Welcome, and thank you for joining the BPER first quarter 2026 consolidated results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Nicola Sponghi, Head of Investor Relations of BPER. Please go ahead, sir.
Thank you. Good morning, everyone. I'm pleased to welcome you to our Q1 2026 Earnings Conference Call. Before I give the floor to our CEO, Gianni Franco Papa, please be reminded that our slide set and press release can be found on our corporate website. That said, after the presentation, our CEO and our CFO, Simone Marcucci, will take care of the Q&A session. I will reiterate that this is reserved for financial analysts, whom I would kindly request to ask a maximum of two questions each, so that everyone will have the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of BPER.
Thank you, Nicola. Good morning to everyone, and welcome to our Q1 results presentation for 2026. Before giving you details on the financial performance of BPER, I would highlight a number of key features of this last quarter. I am glad to speak as the CEO of BPER post-merger with BPSO. As you know, as of April 20, the merger of BPER and BPSO is fully completed with all necessary regulatory and statutory approvals. We are now a leading player in Italy with approximately EUR 540 billion in customer loans and TFAs. We have an 11% share of the market in terms of branches and can boast a 57% share of banking branches in rich northern Italy. Allow me to add that the thorough work of our team has translated into an incredible stock market performance.
Since April 2024, total shareholders' return is close to 250%, among the highest for Italian-listed banks. The bank is heavy at work with the integration. As we speak, approximately 1,000 BPER employees are working within BPSO premises to ensure the effective extraction of costs and revenue synergies. Our target of EUR 290 million of pre-tax synergies by end of 2027 is an important number given the limited time interval we have aimed for. As you can see on slide five, our teams are focusing on the three divisions to ensure a swift and flawless integration. We are working hard to ensure the full utilization of our complete client offer through our product factories and strategic partners. Some examples are important. Firstly, the exploitation of our digital platform in our corporate division to increase our customer share of wallet.
Secondly, BPSO customers will now be able to make use of Banca Cesare Ponti private banking platform and benefit from an additional tailor-made customer offer. In the second half, we will be merging our product subsidiaries, specifically factoring and consumer finance, to reduce complexity, optimize costs, and increase revenue potential. In this context, I would like to highlight the importance of our internal CIB product factory, which will play a key role going forward, especially in terms of fee and commission income. All in all, the two banks are now aligned to make an homogeneous product and service offer on all client segments. Let's move on to slide six for the summary of our Q1 results. Slide six summarizes the key financials for this quarter. In this context, from Q2 2026, we will only disclose consolidated financials.
It is important to highlight that our financial performance has been partially affected by the negative impact of the total return swap and other market effects, which, as of yesterday, have more than fully recovered and lie in positive territory. Total revenues, which stand at EUR 1.8 billion and which decreased some 5% year-on-year, would be only 1% lower if the total return swap and other market effects were not included. Similarly, adjusted net profit, which stands some 7% lower year-on-year, would actually have been increased by over 1%, including the above-mentioned adjustments. As you can appreciate, our focus on costs translated into a further improvement of the net cost income ratio, which landed at just over 45%.
In addition, BPER continues to boast a strong level of assets quality with the cost of risk standing at 27 basis points. Our balance sheet is very solid, with a CET1 ratio of almost 15%, and profitability is high with a RoTE of 17%. Should RoTE be adjusted for the above effects, it would stand at 18.4%. Let's turn to slide to BPER key P&L items on slide seven. Q1 results have proved to be very satisfactory given the fact that in these three months, a large number of employees have been focusing on merging operations on top of their daily duties. As I mentioned earlier, some P&L items have been affected by the total return swap and other market effects.
As such, quarter-on-quarter, total revenues would have been only 3.1% lower without taking into account the impact of the TRS and other market effects. Some further comments are noteworthy as far as this first quarter of 2026 is concerned. Firstly, the resilient performance of NII, as I will later explain, was supported particularly by improving commercial spreads. Secondly, commissions would have been 5% higher quarter-on-quarter should the positive effect of the bancassurance reshuffle be excluded from the Q4 2025 commission line. In addition, operating costs decreased thanks to our continued focus on operational efficiency. Finally, loan loss provisions have also shown a positive trend, decreasing by over 9% year-on-year.
In conclusion, as you can see on the chart on the right, adjusted net profit would be flat versus Q4 2025 should the TRS and other market effects be excluded. Let's move on to slide number eight. As far as 2026 guidance is concerned, the following points are key. At the end of the year, NII should be flat or slightly higher, low single digit. In this respect, our working assumption is Euribor at 2%. Let me repeat, Euribor at 2%. Commissions, on the other hand, should be higher mid-single digit, continuing the same, on the same trajectory. The cost income ratio will lie at approximately 45% in line with current results. The cost of risk is expected to be slightly higher due to our conservative approach.
The current geopolitical environment is under close attention despite the fact that to date, we have not experienced any deterioration in the quality of our loans. Finally, we expect our CET1 ratio at approximately 14.5%, including the impact of the share buyback when approved by ECB. Further information on guidance, including BPSO, will be given at the business plan update scheduled for August, subject to market conditions given the current geopolitical turmoil. Let's move to the core part of the presentation. After some 18 months since the launch of B: Dynamic Full Value 2027, a quick glance at the progress of our plan, which is fully on track, is a must. The plan remains to date standalone. The merger with BPSO is an accelerator of B: Dynamic. Here are some highlights. On pillar one, new lending increased by 36% year-on-year.
Net commission income growth continues to be very robust, particularly in wealth management and bancassurance. On pillar two, the digital channels now process 96% of bank transactions with over 25% of new customer acquisition acquired digitally. As far as pillar three is concerned, our conservative risk approach enables BPER to boast the most conservative asset quality ratios in Italy, while at the same time, we are increasing automated credit approvals for selected retail, small business, and SMEs. On pillar four, our technology, security, and AI, the onboarding for AI/GenAI use cases on the AI/GenAI dedicated infrastructure is completed. Our commitment to ESG-related lending continues to be strong with some EUR 5 billion of new ESG lending since the launch of B:Dynamic. Finally, over 6,000 colleagues have already been involved in BPER's academy and training path.
