Bper Banca Spa Unsp/Adr

Good morning. This is the Coruscant Conference Operator. Welcome and thank you for joining the BPIRF First Quarter 2025 Consolidated Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Nicola Sponghi, Head of Investor Relations of Viper. Mr. Sponghi, please go ahead.

Thank you, and good morning, everyone. I am pleased to welcome you to our first quarter 2025 earnings conference call. Before I give the floor to our CEO, Gianni Franco Papa, please know that our slide set and press release can be found on our corporate website. I would also advise you to take note of the disclaimer on slide two of the presentation document. That said, after the presentation, our CEO, our CFO, Simone Marcucci, and our CRO, Emanuele Cristin, will take care of the Q&A session. I will reiterate that this is reserved for financial analysts whom I will kindly request to ask a maximum of two questions each so that everyone will have the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of BIPA.

Thank you, Nicola, for your introduction. Good morning to everyone and welcome to our Q1 results presentation. Before I start giving you details of our financial performance, I'm keen to highlight a number of key features of our Q1 2025 results, underlining that progress on our B-Dynamic Full Value 2027 is well on track. First and foremost, on an adjusted basis, Q1 2025 was our best-ever quarterly result, with the bottom line standing at 443 million euros. A mild reduction on AI despite the acceleration of the reduction of interest rates. That said, we remain cautious given the potential headwinds deriving from current geopolitical tensions and the spillover effect on macroeconomic conditions. Commissions continue to have a very positive run throughout the year, given the focus on AUM, life insurance, and bank assurance products. Quarter on quarter, excluding the positive impact of bank assurance-related performance fees, commission income was up by 3.1% despite adverse market conditions. Our profitability remained high, with an adjusted return on tangible equity at a robust 19.2%. Despite the impact of Basel IV, mostly related to operational risk, we maintain a very solid capital position with a CET1 ratio at 15.8%, resulting from an organic capital generation amounting to 97 basis points equal to 540 million euros in the last three months. Loan volumes were positively affected by significant new loan origination of 4.4 billion euros, a plus 22.3% on a year-on-year basis. And finally, the quality of our Lombu continues to stand at the best level in the Italian banking industry with a cost of risk of 31 basis points. In this geopolitical context, let me underline that Biper is a bank deeply rooted in Italy with a low business exposure to global markets. In addition, We are proud to say that we are a commercial bank with a complete banking offering and a focus on asset gathering. Please be reminded that at the end of the result presentation, I will spend a couple of slides on updating you on the business combination with Banca Popolare di Sondrio. Let's move on the net profit drivers on slide number five. As you can appreciate, our focus on tangible results translated into the best quarterly net profit ever of Euro 443 million, posting a 43.2% growth year on year. I underline best rather than highest, as the quality of our revenues has been outstanding. With almost 1% growth in core revenues year on year, we have been able to overcome the negative impact of lowering interest rates. I will revert to this later in the presentation. The very high quality of our loan book translated into a level of annualized loan loss provisions well below 40 basis points. In the pages to come, we will provide you with an in-depth review of each and every item. Let's move on to slide number six. As already mentioned in February, please bear in mind that the volume guidance is based on deeper standalone, therefore not including any impact from any business combination. For 2025, I would like to underline the following. We expect NII to be down mid-single digit. Commission income is expected to continue to post a positive performance up mid-single digit. The cost-income ratio should land at approximately 51%. We continue to maintain a strict cost discipline with an important focus on operating efficiency. We expect the cost of risk landing at slightly below 40 basis points. And finally, we are expecting a CET1 ratio well above 15%. Now I would like to move on to the core part of the presentation on slide eight. A quick glance at the progress on our business plan. In February, I assure you that we were on track to fully implement all of the business plan initiatives by the end of the first half of 2025. I can proudly state that by now we have launched 100% of initiatives in spite of all the efforts focused on the Banca Popolare di Sondrio potential combination. A couple of additional highlights. Despite the current macroeconomic environment, commissions continue to register a remarkable performance, up by 8.5% year-on-year, with record results of AUM fees up by 18.7%. The enhanced services to our clients translated into new loans growing at a pace of 22.3% year-on-year at 4.4 billion euros. We have worked rigorously on the progress of our digital and remote channels, enabling 90% of total