BFF Bank S.p.A.

Good afternoon and welcome to BFS Banking Group First Quarter 2023 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be the opportunity to ask questions. To ask a question, you may press star then one on a touch-tone telephone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would like to turn the conference over to Massimiliano Beningheri, Group CEO, and Piergiorgio Bicci, CFO. Please go ahead.

Thank you. Welcome, everybody, for joining us for the first quarter result presentation. We are happy to report a strong first quarter in terms of adjusting the profits, actually our highest quarter on record. And this is an important result given that the dynamics of our balance sheet means that in a rising interest rate environment, our liability rate rises faster than our asset. The net interest income is being driven by factoring and lending, which has shown a 22% growth year over year, driven in particular by the increase of the LPI stats to the rate, which was 8% until December, and from the 1st of January has moved to 10.5%. Given the increase in the ECB reference rate, that will increase already. today's rate from the 1st of July at 11.75%. So another step up will happen in the second half of the year. The balance sheet remains solid, both in terms of quality of assets, but also in terms of funding. We have maintained a good loan-to-deposit ratio of 75%, and we have a net positive inflow of retail deposits in Q1 2023, $200 million. we were a year before. Overall, we've managed the balance sheet, so to decrease the level of total assets while increasing our loan books and therefore improving our leverage ratio and reducing significantly compared to a year ago our health collect bond portfolio, which is down by $1.6 billion. Capital, as I mentioned, remains plentiful. We have a core equity ratio, 70% total capital ratio, which is relevant for our dividend payout of 22.6. Sorry, so it means over 200 million of excess capital versus our 15% total capital ratio target. Given that we are above the 15% total capital ratio target, it means that the earnings of the quarter accrue to our interim dividend, so we have already 0.28 euros per share accrued for our interim dividend, which will be paid in August of this year. As we mentioned in the previous earnings call, we will have a capital market day on the 29th of June to present our new medium-term target, and most likely will be in London. Another important news is that Italy has communicated, actually yesterday, that it has applied for the extension of the split payment, which is a measure where the public administrations in Italy pay their invoice net of VAT. In case of approval, there's no change in our 2023 guidance, and we will see if the EU will approve it and also for what terms it will be approved for. On the following page, on page three, you can see the highlights of our P&L, where we show the increase of 10% in our net interest income. As I said, it's important because despite the faster repricing of our liabilities, while the repricing of our assets with the negotiation with our customers happens, and the increase gets sent through the P&L, we actually have a good increase year-over-year. We've also seen a reduction in commission that was driven by the exit of ARCA and ANIMA, two clients we lost last year, which have, as you've seen, not dramatic impact on the overall P&L of the business. We have in other income and other expenses the gain from the sale of part of our bond portfolio, which I've booked earlier in this quarter. And overall, we've shown a good discipline on cost. We've cost marginally up compared to last year, despite inflation, and significantly down compared to the fourth quarter of 2022. That drives our cost-income ratio at 35%. in the banking area in Europe. Retail numbers are good, as you've seen, with 52.7 million of adjusted net income. The balance sheet has also been reshaped. We have continued the decline in the health-to-collect bond portfolio, particularly with the reduction of the fixed-rate bonds. We've reduced our deposits at the ECB. We've increased our retail deposit, the one we collect from retail investors significantly, particularly compared to last year with 1.2 billion of increase on that line. And our overall balance sheet has shrunk from 13.3 at the year end to 11.6 at the quarter end. 4.7 of last year. On page five, you can see the breakdown by business units, but Giorgio will talk about them in a second. I want to highlight on page six what are the drivers to be considered in the outlook for our net interest income. This is important because the balance sheet of our banks behave differently from the balance sheet of other banks, and I think it's helpful probably to reiterate to ourselves and to everybody, what are the dynamics that we will see in the months ahead, which are positive for our business. In synthesis, we've already been hit by the increasing interest rates and the repricing of our liabilities. We don't have the issue that other banks have of having to refinance the long-term funding from the ECB, the TLTRO, PLTRO, and the like. We don't have that, so Our net interest income is the market net interest income. While on the interest income side, we have the re-fixing of almost all of the head-to-collect floater bonds that happened in April 2003. So that will increase the earnings in the second quarter, but particularly in the third quarter, clearly. We have the ongoing repricing of the maturity commission. The further fixing of the API rate, which I've mentioned before, including we have the seasonality of the net LPI over recovery, which tends to be concentrated in Q4. So overall, a lot of positive trends that should support an increasing interest rate income, net interest rate income for the quarter ahead. Having said that, to set the scene, I need the floor to George to walk you through the details of our business's performance.

