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

Good morning. This is the Chorus Call operator. Welcome to the Credem Preliminary Results 2025 Conference. [Operator Instructions] Stefano Morellini is the General Director. I'm going to give the floor to him.

Thank you. Good morning, ladies and gentlemen, and thank you so much for connecting. Here close to me, we have the Co-General Director, Giuliano Cassinadri; and my colleagues managing the Valores or Value Add and investor related areas. I am so proud to walk you through very important numbers concerning excellent results, which is what we managed to have, thanks to our strategy, also thanks to the way we do banking and especially thanks to our people, their professionalism and their determination. So also for 2025, we reconfirm our strengths. So this is much more the numbers or figures of data, we can say that we have turned those numbers into a real actual impact on the local communities, on the territory. We've also strengthened and improved the trust of our economic partners and of our customers. As a matter of fact, you can see that the financial support to families and companies is growing. This is a commitment for us, and it translates into extraordinary results and into our concrete encouragement in order to grow the economic fabric of the country. Now we've been doing this since 2013. Let me highlight this. So after 12 years, this is the 12th consecutive year where we can see an increase to loans to customers. We will strengthen our driving role into managing savings. So we are working together with our customers hand-in-hand with our customers with strategic advisory services and custom-made solutions for every single financial need. Last but not least at all, we keep investing in technologies because we want to turn all of our internal processes, and we also want to change our services. So there's an unstoppable integration of digital systems, our multichannel proposal. We are now able to offer easier, personalized, safe banking experience ready to take up the challenges of the future. So before sharing with you results, I would like to reiterate the following. Reaching those targets was made possible, thanks to the work and the commitment of an extraordinary team that every single day put our own mission right at the center of our effort. We want to create value and well-being. They both have to be sustainable over the years. Once again, I would like to wholeheartedly thank our professionals and our staff. Thank you so much for what we have done. Can I please have Slide #2. And let me start with the results of 2025. I will also be adding some comments on the growth performances we have enjoyed together with our positioning. Slide #3, please. Now you can see here the main results that we were able to get. So the year closes with EUR 621.5 million benefit. That's a positive value generated by the merchant acquiring. So net of this, our profit would be EUR 522.8 million. This means that it is a normalized profitability that stays at a very high level, double digit. ROE, ROTE are 14.1% and 12.4%, respectively, once again. As for AQ, asset quality, this is right at the top of the Italian and European banking system. NPL ratio is 1.6%. The net value of the indicator is 0.7%. So there's a very high level of capital generation. And this means that we can maintain a very solid capital position. The CET1 ratio is 15.82%, and this is much higher than the regulatory minimum level for 2026. Now this asset ratio already includes the proposal of a dividend that will be EUR 0.75 per share. Let me now walk you through the dimension growth values in Table #4. The growth strategy keeps generating better results versus the average of the system, thus confirming the effectiveness of our business model in different economic cycles. Now in particular, I have to say that loans show a yearly growth by 3.6% versus the 1.1% of the general system. As for direct collection in this case, we have an increase by 3.8%. This is 2% points higher than the average number of the Italian banking industry. We will wrap up 2025 with a significant reduction of net collection. This is our best number ever, and it reaches EUR 6.4 billion, of which 3 managed loans and insurance. Now this performance shows a very important message concerning the trust and confidence of our customers in terms of managing their savings. All of this translates into a crucial element for the development of the commission components into the next phase, which will be the stabilization of the rates. So that is not just volumes because we keep developing our customer base. In the past 12 months, customer base is now 1.7 million customers with a yearly growth of 5.8%. Let me now share with you the details on the sources of profits, which is Slide #5. So we