LHV Group — Interim / Quarterly Report 2023

Jul 18, 2023

Interim Report January – June 2023 Summary of Results

Q2 2023 in comparison with Q1 2023

• Net profit EUR 35.6 m (EUR 33.1 m), of which EUR 35.4 m (EUR 32.7 m) is attributable to owners of the parent
• Earnings per share EUR 0.11 (EUR 0.1)
• Net income EUR 74.9 m (EUR 68.4 m)
• Operating expenses EUR 33.0 m (EUR 30.6 m)
• Loan and bond provisions EUR 0.8 m (EUR -1.6 m)
• Income tax expenses EUR 5.4 m (EUR 6.3 m)
• Return on equity 30.7% (30.4%)
• Capital adequacy 21.6% (22.2%)

Q2 2023 in comparison with Q2 2022

• Net profit EUR 35.6 m (EUR 14.0 m), of which EUR 35.4 m (EUR 13.5 m) is attributable to owners of the parent
• Earnings per share EUR 0.11 (EUR 0.04)
• Net income EUR 74.9 m (EUR 37.8 m)
• Operating expenses EUR 33.0 m (EUR 21.1 m)
• Loan and bond provisions EUR 0.8 m (EUR -0.3 m)
• Income tax expenses EUR 5.4 m (EUR 3.2 m)
• Return on equity 30.7% (15.3%)
• Capital adequacy 21.6% (20.5%)

Earnings per share and return on equity ratios are based on the profit attributed to the shareholders and equity of AS LHV Group and do not include non-controlling interest.

Summary of financial results 3
Operating Environment 7
The Group's Liquidity, Capitalisation and Asset Quality 9
Overview of AS LHV Pank Consolidation Group 12
Overview of AS LHV Varahaldus 15
Overview of AS LHV Kindlustus 17
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 18
Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income18
Condensed Consolidated Interim Statement of Financial Position19
Condensed Consolidated Interim Statement of Cash Flows20
Condensed Consolidated Interim Statement of Changes in Equity21
Notes to the Condensed Consolidated Interim Financial Statements 22
NOTE 1 Accounting Policies 22
NOTE 2 Business Segments22
NOTE 3 Risk Management 25
NOTE 4 Breakdown of Financial Assets and Liabilities by Countries25
NOTE 5 Breakdown of Assets and Liabilities by Contractual Maturity Dates 26
NOTE 6 Open Foreign Currency Positions27
NOTE 7 Fair Value of Financial Assets and Liabilities28
NOTE 8 Breakdown of Loan Portfolio by Economic Sectors and by Stages 29
NOTE 9 Net Interest Income30
NOTE 10 Net Fee and Commission Income31
NOTE 11 Operating Expenses32
NOTE 12 Balances with the Central Bank, Credit Institutions and Investment Companies 32
NOTE 13 Deposits of Customers and Loans Received 32
NOTE 14 Accounts payable and other liabilities33
NOTE 15 Contingent Liabilities 34
NOTE 16 Basic Earnings and Diluted Earnings Per Share34
NOTE 17 Capital Management 34
NOTE 18 Transactions with related parties 35
NOTE 19 Tangible and intangible assets 36
NOTE 20 Subordinated debts 37
NOTE 21 Changes in impairments37
Supervisory Boards and Management Boards of AS LHV Group and its Subsidiaries 40
Signatures of the Management Board to the Condensed Consolidated Interim Report 41

Summary of financial results

The Group's consolidated net profit in Q2 2023 was EUR 35.6 million, having grown by EUR 2.6 million compared to Q1 2023 and by EUR 21.6 million compared to Q2 2022. The profit for the Group's shareholders was EUR 35.4 million in Q2 2023, which was EUR 2.7 million more than in Q1 2023.

The Group's consolidated net income in Q2 2023 amounted to EUR 74.9 million, having grown by EUR 6.5 million compared to Q1 2023 and by EUR 37 million compared to Q2 2022.

The Group's net interest income grew by 14% in Q2 2023 compared to Q1 2023, amounting to EUR 62.9 million (EUR 55.1 million in Q1 2023).

Net service fee income grew by 4%, amounting to EUR 12.3 million (EUR 11.9 million in Q1 2023). In total, the Group's net revenue grew by 10% in Q2 compared to Q1, amounting to EUR 74.9 million (EUR 68.4 million in Q1 2023).

Operating expenses amounted to EUR 33 million in Q2, having grown by EUR 2.4 million compared to Q1 2023 and by EUR 12 million compared to Q2 2022.

The Group's Q2 operating profit was EUR 41.9 million (EUR 37.8 million in Q1 2023). Write-downs were increased by EUR 0.8 million in Q2 (a decrease of EUR 1.6 million in Q1 2023).

Income tax expense on future disbursements of dividends by subsidiaries at the consolidated level was EUR 0.2 million in Q2.

The Group's Q2 net profit was EUR 35.6 million (EUR 33.1 million in Q1 2023). Compared to Q2 2022, the Group's net interest income grew by 131% and the net service fee income grew by 12%.

The return on equity owned by LHV's shareholders was 30.7% in Q2 2023, which was 0.3 percentage points higher than in Q1 2023 (30.4%) and 15.4 percentage points lower than in Q2 2022 (15.3%).

The volume of the Group's loans grew to EUR 3 253 million by the end of Q2 (EUR 3 149 million in Q1 2023), having grown by 3% in a quarter which equals to EUR 104 million (EUR 59 million in Q1 2023). Compared to Q2 2022, the Group's volume of loans has grown 11%.

The volume of the Group's deposits was EUR 5 062 million at the end of Q2 (EUR 4 867 million in Q1 2023), i.e. an increase of 195 million euros (a decrease of EUR 34 million in the first quarter of 2023). At the same time, the increase came from regular deposits and deposits taken from deposit platforms, because deposits related to payment intermediaries decreased by EUR 174 million (a decrease of EUR 98 million in the first quarter of 2023).

Of the deposits, EUR 4,008 million (EUR 4,341 million in Q1 2023) were call deposits, EUR 777 million (EUR 526 million in Q1) term deposits and EUR 278 million (EUR 0.5 million in Q1) platform deposits.

By business units, AS LHV Pank's consolidated net profit amounted to EUR 34.4 million in Q2 and that of AS LHV Varahaldus amounted to EUR 0.4 million. AS LHV Kindlustus earned a net profit of EUR 0.03 million. The net profit of LHV Bank Ltd. was EUR 1.6 million. The net profit of EveryPay was less than EUR 0.01 million. Viewed separately, LHV Group made a net loss of EUR 0.7 million.

The Bank's net profit at the consolidated level amounted to EUR 34.4 million in Q2 2023, which was EUR 2.9 million less than in the previous quarter (EUR 37.3 million in Q1 2023) and EUR 17.5 million more than in Q2 2022. The number of the Bank's customers grew by 9 700 in a quarter (13 100 in Q1 2023), amounting to a total of 401 000.

The Bank's loan portfolio grew by EUR 149 million in Q2 (a decrease of EUR 60 million in Q1 2023), reaching EUR 3,276 million. Loans that grew the most included loans to Group companies, corporate investment loans, housing loans and factoring.

The deposits of the Bank's customers increased by EUR 213 million in Q2 – the balance of the deposits of payment intermediaries decreased by EUR 174 million, while the platform deposits grew by EUR 277 million and deposits of the rordinary customers grew by EUR 110 million. The total volume of deposits was EUR 5 133 million at the end of Q2.

The net profit of LHV Varahaldus was EUR 0.4 million in Q2 2023 (EUR 0.1 million in Q1 2023). The service fee income of LHV Varahaldus amounted to EUR 2.2 million (EUR 2.1 million in Q1 2023). The operating expenses of LHV Varahaldus amounted to EUR 1.5 million in Q2 2023 (EUR 1.3 million in Q1 2023). Expenses related to non-current assets (including depreciation on customer agreements) were EUR 0.3 million in Q2 2023 (EUR 0.4 million in Q1 2023).

The total volume of funds managed by LHV increased by EUR 14 million in a quarter (an increase of EUR 119 million in Q1 2023). The number of active 2nd pillar customers decreased by 1 900 in a quarter (a decrease of 900 in Q1 2023).

The net profit of LHV Kindlustus was EUR 0.03 million in Q2 2023 (a loss of EUR 0.5 million in Q1 2023). The volume of gross premiums increased by EUR 0.3 million in the quarter, reaching EUR 8.0 million. Income from insurance activities at LHV Kindlustus increased by EUR 0.7 million in the quarter, to EUR 1.3 million.

As at the end of Q2 2023, the net loan portfolio of LHV Bank amounted to EUR 31.2 million. The net profit of LHV Bank was EUR 1.6 million in Q2 2023 (a loss of EUR 2.5 million in Q1 2023). The net income of LHV Bank was EUR 9.6 million in Q2 2023 (EUR 3.5 million in Q1 2023).

There is only one class of shares issued by LHV, each share gives 1 voting right. The shares of LHV Group is traded on NASDAQ Tallinn main list since May 2016. Graph below presents LHV Group share performance against OMX Tallinn index and OMX Baltics banchmark index. LHV Group share has outperformed both indexes and has raised 181%, when comparison indexes have increased by 55% and 56% respectively. Group share price was 3.605 euros in the end of Q2 and based on the stock price, LHV's market value was EUR 1 153 million. When monitooring the share price, it should be taken into account that a 1/10 share split was carried out in the middle of 2022.

Business volumes			Year
EUR million	Q2 2023	Q1 2023	over quarter	Q2 2022	over year
Loan portfolio	3 253.5	3 149.2	3%	2 924.5	11%
Financial investments	370.3	297.0	24%	498.8	-26%
Deposits of customers	5 062.4	4 866.9	4%	5 366.6	-6%
incl. deposits of financial intermediates	1 265.8	1 435.6	-12%	1 755.5	-36%
Equity (including minority interest)	481.8	453.9	6%	384.8	25%
Equity (owners' share)	474.5	446.9	6%	377.6	26%
Volume of funds managed	1 464.8	1 451.0	1%	1 258.7	16%
Client securities	3 513.8	3 459.6	2%	3 294.0	7%

Income statement			Quarter	Q2	Year			Year
EUR million	Q2 2023	Q1 2023	over quarter	2022	over year	6M 2023	6M 2022	over year
Net interest income	62.90	55.11	14%	27.18	131%	118.01	52.97	123%
Net fee and commission income	12.35	11.88	4%	11.00	12%	24.23	21.35	13%
Other financial income	-0.55	1.39	NA	-0.34	62%	0.84	-1.65	NA
Total net operating income	74.70	68.38	9%	37.84	97%	143.08	72.67	97%
Other income	0.20	0.01	1 900%	0.06	233%	0.21	0.02	950%
Operating expenses	-33.05	-30.63	8%	-21.08	57%	-63.68	-39.95	59%
Loan and bond portfolio gains/(-losses)	-0.81	1.58	NA	0.34	NA	0.77	-0.40	NA
Income tax expenses	-5.42	-6.28	-14%	-3.18	70%	-11.70	-5.98	96%
Net profit	35.62	33.06	8%	13.98	155%	68.68	26.36	161%
Including attributable to owners of the parent	35.35	32.65	8%	13.54	161%	68.00	25.42	168%

Ratios			Quarter		Year			Year
EUR million	Q2 2023	Q1 2023	over quarter	Q2 2022	over year	6M 2023	6M 2022	over year
Average equity
(attributable to owners of the parent)	460.7	429.9	30.8	353.4	107.3	443.7	347.0	96.7
Return on equity (ROE), %	30.7	30.4	0.3	15.3	15.4	30.7	14.7	16.0
Return on assets (ROA), %	2.3	2.2	0.1	0.9	1.4	2.2	0.8	1.4
Interest-bearing assets, average	6123.6	6 044.9	78.7	6 480.0	-356.4	6147.7	6 642.0	-494.3
Net interest margin (NIM) %	4.11	3.65	0.46	1.68	2.43	3.84	1.60	2.24
Price spread (SPREAD) %	4.01	3.59	0.42	1.65	2.36	3.77	1.57	2.20
Cost/income ratio %	44.1	44.8	-0.7	54.2	-10.1	44.4	55.0	-10.6
Profit attributable to owners before income tax	40.7	39.1	1.6	16.6	24.1	79.8	31.2	48.6

Explanations to ratios (quarterly ratios have been expressed on an annualised basis)

Average equity (attributable to owners of the parent) = (equity as at the end of the reporting period + equity as at the end of the previous reporting period) / 2 Return on equity (ROE) = net profit for the quarter (share of owners of the parent) / average equity (attributable to owners of the parent) *100 Return on assets (ROA) = net profit for the quarter (share of owners of the parent) / average assets*100 Net interest margin (NIM) = net interest income / interest-bearing assets, average *100

Price spread (SPREAD) = interest yield from interest-bearing assets – cost of external capital

Interest yield from interest-bearing assets = interest income / interest-bearing assets, average *100

Cost of external capital = interest expenses / interest-bearing liabilities, average *100

Cost/income ratio = total operating cost / total income *100

Operating Environment

By the beginning of Q2, energy prices had dropped compared to the 2022 peak prices so much that the crude oil price 80 USD per barrel was, considering inflation, practically at the same level as the pandemic-era price of 60-80 USD. Thanks to market stabilization, the price of gas as well – which was still about double that of the pandemic-era average, had dropped severalfold from its peak in 2022. Nevertheless, in its spring 2023 forecast the IMF felt obliged to curb its expectations for world economic growth from 3.4% to 2.8%, and also limited its forecast for 2024 to no more than 3%.

