This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank first quarter 2018 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. Alessandro Foti, CEO of Fineco. Go ahead, sir.
Good afternoon, everyone, and thanks for joining our first quarter 2018 results conference call. Net profit in the first quarter reached EUR 59 million, a remarkable +41.1% year-on-year, and EUR 155.1 million of revenues, +9.5% more compared to the previous year, with all product areas positively contributing. Operating expenses were EUR 69 million in first quarter 2018, well under control despite the continuous expansion in assets and clients. Cost-income ratio down at 41%, -1.8 percentage points year-on-year, thanks to our strong operating leverage and the scalability of the platform. As usual, the first months of the year were affected by some seasonality, such as financial planners, social security contribution, so not particularly relevant in commenting the operating performance. Now go through the following slides to analyze more in details all the dynamics of our results. On slide six, now we have on the net interest income.
In the first quarter 2018, net interest income was up more than 9% compared to one year ago, supported by double-digit growth in volumes, both sticky side deposits and lending. I would highlight once again our strong commitment in building a very high-quality lending portfolio, thanks to a strategy focused on offering this product exclusively to our loyal and very well-known base of clients. Finally, let me highlight that net interest income quarterly comparison was affected by a restructuring of a UniCredit bond in arrears. The IFRS 9 first-time adoption and the following restructuring of the bond produced two combined effects.
The valuation at fair value of this bond generated a positive impact on our balance sheet of around EUR 9 million, while the restructuring of this bond, which has a residual maturity of around one year, generated a negative effect of EUR 1.8 million in our first quarter 2017 net interest income. Net of this discontinuity, net interest income would be up by 1% quarter-on-quarter and 2.4% year-on-year. In the following slide, you can find the development of our government bond portfolio. As anticipated during our full-year results conference call, our intention is to further diversify our investment portfolio through the non-renewal of expiring UniCredit bonds and the increase of European government bonds, in addition to the already announced focus on lending activity. Let me also remind our sensitivity to a potential increase in interest rates. A parallel shift of 100 basis points would generate EUR 119 million of additional net interest income.
On slide eight, fees and commissions strongly up year-on-year, a double-digit growth mainly boosted by investing fees. In particular, management fees grew 10.7% year-on-year, thanks to the improvement in the asset mix, as asset under management increased 11.2% year-on-year with a strong contribution of gathered products and services, which recorded a growth by 22.6% year-on-year. The quarterly comparison was slightly affected by negative market performance and by around minus EUR 4.8 million related to the new long-term incentive plan to financial planners accounted in this line starting from 2018. Brokerage performed very well thanks to higher volatility compared to 2017 and to the enlargement of the product offer. Core revenues in first quarter 2018 ranked as the third best period. We will deep dive on this later on.
Moving to slide nine, we have a detailed overview on cost evolution. As you know, the focus on efficiency is core in our bank. Staff expenses were at EUR 20.5 million in first quarter of 2018, 6.9% more compared to the same period 2017 due to the increase in the workforce related to the business growth. Other administrative expenses at EUR 40.8 million. As anticipated, the first quarter was affected by the usual seasonality related to higher professional financial planners' Social Security contribution, such as Enasarco association, and Fair Termination Compensation Fund, as the payments are subject to an yearly cap. Moving to slide 10, Fineco confirmed its strong capital position with a transitional Common Equity Tier 1 ratio at 20.15%, and the Common Equity Tier 1 ratio fully loaded at 20.08%. Total capital ratio transitional at 28.49%, including the Additional Tier 1 issued at the beginning of 2018.
Let me highlight that the bank is working on the look-through implementation to drill down the underlying assets provided by clients as collateral to Credit Lombard. This will allow a lower risk-weighted asset absorption according with the real underlying assets. On slide 11, we show an overview of the total financial assets growing trend, supported by the healthy expansion in new inflows. EUR 24.6 billion net sales since the end of 2012 led total financial asset to EUR 68.1 billion as of March 2018, confirming Fineco's potential to consolidate its position and take advantage from structural trends in place in Italy, the increasing demand for advanced advisory services, and growing digitalization. This is also confirmed by our market share on total financial assets still increasing at 1.61% as of December 2017. Moving to slide 12, we summarize the breakdown of total financial assets.