keep rebalancing our inflows. What is more important is the incidence of recurrent services margin, which is now 45%, while what we can see is a reduction of the financial margin because it follows naturally the dynamics of the rates. I would like to highlight that throughout 2025, the dynamic of the core revenues. Now even if the makeup or composition was different was on a quarterly basis, constantly growing up. Now this is an excellent message in terms of looking at the future. Well, especially because this is confirming that Credem Group can really leverage the diversification of its own business in order to support the revenue components, thus readappting, readjusting the various current scenarios, thus aiming at sustainable growth in the medium, long term. In the next slide, #6, you will see the following. The commercial bankers together with the para banking companies plus CC or consumer credit. Even if the rates went down in the past 12 months, they have been able to close the year on excellent levels. This is what happened, thanks to the excellent quality of the assets, Credem Banca not considering the capital gain, which is the session of the merchant acquiring, we have net profits of EUR 275.1 million. Now the contribution is for more than 44% to the consolidated balance sheet, while the power banking sector, consumer credit and technology wraps up the year with EUR 86.1 million. In this case, the incidence of the consolidated result is around 14.4%, once again growing versus last year. So thanks to the excellent development of the loans managed and the unstoppable work of our networks the aggregate world plus private closes 2025 with a comprehensive net result of EUR 175.1 million. Once again, this accounts for 28% of the total consolidated balance sheet. Now these results confirm the importance of having a diversified business model. This means we can exploit to leverage at best all of the internal [ solutions ] in order to extract value plus profitability in a different market context. And I am pretty sure that for us, this will be a distinctive factor as well as a competitive advantage also in the near future. Anyway, we'll be back on this topic in a few minutes. Next slide, #7, please. As for the financial margin, this is going up versus the previous quarter. And once again, this confirms the dynamic of the behavior that we saw throughout 2025. On a yearly basis, the impact has to do with the movement or evolution of rates, but we've been able to wrap up 2025 slightly better than our forecast. What is very positive is the result of core services margin level. So net of the nonrecurring components, for example, the trading and the performance fees. Now this progression allows the total revenues to have a growth of more than 3% versus the previous quarter. While on a yearly level, we have to consider the smaller financial margin. We also have to consider the smaller level of performance fees that have been significant in 2024. So despite the commitment, a strong commitment of the group in order to keep growing in terms of new hires, but also in terms of very intense activities made of projects and IT developments. Again, I'll be back on IT in a few minutes. The growth of operating growth is limited. It is only 3.4%. Now this means that we have an excellent operating result, which is EUR 838.1 million. The cost of risk, as you can see here, is extremely small. On a yearly basis, it reaches [ 13 ] basis points. So we wrap up 2025 with net profits at EUR 621.5 million or EUR 522.8 million net of the capital gain that I have mentioned before, having to do with the transfer of merchant acquiring MA. Next slide, please, #8. Now as I said before, the financial margin or net interest income has registered throughout 2025 an excellent quarterly progression after the most significant effect having to do with the reduction of the first quarter and despite the continuous reduction of interest rates. We are sure that for 2026, the biggest challenge will be to further reduce the volatility level of the interest income or financial margin, thanks to the expansion of volumes and the protection of the commercial bifurcation. In Slide #9, you can see that we confirm an excellent protection of our commercial profitability, especially when compared to the system level. As compared to the Q4 2024, the average drop of our commercial bifurcation seems to be 31 basis points versus 57 bps or basis points on average for the system. This is due to the excellent capacity of the group in maintaining quite a good profitability on loans and especially in terms of reducing as quickly as possible the cost of direct collection. That cost had been impacted throughout 2023 and 2024 by the strong request of deadline products. In Slide #10, you can see the securities portfolio. Well, in