meeting, representing a total of 187,626,109 votes, which corresponds to 58.66% of all votes entitled to participate in the meeting.

Of the participants 2,498 shareholders, representing a total of 79,838,579 votes, voted before the meeting according to the procedure for pre-voting and electronic participation published with the notice on calling the meeting.

The notice on calling the Annual General Meeting was published in the stock exchange information system and on the Group’s website on 27 February 2024. On the same date, the notice was printed in Postimees daily newspaper.

The Annual General Meeting of the Shareholders of LHV Group adopted the following resolutions:

1. Annual Report 2023

Approve LHV Group's Annual Report for 2023 as presented to the General Meeting.

In favor: 174,084,896 votes (92.78 % of the represented votes)
Opposed: 97,040 votes (0.05 % of the represented votes)
Neutral: 57,937 votes (0.03 % of the represented votes)
Withheld: 13,386,236 votes (7.13 % of the represented votes)

2. Profit Distribution for Financial Year 2023

The profit attributable to LHV Group as the parent company of the consolidation group in the financial year 2023 amounts to EUR 140,938 thousand. Transfer EUR 0 to the legal reserve. Approve the profit distribution proposal made by the Management Board and pay dividends in the net amount of 13 euro cents per share. The list of shareholders entitled to receive dividends will be established as of 5 April 2024 EOD of the Nasdaq CSD settlement system. Consequently, the day of change of the rights related to the shares (ex-dividend date) is set to 4 April 2024. From this day onwards, persons acquiring the shares will not have the right to receive dividends for the financial year 2023. Dividends shall be disbursed to the shareholders on 12 April 2024.

In favor: 178,726,831 votes (95.26 % of the represented votes)
Opposed: 183,773 votes (0.10 % of the represented votes)
Neutral: 28,591 votes (0.02 % of the represented votes)
Withheld: 8,686,914 votes (4.63 % of the represented votes)

3. Dividend Policy

Considering the Dividend Policy serves as a guiding document for the Management Board to formulate dividend payment proposals, and acknowledging the technical refinements in its recent wording to uphold the principle of distributing 25% of LHV Group's pre-tax profit to shareholders, affirm the Supervisory Board's authority to establish the Dividend Policy and instruct the Management Board to ensure that shareholders are subsequently informed about significant future amendments to the Dividend Policy.

In favor: 175,774,866 votes (93.68 % of the represented votes)
Opposed: 262,260 votes (0.14 % of the represented votes)
Neutral: 1,560,855 votes (0.83 % of the represented votes)
Withheld: 10,028,128 votes (5.34 % of the represented votes)

4. Financial Results of First Two Months of 2024

An overview of the economic results of LHV Group for the first two months of 2024 was given by the CEO of LHV Group.

5. 5-Year Financial Forecast

An overview of the five-year financial forecast of LHV Group was given by the CEO of LHV Group

6. Recall of Supervisory Board Member

Recall Sten Tamkivi (personal identification code: 37803032724) from the Supervisory Board of LHV Group, effective immediately upon the adoption of this resolution.

In favor: 173,308,406 votes (92.37 % of the represented votes)
Opposed: 694,581 votes (0.37% of the represented votes)
Neutral: 1,116,676 votes (0.60% of the represented votes)
Withheld: 12,506,446 votes (6.67% of the represented votes)

7. Appointment of Supervisory Board Member

Appoint Liisi Znatokov (personal identification code: 48311040338), as new member of the Supervisory Board of LHV Group, with the term commencing immediately upon the adoption of this resolution and continuing for three years, i.e., from 20 March 2024 until 20 March 2027.

In favor: 168,328,106 votes (89.71% of the represented votes)
Opposed: 454,979 votes (0.24% of the represented votes)
Neutral: 1,306,344 votes (0.70% of the represented votes)
Withheld: 17,536,680 votes (9.35% of the represented votes)

All relevant documents associated with the Group’s General Meeting (including the notice on calling the General Meeting, draft resolutions, the Group's annual report for 2023, including the independent auditor's report, proposal for the profit distribution, the remuneration report, the Supervisory Board's report on its activities and assessment of the 2023 annual report, LHV Group’s dividend policy and the resume of Liisi Znatokov) have been presented in more detail on the Group’s website (https://investor.lhv.ee/en/general-meetings/#20.03.2024), where the minutes of the meeting shall also be made available at the latest 7 days after the General Meeting.

HV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. The Group employs over 1080 people. As at the end of February, LHV’s banking services are being used by 424,000 clients, the pension funds managed by LHV have 121,000 active clients, and LHV Kindlustus protects a total of 164,000 clients. LHV Bank Limited, a subsidiary of the Group, holds a banking licence in the UK and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

The Management Board of AS LHV Group (hereinafter the LHV Group) hereby calls the general meeting of the shareholders (hereinafter the General Meeting), to be held on 20 March 2024 starting at 13:00 (Estonian time) at Hilton Tallinn Park Hotel (Fr. R Kreutzwaldi 23, Tallinn).

The list of shareholders entitled to participate in the General Meeting will be determined as of 7 (seven) days before the General Meeting, i.e., as at 13 March 2024 EOD of Nasdaq CSD settlement system.