As you know, we are strongly focused on the quality and the sustainability of our assets gathered. In concurrence with the ongoing initiatives to improve the productivity of the network, the asset mix is constantly moving in the right direction with a definitely better mix. As of April 2018, financial assets totaled at EUR 69.3 billion, plus 10% year-on-year, of which EUR 33.6 billion represented by assets under management. Gathered products increased their penetration rate to 65% on total assets under management. On the right side of the slide, assets under management grew EUR 9.5 billion from the end of 2014. Leveraging on our cyborg advisory approach, the growth skewed towards gathered products and services increased by EUR 12.9 billion in the period, with a stronger acceleration in 2017. Net sales breakdown. We released today very solid commercial data also for April.
We gathered EUR 2.24 billion of net sales in the first four months, an increase of 13% compared with the same period of last year. The monthly mix was characterized by higher liquidity component and by a temporary slowdown in gathered products, as both clients and personal financial advisors were in a wait-and-see mood for the launch of some brand-new products and services at the end of April. We provide you a deep dive on our new Plus and Core Target Multiramo solutions later on in the presentation. Let me just underline that they will be particularly suitable in periods with high market volatility, and very effective in overcoming emotional reaction by clients during phases of market turmoil. Net sales gathered through our financial advisors were at EUR 2.05 billion as of April, +50% year-on-year.
They are strongly committed in moving clients into added-value solutions, helping clients in managing their wealth with a long-term approach, bearing in mind the client's investment target. As you know, moving to slide 14, our growth strongly leverage on the organic component, thanks to the unmatched quality of our services. In the first quarter 2018, out of EUR 1.7 billion of net sales, 83% was organically generated through the existing financial planners or directly by the bank, and 17% came from recruits made in the last 24 months. As you know, in our view, this growing strategy is strongly sustainable in the long run, also from a future cost sustainability perspective, positioning the bank in the sweet spot to cope with future pressure on margins and potential challenges. For us, recruitment is exclusively aimed to improve the quality of the network through selected new recruits.
As of March 2018, the stock of recruitment cost to be amortized in our future P&L amounted to EUR 24 million. Stable compared to one year ago, confirming the future cost sustainability. I would skip directly to page 18, to the next section, before moving the last part of the presentation. Brokerage. It is worth spending a few words on brokerage, confirmed as a strong contributor to our revenue generation. As you can see in the chart at the bottom, core revenues in the first quarter 2018 ranked the third-best quarter since 2013, but the best quarter with this level of volatility, thanks to the continuous enlargement of the client base and market share, combined with a broader product offer, allowing clients to find volatility also when there is none on the market. Let's now move to the last part of the presentation on Slide 23.
As you know, since the beginning, our strategic decision has been to manage internally IT and operations. This is part of our DNA, and the relentless process of know-how improvement made in the last 20 years represents a unique competitive advantage for us. This successful choice translates into a high level of efficiency and huge platform scalability, resulting in a strong competitive advantage. Thanks to our proprietary back end, internal development, and automated processes, we can benefit from a lean and efficient cost structure and time to market in delivering what our clients need. As you can see in the graph at the bottom of the slide, this strategy allows us to benefit from a strong operating gearing, as there is a strong correlation between growth in total financial assets, clients, and profits. cost-income ratio is the only KPI that is constantly decreasing despite the continuous expansion of our business.
Slide 24, commercial loans grew 117% year-on-year with the usual strict control on cost of risk. Let's remind that our lending is offered exclusively to our loyal customer base, and our deep internal IT culture allows us to fully leverage on big data analytics. This translates into cost of risk very well under control, as you can see in the right side. First quarter 2018 is not fully comparable with the previous periods due to the introduction of new accounting standards. However, for 2018, we expect a stabilization of cost of risk at full year 2017 levels. Let's move now into analyzing lending initiatives more in depth. As you can see in Slide 25, the lending offer is very well welcomed by our clients. Mortgages reached a production of EUR 621 million in the first quarter, more than 20% up compared to the previous quarter.
This is a very good result, with almost 5,800 mortgages granted, with an average loan-to-value of 52% and an average maturity of 19 years. For 2018, we expect a yearly new production of around EUR 500 million, as we prefer to maintain a cautious approach without entering into red zones characterized by aggressive prices, high loan-to-value, and longer maturities. We expect also a normalization of yields in 2018 on around 90-95 basis points. Personal loans grew more than 35% year-on-year, and margins remain very attractive. Our expectation in terms of new production is around EUR 200 million per year, which means EUR 100 million net in terms of delta stock, with an expected yield in the range of 400-450 basis points. Lombard loans at EUR 728 million, more than doubled compared to one year ago with accelerating growth of the new credit lombard.
