Consolidated net profit of AS LHV Group was EUR 10.7 million in Q3 of this year. Within the quarter, AS LHV Pank earned EUR 19.2 million in net profit, of which EUR 2.8 million was from servicing clients related to the United Kingdom branch. Varahaldus generated a net profit of EUR 237 thousand in Q3, Kindlustus a net loss of EUR 432 thousand, and LHV UK Limited a net loss of EUR 2.8 million.
The Group's return on equity was 10.8% in Q3. The company's results were influenced, on the one hand, by changes in the interest rate and economic environment and, on the other hand, by write-downs on the Group's financial investments amounting to EUR 5.2 million. Net profit for Q3 was EUR 5.8 million lower than in the same period last year (-35%) and EUR 3.2 million lower than in Q2 (-23%).
The Group's consolidated revenues in Q3 were a record EUR 44.3 million, EUR 8.2 million higher than a year earlier (+23%) and EUR 6.4 million higher than in Q2 (+17%). At the same time, costs increased to EUR 22.8 million in the quarter, which was EUR 7.6 million more than a year earlier (+50%) and EUR 1.7 million more than in Q2 (+8%).
By the end of Q3, LHV Group's volume of assets decreased to EUR 6.26 billion. The Group's consolidated deposits decreased by EUR 198 million over the quarter to EUR 5.17 billion (-4%; EUR -44 million in Q2). The consolidated loan portfolio increased by EUR 170 million to EUR 3.1 billion (+6%; EUR +172 million in Q2). The total volume of funds managed by LHV increased by EUR 7 million over the quarter to EUR 1.27 billion (+1%; EUR -103 million in Q2). The number of payments by financial intermediaries reached EUR 5.8 million in Q3 (-10% compared to 6.4 million payments in Q2).
AS LHV Group's consolidated net profit for the first nine months of 2022 was EUR 37.1 million, which is EUR 3.8 million less than the result for the first nine months of 2021 (-9%). In the first nine months of the year, AS LHV Pank generated a net profit of EUR 51 million, including EUR 7.6 million from servicing clients related to the UK branch. AS LHV Varahaldus incurred a net loss of EUR 0.6 million in the first nine months and AS LHV Kindlustus incurred a net loss of EUR 1.2 million. LHV UK Limited incurred a loss of EUR 6.6 million in the first nine months.
By the end of Q3, AS LHV Group was behind in its financial plan in terms of net profit by EUR 7.7 million, but in a context of rising interest rates, the shortfall in the financial plan will be significantly reduced by the end of the year, while the final result will depend on credit quality.
| Income statement, EUR thousand | Q3-2022 | Q2-2022 | 9 months 2022 | 9 months 2021 |
| Net interest income | 32 041 | 27 185 | 85 013 | 69 156 |
| Net fee and commission income | 12 000 | 11 005 | 33 351 | 28 227 |
| Net gains from financial assets | 228 | -345 | -1 430 | -34 |
| Other income | 29 | 57 | 51 | 353 |
| Total revenue | 44 298 | 37 903 | 116 985 | 97 702 |
| Staff costs | -11 631 | -11 746 | -33 626 | -22 683 |
| Office rent and expenses | -914 | -923 | -2 360 | -1 383 |
| IT expenses | -2 201 | -1 561 | -5 411 | -3 136 |
| Marketing expenses | -565 | -655 | -2 177 | -1 715 |
| Other operating expenses | -7 502 | -6 195 | -19 184 | -18 018 |
| Total operating expenses | -22 813 | -21 080 | -62 759 | -46 936 |
| Earnings before impairment losses | 21 485 | 16 822 | 54 227 | 50 766 |
| Impairment losses on loans and advances | -7 407 | 341 | -7 801 | -2 254 |
| Income tax | -3 331 | -3 177 | -9 309 | -7 591 |
| Net profit | 10 747 | 13 986 | 37 116 | 40 921 |
| Profit attributable to non-controlling interest | 441 | 444 | 1 387 | 1 516 |
| Profit attributable to share holders of the parent | 10 307 | 13 543 | 35 729 | 39 405 |
| Balance sheet, EUR thousand | Sept 2022 | Jun 2022 | Sept 2021 |
| Cash and cash equivalents | 2 735 080 | 3 054 953 | 3 769 432 |
| Financial assets | 373 749 | 492 539 | 138 800 |
| Loans granted | 3 115 239 | 2 943 373 | 2 566 887 |
| Loan impairments | -20 537 | -18 838 | -18 024 |
| Receivables from customers | 12 785 | 9 183 | 6 240 |
| Other assets | 46 099 | 49 646 | 32 279 |
| Total assets | 6 262 414 | 6 530 857 | 6 495 615 |
| Demand deposits | 5 198 733 | 4 658 731 | 5 198 733 |
| Term deposits | -30 579 | 707 834 | 257 838 |
| Loans received | 496 239 | 497 048 | 563 203 |
| Loans received and deposits from customers | 5 664 393 | 5 863 613 | 6 019 774 |
| Other liabilities | 91 626 | 172 082 | 86 137 |
| Subordinated loans | 110 652 | 110 368 | 110 383 |
| Total liabilities | 5 866 671 | 6 146 064 | 6 216 294 |
| Equity | 395 743 | 384 793 | 279 321 |
| Minority interest | 7 671 | 7 231 | 7 899 |
| Total liabilities and equity | 6 262 414 | 6 530 857 | 6 495 615 |
| Profitability ratios | Q3-2022 | Q2-2022 | 9 months 2022 | 9 months 2021 |
| Return on equity | 10,8% | 15,3% | 13,5% | 20,7% |
| Cost / Income ratio | 51,5% | 55,6% | 53,6% | 48,0% |
| Net gains from financial assets | 1,0% | 0,0% | 0,3% | 0,1% |
The quarter was characterised by growth in lending volumes and active client engagement, with good results in the larger business units.
