Banco di Desio e della Brianza : Consolidated results at 30 June 2019

PRESS RELEASE

CONSOLIDATED RESULTS AT 30 JUNE 2019

NET PROFIT AT 23.5 MILLION EURO (FORMERLY 13.6 MILLION EURO)

The Board of Directors of Banco di Desio e della Brianza S.p.A. has approved the "Consolidated Interim Financial Report at 30 June 2019"

PROFITABILITY

SUPPORT FOR

THE ECONOMY

ASSET QUALITY

CAPITAL

SOLIDITY 2

• CONSOLIDATED NET PROFIT (pertaining to the Parent Company) Euro 23.5 million (Euro 13.6 million at 30 June 2018), UP BY 72.6% also thanks to the positive effect on cost of credit of the relevant decrease in NPLs achieved in the previous year and continued during the period
• INCREASE IN THE TOTAL CUSTOMER DEPOSITS to Euro 25.8 billion (+4.3% on 31.12.2018), of which DIRECT DEPOSITS of Euro 10.9 billion (+2.6% on 31.12.2018), with a Ordinary customer loans/Direct deposits ratio at 87.2%, vs 90.0%) and INDIRECT DEPOSITS of Euro 14.9 billion (+5.5%, of which ORDINARY CUSTOMERS +5.8% and INSTITUTIONAL CUSTOMERS +5.1%)
• LOANS TO CUSTOMERS at the end of the half-year stood at around Euro 9.7 billion (+0.5% on the figure at the end of 2018) of which Euro 9.6 billion related to LOANS TO ORDINARY CUSTOMERS (- 0.6%)
• NEW LOANS TO HOUSEHOLDS AND BUSINESSES of Euro 1.0 billion (Euro 1.0 billion in first half of 2018), confirming the contribution of the Banco Desio Group in terms of access to credit for the private sector and the offer of loans to the real economy
• INCIDENCE OF NPLs:
  Net non-performing loans/Net loans ratio at 3.9% (vs 4.2% at 31.12.2018) Gross non-performing loans/Gross loans ratio of 6.7% (vs 7.0%)
  Net doubtful loans/Net loans ratio at 1.3% (vs 1.3%) Gross doubtful loans/Gross loans ratio at 3.1% (vs 3.0%)
• LEVELS OF COVERAGE of non-performing and performing loans
  Coverage ratio1 of non-performing loans at 43.4% (vs 42.2%), 45.2% gross of write-offs (vs 45.6% at 31 December 2018)
  Coverage ratio1 of doubtful loans at 59.4% (vs 59.3%) and gross of write-offs at 62.1% (vs 64.5%) Coverage ratio of performing loans 0.50% (vs 0.54%)

	Capital ratios at	Banco di Desio e	Banca Popolare	Banco Desio	Brianza Unione
	30 June 2019 3	della Brianza	di Spoleto	Group	Group
	CET 1	18.80%	10.61%	12.39%	9.72%
	TIER 1	18.82%	10.61%	12.49%	10.51%
	Total Capital	20.27%	11.35%	13.55%	12.06%

The consolidated ratios at the level of Brianza Unione di Luigi Gavazzi e Stefano Lado S.A.p.A., the parent company that controls 52.084% of Banco di Desio e della Brianza S.p.A., have been calculated on the basis of articles 11, paragraphs 2 and 3 and 13, paragraph 2, of the CRR Regulation.

1. Also considering non-performing loans of the subsidiary Banca Popolare di Spoleto S.p.A., shown gross of write-downs.
2. Based on the Bank of Italy's instructions sent to Banco di Desio e della Brianza S.p.A. and to the Parent Company Brianza Unione di Luigi Gavazzi e Stefano Lado S.A.p.A. on 27 June 2019, which contained the minimum capital requirements to be met at consolidated level following completion of the Supervisory Review and Evaluation Process (SREP): CET1 ratio of 7.25%, binding - pursuant to art. 67-ter TUB - for 4.75% (minimum regulatory requirement of 4.5% and additional requirements of 0.25%) with the difference represented by the capital conservation buffer, Tier1 ratio of 8.85%, binding for 6.35% (minimum regulatory requirement of 6.0% and additional requirements of 0.35%) with the difference represented by the capital conservation buffer, and Total Capital Ratio of 11.0%, binding for 8.5% (minimum regulatory requirement of 8% and additional requirements of 0.5%) with the difference represented by the capital conservation buffer.
3. In application of the transitional provisions introduced by Regulation (EU) 2017/2395 of 12 December 2017.

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The Board of Directors of Banco di Desio e della Brianza S.p.A., met on 6 August 2019 and approved the Consolidated interim financial report at 30 June 2019, prepared pursuant to art. 154-ter of D.Lgs. 58/1998 ("Consolidated Finance Act"), implementing D.Lgs. 195 of 6 November 2007 (the so-called "Transparency Directive") and drawn up in compliance with applicable international accounting standards recognised in the European Community in accordance with EU Regulation 1606 of 19 July 2002, especially IAS 34 - Interim financial statements, and Bank of Italy Circular 262 of 22 December 2005 (6th update).