Pursuant to the resolution adopted by LHV Group’s Supervisory Board on 21 February 2024, the agenda of the General Meeting will be following, and the proposals of the Management Board and the Supervisory Board in regard to the agenda items are specified by each agenda item as follows, whereas the Supervisory Board has proposed to vote in favour of all draft resolutions specified under the agenda items.

1. Annual Report 2023
   Approve LHV Group's Annual Report for 2023 as presented to the General Meeting.

2. Profit Distribution for Financial Year 2023
   The profit attributable to LHV Group as the parent company of the consolidation group in the financial year 2023 amounts to EUR 140,938 thousand. Transfer EUR 0 to the legal reserve. Approve the profit distribution proposal made by the Management Board and pay dividends in the net amount of 13 euro cents per share. The list of shareholders entitled to receive dividends will be established as of 5 April 2024 EOD of the Nasdaq CSD settlement system. Consequently, the day of change of the rights related to the shares (ex-dividend date) is set to 4 April 2024. From this day onwards, persons acquiring the shares will not have the right to receive dividends for the financial year 2023. Dividends shall be disbursed to the shareholders on 12 April 2024.

3. Dividend Policy
   Considering the Dividend Policy serves as a guiding document for the Management Board to formulate dividend payment proposals, and acknowledging the technical refinements in its recent wording to uphold the principle of distributing 25% of LHV Group's pre-tax profit to shareholders, affirm the Supervisory Board's authority to establish the Dividend Policy and instruct the Management Board to ensure that shareholders are subsequently informed about significant future amendments to the Dividend Policy.

4. Financial Results of First Two Months of 2024
   An overview of the economic results of LHV Group for the first two months of 2024.

5. 5-Year Financial Forecast
   An overview of the five-year financial forecast of LHV Group.

6. Recall of Supervisory Board Member
   Recall Sten Tamkivi (personal identification code: 37803032724) from the Supervisory Board of LHV Group, effective immediately upon the adoption of this resolution.

7. Appointment of Supervisory Board Member
   Appoint Liisi Znatokov (personal identification code: 48311040338), as new member of the Supervisory Board of LHV Group, with the term commencing immediately upon the adoption of this resolution and continuing for three years, i.e., from 20 March 2024 until 20 March 2027.

The registration of the participants of the General Meeting will take place on the day of the meeting, 20 March 2024, between 12:00 and 12:45. The organizers of the General Meeting have the right not to consider later requests for registration and participation in the General Meeting. Registration of participation ensures the exercise of shareholder's rights during the General Meeting, including electronic voting for draft resolutions on the agenda of the General Meeting.

Shareholders who cannot or do not wish to take part in the General Meeting can vote on the draft resolutions on the agenda of the General Meeting before the General Meeting (hereinafter pre-voting) in the period from the publication of the notice on calling the General Meeting (i.e., from 27 February 2024) until 17:00 on 18 March 2024, whereas the simplified pre-voting via the website https://vote.lhv.ee/ (hereinafter meeting website) will be opened at 10:00 on 15 March 2024. A shareholder who has pre-voted is considered to be participating in the General Meeting, and the votes represented by the shares that shareholder holds are accounted as part of the General Meeting quorum.

Pre-voting under simplified procedure and registering participation and electronic voting during the General Meeting takes place through the meeting website. Shareholders who cannot or do not wish to participate in the pre-voting or register their presence electronically, will be allowed to register and vote at the meeting venue, as long as they arrive at the venue with sufficient time for registration. It is possible to pre-vote on the draft resolutions on the agenda of the General Meeting using the pre-voting ballots, which are available on LHV Group's website https://investor.lhv.ee/en/ (hereinafter investor website).

Shareholders whose rights are exercised by a representative at the General Meeting, must ensure that before the General Meeting takes place, the document(s) proving their right of representation are presented in writing to LHV Group’s e-mail address group@lhv.ee or on working days between 9 to 17 to LHV Group's address Tartu mnt 2, Tallinn 10145, 1st floor no later than 17:00 on 19 March 2024. All documents submitted in a foreign language must be in English or translated into English by a sworn translator or an official equivalent to a sworn translator, certified and legalized or apostilled, unless otherwise provided by legal acts in force. LHV Group must also be informed of the withdrawal of the given authorization by the same deadline. LHV Group asks to take into account that shareholder's rights can be exercised via the meeting website by a person who has the right of sole representation of the shareholder. Holders of nominee accounts who wish to vote on a draft resolution in a proportion other than the total number of votes belonging to the respective shareholder, i.e., to distribute the votes belonging to the respective shareholder on the draft resolution between several predetermined options, will have the opportunity to do so on the meeting website. Such proportional voting is also possible with the pre-voting ballots published on the investor website.

In the counting the votes given by pre-voting and electronic voting during the General Meeting, only votes that followed the procedure for pre-voting and electronic participation will be counted. The procedure can be found on the investor website.

Shareholders can remotely watch the General Meeting's live stream and participate in discussions through the website https://investor.lhv.ee/uldkoosolek/. Access to the live stream does not require authentication or registration. Instructions for watching the broadcast and submitting questions can be found on the investor website.

Up to and including the day of the General Meeting, shareholders have the option of examining all documents submitted to General Meeting (including the notice on calling the General Meeting, draft resolutions, LHV Group's annual report for 2023, including the independent auditor's report, proposal for the profit distribution, the remuneration report, the Supervisory Board's report on its activities and assessment of the 2023 annual report and the resume of the new planned Supervisory Board member Liisi Znatokov) on the investor webpage. The procedure for pre-voting and electronic participation, instructions for watching the video broadcast, pre-voting ballots, and authorizations for appointing a representative at the General Meeting can also be found on the same page.

