25 June Minimum Investment Amount: EUR 1, Issue Price of the Bond: EUR 1, Subscription Period: 26 June July 2018

Transcription

1 Final Terms dated 25 June 2018 Medicinos bankas UAB Issue of EUR 3,000,000 Tranche of Bonds due 2025 under the programme for the issuance of subordinated Bonds in the total amount of up to EUR 10,000,000, qualifying as Tier 2 capital Terms used herein shall be deemed to be defined as such for the purposes of the General Terms and Conditions set forth in the Base Prospectus of the offering programme of subordinated Bonds of Medicinos bankas UAB in the total amount of up to EUR 10,000,000, qualifying as Tier 2 capital and admission thereof to trading on the Baltic Bond List of Nasdaq Vilnius AB, dated 25 June 2018 (the Base Prospectus ), which constitutes a base prospectus for the purposes of Directive 2003/71/EC as amended (which inter alia includes the amendments made by Directive 2010/73/EU to the extent that such amendments have been implemented in a relevant Member State of the European Economic Area (the Prospectus Directive )). This document constitutes the Final Terms of the Bonds described herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with the Base Prospectus. Full information on the Issuer and the Offering of the Bonds is only available on the basis of the combination of these Final Terms and the Base Prospectus. However, a summary of the issue of the Bonds is annexed to these Final Terms. The Base Prospectus has been published on the Issuer s website as well as (for informational purposes only) on the website of the Offering Broker 1. Issuer: Medicinos bankas UAB 2. Currency: EUR 3. Tranche number: 1 4. ISIN Code: LT Aggregate principal amount: Up to EUR 3,000,000. The Issuer may decrease the aggregate principal amount of the Tranche 1 during the Subscription Period of the Tranche 1. The final aggregate principal amount of the Tranche 1 will be specified in the notification regarding allotment of Bonds to the Investors, which will be published on the websites of the Company and Offering Broker after allotment thereof to the Investors 6. Nominal amount of the Bond: EUR 1, Expected Issue Date: 24 July Decision by which the Bonds of this Tranche are issued: 9. Annual Interest Rate: 7% 25 June Interest Payment Dates: 24 January 2019, 24 July 2019, 24 January 2020, 24 July 2020, 24 January 2021, 24 July 2021, 24 January 2022, 24 July 2022, 24 January 2023, 24 July 2023, 24 January 2024, 24 July 2024, 24 January 2025, 24 July Maturity Date: 24 July Redemption of Bonds by choice of the Issuer (the Issuer Call ): 13. Minimum Investment Amount: EUR 1, Issue Price of the Bond: EUR 1, Subscription Period: 26 June July 2018 It is subject to the prior permission of the LB (but without any requirement for the consent or approval of the Bondholders), and upon giving not less than 15 not more than 30 days irrevocable notice. If such redemption is executed, on the day of redemption, the Bonds shall be repaid in full at their nominal value, with the cumulative interest accrued

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3 ANNEX ISSUE SPECIFIC SUMMARY This Summary is made up of disclosure requirements known as Elements in accordance with the Annex XXII (Disclosure Requirements in Summaries) of the Prospectus Regulation. These elements are numbered in Sections A E (A.1 E.7) below. This Summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the Summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the Summary with the mention of not applicable. In this Summary, the definitions in capital letters will have the meanings, as indicated in Section 1.5 Definitions and Abbreviations. A.2 Consent by the Issuer to the use of the Prospectus for subsequent resale or final placement of securities by financial intermediaries Element Title A.1 Introduction and warnings Element Title B.1 Legal and commercial name B.2 Domicile / legal form / legislation / country of incorporation B.4b A description of any known trends affecting the Issuer and the industries in which it operates Section A Introduction and warnings Disclosure This Summary is not the prospectus for the public Offering of the Bonds and the listing (Admission) thereof to trading on Nasdaq and should be read merely as an introduction to the same. This Summary presents the facts and circumstances that the Company considers important with respect to the Company s business and the public Offering of the Bonds and is a summary of certain information appearing in more detail elsewhere in the Base Prospectus. Any decision to participate in the Offering and invest in the Bonds should be based by each investor on the Base Prospectus (including any amendments or supplements thereto) as a whole, including the documents attached to the Base Prospectus and not merely on this Summary, as well as on the Final Terms of the respective Tranche of the Bonds. Prospective investors are cautioned that where a claim relating to the information contained in the Base Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the relevant state, have to bear the costs of translating the entire Base Prospectus before court proceedings are initiated. The Company accepts civil liability in respect of this Summary (including any translations hereof) solely in the case where this Summary is found to be misleading, inaccurate or inconsistent when read together with the Base Prospectus as a whole or it does not provide, when read together with the other parts of the Base Prospectus, key information in order to aid investors when considering whether to invest in such securities. Not applicable. This Base Prospectus was prepared solely for the purposes of the Offering and Admission, as described herein. Thus, it may not be used for subsequent resale and/or final placement of securities by financial intermediaries. Disclosure Medicinos bankas UAB. Section B Issuer The Issuer is a private limited liability company, with its registered address at Pamėnkalnio str. 40, Vilnius, Lithuania, code The Issuer is incorporated and operates under the laws of the Republic of Lithuania. Except as indicated below, there has been no material adverse change in the prospects of the Company or the Group since the last published IFRS Financial Statements for the year ended 31 December Disregarding this, on 18 April 2018 the LB has applied towards the Company compulsory instruction and has publicly announced on 26 April 2018 that the Company has not complied with the previous mandatory restriction of the LB not to provide lending to the related persons of the Company. The restriction not to provide lending to related persons is further valid until the LB shall revoke it. The mandatory instruction has been applied because of the conditions of acquisition of the Subsidiary Saugus kreditas UAB by the Company. By acquiring the shares of this Subsidiary the Company has also acquired the claim right to the Subsidiary from the former shareholder of thereof. The claim right occurred from the credit agreement and amounted to EUR 196,700