In 2018, our expectation is to grow around an additional EUR 500 million with an average yield of around 110-120 basis points. Moving on Slide 27, just a few words on the new asset management company. The project entered its final phase, and the company is expected to run at full steam ahead of schedule. All the formal steps have been done. We are just waiting to receive the formal approval by Central Bank of Ireland. Slide 28, new products and services. As previously announced, at the end of April, we launched Plus, an evolution of our cyborg advisory model. This brand new integrated advisory platform, very flexible, offers very high customization in building clients' portfolio, maintaining a digital and paperless approach. Plus, it is a holistic multi-asset and multi-purpose.
Financial advisors can include all the products available, not only asset under management, but also asset under custody and even liquidity. As the platform is fully developed in-house, it's zero cost for the bank and perfectly integrated with clients' current account. Moreover, it can be used as a financial education tool to drive clients in a process of financial awareness. With a fee on top in a range between 20-100 basis points, with a differentiated pricing for asset under management, asset under custody, ETFs. These products will help us making asset under custody profitable and will speed up the transformation into asset under management. We also recently launched Core Multiramo Target, a new multi-line policy which combines safety from traditional insurance policy with the investment opportunity coming from market volatility.
This solution is particularly suitable in periods with high market volatility and is very effective in overcoming emotional reactions by clients during phases of market turmoil. Slide 30, further opportunities. Finally, we recap new interesting opportunities on slide 30. As you know, we started to offer our banking and brokerage service in the U.K., and the first outcomes are, as expected, very encouraging. We reached over 1,800 clients with a very interesting mix, as 51% is represented by Italian U.K. residents and 49% non-Italians, of which 36% are native British. As you know, in our estimates, we do not include neither revenues or cost. This project represents the concept car for the future evolution of our bank, as we now have a perfect blueprint that could be redeployed in other European countries.
We applied for Patent Box in December 2015, both for intellectual properties as our platforms internally developed and also for trademark. Talks with the Italian fiscal authority are entered in the final phase. We are very confident about the possible outcome. This process is expected to be closed in the coming month. Fiscal benefits will cover five years from 2018 to 2019. Intellectual properties are renewable according to international guidelines. Thanks for your time. Now we can open the call to questions.
Excuse me, 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 touchtone 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 comes from Gian Luca Ferrari, Mediobanca. Please go ahead.
I have a couple of questions. First one is the launch of this new Multiramo life insurance product. I was wondering if your legal department had the chance to read into the ruling of the Italian Supreme Court related to the fact that unit-linked policies and potentially also the Multiramo, the hybrid products, could be defined as financial products and not insurance products. If you can comment a bit on this. Second and last question is a bit more color, if you can, on the RWA reduction coming from the look-through of the collaterals. Any sense of how this could impact your RWA? Thank you.
Regarding the recent pronouncement by Italian Cassazione, that is regarding this point, first of all, I want to redirect you to the just recent statement by ANIA, that is the association of the insurance companies, that has taken very clear position, explaining that this pronouncement is related to one specific topic and is not involving generally speaking, the industry. In any case, regarding coming to our product, in this case, the main rationale behind in terms of the selling rationales behind these products are presented by the fact that there is a component that is the gestione separata, that is not affected clearly because this component is a capital guaranteed product, and so clearly is in many cases not involved in any kind of this situation.
Second, clearly, because this product is giving to the clients the possibility to de-accumulate from a capital guaranteed product with a very high return progressively into the equity market. Is the second reason why our clients are extremely interested in this product, because they have the opportunity to enter progressively in the market, taking advantage from volatility. What's going on on that side for combining together these two components is absolutely relevant for the future development of this product. Regarding the impact of the look-through on risk-weighted assets, I want to be sure that there is not a misunderstanding, because the implementation of the look-through is going to decrease the consumption of risk-weighted assets. We expect, because clearly cautiously, we expect that our hypothesis implemented the look-through approach more or less on 50% of credit lombard collateral.
This is expected to generate a lower reduction of core tier. A positive impact of between 150 and 180 basis points on the core tier one ratio.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question comes from Elena Perini with Banca IMI. Please go ahead.