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Consolidated balance sheet

Total customer funds under management at 30 June 2019 reached Euro 25.8 billion, representing an increase for some Euro 1.1 billion with respect to the 2018 year end balance (+4.3%), attributable to the upward trend in both indirect (+5.5%) and direct deposits (+2.6%).

Direct deposits at the end of the first half amounted to Euro 10.9 billion, an increase of 2.6% which comes from the higher amounts due to customers of Euro 0.3 billion (+3.1%), partially offset by a reduction in debt securities in issue (-0.6%).

Overall, at 30 June 2019 indirect deposits posted an increase of 5.5% compared with the end of the previous year, rising to Euro 14.9 billion.

This was attributable, in particular, to deposits from ordinary customers, up by about Euro 0.5 billion (+5.8%), due to the performance of assets under management (+6.1%) and of assets under administration (+5.1%).

The total value of loans to customers at the end of the first half of the year came in at Euro 9.7 billion (+0.5% on the end of 2018), of which Euro 9.6 billion of loans to ordinary customers (-0.6%).

At 30 June 2019, the Group's total financial assets amounted to Euro 3.3 billion, an increase of some Euro 0.2 billion compared with the end of 2018 (+5.5%). Long-term investment policy (held to collect portfolio) is characterised by a significant exposure to Italian government securities, while the residual life of securities of the held to collect and sell portfolio has been significantly curtailed.

The Group's net interbank position at 30 June 2019 is negative for Euro 1.2 billion, compared with the position at the end of the previous year, which was also negative for Euro 1.3 billion.

Shareholders' equity pertaining to the Parent Company at 30 June 2019, including net profit for the period, amounts to Euro 903.4 million, compared with Euro 892.1 million at the end of 2018. The positive change of Euro 11.3 million is due to the comprehensive income of the period amounting to Euro 22.5 million, partly offset by the payment of 2018 dividend of Euro 11.2 million.

On 25 January 2018, the Board of Directors of the bank resolved to join the transitional regime introduced by the Regulation (EU) 2017/2395 of 12 December 2017, aimed at mitigating the impact of IFRS 9 on own funds and capital ratios.

With reference to the Banco Desio Banking Group, after the application to the profit for the period of the 40% pay-out quota required by the dividend policy, Own Funds amounted to 1,036.9 million euro at 30 June 2019 (CET 1 + AT1 956.0 million euro + T2 80.9 million euro), compared with 1,056.9 million euro at the end of the previous year. The Common Equity Tier 1 ratio (CET1/Risk-weighted assets) was 12.4% (12.1% at 31 December 2018). The Tier 1 ratio (T1/Risk- weighted assets) was 12.5% (12.3% at 31 December 2018), while the Total capital ratio (total Own Funds/Risk-weighted assets) was 13.6% (13.6% at 31 December 2018).

The calculation of Own Funds and of the consolidated prudential requirements, which are transmitted to the Bank of Italy in relation to the prudential supervisory reports (COREP) and statistical reports (FINREP), is made with reference to Brianza Unione di Luigi Gavazzi e Stefano Lado S.A.p.A. as it is the financial parent company of the banking group according to European legislation. The consolidated own funds calculated by the financial parent company Brianza Unione amount to Euro 922.2 million at 30 June 2019 (CET1 + AT1 of Euro 804.2 million, T2 of Euro 118.0 million), compared with Euro 934.0 million at the end of the previous year. The Common Equity Tier 1 ratio (CET1/Risk-weighted assets) was 9.7% (9.4% at 31 December 2018). The Tier 1 ratio (T1/Risk-weighted assets) was 10.5% (10.3% at 31 December 2018), while the Total capital ratio (total Own Funds/Risk-weighted assets) was 12.1% (12.0% at 31 December 2018).

Following the periodic Supervisory Review and Evaluation Process (SREP), on 27 June 2019, the Bank of Italy notified Banco di Desio e della Brianza S.p.A. and the financial parent company Brianza Unione di Luigi Gavazzi e Stefano Lado S.A.p.A. its decision regarding capital, ordering that, from the notification about own funds at 30 June 2019, the "CRR"

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Brianza Unione Group was to adopt the capital ratios that presuppose compliance with the minimum limits indicated below, taking into account the capital conservation buffer of 2.5% applicable to Italian banking groups in 2019:

• 7.25% for the Common Equity Tier 1 ratio, binding - pursuant to art. 67-ter of the CBA - to the extent of 4.75% (of which 4.5% for the minimum regulatory requirements and 0.25% for additional requirements) and for the remainder from the capital conservation buffer;
• 8.85% for the Tier1 ratio, binding - pursuant to art. 67-ter of the CBA - to the extent of 6.35% (of which 6.0% for the minimum regulatory requirements and 0.35% for additional requirements) and for the remainder from the capital conservation buffer;
• 11.00% for the Total Capital ratio, binding - pursuant to art. 67-ter of the CBA - to the extent of 8.5% (of which 8.0% for the minimum regulatory requirements and 0.50% for additional requirements) and for the remainder from the capital conservation buffer.

