Banca Monte dei Paschi di Siena S p A : Board approves first quarter 2021 results

PRESS RELEASE

BOARD APPROVES FIRST QUARTER 2021 RESULTS:

PRE-PROVISION PROFIT AT EUR 283 MILLION (EUR 151 MILLION IN 4Q20)

NET INTEREST INCOME DRIVEN BY THE

DECONSOLIDATION OF NON-PERFORMING EXPOSURES

FEES AND COMMISSIONS SUSTAINED BY FOCUS ON ASSET MANAGEMENT

GOOD PERFORMANCE OF FINANCIAL ACTIVITIES WITH

FURTHER DERISKING OF GOVERNMENT BOND PORTFOLIO

OPERATING COSTS DOWN BOTH Y/Y AND Q/Q

COST OF CREDIT AT 37 BPS, IN LINE WITH 2020 LEVEL NET OF

ADJUSTMENTS RELATED TO THE WORSENING OF THE MACROECONOMIC SCENARIO

AND TO THE "HYDRA" PORTFOLIO

NET OPERATING PROFIT OF EUR 203 MILLION (EUR 26 MILLION IN Q4 2020)

• THE HIGHEST QUARTERLY RESULT IN THREE YEARS EUR 119 MILLION NET PROFIT FOR THE PERIOD

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GOOD COMMERCIAL MOMENTUM, DESPITE COVID-RELATED RESTRAINTS:

EUR 4.2 BILLION IN GROSS WEALTH MANAGEMENT FLOWS PLACED,

THE BEST QUARTERLY RESULT IN OVER THREE YEARS

ONGOING COMMITMENT TO SUPPORT THE DOMESTIC ECONOMY: OUTSTANDING

MORATORIA AND GUARANTEED LOANS FOR EUR 16 BILLION

MORATORIA REDUCED BY MORE THAN 50% FROM JUNE 2020

WITH DEFAULT RATES APPROX. 2% AND AMPLE COVERAGE

COVID PORTFOLIO CLOSELY MONITORED BY THE BANK

IN ORDER TO PRESERVE CREDIT QUALITY

GROSS NPE RATIO (EBA DEFINITION) STABLE AT 3.5% - DESPITE THE

INTRODUCTION OF THE NEW DEFINITION OF DEFAULT - WITH

COVERAGE OF NON-PERFORMING PORTFOLIO UP BY APPROX. 130 BPS Q/Q

SOLID LIQUIDITY POSITION:

UNENCUMBERED COUNTERBALANCING CAPACITY AT EUR 31 BILLION,

WITH POTENTIAL FOR OPTIMISATION

***

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CAPITAL RATIOS IMPROVED COMPARED TO DECEMBER 2020 AND HIGHER THAN

EXPECTED, THANKS TO CAPITAL MANAGEMENT ACTIONS ALREADY IMPLEMENTED, TO

FOCUS ON SECURED LOANS AND TO THE DELAY OF REGULATORY UPDATES ON

INTERNAL MODELS

TRANSITIONAL CET1 RATIO: 12.2% (vs. 8.7% SREP 2021)1

TRANSITIONAL TOTAL CAPITAL: 15.9% (vs. 13.4% SREP 2021)2

RATIOS DO NOT INCLUDE PROFIT FOR THE PERIOD

TIER 1 CAPITAL BUFFER OF MORE THAN EUR 0.7 BILLION3 RECORDED

AS AT 31 MARCH 2021, COMPARED TO A SHORTFALL OF EUR 0.3 BILLION INCLUDED IN CAPITAL PLAN PROJECTIONS

BASED ON THE ASSUMPTIONS AND INITIATIVES OF THE 2021-2025 STRATEGIC PLAN4, AND EXCLUDING THE IMPACT OF A CAPITAL INCREASE, THE SHORTFALL AT 31 MARCH 2022 IS EXPECTED TO BE LESS THAN 1BN - AND IN ANY CASE NOT AT CET1 LEVEL AND WITHIN THE LIMITS OF THE CAPITAL CONSERVATION BUFFER

Siena, 6 May 2021 - The Board of Directors of Banca Monte dei Paschi di Siena S.p.A. has reviewed and approved the results as at 31 March 2021.

Group profit and loss results as at 31 March 2021

The Group's total revenues as at 31 March 2020 stand at EUR 824 million, up 12.9% Y/Y.