Thank you, Max. Now we are at page seven, and we start on the factoring and lending business. And we have the best from Q ever, and we confirmed a good performance in terms of volumes that started last year. Our loan book is at $5 billion, is up 30% year-on-year, and the difference between the last quarter is really not only by the seasonality. There was a good performance in terms of volume. We have to consider that we are carrying out a strong pricing campaign, but despite that, our volume grew by 20% year over year. We have observed a double-digit growth in Portugal, in Greece, in France, and in Poland, and in Italy, a single-digit growth. The loans receivable are down, considered a significant injection of capital done by the government. Going to the next page, page 8, we can observe that the P&L of the factory lending increased by 37% year over year. We have the start of the positive impact driven by the increase of the, first of all, the LPI rate, the ongoing of the repricing campaign, and also the strong compared to the one of last year considering the seasonality LPI over recovery that we have observed in the first quarter. In the other operating income and expenses, we are at a crop compared to the last year. And this result has been driven primarily to the recovery cost, the so-called 40 euros. And so the expectation is to continue to go on that side. We maintain a substantial also of balance sheet, LPI, recovery cost fund. That is the portion that we don't book on time by time, but that has been driven by the collection. So we have these significant funds that we are going to recover going forward. The profit before tax is at $39.2 million and increased, as said before, by 37% year over year. Going to the security services, page 9, we are carrying out an important onboarding campaign of new clients. We have to consider that after signing this contract, the start in the inflow of the deposit is delayed due to technical point and the starting of the activity of the funds, but it's a good point going forward for the rest of the The net revenues are down due to the lower net interest income and also the fee and commission has been impacted by the exit of ASCA and that occurred at the end of the last year. and due to lower direct costs and also personal expenses. It's important to realize that the redundancy, one-off costs are full covered by the Depo Bank budget, the integration budget, and we don't foresee any additional integration costs for the future. The quality before tax decrease, and also the source for 2023 deposits end-of-period up-down following the exit of the RAC and also the market trend because with a higher rate, the funds are going to invest and they deposit less liquidity. Going to page 10 for the payments business, we have to consider the seasonality also of this business. But at the end, the total net revenues are up by 7% year over year, down compared to the last quarter of 2022. And it's important to highlight the important contribution that we have from the payment business in terms of liquidity. liquidity increase is stable compared to the end of the year, but increased by 42% year over year. Going forward to the corporate center, the result, page 11, the result has been driven by the sale of a portion of our head to collector floater bond portfolio. We anticipated some revenues that were expected during the year, and also the other income expenses grew thanks to these positive efforts in terms of capital gain, and the net interest income is lower compared to the first quarter year-on-year, but stable compared to the last quarter of the year. And as said before, we don't expect any other liquidation costs coming after the merger with Depo Bank. Going to page 12, we can observe a very diversified and stable funding base. As said by our CEO, we increased compared to last year the portion of retail deposit. We don't have any issue related to ECB funding and this is an important point going forward and looking at the end of the year. Our LCR and SFR are stronger and thanks to the reduction of the dimension of the balance sheet, our leverage ratio improved and at the end of the quarter is higher than the 5%. We reduced our bond portfolio. Now we are at 5.6 billion of euros compared to the 6.1 that we had at the end of the last year. But one important thing is the strong reduction in terms of fixed bond portfolio compared to the total bond portfolio. So the asset quality has been confirmed, the good asset quality and the negligible cost of risk. Our MP are 92% related as seen in the table to the public sector, so it's a good asset to the public sector and taking consideration that the 70% is related to the municipalities in conservatorship. We know that is a question of time. We have to wait until the end of this procedure and then we can come back to collect money. The cost of risk is at 4.7 bps and is lower than the one that we had at the end of last year. So in page 14, we have the capital ratios. We confirm our excess capital versus the target of the 15%. The excess capital is higher than 200 million euros. And we have already accrued, after these results, 0.28 euros per share that we are going to pay after the mid-year results. So it's also an important point to be highlighted that is a confirmation of our stability, strong capitalization, and the performance of the business that we had in the beginning of the 2023. So I leave again the floor to Max to go with the rest of the presentation. Thank you.