Comparing the new requirements and those previously assigned to the Group with those announced by various competitors, the Group's financial solidity is confirmed.

It should also be noted that with regard to resolution planning for Less Significant Institutions (LSI), the Banco Desio Group has received from the Bank of Italy, as the Resolution Authority, a communication that does not require compliance with an MREL (Minimum Requirement for own funds and Eligible Liabilities to be subject to bail-in).

Consolidated income statement

The net profit attributable to the Parent Company at 30 June 2019 comes to Euro 23.5 million, an increase of 72.6% compared with the profit for the comparative period of Euro 13.6 million.

The main cost and revenue items in the reclassified income statement are analysed below.

Operating income

Core revenues decreased by about Euro 4.1 million compared with the previous period (-2.0%), coming in at Euro 200.7 million. This is mainly due to the decrease in net commission income for Euro 0.9 million (-1.2%), of the net result of financial assets and liabilities for Euro 2.1 million, of dividends for Euro 2.1 million and of other operating income /expense for Euro 1.6 million (-24.6%) partly offset by the recovery in net interest income which has increased by 2.7 million euro (+2.6%).

Operating costs

Operating costs, which include payroll costs, other administrative expenses and net adjustments to property, plant and equipment and intangible assets amounted to around Euro 137.8 million and have decreased with respect to the comparative period by Euro 1.2 million (-0.9%).

In particular, other administrative expenses have increased by Euro 1.4 million (+3.1%). The balance of other administrative expense includes Euro 4.4 million of the ex-ante gross ordinary contributions to the resolution fund ("Contribution SRM - Single Resolution Mechanism") versus Euro 3.9 million in the comparative period. This balance also includes Euro 5.9 million of costs for operating leases falling within the scope of IFRS 16 - Leases, which came into force on 1 January 2019; these costs have been booked to item "20 Interest and similar expense" for Euro 0.6 million and to item "210 Net adjustments to property, plant and equipment" for Euro 5.3 million; in the comparative period, the charges incurred on these contracts were recorded in item "190 b) Other administrative costs". Application of the new accounting standard involved recognising higher charges for Euro 0.3 million (before tax) during the period.

Payroll costs have decreased by 2.6% on the prior period, whereas the balance of net adjustments to property, plant and equipment and intangible assets came to Euro 5.3 million (-7.7%).

Results of operations

The results of operations at 30 June 2019 therefore amounted to Euro 62.9 million, Euro 2.9 million down on the prior period (-4.4%).

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Net profit (loss) from continuing operations after tax

The result of operations of Euro 62.9 million leads to a net profit (loss) from operations after tax of Euro 24.3 million,

81.2% up on Euro 13.4 million in the comparative period, mainly because of:

• lower cost of credit (net impairment adjustments to financial assets measured at amortised cost plus gains (losses) on disposal or repurchase of loans) of Euro 26.9 million (Euro 46.5 million in the comparison period), affected by the adjustments made to reflect the economic effects of the GACS project (guarantee for securitisation of NPLs);
• positive net adjustments to proprietary securities of Euro 2.9 million (negative for Euro 1.3 million in the comparative period);
• net provisions for risks and charges of Euro 2.0 million (formerly Euro 0.3 million);
• income taxes on continuing operations of Euro 12.5 million (formerly Euro 4.3 million).

Non-recurring profit (loss) after tax

At 30 June 2019 there was a negative non-recurringprofit (loss) after tax of Euro 0.2 million. This item basically consists of:

• the revenue component of Euro 1.5 million relating to an insurance refund received;
• the Euro 1.6 million charge for the extraordinary contribution to the SRM requested by the national resolution authority on 7 June 2019;
• the net result of the measurement at fair value of artworks negative for Euro 0.2 million

net of the related positive tax effects of Euro 0.1 million.

The positive result of Euro 0.2 million in the comparative period is mainly made up of:

• the revenue component of Euro 1.8 million relating to the adjustment of the liabilities recorded to cover the redundancy plan at the end of 2016, reclassified from personnel costs,
• the Euro 1.5 million charge for the extraordinary contribution to the SRM requested by the national resolution authority on 25 May 2018,

net of the related tax effect (negative for Euro 0.1 million).

Profit for the period pertaining to the Parent Company

The total of the profit from operations after tax and the non-recurring profit after tax, as well as the result attributable to minority interests, leads to a Profit for the period pertaining to the Parent Company at 30 June 2019 of Euro 23.5 million.

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The Group's distribution network al 30 June 2019 consists of 264 branches, including 146 in the Parent Company Banco di Desio e della Brianza S.p.A. and 118 of Banca Popolare di Spoleto S.p.A.

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At 30 June 2019, the Group had 2,211 employees, an increase of 2 people compared with the end of the previous period.

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