Illimity Bank S p A : 2Q22 Results presentation script

illimity Bank S.p.A.

2Q22 Results Conference Call

Friday, 05 August 2022, 09:00 a.m. CEST

MODERATORS: CORRADO PASSERA, CHIEF EXECUTIVE OFFICER

FRANCESCO MELE, CHIEF FINANCIAL OFFICER AND HEAD OF CENTRAL FUNCTION ANDREA CLAMER, HEAD OF DISTRESSED CREDIT DIVISION

ENRICO FAGIOLI, HEAD OF GROWTH CREDIT DIVISION

CARLO PANELLA, HEAD OF DIRECT BANKING DIVISION

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Corrado Passera - CEO

Good morning and thank you for joining us.

With me, today, I have:

• Francesco Mele, CFO & Head of Central Functions
• Enrico Fagioli, Head of Growth Credit Division
• Andrea Clamer, Head of Distressed Credit Division
• Carlo Panella, Head of Direct Banking Division

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Slide 2 - Solid 1H22 results supporting continuous growth

illimity closed another very good quarter:

• Steady progression of profitability, in line with our budget targets.
• Excellent asset quality and capital base extremely robust.
• Very significant new business pipeline much stronger than predicted.
• Successful acquisition of Arec, a move that reinforces our market position in corporate UTPs.
• Continuous commitment to Sustainability with important upgrades in our ESG rating

Let's see each of these points more in detail.

Slide 3 - Steady revenue growth drives profit

Net profit stood at nearly 16mln euro, bringing the first half of 2022 to 32mln, a healthy 15% advance versus the same period last year. It is higher than our budget target.

Revenue growth, the engine of our profitability performance, was up 25% in the six months to June 2022.

Cost/Income ratio for the first six months of the year shows a further small gain, notwithstanding continuous investments in new initiatives: nearly €9mln worth of costs, in fact, are related to activities that will produce material revenue only from next year onwards. Our operating leverage targets are confirmed.

Operating profit is up by over 30%, despite costs and investment related to new initiatives.

Moving on to Slide 4

Slide 4 - Solid balance sheet fuels future growth

CET1 ratio remains very robust at more than 17% despite net customer loans up 13%.

Let me spend a few words on the 14-euro threshold. It is reasonable to expect that the special SPAC shares will not convert into ordinary shares in a 1 to 8 ratio, but only in a 1 to 1 ratio. This will remove the dilution currently discounted by some of the equity research analysts.

I will personally have a stern word with Mr. Putin on this subject … as soon as I find the right phone number.

Moving on.

Our liquidity profile is very robust, with 600 million euro in either cash or liquid items.

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Our asset quality remained one of the strongest in the industry and represents a key factor in our continuous success for the foreseeable future:

• the gross organic NPE ratio of originated business remains well below 1%;
• the proportion of our Growth Credit portfolio either guaranteed or insured, has increased further and stood at a remarkable 50% as of June 2022;
• our business portfolios have had negligible direct exposure to either Russia or Ukraine. We are working proactively with all our clients who have been directly or indirectly affected by the situation to manage any impact.

Slide 5 - Business momentum continues with a remarkable pipeline ahead

Business origination in Q2 stood at around €400mln, a remarkable 50% advance from the same period last year: all our divisions and business lines contributed to this result.

The pipeline for the second half of the year looks solid across all our markets, surpassing our previous expectations.

Finally the value of loans and other assets managed by our servicer, neprix, and by Quimmo exceeds 12bn. This result is also due to the completion of the Arec acquisition.

Slide 6 - Arec acquisition successfully completed: ready to exploit the UTP market potential

The Arec acquisition.

Andrea will offer more details, but for now, I want to emphasise that this acquisition completes our strategy in the corporate UTP sector.

We are now the third largest player on the market and one of the most focused.

This is a segment we expect to show strong growth and high dynamism in forthcoming years and where we expect to deploy a sizeable portion of our capital and resources.

