Banco BPM : RESULTS AT 31 MARCH 2019 (.pdf - 260.1 KB)

NEWS RELEASE

RESULTS AT 31 MARCH 2019

NET PROFIT OF € 150 MILLION (€ 39 MILLION AT 31 MARCH 20181 NET OF NON-

RECURRING ITEMS)

OPERATING INCOME OF € 1,063 MILLION (€ 1,168 MILLION AT 31 MARCH 2018;

€ 1,022 MILLION IN THE LAST QUARTER OF 2018)

OPERATING COSTS OF € 670 MILLION (€ 702 MILLION AT 31 MARCH 2018; € 725

MILLION IN THE LAST QUARTER OF 2018)

NET VALUE ADJUSTMENTS ON LOANS OF € 152 MILLION (€ 326 MILLION AT 31 MARCH

2018; € 987 MILLION IN THE LAST QUARTER OF 2018)

COST OF RISK AT 57 BPS (123 BPS AT 31 MARCH 2018; 184 IN 2018)

NET CUSTOMER LOANS € 106.5 BILLION (OF WHICH PERFORMING LOANS REPRESENTED

€99.9 BILLION + 2,7% COMPARED TO DECEMBER 2018, + 5.3% COMPARED TO MARCH 2018)

DIRECT CUSTOMER FUNDING € 103.1 BILLION OF WHICH CORE DIRECT FUNDING

(CURRENT ACCOUNTS AND DEPOSITS) REPRESENTED € 83.4 BILLION (+2.8% COMPARED

TO DECEMBER 2018, +5.8% COMPARED TO MARCH 2018)

SIGNIFICANT ONGOING DERISKING ACTIVITY FOR THE GROUP:

COMPLETION OF ACE SALE WITH OBTAINMENT OF GACS GUARANTEE ON SENIOR

SECURITIES AND DERECOGNITION OF BAD LOANS

AGREEMENT SIGNED FOR SALE OF LEASING BAD LOANS FOR € 650 MILLION NOMINAL

VALUE, WITH A GROSS NPE RATIO OF 9.9% AND A NET NPE RATIO OF 6.1%

IMPROVEMENT OF RISK PROFILE WHILST MAINTAINING SOLID EQUITY POSITION:

1Profit at 31 March 2018 of € 223 million, including extraordinary components for € 184 million largely connected to profits generated via restructuring of the bancassurance segment.

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CET 1 RATIO "IFRS9 PHASED IN" PRO-FORMA2OF 13.7% AND "IFRS9 FULLY PHASED"

PRO-FORMA OF 11.8%

EXCELLENT LIQUIDITY POSITION, WITH UNENCUMBERED ELIGIBLE ASSETS

OF OVER € 22 BILLION3

Key balance sheet items

-Net customer loans of € 106.5 billion, with performing loans +2.7% and NPLs -2.0% compared to 31 December 2018, due primarily to derisking operations completed during the previous financial year;

-Direct customer funding of € 103.1 billion4 (€ 101.5 billion at the end of December 2018): during the quarter, the growth trend in the core funding from current accounts and deposits was confirmed (+€ 2.3 billion compared to the end of the previous year) along with a decrease in more expensive funding sources (- € 0.9 billion for bonds);

-Indirect customer funding5 € 89.4 billion (compared to € 86.6 billion at 31 December 2018), up 3.2%, of which:

asset management € 57.0 billion; asset administration € 32.4 billion.

Key income statement items

-Net interest income at € 505.2 million compared to € 595.1 million in the first quarter of 2018 and € 554.7 million in the last quarter of 2018;

-Net fee and commission income at € 420.0 million compared to € 476.5 million in the first quarter of 2018 and € 469.9 million in the last quarter of 2018;

-Operating costs of € 670.5 million compared to € 701.5 million at 31 March 2018 and € 725.0 million in the last quarter of 2018;

-Gross operating profit at € 392.9 million compared to € 466.2 million at 31 March 2018 and € 297.4 million in the last quarter of 2018;

-Net write-downs on customer loans of € 152.0 million compared to € 326.2 million in the first quarter of 2018 and € 987.3 million in the last quarter of 2018;

-Net profit of € 150.5 million, against profit of € 223.3 million in the first quarter of 2018 (€ 38.6 net of non-recurring items).

