Home » ILLIMITY ENDS THE THIRD QUARTER OF 2022 WITH SOLID RESULTSIN LINE WITH BUDGET FORECASTS
Milan, 11 November 2022 – Chaired by Rosalba Casiraghi, the Board of Directors of illimity Bank S.p.A. (“illimity” or the “Bank”) yesterday approved the illimity Group’s results at 30 September 2022. illimity continues its growth path in the third quarter of 2022 as well, with a solid financial performance and in line with budget forecasts, posting a net profit of 19.1 million euro (+21% q/q and 2% y/y), for a total of 50.6 million euro in the nine months of 2022, representing an increase of 10% over the corresponding period of 2021. Growth is expected to accelerate further in the fourth quarter of 2022, taking net profit for 2022 to at least 75 million euro with an ROE of ca. 10%. The expected results for the year include pre-tax losses of approximately 20 million euro arising from the launch of the initiatives b-ilty, Quimmo and Hype. More specifically, the quarter was characterised by the following factors: • net customer loans reached 3.3 billion euro at 30 September 2022, a rise of 4% over the previous quarter and 34% over the same period of 2021. The growth in volumes was mainly driven by the Growth Credit Division, and by the activities of the Investment Banking Division. The Distressed Credit Division maintained volumes broadly stable in the period, as the new investments were offset by significant reimbursements, collections and disposals. Strong volume growth is expected for the last part of the year driven by the generation of new business, which in the month of October alone reached a level exceeding that for the whole third quarter; • the quality of the organic loan book continues to stand at excellent levels: at 30 September 2022 the ratio between gross doubtful organic loans and total gross organic loans originated since the start of illimity’s operations stood at 0.7%, a decrease over the previous quarter. This becomes 2.0% if the loan portfolio of the former Banca Interprovinciale, which is gradually decreasing, is included; • a robust capital base, with ratios positioned at the top levels of the system – a phased-in CET1 ratio of 18.0% (17.5% fully loaded) and a phased-in Total Capital Ratio of 23.6% (23.1% fully loaded); • a sound liquidity position of around 0.6 billion euro as at September 2023 and well diversified funding between retail, corporate and institutional funding sources, with a largely stable average cost of funding of 1.6%; • revenue totalled 74.5 million euro in the third quarter (-8% q/q and +12%y/y) driven by the Group’s recurring activities and in particular by the net interest income component. Revenue rose to 233.6 million euro in the first nine months of 2022, representing an increase of 21% over the first nine months of 2021. The Distressed Credit Division was confirmed as the main contributor, generating approximately 66% of total revenue in the first nine months of 2022. The Growth Credit Division continued its advance by reaching an increase of almost 60% of its revenue over the same period of 2021 and taking its contribution to consolidated revenue to ca. 21%, to which should be added the Investment Banking Division, which also posted significant growth and contributed a further 5%; • operating costs decreased to 46.9 million euro in the third quarter (-3% q/q, +32% y/y) taking the total for the nine months to 140.4 million euro, representing an increase over the same period of the previous year (+25% y/y) as the result of the substantial completion of the organisational structure and the investments in the new initiatives; • a Cost income ratio amounting to 63% in the third quarter of 2022, (60% in the previous quarter) and 60% in the first nine months of 2022, a rise of around two percentage points over the same period of the previous year. This dynamic is the result of the investments made in the new initiatives which will begin to generate tangible revenue in 2023, producing a positive effect on the Group’s operating leverage; • as a result of the above dynamics, operating profit reached 27.6 million euro in the third quarter of 2022 (-14% q/q and -11% y/y). This result discounts the effects of the investments made to launch the high-tech initiatives – b-ilty, Quimmo and Hype. Operating profit accordingly reached 93.2 million euro in the first nine months of 2022, representing an increase of 15% over the first nine months of 2021; • net write-downs of organic loans for the third quarter totalled 0.6 million euro, corresponding to an annualised cost of risk3 of 11 bps, and arise from generic provisions on customer loans. The rather contained cost of risk is based on the excellent quality of the Bank’s loan portfolio, which also arises from the involvement of specialists (Tutors) in every important loan
transaction, and the high guaranteed component that characterises the loans disbursed during the quarter. Net write-downs of organic loans totalled 3.7 million euro in the nine months of 2022, with an annualised cost of risk of 22 bps; • positive credit revaluation on purchased distressed credit positions amounting to 7.3 million euro were posted in the quarter, arising from a series of events such as: the increase in the value of collaterals on the basis of binding offers received on certain portfolios for which a sales process is in progress; write-backs on certain loans originally classified as UTP on acquisition and now returning to performing status; the review of expected cash flows from certain portfolios due to an enrichment of the available data for the respective collaterals; • a pre-tax profit of 29.6 million euro was posted in the quarter, representing a significant rise of 23% on a quarterly basis and 9% on an annual basis; pre-tax profit for the first nine months of 2022 accordingly reached 77.7 million euro, an increase of approximately 13% over the first nine months of the previous year. Corrado Passera, CEO and Founder of illimity, commented: “Growth continued with the results for the third quarter. These are solid and in line with our forecasts, despite the fact that the scenario in which we operate has undergone a profound change since when we originally approved the budget. illimity has been able to continue along its planned growth trajectory which has enabled it to profitably affirm its various synergic core businesses on the market over a short period of time. The positive trend seen in 2022 will accelerate in the current quarter: October began with great momentum in terms of business origination and the advances in profitability dynamics will make it possible for us to end the year with a profit of at least 75 million euro, once again confirming our budget estimates. This is a result of particular interest because it includes important investments for the future. The three technological initiatives – b-ilty, Quimmo and Hype – have a combined effect of approximately 20 million euro in pre-tax losses; we expect that this negative result will drastically fall starting from 2023 and that the three initiatives will contribute to consolidated profit from 2024, creating significant value for the Group. We are also looking confidently at 2023: illimity has just successfully completed its fourth year of activity, and substantially completed its organizational structure. The business model has now become much more scalable thanks to the investments made and the critical size reached. Of particular satisfaction for all illimiters is the Best Place to Work certificate achieved at European level, as well as the flattering recognitions in ESG ratings.”
