Bff Bk Spa

Good afternoon and welcome to the BFF Banking Group first quarter 2026 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 phone. 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 Caterina Della Mora, Head of Investor Relations, and Giuseppe Sica, Group CEO. Please go ahead. Good afternoon, and thank you for joining BFF's first quarter 2026 financial results call. We will start with a presentation by our CEO, Giuseppe Sica, followed by Q&A. To ensure that we can take everyone's questions, we kindly ask you to link yourself to three questions. Let me hand over now to Giuseppe Sicca.

Thank you, Caterina, and thank you everyone for joining this call. Before we dive into the presentation, some of you may have already noticed that we have introduced some new formats and slides. This allows us to better illustrate the diversified nature of our group and to focus on the key drivers of our performance. You can still find for this quarter all the other details in the appendix. Today we are announcing what are good results in what remains a complex environment. Our profitability improved with adjusted net income significantly up year on year. This result is underpinned by the performance of our payments and security services business, as well as factoring and lending, where we are focused on the profitability of our volumes. As a result, we now meet CET1 and also our total capital ratio requirements. This is a significant, although expected, change compared to what we have announced at our full year results. We continue to review options for our business model, given the recent changes in portfolio classification and the need to address calendar provisioning. We are focusing on maximizing value for all stakeholders. These actions will form part of our new strategic plan, which we will unveil in the second part of the year. Before going into numbers, Let me remind you that while our full-year results reflect the regulatory measure received by the Bank of Italy at the end of March, the Bank of Italy inspection is still ongoing. Let us now look at our key financial metrics on slide 3. ROE stayed well above 20%, with all divisions contributing strongly to these results. The income of 43 million is up 24% year-on-year, the unadjusted net income is higher at around 50 million. Let me remind you of our net income target for 2026 of 115 to 140 million that we published on the 30th of April. Our net profit in Q1 has been achieved thanks to a revenue increase of around 20%. As I said, our focus remains on profitability. Factoring and lending loans are down year on year, but as you will see, profitability is up. Transaction services deposit is only slightly down, mainly due to one client, which remains with us, but has adjusted its liquidity needs. Our extremely strong loan-to-deposit ratio has remained stable at 76%, and repos are down. Finally, Our CET1 is at 1.1% compared to full year numbers. Moving to the next slide. I won't spend much time on this one, but let me stress that we have achieved this 24% increase in net profit in a rather complex order. Importantly, we have achieved this mainly through an increase in revenues. Costs are up as we continue to invest as are provisions. and we have taken a more conservative approach. On slide 5, as you can see, all business divisions contribute to profitability, with payments and security services generating 14 million in PBT, up 25% year-on-year. As I have previously mentioned, the earnings potential for these two divisions would be materially higher if we invested liquidity in Italian government bonds. In this case, these two divisions would have achieved 31 million euros in PVT in the first quarter. Again, let me remind you that we are the leader in both payments and security services in Italy, in the niches where we operate. These activities have virtually zero RWA absorption. In payments, we intermediate more than 130 banks and payment institutions. In security services, and specifically in the pension funds niche, we have an estimated market share of about 50%. Factoring PBT is up on improved margins. And the PBT for the corporate center rose to 10.7 million, thanks to lower rates in our HTC portfolio. Moving now to slide 13. I have already mentioned our diversified sources of profit. And on this slide, you can see that DSS is also diversified in terms of net revenues. More than 60% of the net revenues in the first quarter were generated by activities outside of core factoring. And again, the contribution from payments and security services would have been 16.5 million higher if liquidity had been invested in Italian government bonds. Slide 7 is also a key slide. Our net interest income is diversified. The HTC portfolio contribution is going up and will go up materially as our fixed rate portfolio at 0.6% yield will expire. Importantly, the net spread of our factoring and lending has gone up from 3.6% to 4.2%. As we have been very disciplined on the price at which we buy invoices, we have reduced the scheduling and reduced the cost of funding. You will find usual details in the appendix. Let's move to slide 8 to look at the net fee and commission income. This is another point that positively demonstrates BFF's diversified business model and the growth across our business divisions. In security services, this was driven by strong commercial activity in the first quarter. In payments, we want new clients and are looking at a healthy pipeline. Finally, in factoring and