2Also considering the expected impacts of capital-management operations already defined and announced to the market, with expected completion during the current financial year

3 Data updated at 03 May 2019.

4 Direct funding includes certificates with unconditional capital protection (€ 3.7 billion at 31 March 2019 compared at € 3.4 billion at the end of 2018), but excludes repurchase agreements.

5 Net of certificates with unconditional capital protection included under "direct funding".

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Capital position:

-CET 1 ratio "IFRS9 fully phased" pro-forma 11.8%;

-CET 1 ratio "IFRS9 phased-in"pro-forma 13.7%.

Credit quality

-Net non-performing loan stock of € 6.6 billion with decrease of € 136 million compared to the end of 2018 (-2.0%) and € 4.8 billion compared to 31 March 2018 (-42.0%)

Coverage:

Non-performing loans: 43.6% vs 43.1% at the end of 2018;

Bad loans: 59.6% unchanged against 31 December 2018.

Liquidity profile

-Unencumbered eligible assets of € 17.6 billion at 31 March 2019 rising to over € 22 billion at 3 May 2019.

-LCR >150% and NSFR >100%6.

First-time adoption of the accounting standard IFRS 16

From 1 January 2019, IFRS 16 came into effect, that in relation to leasing contract payables, defines inclusion amongst property and equipment of a right of use equal to the value of future charges to be paid throughout the expected duration of the contract. Please refer to the Explanatory Notes for details of the effects of introduction of the new accounting standard.

Verona, 08 May 2019 - The Board of Directors of Banco BPM met today chaired by Mr. Carlo Fratta Pasini. The Board approved the Gruppo Banco BPM quarterly balance sheet and income statement at 31 March 2019.

Operations in the first quarter of 2019 were focused on continuation of derisking activity and performance of capital management operations already announced to the market, as well as the continuation of restructuring projects regarding Group business in line with the business plan.

More specifically, in the first quarter the "ACE" sale was completed (launched during the previous financial year) with obtainment of "GACS" guarantee on Senior Notes and placement of 95% of the Mezzanine and Junior Notes. This allowed accounting derecognition of loans sold that were booked under "assets held for sale" at the end of the year. Furthermore, the final stage of negotiation has been reached for sale of a leasing bad loan portfolio: following completion of the due diligence process, offered received from Credito Fondiario and Illimity Bank have been selected. The operation was completed in April with identification of Illimity Bank as counterparty for the sale of a portfolio of around € 650 million nominal value, composed primarily of loans from legal-relationship

6Managerial estimates of NSFR of Q1 2019.

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assets and liabilities attributable to bad-loan leasing contracts, together with immovable or movable assets and underlying contracts.

The operation was composed of various phases beginning from 30 June 2019, with completion by mid-2020. Following the sale, no major impacts are expected on the income statement.

Regarding operations on the wholesale market, the beginning of March saw successful placement of a senior preferred unsecured bond issue with 3-year expiry, for € 750 million, reserved for institutional investors in the context of the EMTN Programme and listed on the Luxembourg Stock Exchange. Furthermore, Banco BPM complete the first issue of Additional Tier 1 instruments for a value of € 300 million, destined for institutional investors. This represented an important operation for increasing the efficiency of the Group's capital structure. The securities issued are perpetual and may be recalled by the issuer from 18 June 2024.

Please also note that the second quarter of the year is expected to see the establishment of an agreement between Banco BPM as one party and Crédit Agricole SA, Crédit Agricole Consumer Finance SA and Agos Ducato as the other, which defines the sale to Agos Ducato of the subsidiary ProFamily, after completion of the demerger of all ProFamily's non-captive activities in favour of a newly- incorporated company 100% controlled by Banco BPM.

In this context, characterised by significant efforts to achieve the objective presented, the Group has provided goof operational and economic performance, recording gross operating profit of € 392.9 million and net profit of € 150.5 million.

Operating performance

The net interest income amounted to € 505.2 million and compares with the figure of € 595.1 million for the corresponding period of the previous year and € 554.7 million in the fourth quarter of 2018. This income performance is negatively impacted by both the minor "reversals" due to the write-backs from discounting bad loans and the lower impact of the resulting PPA, in large part from the transfer transactions of non-performing loans made in 2018 (€ -81m yoy; € -23 qoq). Also in the first quarter of 2019, following the introduction of IFRS 16, interest expenses were recorded on debts on leases for €

2.5million. Net of these effects, the net interest income is equal to € 499.0 million and compares with a figure calculated on a comparable basis of € 508.6 million for the first quarter of 2018 (-1.9%) and €

525.5million in the fourth quarter of 2018 (-5.0%). Much of the reduction is due to the lower commercial spread of retail in the annual comparison and the fewer number of calendar days compared to the fourth quarter of 2018.