At 30 September 2022, the Bank’s total assets stood at 5.3 billion euro, an increase of 3% over the end of the previous quarter and 14% over the same period of the previous year. Net customer loans and investments reached 3.3 billion euro at the end of September 2022, up by 4% over the previous quarter and by 34% over 30 September 2021. The main contribution to the growth in volumes in the quarter was provided by the Growth Credit Division, driven by the Cross-over & Acquisition Finance segment and the Investment Banking Division. The Growth Credit Division posted a rise of 4% over June 2022 and 54% over the same period of the previous year,
while the Investment Banking Division grew by almost 600% on a quarterly basis. In the Distressed Credit Division senior financing volumes rose (+2% q/q and +49% y/y), while investments in distressed credit fell slightly in volumes (-7% q/q and -8% y/y) due to important cash flows and sales, despite the new investments made in the quarter.
The quality of the Bank’s loan portfolio remains positioned at levels of excellence, despite the current macroeconomic scenario. Gross doubtful organic loans arising from the new business originated by illimity fell to 15.4 million euro at the end of September 2022 (ca. 17.3 million euro at the end of June 2022 and approximately 6.0 million euro at the end of September of the previous year), leading to a ratio between gross doubtful organic loans and total gross organic loans of approximately 0.7%. Including also the portfolio inherited from Banca Interprovinciale, the stock of gross doubtful organic loans rose to 45.6 million euro, corresponding to a ratio between gross doubtful organic loans and total gross organic loans of 2.0%, a slight fall over the previous quarter and once again one of the best in the Italian banking system. The corresponding stock of net doubtful organic loans amounted to 26.1 million euro at 30 September 2022, equivalent to a ratio between net doubtful organic loans and total net organic customer loans of 1.2%, stable compared the end of the previous quarter.
The Bank’s liquidity – which consists of cash, the net adjusted interbank position and high-quality liquid securities – stood at ca. 0.6 billion euro at the end of the third quarter of 2022 and remains available to finance the Bank’s pipeline of new business volumes.
illimity’s securities portfolio rose by 3% to approximately 591 million euro at the end of September 2022, compared to 572 million euro posted at the end of June 2022, maintaining the same incidence on total assets. The strategy followed for the securities portfolio in the third quarter of 2022 was characterised by a further increase in the component of securities at amortised cost (the so-called Hold to Collect strategy – “HTC”) and by the introduction of a Hedge Accounting strategy on HTCS portfolio, having the aim of mitigating the impact of interest rate volatility on own funds. HTC securities – which amounted to ca. 215 million euro at the end of September 2022 – represented 36% of the securities portfolio, while the Hold to Collect and Sell (“HTCS”) component fell further to 376 million euro at the end of September 2022, a decrease of 9% over the figure of 411 million euro posted at the end of June 2022. Considering the contribution of the hedge accounting strategy and net of tax, due to the recent financial markets conditions the HTCS securities portfolio mark-to-market stood at negative 52 million euro at the end of the quarter (43 million euro in the previous quarter), for which the Bank benefited by the prudential filter. Taken as a whole, approximately 73% of the securities portfolio consisted of almost entirely Italian government bonds, 18% of senior bonds and 9% of subordinated bonds.
The line item “Other assets” includes balances arising from the purchase of tax credits – the government’s “Ecobonus” scheme – the total amounting to ca. 92 million euro, a figure which stood at 84 million euro at the end of June 2022. Total financing stood at ca. 4.3 billion euro at the end of September 2022 representing an increase of 3% over the figure at the end of June 2022 and 14% over that at the end of September
The main contribution to this increase arose from direct funding and institutional financing secured on the Bank’s assets, benefiting from the low percentage of encumbered assets. Phased-in CET1 Capital increased to ca. 660 million euro in the third quarter of 2022, as the result of the profit generated in the quarter and the conversion of the special shares into ordinary shares on 20 September 2022. Fully-loaded CET1 Capital – obtained by excluding the effect of the temporary prudential filters on government securities and expected credit losses (the “Banking
Package”), amounting to approximately 17 million euro – stood at ca. 643 million euro. Risk-weighted assets (RWAs) fell by 7% over the previous quarter to 3.7 billion euro, despite the increase in the volume of activities, following the entry into force in July 2022 of the amendment to article 127 of the CRR. The ratio between the Bank’s RWAs and its total assets decreased over the previous quarter, standing at around 70%.
As a result of these dynamics, illimity’s phased-in CET1 Ratio reached a robust 18.0% at the end of September 2022 (17.5% fully loaded). The Total Phased-in Capital Ratio, which includes the 200 million euro Tier 2 subordinated bond in regulatory capital, amounted to 23.6% at 30 September 2022 (23.1% fully loaded).
The Liquidity Coverage Ratio (LCR) stood at approximately 307% at the end of September 2022, confirming a considerable liquidity buffer, while the Net Stable Funding Ratio (NSFR) was significantly above minimum regulatory requirements.