A significant factor for the downward revision was the slowing of growth in the more economically developed world from 2.7% in 2022 to 1.3% in 2023.

The influence of geopolitical risks is exerting downward pressure, and because of that world economic growth may fall short of 2.5% if expected financing conditions are less favourable than expected. Growth in the more economically developed countries will remain around 1% and development in Europe will be more modest than in the US.

Although inflation levels around the world are falling, it is not considered likely that they will drop to the desired level before 2025. For 2023, inflation is expected to drop only slightly, from 8.7% in 2022 to 7%. Moreover, that drop will not be caused so much because of lower core inflation but due to stabilization of prices of raw materials.

It has become harder to drive inflation down because the current reasons for rising prices include a number of supply-side elements which are unaffected by interest rate hikes or whose influence may even be compounded by rising interest rates. It should also be factored in that unemployment has not started palpably increasing in the advanced countries and there is still pressure to raise wages.

Since July 2022, the European Central Bank has announced eight interest rate hikes, the last time by 25 basis points on 21 June 2023 and the refinancing rate has increased over that time from 0 to 4% , which may be the highest point that some participants in the economy can afford.

But in spite of everything, the IMF believes the most important task of central banks and monetary policy will be to return inflation to a normal level, and thus governments should have plans in place to help those in most difficulty due to further increase in interest rates.

The situation is complicated by the fact that the debt level will remain very high worldwide and that makes it harder to respond to new challenges.

The downside risks to the world economy appear to be increased ever more by the fact that the re-opening of the Chinese economy has led to slower and more uncertain growth, which will also continue to be shackled by the unresolved conflicts between the US and China.

Stock prices in the US and Europe have generally been rising in the first half of the year but have yet to return to the level of autumn 2021. The S&P 500 has risen from 3 783 at the beginning of the year to 4 398 on 7 July; Nasdaq from 10 644 to 13 660, DAX from 14 069 to 15 503, FTSE is slightly down from 7 554 to 7 274, but unfortunately the intensive use of state relief measures makes it hard to assess what is actually behind the overwhelming rise. The effects of the government assistance programmes and their different volume and procedures for use are probably also reflected in the fact that US stock markets had not had a downturn yet as of early July.

In the current fraught macroeconomic situation, Estonia's economy is not doing the best in the European Union. Our economy has shrunk for four consecutive quarters measured both year-over-year and quarter-over-quarter. Nothing like this has happened in any other EU member state. The 3.7% contraction in Q1 of this year was the biggest in the EU (Eurostat data). That was natural because it is not realistic to achieve the kind of nominal growth that would offset Estonia's inflation over the last two years, which has been the highest in Europe over that period.

Unfortunately the cumulative 30% price increase over the last two years means that prices in Estonia have nearly converged with the EU average (95% of the latter) and Estonia has become a significantly more expensive country than our competitors Poland (62%), Lithuania (78% and Latvia (83%) and we have to compete on the shrinking or stagnant European market where our workforce unit cost has grown 18.8% over a year and investments are down 3.4%.

We see an analogy on the real estate market, where purchase and rental prices for buildings in 2022 were 200% and 212% higher than they were in 2010, at the same time that the respective figures in Lithuania are 146% and 165%.

Since the issuing of building permits in 2022 (based on area of the footprint) in Estonia decreased by 20% in Estonia and 18% in a key market for us, Sweden, we can presume that the price level of new construction in the near future will remain relatively stable in spite of diminished purchasing power.

It is now clear that much feared residential real estate crash did not happen. Markets reached bottom around the start of the year and a small price rise continued in Q2. In spite of the significantly higher interest rates, the volume of home loans in arrears is still at a record low level. We forecast similar trends to continue in the second half-year.

The commercial real estate sector has not fared as well. Besides the significantly higher capital expense, many office building owners have to contend with rising vacancy, since many people prefer to continue to work from home due to the habits instilled during the pandemic.

The commercial real estate market is characterized by dormancy and buyers are waiting to see what the new normal in market yield will be. The moment of truth for commercial real estate will probably dawn in the next year or two when it becomes clear whether and on what conditions investors will be able to refinance their so far relatively affordable loans.

Based on the above, it was completely inevitable that the actual individual consumption of the Estonian population – 79% – dropped from around the EU average to among countries with the lowest individual consumption, significantly behind Lithuania (95%), Romania (88%), Poland (86%) and even one percentage point behind Latvia.

The challenge is that a growth in internal demand cannot be counted on and we have become palpably more expensive in competition between countries.

The greater than average economic problems faced by Estonia are also shown by the fact that while the employment rate grew in Europe in Q1, Estonia was among the five countries where employment dropped – true, only marginally. Unfortunately, on the basis of data showing monthly setbacks for industrial output and export, there is reason to expect that there will be perceptible consolidation in the second half-year in a number of our processing industry sectors.

The above supports the positions of Eesti Pank and the Ministry of Finance that the economic contraction this year will be between 0.6% and 1.5%.

Insofar as the EU as a whole has not been able to return its economy to a growth trajectory despite the support measures adopted, and in the quarterly rankings, the EU's GDP quarterover-quarter has experienced a 0.1% drop for two consecutive quarters, there is no basis for us to hope that external demand will grow.

Another reason for pessimism is that some of the countries that had thus far managed to keep inflation under control and manage economic growth and total employment are no longer able to do so.

The Group's Liquidity, Capitalisation and Asset Quality

As at 30 June 2023, the Group's own funds stood at EUR 502.4 million (31 December 2022: EUR 495.0 million). LHV Group own funds are calculated based on regulative requirements.

Compared to Group's internal capital adequacy ratio target 19.2%, the Group is capitalised good enough as at the end of the reporting period, with the capital adequacy ratio is amounting to 21.6% (31 December 2022: 21.7%). In addition to total capital adequacy targets the Group has also set internal targets for the core Tier 1 capital adequacy ratio to 14.20% and Tier 1 capital adequacy ratio to 16.35%. The internal targets were approved in December 2022 by the Group's Supervisory Board, after the completion of the annual supervisory assessment by the Financial Supervision Authority. LHV Group includes only that part of the current year's profit for which the European Central Bank has given permission as part of its own funds. Obtaining the permit is done with the referrer, but it is also applied to the reporting quarter afterwards, which is why the capitalization ratios also change, and the Group reflects them in the next report.

The minimum requirement for own funds and eligible liabilities (MREL) is a building block of the resolution plan and LHV has to maintain sufficient own funds and qualifying liabilities which can be used to cover losses in resolution planning. On 21st of June 2021 Estonian FSA set two separate MREL ratios on the consolidation group level for LHV Group. MREL-TREA is calculated based on total risk weighted assets. MREL-LRE is calculated based on total assets. On 26th of September 2022 the Estonian FSA applied new MREL target levels that are applicable for LHV Group. The final targets for the MREL ratios have been applied with a transitional period until 1st of January 2024. The final target levels of the ratios have been set at 24.57% for MREL-TREA and 5.91% for MREL-LRE. The current interim targets are 19.08% (MREL-TREA) and 5.91% (MREL-LRE). LHV Group issued EUR 100 milion of MREL eligible bonds in September 2021 in order to fulfil the MREL target ratios. LHV Group issued in Q4 2022 additional MREL eligible unsecured bonds in the amount of EUR 88 milion, to fulfil MREL targets.

The Group's liquidity coverage ratio (LCR), as defined by the Basel Committee, stood at 162.6% as at the end of June (31 December 2022: 139.7%). Financial intermediates' deposits in Bank are covered 100% with liquid assets. Excluding the financial intermediates deposits the Groups LCR is 326.2% (31.12.2022: 231.5%). The Group recognises cash and bond portfolios as liquidity buffers. These accounted for 47% of the balance sheet (31 December 2022: 46%). The ratio of loans to deposits stood at 61% as at the end of the fourth quarter (31 December 2022: 61%). Group's maturity structure is presented in Note 5.

In the second quarter 2023 LHV Pank repaid the TLTRO loan taken from European Central Bank ahead of schedule in the amount of EUR 50 000 thousand similarly to first quarter.

The credit quality of the group remained at a good level. A loan discount reserve of 18.6 million euros was formed in the balance sheet at the end of June to cover estimated loan losses. As of the end of the second quarter, the fair value of the collateral of the loan portfolio is 12% higher than the book value of the loan portfolio.

	Under-collateralized loans
	Over-collateralized loans				Total
				Fair value
	Carrying value	Fair value of collateral	Carrying value	of collateral	Carrying value	Fair value of collateral
Stage 1	1 593 382	2 591 378	1 423 284	796 339	3 016 666	3 387 717
Corporate Lending	704 694	1 041 729	1 019 511	537 361	1 724 205	1 579 090
Consumer Financing	0	0	94 821	0	94 821	0
Investment Financing	7 764	28 631	2 332	1 832	10 096	30 463
Leasing	8 165	14 067	119 028	84 048	127 193	98 115
Private Lending	872 759	1 506 951	187 592	173 098	1 060 351	1 680 049
Stage 2	128 344	192 165	101 708	51 857	230 052	244 022
Corporate Lending	54 050	77 565	57 069	29 683	111 119	107 248
Consumer Financing	0	0	9 672	0	9 672	0
Investment Financing	2	7	1	1	3	8
Leasing	2 646	3 407	24 924	13 788	27 570	17 195
Private Lending	71 646	111 186	10 042	8 385	81 688	119 571
Stage 3	6 165	12 397	612	383	6 777	12 780
Corporate Lending	2 015	2 861	28	27	2 043	2 888
Consumer Financing	0	0	119	0	119	0
Investment Financing	4	15	1	1	5	16
Leasing	269	539	464	355	733	894
Private Lending	3 877	8 982	0	0	3 877	8 982

Capital base	30.06.2023	31.12.2022	31.12.2021
Paid-in share capital	31 983	31 542	29 864
Share premium	143 372	141 186	97 361
Statutory reserves transferred from net profit	-327	4 713	4 713
Other reserves	4 713	-1 441	47
Retained earnings	219 426	216 189	179 746
Intangible assets (subtracted)	-23 399	-23 333	-14 473
Net profit for the reporting period (COREP)	0	0	0
Other adjustments	-355	-369	-128
CET1 capital elements or deductions	0	0	-12 209
CET1 instruments of financial sector entities where the institution has a significant investment	-3 028	-3 351	-4 328
CET1 instruments of financial sector entities where the institution has not a significant investment	0	-180	-5 236
Tier 1 capital	372 386	364 956	275 357
Additional Tier 1 capital	55 000	55 000	35 000
Total Tier 1 capital	427 386	419 956	310 357
Subordinated debt	75 000	75 000	75 000
Total Tier 2 capital	75 000	75 000	75 000
Net own funds for capital adequacy	502 386	494 956	385 357
Capital requirements
Central governments and central bank under standard method	0	0	0
Credit institutions and investment companies under standard method	13 951	11 553	10 465
Companies under standard method	1 163 930	1 204 523	1 141 853
Retail claims under standard method	227 987	219 031	212 860
Public sector under standard method	0	0	6
Housing real estate under standard method	550 831	513 483	291 338
Overdue claims under standard methods	9 317	8 004	19 332
Investment funds' shares under standard method	187	186	190
Other assets under standard method	96 885	102 697	93 939
Total capital requirements for covering the credit risk and counterparty credit risk	2 063 088	2 059 477	1 769 983

