Earnings call transcript: Banca IFIS Q1 2025 sees steady performance amid market uncertainties

Banca IFIS reported a net income of €47 million for the first quarter of 2025, reflecting a stable financial performance amid a challenging economic landscape. Revenues for the quarter stood at €179 million, marking a 7% increase quarter-over-quarter but a 3% decline year-over-year. The company’s stock price rose by 1.67% to €23.16, demonstrating strong momentum with a 16.91% return over the past year. According to InvestingPro analysis, the stock is currently trading near its 52-week high of €26.10, suggesting robust investor confidence. InvestingPro’s Fair Value analysis indicates the stock may be undervalued at current levels.

Key Takeaways

• Net income reached €47 million in Q1 2025.
• Revenues increased by 7% quarter-over-quarter.
• Stock price increased by 1.67%, closing at €23.16.
• Cost of funding decreased to 3.5%.
• MSCI ESG Rating upgraded to AAA.

Company Performance

Banca IFIS demonstrated resilience in Q1 2025, with a net income of €47 million despite a slight annual revenue decline. The company managed to reduce its operating costs by 9% quarter-over-quarter, contributing to its solid financial standing. Its strong performance in structured finance and equity investments, which increased from €2 million in Q4 2024 to €12 million in Q1 2025, highlights strategic growth areas.

Financial Highlights

• Revenue: €179 million (+7% Q/Q, -3% Y/Y)
• Net Income: €47 million
• Operating Costs: €98 million (-9% Q/Q)
• Cost of Funding: 3.5% (-30 basis points Q/Q)
• CET1 Ratio: 16.55%

Outlook & Guidance

Looking forward, Banca IFIS expects its full-year net interest income to decline by 6-8% compared to 2024. However, the bank remains optimistic about maintaining net income levels broadly in line with the previous year. The potential merger with Elimity, with an offer period from May 19 to June 27, could further influence its strategic direction. InvestingPro subscribers can access detailed financial health metrics, which currently show a GOOD overall score of 2.68, along with 8 additional exclusive ProTips about the company’s performance and outlook.

Executive Commentary

CEO Frederic Gertmann expressed satisfaction with the quarter’s results, stating, "We are very pleased with the results of our first quarter." He also emphasized the company’s confidence in its strategic direction, noting, "We think we have a great story and value creation opportunity."

Risks and Challenges

• Economic Uncertainty: Global tariffs and economic conditions remain unpredictable.
• Market Saturation: Potential challenges in expanding factoring turnover.
• Interest Rate Fluctuations: Changes could impact the cost of funding.
• Regulatory Environment: Compliance with evolving financial regulations.
• Merger Integration: Potential complexities in the Elimity merger.

Banca IFIS continues to navigate a competitive landscape with a focus on innovation and strategic growth, maintaining a strong position in the market despite external challenges. For comprehensive analysis and detailed insights, investors can access the full Pro Research Report available on InvestingPro, which provides in-depth coverage of Banca IFIS’s financial health, market position, and growth prospects.

Full transcript - Banca IFIS (IF) Q1 2025:

Conference Operator, Chorus Call: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca IFRI’s First Quarter twenty twenty five Results Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions.

At this time, I would like to turn the conference over Frederic Gertmann, Chief Executive Officer of Banca IFIS. Please go ahead, sir.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Thank you, Madam, and good afternoon, everybody. Welcome to our first quarter results call. I am joined today by our CFO, Roberto Ferrari by our Investor Relator, Mantino del Rio and by our newly appointed Deputy Chair, Rosalba Benedetto. And as usual, I will try to go through the presentation in a relatively short time to leave some space for Q and A at the end. I would therefore take you straight to Page four for the synthesis of the first quarter results.

We’re very pleased with the results of our first quarter. We reported net income of $47,000,000 driven by a strong performance of Commercial Banking and of the NPL business. Reporting revenues at $179,000,000 at seven percent Q on Q, despite the decreasing base rates environment. Operating costs at $98,000,000 that’s minus 9% Q on Q, reflecting effective cost control and loan loss provisions substantially flat, thanks to the underwriting approach that you know of us. We have a good contribution from structured finance and equity investments that was $12,000,000 in the quarter versus $2,000,000 in fourth quarter of ’twenty four, confirming its recurrent contribution to revenues.

It doesn’t come in every quarter, but we now have a multiyear track record of good results in the structured finance and equity investment business. We are focused on reducing cost of funding, as we’ll discuss more in detail later after the repayment of the TLTRO. Our average cost of funding was down 30 basis points Q on Q, and it’s now at 3.5%. We have a very solid CET1 ratio. We’re in excess of 16.5%, which is widely above the 9% SREP threshold.