Let's now turn to our AI/GenAI scale program, which is a core enabler of our sustainable growth strategy. As we explained at our last Capital Markets Day, artificial intelligence is one of the enabling factors of our B:Dynamic strategic plan in terms of growth and modernization of the entire bank. Approximately 80 models have been developed since 2022, aiming at 120 models by end 2027 through a balanced approach of make and buy solutions to achieve both quick delivery and strategic control. AI directly supports the pillars of our business plan. Firstly, our customer empowerment through customized proposition and a strengthened sales and distribution network supported by chatbots and advanced support tools.
Secondly, it captures economy of scales, thanks to end-to-end process automation and solutions for document management and information extraction from unstructured text. Furthermore, we achieved the bank's modernization by using generative AI to accelerate application development and increase internal productivity also through the adoption of the Copilot Suite. Our goal is not to simply develop models, but to integrate AI into the bank's end-to-end processes to generate a measurable, sustainable, and compliant economic impact also supporting risk monitoring by control functions, including AML, compliance, and audit. Some examples are noteworthy. Firstly, our GPS personal, an evolution of our personal service model providing an integrated advisory service in order to provide tailor-made advisory. The results have been remarkable with an increase in the productivity ratio of our network in the range of 8%-10%.
Secondly, our SDLC platform enables the acceleration of software development and IT maintenance with further cost optimization. We expect an improvement of the productivity of our IT development centers in the range of 15%-20%. Finally, our helpdesk AI assistant aimed at resolving any anomalies with which we expect to optimize costs by some 25%-30% of these operational processes. Let's now turn to our financial performance on slide 13. Given the context of the merger operations and increased geopolitical turmoil, BPER produced a set of important results. On a BPER like-for-like basis, total revenues in Q1 stood at EUR 1.4 billion compared to EUR 1.5 billion in Q4 2025. Among the main drivers, the total return swap and other market effects, which as of yesterday has fully recovered and lie in positive territory.
Diving into the details, revenues were up by 1.8% quarter-on-quarter, excluding non-recurring effects in both Q4 2025 and Q1 2026. Excluding non-recurring effects in Q4 2025 on NII and fees, as well as the impact of a reduced number of days in Q1, core revenues were up at EUR 1.4 billion, driven by resilient NII and increased net commissions both year-on-year and quarter-on-quarter. In this context, the ratio of net commission income to total revenues further increased to 39.8%, excluding the TRS and other market effects, proving the high quality of our revenues. Similarly, on a consolidated basis, Q1 core revenues stood at EUR 1.8 billion, up by 3.1% quarter-on-quarter, excluding non-recurring effects in both Q4 2025 and Q1 2026.
Finally, it is important to underline how BPER's productivity index measure as net revenues on risk-weighted assets has continued to improve relentlessly every quarter from 9.7% at the beginning of 2025 to 10.3%, excluding the impact of the TRS and other market effects. This is a remarkable result as it is among the highest productivity ratios in the industry. Let's move on to the next slide, which focuses on net interest income. In the first quarter, as you can appreciate from the slide, net interest income was supported by increasing spreads, which was the main driver of the positive commercial dynamics.
In fact, on a like-for-like basis, NII stood at EUR 820 million, up by 1.9% quarter-on-quarter, excluding a one-off component of EUR 13.4 million in Q4 2025 and the negative days effect of EUR 18.2 million in Q1. Similarly, on a consolidated basis, NII stood at EUR 1.1 billion, up by 1% quarter-on-quarter, excluding the above-mentioned one-off item in Q4 2025 and the negative days effect in Q1 2026. Please note that loan volumes in the quarter were resilient and stable, an important achievement given the significant loan growth in Q4 2025, driven primarily by retail and factoring. That said, loan growth for BPER standalone increased 3.6% year-on-year. At group level, loan remains substantially flat.
Finally, I would like to highlight that our NII sensitivity to 100 basis points movement equal to EUR 225 million in the quarter versus EUR 235 million in the previous quarter. Let's move on to the development of net commission income. Despite the focus on the merger of operations and the seasonality of the first quarter, which is normally weaker, the trajectory of net commission income continues to be robust, with a 5% increase year-on-year for BPER on a like-for-like basis. To date, this performance is well above the targets of our plan. The mere fact that net commission income contributing on total revenues stands at 39.8%, including the before-mentioned adjustments, is a clear indication of the increasing high quality of our revenues.
Our focus on capital light, high quality wealth management products is proven by an increasing proportion of these versus total commissions at almost 46% of total from approximately 44% 12 months ago. The remarkable performance of wealth management fees is underlined by an increase of almost 8% in the last 12 months. Please note that bancassurance fees in the last quarter are always positively influenced by performance fees. Taking into account this effect, net commissions would be up by 5% quarter on quarter. The most important contributor remains banking service fee, which landed at over EUR 275 million. Although the contribution of these fees is coming down as a percentage of total commissions, we expect this to pick up going forward thanks to the integration of the two banks. Let's move to the next slide.
As you can appreciate, since the launch of B:Dynamic Full Value 2027, TFAs, one of the most important driver of commission income, have been growing from approximately EUR 300 billion to almost EUR 330 billion on a like-for-like basis, and to over EUR 410 billion with the new group perimeter. This is primarily as a result of BPER being increasingly perceived as a relevant player in Italian asset gathering. As already mentioned, the integration of BPSO allows us to further strengthen our focus on asset gathering activities, and it will ensure the exploitation of further commission-related potential. Changing our focus on the quarter, as you can see on the slide, TFAs were impacted by the migration of one customer with no P&L impact and by market effects. Neutralizing these effects would leave us with TFAs substantially unchanged in the quarter.
Note worthy to emphasize the fact that AUM's net inflows amounted to approximately EUR 800 million in Q1, while market effects had an adverse impact of some EUR 1.4 billion. Finally, it is important to note that at year-end, the loan-to-deposit ratio stood at 77.3% stable quarter-on-quarter. This will enable us to continue to grow the loan book and to transform client liquidity into AUCs and AUMs. Let's move on to our performance on the cost side. Cost performance has been extremely satisfactory. Total costs were down by 1.6% year-on-year for BPER standalone. The actions deriving from B:Dynamic continue to reduce the cost-income ratio, which stands at 46%, excluding the TRS and other market effects compared to 46.7% in Q1 2025.
