BFF Bank S.p.A. (BFF) Earnings Call Transcript

Good afternoon, and welcome to BFF Bank Group First 9 Months 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Massimiliano Belingheri, Group CEO; and Giuseppe Sica, Group CFO. Please go ahead.

Hi, everybody. Thank you for joining us today for our third quarter results reporting. I'm not going to spend too much time on the news from our press release from last week. I think what is relevant is we are back to normal for the bank and all its stakeholders. We will return focusing on growth, value creation, international expansion and shareholder return. That's an important reset for the bank. And we will communicate in 2026 our new medium-term targets since we are at the end of our plan. Our financial and commercial performance has continued to be strong, following the trajectory of the first 2 quarters of the year. Our adjusted net profit for the 9 months stand at EUR 118 million. That's 14% higher than the same period of last year. And importantly, the adjusted net profit is up 33% year-on-year. On the lending side, factoring has closed September with the highest ever loan book, up 8% year-on-year. We continue to see good growth in Italy and extremely strong growth in France, as we will see. And importantly, we continue to add to our off-balance sheet reserves that have increased EUR 63 million year-on-year that the part of it is defer income we collect in due course. Funding remains ample and growing. Our loan-to-deposit ratio stands at 73%. The deposits from our transaction services are up 1 quarter year-on-year. Repos are down. So we have a very strong liquidity position entering the peak hunting season of the end of the year. And our mark-to-market bond portfolio where I think there is value that will be seen in our numbers going forward is up EUR 56 million year-on-year, and that will support, as I said, future profitability. On past due, the vast majority of it is, I recall, towards the public sector. We are down 6% since December and the contaging invoicing are down by almost 1/3 since the reclassification of last year. And the dynamic of the past due is mostly driven now by the continuous purchases of our business. So the front book continues to churn quite quickly. In terms of capital, we have had the confirmation of our P2R. We report a CET1 ratio of 13.4% and total capital ratio of 16.5%. On the -- our target CET1 ratio, we have over EUR 180 million of excess equity as of September. So those are the key points that you've seen on Slide 3. So on Slide 4, which is a summary of what we already said in the press release, let's see what we focus on today. First of all, capital return. We have EUR 108 million of excess capital to our target CET1 ratio. We have asked Bank of Italy to do a buyback for EUR 12.5 million. It's a signal of our ability already to distribute capital. We know that we have to work on the reduction of the past due. And when this will happen, we will see reduced RWAs and incremental capital generation for the business, which with our protective dividend policy clearly protects our ability to continue to grow at a good, fast pace. So we have more capital. We have more ability to grow. We still have a lot of trapped capital for -- given the high -- relatively high RWA density. And once that gets released, we can continue to support our growth and remunerate shareholder at the same time. Focusing on growth, clearly for us, it's important that we look not only at our domestic market, but as a strong engine of growth, which can be the international market. We have approved a new 3-year international growth plan, and we are ready to actually file the demand to open a French branch, which we think is very important for our development, particularly given the political and fiscal position of that country and also for entering Luxembourg in global custody under the freedom of service regime, which means that we can actually sell our products to Luxembourg. And that's the first foray internationally of our custody and deposit and transaction services business. Finally, which is important after 1.5 years, the ability to reward all the team registration remuneration was I remember -- remind for all the team to reward is quite important. And the fact that banks have been lifted means that we can now continue on our core value of rewarding meritocracy with also participation in the upside that people create. So on Slide 5, 1 year on, what has happened? Actually, we have more capital today than we had last year, even after the change in the estimate for recoveries of NPIs. RWA density is significantly down from 71% to 66%, still not there where we should be. So that trajectory will release capital in due course. And at the same time, while we have accumulated capital, we have also continued to grow the business with factoring lending volumes up 11% year-on-year and assets under depository up by 19% year-over-year, which then drives the liquidity that is needed to continue to fund our lending business. If we move to Slide 6, let me focus on a few highlights on our balance sheet. Giuseppe will provide you more details around it. Our loan book stands now at EUR 5.8 billion, is up 8% year-over-year. It's a primary driver of our interest margin, and it's important that we continue to add to our loan book. That's actually not the case in the factoring sector in Italy, as you might have seen from other numbers reported. So we're quite proud that we continue to add to those numbers. The bond portfolio is down year-on-year due to some maturities. And we have a positive mark-to-market, which will support, as I said before, our future profitability. Transaction services deposits are stable by nature, but they are up 25% year-on-year. It's actually driven mostly by the depository bank performance and growth in assets, which means actually we continue to add customers and therefore, incremental deposits in that business. Leverage remains very strong at 6.4% or 6.1% in the last quarter. If we turn to the P&L, let me focus on the bottom of the page on the group PBT, which is up 13% year-on-year, with all divisions performing in line or better than last year. The expected factoring lending is actually up 15% year-on-year. That's driven by higher volumes and improved margins. Payment is down 7% year-on-year, but that's due mostly to especially entirely to internal transfer pricing on the liquidity side. And security services is up 42% year-on-year with a strong contribution also to the group liquidity and Corporate Center is also very strong year-on-year. So quite good results overall. And importantly, as I mentioned before, we have, over the period, increased our off-balance sheet funds by 63%, which is a double-digit growth over the same period. So having summarized the main items, let me hand over to Giuseppe for more details on what you've already seen.

