Bper Banca SpA

MIL:BPE

Q2-2025 Earnings Call

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Second Quarter 2025 BPER Consolidated Results Conference Call. [Operator Instructions]

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.

[Nicola Sponghi, executive]

Thank you, and good morning, everyone. I'm pleased to welcome you to our second quarter and first half 2025 earnings conference call. Before I give the floor to our CEO, Gianni Franco Papa, please remind that our slide set and press release can be found on our corporate website. I would also advise you to take note of the disclaimer on Slide 2 of the presentation document. That said, after the presentation, our CEO, our CFO, Simone Marcucci; and our CEO; Emanuele Cristini, will take care of the Q&A session. I will reiterate that this will reserve for financial analysts who can be request to ask a maximum of 2 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.

[Gianni Giacomo Pope, executive]

Thank you, Nicola, and good morning to everyone, and welcome to our Q2 and first half results presentation. Before I start giving you details of our financial performance, I'm keen to spend a couple of slides on the progress of the business combination with BPSO. We were among the last leading banks to launch an offer, and we are the first bank among Tier 1 banks, which has been able to complete the first phase of the transaction with an extremely high level of acceptance above 80%. Such a high acceptance rates will allow us to move rapidly with the full integration of BPSO into beeper. This is a particular area where we can boast a significant track record. Concrete examples are the integration of Banca Carige, [indiscernible], Unipol Banca and Banco di Sardegna. Needless to say that the financial community has recognized a very strong strategic and business rationale of the transaction. In the same way, investors have deemed the tender offer price to properly reflect the value of the business combination. I would like to highlight that the total consideration paid to BPO shareholders breaks into a consideration of approximately EUR 528 million of newly issued BPER ordinary shares equivalent to 27.1% of BPER share capital and a consideration of approximately EUR 364 million in cash. We have already launched a number of internal work streams, and we expect the full integration to be achieved before first half 2026.

As you can see on the slide, thanks to the transaction BPER, we strengthened its position as a leading player in the Italian banking sector with a very strong presence in rich Northern Italy, particularly in Lombardy. We have summarized the positioning of BPER in terms of TFAs, loans, deposits and branches on the left side of the slide. These have been calculated on the basis of aggregated financials as of June 2025. The most important message I would like to pass on to the financial community is that the merger with BPSO acts as an accelerator to our plan, be B:Dynamic Full Value 2027. On the right side of the slide, you can appreciate our most important targets. From an accounting perspective, the first consolidated financials, including BPSO, will be disclosed to the financial community with our Q3 results in November. While we expect to update the financial community with the progress of our business plan, not later than first half 2026.

On this slide, you can see the indicative time line of the transaction. Up to now, the transaction has been carried out flawlessly. However, a number of other very important steps have to be completed. And among these, the appointment of the new Board of Director of BPSO, the approval of the merger plan for the incorporation of BPSO into BPER and the submission of the relevant application request to ECB. And finally, the completion of the integration of the 2 banks, which we expect by first half 2026. As I mentioned earlier, 2 key dates for the financial community will be 2025 results when the consolidated financials will include BPSO and first half 2026 when our B:Dynamic Full Value 2027 plan will be updated.

Ladies and gentlemen, this second quarter has been the best ever quarter of BPER. Along with the results achieved in Q1, I can proudly say that these have been the best ever 6 months results of our group. Before I start giving you details of our financial performance, I'm keen to highlight a number of key features of this remarkable Q2 2025 results, underlining that progress on our B:Dynamic Full Value 2027 is well on track. First and foremost, First half 2025 was our best ever 6 monthly results with the bottom line standing at EUR 903 million. [indiscernible] results in Q1 '25 was further strengthened in Q2 despite declining interest rates and geopolitical turmoil. Although 6-monthly NIIs lead by 3.4% compared to the previous year, NII in Q2 was resilient as the bank commercial effort more than compensated the impact of the reduction of interest rates. In this context, thanks to the relentless dedication of our teams loan volumes were positively affected by significant new loan origination of EUR 6 billion, a plus 22.3% on a year-on-year basis. In line with our plan, commissions continue to have a very positive run throughout the year, given the focus on AUM, life insurance and Bancassurance products. We have further strengthened our performance in Wealth Management, where commissions increased by above 9% compared to the previous half in 2024. Our profitability remained high with an adjusted return on tangible equity at a robust 20.4%. We maintain a very solid capital position with a CET1 ratio at 16.2%, resulting from an organic capital generation amounting to approximately 200 basis points equal to EUR 1.1 billion in the last 6 months.

As already mentioned in the past, we will be able to carry out the merger process without capital-related constraints. And finally, the quality of our loan book continues to stand at the best levels in the Italian banking industry with a cost of risk of 31 basis points. These exceptional results have been achieved, thanks to the hard work of all of us. We have maintained a strong focus on the transformation of BPER into a go-to bank for individuals, families, SMEs and corporates, an important step from being a pure relationship bank.

Let's move on to the net profit drivers on Slide #9. As I mentioned earlier, the combination of the remarkable results in Q1 and Q2 2025 allowed to report the best ever half yearly results. The quality of our revenues remain outstanding. NII has proven to be very resilient in spite of lowering interest rates. I'm extremely satisfied about the progress of commission income, although these were impacted by an exceptional number of holidays in Q2. That said, progress is solid. Commissions increased by almost 5% versus the first 6 months of 2024 and increased by 1.2% compared to Q2 '24.

Given the current geopolitical turmoil, let me underline that BPER is a bank deeply rooted in Italy with a low business exposure to global markets. In addition, we are proud to state that we are a commercial bank with a complete banking offering and the focus on asset gathering. In the pages to come, we will provide you with an in-depth review of each and every item.