HR costs were up by 1.7%, 1.7% year-on-year, mainly driven by the increase on national collective labor agreement. While non-HR costs were down by 7.1%, thanks to decisive actions on cost rationalization. On a consolidated basis, the cost-income ratio improved to 43.3% with above-mentioned adjustments from 45.2% in Q4 2025. In terms of the combined group, total headcount stood at 23,000 with an increase of approximately 400, driven by temporary workforce hire to support BPSO integration. As already mentioned, as a result of previous agreements, we are expecting over 220 exits in 2026. Furthermore, we expect mainly in the same year, 800 additional exits as agreed in December 2025 with the unions aimed at the implementation of a generational change program in the bank.
As a final note, the strong improvements on non-HR cost is the result of our relentless focus on cost efficiencies. As per our plan, we have significantly reduced outsourcing and consultancy costs. Slide 18. As you can see, the trajectory of the cost of risk is very positive. LLPs came down by 22% in the last 12 months, while the cost of risk stands at 24 basis points, slightly lower versus 2025. This is also a result of our very high coverage level. In the quarter, our continued conservative approach translated into an NPE coverage ratio of 56.8%, slightly lower due to the sale of highly covered UTP single names. Including BPSO, the cost of risk stands at 27 basis points with an NPE coverage ratio stable at 52.8%.
That said, our coverage ratio remains one of the highest among Italian peers, and will act as a further buffer against any potential deterioration in asset quality. Our conservative approach is further confirmed as we report a Q1 coverage ratio on performing loans at 0.6%. Once again, the ratio is among the highest in Italy. Let me add that in Q1, total overlays stands at circa EUR 180 million, with an increase of approximately EUR 40 million. Let's move on to asset quality on the next slide. As I mentioned in the previous slide, Q1 2026 was affected by the sale of a UTP portfolio of single names. For BPER standalone, gross NPE stocks were flat versus the previous quarter at EUR 2.3 billion, and the gross NPE ratio remained unchanged at 2.4%.
In any case, as in the previous quarter, the quality of our loan book continues to show a very healthy state, with net NPE ratio standing at 1.1%, one of the lowest in the Italian banking system. This is further confirmed by stable Stage 2 and stable Past Due loans. As far as the combined banks are concerned, similarly, the net NPE ratio stands at 1.1%, in line with BPER standalone. Having finished with asset quality, let's move on to the development of the bank's risk-weighted assets. As you can see, in Q1 2026, total risk-weighted assets of BPER, including BPSO, were basically flat at EUR 80.2 billion. I will now turn to organic capital generation on the next slide.
Despite the acquisition of BPSO and the total return swap and other market effects, the combined CET1 ratio stands at a very comfortable 14.9%. BPER continues to generate a very high level of organic capital. In the quarter, BPER generated EUR 537 million of CET1 capital, or approximately 67 basis points. This result reaffirms BPER position as a highly resilient institution. Let's move on to the balance sheet items on the next slide. As you can see, in Q1 2026, as a result of liquidity optimization, the LCR stands at 157% and the NSFR stands at 131%, underlining that the bank's liquidity ratio remain high.
Finally, the loan-to-deposit ratio stood at 77.3%, one of the lowest among its peers, which will enable us to continue to grow the loan book through increased loan origination and to transform client liquidity into AUCs and AUMs, thanks to our ability to attract customer liquidity. Let's move on to the bond portfolio on next slide. Turning now to the bond portfolio, Italian government bonds increased to EUR 222.2 billion and accounted for around 51% of total bonds. As a result of portfolio rebalancing, the total bond portfolio modified duration was 1.9 years, while the Italian Govies portfolio modified duration was two years compared to 2.3 years at the end of 2025. Excuse me.
Please note that the annualized average yield of the financial portfolio was 2.4% in Q1. We expect the average yield to increase during 2026. Let's move on to the next slide. On slide 25, the report, we report the divisional financials for BPER on a like-for-like basis. I would like to draw your attention to the important results achieved on total wealth commission income across our divisions, which amounted to EUR 259 million, an increase of 8% compared to Q1 2025. These results underline the important focus of the group on asset gathering activities. Let's move to the final remarks. In conclusion, as of April 20th, we are now one bank with a very strong position in each in rich Northern Italy. We are well-placed to play a leading role in asset gathering and fee generation in the future.
We are working very hard to ensure the successful and flawless achievement of cost and revenue synergies, which I underline is an important target given the limited timeframe. That said, and despite an important focus on merger operations, business growth has been positive, thanks to the strength of our commercial networks. Asset quality is one of the highest in the Italian market, coupled with very sound coverage ratio. Although we monitor the current geopolitical turmoil very closely, we are not experiencing any deterioration in the quality of our loan book.
In addition, our capital strength with a CET1 ratio of 14.9% and our continued internal capital generation capacity place us in a comfortable position going forward. Finally, before taking your questions, please be reminded that we are planning an update of B:Dynamic Full Value 2027 on August 6 should the geopolitical enhanced market conditions not deteriorate. We are now ready to take your questions. Thanks.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Marco Nicolai, Jefferies.
Good morning. A few questions. First one is on NII guidance. You guide for flat to low single digits growth for 2026. Can you just remember us the rates assumption you used? Because, you know, by now the market sees at least a couple of hikes this year. Euribor, are you taking into consideration in your, in your guidance? Also in terms of loan growth, if I'm not wrong, you were targeting 3% year on year, which is pretty much what you delivered in the first quarter of this year. You know, taking all this into consideration, higher rates, perhaps margins are pretty solid and loan growth, perhaps we should expect you to be at least in the upper part of your guidance for this year. This is the first question.
