Separate financial statements of UBI Banca Scpa. As at and for the year ended 31 st December 2012

Transcription

1 Separate financial statements of UBI Banca Scpa As at and for the year ended 31 st December 2012

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4 UBI Banca: key figures and performance indicators STRUCTURAL INDICATORS Net loans to customers / total assets 30.8% 22.1% 20.5% 19.8% 16.9% Direct funding from customers/total liabilities 42.7% 49.7% 49.1% 33.5% 32.2% Net loans to customers/direct funding from customers 72.1% 44.6% 41.8% 59.0% 52.4% Equity (inclusive of profit/loss for the year) / total liabilities 11.7% 10.7% 14.6% 16.8% 16.7% PROFIT INDICATORS ROE (Profit/loss for the year/equity inclusive of profit/loss for the year) 2.6% 4.2% 2.7% 3.8% 0.2% ROTE (Profit/loss for the year/equity inclusive of profit/loss for the year net of intangible assets) 2.6% 4.2% 2.9% 4.0% 0.2% ROA (Profit/loss for the year/ total assets) 0.30% 0.45% 0.40% 0.64% 0.04% The cost:income ratio (operating expenses/operating income) 48.1% 96.9% 59.5% 39.4% 58.9% Personnel expense/operating income 19.5% 43.7% 28.1% 18.0% 24.8% Dividends/operating income 51.0% 135.2% 64.6% 78.0% 141.3% Net result on financial activities/operating income 37.3% -2.1% 27.8% 17.9% -30.1% RISK INDICATORS Net non-performing loans +net impaired loans / net loans to customers 1.83% Net impairment losses on non-performing and impaired loans/gross nonperforming + gross impaired loans (coverage) 48.63% Net non-performing loans / net loans to customers 1.01% Net impairment losses on non-performing loans / gross non performing loans (coverage for non performing loans) 61.25% Net non-performing loans / regulatory capital 1.60% CAPITAL RATIOS Basel 2 AIRB Tier 1 ratio (tier 1 capital / total risk weighted assets) 56.23% 59.23% 67.64% 67.04% 45.89% Total capital ratio [(regulatory capital+tier 3/total risk weighted assets] 84.49% 85.62% 90.42% 95.15% 64.25% Regulatory capital (in thousands of euro) 14,194,716 12,972,683 13,713,202 14,285,982 13,655,979 of which: Tier one capital after the application of prudential filters and specific deductions 9,447,070 8,973,902 10,258,059 10,064,763 9,753,795 Risk weighted assets 16,799,510 15,151,704 15,165,464 15,013,954 21,253,805 INCOME STATEMENT, BALANCE SHEET FIGURES (in thousands of euro), STRUCTURAL DATA (number) Profit (loss) for the year 223,496 (2,713,054) 283, ,317 23,886 Profit (loss) for the year normalised 266,742 70, , , ,574 Operating income 664, , , , ,100 Operating expenses (319,622) (254,048) (276,650) (278,852) (376,816) Net loans and advances to customers 22,584,747 15,692,663 14,536,121 12,560,060 10,446,768 of which: net non-performing loans 227, net impaired loans 186, Direct funding from customers 31,302,960 35,223,005 34,790,516 21,277,596 19,942,079 Equity (inclusive of profit/loss for the year) 8,607,721 7,609,829 10,328,266 10,662,230 10,358,682 Intangible assets , , ,756 Total assets 73,336,254 70,895,253 70,897,601 63,450,192 61,983,318 Branches in Italy Total personnel at the end of year (actual employees in service + workers on agency leasing contracts) 1,412 1,250 1,380 1,405 1,566 Average total personnel (actual employees in service + w orkers on agency leasing contracts) (*) 1,393 1,212 1,349 1,451 1,509 The profit indicators for 2011 were calculated on profit for the year before impairment losses on Group equity investments, goodwill and intangible assets, which amounted to 316,723 thousand. 1 The indicators have been calculated using the reclassified figures contained in the section Reclassified financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules. Information on the share is given in the relative section of this Management Report. (*) Part time employees have been calculated within total average personnel numbers according to convention on a 50% basis. 2*

5 The organisational structure of UBI Banca Unione di Banche Italiane Scpa is a co-operative bank listed on the Milan stock exchange. It is the parent of the banking group of the same name, which has a federal, multi-functional organisational model and a product range diversified by market. As the Parent of the Group, UBI Banca performs the functions of strategic policy-making (formulating the Group business strategy), of supervising business functions (by supporting and co-ordinating the commercial activities of the network banks and product companies), monitoring risks and providing centralised services (either directly or through subsidiaries). With regard to governance, UBI Banca has adopted a two tier system, with full respect for the prerogatives and specific characteristics of the two corporate bodies which hold separate responsibilities for supervision and management. As part of action taken to optimise the functioning of the Group (see section on "Significant events that occurred during the year" of the consolidated management report) effective 5 th November 2012, the organisational structure of UBI Banca was revised parallel with and in conjunction with similar actions relating to the network banks on the one hand, and UBI Sistemi e Servizi on the other. More specifically, the revision of the organisational structure of the Parent is designed to: to simplify the overall configuration by rationalising the organisational units, including hierarchical reporting, with the corresponding redistribution and merging of the activities; standardise it with respect to the changes made at the same time in the organisational structure of the network banks, especially in commercial areas (reductions in retail, corporate and private banking commercial staff and at the same time centralising all business support activities within the Parent through the creation of specialist units for each market); a change of focus for risk management and credit processing units; 3*

6 The macroeconomic scenario Information on the context in which UBI Banca operated during the year is provided in the section The macroeconomic scenario of the consolidated management report. Human resources Composition of personnel by "work force" Number Change Employees of UBI Banca 2,328 2, Staff on secondment at other Group companies -1,288-1, of which: at UBI Systems e Services Personnel on secondment from other Group companies Total employees actually in service at UBI Banca 1,412 1, Workers on staff leasing contracts Total "work force" 1,412 1, Staff numbers as at 31 st December 2011 were revised to take into account the mergers of Banca 24-7 and Silf, which took effect on the 23 rd July 2012 and 21 st December A small number of staff were included in the total who were transferred to Prestitalia on 1 st July 2012 with the contribution of the salary backed lending line of business; As of the 31 st December 2012 there were a total of 2,328 UBI Banca employees on the payroll, a decrease of 31 employees from the year before. The reduction was the result of 27 appointments and (19 permanent and 8 temporary) and 58 personnel leaving, consisting of 16 intragroup transfers, eight retiring (7 through retirement schemes), and 11 voluntary resignations. In terms of the "work force, (i.e. staff actually employed by the Parent), this consisted of 1,412 employees, a decrease of 53 employees over a twelve month period. As shown in the table, at the end of the year 1,288 staff were on secondment to other Group member companies, approximately 72% of which consisted of 926 employees working at UBI Sistemi e Servizi, unchanged compared to the twelve months before. In comparison with the situation at the end of 2011, a staff increase of 83 was mainly related to the increase in staff numbers at Presitalia, the contribution of the former Banca 24-7 operation, and the creation of UBI Academy, the Group s corporate university with the transfer of employees who previously worked in the UBI Banca training division. In addition, there was an increase of 61 employees on secondment at UBI Banca from other Group member companies due to: the co-ordinated revision of the organisational units that took place in November 2012, which resulted in the centralisation at the Parent of co-ordination and commercial support activities for retail, corporate and private banking markets (+23 employees), previously carried out by individual commercial departments in each of the network banks; the introduction of temporary task-forces, using employees sourced through intragroup mobility, designed to absorb peaks in workloads caused by the project to digitalise nonperforming loan records and to finalise the activities connected with the B@nca 24-7 merger. 4*

7 In consideration of the particular operational nature of the Parent, the composition of personnel continues to contain a greater percentage of higher ranking staff in comparison with the consolidated figure. Composition of personnel by management level Number % % Senior managers % % Middle managers 3rd and 4th level % % Middle managers 1st and 2nd level % % 3rd Professional Area (office staff) % % 1st and 2nd Professional Area (other personnel) 1 0.1% % Total employees in service at UBI Banca 1, % 1, % The average age of the employees of UBI Banca at the end of the year was 43 years and three months, (unchanged compared to 2011), while the average length of service was 16 years and two months (15 years and three months the year before). The proportion of female staff remained unchanged at 36.3% (36.0% at the end of 2011). The Remuneration Report provided in another part of this document may be consulted for policies concerning remuneration and incentive schemes. This report is written in accordance with supervisory provisions for remuneration and incentive policies and procedures in banks and in banking groups issued on the 30 th March 2011, in addition to compliance with articles 123-ter of the Consolidated Banking Act and 84- quater of the Issuers Regulations Reference is also made to public disclosure requirements under Pillar III published in July 2011 by the Basel Committee on Banking Supervision as regulated by Bank of Italy Circular No. 263 of 27 th December 2006 and subsequent amendments. Further information on the matter is given in the UBI Banca report on corporate governance, again in an attachment to this document. Finally, activities relating to personnel management policies and instruments, trade union relations, training, internal communication, the work place and welfare initiatives are coordinated at Group level and details are given in the respective sections of the consolidated management report. 5*

8 Reclassified financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules Reclassified balance sheet Figures in thousands of euro Changes % changes ASSETS 10. Cash and cash equivalents 203, ,014 19, % 20. Financial assets held for trading 4,766,163 3,515,897 1,250, % 30. Financial assets designated at fair value 123, ,174-2, % 40. Available-for-sale financial assets 11,955,356 6,705,814 5,249, % 50. Held-to-maturity investments 3,158,013-3,158, Loans and advances to banks 15,830,498 30,224,290-14,393, % 70. Loans and advances to customers 22,584,747 15,692,663 6,892, % 80. Hedging derivatives 925, , , % 90. Fair value change in hedged financial assets (+/-) 196, , Equity investments 10,911,721 10,889,971 21, % 110. Property, plant and equipment 586, ,656-19, % 120. Intangible assets % of which: goodwill Tax assets 1,605,830 1,776, , % 140. Non-current assets and disposal groups held for sale 2, , , % 150. Other assets 485, ,384 43, % Total assets 73,336,254 70,895,253 2,441, % LIABILITIES AND EQUITY 10. Due to banks 28,081,434 24,228,130 3,853, % 20. Due to customers 7,897,195 8,022, , % 30. Debt securities issued 23,405,765 27,200,141-3,794, % 40. Financial liabilities held for trading 2,553,159 1,847, , % 60. Hedging derivatives 1,307, , , % 80. Tax liabilities 230, ,940-53, % 100. Other liabilities 1,168, , , % 110. Post-employment benefits 43,612 38,827 4, % 120. Provisions for risks and charges: 40,286 20,352 19, % b) other provisions 40,286 20,352 19, % Share capital, share premiums, reserves, valuation reserves and treasury shares 8,384,225 10,322,883-1,938, % 200. Profit (loss) for the year 223,496-2,713,054 2,936,550 n.s. Total liabilities and equity 73,336,254 70,895,253 2,441, % The balance sheet figures as at 31 st December 2012 show the effects of the merger of B@nca 24-7 into UBI Banca (effective from 23 rd July 2012 and from 1 st January 2012 for accounting and tax purposes), an operation which was preceded by the contribution of salary-backed lending operations from B@nca 24-7 to Prestitalia (effective from 1 st July 2012). The figures as at 31 st December 2011 are not therefore consistent. The impact of the merged company on the balance sheet of the Parent was therefore 15.7% of the total assets of UBI Banca as at 30 th June The business of the merged bank is concentrated primarily in loans to customers (86% of total B@nca 24-7 assets as at 30 th June 2012), financed exclusively with funding from the Parent (bonds, interbank deposits and repurchase agreements, accounting as a whole for 86% of B@nca 24-7 liabilities as at 30 th June 2012) 6*