Let's move on to Slide #10. These remarkable results make us very confident to meet our 2025 guidance and allow us to improve it on a number of drivers. We upgrade our guidance on total revenues from EUR 5.4 billion to EUR 5.5 billion despite our internal scenario of lower rates, which was reduced from 2% to 1.75%. The continued commercial push makes us more confident on the loans outlook. In the same way, the solid progress of commissions will continue throughout 2020. We improved guidance on cost-to-income ratios from 51% to 50% given our focus on operational efficiency. And finally, we revised upwards our guidance on CET1 ratio to above 15.5% given the bank progress on internal capital generation. This is particularly important in the context of the merger process with BPSO. Let me add that we expect the CET1 ratio of the combined entity to stand at approximately 15% on at the end of December 2025.

A quick glance at the progress of our business plan, which I remind you, remains to date stand-alone. Firstly, I would like to highlight the remarkable achievements of BPER ranking in first position as best small and mid-cap bank in Europe by [indiscernible]. In this context, I would like to thank all my colleagues for this exceptional results. A couple of additional highlights. New lending in the first half rose better than expected, thanks to our strong commercial actions. Reported new lending in first half 2025 reached EUR 10.4 billion, a 20.7% increase compared to the first 6 months in 2024. The positive results were achieved across several lines. Residential mortgages grew by 6.1%. Consumer credit by 18.6% and corporate loans increased by almost 30%. Commissions continue to register a remarkable performance. We noted an important contribution of AUM commissions and Bancassurance both running at double-digit growth rates. We continue to work rigorously on the progress of our digital and remote channels, now enabling approximately 20% of our new personal loans being fully processed digitally.

In addition, we are now in a position to dedicate approximately 50% of the frontline time to value-added commercial activities as a result of the positive impact of operating efficiency initiatives. Our capital ratio remains strong, and our guidance has been revised upwards for 2025. The bank modernization is progressing rapidly. Deployed CapEx according to plan, reached EUR 200 million in first half EUR 25 million compared to EUR 160 million in Q1. The commitment to ESG is [indiscernible] reporting further increases in the amount of ESG new lending at EUR 1.5 billion from EUR 700 million in Q1.

And finally, over 2,500 employees have already been involved in our dedicated academies. Let's now turn to our financial performance. The resilience and quality of our revenues was demonstrated by core revenue standing at EUR 2.7 billion in first half '25, in line with the previous half in 2024. Given the overall scenario characterized by an acceleration of the reduction of interest rates, this is a positive result. Among the main drivers of total revenues, I would highlight the following: Resilient NII, higher loan volumes compensating lower rates and a positive performance in commission income, thanks to the positive contribution in AUM fees life insurance and Bancassurance fees. I would like to stress that the NII is almost purely of commercial nature. As such, I would highlight the improving quality of our revenues were the ratio of net commission income to total revenues rose from 36.8% in first half '24 to 37.3% in first half '25.

And finally, I would like to underline the continued solid trend in productivity with the net revenues of risk-weighted assets ratio, which increased from 8.6% to 9.8% between Q1 '23 and Q2 '25.

Let's move on to the next slide, which focuses on net interest income. Given the interest rate environment, the performance of the net interest income line was exceptional in Q2. As you can see, NII in Q2 was slightly higher than in Q1 at EUR 814 million. And as you can appreciate, in the waterfall chart, the negative effect of rates was more than compensated by increased loan volumes. In this particular business context, commercial actions to increase quality loan volumes have been extremely effective. As I mentioned in the slide on progress of our business plan, new loans in the first half increased by 20.7%, mainly due to increases in residential mortgages, of which an important component with ESG characteristics; increases on consumer credit limited to our existing clients, in order to maintain outstanding quality of our loan book and important new loan origination on corporate loans, demonstrating that BPER is moving from the status of a relationship bank to go to bank for our customers. Such new loan origination has been aimed at high-quality rating classes, the effect of which you will see in a positive trend in risk-weighted assets.

Finally, I would like to highlight that our NII sensitivity to 100 basis points movement equal to approximately EUR 150 million in the quarter versus EUR 165 million in the previous quarter.

Now let's move on to the development of net commission income. The performance of commission income progresses according to our plan. The bank relentlessly focuses on capital-light, high-quality noninterest income products. Commission grew by 4.8% in the first semester of '25 compared to the first 6 months of '24. This is an important achievement given that Q2 was negatively affected by an extraordinary high number of holidays. The most important contributor, which represents more than 50% of commissions were fees from banking services, which reached EUR 540 million. This demonstrates the growing commercial reach of BPER. Wealth management fees, which increased by over 9%, 6 months on 6 months, are rapidly playing a more important part as percentage of our total commissions. These were mainly driven by high-quality AUM and life insurance fees. Fees from Bancassurance continued to register strong growth rates by almost 16% compared to the first half of 2024. Noteworthy to mention that AUC and AUM running fees increased by 5.4% in the first 6 months of '25 compared to first half '24.