Thank you, Max. Let me give some more details on the positive performance of our factoring and lending business on Slide 8. So factoring and lending real yield has further improved the spread versus the ECB rate, which drives LPI and also our cost of funding has gone from 3.25% in 2024 to 4.41% in 2025. This means, together with loan book increase that revenues net of cost of funding are significantly up year-on-year, and explain the 15% increase in PBT mentioned at the beginning of the presentation. LPI over-recovery is also up year-on-year and rescheduling, as we have said in our first half presentation, have normalized post first quarter. And once again, our off-balance sheet has increased EUR 63 million or 13% year-on-year. Moving to the commercial performance of the business on Slide 9. Loan book stands at EUR 5.8 billion. This is the highest ever 9 months for BFF and up close to 10% year-on-year. The loan book in Italy continues to grow and is up double digit compared to last year. Underlying the loan book growth is the strengthened commercial performance and also supportive environment with volumes up 11% year-on-year at EUR 6.3 billion. Italy is up 16% on the year. Poland, 38% on the year. France, 12 months on is larger than Greece, and we expect significant support from branch opening in a country with strong potential. Very quickly on Spain, which continues to catch up. So volumes in third quarter were at par with volumes in the first quarter of 2024. This is positive news. Now very briefly on Slide 8 (sic) [ Slide 10 ] on payments. We talk about stability, but really both number of transactions are up year-on-year, 1% and 2%. And importantly, for us, also deposits are up year-on-year. So it's performance in line, if not better, compared to expectations. Next slide on securities services. Assets under depository are up 11% year-on-year despite some delay in client migrations, which we expect to happen in the next few quarters. Revenues are up 14% year-on-year, in line with the overall group growth and the liquidity provided by the division stands at EUR 4.1 billion, which is up more than 40% year-on-year. And this also contributes to the reduction of other more expensive sources of funding such as repos. Quickly on group costs on Slide 12. We maintain our cost discipline while we keep investing in growth. The cost income stands at 46% and is down year-on-year within an overall flat cost base. At a divisional level, factoring and lending is up 2% year-on-year. Payments costs are slightly down, while for securities services, OpEx and D&A are up 6%, mainly in relation to ICT system upgrade to support the future growth that we expect. 2025 variable remuneration will be accounted for in the course of 4Q in line with accounting principles. Slide 13 on our balance sheet. We are pleased with the composition of our balance sheet. The liquidity remains abundant, but also diversified. The loan-to-deposit ratio remains very strong at 73%. The NSFR is at 136%, was 129% 1 year ago as we reduced past due. And the LCR stands at 219%. This is slightly down compared to last year as we now have most transaction services deposits. The held-to-collect portfolio continues to be managed and is down EUR 400 million on the year, mainly due to maturities. The mark-to-market is positive. And we stress once again, we have around EUR 1 billion of fixed rate portfolio with an average yield of 0.59%. This is a drag to our profitability and this portfolio is gradually reaching maturity. Slide 14 on our asset quality. So the underlying low-risk profile is confirmed. The cost of risk for the 9 months stands at 4.7 basis points. This is in line with the first half and in line with BFF historical averages. The NPE stock affected by the June '24 reclassification is down EUR 108 million on the year, and I will explain the underlying dynamics in a moment. The NPE exposure is almost entirely towards public administration, which is 97% of our NPEs. We continue to classify a NPLs also the conservatorships for which we are looking at a ruling by the European Court of Human Rights. And as you know, we have received positive ruling already on 3 cases. We are waiting for more to come. The draft 2026 budget law also introduced a EUR 2.2 billion fund for 2026 to address the financial effects from national and European disputes. And this potentially includes also the effects of the European Court of Human Rights decisions. On the following slide, on the evolution of our past due portfolio. First, in the 9 months, we only have EUR 144 million of new net in past due, and these are public administration. Second, excluding the net new exposure, which we have bought in the year, past due has gone down by 44% in 9 months. This means that we continue to buy and collect on our portfolio. Third, the contaging invoices are down by another EUR 48 million in the year -- in the 9 months and there's seasonality, of course, in the third quarter due to August. Fourth, the new business from PAR in past due explains the increase in new business in the past due. By mid-October, we had already filed around 870 injunctions towards the public debtors, representing 83% of our debtors in past due in Italy. This is an acceleration on our collection activity compared to 2024 when we had filed for the whole year 670 injunctions. So we will have to see the results of these injunctions as they become collectible. This should and will support further past due reduction. Last but not least, some more detail on capital on Slide 16. We have generated close to 300 basis points capital in 12 months with about EUR 5 billion RWAs. As Max said, RWA density is trending down and past due reduction will be an important driver to continue this trend. We, therefore, have EUR 108 million of excess capital versus the 13% CET1 target. It was EUR 114 million versus 12% target ratio in June. Excess versus that target is EUR 180 million. Let me now hand over back to Max for the key takeaways on our business.

