LHV Group unaudited results for Q1 2022

In the first quarter of 2022, the AS LHV group achieved a consolidated net profit of 12.4 million euros. During the quarter, AS LHV Bank made a net profit of €14.9 million, of which €2.7 million came from customer services related to the UK branch. During the first quarter, AS LHV Varahaldus generated a net loss of €0.6 million and AS LHV Kindlestus generated a net loss of €0.5 million. LHV UK Limited recorded a loss of 1.6 million euros. The Group’s return on equity in Q1 was 14.7%.

Net profit for the first quarter was €1 million higher than the first quarter of last year (+8%) and €7 million lower than the fourth quarter of 2021 (-36%), when the profit also included the success fee related to the management of the pension funds. The Group’s consolidated turnover in the 1st quarter amounted to 34.8 million euros, i.e. 6 million euros more than a year earlier (+21%) and 7.9 million euros less than in the 4th quarter (-18%). At the same time, the Group’s expenses for the first quarter increased by €5.1 million (+37%) year-on-year and by €0.6 million (+3%) compared to the fourth quarter.

The consolidated assets of the LHV group amounted to 6.52 billion euros at the end of March. The Group’s consolidated deposits decreased by 397 million euros to 5.41 billion euros in the 1st quarter (+7%; +351 million euros in the 4th quarter). The decrease in deposits is due to an expected reduction of approximately EUR 400 million in deposits from payment intermediaries. The volume of the consolidated credit portfolio increased by EUR 75 million over the quarter (+3%; +EUR 128 million in Q4). Corporate loans increased by EUR 32 million and personal loans by EUR 43 million.

The total volume of funds managed by LHV increased by 13 million euros to 1.36 billion euros (+1%; +65 million euros in the fourth quarter). The number of payments processed from financial intermediaries amounted to 6.6 million in Q1 (-10% against 7.3 million payments in Q4).

At the end of the first quarter, LHV was behind in its financial plan for 2022, published in February, by 2.6 million euros in profit.

Income statement, in thousands of euros Q1-2022 Q1-2021 3 months 2022 3 months 2021
Net interest income 25,787 20,371 25,787 20,371
Net fee and commission income 10,346 8,729 10,346 8,729
Net gains on financial assets -1,314 -375 -1,314 -375
Other income -35 39 -35 39
Total revenue 34,784 28,765 34,784 28,765
Personnel costs -10,249 -7,253 -10,249 -7,253
Rent and office charges -522 -463 -522 -463
IT expenses -1,649 -1,005 -1,649 -1,005
Marketing costs -957 -532 -957 -532
Other operating expenses -5,487 -4,507 -5,487 -4,507
Total operating expenses -18,866 -13,760 -18,866 -13,760
EBIT 15,919 15,005 15,919 15,005
Earnings before impairment losses 15,919 15,005 15,919 15,005
Impairment losses on loans and advances -735 -1,601 -735 -1,601
Income tax -2,801 -1,988 -2,801 -1,988
net profit 12,383 11,416 12,383 11,416
Profit attributable to non-controlling interests 503 373 503 373
Profit attributable to shareholders of the parent company 11,880 11,043 11,880 11,043
Balance sheet, in thousands of EUR March 2022 Dec 2021 March 2021
Cash and cash equivalents 3,247,918 3,987,312 3,193,146
Financial assets 475,843 135,856 149,739
Loans granted 2,771,767 2,696,210 2,322,518
Loan impairments -19,244 -19,049 -18,170
Receivables 6,531 9,746 5,185
other assets 33,604 34,856 30,005
Total assets 6,516,418 6,844,930 5,682,423
Sight deposits 5,247,061 5,648,013 4,272,474
Term deposits 163,314 159,607 461 369
Loans received 546 215 546,280 508 801
Loans received and customer deposits 5,956,590 6,353,899 5,242,644
Other liabilities 113,510 55,852 73,668
Subordinated loans 110,374 110,378 110,876
Total responsibilities 6,180,474 6,520,130 5,427,188
Equity 335,944 324,801 255 235
Minority interests 6,787 8,384 6,756
Total Liabilities and Equity 6,516,418 6,844,930 5,682,423

Earnings at the start of the year were impacted by lower customer activity related to the Russian-Ukrainian war, a donation of EUR 500,000 to the Estonian Refugee Council and also, specifically, a negative revaluation of EUR 1.4 million. EUR on the value of bonds in the cash portfolio.

