Banco di Desio e della Brianza S p A : Consolidated results at 31 december 2020

PRESS RELEASE

CONSOLIDATED RESULTS AT 31 DECEMBER 2020

Desio, 11 February 2021 - The Board of Directors of Banco di Desio e della Brianza S.p.A. has approved the draft separate and consolidated financial statements at 31 December 2020

Significant strengthening of capital (CET1of the Banco Desio Group +170 bps Y/Y) and operating profit (+8.0%) thanks to careful derisking, an increase in revenues (+0.7%) and a reduction in costs (-2.3% despite the extraordinary costs incurred for the Covid-19 emergency). Consolidated net profit of Euro 23.7 million and ROE of 2.4% despite provisions on performing loans for Euro 28.5 million (coverage now 0.72% compared with 0.49% at the end of 2019) and a non-recurring charge of Euro 12.0 million for voluntary staff redundancies. NPL ratio at 5.4% (vs 6.3%) and coverage levels improving further, above the system average.

•  CONSOLIDATED NET PROFIT of Euro 23.7 million with a ROE of 2.4%, confirming the resilience of the

PROFITABILITY

Banco Desio Group, despite a cost of credit of Euro 77.1 million (+41.0%). Result of operations up (+8.0%) due to the combined effect of a positive trend in income (+0.7%) and of a cost reduction (-2.3%)

•  Proposed allocation of the net profit to shareholders as follows:

  DIVIDENDS

  Euro 0.0603 for each of the 122,745,289 ordinary shares

  Euro 0.0724 for each of the 13,202,000 savings shares

  Payment will be approved by the Shareholders' Meeting in accordance with the Supervisory Authority's instructions1

•  SIGNIFICANT CAPITAL STRENGTHENING (CET1 of the Banco Desio Group +170 bps Y/Y) due to the derisking carried out on the portfolio and regulatory interventions by the European Union

  Ratios3	Banco Desio Brianza	Banco Desio Group	Brianza Unione Group4
  CET 1	15.66%	14.66%	11.22%
  TIER 1	15.67%	14.68%	12.02%
  Total Capital	16.08%	15.05%	13.21%

•  More than 19 thousand requests from businesses for liquidity approved for a total of Euro 2.1 billion ("Liquidity Decree")5

•  LOANS TO ORDINARY CUSTOMERS stood at Euro 10.5 billion (+9.5%), because of new loans to businesses

•  DIRECT DEPOSITS up, confirming the strong relationship with customers, equal to Euro 11.8 billion (+5.5%) and INDIRECT DEPOSITS of Euro 16.5 billion (+6.2%, of which ORDINARY CUSTOMERS +4.5%)

•  Ordinary customer loans/Direct deposits ratio of 88.7% vs 85.5%

1 It should be recalled that the Shareholders' Meeting of 23 April 2020 resolved to distribute a dividend of Euro 14,358,740.74 (Euro 0.1036 for each of the 122,745,289 ordinary shares and Euro 0.1244 for each of the 13,202,000 savings shares).

With reference to the dividends relating to both 2019 and 2020, it should be noted that, in accordance with the Recommendation of the Bank of Italy of 16 December 2020, it is intended to propose to the Ordinary Shareholders' Meeting for the approval of the 2020 financial statements to resolve payment to shareholders of the dividends subject to limitation, relating to both financial years, in compliance with the limit of 15% of the cumulative profits of 2019-20 (less than the amounts deriving from the application of the two limits set out in the Recommendation). The rest of the dividends will be paid out after 30 September 2021. All this, also with reference to the savings shares in compliance with the provisions of art. 31 of the Articles of Association.

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 21 May 2020, the following minimum capital requirements have been assigned to the Brianza Unione Group for CRR purposes, following completion of the Supervisory Review and Evaluation Process (SREP): CET1 ratio of 7.35%, binding - pursuant to art. 67-ter TUB - for 4.85% (minimum regulatory requirement of 4.5% and additional requirements of 0.35%) with the difference represented by the capital conservation buffer, Tier1 ratio of 8.95%, binding for 6.45% (minimum regulatory requirement of 6.0% and additional requirements of 0.45%) with the difference represented by the capital conservation buffer, and Total Capital Ratio of 11.1%, binding for 8.6% (minimum regulatory requirement of 8% and additional requirements of 0.6%) with the difference represented by the capital conservation buffer.

• 3 In application of the transitional arrangements introduced by Regulation (EU) 2017/2395 of 12 December 2017 and subsequent amendments.

• 4 The consolidated ratios at Brianza Unione of Luigi Gavazzi and Stefano Lado S.A.p.A., a company that holds 49.88% of Banco di Desio and della Brianza S.p.A. (of which it holds 50.44% of the ordinary shares and 44.69% of the savings shares), were calculated on the basis of the provisions of articles 11, paragraphs 2 and 3 and 13, paragraph 2 of the CRR Regulation.