Before the General Meeting, shareholders can ask questions about the agenda items of the General Meeting by email group@lhv.ee, provided that the questions are received by LHV Group at least 1 (one) working day before the General Meeting, no later than 13:00 on 19 March 2024.

At the General Meeting, shareholders have the right to receive information from the Management Board, to request that additional items be included on the agenda, and to submit draft resolutions in regard to each agenda item. In regard to the procedure and term for exercising these rights, LHV Group proceeds from the provisions of section 287, subsections 293 (2) and 293¹ (4) of the Commercial Code and requests that the corresponding applications be sent by e-mail to group@lhv.ee or to LHV Group’s location at Tartu mnt 2, Tallinn 10145.

Within 7 (seven) days of the General Meeting, the minutes of the General Meeting will be made available to shareholders on the investor website.

Sincerely,
Madis Toomsalu
Chairman of the Management Board of AS LHV Group

According to the financial plan for 2024, LHV will respond to falling interest income this year by increasing business volumes, fee and commission income, and efficiency. However, projected write-downs and interest expenses will bring a more modest net profit compared to last year’s record profit.

*Calculated on the basis of the average end-of-month equity volumes for the period
Business volumes have been presented in millions of euros

The financial plan foresees a significant increase in LHV’s business volumes for the current year. According to the plan, the volume of consolidated deposits will increase by EUR 943 million, i.e. 16% to EUR 6.67 billion. A significant part of the growth should come from the deposits of retail clients, both in Estonia and the United Kingdom.

LHV forecasts that the consolidated loan portfolio will increase by EUR 476 million this year, which would mark an increase of 13% and a portfolio volume of EUR 4.04 billion by the end of the year. The increase is expected to come at the expense of EUR 151 million from the growth of loans to Estonian corporate banking and EUR 105 million from the growth of retail loans. In the United Kingdom, the loan portfolio is expected to grow by EUR 220 million. The financial plan also forecasts an increase in loan impairment and write-downs to EUR 23.4 million.

The number of payments by financial intermediaries will continue to grow rapidly this year by 32% to 62 million payments. This year, LHV Bank Limited plans to join the euro payments system directly and start offering settlement services to retail clients on the United Kingdom market.

The volume of funds managed by LHV will increase by 10% in the financial plan this year to EUR 1.67 billion, i.e. by EUR 149 million. The forecast does not include earning performance fees from pension funds.

The gross premiums of LHV Kindlustus will increase by 15% to EUR 36 million in 2024. It is planned to increase the insurance portfolio in order to optimise the income base and reduce the volatility of the portfolio, as well as to improve all financial indicators.

In summary, the financial plan foresees a minimal decrease in AS LHV Group consolidation group revenues to EUR 309.1 million by 2024, mainly due to a 6% decrease in net interest income due to a decrease in interest rates, as net fee and commission income is projected to grow by 27%. The expenses will increase by 7% to EUR 143.6 million. The company’s net profit for this year is forecast to be EUR 120.1 million, which means a decrease of 15% compared to the previous record year.

LHV Group’s return on equity (ROE) ratio will remain at 20.3% in 2024 and the company forecasts a cost/income ratio of 46.4%. Profitability is affected by the significantly increased interest expense associated with instruments issued to meet capital requirements, the increase in net fee and commission income and loan write-downs due to the economic environment and the growth of the credit portfolio.

Although LHV’s long-term dividend policy will hold, the 2024 financial plan takes into account the group’s management boards proposal to the supervisory board to pay 35 per cent of the LHV Group shareholders' 2023 profit before taxes in dividends, including income tax. That constitutes 0.13 euros per share.

Comment by Madis Toomsalu, the Chairman of the Management Board of LHV Group:

"Poorer economic prospects can be improved by investments. We want to contribute here and continue as one of the biggest financial providers of the Estonian economy. We have only just started as a bank in the United Kingdom, but we are already expecting the same growth in loan volumes as in Estonia for this year. In total, we want to increase loan volumes in the two markets by EUR 476 million in 2024. We also expect business volumes to grow from our other main businesses – payment services, pension funds, and insurance services. We also forecast an increase in fee and commission income from an increase in client activity.

Against the background of a general decrease in interest rates, we expect LHV’s interest income to decrease in 2024. We want to respond to interest expenses that have grown with a lag by increasing efficiency and cost discipline. Our capital levels remain strong, but the main focus is on attracting the necessary financing for lending activities, especially in the form of deposits.

In the long term, we continue to define ourselves as a growth company. For the next five years, we have planned an increase of EUR 3.8 billion for loans, EUR 5.2 billion for deposits, and EUR 1.2 billion for funds. At the same time, we expect LHV Bank Ltd to grow three times faster than we achieved in the first five years when we started with LHV Pank in 2009.

The main keywords of the long-term plan are increased group-wide activity of the client and the broad-based use of artificial intelligence. There are already significant opportunities to use artificial intelligence in many areas today, and we plan to both search for and use these opportunities. It must keep us effective and efficient in the years to come."

