AS LHV Group Consolidated Annual Report 2015 2/95 Consolidated Annual Report 01.01.2015 – 31.12.2015 Legal name AS LHV Group Commercial Registry no. 11098261 Legal address Tartu mnt 2, 10145 Tallinn Phone (372) 6800400 Fax (372) 6800410 E-mail [email protected] Main activities Activities of holding companies Banking Security brokerage Financial advisory Finance lease and other lending Management Board Erkki Raasuke Supervisory Board Rain Lõhmus Andres Viisemann Tiina Mõis Heldur Meerits Raivo Hein Tauno Tats Sten Tamkivi Auditor AS PricewaterhouseCoopers AS LHV GROUP TARTU MNT 2, 10145 TALLINN 6 802 670 [email protected] LHV.EE 3/95 Contents Statement of Managing Director ................................................................................................................................................................ 4 Management report ..................................................................................................................................................................................... 6 Business environment .................................................................................................................................................................................... 8 Financial results ............................................................................................................................................................................................. 9 Governance of the Group ............................................................................................................................................................................. 16 Corporate Governance report ...................................................................................................................................................................... 18 CONSOLIDATED FINANCIAL STATEMENTS .......................................................................................................................................... 22 Consolidated statements of profit or loss and other comprehensive income ................................................................................................. 22 Consolidated statements of financial position ............................................................................................................................................... 23 Consolidated statements of cash flows ........................................................................................................................................................ 24 Consolidated statements of changes in equity ............................................................................................................................................. 25 Notes to the consolidated financial statements............................................................................................................................................. 26 NOTE 1 General information ....................................................................................................................................................................... 26 NOTE 2 Summary of significant accounting policies ................................................................................................................................... 27 NOTE 3 Risk management ......................................................................................................................................................................... 39 NOTE 4 Significant management estimates and assumptions .................................................................................................................... 65 NOTE 5 Business segments ....................................................................................................................................................................... 66 NOTE 6 Subsidiaries and associated companies, goodwill ......................................................................................................................... 69 NOTE 7 Net interest income ....................................................................................................................................................................... 71 NOTE 8 Net fee and commission income .................................................................................................................................................... 72 NOTE 9 Operating expenses ...................................................................................................................................................................... 72 NOTE 10 Due from central bank, credit institutions and investment companies .......................................................................................... 73 NOTE 11 Available-for-sale financial assets ............................................................................................................................................... 73 NOTE 12 Financial assets and liabilities at fair value through profit or loss ................................................................................................. 74 NOTE 13 Discontinued operations .............................................................................................................................................................. 75 NOTE 14 Loans and advances to customers .............................................................................................................................................. 75 NOTE 15 Receivables from customers ....................................................................................................................................................... 77 NOTE 16 Other assets ................................................................................................................................................................................ 77 NOTE 17 Tangible and intangible assets .................................................................................................................................................... 77 NOTE 18 Deposits from customers and loans received .............................................................................................................................. 78 NOTE 19 Accounts payable and other liabilities .......................................................................................................................................... 79 NOTE 20 Operating lease ........................................................................................................................................................................... 79 NOTE 21 Subordinated debts ..................................................................................................................................................................... 80 NOTE 22 Shareholders’ equity in the public limited company...................................................................................................................... 80 NOTE 23 Assets under management .......................................................................................................................................................... 82 NOTE 24 Contingent assets and liabilities .................................................................................................................................................. 82 NOTE 25 Transactions with related parties ................................................................................................................................................. 83 NOTE 26 Basic earnings and diluted earnings per share ............................................................................................................................ 85 NOTE 27 Subsequent events...................................................................................................................................................................... 85 NOTE 28 Separate financial statements of parent company ....................................................................................................................... 86 Signatures of the management board to the consolidated annual report ............................................................................................. 90 Independent auditor's report……………………………………………………………………………………………………………………………91 Proposal for profit distribution ................................................................................................................................................................ 93 Signatures of the supervisory board to the annual report ..................................................................................................................... 94 Allocation of income according to EMTA classificators ........................................................................................................................ 95 AS LHV GROUP TARTU MNT 2, 10145 TALLINN 6 802 670 [email protected] LHV.EE 4/95 Statement of Managing Director LHV has had a successful year. The company's efforts have In LHV's ATMs, incoming cash flows exceed outgoing cash flows, borne fruit and the objectives established for the financial year contrasting the rest of the Estonian market. This indicates that the have been exceeded. Estonian retail banking is still under development, with both room and demand for further innovative solutions. The economic environment has been stable, despite persistent