transactions being processed. In addition, in Q1 2025, remote sales stand at 20% of total sales, also thanks to the digital branch announcements and fully in line with our plan. And similarly, digital lending more than doubled, with over 20% of the total amount of personal loans volumes sold digitally. Our capital ratios remain strong despite Basel IV impact. The bank modernization is progressing rapidly. Deployed capex, according to plan, reached €160 million. In Q1 2025, our ESG focus has shown further momentum with over €700 million of ESG new lending, demonstrating our solid commitment to sustainability. And finally, approximately 10% of our employees have already been involved in our dedicated academies. Let's now turn to our financial performance. As you can see on the slide, core revenues were resilient at Euro 1.4 billion, up by 0.8% year on year. Given the overall scenario characterized by an acceleration of the reduction of interest rates, this is a positive result. Among the main drivers of total revenues, I would highlight the following. Lower NII due to lower rates, and a strong performance in commission income thanks to the positive contribution of AUM fees, life insurance, and bank assurance fees. Quarter on quarter, core revenues were slightly down by 1.8%, with commission income growing by 3.1%, excluding the positive impact of bank assurance performance fees booked in Q4 2024. In this context, I would highlight the improving quality of our revenues, where the ratio of net commission income to total revenues rose from 36.6% in Q1 2024 to 37.9% in Q1 2025. To be noted, the continued solid trend in productivity with the net revenues to risk-weighted assets ratio which increased from 8.6% to 9.7% between Q1-23 and Q1-25. Let's move on to the next slide which focuses on net interest income. Given the interest rates environment, I'm pleased about the performance of our interest rates income line. In the quarter, commercial NII was stable taking into account the effect of a reduced number of business days. The effect of rates reduction and tighter spreads was compensated by volumes. Non-commercial NII was mainly affected by lower remuneration on ECB deposits. Finally, I would like to highlight that our NII sensitivity to 100 business points movements equal to approximately 165 million euros in the quarter, basically unchanged compared to the previous quarter. Looking forward, we will need to take a cautious view on NII, given the acceleration in the reduction of interest rates and current geopolitical tensions, which might impact loan demand, especially from corporates. Now, let's move on to the development of net commission income. Commission income grew by 8.5% year-on-year, standing at above 540 million euros, thanks to the focus the bank is placing on capital-like, high-quality, non-interest income products. The most important contributor, which represents more than 50% of commissions, were fees from banking services, which almost reached 275 million euros. Wealth management fees increased by over 14.3% year-on-year, while fees from bank assurance were up by 26.9%. Noteworthy to mention that AUC and AUM running fees increased by 7.1% year-on-year. In the quarter, wealth management fees contributed positively, increasing by 10.9%, while bank assurance commissions increased by 1.3%, excluding the positive impact of performance fees in Q4-24. We expect mid-single-digit growth in the year for commissions and a positive performance in net commissions also in Q2. despite current market volatility and an important number of bank holidays in the second quarter. That said, we remain confident in achieving our target of 12% growth along the plan. Let's move to the next slide, which focuses on the progression of total financial assets. Total financial assets grew by 1.6% in the last 12 months, driven by asset under custody and asset under management. In the quarter, total financial assets came down by approximately $3 billion due to customer asset dynamics in deposits and the technical effects related to institutional clients in AUC with a negligible effect on commission income. AUMs were up by 4.8 billion euros year-on-year at 72.1 billion euros, mainly thanks to continued customer asset rotation. Let's move on to our performance on the cost side. Year-on-year, total costs were down by 3.2%, reaching a cost-income ratio of 46.7%. This highlights our strong focus on operational efficiency. The waterfall chart reports the key drivers of HR costs in the quarter. The reduction was mainly driven by organic turnover despite lower voluntary exits, which more than compensated the increase related to the national collective labor agreement. As you can see on the slide, at the end of March, headcounts stood at 19,424, a reduction of some 1,000 compared to June 2024. On the non-HR side, please note that we achieved further progress by optimizing our branch network, reducing the total counts by 78 branches, and landing at 1,557 branches since Q2 2024. Let's move to cost of risk. As you can see, in the last year, loan loss provisions came down by more than 25%, landing at $71 million, bringing the cost of risk down to 31 basis points. Similarly, on a quarterly basis, the cost of risk has shown a very positive progression, falling from 63 basis points in Q1-23 to 31 basis points