4 B.5, B.14 Group description. Position of the Company within the Group. If the Issuer is dependent upon other entities within the Group, this must be clearly stated at that time. The Company has extended the repayment term and changed other conditions of the credit agreement after the acquisition of shares of Saugus kreditas UAB. The LB has decided that when acquiring the claim rights to the above Subsidiary the Company has not complied with the restriction not to provide lending to its controlled persons and their directly and indirectly controlled companies. However, during the process of verifying the documents the Company has capitalized its claim right to the Subsidiary by share capital increase. For this reason the LB did not apply any other mandatory restrictions. The Company together with the Subsidiaries form a Group of companies, as indicated below. Subsidiary State of registration Amount of shares and votes, held by the Company (%) MB turtas UAB* Lithuania MB valda UAB* Lithuania MB investicija UAB* Lithuania TG Invest-1 UAB* Lithuania Nida capital SIA Latvia 100 Saugus kreditas UAB Lithuania 100 Source: the Company * The remaining shares of these Subsidiaries are held by other Group company (Subsidiary): (i) in case of TG Invest-1 UAB the remaining shares are held by MB turtas UAB, (ii) in case of MB turtas UAB the remaining shares are held by MB valda UAB, (iii) in case of MB valda UAB, the remaining shares are held by MB investicija UAB, (iv) in case of MB investicija UAB, the remaining shares are held by TG Invest-1 UAB. The Issuer is not dependent upon other entities within the Group. B.9 Profit forecast Not applicable. The Issuer has not made a decision to include the profit forecast or estimates in this Base Prospectus. B.10 Qualifications in the audit report on the historical financial information B.12 Selected historical key financial information. A statement that there has been no material adverse change in the prospects of the Issuer. A description of significant changes in the financial or trading position On January the Company approved the forecast for the balance sheets and profit (loss) statements, which was based on the Company's strategic plan for and the strategic business development vision of the Company's management The forecast was announced in the annual management report for the year ended 31 December 2017, which is the integral part of the financial statements as of 31 December 2017.The forecast was prepared not for the purpose of issue of Bonds and results of the performed inspection of the LB for the status 31 March 2018 may adjust this forecast, therefore, the Company declares it invalid and the Company s investor shall not rely on data of forecast. The IFRS Financial Statements for the years ended 31 December 2017 and 31 December 2016 have been audited by KPMG Baltics UAB. This auditor has issued unqualified opinions of the IFRS Financial Statements for both years and in auditor s opinion both of them give a true and fair view of the unconsolidated financial position of the Issuer and consolidated financial position of the Group and of their respective unconsolidated and consolidated financial performance and their cash flow for the years ended in accordance with International Financial Reporting Standards, as adopted by the European Union. Full IRFS Financial Statements are provided in Annex I to this Base Prospectus. Full Consolidated Financial Information, which was neither audited not subject to review by the auditor is provided in Annex II to this base Prospectus. SELECTED FINANCIAL INFORMATION (EUR'000) Year ended 31 December Quarter ended 31 March Net interest income 6,049 6,666 1,359 1,797 Growth, % -1.7% 10.2% 32.2%* Net service fee and commission income 2,769 3, Growth, % 32.9% 18.9% 29.4%* Total operating income 11,982 13,248 2,910 3,502 Growth, % -4.8% 10.6% 20.3%* 2

5 Operating profit (loss) 257 1, Profit (loss) for the year 520 1, Assets 259,268 Cash and due from central bank Placements with banks and other credit institutions 285, , ,382 42,646 53,520 51,053 89,372 11,983 11,539 12,530 11,831 Held-to-maturity investments 33,660 39,860 33,737 44,692 Loans and receivables from clients 145, , , ,136 Investment property 8,354 6,213 8,667 5,990 Other assets 17,034 10,375 16,913 10,361 Liabilities 233,453 Due to banks and other credit institutions Due to customers 226, , , ,979 4,435 3,600 3,490 3, , , ,766 Subordinated loans 1,000 1,000 1,000 1,000 Other liabilities 1,209 1,289 5,408 8,813 Shareholders' equity 25,815 27,441 26,032 27,403 Sources: IFRS Financial Statements, Consolidated Interim Information, the Company * the percentage indicates a growth of the first quarter income. KEY RATIOS AND INDICATORS* PROFITABILITY RATIOS Year ended 31 December Quarter ended 31 March Operating profit margin 2.1% 12.3% 7.7% 7.9% Net profit margin 4.3% 12.3% 7.5% 7.5% ROE 2.0% 5.9% 0.8% 1.0% ROA 0.2% 0.6% 0.1% 0.1% LIQUIDITY RATIOS Liquidity coverage ratio 844.3% 730.6% 892.0% 477.8% SOLVENCY RATIOS Capital adequacy ratio 14.1% 15.01% 15.8% 17.0% Non-performing loan ratio 10.6% 8.3% 11.9% 7.5% Sources: IFRS Financial Statements, Consolidated Interim Information, the Company * not audited alternative performance measuers (APMs), calculated using IFRS Financial Statements and Consolidated Interim Information numbers. The table below provides a list of APMs, their calculation methodology, and the main rationale for using it. APM Formula Rationale for using the APM 3

