Credito Emiliano S.p.A. (CE) Earnings Call Transcript

Good morning. This is the Chorus Call operator. Welcome to the conference call presenting Credem's H1 2025 Results. [Operator Instructions] Let me now turn the conference over to Mr. Stefano Morellini, General Manager of Credem. Mr. Morellini, please go ahead.

Thank you very much. Good morning to all of you. Thanks for joining us today, especially because we are very close to the summer holiday. Next to me, we have Giuliano Cassinadri, the Deputy General Manager and CFO of our group; Alessandro Cucchi, who is in charge of Area Valore Strategic Planning and Capital Management; and Aharon Sperduti, who's in charge of the IR team. The first half of the year was characterized by a certain level of uncertainty at global level. And in addition to that, of course, there were tariffs adding to the pre-existing political tension. Unfortunately, even within Credem, we have recently experienced a tragic event and the passing of Angelo Campani, a highly valuable human being, a professional who had vision and high confidence in guiding our bank over the last few years. I took over from him, and I have a deep sense of responsibility in doing so and I do confirm that we will provide consistency when it comes to the group growth pathway ahead. More specifically, our team. Our team has been particularly responsive and capable in hard times to produce excellent results, just like the ones I'm about to disclose to you. Let's move on to Page 2 in the presentation. In H1, in the first half of 2025 where we confirm our spreads, we closed the first 6 months with a net profit of almost EUR 372 million and EUR 278 million normalized net profit, net of the capital gain stemming from selling the merchant acquiring. And retaining high profitability, even though normalized is still a double-digit profitability. And it translated in an annualized ROTE of 15.4% and an ROE of with annualized of 13%, 13.6%. Asset quality is at the top of the banking system, not just in Italy, but also in Europe with an NPL ratio of 1.6% and a net value for that ratio, net NPL ratio equal to 0.7%, and our capitalization level is very high that our capital soundness is good and that enables us to face confidently our growth path. Our CET1 ratio lands at 15.83%, with a buffer in excess of 740 basis points. The requirement also includes the SRB, systemic risk buffer component that is coming into force as of June 30. Let's have a look at the size results. We are on Page 3 of the presentation. And we are very determined in unfolding our strategy, generating overperformance -- strong overperformance, vis-a-vis the rest of the banking and that reconfirms our ability in the execution field regardless of the economic cycle. Loans are up year-on-year are up 4.3% versus a system growth, a banking system growth, which is 0.5%. And direct funding went up 2.6%, more than 1.6 percentage points higher than the average system, well, Italian banking system average. And our net production level was very meaningful landing at EUR 1.5 billion, almost entirely driven by new net inflows, both in AUM and insurance. And that has a very important distinct feature for us, reconfirming our ability, the group's ability to leverage the full potential of a diversified business problem that ensure us an excellent support to our revenues and driving our revenues at stay in an area where rates are being reduced. And that leads to a customer base that has been growing 6% over the last year and now at 1.6 million. Let's now look at revenues when I am on Page 4 of the presentation. As expected, our revenue mix is as follows: It witnesses a constant growth of recurring, well NIM and versus 2024, there was a shrinking of NII that, of course, follows and tracks the rate performance that really proves how the group can leverage on the federation of business to drive revenues, thanks to the positive performance provided by recurring commissions and core NIM that account for 44% of revenue for this half of the year and always also for the next half of the year, we expect a further reconfiguration of our sources of income. And I'm really confident that going forward, the synergies being unfolded between our networks and product factories will still deliver strong support to our revenues and income ensuring excellent performance under different economic scenario and cycles. Let's now look at the results of individual business lines, we have Page 5 in the presentation. Despite the drop in rates, we retain good profitability, both in the commercial banking field and Credem Bank lands at EUR 170.5 million, giving a 46% contribution to net profit and also expanded banking services, providing producing EUR 43.4 million, accounting for 12% of our consolidated results for the first 6 months of the year. And that was specifically thanks to an excellent quality of our efforts. The way we manage to protect commercial trading spread and a strong development that I've already mentioned, a strong development of volumes. Let's now talk about wealth and private lines, including both wealth management product factories and Credem [indiscernible] and Private Banking. The overall result is EUR 75.2 million, accounting for about 20% of the