Capital requirement against foreign currency risk under standard method	374	18 324	3 489
Capital requirement against interest position risk under standard method	0	0	0
Capital requirement against equity portfolio risks under standard method	785	740	2 079
Capital requirement against credit valuation adjustment risks under standard method	2 091	2 228	1 211
Capital requirement for operational risk under base method	259 437	197 920	152 778
Total capital requirements for adequacy calculation	2 325 775	2 278 689	1 929 540
Capital adequacy (%)	21.60	21.72	19.97
Tier 1 capital ratio (%)	18.38	18.43	16.08

Overview of AS LHV Pank Consolidation Group

• Net profit EUR 34.4 million

EUR million	Q2 2023	Q1 2023	Change %	Q2 2022	Change %	From the beginning of 2023	From the beginning of 2022	Change %
Net interest income	56.09	52.90	6%	27.23	106%	108.99	53.11	105%
Net fee and commission income	5.51	7.55	-27%	7.64	-28%	13.06	15.43	-15%
Other financial income	-0.44	1.18	NA	0.08	NA	0.74	-1.35	NA
Total net operating income	61.17	61.63	-1%	34.95	75%	122.80	67.20	83%
Other income	0.22	0.03	620%	0.07	192%	0.25	0.05	356%
Operating expenses Loan and bond portfolio	-21.08	-20.78	1%	-15.64	35%	-41.86	-30.01	40%
gains/(-losses)	-0.60	1.59	NA	0.34	NA	0.99	-0.40	NA
Income tax expenses	-5.25	-5.15	2%	-2.79	88%	-10.40	-5.06	105%
Net profit	34.45	37.32	-8%	16.94	103%	71.77	31.79	126%
Loan portfolio	3 276	3 127	5%	2 925	12%
Financial investments	323	281	15%	484	-33%
Deposits of customers incl. deposits of financial	5 133	4 919	4%	5 425	-5%
entities	1 336	1 488	-10%	1 756	-35%
Subordinated liabilities	114	114	0%	99	15%
Equity	458	423	8%	307	17%

LHV Pank earned EUR 56.1 million in net interest income and EUR 5.5 million in net service fee income in Q2. Net loss on financial assets amounted to EUR 0.4 million in Q2. In total, the Bank's income was EUR 61.4 million and expenses were EUR 21.1 million. Net income rose by 75% and expenses increased by 35% over the year. The discounts of loans and bonds increased by EUR 0.6 million in Q2. We made forward-looking discounts and the volume of the portfolio grew. The proportion of debts continues to be small in the portfolio. We are keeping a very close eye on developments in the credit portfolio.

LHV Pank calculates a 14% advance income tax and the respective income tax expenses was EUR 5.2 million in Q2. Income tax expense on future disbursements of dividends by subsidiaries at the consolidated level was EUR 0.1 million in Q2.

The Bank's Q2 profit amounted to EUR 34.4 million, which is 8% less than in Q1 2023 (37.3) and 103% more than in Q2 2022 (16.9).

Of the various service fees, income from currency exchange, settlements, cards and the receipt of card payments contributed the largest amount.

The total volume of the Bank's loan portfolio reached EUR 3,276 million by the end of Q2 (Q1 2023: EUR 3,127 million). The volume of the portfolio grew by 5% during the quarter. The volume

of loans grew by EUR 149 million in Q2 (a decrease of EUR 60 million in Q1 2023). The net retail loan portfolio grew by 3% during the quarter, reaching EUR 1,508 million (Q1 2023: EUR 1 466 million). The net corporate loan portfolio grew by 3% during the quarter, reaching EUR 1 714 million (Q1 2023: EUR 1 661 million).

The volume of deposits at the Bank increased by EUR 213 million from the previous quarter and stood at EUR 5 133 million (Q1 2023: EUR 4 919 million). The volume of payment intermediaries' deposits dropped by EUR 174 million during the quarter. Of the deposits, EUR 4 074 million were call deposits, EUR 780 million term deposits and EUR 278 million platform deposits. The volume of the deposits of private customers amounted to EUR 1,466 million as at the end of the quarter, having grown by 28% in a quarter.

The Bank's expense-income ratio was 34.3% in Q2, decreasing by 10.3 percentage points from Q2 2022 (44.6%).

The corporate credit portfolio, which includes loans and guarantees, grew EUR 125.0 million over the year (+7%) with quarter-over-quarter growth of EUR 65.5 million (+4%). The greatest source of the growth was loans issued to the power, gas, steam and conditioned air sector, which grew by EUR 132.4 million (+219%) over the year. Next came loans to companies engaged in financial and insurance activities, which grew EUR 49.6 million from the year before (+36%) and loans issued to manufacturing companies, which grew EUR 21.1 million (+15%) over the year.

On the backdrop of the Estonian economy cooling down, companies continue to be tentative in making investment decisions. Despite this, LHV managed to grow its credit portfolio in a quarter-on-quarter view. Compared to Q1 of 2023, portfolio growth was most influenced by the power, gas, steam and conditioned air sector (quarterly growth EUR 87.9 million; +84%), followed by the financial and insurance sector (EUR 52.8 million; +39%), and the sector engaged in wholesale and retail sale and the repair of motor vehicles and motorbikes (EUR 22.4 million; +17%).

The majority of corporate loans were granted to the real estate sector, which makes up 38% of the Bank's corporate loan portfolio. Of real estate loans, the principal part was issued to projects with high-quality rental streams, with real estate developments making up a much smaller share. Most of the financed real estate developments are located in Tallinn, while projects located in other major Estonian cities and in the vicinity of Tallinn made up about 40% of developments. LHV's market share of new development financing in Tallinn made up about one-quarter by estimate at the end of Q2 2023. The LHV real estate development portfolio is well-positioned in case market trends should change – the financed developments are in good locations and the risk to planned sales price ratio averages 47%.

After the real estate sector, the largest amount of credit has been issued to companies in the power, gas, steam and conditioned air sector (10%) and to companies engaged in financial and insurance activities (10%). Of sectors that usually run a higher credit risk, construction makes up 3%, HoReCa 2% and transport and warehousing 1% of the total volume of the portfolio.

Over the quarter, the number of the bank's clients grew by 9700. Client activity levels remained good. Deposits increased by EUR 213 million over the quarter, and loans increased by EUR 149 million.

Ordinary clients' deposits grew by EUR 110 million during the quarter and financial intermediaries' deposits decreased by EUR 174 million. In Q2, the growth in the households' deposit balance continued. Although the annual growth of companies' deposit balance is still positive, it has showed signs of decreasing in recent months. The active provision of interest on term deposits and addition of new clients have had a positive influence on deposits. In Q2, we almost doubled the balance of term deposits, which made up 20% of ordinary clients' deposits as of the end of June. We also activated the addition of platform deposits, and as of the end of the quarter the balance is EUR 278 million. Financial intermediaries with larger deposits have been impacted by the more modest activity on the market, volatility is down, but clients are diversifying their clients' deposits among different banks.

Loans to companies grew by EUR 53 million and retail loans grew by EUR 42 million, while the rest of the portfolio's growth stemmed from intragroup loans. While in Q1, we saw decline in the loan portfolio – partially due to the unstable economic environment and low sense of security among consumers, in Q2, we saw activity pick up somewhat, which again turned the portfolio toward growth. As regards individuals, the Green Home Loan campaign certainly contributed. In the course of the campaign, a 0%+EUR6 interest rate applies during the first year after a loan agreement is concluded for buying energy class A real estate and from there on, the usual Green Home Loan rate of 1.7%+EUR6. We extended the offer until the end of August and hope it will encourage clients to make sustainable decisions even in today's unstable environment.

Net profit for the quarter was EUR 34 million. The strong secondquarter result was positively influenced mainly by interest income. Due to higher interest income and lower write-downs, net profit exceeded the planned target by EUR 19 million by the end of Q2. Service charge income and current expenses are as planned, and the higher than expected other expenses is due to increase in the instalment to the guarantee fund and reserves.

Loan impairments increased by EUR 0.6 million during the quarter. As the macroeconomic environment has changed a little compared to the previous quarter, we also made model-based forward-looking write-downs in Q2 that mainly affected the consumer loan portfolio. As a whole, the quality of the bank's loan portfolio has stayed strong and the share of overdue loans continues to be very low. We also see some growth in consumer loans and loans issued to small enterprises.

Ratings agency Moody's Investors Service approved ratings for AS LHV Group and AS LHV Pank at the same levels as before, but changed the previous stable outlook for the bank's long-term deposits to positive outlook.

The greatest focus during Q2 lay on deposits and we repeatedly increased interest rates offered on the term deposits in order to be the best bank for clients to save and grow their money. In April, we unveiled the Youth Bank 2.0 campaign, which represented an update of everything we offer. We garnered ideas for developing investing services from LHV Hackathon. We added a currency exchange option to the mobile app and started giving the Financial Portal a makeover. By the end of the quarter, the number of bank clients crossed the 400 000 mark, which confirms that we are on the right path and we are still committed to growth.

At the end of April, LHV chose the new winner of the LHV New Composition Award Au-tasu: Ülo Krigul and his work Süntesaatorikontsert (Synthesizer Concerto). Late May brought the 36th annual May Run, which has been sponsored by LHV for many years now. It drew 13 000 runners. The 2 ,000-euro prize fund of the LHV Home Improvement Loan support competition "Kes teeb ära?" ("Who will get it done?") is being used to renovate the park terrace of the Kose-Uuemõisa Manor, which has a long history.

Overview of AS LHV Varahaldus

• Net profit for Q2 was EUR 0.4 million
• More than 128,000 active second-pillar customers by the end of the quarter
• Volume of assets in second-pillar funds EUR 1.4 billion, increase of EUR 10 million in a quarter
• Third-pillar net assets continue to grow, increase of EUR 4 million over the three months

			Change		Change			Change
EUR million	Q2 2023	Q1 2023	%	Q2 2022	%	6M 2023	6M 2022	%
Net fee and commission income	2.21	2.13	4%	2.0	11%	4.34	3.96	10%
Net financial income	0.01	0.17	-94%	-0.41	NA	0.18	-0.31	NA
Operating expenses	-1.45	-1.32	10%	-1.33	9%	-2.77	-2.68	3%
Depreciation of non-current
assets	-0.35	-0.40	-13%	-0.49	-29%	-0.75	-1.02	-26%
Profit	0.42	0.58	28%	-0.23	NA	1.00	-0.05	NA
Financial investments	8.0	8.0	0%	9	0%
Equity	21.0	20.0	5%	22.0	-5%
Assets under management	1 465.0	1 451.0	1%	1 259	16%

In Q2, LHV Varahaldus had operating income of EUR 2.2 million and net profit was EUR 0.4 million. The results corresponded largely to financial plan, with minimal differences in both income and expenses from what was anticipated at the start of the year. Yields on funds were slightly less than expected in the H1, due to which financial income from the growth in value of own units and, as a result, net profit fell EUR 0.1 million short of the planned level. Compared to last quarter and last year, the effect of amortisation of intangible assets related to departure of clients from the second pillar of the pension system has become more modest.

Q2 and indeed H1 as a whole were very positive for larger equity markets. Growth and indices were primarily driven by big tech firms, while the results of other sectors remained significantly more modest. Measured in euros, the prices of MSCI World, SP500 and Euro Stoxx 50 rose 12.6%, 13.7% and 18.4%, respectively. The main keywords continue to be inflation and central bank interest rate movements, the labour market was strong in both US and Europe. As shown by the US and UK, the share of market indices comprised by the largest companies was close to or even slightly over historical peak levels; market concentration remains very high.

For LHV's largest actively managed pension funds, the quarter was complicated considering that the key positions of listed markets (raw materials, energy) did not follow the general market sentiment. The values of M and XL units were up 0.3% for the quarter, while pension fund L was down a minimal 0.1%. Pension fund Green was down 1.2%. The pension fund Index performed better, rising 4.2% over the quarter. The conservative funds S and XS each rose 0.8%. The growth of social tax receipts – which serves as a comparison index – grew very rapidly also in Q2, being more than 11% higher each month, year-over-year. The labour market in Estonia remains very strong.

