Solid start for ILLIMITY in the first quarter of 2020

• Net profit driven by growth in revenue, which more than offsets the prudent increase in collective loan loss provisions in light of the COVID-19 emergency
• CET1 ratio of 18.7% and liquidity of approximately 750 million euro
• COVID-19 emergency: to date, the expectation of a positive result for the current year is confirmed, albeit at more contained figures than beginning of year expectations

The Board of Directors of illimity Bank S.p.A. (“illimity” or the “Bank”), the high-tech bank specialising in lending to SMEs with potential, the purchase and management of distressed loans and direct digital banking services, on 11 May approved the illimity Group’s results for the first quarter ended 31 March 2020.

illimity reacted promptly to the situation caused by the COVID-19 emergency thanks to its highly technological and flexible structure, safeguarding employees and ensuring business continuity through the use of smart-working while at the same time continuing to work on all its strategic projects.

Despite this difficult situation the Bank posted solid results for the first quarter of 2020, with further progress being made in revenue, and notwithstanding its decision to take a prudent approach to loan loss adjustments by increasing collective provisions, ended the quarter with pre-tax profit for the period of 7.2 million euro, a five-fold increase over the previous quarter, and net profit of approximately 4.5 million euro.

The Bank’s assets remained essentially unchanged at 3.1 billion euro compared to the quarter ended 31 December 2019. Customer loans rose to 1,662 million euro compared to 1,638 million at the end of 2019, that had already seen strong growth. As part of this total, the SME Division’s loans rose by 5% over the year-end figure (of which +7% Cross-over and Acquisition Finance business and +17% Turnaround business); on the other hand the limited growth in the DCIS Division1 reflects the seasonality typical of this business, which sees distressed credit transactions concentrated in the last part of the year, and the effect of the sale of certain positions.

The Bank’s robust liquidity base, consisting of cash, net interbank position and high-quality liquid assets and other marketable securities and amounting to approximately 750 million euro was confirmed at 31 March 2020.

Direct funding by the Bank’s retail and corporate customers rose further in the first quarter of the year to reach 1.7 billion euro (+7% over 31 December 2019). Growth was primarily driven by the direct digital bank illimitybank.com, whose activities continued in the first quarter with around 7,000 new customers and an increase in deposits of 12% compared to the end of last year, consistent with lower funding targets following its successful launch in 2019.

The Bank’s CET1 ratio confirmed a robust position at 18.7%, a decrease over the figure of 21.4% at the end of 2019, mainly due to the effect of the goodwill arising from the acquisition of IT Auction, consolidated from 1 January 2020, and the negative valuation reserve of 11 million euro arising from the HTCS securities caused by market volatility. These are high quality liquid assets having an average duration of around 3 years. Considering the positive effect of approximately 7.7 million euro resulting from the buyout of the remaining 30% of IT Auction, to be realised by way of a capital increase reserved to its shareholders other than the Bank, and the inclusion in the Bank own funds of special shares for 14.4 million euro following the completion of the approval process by the EBA, the Bank’s pro-forma CET1 ratio would end up at around 20%. The Bank’s pro-forma CET1 ratio does not include yet the effects of the national and international measures approved in support to businesses and banks.

Risk-weighted assets increased by 9% to 2.3 billion euro in the quarter as the result of an increase in financial assets and interbank exposure, a component which will be gradually replaced as new customer business will be booked.

In terms of economic results revenue before non-recurring items rose once again in the first quarter (+10% compared to the fourth quarter of 2019). The Distressed Credit Investment & Servicing Division posted an excellent performance, with collections exceeding expectations, generating profits of 9 million euro from sales of positions and discounted pay-off settlements, in advance and at a higher value compared to the respective business plans. The Division additionally benefited from the positive effects in terms of commission income arising from the first-time consolidation of IT Auction. The SME Division also showed constant progress, with new business volumes rising in particular in the factoring business.

The Bank decided to follow a prudent approach in the quarter, consistent with a COVID-19 scenario, which led to loan loss adjustments of 2.7 million euro (annualised cost of risk of 118bps2 compared to 46bps in the fourth quarter 2019). In light of the negligible deterioration to date in the loan portfolio of the Bank’s SME Division, this increase can be entirely attributed to the estimated collective provisions needed to face a potential asset quality deterioration that might materialise in the future, depending on the economic effect of the crisis. This approach has led to a coverage ratio of over 1.5% for performing organic loans (excluding the factoring business,already covered to a large extent by credit insurance).