The Board of Directors of illimity Bank S.p.A. (“illimity” or the “Bank”), chaired by Rosalba Casiraghi, met yesterday to approve the results of the illimity Group as at 30 June 2024.
Corrado Passera, CEO and Founder of illimity, commented: “We are pleased with the results achieved, considering that this is the first semester after our exit from the direct NPE investment market with a business that now sees us even more focused on the world of specialised lending to SMEs. In fact, the second quarter of the year showed rising profitability, despite the advance payment of systemic charges, driven by strong growth in the business origination of all our divisions, while maintaining a solid capital and liquidity position. Our tech initiatives confirm the growth trend observed at the beginning of the year, and in the future will further support illimity’s earnings growth. We were able to react to a market environment that did not evolve as expected and did so in an unpredictable way, adapting our strategy to the new scenario thanks to the flexibility of our business model. We were able to support profitability with the ability to enhance the value of our assets and we expect to continue to do so in the future. Our commitment to continue growth in order to achieve a high level of sustainable profitability is now stronger than ever.”
Key dynamics:
illimity ended the first semester of 2024 with a net profit of €23 million. Excluding the positive contribution of €54 million4related to the IT platform partnership signed with Engineering, recognised in the first half of 2023, the figure is up 43% y/y, thanks to an operating profit up 22% y/y, driven by both the increase in revenue (+5% y/y) and the decrease in operating expenses (-2% y/y).
Profit for the second quarter of 2024 stood at €12.2 million, up 13% q/q, despite the contribution to the Deposit Guaranteed Scheme of €6.8 million, accounted for the second quarter of the year (in 2023 that charge had been recorded in the second semester). Excluding this contribution, profit for the quarter increased by 56% q/q. The quarter’s growth was driven in particular by the increase in revenues (+12% q/q), driven in particular by the strong rise in net fee and commission income (+56% q/q), which benefited from the acceleration of loans disbursed (+95% q/q), the growing contribution of ARECneprix’s third-party servicing business and the Investment Banking division’s structuring business.
The Corporate & Investment Banking business confirms rising profitability, with pre-tax profit up 35% y/y and 26% q/q. Operating leverage remains excellent with a cost/income ratio of 19%. Loans in the segment amounted to €2.6 billion, up 4% y/y, thanks to strong business origination, which more than offset early repayments.
The Specialised Credit division substantially completed its exit from the NPE portfolio investment business, which now accounts for about 1.6% of the Bank’s total assets (12% in the first half of 2023), through securitisation transactions involving the sale of junior notes to market participants. In the second quarter of the year, the division accelerated its business repositioning by focusing in particular on the asset-based financing business with a new origination of €68 million, a strong increase over the previous quarter (+79% q/q) and a potential new disbursements pipeline for the second half of the year of over €200 million. The division’s profitability, which is lower compared to the first half of last year due to the aforementioned strategic repositioning, is expected to gradually increase, benefiting from both the expected increase in volumes and the cost savings related to the management activity of the NPE portfolios.
Asset quality remains strong, with a high level of loans backed by public guarantees (57% of the total), with a NPE ratio, net of those positions, markedly down to 0.6% from 1.7% in the first quarter of 2024. The cost of credit stood at 83 basis points and incorporated adjustments related both to the strengthening of the coverage of certain positions under restructuring and to the disposal of impaired positions. The cost of credit is therefore expected to normalize to lower levels over the coming quarters.
The liquidity position remained strong at €900 million, with indicators well above regulatory limits (LCR at 232% and NSFR at 117%). Total funding was highly diversified across various funding sources and amounted to €6.9 billion up 24% y/y, driven by increases in both the wholesale (+34% y/y) and retail (+25% y/y) components. Specifically, the latter amounted to €3.7 billion, of which €3 billion came from the illimitybank.com platform, an increase of (+38% y/y). In addition, it should be noted that retail funding is highly stable, with term deposits representing 87% of the total.
The capital base is also very robust, with a phased-in CET1 ratio of 14.6%, demonstrating a substantial buffer (500 basis points) compared to the SREP requirement (9.60%).
Tech initiatives continue on the improvement path undertaken. In particular, HYPE reported a net profit of €1.5 million compared to a loss of €4.5 million in the first half of the year, with a steadily growing number of transactions and customers. b-ilty consolidated the break-even achieved in the previous quarter compared to a loss of €4.7 million in the first half of 2023, with volumes growing further (+30% q/q).
Key income statement figures:
Net interest income amounted to €78.5 million, down 20% y/y due to both the increase in the cost of funding and the decrease in investments in NPE portfolios, following the strategic repositioning of the Specialised Credit division’s business.
