Illimity Bank S p A : Good progress in illimity’s results for the third quarter of 2020

GOOD PROGRESS IN ILLIMITY'S RESULTS FOR THE THIRD QUARTER OF 2020: PRE-TAX QUARTERLY PROFIT OF 13.2 MILLION EURO (+31% OVER THE PREVIOUS

QUARTER), CET1 RATIO ABOVE 19%, GROWTH IN VOLUMES

NET PROFIT OF 24 MILLION EURO IN THE FIRST NINE MONTHS OF 2020 COMPARED

TO A LOSS OF 18 MILLION EURO IN THE SAME PERIOD IN 2019

• Net loans to customers and investments increase to 1.83 billion euro (+46%) in the first nine months (1.26 bln at 30 September 2019), despite the selective approach to generating new business. Confirmation of a solid pipeline for the last part of the year
• Total assets rise to 3.4 billion euro (2 bln euro at 30 September 2019) and include liquidity of around 700 million euro
• Capital base robust and growing further: CET1 Ratio 19.2% (over 20% pro-forma)
• Outlook 2020: confirmation of net profit target of around 30 million euro for the current year (ROE 5%)

Milan, 11 November 2020 - Chaired by Rosalba Casiraghi, the Board of Directors of illimity Bank S.p.A. ("illimity" or the "Bank") yesterday approved the results at 30 September 2020.

Despite the persistence of the difficult environment caused by the COVID-19 emergency, illimity has continued to post solid results in all the sectors in which it operates, confirming the path towards its target of net profit of around 30 million euro for the current year, a figure which corresponds to an ROE of around 5% already in the first full year of the Bank's activities.

In addition to its positive results, illimity also carried out an important strategic initiative in its Direct Bank Division in the quarter just ended, signing the agreement for the joint venture in HYPE. This initiative will provide significant momentum to the Bank's strategy in digital financial services, creating a national champion in the field of fintech platforms for digital services.

The first nine months ended with a net profit of 24.3 million euro (-18.2million euro in the first nine months of 2019) to which the good performance of the third quarter contributed, posting a pre-taxprofit rising to 13.2 million euro (from 10 million euro in the second quarter of 2020) and a net profit of 9.5 million euro.

The main driver behind the rise in profits during the year has been the positive trend of net customer loans and investments, which totalled 1.83 billion euro at 30 September 2020, representing a rise of 46% over the figure of 1.26 billion euro at the corresponding date in 2019. Compared to June 2020, the balance rose by 4%.

The growth in the quarter can be attributed above all to the SME Division, with net customer loans rising by 12% over June 2020 to reach 685 million euro (more than double the figure for the corresponding period in 2019). The new business origination took off in the summer and continued after the end of the third quarter, with a positive contribution being made by all the business sectors - Factoring, Crossover & Acquisition Finance, and Turnaround - and among other

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things benefited from the strong demand for loans with public guarantees introduced by recent government decrees. A robust pipeline exists for the final part of the year.

Volumes in the DCIS segment remained stable in the quarter at 1,064 million euro, with an acceleration in the generation of new business following the end of the third quarter, consistent with the typical seasonality of this sector which sees distressed credit transactions concentrated in the last part of the year. Following the end of the quarter, in fact, the Bank generated new investments exceeding 250 million euro. The third quarter also benefited from the Bank's dynamic outstanding portfolio management strategy, which led to further gains of 11.6 million euro being earned from sales and closed positions.

The quality of illimity's assets continued to be solid in the third quarter of 2020: no deterioration in the SME Division's customer loans, with the ratio between gross doubtful organic loans and gross total organic loans to customers falling to 3.8%, and robust cash flow from purchased distressed loan portfolios.

Direct funding by the Bank's retail and corporate customers exceeded 1.9 billion euro, representing an increase of 7% in the third quarter of 2020, above all driven by the funding channelled through the digital direct bank illimitybank.com, of which around 60% is medium-long term.