Let's move to the next slide, which focuses on the progression of total financial assets. Total financial assets, the most important driver of commission income, grew by 4.5% in the last 12 months. In the quarter, total financial assets increased by almost EUR 10 billion due to customer asset dynamics in deposits, AUC and AUM. This is an important trend as it demonstrates deeper capability in terms of attracting customer liquidity both on the retail and corporate side and transforming it into AUMs and AUCs. It also proves that BPER is gradually being perceived as a go-to bank by its customer from a purely relationship bank. As such, we are now increasing penetration of liquidity management for both corporate, SMEs and private clients. I'm keen to underline that such positive progress allows us to have higher fire power to grant new loans. In fact, in Q2 '25, the loan-to-deposit ratio stood at 76.7%, stable quarter-on-quarter, one of the lowest among Italian peers, which 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. Total costs were down by 4.9% in the first half compared to the first 6 months of 2024, underlining our relentless focus on operational efficiency. Our actions have reduced the cost/income ratio to 46.6%, and our positive progress enables us to improve our guidance for 2025. The waterfall chart reports the key drivers on HR costs in the quarter. The reduction was mainly driven by organic turnover despite lower voluntary exits, which more than compensated the increases related to the National Collective Labor Agreement. As you can see on the slide, at the end of March, headcount stood at 19,220, a reduction of some 1,200 compared to June 2024 related to actions which are already in place. Non-HR costs were basically flat at about EUR 250 million, in line with the previous quarter. Although we improved our guidance to a lower cost-to-income ratio for 2025, we expect a pickup in the cost line, especially in Q4 '25 due to seasonality.

Let's move to cost of risk. As you can see, asset quality remains very strong. In the 12 months, cost of risk has fallen by 10 basis points to 31 basis points. Our NPE coverage ratio improved to 55.6% and is one of the highest among Italian peers. This will act as a further buffer against any potential deterioration in asset quality. Our conservative approach is further confirmed as we report Q1 coverage ratio on performing loans at 0.63% among the highest in Italy. Total cumulative overlays stood at approximately EUR 214 million, down by almost EUR 14 million versus Q1 '25.

Let's move on to asset quality on the left side. As in the previous quarters, the quality of our loan book continues to show a very healthy state. From a stock perspective, gross NPEs were flat in the quarter, approximately EUR 130 million lower year-on-year. Noteworthy Viper is pursuing an approach where new lending is focused on the best rating classes with a lower risk profile. As a result of this conservative policy, BPER is characterized by a high-quality loan book, which is further highlighted by the net NPE ratio, which, as you can appreciate, continues to improve and is one of the lowest in the Italian banking sector at 1.1%.

Having finished with asset quality, let's move on to the development of the bank's risk-weighted assets. As you can see, in Q2 '25, our total risk-weighted assets decreased from EUR 55.9 billion to EUR 55.6 billion thanks to higher quality lending and methodological fine-tunings related to model reviews. Without the impact of Basel IV in Q1 '25, mainly related to operational risk, risk-weighted assets would stand at EUR 53.9 billion.

I will now turn to organic capital generation on the next slide. BPER continues to generate a very high level of organic capital totaling EUR 1.1 billion and approximately 200 basis points in the last 6 months. As a result, ratios reached 16.2%, a very comfortable level in preparation of BPSO integration. With regards to BPER capital profile, let me highlight the outstanding results achieved by the bank in the recent regulatory stress test exercise carried out by the European Banking Authority. The outcomes of the supervisory stress test exercise confirmed the bank capital strength, showing a very limited capital deflation of 94 basis points even under a highly adverse scenario. This result reaffirms deeper position as a highly resilient institution.

Moving on to liquidity. Let me point out that the bank's liquidity ratio remained high at the end of June. The LCR is equal to 163%, in line with 166% reported at the end of March 25. The NSFR is equal to 135% stable compared to the end of March. In Q2, the loan-to-deposit ratio stood at 76.7%, stable quarter-on-quarter, one of the lowest amongst Italian peers, which will enable us to continue to grow the loan book through increased loan origination and transformation of client liquidity into AUC, AUMs, thanks to our ability to attract customer liquidity.

Turning now to the bond portfolio. Government bonds amounted to EUR 14.8 billion and accounted for around 49.5% of total bonds. Noteworthy that already in Q3 '24, a tactical and selective increase in exposure to Italian government bonds had been started. As a result of the active portfolio management strategy, in Q2 '25, the bond portfolio duration decreased to 2.1 years from 2.3 years in Q1 '25. The decision to focus purchases on Italian government bond was driven by the attractive spread level and the opportunity to capitalize on market weakness. A brief look at our latest bond issuance is important. As already mentioned in Q1, BPER successfully placed a EUR 500 million senior nonpreferred bond in January. That said, we do not anticipate any major bond issue until the integration of BPSO into BPER. It is also worth noting that Fitch and Moody's have upgraded deeper to positive outlook, further supporting the bank's strong credit profile. All credit agencies have positively viewed the BPSO business combination and as a result, have also increased the credit rating of BPSO itself.

On Slide 27, we report the divisional financials. I would like to draw your attention to the important results achieved on total wealth commission income created across our divisions, which amount to EUR 466 million in first half versus EUR 840 million achieved during the 12 months of 2024. In addition, total indirect deposit in Private and Wealth Management amounted to EUR 191 billion, more than 60% of our total group A phase, which stood at EUR 312 billion, underlining our strong asset gathering generation capacity.

Ladies and gentlemen, a brief summary of the most important achievements in Q2 '25. First and foremost, we have completed the tender offer of BPSO with an extremely high acceptance rate, which will allow us to carry out a swift integration of the 2 banks. In this context, we confirm that we have already launched a number of internal work streams. Our planned B:Dynamic 2027 Full Value is well on track and the business combination with BPSO will act as an accelerator. In this context, we are planning an update to our plan after the integration of 2 banks in first half '26. The transformation of BPER from a relationship bank linked to a go-to bank is remarkable. Given the successful commercial action we have taken which translated into achieving the best quarter and best half ever reported by BPER. NII was resilient in the quarter, and fees have continued to positively run with wealth management fees playing an increasingly important role in terms of total commissions. This underlines the increasing commercial strength of BPER. Asset quality remains robust with all reported ratios being at the best levels in the Italian banking landscape. We continue to register a significant internal capital generation with a CET1 ratio standing at 16.2%, which allows us to face BPSO integration in a very comfortable situation. Thank you all, and we will now take your questions.

