Banco di Desio e della Brianza : Consolidated results at 30 September 2018

PRESS RELEASE

CONSOLIDATED RESULTS AT 30 SEPTEMBER 2018

The Board of Directors of Banco di Desio e della Brianza S.p.A. has approved the "Consolidated Quarterly Financial Report at 30 September 2018"

CONSOLIDATED NET PROFIT (pertaining to the Parent Company) Euro 23.3 million (Euro 26.9 million at 30 September 2017), influenced by the charge deriving from the securitisation of doubtful loans through the GACS scheme for a nominal value of about Euro 1.0 billion

SIGNIFICANT REDUCTION in the percentage of NPLs

"Gross non-performing loans/Gross loans ratio" at 7.5% (from 15.1% at 31.12.2017) "Net non-performing loans/Net loans ratio" at 4.2% (from 8.4%)

"Gross doubtful loans/Gross loans ratio" at 3.5% (from 10.8%) "Net doubtful loans/Net loans ratio" at 1.3% (from 5.0%)

LEVELS OF COVERAGE of non-performing loans after the GACS operation

Coverage ratio of doubtful loans at 63.4%, 68.3% gross of write-offs (57.2% and 61.1% at 31.12.2017) Coverage ratio of non-performing loans at 45.8%, 49.5% gross of write-offs (previously 49.0% and 52.4%)

LEVELS OF COVERAGE of performing loans1 at 0.57% (previously 0.45%)

CAPITAL REQUIREMENTS 2

Capital ratios	Calculated as of 30 September 2018 3
	Banco di Desio e della Brianza	Banca Popolare di Spoleto	Banco Desio Group	Brianza Unione Group
CET 1 Ratio	17.50%	10.57%	11.65%	8.80%
TIER 1 Ratio	17.55%	10.57%	11.78%	9.66%
Total Capital Ratio	19.64%	11.32%	13.28%	11.48%

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.

During the quarter the business models that affected the investment financial assets were changed (with accounting effective date from 1 October 2018) based on the pursuit of a stable policy of mitigation of the risks and of the strengthening capital ratios. Simulating at the reference date of 30 September 2018 the capital and supervisory effects deriving from this change, the following pro-forma ratios have been estimated:

Banco Desio Group: 12.1% (CET 1 ratio), 12.3% (Tier 1 ratio) and 13.8% (Total capital ratio) Brianza Unione Group: 9.1% (CET 1 ratio), 9.9% (Tier 1 ratio) and 11.7% (Total capital ratio)

• 1 The increase in the levels of coverage compared with 31 December 2017 reflects the impact of First-Time Adoption of IFRS 9.

• 2 Based on the Bank of Italy's instructions sent to the Parent Company, 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 6.625%, binding - pursuant to art. 67-ter TUB - for 4.8% (minimum regulatory requirement of 4.5% and additional requirements of 0.3%) with the difference represented by the capital conservation buffer, Tier 1 ratio of 8.225%, binding - pursuant to art. 67-ter TUB - for 6.4% (minimum regulatory requirement of 6.0% and additional requirements of 0.4%) with the difference represented by the capital conservation buffer, and Total Capital Ratio of 10.375%, binding - pursuant to art. 67-ter TUB - 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.

LOANS TO ORDINARY CUSTOMERS: Euro 9.4 billion (-4.9% compared with the stock outstanding at the end of the previous year) mainly due to the sale of NPLs and the impact of First-Time Adoption of IFRS 9 "Financial Instruments"

TOTAL CUSTOMER DEPOSITS: Euro 25.0 billion (-0.5%), of which DIRECT DEPOSITS Euro 10.8 billion (-1.8%), with a ratio of Ordinary customer loans to Direct deposits of 87.0% (previously 89.8%) and INDIRECT DEPOSITS of Euro 14.2 billion (+0.5 compared with the end of the previous year)

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The Board of Directors of Banco di Desio e della Brianza S.p.A. met on 8 November 2018 and approved the Consolidated Quarterly Financial Report at 30 September 2018, prepared in compliance with the applicable international accounting standards recognised in the European Community pursuant to the EC Regulation no. 1606 of 19 July 2002, as well as the provisions of the Bank of Italy issued with Circular no. 262 of 22 December 2005 (5th update).