Slide 7 - Our digital platforms will greatly push value creation

We are developing and progressively launching a number of digital platforms that once fully operational and sizeable, will represent a significant booster to shareholder value: actually, I expect they will potentially be worth even more than the current illimity market cap.

• illimitybank.com: our full-fledged direct bank for retail clients. Until now it has achieved all its targets and has recently been confirmed at the top of the industry in terms of service quality.
• In February, we announced b-ilty: a very innovative fully-fledged, digital banking platform for small corporates in Italy. An immense market that can be served with a subscription model.
• In the retail sector we also own 50% of Hype, the leading Italian fintech, which has over 1.6 million clients and average daily new subscriptions in excess of one thousand.
• At the beginning of April, we launched Quimmo: a proptech company that aims to become the most innovative online broker in the Italian real estate market

Andrea and Carlo will further elaborate.

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Slide 8 - Strong ESG commitment

Since we were born, our commitments to ESG have always been a priority.

It is for this reason, that I am extremely proud to share with you, today, our rapid improvement in terms of our ESG ratings, by two of the most important and credible rating agencies: MCSI and Standard Ethics. They position us among the leading players in the entire Italian banking sector. This has been achieved within just three years from our foundation.

Allow me to hand you over to Francesco for a more detailed look at 2Q trends.

***

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Francesco Mele - CFO & Central Functions

Slide 10 - Solid 2Q performance

Thank you, Corrado, and good morning everyone. Let's move to slide 10.

2Q results confirmed the good performance registered in the first quarter. Operating results were driven by significant origination of new business.

Revenue were up 13% y/y with a balanced contribution from net interest and non-interest income, inline with the business plan target mix.

Our pipeline remains promising and well diversified.

Asset quality confirmed its resiliency with cost of risk mostly driven by generic provisions on new business and by analytic provisions on selected positions. The extensive use of public guarantees has continued in the quarter.

Let's now look at the figures.

Slide 11 - Diversified and balanced growth

Starting from the balance sheet on slide 11.

Liquidity remained strong at €0.6bn between cash, the net adjusted interbank position and liquidity buffers, and remains available to be redeployed to fund our pipeline.

Turning to business volumes, customer loans went up 13% q/q driven by Growth Credit - which itself went up 22% q/q driven by Turnaround and Factoring both up by nearly 30% q/q - with Distressed Credit substantially stable as new business was offset by collections and disposals.

Our financial portfolio slightly grew to more than €570mln thanks to selective investments in the held to collect component.

Switching to liabilities, retail and corporate funding remained stable at €2.8bn whilst wholesale increased, driven by some additional ECB funding.

Finally, CET1 capital decreased to €642mln, due to quarterly profit and Arec-related capital increase on one side and a larger negative mark to market of our securities portfolio and goodwill from the Arec acquisition on the other. RWAs increased to €4bn due to business volumes, an increase that was substantially offset by the amendment of art. 127 of the CRR which became effective in early July.

Slide 12 - Steady progression in operating performance

Moving to profit and loss on slide 12, where we can see a robust progression across all business lines, leading to our best net quarterly result ever in terms of revenue at €80.6mln, up 13% y/y.

Net interest income was up 14% y/y to €38mln representing 47% of total operating income. It was driven mostly by the Growth Credit volumes progression.

Commissions continued to grow - up 15% q/q or 70% y/y to €14.8mln, mostly linked to business origination. Net other income included the €4.25mln quarterly income from the IT license agreement.

One of the recurring features of our P&L, profits from closed positions, were confirmed in 2Q with €16.2mln mostly generated by the Distressed Credit division. The energy desk contribution came through fair value profits, alongside hedging solution margins structured by our Investment Banking dedicated unit. On the costs side, operating costs were up 20% y/y, mainly due to a larger headcount, to the €1.5mln seasonal ESOP cost and to the anticipated investments. Again, a significant portion of these costs refer to initiatives which are only starting to produce results this year and which we are confident will be key contributors to our P&L in coming years.

Loan loss provisions at €2.5mln are mostly due to generic provisions on newly originated business and some analytic adjustments to certain positions.

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