6 Operating profit margin Operating profit (loss) / Total operating income It is one of the main profitability indicators, calculated dividing operating profit by the revenues for the same period. It indicates how much profit a company could earn from its operations, financing activities and taxation costs excluded. The higher ratio is, the more proftable is a company. Net margin profit Profit (loss) for the year / Total operating income It is one of the main profitability indicators, calculated dividing net profit by the revenues for the same period. It indicates how much profit a company could earn from its operations, financing activities and taxation costs included. The higher ratio is, the more proftable is a company. ROE Profit (loss) for the year / Shareholders equity ROA Profit (loss) for the year / Assets Liquidity coverage ratio Capital adequacy ratio Nonperforming loan portfolio Liquid assets / Short-term (up to 30 days) obligations (Tier I capital + Tier II capital + Capital conservation buffer) / Risk weighted assets Non-performing loan portfolio (net value) / Total loan portfolio (net value) Return on equity is a ratio calculated dividing net profit by the shareholders' equity. It measures the profitability of a company by revealing how much of the profit can a company earn on the shareholders' investments. The higher ratio is, the more proftable is an equity investment in the company. Return on assets is a ratio calculated dividing net profit by the total assets. It measures the profitability and management efficiency by revealing how well the assets are used for profit generation. The higher ratio is, the more efficient the company is in using its assets to generate return to shareholders. It is one of the main liquidity measures for financial institutions indicating how well short-term obligations are covered with highly liquid assets. It reveals how well a company is prepared for a shortterm liquidity disruptions. According to EU Regulations, by the compulsory requirement, the Bank must operate under a liquidity coverage ratio not lower than 100%. It is one of the main solvency ratios for financial institutions indicating how well the depositors are protected by the company's capital in the case of financial disruptions. The ratio not only takes into account the level of company s capital, but also the risk profile of the company s assets. A threshold set by the LB is Capital adequacy ratio (CAR) being not lower than 13.9%. The ratio indicates how much of the total loan portfolio (net value) is considered as nonperforming. The non-performing loan portfolio consists of loans, which have at least one of the following attributes: - a loan is impaired; - there is a probability that a client will not be able to meet its credit obligations to the Bank unless the Bank will initiate the realization of collateral; - a loan is over 90 days overdue; - a court proceeding or a bankruptcy procedure is in process. B.13 A description of any recent events particular to the Issuer which are to a material extent relevant to the evaluation of the Issuer s solvency B.15 A description of the Issuer s principal activities There were no significant changes in the Issuer s financial or trading position, which has occurred since the end of 31 December There have not been any recent events particular to the Issuer which are to material extent relevant to the evaluation of the Issuer s solvency. The Bank provides services for both private and corporate clients. Private client services include consumer credits, mortgages, car leases, term deposits, saving deposits, deposit insurance, various daily banking services, insurance and vignettes (road taxes). The Bank targets small-to-medium enterprises and provides a wide range of services for corporate 4

7 B.16 To the extent known to the Issuer, statement whether the Issuer is directly or indirectly owned or controlled and by whom and description of the nature of such control clients: business loans, leases, credit or leasing guarantees, factoring, trade financing, deposit service and its insurance, various daily banking services, insurances and vignettes. The Bank has a quite well-distributed customer service network, targeting major geographical regions of Lithuania. The major share of service and commission income is comprised of cash and settlement operations. On the day of this Prospectus the authorised capital of the Company is EUR 19,947, and is divided into 137,750 ordinary registered Shares with a nominal value of EUR each. All the Shares issued by the Company entitle to equal voting rights to their holders. In the table below the information is provided on shareholders of the Company on the date of this Prospectus. Shareholder Shares and votes, held directly Percentage, % Indirectly held shares and votes, % Total, % Saulius Karosas 123, Western 13, Petroleum Ltd.* Vytenis Rasutis Source: the Company * Final beneficial owner of this company, holding 100% of its shares and votes is Saulius Karosas. No Shareholders Agreements are in effect in the Company or its Subsidiaries. Apart from the information, indicated above, the Company has no information about any other possible control over the Issuer. On 3 May 2018 the General Meeting has adopted decision to increase the authorised capital of the Company from EUR 19,947, to EUR 20,947, by issuing 6,906 new ordinary registered shares of the Company with a par value of EUR each. After the issue of the new shares the authorised capital of the Company shall be divided into 144,656 ordinary registered shares with a par value of EUR 144,81 each. The authorised capital of the Company may be increased only after receiving of a permission from the LB, regarding which the Company has applied to the LB on 8 May On the day when the new Articles of Association with the increased authorised capital will be registered with the Register of Legal Entities, the structure of shareholders will be as indicated in the table below: B.17 Credit ratings assigned to the Issuer or its debt securities at the request or with cooperation of the Issuer in rating process Element Title C.1 Type and class of securities and security identification number Shareholder Shares and votes, held directly Percentage, % Indirectly held shares and votes, % Total, % Saulius Karosas 130, Western 13, Petroleum Ltd.* Vytenis Rasutis Source: the Company * Final beneficial owner of this company, holding 100% of its shares and votes is Saulius Karosas. Not applicable. Neither the Issuer, nor the Bonds shall be assigned with the credit ratings as a result of the Offering. Section C Securities Subordinated Bonds, qualifying as Tier 2 instruments under the CRR up to an aggregate principal amount of EUR 10,000,000, which may be issued within the period of 12 months as from the approval of the Prospectus. Bonds of the Bank unsecured debt bonds with a fixedterm, non-equity (debt) securities under which the Company shall become the debtor of the Bondholders and shall assume obligations for the benefit of the Bondholders. 5