lending, we have seen growth in the servicing of third-party portfolios. Looking at costs on slide nine, we continue to focus on cost discipline with investments in the businesses focused on our transformation. This includes higher HR costs as we hire talent to support change. In payments, rising expenses reflect higher volumes. Taking this into account, we still maintain our cost income ratio at 42%, significantly down year-on-year. Slide 10 is focused on our commercial performance, which is reflective of our actions. Security services deposits have grown compared to year-ends. This also confirms our strong liquidity position, which I will show in more detail shortly. Payments. The reduction in deposits is largely driven by a single counterparty that remains a client, as I mentioned in introduction. We have also onboarded a new client and will continue to do so in the second quarter. In factoring and lending, I already mentioned that we are focusing on the quality of volumes and improving collections. This combination led to a small reduction in loans, which will continue over the next few quarters. as we communicated on the 30th of April. Moving now to slide 11. Unrealized gains on our variable rate portfolio are at around 60 million, which corresponds to around one percentage point of common equity, tier one, and is not included in our capital projections. On the other hand, we still have a 2.5% negative headwinds on the 1 billion fixed rate portfolio. We expect, therefore, an around 25 million increase in PBT as these mature. Moving to our customer loan portfolio on slide 12. Our activities are diversified, both in terms of type and geography. factoring accounts for around half the total loan book and is spread across six countries in Europe. I would like to highlight that we see further room for diversification with growth potential in activities outside of PA factoring, always in areas with low credit risk. Looking at our impaired loans ratio on slide one, Let me make a few comments. We have a net impaired loans of 73% with 96% of the impaired loans represented by the public administration and therefore with limited credit risk. Post-TRA actions, our coverage of non-performing loans has increased to 80%. Importantly, we have reduced the portfolio of Italian negative quote rulings by 14% in effectively two months, including using the option of prepossessions. Slide 14 shows the quality of our origination and collections. Let me highlight the quality of what we buy. We have collected 91% Of all invoices, we acquired in 2025. The outstandings are largely from the fourth quarter, in line with our around 180 days DSO. This slide is important because it shows how we can manage capital. For instance, in first quarter, we have collected around $1 billion. of past due exposure, or 1.5 billion RWA reduction, corresponding to a common equity tier one generation of almost three percentage points. Slide 15 shows how disciplined we have been in managing liquidity. Cost of funding, including the cost of bonds, is down as it is spread versus hyper. Excluding bonds, we would be finding ourselves below IBOR. Repos are down. Both LCR and SFR have improved. Our RWA absorption is very high, and this is a key driver of the strategic review currently underway. Nonetheless, on slide 16, Thanks to capital generation in the first quarter, both CET1 and TCR at 11% and 13.4% respectively are above SREP. These figures are presented including the net profit for the first quarter, which will be formally added following the approval of the annual report at the AGM on the 16th of June. Organic capital generation for the quarter was around 130 points or around 60 million euros. Now on the key takeaways. A quick summary of the set of results before we move to the Q&A. Our first quarter results show that BFF is a diversified business with all divisions contributing to profitability. We maintain our net income target for 2026 of 115 to 140 million that we published on the 30th of April. We are focused on improving profitability in factoring and lending, and we are seeing positive results. We meet our CET1 and also our total capital ratio requirements. While Bencovita inspection is still ongoing, we are working on our strategic options to optimize the business model for the future to the benefit of all stakeholders. And we present the new strategy in the second half of the year. Thank you for your attention and let me now open to Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-on phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. The first question comes from Manuela Meroni of Intesa San Paolo. Good afternoon, and thank you for taking my questions. The first one is on the contagion portfolio. Could you please share with us the amount of your contagion portfolio and what is the portion where you are going to apply the calendar provisioning starting from the third quarter of this year, and the portion where you have to apply the calendar provisioning starting from the first quarter of 2028. The second question is on the possible strategic options and the securitization that you are studying. So I'm wondering if you can share with us the main characteristics of these securitizations in terms of size, tranching, and impact on the P&L, both one-off or recurring, and what are the possible strategic options that you have in mind. And the third question is on the coupon of the 81. I just want to know if you can confirm the payment of the coupon. Thank you.

