Board of Directors of 09 August 2018: approval of the Consolidated results as at 30 June 2018

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Società cooperativa per azioni - fondata nel 1871

Sede sociale e direzione generale: I - 23100 Sondrio So - Piazza Garibaldi 16

Iscritta al Registro delle Imprese di Sondrio al n. 00053810149

Iscritta all'Albo delle Banche al n. 842

Capogruppo del Gruppo bancario Banca Popolare di Sondrio, iscritto all'Albo dei Gruppi bancari al n. 5696.0

Iscritta all'Albo delle Società Cooperative al n. A160536

Aderente al Fondo Interbancario di Tutela dei Depositi

Codice fiscale e Partita IVA: 00053810149

Capitale Sociale€1.360.157.331 - Riserve€ €1.034.954.284

(dati approvati dall'Assemblea dei soci del 28/4/2018)

Press release

Board of Directors of 9 August 2018: approval of the consolidated half-yearly financial report as at 30 June 2018.

Growing profitability. Expanding volumes. Acquisition of Prestinuova Spa.

The Board of Directors of Banca Popolare di Sondrio, cooperative joint-stock company, has today examined and approved thehalf-yearly consolidated financial reportas at June

30th,

2018.

• -The net profit, deriving solely from ordinary business, amounted to€74.2 million and shows an increase of 31.6% compared to the same period last year. The net profit was hit by€24.9 million in costs related to contributions to the Resolution Fund and to the Interbank Deposit Protection Fund.

• -Direct funding from customers amounted to€31,193 million, minus 1.4%.

• -Net loans to customers amounted to€26,017 million, plus 1.2%.

• -New disbursements to households and businesses for over€1,500 million.

• -Full acquisition of PrestiNuova SpA on July 23rd, 2018.

• -Asset management amounted€229 million.

  to€5,603 million, withnetsubscriptionof

• -Net fees and commissions totalled€153.393 million, plus 3.4%.

• -Net adjustments of loans and financial assets to customers fell more than 30%.

• -The cost of credit is 0.70% down from 0.90%.

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Banca Popolare di Sondrio

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• -An increase is registered, compared to the already significant values at the end of 2017 and without significant adjustments to FTA by the IFRS 9, in the level of coverage of non-performing loans. Coverage of bad loans rises from 67.6% to 68.1% and reaches 76.7% if we include the amounts transferred to the income statement from previous years. The coverage ratio, calculated on total impaired exposures, rises from 51.8% to 53.6%.

• - The indicators of incidence of impaired loans are maintained on good levels, compared to the total of loans to customers. The so-called gross NPL ratio falls to 14.72% from 15.07%, and the net one to 7.44% from 7.93% of the comparative period.

• -Capital ratios, including portion of profit for the period, are largely higher than regulatory requirements:

  • -CET1 Ratio phased in from 11.60% to 11.74%; fully phased at 11.63%.

  • -Total Capital Ratio phased in from 13.66% to 13.56%; fully phased at 13.39%.

• -The Texas ratio, the ratio between total net impaired loans and tangible equity, improved further, to 75.22% from 77.99%.

• -Phased-in Leverage Ratio of 5.74%;fully phasedat 5.68%.

The below charts summarize the most significant data and information on the composition of the banking group.

The comparative economic data referring to 30/06/2017 are represented without variations with respect to the values determined in accordance with the accounting standards applicable at the time. Therefore, they cannot be compared on a consistent basis with those referred to 30/06/2018 that reflect the application of IFRS 9 from 1 January 2018.

The balance sheet figures for the comparative period referring to 31 December 2017 have been restated by incorporating the changes made at the time of the first application of the international accounting standards entered into force on January 1stof the current year.