Financial forecast for 2024–2028

AS LHV Group discloses its financial forecast for the next five years. In preparing the forecast, the assumptions have been made that initially the recession will continue in Estonia, but economic growth will recover from 2025, inflation will slow down, while uncertainty will remain. A significant decline in the base interest rates until mid-2025 and then stabilisation is expected. It is also assumed that LHV’s dividend policy will remain, except for a one-off, larger dividend payment made in 2024, and Varahaldus will earn a performance fee from 2026.

*Calculated on the basis of the average end-of-month equity volumes for the period
Business volumes have been presented in millions of euros

According to the long-term forecast, all significant business volumes of LHV will grow over the next five years. The volume of deposits will increase by 1.9 times to EUR 10.90 billion, while the volume of loans will double to EUR 7.38 billion, and the volume of funds will increase 1.8 times to EUR 2.72 billion.

With an emphasis on efficiency, it is planned to grow income faster than costs. For income, the company forecasts annual growth of 10%, while expenses will grow by an average of 6% per year. The income side is being affected by the increasing share of the income of the bank in the United Kingdom. The increase in costs will be mainly due to an increase in labour costs and IT costs. Due to changes in the economic environment and the growth in the volume of the credit portfolio, the forecast also takes into account the growth of write-downs.

According to the forecast, LHV’s consolidated net profit will reach nearly EUR 233.8 million by 2028 with an average annual growth of 11%. In all years, it is planned to achieve the 20% target of return on equity (ROE). The Group’s cost/income ratio will continue to decline over the next 5 years.

LHV Group will amend the financial plan for 2024 if it becomes likely that the planned net profit will differ by more than 10% from the financial plan. The company will update its five-year forecast in early 2025.

AS LHV Group’s reports are available at: https://investor.lhv.ee/en/reports.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. LHV employs more than 1,060 people. As at the end of December, LHV’s banking services are being used by 417,000 clients, the pension funds managed by LHV have 123,000 active clients, and LHV Kindlustus is protecting a total of 161,000 clients. LHV Bank, a subsidiary of LHV Group, holds a banking licence in the UK and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

With record business volumes, AS LHV Group generated a consolidated net profit of EUR 140.9 million in 2023. All of the Group’s subsidiaries were profitable, both in the last quarter and for the year as a whole.

LHV Group’s consolidated net income in 2023 was EUR 310.5 million, which is 79% more than a year earlier. Net interest income increased to EUR 253.8 million (+97%) and net fee and commission income to EUR 54.1 million (+21%). Last year’s consolidated expenditure totalled EUR 134.3 million (+50%). LHV Group’s consolidated net profit of EUR 140.9 million in 2023 was EUR 79.5 million higher than in 2022 (+129%).

Among its subsidiaries, AS LHV Pank earned EUR 141.4 million in net profit in 2023, UK Bank Limited EUR 5.3 million, AS LHV Varahaldus EUR 1.7 million, and AS LHV Kindlustus earned a total of EUR 305 thousand in net profit over 12 months.
As of the end of 2023, the volume of LHV Group’s consolidated assets stood at a record EUR 7.13 billion, growing by 16% or EUR 990 million over the year. In Q4, the volume of assets increased by 8%.

The Group’s consolidated deposits increased by EUR 830 million over the year to EUR 5.73 billion (+17%). In Q4, deposits increased by EUR 415 million, or +8%; the increase was due to term deposits, as the level of demand deposits remained the same. At the same time, EUR 151 million was raised through deposit platforms.

LHV’s consolidated loan portfolio increased by EUR 353 million to EUR 3.56 billion (+11%) in 2023. In Q4, the loan portfolio grew by 6%, or EUR 186 million. Corporate loans increased by EUR 137 million and retail loans by EUR 49 million.
The aggregate volume of funds managed by LHV increased by EUR 187 million to EUR 1.52 billion (+14%). The last quarter of the year contributed EUR 68 million to growth (+5%).

The number of processed payments related to clients that were financial intermediaries amounted to 49.5 million payments in 2023 (+89% compared to 26.1 million payments in 2022). 15.9 million of such payments were made in Q4, which is one fifth more than in Q3.
In Q4 2023, the consolidated net profit of AS LHV Group was EUR 32.8 million. This is EUR 6.7 million less than in Q3 (-17%), however, it exceeded Q4 of last year by 35%. AS LHV Pank earned EUR 33.6 million in net profit in Q4, AS LHV Varahaldus EUR 0.5 million, and AS LHV Kindlustus EUR 0.4 million. LHV Bank Limited earned EUR 3.0 million in net profit in the last quarter of the year. The return on equity owned by the Group’s shareholders was 24.5% in Q4.

The Group’s consolidated revenue increased by 5% in Q4 compared to the previous quarter, namely to EUR 85.7 million. Net interest income was earned in the amount of EUR 67.7 million and net service fee and commission income in the amount of EUR 16.3 million. Consolidated operating expenses were EUR 37.9 million in Q4, which is 15% higher than in Q3.