This increase is largely due to the rise in other income from banking business, in particular to the net profit (loss) from trading, from financial assets/liabilities measured at fair value and from gains on disposals/repurchases, which benefitted from higher profits from the sale of securities. Net interest income is down from the previous year owing to the lower contribution of the non-performing portfolio as a result, in particular, of the deconsolidation of the "Hydra M" portfolio at the end of 2020, to the decline in asset yields caused by the trend in interest rates and to the recomposition of exposures with a decrease in sight and short-term components and an increase in the medium/long term component. On the other hand, net interest income benefitted from the positive effects of access to the TLTRO3 auctions, albeit partly offset by the greater cost of deposits with central banks. Net fees and commissions are up Y/Y largely due to higher income from wealth management, especially product placements. In contrast, other operating income/expenses registered a downturn.

The quarter-on-quarter comparison also shows an increase in revenues of EUR 106 million, primarily due to higher profits from the sale of securities, which more than offset the decline in income from banking activities.

1. Overall capital requirement.
2. See note 1.
3. Of which EUR 0.4 billion for the postponement of internal model updates.
4. 2021-2025Group Strategic Plan submitted to DG Comp in December 2020 and currently being evaluated.

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Net interest income as at 31 March 2021 stands at EUR 280 million, down 14.5% Y/Y. The decrease was driven (i) above all, by the lower contribution of the Non-Performing portfolio as a result of the deconsolidation of the "Hydra M" portfolio at the end of 2020, and also (ii) by the higher cost of institutional funding linked to the issues in the second half of 2020, (iii) by the lower contribution from BMPS' securities portfolio, partly as a consequence of sales carried out in 2020 and 2021, (iv) by the larger negative contribution from hedging derivative spreads, and (v) by the decline in asset yields caused by interest rate trends and the recomposition of exposures with a decrease in sight and short-term components and an increase in the medium/long term component. Net interest income, on the other hand, benefitted from the lower cost of commercial funding and from the positive effects of access to the TLTRO3 auctions, totalling EUR 60 million, albeit partly offset by the cost of increased deposits with central banks, amounting to approximately EUR 27 million.

Net interest income in 1Q21 is also down on the previous quarter (-10.4%), mainly due to the lower contribution of the non-performing portfolio, largely as a result of the deconsolidation of the "Hydra M" portfolio, and to the decline in asset yields caused by interest rate trends and by the further recomposition of exposures, with a decrease in sight and short-term components and an increase in the medium/long-term component. Net interest income in 1Q21 also incorporates, on the one hand, the reduced cost of customer deposits following a decline in both volumes and interest rates, and on the other hand an additional increase of deposits with central banks.

Net fees and commissions as at 31 March 2021, amounting to EUR 372 million, are up compared to the same period of the previous year (+0.6%). The increase is attributable to the higher income from wealth management (+8.3%), particularly from product placements, and to the improvement in other net fees and commissions due to the absence of the cost of government guarantees following the reimbursement of the Government-Guaranteed Bonds in 1Q20. In contrast, a downturn is registered for commissions on loans (-12.3%), owing to the lower fees on intermediated loans, as well as for commissions on services (-6.1%).

The contribution of 1Q21 is down from the previous quarter (-2.2%). More specifically, there is a significant rise in wealth management fees (+16.2%), with income from product placement recording a +51.0% increase thanks to the higher gross flows of assets under management. In contrast, commissions from traditional banking services and other net fees and commissions decrease.

Dividends, similar income and profit (loss) on investments amount to EUR 21 million and mainly include the contribution from the Bancassurance partnership with AXA5. The item shows an increase from 1Q20 (EUR +9 million) - which had been negatively impacted by the effects of the COVID-19 pandemic on the financial markets - and a decrease against the previous quarter (EUR -22 million).

Net profit (loss) from trading, financial assets/liabilities measured at fair value and gains from disposals/repurchases as at 31 March 2021 amounts to EUR 160 million, recording an increase both YoY (EUR +130 million) and against the previous quarter (EUR +170 million). An analysis of the main aggregates shows the following:

5 AXA-MPS is consolidated at net equity in the Group's financial accounts.

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• Net profit from trading comes to EUR +14 million, up from 1Q20, which had been affected by tensions on the financial markets owing to the COVID-19 emergency.
  Performance in 1Q21 is up EUR 8 million compared to the previous quarter, due to the increased contribution from the results of subsidiary MPS Capital Services.
• Net profit from other financial assets and liabilities measured at fair value through profit and loss shows a positive balance of EUR 19 million, up from the virtual lack of contribution recorded in the same period of the previous year and from the negative contribution of EUR 6 million in the fourth quarter of 2020, thanks to capital gains on equity financial instruments, debt securities and UCITS.
• Gains on disposals/repurchases (excluding customer loans at amortised cost) show a positive balance of EUR 127 million, registering both a Y/Y and Q/Q increase, thanks to the higher profits from the sale of securities.