Thank you very much, Giuseppe. So let me conclude with a few takeaways. First of all, in the first 9 months, we have shown an even stronger balance sheet, and we continue to deliver with a positive commercial performance. Second, we focus again looking at the long-term value creation to balance business growth with shareholder remuneration. In the context third of a position with excess capital, but with a higher overall level of capital to protect our business. So with that, we conclude the presentation. Thank you, again, Giuseppe, and we are ready to take your questions.

[Operator Instructions] The first question is from Tommaso Nieddu of Kepler Cheuvreux.

The first one is on the capital management action. You have mandated adviser to evaluate strategic options on your credit portfolio. So can you give us a sense of the scope and the time line of this mandate? And if you have quantified the potential CET1 relief or risk-weighted assets reduction that this transaction could generate? And the second one is on the EUR 88 million of net income not allocated to the CET1 ratio. Should we read that as an early indication of the dividend payout you are planning for the year?

Thank you, Tommaso Nieddu, I will start with the first question on portfolio management. The company focuses first on the organic reduction of the past due. This is the healthier thing to do to manage properly the business. We are working with advisers on a potential securitization. I think the perimeter is still to be defined. So it's too early to give numbers. However, given that we have a large contagion effect, it is fair to expect a significant reduction not only of past due, but also RWA when this happens. It won't be huge. We don't need to go huge as this will be mainly referred to part of the contaging portfolio. And what we plan to place on the market is the junior notes, which is an even smaller number. In terms of dividend, well, as we stated quite clearly, we have excess capital compared to our CET1 ratio target of 13%, but then we have a number of moving parts. So for instance, we have the EUR 12.5 million of share buyback. And depending on the timing of the authorization, we might have to deduct them this year or next year. So we don't commit today to a dividend level, but the trajectory of the capital is the one that is indicated in the presentation.