9 Reclassified quarterly balance sheets Figures in thousands of euro ASSETS 10. Cash and cash equivalents 203, , , , , , , , Financial assets held for trading 4,766,163 3,814,263 6,047,340 4,447,881 3,515,897 2,819,624 1,280,423 1,780, Financial assets designated at fair value 123, , , , , , , , Available-for-sale financial assets 11,955,356 11,449,348 10,959,403 9,374,570 6,705,814 6,974,553 8,811,089 8,629, Held-to-maturity investments 3,158,013 3,220,200 3,192,239 3,254, Loans and advances to banks 15,830,498 14,345,732 24,594,109 26,996,600 30,224,290 32,277,154 30,222,165 29,250, Loans and advances to customers 22,584,747 23,689,628 13,453,014 13,425,567 15,692,663 13,607,259 13,492,679 13,910, Hedging derivatives 925, , , , , , , , Fair value change in hedged financial assets (+/-) 196, , Equity investments 10,911,721 10,963,847 10,904,733 10,881,080 10,889,971 13,371,350 13,304,720 13,343, Property, plant and equipment 586, , , , , , , , Intangible assets , , ,021 of which: goodwill , , , Tax assets 1,605,830 1,668,500 1,638,262 1,614,862 1,776,186 1,643,985 1,393, , Non-current assets and disposal groups held for sale 2,329 2, , , ,302 5,978 6,023 6, Other assets 485, , , , , , , ,544 Total assets 73,336,254 71,527,134 72,811,155 72,163,998 70,895,253 73,221,215 70,791,373 70,319,622 LIABILITIES AND EQUITY 10. Due to banks 28,081,434 27,063,633 26,448,542 28,829,633 24,228,130 22,305,950 19,314,805 21,773, Due to customers 7,897,195 8,980,797 10,573,704 6,362,114 8,022,864 10,609,633 10,372,290 10,256, Debt securities issued 23,405,765 22,569,813 23,848,486 25,299,833 27,200,141 26,234,471 26,464,859 24,642, Financial liabilities held for trading 2,553,159 2,266,849 2,222,922 1,822,294 1,847,534 1,310,635 1,203,666 1,405, Hedging derivatives 1,307,735 1,275,490 1,021, , , , , , Tax liabilities 230, , , , , , , , Other liabilities 1,168, , , , , , , , Post-employment benefits 43,612 41,769 39,482 40,035 38,827 38,078 37,264 37, Provisions for risks and charges: 40,286 37,180 25,816 26,781 20,352 14,882 17,766 14,857 b) other provisions 40,286 37,180 25,816 26,781 20,352 14,882 17,766 14, Share capital, share premiums, reserves, valuation reserves and treasury shares 8,384,225 8,182,213 7,689,221 8,045,123 10,322,883 10,590,478 11,183,436 10,423, Profit (loss) for the period/year 223, , ,445-16,847-2,713,054 34, ,917-60,122 Total liabilities and equity 73,336,254 71,527,134 72,811,155 72,163,998 70,895,253 73,221,215 70,791,373 70,319,622 As reported in the previous footnote of the reclassified balance sheet, the figures from 30 th September 2012 show the impact of merger of B@nca 24-7 into UBI Banca (effective from 23 rd July 2012). The periods prior to that date are not therefore consistent. 7*

10 Reclassified income statement Figures in thousands of euro 2012 A 2011 B Changes A-B % changes A/B 4th Quarter 2012 C 4th Quarter 2011 D Changes C-D % changes C/D Net interest expense (26,771) (195,221) (168,450) (86.3%) (22,448) (53,223) (30,775) (57.8%) 70. Dividends and similar income 339, ,420 (15,324) (4.3%) 111, ,056 (48,202) (30.1%) Net fee and commission income (12,211) 13,083 (25,294) n.s. (4,012) 1,736 (5,748) n.s Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 247,705 (5,437) 253,142 n.s. 115,245 17,956 97,289 n.s Other net operating income/expense 116,735 95,357 21, % 32,020 22,291 9, % Operating income 664, , , % 232, ,816 83, % 150.a Staff costs (129,446) (114,549) 14, % (33,680) (36,915) (3,235) (8.8%) 150.b Other administrative expenses (165,873) (112,949) 52, % (50,633) (35,402) 15, % Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (24,303) (26,550) (2,247) (8.5%) (6,385) (6,289) % Operating expenses (319,622) (254,048) 65, % (90,698) (78,606) 12, % Net operating income 344,932 8, ,778 n.s. 141,961 70,210 71, % 130.a Net impairment losses on loans (67,600) (1,057) 66,543 n.s. (13,158) (773) 12,385 n.s. 130.b+c+d Net impairment losses on other financial assets and liabilities (42,748) (126,895) (84,147) (66.3%) 4,901 5, (6.3%) 160. Net provisions for risks and charges (11,106) (595) 10,511 n.s. 277 (204) 481 n.s Profits (losses) from the disposal of equity investments 37,250 2,237 35,013 n.s. 15,441 (45) 15,486 n.s Pre-tax profit from continuing operations 260,728 (118,156) 378,884 n.s. 149,422 74,419 75, % 260. Taxes on income for the period/year from continuing operations 43, ,857 (391,320) (90.0%) (8,312) 25,035 (33,347) n.s Post-tax profit from discontinued operations - 22 (22) (100.0%) Profit (loss) for the period/year before leaving incentives and impairment losses on Group equity investments, goodwill and intangible assets 304, ,723 (12,458) (3.9%) 141,110 99,454 41, % 150.a Expenses for the leaving incentives programme net of taxes (20,051) - 20,051 - (17,991) - (17,991) Net impairment losses on Group equity investments, goodwill and intangible assets net of taxes (60,718) (3,029,777) (2,969,059) (98.0%) (60,718) (2,846,834) (2,786,116) (97.9%) 290. Profit (loss) for the period/year 223,496 (2,713,054) 2,936,550 n.s. 62,401 (2,747,380) 2,809,781 n.s. The income statement figures for 2012 show the effects of the merger of B@nca 24-7 into UBI Banca (effective from 23 rd July 2012 and from 1 st January 2012 for accounting and tax purposes), an operation which was preceded by the contribution of salary-backed lending operations from B@nca 24-7 to Prestitalia (effective from 1 st July 2012). The comparative figures prior to 2012 are not therefore consistent. The impact of the merged bank on the income statement of the Parent was therefore 7.6% of pre-tax profit from continuing operations and 3.9% of UBI Banca profit after tax for *

11 Quarterly reclassified income statements Figures in thousands of euro 4th Quarter 3rd Quarter 2nd Quarter 1st quarter 4th Quarter 3rd Quarter 2nd Quarter 1st quarter Net interest expense (income) (22,448) 84,273 (35,699) (52,897) (53,223) (53,649) (52,458) (35,891) 70. Dividends and similar income 111,854 4, ,922 3, ,056 1, ,034 2, Net fee and commission income (4,012) 4,532 (8,504) (4,227) 1,736 3,578 3,607 4, Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 115,245 30,208 14,264 87,988 17,956 (12,842) 117 (10,668) 190. Other net operating income/expense 32,020 35,489 24,629 24,597 22,291 24,426 24,855 23,785 Operating income (loss) 232, , ,612 58, ,816 (37,245) 167,155 (16,524) 150.a Staff costs (33,680) (38,493) (24,890) (32,383) (36,915) (13,600) (32,551) (31,483) 150.b Other administrative expenses (50,633) (52,577) (32,832) (29,831) (35,402) (25,844) (28,172) (23,531) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (6,385) (5,969) (5,943) (6,006) (6,289) (6,134) (7,145) (6,982) Operating expenses (90,698) (97,039) (63,665) (68,220) (78,606) (45,578) (67,868) (61,996) Net operating income 141,961 62, ,947 (9,323) 70,210 (82,823) 99,287 (78,520) 130.a Net impairment losses on loans (13,158) (53,229) (1,168) (45) (773) (93) (122) (69) 130.b+c+d Net impairment losses on other financial assets and liabilities 4,901 (383) (44,339) (2,927) 5,231 (113,251) (17,675) (1,200) 160. Net provisions for risks and charges 277 (2,414) (3,958) (5,011) (204) 165 (940) Profits (losses) from the disposal of equity investments 15,441 21,815 (4) (2) (45) 20 2,434 (172) 250. Pre-tax profit (loss) from continuing operations 149,422 28, ,478 (17,308) 74,419 (195,982) 82,984 (79,577) 260. Taxes on income for the period from continuing operations (8,312) (628) 51, ,035 19, ,998 19, Post-tax profit (loss) from discontinued operations - (13) Profit (loss) for the period before leaving incentives and impairment losses on Group equity investments, goodwill and intangible assets 141,110 27, ,352 (16,692) 99,454 (176,591) 453,982 (60,122) 150.a Expenses for the leaving incentives programme net of taxes (17,991) (1,845) (60) (155) Net impairment losses on Group equity investments, goodwill and intangible assets net of taxes (60,718) (2,846,834) - (182,943) Profit (loss) for the period 62,401 25, ,292 (16,847) (2,747,380) (176,591) 271,039 (60,122) As reported in the previous footnote to the reclassified income statement, following the effects of the merger of B@nca 24-7 into UBI Banca (effective from 23 rd July 2012), an operation which was preceded by the contribution of salary-backed lending operations from B@nca 24-7 to Prestitalia (effective from 1 st July 2012), the comparative figures prior to the third quarter of 2012 are not consistent. It is underlined that the income statement for the third quarter of 2012 included all the income statement figures of B@nca 24-7 relating to the first half (due to the effectiveness of the merger for accounting and tax purposes from 1st January 2012). It follows that only the fourth quarter of 2012 shows the new income structure of the Parent, while the comparison with the preceding quarter, does not furnish clear results, especially for certain items (net interest income and net impairment losses on loans, as well as net fee and commission income). 9*

12 Reclassified income statement net of the most significant non-recurring items 2012 net of non-recurring items 2011 net of non-recurring items Changes % changes Net interest expense (26,771) (195,221) (168,450) (86.3%) Dividends and similar income 339, ,420 (15,324) (4.3%) Net fee and commission income (12,211) 13,083 (25,294) n.s. Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 234,177 (5,437) 239,614 n.s. Other net operating income/expense 116,735 95,357 21, % Operating income 651, , , % Staff costs (129,446) (130,672) (1,226) (0.9%) Other administrative expenses (159,806) (109,868) 49, % Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (24,303) (26,550) (2,247) (8.5%) Operating expenses (313,555) (267,090) 46, % Net operating income (loss) 337,471 (4,888) 342,359 n.s. Net impairment losses on loans (67,600) (1,057) 66,543 - Net impairment losses on other financial assets and liabilities 10,542 (6,836) 17,378 n.s. Net provisions for risks and charges (11,106) (595) 10,511 - Profits (losses) from the disposal of equity investments 434 (59) 493 n.s. Pre-tax profit (loss) from continuing operations 269,741 (13,435) 283,176 n.s. Taxes on income for the year for continuing operations (2,999) 83,537 (86,536) n.s. Post-tax profit from discontinued operations - 22 (22) (100.0%) Profit (loss) for the year 266,742 70, , % 10*

13 Reclassified income statement net of the most significant non-recurring items: details Non-recurring items Non-recurring items Prior year tax Tax realignment credit for Tax relief on Impairment Disposal of in accordance deduction for Tax realignment nonaccounting net of non- losses on net of non- Changes changes 2012 Impairment 2011 % losses on interests in with Law No. corporate Impairment in accordance Impairment Impairment other equity Service fee for Service fee for Arca SGR and 111/2011 and income tax losses on Service fee for with Law No. on equity deductions on recurring Group equity Impairment Profit from recurring 2012 losses on investments B@nca 24-7 migration of UBI Insurance Law No. purposes of 111/2011 and Leaving loan provisions 2011 investments migration of Release of investments items investments, losses on the partial Group equity and OICR migration Centrobanca Broker and the 214/2011 of BPA regional in Intesa B@nca 24-7 write-off of surplus items (AFS) Intesa incentives of UBI Banca goodwill and other AFS disposal of investments (collective onto target onto target partial sale of goodwill production Sanpaolo, onto target deferred income provisions A-B Sanpaolo pursuant to intangible securities BY YOU (net of taxes) investment system system Intesa recognised in tax on the A A2A and system tax B A/B and A2A Law No. assets (net of instruments) Sanpaolo the consolidated cost of Siteba assets/deferred 244/2007 taxes) units (AFS) shares financial labour IRAP tax assets (Section EC) statements pursuant to Figures in thousands of euro Law No. 214/2011 Net interest expense (26,771) (26,771) (195,221) (195,221) (168,450) (86.3%) Dividends and similar income 339, , , ,420 (15,324) (4.3%) Net fee and commission income (12,211) (12,211) 13,083 13,083 (25,294) n.s. Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 247,705 (13,528) 234,177 (5,437) (5,437) 239,614 n.s. Other net operating income/expense 116, ,735 95,357 95,357 21, % Operating income 664, (13,528) , , , , % Staff costs (129,446) (129,446) (114,549) (16,123) (130,672) (1,226) (0.9%) Other administrative expenses (165,873) 2,946 3,121 (159,806) (112,949) 3,081 (109,868) 49, % Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (24,303) (24,303) (26,550) (26,550) (2,247) (8.5%) Operating expenses (319,622) ,946 3, (313,555) (254,048) ,081 - (16,123) - (267,090) 46, % Net operating income 344, ,946 3,121 - (13,528) ,471 8, ,081 - (16,123) - (4,888) 342,359 n.s. Net impairment losses on loans (67,600) (67,600) (1,057) (1,057) 66,543 n.s. Net impairment losses on other financial assets and liabilities (42,748) 34,354 18,936 10,542 (126,895) 112,548 7,511 (6,836) 17,378 n.s. Net provisions for risks and charges (11,106) (11,106) (595) (595) 10,511 n.s. Profits (losses) from the disposal of equity investments 37,250 (36,816) 434 2,237 (2,296) (59) (493) n.s. Pre-tax profit from continuing operations 260,728-34,354 18,936 2,946 3,121 - (50,344) ,741 (118,156) - 112,548 7,511 3,081 - (16,123) (2,296) (13,435) 283,176 n.s. Taxes on income for the year for continuing operations 43,537 (5,067) (958) (1,014) (2,886) (24,992) (8,298) (3,321) (2,999) 434,857 (2,066) (847) (352,841) 4,434 83,537 (86,536) n.s. Post-tax profit from discontinued operations (22) (100.0%) Profit (loss) for the year before leaving incentives and impairment losses on Group equity investments, goodwill and intangible assets 304,265-34,354 13,869 1,988 2,107 - (53,230) (24,992) (8,298) (3,321) 266, , ,548 5,445 2,234 (352,841) (11,689) (2,296) 70, , % Expenses for the leaving incentives programme net of taxes (20,051) 20, Net impairment losses on Group equity investments, goodwill and intangible assets net of taxes (60,718) 60,718 - (3,029,777) 3,029, Profit (loss) for the year 223,496 60,718 34,354 13,869 1,988 2,107 20,051 (53,230) (24,992) (8,298) (3,321) 266,742 (2,713,054) 3,029, ,548 5,445 2,234 (352,841) (11,689) (2,296) 70, , % 11*