[Operator]

[Operator Instructions] First question is from Andrea Lisi, Equita.

[Andrea Lisi, analyst]

The first one is on the CET1 dynamic. In particular, I was wondering why you have set the guidance above the 15.5%, while being now 16.2% in second quarter. So just to understand if there are some trends which could some more utilization of capital, obviously, considering also the fact that I expect loan growth to continue. And related to that, if you think that there is a possibility that at the end of December, considering the positive dynamic in terms of capital we are observing in BPER, but also [indiscernible] may land with asset units above the 15% you have indicated.

the second question is on the NII dynamic, in particular, I saw that the spread proved very resilient and is proving resilient over time despite the decreasing rates. So if you can update us on the actions you are putting in place in both on the asset side, but also on the deposit side. And related to that, on a stand-alone basis, clearly for the moment, what is the evolution in NII should we expect for 2026 versus 2025.

[Gianni Giacomo Pope, executive]

Thank you, Andrea. So I'll answer the first question and then Simone Marcucci, the CFO, will take the second one. As you know, we have a very prudent approach. So we ended the first 6 months at 16.2%, and we indicated in a prudent way, a 15.5% guidance for the year-end. Obviously, this is driven mainly by the fact that we will continue our loan growth. You saw that we had a very good dynamic in the growth of loans above the indicated CAGR that was the 3% that we indicated in our financial plan presented in October last year. but also because we are starting now to work on the integration of BPSO, so we prefer to have a conservative approach. And then let's see our attitude is, in any case, always being to be conservative. So we'll see what is going to be at year-end. So we stick to the 15% to the above 15.5%. And then we'll see what progressively will happen at year-end. As much as the NII dynamics, Simone, take the question.

[Simone Marcucci, executive]

Regarding the NII dynamic, as the CEO clearly mentioned, is driven, let me say, the improvement by the growth of the loan that will continue also during the year, but at a smoother path. Therefore, we see the NII for the next quarter at the same level of this quarter or slightly decreasing as whether we have been indicated in our target.

[Andrea Lisi, analyst]

And sorry, if you can provide us an update on the indicational direction of NII, which you expect coming in the next year.

[Simone Marcucci, executive]

2026, the plan, as Mr. Papa highlighted will be prepared in the first half 2026 stand-alone we confirm what we had in the plan, we cannot say at the moment anything in addition.

[Operator]

Next question is from Marco Nicolai, Jefferies.

[Marco Nicolai, analyst]

I've got two questions and then one follow-up. First question is on the capital. So if you can give us, let's say, an updated guide on the capital consumption of the Sondrio transaction, where do you expect the common equity 1 to be in September? So considering the 80% takeout on your offer and the stronger capital levels of BPSO. And then a question on the loan growth. So I'm just trying to understand, so also some of your peers highlighted an improved situation in terms of loan growth in Italy. Just trying to understand if this is kind of demand driven. So is it the companies and the retail in Italy, they are actually asking for more -- need more finance in a way? Or is it more like offer-driven. So is it just banks offering better terms? Just trying to understand what's the dynamic that is driving this growth. And the follow-up is on the risk-weighted assets of the quarter. So it seems to improve the density. So what did you do there?

[Gianni Giacomo Pope, executive]

Marco. So I'll take the first two and then Mr. Cristini, our CRO, will take the question related to risk-weighted assets. So the guidance for the combined entity as at the end of the year in terms of CET1 ratio will be at around 15%. This is our preliminary calculation. As much as the loan growth is concerned, so where the growth is coming from? I have already indicated, we have the growth coming from all the sectors where we operate. In fact, as I mentioned, we have a continuous growth in residential mortgages the growth is of around 6.1%. Consider that if I look at the market share of BPER in terms of residential mortgages, we are above the 10% threshold. Whereas if you look at the overall market share of BPER, we are in the market for all the activity, we are at 5.5%. So clearly, this is a very strong point of growth for us and indicates also a very strong attention to the needs of the families in as much as the request for residential mortgages. We have a growth also on consumer credit of 18.6% is a steady growth that we have quarter after quarter. Let me reiterate the fact that we lend consumer credit only to existing customers of deeper. We are not in the open market. In this way, we protect the asset quality. This is a strategy and a policy that we have here in the group in the bank, and we will continue to do so.

Finally, corporate loans, we are talking about a growth of 30%. Obviously, here, we are talking about long-term and short-term advances. Also here, if you recall, our strategy indicated at our Capital Market Day was to become a go-to bank also on the corporate side and increase our share of wallet with corporate names. So this growth, let me stress is with good quality customers, and this is demonstrated also by the risk-weighted assets. We have a growth in loans, but risk-weighted assets go down. And Mr. Cristini will explain this. And we grow without giving up on price. We are not chasing growth for growth. We need to have, and this is a very strong policy that we have within the group. We need to pay for the capital that we allocate to the different sector of our activity. And therefore, we have a ratch for corporate, which is 3% -- at least 3% and we apply market rate that paid back the capital that we allocate. Let me put through Mr. Cristini for your third question. Please Mr. Cristini.

