Hello and welcome to LHV Group's second quarter 2026 result overview. My name is Mihkel Torim, and together with me I have, as usual, also our Group CFO Meelis Paakspuu...

Hello. ...and then

also commenting the first half results from the LHV Bank side in Estonia, Erki Kilu.

Good morning.

All right. Starting off with some of the group-level highlights.

As our first quarter was relatively difficult, then some trends in second quarter were already quite positive. Effectively quarter-over-quarter, our net profit increased by 25%.

It's still 20% below the second quarter of 2025, but if we're looking at the profit prior to provisions, then that actually has picked up. Basically in comparison in Estonia, we reversed some provisions in the second quarter of '25, but we made those in the quarter that just ended, so that's the main impact of the difference.

On the positive side, clearly the group net interest income has increased 5% over quarter and 8% year-over-year. On the Estonian bank side, the net income has actually increased by 15% quarter-over-quarter and 10% year-over-year, which is definitely a good sign.

On the UK bank side, the profit was €1.4 million, and effectively the loan portfolio has grown by 66%, reaching €945 million at this point. We are quite close to the €1 billion mark on the UK side.

On the asset management, basically the assets increased to €1.79 billion, and results were in line with the expectations. On the insurance side, it was definitely a much better quarter compared to the last one, significantly less losses, and the gross premiums grew as well.

They were profitable, and basically all our subsidiaries were profitable. ROE on the group level, 13.1%, which is not at the target level that we aim for, but the dynamics are clearly positive.

As mentioned on the net income side, positive trends on the loan portfolio. Growth has increased also.

When we are looking at the second quarter compared to the first quarter, maybe some other elements to highlight. The total expenses were somewhat lower than the first quarter, so that's a positive sign since there were quite many one-offs in the first quarter, which well, were not reflected then in the quarter that just ended.

Yes, overall, if we look at the quarter-to-quarter trends, then both the income increased and the net profit increased. Also, as you can see on the table below, the net interest income increased by 20 bps as well to 2.6%, and ROE trend was positive, but it's definitely not at the level where we expect to see.

We expect the sort of supporting trends to continue during the next few quarters as well. As already mentioned in the beginning, compared to '25 second quarter, on the income side grew, mainly driven by the net interest income.

Fee income was pretty much flat compared to the last year. Then when it comes to the bottom line, there was a impact when it comes to impairment losses.

Earnings before impairment was better, and as already mentioned before, when last year we reversed some of the provisions which supported the bottom line, then this year the impairments were higher. Loan portfolio growth in second quarter overall was strong, much stronger than it was in the first quarter, and this time it was primarily led by the bank in Estonia, both on the retail and corporate side as well.

Effectively cost-income ratio is I would say that not that far compared to the second quarter of '25. Yes, effectively, you can see that year-over-year also the net interest margin is now the same as it was then.

Then I will hand over to Meelis, who will go through further financial figures on the group level.

Starting from net interest income side then, as Mihkel was finalizing at angles that when we are looking quarter-to-quarter net interest margin, then this has increased from 2.4% to 2.6%. This is a most critical item in in financial institution P&L station.

That this means that our net interest income has increased. It is better than we have been expected.

This angle is much much better, and also when we are looking at the forecast, things are going in the right direction. Same time, when we look at year-to-date year P&L, that so the P&L has decreased.

When we are looking at the compositions, then first of all, yes, there has been slightly more personnel expense. Maybe slightly less people, some changes in in different parts of organization, but same times there is still inflation in salary sides, that so there are slightly higher salaries, costs are slightly increased.

The another side is that in in this year, we have had one-off costs regarding buying purchasing in certain consultancies that but we didn't have last year, and the one of the largest gaps is impairments. That's when last year in first half we didn't have impairments, negative impairments, actually had even slightly positive ones, that now we have made an provisions against specific clients.

That's the client the portfolio is still strong, but we have just made the provisions. That's but all in all picture is getting much better when we are looking at quarter-to-quarter results.

Looking at balance sheet, the principle of keeping very simple balance sheet remains, that we are deliberately keeping it simple. We do not want to have high volatilities in and in the books, we do not want to have complexity in in our assets-liabilities side.

That in asset sides, there has been one different difference compared to the previous quarters, that we have been increasing our bond portfolio. What is liquid bond portfolio where we have switched from keeping funds only in ECB also to government papers.

These are up to two years long papers. Yes, they are generating slight volatility in P&L as well, but the more important is that they are yielding better than ECB rates.