Interest income of €213.7 million contributed to this trend, up 18% y/y despite the effect of the aforementioned repositioning, benefiting from the growth in customer loans, higher interest rates and a greater contribution from the proprietary portfolio. Interest expenses were up 63% y/y, mainly due to the increase of both the retail and institutional funding stock and the cost of funding as a result of the increase in market rates.
In the second quarter Net interest was down by 2% q/q and is expected to stabilise gradually by the end of the year, benefiting from stable funding costs and the increase in business origination volumes.
Net fees and commissions increased by 44% y/y, reaching approximately €46.3 million. This was driven by higher volumes in SME lending and third-party mandates in the servicing business. In the second quarter, the figure increased by 56% q/q, benefiting from the strong increase in business origination (+95% q/q) and the growing contribution from third-party servicing activities.
The Net result from trading and Fair-value assets amounted to €19.9 million compared to a loss of €1 million in the first half of 2023, thanks in particular to the higher contribution from securities trading and fair-value assets. In the quarter, the figure increased by 41% q/q, mainly due to the higher contribution from fair-value assets including UCITS units.
Other operating income amounted to €4.8 million compared to €56.3 million in the first half of 2023, which included revenue of €54 million from the IT platform partnership. The figure for the quarter was €2.3 million compared to €2.6 million in the previous quarter. The profit from closed purchased distressed credit positions was €8.2 million, down from €18.9 million in the first half of 2023, mainly due to the decrease of the contribution in direct investments in NPEs, partially offset by the positive closure of positions related to the Turnaround business and Specialised Credit divisions. Similar dynamics can be seen in the quarterly data.
Due to the aforementioned dynamics, operating income stood at €157.8 million, up 5% y/y, excluding the already mentioned extraordinary profit from the IT platform booked in the second quarter 2023. The figure was €83.4 million, up 12% q/q. Operating costs for the first half of 2024 amounted to €103.6 million, down 2% y/y. In particular, the aggregate comprising Staff costs and Other administrative expenses decreased by 4% y/y, as a result of measures to streamline the cost base. Depreciation and amortisation costs amounted to €12.4 million, an increase of 18% y/y due to the IT investments. Operating expenses increased by 4% q/q, mainly due to a seasonal effect. A downward trend is expected in the coming quarters as a result of expected savings on servicing activities, following the transactions finalised in the first half of the year as part of the strategy to reduce direct investments in NPE portfolios.
Therefore, operating profit stood at €54.2 million, up 22% y/y, excluding the aforementioned IT platform extraordinary revenue accounted for last year. The quarterly figure closed up 29% q/q.
The loan loss provision charges for the half-year amounted to €16.8 million (€6 million in the first half of 2023), and included adjustments related to both the reinforcement of the hedging of some positions under restructuring and the closure of some impaired loans. Therefore, the annualised cost of credit is currently at 83 basis points and is expected to normalise to lower levels in the second half of the year. Value adjustments on purchased distressed credit were negative €1.3 million, compared to €3.6 million for the first half of 2023.
Other income from equity investments, which includes the pro-quota consolidation of HYPE, shows a profit of €0.8 million compared to the loss of €2.4 million booked in the first half of 2023.
Contributions and other non-recurring charges amounted to €7.3 million, compared to €6.2 million in the first half of 2023, and included the contribution to the Deposit Guarantee Scheme of €6.8 million booked in the second quarter of 2024 (in 2023 this charge was recognised in the second semester). Therefore, the net profit for the first half of 2024 amounted to €23 million, an increase of 43 y/y compared to 2023 first semester, excluding the extraordinary income from the IT platform of €54 million (€36.1 million net of taxes) recorded under “Other operating charges/income”. The second quarter profit was €12.2 million, up 13% q/q.
As at 30 June 2024, the Bank’s assets stood at €8.1 billion, an increase of 21% compared to the same period last year and of 7% on a quarterly basis.
Within this aggregate, net customer loans and investments exceed €4.6 billion, with a mix increasingly focused on loans to SMEs, against the aforementioned strategy of gradually reducing direct exposure to NPE portfolios (-83% y/y). The stock of loans increased by 9% y/y as a result of strong business origination, which more than offset significant early repayments, in particular the growth in volumes in the b-ilty division, which more than tripled compared to the first half of last year. In the second quarter, the figure was up 13% due to both an increase in loans and the subscription of senior notes of €330 million against the NPE portfolios sold in the quarter.