In particular, the Report is prepared in accordance with IAS 34 "Interim financial statements" so that 1 October 2018 qualifies as the "reclassification date" (according to the definition in IFRS 9 "Financial instruments") for the recognition of the accounting effects due to the change in the business models that in September affected the financial assets held for investment purposes by Banco Desio Group banks, as explained in the Report; the Consolidated Quarterly Financial Report at 30 September 2018 of the Banco Desio Group and the Separate Quarterly Financial Report at 30 September 2018 of Banca Popolare di Spoleto will therefore be published soon on their respective institutional websites.

The Consolidated Quarterly Financial Report at 30 September 2018 has also been prepared in order to determine the result for the period, so that own funds and prudential coefficients can be calculated.

Consolidated balance sheet

Total customer funds under management at 30 September 2018 reached Euro 25.0 billion, a decrease of some Euro 0.1 billion (-0.5%) with respect to the 2017 year end balance, due to the trend in direct deposits (-1.8%), partially offset by indirect deposits (+0.5%).

Direct deposits at the end of the period amounted to Euro 10.8 billion, a decrease of 1.8% which comes from the lower amounts due to customers of Euro 0.1 billion (-0.7%) and the reduction in debt securities in issue for Euro 0.1 billion (-8.1%).

Overall, at 30 September 2018 indirect deposits posted an increase of 0.5% compared with the end of the previous year, rising to Euro 14.2 billion. In particular, this was attributable to deposits from ordinary customers, up by Euro 0.1 billion (+1.1%), due to the trend in assets under management (+3.4%), partially offset by a decrease in assets under administration (-3.0%). Institutional customer deposits posted a slight decrease of 0.6%, coming in at Euro 5.2 billion.

The total amount of loans to customers at the end of the period amounted to Euro 9.6 billion, a decrease compared with the balance at the end of 2017 (-2.7%), mainly due to the transactions in non-performing loans.

At 30 September 2018, the Group's total investment financial assets amounted to Euro 3.2 billion, an increase of Euro 0.9 billion compared with the end of 2017 (+39.6%). During the period, the "held to collect" portfolio of securities valued at amortised cost, consisting of government securities and bonds diversified by issuer, geographical area and type of interest rate, increased to Euro 1.6 billion at 30 September 20184. This category of financial instruments also includes Euro 0.3 billion of senior securities of the "2Worlds s.r.l." securitisation subscribed by the Group following the sale of doubtful loans through the "GACS" scheme; on 3 October 2018 the Group received a formal communication that the Minister of Economy and Finance had granted the State guarantee for these securities on 5 September 2018.

The Group's net interbank position at 30 September 2018 is negative for Euro 1.4 billion, compared with the position at the end of the previous year which was also negative for Euro 0.5 billion. The balance at the reporting period reflects almost totally the funding facility assigned by ECB as part of the "TLTRO" operation.

Shareholders' equity pertaining to the Parent Company at 30 September 2018, including net profit for the period, amounts to Euro 846.3 million, compared with Euro 927.1 million at the end of 2017. The negative change of Euro 80.8 million is due to FTA of IFRS 9 for Euro 54.4 million, to payment of the 2017 dividend for Euro 13.3 million and to the negative other comprehensive income for the period of Euro 13.0 million.

On 23 January and 25 January 2018, taking account of a best estimate available at the time of the higher adjustments for expected losses on performing and non-performing loans on first-time application of the standard, the Boards of Directors of Banca Popolare di Spoleto and Banco Desio resolved to join the transitional regime introduced by the Regulation (EU) 2017/2395 of 12 December 2017, aimed at mitigating the impact of the new standard on own funds and capital ratios, with reference to both the increase in adjustments for expected losses on performing and non-performing loans on first-time adoption of the standard and the increase in expected losses on performing loans compared with the date of first-time adoption of the standard.