8 All the Bonds of the Company (when issued) will be ordinary registered bonds and will be registered within Nasdaq CSD. Prior to Offering of the Bonds in each of the respective Tranche, the Issuer shall apply to Nasdaq CSD for assignment of the ISIN to Bonds, which shall be indicated in the Final Terms. Issue specific summary (Tranche 1): Tranche number: 1. C.2 Currency of the issue C.5 Restrictions on free transferability of securities C.8, C.9 A description of the rights attached to the securities, plus: ranking; limitations to those rights; the nominal interest rate; the date from which interest becomes payable and the due dates for interest; where the rate is not fixed, description of the underlying on which it is based; maturity date and arrangements for the amortisation of the loan, including the repayment procedures; an indication of yield; name of representativ e of debt security holders. ISIN Code: LT EUR. There are no restrictions on transfer of Bonds as they are described in the applicable Lithuanian laws. However, the Bonds cannot be offered, sold, resold, transferred or delivered in such countries or jurisdictions or otherwise in such circumstances in which it would be unlawful or require measures other than those required under Lithuanian laws, including, without limitation, in the United States of America, Australia, Canada, Hong Kong and Japan. Rights of the Bondholders. A Bond is a fixed-term non-equity (debt) security under which the Company which is the Issuer of the Bond becomes the debtor of the Bondholder and assumes obligations for the benefit of the Bondholder. The Bonds of each respective Tranche of issues shall grant their holders equal rights. As from the maturity date of the Bonds, Bondholders shall have a right to receive from the Company the nominal value of Bonds and the interest, i.e. he/she/it shall have a right to require, that the Bonds would be redeemed for their redemption price. Bondholders shall have the rights provided in Law on Protection of Interests of Bondholders, the Civil Code, the Law on Companies, the Law on Banks and other laws regulating the rights of bondholders, as well as the rights specified in the decision to issue Bonds. The Bondholders shall have the following main rights: to receive the cumulative interest accrued semi-annually; to receive the nominal value of Bonds and the cumulative interest accrued on the maturity date of the Bonds; to sell or transfer otherwise all or part of the Bonds; to bequeath all or part of owned Bonds to the ownership of other persons (applicable only towards natural persons); to participate in the Bondholders Meetings; to vote in Bondholders Meetings; to initiate the convocation of the Bondholders Meetings following the procedure and in cases provided for in the Law on Protection of Interests of Bondholders; to adopt a decision to convene the Bondholders Meeting following the procedure and in cases provided for in the Law on Protection of Interests of Bondholders; to obtain the information about the Issuer, the issue of Bonds or other information related to the protection of his/her/its interests; to receive the copy of the contract concluded between the Issuer and the Trustee; other rights, established in the applicable laws or in the documents of establishment of the Issuer. Ranking. The Bonds constitute direct, subordinated, unsecured and unguaranteed obligations of the Issuer, ranking at the same rate (pari passu) without any preference among each other. In addition to that the state guarantee (insurance) is not applicable in case of investments into the Bonds. Interest rate and dates of payment thereof. Fixed yield of the Bonds shall be determined and established in the Final Terms. The interest on the Bonds will be paid semi-annually on the dates specified in the Final Terms until the Maturity Date and will be calculated on the aggregate outstanding principal amount of the Bonds of the respective Tranche. Interest shall accrue for each interest period from and including the first day of the interest period to (but excluding) the last day of the interest period on the principal amount of Bonds of the respective Tranche outstanding from time to time. The first interest period commences on the Issue Date and ends on the first Interest Payment Date. Each consecutive interest period begins on the previous Interest Payment Date and ends on the following Interest Payment Date. The last interest period ends on the Maturity Date. Interest in respect of the Bonds will be calculated on the basis of the actual number of days elapsed in the relevant interest period divided by actual length in days of the relevant interest 6