And we are very well positioned to face both maybe slightly more volatile macro environment and also the potential integration of Elimini whilst maintaining an attractive dividend payout. The Board has therefore proposed $111,500,000 total dividends in 2024. You will recall that $63,100,000 was already paid out on November 20. So what remains is $48,400,000 So this $0.92 per share that will be paid on the May 21. Page five, revenues.

You see we mostly offset the effects of the rates environment relative to last year. Revenues were $179,000,000 minus 3% year on year and plus 7% Q on Q. Thanks to Commercial Banking revenues that were $82,000,000 in the fourth quarter of ’twenty four, ’80 ’9 million in the first quarter of ’twenty four, and this quarter, we write €90,000,000 with good commercial performance and pricing discipline that we’ve continued, partially offsetting the rates effects and the contribution of structured finance equity investments that I just described. NPL revenues are a very solid 81,000,000 They were 81,000,000 in the fourth quarter of ’twenty four. They were $74,000,000 last year.

A lot of focus on streamlining the recovery activity of the existing stocks, and we also report that we made some positive transactions on new NPL acquisitions also with forward flow mechanisms, therefore securing continued NPL acquisitions in the coming quarter. And those were executed in the first quarter of twenty twenty five. Non core NG and S revenues at $8,000,000 They were $5,000,000 Q on Q. They were $22,000,000 in the first quarter of ’twenty four. That was, you may recall, slightly inflated by some one offs, specifically the sale of an equity stake that came out of a bad loan, so €8,000,000 this quarter.

Commercial activities, we always give a bit of picture on how the bank is doing on the commercial side, Page six. Factoring turnover is roughly in line with the market. It came out at €3,000,000,000 We keep a clear focus on profitability there. It would be quite easy to make higher turnover volumes by going on low value added types of transactions, which we don’t normally pursue. The average spread in factoring in the first quarter was 3.56% on top of the base rate.

So that would be an aggregate number that’s significantly north of 6%, excluding commissions, which further increase the profitability of this segment. Leasing, you see that the market had quite a growth, whereas we are more or less in line with last year. What happened? The quarter was characterized by captive leasing companies of the large European automotive manufacturers offering some very attractive deals to reduce sale backlogs. We obviously don’t participate in that type of activity, so we remain focused on premium luxury, on price discipline and especially on underwriting with remarketing agreements in place, meaning we don’t have a material exposure to the value of the underlying car.

Equipment and technology leasing, minus 1%, so roughly in line with last year. A little bit of delay in CapEx decisions we’re seeing on the corporate side. We don’t have any specific tax effects boosting the leasing volume as we had in Q4. So that went away. Companies, in our opinion, are buying a bit of time.

The market was slightly better because there was quite a contribution from large tickets linked to the PNRR, And that’s a type of leasing that we don’t do. You will recall, we do mostly SMEs, therefore, small tickets. The spreads, very solid at 3.75% That could be either the IRS if it’s fixed rates or Euribor three months. Page seven, the NPL business.

The NPL business has performed very nicely. We have a solid €101,000,000 cash collection. You see that we are almost always stable above €100,000,000 real cash coming in per quarter. Starting early twenty twenty four, we concentrated on the Revalia purchase and integration, and we gave a lot of time and attention in the last two quarters on streamlining the recovery activity on the existing stocks, right, with focus on extrajudicial activity. I note that starting from 2025, the cash collection and revenues figures that we gave will include Revalia by default, so we will stop reporting the two separate numbers.

It doesn’t make sense anymore. The company is integrated, and therefore, we give the combined number. You’ll see, it’s not on the slide, but it’s elsewhere in the results that gross book value has decreased a bit because we sold some portfolio tails. Gross book values were down $1,400,000,000 but as you see, net book values were not. They were substantially stable, meaning that the collection was offset by new portfolio acquisitions.

So you should see this as good housekeeping. We are selling tails of very low book value loans. These are typically either expired or they pertain to deceased debtors. As I said, the net book value of these loans is marginal. We sell them for very small book profits to specialists who like this type of residual value.

And therefore, in no way, shape or form, you should give any attention to the gross book values if they decrease a bit. We will continue to sell tails. We have done it already last year and a significant amount. And we will continue to do it because we think it gives a much cleaner and fairer picture of the size of the business. And it’s also probably in the long run more efficient not to have in productive stocks on your book that will not generate significant collections given our business model.

