LHV Group — Earnings Release 2020

Oct 22, 2020

LHV Group

LHV Group - forecast Financial plan assumptions

• The economic situation has been better than anticipated in the financial plan published in April. In long term, uncertainty remains high
• The effects of the crisis are lower than anticipated as we have cancelled or postponed several costs / investments. The effect of IAS 12 on the recognition of income tax on dividends expected to be paid in the following year has been added
• The grace periods for existing loans have started to end and majority of the customers go back to regular payment schedules
• Mainly model-based loan provisions were the largest in the Q2, further possible provisions are related to the progress of specific customers
• In October we took over the corporate and local municipalities loan portfolio from Danske Bank which we financed with negative interest rate through TLTRO III programme
• The suspension of payments to Pillar II pension funds remains modest. Increase of investment volumes

LHV Group - forecast Business volumes are growing at a good pace, all core businesses are profitable

Financial results, EURt	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Total revenue, incl.	95,395	73,818	$+21,577$	87,316	$+8,079$
Net interest income	89,404	47,388	$+42,017$	62,888	$+26,516$
Net fee and commission income	25,703	25,677	$+27$	24,306	$+1,397$
Total operating expenses	43,749	39,266	$+4,483$	44,773	$-1,024$
Earnings before impairment	51,646	34,552	$+17,095$	42,542	$+9,104$
Impairment losses on loans	11,950	3,209	$+8,740$	19,357	$-7,408$
Earnings before taxes	39,697	31,342	$+8,354$	23,185	$+16,512$
Income tax expense	7,085	4,250	$+2,836$	3,954	$+3,131$
Net profit, incl.	32,611	27,092	$+5,519$	19,231	$+13,380$
attr. to shareholders	30,106	24,797	$+5,309$	17,586	$+12,520$
Business volumes, EURm	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Deposits from customers	3,301	2,701	$+600$	2,985	$+316$
Loans (net)	2,227	1,687	$+540$	1,806	$+421$
Assets under management	1,531	1,374	$+157$	1,454	$+78$
Key figures	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Cost / Income ratio (C/I)	45.9%	53.2%	$-7.3$ pp	51.3%	$-5.4$ pp
pre-tax ROE*	16.6%	16.2%	$+0.4$ pp	10.2%	$+6.4$ pp
ROE*	14.0%	14.0%	$+0.0$ pp	8.4%	$+5.6$ pp
T1 capital adequacy		13.9%	$-1.0$ pp	13.9%	$-1.0$ pp
	12.9%

* ROE is based on LHV Group net profit and equity attributable to the owners of AS LHV Group 3

• Business volumes are growing in Q4
• The growth of business volumes ensures the growth of revenues. Revenues are higher than in the previous plan, but costs have been reduced
• The quality of the loan portfolio is significantly better compared to the spring plan, leading to lower discounts
• Financial plan does not include extraordinary income. Success fee of LHV Asset Management is not planned for 2020
• Net profit 32.2 EURm, up 5.5 EURm compared to 2019 and 13.4 EURm higher compared to the previous plan
• Pre-tax ROE 16.6%
• Capital adequacy and liquidity levels are strong

LHV Banking - forecast The growth of loans and deposits increases profitability

Financial results, EURt	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Total revenue, incl.	86,650	61,104	$+25,546$	79,123	$+7,527$
Net interest income	69,575	47,915	$+21,661$	63,155	$+6,420$
Net fee and commission income	17,030	12,808	$+4,222$	15,796	$+1,234$
Total operating expenses	36,411	32,515	$+3,896$	37,925	$-1,514$
Earnings before impairment	50,239	28,589	$+21,650$	41,198	$+9,041$
Impairment losses on loans	11,950	3,209	$+8,740$	19,357	$-7,408$
Earnings before taxes	38,289	25,379	$+12,910$	21,840	$+16,449$
Income tax expense	5,851	3,278	$+2,573$	3,110	$+2,741$
Net profit, incl.	32,438	22,102	$+10,336$	18,730	$+13,708$
attr. to shareholders	29,933	19,806	$+10,127$	17,086	$+12,847$
Business volumes, EURm	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Deposits from customers	3,318	2,713	$+605$	2,997	$+321$
Loans (net)	2,227	1,687	$+540$	1,806	$+421$
Key figures	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Cost / Income ratio (C/I)	42.0%	53.2%	$-11.2$ pp	47.9%	$-5.9$ pp
pre-tax ROE*	18.5%	15.8%	$+2.6$ pp	11.1%	$+7.4$ pp
ROE*	16.1%	14.2%	$+1.8$ pp	9.6%	$+6.4$ pp
T1 capital adequacy	13.4%	14.0%	$-0.6$ pp	14.3%	$-1.0$ pp
Total capital adequacy	16.6%	17.6%	$-1.0$ pp	17.7%	$-1.0$ pp

• The growth of deposits is related to the $\bullet$ addition of new customers and customer activity, which is at an all-time high level
• Half of the record growth of the loan $\bullet$ portfolio is due to the acquisition of Danske's good quality corporate and local municipalities loan portfolio
• The bank has significantly changed its $\bullet$ financing structure by issuing covered bonds and raising funds through TLTRO, significantly reducing interest expenses
• Increase in net interest income due to $\bullet$ increased loan portfolio. Increase in net fee and commission income due to increased market volatility and the growth of financial intermediaries business volumes
• The share of overdues in the loan portfolio $\bullet$ is very low further and further possible provisions are related to the progress of specific customers

LHV Asset Management - forecast Positivity in the markets increases the revenue base

Financial results, EURt	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Total revenue	9,056	13,189	$-4,133$	8,435	$+622$
Total expenses	6,266	6,097	$+170$	6,044	$+222$
Earnings before taxes	2,790	7,092	$-4,302$	2,390	$+400$
Income tax expense	844	972	$-128$	844	$+0$
Net profit	1,946	6,120	$-4,175$	1,546	$+400$
Business volumes	Updated	2019	A YoY	Previous	A und FP

Business volumes	------- FP2020	2019	A YoY	. FP2020	$\Delta$ upd. FP
Assets under management, EURm	1.531	1 374	$+15/$	-454	+78
Active customers of PII funds, thous.	184			175.	$+9$

Key figures	Updated FP2020	2019	∆ YoY	Previous FP2020	$\Delta$ upd. FP
Cost / Income ratio (C/I)	69.2%	47.4%	$+21.8$ pp	71.7%	$-2.5$ pp
pre-tax ROE	10.0%	24.6%	- 14.6 pp	8.6%	$+1.4$ pp
ROE	7.0%	22.1%	- 15.1 pp	5.6%	$+1.4$ pp

• LHV actively managed pension funds are showing again the best short and long-term returns, which has contributed to the growth of the number of customers
• AUM growth has exceeded expectations due to good fund returns and growth of active customers
• Achievement of strong returns and $\bullet$ probability of exceeding the success fee benchmark index has improved