Second question on costs. If I look at the year-on-year performance you delivered this quarter in costs, you are down like 5% compared to the first quarter 2025. If I look at the BPER plus BPSO cost base. You closed the merger just in April, this doesn't even include anything from the benefits of the merger. My question is what you're doing, especially in the section of the admin costs, where the performance has been very solid, and anything you are doing on the BPER level, can you replicate that on the BPSO level, and is that included in your synergies targets?
As well as taking into consideration the slide on AI, is that included into your current cost guidance and expectations? Perhaps this is something we can look forward to in August when you will update us on the longer term targets. Last question, just to follow up on the TRS. If I understood correctly, you said that you recovered the loss of the TRS and other market effects you had this quarter. How much was that loss? Shall we just consider that line in the next quarter is just going to be, say, above EUR 100 million, recovering entirely the loss you had this quarter? Thank you.
Thank you, Marco, for your questions. In as much as guidance for NII is concerned, as we mentioned, we indicated that we are considering a Euribor, so ECB rate of 2%. Considering this change, we expect net interest income flat or up low single digit. Is a prudent assessment, absolutely. I will pass to Simone to give you more color on these assumptions and guidance.
Thank you very much, Mr. Papa. You mentioned, during the presentation, our forecast for NII has been based on the conservative approach, 2%, also because the market situation is quite unstable at the moment. You know, because you are declaring the presentation our sensitivity. Today the Euribor is 2.2%, depending, Euribor three-month, because this is the one that we use for our simulation. Depending on how the evolution of the market will drive us in the next month, we will adapt clearly the forecast on net interest income.
Yes. We have performed in the first quarter a growth in loans on BPER stand-alone, as you mentioned, 3.6%. In our business plan, the one we presented in October 2024, we had indicated a growth of 3% CAGR throughout the plan. We are on the right trajectory. Nevertheless, if you look at the combined entity, we are flat, quarter-on-quarter for the reason that obviously, BPSO being a target of an offer was inflating in a way, you know, their activity. You know, since we took over, we've been looking at this transaction. Nevertheless, we do expect to continue on the trajectory and close the year confirming our target of, you know, the growth at CAGR. In terms of costs, well, yes, we had a good performance on cost.
This is something that continues quarter after quarter. We've been reducing the non-HR costs, thanks to the reduced outsourcing and consultancy costs. This is something that we had indicated also in our strategic plan back in October 24. You see that whatever we presented at the time, we are keeping what we said, and we keep on going in that direction. We have, let's say, taken over officially the bank as BPSO with the merger that happened, the technical merger on the 20th. We will now start looking also at the cost on a combined entity.
We do expect to deliver the synergies on cost that we have indicated in our offer, so EUR 190 million, which given by 2027, which given the limited period of time we have, so is more than 18 months, I think is quite a strong and important amount that we are going to deliver. Having said so, in any case, we are relentlessly looking at the reduction of costs. We have indicated that we have, in the course of the year, we will have further exit of HR, so of colleagues, 220 coming from previous agreements, and most of the 800 colleagues that were agreed in December last year.
We will have a further decrease on the HR cost, but also on the non-HR costs, we will keep on looking at different ways of optimizing the cost side of the business. In this, obviously, we are helped also by the deployment of AI. I indicated in my script that, you know, we are considering further reduction, especially on the back office activities operational side. Nevertheless, we have to consider that the deployment of AI has a cost of implementation, so the results of this application of AI to these activities will be seen closely, you know, more on the 2027 than in 2026. Last question was about the TRS, and I will ask Simone to answer this question. Please, Simone.
Thank you very much, Mr. Papa. As you mentioned during the presentation, at the 31st of March, we had a negative effect from TRS and other market effects around EUR 75 million. At the date of 5th of May evening, we have totally recover, and we are positive around above EUR 30 million.
Consider that, you know that at the end of last year, we indicated, you know, with transparency that the TRS, which was a one-off item, was positive for around EUR 30 million. This is the level of indication we can give.
Thank you.
The next question is from Lorenzo Giacometti, Intermonte.
Yes, good morning. Thank you for the presentation, and thank you for taking my questions. So the first one is, if you can guide us through basically the moving parts of your CET1 ratio leading to the 14.5% you target at year-end 2026. The second one is, if you can give us some color on the penetration of bancassurance products and the wealth management trends within the BPSO perimeter. The third one is, more of a strategic one. Given that we may see further consolidation in the Italian banking sector, in the next years, how should we look at BPER in this context? I mean, will it play an active role or more of a bystander one? Thank you.
Thank you, Lorenzo, for your question. In as much as CET1 ratio is concerned, we gave a guidance of 14.5% year end, with, you know, considering also the SBB of up to EUR 750 million or 3% of capital, whichever is the number. This has an impact of 94 basis points. We still, on a conservative basis, consider the full deployment of the TRS, which has an impact of 82 basis points. You know that we have always a conservative approach. Why do we have a conservative approach? Because we have filed application with ECB, yesterday or two days ago for the SBB. We need to wait for their approval. ECB will take their time to give us their approval.
Depending on when the approval comes, I mentioned already, I think, in the previous quarter when we presented the numbers, that if the approval comes and they take the full period of time that they have at their disposal, this will be close to the end of July. Therefore, the SBB will start only in September. You don't run an SBB in August. Therefore, you know, we need to really understand what is going to be our position towards the year end. Having a conservative approach, we decided to have 94 basis points, so the full deployments of the SBB, EUR 750 million, and to keep the 82 basis points, the EUR 650 million that is related to the TRS. The other question was about the penetration of bancassurance in BPSO.
This is one of the avenues of further development of business in the combined entity. Today, BPSO has a penetration on bancassurance in terms of revenues of 2%, in terms of commission of 2%, whereas for us, BPER on a standalone basis, we're talking about 6%. You see here what is the growth that we can project. Obviously, this cannot happen by the end of 2027 because, let's say, we had on the 20th of April, the integration, the technical integration of the two banks. The real work will start now because we need to integrate the 500 branches of BPSO and to bring BPSO onto our level of cross-selling activity.