14 Reconciliation schedule to 31st December 2012 RECLASSIFIED INCOME STATEMENT 2012 Reclassifications 2012 Items Figures in thousands of euro Separate mandatory financial statement Tax recoveries Depreciation for leasehold improvements Impairment losses on equity investments of the Group Expenses for leaving incentives programme Reclassified financial statement Net interest expense (26,771) (26,771) 70. Dividends and similar income 339, , Net fee and commission income (12,211) (12,211) Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 247, , Other net operating income/expense 125,404 (8,796) ,735 Operating income 673,223 (8,796) , a Staff costs (157,103) 27,657 (129,446) 150.b Other administrative expenses (174,669) 8,796 (165,873) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (24,176) (127) (24,303) Operating expenses (355,948) 8,796 (127) - 27,657 (319,622) Net operating income 317, , , a Net impairment losses on loans (67,600) (67,600) 130. b+c+d Net impairment losses on other financial assets and liabilities (42,748) (42,748) 160. Net provisions for risks and charges (11,106) (11,106) Profits (losses) from the disposal of equity investments (23,468) 60,718 37, Pre-tax profit from continuing operations 172, ,718 27, , Taxes on income for the year from continuing operations 51,143 (7,606) 43, Post-tax profit from discontinued operations - - Profit for the year before leaving incentives and impairment losses on Group equity investments 223,496 60,718 20, , a Expenses for the leaving incentives programme net of taxes - (20,051) (20,051) 180. Impairment losses on Group equity investments net of taxes - (60,718) (60,718) 290. Profit for the year 223, ,496 Reconciliation schedule to 31st December 2011 Items RECLASSIFIED INCOME STATEMENT 2011 Reclassifications 2011 Figures in thousands of euro Separate mandatory financial statement Tax recoveries Depreciation for leasehold improvements Impairment losses on Group equity investments, goodw ill and intangible assets Reclassified financial statement Net interest expense (195,221) (195,221) 70. Dividends and similar income 354, , Net fee and commission income 13,083 13, Net loss from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value (5,437) (5,437) 190. Other net operating income/expense 95,277 (12) 92 95,357 Operating income 262,122 (12) , a Staff costs (114,549) (114,549) 150.b Other administrative expenses (112,961) 12 (112,949) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (45,975) (92) 19,517 (26,550) Operating expenses (273,485) 12 (92) 19,517 (254,048) Net operating income (loss) (11,363) ,517 8, a Net impairment losses on loans (1,057) (1,057) 130. b+c+d Net impairment losses on other financial assets and liabilities (126,895) (126,895) 160. Net provisions for risks and charges (595) (595) Profits (losses) from the disposal of equity investments (3,028,617) 3,030,854 2, Pre-tax profit from continuing operations (3,168,527) - - 3,050,371 (118,156) 260. Taxes on income for the year from continuing operations 455,451 (20,594) 434, Post-tax profit from discontinued operations Profit (loss) for the year before impairment losses on equity investments, goodwill and intangible assets (2,713,054) 3,029, , Net impairment losses on Group equity investments, goodwill and intangible assets net of taxes - (3,029,777) (3,029,777) 290. Loss for the year (2,713,054) (2,713,054) 12*

15 Notes to the financial statements The mandatory financial statements have been prepared on the basis of Bank of Italy Circular No. 262 of 22 nd December 2005 and subsequent updates. The following rules have been applied to the reclassified financial statements to allow a prospect that is more consistent with a management accounting style: - the tax recoveries recognised within item 190 of the mandatory income statement (other net operating income) were reclassified as a reduction in indirect taxes included within other administrative expenses; - the item net impairment losses on property, plant and equipment and intangible assets includes items 170 and 180 in the mandatory financial statements and the instalments relating to the depreciation of costs incurred for improvements to leased assets classified within item 190; - expenses for the leaving incentive plan net of taxes partially include item 150a in the mandatory financial statements; - net impairment losses on Group equity investments, goodwill and intangible assets net of taxes partially include items 180 and 210 and entirely include item 230 in the mandatory financial statements; The reconciliation of the items in the reclassified financial statements with the figures in the mandatory financial statements has been facilitated, on the one hand, with the insertion in the margin against each item of the corresponding number of the item in the mandatory financial statements with which it is reconciled and, on the other hand, with the preparation of specific reconciliation schedules. The comments on the performance of the main balance sheet and income statement items are made on the basis of the reclassified financial statements and of the reclassified financial statements for the comparative periods, and the tables providing details, included in the subsequent sections of this financial report, have also been prepared on that same basis. In order to facilitate analysis of UBI Banca s operating performance and in compliance with Consob Communication No. DEM/ of 28 th July 2006, two special schedules have been included, the first a brief summary (which provides a comparison of the normalised results for the year) and the second more detailed, which shows the impact on earnings of the principal non-recurring events and items since the relative effects on capital and cash flow, being closely linked, are not significant which are summarised as follows: Full year 2012: - net impairment losses on Group equity investments; - impairment losses on the (AFS) Intesa Sanpaolo, A2A and other minor shares as well as on units in OICRs (collective investment instruments); - service fees for the migration of B@nca 24-7 and Centrobanca onto the target system; - leaving incentives; - disposal of the interest held in Arca SGR and UBI Insurance Broker and the partial sale of Intesa Sanpaolo shares; - tax realignment of BPA goodwill recognised in the consolidated financial statements (pursuant to Law No. 111/2011 and Law No. 214/2011); - tax relief on non-accounting deductions relating to loan provisions and write-downs of UBI Banca (pursuant to Law No. 244/2007 Section EC); - prior year tax credit for deduction for corporate income tax (IRES) purposes of IRAP (regional production tax) on the cost of labour pursuant to Law No. 214/2011; Full year 2011: - net impairment losses on Group equity investments in banks and companies, goodwill and intangible assets; - impairment losses on shareholdings in Intesa Sanpaolo, A2A and Siteba, as well as on other AFS securities and units in OICRs (collective investment instruments); - service fee for migration onto the B@nca 24-7 target system; - tax realignment in accordance with Law No. 111/2011 and write-off of deferred income tax assets/deferred IRAP tax assets; - release of excess provisions; - profit from the partial disposal of the interest held in BY YOU. 13*

16 The income statement The income statement figures commented on are based on the reclassified financial statements (the income statement, the quarterly income statements and the income statement net of the principal non-recurring items, condensed and complete) contained in another section of this report and the tables providing details presented below are also based on those statements. The notes that follow those reclassified financial statements may be consulted as may the reconciliation schedules for a description of the reclassification. Furthermore, the commentary examines both changes that occurred over twelve months (2012 compared to the year before) and those occurring in the last quarter of the year (this, which is highlighted with a slightly different background colour, is compared with the previous quarter in order to emphasize trends underlying progressive changes in interim results during the year). In the third quarter of 2012, the accounts (income statement and balance sheet) of the Parent were affected by the merger of B@nca 24-7 (subsequent to the contribution of the salary backed line of business by B@nca 24-7 to Prestitalia), which partly modified its nature as a holding company, which was prevalent until then. Moreover, the comparative figures have not been restated to take account of the intragroup company ownership transaction. During the year, both the international scenario and the Eurozone continued to suffer the effects of the general situation of persistent economic weakness, which further delayed the recovery of the business cycle. However, pressures eased relented considerably on financial markets, and especially on the sovereign debt market, with positive consequences for monetary conditions. However, these consequences were largely without effect on the credit sector, which continued to be held back by the high level of risk perceived by intermediaries, as indicated by the significant increase in deteriorated loans in the banking system. UBI Banca ended 2012 with a profit of million 1, marking a considerable recovery compared with the loss of 2,713.1 million 2 reported in the comparative twelve months. In reality, partly due to the merger of B@nca 24-7, while the income statement for the year does present higher operating expenses ( million) and include impairment losses on loans ( million), it also shows an increase in income of over 400 million. In the fourth quarter of the year, the profit for the period was 62.4 million, compared with a loss of 2,747.4 million in the fourth quarter of 2011 (in which impairment losses were recognised on assets against the backdrop of financial market pressures and distant prospects of a recovery) and a profit of 25.7 million in the previous three months of Despite the presence of a still uncertain economic environment, the income statement over twelve months recorded growth in operating income a measure of performance by ordinary banking operations of million, up by +154% compared with million in 2011, driven primarily by the dividends component, the result for financial activities and the improved contribution from net interest income. On the basis of the organisational configuration of the Group, UBI Banca holds equity investments in all the main consolidated companies and consequently the profits that these distribute constitute its primary source of income. In detail, as illustrated in the table, the item dividends and similar income totalled million ( million over the comparative twelve months), the aggregate result of the following: 1 Excluding non-recurring components which consisted of expense of 43.2 million in 2012 (primarily owing to the effect of impairment of equity investments and financial instruments, as well as leaving incentive costs, partially offset by disposals of equity investments and shareholdings, as well as tax redemption of the goodwill of BPA and of the EC Section), compared with expense of 2,783.2 million in 2011 (due to the impairment of goodwill, equity investments in Group banks and companies and intangible assets, only marginally mitigated by the realignment of tax values and write-offs of IRAP regional production tax deferred tax assets and liabilities), the profit for the year climbed to million, compared with 70.1 million in In 2011 UBI Banca had recognised impairment losses on goodwill (booked following the merger between the former BPU Banca Group and the former Banca Lombarda e Piemontese Group) and on equity investments held in Group banks and companies, with significant write-downs ( 3,010 million) of the carrying amounts which had been recognised for those assets. 14*