group's net profit. And really that was thanks to the growth of assets under management is still despite the high volatility affecting the markets in Q2, I'm confident that our distinct positioning in managing savings and wealth management and experience our network show will keep providing us a competitive edge, especially now against this backdrop with rates being reduced -- being cut. Page 6 of the presentation now. We -- as we said before, despite the further cutting rates, our NII is growing despite the last quarter. And then core NIM played contribution and fees and commissions pay. The total revenues is affected if we compare it to the previous quarter of a lower performance of trading and lower performance fees. The results we achieved are still showing a very meaningful value and are equal to more than EUR 461 million for the quarter and EUR 937 million in the first 6 months of 2025. We can manage cost and expenses very well. And at the same time, we are retaining our commitment in of course, focusing on projects and IT to support the growth in size in our group. And personnel expenses, as you can see, is very virtuous and we stress that very merged down more than 6% versus the previous quarter, while admin expenses are mainly driven by costs tied in with ICT and project costs. We are at a cost of risk, which is quite limited, 3 basis points, and it's also benefiting from gains stemming from the disposal of some NPL that on the end the gains is EUR 8.9 million growth in the second half. That's the contribution. And then we also expensed EUR 3.6 million for the charges stemming from systemic funds for life policies. And we closed H1 2025 with a net profit of EUR 371.8 million in addition to EUR 278 million net of the capital gain stemming from the disposal of merchant acquiring that was completed in Q1 2025. Let's now move on to individual P&L items, and we are on Page 7 of the presentation. As you can see on the slide, we are really defending our NII despite the further decline in rates in Q2, and this trend stems from the ability of our networks to buffer the impact on commercial spread and trading spread and to benefit from some effects on the hedging strategies that instead penalized the first 3 months of the year for Q1 and against the backdrop of the sending of declining rates, will be able to support our NII. These factors and this element will further enable us to reduce the volatility of our NII also across the next quarter and thinking of 2026, where we expect rates to be lower to the ones expected for 2025. Let's now move to Page 8 in the presentation. As I said before, we're really protecting our profitability, commercial profitability, not just in absolute terms, but also compared to average system data. And over the last quarter, our average loan rate, lending rate has been, well, the cost of funding from customers in the group was 19 basis points and offsets the profitability of commercial loans and we protect the funding from customers for 19 basis points versus a system that instead is focusing on 12 basis points as an average cost of funding of 12 basis points. And that really leads us to have a very stable customer spread versus the 8.8 basis points on the average of the system -- banking system average. Let's now move to Page 9. In the first half of 2025, we really took some opportunities available in the market to take profits and we seized some more opportunities during Q2 as well. And now the goal is to rebuild our portfolio. And given in the current Fed level, we are waiting for the right time to maximize our support to the NII, and currently, we have EUR 11.2 billion worth of securities, the security portfolio and is highly diversified. Italian govies account for about 37% of the total portfolio and a position is almost all what is accounted in HTC. And so with gains, gross of taxes -- before taxes equal to EUR 23 million. Let's now talk about commissions. We're on Page 10 of the presentation. Noninterest margin is in excess of EUR 221 million and growing versus 2024. I am very happy to tell you that recurring components, EUR 202 million, up about 8% versus the same time frame last year, reconfirming our growth pathway when it comes to NIM. And I'm sure it will still drive and support group revenues sizably also going forward. And management fees, EUR 123.4 million thanks to the work our networks are putting in and despite market volatility in Q2. And this value is growing. This item is growing. And value versus Q2 '24, it's outperforming Q2 2024 by 12%. And also insurance is doing really well, EUR 22.1 million. And profit taking was lower on the securities portfolio versus Q1, while still stable is the contribution of banking fees and commissions. Let's now move on to Page 11 in the presentation. In addition to the ability to protect our revenue items and to keep on growing sustainably, we managed to keep costs under control without giving up our commitment to support the growth in size of our group with a number of projects. And then personnel expenses are down more than 1% versus the same period last year and now further shrinking vis-a-vis Q1 this year. There was a first seasonality effect that was tied in with for instance, holidays. And then, of