Page eight, rate sensitivity is always an item of interest for the analyst community. So put in the page again. Here we simulate the effect of a shock 50 basis points decrease in reference rates. So that’s theoretical, obviously, what would be the annual net interest income effect of a step change of minus 50 basis points at the start of the year. And you see that that’s been reduced by quite a lot.

It was 11,000,000 to $13,000,000 in March. It’s now down to 6 to 8. And that’s based both on increasing the duration of the bond portfolio. We’re now at four point two years. The overall proprietary portfolio increased a bit also in size in the last few quarters.

And the second thing is, obviously, it’s common sense, increase the mix towards fixed rates where we can. And that’s especially possible in leasing where we’re now at 82% of fixed rate contracts. On Page nine, we give you a little bit more detail on the dynamics of the interest rate effects. We show you the commercial banking interest income. So keep in mind, this does not include the NPL business.

It does not include the non core, and it does not include treasury. Okay? And we open interest, gross interest income and gross interest expenses and the base rates. So what happens in the quarter in the blue books in the blue box, you can see that the base rate at the bottom goes from 3% to 2.6, so we lost 40 basis points in the base rate. And then aggregate interest income, consequently, given that in commercial banking, most of it is rate sensitive, decreased by 40 basis points.

That’s obviously a combined effect. It includes the base rate effect. It includes pricing. It includes mix effect. But in any case, combined was minus 40.

But in the meantime, our actions to reduce the aggregate cost of funding of the bank generated a saving of 30 basis points. Right? So the net effect is now below 10 basis points this quarter on the back of a 40 basis points rate reduction. So on this basis, we give a bit of a flavor, right, for how we’re positioned now. So keep in mind that throughout 2024, we had on average three quarters of a billion of excess funding that we maintained for prudential reasons, given that we had these 2,000,000,000 of TLTRO to repay.

In the first quarter of twenty twenty five, you can see the combined effect of the decreasing rates rate sensitivity and the cost of funding reduction measures. And these are now starting to catch up with the base rate reduction. So the dynamic is going in the direction in which we want to go to control, right, the interest rates effects. Looking forward, you can you can expect that in the coming quarter, credit spreads repricing initiatives will enter. These pertain to the stocks.

So it’s not just new flows. The the the most of the factoring stock will be repriced upwards. That’s a spread effect. And you will have an aggregate cost of funding that will continue to go down, right? So that’s the way we are managing the interest rate scenario.

And maybe in the Q and A, we can come back on it if you have further questions on this. Page 10, costs. Starting with the blue, other operating costs are down €6,000,000 4 million euros lower consultancy and other suppliers costs, dollars 2,000,000 project cost that has been completed, so they don’t reappear, 1,000,000 travel and living expenses. And you can see therefore that the first part of the extraordinary cost linked to the potential M and A are actually more than offset by the savings. Then we have the cost directly linked to NPL recovery, which has always a bit of seasonality, so that’s $4,000,000 Q on Q.

And there’s finally $1,000,000 of personnel costs, mainly timing effects, so I wouldn’t read too much into it. So on aggregate, we reduced the costs $4,000,000 year on year and $9,000,000 Q on Q. Very good results, and I commend all the personnel of the bank for the discipline and the care that I’ve put in that they’ve put in keeping our cost base sustainable. Page 11, loan loss provisions, stable at historical low levels, 8,000,000 versus 9,000,000 in the previous quarter. You see that the coverage levels remain very high also compared to most other banks.

So we have a total of 48% coverage of bad loans 48% coverage of the overall 70% on bad loans, 44% on UTPs and 12% on past dues. NPE ratios, you can see that it goes slightly up. We want to explain this a bit. We’ve had multiple quarters in which it was gradually going down. We see two effects.

One is the denominator, right? So the performing loan stock has seasonality given the factoring business. And secondly, a little bit of an increase in the non performing loan stock, the NPE stock. That’s up €19,000,000 Q on Q net, and that’s due to a few very specific client situations. I wouldn’t read too much into it in the wider picture.

The presence of guarantees has limited the loan loss provision impacts, which, as I mentioned, are only $8,000,000 We did not use overlays to keep the loan loss provisions low in this quarter, right? So it’s the effect of guarantees. We expect gross and net exposures to be managed down in 2025, so to get them below the starting level of the fourth quarter of twenty twenty four in the absence of any external shocks. So we’re working on offloading a bit of that stuff. You know that the gray box pertains to past dues and OTPs and UTPs of the Italian public health system.

