Business model and strategy

Principles

Luzerner Kantonalbank AG (LUKB) is a full-service bank based in Lucerne. The company was founded in 1850 to promote the regional economy and provide the population of the Canton of Lucerne with secure savings services. LUKB has been a public limited company under private law since 1 January 2001 and its shares have been listed on the SIX Exchange since its IPO in March 2001.

The Canton of Lucerne currently holds 61.5 % of LUKB shares; by law, its stake must be at least 51 %. It grants LUKB a state guarantee, for which it receives annual compensation. This is calculated according to a formula prescribed by law (0.2 % of the capital requirements plus 2.0 % of the operating result) and amounts to 11.2 million Swiss francs for the 2025 financial year. As a public limited company under private law, LUKB is fully taxable at the municipal, cantonal and federal levels.

The Act on the Conversion of 8 May 2000, the corresponding Articles of Association as a public limited company and the regularly updated Ownership Strategy of the Canton of Lucerne form the basis for LUKB's business activities. They determine the purpose of LUKB and regulate the role of the Canton of Lucerne.

• The Act on the Conversion¹⁾ and the Articles of Association¹⁾ stipulate, among other things, that LUKB is to be operated as a for-profit full-service bank that takes into account the needs of the population and the economy of the Canton of Lucerne in particular.
• With the 2025 Ownership Strategy¹⁾, the Canton of Lucerne defines its statutory role as the majority shareholder, while taking the interests of minority shareholders into account. In doing so, it respects the entrepreneurial freedoms of LUKB and creates optimal conditions for successful business activities. The Ownership Strategy sets out the Canton of Lucerne's expectations as the principal shareholder vis-à-vis LUKB.

Business model

Based on the Act on the Conversion, the Articles of Association and the Ownership Strategy, LUKB has developed a business model over the decades that makes it the leading full-service bank in the Lucerne region. This business model consists of two elements:

Traditional cantonal banking business

In the traditional cantonal banking business, LUKB provides private individuals and business clients with comprehensive basic services, such as accounts, cards, payment transactions, loans (including home financing) and pension and investment products (e.g. investment funds or fund savings plans).

Around 300,000 of LUKB's clients are attributable to two segments: private clients and small to medium-sized business clients (commercial clients and SMEs). The majority of this client base is based in the Lucerne economic region. LUKB offers its products and services to these clients through a variety of channels, including mobile and online banking, the telephone advice centre and 22 branches in the Canton of Lucerne that have been developed as advisory banks.

Speciality business

While the needs of most private and commercial clients can usually be met efficiently with standardised and, in some cases, fully digitised products and services, high-net-worth private individuals, large companies (corporate clients) and some sectors often have particular concerns and wishes that require individual advice as well as tailored products and services.

Since the development and maintenance of these competencies, products and services involve significant investments and high operating costs, only a few large banks in Switzerland serve these client segments with discerning advisory needs. Over recent strategy periods, LUKB has built up specific expertise in order to be an attractive partner for selected client groups in its home market and across Switzerland.

• Corporate clients:  LUKB's corporate client business is geared towards the needs of medium-sized and large companies in Switzerland, offering them a wide range of services in the areas of corporate finance, trade finance, cash management, payment transactions, capital market transactions, pension provision, foreign exchange trading and liquidity investments as well as investment advice and asset management. There is also a comprehensive range of specialist consulting services for companies in the areas of corporate succession, real estate expertise, interest rate and currency hedging as well as risk hedging in international business. Find out more at lukb.ch¹⁾.
• Entrepreneurs & Executives (E&E): In the Entrepreneurs & Executives (E&E) Private Banking segment, LUKB offers individual solutions for the financial needs of entrepreneurs and senior executives (executive board members and members of boards of directors).
  Here, LUKB combines asset management with comprehensive financial planning at the interface between companies and business owners in order to ensure long-term growth, sustainable asset accumulation and viable succession solutions. Find out more at lukb.ch²⁾.
  