The results at the end of the year were strong for LHV, supported by client activity, but the declining economy and weakening confidence led to prudence. Interest income still dominates, but increasing interest expenses need to be taken into account, while service fee and commission income is also showing growth. By the end of the year, LHV fulfilled the financial plan by a small margin.
The number of clients of LHV Pank increased by more than 10,000 to 417 thousand clients in Q4. Over the year, the number of the bank’s clients increased by 39,500, or more than 10%. Client activity in everyday banking remained at a good level, and demand for loans is growing somewhat. Clients actively used investment services. At the end of the quarter, the bank expanded its favourable home loan offer to energy-efficient homes. LHV Pank was chosen as the most desirable employer in Estonia in the CVKeskus.ee survey.
The bank’s general focus was on taking deposits – the deposits of regular clients increased by EUR 153 million in the last three months of the year. Clients increasingly prefer term deposits, the share of which has grown to a third of all deposits. Volatility continued on the deposits of financial intermediaries.

During 2023, LHV Bank financed the Estonian economy with a total of EUR 1.49 billion in issued loans. Of this, EUR 321 million was issued to private customers and EUR 1,169 million to companies. Loan originations have continued at a slightly increasing pace, but client decision-making processes have lengthened. The quality of the loan portfolio remains stronger than planned, but due to macroeconomic trends, the bank increased its write-downs in a forward-looking manner, with EUR 9.6 million in Q4. In addition to interest income, the bank earned more service fee and commission income in Q4 than before, which was supported by a couple of larger investment banking transactions.

For LHV Varahaldus, the end of the year was marked by an increase in the volume of pension funds, which was supported by a strong quarter on the stock markets. The rate of return of LHV’s pension funds M, L, and XL in the quarter was 2.8%, 2.2%, and 2.8%, respectively. The rate of return of the more conservative funds XS and S were 3.7% and 3.6%, respectively. Pensionifond Indeks increased by 5.0%, while Pensionifond Roheline fell by 0.9%.

LHV’s market share in terms of the volume of pension funds at the end of the year was approximately 30%, and 24% according to the number of clients. The number of active clients did not change significantly in Q4. The volume, financial income, and profit of LHV Varahaldus fell short of the financial plan due to more modest rates of return than expected. Expenses were increased in the last quarter by developments and preparations for an amendment to the law, which will allow pension savers to direct larger contributions to the II pillar than before. As of 1 January, LHV and other fund managers started introducing the opportunity and accepting applications.

For LHV Kindlustus, the year ended with a quarter of stable growth and profitability. The company’s revenue continued on a growth trend and was in line with the financial plan, while gross premiums remained slightly below what was planned. As of the end of Q4, clients owned 229,000 valid insurance contracts, and 19,300 new loss events were registered during the quarter. Kindlustus fulfilled the plan, ending the year with a profit overall.

LHV Bank Limited continued to grow its business volumes, successfully launching deposit-taking through deposit platforms, increasing the volume of deposits to EUR 239 million, and increasing its loan portfolio to EUR 79 million. At the same time, the volume of payments in the Banking Services segment was at its highest level in history on a quarterly basis. As the bank in the United Kingdom is now independently financed, the Bank has repaid LHV Pank the loan previously received in the amount of EUR 71 million. The growth in both interest and service fee and commission income was faster than planned at the end of the year. Of the development activities, the Bank started preparations for the launch of the mobile bank and strengthened the team with leaders of several important divisions. Compared to the financial plan, the Bank’s expenses were higher due to salary costs and one-time IT and legal costs.

LHV Group’s annual cost/income ratio was a good 43.3%, while the return on equity was 29.0%. The Group’s liquidity and capitalisation remain strong, but given the macroeconomic situation, it is under close monitoring. In Q4, LHV Group issued MREL bonds for EUR 100 million. LHV Group will publish its financial plan and five-year forecast for 2024 on 13 February.

Comment by Madis Toomsalu, Chairman of the Management Board at LHV Group:
"In 2023, LHV did well. Increasing business volumes and rising interest rates have strengthened the results, but the general economic downturn has made planning difficult. Interest rates are cyclical and a very rapid rise can be followed by a rapid decline. Achieving a good result has required a strong commitment and important strategic decisions. Over the past 12 months, in addition to our daily activities, the successful launch of LHV Bank in the United Kingdom, the growth of the insurance business, and the transition to the direct supervision of the European Central Bank have required us to pay special attention.
We intend to continue with ambitious goals and strategic activities so that our business activities will remain efficient and sustainable in the years to come. A large part of increasing efficiency lies in increasing technological capabilities, on which we have placed a significant emphasis both in the last quarter and in the future. We are going to face 2024 with the strength and confidence that is characteristic of us. We achieve good results on the basis of strong prerequisites – satisfied employees, clients and shareholders."

To access the reports of AS LHV Group, please visit the website at https://investor.lhv.ee/en/reports.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. LHV employs more than 1,060 people. As of the end of December, LHV’s banking services are being used by 417,000 clients, the pension funds managed by LHV have 123,000 active clients, and LHV Kindlustus protects a total of 161,000 clients. LHV Bank, a subsidiary of LHV Group, holds a banking licence in the UK and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

In Q3 of this year, AS LHV Group earned EUR 39.5 million in net profit. AS LHV Pank earned EUR 36.0 million in net profit, LHV Bank Limited EUR 3.2 million, AS LHV Varahaldus EUR 0.6 million, and AS LHV Kindlustus EUR 0.3 million. The return on equity attributable to the Group’s shareholders was 31.6% in Q3.

