* Correction on page 18 of the Interim Report regarding liabilities and equity in Statement of financial position *
In the second quarter of 2020, AS LHV Group earned EUR 3.6 million in consolidated net profit. AS LHV Pank earned EUR 2.8 million and AS LHV Varahaldus EUR 1 million as net profit.
Compared to the first quarter of this year, the net profit of the consolidation group decreased by EUR 3.9 million or by 53%. Compared to the second quarter of 2019, net profit remained lower by EUR 4.1 million or 54%. The return on equity of LHV Group was 5.7% in the second quarter. The results of otherwise successful quarter were influenced primarily by the loan impairments in the amount of EUR 7.7 million made because of the emergency situation and effects of COVID-19.
In Q2, the volume of assets of LHV Group grew to EUR 3.7 billion. During the quarter the Group’s consolidated loan portfolio increased by EUR 65 million to EUR 1.8 billion (+4%; +52 million euros in Q1). Consolidated deposits increased by EUR 134 million to EUR 3.09 billion (+5%; +252 million euros in Q1). Most of deposit growth came from regular customers. The total volume of funds managed by LHV grew by EUR 96 million in the second quarter and reached EUR 1.44 billion (+7%; -30 million euros in Q1).
In the first 6 months of 2020, the consolidated net profit of AS LHV Group was EUR 11.0 million, that was EUR 1.6 million lower than the first half-year of 2019. In 6 months, AS LHV Pank earned EUR 10.9 million and AS LHV Varahaldus EUR 0.4 million as net profit.
Comments by Madis Toomsalu, CEO of LHV Group:
"Second quarter results were affected by the global health and economic crisis. Nonetheless, difficult times proved that as long as we are pursuing a long-term vision, we have the opportunity to shape the end result. LHV is governed by our long-term growth ambitions and that is why we reckon the past quarter to be a strong one.
Even though the growth in business volumes remained moderate and loan losses were higher, the acquisition of the Danske corporate and local government portfolio, the successful issue of covered bonds, engagement of capital, submission of the application for authorisation of LHV Insurance, facilitation of USD payments and introduction of the green LHV action plan constitute activities which are bound to take us beyond the horizon in a profitable and sustainable manner.
The customer base of the bank is growing, 8,000 new bank customers added during the quarter. We have continued pursuing our open and local credit policy, reviewing all loan applications on a customer-by-customer basis. Our loan portfolio grew by EUR 65 million in Q2. At the same time, we granted grace periods to our existing customers in the total amount of EUR 350 million. Predominantly, customers use the grace periods as a precautionary measure for ensuring liquidity. We therefore expect the scheduled repayments to resume after expiry of the grace periods.
To secure a growth in business volumes, we signed an agreement to purchase the Danske corporate loan and public sector loan portfolio. At the moment of the conclusion of the contract, the portfolio amounted to EUR 312 million, but this volume will somewhat decrease by October, when the transaction is scheduled to be completed. The agreed discount of EUR 19 million will be retained. For the completion of the transaction the permission of the Competition Authority is required.
In the beginning of June, LHV's first issue of covered bonds was concluded. The amount of the issue was EUR 250 million, for a period of 5 years and at an annual interest rate of 0.12%. 31 institutional investors from Europe participated in the issue. The covered bonds received a rating of Aa1. Covered bonds provide alternative means for engaging financing, important considering the bank's quick growth and efficiency in interest expenses.
We also engaged a further EUR 15 million from investors via bonds included in own funds. Additional capital engagements of the year will depend on the rate of growth of the loan portfolio and the need for further write-down of loans. The decisions regarding capital engagements must be made within the next few months.
During the quarter, we filed the application for authorisation of LHV Insurance with the Financial Supervision Authority, as well as disclosed LHV's green projects and activities to reduce our impact on climate.
