Lhv Group As · OMXTSE:LHV1T
Lhv Group As — Debt Investor Presentation (October 2018)
82 slides from Lhv Group As's debt investor presentation, October 2018
Slide 1: LHV Group
LHV Group ctober 2018
Slide 2: Subordinated bond issue: key risks
Subordinated bond issue Key risks related to subordinated bond issue The purpose of the presentation is to provide insight into subordinated bond issue intended by AS LHV Group and to provide background information for the purpose of making investment decision. Offering period will be 14.11-27.11.20
Slide 3: Subordinated bond issue: key risks
Subordinated bond issue Key risks related to subordinated bond issue + Bail-in Risk. If a Group company meets the conditions for the initiation of resolution proceedings, the bail-in powers may be exercised by a relevant authority: + the amount outstanding of the bonds could be reduced, including to
Slide 4: Topics covered
Topics covered Overview * Business environment + LHV Group overview * — Investor information + New bond offering * LHV Bank + LHV Asset Management * Financials: actuals and projections * — Risk, capital and asset quality * Social responsibility
Slide 5: Tallinn London
• • Tallinn • • • London • • • • • • •
Slide 6: Business environment
Business environment
Slide 7: Economic outlook is good
Business environment Economic outlook is good Estonia's GDP change 3.7% 5% . 2.9% 0% 2 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5% 10% “15% quarterly growth annual growth = = forecast 20% 15% Foreign trading balance Unemployment & salary growth rate 20% 10% 6.5% 6.1% 5.8% 5.3% 0% 2008 \/201
Slide 8: Estonia's financial sector indicators are strong
Business environment Estonia’s financial sector indicators are strong EURb- 16 Loans ie) 2008 2010 2012 2014 2016 2018 “corporate ™ housing ™ other household Overdues 8% 2008 2010 2012 2014 2016 2018 ™60-20 days "30-60 days "up to 30 days Average interest rates 6% 4% 2% 0% 2008 2010 2012 2014 2016 2
Slide 9: Baltic Banking 2018 H1: Estonia is well positioned
Business environment Baltic Banking 2018 H1: Estonia is well positioned cunt Baltic banking pre-tax profit * Despite of differences in economies and 300¢ population, banking market in the Baltic states is rather similar 180¢ + Biggest market players are Baltic-wide | banking groups with Scandinavian
Slide 10: Market share in Estonia as of 06/2018
Business environment Market share in Estonia as of 06/2018 Corporate loans oe 71 EURb LHV Swedbank SEB Deposits a 15.0 EURb Luminor ™ Other LHV © Swedbank "SEB "Luminor ® Other Household loans Ee % 8.4 EURb LHV © Swedbank "SEB "Luminor ® Other Il pillar pension funds 30% 3.8 EURb LHV © Swedbank "SEB
Slide 11: LHV Group - overview
LHV Group - overview
Slide 12: Company history and milestones
The shares of The bank began LHV group offering card were listed on Pension fund Banking license The bank payment the Nasdaq management Deposits and began issuing acceptance service Tallinn Stock was started business loans bank cards Exchange 1999 2002 2005 2009 2010 2011 2013 2014 2015 2016 2018 Fo
Slide 13: LHV Group today
LHV Group LHV Group today Largest and fastest growing financial group and capital provider in Estonia Fourth-largest bank in Estonia Second-largest pension fund manager in Estonia Ca 4 EURb of customer assets, incl. * 1.5 EURb — customer deposits * 1.2 EURb - assets under management * 1.3 EURb — cus
Slide 14: Mission and vision
LHV Group Mission and vision We are helping to raise Estonian capital Our mission is to give a new boost to human and financial capital growth in Estonia. We implement our strategic strengths — both investment and business experience — to ensure that Estonian capital helps to build a modern and viab
Slide 15: Business philosophy
LHV Group Business philosophy LHV is focused on active, entrepreneurial and independent customers LHV’s products and services are simple, transparent and relevant. LHV communicates with customers mainly via modern electronic communication channels and through means preferred by customers LHV makes a
Slide 16: Structure
LHV Group Structure AS LHV Group Activities: holding company 100% AS LHV Pank Activities: banking AS LHV Varahaldus Activities: fund management 100% 100% AS LHV Finance Activities: hire-purchase, \ consumer finance 65%
Slide 17: Corporate governance
LHV Group Corporate governance Risk management Internal auditor Financial management =f
Slide 18: Supervisory board members
LHV Group Supervisory board members Rain Léhmus is the founder of LHV and chairman of the Supervisory Board. Rain serves as a member of the supervisory boards of AS LHV Pank, AS LHV Finance and AS Arco Vara, and as a member of the management boards and supervisory boards of several other companies.