in Q1-25. Needless to say that this underlines the high quality of our portfolio. I would like to mention a couple of other points which are key in the context of the quality of our loan book. Our MPE coverage ratio remains substantially stable at 54.2%, quarter on quarter, and one of the highest among Italian peers. Our conservative approach is further confirmed as we report a Q1-25 coverage ratio on performing loans at 0.67%, among the highest in Italy. And total cumulative overlays stood at approximately 228.2 million euros, down by almost 9.9 million euros versus Q4-24 due to technical reasons. We are closely monitoring the macroeconomic situation resulting from U.S. tariffs with a cautious view, and our preliminary analysis does not show material risk. Let's move on to the asset quality on the next slide. As in the previous quarter, the quality of our loan book continues to show a very healthy state. From a stock perspective, gross MPE increased by €200 million in the quarter, €100 million higher year-on-year. In particular, bad loans increased by €100 million due to very limited asset disposals. The fact that BIPR is characterized by a high-quality loan book is further highlighted by the net NP ratio, which, as you can appreciate, continues to improve and is one of the lowest in the Italian banking sector at 1.2%. Having finished with asset quality, let's move on to the development of the bank's risk-weighted assets. As you can see, in Q1 2025, our total risk-weighted assets increased from €54.2 billion to €55.9 billion. The impact of Basel IV counts for €1.7 billion, or 49 basis points on CET1 ratio, and is mainly related to operational risk. The original impact of 70 basis points has been reduced to 49 basis points, mainly thanks to methodological fine-tunings. I will now turn to organic capital generation on the next slide. In terms of capital, we continue to post a very strong organic capital generation, reaching a CET1 ratio of 15.8% despite the Basel IV impact on operational risk. In this context, it is important to underline that BIPR continues to generate significant organic capital amounting to 540 million euros or 97 basis points in the last three months. Moving on to liquidity, let me point out that the bank's liquidity ratio remains high. The LCR is equal to 166% at the end of March 25, in line with the 167% reported at the end of December 2024. The NSFR is equal to 134.4% from 137.7% at the end of December 24, mainly driven by commercial funding dynamics over the quarter. In Q1 25, the loan-to-deposit ratio stood at 76.3%, stable quarter-on-quarter, one of the lowest among Italian peers. which will enable us to continue to grow the loan book through increased loan origination and to transform client liquidity into AUCN and AUMs thanks to our ability to attract customer liquidity. Turning now to the bond portfolio, Italian government bonds amounted to 13.6 billion euros and accounted for around 47.2% of total bonds. Noteworthy that already in Q3 2024, a tactical and selective increase in exposure to Italian government bonds had been started, mainly through the purchase of CCT's index to Euribor, offering particularly attractive spreads. As a result of an active portfolio management strategy in Q1 2025, the bond portfolio duration increased to 2.3 years, up from 2.1 years at the end of 2024. The decision to focus purchases on Italian government bonds was driven not only by the attractive spread levels and the opportunity to capitalize on market weaknesses, but also by the fact that, for prudential purposes, these securities carry a zero risk-weighted asset charge. A brief look at our latest bond issuance is important. As already mentioned, in Q4 24, in November 2024, the bank successfully issued a 500 million euros additional Tier 1 perpetual bond, confirming its strong access to the wholesale market. This positive momentum continued in January 25, with the successful placement of a €500 million senior non-preferred bond. Both transactions clearly demonstrate BIPER's solid market positioning and ability to raise capital across different segments, further strengthening its status as a frequent and trusted issuer. It is also worth noting that Fitch upgraded BIPER to positive outlook in January 2025 further supporting the bank's strong credit profile. And last but not least, in April 2025, following a positive rating action on the Italian sovereign credit profile, S&P upgraded B per banca long-term rating, raised from BBB- to BBB, with a stable outlook. On slide 23, we report the divisional financials. I would like to draw your attention to the important results achieved on total wealth commission income created across our divisions, which amount to euro 240 million in Q1 versus 840 million euros achieved during the 12 months of 2024. In addition, total indirect deposits in private and wealth management division amounted to 186 million euros. more than 60% of our total group TFAs, which stood at 303 billion, underlining our strong asset gathering generation capacity. Now, ladies and gentlemen, a brief summary of the outmost important achievements in Q1 2025. First and foremost, On an adjusted basis, Q125 was our best-ever quarterly result, with a bottom line standing at €443 million. The quality of revenues is high, and this proved to be resilient. NII