[Emanuele Cristini, executive]

Yes. Thank you for your question. Generally speaking, the group has implemented several initiatives in order to achieve capital efficiency. In addition, with regard to the evolution of [indiscernible] registered in the second quarter, it's what [indiscernible] topics. First of all, the very high quality of new loans as our CEO has just highlighted, and the new regulatory approach for other asset portfolio. In the last quarter, the newly originated loans were characterized by very high credit quality. The new lending will focus on best rating classes with very low risk profile in this way. It's worth highlighting that in line with our conservative credit policy, around 67% of exposure are currently concentrated in the very low or low risk rating classes. Moreover, in the second quarter, the reduction in RWA is also due to a voluntary reversal to the standardized approach for the other asset portfolio, in accordance with article 494 of CRR that was approved by the regulator by [indiscernible]. In particular, in the [indiscernible] approach, cash items get 100% -- please wait while in the standardized approach adopted by BPER group in the -- starting from the second quarter, they get a lower risk weight, either 20% or even 10%. So in summary, the positive evolution RWA registered in the second quarter is mainly driven by the very high credit quality of the new loans and the new regulatory approach for other asset portfolios.

[Operator]

Next question is from Noemi Peruch, Mediobanca.

[Noemi Peruch, analyst]

I have a follow-up on the common equity -- on the 15% common equity at the end of the year. And here, I was wondering about the moving parts, and so your assumption there. Are you assuming 100% of ownership of Sondrio? And how much of the EUR 800 million of PPA indicated by Sondrio you're considering? And are you considering at all some impacts in terms of PPA from [indiscernible] and maybe also [indiscernible]? So that's my first question. The second one is on [indiscernible] leasing itself. So I was wondering if you plan to keep Sondrio's 19% stake or if you are in talks to sell it?

[Gianni Giacomo Pope, executive]

Okay. Thank you very much for the questions. So as we said, we do expect the year-end at 15 percentage, assuming 81% clearly. We have a PPA -- we have taken a PPA of half of the PPA that was, let me say, stated from Sondrio, so EUR 400 million that is net of [indiscernible] around EUR 280 million. Clearly, this is the PPA to '24. We are starting now the process to assess the new PPA and so that we have assumed, let me say, only half of the PPA for [indiscernible]. We have not taken conservatively any effect on the PPA.

[Unknown Executive]

Noemi. So in as much as [indiscernible] leasing is concerned, obviously, we are looking into the matter. For the time being, obviously, we have to consolidate [indiscernible] leasing because the 2 stake together brings us above the 50% threshold, then we are considering what to do. We'll see in the future once the transaction will go through.

[Noemi Peruch, analyst]

And if I may, a follow-up. If I'm not mistaken, in your time line, you mentioned the merger [indiscernible] by October. So would it make sense to assume 100% by the end of the year in terms of ownership of Sondrio or not yet?

[Gianni Giacomo Pope, executive]

No, no. The consolidation of Sondrio will happen by April next year. So before the first -- the end of the first half of next year, the merger -- we believe that by the end of April, we'll be able to achieve it because obviously, now we are working on -- we have all the work streams. We need to put together also the IT systems and so on and so forth. So the merger will happen next year by most probably April.

[Operator]

Next question is from Fabrizio Bernardi, Intermonte.

[Fabrizio Bernardi, analyst]

I just have a few questions. There is a nice improvement of the asset quality profile of BPER standalone with the cost of risk that if I remember well, is 31 basis points in the first half. So first question is if there is a further room to improve this kind of cost of risk. I know that you have been so far very prudent and conservative in the right way, but maybe there is a further room to improve.

Another question is on Sondrio Swiss that is a commercial vehicle of Sondrio in Switzerland. So I'd like to understand if you have made some assumption about the role that this bank may have in the next future after the consolidation.

And the last question is about, let's say, sorry, the last two questions are about the fact that if I remember well, Sondrio has a bond portfolio, which is mostly at variable rates, well, I guess you are more in terms of BPP. So I would like to ask if you could consider to change your strategy or their strategy in terms of investment bonds?

And last part [indiscernible] another question about the payout, I would like to understand whether you may establish set new payout policy when both of the banks are, let's say, combined in terms of cash payout, interim dividend eventually, but I don't think so, buyback I mean, most of the other banks are targeting a payout of 100% in terms of cash and buyback. So you may be changing your strategy going forward, including [indiscernible].

[Gianni Giacomo Pope, executive]

Thank you, Fabrizio. I'll take the second, third and fourth question, and then I will ask Mr. Cristini to answer the first one. So in as much as Banca Popolare di Sondrio Suisse is, as far as we know, because obviously, we just completed the -- so we need to really assess what they do as far as we understand, they are particularly strong in residential mortgages is a good bank. It's a profitable one. And for us, I think, is a good bank that we will keep it because it give us a foot into the Swiss market that is an interesting one. and let's see how we can develop further the activity of this vehicle. In as much as the bond portfolio of Sondrio, it's too early to say. We have a policy, which is our policy that we are carried forward and which is giving very good results. We will analyze the bond portfolio of Sondrio and then our specialists together with our CFO, will decide what to do, but again, it's a bit too early to say. In terms of payout policy, let me say that the banks that are proposing the 100% payout are in a different position than deeper. And I stop here to mention which kind of banks are offering the 100% payout. We confirm what we mentioned at our Capital Market Day. So it's a 75% payout ratio on our dividend that we believe is an extremely good payout ratio. We confirm, as you know, we have changed our bylaws in order to be able, in case to pay an interim dividend and obviously will depend on the macroeconomic situation, the scenario, the geopolitical scenario, but if things being equal, we believe that we are going to have an interim dividend probably by November, I think, is the period of payment of interim payments. We don't do share buyback because this is a decision the bank made some time ago. So we will keep on having a dividend policy payment out. We also said in the past that, obviously, being so strong in the creation of organic capital if we keep on creating capital and generating capital organically in the way that we have been generating it so far, we might consider, we might consider the possibility of increasing the 75% payout, but very early to say. So let's see where we stand at year-end and then we see not to forget that we are going through a merger, and therefore, we need to make sure that we have enough fire power to proceed with that. Mr. Cristini?