It will take some time, but the aim is to improve our numbers, to improve the 6%, because we want to further grow, and we do have opportunities of growing in bancassurance activity, and to bring BPSO onto the same level of BPER today. In as much as consolidation is concerned, today we are very busy in integrating BPSO. The acquisition, the merger of BPSO into BPER was an important step for the new bank, the new entity, the combined entity. It is placing us among the top player in the Italian banking sector. We see a lot of opportunities, very good opportunities to further grow. I mentioned that we have an 11% market share of branches in Italy. We have 57% of our branches in Northern Italy.
In Lombardy, we have almost 18% market share of branches, 25% in Liguria, 14%, 15% in Emilia-Romagna. We are very well-placed in the richest and most active part of Italy. Now we have to bring, you know, this 11% or 57% of branches up to an increase in the market share, the commercial market share. The market share in activity has also to grow. We have a lot of opportunities there to grow. I would say that we are concentrated very much on, you know, internal activity, organic growth. Obviously, as I mentioned also in the past, we work in this market, we are monitoring the market, we are seeing and reading what is happening almost every day.
You know, bearing in mind that for us, the main activity today is to integrate completely Sondrio. You know, never say never. Let's see what happens, then we decide what to do. Today there's nothing on the table, just full integration of BPSO.
Okay, thank you. Very clear.
The next question is from Ignacio Ulargui at BNP Paribas Exane.
Thanks very much for the presentation. I just have two questions. One is on the cost progression in the year. I mean, looking to what you were flagging before, Gianni Franco, on the integration of the factories, especially in factoring and consumer credit, the departure of employees agreed with trade unions. How should we think about the cost progression in the year? Should we expect the synergies to start being visible in the coming quarter, or that should be more a second half improvement in terms of starting to extract the EUR 190 million of synergies? The second one is on the commercial activity. I've seen that corporate lending in BPER standalone has been growing quarter-on-quarter.
Just want to get a bit of your thoughts on how should we think about corporate lending in the current context, if you have start to see any slowdown in demand from corporates. Linked to that, on the deposit front, in the quarter, there was a decline probably explained by seasonal factors, but I wanted to see, I mean, how do you see deposit evolution going forward? Thank you.
Thank you, Ignacio. Cost progression in the year, I mentioned that we have around 220 colleagues coming from previous agreement and 800 that will be leaving and coming from the latest agreement that there was signed in December last year. Consider this 800 will exit in batches, they will start the first batch, I think, the end of the third quarter, so by the end of September. Then we have, you know, progressively during the months going towards the end of the year. Let's say the cost saving on this, under this point of view will be really reflected in 2027 because, you know, we will have the cost for sure till the end of September for the whole 800.
This is where we see the positive impact going forward. The integration of the product factories, so the one related to factoring activity and the one of consumer financing, will happen probably in the fourth quarter, the beginning of the fourth quarter, because, you know, it takes also some legal framework that we have to go through in order to make sure that, you know, we do this. This will bring for sure a reduction in cost, although in as much as the consumer financing business is concerned, the entity that is BNT is a very small one, and therefore there we will not have very large savings. Nevertheless, quarter-on-quarter, we do expect to keep on reducing also non-HR costs.
Therefore, you know, we indicated as a guidance a cost income ratio of 45% to a close or around 45% close to year-end. We hope that we'll be able to beat this ratio, considering also that we will put a lot of effort in growing the revenue side. Obviously, cost income is made up of two element: cost on one side and revenues on the other, and we want to grow there. In terms of commercial activity, so far we have not experienced a deterioration of the activity or a slowdown. Obviously, the impact of the geopolitical situation, if it's not solved, will happen in the months to come. So far, we didn't witness any particular situation.
Is a matter of fact that if we look at BPER on a standalone basis, in the first quarter, we were able to grow 3.6%, which is, I believe, a very good number, considering the fact that we are really making our way in the corporate business. We are growing on the retail business, and we keep on having a very strong position in terms of mortgages for families and individuals, and we are growing also our activity on the transformation of liquidity into AUM and AUCs. In as much as liquidity is concerned, you know, first quarter, as you mentioned, is always, you know, you have always seasonality. Nevertheless, for us, to gather liquidity is one of the most important component of our activity.
This is something that we have been pushing in the last two years very much because having liquidity allows us to grow on the loan side without, you know, having problem in terms of liquidity, but also to rotate liquidity and to transform liquidity into AUCs and AUMs. Here, I think we are making our way especially thanks to Banca Cesare Ponti on the private banking side, but also on the activity that is done by our retail colleagues.
Thank you very much.
The next question is from Matteo Panchetti, Mediobanca.
Hi, good morning. I have two questions, please. The first one is still on capital. You have said that the 14.5% target included the share buyback and the TRS transactions. Should we consider the buyout of the minority of Sondrio and other potential impact separately, meaning that the 14.5% should be considered more as a floor rather than an actual target? My second question is on cost. You clearly said that you have a lot of cost saving initiatives during this year with the phasing in between 2026 and 2027. Will you be able to provide an absolute cost guidance for this year? Thank you.
Thank you for your question, Matteo. In as much as CET1 is concerned, yes, 14.5% is the floor. You know that we have always a conservative approach. Minorities are already considered, so it's really at the floor. As I mentioned before, we have also a conservative approach because we don't know when we are going to get the approval from the ECB, and therefore, you know, we don't know what the full impact would be. We've decided to indicate full impact by the end of this year for both TRS and SBB. We have a lot of cost saving initiatives in the sense that we have been having this in the last two years. We have, we keep relentlessly to work on reducing costs.
I would like to remind that 2.5 Years ago, this bank had a cost income ratio of around 62%. Today, we landed at 45%. Therefore, I think that we did already a hell of a job here. We will keep on pushing in that direction. In August, when hopefully, we are able to present our revised plan, we will give guidance, better guidance for 2026. We will give guidance also not only for 2027, but also 2028 and 2029. So the guidance will go beyond, you know, the expiry of, let's say, this current business plan that, as you know, ends in 2027.
The next question is from Andrea Lisi, Equita.
Hi. Thank you for taking my question. The first one is an update on the share buybacks on the 3% of the capital. You have indicated that on the total guidance that you assume include the cost of the share buyback plus the cost of keeping the full TRS. Should we deduct in some way that the share buyback will be executed not by using the TRS, the proportion TRS, but by buying shares directly on the market? Yes, this is the first question.
