LHV Group unaudited results for Q2 and 6 months of 2022

AS LHV Group generated a consolidated net profit of EUR 14.0 million in Q2 of 2022. Within the quarter, the Bank earned EUR 16.9 million in net profit, of which EUR 2.1 million was from servicing clients related to the United Kingdom branch. Within the quarter, Vahahaldus incurred a net loss of EUR 234,000 and Kindlustus incurred a net loss of EUR 235,000. LHV UK Limited incurred a loss of EUR 2.1 million. The Group’s return on equity in Q2 was 15.3%.

Net profit for Q2 was EUR 1.1 million higher than in the same period in 2021 (+8%) and EUR 1.6 million higher than in Q1 of this year (+13%). The Group’s consolidated revenues in Q2 were EUR 37.9 million, or EUR 5 million more than a year earlier (+15%) and EUR 3.1 million ahead of the Q1 result (+9%). The Group’s expenses amounted to EUR 21.1 million in Q2, which was EUR 3.2 million more than in the previous year (+18%) and EUR 2.2 million more than in Q1 (+12%).

At the end of Q2, LHV Group had EUR 6.53 billion in assets. The Group’s consolidated deposits decreased by EUR 44 million over the quarter to EUR 5.37 billion (-1%; EUR -397 million in Q1). Compared to the previous quarter, the consolidated loan portfolio increased by EUR 172 million to EUR 2.92 billion (+6%; EUR +75 million in Q1). The total volume of funds managed by LHV decreased by EUR 103 million to EUR 1.26 billion in Q2 (-8%; EUR +13 million in Q1). The number of processed payments related to financial intermediaries amounted to 6.4 million in Q2 (-2% compared to 6.6 million payments in Q1).

Consolidated net profit of AS LHV Group for the first 6 months of 2022 amounted to EUR 26.4 million, an increase of EUR 2.0 million, or 8%, year-on-year. In the first 6 months of the year, AS LHV Pank generated a net profit of EUR 31.8 million, including EUR 4.8 million from servicing clients related to the United Kingdom branch. AS LHV Varahaldus incurred a net loss of EUR 900,000 in the first 6 months and AS LHV Kindlustus incurred a net loss of EUR 700,000. LHV UK Limited incurred a loss of EUR 3.7 million for the half-year.

By the end of Q2, LHV Group will be EUR 3.5 million behind the current financial plan in terms of net profit. The financial plan stands.

Income statement, EUR thousand	Q2-2022	Q2-2021	6 months 2022	6 months 2021
Net interest income	27 184	22 928	52 971	43 299
Net fee and commission income	11 004	9 518	21 351	18 248
Net gains from financial assets	-343	292	-1 657	-83
Other income	57	43	22	82
Total revenue	37 903	32 780	72 687	61 545
Staff costs	-11 746	-8 007	-21 995	-15 259
Office rent and expenses	-923	-384	-1 446	-847
IT expenses	-1 561	-993	-3 210	-1 998
Marketing expenses	-655	-549	-1 612	-1 081
Other operating expenses	-6 195	-7 940	-11 682	-12 447
Total operating expenses	-21 079	-17 872	-39 945	-31 632
EBIT	16 823	14 909	32 741	29 914
Earnings before impairment losses	16 823	14 909	32 741	29 914
Impairment losses on loans, bonds and advances	341	791	-394	-810
Income tax	-3 177	-2 785	-5 978	-4 773
Net profit	13 987	12 915	26 370	24 331
Profit attributable to non-controlling interest	444	507	946	880
Profit attributable to shareholders of the parent	13 543	12 408	25 423	23 451