Thank you, Manuela. I'll try to address the questions to the best of my possibilities. On the contagion portfolio, as you have seen also from the appendix, we have removed the split. And the reason for us to remove the split is that after the portfolio reclassification, of course, the number would be higher and would also include a significant amount of SPI, which stay on our balance sheet for longer. And that's the one area where the securitization would be focused. The contagion portfolio... According to the old definition, continues to go down in line of frankly a bit better than previous quarter. And that's the part where the calendar provisioning would be applied in 2026. What is important is to confirm what we said, what we wrote on our press release on the 1st of April that we expect to respect capital ratios, including the impacts of the calendar provision for 2026. On the securitization, I would prefer to give more detail as we have more details, particularly with reference to price. But let me be clear that we are not doing this transaction focusing on the P&L impact. We are doing this transaction focusing on the capital impact, and in particular, compared to pre-reclassification effected on the 30th of April, the securitization would also include the significant component of FPI, which would go in calendar in 2028. Due to the classification, therefore, you would also see material impact on the capital impact expected for that year. On the coupon of the 81, formally, as I said on the call, The ratios cannot include the earnings for the quarter, which will be included after approval from the GM, in which case the MDA would allow the payment of the 81 coupon. Let me remind that that, however, will be announced towards the end of July. We have, therefore, a few months before we get there.

The next question is from Tomaso Nieto, Pepler Chevrolet.

Hello, and thank you for taking my questions. I have just a couple. The first one on the results, actually, Q1 results looks, I would say, optically strong if you compare with the full-year guidance you provided, and in particular factoring profit before taxes. increased slightly despite the volumes and the book decline. So my question is, is the message that BFF can actually generate stable profitability on a smaller but more profitable portfolio? And again, on the volume decline, however, I would have expected to see decline in Italy especially, but I see down WG Digital, so Spain and Greece. So can you maybe give us more color by counting the volume. Thank you.

Thank you, Thomas. On the profitability, we have, and that's why I repeated a couple of times during my call, we have reiterated the target for the full year. And the reason why you can't simply multiply by four is that, as we wrote on the 30th of April, we are going to manage loans now. Could BFF provide a stable and interesting level of profitability without being capital constrained? Yes, it could, and this is what we have to work on by looking at the strategic options, which I would say are really focused on reducing the impact of the calendar and reducing the RWA density. On the volumes, I think I said probably from my first or second call that the focus would be on profitability and collections rather than increasing volumes, at least for this phase, and this is what we have been trying to do. Certainly, Spain and Greece could have done better. I think particularly Spain performed below our expectations. The reality is that payment times have been good in Spain. Spain remains for us a very important market because we have a very good track record of LPI collections. So despite lower volumes, actually the profitability of the country remains very important for us.

The next question is from Giovanni Razzoli, Deutsche Bank.

Good afternoon to everybody. I have three questions. There are two clarifications. First, if I look at slide number 30, so when you provide the details of your... divisional database I think that you had in the quarter 11 million euros of gain on trading and also some profits from disposal of assets that amortize the cost in the region of 11 million euros each. Can you please clarify what are the transactions that you implemented here, what else have you sold, and whether shall we consider those items as non-recurring going forward? The second question is on slide number 27. I've seen that you have reported here 1 billion euros of collection on the portfolio. I don't know whether there is the typo as there is. I should interpret this as a quarter-on-quarter collection. I mean, you have collected 1 billion euros on the past year from the beginning of the year up to March of 2026, so in three months. So whether his understanding is correct, because the agenda is a little bit confusing here. And shall I compare this with the 384 million euros that you reported last year in the same period of time, same slide? I ask you this because I think that you had a quite nice decrease in the stock of past due here in one quarter, so I want to understand when this is a like-for-like situation. trend or not and the third question is on the deposit from payment business you mentioned it was down around 700 million euros quarter on quarter you had decreasing the business from one client which has basically remained a client but has reduce the cash with you. I'm quite surprised to be fair with this trend because I would have considered the payment business as one of the stickier part of your funding base. If you can please elaborate on this trend. And then you mentioned that in the second quarter you have acquired a new client in the payment business, if I'm not mistaken. So what is the balance between the loss of 700 million euros of funding from this client and the potential positive impact of funding from this other new client? Thank you.