That so it is one additional revenue stream for for the group. On liability side, we have reduced more expensive deposits.

We have reduced platform deposits. This has been one-off items, but otherwise, balance sheet structure on liability side has remained more or less the same.

Loan portfolio side, it's most two important facts are the Stage 3 loans and share of Stage 3 loans, that this has dropped from 1.6% to 1.4%. That so we are seeing a good development in the in the lending portfolio quality side.

Same time, when we are looking at the only table in this in this presentation, that uncovered part of stable is Stage 3 loans is just €4.4 million. That so everything what is in Stage 3 is actually covered with collaterals, that so we do not expect that there is something negative popping up from there.

On capital side, capitalization has more or less stable, that of course, every quarter there are some changes in understandings of regulations, but we end up with an similar capitalization levels that we are above all of the risk appetite limits. The clearly the limiting factor is MREL side.

MREL side here is actually even shown slightly below the ratio, but it doesn't include Q2 profits, what will be included backwards after we are receiving ECB ratio ECB permission, what will most probably be second half this week. In Q3, we are we are planning to do an MREL MREL issue.

That's the size and timing not decided yet, but it is planned to be in Q3. Liquidity-wise, picture is very solid.

LCR and NSFR way above internal targets, and also when I look at especially LCR ratio, that this is including all financial intermediaries deposits at 171% level. That if we would take these ones off, we are close to 300% level.

That it is almost twice as high as European banking average. That so numbers are liquidity-wise very solid, and this has been also the reason why we have been able to lower more expensive deposit base base, especially platform deposits in Estonia.

Putting things together, that and comparing with financial plan, we are slightly behind, but this slightly is just some of the items what were there in Q1. That's but same times, we are seeing that we are clearly moving in the right direction, and we are able to fulfill all of the financial plan targets within 2026 based on the current knowledge.

That loans are slightly ahead, deposits slightly behind, but it is controlled. Asset under management again, markets have performed well, they are these are ahead.

When we are comparing payments of payment intermediaries side, much higher. That so this this also shows that strength in the behind the numbers, that things are moving in the right direction.

Now giving it over to Erki, who is covering the bank.

Yes, just repeating what Meelis already said, that we worked a lot in the second quarter with interest income part. Of course Euribor has started to increase, and that has also supported our interest income side.

At the same time, we started with liquidity portfolio, and that is earning some extra income for us already. From the other side, the loan portfolio has also grown, which is a good sign.

Most of that €114 million is coming from the mortgages, but also the corporate and business lending is growing quite nicely. The loan book is still growing well.

What we have been doing on the both sides of the balance sheet is that we have tried to reprice some of the corporate loans. That of course has resulted to some clients leaving, but that has allowed us to increase the NIM.

At the same time, also with the deposits, we have tried to optimize the deposit book as much as we can. Mainly it means that we have not been that active on the deposit platforms anymore, because these are the term deposits and the most expensive ones for us.

From the both sides, we have managed to lift NIM to 2.6% in the second quarter. Regarding the loan book quality, then the overall quality is good.

You can see that in the first two months of this quarter, we didn't have high provisions at all, and most of that came from the last month. I can say that a bit more than €3 million came from one client who has been with us for more than 10 years, and the loan has always worked well, but the loan just moved from Stage 1 to Stage 2 because of some other parameters.

Now some key activities what we completed in the last quarter. One of the biggest achievements is definitely moving our core banking systems to the Amazon cloud system.

That took nearly two years, and it's a big effort from hundreds of our people, big thanks to them. We will continue with this project.

There are some smaller parts which also need to be updated, and we are constantly refactoring our systems as well. We are doing a lot of work not to have legacy systems at LHV.

In the beginning of the quarter, we announced also the changes in the organizational structure. We are moving more to product-led management, which means that instead of retail banking, we now have different product areas, and not all these changes have been completed yet, but the most of the work has been done, and rest will be done in this quarter.

We received also the MiCA license in Q2, and that was the first license issued to a bank in Estonia. That will allow us to start offering some additional crypto services in this quarter or in the next quarter.

We were again recognized as top employer in the Estonian financial sector, so that has been for quite so many years already. Today we announced also two small news.

We have decided to change the company name from AS LHV Pank to LHV Bank, as "Bank" just sounds better in other markets, especially in Europe, for the clients, for the partners, for the supervisors. That's quite a natural change for LHV when we think about going to other markets as well in Europe.

We have started passporting our license to the other European countries. There are different reasons for that.