that case, we carried out purchases basically on Italian govies around EUR 900 million in Q4. This means that the portfolio is now worth around EUR 12 billion. As for the duration of the Italian govies is reduced. So this means that we've been able to maintain our general portfolio duration at around 3.6 years. The incidence of Italian govies reaches 42% with HPC component, which is up to 82%. We maintain an important focus on the market, and we do this because we would like to take advantage of possible benefits, but we also would like to take advantage of opportunities to increase volumes. In Slide #11, you can see that we are absolutely satisfied, thanks to the expansion of commission levels. I would like to highlight that this aggregate number in terms of recurring components. So we have to exclude from the total the financial activity and the performance fees -- so as for Q4, we have seen an increase by around 4% versus the same quarter 2023. Out of the total, you can see the incidence of smaller performance commissions versus Q4 2024 again. So it is with trust and confidence that I reiterate that this aggregate will be the main driver of the revenues components in the next quarters, thanks especially to the very strong synergies between the networks and the product firms that our business model is offering. Let me give you some details. I mean, there's been a strong production of net collection this year. So this translates into an excellent evolution of management commission net of performances, which are able to reach EUR 135.1 million. Now this aggregate number this quarter also includes quite a good contribution, thanks to the placement effort. So a remarkable growth by around 9% versus the same time window of 2024. So as for wealth management, we also have an increase of the insurance business, which reaches EUR 27.1 million that accounts for -- I mean, what accounts for the contribution of Banc commission is EUR 50 million. If you make a comparison with the rest of the year, of course, there's an impact due to the lesser contribution from merchant acquiring, which is what we have transferred at the beginning of 2025. It is equal to 4. 4 is the contribution of the financial activity, and this is due to the fact that there haven't been significant benefits we got in the quarter. Slide #12. -- shows you that we can keep a sustainable cost level on a medium-term basis, and this is consistent with the growth of the size of the group. You can see the number of hires going up in the last 12 months. This has driven the dynamics of staff cost. We have a low turnover level in terms of employees. We are focusing so much on further strengthening of the network together with young talents having specific external competencies and skills. This is fundamental to drive the evolution of the group and the digital and technological profiles. Now the number of the last quarter is even better than the number we had in Q4 '24. And this is also due to the lesser impact of those components having to do with the evolution of operating income. So as we already told you in the previous conference calls, the administrative fees are directly correlated to the IT developments plus the intense project activities in order to further improve the internal processes of our bank, the service model we implement as well as the IT architecture of the group with following consequent benefits in terms of the strategic positioning, considering the business we have in the future. In Slide #13, as I said before, you can see that this is the 12th year in a row where we see a growth of loans to customers. This is what we have done going through different economic and financial scenarios. Now this confirms the extraordinary work done by our group, central offices, commercial or sales network. This is also due to the effectiveness of our business model. So plus 3.6%. Once again, this is so significant, especially when compared to the growth of the system that only does plus 1.1%. Let me give you some details. I mean you can see a growth of 5.7% short-term loans, residential mortgage and leasing, respectively, 3.2% and 3.8%, while consumer credit CC is driven by Avvera shows an increase by 11.1% year-on-year and reaches EUR 4.1 billion. So as I previously told you when commenting the results of the first half of the year, we did an excellent job with our networks in terms of consulting and advisory services to companies. This translated into an increase of gross loans to companies in 2025 by plus 15.6% versus the number we had in 2024. Well, we do know that we will have to consider a market scenario that will be very challenging, and we will also see an increase of competitiveness. Now we are absolutely sure that we will be able to keep having overperformances versus the industry, and we will