In terms of asset quality, the gross organic impaired positions on the business originated by illimity since its inception amounted to approximately €180 million. Excluding public guaranteed or insured positions, the ratio of organic gross doubtful loans to total organic gross loans declined sharply to 0.6% (1.7% in the first quarter of 2024), comprising about 90% of UTP exposures under active restructuring. The gross ratio also including guaranteed positions is currently 4.5%5, a decrease from 4.8% at the end of March 2024.
illimity’s securities portfolio reached approximately €1.7 billion, up 14% q/q and 93% y/y. Of this total, the securities classified as HTC, represented by Italian government bonds, accounted for €934 million, up 7% q/q and more than double the first semester of 2023. The average duration of these securities is just over three years. The Held to Collect and Sell (“HTCS”) securities portfolio totalled €766 million, up by 24% q/q and 70% y/y, primarily driven by an increase in the stock of government bonds. The mark-to-market of the HTCS securities portfolio, taking into account the contribution of hedge accounting and net of the tax effect, was negative for €27 million, broadly in line with the previous quarter. Overall, the securities portfolio is comprised of approximately 82% Italian government bonds, 15% senior bonds and 3% subordinated bonds.
Financial assets measured at fair value amounted to €559 million, up from €118 million in the first semester of 2023, mainly due to the investment made at the end of 2023 in units of the Olympus funds, one the largest Italian real estate equity contribution funds, established in October 2023, focused on management of loans secured by real estate assets, mainly UTPs6.
The item “Other assets” decreased by 40% q/q mainly due to the decrease in the item ”Assets held for sale” as a result of the Specialised Credit division’s sale of NPE portfolios for €324 million. illimity’s total funding stood at approximately €6.9 billion at the end of June 2024, an increase of 24% y/y, with a good mix between the various sources. In particular, retail funding amounted to €3.7 billion, up 25% y/y and slightly down compared to the figure at the end of March 2024 (-4%) as a result of the reduction in the Raisin channel, whose stock amounted to approximately €720 million (-6% y/y and -20% q/q). The funding from the illimitybank.com platform stands at €3 billion, up 38% y/y, in addition to €50 million from the b-ilty channel.
Institutional funding amounted to €2.6 billion, up 34% y/y, also following the third senior preferred bond issue in the second quarter of 2024, for a total amount of €300 million. Deposits from corporate customers amounted to €530 million (€476 billion as at 31 March 2024). CET1 Capital stood at €757 million, stable compared to the figure at the end of March 2024. Total risk-weighted assets (RWAs) were approximately €5,184 million, an increase on the previous quarter (€5,067 million), following customer loan growth.
As the result of these dynamics, illimity’s phased-in CET1 Ratio stood at a robust 14.6% (14.6% fully loaded) at the end of June 2024. The Total Capital Ratio (phased-in), which includes in the total regulatory Tier 2 capital subordinated bond of €206 million, was 18.6% (18.5% fully loaded). The Liquidity Coverage Ratio (LCR) at the end of June 2024 was about 232%, confirming the significant liquidity buffer. The Net Stable Funding Ratio (NSFR) was 117% also significantly above the regulatory minimum requirements.
Furthermore, the significant impact of loans backed by public guarantees and insured loans was once again evident, representing approximately half of the division’s customer loans. This enabled the Bank to achieve a high return on capital due to its low risk profile and limited capital absorption. Business of the Structured Finance and Turnaround & Special Situation segments originated in the quarter amounted to €268 million, up sharply from €86 million in the previous quarter, with a robust pipeline of new disbursements.
Investment Banking Division
The Investment Banking Division posted a pre-tax profit of €6.7 million, up sharply from €1.8 million in the first half of the previous year. Revenues more than doubled y/y to €11.3 million, driven by growth in business volumes, capital markets activities and trading in hedging derivatives. The cost/income ratio stood at 42%, down sharply from 69% in the first semester of 2023.
Lending volumes amounted to €308 million, an increase of 38% compared to €223 million in the first semester of 2023, with a robust pipeline of new initiatives exceeded €100 million in new initiatives. Additionally, the consistent progress in financial markets should be noted, with two IPOs completed during the first half (11 since the division began operations).
Specialised Credit Division
The division’s net customer loans and investments amounted to €1.8 billion up 21% y/y. In the half-year, the division substantially completed the divestment and enhancement of direct investments in NPE portfolios, following the strategy launched at the end of 2023, which envisages an increased focus on asset-based financing and UTP management business. This strategy resulted in the stock of NPE direct investments decreasing by 83% y/y and 2% q/q, to €134 million, or 1.6% of the Bank’s total assets.
The division closed the second quarter of 2024 with a profit before tax of approximately €10 million, bringing the half-year profit to ca. €20 million, lower compared to the ca. €39 million recorded in the first half of 2023, due to the aforementioned change in strategy. The division’s profitability is expected to gradually improving, benefiting from both the cost savings relative from reduced management activities for its NPE portfolio and the expected growth in the stock of loans. In fact, in the second quarter, business origination stood at €68 million, up 79% q/q, with a potential new disbursements pipeline of more than 200 by 2024.