The second is, I have seen in the slide regarding capital movements in the quarter that you have accrued 53 basis points for distribution, 66 basis points, 67 basis points of organic capital generation driven by net income. This implies a ratio of distribution over capital generation of kind of 80%. Should we interpret it as an increase in the payout ratio from 75%- 80%? Really, the last one is, if you can provide an update on the hedging portfolio, if you have some data on if these elements on the contribution to NII, what to expect would be helpful. Thank you.
Thank you, Andrea, for your question. We have not decided yet what to do in as much as, you know, the SBB, whether to utilize the TRS partially, totally or not. We don't know exactly when we can start with the SBB. As I mentioned, taking a conservative approach, we decided to indicate and to deduct from the CET1 ratio both costs. In as much as the distribution is 75%, which is what we have decided and indicated in our strategic plan back in 2024. Obviously, I mentioned already several times, because maybe I'm already anticipating a question coming from some of you.
We always say that if also after the merger of BPSO, bearing any geopolitical and macroeconomic situation, because you never know what is happening, you know, in the world. We have this constant generation of organic capital, therefore we can land with a very positive spin in terms of net profit. We will might consider also a higher distribution on that. In as much as the first quarter concerned, we put aside 75%. Y our third question, because I didn't get, if you can repeat it, please.
Yeah. Thank you. It was about the replicating portfolio, if there is any indication you can provide?
Okay. Thank you. I'll put through Simone here.
You know, thank you very much. As we already stated in a previous presentation, we don't have a real replicating portfolio. Given the huge amount of mortgages and loans that we have in our balance sheet, you know, we are one of the bank with the more percentage of loans over assets among the Italian system. This is our natural hedging. We have clearly derivatives, but not a clear structure of replicating portfolio. If you mention instead the amount of interest that comes from bonds and swap, this is increasing clearly quarter-over-quarter.
Thank you.
The next question is from Giovanni Razzoli, Deutsche Bank.
Good morning. Thank you for taking my questions. The first one is again on CET1, because it seems to me that there is a bit of confusion about the way you treated the TRS on the share buyback and the CET1 ratio guidance at year-end. To make it simple, let's assume that tomorrow the ECB approves the share buyback, which has an impact you mentioned of 90 basis points-94 basis points on capital. Is it fair to assume that you will reverse then 82 basis points of cost of the TRS, so that at that point, your CET1 ratio will go up by 82 basis points, so to well above 15%?
If I also assume the other moving parts on the CET1 ratio, including the merger with Popolare Sondrio, which on my numbers should contribute around 40 basis points of more capital because of the issuance of the new shares and the impact on the minorities, your CET1 ratio will be well above 15%. What are the moving parts which are missing here to stick to your 14.5% guidance, which you interpret as something between 14.5% and 15%? The second question is on the disposal on the UTP portfolio. If you can please share with us what is the gross amount that you have sold. Thank you.
Thank you, Giovanni, for your question. First question, yes, you can assume, you know, assumptions is a free thing, then, you know, you can assume that if we receive the authorization for the ECB for the SBB and we start tomorrow, we might decide to utilize partially or totally the TRS. In that case, the assumption is that we will have a charge on 94 basis points for the SBB and a release of 82 basis points for the TRS total or in part in case it's in part. We haven't decided yet what to do, and therefore, conservatively, we have decided to charge both to the capital.
For the part related to the 40 basis point minorities and so on, and the way in which we build the 14.5%, which by the way, I mentioned before, there was another question, is the floor. Conservative approach, the floor, which means we could maybe be in a better position. I pass to Simone.
Thank you very much, Mr. Papa. I don't comment what already Mr. Papa has mentioned about the utilization of the TRS. As you correctly mentioned, in the 14.5% floor is already including also the benefit effect of the minorities. You have also to take in account that we have included a business dynamic that will generate risk-weighted asset as well as a little bit of operative risk-weighted asset like all the years. We confirm what you mentioned.
Sorry, I forgot to ask a follow-up on the share buyback. Can you confirm that so far the share buyback is not intended to the cancellation of the shares or have I missed something? Thank you.
For the time being, yes, this is the way in which has been approved by our board.
Thank you.
I put through Mr. Rodilossi for your second question related to the UTP portfolio.
Yes. Thank you. Thank you for the question . The gross amount was about EUR 70 million, EUR 67 million to be precise.
The next question is from Noemi Peruch, Morgan Stanley.
Good morning, and thank you for taking my question. I just have a few follow-ups. On the share buyback, is there an event that would trigger the cancellation of the shares, or it is something that we should take for granted? On the moving parts on capital, was wanted to make sure that I have all the moving parts correctly. Are there any other moving parts related to the TRS in the next nine months? Or did you get the full deduction related to this instrument with Q1? If you can update us on your SRTs program, please. Thank you very much.
Thank you, Noemi, for the question. In as much as your first question is concerned, the SBB cancellation for the time being, we announced that, you know, the shares will not be canceled. I already mentioned also in other meetings that we have a constant discussion and, you know, approach with the Board. If and when the Board decided to proceed to the cancellation of the shares, we will cancel the shares, you know, in total or partially, depending on the utilization we'll make. You know that we have a share program, for instance, for our managers and so on and so forth. For the time being, we stay with the non-cancellation of the shares. I'll ask Simone to take the second and the third question.
Yes. For the related for the moving part of the CET1 ratio, the TRS in the next quarter will forecast an impact for around 10 basis points, so therefore negligible. Related to the SRTs, as we have already mentioned, we are ready. We have the engine ready to, let me say, launch the SRT whenever we think we need at the moment. We don't plan this quarter to launch any SRT, but as mentioned before in a previous presentation, we are ready in any moment when the board will decide.
Given the current capital structure and giving a CET1 ratio of 14.9%, I don't think that we feel compelled to do SRT for the time being. As Simone mentioned, you know, we have the structure ready, and if we decided to move for different reasons, not related to capital, by the way, but because, you know, maybe interest rates are in the right, following the right direction and so on, you know, we are ready to do, to move in that direction.