Accounting data (in millions of Euro)

30/06/2018	30/06/2017	Variation
Net interest income	249.7	238.8	+ 4.6%
Net commissions	153.4	148.4	+ 3.4%
Total result in securities	26.9	51	- 47,2%
Total income	433.2	442.7	- 2.1%
Adjustments to loans and financial activities	85.5	123.8	- 30.9%
Operating costs	255	239.8	+ 6.3%
Pre-tax profit	101.8	86.7	+ 17.4%
Net income	74.2	56.3	+ 31.6%

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Banca Popolare di Sondrio

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30/06/2018	31/12/2017	Variation
Direct funding from customers	31,193	31,634	-1.4%
Indirect funding from customer	30,573	30,119	+ 1.5%
Insurance deposits from customers	1,386	1,336	+ 3.8%
Total customer funding	63,152	63,089	+ 0.1%
Cash loans to customers	26,017	25,696	+ 1.2%

The Banking Group Banca Popolare di Sondrio is currently made up of:

• - Banca Popolare di Sondrio, a cooperative joint stock company (parent company);

• - Banca Popolare di Sondrio (SUISSE) SA (100% subsidiary);

• - Factorit SpA (60.5% subsidiary);

• - Banca della Nuova Terra spa (100% subsidiary);

• - Sinergia Seconda Srl (instrumental, 100% subsidiary);

• - Popso Covered Bond Srl (60% subsidiary).

In an overall positive market environment, the Group proved its ability to improve the result for the period, compared to what was achieved during the same period of the previous year.

Consolidated net incomefor the period amounted to€74.2 million, up by 31.6% compared to the€56.3 million in the first six months of 2017.

Direct depositsamounted to€31,193 million, down 1.4% on December 31st, 2017.Indirect depositsamounted, according to market values, to€30,573 million, plus 1.5% on December 31st, 2017,insurance depositstotalled€1,386 million, plus 3.8% on December 31st, 2017.Total customers depositsamounted to€63,152 million, plus0.1% on December 31st, 2017.

Loans to customers,composed by loans to customers estimated at amortized cost and those measured at fair value through profit or loss, totalled€26,017 million,plus1.2% compared with receivables from customers at the end of 2017. This aggregate, amounting to€25,696 million, was negativelyadjustedfor€60 million, to reflect the first application of IFRS 9.

Net impaired loansstood at€1,936 million, down 4.9%, and are the 7.44% of total loans (7.93% at the end of 2017), with a coverage of 53.64% compared to 51.79% of 31 December 2017 n the context of impaired loans,net bad loansamounted to€761 million, plus 1.9%; the impact of these on total loans to customers, equal to 2.92 %, is substantially stable compared to the end of 2017. The coverage of bad loans is 68.12% compared to 67.57% on 31 December 2017. If the amounts taken to the income statement in previous years are included, the coverage is 76.72%. The "unlikely to pay" exposures amounted to€1.052 million, down 9%, with a degree of coverage increasing from 34.67% at the end of 2017 to 36.38 % and an incidence on total funding of 4.04%, while exposures overdue and/or impaired overdue amounted to€124 million, minus 8.2%, with a degree of coverage of 9.83% and an impact on total funding of 0.48%. This decrease is the result of the improvement in the economic context as well as of the particular attention paid to the of the deteriorated positions management.

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Banca Popolare di Sondrio

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Financial assets, represented by proprietary securities and derivatives, amounted to€12,177 million, plus 2.4% on 31 December 2017.

Equity investments totalled€213 million, with a negative change of about€5 million, due to the imbalance between the effect of equity valuation and the increase for the acquisition of interests in Rent2Gofor€1.8 million.

As of 30 June 2018, short-termliquidityindicator (LCR-Liquidity Coverage Ratio)and medium-long term indicator (NSFR-Net Stable Funding Ratioare both largely above the minimum requirement for 2018 (100%).

The Group can always rely on a substantial portfolio of refinanceable assets which, net of the haircuts applied, amounted to€12,807 million, + 1.93% compared to the end of 2017, of which€6,770 million free and€6,037 million committed.

With regard to the components of the consolidated income statement, with the results as of 30 June 2017, the netinterest incomestood at€249.7 million, plus 4.6% compared to€238.8 million in the comparative period.It benefits from both the time to time recording of the negative rate of the TLTRO II funding, not registered in the comparative period due to uncertainty on the effective expectancy, and the increased contribution of the coupons collected on the Bank's securities portfolio.