Hello, good afternoon. I have only one question about your Irish company, your Irish project. I would like to ask you if you are worried about, well, you have a Cooperative Compliance scheme with the Revenue Agency, so you should not have any particular worries, but if you have some kind of concern about the fact that recently Banca Mediolanum received a notification from the Italian tax police regarding also some fiscal years where an agreement was already reached with the Italian Revenue Agency. If you are confident that your agreement could be a definitive one with no potential risks in the future. Thank you.
Yes, many thanks for your questions. This is the reason why during presenting our Irish project, we have been so accurate in describing the fact that the bank has been admitted back to the Cooperative Compliance scheme. The Cooperative Compliance, I want to remind that at the moment, we have only five companies in Italy that have been admitted to Cooperative Compliance scheme. One is UniCredit, our parent company, then there is Fineco, then we have Leonardo and Ferrero and Prada, and other are waiting to be admitted. This new approach is clearly expected to shelter us completely by this kind of situation. For example, if you are under this kind of scheme, there is no possibility for the fiscal police to prosecute the company, because the only interaction is going to be with the Italian Fiscal Authority.
Second, again, I want to repeat that the main advantage is that you can sit at the table in advance with the Fiscal Authority, discussing everything, and when everything is completely agreed, there is no possibility to receive any future possible claims. You were mentioning Mediolanum. Mediolanum is not part of this Cooperative Compliance scheme, this is the reason why they have this kind of issue on the table.
Okay. Thank you very much for your clarification.
The next question comes from Giuseppe Mapelli with Equita. Please go ahead.
Yes. Good afternoon. I have two questions. The first one is on your Fineco Plus platform. Can you share with us what is the reaction of the clients? I know that you just launched these new products, but the first reaction could be useful for us to understand what could be the reaction on this product. My second question is on Fineco Asset Management. If you can give us some color and elaborate a little bit more about the process that is going on, at which stages we are currently. Thank you.
Regarding Plus, the reaction of clients, considering that we are talking about just 10 days, is been absolutely very well above our expectations. It's pretty clear that this is the perfect product, both for clients and financial planners, because again, it's extremely flexible because you can approach your clients from every different angle of view. It is absolutely great in terms of the customer experience. The reaction is absolutely outstanding. For this reason, we have even greater expectations looking forward. On the fund processes, practically, now the situation that everything has been finalized, and we are just waiting for the final signature by the Central Bank of Ireland that is expected to come very soon. Everything, all the process regarding the different filings has been finished. No problems emerged.
Now that is exclusively on the table of the Central Bank of Ireland for the final last signature. We confirm that we are confident that we are going to be up and running ahead of schedule.
Thank you.
The next question comes from Filippo Prini with Kepler Cheuvreux. Please go ahead.
Yes. Good afternoon. Two question. The first one is on cost. If you can confirm your guidance on cost for the full year, excluding the EUR 5 million additional coming from new product factory in Ireland. The second one is on the Patent Box. I see that you're still waiting for the final answer from the tax authority by end of the year, if you can assume that this will be something as an impact quite material on your earnings generation. Thank you.
Regarding cost, the answer is yes. We are confirming our guidance. Clearly, we expect in terms of cost, considering that is a growth in the range of between 3%-4% year-on-year. We've been on top of that, the EUR 5 million related to the Fineco Asset Management in Ireland. Again, we are confirming a continuously declining cost-income ratio . Regarding what's going on the Patent Box with the most recent developments, we had a conversation with the fiscal authority. I leave more to Lorena Pelliciari, our CFO, for the update. Please, Lorena.
Yes. We started the discussion with the Revenue Agency with the focus on software and brand in October 2017. The feedback we received was positive. The evaluation method was shared. In the following weeks, the agency will focus on the functional analysis for the attribution of extra revenue for the software. What we expect regarding the intellectual properties could be material, we don't have now the possibility to give you a precise guidance on that because we need to close the process with the agency.
Yes. Everything more or less the most part has been agreed. I confirm that what Lorena, she's saying that the impact when it's finalized is going to be material on the P&L of the bank. Also very important to consider that the most part is going to be represented by intellectual properties related to software. This is not exclusively related to the 5 years period, is going to be on a running basis accordingly with the international standard rules. This is the reason why it's so important, this is the reason why is because Fineco is in a unique position because again, thanks to our approach base of internalization of IT and operation infrastructures, Fineco is one of the few, probably, banks that is in the position to capture this kind of opportunity.
Okay. Many thanks.
For any further questions, please press star and one on your telephone. Mr. Foti, there are no more questions registered at this time.
Thank you very much for attending our conference call, talk to you later. Bye.