One and probably the most urgent one is actually coming from the banking services side because the so-called product embedded banking is something what our clients are asking for, and in this case, the agreement is signed between us, our banking services client, and the end customer, which means that we need to have passported licenses in other countries as well. It also supports our retail banking ambitions to grow in other markets in longer term.

From this slide, it's very clearly seen the work what has been done with the deposits in the last two quarters of this year. The deposit base has decreased by 5% in the last 12 months, but at the same time, it is now much more efficient.

It helps us to save some of the interest expenses. Compared to the market, it's structured the same.

Most of the deposits are coming from private banking or private retail banking customers, and the rest is coming from the businesses and corporate clients. In our case, the share of banking services customers is also larger than in the market in general.

The loan book is growing with the same speed as the market is growing. That's nearly 10%.

The structure of the loan book is very, very similar to the whole market, where half is mainly private mortgages, and another half is coming from corporates and businesses. As mentioned, we have done a lot of work with interest income in the last two quarters.

The net fee income has been very, very stable, but this is now the second part that needs attention in our income side, and that will get it in the next quarters. Expenses are slightly higher than in Q1 or Q4 last year, but this is mainly coming from higher personnel expenses, and these are related to the changes in the org structure, changes in the management, reducing the number of people, and just the benefits that has been paid out when people are leaving.

The number of people is even smaller than it was at the end of the year, but the expenses have been higher. All in all, what to bring out from these numbers, definitely business volumes.

Loans are ahead of our financial plan, and deposits have been optimized as much as possible, the underlying business is doing well. When we take a look into income, then we have €1.7 million from the negative revaluation of swaps made between the UK bank and Estonian bank.

That's the reason why the total income is slightly lower than the financial plan was, and that has also affected the net profit line. When we take that away, then more or less I'd say broadly we are in line with the financial plan.

Thank you.

I will take the opportunity to run quickly through the LHV Bank's results as well in the second quarter in the UK. Pretty much the volumes were in line.

The loan portfolio growth in the second quarter was a bit slower than we anticipated, but we do anticipate that the growth to pick up in the third quarter. The deposit volumes were also stable, but at the same time, the direct customer deposits increased from 16% to 24% of the total funding.

We are gradually increasing the share of the direct customers that are banking with us and saving with us. Also, the costs were in line with what we planned.

In fact, they were 0.9% below the year-to-date plan. Having said that, there were quite significant investments into branding campaigns and also in product development and basically developing the tools that we aim to use for the retail banking purposes as well.

Digging more into the loans and deposits, year-over-year the growth has been quite significant. Yes, we are quite close to reaching €1 million, €1 billion in loans in euro terms.

Also what I would like to point out is that the pipeline that we have on the SME lending side, so that has also increased from £124 million to £176 million. Why we or the sort of rationale why we expect that the third quarter will be stronger in terms of conversion.

The number of direct retail customers increased roughly to 10,000, but the average balance that they have is also quite high, it's £28,000 on average per client. As our share of direct depositors is increasing, the reliance on the aggregator is also reduced.

You can see quite significant change from first quarter into second, and obviously even more so from the number last year, where we just got started. Net interest income is really the main driver for us in the UK business for the time being.

It was positive to see that the net interest income increased quarter-over-quarter. When it comes to the banking services fee income, so that was a bit under pressure in the previous quarter as well.

Expenses, well-controlled, moving in line with the budget. By the end of the first half of the year, they were even somewhat below what we planned for, which is good despite the investments into marketing and other costs that are running through the various cost lines.

Yes, I think pretty much all has been already said. Positive dynamics from first quarter to second quarter.

Just sort of, again, point out that the costs in the second quarter when it comes to marketing were quite high, so that's also reflected there. Otherwise, pretty much as planned, and as said, in third quarter we expect more higher loan volumes basically to go out.

When it comes to asset management, pretty much moving according to the financial plan. If in the first quarter there was a net loss that was just driven by the dividend payment and income tax related to that, then second quarter was profitable, and it was moving a little bit ahead of the actual plan.

When it comes to the funds results, first quarter was very strong for our actively managed fund, and second quarter was strong for indices, primarily driven by AI-related stocks, the chip industry as well. The dynamic has a little bit reversed, but overall the assets under management for all funds has increased, and also the fund performance has been good.

Yes, net profit in second quarter was almost €400,000, and compared to the financial plan, we are moving slightly ahead of the budget, all according to the expectations. Last but not least, on the insurance business that we have in Estonia, first quarter was a difficult one, but second quarter was already basically back into the budget.