keep increasing our market share also for 2026. This is consistent with our organic growth project. Next slide will be #14. I'm so proud to tell you that we will be closing 2025 with the net production level, which is the highest ever. Net collection increases and reaches EUR 6.4 billion. If we exclude the corporate, we would be having EUR 6.7 billion. What is significant is the net flows managed collection, EUR 3 billion. This goes well beyond the expectations we had at the very beginning of the year. So these levels are contributing and they will be contributing to our business in the next quarters. So once again, they will increase the commission level. This means that they will increase the revenues in the current context of stabilization of interest rates. So we have an excellent result in terms of administered or managed the collection and the rent collection, both with a net production, which is around EUR 1.7 billion each. Let me highlight once again that the growth strategy, so the organic growth strategy also depends on the expansion of collection. So it also depends on the fact of getting new customers. And at the same time, we want to keep being the real benchmark or reference point in terms of managing their savings. Now these numbers are showing you that we are doing all of this in the right way. And yes, I can confirm you that we have challenging targets and objectives of this kind also for the years to come. Slide #15. Now the excellent dynamic of net production has given a contribution to the growth of collection from customers, reaching EUR 114 billion. The direct collection growth by 3.8% versus the end of '24. What is significant is the expansion of the managed collection plus insurance business, reaching EUR 48.2 billion. The growth in that case is around 10% versus 2024. Now this happened, thanks to the excellent net reduction that I have commented a couple of minutes ago. In Table 16, -- as I said before, we will close the year with a cost of risk, which is 13, 13 basis points. This is an excellent number in Italy, but also in the rest of Europe. Now this happens thanks to a very low level of deteriorated credit, and they are going down. So now we have EUR 615 million. NPL ratio is 1.6%. Now we are not seeing a significant signs of deterioration and our default level is one of the lowest levels of the industry, which is only 0.43% for us. Let me now talk about 2026. We will be focusing on the current economic scenario. But at the same time, I can confirm you that one of our targets is to be well below 20 bps in terms of cost of risk also for the next 12 months. This is Slide #17. Now if you also analyze the hedging, so the coverage that we have in our group, well, AA Group itself is right at the top of the sector in Italy, but also in Europe. The coverage ratio is now 59.2%. Now this number, if you consider also the additional coverage generated by coverage pillar 1 together with the addendum reaches in general 60.5%. Now those levels will guarantee the fact of having a competitive advantage position in case the scenario changes, which is what happened in the recent past. This also gives us the opportunity to keep working with determination in our growth strategy. Next slide would be #18. So it is with so much satisfaction that I can tell you that our MREL requirement, so it has improved. MREL was reduced by more than 3% points versus the MREL required for 2025. Now MREL is going very well. So once again, the authority told us that we did an excellent job. So the buffer improves. In terms of bonds, the only change versus the previous quarter is the use of the recall option on EUR 107.5 million of T2. In the next table, #19, you can see that also during the closing of 2025, we keep a very high level of NSFRNL. Now basically, the first one is 141% LCR is 177%. In Slide #20, I would like to wrap up the first section of my presentation by showing you our asset position. As for CET1 ratio in terms of banking growth, but also in terms of credentials, so on Credemholding reached respectively, 16.99% and 15.82%, thus confirming the very strong capacity of the group to be able to generate capital in an organic way even if we grow at a high pace, much bigger, higher than the average of the system. So the expansion of our risk-weighted assets, RWA, this is due to Basel IV, but this is also due to the expansion of the volumes. Now this is more than offset by benefits generated by also considering that there's a dividend proposal, which is EUR 0.75 per share already included into these numbers. Furthermore, as for the ratio, we also have to consider the impact by 11 bps due to the sell-off, if you will, of the provisions due to the latest Italian financial law. Now the total requirement for 2026 is 8.55%. Now this requirement already includes the new