In Q3 of 2023, the Group generated consolidated revenue of EUR 81.5 million, i.e., 9% more than in the previous quarter. Of the revenue, net interest income accounted for EUR 68.1 million, and net fee and commission income for EUR 13.6 million. The operating expenses of the consolidation group amounted to EUR 32.8 million in Q3, i.e., 1% less than in Q2. Net profit for the quarter was EUR 3.8 million more than in the previous quarter (+11%) and 3.7 times higher than in the same period last year.

As at the end of September, LHV Group’s consolidated assets stood at EUR 6.59 billion. Over the quarter, assets increased by EUR 284 million, i.e., 5%. The Group’s consolidated deposits increased by EUR 254 million over the quarter to EUR 5.32 billion (+5%; EUR +195 million in Q2). The consolidated loan portfolio grew by EUR 122 million over the quarter to EUR 3.38 billion (+4%; EUR +104 million in Q2). The total volume of funds managed by LHV decreased by EUR 13 million to EUR 1.45 billion in Q3 (-1%; EUR +14 million in Q2). The number of processed payments related to clients who are financial intermediaries amounted to 13.2 million in Q3 (+18% compared to 11.2 million payments in Q2).

Consolidated net revenue of AS LHV Group for the nine months of 2023 amounted to EUR 224.8 million (+92% compared to 2022) and total expenditure was EUR 96.5 million (+54%). The consolidated net profit of the Group for the nine months was consequently EUR 108.2 million, i.e., EUR 71.1 million more than a year ago (+191%). Over the nine months, AS LHV Pank earned EUR 107.8 million in net profit, UK Bank Limited EUR 2.2 million in net profit, AS LHV Varahaldus EUR 1.1 million in net profit, and AS LHV Kindlustus EUR 0.1 million in net loss. The return on equity of LHV Group was 30.8% over the nine months. LHV outperformed the financial plan disclosed at the beginning of September by EUR 4.0 million with regard to net profit for the nine months.

A strong quarter for LHV, as previously expected, was characterised by the profitable performance of the Estonian enterprises, capital raising, and the development of business in the United Kingdom. Over the quarter, LHV updated its financial plan, increasing its profit target for the current year by 29%. In September, LHV Group organised a public offering of subordinated bonds, raising EUR 35 million in Tier II capital. A record 16,255 investors participated in the offering, which was oversubscribed 16 times.

In a still uncertain economic environment, we managed to increase the number of clients and client activity is improving. The focus has been on deposits: the shift of clients from demand deposits to fixed-term deposits continued. During Q3, demand deposits decreased by EUR 191 million, while fixed-term deposits increased by EUR 445 million, of which EUR 142 million was raised through deposit platforms. Deposits from regular clients increased by EUR 79 million over the quarter.

The quality of the loan portfolio has remained at a good level, despite a small change in the retail small loan portfolio, where an increase in delays has been observed. Growth in the Group’s loan portfolio has been as expected.

During the quarter, the number of LHV Pank’s clients increased by 6,600 to 407 thousand. Client activity in terms of settlement services and card usage remained at a good level. The loan portfolio of LHV Pank increased by EUR 176 million, of which EUR 83 million was issued to LHV Bank and EUR 95 million to clients, which in turn was split equally between retail and corporate banking. Demand for credit is showing some signs of growth after a more stable period. The new student loan period started, with more activity than last year. In September, the employer branding agency Instar named LHV Pank the most attractive employer for both Estonian students and experienced employees.

In August, the business of the UK branch of LHV Pank was successfully transferred to LHV Bank. As a result, servicing of clients’ payments in pounds, interfacing with payment systems, and the contracts related to servicing these payments were transferred to the new bank. The current UK branch is in the closing process. LHV Bank introduced a new IT system and replaced its loan system.

In addition to increasing its loan portfolio to EUR 61 million, LHV Bank started to attract deposits from the UK market through the Raisin deposit platform. Connections to other platforms are ongoing. Business volumes in the Banking Services segment were a record high in Q3, driven by growth in companies operating in new sectors. Strong results are reflected in better-than-planned profitability. In Q3, LHV Group increased the share capital of LHV Bank by EUR 12 million.

In the pension fund market, LHV’s actively managed funds had the best rate of return in Q3. Growth in LHV funds was led by bonds, private equity, and equity positions contributing to the energy sector, while the major equity markets were in the red.

The reason for the decline in the volume of funds managed by LHV Varahaldus was due to the payouts made at the beginning of September and the lower-than-expected rate of return. Pillar III assets grew quarter on quarter. The number of active pension clients decreased by 4,000 over the quarter, due to clients leaving pension Pillar II in September. The increase in profit from asset management has been supported by a lower-than-planned cost base.

The net revenue of LHV Kindlustus continued its upward trend, while expenses remained in line with the financial plan. In Q3, gross premiums fell. During the quarter, 15,300 new claims were registered and 17,600 were closed. As at the end of the quarter, clients had 228,000 valid insurance contracts. The number of clients covered by insurance increased to 160 thousand.

Comment by Madis Toomsalu, Chairman of the Management Board at LHV Group:
‘The record braking bond offering that took place at the end of the third quarter proved investors’ continuous belief in what we do. LHV’s capitalisation is at a good level, enabling us to go on with active lending in Estonia as well as in the UK. Our revenue base in Estonia is broad, but the results have mainly grown with the help of interest income. More and more also interest costs are increasing, which is why group efficiency is one of the main keywords for the upcoming financial planning. The performance of the UK bank is encouraging. Our loan portfolio and payment volumes are growing, and we are preparing for including deposits.’