Profit from equity investments, accounted for using the equity method, was € 36.8 million, but down compared with the € 42.6 million recorded in the corresponding period of last year, and with respect to the contribution of the fourth quarter of 2018, which totalled € 50.7million. Within this aggregate, the main contribution was provided by consumer credit of € 32.5 million conveyed by the shareholding in Agos Ducato.

Net fee and commission income totalled € 420.0 million, with a decline of 11.9% compared to the €

76.5million in the corresponding period of last year, mainly due to the lower contribution of upfront fees that had provided a significant contribution in the first quarter of 2018 as a result of the higher placements carried out at that time. Compared to the fourth quarter of 2018 - which recorded net fee and commissions income of € 469.9 million - the drop is equal to 10.6% due to the lower contributions of credit cards and structured finance transactions that at the end of 2018 had provided an extraordinary contribution to the quarter also due to seasonal effects.

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Other net operating income is recorded at € 14.6 million, down € 6.4 million compared to the fourth quarter of 2018. Compared with the figure for the first quarter of 2018 (€ 24.1 million) the item shows a reduction mainly due to the gradual decline of the fast enquiry fees (-53,1% compared to 31 March 2018).

The net financial result was € 86.8 million, compared to € 29.3 million in the same period of last year. This result was helped by the performance of the securities included in the portfolio of financial assets required to be designated at fair value for a total of €68.2 million, a result that includes capital gains of €59.8 million, resulting from the valuation of Nexi S.p.A ordinary shares which, during the month of April, where, in the main, disposed of as part of the operation that led to the listing of the company. This figure is particularly positive if compared with the result of the fourth quarter of 2018, -€ 73.9 million, which was impacted by the write-down performed through the Interbank Deposit Guarantee Fund in Carige in addition to the effect of the widening of the spread of corporate securities. Also the result of the first quarter of 2019 is also partly penalized by the prudent risk hedging strategy which has led to an improvement of the negative reserves on the bonds of the "Hold to collect" Portfolio of more than € 130 million.

As a result of the dynamics described above, the total operating income therefore amounts to € 1,063.4 million, a decrease of 8.9% compared to the first quarter 2018, mainly due to the segments mentioned above relating to the net interest income and the commissions. Compared to the fourth quarter of 2018 the total operating income showed a growth of +4.0% mainly due to a better net financial result.

Personnel expenses, of € 425.9 million showed a decrease of 3.7% compared to the € 442.1 million in the same period of last year. Compared to the fourth quarter of 2018, personnel expenses, which totalled € 422.2 million thanks also to a partial reduction in liabilities linked to bonus systems, are substantially in line with the previous year (+0.9%). The total number of employees was 22,175 at 31 March 2019, compared to 22,247 at the end of 2018 (23,263 at 31 December 2017).

Other administrative expenses7 amounted to € 167.0 million translating into a 21.0% drop compared to the first quarter of 2018 and 18.8% compared to the fourth quarter of 2018. This reduction is in part attributable to the application of the IFRS 16 standard which, for contracts under this standard, provides for the inclusion of the amortisation of the right of use under "Write-downs of tangible and intangible assets" in place of registration of rents and rents payable under "Other administrative expenses"; net of this effect, other administrative expenses have still recorded a strong reduction of 8.9% compared to the first quarter of 2018 and of 6.3% compared to the fourth quarter of 2018 as a result of both the lower charges resulting from the closure of more than 500 branches which occurred in 2018 and the strict cost control measures.

Write-downsof tangible and intangible assets amounted to € 77.6 million, compared to € 47.9 million at 31 March 2018, and include depreciation of property assets of € 7.5 million. This item was also influenced by the introduction of the IFRS 16 standard mentioned above. Excluding this effect and the depreciation, the aggregate shrank by 7.2% compared to the first quarter of 2018 and 12.2% compared to the fourth quarter of 2018.

7The aggregate does not include the "banking industry charges", represented by the contributions to the Resolution Funds and to the Interbank Deposit Guarantee Fund, reported in a separate line-item of the reclassified income statement, net of tax effect.

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