5 Based on the latest information available in February.

•  LIQUIDITY well under control with liquidity coverage ratio (LCR) at 206.7% (vs 179.8% at 31.12.2019)

•  PROPORTION OF NPLs down:

  Net doubtful loans/Net loans ratio at 1.1% (vs 1.3% at 31.12.2019)

  Gross doubtful loans/Gross loans ratio of 2.8% (vs 3.1%)

  Net non-performing loans/Net loans ratio of 2.9% (vs 3.6%)

  Gross non-performing loans/Gross loans ratio of 5.4% (vs 6.3%)

•  LEVELS OF COVERAGE of non-performing and performing loans increasing

  Doubtful loans at 61.0%, 62.2% gross of write-offs (61.5% and 63.1% at 31.12.2019)

  Non-performing loans at 47.5% (vs 45.5%), 48.4% gross of write-offs (vs 46.7%)

  Performing loans at 0.72% (vs 0.49%)

***

KEY FIGURES OF THE SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2020 OF THE PARENT COMPANY BANCO DI DESIO E DELLA BRIANZA S.P.A.

•  "Net profit" is around Euro 23.9 million, down by 46.8% on the prior period figure of Euro 44.9 million, which was affected by the impact on cost of credit of the change in the economic scenario, as well as higher non-recurring charges (in particular, the charge of Euro 12.0 million recognised during the year for the staff redundancy plan communicated in November 2020).

•  "Result of operations" of Euro 123.8 million is up by Euro 14.4 million on the prior year (+13.1%). Core revenues have increased by about Euro 7.2 million on the comparative period (+1.9%) to Euro 391.4 million. "Operating costs", which include payroll costs, other administrative expenses and net adjustments to property, plant and equipment and intangible assets amount to around Euro 267.5 million and have decreased with respect to the comparative period by Euro 7.2 million (-2.6%).

•  Loans to ordinary customers amount to Euro 10.4 billion, up compared with the prior year (+9.5%), due to derisking of the portfolio thanks to the disbursements of new liquidity (mortgages and medium-long term loans) to companies with guarantees from Medio Credito Centrale and SACE for Euro 1.8 billion.

  Net non-performing loans/Net loans ratio of 5.35% (vs 6.30%)

  Net non-performing loans/Net loans ratio of 2.90% (vs 3.54%) Gross non-performing loans/Gross loans ratio of 2.68% (vs 3.15%) Net non-performing loans/Net loans ratio of 1.12% (vs 1.25%)

  Coverage ratio of doubtful loans of 61.0% (vs 61.4%) and gross of write-offs of 62.2% (vs 63.1%) Coverage ratio of non-performing loans of 47.6% (vs 45.6%), 48.5% gross of write-offs (vs 46.8%) Coverage ratio of performing loans of 0.72% (vs 0.49%)

•  Total ordinary customer deposits Euro 28.3 billion (+5.9%)

  of which Direct deposits Euro 11.8 billion (+5.5%)

  Indirect deposits Euro 16.5 billion (+6.2%)

•  Capital ratios well above the minimum individual requirements

Capital ratios	Banco Desio Brianza	Minimum individual capital requirements at 31.12.2020
CET 1	15.66%	7.0%
TIER 1	15.67%	8.5%
Total Capital Ratio	16.08%	10.5%

Shareholders' equity of Euro 987.0 million

Own funds of Euro 1,055.3 million (CET1 + AT1 Euro 1,028.8 million + T2 Euro 26.5 million)

***

The Board of Directors of the Parent Company Banco di Desio e della Brianza S.p.A. met on 11 February 2021 and approved the draft separate and consolidated financial statements at 31 December 2020.

The Ordinary Shareholders' Meeting is expected to be called for 15 April 2021 at 1st calling and, if necessary, for 16 April 2021 at 2nd calling.

***

Consolidated balance sheet

Total customer funds under management reached Euro 28.3 billion, representing an increase with respect to the 2019 year-end balance (+5.9%), attributable to both direct deposits (+5.5%) and indirect deposits (+6.2%).

Direct deposits amounted to Euro 11.8 billion, up 5.5% compared with 31 December 2019, due to the trend in amounts due to customers (+8.0%); debt securities in issue have decreased compared with the end of the previous year (-8.0%).

Indirect deposits totalled Euro 16.5 billion (+6.2%). Deposits from ordinary customers amounted to Euro 10.2 billion, up 4.5% compared with the end of the previous year, mainly attributable to the trend in assets under management (+5.5%).

Deposits from institutional customers reached a total of around Euro 6.4 billion, an increase of around Euro 0.5 billion (+8.9%).

The value of loans to ordinary customers at 31 December 2020 amounted to Euro 10.5 billion, up on the previous year's balance (+9.5%), due to the derisking of the portfolio thanks to the disbursements of new liquidity (mortgages and medium/long-term loans) to companies with guarantees from Medio Credito Centrale and SACE for approximately Euro 1.8 billion.