Slide 19: Management board
LHV Group Management board Madis Toomsalu serves as the chairman of supervisory boards of AS LHV Pank and AS LHV Varahaldus. He is member of the Management Board of MTU Finance Estonia. He has previously served as Head of Credits and chairman of the Credit Committee in LHV Bank. Toomsalu has obtaine
Slide 20: Committees
LHV Group Committees Audit committee ile Kristel Aarna has worked as the CFO at Viasat AS since 2011, prior to which she served as the Chief Controller of Baltic operations at Swedbank. Previously, she was employed as the Head of Financial Advisory Services at KPMG Baltics and has also worked at Ees
Slide 21: Committees and Auditor
LHV Group Committees and Auditor Risk and capital committee Auditor Rain L6hmus is the founder of LHV and chairman of the Supervisory Board. Rain serves as a member of the supervisory boards of AS LHV Pank, AS LHV Finance and AS Arco Vara, and as a member of the management boards and supervisory boa
Slide 22: Employees and motivation
LHV Group Employees and motivation LHV employees 09/2018 Estonia’s Most Desirable Employer 2018 (CV Keskus)* 1. Eesti Energia 24 2. Telia Eesti 3. Skype Tecnhologies 368 4. Swedbank 5. Transferwise Ltd Estonia branch 6. Tallink Grupp 343 7. LHV Pank 8. Playtech Estonia Bank Asset Management 9. ABB S
Slide 23: Investor information
Investor information
Slide 24: Share information
Investor information Share information Overview: TOP 5 shareholders: Name of security Ordinary share of LHV Group Name of shareholder Number of shares (m) Participation (%) Security short name =LHV1T Rain L6hmus & related companies 6.5 24.9 Regulated market Nasdaq Main list of Baltic shares, Nasdaq
Slide 25: Share information
Investor information Share information FURm LHV share price andturnover FUR 3000 14 2250 119 12 a 1600 10 . | ATH ATT li Jinn I ] . May 16 Sep 16 van 17 May 17 Sep 17 Jan 18 May 16 Sep 18 SEE monthly turnover (lett) share price (right) LHV share price and comparison to indexes May 18 Sep 16 Jan 17 M
Slide 26: LHV Group 7.25% and 6.50% subordinated bonds
LHV Group 7.25% subordinated bond LHV Group 6.50% subordinated bond
Slide 27: New subordinated bond issue and risks
New subordinated bond issue and risks
Slide 28: New issue of LHV Group subordinated bonds
New issue of LHV Group subordinated bonds*: • • •
Slide 29: Securities overview
Bond issue and risks Securities overview * The bonds are freely transferrable * The rights attached to the bonds have been established by the bond terms. The main rights of bondholders are the right to the redemption of the bonds and the right to interest. In addition, the bondholders are entitled t
Slide 30: Allocation
Bond issue and risks Allocation Allocation after the expiry of offering period in accordance with the following principles: * under the same circumstances, all investors shall be treated equally LHV may set minimum and maximum number of the bonds allocated to one investor LHV may prefer Estonian inv
Slide 31: LHV Bank
LHV Bank
Slide 32: Operating principles and objectives
LHV Bank Operating principles and objectives LHV Bank focuses on active entrepreneurial customers LHV concentrates on active and independent customers with an entrepreneurial mind-set. For private consumers LHV offers high quality universal banking services. For corporate customers LHV offers flexib
Slide 33: Bank structure
LHV Bank Bank structure Marketing and IT Finance Risk communication and legal management ——
Slide 34: Management
LHV Bank Management Ay Erki Kilu has been the CEO of LHV Pank since 2008, the bank got its licence in 2009. Erki has worked previously in Seesam Life Insurance for almost 10 years on several positions, ending up as the CEO of the company. Erki has graduated from Estonian Business School and complete
Slide 35: Business volumes
LHV Bank Business volumes Total revenue Deposits ‘a 162 40 18 EURm 9m 2018 Customer base Loans 154 820 thous. EURm +20 thous. 09/2018 9m 2018 875 Corporate banking = Retail banking === Consumer Finance = Payment intermediators Bank is deposit funded mainly through retail bank. Payment intermediators
Slide 36: Business volumes
LHV Bank Business volumes thous. Customer base thous. Outgoing payments 3171 * ~~: Since 2015, bank's business has 160 154 3200 been growing with solid speed 140 2600 ; * — Customer base doubled in three ‘0 2000 years, same with share of active 106 soo 1748 | | | customers 100 a | | | B00 a L + Paym
Slide 37: Corporate banking
LHV Bank Corporate banking May Jul FLIRM 240 180 113 120 ° | | | i) Sep Nov Jan Mar EURt 1400 1900, 600 200 200 807 Sep Nov Deposits "Demand deposits Net profit Jan "Term deposits Mar May Jul 152 Sep 400 EURm Loans 875 Sep EURm Portfolio by days overdue 35 26 15 5 | , errr Sep Nov Jan Mar May = Jul.