The next question comes from Giovanni Razzoli of Deutsche Bank.

A couple of clarifications. The first one is on Slide 25. I've seen that in the other income line, there has been a quite strong acceleration of this line item. If you can please clarify when compared to the previous quarter to the run rate also in '24, if you can please clarify what is this EUR 11.5 million that I see here. Second question is on the addressable market in France. Can you share with us what is the addressable market for factoring in France and also give us an indication of how it will be relative, for example, to Italy and Poland? And the last question is, I've seen that there has been on a quarter-on-quarter basis, so third quarter when compared to June, a decrease in both of the stock of deposits of security services, but also on the payments and also on security services, it seems to me that the reduction in the payment is a little bit higher. I was wondering if you can please explain why there was this trend, if it is related to seasonality or what is attributable?

Thank you, Giovanni. On the stock of deposits, yes, there are seasonalities. Bear in mind that we have close of payment coming depending on what is the -- sometimes the day of the month where we close the day when we close the month, you have different movements on security services, there are different asset allocation that can be -- can explain a large portion of that. What is important for us at the end of the day, what drives the flows in both cases is the volume of transaction on one side and the volume of assets and the depository on the other, which are both up year-on-year. On France, look, the market is significant because the overall expenditure in goods and services by the French public administration, out of memory based in our annual report, is around EUR 160 billion. A few years ago, when we looked at France in the report of Bank of France, they indicated roughly 20% of the receivables were paid late. So that would mean already EUR 32 billion. Importantly, France a few years back is not the France of today. And with the pressure on public finances, we expect payment times to worsen or certainly, the perception of our client is that those payment times will worsen. So when we look at France originally, we thought that it could become as big as Portugal and Greece combined in terms of stock. And we are now, if you look at Page 9, in terms of stock, we are at roughly half of where Greece is. So if you combine Greece and Portugal, is actually a quarter. So there's a long runway to go, even if we just follow what was our normal expected development. But we think actually France today, particularly until the next presidential elections in 2027, can provide significant upside for the group. And that will be even more so with a physical presence in France, which help us 2 ways. One is to develop the French market, but second, also to be close to French companies that don't only have public sector receivables in France, but also in other geographies. So for us, it's clearly a very welcome development, the ability to now open a physical presence in France. On the other 2 points, other income is up on the year also because in the third quarter, as we highlight on the presentation, we affected a small disposal of government bonds, which we then bought increasing the duration by probably 3 months, all else being equal. It's important to stress that because most of our portfolio is a floater, this really means moving part of the net interest income and other income. So that's consistent also with the messages that we have given last quarter and repeated today that the mark-to-market is going to support profitability going forward. On the liquidity, I do not see any specific trend. There is some seasonality. We manage actively repos and retail deposits. And these are 2 lines that we have been able to bring down year-on-year. So there is no negative trend there. Of course, we will have to monitor over the next few quarters what is the right level of repos and retail deposits to have.

So thank you, Giuseppe. Just for a clarification. So the EUR 11.5 million the quarter-on-quarter increase also the increase versus the Q1 is largely related to the impact of the disposal of government bonds?

Yes.

The next question comes from Manuela Meroni of Intesa Sanpaolo.

The first question is on the contenting portfolio. It has been declined by just EUR 7 million in this quarter. So I'm wondering if the reduction in the pace of reduction of these portfolio is just due to the summer season or there are other reasons behind this trend and what we can expect in the last quarter of the year. So an acceleration and a recovery of what has not been done in the summer season or, let's say, you can guide us in another way? The second question is on the common equity Tier 1. Could you please clarify what portion of your net profit is included in the common equity Tier 1 as of September? And the third question is on your business plan. I understood that you are going to update and present a business plan in 2026. I'm wondering if it is '26, '28 business plan. And if you still feel comfortable with the year 2026 or you are going to revise them during the presentation of the new business plan? And finally, a clarification on the dividend policy. You said the new threshold at 13%, is still there the cap of the dividend related to the net profit generated during the year?