The quarter included a Bank North write-down of EUR 5.2 million on the financial investment, but at the beginning of the new quarter, LHV announced the acquisition of the business of this UK financial institution. LHV UK Limited acquired a GBP 17.9 million SME loan portfolio, employment contracts for 20 employees, an IT system for customer relations and loan portfolio management, and cooperation relationships with loan brokers. The transaction amounted to GBP 19.7 million. LHV UK will finance the transaction from its own funds available. With this move, LHV UK Limited entered the UK corporate loan market and also started generating interest income. At the same time, the UK business unit will continue to service financial intermediaries and LHV UK Limited to apply for a banking licence.
This was the most successful quarter ever for LHV Pank. The number of the Bank's clients increased by 14,000 (43,000 clients added in nine months; +13%). Client activity remained at pre-war levels. Although corporate client activity is high, there has been some decline in private client confidence since the end of September.
The decrease in deposits was due to deposits from financial intermediaries, while LHV Pank's loan portfolio is fully funded by deposits from Estonian companies and individuals. Of the EUR 170 million increase in the Bank's loan portfolio, EUR 93 million came from corporate loans and EUR 77 million from retail loans. The quality of the loan portfolio as a whole has remained strong and the share of overdue loans remains low. Loan write-downs were proactively increased.
During the quarter, LHV started to offer student loans under new, more favourable terms. This has boosted interest in the product: five times more student loans were issued in September than in the same month last year. According to Instar's Attractive Employers Survey, LHV Pank is the most attractive employer in Estonia according to economics students and experienced employees. The international business magazine Euromoney declared LHV the best bank in Estonia for the fifth time.
LHV Varahaldus outperformed its competitors in a difficult quarter for equity markets, with the largest actively managed LHV pension funds M, L, and XL having a rate of return 0.7%, 1.2%, and 1.2%, respectively, in the quarter. Volumes of assets under management were also affected by the exit from the II pillar in September, with the number of active II pillar clients falling by 1% to 130 thousand. At the same time, LHV's market share has increased: by the end of the quarter, it was nearly 31% by volume of funds and 25% by number of clients. In addition, the government approved a draft under which the state will compensate part of the suspended II pillar payments in January 2023. This step will increase the volume of LHV funds by nearly EUR 110 million.
For LHV Kindlustus, Q3 was a period of rapid growth in business volumes, as the number of clients increased to 152 thousand. By the end of the quarter, the number of the current insurance contracts reached 219 thousand. Losses were higher than planned in motor and home insurance. Client satisfaction with claims handling remains at a high level of 97%, even in a context of growing volumes.
Comment by Madis Toomsalu, the Managing Director of LHV Group:
'Changes in Europe's economic environment, together with rising prices, are increasing the risks to banks' loan portfolios and the long-term costs related to deposits. At the same time, LHV's loan portfolio has so far remained at a high quality level, which, together with rising reference rates, allows us to expect revenue and profitability growth in the near future.
Today, we find ourselves in a familiar place in the insurance business and in doing business in the UK, having previously started new strategic activities in difficult economic times as well. We have already made a good start in insurance activities, but most of the long-term growth still lies ahead. In the UK, we have so far focused on financial intermediaries, which have been affected by the current economic environment through a short-term decline in business volumes. More important, however, is the further recovery from the decline in volumes and our ambition to start lending to companies after obtaining a banking licence.
With the acquisition of the Bank North business, we have a tested and fully mature UK corporate lending business instead of a written-off financial investment. We are pleased with the result, as we can start lending in conditions where we have a solid strategy, controlled demand, excellent people, brokerage agreements, technology, and an additional office in Manchester.
In the context of LHV Pank, it is worth highlighting the growth of the loan portfolio. The volume of our home loan portfolio exceeded EUR 1 billion and our total loan portfolio exceeded EUR 3 billion.'
To access the reports of AS LHV Group, please visit the website 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 on 18 October 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_lgrCuIaSQBydC8D0NksMog.
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 820 people. As of August, LHV's banking services are used by 359,000 clients, the pension funds managed by LHV have 132,000 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 worldwide.
Marthi Lepik
LHV Communications Specialist
Phone: +372 5666 2944
E-mail: marthi.lepik@lhv.ee