was affected by the acceleration of the reduction of interest rates and fewer business days, while commissions continued to register important growth rates both year-on-year and quarter-on-quarter. Our profitability remains high, with an adjusted return on tangible equity at a robust 19.2%. Despite the impact of Basel IV, mostly related to operational risk, we maintain a very solid capital position with a CETE-1 ratio at 15.8%, resulting from an organic capital generation amounting to 97 basis points equal to 540 million euros in the last three months. Loan volumes were positively affected by significant new loan origination of 4.4 billion euros plus 22.3% year-on-year basis, with 60% of new lending being granted to entrepreneurs and corporate clients. And finally, The quality of our loan book continues to stand at the best levels in the Italian banking industry with a cost or risk of 31 basis points. All in all, B-Dynamic Full Value 2027 is fully on track with 100% of our strategic initiatives launched. And I am convinced that our business plan will be further strengthened by the planned business combination with Banca Popolare di Sondrio. I will now pass on to the update slides on the proposed business combination announced in February, and we will take any questions thereafter. As already mentioned, this is a unique opportunity to combine two banks with a very similar DNA, which share very similar values and missions, and where we believe the integration of the two banks will be swift and effective. Bipso has a strong franchise in rich northern Italy. It has a very similar historical background to Bipper as its origins stem from the Banche Popolare and ensures an important business and client fit. This will lead to the creation of a leading Italian banking group. The combination will transform Bipper and Bipso into a stronger banking group capable of seizing future opportunities while at the same time ready to withstand any potential challenge. The new bank will become a go-to bank for families, SMEs, and corporates with a strong commitment to stakeholders' value creation. All to say that our Plan B Dynamic Full Value 2027 will be further strengthened and accelerated by this business combination. At the bottom of the slide you can see the indicated timeline of the tender offer between May and August and thereafter we would proceed with the merger by year-end. This is a unique opportunity to create a banking group with a leading position in the Italian banking landscape and in particular in rich northern Italy with Popolari roots. The business combination will create a financially strong bank to support Italian families, SMEs, corporates, and local communities, placing the clients of both banks at the center of our offer and supporting them in a long-term sustainable manner. Sondrio will remain key to the combined group. Territorial management will have credit capacity, along with our other nine regional centers. The new bank will reinforce and broaden the proximity client coverage model, becoming a stronger go-to bank for retail and corporate SMEs. Customers of BIPSO will benefit from a higher investment capacity in products, service, innovation, and digitalization, as well as the ability of the joint banks to scale up investments in technology. Sondra Human Capital will be fully empowered in the new banking group. BIPS employees will benefit from upskilling programs to support and develop career opportunities, also given the many initiatives in place to nurture and grow the talent pool towards high added value activities. One of these being, for example, the BIPER Academy project. Let me add that historically, such business combinations have been important opportunities for the career development of talents. To date, 40% of top senior management positions in BIPER are covered from professionals from merger institutions. In this context, social value creation is at the forefront of our approach, benefiting clients, colleagues, local communities, and the territories where the two banks are present. We have very carefully analyzed the business combination, and our simulations remain unchanged, despite the current interest rate scenario and the most recent strategic plan of Popolare di Sondrio. All in all, in 2027 we expect the combined entity to generate revenues of above 7 billion euros as a result of higher productivity, cross-selling and higher shares of wallet. Operating income is those estimated at 4 billion euros benefiting from run rate synergies of 290 million euros. These results would position the new group among the top tier in terms of profitability with an ROT of approximately 15% while maintaining a very solid capital position at above 15%. The business combination will be accretive on an EPS basis both for BIPER and BIPSO shareholders. All this being said, The level of shareholders remuneration will stand at an average 75% dividend payout. And this is an important feature of the proposed business combination for all shareholders, in particular for those of Popolare di Sondri. And finally, all shareholders will benefit from a banking group with a higher market capitalization and share liquidity, which will attract active and passive investors given the potential entry in additional stock indices. We are now ready to take your questions. Thanks.