9 period multiplied by frequency factor of 2, i.e. a day count convention Act/Act (ICMA) will be used. When interest is required to be calculated in respect of a period of less than a full year other than in respect of the First Interest Period, it shall be calculated on the basis of (a) the actual number of days in the period from and including the date from which interest begins to accrue to but excluding the date on which it falls due divided by (b) the actual number of days from and including the Accrual Date to but excluding the next following Interest Payment Date. Should any Interest Payment Date fall on a date which is not a Business Day, the payment of the interest due will be postponed to the next Business Day. The postponement of the payment date shall not have an impact on the amount payable. Issue specific summary (Tranche 1): Annual Interest Rate: 7%. Interest Payment Dates: 24 January 2019, 24 July 2019, 24 January 2020, 24 July 2020, 24 January 2021, 24 July 2021, 24 January 2022, 24 July 2022, 24 January 2023, 24 July 2023, 24 January 2024, 24 July 2024, 24 January 2025, 24 July Maturity (redemption) Date of the Bonds and principal payments. The exact Maturity Date shall be specified in the Final Terms. Each Tranche of Bonds may have a maturity between 5 (five) and 7 (seven) years or such other maturity as the Issuer decides, but in any case not shorter than 5 (five) years. The term for provision of the requests/requirements to redeem the Bonds shall not be applicable, as upon Maturity Date of Bonds, the nominal value thereof with the cumulative interest accrued shall be transferred to the accounts indicated by the Bondholders without separate requests/requirements of the Bondholders. As from this moment the Issuer shall be deemed to be fully executed the obligations, related to the Bonds and their redemption, disregarding the fact, whether the Bondholder actually accepts the indicated funds. In case requisites of the account of the Bondholder changes, he/she/it shall have an obligation to inform the Company thereof. Should the Maturity Date fall on a date which is not a Business Day, the payment of the amount due will be postponed to the next Business Day. The postponement of the payment date shall not have an impact on the amount payable. Following the transfer of the redemption price to the investor s accounts as indicated above, the Bonds shall be removed from Nasdaq CSD and Nasdaq. Redemption of Bonds by choice of the Issuer (the Issuer Call ). The Issuer may chose to redeem the relevant Bonds prior to Maturity Date but not earlier than 5 (five) years after issue at the amount specified in the applicable Final Terms, subject to the prior permission of the LB, provided that at the relevant time such permission is required (but without any requirement for the consent or approval of the Bondholders), and upon giving not less than 15 nor more than 30 days irrevocable notice. The Bondholders do not have a right to require to redeem the Bonds prior to the Maturity Date. If the mentioned amounts are not transferred to the account indicated by the Bondholders, the Bondholders shall have a right to claim for redemption of the Bonds within 3 (three) years after the Maturity Date. If the Bondholders shall not claim redemption of the Bonds within the indicated 3 (three) years term, the respective Bondholders shall forfeit the right of claim. Issue specific summary (Tranche 1): Maturity Date: 24 July Nominal amount of the Bond: EUR 1,000. Aggregate principal amount: up to EUR 3,000,000. Issue Price of the Bond: EUR 1,000. Name of representative of the Bondholders (Trustee). On 10 May 2018, the Issuer has concluded the civil contract with Audifina UAB, a private limited liability company established and existing under the laws of the Republic of Lithuania, corporate ID code , with 7

10 C.10 If the security has a derivative component in the interest payment, provide a clear and comprehensive explanation to help investors understand how the value of their investment is affected by the value of the underlying instrument(s), especially under the circumstances when the risks are most evident C.11 An indication as to whether the securities offered are or will be the object of an application for admission to trading, with a view to their distribution in a regulated market or other equivalent markets with indication of the markets in question Element Title D.2 Key risks specific to the Issuer its registered address at Žygimanto Liauksmino str. 3, Vilnius, Lithuania, which meets the requirements established for the trustees in the Law on Protection of Interests of Bondholders. As indicated above, each Bondholder is entitled to receive the copy of the civil contract concluded between the Issuer and the Trustee from the Issuer or from the Trustee. Not applicable. The Bonds have no derivative component in the interest payment. The Issuer shall submit an application regarding Admission of each Tranche of the Bonds to trading on Nasdaq (the Baltic Bond List). The decision as to admission of Bonds to trading on Nasdaq shall be adopted by the Board of Nasdaq. The Company shall take implement all the measures, established in Nasdaq rules, needed that the Bonds would be admitted to trading on Nasdaq as soon as practicably possible. The Management expects that the Bonds of the respective Tranche shall be admitted to trading on Nasdaq within 1 (one) month as from placement thereof to the Investors the latest. Disregarding this, the Management will put its best endeavours so that this term would be as short as practicable possible. The Issuer shall also put its best efforts to ensure that the Bonds remain listed on Nasdaq. The Issuer shall, following a listing or Admission to trading, take all reasonable actions on its part required as a result of such listing or trading of the Bonds. The Issuer will cover all costs which are related to the Admission of the Bonds to Nasdaq. The Issuer does not intend to apply for admission of the Bonds (or part thereof) to trading on other regulated markets or equivalent markets. Disclosure Section D Risks Counterpary credit risk. Counterparty credit risk is one of the most important risk affecting operations of the Group. The risk of potential loss which may arise from counterparty s inability to meet its obligations to the Group. Credit risk affects cash and cash equivalents held with third parties (such as deposits with banks and other financial institutions), bonds, derivatives, but mostly credit exposures to customers, including outstanding loans as well as other receivables and commitments. Exposure to regulatory actions and investigations. The LB carried out an investigation on the Bank. After finalisation of the investigation on 30 June 2017 the LB imposed supervisory measures towards the Bank a financial penalty of EUR 235,350, as well as prohibited temporarily