That’s a runoff portfolio. It’s gradually going down as we collect. You can, you know, project that going down towards zero in the in the next quarters and and and years as we collect these these loans. The the number probably to wash with with more attention is the number that excludes it, so the 5.7 percent growth and the 2.9% net. Page 12.

We always get questions about macro, given that we serve a good part of the Italian SMEs. So are we seeing any issues? Are we seeing any particular risks in the economy? The answer is no. We have no signs of widespread macro risk materializing yet.

There’s, of course, a lot of uncertainty in the world, right? Tariffs, supply chain disruption, exchange rate effects. So we’ll keep monitoring this very carefully. But as for now, payment days and factoring are down relative to the previous quarter. Stage one and stage two loans, the mix is favorable.

You can see that stage two is actually down to 7%. Probability of default is down to 2.8% of the aggregate performing portfolio, some slightly riskier position exited. So once again, at a historical low level, no strange signals either in the rating migration. So on aggregate, we can say that today, we don’t see any issues materializing. Now, of course, looking forward, we can discuss later.

But as for now, all seems to be very, very solid and calm. Page 13, very nice piece of news. MSCI upgraded our ESG rating to AAA. That’s the highest level, obviously. It happened on the March 29.

So in in the quarter, it came back it came on the back of an upgrade last year that got us to double a. So we took two notches in two years. I think there are only three banks in the country that have a triple a rating. So we’re very pleased with that. We gave you some some details on the rating in terms of how they break it down.

So financing environmental impact, the industry average is four. We score 6.8. Human capital development, the industry average is 3.7. We score 8.4. Corporate government governance, 6.5.

We score 6.9. And corporate behavior, 5.9, we score 6.4. So we are very proud that the integrated approach to sustainability of our controlling shareholder that drives these initiatives and sets these ambitions is clearly bearing fruit in the context of the bank, also in the way the core business is executed. And this both in the commercial banking side, obviously, with all the environmental things that are going on there in the credit side and socially in the NPL side. Page 14, going towards the end, capital ratios, 16.55%.

I want to underline that that number, 16.55%, excludes the net income and dividends that you could estimate for the first quarter of twenty twenty five. Had we computed that, we would have had another 20 basis points. First of all, RWA effects. So on aggregate, already the the total RWAs of the bank decreased by 253,000,000. We have, on the credit risk side, a neutral effect.

We have some decreases by by lower volumes that are offset by higher repo activity and by some off balance sheets exposure under Basel IV. The net of these numbers you see there is is more or less neutral. But then we have an increase in market risk and CVA and a significant decrease in operational risk due to the new calculation methodology that Basel IV prescribes for Banca AEP. So there we gain or lose, depending on how you want to see it, we have a reduction of $337,000,000 of RWAs, and that gave us a 43 basis points boost on aggregate. Other effects are not very material, lower intangible assets and slightly higher calendar provisioning.

So all in all, 16.55% excluding the net income that we report this quarter, creating a very, very solid base for both facing a bit of volatility maybe in the remaining of the year on the macro side and for the successful potential integration of Elimini if the Elimini shareholders decide to accept the offer. I would not go into Page 15, which contains a little bit more detail on the quarterly results and instead hand over to the moderator for Q and A. Thanks for your attention this far.

Conference Operator, Chorus Call: Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Irene Rossetto, Bankacros. Please go ahead.

Irene Rossetto, Analyst, Bankacros: Yes. Hello to everyone. Thank you for the presentation. First of all, a couple of questions from my side. What do you expect in terms of net interest income evolution in the coming quarter?

And then do you see any sign of macroeconomic slowdown? In particular, do you see some asset quality deterioration following the introduction of the tariff by the Trump administration? Thank you.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Thank you. Yes. So in terms of net interest income, well, you saw some details in the presentation, right? So I won’t repeat the details that we tried to share so that you could maybe model a bit on your own. Let me say that the dynamic, the real synthesis is that we are catching up with the rates environment, right?

So what happens when your LIBOR goes down is that on the asset side, pricing suffers immediately. On the liability side, reducing the cost is a slower process because you need to wait for your funding to expire and to renew it with cheaper funding. Some things are fixed rates, especially on the retail side, etcetera. So what we’re now seeing is that after a roughly a year, right, a fairly significant steep reduction in base rates, we are catching up on the cost of funding side. So what you may expect in terms of evolution, we’re happy to share an estimate.