With reference to ARECneprix, in the first half of the year the company consolidated its position as a major player in Italy in the corporate UTP credit management market, thanks to its high degree of specialisation in structuring complex transactions in the management of real estate assets.
Assets under management stood at €10 billion, with a mix where non-captive business grew strongly to 89% of the total, up from 29% in the first half of 2023, also as a result of the strategy of reducing direct investments in NPEs in favour of senior financing positions. The company closed the first half with an EBITDA significantly increasing to €9.7 million from €3.0 million in the same period of the previous year, thanks to a 39% increase in revenues y/y, driven by an increase in third-party mandates and advisory and structuring fees.
illimity SGR
illimity SGR reported a pre-tax profit of around €1.5 million, up 67% y/y, with revenues up 23% y/y, due to the effect of both the increase in assets under management and the consolidation of its operating efficiency.
Total AUM amounted to approximately €550 million, in terms of invested assets and commitments, up 20% y/y, following the increase in the assets of the “Credit & Corporate Turnaround” and “Real Estate Credit” funds, net of income distributions made in the first half of the year.
Digital Division
The Digital Division, which includes all activities and costs related to the management and development of the Bank’s IT architecture and of the illimitybank.com banking platform, showed a pre-tax loss of €16.8 million, compared to a pre-tax profit of €30.9 million in the first half of 2023, which included the aforementioned €54 million revenue related to the IT platform.
Tech initiatives:
HYPE
A Joint Venture between illimity and Banca Sella Holding, HYPE again confirmed its leading position among retail fintechs for the first half of 2024, with a customer base of over €1.8 million, up 4% y/y. The number of transactions also increased, amounting to 74 million in the first half of the year, up 22% y/y. In the first half 2024, the company also confirmed its ongoing progress in relation to profitability, closing with a net profit of €1.5 million compared to a loss of €4.5 million in the first half of last year. The net pro-rata the net profit pertaining to illimity amounted to €751 thousand.
b-ilty
The first digital bank for small businesses, b-ilty experienced its best semester ever in terms of profitability. The pre-tax result achieved break-even, moving from a loss of €4.7 million in the first half of 2023 to a profit of €0.6 million in the first half of 2024. The improvement in profitability was driven by higher revenues, which increased to €10.2 million compared to €2.5 million in the first semester of 2023, with stable costs. Customer loans rose to €547 million, an increase of 30% compared to the previous quarter (+256% compared to €154 million in the first half of 2023). It is noted in addition that the disbursed loans are all backed by public guarantees.
Over the past year, the number of businesses served increased significantly, from 435 in the first quarter of 2023 to approximately 3,200.
Business outlook
The economic situation in the Euro zone is growing moderately, with a more muted decline in consumer inflation due to the still sustained service sector prices dynamics. However, downside risks to economic growth related to uncertainties about the evolving geo-political situation remain. Against this backdrop, illimity is considered to be well positioned to meet the current challenges of the macroeconomic environment, benefiting from a strong capital position, a robust liquidity profile and well diversified funding.
SME lending volumes are expected to grow, benefiting from an expected increase in business origination across all business divisions against a robust pipeline, with a mix increasingly focused on specialised corporate performing and re-performing loans, in particular: Structured Finance, Turnaround, Factoring and Asset-Based Financing.
In terms of operating trends, the second half of the year is expected to be characterised by a net interest income that is expected to gradually stabilise, with operating costs benefiting from the new strategy on distressed loan portfolios and, therefore, down compared to the same period last year.
Future profitability should also be boosted by the potential to generate value from the Group’s assets. The asset quality of the portfolio will continue to be characterised by a high presence of customer loans backed by public guarantees, taking into account that a good portion of the new loans disbursed by the Corporate Banking Division and that all of b-ilty’s loans will adopt this approach, with the cost of credit expected to settle on more contained values.
Following the change in the relevant capitalisation threshold for qualification as an “SME” (Small and Medium Enterprise), established by Italian Law No. 21 of 5 March 2024 (“Capital Law”), the Bank informs that it qualifies as an SME as per CONSOB Executive Resolution No. 105 of 22 May 2024 (updating the previous Resolution of 25 January 2024).
It should be noted that illimity’s qualification as a SME entails raising the minimum significant shareholdings threshold to be disclosed pursuant to Article 120 of Italian Legislative Decree no. 58/1998 (Italian Consolidated Law on Finance) from 3% to 5%.