[Emanuele Cristini, executive]

Thank you for your question with regard to the evolution of the cost of risk. In general, as highlighted in the presentation, decrease risk profile of the bank is very positive with very low gross and net NPA ratio, stable annual default rate around 1%, reduction of [indiscernible] default, very high coverage ratios, both for performing and default exposures. In the first quarter, we have reduced a slight decrease in the stock of overlays due to the release of high risk overlay provision corresponding to the performing portfolio for reaching a model adjustment has been implemented for the so-called [indiscernible] sector. But having said that, there is no predefined plan for the progressive release of overlays of provisioning. In fact, there are still a lot of uncertainties in the macroeconomic and geopolitical scenarios. So we will evaluate the possibility of further releases of provisioning only in case of positive developments, always keeping a conservative approach. Generally speaking, we prefer to be prudent as we usually do regarding credit risk, even if at the moment, the trend is positive, and this is reflected in our guidance for the evolution of the cost of risk for 2025.

[Operator]

Next question is from Giovanni Razzoli, Deutsche Bank.

[Giovanni Razzoli, analyst]

Three questions on my side. The first one is on the potential synergies with Popolare Sondrio, which yesterday has announced a very strong numbers as yours. There is, in particular, a P&L item that is FX trading on behalf of clients on which Sondrio seems to be very, very well equipped. They generate around -- if I'm not mistaken, around EUR 10 million per quarter of commissions on their client base. I was wondering whether this is a revenue line, which can accelerate on your client base? And what kind of contribution can you assume on your revenue synergy targets from this line item?

Second question on Sondrio, when you refer to integration by first half 2026, you mean completion of the migration of the IT system of Sondrio on your system. If I'm not mistaken, if you can please clarify this? And merger of the legal entity of Sondrio into BPER approved in April by the AGM. Is my understanding correct?

And the last question regarding the process of merging of Sondrio into BPER, you have 80% -- to the best of my knowledge, there have never been, at least among banks, a merger with 80% ownership of the capital of the target entity. Usually, that takes place with the squeeze out of the minorities. So I'm wondering whether given these conditions, do you see kind of legal risks or some execution risks from the merger of process of Sondrio into BPER.

[Gianni Giacomo Pope, executive]

Okay. Thank you very much, Giovanni. So synergies, we confirm our synergies at EUR 290 million, as indicated from day 1 of our offering. EUR 100 million related to revenue synergies, EUR 190 million related to cost synergies. As I mentioned earlier, we are just starting the process of analyzing deeply the numbers of Sondrio. Obviously, whatever -- I mean, the merger of 2 banks will bring up the best of the 2 banks. So they are particularly strong. We know on FX trading on behalf of their customers. This is something that we do already this kind of activity. They are stronger than us. So we will bring into, let's say, former BPER this sort of activity. So yes, there might be an improvement under this point of view. But for the time being, we confirm the synergies, as indicated, at EUR 290 million. In as much as the integration is concerned, April has been indicated for us as the day -- the moment when we will have the full integration and merger of the 2 banks. This entail the fact that we will have concluded the migration of the 2 IT systems. There will be -- we will take part of the IT system. So Sondrio will take part of the IT systems of BPER, obviously, once again, we just started the work stream in analyzing what will be the best solution for the new bank, let's put it in this way. And obviously, we will go for the integration through all the ordinary authorization that we need to receive. Now the outcome of the offer is, I would say, entirely satisfying for us. The integration will proceed through the merger by the absorption of popularity Sondrio into BPER. As I mentioned, the merger must be submitted to the ECB and Bank of Italy for approval and all relevant regulatory authorizations. And in this regard, however, I believe that the competent authorities have already most of the information that they need because we did a lot of paperwork and information set for the merger.

From a corporate perspective, we obviously will be compliant to all the requirements of the Italian we cold and regulation that are applicable to this transaction with related parties. And this, as I mentioned, will enable us to complete the transaction in time and I would say quickly.

In any case, let me stress this. So the resolution -- in case you are entailing the fact that somebody could oppose this minority -- so the minority did not participate to the exchange offer might oppose this transaction. So -- we believe that -- also with the assistance of our legal teams, we do believe that the merger process is considered to be clear and transparent. It should be noted that the resolution may not only be challenged by shareholders holding at least 1,000 of the share capital and only in the event of manifest in consistency of the exchange ratio, which is a realistic scenario given the fact that we will have a fairness opinion by the adviser or the Board of Directors of BPSO. We will have a fairness opinion by the adviser of the related parties committee of BPSO, and we will have a favorable opinion -- and we need a favorable opinion of the related parties committee of BPSO. And finally, the positive opinion of the court-appointed expert. Therefore, we don't see clearly any problem with that.

[Operator]

Next question is from Adele Palama UBS.

[Adele Palama, analyst]

Just a follow-up on the NII. I mean, I understand that you are going to present a combined business plan next year. But just looking at BPER standalone, it's not very clear to me the guidance on the NII of 2026, if you can give us like at least some qualitative guidance direction? And then on the new lending, I think you mentioned already like some information about the pricing. But I was just wondering, is the new lending done in the same spread of the back book. If you can give us some color on the [indiscernible] that is applied to the new lending. And then the last [indiscernible] NII financial asset of BPER standalone. So if you can give us some color on the -- I mean, the evolution [indiscernible] that they've grown quarter-on-quarter. So what's the strategy on the government bond portfolio there? And then still on NII, which is the contribution from the hedging that is into the NII this quarter.