Thank you.
The next question is from Sofie Peterzéns, Goldman Sachs.
Yeah, hi. Here is Sofie from Goldman Sachs. Thanks a lot for taking my question. My first question would be, how should we think about the capital impacts from the final merger in Q2? My second question would be on risk credit assets. They were broadly flat this quarter, but how should we think about the future risk credit asset reductions from kind of moving BPSO models to more IRB models? My final question would be like, how do you think about kind of upside risk to the EUR 100 million revenue synergy target that you guided for? Are you seeing better prospects to grow your revenues than initially expected, or do you think the EUR 100 million is still very valid? Thank you.
Thank you, Sofie. I take the third question about synergies target, then Simone, our CFO, will answer the first two questions. In as much as synergies are concerned, we indicated EUR 290 million when we launched the offer for BPSO. For the time being, we stand at EUR 290 million, given the fact that by 2027, given the fact that we have basically 18 months to proceed. Until the acquisition of the minority shareholders, we could not do anything because the bank was a listed one, so we had to respect minorities' rights and so on and so forth.
Now, with the cancellation of the shares and the full integration of BPSO into our bank, you know, we have these EUR 290 million, which we consider a very ambitious target given the fact that we have 18, 19 months to deliver it. Nevertheless, and this will be treated when we present the update of the plan on the sixth of August, we will give also an indication and guidance on what will happen after 2027. We give an indication for 2028- 2029 because we do expect to have and to be able to produce further synergies both on the cost side and on the revenue side, but that cannot be delivered by 2027. I'm positive on the fact that we can have better synergies.
Historically, BPER, when has merged other banks into, you know, the latest acquisitions we made, has been always able to deliver better synergies than what was indicated. You know, this will happen after 2027, so we stick to the EUR 290 million for, you know, the period till the end of 2027. Simone will take your first two questions.
Yes. Thank you very much, Mr. Papa. As mentioned by also one of your colleagues before, you can assume, and it's already including in the 14.5% floor that we have forecasted for year-end, you can assume from M&A operation around 40 basis points, 50 basis points positive effect. In relation to the risk-weighted asset BPSO effect, we are taking in account overall between the business dynamic risk-weighted asset operative and other effects around 40 basis points, 50 basis points.
Thank you.
The next question is from Luís Manuel Grillo Pratas, Autonomous.
Morning, everyone. Thank you for taking my questions. My first one is on the standalone cost savings. From memory, you target EUR 280 million cost savings across your standalone business plan. I wanted to ask you how many of the EUR 280 million cost efficiencies were already executed. Could you please disclose whether there is any overlap between these cost savings with the, you know, the EUR 190 million cost synergies from the Sondrio combination? My second question is on cost of risk. Your full year cost of risk guidance appears quite conservative, you know, considering the performance that you already achieved and asset quality metrics seem to be improving. I wanted to ask you if you are seeing like any early signs of deterioration given the macro uncertainty.
Have you updated already your IFRS 9 models with like weaker GDP expectations? Whether we should expect any top-ups in cost of risk in the coming quarters. Thank you.
Thank you, Luís . If we look at your first question, the standalone cost savings, I don't have the exact number with me, but we are beyond the plan. We are performing better than what we had indicated in our business plan. We will provide you with the exact number, by the way. It's not on the top of my mind now, but we are better than expected and what we have planned. This is not including the EUR 190 million cost synergies coming from BPSO. When we presented our business plan on the 10th of October 2024, we didn't have under our radar screen BPSO as a possible acquisition target. The EUR 290 million was on BPER standalone.
As I said, better than plan. On top of that, we are going to add the EUR 190 million synergies coming from the acquisition. Cost of risk, conservative. I will ask my colleague to give you a more specific and technical answer. You know, the geopolitical and macroeconomic situation deriving from the geopolitical situation, gives us, you know, I want to say not the opportunity, but for sure, it push us to be conservative in indicating the cost of risk. Although I am with you with the fact that this is a very conservative approach. We don't know what to expect, and more than that, we don't know when this geopolitical crisis will end. I will ask Mr. Rodilossi to give an answer, however.
Thank you. Our CEO has already highlighted the key points. Nevertheless, we can remark that overall the asset quality remains very solid. Given the current geopolitical situation, we have overweighted our downside scenario to take into consideration the uncertainty and the volatility of the scenario itself. At the moment, we do not observe any deterioration. Anyway, we are considering also the possibility of a recession in our scenarios. Thanks to our prudent approach, we can say that we can face the eventual crisis with relative confidence without the need of drastic measures. About BPSO and their models, yeah, we are working and, we think that, for BPSO exposure, the level of the coverage will converge to the BPER one.
Thank you. Does that mean that the top ups, since you said that you overweighted the downside scenario, does that mean that there was a top up in cost of risk this quarter, or shall it happen only in Q2? Thank you.
Well, in Q2, we will apply the BPER framework, so we should have the effect in the Q2 results.
Thank you.
The next question is from Juan Pablo López Cobo, Santander.
Yes. Good morning. Thank you for taking my question. I got one regarding the cost to income guidance, the 45%. I'm struggling a bit to get to that number, to be honest. If I look to the main P&L items, we should expect NII to evolve positively during next quarters, fee incomes probably as well. The financial income impact in this quarter will be reversed, and then we will or we should expect cost savings on synergies to come during the next quarters. Am I missing anything here? Why do you expect cost to income to remain at the same level as this quarter? Maybe a related second question, a bit more detail regarding the cost savings.
You just mentioned that because the merger happened just in April, you were not able to get any synergies. Could you give us any indication of the synergies? You mentioned 25% for 2026. That should apply both for cost and revenues. Another question is the 400 temporary employees, could you give us any indication of the impact on timing when that will disappear? Thank you.
Thank you, Pablo, for your question. Cost income guidance 2026. As I mentioned, cost income ratio is made up of two items, cost and income. We do expect, I mean, as much as income are concerned, we have indicated that in terms of net interest income, those are to grow and be up mid-single digits. We do expect to see a positive indication there. As I mentioned, we will have also a partial reduction of cost. One, the most evident and earlier one will be from the exit of the first batch of people. The 220 colleagues that will be exiting the bank from the old agreements that were reached in the past by the bank.