The largest investments in Q2 were related to local bonds. Among other things, we subscribed instruments issued by Siauliu Bank, which is expected to have a high return, and Baltic Horizon. Of the various sectors, we continue to be most invested into precious metals and energy.

The number of LHV's active second-pillar clients was more than 128 000 at the end of the quarter, dropping slightly less than 2 000 clients over the three months. The decrease was primarily caused by clients exiting the second pillar, but the sales figures were more modest than in previous quarters. The percentage of leavers remains low. The four-month window for applying to exit close to EUR 1.465 billion by the end of the quarter - growth during the quarter was EUR 14 million. In early June, a long-time employee of LHV Varahaldus Eve Sirel became the third member of the management board of LHV

Varahaldus. Her areas of responsibility will be operations and risk control. The management board will continue to be a threemember body.

The portfolio of all actively managed funds and distribution of asset classes largely correspond to the long-term goal, where the M, L and XL portfolio are largely invested into unlisted asset classes with less dependence on stock markets. We keep a close eye on developments on the stock markets and are prepared to quickly adjust our positions depending on the circumstances. We also devote extra attention to liquidity to ensure capability of more aggressive investing if desired, and naturally to be able to make payments to clients exiting or changing funds.

Overview of AS LHV Kindlustus

AS LHV Kindlustus continued to grow the volumes of its insurance portfolio in Q2 2023. Gross insurance premiums grew by 3.45% and net earned premiums by 23.1% compared to Q1 2023. During the quarter, 37.6 thousand new insurance contracts were concluded, with premiums totalling EUR 9.1 million. The volume of insurance premiums from the health insurance production solution marketed in cooperation with Confido was EUR 1.75 million in Q2. The number of insurance contracts and the volume of premiums continues to grow across insurance products in all the sales channels. The company is exceeding the goals for growth set in the 2023 financial plan.

The development of insurance information systems continued. In Q2 2023, the company introduced claims handling software that helps make the handling process more efficient and supports the improvement of risk selection quality. In addition to the above, the development of sales software also continued.

As at 30 June 2023, LHV Kindlustus had 223 thousand valid insurance contracts and 159 thousand customers.

The volume of gross insurance premiums was EUR 7,978 thousand and the net earned insurance premiums totalled EUR 5,568 thousand in Q2. Vehicle and motor TPL insurance made up 52% and health insurance 28% of the volume of insurance premiums in Q2.

During Q2, 12 456 new loss events were registered, and claims adjustment was completed in 12 464 incidents. As at the end of the quarter, a total of 2 272 claim files were open. The net losses incurred in the period together with indirect claims adjustment costs were EUR 3 691 thousand.

The frequency of losses was relatively stable in major insurance types. A major home insurance fire loss took place, adjustment is currently on-going. The company's profit in Q2 was EUR 33 thousand. The result falls short of the financial forecast mainly due to unforeseen non-recurrent costs in the amount of EUR 160 thousand. The company's volume of operating expenses as at 30 June 2023 met expectations.

EUR thousand	Q2 2023	Q1 2023	Change %	Q2 2022	Change %
Gross insurance premiums	7 978	7 712	3%	4 612	73%
Net earned insurance premiums	5 540	4 499	23%	1 648	236%
Net losses incurred	3 692	3 509	5%	1 045	253%
Total net operating expenses	1 850	1 505	23%	838	121%
Underwriting result	-2	-515	-100%	-235	-99%
Net profit	33	-450	NA	-237	NA

As of the end of Q2, LHV Kindlustus employed 39 people.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

(in thousands of euros)	Note	Q2 2023	6M 2023	Q2 2022	6M 2022
Interest income		79 312	143 789	33 498	66 348
Interest expense		-16 412	-25 781	-6 314	-13 377
Net interest income	9	62 900	118 008	27 184	52 971
Fee and commission income		17 150	32 794	15 445	30 260
Fee and commission expense		-4 798	-8 565	-4 441	-8 909
Net fee and commission income	10	12 352	24 229	11 004	21 351
Net gains from financial assets measured at fair value		-535	-650	-351	-1 818
Foreign exchange rate gains/losses		-12	1 488	8	161
Net gains from financial assets		-547	838	-343	-1 657
Other income		207	227	55 57	55 55
Other expense		-10	-17	0	-90
Total other income		197	210	57	22
Staff costs		-15 851	-31 518	-11 747	-21 995
Administrative and other operating expenses		-17 189	-32 144	-9 332	-17 950
Total expenses	11	-33 040	-63 662	-21 079	-39 945
Profit before impairment losses		41 862	79 623	16 823	32 742
Change in financial investments		-180	-180	0	0
Impairment losses on loans and bonds	21	-629	954	341	-394
Profit before income tax		41 862	80 397	17 164	32 348
Income tax expense		-3 395 -5 422	-11 703	-3 177 -3 177	-3 177 -5 978
Net profit for the reporting period	2	35 631	68 694	13 987	26 370
Other comprehensive income/loss:	0	1 038 3 324	39 846 78	561	27 092
Items that may be reclassified subsequently to profit or loss: Unrealized exchange differences arising on the
translation of the financial statements of foreign operations		819	1 115	-79	-123
Total profit and other comprehensive income for the
reporting period		36 450	69 809	13 908	26 247
Total profit of the reporting period attributable to:
Owners of the parent		35 353	68 007	13 543	25 423
Non-controlling interest		278	687	444	947
Total profit for the reporting period	2	35 631	68 694	13 987	26 370
Total profit and other comprehensive income attributable to:
Owners of the parent		36 172	69 122	13 464	25 300
Non-controlling interest		278	687	444	947
Total profit and other comprehensive income for the
reporting period		36 450	69 809	13 908	26 247
Basic earnings per share (in euros)	16	0.11	0.21	0.44	0.84
Diluted earnings per share (in euros)	16	0.11	0.21	0.43	0.82

The Notes on pages 22 to 37 are an integral part of the condensed consolidated interim financial statements.

(in thousands of euros)	Note	30.06.2023	31.12.2022
Assets
Due from central bank	4, 5, 6, 12	2 469 376	2 390 964
Due from credit institutions	4, 5, 6, 12	126 318	87 933
Due from investment companies	4, 6, 12	8 414	3 391
Financial assets at fair value through profit or loss	4, 6, 7	14 575	9 354
Financial assets at amortized cost	7	354 713	364 230
Loans and advances to customers	4, 6, 8, 21	3 253 495	3 208 572
Receivables from customers		27 694	21 019
Other financial assets		124	124
Other assets		8 489	6 775
Financial investment		1 000	1 180
Tangible assets	19	17 961	16 859
Intangible assets	19	14 405	13 853
Goodwill		10 748	10 748
Total assets	2	6 307 315	6 135 002
Liabilities
Loans received from Central Banks (TLTRO)	13	49 972	147 841
Deposits of customers	13	5 062 368	4 900 515
Loans received and debt securities in issue	13	461 124	438 642
Financial liabilities at fair value through profit or loss	7	558	3 850
Accounts payable and other liabilities	14	120 176	92 462
Subordinated debt	6, 20	131 301	130 843
Total liabilities	2	5 825 499	5 714 153
Owner's equity
Share capital		31 983	31 542
Share premium		143 372	141 186
Statutory reserve capital		4 713	4 713
Other reserves		7 028	5 683
Retained earnings		287 433	229 817
Total equity attributable to owners of the parent		474 529	412 941
Non-controlling interest		7 287	7 908
Total equity		481 816	420 849
Total liabilities and equity		6 307 315	6 135 002

Condensed Consolidated Interim Statement of Financial Position

The Notes on pages 22 to 37 are an integral part of the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Cash Flows

(in thousands of euros)	Note	Q2 2023	6M 2023	Q2 2022	6M 2022
Cash flows from operating activities
Interest received		78 249	140 901	33 264	66 019
Interest paid		-9 860	-15 592	-6 441	-12 732
Fees and commissions received		17 200	32 846	15 320	30 260
Fees and commissions paid		-4 798	-8 565	-4 441	-8 909
Other income received		-49	-372	204	34
Staff costs paid		-14 642	-28 205	-10 023	-18 742
Administrative and other operating expenses paid		-14 673	-26 795	-6 711	-13 607
Income tax		-5 568	-12 369	-263	-5 159
Cash flows from operating activities before change in operating
assets and liabilities		45 859	81 849	20 909	37 164
Net increase/decrease in operating assets:
Net increase/(decrease) in financial assets at fair value through profit or
loss		1 799	-602	-3 355	-3 464
Loans and advances to customers		-104 966	-34 603	-170 919	-247 288
Mandatory reserve at central bank		-1 674	-1 925	359	3 935
Security deposits		0	0	0	2 112
Other assets		-7 638	-14 198	-3 165	1 686
Net increase/decrease in operating liabilities:
Demand deposits of customers		-335 798	-641 181	-28 764	-430 329
Term deposits of customers		526 283	796 230	-15 158	-11 463
Prepayments of loans received		-49 065	-97 656	-50 258	-50 479
Financial liabilities held for trading at fair value through profit and loss		-3 143	-3 292	258	134
Other liabilities		26 648	27 868	52 014	110 209
Net cash generated from/used in operating activities		98 305	112 490	-198 079	-587 783
Cash flows from investing activities
Purchase of non-current assets		-4 134	-5 422	-8 805	-11 204
Acquisition of subsidiaries and affiliates		0	0	-8 966	-8 966
Net changes of investment securities at fair value through profit or loss and
of investment securities at amortized cost		-74 437	4 436	-9 820	-351 166
Net cash flows from/used in investing activities		-78 571	-986	-27 591	-371 236
Cash flows from financing activities
Paid in share capital (incl. share premium)		2 627	2 627	45 504	45 504
Dividends paid		-12 617	-13 842	-11 946	-14 046
Loans received		18 631	18 631	0	0
Repayments of the principal of lease liabilities		-428	-951	-380	-744
Net cash flows from/used in financing activities		8 213	6 465	-33 178	30 714
Effect of exchange rate changes on cash and cash equivalents	6	311	1 927	115	17
Net increase/decrease in cash and cash equivalents		28 258	119 896	-192 606	-928 422
Cash and cash equivalents at the beginning of the period		2 525 237	2 433 599	3 194 196	3 930 012
Cash and cash equivalents at the end of the period	12	2 553 495	2 553 495	3 001 590	3 001 590

The Notes on pages 22 to 37 are an integral part of the condensed consolidated interim financial statements

						attributable
			Statutory			to owners	Non
	Share	Share	reserve	Other	Retained	of LHV	controlling	Total
(in thousands of euros)	capital	premium	capital	reserves	earnings	Group	interest	equity
Balance as at 01.01.2022	29 864	97 361	4 713	4 733	179 746	316 417		8 384 324 801
Paid in share capital	1 678	43 825	0	0	0	45 503	0	45 503
Dividends paid	0	0	0	0	-11 946	-11 946	-2 100	-14 046
Share options	0	0	0	78	2 209	2 287	0	2 287
Profit for the reporting period	0	0	0	0	25 432	25 423	947	26 370
Other comprehensive income/loss	0	0	0	-123	0	-123	0	-123
Total profit and other
comprehensive income for the
reporting period	0	0	0	-123	25 432	25 300	947	26 247
Balance as at 30.06.2022	31 542	141 186	4 713	4 688	195 432	377 561		7 231 384 792
Balance as at 01.01.2023	31 542	141 186	4 713	5 683	229 817	412 941		7 908 420 849
Paid in share capital	441	2 186	0	0	0	2 627	0	2 627
Dividends paid	0	0	0	0	-12 617	-12 617	-1 225	-13 842
Change in accounting methods	0	0	0	0	-153	-153	-83	-236
Share options	0	0	0	230	2 379	2 609	0	2 609
Profit for the reporting period	0	0	0	0	68 007	68 007	687	68 694
Other comprehensive
income/loss	0	0	0	1 115	0	1 115	0	1 115
Total profit and other
comprehensive income for the
reporting period	0	0	0	1 115	68 007	69 122	687	69 809
Balance as at 30.06.2023	31 983	143 372	4 713	7 028	287 433	474 529		7 287 481 816

Condensed Consolidated Interim Statement of Changes in Equity

Total equity

The Notes on pages 22 to 37 are an integral part of the condensed consolidated interim financial statements

Notes to the Condensed Consolidated Interim Financial Statements

NOTE 1 Accounting Policies

The condensed consolidated interim financial statements have been prepared in accordance with the international financial reporting standard IAS 34 "Interim Financial Reporting", as adopted by the European Union, and consists of condensed consolidated financial statements and selected explanatory notes.

