Hello to everyone listening in. My name is Mihkel Torim. Together with me, I have also LHV Group's CFO, Mr. Meelis Paakspuu.
Hello.
We are here presenting LHV Group's first quarter 2026 results, and we are happy to take any questions you have afterwards. To summarize the first quarter, net profit was in line with the financial plan that we presented a while back. Together we had roughly EUR 20 million net profit. Capital position and liquidity remains very strong for the bank. All the ratios are exceeding internal targets with meaningful buffers. On our subsidiaries, LHV Bank, which is the largest subsidiary that we have, we have reached 500,000 customers in Estonia. Year-over-year, we also had a loan portfolio growth of 11%. LHV Bank in the U.K. loan portfolio increased almost 80% year-over-year, reaching EUR 876 million. We are quite close to the EUR 1 billion mark, and plan to reach it within this year.
On the asset management side, first quarter was delivered as planned and also both of our pension funds, both in second and third pillar, were the best performing on the market. In LHV Insurance, we had a difficult quarter, which was impacted quite a lot by both geopolitical events, which affected the travel part of the business, and also weather conditions which led up to higher claims and also higher sized claims. Overall, the net result was quite a bit behind the plans that we had. Altogether, portfolio growth, deposit growth was strong. When it comes to net income and net profit, so we are in the plan. Are we content with the result? Of course not. We also expect that for the foreseeable next quarters, the results will also start gradually improving as was planned. Yes, we are pretty much moving according to plan.
When we compare the first quarter to the last one, maybe some things to highlight. Net interest income was pretty much stable. Interest income is starting to increase. Interest costs are still a bit higher. We are expected to improve. When it comes to net fee and commission income, so fourth quarter is usually strong seasonally. First quarter is not that strong, but it's within our plan. Also in the fourth quarter, we recognized the success fee of the asset management, which had a meaningful impact and which is not carried over to the first quarter. Yes, on the operating expenses side, it was 7% increase quarter-over-quarter. There was also a significant increase in one of personnel-related costs and some outsourced tech activities to advisory services.
I would say that approximately EUR 1.1 million was related to the personnel and some hundreds of thousands on top of that when it comes to extra outsourced costs. On the impairment side, it was okay quarter. Altogether the number was EUR 1.3 million. Out of that, EUR 1 million was related to one specific provision in the U.K. Volumes are growing year-over-year, EUR 120 million worth of loan growth. Assets under management in our pension funds have increased as well. Deposits have declined over the quarter, which is also according to our plan. Now, if we compare the results to first quarter in 2025, we still see a small decline in the net interest income due to margin compression. We see that the pressure is easing. As mentioned, interest income on the back of already larger portfolio is starting to pick up as well.
On the expenses side, yes, the increase has been 21% and some of it is one-off, and then some of it is usual growth in terms of investments and personnel. Strong result in terms of portfolio quality. Impairments have decreased quite a bit. Yes, as mentioned, so the business volumes have grown also quite significantly. Just a short review of the net profit, the bridge year-over-year, just to give a bit more flavor in terms of how different elements have impacted the results comparing to the first quarter of 2025. As you can see, the interest income is picking up. There still has been pressure in terms of interest expense. Fees have increased a bit.
Then when it comes to other income expenses, what we basically see here is that in first quarter of 2025, there was one-off income from bond portfolio realization, which was quite significant. Also this line represents the fact that our insurance business was loss-making in first quarter of this year, while it was generating profit a year ago. On the personnel expenses, there is approximately EUR 1.1 million worth of one-offs in this quarter. On the other operational expenses side, so we have, as mentioned already in the previous months, we have made reserves, approximately EUR 3 million, and we don't expect them to continue into the second quarter. Then impairments have been a positive driver. They have improved the result to some degree. Overall, that's the bridge that has led us to the EUR 20 million outcome.
I will give word over to Meelis, who will explain the balance sheet and financing situation that we have.
Starting from the balance sheet side, it is notable that the balance sheet over the years have grown, but then when we're comparing with end of 2025, the balance sheet has slightly decreased. Reason for the decrease is coming from financial intermediaries deposits. There is EUR 250 million smaller deposit base in end of March compared to the end of December. There is clear volatility in this sector. We are not using them as a funding source, so it is more about how much liquidity we need to keep against them. This 250 million is just matter of numbers, not essence of the positions. The deposits are, in financial intermediary side, very volatile. They have always been. The maximum amount in LHV's balance sheet has been EUR 2.6 billion in one year. Currently, we are talking about EUR 1.25 billion.