Balance sheet, EUR thousand	Jun 2022	Mar 2022	Jun 2021
Cash and cash equivalents	3 054 953	3 247 918	3 341 694
Financial assets	492 539	475 843	86 614
Loans granted	2 943 373	2 771 767	2 418 634
Loan impairments	-18 838	-19 244	-17 298
Receivables from customers	9 183	6 531	5 319
Other assets	49 646	33 604	26 704
Total assets	6 530 857	6 516 418	5 861 667
Demand deposits	5 218 411	5 247 061	4 658 731
Term deposits	148 154	163 314	262 762
Loans received	497 048	546 215	505 867
Loans received and deposits from customers	5 863 613	5 956 590	5 427 361
Other liabilities	172 082	113 510	61 207
Subordinated loans	110 368	110 374	111 057
Total liabilities	6 146 064	6 180 474	5 599 625
Equity	384 793	335 944	262 043
Minority interest	7 231	6 787	7 263
Total liabilities and equity	6 530 857	6 516 418	5 861 667

LHV Group’s quarterly results were impacted by growth in business volumes and a volatile economic environment. In addition to business as usual, the quarter was an active one for the Group: it raised EUR 35 million in new capital from investors, acquired a new subsidiary, EveryPay AS, which will enable the further development of the product portfolio, and developed operations in the United Kingdom, where the application for a banking licence and the development of the organisation are proceeding as planned, with the management for LHV UK now fully in place.

For the Bank, loan portfolio and business volumes continued to grow. The number of banking clients increased by more than 13,000 (+4%). Regular client activity has returned to pre-war levels, while payment institutions have stabilised. Deposits from payment institutions decreased, but deposits from regular clients increased. Among loans, corporate loans increased by EUR 93 million and retail loans by EUR 79 million. The quality of the loan portfolio as a whole has remained strong and the share of overdue loans remains very low.

The Bank’s interest income is in line with the financial plan, but fee and commission income has been lower than planned, while revenues are increasing. The Bank’s costs have been boosted by increased resources to implement sanctions.

The performance of Varahaldus was characterised by challenging market conditions. The largest actively managed LHV pension funds outperformed all their competitors, but over the quarter, the M, L, and XL funds were down 1.8%, 4.0%, and 5.3%, respectively. If the withdrawal of clients from the II pillar is also taken into account, the volume of funds decreased by 8% over the quarter. At the same time, LHV Varahaldus has managed to increase its market share in the Estonian pension market during the quarter. LHV has 131,000 active II pillar pension clients.

The business volumes of LHV Kindlustus will continue to grow rapidly and financial results will improve, supported by better-than-planned results in insurance intermediaries and online sales channels. The number of clients of Kindlustus has grown to 149,000, while client satisfaction with claim settlement services remains high at 97%. The costs of Kindlustus are lower than planned due to later recruitments, but the result is negatively affected by a growing number of claims in travel insurance.

Comment by Madis Toomsalu, the CEO of LHV Group:

"The inconsistent economic environment has reduced consumer confidence, as well as business investment plans. This has had different effects on different areas of LHV’s business. We are seeing growth in high-quality loan portfolios driven by increased market share, an increase in payment volumes outside of virtual currency services, and rather active private client behaviour, while activity is lower in investment services, and our regulatory costs have also increased.

In a contradictory environment, LHV remains open to its clients. In Estonia, we have continued to focus on a high-quality corporate and retail loan portfolio, a strong investment proposition with pension funds and insurance. Internationally, we see an opportunity to expand into e-commerce with our existing product portfolio for financial intermediaries, and we are preparing for this in the United Kingdom. This, together with the increased start of lending activities, will take place in the first half of the new year and we will need a bank licence in advance.

The inflationary environment, combined with rising interest rates, has mostly meant higher revenues for banks. Investor confidence in LHV has also remained high, as demonstrated by the successful share issue in early June. LHV’s greatest strengths are speed and adaptability. I believe that these principles will enable us to get through a difficult environment without sacrificing any of our ambitious goals."

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

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 before the market opens on 19 July at 9.00. The presentation will be in Estonian. We kindly ask you to register at the following address: https://lhvbank.zoom.us/webinar/register/WN_Q-ezAL2yRii0hFZxt0NOpA.

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. The Group employs more than 800 people. As of June, LHV’s banking services are being used by 350,000 clients, the pension funds managed by LHV have 131,000 active clients, and LHV Kindlustus protects a total of 149,000 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.

Marthi LepikLHV Communications SpecialistPhone: +372 5666 2944E-mail: marthi.lepik@lhv.ee

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