The accounting policies and methods of computation used in the preparation of the interim report are the same as the accounting policies and methods of computation used in the annual report for the year ended 31 December 2022, which comply with the International Financial Reporting Standards, as adopted by the European Union (IFRS EU).

These condensed consolidated interim financial statements have been reviewed, not audited and do not contain the entire range of information required for the preparation of complete financial statements. The condensed consolidated interim financial statements should be read in conjunction with the Annual Report prepared for the year ended 31 December 2022, which has been prepared in accordance with the International Financial Reporting Standards (IFRS EU).

The applicable accounting policies have not changed compared to the previous financial year, except for the treatment of the liquidity portfolio treated at the market price. We reclassified this portfolio to accounting at amortized cost at the beginning of the second quarter. It was a fundamental change in the risk taken by the business line.

The financial figures of the condensed consolidated interim financial statements have been presented in thousands of euros, unless otherwise indicated. The interim financial statements have been consolidated and include the results of AS LHV Group and its subsidiaries AS LHV Varahaldus (100% interest), AS LHV Pank (100% interest), LHV UK Ltd (100% interest), AS EveryPay (100% interest) and AS LHV Finance (65% interest) and AS LHV Kindlustus (65% interest).

NOTE 2 Business Segments

The Group divides its business activities into segments according to its legal structure, except LHV Pank divides its business activities by 3 main business segments: retail banking, corporate banking and financial intermediates. The business segments form a part of the Group, with a separate access to financial data and which are subject to regular monitoring of operating profit by the Group's decision-maker. The Management Board of AS LHV Group has been designated as the decision-maker responsible for allocation of funds and assessment of the profitability of the business activities. The result posted by a segment includes revenue and expenditure directly related to the segment.

The revenue of a reported segment includes gains from transactions between the segments, i.e. loans granted by AS LHV Pank to other group companies. The division of interest income and fee and commission income by customer location has been presented in Notes 9 and 10. The breakdown of interest income by customer location does not include the income from current accounts, deposits and investments in securities. The Group does not have any customers, whose income would account for more than 10% of the corresponding type of revenue.

Q2 2023	Retail banking	Corporate banking	Asset manage ment	Hire purchase and consumer finance in Estonia	Financial intermediates	Insura nce	UK LHV Ltd	Other activities	Total
Interest income	20 700	31 549	1	3 866	-6 473	81	7 755	21 834	79 312
Interest expense	10 669	-12 333	0	-1 438	7 002	-36	-336	-19 939	-16 412
Net interest income	31 369	19 216	1	2 428	529	45	7 419	1 895	62 900
Fee and commission income Fee and commission	8 589	1 651	2 211	233	786	1 260	2 253	167	17 150
expense	-4 790	-764	0	-214	114	0	-45	902	-4 798
Net fee and commission income	3 799	887	2 211	19	900	1 260	2 208	1 069	12 352
Other income	2	187	0	0	0	-3	0	11	197
Net income	35 170	20 290	2 212	2 447	1 429	1 302	9 627	2 975	75 449

Income tax Net profit	22 678	14 043	421	385	-2 025	34	1 577	-1 478	35 631
	-2 420	-1 891	0	-186	-497	0	0	-429	-5 422
Operating profit Impairment losses on loans and advances	24 768 330	15 568 365	421 0	1 445 -874	-1 528 0	34 0	1 603 -26	-445 -604	41 862 -809
other operating expenses, staff costs	-10 460	-4 722	-1 797	-1 002	-2 957	-1 219	-7 958	-2 925	-33 040
Net gains from financial assets Administrative and	58	0	6	0	0	-49	-66	-495	-547

6M 2023	Retail banking	Corporate banking	Asset manage ment	Hire purchase and consumer finance in Estonia	Financial intermediates	Insurance	UK LHV Ltd	Other activities	Total
		59 066	1	7 661	-8 683	106	10 587	36 940	143 789
Interest income	38 111
Interest expense	21 939	-23 884	0	-2 684	14 095	-62	-405	-34 780	-25 781
Net interest income Fee and commission	60 050	35 182	1	4 977	5 412	44	10 182	2 160	118 008
income	16 014	2 946	4 336	479	4 267	1 812	2 977	-37	32 794
Fee and commission expense	-8 599	-1 466	0	-398	-127	0	-69	2 094	-8 565
Net fee and commission income	7 415	1 480	4 336	81	4 140	1 812	2 908	2 057	24 229
Other income	1	190	0	0	0	-6	0	25	210
Net income	67 466	36 852	4 337	5 058	9 552	1 850	13 090	4 243	142 447
Net gains from financial assets Administrative and	21	0	178	0	0	-16	-67	722	838
other operating expenses, staff costs	-20 182	-9 148	-3 519	-1 944	-6 935	-2 250	-13 922	-5 761	-63 662
Operating profit Impairment gains/(- losses) on loans and	47 305	27 704	996	3 114	2 617	-416	-899	-796	79 623
bond portfolio	67	3 104	0	-1 703	0	0	-35	-659	774
Income tax	-4 186	-4 004	-488	-352	-600	0	0	-2 072	-11 703
Net profit	43 186	26 804	508	1 059	2 017	-416	-934	-3 527	68 694
Total assets 30.06.2023	2 603 783	3 350 502	21 654	94 692	0	43 158	97 059	96 467	6 307 315
Total liabilities 30.06.2023	3 912 052	635 236	642	77 698	1 132 701	38 633	61 032	-32 495	5 825 499

Q2 2022	Retail banking	Corporate banking	Asset manage ment	Hire purchase and consumer finance in Estonia	Financial inter mediates	Insurance	LHV UK Ltd	Other activities	Total
Interest income	9 636	17 487	0	3 052	2 508	6	0	809	33 498
Interest expense Net interest	-1 757	-3 948	0	-693	-1 764	0	-63	1 911	-6 314
income Fee and commission	7 879	13 539	0	2 359	744	6	-63	2 720	27 184
income Fee and commission	6 720	1 291	2 000	203	4 831	484	0	-83	15 445
expense Net fee and commission	-3 938	-785	0	-209	-475	0	0	965	-4 441
income	2 781	506	2 000	-5	4 356	484	0	882	11 004
Other income	17	21	0	0	0	0	0	19	57
Net income	10 677	14 066	2 000	2 354	5 100	490	-63	3 621	38 245
Net gains from financial assets
Administrative and other operating expenses, staff	22	0	-411	0	0	-6	-1	53	-343
costs	-7 898	-3 991	-1 823	-719	-2 971	-720	-2 031	-926	-21 079
Operating profit Impairment gains/(-losses) on loans and bond	2 801	10 075	-234	1 635	2 129	-236	-2 095	2 748	16 823
portfolio	-45	492	0	-95	-3	0	0	-8	341
Income tax	-825	-1 135	0	-148	-343	0	0	-726	-3 177
Net profit	1 931	9 432	-234	1 392	1 783	-236	-2 095	2 014	13 987

6M 2022	Retail banking	Corporate banking	Asset manage ment	Hire purchase and consumer finance in Estonia	Financial intermediates	Insurance	UK LHV Ltd	Other activities	Total
Interest income	18 581	34 471	0	5 918	5 965	6	0	1 407	66 348
Interest expense	-3 540	-7 569	0	-1 166	-4 244	0	-63	3 206	-13 377
Net interest income Fee and commission	15 041	26 902	0	4 752	1 721	6	-63	4 613	52 971
income	13 236	2 477	3 959	402	9 980	626	0	-420	30 260
Fee and commission expense	-7 459	-1 818	0	-392	-1 003	0	0	1 762	-8 909
Net fee and commission income	5 777	659	3 959	10	8 977	626	0	1 342	21 351

Other income	-67	52	0	0	1	0	0	35	22
Net income	20 751	27 613	3 959	4 762	10 699	632	-63	5 990	74 344
Net gains from financial assets Administrative and	-25	2	-309	0	1	-5	-2	-1 320	-1 657
other operating expenses, staff costs	-15 166	-7 934	-3 700	-1 402	-5 893	-1 361	-3 668	-821	-39 945
Operating profit Impairment losses on	5 560	19 681	-50	3 360	4 807	-734	-3 733	3 849	32 742
loans and advances	-147	-359	0	125	-3	0	0	-10	-394
Income tax	-1 454	-1 995	-830	-280	-559	0	0	-860	-5 978
Net profit	3 959	17 327	-880	3 205	4 245	-734	-3 733	2 979	26 370
Total assets 30.06.2022	2 684 738	3 637 184	22 579	80 531	0	20 484	9 496	75 845	6 530 857
Total liabilities 30.06.2022	3 492 831	614 698	589	65 056	1 996 567	14 541	4 397	-42 615	6 146 064

NOTE 3 Risk Management

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group's annual financial statements as at 31 December 2022. There have been no major changes in the risk management department or in any risk management policies since the year end. The impact of COVID-19 on the Group's operations needs to be reported separately. The crisis mainly affects three risks: personnel risk, liquidity risk and credit risk.

Fortunately, the impact on personnel risk has been minimal, LHV was ready to work in home offices and almost all employees worked for two months from home offices. This reduced social interaction and the chances of being exposed to the virus.

To reduce liquidity risk, LHV Pank has issued mortgage bonds.

They made it possible to reduce the share of expensive platform deposits in financing and, together with the increased funding from the TLTRO III program, to finance the purchase of Danske's portfolio of local governments and companies at the beginning of the fourth quarter.

The escalated conflict in Ukraine in early 2022, did not have direct impact to LHV credit portfolio, because of historical restrictive lending to customers exposed to risks outside EU. However, increasing energy prices need to be considered, when issuing credits both to corporates and retail clients going forward. For example, some business models need to change and both commercial and residential buildings need to become more energy efficient.

During the second half of the year 2022, the Estonian economy has entered a mild recession. So far, the cooling economy has had no negative impact on the credit portfolio quality. As opposite, both the forborne and the overdue portfolio have been continuously shrinking throughout the year 2022. LHV is continuously monitoring credit portfolio quality and is in close dialog with customers, so that in case of a need, potential risks could be mitigated.

NOTE 4 Breakdown of Financial Assets and Liabilities by Countries

30.06.2023	Estonia	Germany	Other EU	USA	UK	Other	Total
Due from banks and investment companies	2 137 367	0	314 806	30 959	120 976	0	2 604 108
Financial assets at fair value	11 233	11	3 035	292	2	2	14 575
Financial assets at amortized cost	162 922	4 988	154 086	0	32 717	0	354 713
Loans and advances to customers	3 194 586	933	20 823	564	31 958	4 631	3 253 495
Receivables from customers	27 468	0	0	0	226	0	27 694

Other financial assets	24	0	0	100	0	0	124
Total financial assets	5 533 600	5 932	492 750	31 915	185 879	4 633	6 254 709
Loans received from Central Banks (TLTRO)	49 972	0	0	0	0	0	49 972
Deposits of customers and loans received	3 745 827	135 495	815 957	28 796	255 337	80 956	5 062 368
Loans received and bonds issued	511 090	0	0	0	0	0	511 096
Subordinated debt	131 301	0	0	0	0	0	131 301
Financial liabilities at fair value	558	0	0	0	0	0	558
Accounts payable and other financial liabilities	102 631	0	0	0	7 112	0	109 743
Total financial liabilities	4 541 379	135 495	815 957	28 796	262 449	80 956	5 865 038

Unused loan commitments in the amount of EUR 478 761 thousand are for the residents of Estonia.

31.12.2022	Estonia	Germany	Other EU	USA	UK	Other	Total
Due from banks and investment
companies	1 938 118	0	329 496	24 727	189 847	101	2 482 288
Financial assets at fair value	244 845	4 973	123 735	21	3	6	373 584
Loans and advances to customers	3 161 803	612	17 867	622	22 974	4 694	3 208 572
Receivables from customers	21 019	0	0	0	0	0	21 019
Other financial assets	24	0	0	100	0	0	124
Total financial assets	5 365 809	5 585	471 098	25 470	212 823	4 801	6 085 587
Loans received from Central Banks (TLTRO)	147 841	0	0	0	0	0	147 841
Deposits of customers and loans received	3 617 636	5 292	794 100	14 890	439 714	28 883	4 900 515
Loans received and bonds issued	438 642	0	0	0	0	0	438 642
Subordinated debt	130 843	0	0	0	0	0	130 843
Financial liabilities at fair value	3 850	0	0	0	0	0	3 850
Accounts payable and other financial liabilities	84 125	0	0	0	0	0	84 125
Total financial liabilities	4 422 937	5 292	794 100	14 890	439 714	28 883	5 705 816

Unused loan commitments in the amount of EUR 601 093 thousand are for the residents of Estonia.

