In Q1 2022, AS LHV Group earned a total of EUR 12.4 million in consolidated net profit. Within the quarter, AS LHV Bank earned EUR 14.9 million in net profit, including EUR 2.7 million from servicing clients related to the United Kingdom branch. During Q1, AS LHV Varahaldus generated EUR 0.6 million in net loss, and AS LHV Kindlustus generated EUR 0.5 million in net loss. LHV UK Limited had a loss of EUR 1.6 million. The Group’s return on equity in Q1 was 14.7%.
The net profit for Q1 was EUR 1 million higher than Q1 a year ago (+8%), and EUR 7 million lower than in 2021 Q4 (-36%), when the profit also included the success fee related to managing pension funds. The Group’s consolidated revenue in Q1 was EUR 34.8 million, i.e. EUR 6 million more than a year earlier (+21%) and EUR 7.9 million less than in Q4 (-18%). At the same time, the Group’s expenses for Q1 increased by EUR 5.1 million (+37%) year-on-year and by EUR 0.6 million (+3%) compared to Q4.
LHV Group’s consolidated assets stood at EUR 6.52 billion as at the end of March. The Group’s consolidated deposits decreased by EUR 397 million to EUR 5.41 billion over Q1 (+7%; +EUR 351 million in Q4). The decrease in deposits is due to a planned reduction of around EUR 400 million in deposits from payment intermediaries. The volume of the consolidated loan portfolio increased by EUR 75 million over the quarter (+3%; +EUR 128 million in Q4). Corporate loans increased by EUR 32 million and retail loans by EUR 43 million.
The total volume of funds managed by LHV increased by EUR 13 million to EUR 1.36 billion (+1%; +EUR 65 million in Q4). The number of processed payments from financial intermediaries amounted to 6.6 million in Q1 (-10% compared to 7.3 million payments in Q4).
By the end of Q1, LHV was behind in its financial plan for 2022, published in February, by EUR 2.6 million in profit.
Income statement, EUR thousand
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 from financial assets
-1 314
-375
-1 314
-375
Other income
-35
39
-35
39
Total revenue
34 784
28 765
34 784
28 765
Staff costs
-10 249
-7 253
-10 249
-7 253
Office rent and expenses
-522
-463
-522
-463
IT expenses
-1 649
-1 005
-1 649
-1 005
Marketing expenses
-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 interest
503
373
503
373
Profit attributable to share holders of the parent
11 880
11 043
11 880
11 043
Balance sheet, EUR thousand
Mar 2022
Dec 2021
Mar 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 from customers
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
Demand 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 deposits from customers
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 liabilities
6 180 474
6 520 130
5 427 188
Equity
335 944
324 801
255 235
Minority interest
6 787
8 384
6 756
Total liabilities and equity
6 516 418
6 844 930
5 682 423
The results at the beginning of the year were impacted by lower activity from clients related to the Russian-Ukrainian war, a donation of EUR 500,000 to the Estonian Refugee Council and also, as a specific item, a EUR 1.4 million negative revaluation on the value of bonds in the liquidity portfolio.
The Bank was active at the beginning of the year. More than 16,000 new bank clients joined LHV during the quarter (+5%). During the quarter, the bank launched a new virtual bank card, which will add speed and convenience to client payments. Cryptocurrency trading was added to the Internet Bank, and more tradable currencies were added. Regarding home loans, the conditions for families with many children were 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 client office in the Graf Zeppelin building, in Pärnu. The bank now has three offices in Estonia. Once again, LHV’s service was rated the best among Estonian banks, and it was also voted the best employer in Estonia in a CV-Online survey.
In the context of a tense international situation, LHV has begun to apply international sanctions. This has led to restrictions for some clients. Refugees who have arrived in Estonia are also interested in opening bank accounts. LHV has simplified the account opening process for them. We have also abolished the service fee on payments to Ukraine. The impact of the war has not been felt in the loan portfolio, which has remained strong overall and the share of overdue loans is very low.
Q1 was successful for the funds actively managed by Asset Management, as these were the best performing funds on the market, with the rate of return of M, L and XL pension funds being 2.0%, 3.8% and 2.3%, respectively, in the quarter. However, the quarter presented more of a challenge for the pension funds Index and Green, as their share values fell by 3.6% and 5.0%, respectively. The number of active Pillar II clients fell by 3,000 (-2%) over the quarter, while market share remained at the same level.
The number of insurance clients increased by 3,000 (+2%) over the quarter. There has been a steady increase in the interest of insurance intermediaries, and business volumes are growing. For the convenience of clients, insurance contracts were added to the LHV Internet Bank and mobile app. Client satisfaction with claims handling remains at a high 97% level. However, the insurance surplus continued to be negatively impacted by the high number of COVID losses in travel insurance.
In other significant events in Q1, AS LHV Group acquired EveryPay, a platform for accepting payments. The transaction will help LHV to grow in the strategically important area of payments, both in Estonia and internationally. During Q1, LHV UK Limited also submitted an application for a banking licence to the UK regulator, which is expected to be approved later this year. In the UK, recruitment and preparations continue. AS LHV Group also announced that it plans to raise capital this year for the upfront capitalisation of its UK business line. AS LHV Group is also in the process of applying to the Financial Supervision Authority for a financial holding company licence, which is currently pending.
Comment by Madis Toomsalu, the CEO of LHV Group:
"The first quarter was dominated by the impact of the war and the difficult international situation. Client activity fell somewhat, but despite the stormy weather we remain open to clients.
Estonia’s open economy is moving in an amplified way with European trends. Inflation is higher and the risk of recession is real. The likelihood of stagflation has increased, with the outcome depending mainly on the ability of companies to cope with wage growth expectations. However, the inflationary environment, combined with rising interest rates, has typically meant higher revenues and profits for banks.
LHV is carried forward by our ambition to build good and lasting long-term relationships with our clients, the people who work for LHV, and our shareholders. It is a pleasure to be able to provide a professional relationship and a sense of value to all. I believe that we will be able to achieve our planned results for the year as a whole. We have a clear outlook for revenue growth in the second half of the year. To confirm this, we plan to raise new capital later this year. Although the specific conditions in this respect have yet to be decided. The capital we need is mainly to capitalise our UK business. Similarly, we plan to make a smaller follow-up investment in Bank North, assuming the company is able to raise capital from other investors."
In order to introduce the quarterly results, LHV Group will organise an investor meeting via the Zoom webinar environment. The virtual investor meeting will take place on 19 April, at 9:00, before the market opens. The presentation will be in Estonian. We kindly ask you to register at the following address: https://lhvbank.zoom.us/webinar/register/WN_TuuISGl1R8KAY9jCEPBqfw.
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. LHV employs over 700 people. As at the end of March, LHV’s banking services are being used by 337,000 clients, the pension funds managed by LHV have 135,000 active clients, and LHV Kindlustus is protecting a total of 147,000 clients. LHV’s UK branch offers banking infrastructure to 200 international financial services companies, via which LHV’s payment services reach clients around the world.
Priit Rum LHV Communication Manager Phone: +372 502 0786 E-mail: priit.rum@lhv.ee
