Market announcement

Title

LHV UK plans to acquire Bank North’s business activities

Message

LHV UK Limited, a subsidiary of AS LHV Group, has made an offer to Bank North
Limited, a UK based credit institution, to acquire its small and medium-sized
enterprises ('SME') lending business. With this move, LHV UK Limited, which is
currently applying for a UK banking license, enters the UK SME lending market.

LHV Group currently holds a 9.3% stake in Bank North as a financial investment.
Bank North was Authorised with Restrictions and it entered the mobilisation
period in Q3 2021. The mobilisation period usually lasts up to 12 months and
enables new banks to complete the build-out of their bank and fully capitalise
the bank. Although the bank saw substantial loan demand, Bank North was unable
to raise the required capital due to falling activity in the capital markets.
Therefore, on 30 September 2022, the company decided to initiate the Solvent
Wind Down process. For LHV Group, liquidating Bank North means an additional
write-off of its financial investment in the amount of EUR 2.2 million in
September.

Bank North with the help of liquidation advisers conducted a tender to sell its
business activity or loan portfolio, where LHV UK made the best offer.

The acquisition of the business would include the loan portfolio of
approximately 17.9 million pounds, 20 employees, information technology systems
for managing the customer relationships and loan portfolio, alongside agreements
with commercial brokers.  Employees include the business development and client
relationship team, underwriting, valuation and IT teams. The transaction price
is 110% of the loan book value at the time the transaction completes. The
transaction is scheduled to be completed in October. LHV UK will finance the
transaction from its own funds and does not need additional capital to carry out
the transaction. For LHV UK the acquired loan portfolio would start generating
interest income right after its transition. Longer term financial effect of the
transaction will be disclosed with the LHV Group financial plan in February
2023.

Comment by Madis Toomsalu, CEO of LHV Group: "Lending to enterprises has been
the main activity of LHV Group since the establishment of LHV Pank. Bank North's
activities have proven that the demand for SME loans in the UK remains strong
and that an efficient and fast decision-making process makes it possible for a
new entrant to the market to grow a lending business. Bank North's strengths
have been faster lending process compared to competitors, regional focus and
great relationship with commercial brokers. The lending business aligns with LHV
UK's strategy and business plan, which envisages the next expansion of existing
activities into the SME lending market, enabling a significant acceleration of
current plans. LHV UK plans to continue sales through existing commercial
brokers and also continue operating the physical branch in Manchester. For a
bank the size of LHV, the question in UK is not about demand for loans, but
about having enough capital to meet the demand."

LHV UK's growth strategy in the UK is underpinned by three business lines:
banking services for financial intermediaries, SME lending and banking services
for e-merchants. LHV UK is currently focused on obtaining a banking licence. For
providing new SME loans, LHV UK must register as an Annex 1 financial
institution.

LHV Group is the largest domestic financial group and capital provider in
Estonia. LHV Group's key subsidiaries are LHV Pank, LHV Varahaldus, and LHV
Kindlustus. The Group employs more than 820 people. As of August, LHV's banking
services are used by 359,000 clients, the pension funds managed by LHV have
132,000 active clients, and LHV Kindlustus protects a total of 149,000 clients.
LHV's UK branch offers banking infrastructure to 200 international financial
services companies, via which LHV's payment services reach clients worldwide.


Priit Rum
Communication Manager
Phone: +372 502 0786
Email: [email protected] (mailto:[email protected])