Slide 38: Retail banking
LHV Bank Retail banking EURm 1.000 FURY 800 600 Sep Nov = Demand deposits 443 400 200 ] | 0 Sep Nov Deposits Jan Mar May ™ Term deposits Net profit Jan Mar May Jul Sep Loans 210 196 tap 129 70 | | i) Sep Nov Jan Mar May Jul Sep "Real estate collateral ™ Leasirg ™ Other EURm Portfolio by days overdue
Slide 39: Consumer finance
LHV Bank Consumer finance EURm New sales EURm Loans + Consumer Finance is gathered into 5 4 55 company called LHV Finance 43 44 3 39 + Portfolio is increasing mainly due to small loans product 2 22 ‘ " * — Portfolio credit quality is solid 0 0 Sep Nov y Jan Mar May Jul 1 7 we © Hire-purncase Sraall
Slide 40: Payment intermediaries
LHV Bank Payment intermediaries EURm Deposits ‘thous. Outgoing payments + Business line was separated from 600 600 retail bank starting from 2018 en 450 369 455 + Deposits are very volatile and affected 400 300 by couple of large customers activities. These deposits are priced and are 200 150 always
Slide 41: LHV Asset Management
LHV Asset Management
Slide 42: Market leader of long and short-term returns
LHV Asset Management Market leader of long and short-term returns . AS LHV Varahaldus is a fund management company managing investment funds LHV Varahaldus manages mandatory pension funds (II pillar) and voluntary pension funds (ll pillar), in addition it offers investment advisory services to SEF-L
Slide 43: Structure
LHV Asset Management Structure Internal auditor Cee ae
Slide 44: Management
LHV Asset Management Management y fm Mihkel Oja is the Chairman of the Management Board of LHV Varahaldus since 2007. Before assuming his current position he worked in AS LHV Financial Advisory Services. In 2004, he graduated from the Stockholm School of Economics in Riga, the Faculty of Economics a
Slide 45: AUM and NAV change
LHV Asset Management AUM and NAV change EURm AUMand customers customers (thous.) 1440 177° 200 1200 160 960 120 720 eeecd 1175 80 480 el a0 2. 2 =e oo 40 9 172 6 2012 2013 2014 2015 2016 2017 2018 Pillar Ipensionfunds "™™@ Cther funds |» Active customers of Pillar II pensionfunds 50/50 pension funds
Slide 46: Financial results
5 year financial results
Slide 47: Multiple times volume growth in past years
LHV Group Multiple times volume growth in past 5 years Financial results, EURt 2013 2014 2015 2016 2017 Total income, incl. 24,033 33,600 41,265 50,558 58,523 Net interest income 11,838 20,343 28,232 29,976 35,502 Net fee and commission income 9,426 412,72 14,665 19,188 22,180 Other income 2,769 484
Slide 48: Financial plan 2018
Financial plan 2018
Slide 49: Profitable growth as key target
LHV Group - forecast Profitable growth as key target Financial results, EURt Total revenue, incl. Net interest income Net fee and commission income Total operating expenses Earnings before impairment Impairment losses on loans Earnings before taxes Income tax expense Net profit attr. to the owners o
Slide 50: Financial results 2018
Financial results 2018
Slide 51: LHV Group — comparison with financial plan
LHV Group — comparison with financial plan Higher business volumes and incomes Financial results, EURt 9 quarters Q3-18 = YTDI8 = -YTDI7 FP YTD A YTDFP + Allimportant business volumes — loans, Total income, incl. 16,447 53,430, 43,084 51,343 +2,087 deposits, funds — are growing Net interest income 9
Slide 52: LHV Bank — comparison with financial plan
LHV Bank — comparison with financial plan Net profit ahead of updated financial plan by +0.6 EURm Financial results, EURt Total income, incl. Net interest income Net fee and commission income Other income Total operating expenses Earnings before impairment Impairment losses on loans Earnings before
Slide 53: LHV Asset Management — comparison with financial plan