Against risk-weighted assets (RWA) that are down by Euro 0.4 billion, essentially due to the sale of doubtful loans under the "GACS" scheme, at 30 September 2018 consolidated Own funds of the Banco Desio Group amounted to Euro 1,014.0 million (CET1 + AT1 Euro 899.7 million + T2 Euro 114.3 million), while the Common Equity Tier 1 ratio (the ratio between Tier 1 capital (CET1) and Risk-weighted assets) came to 11.6%. The Tier 1 ratio (T1/Risk-weighted assets) came to 11.8%, while the Total capital ratio (Total Own Funds/Risk-weighted assets) was 13.3%.

Note that the Bank of Italy's minimum requirements at consolidated level (based on the SREP) are as follows: 6.625% for the Common Equity Tier 1 ratio, binding - pursuant to art. 67-ter TUB - to the extent of 4.8% (of which 4.5% for the minimum regulatory requirements and 0.3% for additional requirements) and the capital conservation buffer for the remainder;

4 The classification of securities in the "held to collect" and "held to collect & sell" portfolios on the reference date does not yet reflect the change in business models which took place in September, as the reclassification date according to IFRS 9 was identified as 1 October 2018.

8.225% for the Tier 1 ratio, binding - pursuant to art. 67-ter TUB - to the extent of 6.4% (of which 6.0% for the minimum regulatory requirements and 0.4% for additional requirements) and the capital conservation buffer for the remainder; 10.375% for the Total Capital ratio, binding - pursuant to art. 67-ter TUB - to the extent of 8.5% (of which 8% for the minimum regulatory requirements and 0.5% for additional requirements) and the capital conservation buffer for the remainder.

As a result, at 30 September 2018 the Banco Desio Group again had capital ratios above the established minimum requirements.

Consolidated income statement

The Net profit attributable to the Parent Company at 30 September 2018 comes to Euro 23.3 million, a decrease of 13.3% compared with the profit for the comparative period of Euro 26.9 million.

The Profit (loss) from operations after tax is down by around 11.7 million (-34.0%) compared with 30 September 2017, mainly due to the negative effect on the cost of credit linked to the sale of doubtful loans by means of a GACS as mentioned previously. The Non-recurring profit (loss) after tax, on the other hand, benefited from non-recurring revenue components due to an adjustment of the liabilities provided for under the current redundancy plan, compared with the prior period, which included the adjustment of certain investments classified in financial assets available for sale (in application of IAS 39, which was in force at the time).

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

Operating income

Core revenues decreased by about Euro 7.4 million compared with the previous period (-2.4%), coming in at Euro 302.9 million. The trend is mainly attributable to net interest income which, in consideration of the persistent effects of the expansive monetary policy that heavily compresses interest income, shows a reduction of Euro 11.5 million (-6.7%), partially offset by the positive contribution from net commissions, up by Euro 2.3 million (+1.9%) and dividends, which came to Euro 3.2 million (formerly Euro 0.6 million).

The net results on financial assets and liabilities were Euro 8.3 million (formerly Euro 8.2 million ); the item includes capital losses on mutual funds that are mandatorily measured at fair value for Euro 2.1 million (in the comparative period, the positive valuation effect of Euro 1.0 million was recognised in other comprehensive income in accordance with IAS 39).

Other operating income/expense has fallen by Euro 0.9 million.

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 208.6 million and have decreased, with respect to the comparative period, by Euro 1.0 million (-0.5%).

In particular, other administrative expenses have increased by Euro 2.5 million (+3.7%). The balance includes Euro 8.1 million for the ex-ante ordinary gross contributions to the Single Resolution Mechanism (SRM) and to the Deposit Guarantee Scheme (DGS) (Euro 7.4 million in the prior year).