Thank you, thank you, Johnny. I start with the easier question, which is, yes, it's from, on July 27, it's from December to March 2026, we have collected 1.1 billion of PASIU, which is 1.6 billion of respected assets, which would be at 13%, 180, 190 million of capital. Is it like for like? The methodology for calculation is the same, the base of PASU is much higher. Because, effectively, all of our portfolio is now in past due. Not all of it, but most of our past portfolio is in past due.

Sorry, Giuseppe, you mean that, I mean, given the very strong reclassification that you had at the other end, with the previous approach, part of that wouldn't have been falling to the past due category. This is what you mean, no? Yes. Yes, exactly.

On the gains, losses, I have to look at the various voices that you are discussing. I think it's all recurring in my mind. We have realized 6.9 million gain, which would be around 4 million post-tax on HTC. We can do more during the year. It's in... it's consistent with our health to collect policy. That's the only part where, you know, one can judge whether it's recurring or not. It's perfectly in line with previous year's average.

Sorry, my bad. There was 10 million euros of provision, reversal of provisions, if I see below. Ah, okay.

Yes, okay. Now that's clear. It's... It's a minus, you know, it's a minus and plus that compensate each other, so the net impact on P&L is not relevant, effectively. provision for charges to provision for credit. That's what happened. It's not relevant to the final P&A. On the clients, that was obviously given the amount was a very large client. which was leaving part of its excess liquidity with us and decided not to do so. The rest, I agree with you, is very stable because it's driven by the intermediation. The balance, the clients that we have, we will make some announcements towards the end of the month of some important and visible clients that we are arranging in payments. We will not compensate the liquidity we lost from this single one.

Thank you.

The next question is from David Giuliano of Equica.

Hi, good evening and thank you for taking my questions. I have three. The first one on the evolution of deposits in the payments and security services division we commented on first queue. My question was a little bit more about today and if you look at the two divisions combined, how would the situation look today rather than at the end of first queue? The second one, on factoring and lending division, can you comment on why we are still seeing negative over-recoveries this quarter despite the model changes implemented at the end of last year? It seems that the impact continues to come from rescheduling. Is there a risk of further model revisions going forward? And the third one is just a clarification on low-loss provision, which are relatively high, at least compared to my expectation. Can you provide some color on the drivers behind this provision and what we should expect in the coming quarters? If you can give us more precise guidance on cost of risk for 2026, just to double check if the reclassification you were mentioning before to the previous question. Thank you.

Malik, on the liquidity, you heard me talking about our strong liquidity. I don't want to provide more up-to-date information, which will come with the first task, but there should be an answer, I think. On the factoring and lending... You know, listen, for me, what is very important is the very strong increase in the spread, which we are showing now for the first time. You can see the increase which has gone there. If you look at the change year on year, it has gone down significantly. So, I would say I feel that that is a good result. On the cost of risk, I don't know why you say it's particularly high. We have 6.4 basis points on slide 13. You have food not explaining the 10 million that Giovanni was asking a few moments ago. So I don't think it's particularly high. In fact, I think in terms of basis points, it could be higher in the next few quarters. Let me say this also includes the impact on negative sentences, by the way. This is for the first time this year. We've been very disciplined in the retrocessions. We have to see how good we are in those in the next few quarters. Thank you.

As a reminder, if you have a question, please press star, then 1. Again, if you have a question, please press star then one. This concludes our question and answer session. I would like to turn the conference back over to Giuseppe Sica for any closing remarks.

I thank everybody for joining the call. It was a bit shorter than the previous one, and we look forward to speaking again when we present our first results. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.