Then progressively, we will have, you know, smaller saving, coming from the 800 colleagues that will start exiting the bank by the end of September. The first batch will bring three months of saving and then going forward, you know. The total, let's say, benefit will be very evident in 2027. We had the famous, this 400 temporary worker that have been helping us in the merger. We'll see what happens now with the merger, because as I mentioned, we had the technical merger taking place on the 20th of April. We are progressively, you know, having these temporary workers leaving the bank as long as we go for the integration and the activity related to the integration.
As mentioned, the synergies both on cost and on revenue side will be deployed by 25% in this year and 75% in 2027. Obviously, this is an assumption that we'll be striving to deliver more in 2026. You know, let's see whether we can do better than the 25%, but, you know, this is the indication that we can give today.
Okay, thank you.
The next question is from Hugo Cruz, KBW.
Hi, thank you for the call, for your time. Just a couple of clarifications. First on the impact of the rate rises, you know, you give the sensitivity. I was wondering how quickly does that get reflected in your NII? You know, should you know, if we believe rates up, rate hikes go up this year, should we see a benefit already in the first quarter after the rate hikes or before? Or does it take a bit longer to reflect in your numbers? That's the first question. Second, the TRS, I'm still a bit unclear about how it all works. You know, in Q4, you disclosed a CET1 impact of 62 basis points. Now you're talking about 82 basis points. I'm not sure if that's in the Q1 number or if it's already marked to market for, you know, the latest prices.
I think you mentioned another 10 basis points negative impact in the next quarter. You know, is it all going to the P&L or there's some part that goes against capital? If you could clarify, that would be helpful. Thank you.
Thank you, Hugo, for your question. We'll ask our CFO to take the two questions.
Okay, thank you very much, Mr. Papa. Regarding the impact on the rates increase, we clearly we don't have the impact immediately, but we can assume that after one quarter we have half and then the full after the, in the following, in the following quarter. This is our assumption. Regarding the TRS, we have 10 basis points this quarter, and we will have 10 basis points, we assume, next quarter on the capital, clearly.
Excuse me, last year we said that 62 basis points was the impact on 2025, and we had additional impact in 2027. Maybe this was the missing part that, you know, you couldn't maybe remember. The overall impact is 82 basis points, of which one impact was already calculated in 2025 when indicated the CET1 ratio, and the differential, which is the 20 basis points, is 10 basis points the first quarter and 10 basis points the second quarter, but was already indicated last year.
Okay, thank you very much.
The next question is from Adele Palamà, UBS.
Yeah, hi, good morning. Sorry, only a few clarification. On the NII guidance, I understood that a 2% three-month Euribor is embedded as an assumption. Which is the assumption on the lending growth for 2026 for the combined entity? On the replicating portfolio hedging contribution for first quarter, so for this quarter, how much is the contribution into the NII? On fees, so into the first quarter, how much is the contribution from upfront fees? Which is the market performance that is the market performance assumption that is included in the guidance? Which is the tax rate that we should assume for 2026, 2027 as well? Only a clarification on the RWA.
You mentioned that the alignment of the credit RWA for Sondrio should bring around 40 basis points to 50 basis point impact, I guess is positive. Is that included in the 14.5% target or is on top? Thank you.
Thank you, Adele. The guidance for in as much as loan growth is concerned, as I mentioned, we believe that we'll be able to have a growth of around 3% in order to be able to deliver the 3% CAGR that we mentioned in our business plan, the strategic one presented in 2024. Last year we were at 3.2%, I go by half, 3.3%. We see, in any case, a pickup going forward, we stay broadly in line with that growth. In as much as the other questions are concerned, I think that in as much as the replicating contribution is concerned, Simone, our CFO, already answered that we don't have a replicating portfolio, basically.
There's no contribution here, coming from a pure replicating portfolio because we have a natural one. Therefore, this is already embedded in our, in our numbers. In as much as the upfront fees, historically, we have around EUR 110 million-EUR 120 million per year. I think we are around EUR 30 million-EUR 35 million on quarter, something like that. I think also in this, in the first quarter we had this. As a matter of fact, maybe this quarter we had slightly more because we had, we participate for our customers in the issuance from the Italian government of BTPs.
We bought for our customers EUR 1.4 billion, and we had also issuance of certificates, which bring, you know, upfront fees. The overall amount usually we are talking about on average EUR 30 million per quarter. We try not to have upfront, but to stay on, you know, the recurring fees coming from all the different products. Tax rate, I'll ask Simone to answer.
The tax rate that you assume for year-end is 35%, following the new law of last year that has increased the taxation of 2%. Regarding the last question that you mentioned, I said before that we have 40 basis points, 50 basis points, not for the risk-weighted asset of BPSO, but because of the minorities, M&A operation. This is the positive effect that we have. If not clear, maybe we can clarify bilaterally.
Okay. Like, then the RWA I mean, the RWA alignment of Sondrio with BPER, which will be the effect? Is it, I mean?
Okay.
Are you considering any effect?
Thank you. Thank you. Thank you for the question. The answer is a little bit technical because we are not authorized to use our internal models on BPER exposure. For this reason, we submitted last in September 2025 a return to compliance plan to ECB that authorized this plan. The plan foresees to apply a simplified approach on RWA calculation of BPSO, on the stock of BPSO exposure based on BPSO models. It is a transitional approach that we used also for the former UBI transaction. The return to compliance plan foresees also to redevelop our models, including BPSO exposure. Anyway, the application package is planned for to be submitted by the end of 2027. The bottom line is that we expect a stability of RWAs on BPSO exposures.
Okay. Thanks.
As a reminder, if you wish to register for a question, please press star one on your telephone. For any further questions, please press star one on your telephone. Gentlemen, Mr. Sponghi, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
Okay. Thank you very much for participating to our session, and obviously, we are always at your disposal for, you know, one-to-one interaction. Thank you. Bye.
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