LHV Asset Management — comparison with financial plan Developments according to plan Financial results, EURt Squarters 8-18 YTDI8_YTDI7_FPYTD A YTD FP * — Operating income increased together Tera nome, incl 8558 10.200 9088 10.851 ot with fund volumes. Expenses have Net fee income 3,559 10,314 9,842
Slide 54: 2018 9m in brief
LHV Group 2018 9m in brief 20.5 EURm 22% Net profit pre-tax ROE Best bank in Estonia 101 EURm Recognition by Euromoney AUM increase
Slide 55: Financial projection 2018-2022
Financial projection 2018-2022
Slide 56: • • • • 4.9 3.6 3.0 2.9 2.8 2.7 3.4 3.3 2.8 2.4
• • • • 4.9 3.6 3.0 2.9 2.8 2.7 3.4 3.3 2.8 2.4 2.0 2.0 5.8 5.7 6,0 6.1 6.4 6.6 1,221 1,307 1,385 1,458 1,534 1,613
Slide 57: LHV Group — long-term forecast
LHV Group — long-term forecast Capital enhancing quality growth in all business segments Financial results, EURt 2018 2019 2020 2021 2022 Total income, incl. 67,636 83,138 97,559 109,147 123,090 Net interest income 39,533 55,525 65,610 74,271 84,952 Net fee and commission income 25,206 27,203 31,534
Slide 58: LHV Group year targets
LHV Group 5 year targets LHV Bank 1 billion EUR Best bank in customer service Increase in fund volumes 800 / 600 EURm LHV Asset Management Growth in deposits and loans Best long-term return
Slide 59: Risk & capital
Risk & capital
Slide 60: Balance sheet structure
LHV Group Balance sheet structure 856 Sep 16 856 Sep 16 Structure of assets 1738 186 1712 1829 1405 1144 ; : i Dec 16 Mar 17 Jun 17 Sep 17 Deo 17 Mar 18 “Loans "Fin. investments "Cash and deposits Structure of liabilities and equity 1738 1886 1405 1144 : : 7 Dec 16 Mar 17, Jun 17 Sep 17 Dec 17 Mar 1
Slide 61: Regulative requirements
LHV Group Regulative requirements Formation of regulatory requirements 100.0% 14.31% 14% a ae 42% 41.30% 9.67% 10% 8% 5.79% 6% 4% 2014 2015 2016 2017 2018 CT1 regulatory Tt regulatory CAD regulatory MREL regulatory NSFR regulatory LCR regulatory Regulatory environment is getting more strict by addin
Slide 62: Risk tolerance: capital
LHV Group Risk tolerance: capital [Capital adequacy (CAD) [Capital adequacy (Tier 1) min 15.50% min 15.50% | 18.31% | 16.56% min 12.10% min 12.10% | 14.44% | 13.87% Capital [Capital adequacy (CET 1) min 10.40% | min 10.40% | 14.44% | 13.87% | Limits Leverage ratio min 3.5% min 3.6% | 622% | 5.61% MR
Slide 63: Risk weighted assets
LHV Group Risk weighted assets FURm 600 501 Sep 16 Dec 16 Mer 17 RWA quarterly change Jun 17 Sep 17 © Credit risk Operat. risk RWA Dec 17 ‘other Mar 18 Jun 18 797 Sep 18 RWA in calculated based on standard approach as this is most conservative 95% of RWA consists of credit risk and this has increase
Slide 64: MREL and leverage ratio
LHV Group MREL and leverage ratio MREL 12% 854% 8% 608% 4% 0% Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18 ==MREL | Internal minimurr Financial leverage 10% 8% 6% 6% 4% a a a a a a a 2% 0% Dec 16 Mar 17 dun 17 Sep 17 Dec 17 Mar 18 dun 18 Sep 18 SS Financial leverage (Group) — ‘Financia laverage
Slide 65: Liquidity
LHV Group Liquidity 80% Jun 17 Sep 17 LCR risk tolerance LCR and NSFR 155% 131% 110% 105% Dec 17 Mar 18 Jun 18 Sep 18 LCR (Group) NSFR risk tolerance NSFR (Group) LHV is running very conservative apprach in liquidity. Almost whole funding is retail deposit based and very limited amounts of interbank
Slide 66: Anti Money Laundering (AML)
LHV Group Anti Money Laundering (AML) * — Estonia is second in Basel AML index 2018 after Finland + — LHVhas been taking zero tolerance regarding money laundering and is investing heavily into ALM processes and software + — In KYC process we visit and control riskier customer's internal processes, w
Slide 67: Operational risk
LHV Group Operational risk EURt Losses reported 0.35% 0.28% 48 0.21% 32 0.14% 16 | | | 0.07% SS = — ee 0 = 0.00% Sep 17 Nov 17 van 18 Nar 18 May 18 Jul 18 Sep 18 Retail brokerege ™™™ Cards Other Actual — — —KRI Number of incidents reported 180 16 135 12 90 8 45 4 = = -= ff ee fe se es FF SS ee rl, S