P2R, which is 1.25%. This is the lowest in the Italian banks directly controlled by the European Central Bank. So our buffer stays very high, very reassuring -- which is 727 bps. Next slide will be #21. Now just a couple of minutes for -- I mean, considering the growth and our future positioning. This is now Slide 22. Here we go. So in the last 4 years, we've been able to increase by more than 13%, the level of our loans to customers. In terms of absolute value, we have EUR 4.5 billion. We have acquired a new direct collection money, EUR 6 billion. And first and foremost, we've been able to increase indirect collection in a very, very significant way. So from EUR 55.8 billion in '21, we now have EUR 73.4 billion in 2025. Now the increase was around 31% and in absolute values, this turns into more than EUR 18 billion growth. Now this progression brought us to have a comprehensive growth of our TB total business by EUR 28.2 billion over the last 4 years, which means plus 23%. Now this is confirming once again the execution capacity we have. So we can grow organically and sustainably. In Slide 23, you can see that after 2024, that was really excellent, well, 2025 is anyway on revenues levels versus 2021, which is still very significant. This means we have increased our revenues components in a structural way by more than 40% Furthermore, our current size and the growth objectives we keep having will allow us to have continuous expansion of revenue flows. I can also tell you that we look at the next 24 months. So thanks to the synergies with our networks and firms, in 2027, we think we will go back to the total revenues level we had in 2024 with a different balance, so much more balanced between commissions on the one side and financial interest on the other. In Slide #24, you can see that in the recent years, in the past years, which is what we also told you in the previous conference calls, have been characterized by a strong commitment of our group in terms of technology and digital developments. There's been an intense activity in terms of projects and it was aimed to generally refreshing the facility management backbones. Now this result is changing, and it will be improved in the future significantly. It will change our IT backbone together with our positioning so that we can better seize the opportunities of the next technological evolutions, thus translating them into performance increases resiliency and once again, cybersecurity. We will then be able to focus our future investments in 5 main strategic drivers, the growth and the range of products because, of course, we want to respond to the needs of our customers. We will support our supply chains to maximize synergies, thus improving efficiency and effectiveness of our business model. The reduction of the expenditures and costs, thanks to the continuous optimization of processes plus adoption of an operating model, which will be more and more digital and effective. We will have TI technological innovation so as to speed up the commitment of the group in the adoption and the use of new technologies. For example, the data intelligence at the service of the business together with the improvement of customer experience. Last but not least, we will have a continuous improvement of IT safety and security systems improvement, thanks to the new IT backbone as well as the investments that we will take into account for new technologies. Slide #25, this is to draw the conclusions of this call. Now I wish to highlight our competitive positioning today. Also in terms of the next challenges that we will be taking up. Now we will have a very high level of, let's say, challenge data. Our business model is diversified and comprehensive. We can generate value in many different economic cycles. The creation of synergies within the business model that we have will also go through our excellent capacity of execution. And as we've been showing also in the past, this will be crucial in order to have the expansion of the size of our group. Furthermore, as I said a couple of minutes ago, the seamless internal innovation plus the digital evolution that we are performing will turn into a strong support to the management of human relations. We would like to increase the value of our human digital model, which is absolutely essential in order to develop revenues, especially in terms of commission flows. Last but not least at all, in a scenario which is still characterized by strong uncertainties, our Credem Group is one of the soundest groups in Europe. So we have plenty of attractiveness in terms of new customers, but also in terms of sustainability because we believe in our growth strategy. We also would like to keep developing all of our business lines. Now this is it with my presentation. So don't hesitate if you have questions.