The Bank was active at the beginning of the year. More than 16,000 new banking customers joined LHV during the quarter (+5%). During the quarter, the bank launched a new virtual bank card, which will add speed and convenience to customer payments. Cryptocurrency trading has been added to internet banking and more tradable currencies have been added. Regarding home loans, the conditions for large families with children have been renewed from March, they can apply for a home loan with 5% co-financing with a guarantee from KredEx. At the end of March, LHV opened a new customer office in the Graf Zeppelin building in Pärnu. The bank now has three offices in Estonia. Once again, LHV’s service has been ranked among the best among Estonian banks, and it has also been voted Estonia’s best employer in a CV-Online survey.

In the context of a tense international situation, LHV has started to apply international sanctions. This has led to restrictions for some customers. Refugees who have arrived in Estonia are also interested in opening bank accounts. LHV simplified the account opening process for them. We have also removed service charges on payments to Ukraine. The impact of the war has not been felt in the loan portfolio, which has remained solid overall and the share of overdue loans is very low.

The first quarter was a success for the funds actively managed by Asset Management, as they are the best performing funds in the market, the rate of return of the M, L and XL pension funds being respectively 2.0%, 3, 8% and 2.3% in the quarter. However, the quarter presented more challenges for pension funds Index and Green, as their shares fell 3.6% and 5.0%, respectively. The number of active Pillar II customers decreased by 3,000 (-2%) over the quarter, while the market share remained at the same level.

The number of insurance customers increased by 3,000 (+2%) over the quarter. There has been a steady increase in interest from insurance intermediaries and business volumes are growing. For the convenience of customers, insurance contracts have been added to the LHV Internet Bank and mobile application. Customer satisfaction with claims handling remains at a high level of 97%. However, the insurance surplus continued to be negatively affected by the high number of COVID-related claims in travel insurance.

In other significant events in the first quarter, the AS LHV group acquired EveryPay, a payment acceptance platform. The transaction will help LHV grow in the strategically important area of ​​payments, both in Estonia and internationally. During the first quarter, LHV UK Limited also submitted a banking license application to the UK regulator, which is expected to be approved later this year. In the UK, recruitment and preparations are continuing. AS LHV Group has also announced that it plans to raise capital this year for the initial capitalization of its UK business. AS LHV Group is also in the process of applying to the Financial Supervisory Authority for a financial holding company license, which is currently pending.

Comment from Madis Toomsalu, CEO of LHV Group:

“The first quarter was dominated by the impact of the war and the difficult international situation. Customer activity has decreased somewhat, but despite the stormy weather, we remain open to customers.

Estonia’s open economy is growing amplified with European trends. Inflation is higher and the risk of recession is real. The likelihood of stagflation has increased, with the outcome depending primarily on the ability of companies to meet wage growth expectations. However, the inflationary environment, combined with rising interest rates, has generally resulted in higher revenues and profits for banks.

LHV is driven by our ambition to build good, long-term relationships with our customers, the people who work for LHV and our shareholders. It is a pleasure to be able to offer a professional relationship and a sense of value to all. I believe that we will be able to achieve the results planned for the year as a whole. We have clear prospects for revenue growth in the second half. To confirm this, we plan to raise new capital later this year. Although the specific conditions in this regard have yet to be decided. The capital we need is mainly to capitalize our UK business. Similarly, we plan to make a smaller follow-on investment in Bank North, assuming the company is able to raise capital from other investors.”

AS LHV Group reports are available at: https://investor.lhv.ee/en/reports/.

In order to present the quarterly results, LHV Group will organize an investor meeting via the Zoom webinar environment. The virtual investor meeting will take place on April 19, at 9:00 a.m., before the market opens. The presentation will be in Estonian. We kindly ask you to register at: https://lhvbank.zoom.us/webinar/register/WN_TuuISGl1R8KAY9jCEPBqfw.

LHV Group is the largest domestic financial group and capital provider in Estonia. The main subsidiaries of the LHV group are LHV Pank, LHV Varahaldus and LHV Kindlustus. LHV employs over 700 people. At the end of March, LHV’s banking services are used by 337,000 customers, the pension funds managed by LHV have 135,000 active customers and LHV Kindlestus protects a total of 147,000 customers. LHV’s UK branch provides banking infrastructure to 200 international financial services companies, through which LHV’s payment services reach customers worldwide.

Priit Rum
LHV communication officer
Telephone: +372 502 0786
Email: priit.rum@lhv.ee