We had significantly improved net loss ratio compared to the first quarter. Gross premiums grew.

Customer base grew as well. Overall, when it comes to net incurred losses, as you can see also on the chart below, it was relatively low, especially contrasting to the first quarter.

Then the contract premiums were also increasing, so that helped to produce the result, which was almost €800,000 in net profit. That helped to erase the loss that was generated in the first quarter.

Basically the business is at the end of the first half of the year back in profit, and also the overall market dynamics seem to be improving as well. To sum it up, the group net profit quarter-to-quarter improved quite significantly, but we do admit that first quarter was exceptionally tough.

As Erki already mentioned and as Meelis has mentioned as well, there's been a lot of work going into improving the net interest income level. Also in the second quarter, the lending volumes grew quite a bit more compared to the first quarter.

These are definitely the positive trends. UK bank, pretty much moving in line, we're expecting additional loan volumes to come into our books in the next quarter.

When it comes to the asset management and insurance, also it was a decent quarter. I'll stop here, and then we are opening for questions.

Thank you.

This is exactly what I mentioned also before, that over €3 million of that came from one single client and from a corporate loan, so that's one side, and the rest came from modeling.

Modeling side is always forward-looking, that's when the basis is not moving or getting better. In this case, things are changing very rapidly on both sides, that because the starting point is geopolitical situation and also the price of energy sector, that if there is in Middle East and that tankers are not moving, this affects energy prices in Europe.

This affects the riskiness of the clients. That so models are showing higher risk, and we are increasing our provisions.

That will it be actually realizing anywhere? Hopefully not, but models are showing slightly more conservative picture.

The magnitude is coming from the structure of the balance sheet. When you look at the deposit side, then we had a slide showing that 22% of Estonian deposits are term deposits, 78% of the deposits are current accounts.

Yes, not all of them are with very low interest rates, but sizable portion of this more or less acts as a fixed interest rates. That if market interest rates are going up, then the loan portfolio and ECB are repricing.

Same times liability side not in. It's another key cornerstone here is that ECB changed interest rates, but they are valid only from 13th of June.

That in Q2, effectively there are very limited amount in repricing of liquidity portfolio. That we are keeping more than €2.5 billion in ECB, but now is yielding slightly higher.

I can explain that. This 30,000 includes both the customers from the deposit platforms, which is nearly 20,000, and direct customers, which is a bit more than 10,000.

The number of direct customers increased by hundreds, but the number of deposit platform customers just decreased by a few thousands then. Yes,

effectively we have more customers who are direct. As the gradual decrease of the deposit platforms keeps going, that's the impact.

I think it's important to distinguish then the number you see as direct customers and the total.

I can start and some other. The loan, we offer three types of loan in the UK: commercial real estate, just a trading loan, and buy-to-let loans.

By today, the portfolio is quite equally divided between these three product types. All the loans are having very strong collateral, strong LTVs.

We don't do anything which is not having real estate as a collateral. I think the loan book is quite well-diversified between the loan products and also diversified geographically.

It's not only London-based, but we have another office in Manchester, and the loan book is quite well-diversified between south and north England as well.

Roughly 1/3, which is the buy-to-let loan, is with fixed rate, and 2/3 is with floating rate. Then

I think it's not only about London, but it's the overall commercial real estate in England. As we do only a very conservative part of that, then I think it has worked well, and it's still working very well for us.

Maybe just to add to this as well, there are let's say more efforts when it comes to geographical diversification as well. We are also sort of looking further north into some parts of Scotland as well to grow the exposure there.

RWAs are quite similar to the overall levels what we have...

...at the group. In RWA side, UK is not specific.

That's UK risk-weighted assets are ending up very similar to the ones what are in Estonia. That in some specific cases slightly lower, in some angles slightly higher, that's but we are talking about the same ballgame.

About the future products, then we have discussed about these options on the board level, but we have decided not to launch any new products this year. Let's see whether we will make a decision to launch something in the next year.

It's quite clear that yes, we need to have more products. The question is just about the timing.

Then

We are sort of close to 1/4 when it comes to direct deposits. I would say that the pricing is quite similar, I think, to what we have on the platforms.

For us going forward, it's really more about adding customers directly, building the recognition, and also adding products, sort of more products to the retail customers as well, so that we can gradually decrease the cost.

We are thinking about some additional features, like staking, for example, but we have been also thinking about offering or making available stablecoins for our customers.