This gives an indication what kind of volumes we are talking. Moving over to the capital side, LHV is well capitalized. We have quite a bit of buffers on top of our own internal risk appetite level. Since our own internal risk appetite levels already include our buffers compared to the regulators. The most important line here is the capital adequacy CET1. That's where we ended up having 16.18% as of end of March. This number doesn't include first month profits and doesn't include also share options that are going to be exercised within couple of weeks. Both of them are bringing back something like EUR 25 million of capital. Capitalization is actually even better than the picture shows. Slightly similar discussion also about liquidity, that liquidity is measured mostly through LCR and NSFR. Both have regulatory limits of 100%.
Our internal risk limits are at 120% and 110%. Our LCR ratio is 192%, and this incorporates also the fact that all financial intermediaries are covered 100% with liquidity effectively, mathematically, at 100% ratio. Taking these ones out, our LCR ratio is close to 300%, which is way above market average of 150%-160%. With NSFR side, which shows the stability of the funding there as well. 150 is a very strong number. Market average is maybe 10 percentage points below that. Looking at loan portfolio quality on group level, the portfolio is strong. We had a couple of cases, which we placed into Stage 3 , which we define as non-performing loans a year ago. This portfolio has been step-by-step reduced. Now it is at 1.6% level. It's still high for us.
We used to be below 1% levels, but at the same time compared to the European average, and it is almost twice lower than European average. This is not important. Important is how much collateral we have regarding these NPLs, and the table next to the graphs is showing that the collateral shortfall for Stage 3 loans is just EUR 4.9 million. That's based on very conservative view of secondary collaterals. There is not quite a large position of loans that is not provisioned; it is very tiny amount. Looking at the group financial results, compared to the financial plan, there's nothing to say that business volumes are in line, that loans are exactly at this financial plan level, deposits are slightly ahead. Assets under management, again, exactly in line.
Positive thing is also the number of customers that we have in Estonia: 500,000 customers and on group level, 700,000. That year-over-year growth has been 85,000. That's so very sizable number. Looking at net profit sides, even taking into account these one-offs and also much harder first quarter than usual for insurance business, that group is still in line with the financial plan slightly ahead. Everything is in positive side here. Covering also LHV Pank. As mentioned earlier, in Q1, we reached 500,000 customers. We are dealing with efficiency gains from loan margins and deposits. That's also mobile app redesign was launched. That here the main mark is actually this, that this is not as one large step, but it is now continuing to be evolving with small steps further as well. Every month, there is something new in this app.
It is constantly evolving. In addition to that, we have been for more than a year, maybe even 1.5 years dealt with our core platform migration. Now, we plan to complete it in May this year. We are very close to getting the last systems into the cloud. After that, we could say that if something happens with Estonian internet setup or LHV main buildings or Telia setups and LHV is still fully operational from a distance as well. That's giving us much better base for doing quicker development online, and also ability to change the scale of operations, that if there is a higher volume coming in, we know that there is a certain peak moments, and we are able to, within seconds, add additional resources.
As a positive thing, we have been recognized as the best employer here in the financial sector in Estonia. That's a very nice award to receive. Looking at the deposit sides, year-on-year growth 9%, Estonian market 5%. We have been able to gain market share. That's step-by-step, we are looking also at how our deposit structure is changing, and Nowaco many years ago, there was 29% of our deposit base were term deposits, and as of now it is 25%. It is step-by-step moving in the right direction. On lending sides, loan portfolio grow by 11%, Estonian market by 8%. The loan portfolio growth came mostly from the retail side, mortgages and less from the corporate side. In corporate side in Q1, we knew, and it was in our plans that there was a repayment of EUR 100 million, large single corporate exposure.
This also shows that the portfolio didn't increase more or less due to that. I think net interest income, we are seeing that improvement is already there. We see that the Euribor effect is kicking in, that our asset sides are pricing to higher levels where liability sides down are not moving as fast because they are still on the earlier higher interest rate levels. Not much change in the liability side, but certainly on the asset side. Fee income side, 9% growth year-over-year. Very good. When we're looking at quarter-over-quarter, then first quarter is always lower. No surprises, nothing strange here. Bank, all in all, we are very much in line with the plans. When we're looking at total numbers, then here is one item what needs to be stated out.
That, when on paper, it seems that LHV Bank is behind the plans, but then there is one row, which is other income. In this other income row, there is included also internal swap, which is made with LHV Pank and this result is going to be eliminated when we're putting together the group level. At the same time on U.K. level, it is treated as a hedge accounting that it is not affecting their results. Effectively, when we're looking at U.K. LHV Bank results, then we should add this EUR 2.3 million to their results. It is comparable with the last years. Now giving it back over to Mihkel, who is covering Bank Asset Management, and Insurance.