17 - an extraordinary distribution of retained earnings amounting to 110 million to the sole shareholder, UBI Banca, by Banca Popolare di Bergamo ( 65 million) and Banco di Brescia ( 45 million), approved by the respective shareholders meetings held in December and recognised in the fourth quarter. That decision was justified by the significant increase in equity achieved by the two banks on the basis of the Group policy in force concerning payouts, which meant that dividends paid in recent years were not greater than an insignificant Dividends and similar income 2012 Figures in thousands of euro 2011 Banca Popolare di Bergamo Spa 116, ,010 Banca Carime Spa 39,317 31,453 Banca Popolare Commercio e Industria Spa 35,307 14,808 Banco di Brescia Spa 73,518 78,107 UBI Pramerica SGR Spa 24,256 24,982 Banca Regionale Europea Spa 20,891 14,371 Banca Popolare di Ancona Spa 1,910 15,323 Centrobanca Spa 1,268 14,280 UBI Factor Spa 1,042 4,862 Other equity investments (item 100) 11,225 11,579 Dividends received from item 100 equity investments 325, ,775 Dividends received from item 40 AFS 13,771 17,528 of which Intesa San Paolo 9,011 11,213 Dividends received from item 20 for trading Total 339, ,420 share of distributable profit. On the basis of the same considerations, those same banks had distributed extraordinary dividends of 100 million (BPB) and 60 million (BBS) in December 2011; - ordinary dividends from Group companies of million, up by 38.6 million, owing to the greater profits distributed by certain network banks on the basis of their 2011 results ( million, chiefly attributable to BPB, BPCI, BBS, Carime and BRE), partially offset by lower returns from other banks and companies ( million); - a total of 13.8 million in dividends collected on AFS securities (- 3.8 million). The Intesa Sanpaolo ordinary shares (180,215,498 on the ex dividend date) alone distributed 9 million (equivalent to 0.05 each), -20% compared to 11.2 million before. Mainly as a result of the disposal of financial assets and assets held for trading, the net result for financial activities increased significantly to million, marking a reversal of the loss reported in 2011 (- 5.4 million). The different performances are to be ascribed, amongst other things, to the divergent trends for interest rates in the two periods. In detail: trading made a positive contribution of million (- 8.1 million in the previous year 3 ), attributable almost entirely to trading in bonds. In fact, profits of million ( million) came from debt instruments and derivatives on debt instruments and interest rates (profits, gains and accruals, mainly in relation to interest rate hedges IRSs on the assets and liabilities of Group member companies); million from equity instruments and the relative derivatives ( million in 2011, partly in relation to the impairment loss on Medinvest International 4 of 12.2 million); + 1 million from assets in foreign currencies (+ 0.8 million); while a loss of million (- 4.5 million) came from credit derivatives held for trading; changes in fair value relating to investments in Tages funds and a residual position in hedge funds recorded a profit of 1.2 million, compared to a loss of million in 2011, due to the performance of international markets 5 ; hedging consisting of the change in the fair value of hedging derivatives and the relative items hedged generated gains of 12.9 million, of which 8.9 million relating to bond issuances, 0.8 million to mortgages and financing and 3.2 million to AFS securities held in portfolio (in 2011 income of 18.8 million was recorded, consisting of 16 million on bonds and 2.8 million on AFS securities); 3 Both results included the effects of fair value changes in intragroup derivatives not balanced on the market amounting to million in 2012 and thousand in 2011, which were eliminated in the consolidation and therefore had no effect on the consolidated income statement. 4 Medinvest International Sca (Luxembourg), classified within private equity investments and in which a 19.57% interest is held, is a merchant bank which invests in companies and also provides financial advisory services to SMEs. The impairment loss, already partly recognised at various points in 2011, was due to the poor performance of the main investment held in portfolio. 5 This figure included the results of assets classified in application of the Fair Value Option (FVO), which had yielded a loss of 38.8 million, attributable to disposals of UBI Pramerica funds in the third quarter with a loss of 22 million, when a stop-loss mechanism was triggered (in compliance with the limits set by the Financial Risks Policy), losses on Tages hedge funds, formerly Capitalgest ( million) and the fair valuation of residual positions in other hedge funds. 15*

18 Net trading income (loss) Figures in thousands of euro Gains (A) Income from trading (B) Losses (C) Losses from trading (D) Net income (loss) 2012 [(A+B)-(C+D)] Financial assets held for trading 18,839 65,154 (1,598) (11,650) 70,745 25, Debt instruments 18,138 64,300 (19) (3,926) 78,493 29, Equity instruments (1,442) (227) (1,038) (10,765) 1.3 Units in O.I.C.R. (collective investment instruments) (137) - 42 (109) 1.4 Financing Other (7,497) (6,752) 7, Financial liabilities held for trading 9, ,530 (2,365) 2.1 Debt instruments 9, ,530 (2,365) 2.2 Payables Other Other financial liabilities: exchange rate differences X X X X 7,343 (6,502) 4. Derivative instruments 109,375 1,533,091 (108,944) (1,544,110) (10,144) (25,015) 4.1 Financial derivatives 109,375 1,533,091 (108,577) (1,539,351) (5,018) (20,556) - on debt instruments and interest rates 109,324 1,527,536 (108,529) (1,538,106) (9,775) (15,309) - on equity instruments and share indices 51 5,555 (48) (1,245) 4,313 (5,371) - on currencies and gold X X X X other Credit derivatives - - (367) (4,759) (5,126) (4,459) Total 137,744 1,598,245 (110,542) (1,555,760) 77,474 (8,061) Net hedging income Figures in thousands of euro Net hedging income 12,942 18,823 Profit from disposal or repurchase Figures in thousands of euro Profits Losses Net income Financial assets 1. Loans and advances to banks 2,251-2, Loans and advances to customers - (510) (510) - 3. Available-for-sale financial assets 140,041 (5) 140,036 8, Debt instruments 125, , Equity instruments 14,664 (1) 14,663 8, Units in O.I.C.R (collective investment instruments). 192 (4) Financing Held-to-maturity investments Total assets 142,292 (515) 141,777 8,563 Financial liabilities 1. Due to banks Due to customers Debt securities issued 15,188 (879) 14,309 14,087 Total liabilities 15,188 (879) 14,309 14,087 Total 157,480 (1,394) 156,086 22,650 Net profit (loss) on financial assets and liabilities designated at fair value Figures in thousands of euro Net profit (loss) on financial assets and liabilities designated at fair value 1,203 (38,849) Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 247,705 (5,437) the disposal of AFS instruments and the repurchase of financial liabilities generated profits of million, of which: million primarily from the sale of 6.4 billion in Italian government securities with maturities from 2013 to 2015; 13.5 million from the partial sale of Intesa Sanpaolo shares (non-recurring); 1.1 million from the disposal of the entire investment in Società per i Mercati di Varese; 2.3 million from a bank certificate of deposit. A loss of million was incurred from the disposal of a portfolio of former B@nca 24-7 non-performing loans concluded in June, while 14.3 million was generated from the repurchase of securities, mainly issued under the EMTN programme. In 2011 profits of 22.7 million had been generated, composed as follows: 14.1 million on the repurchase of securities issued (of this amount, 13.7 million was associated with the repurchase of two EMTN securities in the final weeks of the year); 6.8 million on the disposal of the whole of the equity investment in the London Stock Exchange (formerly Borsa Italiana); approximately 1 million on the disposal of a modest equity interest in Banca Valsabbina; 0.4 million on the disposal of PerMicro; and 0.3 million on the disposal of OICR units (collective investment instruments). 16*

19 Other net operating income/expense rose to million, an increase of 21.4 million attributable to expense and tax recoveries in relation to new business with customers arising from the merger of The item also summarises a parallel trend for other expense/prior year expense and other income/prior year income attributable to the merged company in relation to existing securitisations. Expenses include the payments back to the special purpose entity of interest income received on mortgages transferred to Other net operating income Figures in thousands of euro Other operating income 129,670 98,285 Recovery of expenses and other income on current accoun 1 1 Recovery of other expenses 11, Recoveries of taxes 8, Rents and other income for property management 33,513 33,270 Income for services to Group member companies 62,050 63,582 Other income and prior year income 22,843 1,393 Reclassification of "tax recoveries" (8,796) (12) Other operating expenses (12,935) (2,928) Depreciation of leasehold improvements (127) (92) Costs relating to finance lease contracts - (1) Other expenses and prior year expense (12,935) (2,927) Reclassification of depreciation of leasehold improvements Other net operating income 116,735 95,357 the entity, while the income includes interest received on the note issued by the special purpose entity, now held in portfolio by UBI Banca. The transactions yielded net income of 8.5 million. The item included income for services provided to Group companies, which fell slightly (from 63.6 million to 62 million), due to the achievement of greater efficiencies in the units which deliver services, as well as to the mergers of B@nca 24-7 and Silf into UBI Banca. Due to the acquisition of the lending operations of the former B@nca 24-7, net interest income, which is in fact net expense, improved appreciably from million to million 6, partly as a result of the different structure of the yield curve in the two periods 7, and also due to the action taken, which progressively changed its composition and the amount of the underlying assets. The commentary given here reports the contribution to net interest income by area of activity, although it must be considered that the Parent s operations involve movements across different business areas (e.g. funding from customers or from the network banks used for loans to the product companies). In detail 8 : the securities portfolio provided interest income of million ( million in 2011), with growth in investments in debt instruments over twelve months of 9.8 billion. Purchases of Italian government securities continued to make a substantial contribution to net interest income ( million of interest income from AFS securities and 96.2 million from the new held-to-maturity portfolio), although these investments were offset by the total costs of uncovered short positions and hedges on fixed interest rate bonds (the differentials paid on the derivatives); business on the interbank market, which focused mainly on intragroup activities, generated a loss of million ( million in 2011), due to a decrease in intragroup lending (also following the merger of B@nca 24-7) 9, while interest expense increased as a result of access to LTRO financing from the central bank (which came to 97.4 million for the year); while business with customers continued to generate expense ( million compared to million in 2011), its contribution improved considerably as a result of interest income received from retail loans (an increase of million in the item compared to the comparative year). The negative balance nevertheless continues to reflect interest expense on debt securities issued (approximately 815 million, virtually unchanged compared with 2011), even though total outstanding notes decreased by 3.8 billion during the twelve months. The balance on business with customers also includes the negative differentials on 6 Net interest income was structurally negative in relation to the role of the Parent, UBI Banca, because it included the financial expense that it incurred for its investments in Group subsidiaries, while the relative financial revenues were recognised within the item dividends. 7 It was subject to continuous upwards pressure on medium to long-term maturities during the year, which then relented in the final months, notwithstanding the further decrease in the average progressive one month Euribor rate from 1.19% in 2011 to 0.338% in The calculation of net balances was performed by allocating interest income and expense on hedging derivatives and financial liabilities held for trading within the different areas of business (financial, with banks, with customers). 9 Interest on loans to banks was also negatively impacted by the elimination of the interest which UBI Banca received on loans granted to B@nca 24-7 (a total of 129 million as at 30 th June 2012). 17*

20 hedged mortgages, but above all the positive differentials on bonds issued (a total of million). Interest and similar income: composition Figures in thousands of euro Debt instruments Financing Other transactions Financial assets held for trading 52, ,819 39, Available-for-sale financial assets 406, , , Held-to-maturity investments 96, , Loans and advances to banks 97,032 86, , , Loans and advances to customers 19, , , , Financial assets designated at fair value Hedging derivatives X X 5,964 5, Other assets X X Total 671, ,831 6,318 1,315,833 1,135,911 Interest and similar expense: composition Figures in thousands of euro Borrowings Securities Other liabilities Due to central banks (97,721) - - (97,721) (21,520) 2. Due to banks (258,515) X - (258,515) (317,623) 3. Due to customers (132,085) X - (132,085) (166,158) 4. Debt securities issued X (814,965) - (814,965) (811,902) 5. Financial liabilities held for trading (38,728) - - (38,728) (12,574) 6. Financial liabilities designated at fair value Other liabilities and provisions X X (590) (590) (645) 8. Hedging derivatives X X - - (710) Total (527,049) (814,965) (590) (1,342,604) (1,331,132) Net interest expense (26,771) (195,221) Despite the positive contribution from the commercial activity of the former B@nca 24-7, which generated fee and commission income of 10.1 million from customer loans and also 41.6 million from credit cards (amounts classified within other services ), it also generated expense of 27 million in relation to products and services supplied through indirect networks (mainly credit cards and insurance products sold by the network banks). Consequently, net fee and commission income generated a loss of 12.2 million ( million in 2011). Fee and commission income: composition Fee and commission expense: composition Figures in thousands of euro Figures in thousands of euro a) guarantees granted 10,426 13,338 a) guarantees received (42,865) (65) c) management, trading and advisory services: 12,071 12,420 c) management and trading services: (30,796) (6,715) 1. trading in financial instruments 6,599 7, trading in financial instruments (2,839) (4,457) 2. foreign exchange trading foreign exchange trading (2) (29) 3. portfolio management portfolio management - (1,387) 3.1 individual own portfolio - (1,387) 4. custody and administration of securities 745 1, custody and administration of securities (939) (753) 5. depository banking placement of financial instruments - (89) 6. placement of securities financial instruments, products and services distributed through indirect networks (27,016) - 7. receipt and transmission of orders d) collection and payment services (5,568) (1,290) 8. advisory activities 2,821 1,920 e) other services (8,965) (6,776) 8.1 on investments 2,821 1,920 Total (88,194) (14,846) 9. distribution of third party services 1, portfolio management insurance products other products d) collection and payment services 1,176 1,439 e) servicer activities for securitisation transactions i) current account administration 17 7 j) other services 52, Total 75,983 27,929 Net fee and commission income (12,211) 13,083 18*