to provide lending to related persons. This prohibition is valid until the LB by its separate decision revokes the abovementioned restriction, which as of the date of this Prospectus has not been revoked. In addition to that, on 18 April 2018 the LB has applied towards the Company compulsory instruction and has publicly announced on 26 April 2018 that the Company has not complied with the previous mandatory restriction of the LB not to provide lending to the related persons of the Company. The restriction not to provide lending to related persons is further valid until the LB shall revoke it. Furthermore, the LB performed additional inspection on the status of 31 March 2018 and according results of the inspection the net result for Q may be adjusted for the formation of additional provisions covering credit risk and impairment of other assets. Although the Management believes that it has remedied all the issues, raised during the previous inspections, however, should the results 8

11 of the new inspection and/or any other inspections in the future be non-satisfactory to the LB, the Bank may be imposed with additional monetary and/or other sanctions, also the above prohibition to provide lending to related persons may be not revoked. Any of these consequences may have material adverse effect on the Group s operations, financial position and results, reputation of the Company and its issued Bonds price. Interest rate risk The operations of the Group are inherently exposed to interest rate risk. The amount of net interest income earned by the Group materially affects the revenues and the profitability of the operations of the Group in 2017 Group s net interest income accounted to 50.3% of the Groups total operating income (50.5% in 2016). Due to the unforseen fluctuations of market interest rates there may be a mismatch between the interest income earned from the lending and crediting operations of the Group and the interest costs paid on the interest-bearing liabilities, which may have material adverse effect on the Group s operations, financial condition and results of operations. Loan portfolio concentration risk. The operations of the Group are subject to loan portfolio concentration risk, which by essence is a risk arising from the overall spread of outstanding accounts over the number and variety of clients. Maintaining capital adequacy ratios. Credit institutions and investment firms are subject to strict capital adequacy requirements subject to frequent reforms and changes. As of the date of the Prospectus the Group is complying with all applicable capital requirements and is operating with higher capital adequacy ration than required minimum of 13.9%. It should be taken into account that on 30 June 2017 the LB imposed a fine of EUR 235,350 to the Bank, also temporarily prohibiting to provide lending to its related persons due to non-compliance with the capital adequacy requirements of the Bank. However, all the violations have been eliminated and currently the general capital adequacy requirement is sufficient as of 31 March 2018 the capital adequacy ratio was 17.0% (as of 31 December 2017 it was 15.01%). Nevertheless, a situation might occur that due to unexpected high losses the Bank s capital would decrease and the Bank would not comply with minimum capital adequacy ratio requirements. Competition risk. The Issuer is the smallest bank registered in Lithuania with only 0.9% of the market share as measured in financial loans provided. As a result, the Group faces a significant competition from other larger market players. Dependency on Information Technology systems. The Group has developed and uses a variety of information technology systems and web-based solutions in carrying out its everyday business operations and providing services to its clients. The dependency on such systems is increasing in time with the spread of online and mobile banking services. This means that the Group is exceedingly open to risks over which it has no control, including system-wide failures of communication infrastructure, quality and reliability of equipment and software supplied by third parties and other similar risks. D.3 Key risks that are specific to the Bonds Operational risk. Operational risk is a risk of potential loss caused by human, process or information system failures and flaws. In addition to human, process or information system failures and flaws, the operational risk embraces risk of corporate fraud and misconduct. The Bonds may be not a suitable investment for all investors. Each potential Investor in the Bonds must determine the suitability of that investment in light of its own circumstances. A potential Investor should not invest in the Bonds unless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Bonds will perform under changing conditions, the resulting effects on the value of such Bonds and the impact this investment will have on the potential investor s overall investment portfolio. Subordination risks. The Bonds are subordinated to all unsubordinated claims against the Issuer; however, not to the claims, which are subordinated to the Bonds or which rank at the same rate (pari passu) with the Bonds. The subordination of the Bonds means that upon the recovery, liquidation or bankruptcy of the Issuer, all the claims arising from the Bonds shall fall due in accordance with General Terms and Conditions and shall be satisfied only after the full satisfaction of all unsubordinated recognised claims against the Issuer (6 th ranking claim from the order of satisfaction of creditors claims). Early redemption risk. According to the General Terms and Conditions, the Bonds may be redeemed prematurely on the initiative of the Issuer, any time, but not earlier than after 5 (five) years from the issue of the Bonds. If this early redemption right is exercised by the Issuer, the rate of return from an investment into the Bonds may be lower than initially anticipated. An active secondary market for the Bonds may not develop. The Bonds constitute a new issue of securities by the Issuer. Prior to Admission to trading on the regulated market, there 9