I would say that within '27 there will definitely be more specific news regarding to that. I think it's important that what Erki already has mentioned when it comes to the name change, when it comes to the former possibility of doing the right steps starting with the passporting, that we would have the sort of availability or the readiness to go ahead with certain steps.

It's also important when it comes to the sort of changes within the organization, when it comes to the sort of more product-based retail banking model that we have to sort of make quite many steps when it comes to our ability and sort of product offering that we're actually in a good position vis-à-vis the sort of competition to make those steps. This year, it's a lot about changes and preparation, but it's also not just preparation regarding other markets, but it's also making sure that we have a strong product offering here as well, and then with that product offering, we can also sort of jointly support the UK retail growth.

Long story short, I think somewhere within the next year, we can be more clear, but before that, it's really about sort of making sure that the sequence is right and that we are preparing in a right way.

Partially yes. This answer is that these costs what we are carrying through our own employees who are currently already on the payroll, that these costs are already incorporated.

That if there will be additional costs, but then it is already related to specific country, specific product lists, then these are not there, as we do not have a single penny of income included into the financial plan. Then,

Too early to call. I think first of all, it will take some time.

It's difficult to say whether that time will be short or long before all the relevant approvals are received, that they can basically start operating Luminor's existing platform. Let's see.

OTP is a very different bank or banking group compared to the competitors that we are used to on the market, it has a very strong Eastern European footprint, has activities in Russia as well in addition to Eastern Europe. Let's see.

I think in a short term, not much will change. When it comes to LHV, we have been at least when it comes to Estonia, we're used to regional competitors, we're used to Nordic competitors, I think our competition has been strong both when Luminor was under Blackstone, before when the banks were owned by Nordea and DNB.

We welcome the competition, but it's too early to say how this will actually impact the Baltic market.

I think the question is not so much about the business, but it's about the technology, and every technology becomes legacy at one point, we try to avoid that. There are not too many banks who are actually having so good cloud infrastructure what we are already having.

They are only a few new banks mentioned by you before. It's more about technology and having the options for the future.

Business-wise, I wouldn't say that it's something strategically different what we are doing at the moment.

Maybe just to add to Erki's comment, I think it is important to distinguish that what's the technological platform that the bank is really running on and what are really the sort of options that it enables for future development, whether it's for the existing customers, whether it's for new customers as well. It is important to distinguish what are the products that the banks are offering and what's the platform.

I think we have come really a long way when it comes to the platform. When it comes to the actual product offering and the client base, we have to really trust our own experience and gut feeling on where the opportunities could be for us, both on the existing markets and how we want to develop further.

I wouldn't really say that it's a comparison against specific neobanks on what they're offering, but it's really the platform that's enabling us to do things that are might be quite restrictive for quite a lot of the existing banks. When it comes to the technological platform, I think we're closer to Revolut and N26 and a few other players.

When it comes to the offering, we're obviously looking more like a universal bank. When it comes to offering, it shouldn't be one or the other.

I think we are finding our own way, but the platform is really the kind of a big enabler for us going further. "As

No.

No.

Of course we are not satisfied, that our target is return on equity of 20%, and target is that every single business line will deliver it. Same time, also we need to understand that what it means to set up a bank, licensed bank in one of the large old European countries.

This actually generates a cost base against which you minimally have to have €700 million, €800 million worth of loan portfolio just to be break-even. We have reached that one.

We are now moving in that beyond this one, and every single penny what we are giving loans out in UK is increasing return on equity as well. That so it is about volumes, and keeping the bank efficient.

That if we are delivering the volumes, then we are end of day reaching the required return on equity as well.

Just additional comment. One thing is reaching €1 billion when it comes to loan volumes, but it's a different situation when you're reaching two, and at the same time, you're basically building a new platform.

When it comes to sort of scaling, when it comes to operational costs, the hypothesis is that we can be in a much better position. Basically that's also part of the plan that we will be growing more efficiently, and we've had the sort of liberty of having fresh platform onto which to build on.

It is really about some time and effort that goes into the, first of all, the funding costs, when it comes to the recognition, when it comes to the scale, but it is really now more about the sort of controlled growth, because when it comes to growing too quickly on the lending side as well, it has its own risks, but we are on track with our plan. Then

These numbers are one or two loans in total, that in my head I have not even calculated the ratio, that we are talking about one, two cases only.

Thank you very much. See you next time.

Thank you.

Thank you.