21 This result is related to the changes in fee and commission expense (up from 14.8 million to 88.2 million) and in the item guarantees received in particular, which rose from 65 thousand to 42.9 million. This consisted of the expense for a guarantee granted by the Italian government on bonds issued in January and February of 2012 by UBI Banca amounting to 6 billion nominal, designed to increase assets eligible for refinancing with the ECB. The expense consisted of an annual percentage of the nominal amount of the bonds issued. Because these were issued by the Parent, subscribed by Centrobanca and then repurchased entirely by UBI Banca, on the basis of IFRS international accounting standards, they are not recognised in the accounts, however like the interest income and expense attributable to them, they are nevertheless included within the assets eligible for refinancing that form part of the cover pool available to the European Central Bank. Driven by the net result for financial activities and the extraordinary dividends collected, operating income for the fourth quarter climbed to million ( million in the same period of 2011, which had similarly benefited from an extraordinary distribution of profits by networks banks) from million in the third quarter of 2012, marking a shift in the income structure of the Parent, which acquired its commercial activity with customers from its consumer bank. It should be underlined that the income statement for the third quarter 2012, in addition to recording the new commercial business undertaken by UBI Banca as a consequence of the merger, also incorporated all of the income statement figures of B@nca 24-7 for the first half of the year (considering that the merger took effect for accounting and tax purposes from 1 st January 2012). It follows that the fourth quarter of 2012 represents the first true position of the new Parent, whereas the comparison with the previous quarter especially for certain items (net interest income and net impairment losses, but also net fee and commission income) does not provide clear results. In detail, the following trends were reported in the October-December period: dividends received came to million and consisted of 110 million in retained earnings distributed in December by BPB and BBS ( 4.9 million relating to equity investments held in portfolio in the third quarter); the net result for financial activities rose to million ( 30.2 million in the previous quarter), due to gains realised on the sale of AFS securities ( 63.8 million from government securities and 11.9 million from the partial disposal of Intesa Sanpaolo shares), on the repurchase of bonds issued ( 1.4 million), profits from trading, above all in debt instruments ( 33.4 million) and the measurement of investments classified according to the Fair Value Option ( 2.9 million); other net operating income/expense stood at 32 million ( 35.5 million in the three summer months), incorporating the characteristics of the commercial operations of the merged bank; net interest income came to a net expense of 22.4 million ( million in the third quarter). The net contribution from investments in the securities portfolio remained substantially stable ( 101 million compared with million in the three summer months). The balance on business with banks stood at a negative 56.3 million owing to the loss of the income streams arising from the loan to the former B@nca The result for business with customers remained negative ( million), despite the contribution from the new commercial business ( million in interest income on mortgages and loans), which, however did not offset the interest expense paid on securities issued ( million); net fee and commission income, which consisted of expense of 4 million (+ 4.5 million in the third quarter), was driven by the business with customers of the former B@nca 24-7, while it included the costs of the guarantee received from the government on securities issued at the beginning of 2012 of 11.7 million. During the year, operating expenses totalled million ( 254 million in 2011), an increase of 65.6 million, in relation primarily to the merger of B@nca 24-7, as described in detail below: - staff costs, million compared with the previous million, increased by 14.9 million, owing to the presence in 2011 of a non-recurring component of million due to the release of surplus provisions 10 ; 10 This amount, classified within the line item for retired personnel, relates to the release of amounts recognised in prior years due to actuarial recalculations of benefits, now no longer considered due, payable to staff for periods subsequent to retirement. In the third quarter of 2011, the defined benefit obligation and the existing mathematical reserve were reversed, with a positive impact on 19*

22 Excluding this extraordinary component, staff costs decreased by 1.2 million, due to the performance of the variable share of remuneration and lesser allocations under the new national trade union agreement contracts, despite the inclusion of the new resources of the former It must also be mentioned that if the two years are restated on a like-forlike basis, staff costs reduced as a consequence of a reduction of the workforce of 53 resources at yearend and 35 in average terms; other administrative expenses rose to million, up by 52.9 million compared to 2011, of which 3.7 million relating to indirect taxation (in relation, net of recoveries, to the introduction of a new municipal property tax with the Salva Italia - Save Italy - decree) and approximately 49.2 million to current expenditure, of which 31.2 million due to the expansion of commercial operations following the merger of B@nca In fact, items that until 30 th June had been non-existent or marginal in extent for the Parent, such as debt recovery expenses, insurance premiums and postal expenses, began to appear in the accounts. In addition, other items, such as expenses for services provided by UBI.S and services in outsourcing, became more significant in amount. Excluding B@nca 24-7, current expenses increased by 18 million, attributable to the service fees paid to UBI.S ( million, of which 2.9 million in non-recurring service fees for activities relating to the migration of B@nca 24-7 to the target information IT system, 3.1 million in non-recurring charges for activities leading up to the migration of Centrobanca to the target IT system and 2.5 million for adjustments to the IT system) and strategic and organisational consulting (+ 5.6 million), primarily associated with projects aimed at optimising capital and liquidity, as well as intragroup corporate integration transactions. However, the aggregate continues to incorporate rigorous action in progress taken to contain costs, which when complete will provide further benefits from both mergers. Staff costs: composition Figures in thousands of euro ) Employees (183,849) (187,398) a) Wages and salaries (128,692) (127,946) b) Social security charges (34,692) (33,371) c) Post-employment benefits (7,307) (8,111) d) Pension expense - - e) Provision for post-employment benefits (988) (919) f) Pensions and similar obligations - - g) Payments to external supplementary pension plans: (6,698) (7,657) - defined contribution (6,698) (7,657) i) Other employee benefits (5,472) (9,394) 2) Other personnel in service (418) (495) - Expenses for agency staff on staff leasing contracts - (149) - Other expenses (418) (346) 3) Directors (7,809) (7,478) 4) Expenses for retired personnel - 16,123 5) Recoveries of expenses for staff on secondment to other companies 90,391 89,413 6) Reimbursements of expenses for staff on secondment at the Bank (27,761) (24,714) Total (129,446) (114,549) Other administrative expenses: composition Figures in thousands of euro A. Other administrative expenses (158,839) (109,642) Rent payable (9,471) (9,194) Professional and advisory services (24,888) (20,647) Rentals on hardware, software and other assets (3,519) (3,043) Maintenance of hardware, software and other assets (534) (527) Tenancy of premises (7,306) (7,269) Property and equipment maintenance (2,329) (2,259) Counting, transport and management of valuables (5) (6) Membership fees (2,006) (1,561) Information services and land registry searches (1,081) (844) Books and periodicals (468) (551) Postal (2,856) (387) Insurance premiums (6,218) (1,004) Advertising (1,732) (2,142) Entertainment expenses (642) (695) Telephone and data transmission expenses (9,195) (9,001) Services in outsourcing (10,510) (3,584) Travel expenses (4,181) (3,788) Fees for services provided by Group companies (UBI.S) (57,099) (39,637) Credit recovery expenses (11,269) (63) Forms, stationery and consumables (1,237) (640) Transport and removals (452) (269) Security (1,124) (1,826) Other expenses (717) (705) B. Indirect taxes (7,034) (3,307) Indirect taxes and duties (897) (704) Stamp duty (6,538) (80) IMU / ICI (municipal property taxes) (5,216) (2,226) Other taxes (3,179) (309) Reclassification of "tax recoveries" 8, Total (165,873) (112,949) the item administrative expenses: staff costs of approximately 16.1 million and the relative portion of the fair value reserve actuarial gains/losses on defined benefit plans amounting to approximately million was reclassified within retained earnings. 20*

23 It should also be recalled that administrative expenses for 2011 included a non-recurring item: 3.1 million for activities preliminary to the migration of B@nca 24-7 to the target system; depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets fell to 24.3 million, down by 2.2 million, including 1.5 million due to the absence of amortisation on intangible assets relating to the interest held in By You, fully written-down in the second quarter of In the fourth quarter, operating expenses totalled 90.7 million, compared with 78.6 million in the fourth quarter of 2011 and with 97 million in the third quarter of 2012 (which incorporated the costs of B@nca 24-7 for the first six months of the year). A quarteron-quarter comparison shows that: staff costs ( 33.7 million compared with 38.5 million) were down by 4.8 million, despite the change in the operating perimeter of the Parent, as a consequence of the ongoing measures aimed at increasing efficiency; other administrative expense ( 50.6 million compared with the previous 52.6 million) shows signs of the radical containment measures, despite the presence of new costs correlated with the expanded commercial operations by the Parent, as well as of nonrecurring expense items linked to intragroup corporate combinations (the merger of consumer bank and corporate and investment bank); depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets remained virtually stable at 6.4 million ( 6 million in the previous three months). As a result of the performance reported above, net operating income for the year amounted to million compared to 8.2 million in the comparative twelve months. On a quarterly basis, net operating income amounted to 142 million, compared with 70.2 million in the same period of 2011 and 62.3 million in the third quarter of The UBI Banca income statement also reported the following during the year: 67.6 million of net impairment losses on loans relating almost entirely to the portfolio of the former B@nca 24-7 and consisting of specific impairment losses of million and reversals of 58.3 million, of which 34.5 million in deteriorated loans (in relation to rigorous valuation policies pursued since 2009) and 23.8 million on performing loans (partly also as a result of a Net impairment losses on loans: composition reduction in the size of the loan portfolio); Net impairment losses/reversals 42.7 million of net 2012 impairment losses on other Specific Portfolio Figures in thousands of euro financial assets/liabilities A. Loans and advances to banks relating mainly to impairment B. Loans and advances to custome (91,398) 23,798 (67,600) losses on instruments held in C. Total (91,398) 23,798 (67,600) the AFS portfolio, which were non-recurring: 30.8 million on the Intesa Sanpaolo share (already recognised in the first Net impairment losses/reversals half on the basis of the 2011 Specific Portfolio reference price on 29 th June Figures in thousands of euro 2012 of 1.118), 3.5 million A. Loans and advances to banks on the A2A share and 18.9 B. Loans and advances to custome (369) (688) (1,057) million on other equity C. Total (369) (688) (1,057) instruments and OICR units (collective investment instruments) (including 12.5 million on the Centrobanca Sviluppo Impresa SGR fund and 4.4 million on the Polis closed-end property fund) In 2011, net impairment losses on other financial assets and liabilities amounted to million, of which 6.8 million relating to guarantees granted and million to impairment losses on available-for-sale financial assets classified as non-recurring. These consisted of 7.5 million on OICR units (collective investment instruments) (of which 4.3 million relating to the Polis property fund) and million on investments in A2A ( 3.3 million), Siteba Spa ( 0.5 million, after the transfer to the positive reserve in equity) and Intesa Sanpaolo. The Intesa shares incurred a total impairment loss of million during the year on the 21*

24 The value of the Intesa San Paolo shares recovered in the second half of the year by 20.2 million, which increased the reserve in equity and did not change the half year impairment. Following the partial disposal of 69,207,749 shares in the final four months of 2012, the recovery in the capital amount was calculated on the new number of shares (111,007,749) and on the reference price on 28 th December 2012, which was 1.3. The total for this item also incorporated a recovery of 10.5 million (item 130 d), essentially due to the release of a guarantee Net provisions for risks and charges granted by the Parent on behalf of B@nca 24-7 in the context of intragroup transactions with Prestitalia; Figures in thousands of euro 11.1 million of net provisions for risks and charges. The item includes 12 million accrued in the context of the process of restructuring the third-party distribution networks launched in the previous year and 3 million set aside by B@nca 24-7 in the first six months of the year in connection with the emergence of risks associated with its transactions with customers, against releases of provisions made in previous years to account for risks no longer applicable: 1.6 million relating to litigation with customers over financial investments and 2.8 million to a tax dispute with the Swiss authorities; 37.3 million of profits on the disposal of equity investments attributable to the following: the capital gain of 21.8 million earned on the sale of the equity investment in Arca SGR (following exercise of the right to withdraw) and 15 million on the sale of the entirety of the equity investment in UBI Insurance Broker. Both amounts were included with nonrecurring items 12. In detail, the following were recognised in the fourth quarter of 2012: Net provisions for revocation clawback risks - - Net provisions for staff costs - - Net provision for bonds in default - - Net provisions for litigation Other net provisions for risks and charges (11,995) (707) Total (11,106) (595) 13.2 million of net impairment losses on loans, compared to 53.2 million recognised in the three previous months and referring to the entirety of the first nine months of 2012; million (- 0.4 million in the third quarter) in net reversals of impairment losses on other financial assets and liabilities, arising from the aforementioned release of the guarantee provided to B@nca 24-7 ( million), although mitigated by the decreases in the value of units of OICR (collective investment undertakings) (of which approximately million may be attributed to Centrobanca Sviluppo Impresa SGR); million of releases of net provisions for risks and charges; million had been set aside in the three previous months, owing in part to the inclusion of B@nca 24-7; 15.4 million of profits from the disposal of equity investments, chiefly as a result of the sale of UBI Insurance Broker ( 21.8 million in the three previous months as a capital gain on the sale of the entirety of the interest in Arca SGR). Pre-tax profit from continuing operations therefore rose to million, compared a loss of million in On a quarterly basis, continuing operations also recorded a considerably increased profit of million, compared to 74.4 million in the same quarter of 2011 and to a profit of 28.1 million in the previous three months of During the twelve months concerned, UBI Banca reported a tax credit on income from continuing operations of 43.5 million 13, which benefited from the following non-recurring items: basis of the official share price quoted on 30 th December 2011 ( ). The amount actually includes the impairment loss recognised in the first half ( 15.4 million, recognised on the basis of the share price quoted at the end of June of ), together with the recognition of a further impairment loss in the third quarter ( million), which was then offset by a recovery in the share price in the fourth quarter ( million). 12 In that same period, the item disposal of equity investments had benefited from profits of 2.3 million (non-recurring), from the partial disposal of the interest held in BY YOU, in April Taxes in 2011 showed income of million because they included a large non-recurring component amounting to million composed as follows: 22*