While Q1 was characterised by a sharp drop in stock markets, the markets showed a strong recovery in Q2. All pension funds managed by LHV Asset Management showed a positive yield in Q2, while the funds with the greatest stock market risk also generated the highest yield. The number of active pension fund clients has somewhat risen and is now close to 179 thousand, adding 1,200 customers in Q2."
| Income statement, EUR thousand | Q2-2020 | Q1-2020 | 6 months 2020 | 6 months 2019 |
| Net interest income | 15 545 | 16 323 | 31 868 | 22 573 |
| Net fee and commission income | 6 188 | 6 507 | 12 696 | 12 838 |
| Net gains from financial assets | 322 | -389 | -68 | 381 |
| Other income | -16 | 36 | 20 | -7 |
| Total revenue | 22 039 | 22 477 | 44 516 | 35 784 |
| Staff costs | -6 146 | -5 770 | -11 916 | -9 436 |
| Office rent and expenses | -236 | -278 | -514 | -453 |
| IT expenses | -782 | -729 | -1 511 | -1 268 |
| Marketing expenses | -315 | -475 | -790 | -1 175 |
| Other operating expenses | -3 183 | -3 922 | -7 104 | -6 176 |
| Total operating expenses | -10 661 | -11 174 | -21 835 | -18 508 |
| EBIT | 11 378 | 11 303 | 22 681 | 17 276 |
| Earnings before impairment losses | 11 378 | 11 303 | 22 681 | 17 276 |
| Impairment losses on loans and advances | -7 672 | -1 011 | -8 683 | -1 649 |
| Income tax | -156 | -2 809 | -2 964 | -2 963 |
| Net profit for the reporting period from continued operations | 3 550 | 7 484 | 11 034 | 12 665 |
| Profit/-loss from discontinued operations | 0 | 0 | 0 | 0 |
| Net profit | 3 550 | 7 484 | 11 034 | 12 665 |
| Profit attributable to non-controlling interest | 615 | 404 | 1 019 | 877 |
| Profit attributable to share holders of the parent | 2 935 | 7 079 | 10 014 | 11 788 |
| Balance sheet, EUR thousand | Jun 2020 | Mar 2020 | Jun 2019 |
| Cash and cash equivalents | 1 438 793 | 1 284 182 | 1 099 009 |
| Financial assets | 423 117 | 231 321 | 119 462 |
| Loans granted | 1 818 644 | 1 746 205 | 1 129 661 |
| Loan impairments | -14 608 | -7 296 | -11 757 |
| Receivables from customers | 3 039 | 2 780 | 9 503 |
| Other assets | 28 527 | 30 148 | 28 835 |
| Total assets | 3 697 512 | 3 287 341 | 2 374 714 |
| Demand deposits | 2 512 196 | 2 357 463 | 1 672 003 |
| Term deposits | 574 739 | 595 948 | 411 384 |
| Loans received | 271 553 | 25 687 | 28 591 |
| Loans received and deposits from customers | 3 358 488 | 2 979 098 | 2 111 977 |
| Other liabilities | 35 702 | 26 093 | 23 197 |
| Subordinated loans | 90 000 | 75 000 | 75 000 |
| Total liabilities | 3 484 190 | 3 080 191 | 2 210 175 |
| Equity | 213 322 | 207 150 | 164 539 |
| Minority interest | 5 243 | 4 190 | 3 799 |
| Total liabilities and equity | 3 697 512 | 3 287 341 | 2 374 714 |
LHV is organizing an investor meeting to introduce quarterly results, which this time will be conducted in the form of a webinar via video communication platform Zoom. The virtual investor meeting will take place on 14 July at 18:00. The presentation will be made in Estonian. Registration is open via the link https://lhvbank.zoom.us/webinar/register/WN_4DU53nSARLSXw2KTJFrZDQ.
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 470 people. LHV’s banking services are used by about 224,000 clients, and pension funds managed by LHV have about 179,000 active clients. Additionally, LHV’s UK branch offers banking infrastructure to more than 120 financial service providers, that in turn intermediate LHV’s payment services to their customers around the world.
Priit Rum
Communication Manager
Phone: +372 502 0786
Email: priit.rum@lhv.ee
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