The following items also contribute to revenues:

• Net income from hedging, in the amount of EUR +2 million, up from 1Q20 (at EUR -3 million) and remaining steady against the previous quarter;
• Other operating expenses/income shows a negative balance of EUR 11 million, a decrease on the result recorded in 1Q20 (at EUR -7 million) and essentially in line with that of the previous quarter (at EUR -10 million).

As at 31 March 2021, operating expenses amount to EUR 540 million, falling from 1Q20 (-0.7%) and from the previous quarter (-4.5%). An analysis of the individual aggregates shows that:

• Administrative expenses stand at EUR 493 million, largely stable against the same period of the previous year and down by approximately EUR 22 million from 4Q20. Within the aggregate:
  o Personnel expenses, amounting to EUR 360 million, are up 1.0% Y/Y, despite downward headcount trend (due, first and foremost, to the 560 Solidarity Fund exits registered between 1 November 2020 and 1 January 2021), related to the contractual salary increases resulting from the renewed National Collective Labour Agreement and to the absence of savings resulting from the non-renewal of the company trade union agreement. The aggregate is also up from 4Q20 (+1.4%) mainly due to the aforementioned contractual increases resulting from the renewal of the National Collective Labour Agreement and the lack of savings related to the expiry of solidarity initiatives, partly offset by the lower cost resulting from the Solidarity Fund exits in the fourth quarter of 2020.
  o Other administrative expenses, amounting to EUR 133 million, are down 2.6% Y/Y and 16.8% from 4Q20, which had been impacted by the typical end-of-year increases in expenses.
• Net value adjustments to tangible and intangible assets as at 31 March 2021 stand at EUR 48 million, down from the same period of the previous year (-6.9%), and from the previous quarter (-6.7%), partly due to the effects of the introduction of fair value measurements of real estate.

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As a result of the above trends, the Group's pre-provisionprofit amounts to EUR 283 million (EUR 185 million as at 31 March 2020), up by EUR 132 million compared to the previous quarter.

The cost of customer loans booked by the Group as at 31 March 2021 amounts to EUR -77million, reduced by EUR 238 million from the same period of the previous year (EUR -315 million), which included EUR -193 million of increased provisioning resulting from the change macroeconomic scenario that emerged following the outbreak of the COVID-19 pandemic. Excluding this effect, the aggregate still records a Y/Y decrease, mainly due to the absence of provisioning on tickets included in the "Hydra M" portfolio, which was deconsolidated at the end of 2020.

The cost of customer loans in 1Q21 is also down from the previous quarter, which included EUR 48 million of increased provisioning resulting from the new macroeconomic scenario. Net of this component, the cost is stable.

The ratio of annualised cost of customer loans over total customer loans as at 31 March 2021 reflects a provisioning rate of 37 bps (90 bps as at 31 December 2020).

The Group's net operating result as at 31 March 2021 shows a positive balance of approx. EUR 203 million, against a negative balance of EUR 130 million recorded for the same period of the previous year and a positive balance of EUR 26 million in 4Q20.

The following items also contribute to the result for the period:

• Net provisions for risks and charges amounting to approx. EUR +9 million, an improvement on the same period of the previous year (equal to EUR -40 million) owing to lower provisions for legal risks. Also an improvement compared to the fourth quarter of 2020 due to lower provisions for legal risks and guarantees related to loan disposals (EUR -216 million).
• Other gains (losses) on investments amounting to approx. EUR -3million, against a gain of EUR 0.2 million registered in the same period of the previous year and a gain of EUR +2 million in 4Q20.
• Restructuring costs/one-offcharges totalling EUR -0.1million, down from the positive balance of EUR 3 million recorded for the same period of the previous year, mainly for positive effects from definition of the price adjustment on the sale of BMP Belgio S.A.. On the other hand, the aggregate improves from the fourth quarter of 2020 (equal to EUR -25 million), which included expenses (interests, fees & commissions and other administrative expenses) related to the non- proportional demerger with asymmetric option of a compendium of impaired loans in favour of AMCO.
• Risks and charges related to SRF, DGS and similar schemes, totalling EUR -68million, consisting of the Group's contribution to the Single Resolution Fund (SRF), which is higher than the amount registered in the same period of the previous year, following increased deposit volumes.
• DTA fees, totalling EUR -16million. The amount, which was calculated according to the criteria of Law Decree 59/2016 converted into Law no. 119 of 30 June 2016, consists of the fees due as at 31 March 2021 for DTAs (Deferred Tax Assets) which are convertible into tax credit.

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