[Operator Instructions] Question number one comes from Luigi De Bellis.

Luigi De Bellis fronm Equita SIM. I have 3 questions. The first one is on the interest margin. So considering [indiscernible] you give us some color on your expectations for 2026 and if it were possible to [indiscernible] because you talked about wanting to go back to the same levels you had in 2024, plus the main drivers on the [indiscernible] could you give us some color on the possibility on the interest margin considering rates increase, for example, with [indiscernible] to 100 basis points? The last question is on the competitive scenario on the private banking wealth management measure project from Intesa Sao Paulo in order to increase the number of consults. Can this have an impact on the competition of the market at least from other networks? What is the competitive scenario you see in terms of recruiting and retention of consultants and also in terms of the collection for the managed savings in 2026?

Thank you. The first question on sensitivity would go to Mr. [indiscernible] from the Valores department. I will answer the second and the third question on the financial margin, 2026 expectations, together with the project concerning PB Private Banking.

Now as for the sensitivity, we have a parallel increase of 100 basis points. In that case, we have EUR 98 million in case of same time or parallel production, 100 basis points at minus EUR 54 million.

Now as for the other questions on the financial margin or interest margin, well, what we foresee for 2026 is an interest margin, which will be flat. Now if you consider the results we managed to reach in 2025, thanks to the volumes generated in 2025, but also due to the rate coverage strategy as well, they will be able to offset the impact of average rates that will be lower than the average of the recent months. Now as for the -- well, attention, if you will, to volumes, well, our target was the following: we would like to reach at the end of 2026 with an increase, which will be slightly higher and growing. So the target is 3%, thus contributing with a significant dynamic also for the next year. Now as for the topic having to do with, if you will, wealth management and private banking. Now first and foremost, I may tell you that for this year, 2026, the simple objective is EUR 4.5 billion of direct and indirect collection of which almost EUR 3 billion of managed collection and insurance business. So under this profile, a very important role will be played by Credem [indiscernible] Private Banking. Now in the recent years, but also at the very beginning of this year, 2026, I have to say that we haven't had any difficulty in continuing our recruiting activity and development in terms of internal lines, but also thanks to, let's say, external recruitment, so private consultants and financial consultants as well. And among other things, in Credem [indiscernible] Private Banking, we will keep having them together with Credem Bance, where, as you know, we have another channel dedicated to financial consulting services. So I have to say that competition will increase, as said well, but well, for the time being, no, we don't see any difficulty under this point of view. Well, rather the opposite. I mean, we are really seizing opportunities that are coming as a consequence of our transactions and operations on the market.

The next question is from Giovanni Razzoli, Deutsche Bank.

I just have one question. Will you ask European Central Bank, if all possible, to apply the calculation on assets on banking group level instead of holding level? And if so, how long would it take?

Giovanni, now as you now, at the end of 2025, so last year, the directive has been harmonized into Italian regulations. It was published in the official journal. Apart from those 2 steps, it may be necessary to wait for the harmonization of those instructions into the surveillance instructions of the so-called [ 285. ] So these are the steps required to define the right legal framework so that we can really work with the European [ surveillance ] systems so as to shift the scope. But this is not automatic. So don't forget about this. So today, we have significant [indiscernible]. But in terms of timing, as I said before, well, it depends on when we are able to start the dialogue, I would say, reasonably within 2026, and we will be able to get some indications about this, but this is not sure.

Next question is from Matteo Panchetti, Mediobanca.

I have a couple of questions. The first one concerns your commissions. So what are the expectations for 2026? Can you give us some color on the key drivers? And my second question is on the distribution of capital because we saw that over the years, CET1 growth. And have you considered a possible increase of the -- well, dividend payment? Third question, as for P&L, where do you see possible upside in 2027, I mean, the highest level?

Question number one. It concerns the commission levels. As for the 2026 guidance of banking fees, what we expect is slightly better result versus the one we got in 2025. Let me talk about the management and intermediation or brokerage commission because the dynamic of the 2025 production will guarantee a high level of returns on management recurring commissions, so net of the performance fees. In '25, but also in 2026, this line will be the main driver for the growth of income. This is what I've highlighted previously. We're very happy of the attractiveness dynamic, I mean, new flows of money that happened in 2025. This will lead to an increase of this revenue line. Once again, we won't consider performance fees, and it will be well above 5%. Of course, it depends on the evolution and development of the market because, as you know very well, they may have an impact on the value of the masses. So as for this question, I think this is it. I mean, I've given you the main drivers that will guide us also this year. Now as for the other question concerning the payment of dividend, as you must have seen, the Board of Directors decided to propose the confirmation of the dividend we already had last year. But I need to highlight this. I mean, our profit level in terms of recurrent levels, well, this level is lower than the one we had last year. And I think this is an important positive message because it shows a very special focus on the market. And again, it confirms a very stable remuneration for our solid shareholders' base. This means that there will be a growth of [ DPS ] over the years. We've always shown as a group to be able also in difficult economic cycle,to distribute, I mean, to pay always and consistently dividends. This is what we've been doing for almost 20 years. The exception was 2020 because of the ECB recommendations anyway. Well, the future, if you will, strategy of the dividend will be decided once again by the Board of Directors. As for your last question, if I'm not mistaken the question was on our work position on income, I mean, for 2026, right? So well, we do have a target. We would like to get close, as I said before, to what we got in 2025. So this means we want to guarantee stability and growth, especially on some components.

[Operator Instructions] For the time being. We don't have other questions prebooked.

Thank you very much. I would like to thank you for listening, to your patience. And I wish you a nice continuation of the day. Thank you very much for attending.

This is the Chorus call operator. The conference call is over, and you can disconnect your devices. [Statements in English on this transcript were spoken by an interpreter present on the live call.]