25 25 million from the realignment of taxation on goodwill, recognised in the consolidated financial statements in relation to the purchase of a controlling interest in Banca Popolare di Ancona, in accordance with Art. 23, paragraphs of Decree Law No. 98 of 6 th July 2011 (Law No. 111/2011) as amended by Art. 20 of Decree Law No. 201 of 6 th December 2011 (Law No. 214/2011). Following enactment of the Decreto Salva Italia ( Save Italy Decree ), the payment terms were re-opened with regard to extraordinary transactions performed in 2010 and in preceding years. As already reported, in 2011 UBI Banca had taken advantage of the measures mentioned to obtain tax relief on the higher amounts recognised on subsidiaries when the former Banca Lombarda e Piemontese was merged into it with regard to goodwill, brands and other intangible assets as stated in the consolidated financial statements. In consideration of the re-opened terms which allowed a precise evaluation of the operating and financial impacts of the operation, it was also decided to obtain tax relief in the past year on the goodwill recognised in the consolidated financial statements arising from the acquisition of a controlling interest in BPA by UBI Banca (formerly BPU Banca). In return for the cost of recognising the substitute tax at a rate of 16% ( 34.8 million), it is possible to deduct the amortisation of the amount subject to tax relief ( million) at constant rates over ten years with effect from 2018 (instead of from 2013, as a result of the postponement provided for by Law No. 228/2012). Consequently, in the first half of 2012, deferred tax assets of 59.8 million were recognised within item 260 of the income statement, corresponding to the future benefit arising from the deduction of amortisation on the goodwill subject to tax relief; 8.3 million resulting from tax relief in relation to non-accounting deductions existing as at 31 st December 2011, relating to the loan impairment provision of UBI Banca (section EC of the income tax return). Law No. 244/2007 repealed, with effect from 2008, the ability to make non-accounting deductions from income (pursuant to article 109, paragraph 4, letter b) of the Consolidated Income Tax Act) for depreciation and amortisation, provisions and impairment losses of a tax nature, and introduced the ability to obtain tax relief for those deductions in order to align statutory accounting amounts with tax accounting amounts existing as at 31 st December Since the legislation mentioned made it possible to obtain partial tax relief on uniform categories of deductions and also in the light of changes to the operating perimeter (with the direct disbursement of loans to customers), it was decided to take advantage of that opportunity with regard to provisions for impairment losses on loans, not subject to tax relief in prior years. The income statement therefore included the total substitute tax due of 11.5 million (16% of the amount of 72.1 million subject to tax relief declared in section EC of the 2012 income tax return) and also the proceeds from the write-off of deferred liabilities recognised against the non-accounting deductions from the loan impairment provision as at 31 st December 2011 ( 19.8 million). As result of the foregoing, effective 2012 any loan losses are deductible according to the ordinary tax provisions; 3.3 million relating to prior year tax credits, in view of the full deduction for corporate income tax purposes of IRAP (local production tax) on the cost of labour from 2012, as provided for by Art. 2, paragraph 1 quater of Decree Law No. 201/2011, converted with amendments into Law No 214/2011 and subsequently supplemented by Art 4, paragraph 12 of Decree Law No. 16/2012, converted with amendments into Law No 44/2012. The decree on tax deregulation made it possible to file a corporate income tax refund application, recalculated as a result of the deductibility mentioned above, for prior years, for which the time limit (on 2 nd March 2012) of 48 months indicated for the refund of direct payments had not yet expired (i.e. the tax years ). According to the Provision of the Director of the Tax Authorities of 17 th December 2012, which established the terms and conditions for applying for these refunds, the amount of the refund for which to apply for UBI Banca and B@nca 24-7 was recalculated (with respect to the amount originally defined in the half-yearly accounts) for the aforementioned annual periods. Excluding non-recurring items, taxes amount to - 3 million, down from million in On one hand, this is reflection of an appreciable improvement in net operating income and of a change in the composition of revenue items, on the other million from the realignment of taxation on goodwill and other intangible assets in accordance with Decree Law No. 98 of 6 th July 2011, converted with amendments into Law No. 111 of 15 th July This legislation allowed, in accordance with the principles of Law No. 2 of 28 th January 2009, the recognition for tax purposes of higher values attributed to controlling interests acquired through extraordinary transactions. The realignment was performed by the payment of a substitute tax of 16% ( million paid in November 2011), which allowed tax to be deducted on the amortisation of the amount subject to tax relief ( 3,285.3 million) at constant rates over ten years with effect from 2018 (instead of from 2013, given the deferral effected by Law No. 228/2012). Consequently, in the first half of 2011 deferred tax assets of million were recognised within item 260 of the income statement, corresponding to the future benefit arising from the deduction of amortisation on the intangible assets subject to tax relief; - 25 million from the write-off of deferred tax assets for IRAP (local production tax) purposes, already recognised in the financial statements as at and for the year ended 31 st December As a result of the tax deductibility of the amortisation of the amount subject to tax relief mentioned above, the Bank did not have sufficient taxable income for IRAP purposes to recover the deferred tax assets which had been recognised, since IRAP is not included in the tax consolidation. Consequently the conditions for its recognition were therefore no longer met. 23*

26 Taxation was affected by the following: for corporate income tax (IRES) purposes, by the partial non deductibility of interest expense (4%) introduced by Law No. 133 of 6 th August 2008 and non-deductible expenses and provisions partly offset by the effect of the Aiuto alla crescita economica ( ACE Aid to economic growth ) concessions; for IRAP (local production tax) purposes, on top of the 4% non-deductibility of interest expense, additional burdens were the non-deductibility of net provisions for risks and charges, impairment losses on loans and staff costs, as well as the non-deductible portions of administrative expenses and depreciation and amortisation. The above negative effects were mitigated by tax relief for dividends. The income statement reports employees leaving incentive costs of 20.1 million within a single item, net of taxes. The item was generated to a significant degree in the fourth quarter ( 18 million), following the signing of the trade union agreements in late November On the whole, these costs came to a gross total of 27.7 million (including 7.6 million in tax), of which: million was charged in relation to the General redundancy incentive offer implemented in March 2012 and intended for employees eligible for the benefits provided by the Decreto Salva Italia ( Save Italy Decree ); million 14 (net of the correlated staff costs for the personnel covered by the redundancy plan) was recognised in the third quarter in relation to the Managerial manoeuvre ; million was recognised in relation to the trade union agreements of 29 th November 2012 and 12 th February Impairment losses on equity investments of the Group of 60.7 million are also reported within a single item, net of tax. The amounts concerned arose from periodic impairment tests performed in the fourth quarter of the year: 59.3 million relates to the reduction in the carrying amount of the equity investment in UBI Leasing; 1.4 million results from the impairment loss on the equity investment in Capital Money (mortgage distribution). On the basis of the impairment-testing procedure performed at the end of December 2011, in accordance with IAS 36 (Impairment of Assets), the test performed no longer ensured the recoverability of the carrying amounts of goodwill and equity investments. Accordingly, the reclassified income statement presented the net impairment losses on goodwill (item 230), net impairment losses on equity investments (part of item 210) and net impairment losses on intangible assets (part of item 180) applied during the year, totalling 3,029.8 million. In detail: million for the entire write-off of the goodwill, recognised by UBI Banca and arising from the business combination involving the former BPU Group and the former BLP Group, which took effect from 1 st April 2007; 1,469.5 million for impairment losses on equity investments held in the network banks of the Group (no impairment losses were recognised on BPB, BPCI and BPA); million for impairment losses on equity investments in other banks in the Group (Centrobanca, IW Bank, UBI Banca International, UBI Banca Lombarda Private Investment and B@nca 24-7, the latter having been written down already by 14 million in June 2011); million for impairment losses on equity investments in product companies (UBI Fiduciaria, UBI Factor, UBI Pramerica SGR, SOLIMM and UBI Leasing, the latter already written-down by 86 in June 2011); 19.5 million (recognised in the second quarter of the year) in relation to the entire write-off of intangible assets tied to the investment in BY YOU (partially disposed of in April 2011), following the renegotiation of distribution agreements. For broader view it is provided that, profit before leaving incentives and impairment appeared to be million in 2012, of which million was earned in the fourth quarter alone. Profit came to million in the previous year ( 99.5 million attributable to the fourth quarter of the year) as a result of a significant non-recurring item relating to the realignment of tax values. 14 Estimated costs of 2.5 million had been recognised in the third quarter of *

27 General banking business with customers Funding As at 31 st December 2012, direct funding from UBI Banca customers totalled 31.3 billion, a drop of 3.9 billion compared with the same date of the preceding year. This is essentially attributable to the trend in the item Debt securities issued (- 3.8 billion) and in particular, to maturities for institutional funding. In detail, DEBTS TO CUSTOMERS of 7.9 billion ( 8 billion at the end of 2011) fluctuated over the twelve-month period, reflecting the performance of repurchase agreements with the Cassa di Compensazione e Garanzia (CCG - a central counterparty clearing house) (which fell to 3.9 billion from 4.6 billion in the preceding year), used to fund part of the owned government bond portfolio. During the first quarter, operations with the CCG had been reduced (from 4.6 billion in December 2011 to 2.4 billion in March 2012) in parallel with acquired three-year liquidity obtained through the two LTRO operations with the ECB (an operation which also provided greater stability to the balance sheet liability structure). During the second quarter, on the other hand, UBI Banca again increased its recourse to the CCG ( 7.2 billion at the end of June) in order to finance short maturity investments. From the second half of the year onwards, a new phase of reducing these operations began, bringing them down to a total of 3.9 billion in December 2012, as a consequence of partial divestments from the trading portfolio (all concentrated during the third quarter) and the positive liquidity position of the Group. The fall in repurchase agreements, which emerges from the comparison between the end of year figures, was substantially offset by current account funding (+ 0.6 billion), regarding liquid assets deposited by corporate customers (+ 0.3 billion), as well as by UBI Pramerica 1 and by the CCG (overall billion), moreover, with all of these components subject to variable performances during the year. Term deposits, consisting of subordinated accounts belonging to special-purpose entities, established for the purpose of issuing preference shares, remained unchanged at 0.6 billion. DEBT SECURITIES ISSUED, consisting entirely of bonds, amounted to 23.4 billion (- 3.8 billion over twelve months), in progressive decline until September, reflecting unrenewed funding maturities with institutional customers, to which were added a number of maturities relating to intragroup liabilities, with a partial recovery in the last quarter of the year, by virtue of the positive trend for bonds placed with ordinary customers. In detail, as at 31 st December 2012, institutional funding of UBI Banca, which fell to 13.4 billion from 16.4 billion in the preceding year (-18.2%), was composed as follows: EMTN securities amounting to 7.1 billion (of which only 0.2 billion subordinated), issued as part of a programme for a maximum issuance of 15 billion. The trend for these securities, which fell by 3.2 billion over twelve months, is explained by the positive liquidity and structural balance of the Group, which indeed made it unnecessary to renew the maturing securities, in view of market conditions which were still considered to be too costly. Only from October 2012 onwards, given reduced pressures on government bond spreads and the constant improvement in cost levels, UBI Banca returned to the international markets with three new issuances for an overall nominal amount of billion, which only served in part to supplement or replace total maturities, redemptions and repurchases during the year, totalling billion nominal. On 30 th October a benchmark issue of 750 million with a three-year maturity and a fixed coupon of 3.75% was placed by a public offer; this was followed by two private placements, the first, for 200 million on 28 th November and the second, for 325 million on 11 th December, both at a variable rate and maturing in Following an agreement signed in April 2011, UBI Banca is the holder of deposits used to meet the investment requirements of some of the funds managed by this asset management company: Euro Breve Termine, Euro Cash (both since May 2011) and Portafoglio Prudente (since August 2011). 25*