12 is no public market for the Bonds and other securities of the Issuer. Although application(s) will be made for the Bonds to be admitted to trading on Nasdaq, there is no assurance that such application(s) will be accepted and the Bonds will be admitted to trading. In addition, Admission to trading the Bonds on a regulated market will not guarantee that a liquid public market for the Bonds will develop or, if such market develops, that it will be maintained, and neither the Issuer, nor the Lead Manager is under any obligation to maintain such market. Credit risk. Any person who purchases/subscribes the Bonds is relying on the creditworthiness of the Issuer and has no rights against any other person. Bondholders are subject to the risk of a partial or total failure of the Issuer to make interest and/or redemption payments that the Issuer is obliged to make under the Bonds. Interest rate risk, related to Bonds. Bondholders should be aware that movements of the market interest rate can adversely affect the market price of the Bonds and can lead to losses for the Bondholders if they sell their Bonds. Taxation of Bonds. Potential purchasers/subscribers and sellers of the Bonds should be aware that they may be required to pay taxes or other documentary charges or duties in accordance with the laws and practices of the country where the Bonds are transferred or other jurisdictions. Possibility to forfeit interest and principle amount invested. Should the Issuer become insolvent, legal protection proceedings or out-of-court legal protection proceedings of the Issuer are initiated during the term of the Bonds, an investor may forfeit interest payable on, and the principle amount of, the Bonds in whole or in part. No guarantee or security. The Bonds will not be obligations of anyone other than the Issuer and they will not be guaranteed. No one other than the Issuer will accept any liability whatsoever in respect of any failure by the Issuer to pay any amount due under the Bonds. Refinancing risk. The Issuer may be required to refinance certain or all of its outstanding debt, including the Bonds. The Issuer's ability to successfully refinance its debt is dependent on the conditions of the debt capital markets and its financial condition at such time. Even if the debt capital markets are in favourable conditions, the Issuer's access to financing sources at a particular time may not be available on favourable terms, or at all. The Issuer s inability to refinance its debt obligations on favourable terms, or at all, could have a negative impact on the Group s operations, financial condition, earnings and on the Bondholders' recovery under the Bonds. Bail-in. The Bonds that may be issued under the Programme may become subject to actions that can be taken or measures that can be applied by resolution authorities if a Bank experiences serious financial problems or if the stability of the Bank as a result of the situation of a Lithuanian financial institution (for the purpose hereof including a relevant holding company). In the event that write-down or conversion powers are exercised by a competent authority: (i) the amount outstanding may be reduced, including to zero; (ii) the Bonds may be converted into ordinary shares or other instruments of ownership; (iii) the terms may be varied (e.g. the variation of maturity of the Bonds). Please note that financial public support should only be used as a last resort after having assessed and exploited, to the maximum extent practicable, the resolution tools, including the bail-in tool.. Element E.2b Title Reasons for the Offering / Use of proceeds, when different from making profit and/or hedging certain risks E.3 Terms and conditions of the Offering Disclosure Section E Offer The Issuer intends to use the net proceeds for improving the Tier 2 capital and strengthen the fulfilment of capital adequacy requirements. The improved Tier 2 capital will enable the Issuer to expand bank loan portfolio, especially in the target segments of small and medium enterprises and agriculture (loans in both of these segments are secured with acceptable collateral). The Issuer currently has enough human and technological resources, as well as sufficient liquidity in order to expand its lending portfolio. The improved Tier 2 capital will allow the Bank to maintain sufficient capital adequacy ratio while increasing bank loan portfolio. The Issuer may issue within the period of 12 months as from approval of the Prospectus Bonds up to an aggregate principal amount of EUR 10,000,000. The Bonds shall be issued and offered in separate Tranches. The terms and conditions of each Tranche shall consist of (i) the General Terms and Conditions of Bonds, which shall apply to each Tranche and which are provided in the Prospectus and (ii) the Final Terms. Thus, the Bonds of each of the Tranches will generally be subject to identical main terms, except that the Issue Dates and the Issue Prices of Bonds may be different in respect of different Tranches. 10

13 The aggregate principal amount of Bonds of each of the Tranches shall be specified in the Final Terms. The Issuer may decrease the aggregate principal amount of a Tranche as set out in the Final Terms during the Subscription Period of that Tranche. Issue specific summary (Tranche 1): Aggregate principal amount: up to EUR 3,000,000. The Issuer may decrease the aggregate principal amount of the Tranche during the Subscription Period of the Tranche. The final aggregate principal amount of the Tranche will be specified in the notification regarding allotment of Bonds to the Investors, which will be published on the websites of the Company and Offering Broker after allotment thereof to the Investors. The Bonds will be offered for subscription for a Minimum Investment Amount, which will be specified in the Final Terms. Issue specific summary (Tranche 1): Minimal Investment Amount: EUR 1,000. General Structure of the Offering This Offering consists of: (i) public offering to Retail Investors and Institutional Investors in the Republic of Lithuania, and (ii) private placement to Institutional Investors and Retail Investors in certain Member States of the EEA in each case pursuant to an exemption under Article 3 of the Prospectus Directive (Directive 2003/71/EC) 1, as implemented by the respective