Thank you, Meelis. To summarize the first quarter results of the bank we are running in the United Kingdom. Overall, net income has slightly increased. There was a decline in net profit. Having said that, the nominal values are still quite low and first quarter was affected by one specific provision. That's not that significant impact. Overall loan portfolio growth was almost 80%, as mentioned before. At the same time, deposits have been also growing at the similar pace. Return on equity is still very low to our standards or expectations, but we do expect that together with the volume growth of the lending business, we expect to see significant improvement of the results, especially in the second half of the year.
When it comes to business development, we are happy with the fact that we have received regulatory approvals, both for consumer credit provision and also Individual Savings Account products, which enables us to further product development in those directions. Looking at the full year and the four quarters before this one, there's approximately 80% growth in loans. Approximately 74% growth in deposits. As mentioned, the best part is that we can see quite the big increase in terms of our own direct deposits from our direct clients. We have reached 16.5% of the total deposits in that regard. And also our direct retail customer number has grown from 5,000 at the end of last year to 7,140 by the end of first quarter. We have a good sense of how to attract retail customers and also retail deposits.
This gives us also better alignment in terms of product development on the savings side. Yes, in terms of net interest income, looking at the full year development. We have almost doubled the amount of net interest income we are generating on back of our SME loan portfolio, which is quite significant. As said, we are slowly gaining the critical mass in that business that enables us to cover more of the costs. Also start to increase the profitability of the U.K. Bank on back of this increasingly significant business. When it comes to fee and commission income, there has been on yearly basis quite good development. Having said that, there is also what affects that part is also the crypto values, which translate into the fee income that we are receiving, which are lower these days compared to the last year.
Expenses overall are pretty much in line with the plan, marginally above, but there are no significant deviations, so they are quite marginal. Also when it comes to customer support, so we have an agentic AI proof of concept, which was successfully tested in first quarter. As I mentioned before, expectations when it comes to the retail and savings product growth. We also expect to roll out a cost-efficient customer support that will then support the retail banking growth without significant overhead that will be carried with that growth. Looking at the outcome, compared to the financial plan.
We have significant increase, and also we have exceeded the financial plan in terms of net interest income on back of our increased lending book, while other income lines are at the level that we expected or slightly below, but with quite small effect on the total outcome. As mentioned, when we look at earnings before impairment, it was also ahead of the plan. There was one specific impairment in March then that brought the net profit line a little bit below the financial plan. This is part of the business as we are growing the loan book, and there is nothing significant really to bring out regarding that specific loan. Regarding asset management. Asset management has been performing exactly as planned.
The fact that there was a loss in first quarter is just related to the fact that they have paid dividends to the group, which has also been by now paid out to the group shareholders. Other than that, the fund's performance has been best of the market, also in first quarter, which was overall a tough quarter for the market, but still beating the benchmark. Also in first quarter, there are signs that the number of customers is stabilizing as well. Looking forward to see whether we can get the number up in the second quarter and quarters following that. At the same time, assets under management has steadily increased throughout the year and also within the first quarter. The results are in plan a little bit exceeding the first quarter budget as well.
Regarding insurance, so as stated already in the beginning, so it was a tough quarter. Lots more claims than planned, and also the claims were higher than average. Overall, the net loss for the quarter was EUR 700,000, while we were expecting in the first quarter approximately similar number of profit. The market has also been quite competitive. I would say that this effect at the moment, it's an overall situation in the market, and it's not specific to LHV's position in the insurance market or market segments per se. Overall, the premiums that we have written out has, over the course of the year, compared to the first quarter 2025, increased. The volumes are up. They have been steady compared to the fourth quarter, and as said, the amount of losses in first quarter has been the highest.
Overall, the volumes were pretty much according to the plan, but the total outcome and the net loss was not what we expected. We see that together with the market, the results will gradually start picking up, but it's definitely going to be difficult to achieve insurance's own targets in terms of profit going forward. Otherwise, we expect them to gradually increase and improve to the level that they were supposed to be. Okay. Overall summary being that net profit was in line with the financial plan. Obviously, year-over-year, the decline has been significant, but we also see that we are now witnessing positive trends and also most importantly, the quarter was also planned exactly in the way that it has worked out. As mentioned, there were some one-off provisions that affected the first quarter. Some of them were planned, some of them not.
Liquidity capital position is very strong. Customer number is increasing, volume is increasing, both in the bank in Estonia and in the U.K. Asset management is doing well according to plan, and altogether, the insurance has faced a difficult quarter. We expect them to obviously recover from this situation. Hopefully soon. That's all from us, and we are open to take any questions you might have.