[Gianni Giacomo Pope, executive]

Okay. So I start from the guidance 2026. As I said, stand-alone because combined [indiscernible] the plan in 2026. As I said, the NII is performing better than expected in 2025. So therefore, we can only confirm that our plan in net interest income is not at risk, but we can even do something better, but I said we will manage during the production of the new plan. Regarding the front book and back book. Front book in June was 4.1%, and the back book was 3.3%. the evolution of bond, let me say, the evolution of [indiscernible] in the future, let me say, we have reached the limit, and therefore, we will not exceed sorry, we will not exceed this amount regarding instate evolution of quarter-on-quarter. We have bought -- in this quarter, we are taking an occasion, let me say, to increase the amount we bought mainly BTP if this is the question. Regarding instead the contribution of portfolio in the second quarter, let me say, to say that the portfolio we have clearly an increase deriving mainly by the increase of the volume while instead the yield decreased around 4 bps, if I answer to your questions.

[Operator]

Next question is from Juan Pablo Lopez Cobo, Santander.

[Juan Lopez Cobo, analyst]

Yes. Just one follow-up. I'm sorry. to come back to your capital position. If I understand right as well, your stress test results were quite good with one of the lowest depletions in the first scenario. This, together with the merger of Sondrio that, I guess, in that 15% that you're assuming the 81% take-up on the merger is concluded that will imply, if I'm right in my calculations unless 30 bps once the minorities impact is over. So taking all together, -- and given your NDA distance that is becoming larger every quarter, -- would we -- I'm sorry to ask you, could we expect also some kind of extraordinary dividend, not only the increase of the payout, but something extraordinary. I don't know if this is something -- that would be for discussion for you? Or you are also saving some powder munition in case there is any M&A opportunity?

[Gianni Giacomo Pope, executive]

Thank you for the questions. So as I said, we have indicated as a combined entity 15%, around 15% by year-end, which could be seen as conservative, but we need to see also the outcome of our loan growth as well as so loan growth. Obviously, today, BPSO is part of BPER group, so follows our indications, but the market is growing. We have been growing BPSO itself that presented the numbers yesterday, as indicated, the growth in loans also on quality loans like us. And therefore, we need really to see where we will stand as a combined entity by year-end on the risk-weighted assets part of the equation. So we prefer to have a conservative stance because in any case, we have to go through the integration of the 2 banks. I don't foresee an extraordinary dividend. As I mentioned before, if the position in terms of CET1 ratio and the capability of the new entity to keep on generating organic capital will stay at the level that we have demonstrated so far, we might consider to rise from 75% to slightly above the payout ratio. But it is too early to say.

[Operator]

Next question is from Ignacio Ulargui, BNP Paribas Exane.

[Ignacio Ulargui, analyst]

I have two questions and one clarification, if I may. I mean the first one on the NLT target, if I remember correctly on your strategic plan, you guided for a 16% RoTE. Currently, you are delivering a 20% -- above 20%. So how should we think about that in the future?

The second question is on deposits. I see that you posted a very healthy growth in deposits during the quarter. If you could elaborate a bit on that 3.4% growth where there was more current accounts or it was more than deposits? And one clarification, I think you mentioned in the call that there will be seasonally relevant cost growth in the fourth quarter. Should we expect another relevant depreciation as like the one that we had in '24 or not?

[Gianni Giacomo Pope, executive]

Okay. Thank you very much, Ignacio. So in as much as the target for RoTE, yesterday, we have a very positive RoTE of above 20%. But we stick to our indication, the one that we presented at our Capital Market Day of around 15% because very much -- it's very early today to say whether we could keep the 20% given also the interest rates movements that might happen from now going forward. So we stick to the 15% hoping to have a better one. In as much as deposit is concerned, we are talking about current account deposits. We are particularly strong in this. As I mentioned during the presentation, we are very strong in attracting deposits from both corporate as well as retail customers. These are deposits when we talk about corporates of our deposits are operational deposits. So deposits on current accounts that are then utilized for payments and so on and so forth. So we create liquidity and then creates for us commission income because the payments and so on and so forth, creates commission income. But the vast majority of these are current account deposit.

In terms of cost in the fourth quarter, we are paying a lot of attention, and there is a lot of stress on reducing cost. And in fact, you saw the numbers that is quite positive at 46%. Considering that 2 years ago, we were above 62%. I think a lot of room has been made here compared to -- in a very short period of time. Nevertheless, although we have improved our guidance for year-end from 51% to around 50%, obviously, we always love to beat this 50%. We do have a seasonality in cost in the fourth quarter of the year, this is something that repeats itself every year because at the end of the year, you received all the invoices that you didn't receive during the year and so on and so forth. So that's why from the 46 plus, we will go at around 50%. On top of that, as you know, costs are made up of 3 components. One of this component is about depreciation. So we might have, in the fourth quarter, a pickup in the depreciation. And therefore, that's why we have the famous 50% guidance -- the guidance 50% for cost.

[Operator]

Next question is from Luis Pratas, Autonomous Research.

[Luis Pratas, analyst]

I have one clarification on the merger buying corporation, please. So could you talk through on what could be the fair value paid to minority shareholders of San is the fair value set by the advisers that you mentioned before? Or do you need to actually offer the same you paid for the 80% that already tendered.

And then my second question is on costs, if you could say essentially comments like how many cost savings you already had in the first half of this year. If I'm not mistaken, you guided to EUR 280 million in the business plan. So how much of this has already been achieved.