Annual net interest income on aggregate for 2025, we expect it to be down between 68% roughly with respect to 2024. Right? So that’s how you should expect it to pan out for the full year on the basis of the dynamics that we showed. On macro, yes, it was also in the slides. There’s a lot of stuff going on, right?

So not only do we have uncertainty on what the tariffs at the end of the day will be, but, you know, there’s always, and there’s a lot of, there’s a lot of discussion going about about, you know, how it will eventually land, but you also have the effect of the uncertainty itself that leads to probably corporates being a bit prudent and being a bit careful in capital allocations and in new investments. So we expect volatility in terms of tariffs. We might have some fiscal policy or stimulus in Europe also around the defense funds. There’s some uncertainty on rates because it’s not clear what the inflationary picture is or how the central banks will will react. Certainly, volatility on exchange rates.

Dollar has been depreciating, as you know. Bit of intangibles such consumer and corporate sentiment. So as we showed, if you ask us today, if in the credit book, even with forward looking indicators, we have any sign, right, of things turning worse, we don’t. If you expect me if you expect us to make a forward looking statement, I would probably take another look around probably July and more likely September as we see what the effect on corporate turnover and corporate profitability and consumer sentiment is, especially in The US in the light of the tariffs. It it will take a few quarters from these things to translate into the real economy and then to translate into credit book.

But it’s very soon to say. I would I would say for now, all is very good. We had a few of these cases in the past. I remember I got the same questions when the Ukraine war started, when we had this huge inflation spike, when energy costs seem to be crippling European production. And in the end, right, the effect has been of these things has been manageable.

So not making any predictions now, but let’s take a look this summer when we see how these things actually then pan out. I hope I answered it, Irene.

Irene Rossetto, Analyst, Bankacros: Thank you. Thank you very much.

Conference Operator, Chorus Call: The next question is from Manuela Meroni, Intidos Sao Paulo. Please go ahead.

Manuela Meroni, Analyst, Intidos Sao Paulo: Good morning. Thank you for taking my questions. I have two questions. The first one is on Slide nine. The commercial spread has declined by 10 basis points in this quarter, so much less compared with the decline reported in the previous quarter.

So you also talked about the credit spread initiatives. So I’m wondering if you can share with us when you expect the stabilization of your commercial spread. And the second question, regards to the outlook. This was a pretty strong quarter. There were significantly trading profit, but also some one off costs.

So I’m wondering if you confirm your full year net income guidance.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Thank you, Manuel. Sorry, I was replying to you with the microphone turned off, so I’ll start again. So you asked about evolution of the spreads, little bit tricky because it depends on a lot of things. I would say probably that, and I’m looking to the CFO now as I talk, I would expect the overall spread, right, that you see on Page nine to be at its bottom around Q3. And I think from then onwards, we may see a recovery because funding costs will continue to go down and Euribor, we hope, might stabilize.

So the lowest point, I think, will be Q3 and we don’t expect from here onwards, and that’s what we wanted to show on Page nine, because we think that we’ve got it under control. And we mentioned, I think, an expectation for aggregate cost of funding for the full year, right, which we expect to be at around 3.3%, right? So I think these are the numbers that you need to figure it out for to figure out the outlook for yourself. In terms of guidance, yes, we gave a guidance that said broadly in line with last year. We are reconfirming it.

Of course, the Q1 was pretty nice. But if we look ahead, first of all, the uncertainty that we just mentioned on the macro side, but also we reduced the interest rate sensitivity. We didn’t completely eliminate it, right? So, right, we I don’t think we can take for granted that there will be four quarters of the same with the same profits as we saw in Q1. So at this point, and you know our style in that respect, but we confirm the guidance and if there’s something to change, either up or down, we’ll come back to it later in the year.

But one thing I want to just react to, you define the contribution that we had as trading profit. I would like to underline that we are looking at the contribution of a very high quality, fragmented, selective equity investment strategy with minority stakes who we co invest with private equity players that over time has given a lot of confidence in our ability to select these investments. So it’s true that you don’t have it every quarter, but I would consider it core and I would consider it fairly recurring, right? Although obviously Q1 for seasonality reasons is can be a bit richer because you do the valuations on the basis of the full year ’twenty four numbers of the targets, right? So I wouldn’t fully qualify this trading results.

I would associate it with, you know, core business in the commercial banking and our structured finance expertise. Thank you.

Manuela Meroni, Analyst, Intidos Sao Paulo: Thank you for the clarification and the answer.

Conference Operator, Chorus Call: The next question is from Fabrizio Bernardi, Intermonte. Please go ahead.

