In the third quarter of 2019, AS LHV Group earned EUR 8.0 million altogether in consolidated net profit. AS LHV Pank earned EUR 6.4 million and AS LHV Varahaldus EUR 1.9 million as net profit. The return on equity of LHV Group was 16.4% in the third quarter.
Compared to the second quarter, the profit of the consolidation group grew by EUR 0.3 million. Compared to the third quarter of 2018, the net profit grew by EUR 1.8 million. The profit of the group was affected in the third quarter by income tax expenses in the amount of EUR 0.7 million, the impairment was close to zero.
The volume of assets of LHV Group grew by half a billion, to EUR 2.9 billion over the quarter. Compared to the previous quarter, the Group’s consolidated loan portfolio increased by EUR 104 million to EUR 1,222 million (+9%; +127 million euros in Q2). Consolidated deposits increased by EUR 451 million to EUR 2,535 million (+22%; +516 million euros in Q2). At the same time, the deposits related to payment intermediaries increased by EUR 184 million. The total volume of funds managed by LHV grew by EUR 34 million in the third quarter and reached EUR 1,328 million (+3%; +36 million euros in Q2).
The consolidated net profit of AS LHV Group in the first 9 months of 2019 was EUR 20.7 million. The profit for the first 9 months is EUR 0.2 larger compared to the same period in previous year, when the profit also contained a one-off sales revenue of the Lithuanian business unit. AS LHV Pank earned EUR 16.4 million and AS LHV Varahaldus EUR 5.2 million as net profit in 9 months.
Comment by Madis Toomsalu, CEO of LHV Group on the results:
“As a result of active summer months, the third quarter was strong and eventful for LHV. Over the last four months, we have raised capital worth 65 million euros from the investors and notably increased our business volumes. We are working on a daily basis towards ensuring that we offer the best, fastest, most efficient and professional service to our customers. This is also evidenced by the title of the best bank in Estonia from Euromoney.
In co-operation with Luminor, we increased LHV’s Estonia-wide ATM network by a factor of five, to 125 ATMs. We are constantly updating our Mobile Bank. During the summer period, we implemented a possibility to request money through the app and account opening for a new private customer, as well as ordering a bankcard and investing in securities. After the end of the quarter we introduced a possibility to apply for a loan.
The number of new customers added during the quarter was a record of 9,600. Loan growth was broad-based; deposit growth was to a large extent related to the deposits being involved via deposit platforms, which we are using to purchase Danske Bank’s private loan portfolio.
Even though the Danske transaction will be concluded at the end of November, we wanted to attain certainty in terms of financing earlier. Due to the rapid and extensive involvement of deposits, the interest expenses have been bigger over the last months. The interest income accruing starting from the last week of November will in substantial part be translated into additional profit. The deposit cost related to the transaction shall remain high until the middle of next year, when we will be looking to replace these deposits with covered bonds.
In September, a regulation entered into force, according to which lower fixed management fees apply to pension funds; yet, in the event of a strong rate of return, the funds are able to earn a success fee. We have not taken the success fee into account in our financial plan until the end of this year, which means that the monthly gains of Varahaldus shall decrease by about 400 thousand euros.
This year, we have actively grown our business, and different effects have emerged, which is why we published an updated financial plan. We have strongly upgraded our expectations for loan volumes, which we increased, compared to the previous forecast, by 570 million euros for the end of 2019 and by 873 million euros for the end of 2023. We increased deposits by 742 million euros for the end of 2019 and by 1.13 billion euros for the end of 2023. According to the updated forecast, LHV Group will earn 25.6 million euros in net profit this year. We outperform the profit forecast at the end of Q3 by 1.6 million euros; this better-than-expected outcome has mainly been achieved due to lower impairment costs and the greater late interest income of loans.
To reach the higher forecasts published in July and to purchase the Danske Bank’s private loans portfolio, we finalised the share issue in September, in which we publicly issued 2.2 million new shares in the form of pre-emptive subscription rights. A total of 3,789 investors participated in the subscription, subscribing to shares in the total amount of 32.4 million euros. LHV now has more than 6,700 shareholders altogether.