Member States of EEA. Only such prospective Investors will be eligible to participate in the Offering who at or by the time of placing their orders (before the end of the Subscription Period) have opened securities accounts with entities of their choice which are licensed to provide such services within the territory of the Republic of Lithuania, the Republic of Latvia and / or the Republic of Estonia. Thus, according to the information, provided above, the Offering of each of the Tranche shall be structured in the following order: (i) the Subscriptions as to acquisition of the Bonds of the respective Tranche shall be received from the Investors as well as paid according to the order, described in this Base Prospectus and Final Terms of the respective Tranche; (ii) based on the decision of the Management Board the Bonds shall be finally allocated to the Investors; (iii) the Bonds shall be registered with Nasdaq CSD and distributed to the Investors; (iv) the Bonds will be introduced to trading on Nasdaq. Subscription Procedure; invalidity or the Subscription Orders The Subscription Period for each respective Tranche will be specified in the Final Terms. The Investors wishing to subscribe/purchase the Bonds shall submit their orders to acquire the Bonds at any time during the Subscription Period to the Offering Broker or its sub-agents (if any), which may be specified in the Final Terms. Total amount of the Bonds to be acquired and indicated in each Subscription Order shall be for at least Minimum Investment Amount. The procedure of submission of the Subscription Orders will be specified in the Final Terms. All Subscription Orders shall be binding and irrevocable commitment to acquire the allotted Bonds, with the exceptions stated below. The Subscription Orders shall not be considered valid and shall not be processed in case the purchase amount indicated in the Subscription Orders is less than the Minimum Investment Amount or the Subscription Orders were received after the Subscription Period. Neither the Issuer, nor the Offering Broker has any obligation to inform the Investors about the fact that their Subscription Orders are invalid. Issue specific summary (Tranche 1): 1 One of the following exemptions would be used with this respect, when the offer does not require approval and announcement of the prospectus: (a) an offer of securities addressed solely to qualified investors; and/or (b) an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors; and/or (c) an offer of securities addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer. 11

14 Subscription Period: from 26 June 2018 till 23 July 2018 (until 5 p.m. Vilnius time). Procedure for submission of the Subscription Orders: Provided in the Base Prospectus. Place of Subscription The places (exact addresses) where the Subscriptions will be accepted will be indicated in the Final Terms. Issue specific summary (Tranche 1): Sub-agents for the Offering Broker (if any): not appointed. Address(-es) where the Subscriptions will be accepted: Orion Securities UAB FMĮ Vilnius office, A. Tumėno str. 4, Vilnius, Lithuania, and Kaunas office, Karaliaus Mindaugo ave. 50, Žalgiris arena, Kaunas, Lithuania. Subscriptions will be accepted if Investors have a brokerage account agreement with the Offering Broker or other entities of their choice, which are licensed to provide such services within the territory of the Republic of Lithuania, the Republic of Latvia and/ or the Republic of Estonia. General information regarding the Subscription procedure At the time of placing a Subscription Order, Investors shall be required to make an irrevocable instruction for depositing the Bonds in a securities account maintained in their name and opened with entities of their choice which are licensed to provide such services within the territory of the Republic of Lithuania, the Republic of Latvia and/ or the Republic of Estonia. By placing a Subscription Order, each Investor will be deemed to have read this Base Prospectus, the Company s Articles of Association and the contract between the Company and the Trustee and accepted their content, as well as have read the Final Terms of the Offering, consented to being allotted a lower number of Bonds than the number specified in such Investor s Subscription Orders, or to not being allotted any Bonds at all, pursuant to the terms and conditions of the Offering. An Investor will be allowed to submit a Subscription Order either personally or via a representative whom the Investor has authorized (in the form required by law) to submit the Subscription Order. More detailed information concerning the identification of Investors, including requirements concerning documents submitted and the rules for acting through authorized representatives, can be obtained by Investors from the entities accepting Subscription Orders. An Investor must ensure that all information contained in the Subscription Order is correct, complete and legible. The Issuer reserves the right to reject any Subscription Orders that are incomplete, incorrect, unclear or ineligible, or that have not been completed and submitted and/or have not been supported by the necessary additional documents, requested by the Issuer or the Offering Broker, during the Subscription Period and in accordance with all requirements set out in the terms and conditions of the Offering. Any consequences of a form of Subscription for the Bonds being incorrectly filled out will be borne by the Investor. Institutional Investors Subscription Procedure Institutional Investors will also be entitled to place multiple Subscription Orders. The Institutional Investors should contact the Offering Broker for information on detailed rules governing the placement of Subscription Orders, in particular the documents required if an order is placed by a statutory representative, proxy or any other person acting on behalf of an investor. Institutional Investors that manage assets on behalf of third parties will be allowed to submit a combined order in favour of their customers, attaching a list of such customers. Withdrawal of the Subscription Orders Subscription Orders for the Bonds are irrevocable, except the right of withdrawal as indicated below. 12