Fabrizio Bernardi, Analyst, Intermonte: Hi, everybody. It’s Fabrizio with Intermont. I have a few questions, as you can imagine, is on the Inlemity play. In your press release, I think you mentioned that the regulator requested Banca IFRIC shall carry on due diligence for the termination of the bad will resulting from the transaction to be certified by an external auditor and sent to the Bank of Italy. So I’m wondering why the ECB made this request?

First question. Second question is, did you expect the write off of Valenity that was announced a few weeks ago? And if this has been included in your numbers, so in the offer. So again, what do you think about the results of Vilimity, if you can share your color or flavor. What is your common equity to one expectation after the completion of the offer?

And some color about the acceptance rate of the offer, it is below 60, 70 percent of the share capital. What do you do if you end up with two listed entities? And then finally, given that ILimity has some important shareholders, if you have spoken to them in order to understand if they like or not to accept your terms.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Yes. Thank you. Very clear, quite a list. Go through it one by one. I wrote them down, but if I miss something, you will you will remind me, I hope.

So why did the ECB ask for a due diligence? I can’t talk for them. Obviously, I can I can tell you what my perception was? So first of all, we did a non solicited offer, so there was no possibility to do a due diligence from the outside, right? And obviously, that is known to the regulator.

So they asked us once the transaction is completed, the shareholders decide to tender the shares, that we go through the balance sheet and verify the exact amount of the target’s equity to then have a reliable number for the bad will. We see it as a as a normal request, and and and I want to underline that given that it’s an outside in transaction, right, an outside in valuation. And and I want to underline that we would have carried it out in any case, even if not requested by the ECB for the certification of the of the PPA, right, of the purchase price allocation. And that type of certification is done with an external independent auditor, typically. So it doesn’t really impact what we would have done anyway.

I also want to remind everybody that the limit is a regulated entity by Bank of Italy. It’s listed on the STAR segment, it has requirements on governance and reporting on controls and equal to the ones that are applicable to Banca IFIs, we operate in the same segment. So we find this a reasonable request and we’re not overly concerned with having to do that. We would have done it anyway. On the write offs, were we expecting them?

No. We had no prior knowledge. What I would say is that, of course, we took note, and we think on the basis of what came out that the offer that we made is is definitely and even more so a great value creation exercise, both for Elimini shareholders and for Pantayifis shareholders. Right? You asked me for some comment on the results.

I would rather not comment on other banks results, not even if we are engaged in possible transaction. So I would rather not comment further on it beyond saying that what we read this far confirms our motivation to do the transaction. And in our opinion, confirms the fairness of the price that we put out on January 8, which was before obviously, this news came out. CET1 expectations also in the light of what you mentioned. So we have, even at the start of the previous business plan, always a target of remaining above or around 14%, right?

Then of course, it went better, meaning that the three year plan, I mean, meaning that we ended up with more profitability, more dividends and more capital. But that was roughly our target. The indications we get from our controlling shareholder is to keep managing the bank in a safe way, meaning that we want to have this level of comfortable capital also after the completion of the merger. And we therefore don’t see any reason to significantly change this outlook or or or this approach on the CET1 even after the merger. The acceptance rate of the offer, it works like this.

I just want to reiterate it. If more than 66.6% of the shareholders tender the shares, then the offer is valid. If anywhere between forty five and sixty six point six percent of the shareholders or the shares are tendered, then we have we can discretionary waive the threshold and still accept it. In any case, the two entities will remain separate and listed for some time. Our ultimate objective is and remains in both scenarios to get control of the shareholder, extraordinary shareholder meeting and merge the entities.

What we will do in case of an acceptance rate between 4566.6%, if we decide to waive the condition, is to partially execute the synergies because not all of them require the entities to be merged, progressively work towards the merger and in the meantime, do the due diligence that was mentioned before, right? So that’s how we reason about the acceptance rate. So it’s valid beyond 66, between forty five and sixty six, we have the possibility to waive the condition and to still go on. And if we do that, we will still pursue a good part of the synergies. Last question, have we spoken with the limited shareholders?

So we were we got, as you may have seen, concept authorization just very, very recently in the last hours. So we now have an acceptance period from May 19 till June 22. That is the time in which Elimini shareholders will take a position. First, before that, the Elimini Board needs to take a position on the offer. So we’re waiting for that too.