NOTE 5 Breakdown of Assets and Liabilities by Contractual Maturity Dates

	On	0-3	3-12	1-5	Over 5
30.06.2023	demand	months	months	years	years	Total
Liabilities by contractual maturity dates
Loans received from Centrral Banks (TLTRO)	0	50 400	0	0		50 400
Deposits from customers	4 004 163	293 857	735 977	44 041	0	5 078 038
Loans received and bonds issued	0	2 068	1 203	475 712	0	478 982
Subordinated debt	0	1 881	66 019	81 925	0	149 825
Accounts payable and other financial liabilities	0	109 743	0	0	0	109 743
Unused loan commitments	0	478 761	0	0	0	478 761
Financial guarantees by contractual amounts	0	54 073	0	0	0	54 073
Foreign exchange derivatives (gross settled)	0	152 704	0	0	0	152 704
Financial liabilities at fair value	0	558	0	0	0	558
Total liabilities	4 004 163	1 093 645	803 198	601 677	0	6 553 083

Financial assets by contractual maturity dates
Due from banks and investment companies	2 604 108	0	0	0	0	2 604 108
Financial assets at fair value (debt securities)	0	104 107	171 978	78 682	5 423	360 191
Loans and advances to customers	0	169 635	478 024	2 326 776	1 534 169	4 508 604
Receivables from customers	0	27 694	0	0	0	27 694
Foreign exchange derivatives (gross settled)	0	152 704	0	0	0	152 704
Other financial assets	124	0	0	0	0	124
Total financial assets	2 604 232	454 140	650 002	2 405 458	1 539 592	7 653 425
Maturity gap from financial assets and liabilities	-1 399 931	-639 504	-153 196	1 803 781	1 539 592	1 100 342

	On	0-3	3-12	1-5	Over 5
31.12.2022	demand	months	months	years	years	Total
Liabilities by contractual maturity dates
Loans received from Centrral Banks (TLTRO)	0	0	0	150 082		150 082
Deposits from customers	4 643 310	95 807	143 740	18 082	0	4 900 939
Loans received and bonds issued	0	0	2 000	452 250	0	454 250
Subordinated debt	0	2 406	46694	105538	0	154 638
Accounts payable and other financial liabilities	0	84 125	0	0	0	84 125
Unused loan commitments	0	601 093	0	0	0	601 093
Financial guarantees by contractual amounts	0	52 577	0	0	0	52 577
Foreign exchange derivatives (gross settled)	0	171 694	0	0	0	171 694
Financial liabilities at fair value	0	3 850	0	0	0	3 850
Total liabilities	4 643 310	1 011 552	192 434	725 952	0	6 573 248
Financial assets by contractual maturity dates
Due from banks and investment companies	2 428 288	0	0	0	0	2 428 288
Financial assets at fair value (debt securities)	0	236 130	4 966	123 519	471	365 086
Loans and advances to customers	0	186 547	487 298	2 115 010	1 258 430	4 047 285
Receivables from customers	0	21 019	0	0	0	21 019
Foreign exchange derivatives (gross settled)	0	171 694	0	0	0	171 694
Other financial assets	124	0	0	0	0	124
Total financial assets	2 428 412	615 390	492 264	2 238 529	1 258 901	7 033 496
Maturity gap from financial assets and liabilities	-2 214 898	-396 162	299 830	1 512 577	1 258 901	460 248

It is possible to take a short-term loan from the central bank against the security of the majority of instruments in the bond portfolio. All cashflows from financial assets and –liabilities except derivatives include all contractual cash flows.

NOTE 6 Open Foreign Currency Positions

30.06.2023	EUR	CHF	GBP	SEK	USD	Other	Total
Assets bearing currency risk
Due from banks and investment companies	2 444 255	1 557	137 128	3 313	8 994	8 860	2 604 108
Financial assets at fair value	335 994	0	32 719	1	34	540	369 288
Loans and advances to customers	3 161 772	31	84 447	126	6 876	242	3 253 495
Receivables from customers	19 001	3	3 351	0	4 800	539	27 694
Other financial assets	124	0	0	0	0	0	124
Total assets bearing currency risk	5 961 146	1 592	257 646	3 440	20 704	10 181	6 254 709

Liabilities bearing currency risk

Open foreign currency position	376 288	-6	63 066	59	670	-432	439 645
Open gross position derivative liabilities at contractual value	152 100	0	0	0	0	604	152 704
Open gross position derivative assets at contractual value	604	5 309	0	6 754	139 126	911	152 704
Total liabilities bearing currency risk	5 433 363	6 907	194 580	10 135	159 160	10 920	5 815 065
Subordinated debt	131 301	0	0	0	0	0	131 301
Accounts payable and other financial liabilities	76 867	0	24 475	759	6 162	1 478	109 742
Financial liabilities at fair value	558	0	0	0	0	0	558
Loans received and bonds issued	461 124	0	0	0	0	0	461 124
Deposits from customers	4 713 541	6 906	170 105	9 376	152 998	9 442	5 062 368
Loans received from Central Banks (TLTRO)	49 972	0	0	0	0	0	49 972

31.12.2022	EUR	CHF	GBP	SEK	USD	Other	Total
Assets bearing currency risk
Due from banks and investment companies	2 255 128	1 466	197 580	2 538	17 806	7 769	2 482 288
Financial assets at fair value	373 514	0	2	1	26	42	373 584
Loans and advances to customers	3 180 499	74	22 306	385	5 068	241	3 208 572
Receivables from customers	25 865	5	751	241	-4 512	-1 330	21 019
Other financial assets	124	0	0	0	0	0	124
Total assets bearing currency risk	5 835 130	1 545	220 639	3 164	18 388	6 721	6 085 587
Liabilities bearing currency risk
Loans received from Central Banks (TLTRO)	147 841	0	0	0	0	0	147 841
Deposits from customers	4 533 633	5 323	193 442	10 968	148 058	9 089	4 900 515
Loans received and bond issued	438 642	0	0	0	0	0	438 642
Financial liabilities at fair value	0	0	0	0	3 849	1	3 850
Accounts payable and other financial liabilities	65 099	19	9 757	172	8 987	91	84 125
Subordinated debt	130 843	0	0	0	0	0	130 843
Total liabilities bearing currency risk	5 316 058	5 343	203 199	11 140	160 895	9 182	5 705 817
Open gross position derivative assets at contractual value	9 403	3 757	0	8 001	148 162	2 371	171 694
Open gross position derivative liabilities at contractual value	162 291	0	0	0	9 403	0	171 694
Open foreign currency position	366 183	-40	17 440	25	-3 748	-89	379 770

NOTE 7 Fair Value of Financial Assets and Liabilities

The Management Board of the Group has determined the fair value of assets and liabilities recognised at amortised cost in the balance sheet. To determine the fair value, future cash flows are discounted based on the market interest curve.

The below table provides an overview of the assessment techniques, which depend on the hierarchy of assets and liabilities measured at fair value:

	Level 1	Level 2	Level 3	30.06.2023	Level 1	Level 2	Level 3	31.12.2022
Financial assets at fair value through profit and loss
Shares and fund units*	803	7 763	0	8 566	1 075	7 474	0	8 549
Bonds at fair value through profit and loss	5 390	0	0	5 390	765	0	0	765
Interest rate swaps and foreign exchange
forwards	0	619	0	619	0	40	0	40
Total financial assets	6 193	8 382	0	14 575	1 840	7 514	0	9 354
Financial liabilities at fair value through profit and loss
Interest rate swaps and foreign exchange	0	558	0	558	0	3 850	0	3 850
forwards Total financial liabilities	0	558	0	558	0	3 850	0	3 850

*Shares and fund units include the Group companies' AS LHV Varahaldus investment into pension fund units in the amount of EUR 7 763 (31.12.2022: 7 474) thousand. Pursuant to the Investment Funds Act, the mandatory shares of LHV Varahaldus as the management company is 0.5% of the number of units in each of the mandatory pension fund managed by it.

As of June 30, 2023, the liquidity portfolio in the amount of EUR 354 713 thousand is reflected in the amortised cost and the loss from the revaluation of the portfolio is refleced in the income statement in the line Impairment losses on loans and bonds in the total amount of EUR 86 thousand.

Hierarchy levels:

• 1. Level 1 the price quoted on active market
• 1. Level 2 a technique which uses market information as input (rates and interest curves of arms-length transactions)
• 1. Level 3 other methods (e.g. discounted cash flow method) with estimations as input

Interest rate swaps are instruments, where the fair value is determined via the model-based approach by using the inputs available on the active market. The fair value of such non-market derivatives is calculated as a theoretical net present value (NPV), by using independent market parameters and without assuming the presence of any risks or uncertainties. The NPV is discounted by using the risk-free profitability rate available on the market.

As at 30.06.2023 the fair value of corporate loans and overdraft is EUR 57 905 thousand (3.23%) higher than their carrying amount (31.12.2022: 37 846 thousand, 2.11% higher). Loans are issued in the bank's business segments on market conditions. Therefore, the fair value of retail loans does not materially differ from their carrying amount as at 30 June 2023 and 31 December 2022. In determining the fair value of loans, considerable management judgements are used (discounted cash flow method with current market interest is used for the valuation). Loans issued are thus categorised under hierarchy level 3.

Lease interest rates offered to customers generally correspond to interest rates prevailing in the market for such products. Considering that the interest rate environment has been relatively stable since the Group started to provide leasing, consequently the fair value of lease agreements does not materially differ from their carrying amount. As significant management judgment is required to determine fair value, leases are classified as level 3 in the fair value hierarchy.

Leveraged loans, hire-purchase and credit cards granted to customers are of sufficiently short-term nature and they have been issued at market terms, therefore the fair market rate of interest and also the fair value of loans do not change significantly during the loan term. The fair value level of leveraged loans, hirepurchase, credit cards and consumer loans is 3 as significant judgmental assumptions are used for the valuation process.

Other receivables from customers, along with accrued expenses and other current receivables have been generated in the course of ordinary business and are subject to payment over a short period of time. Their fair value does not thus differ from the carrying amount. These receivables and payables do not bear any interest. The fair value of accounts payable, accrued expenses and other payables is determined based on hierarchy level 3.

Customer deposits with fixed interest rates are mostly short-term with the deposits priced pursuant to market conditions. The majority of the customer deposits include demand deposits. The fair value of the deposits determined via discounting future cash flows does not thus materially differ from the carrying amount. In determining the fair value of customer deposits, considerable management judgements are used. Customer deposits are thus categorised under hierarchy level 3.

Subordinated loans in the amount of EUR 20 000 thousand were received in 2022, subordinated loans in the amount of EUR 50 000 thousand were received in 2020 subordinated loans in the amount of EUR 40 000 thousand were received in 2019 and EUR 20 000 thousand were received in 2018. Subordinated loans were issued on market terms and considering the movements in loan and interest market, we can say that the market conditions are similar as they were when issuing the subordinated loans so that the fair value of the loans does not materially differ from their carrying value. In determining the fair value of loans, considerable management judgements are used. Subordinated debt are thus categorised under hierarchy level 3.