LHV’s growth trends are supported by the Estonian business environment. Economic growth has been solid, depending largely on the economies of our neighbouring countries. Internal policy risks are managed by a balanced budget, low public sector debt and a positive foreign balance, with the main source of tension being the availability of labour. Also, the credit market has remained strong. All of the main credit products, incl. corporate loans and home loans, are growing. The financial health of households is on the strong side, the loan-to-deposit ratio is improving.”
| Income statement, EUR t | Q3-2019 | Q2-2019 | 9 months 2019 | 9 months 2018 |
| Net interest income | 11 546 | 11 628 | 34 119 | 27 861 |
| Net fee and commission income | 6 412 | 6 613 | 19 250 | 18 952 |
| Net gains from financial assets | 119 | 203 | 500 | 338 |
| Other income | 33 | 16 | 26 | 768 |
| Total revenue | 18 111 | 18 460 | 53 895 | 47 919 |
| Staff costs | -4 593 | -4 883 | -14 029 | -11 463 |
| Office rent and expenses | -229 | -225 | -682 | -1294 |
| IT expenses | -641 | -639 | -1 909 | -1572 |
| Marketing expenses | -471 | -467 | -1 646 | -1 424 |
| Other operating expenses | -3 465 | -3 189 | -9 641 | -7 618 |
| Total operating expenses | -9 399 | -9 403 | -27 908 | -23 371 |
| EBIT | 8 711 | 9 057 | 25 987 | 24 548 |
| Earnings before impairment losses | 8 711 | 9 057 | 25 987 | 24 548 |
| Impairment losses on loans and advances | -15 | -697 | -1 663 | -4 337 |
| Income tax | -701 | -697 | -3 664 | -3070 |
| Net profit for the reporting period from continued operations | 7 995 | 7 662 | 20 660 | 17 141 |
| Profit/-loss from discontinued operations | 0 | 0 | 0 | 3324 |
| Net profit | 7 995 | 7 662 | 20 660 | 20 465 |
| Profit attributable to non-controlling interest | 706 | 565 | 1 583 | 1 277 |
| Profit attributable to share holders of the parent | 7 289 | 7 098 | 19 078 | 19 188 |
| Balance sheet, EURt | September 2019 | June 2019 | September 2018 |
| Cash and cash equivalents | 1 468 510 | 1 099 009 | 965 494 |
| Financial assets | 124 035 | 119 462 | 48 829 |
| Loans granted | 1 233 626 | 1 129 661 | 822 696 |
| Loan impairments | -11 561 | -11 757 | -10 745 |
| Receivables from customers | 33 491 | 9 503 | 7 372 |
| Other assets | 28 700 | 28 835 | 23 776 |
| Total assets | 2 876 800 | 2 374 714 | 1 857 421 |
| Demand deposits | 2 005 227 | 1 672 003 | 1 513 113 |
| Term deposits | 529 442 | 411 384 | 124 476 |
| Loans received | 28 640 | 28 591 | 12 289 |
| Loans received and deposits from customers | 2 563 309 | 2 111 977 | 1 649 877 |
| Other liabilities | 39 524 | 23 197 | 26 024 |
| Subordinated loans | 75 000 | 75 000 | 30 900 |
| Total liabilities | 2 677 833 | 2 210 175 | 1 706 802 |
| Equity | 198 967 | 164 539 | 150 620 |
| Minority interest | 4 505 | 3 799 | 3 447 |
| Total liabilities and equity | 2 876 800 | 2 374 714 | 1 857 421 |
AS LHV Group reports are available at https://investor.lhv.ee/en/reports.
LHV organises an investor meeting for introducing the quarterly results, to be held on 15 October at 18.00 in LHV Tallinn office (Tartu mnt 2, I floor). The presentation will be made in Estonian. To participate, please register at https://fp.lhv.ee/academy/560. A real-time video broadcast is made of the investor meeting on LHV’s Facebook page www.facebook.com/LHVPank.
LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs about 420 people, and more than 189,000 customers use LHV’s banking services. Pension funds managed by LHV have more than 176,000 active clients.
Priit Rum
Communication Manager
Phone: +372 502 0786
Email: [email protected]