28 Covered bonds, amounting to 6.3 billion (+ 0.2 billion over twelve months, the result of a change in book value, with no issues made during the year). Within the multioriginator programme, backed by residential mortgages, with a maximum ceiling of 10 billion, UBI Banca has 8 covered bonds 2 outstanding for a nominal value of billion, after three amortisations totalling 33 million 3. Information on the composition of the segregated residential mortgage cover pool with UBI Finance, which backs the bonds, is presented in the Consolidated management report, to which we refer. Both the covered bonds and the EMTN securities are listed in London (with the sole exception, for these latter securities, of bonds issued at the time by the former Banca Lombarda e Piemontese, which are listed in Luxembourg). Direct funding from customers % % Changes Figures in thousands of euro amount % Current accounts and deposits 2,890, % 2,324, % 565, % Term deposits 572, % 572, % % Financing 4,411, % 5,089, % -678, % - repurchase agreements 3,944, % 4,615, % -671, % of which: repos with the CCG 3,944, % 4,615, % -671, % - other 466, % 473, % -6, % Other payables 22, % 35, % -12, % Total amounts due to customers 7,897, % 8,022, % -125, % Bonds 23,405, % 27,200, % -3,794, % - bonds subscribed by institutional customers 13,437, % 16,420, % -2,983, % of which: EMTN (*) 7,091, % 10,292, % -3,201, % Covered bonds 6,346, % 6,128, % 217, % - bonds subscribed by ordinary customers 7,812, % 6,856, % 956, % - bonds subscribed by Group banks (intragroup) 2,155, % 3,922, % -1,767, % Other certificates Total debt securities issued 23,405, % 27,200, % -3,794, % Total funding from customers 31,302, % 35,223, % -3,920, % of which: subordinated liabilities 5,538, % 4,527, % 1,011, % of which: subordinated deposits (**) 572, % 572, % % subordinated securities 4,966, % 3,954, % 1,011, % of which: EMTN (*) 181, % 211, % -30, % (*)The corresponding nominal values were billion ( 180 million subordinated) as at 31 st December 2012 and billion ( 212 million subordinated) as at 31 st December The amounts indicated in the table do not include two private placements, for a total of 88 million, of an intragroup nature and hence eliminated on consolidation ( 93 million as at 31 st December 2011, also due to a partial repurchase). (**)The amount refers to deposits established by BPB Funding Llc for a nominal amount of 300 million, by BPCI Funding Llc for a nominal amount of million and by Banca Lombarda Preferred Capital Co. Llc for a nominal amount of 155 million. Outstanding bond maturities as at 31st December 2012 (excluding intragroup securities) Nominal amounts in millions of euro 1st Quarter nd Quarter rd Quarter th Quarter Subsequent years Total Total (*) 1, ,366 1,975 4,726 2,476 2,557 5,692 20,405 of which: EMTN 1, ,663 2, ,995 Covered bonds (**) ,801 3,264 5,717 (*)The EMTN subordinated loan was placed on the exercise date of the call option (October 2013). (**)The first half-yearly repayment, of 11 million, took place in the fourth quarter of 2011, the second and third repayments, also for 11 million, took place respectively during the second and fourth quarters of Bond funding from ordinary customers mainly consisting of bonds quoted on the MOT [Italian electronic bond market] and intended for customers of the Network Banks 4 recorded an 2 The list is presented in the Consolidated management report, in the note on listed Group issues. 3 Considering the large pool of segregated assets available from UBI Finance, on 22 nd February 2012 three new issues were made for a total of 750 million, which were not placed on the market but used to increase the pool of assets eligible for refinancing with the central bank. At the same time, a second covered bond programme backed by commercial mortgages was structured with the aim of making self-retained issues, i.e. intended to create new eligible assets. At the end of May, the first issue for a nominal amount of 1.8 billion was made (six-year maturity), while a second issue was completed at the end of October for a nominal amount of 0.5 million (ten-year maturity). Because these were repurchased by the Parent itself, on the basis of IFRS standards, these liabilities are not shown in the accounts. 4 The list is presented in the Consolidated management report, in the section on listed Group issues. 26*

29 increase over twelve months of almost 1 billion, to 7.8 billion, as a result of an issuance programme concentrated mainly towards the end of the year. Placement activity consisted of 18 loans for an overall nominal amount of 1.8 billion, of which two, for an amount of 1.2 billion, with a lower tier two subordination clause. The new issues therefore broadly compensated maturing issues ( 0.7 billion) and reductions of a number of outstanding loans ( 0.2 billion), with an issuance to maturity ratio of 191%. During 2013, a change is foreseen in the Group s medium to long-term direct funding strategy, with prevalent concentration on bond issuances by UBI Banca, while the network banks will focus primarily on placements with customers. This will favour the progressive reduction of the number of issues outstanding, to the benefit of their liquidity, by virtue of the increase in the average size of the issue placed and with greater efficiency, including for the management of possible hedges. Intragroup bond funding (consisting of bonds subscribed by a number of Group banks for the investment of their liquidity) almost halved compared with 2011 (- 1.8 billion to 2.2 billion). The significant drop was due to the number of bonds maturing, concentrated in the second half of the year, which were not replaced by new issues. 27*

30 Lending As at 31 st December 2012, loans by the Parent totalled 22.6 billion, with a considerable increase compared with 15.7 billion twelve months previously. The change year-on-year (+ 6.9 billion) mainly reflects the effects of a rationalisation operation, which concerned the consumer credit area in the third quarter. In particular: the specialisation of the subsidiary Prestitalia in salary and pension backed loans, which, from 1 st July onwards resulted in the contributon to that company of the portfolio of salarybacked loans, previously managed by B@nca , with the consequent start of direct funding to Prestitalia by UBI Banca; the subsequent merger of B@nca 24-7 into the Parent, with legal effect from 23 rd July 2012, entailing the inclusion within UBI Banca of the remaining outstanding loans still managed by the merged company. Composition of loans to customers of which of which Changes % % Figures in thousands of euro deteriorated deteriorated amount % Current account overdrafts 746, % 440 1,202, % , % Reverse repurchase agreements 2,084, % - 3,408, % - -1,324, % Mortgage loans and other medium to long-term financing 6,445, % 403, , % - 5,685, % Credit cards, personal loans and salary-backed loans 1,656, % 87, ,656,983 - Finance leases Factoring Other transactions 11,329, % 25,008 9,894, % 49 1,434, % Debt instruments 321, % - 426, % , % of which: structured securities 321, % - 227, % - 94, % other debt instruments , % , % Total loans and advances to customers 22,584, % 516,918 15,692, % 280 6,892, % Also because of the effect of the above considerations, funding by UBI Banca to Group companies operating in the leasing and factoring sectors fell organically in terms of total oustanding loans, with these receiving loans amounting to 8.1 billion and 2.2 billion respectively, equivalent to 45.7% of total loans. In December 2011, UBI Leasing and UBI Factor had benefited from 9.7 billion and 2.7 billion, accounting for 78.7% of total loans and advances to customers. From July onwards, Prestitalia also received direct loans, which, at the end of the financial year amounted to around 2.9 billion, of which slightly less than 1 billion classified within mortgages and other medium to long-term financing and 1.9 billion within other short-term transactions. These are loans previously made to B@nca 24-7 and therefore classified within loans and advances to banks. At the end of 2012, the impact of the merger of B@nca 24-7 on the UBI Banca s assets was approximately 6.7 billion, of which, 4.8 billion attributable to Mortgages and other medium to long-term financing - in ongoing and organic decline given the residual nature of this business billion to the various types of consumer loan and 0.2 billion to Other operations. The overall annual performance of UBI Banca s loans was also impacted by technical factors, albeit to a more limited degree, subject by their nature to a certain variability over the course of the year: ordinary operations with the Cassa di Compensazione e Garanzia (CCG - a central counterparty clearing house), which more than halved compared with the end of 2011, gave rise to an overall exposure of 0.6 billion ( 1.4 billion, twelve months previously), represented by reverse repurchase agreements of 0.5 billion 6 and by margins 5 The management activity for salary backed operations, previously outsourced to finance companies outside the Group, was progressively insourced by Prestitalia. 6 These are transactions with Italian government bonds as the underlying, carried out for the temporary investment of liquidity. 28*

31 requested as guarantees for repurchase agreements on Italian government bonds for 0.1 billion; margin requirements on derivative operations, essentially swaps accompanying the Covered Bond Programme and internal securitisations, became an important factor from the first half of the year onwards, relating to the repeated downgrades which occurred in the wake of the sovereign debt crisis. The margin requirements amounted to 0.5 billion in December 2012, entirely represented by current accounts; compared with twelve months previously, this component fell by 0.5 billion; investments in debt securities, down by 0.1 billion to 0.3 billion, combining opposing effects: on the one hand, the maturity of a security issued by a member of a banking group for 0.2 billion, subscribed at the end of 2011 and on the other, the repurchase of preference shares for 0.1 billion, within the context of the Public Exchange Offer of March 2012; the extinction during the first quarter of a loan to UBI Pramerica for 0.3 billion, recognised at the end of the year within other operations; the launch during the second half of the year of repurchase agreement operations with a counterparty belonging to a banking group, outstanding at the end of December 2012 for approximately 0.2 billion and to be interpreted in relation to financial liabilities held for trading (uncovered short positions on European government bonds). During the fourth quarter, the loan portfolio contracted overall by 1.1 billion (-4.7%), due to lower levels of operations with the CCG, both for reverse repurchase agreement operations (- 0.6 billion) and for Other operations (- 0.3 billion), accompanied by a modest decline in consumer loans (- 0.1 billion) and substantial stability for other types of lending. As a consequence of the different performance of the two aggregates, the lending to funding ratio rose to 72.1% from 44.6% at the end of Loans and advances to customers as at 31st December 2012 Figures in thousands of euro Gross exposure Impairment losses Carrying amount Coverage (*) Deteriorated loans (3.97%) 913, ,076 (2.29%) 516, % - Non-performing loans (2.55%) 586, ,511 (1.01%) 227, % - Impaired loans (0.95%) 218,967 32,395 (0.83%) 186, % - Restructured loans Past due loans (0.47%) 108,074 5,170 (0.45%) 102, % Performing loans (96.03%) 22,133,332 65,503 (97.71%) 22,067, % Total loans and advances to customers 23,047, ,579 22,584, % The item as a percentage of the total is given in brackets. Loans and advances to customers as at 31st December 2011 Figures in thousands of euro Gross exposure Impairment losses Carrying amount Coverage (*) Deteriorated loans (0.04%) 5,530 5,250 (0.00%) % - Non-performing loans (0.04%) 5,530 5,250 (0.00%) % - Impaired loans Restructured loans Past due loans Performing loans (99.96%) 15,693,413 1,030 (100.00%) 15,692, % Total loans and advances to customers 15,698,943 6,280 15,692, % The item as a percentage of the total is given in brackets. (*) Coverage is calculated as the ratio of impairment losses to gross exposure. At the end of December, deteriorated assets net of impairment losses had risen to 914 million (with a net value of million), up million over twelve months, due mainly to the merger of B@nca 24-7, but also to the emergence of new positions during the second part of the year, in relation to the growing difficulties faced by consumer households in repaying their debts. As a percentage of total gross loans, this stood at 3.97% and at 2.29% in net terms (i.e. net of write-downs). 29*

32 With regard to types of lending, the annual change in gross deteriorated loans was almost entirely attributable to mortgages and other medium to long-term financing and to consumer loans. The overall coverage ratio was 43.44%, substantially in line with that of the merged Bank. Loans to customers: changes in deteriorated gross exposures in 2012 Figures in thousands of euro Non-performing loans Impaired loans Restructured exposures Past-due exposures Initial gross exposure as at 1st January , Increases 833, , ,235 transfers from performing exposures 40, , ,370 transfers from other classes of deteriorated exposures 95, , business combination transactions 640, ,918-67,332 other increases 57,836 29,601-14,689 Decreases -252, , ,161 transfers into performing exposures , ,290 write-offs -16, payments received -101,074-39, ,421 disposals -103, transfers to other classes of deteriorated exposure -5,347-67, ,993 business combination transactions -26, , other decreases Final gross exposure as at 31st December , , ,074 With regard to large exposures, at the end of December, UBI Banca had three positions exceeding 10% of the regulatory capital (four at the end of ) totalling 88.4 billion, lower than the figure of 97.7 billion twelve months previously: 66.9 billion to consolidated companies ( 83.4 billion at the end of 2011); 17 billion to the Ministry of the Treasury regarding investments in government securities ( 6.8 billion a year previously); 4.5 billion to the CCG, attributable to overall operations ( 6 billion in December 2011). Also considering the application of a weighting factor of zero for exposures to the government, the actual exposure to risk for the Parent after the weightings was million (relating to only two positions), with a reduction compared to 1.4 billion at the end of 2011 and with a much smaller impact on the regulatory capital than the limits set by current regulations (banks belonging to banking groups are subject to an individual limit of 40% of their own regulatory capital). The change compared to the previous financial year substantially reflects the disappearance of a position with a leading banking group, characterised by the application of high levels of weighting (- 1 billion). Lastly, guarantees issued to customers amounted to 1.64 billion, with a reduction of around 13% compared to 1.88 billion at the end of 2011, with the following composition: bank guarantees of a financial nature of 1.61 billion, against 1.78 billion outstanding in December In terms of recipients, the total recorded a general decline, both for bank guarantees to ordinary customers and for those to Group Companies. The latter totalled million ( million at the end of 2011), composed as follows: million for BPCI Funding Llc, 25 million for Lombarda Vita, 10.5 million for UBI Leasing and 10.1 million for UBI Factor; guarantees of a commercial nature for 31.5 million ( million in December 2011), almost entirely for Group companies. Of these, 16.1 million had in fact been issued in favour of UBI Leasing, 5.8 million in favour of UBI Factor and 3.5 million in favour of Coralis Rent. 7 At the end of 2011, the report also included 1.5 billion, attributable to the different types of outstanding positions with a leading banking group. 30*