course, we have already expressed our commitment to support our growth, and we have operating costs equal to EUR 79 million in the quarter. And now we're on Page 12 in the presentation, loans to customers. We reconfirm our ability to increase market share. As you see, there's a positive trend year-on-year as far as loans to customers are concerned that we confirm the effectiveness of our strategy, focusing on organic growth. That is very important also going forward to support our NII. And that was achieved thanks to the strong synergies that were unfolded in our business model. And the one-of-a-kind work, our commercial networks performed, and I would like to congratulate them considering the performance, the banking system gave. And then residential mortgages and consumer credit are growing, and they played a very important role in 2025. And then there was a good pickup in the corporate loans reconfirming our strong consultancy work, consultancy to corporate made by our network. In the first few months of 2025, we have increased our disbursement to corporate by 26% versus the first 6 months of 2024. That indeed is a new market scenario, a very challenging one, but we are confident in that next year or two, we will still grow and grow our volumes consistently with our organic growth strategy. Next page, we have group customers funding. We had excellent results in net inflows, net of the corporate. We are in the positive by EUR 2.3 billion and including corporate, it lands at EUR 1.5 billion. And you see the results are very good. We are EUR 1.5 billion worth of net inflows. And we already have a good point in achieving the -- well, the EUR 2 billion goal we set at the beginning of the year. The net inflows is flat, but if we exclude corporates, that inflows would be EUR 190 million. And then we had more than EUR 200 million of AUC net inflows. If we move to Page 14, we see deposited assets under managed and insurance year-on-year, it's 2.6% to the increase, whilst quite flat from the beginning of the year. Very meaningful is the development of AUM and the insurance reserves growing more than EUR 1 billion versus the end of 2024, thanks to, as I said before, the excellent net production and performance, but more than offset a slight negative market effect. Let's now move to the details about our asset quality, Page 15 in the presentation, you see our gross nonperforming loans portfolio, and we've managed to collect and sometimes the dispose of gross NPL with total disposal amounting EUR 56 million. Our NPL ratio is now at 1.6% and lower, both through the Italian and European system average. The default rate and cost of risk are at our all-time lows, 0.45% and 3 basis points, confirming that they are absolute excellence levels not just for Italian standards but also for European standards. We expect to keep the targets we have provided guidance on and to stay well below 20 basis points in 2025, more in the 15 basis point area. And for 2026, we will sorry, -- and looking ahead to 2026, we will very much focus on the global economic scenario, but I'm sure we will be able to reconfirm our asset quality also next year. Let's now focus on NPL coverage. We're on Page 16 of the presentation. Our coverage is still at very high levels, the coverage of group P&L. It's 57.8% and including the additional coverage shortfall -- coming from shortfall pillar 1 and addendum. So that leads up to 57.2%. Also, despite these metrics, again, applying these metrics, we're well above Italian and European system operate data. That really enables us to further pursue our growth strategy and make us aware of the fact that we do have a significant sizable competitive edge as we learned in the past in case economic cycle change abruptly. We are on Page 17 now in the presentation, bond issuances and maturities. When it comes to institutional funding, you probably saw in the market in maybe the EUR 200 million issuance at Tier 2 issuance, and we have refinanced our Tier 2, EUR 200 million Tier 2 that we can come back in September as we've already had clearance by the regulator and redeem. As to the MREL margin versus vis-à-vis the requirement, we are still at high level and with more than 5 percentage points of margin. That's how I look at liquidity ratio, Page 18, the high level of NSFR and LCR enable us to be very flexible when it comes to focusing on funding decisions because we learned at 134% and 62%. We are on Page 19 now. capital ratios. Our capital ratios are reconfirmed at a very high level, both at Credem Group and at Credem Holding level, respectively, 17% and 15.8%, and they reconfirm our excellent -- well, the excellent capital soundness of the group, driving our organic growth strategy and supporting us offsetting the RWA expansion because, of course, we increased loan that enables us to soundly take up the impact of market quality, market volatility of external scenarios, and regulatory adjustments, as you witnessed in Q1 after the introduction by Q1. The buffer is 742 basis points, and it's above the minimum requirement and also factors in the effect of SRB, systemic risk buffer in force end of June. That's it on my part. And thank you very much for joining us. And now it's up to you for questions.