I can only comment on two two shareholders that have made public statements that that were, I think, constructive about the offer. So there is no firm commitment from anybody, but there are a few large shareholders that have made public comments on their constructive approach towards the offer. That’s where we stand today. And we will discover the remainder during the offer period that we approach with confidence. We think we have a great story and value creation opportunity also for the Alimity shareholders based on Banca IFIS’ proven approach and track record in terms of creating recurring industrial profits that we may even augment with the synergies that we think are quantified in a very reasonable way and that can be done in a socially responsible way.

Fabrizio Bernardi, Analyst, Intermonte: Very clear. Thank you.

Conference Operator, Chorus Call: The next question is from Simone Paquirioti, Mediobanca. Please go ahead.

Manuela Meroni, Analyst, Intidos Sao Paulo: Good afternoon. Thank you for taking my question. It’s about the NPL segment. So I would like to know if you could just give us an indication of the strategy going forward in this segment. So where should we expect the GBV to end after this process of sale of the tails, just a broad indication?

And the second point, you mentioned some forward flow agreements. So wondering if you could give us a bit more color on this. And finally, on the partnerships that you have mentioned as the instrument to increase growth in the coming years, if there is any update on this aspect? Thank you.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Yes, Simranco, thank you. Very clear. So as I mentioned, you saw the gross values going down because we did some housekeeping. And you saw the net values remaining stable on the basis of both our collections and the new acquisitions, right? So the strategy in the NPL business is the following.

The NPL business is core. It’s a good profit contribution engine, and we think it is a resilient type of business for the reasons I will explain in a second, also in a context in which the Italian non performing loan stocks on the balance sheet of the bank has decreased a bit. So we will continue to sell tails of portfolios in order to have, you know, a meaningful balance sheet without having on it a huge amounts also in terms of numbers, such as numbers of loans, right, huge amount of loans with gross book value, significant gross book values, but very marginal net book values. So expect us to do some further sales of these tails, right? And this will never go away.

We buy, we do the work out, And when we get to the tail end, we leave it to other specialists. So over the next quarters, expect some more disposals roughly of the size that you’ve seen. I won’t make any firm predictions. I mean, we don’t specifically have to do it, but we think it is just good housekeeping to do it. With respect to the forward flow agreements, those you you some originators are happy to enter in these.

We think that there are clear advantages. Long term corporations work better in this area. You have less hassle with the auctions. You have a more fluid portfolio handover. You get to know each other.

You get to more also given over time, you get to a more refined understanding on both sides of the values of the portfolio. So you should imagine that we have a few consumer finance specialists that have made these types of transactions with us, sometimes also in competitive processes, right? And that will give us certainty of flows over the next quarters. Strategy looking forward. First of all, we should keep in mind that it is true that there are less nonperforming loans on the bank’s balance sheets in Italy at present.

But if you look at the what’s what’s produced, the part of small tickets unsecured, so families, right, is gradually increasing. And that’s because consumer credit tends to generate as part of its business system, nonperforming loans at the tail end. It happens every quarter. Irrespective of upturns, downturns, the economy, consumer credit generates a certain flow of non performing loans. And consumer credit in the country is growing significantly and has grown for years.

So we are in a place with the NPLs that’s looking a lot more resilient to us than, for instance, corporates, right, which had the huge wave of 02/2011, ’2 thousand ’15, which today is is obviously very different. So we are in a place where small tickets on secured NPL management and purchasing, we think, can be for specialists that have scale like we do, can remain an attractive business over the next years. In this, we’re going to approach it with some co investors. That means sharing a bit of revenues and a bit of remuneration with third parties and having in return the benefit of not being exposed to calendar provisioning. We’re quite far ahead on this project.

We have numerous conversations ongoing. I think that before the end of the year, we will give the markets a very detailed description of this type of asset management strategy, which will continue to generate value for us over the next years. I’m being told that I may have said the June 22 at the end of the the offer period. I meant the twenty seventh. So I correct myself.

The offer period is from May 19 till June 27. Sorry for that. I misspoke.

Manuela Meroni, Analyst, Intidos Sao Paulo: You.

Conference Operator, Chorus Call: Next question is from David Giuliano, Equita. I

David Giuliano, Analyst, Equita: have just one left regarding NPL. NPL performance was a bit weak in the past two quarters and this quarter was by contrast very, very good as you are now back on the market. Also operating costs were also down in the division year on year despite revenues that were up. Can you elaborate for a moment on the reason why for this decline in costs? And most importantly, looking at the broader cost base for the bank, what can we expect for the coming quarters?