AS LHV Group’s reports are available at: https://investor.lhv.ee/en/reports/.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus and LHV Kindlustus in Estonia, and LHV Bank in the United Kingdom. The Group employs over 1,020 people. As at the end of September, more than 407,000 clients were using LHV’s banking services, LHV’s pension funds had 125,000 active clients, and 160,000 clients were covered by LHV Kindlustus. LHV Bank holds a banking licence in the United Kingdom and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

AS LHV Group (hereinafter LHV) hereby announces a public offering of LHV’s subordinated bonds. The offering is conducted on the basis of the prospectus registered by the Estonian Financial Supervision and Resolution Authority (FSA) on 11 September 2023, that has been disclosed on the date of this announcement on the web pages of LHV and the FSA. The public offering of the subordinated bonds will be carried out only in Estonia.

This is the first issue of the subordinated bonds, in the amout of up to EUR 25 million, with the possibility to increase the issue size to up to EUR 35 million, under the new bond programme. Under the new bond programme, it is possible to raise up to EUR 200 million in total.

Main terms of the offering

LHV offers publicly up to 25,000 subordinated bonds of LHV „EUR 10.50 LHV Group subordinated bond 23-2033” with the nominal value of EUR 1,000, the maturity date 29.09.2033 and a quarterly paid fixed interest rate offered to the investor at the rate 10.50% per annum. In case of oversubscription of the bonds LHV has the right to increase the offering volume by up to 10,000 additional bonds as a result of which the total number of the bonds offered in the course of the public offering may be up to 35,000. Subordinated bonds will be offered at a price of EUR 1,000 per one bond. Subordinated bonds will be issued in a dematerialised book-entry form and registered in Nasdaq CSD SE under ISIN code EE3300003573.

The subscription period for the bonds will start on 12 September 2023 at 10:00 and will end on 26 September 2023 at 16:00. The offering will be targeted to Estonian retail and institutional investors.

Subordinated bond represents an unsecured debt obligation of LHV before the investor. The subordination of the bonds means that upon the liquidation or bankruptcy of LHV, all the claims arising from the subordinated bonds shall fall due and shall be satisfied only after the full satisfaction of all unsubordinated recognised claims in accordance with the applicable law. Among other things, with subordinated bonds, the risk of conversion of liabilities and claim rights (bail-in risk) must be considered.

Timetable of the offering

Submitting subscription undertakings

In order to subscribe for the subordinated bonds, during the subscription period, an investor has to submit a subscription undertaking to the custodian who holds the investor’s securities account opened at Nasdaq CSD SE, with the format accepted by the custodian and in accordance with the prospectus and offer conditions. The undertaking must be submitted before the end of the subscription period. The investor may use any method that such investor’s custodian offers to submit the subscription undertaking (e.g., physically at the client service venue of the custodian, over the internet or by other means). The subscription undertaking will be forwarded to Nasdaq CSD SE.

Listing and Admission to Trading of Subordinated Bonds

LHV intends to submit an application to Nasdaq Tallinn AS for the listing and admission to trading of the LHV’s subordinated bonds on the Baltic Bond List of the Nasdaq Tallinn Stock Exchange. The expected date of listing and admission to trading is on or about 2 October 2023.

While every effort will be made and due care will be taken in order to ensure the listing and the admission to trading of the subordinated bonds, LHV cannot ensure that the subordinated bonds will be listed and admitted to trading.

Availability of Prospectus and Terms of the Offering

The Prospectus has been published and can be obtained in electronic format from LHV’s website https://investor.lhv.ee and from the website of the Financial Supervision Authority https://www.fi.ee. Additionally, the Estonian translation of the Prospectus has been disclosed previously and made available together with the Prospectus on the LHV website https://investor.lhv.ee and is also available through the information system of Nasdaq Tallinn Stock Exchange. The terms and conditions of LHV’s first subordinated bonds offering together with the summary of the prospectus and translations to Estonian have been published and can be obtained in electronic format from LHV’s website https://investor.lhv.ee/.

Before investing into LHV’s subordinated bonds we ask you to acquaint yourself with the prospectus, the final terms and conditions of the offering and if necessary consult an expert.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. The Group employs over 990 people. As at the end of August, LHV’s banking services are used by 403,000 clients, the pension funds managed by LHV have 127,000 active clients, and LHV Kindlustus protects a total of 160,000 clients. LHV Bank, a subsidiary of the Group, holds a banking licence in the UK and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

Important information:

This notice is an advertisement for securities within the meaning of the Regulation No 2017/1129/EU of 14 June 2017 of the European Parliament and of the Council European Parliament and does not constitute an offer to sell subordinated bonds or invitation to subscribe to subordinated bonds. The offer to acquire the subordinated bonds is made solely on the basis of the prospectus that is approved by the Estonian Financial Supervision and Resolution Authority and made public on the day of the announcement of public offering. The Prospectus is available on the websites of the Estonian Financial Supervision and Resolution Authority and AS LHV Group on addresses fi.ee and investor.lhv.ee/en respectively, the last of which also contains the mentioned conditions and summary of prospectus. Before making an investment decision, investors should read the information published in the prospectus in order to understand all details related to the investment. The approval of the prospectus by the Estonian Financial Supervision and Resolution Authority should not be regarded as endorsement to AS LHV Group or the offered securities. The shares will be publicly offered only in the Republic of Estonia.