NOTE 8 Breakdown of Loan Portfolio by Economic Sectors and by Stages

30.06.2023	Stage 1	Stage 2	Stage 3	Provision	Total	%
Individuals	1 190 646	94 944	5 446	-3 924	1 287 112	39.6%
Agriculture	105 957	2 517	12	-199	108 287	3.3%
Mining and Quarrying	1 050	779	82	-107	1 804	0.1%
Manufacturing	119 426	40 618	964	-1 423	159 585	4.9%
Energy	131 373	997	0	-701	131 669	4.0%
Water and sewerage	28 037	275	0	-302	28 010	0.9%
Construction	122 911	4 895	103	-1 826	126 083	3.9%
Wholesale and retail trade	147 105	7 033	187	-1 064	153 261	4.7%
Transportation and storage	15 554	10 380	0	-667	25 267	0.8%

Accommodation and catering	12 099	2 801	429	-225	15 104	0.5%
Information and communication	11 864	1 430	29	-46	13 277	0.4%
Financial activities	105 518	5 920	0	-605	110 833	3.4%
Real estate activities	725 440	26 386	2 039	-3 645	750 220	23.1%
Professional, scientific and technical activities	89 039	4 516	17	-239	93 333	2.9%
Administrative and support service activities	90 949	2 258	24	-519	92 712	2.8%
Local municipalities	73 068	119	0	-127	73 060	2.2%
Education	4 876	553	0	-323	5 106	0.2%
Health care	14 262	904	0	-126	15 040	0.5%
Arts and entertainment	29 525	27 676	0	-2 475	54 726	1.7%
Other service activities	7 624	1 416	11	-45	9 006	0.3%
Total	3 026 323	236 417	9 343	-18 588
Provision	-9 657	-6 364	-2 567
Total loan portfolio	3 016 666	230 053	6 776		3 253 495	100%

31.12.2022	Stage 1	Stage 2	Stage 3	Provision	Total	%
Individuals	1 127 636	115 433	5 446	-3 157	1 245 358	38.8%
Agriculture	76 817	2 743	0	-112	79 448	2.5%
Mining and Quarrying	1 038	519	122	-49	1 630	0.1%
Manufacturing	126 670	28 626	81	-1 308	154 069	4.8%
Energy	92 186	1 305	0	-321	93 170	2.9%
Water and sewerage	29 314	90	0	-275	29 129	0.9%
Construction	106 356	5 243	58	-1 716	109 941	3.4%
Wholesale and retail trade	144 586	6 599	69	-924	150 330	4.7%
Transportation and storage	15 198	10 323	1	-691	24 831	0.8%
Accommodation and catering	11 844	23 446	44	-1 531	33 803	1.1%
Information and communication	10 839	3 004	1	-34	13 810	0.4%
Financial activities	119 436	9 337	0	-823	127 950	4.0%
Real estate activities	757 443	34 577	1 558	-3 269	790 309	24.6%
Professional, scientific and technical activities	68 001	7 313	30	-171	75 173	2.3%
Administrative and support service activities	115 072	4 563	32	-3 116	116 551	3.6%
Local municipalities	79 272	0	0	-127	79 145	2.5%
Education	5 151	596	0	-302	5 445	0.2%
Health care	14 312	541	0	-86	14 767	0.5%
Arts and entertainment	27 619	30 225	15	-2 588	55 271	1.7%
Other service activities	6 970	1 503	11	-42	8 442	0.3%
Total	2 935 760	285 986	7 468	-20 642
Provision	-10 938	-7 632	-2 072
Total loan portfolio	2 924 822	278 354	5 396		3 208 572	100%

NOTE 9 Net Interest Income

Q2 2023	6M 2023	Q2 2022	6M 2022
1 603	3 442	671	934
18 388	31 755	488	988
2 650	3 194	-243	-342
2 645	4 989	1 441	2 881

Total	56 671	105 398	32 582	64 768
UK	444	861	0	0
Estonia	56 227	104 537	32 582	64 768
(interest on bank balances and bonds excluded):	Q2 2023	6M 2023	Q2 2022	6M 2022
Interest income on loans by customer location	19 893	68 492	13 270	47 388
Net interest income	62 900	118 008	27 184	52 971
Total	-16 412	-25 781	-6 314	-13 377
including loans between related parties	-89	-178	-81	-162
Subordinated liabilities	-4 628	-9 103	-2 118	-4 233
Other interest expense	-92	-310	0	0
Balances with the central bank	0	0	-2 946	-6 732
Deposits of customers and loans received	-11 692	-16 368	-1 250	-2 412
Interest expense
Total	79 312	143 789	33 498	66 348
Other loans	580	984	2 855	6 692
Private loans	904	1 746	568	1 122
Mortgage loans	15 198	27 624	6 186	11 717
Credit card loans	245	477	199	394
Corporate loans	32 923	61 237	17 853	35 181
Hire purchase	878	1 782	807	1 615
Consumer loans	2 988	5 880	2 245	4 303
Leverage loans and lending of securities	312	679	428	863

NOTE 10 Net Fee and Commission Income

Fee and commission income	Q2 2023	6M 2023	Q2 2022	6M 2022
Security brokerage and commissions paid	1 046	2 154	1 023	2 445
Asset management and similar fees	3 810	7 484	3 407	6 683
Currency exchange fees conversion revenues	1 275	2 704	2 201	4 505
Fees from cards and payments	7 769	15 230	6 420	613 064
Other fee and commission income	3 250	5 222	2 394	3 563
Total	17 150	32 794	15 445	30 260
Fee and commission expense
Security brokerage and commissions paid	-626	-1 230	-598	-1 237
Expenses related to cards	-2 461	-3 834	-1 768	-3 480
Expenses related to acquiring	-1 693	-3 396	-1 837	-3 480
Other fee and commission expense	-18	-105	-238	-712
Total	-4 798	-8 565	-4 441	-8 909
Net fee and commission income	12 352	24 229	11 004	21 351
Fee and commission income by customer location:	Q2 2023	6M 2023	Q2 2022	6M 2022
Estonia	12 933	26 755	13 558	26 463
Great Britain	4 217	6 039	1 887	3 797
Total	17 150	32 794	15 445	30 260

NOTE 11 Operating Expenses

	Q2 2023	6M 2023	Q2 2022	6M 2022
Wages, salaries and bonuses	11 677	23 347	8 966	16 768
Social security and other taxes*	4 174	8 171	2 781	5 227
Total personnel expenses	15 851	31 518	11 747	21 995
IT expenses	3 747	6 883	1 577	3 241
Information services and bank services	403	830	341	640
Marketing expenses	1 087	1 896	655	1 617
Office expenses	982	1 533	435	851
Transportation and communication expenses	130	278	137	269
Staff training and business trip expenses	401	752	339	594
Other outsourced services	3 113	5 828	2 000	4 195
Other administrative expenses	4 889	9 376	1 594	2 697
Depreciation of non-current assets	1 974	3 959	1 487	2 825
Operational lease payments	215	389	491	599
Other operating expenses	248	420	276	422
Total other operating expenses	17 189	32 144	9 332	17 950
Total operating expenses	33 040	63 662	21 079	39 945

*lump-sum payment of social, health and other insurances

NOTE 12 Balances with the Central Bank, Credit Institutions and Investment Companies

	30.06.2023	31.12.2022
Demand and term deposits with maturity less than 3
months*	134 732	91 324
Statutory reserve capital with the central bank	50 613	48 689
Demand deposit from central bank*	2 418 763	2 342 275
Total	2 604 108	2 482 288
*Cash and cash equivalents in the Statement of Cash
Flows	2 553 495	2 433 599

The breakdown of receivables by countries has been presented in Note 4. Demand deposits include receivables from investment companies in the total amount of EUR 8 414 thousand (31 December 2022: EUR 3 391 thousand). All other demand and term deposits are held with credit institutions and the central bank. The minimum reserve requirement as at 30 June 2023 was 1% (31 December 2022: 1%) of all financial resources (customer deposits and loans received). The reserve requirement is to be fulfilled as a monthly average in euros or in the foreign financial assets approved by the central bank.

NOTE 13 Deposits of Customers and Loans Received

Deposits by type	Individuals	Financial entities	Non-financial	entities Public sector	30.06.2023
Demand deposits	898 271	1 216 579	1 811 759	74 956	4 001 565
Term deposits	564 578	48 038	420 951	19 642	1 053 209
Accrued interest liability	2 740	1 133	3 437	284	7 594
Total	1 465 589	1 265 750	2 236 147	94 882	5 062 368

Deposits by type	Individuals	Financial entities	Non-financial	entities Public sector	31.12.2022
Demand deposits	1 065 135	1 477 182	2 042 117	58 406	4 642 840
Term deposits	63 208	23 046	146 137	24 587	256 978
Accrued interest liability	336	192	156	13	697
Total	1 128 679	1 500 420	2 188 410	83 006	4 900 515

Loans received 30.06.2023	TLTRO	Covered bonds	Preferred senior bond	Total loans received and dept securities in issue
Loans received	50 000	249 429	210 145	459 574
Accrued interest liability	-28	15	1 535	1 550
Total	49 972	249 444	211 680	461 124
Loans received 31.12.2022	TLTRO	Covered bonds	Preferred senior bond	Total loans received and dept securities in issue
Loans received	150 000	249 284	188 672	437 956
Accrued interest liability	-2 159	141	545	686

In June 2020, LHV Pank made a successful debut issue of EUR 250 million in covered bonds to international investors. 31 institutional investors participated in the 5-year issue and the interest rate was 0.12%. The issue by LHV Pank was the first debut issue since the beginning of the COVID-19 crisis. The issue received an Aa1 rating from Moodys and was listed on the Dublin Stock Exchange.

In September 2021, LHV Group issued EUR 100 million of preferred bonds with a four-year maturity, which includes the option to call back the transaction after the third year. The issue received a Baa3 rating and was listed on the Dublin Stock Exchange.

In November 2022, LHV Group Carried out a tap issue of senior unsecured bonds with a maturity date in September 2025. As a result, LHV raised additional funds in the amount of EUR 88 million. The nominal value of the issued bonds increased by 100 million euros. Since it was an increase in the volume of previously issued bonds, the terms and conditions of the new bonds are identical to the previous issue.

In 2020, the Bank raised EUR 200 million in negative interest funds through the TLTRO III program offered by the European Central Bank. In the second quarter 2022, the Bank returned early loan of 50 million euros to the European Central Bank and the same amount was also returned in first quarter 2023.

The nominal interest rate of the deposits of customers and loans granted equals to their effective interest rate, as no other significant fees have been implemented.

NOTE 14 Accounts payable and other liabilities

Financial liabilities	30.06.2023	31.12.2022
Trade payables and payables to merchants	5 973	1 943
Other short-term financial liabilities	12 357	10 676
Lease liabilities	6 480	6 766
Payments in transit	46 011	40 101
Financial guarantee contracts issued	1 229	1 228
Liabilities from insurance services	37 693	23 411
Subtotal	109 743	84 125
Not financial liabilities
Performance guarantee contracts issued Non-financial liabilities	1 585	1 058
Tax liabilities	3 460	3 086
Payables to employees	4 647	3 457
Other short-term liabilities	742	736

Subtotal	10 434	8 337
Total	120 176	92 462

Payables to employees consist of unpaid salaries; bonus accruals and vacation pay accrual for the reporting period and the increase in liabilities is caused by the increase in the number of employees during the year. Payments in transit consist of foreign payments and payables to customers related to intermediation of securities transactions. All liabilities, except for financial guarantees, are payable within 12 months and are therefore recognised as current liabilities.

NOTE 15 Contingent Liabilities

Irrevocable transactions	Performance guarantees	Financial guarantees	Letter of credit	Unused loan commitments	Total
Liability in the contractual amount as at 30 June
2023	41 416	54 073	8 938	478 761	583 188
Liability in the contractual amount as at 31
December 2022	30 174	52 577	6 605	601 093	690 449

NOTE 16 Basic Earnings and Diluted Earnings Per Share

In order to calculate basic earnings per share, net profit attributable to owners of the parent has been divided by the weighted average number of shares issued. The dilution effect when calculating the Diluted earnings per share comes from the share options granted to management and key employees.

	Q2 2023	6M 2023	Q2 2022*	6M 2022*
Total profit (incl. discontinued operations) attributable to owners of the parent (EUR thousand)	35 353	68 007	13 543	25 423
Weighted average number of shares (in thousands of units)	317 629	316 527	307 033	288 940
Basic earnings per share (EUR) Weighted average number of shares used for calculating the	0.11	0.21	0.04	0.08
diluted earnings per shares (in thousands of units)	323 313	322 513	313 322	298 150
Diluted earnings per share (EUR)	0.11	0.21	0.04	0.08

* 2022 data is adjusted according to share split carried out in Q3 2022.

NOTE 17 Capital Management

The goal of the Group's capital management is to:

• ✓ ensure continuity of the Group's business and ability to generate return for its shareholders;
• ✓ maintain a strong capital base supporting the development of business;
• ✓ comply with capital requirements as established by supervision authorities.

The amount of capital that the Group managed as of 30.06.2023 was 502 386 thousand euros (31.12.2022: 494 956 thousand euros). The goals of the Group's capital management are set based on both the regulative requirements and additional internal buffer.