[Operator Instructions] The first question comes from the line of Luigi De Bellis with Equita SIM.

I have 3 questions. The first 1 is on the NII. What can we expect going forward? What are the expectations by end of 2025 and early in 2026 with your hedging policies and the actual rate curve. Could you elaborate on the possible growth of loans and deposits in the second half of 2025? And how is the competition behavior in that respect? And then management fees net inflows from customers. You talked about EUR 2 billion but you already had EUR 1.6 billion, EUR 0.46 billion in the first year. So how is the -- how are things faring now in July? And then cost of risk, you mentioned 15 basis points for this year after the 3 basis points of the first half. Do you expect an impact of tariffs on your subsidiaries and on your asset quality, if you look at 2026 or the second half? Or have you just been very conservative despite having well performed in the first half?

Thank you very much. Let's start from the first on the NII -- on our NII. In our guidance, we provided the market during the last conference call, it was low double digit. The Euribor 3 months was 2.4% on average. What we witnessed a much more abrupt decline in rates than expected, but yet we managed so far to protect our commercial spread and then some maneuvers on derivatives in the first quarter that have penalized the first 3 months of the year. And now instead providing the good support to our NII. And as the 3-month Euribor or an average or a yearly is expected to be slightly above 2%. We are only just doing a fine-tuning of our guidance on our NII, considering the result of 2025, the overall result of 2025 of about 15% lower than 2024 data. As to the 2026 trends, despite the current rates curve, that leads to a further declining Euribor versus 2024. It is expected to be around 1.8% on average. We could, therefore, be affected by, well, a very flat trend, slightly declining, but flat. So being reconfirmed in an area that's very close to what we produced in 2025. That as far as NII is concerned. Whilst as to the loans, we expect to still have a sustainable pace in growth for this item for loans. Indeed, the driving force is going to be private customer with residential mortgages and consumer credit that are showing a good performance. But even corporate, on the short-term side, could see an improvement of demand given the decline of rates I hinted at before. But honestly, still more challenging. And here, let me focus on another part of your question, increasing midterm volumes on corporates for 2 reasons. First of all, the strong competition available in the market, but also the investment demand coming from customers. So for 2025, we confirm a growth of our loans around 2.5% to 3% roughly. And we are very much focusing on having a similar growth also for this item also in 2026. And as far as commissions are concerned, management fees, management and brokerage fees, you asked that in your question. As you were reminding us, the excellent production we've achieved it from the beginning of the year enabled us to fight market volatilities and the negative effects on average capital positions and net of the performance contribution of -- performance fees contribution which we do not expect to be as high as last year, with still management and brokerage fees are still growing above 5%. As to the volume growth, from that perspective, it is true that EUR 1 billion is a sizable result, sizable performance. And when it comes to production, we -- it was EUR 1.5 billion and we are confident we can further improve the EUR 2 billion we have set as a target at the beginning of the year and to be achieved by the end of 2025. That will also enable us to have a good start for 2026 as well. As far as the cost of risk question, and the impact of tariffs. If I remember correctly, it was your third question, if I'm not mistaken. Let me go straight to answering it in a very simple way. Of course, we are very much focusing on our companies and on the clients we have and that could be affected by tariffs. And we are constantly monitoring the positioning we have is excellent, by the way, and I can reconfirm that, and therefore, the impact we might have in 2025 and in 2026 has already been factored into our estimates that we -- about 15 basis points. That's what we discounted for 2025.

The next question comes from the line of Fabrizio Bernardi with Intermonte.

Is there a time horizon where your regulatory ratios, capital ratios, would go from the holding to the group, because if I'm not mistaken, it's about 120 basis points of difference. And then the second question, as you underlined, there are many M&A deals and are progressing somehow net organic growth, are you also interested in looking into the option of buying, maybe those branches that could be disposed of for reasons of overlapping or whatever reasons.

Sorry, but the sound was very poor. As to the first question, Mr. Cucchi will take the answer.