The Bank's liquidity remained excellent, rising to around 700 million euro at 30 September 2020 (500 million euro at 30 June 2020) and consisting of cash, the net interbank position and high- quality liquid financial assets and other marketable securities, to be redeployed against the significant pipeline of business forecast to arise in the last part of the year.

Taken overall, illimity's total assets at 30 September 2020 reached approximately 3.4 billion euro compared to 2 billion euro at 30 September 2019.

Lastly, Common Equity Tier 1 capital (CET1 Capital) increased to 478 million euro at 30 September 2020 as the result of the profit for the quarter and the decrease in the negative mark- to-market of the securities portfolio. At the same time the first benefits arising from the RWA optimisation initiatives contributed to a reduction of approximately 2% in RWAs during the quarter compared to the figure at the end of June 2020. As the result of these dynamics, illimity's CET1 ratio remained solid and rose to 19.2% at the end of September 2020. On a pro-forma basis the Bank's CET1 ratio would rise to approximately 20.4% if the effects of the special shares of 14.4 million euro (subject to regulatory approvals) and the positive impact of the application of the measures included in the banking package recently approved by the European Commission, with particular reference to the reduced deductibility of the intangible assets regarding software and IT, are included.

Corrado Passera, illimity CEO, commented: "illimity's first full year of activity, 2020, is turning out to be particularly significant. Despite the continuation of the crisis, the Bank is showing considerable resilience on every front and achieving very positive results: volumes and earnings have grown, capital and liquidity have risen above expectations. We are therefore able to confirm the target of an ROE of approximately 5% for the year.

In addition, illimity has once again demonstrated its ability to innovate, not only by initiating new strategic projects in the business areas in which it operates, but also by entering new segments such as fintech. In this respect the agreement signed with Banca Sella in September will, through HYPE, enable us to add and develop a high-growth business such as non-banking financial services.

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Backed by the strength of our results, the projects we have got under way and a robust pipeline, we will face the upcoming months with the prudence which in previous months has enabled us to keep the quality of our portfolio high, but also with the usual dynamism that distinguishes illimity, so that we will be ready to grasp the opportunities arising in our target markets, which are expected to grow even more than initially forecast".

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Key balance sheet figures

Data in million euro
Reclassified Balance sheet				30.09	31.12	31.03	30.06	30.09	30.09.2020 /	30.09.2020 /
			2019	2019	2020	2020	2020	30.06.2020	30.09.2019
Cash and cash equivalent				110	772	219	311	543	74%	391%
Due from banks and other financial institutions		271	345	657	643	645	0%	138%
Customer loans				1,255	1,638	1,662	1,766	1,831	4%	46%
- DCIS	1	investments				488	667	674	724	733	1%	50%
- DCIS	1	senior financing				334	341	334	337	331	(2%)	(1%)
- SME	2					320	527	556	613	685	12%	114%
- Cross-over & Acq. Finance	2			219	261	278	315	366	16%	67%
- High yield bond				-	-	-	13	23	80%	n.s
- Turnaround				61	131	154	156	173	11%	184%
- Factoring				40	135	123	129	123	(5%)	207%
- Non-core former Banca Interprovinciale		113	103	99	92	83	(10%)	(27%)
Financial assets Held To Collect (HTC)		103	-	-	-	-	n.s	n.s
Financial assets Held To Collect & Sell (HTCS)	3	92	126	335	286	137	(52%)	49%
Financial assets measured at FVTPL	4		10	9	8	12	17	41%	76%
Goodwill					22	22	36	36	36	0%	67%
Intangible assets				15	19	22	26	29	13%	92%
Other assets (Incl. Tangible and tax assets)		78	95	114	158	154	(2%)	97%
Total assets				1,956	3,025	3,052	3,238	3,392	5%	73%
Due to banks				397	377	468	583	541	(7%)	36%
Due to customers				906	1,979	1,911	1,915	2,125	11%	135%
Shareholders' Equity				543	544	537	563	575	2%	6%
Other liabilities				110	125	135	176	151	(14%)	38%
Total liabilities				1,956	3,025	3,052	3,238	3,392	5%	73%
Common Equity Tier 1 Capital				466	462	439	466	478	3%	3%
Risk Weighted Assets				1,613	2,162	2,347	2,548	2,497	(2%)	55%