Slide 68: Credit Risk and Asset Quality
Credit Risk and Asset Quality
Slide 69: Risk management tools and monitoring
LHV Bank Risk management tools and monitoring Structure of credit risk department Head of Credit Credit analysis Debt collection Risk assets Tools and early warning * Monitoring of early warnings indicators + Watch list + Risk report * Risk tolerance report * Daily monitoring of tax arrears Credit d
Slide 70: Good quality of credit portfolio
LHV Bank Good quality of credit portfolio ai Querterly realized default level 300% Provisions / NPL * Declining trend of default rates in most portfolios 6% 240% A% 180% * — No defaults in private and mortgage 2% loan portfolios 120% oe eee 0% aoe Corporate Leasing Hire Credit» Small Micro loan 60%
Slide 71: Laenud klientidele
• Laenud klientidele Laenud • klientidele •
Slide 72: Corporate loans
LHV Bank Corporate loans EURm Corporate loans % Corporate loans by ratings 600 575 6.0% 30 25 500 5.5% 20 400 5.0% 18 45% 10, 300 49% | 200 4.0% ° 7] Sep 16 Mar 17, Sep 17 Mar 18 Sep 18 1-3 4-6 7 8 9 10-12 13 Portfoio +——Gross interest margin 12.2016 = 42.2017 "09.0018 Corporate loans overdue Sector
Slide 73: Leasing and SME loans
LHV Bank Leasing and SME loans oo Leasing 54 7.5% 45 6.5% 30 5.5% 15 6 4.5% f) 3.5% Sep 16 Mar17 Sep 17 Mar 18 Sep 18 Portfolio ~——=Gross interest margin Leasing overdue 24% 13% 12% _ a “PeEliiti o» ot a Sep 16 Mar 17 Sep 17 Mar 16 Sep 18 1-30 days ™31-60 days "61-90 days ™ 91+ or contract term. EUA
Slide 74: Private loans
LHV Bank Private loans mam Housing loan EURm Mortgage loan + LHV deliberately waited with too 30 3.5% 40 37 48% introduction of housing loans. 80 3.0% 80 16% Product was implemented Q3 2016 2.6% and has been highly successfull 60 4.4% 2.5% 20 A A% 40 2.0% to 40% + LHVhas around 10% on market 20 ~ a
Slide 75: Small loan and hire purchase
LHV Bank Small loan and hire purchase EURm Small loan 36 32 24% 24 22% 12 29% 1 ie) 13% Sep16 Mar17 Sep 17 Mar18 = Sep 18 ==" Portfolio Gross interest margin Small loan overdue a | = a | 4% | | = - | | | 0% Sep1é Mari? Sep17_—sMar18— Sep 18 "1-39 days "31-60 days "61-90 days ™91+ or contract term. E
Slide 76: Interest and market risk
Interest and market risk
Slide 77: Interest and market risk
LHV Bank Interest and market risk [Change of economic capital due to 200 Limits Market risk ‘op shift in interest curve (%own funds) | MX S%NOF | max 9% NOF 0% 0% | Diversification Total loss (9% own funds) max 10% NOF | max 10% NOF 23% 2.2% Mitigation * LHVruns very conservative risk taking approac
Slide 78: Social responsibility
Social responsibility
Slide 79: Social responsibility: Community
Social responsibility Community * We organise regular, free-of-charge “Investor school” seminars for those interested in investing - 3,400 participants in 2017 + We have set up a library of investment and economic literature — more than 1,000 different publications are available to lend to our custo
Slide 80: Social responsibility: Environment
Social responsibility Environment + We do not manage a broad office network — we are located in Tallinn, Tartu and London + We offer our services through electronic channels + Weare moving towards paperless document management, the provision of electronic customer agreements and the so-called Follow
Slide 81: Social responsibility: Sponsorship
Social responsibility Sponsorship LHV Pank takes social responsibility seriously We do all we can to support activities and initiatives which contribute to the development of Estonian society In the case of our sponsorship projects, we prefer long-term and substantial cooperation We are willing to c
Slide 82: AS LHV Group contact details
AS LHV GROUP TARTU MNT 2, TALLINN 6 802 670 INFO@LHV.EE LHV.EE
LHV Group — Debt Investor Presentation (October 2018) on 6ix