In relation to the better than forecast quality of the credit portfolio and higher base interest rates, AS LHV Group’s financial results for the current year have exceeded the financial plan published in February, which is why the company is publishing its updated financial plan for 2023.

The updated financial plan has accounted for the actual economic results and the continued slow increase of loan and deposit interest rates. While currently, the quality of the credit portfolio remains good, the macroeconomic situation is complicated and the financial plan has proactively taken the creation of provisions into account. A success fee for Varahaldus has not been presumed in this year’s plan.

Compared to the plan published in February, the updated financial plan for 2023 has forecast a 14% higher interest income, but a 4% lower fee and commission income. The higher revenue growth is due to larger business volumes, a higher interest rate, and pre-financing at a lower interest rate. At the same time, fee and commission income is affected by the lower income rate from investment services.

The expense forecast has been raised by 9%, but the impairment of loans has been reduced by 67% compared to the previous forecast. This indicates directly the levels forecast until the end of 2023 and does not indicate long-term levels of loan losses. The quality of the credit portfolio has been very strong and the level of loan impairment abnormally low. This has partly been facilitated by the high increase in prices, which has sharply decreased in the past few months. Operating expenses are affected by the significantly increased payment rate of the deposit guarantee fund, as well as the cost of services purchased. Going forward, we also expect an increase in interest expenses, originating both from the continuing increase of deposit expenses as well as the refinancing of previously issued long-term bonds.

The updated financial plan forecasts a 29% higher net profit and a 5.8 percentage point higher return on equity based on net profit.

The business volumes of the Group’s companies remain largely at the same level compared to the previous plan. The only significant difference is in terms of the larger UK loan portfolio and the increased volume of payments by financial intermediaries.

Comment by Madis Toomsalu, Chairman of the Management Board at LHV Group:

“After ten years of the zero interest rate policy of central banks, financial markets have moved back to their historic average, and figuratively speaking – money once again has a price. Although pulling away from the long-term anomaly is no easy task, it forms a basis for a more optimal and sustainable economic structure.

LHV has managed to grow its business in this controversial economic environment, and as the return of assets has increased faster than the cost of obligations in this cycle of rising interest rates, the results are surpassing the current financial plan. In the case of decreasing interest rates, the result would be the opposite. Investments made in the Estonian economy are mostly financed by banks. The underdeveloped capital markets have not offered enough competition. This is why the existence of strong and well-capitalised banks is of critical importance.

LHV intends to direct the profit earned back to the growth of loan volumes, raising additional funds from the market via capital instruments, at that. Together with the company’s self-financing, LHV’s capital is amplified in the economy to up to a tenfold final investment, or an even larger home loan portfolio.

LHV’s results are affected the most by the performance of the two banks in the Group. Recently, we separated our UK business from LHV Pank and transferred the servicing of our financial intermediary clients to LHV Bank. In addition, the updated plan has increased the volume of loans in the United Kingdom, as the current annual objective is already coming to fruition in September. In the current year, all important subsidiaries of the LHV Group are expected to achieve profitability, as even the revenue base of LHV Kindlustus is increasing, supported by increased business volumes, and its activities are profitable.’

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. The Group employs over 970 people. As of July, LHV’s banking services are being used by 404,000 clients, the pension funds managed by LHV have 127,000 active clients, and LHV Kindlustus protects a total of 161,000 clients. LHV Bank, a subsidiary of the Group, holds a banking licence in the UK and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

The Estonian Financial Supervision and Resolution Authority (FSA) has issued a precept to AS LHV Pank as a result of supervisory proceedings in 2022 and also issued a 900,000 euro fine for misdemeanour. LHV Pank agrees with the supervisional remarks.

The FSA conducted an on-site inspection to assess the compliance of LHV Pank’s financial intermediaries business line’s control systems. The supervisory proceedings identified deficiencies regarding the assessment and management of money laundering and terrorist financing risks; as well as in the solutions for onboarding and monitoring of clients to faultlessly fulfil the due diligence measures set for the bank. The remarks included a lack of resources and shortcomings in the fulfilment of obligations.

According to Kadri Kiisel, the Chairman of the Management Board of LHV Pank, LHV was engaged in improving the risk control system of the financial intermediaries business line even before the beginning of the inspection. As of today, LHV has eliminated a large part of the 22 shortcomings identified by the FSA. Work will continue until the end of this year.

"The development of risk control is a continuous work for the bank that has been in focus side by side with the growth of the Financial intermediaries business line. We are treating the supervisory observations with appropriate priority and commitment. Among other things, we have implemented changes to the assessment and management of risk and significantly increased the team active with due diligence. The inspection results showed that the FSA’s expectations are at a high level and there is a need for improvement of indicated processes and procedures, so that we could more thoroughly know our customers as well as the activities of their end customers," Kiisel commented.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank. The roup companies employ over 970 people. As of July, LHV’s banking services are being used by 404,000 clients, the pension funds managed by LHV have 127,000 active clients, and LHV Kindlustus protects a total of 161,000 clients. LHV Bank, a subsidiary of LHV Group, holds a banking licence in the UK and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.