• Professional real estate investors:  In the real estate business, LUKB offers comprehensive solutions along the entire real estate value chain. Owners of investment and commercial properties in German-speaking Switzerland benefit from sound advice from real estate experts on the realisation of their projects – from the initial idea to the finished project. Real estate portfolios are digitised and strategically managed using the LUKB ImmoTool. In the case of transactions, LUKB applies a systematic process to support its real estate clients in buying and selling investment properties. LUKB also provides the necessary financing in the form of mortgages, project financing and construction loans. Find out more at lukb.ch³⁾.
• Private banking clients:  High-net-worth private clients are managed in a separate unit at LUKB. These clients receive comprehensive support with a specialised range of services at selected locations. This includes asset management, investment advice and individually tailored solutions to meet complex financial needs. LUKB also offers other specific services and products, such as sustainable investments, in order to meet special client requirements. Find out more at lukb.ch⁴⁾.
• Institutional clients: With its Private Banking Professional division, LUKB offers specific solutions for institutional investors, pension funds, insurance companies, very-high-net-worth individuals (nationally and internationally), financial companies, trusts, foundations as well as single and multi-family offices. As a custodian bank, LUKB offers external asset managers from all over Switzerland and their clients access to all services and modern infrastructure combined with personal, professional contact partners.
  Find out more at lukb.ch:
  Pension funds, foundations and insurance companies⁵⁾
  Private clients (nationally and internationally)⁶⁾
  Asset managers⁷⁾
  
  
  
  

In order to meet the needs of these specific client groups, LUKB has set up specialised advisory teams and its own competence centres to differentiate itself through its own products and services.

• Asset management and research: Asset management at LUKB focuses on providing client-specific investment solutions that comply with the strategic and tactical allocation requirements of the in-house investment office. The services include research and investment processes (including macro, country, sector and company analyses) with the integration of ESG factors, and the arrangement of asset advisory and asset management mandates. Find out more at lukb.ch⁸⁾.
• Trading and structured products: LUKB's trading division acts as a professional intermediary on the financial markets and ensures competitive conditions for financial instruments, foreign currencies, precious metals and cryptocurrencies. In addition, the Capital Markets department assists professional and institutional clients with capital increases, bond issues and strategic financing solutions, and provides them with optimal access to national and international capital markets through suitable structures. The competence centre for structured products develops, distributes and trades investment products that tailor risk and return profiles precisely to the individual needs of clients. Find out more at lukb.ch⁹⁾.
• Fund management: The wholly owned subsidiary LUKB Expert Fondsleitung AG plays a key role in the investment business of Luzerner Kantonalbank. It is entrusted with the administration and management of its own LUKB Expert funds and ensures compliance with legal and regulatory requirements. In addition to investing the funds' assets, its duties also include valuing or calculating the net asset value (NAV) of the individual investment funds, organising the issue and redemption of fund units, correctly applying the accounting policies and publishing the annual reports. Protecting the interests of investors (duty of loyalty, due diligence and information) is a top priority. Find out more at lukb.ch¹⁰⁾.
• Digital assets:  LUKB's dedicated division offers services involving digital assets (including cryptocurrencies such as Bitcoin and stablecoins). Clients can trade, transfer and hold digital assets independently via e-banking and personal sales channels as well as through client advisors or trading lines in an execution-only framework. The offering is complemented by a crypto investment plan, Lombard loans secured with Bitcoin or Ethereum, and B2B access for institutional clients via a corresponding interface. From a technical standpoint, the transactions are fully integrated into LUKB's IT infrastructure. Find out more at lukb.ch¹¹⁾.

Reciprocal reinforcement

The comprehensive range of advice, products and channels that LUKB offers its private and corporate clients clearly sets the Bank apart from most other cantonal and regional banks. However, this comes with significant fixed costs. The earnings growth targeted by LUKB in the speciality business makes an important contribution to these fixed costs. This differentiation enables the provision of comprehensive advice on all banking services from a single source in the rapidly growing domestic market. At the same time, we reach companies and clients with demanding advisory needs throughout Switzerland. Thanks to the expansion of its service and product range in recent years, LUKB will be able to generate large economies of scale over the next few years.

Strategy 2021 to 2025 (‘LUKB25’)

In its ‘LUKB25’ strategy (strategy period from 2021 to 2025), LUKB pursued the further development of its business model with a view to achieving sustainable profitable growth. The core topics included the systematic broadening of the Bank's earnings base and boosting efficiency through optimised processes and the increased use of digital working methods.

Between 2021 and 2025, LUKB expanded its non-interest income in order to reduce its dependence on the interest business. Thematically, the focus was on expanding the business areas of investments and pensions, real estate and housing, corporate clients and the issuing and trading business. In addition, LUKB developed its interest business through selective sales management and active interest rate management.