Payroll costs have decreased by 2.1% on the prior period, whereas the balance of net adjustments to property, plant and equipment and intangible assets came to Euro 8.3 million (-8.4%).

Results of operations

The results of operations at 30 September 2018 therefore amounted to Euro 94.3 million, Euro 6.4 million down on the prior period (-6.4%).

Net profit (loss) from operations after tax

The result of operations of Euro 94.3 million leads to a net profit (loss) from operations after tax of Euro 22.7 million, 34.0% down on the Euro 34.4 million in the comparative period, mainly because of: the cost of credit (net impairment adjustments to financial assets measured at amortised cost plus gains (losses) on disposal or repurchase of loans) of Euro 60.7 million (formerly Euro 44.1 million), affected by: - losses from the sale of loans on completion of the securitisation transaction under the GACS scheme, which involves an Italian State guarantee on the senior securities issued following the securitisation of doubtful loans pursuant to Decree Law 18/2016;

- application of the new models for the determination of the expected loss on loans adopted by the Group in application of IFRS 9 starting from 1 January 2018, and therefore not fully comparable with the prior period figure; net adjustments to proprietary securities of Euro 3.3 million (formerly Euro 3.2 million), which during the period includes the adjustments deriving from application of the new models for the determination of the expected loss on the proprietary securities portfolio in accordance with IFRS 9 starting from 1 January 2018 and therefore not comparable with the previous period; net provisions for risks and charges, including commitments and guarantees given, of Euro 0.2 million (previously Euro 1.8 million);

income taxes on current operations of Euro 7.8 million (previously Euro 17.3 million).

Result of non-recurring items after tax

At 30 September 2018 there was a non-recurring profit after tax of Euro 0.7 million. This item basically consists of: the revenue component of Euro 2.6 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 0.4 million).

In the comparative period there was a non-recurring loss after tax of Euro 6.9 million, made up principally of: impairment adjustments (net of the use of provisions) recognised: - for Euro 1.6 million on a minority bank shareholding that has been sold in the meantime - for Euro 3.6 million on the Atlas Fund following the write-off of the value of the banking interests held by the fund both reclassified from net adjustments to securities owned; the negative income components linked to participation in the Interbank Deposit Protection Fund's Voluntary Intervention Scheme (VIS), in particular:

• - Euro 0.4 million of contributions paid to the VIS during the year, reclassified from other administrative expenses;

• - Euro 0.6 million of impairment on the participatory interest held by the VIS in Caricesena, reclassified from net adjustments to securities owned;

• - Euro 3.3 million of write-downs on the irrevocable commitment to allocate funds to the VIS reclassified from net impairment adjustments to other financial assets; and the related (positive) tax effects of Euro 2.7 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 pertaining to minority interests, leads to a profit for the period pertaining to the Parent Company at 30 September 2018 of Euro 23.3 million.

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The Group's distribution network at 30 September 2018 consists of 265 branches, including 146 in the Parent Company Banco di Desio e della Brianza S.p.A. and 119 of Banca Popolare di Spoleto S.p.A.

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At 30 September 2018, the Group had 2,288 employees, a decrease of 15 people (-0.7%) compared with the end of the previous period.

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Non-performing loans (NPL) disposal programme

On 27 March 2018, in execution of its capital management strategy defined in the last few months of 2017 and included in the 2018-2020 Business Plan approved on 11 January 2018, the Board of Directors of Banco di Desio e della Brianza resolved a plan for the sale of NPLs for a gross value of Euro 1.1 billion. This includes a securitisation that makes use of the Italian State guarantee on the senior securities issued following a securitisation of doubtful loans pursuant to Decree Law 2018/2020 ("GACS") aimed at deconsolidating Banco Desio Group loans for a gross value of Euro 1.0 billion (the "Transaction").

The Transaction was structured in order to carry out the significant transfer of the credit risk associated with the securitised loans ("SRT") pursuant to art. 243 et seq. of Regulation (EU) no. 575/2013; the NPL portfolio sold on 12 June to "2Worlds