The Group follows the general principles in its capital management:

• The Group must be adequately capitalized at all times, ensuring the necessary capital to ensure economic preservation in all situations;

• The main focus of the capital management is on tier 1 own funds, because only tier 1 own funds can absorb losses. All other capital layers in use are dependent of tier 1 own funds volume;
• Capital of the Group can be divided in two: 1) regulative minimum capital and 2) capital buffer held by the Group. In order to reach its long-term economic goals the Group must on one hand strive towards proportional lowering of the regulative minimumcapital (through minimizing risks and high transparency). On the other hand, the Group must strive towards sufficient and conservative capital reserve, which will ensure economic preservation even in the event of severe negative risk scenario;
• The risk appetite set by the Group is an important input to capital management planning and capital goal setting. Higher risk appetite requires marinating higher capital buffer.

Capital base	30.06.2023	31.12.2022
Paid-in share capital	31 983	31 542
Share premium	143 372	141 186
Reserves	4 713	4 713
Other reserves	-327	-1 447
Accumulated loss	219 426	170,010
Intangible assets (subtracted)	-23 399	-23 333
Profit for the reporting period (COREP)	0	49 179
Other adjustments	-355	-369
CET1 capital elements or deductions	0	0
CET1 instruments of financial sector entities where the institution has a significant investment	-3 028	-3 351
CET1 instruments of financial sector entities where the institution has not a significant
investment	0	-180
Total Core Tier 1 capital	372 386	364 956
Additional Tier 1 capital	55 000	55 000
Total Tier 1 capital	427 386	419 956
Subordinated liabilities	75 000	75 000
Total Tier 2 capital	75 000	75 000
Total net own funds	502 386	494 956

The Group has complied with all regulative capital requirements during the financial year and in previous year.

NOTE 18 Transactions with related parties

In preparing the financial statements of the Group, the following entities have been considered related parties:

• owners that have significant impact on the Group and the entities related to them;
• members of the management board and legal entities controlled by them (together referred to as management);
• members of the supervisory board;
• close relatives of the persons mentioned above and the entities related to them.

Transactions	Q2 2023	6M 2023	Q2 2022	6M 2022
Interest income	97	178	30	61
incl. management	34	80	13	26
incl. shareholders that have significant influence	63	98	17	35
Fee and commission income	58	116	3	6
Incl. management	8	16	2	4
incl. shareholders that have significant influence	50	100	1	3
Interest expenses from deposits	22	44	4	8
incl. management	2	4	1	2
incl. shareholders that have significant influence	20	40	3	6

Interest expenses from subordinated loans	89	181	81	162
incl. management	2	4	3	6
incl. shareholders that have significant influence	87	174	78	156

Balances	30.06.2023	31.12.2022
Loans and receivables as at the year-end	8 461	7 570
incl. management	4 474	3 901
incl. shareholders that have significant influence	3 987	3 669
Deposits as at the year-end	12 007	7 763
incl. management	1 391	765
incl. shareholders that have significant influence	10 616	6 998
Subordinated loans as at the year-end	4 434	4 434
incl. management	148	148
incl. shareholders that have significant influence	4 286	4 286

The table provides an overview of the material balances and transactions involving related parties. All other transactions involving the close relatives and the entities related to members of the management board and supervisory board and the minority shareholders of the parent company AS LHV Group have occurred according to the overall price list. The management and shareholders with significant influence include also their related entities and persons.

Loans granted to related parties are issued at market conditions.

In Q2, salaries and other compensations paid to the management of the parent AS LHV Group and its subsidiaries totalled EUR 832 thousand (Q2 2022: EUR 688 thousand), including all taxes. As at 30.06.2023, remuneration for June and accrued holiday pay in the amount of EUR 188 thousand (31.12.2022: EUR 214 thousand) is reported as a payable to management. The Group

did not have any long-term payables or commitments to the members of the Management Board and the Supervisory Board as at 30.06.2023 and 31.12.2022 (pension liabilities, termination benefits, etc.). In Q2 2023, the remuneration paid to the members of the Group's Supervisory Board totalled EUR 27 thousand (Q2 2022: EUR 27 thousand).

Management is related to the share-based compensation plan. In Q2 2023 the share-based compensation to management amounted to EUR 588 thousand (Q2 2022: EUR 618 thousand).

The Group has signed contracts with the members of the Management Board, which do not provide for severance benefits upon termination of the contract. In any matters not regulated by the contract, the parties adhere to the procedure specified in the legislation of the Republic of Estonia.

NOTE 19 Tangible and intangible assets

				Costs incurred for the acquisition of		Total
(in thousands of euros)	Tangible assets	Right of use assets	Total tangible assets	Intangible assets	customer contracts	intangible assets
Balance as at 31.12.2021
Cost	9 278	6 523	15 801	11 146	16 714	27 860
Accumulated depreciation and amortisation	-4 846	-2 481	-7 327	-7 382	-8 653	-16 035
Carrying amount 31.12.2021	4 432	4 042	8 474	3 764	8 061	11 825
Purchase of non-current assets	6 527	5 642	12 169	3 745	0	3 745
Depreciation/amortisation charge	-1 431	-2 377	-3 808	-1 990	-1 503	-3 493
Tangible and intangible assets added by
the acquisition of a subsidiary	23	0	23	896	0	896
Write-off of on-current assets	-13	0	-13	-366	0	-366

Capitalised selling costs	0	0	0	0	881	881
Balance as at 31.12.2022
Cost	15 815	12 165	27 980	15 421	17 595	33 016
Accumulated depreciation and amortisation	-6 264	-4 858	-11 122	-9 006	-10 156	-19 162
Carrying amount 31.12.2022	9 551	7 307	16 858	6 415	7 439	13 854
Purchase of non-current assets	1 905	867	2 772	2 219	0	2 219
Depreciation/amortisation charge	-717	-1 143	-1 860	-1 428	-671	-2 099
Recalculation of the accumulated	86	189	275	537	0	537
Write-off of on-current assets amortisation	-72	-12	-84	0	0	0
Capitalised selling costs	0	0	0	0	431	431
Balance as at 30.06.2023
Cost	17 806	13 221	31 027	18 177	18 026	36 203
Accumulated depreciation and amortisation	-7 053	-6 013	-13 066	-10 971	-10 827	-21 798
Carrying amount 30.06.2023	10 753	7 208	17 961	7 206	7 199	14 405

NOTE 20 Subordinated debts

Subordinated debts (in thousands of euros)

	Year issue	of	Amount	Interest rate	Maturity date
Subordinated Tier 2 liabilities	2018		20 000	6.0%	November 28 2028
Subordinated Tier 2 liabilities	2019		20 000	6.0%	November 28 2028
Subordinated Tier 2 liabilities	2020		35 000	6.0%	September 30 2030
Additional subordinated Tier 2 liabilites	2019		20 000	8.0%	Perpetual
Additional subordinated Tier 2 liabilites	2020		15 000	9.5%	Perpetual
Additional subordinated Tier 2 liabilites	2022		20 000	10.5%	Perpetual
Subordinated debt as at 31.12.2022			130 000
Subordinated debt as at 30.06.2023			130 000

NOTE 21 Changes in impairments

Changes in impairments	Balance as at 01.01	Impairment provisions/reversals set up during the year	Written off during the reporting perion	Balance as at 30.06
Corporate loans	-15 498	-2 482	5 221	-12 759
Consumer loans	-2 108	-1 260	548	-2 820
Investment financing	-13	-5	2	-16
Leasing	-2 009	-176	216	-1 969
Private loans	-1 014	-141	131	-1 024
Total 2023	-20 642	-4 064	6 118	-18 588
Changes in impairments	Balance as at 01.01	Impairment provisions/reversals set up during the year	Written off during the reporting perion	Balance as at 31.12
Corporate loans	-15 288	-5 426	5 216	-15 498
Consumer loans	-1 320	-2 092	1 303	-2 108
Investment financing	-130	-8	125	-13
Leasing	-1 250	-1 204	445	-2 009
Private loans	-1 061	-593	641	-1 014

Total 2022 -19 049 -9 323 7 730 -20 642

Shareholders of AS LHV Group

AS LHV Group has a total of 319 832 743 ordinary shares, with a nominal value of 0.1 euro.

As at 30 June 2023, AS LHV Group has 35 940 shareholders:

• 147 584 344 shares (46.14%) were held by members of the Supervisory Board and Management Board, and related parties.
• 172 248 399 shares (53.86%) were held by Estonian entrepreneurs and investors, and related parties.

Top ten shareholders as at 30 June 2023:

Number of	Participation	Name of shareholder
shares 37 162 070	11,6%	AS Lõhmus Holdings
33 910 370	10,6%	Viisemann Investments AG
25 449 470	8,0%	Rain Lõhmus
12 446 070	3,9%	Krenno OÜ
11 310 000	3,5%	AS Genteel
10 875 280	3,4%	AS Amalfi
10 828 210	3,4%	Ambient Sound Investments OÜ
7 188 990	2,3%	SIA Krugmans
6 691 020	2,1%	Bonaares OÜ
6 037 590	1,9%	OÜ Meroona Systems

Shares held by members of the Management Board and Supervisory Board

Madis Toomsalu holds 1 398 440 shares.

Martti Singi holds 911 100 shares and Unitas OÜ holds 77 540 shares.

Meelis Paakspuu holds 663 300 shares.

Jüri Heero holds 818 980 shares and Heero Invest OÜ holds 306 820 shares.

Rain Lõhmus holds 25 449 470 shares, AS Lõhmus Holdings 37 162 070 shares and OÜ Merona Systems 6 037 590 shares.

Andres Viisemann holds 545 840 shares. Viisemann Holdings OÜ holds 1 300 000 shares and Viisemann Investment AG holds 33 910 370 shares.

Tauno Tats does not hold shares. Ambient Sound Investments OÜ holds 10 828 210 shares.

Tiina Mõis holds 49 880 shares. AS Genteel holds 11 310 000 shares.

Heldur Meerits does not hold shares. AS Amalfi holds 10 875 280 shares.

Raivo Hein does not hold shares. OÜ Kakssada Kakskümmend Volti holds 5 003 370 shares, Astrum OÜ holds 3 890 shares and Lame Maakera OÜ holds 483 120 shares.

Sten Tamkivi holds 4 000 shares. OÜ Seikatsu holds 159 390 shares and OÜ Notorious 172 240 shares.

Supervisory Boards and Management Boards of AS LHV Group and its Subsidiaries

AS LHV Group

Supervisory board: Rain Lõhmus, Andres Viisemann, Tiina Mõis, Heldur Meerits, Raivo Hein, Tauno Tats, Sten Tamkivi Management board: Madis Toomsalu, Martti Singi, Meelis Paakspuu, Jüri Heero

AS LHV Varahaldus

Supervisory board: Madis Toomsalu, Andres Viisemann, Kadri Kiisel Management board: Vahur Vallistu, Joel Kukemelk, Eve Sirel

AS LHV Pank

Supervisory board: Madis Toomsalu, Rain Lõhmus, Andres Viisemann, Tiina Mõis, Heldur Meerits, Raivo Hein Management board: Kadri Kiisel, Jüri Heero, Andres Kitter, Meelis Paakspuu, Indrek Nuume, Martti Singi

AS LHV Finance

Supervisory board: Kadri Kiisel, Madis Toomsalu, Veiko Poolgas, Jaan Koppel Management board: Heidy Kütt

AS LHV Kindlustus

Supervisory board: Madis Toomsalu, Erki Kilu, Veiko Poolgas, Jaan Koppel Management board: Tarmo Koll (till 30.06.2023), Martti-Sten Merilai

LHV UK Limited

Board of Directors: Madis Toomsalu, Erki Kilu, Andres Kitter

AS EveryPay

Supervisory board: Kadri Kiisel, Madis Toomsalu, Erki Kilu, Andres Kitter Management board: Lauri Teder

Signatures of the Management Board to the Condensed Consolidated Interim Report

The Management Board has prepared the summary of results for January to June 2023 period the condensed consolidated interim financial statements of AS LHV Group for the 6-months period ended 30 June 2023.

The management board confirms that according to their best knowledge the interim report presents a fair view of LHV Group AS's assets, liabilities, financial position and profit or loss of the issuer and the entities involved in the consolidation as a whole and contains a description of the main risks and doubts.

18.07.2023

Madis Toomsalu

Martti Singi

Meelis Paakspuu

Jüri Heero