The financial targets for the ‘LUKB25’ strategy period reflected the strategic focus on diversified, profitable growth on a solid capital base.

• The target range for cumulative net profit of 1,260 to 1,330 million Swiss francs represented sustainable profitable growth and was even increased twice during the strategy period.
• The target of a maximum cost-income-ratio of 50 % focused on high operating efficiency.
• To strengthen its capital base, the Bank targeted a total capital ratio of between 19 % and 21 %, with a minimum target for the Common Equity Tier 1 (CET1) ratio of 14 %. Both targets were raised during the strategy period.

LUKB met and indeed exceeded all of these financial targets in the ‘LUKB25’ strategy period, some of which were increased during the strategy period. Detailed information can be found in the Annual Review.

LUKB set itself additional ambitious growth targets for the closing year of the ‘LUKB25’ strategy period:

• New money in investment business involving advisory or asset management mandates: more than 1 billion Swiss francs
• Non-interest income: more than 215 million
• Lending growth: between 2.00 % and 3.75 %

LUKB also achieved these three specific growth targets for the 2025 financial year. Detailed information can be found in the ‘Annual Review’ section.

By consistently implementing its strategic plans by the end of 2025, LUKB has established a strong starting position for the next strategy period beginning in 2026.

Strategy 2026 to 2030 (‘LUKB30’)

At the start of the 2026 to 2030 strategy period, LUKB describes itself as a very efficient and future-oriented full-service bank. It enjoys the undisputed position of market leader in the Lucerne economic region, a solid financial base and a clear corporate identity. The Bank has proven that it can successfully combine growth, stability and client proximity. This gives it an extremely strong foundation for profitable growth.

LUKB's strategy for 2026 to 2030 – or ‘LUKB30’ for short – builds on its successful and proven business model: high profitability, a healthy balance sheet and a strong capital and liquidity base. Investments between 2021 and 2025 in digitalisation, technology, data, new services and competencies lay the foundation for further sustainable growth, especially in non-interest business areas.

LUKB has also established itself as a highly competitive market player at a national level in selected speciality areas and spheres of expertise. The additional income generated from this makes a disproportionately large contribution to the Bank's result and finances a growing proportion of fixed costs, which further supports profit growth.

Two strategic positioning goals

Strategically, LUKB is clearly positioned: as a champion in the Lucerne economic region with strong regional roots and as a specialist in Switzerland with purposefully expanded business areas at a national level.

• Champion in the Lucerne economic region: As the market leader, LUKB aims to benefit disproportionately from the prosperity of the Lucerne economic region. For example, the Canton of Lucerne is forecast to have one of the highest population growth rates in Switzerland up to 2055 (32 %, source: Swiss Federal Statistical Office). The attractive corporate tax rates in the canton complement the existing advantages of the location and encourage an increasing number of companies to establish themselves in the Bank's market area.
• Specialist in Switzerland: There are currently around 230 banks in Switzerland. However, the range of large full-service banks with comprehensive services for clients with special advisory needs is small and has lost a major player with the fall of Credit Suisse. LUKB has set itself the goal of actively filling the resulting gap and the need for another strong full-service bank. The further development of the LUKB brand identity and a consistent, high-quality client experience that brings LUKB's strategic positioning to life are key success factors in achieving this goal.

The Bank is thus pursuing the ambition of being one of the five leading full-service banks in Switzerland by 2030.

This objective requires the optimal engagement and ongoing development of the specialists working at the Bank. Aspects of human resources (HR) will therefore be of great importance in the coming years. LUKB is also working to support and relieve the workload of its employees through the use of artificial intelligence.

Strategic targets of ‘LUKB30’ underline ambitions

LUKB measures progress towards implementing the strategy for the years 2026 to 2030 using selected financial strategic targets:

• Focus on profitable, organic growth in off-balance-sheet business. The targets are as follows:
• Net growth in advisory and asset management mandates in 2030: at least 1.8 billion Swiss francs (performance-adjusted)
• Non-interest income in 2030: at least 310 million Swiss francs
• Net growth in lending business per year: between 2.5 % and 4.0 % (net)
• Strong cost discipline
• Cost-income-ratio over the entire strategy period: maximum 50 %
• Attractive profitability
• Consolidated profit in 2030: at least 340 million Swiss francs

The financial targets for 2026 are defined in the ‘Annual Review’ section.