Thank you.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Yes. So yes, the NPL division, what happened there was that as we integrated Revalia, which was fairly sizable for us, we didn’t purchase other portfolios. So Revalia came in altogether, and we lacked a bit of new material, right? And new portfolios coming in give us in the initial quarter, it always gives us a bit of extra contribution just because of the way the collections work. So we suffered a bit in Q3 and Q4 because of the lack of these purchases, given that we were focused on Revalia, as I mentioned.

And so what you see happening in Q1, it’s not so much that the new purchases are immediately generating value because there’s some delay there. But what happened there is that, for at least six months now, the bank has started a very, very thorough and, and technical approach to managing and revisiting the existing stocks. And this is something that you can expect to continue. It’s it’s it’s it’s it’s just, you know, further sophistication coming into the recovery machine. Great job on behalf of all our MPO colleagues in that respect.

And so we’re very pleased to see it because, you know, that’s just progressively the value of the existing stocks that that’s expressing itself. And in the meantime, we’re also purchasing again. So we’re we’re we’re happy with the with the NPL division, and and I don’t have anything else to say. I mean, it’s difficult to make very precise predictions on every single division for the next quarters, but we’re happy with the way this

David Giuliano, Analyst, Equita: is

Frederic Gertmann, Chief Executive Officer, Banca IFIS: evolving, we’re happy with the way Q3 and Q4 were corrected, if you will. Cost, there was a lot of discipline this quarter. Don’t expect it to be exactly the same in the next quarters also because, frankly, some extraordinary costs were coming connected to the to the extraordinary transaction regardless of its result. Obviously, these are external fees. They are all market based, but they’re sizable given the size of the transaction.

Right? So we have a bit of that coming in. There’s a bit of seasonality probably. I wouldn’t count on the cost to be continuously going down at the rate at which they went. So good quarter, but then next quarter, so much for any cost will come in, and and you should keep it into account when you think about the first, you know, future profitability.

I guess I guess that was it, David. Yes?

David Giuliano, Analyst, Equita: Yeah. Thank you.

Conference Operator, Chorus Call: The next question is from Tuzpe Grimaldi, BNP Paribas, Exane.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: I have actually two questions. The first one is around the cash collection trend that we’re seeing right now. Just can you give us a bit of an update on what you’re seeing? The second one is a bit of a modeling one. So this quarter, you saw tax rate that went down into the quarter compared to last year.

How should we think at the tax rate for the full year? Thank you. Yes. Thanks. I’ll pass the tax rate question on to the CFO.

I’ll answer on the cash collection of the NPL. So I touched on it in various moments. I won’t repeat myself too much, but what you see is healthy €100,000,000 roughly cash collection per quarter expected to remain like that, roughly, right? We’ve been reliable in this respect, and most of it comes from the existing portfolio. So the model and if you look at the appendix of our presentation, you always find real cash collection and mobile cash collections.

Right? And you can see that over years now, the models have been proven. And so, you know, we’re comfortable with with, you know, expecting the same in the future. Why did it happen? Well, mix of things.

A little bit of refocus on shortening the times. Right? We also do some some client transactions where we, you know, shorten the time frame of collection and and and and leave on the table a little bit of a little bit of value for the client. That’s one thing. So transactions basically, voluntary transaction.

A part of it is the whole focus on the processes and the approaches in keeping the payment plans alive, for instance, that we did in the servicing business. I just mentioned it. So it’s just, you know, an industrial approach that, you know, tries to innovate, tries to improve, tries to, you know, streamline the processes, try to try to remain efficient. And on that basis, we think our stock and also what we’re buying can continue to keep us at roughly 100,000,000 cash collection per quarter, roughly. Then may maybe we’ll have a quarter of 90, and then maybe we’ll have a quarter of a hundred and 5.

I don’t know. Right? But that’s roughly what you should expect. I’ll give to Roberto the floor for the text. Thank you, Fred.

And thank you, Roberto, for asking. Actually, we are applying the patent box, thanks to our IT investment that we made in the past. So we do expect tax rate for this year to stay around 30%. Thank you. Very clear.

Thank you, Zeppe.

Conference Operator, Chorus Call: Gentlemen, there are no more questions registered at this time. I turn the conference back to Mr. Gersmann for any closing remarks.

Frederic Gertmann, Chief Executive Officer, Banca IFIS: Thank you very much. We have nothing to add. As always, the Investor Relations team is at your disposal for any further questions you may have, and we will certainly be in touch in the next months on the basis of the authorizations that we have received. I thank you all for your time and attention.

Conference Operator, Chorus Call: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.

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