At 31 December 2020, total financial assets amounted to Euro 3.5 billion, an increase of 0.2 billion compared with the end of the previous year.

The investment policy of the Held to Collect securities portfolios ("HTC" - the "primary" investment portfolio for the support of net interest income and the collection of cash flows, with the possibility of selling according to the limits of the related Business Model) and Held to Collect and Sell ("HTCS" - the "residual" portfolio where the securities are held for treasury needs) is still characterised by a significant exposure to Italian government securities despite the presence of various transactions on the primary market involving a select number of corporate issuers. In particular, with reference to the HTCS portfolio, it is worth mentioning the new set of operating limits, which aims to achieve a more efficient and consistent management with respect to the objectives of the Business Model in light of the changes that have taken place in financial markets in the meantime.

The Group's net interbank position at 31 December 2020 is negative for Euro 1.4 billion, compared with the position at the end of the previous year, which was also negative for Euro 1.0 billion.

Shareholders' equity pertaining to the Parent Company at 31 December 2020, including net profit for the period, amounts to Euro 995.1 million, compared with Euro 965.1 million at the end of the previous year. The change is due to the other comprehensive income for the period, which was positive for Euro 44.4 million, partly offset by payment of the 2019 dividend of Euro 14.4 million.

Note that on 23 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 adopt the transitional arrangements 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.

The calculation of capital ratios at the reporting date also benefited from the measures to ease the capital requirements introduced by EU Regulation 873/2020, in particular:

•  an amendment to the transitional provisions of IFRS 9, which allows banks to sterilise in a declining manner the capital impacts associated with the increase in loan loss adjustments recorded in the period 2020-2024 of stage 1 and 2 portfolios compared with 1 January 2020,

•  bringing forward the date of application of a) SMEs Supporting Factor, b) fairer calibration of salary- or pension-backed loans, with a weighting of 35%,

•  the replacement of the previous prudential regime of total advance deduction of investments in software, in favour of a simple approach based on prudent amortisation of software over a maximum of three years.

At the board meeting on 30 July 2020, the Board of Directors of the Parent Company also resolved to make use of the option provided for by Regulation 2020/873 i.e. the temporary treatment of unrealised profits and losses measured at fair value recognised in other comprehensive income for Government debt securities for the period 2020-2022 (exclusion factor of 1 in 2020, 0.70 in 2021 and 0.40 in 2022).

With reference to the Banco Desio Group, Own Funds at 31 December 2020 - after a pay-out that takes account of the proposed allocation of the net profits of Group companies subject to authorisation by their respective shareholders' meetings - amounted to Euro 1,057.1 million (CET1 + AT1 of Euro 1,030.5 million + T2 of Euro 26.6 million), an increase of Euro 19.0 million compared with the final balance at the end of the previous year of Euro 1,038.1 million due to the overall profitability for the year, partially offset by the decrease in Tier 2 capital compared with 31 December 2019. The Common Equity Tier 1 ratio, which is the ratio between Common Equity Tier 1 (CET1) and risk-weighted activities, came to 14.7%. The Tier 1 ratio (T1/Risk-weighted assets) came to 14.7%, while the Total capital ratio (Total Own Funds/Risk-weighted assets) was 15.1%.

The calculation of Own Funds and of the consolidated prudential requirements at 31 December 2020, which are transmitted to the Bank of Italy in relation to the prudential supervisory reports (COREP) and statistical reports (FINREP), was 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 amount to Euro 927.1 million at 31 December 2020 (CET1 + AT1 of Euro 844.1 million, T2 of Euro 83.0 million). The Common Equity Tier 1 ratio, which is the ratio between Common Equity Tier 1 (CET1) and risk-weighted activities, came to 11.2%. The Tier 1 ratio (T1/Risk-weighted assets) came to 12.0%, while the Total capital ratio (Total Own Funds/Risk-weighted assets) was 13.2%.

Following the periodic Supervisory Review and Evaluation Process (SREP), on 21 May 2020, the Bank of Italy informed 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. of its decision regarding capital, ordering that, from the next report on own funds, the Brianza Unione Group was to adopt the following consolidated capital ratios:

•  CET1 ratio of 7.35%, binding for 4.85% (minimum regulatory requirement of 4.5% and additional requirements of 0.35% as a result of the SREP), while the remainder is represented by the capital conservation buffer;

•  Tier 1 ratio of 8.95%, binding for 6.45% (minimum regulatory requirement of 6% and additional requirements of 0.45% as a result of the SREP), while the remainder is represented by the capital conservation buffer;

•  Total Capital Ratio of 11.10%, binding for 8.60% (minimum regulatory requirement of 8% and additional requirements of 0.60% as a result of the SREP), while the remainder is represented by the capital conservation buffer.

As a result, at 31 December 2020 the Group again had capital ratios above the minimum requirements.