[Gianni Giacomo Pope, executive]

Yes. Thank you, Luis, for the question. So in as much as the minority, how they will be treated. The merger will be carried out based on an exchange ratio that is determined in accordance with Article 2,501 there of the Italian Civil Code, and this is using a standard practice consistent methodologies and assumptions in the valuation of the companies involved in the merger. And as I mentioned before, to proceed with this, we will have to have the fairness opinion of the advisers of the Board of Directors of a fairness opinion by the adviser of the related party committee of the favorable opinion of the rated parties committee of BPSO and finally, the court-appointed expert opinion. So is a process that takes care according to , we don't have any obligation to recognize anything that will be an evaluation that will be carried forward and then we will respect what the decision is going to be. In terms of cost, I'll put through Simone Marcucci.

[Simone Marcucci, executive]

Yes, in terms of cost, as mentioned before by Mr. Papa, we have to take in account that we are investing a lot in IT. Therefore, the depreciation will grow as well as the seasonality on non-HR cost. So we will have a benefit where we will finish the year slightly in advance compared to the -- our plan compared to our budget, but for sure, the second half of the year, we will see an increase for the reasons that I mentioned before.

[Operator]

Next question is from Hugo Cruz, KBW.

[Hugo Moniz Marques Da Cruz, analyst]

I have two questions on M&A. So I think you mentioned that you will have consolidated financials with BPO already in 3Q. I just want to be super clear what that means. So will we have a full quarter of P&L of BPSO consolidated into BPER. Or is it just consolidating at the end of 3Q, just the balance sheet consolidation but no P&L? And also what is it to assume in terms of starting to recognize restructuring charges for the merger? If you could give a little bit more clarity there would be very helpful.

And then the second question is on more broadly, sector M&A, you have some other banks already talking about how they might play the so-called second wave of bank consolidation in Italy. So what are your thoughts on that second wave? What role would you like to play.

[Gianni Giacomo Pope, executive]

Thank you very much for the question. So in terms of consolidation, we will start consolidating the numbers of BPSO from the third quarter. So in the third and fourth quarter, you will have a stand-alone basis for BPER, consolidated numbers BPER and BPSO for the third quarter and BPSO number. And the same in the fourth quarter, you will have stand-alone numbers for BPER, consolidated numbers for both the banks and numbers for BPSO. So then starting from next year, with the merger, there will be the consolidation and you'll have only a set of numbers that is the consolidated bank numbers basically. So this is the way we need to proceed also on the accounting principles basically.

In terms of second -- sector M&A second wave. We are still working on this. We just started working on, let's call it, the first wave. And therefore, we will be very much concentrated now on the integration of BPSO into BPER. You have to consider that for us, this in reality in the last 4 years, 5 years is the fourth or fifth wave because we had Unipol Banca consolidation, we had [indiscernible] consolidation. We have [indiscernible] consolidation. Now we are working on BPSO consolidation, so is the fourth way for us. So we are ready by pass the second wave. But I understand your question. For the time being, we look at consolidating BPSO and then let's see what is going to happen. Also because we need to see whether some -- one transaction already went through -- didn't go through. Let's see what happens with the one that is still in the market and we will consider in case.

[Operator]

Next question is from [indiscernible], Intesa Sanpaolo .

[Unknown Analyst]

The first one is on the NII. You managed to decline your sensitivity of the NII rates. I'm wondering what action did you put in place to do that and we may expect further reduction going forward?

The second question is on dividends. You said that you might consider to increase the payout ratio. Is there any certain level threshold in terms of capital or organic capital generation that might trigger this increase.

[Gianni Giacomo Pope, executive]

Thank you, [indiscernible]. I'll take the second one, and then Mr. Cristini will answer the first one. As I mentioned, we might decide to increase. So we don't have any sort of level from which we will decide to do that. Let's see where do we stand at the end of the year. Let's see how we are going to progress next year and then decision will be made. Always considering the fact that we need to get the approval of the Board, we need to get the approval of ECB and therefore, you know that we prefer to be conservative. So what is granted for now is 75% and then let's see what will be in the future. Mr. Cristini for the first question.

[Emanuele Cristini, executive]

Yes. Thank you for your question. [indiscernible] the presentation, the sensitivity to 100 basis point decrease amount in the second quarter to approximately EUR 150 million in reduction with regard to the sensitivity communicated in the previous quarter. that was equal to EUR 165 million. The change on a quarterly basis has been mainly driven by the repricing effect on floating rate assets, mainly the residential mortgages with half year installment, floating rate bonds CCT around EUR [ 4 billion ] and the growth observed already like in the presentation with regard to site deposits, in particular around EUR 400 million represented by floating red side deposits. So the combination of this effect has led to the reduction of the sensitivity [indiscernible] in the presentation.

[Operator]

Next question is a follow-up from Marco Nicolai, Jefferies.

[Marco Nicolai, analyst]

My follow-up has been asked already, so no further questions from me.

[Operator]

[Operator Instructions] Next question is a follow-up from Adele Palama, UBS.

[Adele Palama, analyst]

Just a follow-up on the restructuring charges, I'm not sure if that question has been answered. But I was just wondering on the timing and if the 15% target for the -- here in the CET1 includes the upfront of all the restructuring charges.

[Gianni Giacomo Pope, executive]

Yes, I forgot to answer this Adele. So restructuring charges, we indicated it's going to be EUR 400 million, of which 75% is going to be booked this year and 25% next year, so EUR 300 million this year. And the 50% includes the EUR 300 million that we have indicated as restructuring charges that will be booked this year.

[Operator]

[Operator Instructions] gentlemen, there are no more questions registered at this time.

[Gianni Giacomo Pope, executive]

Okay. Thank you very much to all. And for those who go on vacation, have a good vacation. Good day, see you next time.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.