1. DCIS: Distressed Credit Investment & Servicing Division (previously named NPL I&S)
2. This figure includes part of the net loans to existing customers of Banca Interprovinciale, which due to their features are considered consistent with illimity's SME segment
3. HTCS: Financial assets measured at fair value through comprehensive income
4. FVTPL: other financial assets at fair value through profit or loss. This item includes equity financial instruments purchased as part of a Turnaround transaction, junior tranches acquired as part of Senior Financing transactions and investments in distressed energy credit purchased as part of the DCIS division's activities.

Any failure to reconcile the stated figures arise exclusively from rounding

SME Division

At 30 September 2020 the SME Division's net customer loans amounted to 685 million euro, representing a rise of 12% over 30 June 2020 and more than doubling the figure of 320 million euro at 30 September 2019. All the Division's business areas contributed to the progress made in the quarter.

Following the slowdown in April and May caused by the COVID-19 health emergency, a substantial pick-up in origination activity began in June, continuing in the third quarter and after the end of the

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quarter.

The Cross-overand Acquisition Finance business generated new volumes of 68 million euro during the third quarter of 2020. Of this, more than half is represented by the disbursement of loans secured by public guarantees, a much-requested instrument that is proving to be both effective and suited to the operations of illimity, a bank specialising in SME lending, thereby reducing its risk profile and increasing the profitability of its capital. The positive business dynamic also continued in October with the disbursement of a further 27 million euro, to which should be added loans of 34 million euro not yet disbursed but already approved.

The Turnaround business - Unlikely-To-Pay exposures with restructuring and return to performing status prospects - also posted a robust pick-up in activity: business volumes of 31 million euro have been generated since July 2020, to a large extent backed by state guarantees. These represent cases in which loans are granted to companies already at the end of a debt restructuring plan and are accordingly classified as performing, but where as a result of the COVID-19 situation the businesses involved have suffered from a renewed fragility of their financial structure, leading to the need for new intervention. The Bank generated further business in this segment of 17 million euro in October, to which should be added loans of 23 million euro not yet booked but already approved.

The third quarter confirmed the pick-up in the turnover of the Factoring business, which started during the summer, thanks also to illimity's ability to acquire new customers during the lockdown period as the result of having a wholly digital onboarding process. Average monthly turnover in the third quarter returned to the levels seen at the beginning of 2020. Contrary to expectations, Days Sales Outstanding ("DSO") for clients remained contained and in line with pre-COVID figures, to the benefit of commission flows, with a slight fall in the outstanding factoring stock at the end of the period. Lastly, a credit facility agreement for 73 million euro was signed in October and this will begin generating revenue in the fourth quarter.

Taken as a whole the SME Division has originated volumes of 846 million euro since the start of the Bank's operations in September 2018 to date.

Distressed Credit Investment & Servicing ("DCIS") Division

At 30 September 2020 the DCIS Division had net customer loans and investments amounting to a total of 1,064 million euro, in line with 30 June 2020 and representing a rise of approximately 30% over the figure of 822 million euro reported at 30 September 2019.

During the third quarter illimity concluded purchases of investments in non-performing loan portfolios amounting to 12 million euro, also as the result of the temporary postponement of the closing of certain transactions. Since the end of the quarter the Bank has generated new investments exceeding 250 million euro, taking the total of business originated1 since the start of operations to date to over 1.1 billion euro.

Dynamic management of the outstanding distressed loans portfolio continued in the quarter, leading to the realisation of gains of 11.6 million euro from the sale of loans and discounted

1 Distressed loans purchased, including transactions agreed but yet to be booked (thus not yet income-producing), owing to a settlement structure based on multiple tranches or to a time lag between the signing of the master agreement and the date of loan onboarding. Non accounting figures.

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