Net feeandcommission incomeshowed a positive trend, amounting to€153.4 million, +3.4%, due especially to the good performance of those deriving from the placement of managed and insurance saving products, as well as those linked to deposit accounts, loans and collection and payment services.

Dividendscollected amounted to€3.2 million, - 30%.

Theoverall result of the securities, exchange and derivatives business(which is the sum of items 80, 90, 100 and 110 of the income financial statement) amounted to€26.9 million, down by 47.2% compared with 51 million€of the comparative period.

The total incometherefore fell to€433.2 million, less 2.1% compared to the first six months of 2017.

Net adjustments and write-backs for credit risk,item 130 of the income statement, amounted to€85.5 million, down 30.9% compared to the€123.8 million in the first half of 2017. The component made of net value adjustments for credit risk relating to financial assets measured at amortized cost,which refer to exposures to customers and banks in the form of loans and securities, amounted to€88.3 million. The adjustment to loans to customers represented by loans only amounted to€90.9 million, down 3.1% on the comparative period.

The component of net value adjustments for credit risk relating to financial assets at fair value through other comprehensive income recorded write-backs of€2.8 million on debt securities, while in the comparative period, with regard to the value adjustments from impairment of financial assets available for sale, the adjustments amounted to€29.9 million, mostly related to write-downs on shares in the Atlante Fund.

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Banca Popolare di Sondrio

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Item 140 of the income statement, which includes net gains from contractual changes without the recognition, deriving from the changes made to contractual cash flows, recorded losses for€0.7 million in the reporting period.

The ratio betweenthenet adjustments to loans only to customers, also including adjustments of item 140 of the income statement, as above, and loans to customers themselves, the so-called cost of credit, is improving, standing at 0.70% from 0.90% on 31 December 2017.

Thenet result of financial managementis equal to€347 million, plus 8.8%.

Operating costsamounted to€255 million, +6.3%, an increase largely attributable to the higher costs of Supervision, Resolution and Guarantee recorded in the period.The increasesrecorded on IT costs and consultancy costs are more physiological.

The ratio between operating costs and total income, the so called "cost income ratio", therefore stood at 58.87% from 54.17% at the end of 2017, reflecting both the increase of costs and the reduction of the intermediation margin.

Analyzing the individual cost items, the administrative costs, for which a reclassification was made regarding the provisions of the retirement fund, amounted to€269.2 million, +5%; the personnel expenses component rose to€117.4 million, +0.4%.Other administrative expenses increased as well from€139.5 million to€151.8 million, +8.8%. This significant increase is almost exclusively attributable to the charges incurred or expected for the stability of the banking system (Contributions to the National Resolution Fund and Interbank Deposit Protection Fund) for the current six months up to€24.9 million compared to€14 million in the comparative period.

The item "Net provisions for risks and charges" showed releases of funds for€0.63 million, compared to a release of€0.3 million in the comparative period. It now also includes provisions for credit risk relating to commitments and guarantees issued (which were previously allocated to line item 130 of the income statement).

Adjustments to tangible and intangible assets amounted to€15.4 million, down 2.3%. Other operating income,after deducting costs,reclassified as mentioned above, amounts to€30.3 million, down by 5.7%.

Theresult from operation managementtherefore rose to€91.9 million, +16.2%.

The itemprofits / losses on interests and other investmentsshowed a positive balance of€9.9 million, +30.3% compared to the€7.6 million of the comparative period.

Theoverall pre-tax resultamounted to€101.8 million, + 17.4%.

Afterincome taxes, equal to€25.4 million, -2.1%, and the net profit attributable to minority interests of€2.3 million, thenet profit for the periodamounted to€74.2 million, +31.6%.

Therate of taxation,intended as mere relationship between income taxes and the result of current operations, stood at 24.9%, compared with 29.9% in the comparative period.

Consolidated own funds,including the profit for the period, amounted to€2,599 million as of 30 June 2018, with a decrease of€34 million, compared to 31 December 2017, already negatively adjusted for€45 million at FTA IFRS 9.

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Banca Popolare di Sondrio