Yeah. Thank you, Mihkel and Meelis. There are quite a few questions in the Q&A section as well, so let's take these from the beginning. First one, could you please provide a bit more flavor on that large loan which was not renewed with existing loan margin? It would be helpful to get some kind of magnitude of the loan, the sector, et cetera.
I mentioned it already that the amount of the loan was EUR 100 million and rest we can't comment because it is a specific client and if somebody wants, there is a possibility to calculate it backwards from our report.
Could you please also quantify one-off operational expenses in Q1?
One-off operational expenses altogether that there are. Let's say, first my question is that what is one-offs. That there are always some kind of items what we could say that these are one-offs. Here, if I'm looking at the personnel related one-offs and then extra items, what we took from the advisory side, we are talking here almost EUR 1.5 million.
Do you consider that, Q2 and onwards, it will start to look something completely different on the back of favorable year-on-year Euribor comparisons and increasing loan volumes, given that we don't see any meaningful pickup in loan impairments?
If the credit risk remains low, and this is a key component, then yes. Our results will be much, much stronger.
Could you please also explain the rationale behind net fee sharing between LHV Pank and LHV Bank?
The rationale comes from this, that we have agreed internally that client relationship is handled from U.K. side. This means that all the risks, what is related to the clients, all the pricing, what is related with the client contracts, is set by U.K. team. At the same time as to make euro payments in real time, then you need to have access to your euro accounts on the Estonian side, LHV Pank here in Estonia is the one who is able to offer this for these clients. That means that the clients have, in most cases, two banking service agreements, one with Estonian side, one with U.K. side. All the agreements, discussions with the clients and risk-taking regarding clients is handled by the U.K. team.
This also means that all the income, what is coming from this activity, all the profit what is coming from this activity is belonging to the U.K. Estonian side is covering the costs, but rest is shifted to U.K. by internal agreements.
What is the action plan to mitigate the current fixed cost trend and improve the efficiencies at LHV Pank, in addition to the income side growth?
There are several plans, but we have been already targeting quite a bit of these ones. That changing ship is not happening within one or two days. That we started making changes inside the organization more than a year ago. That, looking at the personnel cost growth and within 2025 already, the growth was close to zero, but was probably around 1% in total. We continue with this kind of approaches that our cost side is quite a bit flat, and at the same time business is growing. You're putting these two items together, that efficiency gain is coming from it.
Yeah. Also just to add, given that Erki Kilu has joined the bank only starting April this year, so he has had three weeks now in the position. Definitely he will have a review of the structure and how we work and as it was also presented when the change was announced, I think we're looking also for further ways of collaboration between two banks, just trying to find ways how we can streamline the business. At the same time, it's important that we continue growing the volumes and the business as well because one thing is the personnel cost, which I think it's important that we really stay vigilant, and we do everything we can to stay within the plan. That's the whole point.
At the same time, we are doing also quite a lot of investments into tech, into the future as well, so balancing this out is important.
What's the margin you pay on financial intermediary deposits?
It is something that we could even state it is covered by the banking secrecy, but it is a current business, and all clients on banking services side have their own contracts. These agreements are customer-based. Generally, what we can say is that if the interest rates are going up, then our share is increasing as well.
Have you applied for the MiCA license, and do you expect to receive it before the end of Q2 when the deadline arrives requiring this license to continue to offer crypto-related services to your clients?
Answer is yes, that we have applied. Second one is yes as well. We hope that we are receiving the license before end of Q2. Same time, it is a legal procedure that sometimes are taking more time than expected, but we are in the plan.
When do you expect to have a new permanent CEO in place for the U.K. Bank?
Presumably by, I would say, the beginning of next year. Having said that, Kris, who is CEO of the bank now, who is also coming within the team, I think he's doing a terrific job and has really sort of taken over Erki's role very smoothly and is doing all the right steps. Yes, the process is underway, but given usually how lengthy they are, so I wouldn't really want to promise anything before the beginning of next year. As I said, I would say that the plans, the execution, everything is moving according to the expectations or even, I would say, a bit better other than that provision in March.
What's the average underlying margin in the U.K. SME loans, and how does it compare to competitors?
The average loan margin in U.K. is actually better than in Estonia. We are talking about 3%-4% levels as a margin that, when comparing with competitors, is an effective market that we are very much in line with the competitors.
Okay. Thank you. I think we have gone through the questions that we have received thus far. There hasn't been any new questions, so I think we can end the call then now. Thank you, Mihkel and Meelis, and thank you everybody for joining, and hope to see you in next calls.
Thank you very much for listening in. Thanks for the questions.