33 Operations in the interbank market As at 31 st December 2012, UBI Banca s net interbank position was 12.3 billion net debt (positive by 6 billion in 2011), the combined effect: - on the one hand, of a significant deterioration in the net intragroup position (- 1.8 billion from + 11 billion), concentrated mainly in the second half of the financial year; - on the other, of increased debt to counterparties outside the Group ( billion from - 5 billion), essentially attributable to net balances with the central bank, given the persistence of a net credit position with regard to other banks (+ 0.7 billion relative to the preceding billion). As can be seen from the quarterly statements, the net interbank position of the Parent became negative from the end of March onwards, following participation in the second of the two LTRO refinancing operations with the ECB, which provide access to a stable source of funding, thereby compensating the maturity of institutional issues, in a context of reduced interbank business and the excessively high cost of the international market. Then during the third quarter the negative balance increased in parallel with the reduced level of intragroup transactions, following the merger of B@nca 24-7, with which the Parent had overall loans of 12.4 billion outstanding as at 31 st December Intragroup transactions continued to be significant within the context of UBI Banca s overall activity in its role of centralised manager of Group liquidity. With the exception of IW Bank and the foreign subsidiaries, internal policies require the composition of assets and liabilities of the network banks and of the product companies with banking counterparties to result exclusively from transactions with the Parent. The policies also define the rates and charges for lending and funding transactions between UBI Banca and Group companies. Details of assets eligible for refinancing and of action taken to increase the liquidity reserve which those assets are able to guarantee are given in the consolidated management report, which may be consulted. Further information on liquidity risk management is given in Part E, section 3 of the Notes to the Consolidated Financial Statements. Interbank market: quarterly trends Changes A/E Figures in thousands of euro A B C D E amount % Loans and advances to banks 15,830,498 14,345,732 24,594,109 26,996,600 30,224,290-14,393, % of which: - loans to central banks 917, , , , , , % - intragroup 12,203,596 11,480,855 22,206,161 24,388,469 26,297,926-14,094, % of which: intragroup securities 4,116,884 4,263,537 10,063,464 10,098,786 10,089,221-5,972, % Due to banks 28,081,435 27,063,633 26,448,542 28,829,633 24,228,130 3,853, % of which: - due to central banks 12,098,917 12,075,917 12,052,000 12,021,667 6,001,500 6,097, % - intragroup 13,989,211 13,126,818 12,558,843 14,546,978 15,291,525-1,302, % of which: subordinated deposits 200, , , , , , % Net interbank position -12,250,937-12,717,901-1,854,433-1,833,033 5,996,160-18,247,097 n.s of which: intragroup -1,785,615-1,645,963 9,647,318 9,841,491 11,006,401-12,792,016 n.s non-group banks -10,465,322-11,071,938-11,501,751-11,674,524-5,010,241-5,455, % As at 31 st December 2012, loans and advances to banks other than Central Banks almost halved to 14.9 billion, reflecting the downsizing of the already mentioned internal Group activities, which was concentrated above all in the third quarter (down from 26.3 billion to 12.2 billion) due to the disappearance of funding of the former subsidiary B@nca The decline related in particular to term deposits (- 7 billion, of which billion attributable to the merged company) and to debt securities, almost entirely of an intragroup nature (- 7.1 billion, of which billion attributable to the former B@anca 24-7). 31*

34 On the other hand, with regard to repurchase agreements, the reduction of transactions with 24-7 to zero (- 1.9 billion) was partially offset by an increase in business with other Group Banks (+ 1 billion), always with securities issued for internal securitisations as the underlying. The item also incorporates new business with counterparties outside the Group, amounting to 0.9 billion at the end of 2012, to be seen in relation to changes in on-balance sheet financial liabilities held for trading (uncovered short positions in European government bonds), against the disappearance of repurchase agreements of 0.6 billion outstanding in December Loans to banks: composition Changes % % Figures in thousands of euro amount % Loans and advances to central banks 917, % 595, % 321, % Term deposits Compulsory reserve requirements 917, % 595, % 321, % Repurchase agreements Other Loans and advances to banks 14,912, % 29,628, % -14,715, % Current accounts and deposits 2,340, % 2,265, % 74, % Term deposits 3,211, % 10,258, % -7,046, % Other financing 5,194, % 5,876, % -682, % - reverse repurchase agreements 4,622, % 5,291, % -669, % - finance leases other 571, % 585, % -13, % Debt instruments 4,166, % 11,228, % -7,061, % - structured securities (*) 603, % 4,705, % -4,101, % - other debt instruments 3,563, % 6,522, % -2,959, % Total 15,830, % 30,224, % -14,393, % * Mainly securities with an early redemption call option (*)These are securities for which the majority have an early redemption call option. On the other hand, with regard to funding, amounts due to banks other than the Central Bank fell by 2.2 billion over twelve months to 16 billion, attributable to: - reduced intragroup activity (- 1.3 billion), concentrated mainly in the second quarter of the year, the aggregate result of opposing trends between the Luxembourg-based subsidiary, UBI Banca International (- 2.5 billion year-on-year basis) and the other Group operations; - lower funding from market counterparties (- 0.9 billion), of which 0.4 billion relates to the maturity in the first part of the year of repurchase agreements used to finance assets that do not meet eligibility requirements for refinancing. In terms of types of funding, from the comparison between the two end-of-year situations, we observe a partial change in the composition between term deposits (- 1.9 billion) and current accounts/deposits (+ 0.7 billion), affected by the trend for intragroup transactions and by business with banks outside the Group, as well as a reduction in repurchase agreements (- 1.2 billion), both for the part relating to transactions with network banks, to support customer investments (- 0.8 billion), and for the already mentioned maturity of transactions with a number of market counterparties. Other funding, equal to 0.5 billion, relates to medium to long-term financing from the European Investment Bank, which fell progressively (- 0.1 billion) due to redemptions. Other debts rose to 0.2 billion, because they included the credit card settlement account with the Istituto Centrale Banche Popolari, as UBI Banca had taken on the role of the issuer after the merger of B@nca *

35 Due to banks: composition Changes % % Figures in thousands of euro amount % Due to central banks 12,098, % 6,001, % 6,097, % Due to banks 15,982, % 18,226, % -2,244, % Current accounts and deposits 5,114, % 4,444, % 670, % Term deposits 9,278, % 11,174, % -1,896, % Financing: 1,365, % 2,599, % -1,234, % - repurchase agreements 842, % 2,012, % -1,169, % - other 522, % 587, % -64, % Amounts due for commitments to repurchase own equity Other payables 224, % 7, % 216, % Total 28,081, % 24,228, % 3,853, % Reduced funding in the interbank market was broadly offset by recourse to the central bank, which doubled over twelve months (from 6 billion to 12 billion), due to the availability of funds with a three-year maturity, obtained in the second auction held by the European Central Bank on 29 th of February *** The statement Principal balance sheet items with subsidiaries and associates, subject to control, joint control and significant influence, given in Part H of the notes to the financial statements, shows the role of UBI Banca as a net borrower of funds with regard to the Group banks, also considering any subscription of intragroup securities. As at 31 st December 2012, the net interbank balance of the Parent was funded from: Centrobanca ( 4 billion), Banca Regionale Europea ( 1.4 billion), Banco di Brescia ( 0.9 billion), Banca Popolare di Ancona ( 0.7 billion), Banca Popolare Commercio e Industria ( 0.5 billion) and Banca di Valle Camonica ( 0.3 billion). Nevertheless, this balance was negative with regard to: UBI Banca International (- 3.1 billion), Banca Carime (- 3 billion), Banca Popolare di Bergamo (- 1.9 billion), IW Bank (- 1.4 billion), UBI Banca Private Investment (- 0.2 billion) and Banque de Dépôts et de Gestion (- 26 million). 8 For the first refinancing operation, which took place on 21 st December 2011, UBI Banca had taken part, with 6 billion of refinancing allotted, again with a three-year maturity. 33*

36 Financial activities Italy had another particularly complex and difficult year in 2012, with the spread between tenyear Italian BTPs and German bunds returning to the record highs of 2011, causing elevated volatility on the market. In this context, UBI Banca undertook a series of actions on government securities designed to boost net interest income and Group cash reserves. These investments can be summarised as follows: during the first quarter, 5 billion nominal were invested in BTPs with maturities of approximately three years (longest until June 2015) and financed by using part of the liquidity obtained in the two LTRO operations with the ECB, consistent with internal policies to balance assets and liabilities. The new investments were classified partly as available-for-sale (AFS) ( 2 billion) and partly as held-to-maturity (HTM) ( 3 billion). At the same time, the maturities on other BTPs in the AFS portfolio were lengthened by means of switching operations for a total nominal amount of 1.2 billion (sale of securities maturing in 2013 and 2014, and the purchase of securities maturing in 2018 and 2019); mainly in the second quarter, new investments financed by repurchase agreements with the Cassa di Compensazione e Garanzia (CCG a central counterparty clearing house) were made in short-term Italian government securities, classified partly in the trading portfolio ( 2.6 billion) and partly in the AFS portfolio ( 2 billion nominal); during the second half of the year, with BTP-bund spreads narrowing to some extent, trading activity was mostly geared towards a moderate extension of maturities in order to benefit from the higher yields. Therefore, as the securities reached their natural maturity, switching operations were carried out involving both the trading portfolio and the AFS portfolio as follows: - during the third quarter, a total of 2 billion in short-term securities (BOTs and CTZs maturing in April 2013) were sold and simultaneously replaced by purchasing longerterm securities ( 1.5 billion in BTPs and 0.5 billion nominal in CTZs) with a maximum maturity of April 2014; - in the final quarter, 2 billion nominal of BTPs (maturing by June 2015) that had been bought at the start of the year were sold and a total of 2.4 billion was invested in BTPs maturing by August 2016 at the latest. At the same time, 1 billion nominal was switched (sale of BTPs and CTZs and purchase of BTPs, also maturing by August 2016). UBI Banca s financial assets totalled 20 billion as at 31 st December 2012 almost double the previous year s total. Net of financial liabilities, almost 50% of which consisting of financial derivatives, net financial assets amounted to 17.4 billion ( 8.5 billion as at 31 st December 2011). Financial assets/liabilities Changes Figures in thousands of euro L 1 L 2 L 3 Carrying amount % L 1 L 2 L 3 Carrying amount % amount % Financial assets held for trading 3,327,983 1,424,233 13,947 4,766, % 2,067,724 1,432,237 15,936 3,515, % 1,250, % of which: financial derivatives contracts 1,744 1,424,233-1,425, % 220 1,432,237-1,432, % -6, % Financial assets designated at fair value 109,664-13, , % 104,846-21, , % -2, % Available-for-sale financial assets 10,810,410 1,036, ,626 11,955, % 5,627,355 1,015,046 63,413 6,705, % 5,249, % Held-to-maturity investments ,158, % ,158,013 - Financial assets (a) 14,248,057 2,460, ,290 20,002, % 7,799,925 2,447, ,677 10,347, % 9,655, % of which: - debt instruments 13,946, ,442 6,774 18,095, % 7,414, ,770 11,524 8,334, % 9,760, % of which: Italian government securities 13,479, ,247-17,037, % 6,660, ,292-6,998, % 10,038, % - equity instruments 152, , , % 241,514 45,131 63, , % -85, % - Units in O.I.C.R. (collective investment instruments). 147,558 51,878 14, , % 143,850 61,145 22, , % -13, % Financial liabilities held for trading (b) 1,163,939 1,389,220-2,553, % 438,088 1,409,446-1,847, % 705, % of which: financial derivatives contracts 69 1,389,220-1,389, % 187 1,409,446-1,409, % -20, % Net financial assets (a-b) 13,084,118 1,071, ,290 17,449,754 7,361,837 1,037, ,677 8,500,351 8,949, % The fair value has not been shown for held-to-maturity investments, because they are recognised at amortised cost. 34*

37 As shown in the table, the changes in the item reflect the new investments made, especially in the first half of the year, which mostly regarded the AFS portfolio (+ 5.2 billion) and the reconstitution of the HTM portfolio ( 3.2 billion) The trend for assets held for trading was more varied with a total increase of 1.3 billion, the aggregate result of 2.6 billion of net purchases in short-term Italian government securities during the first two quarters, 2.1 billion in BTPs, BOTs and CCTs maturing or being disinvested in the third quarter, and around 1 billion in new purchases towards the end of the year. Available-for-sale financial assets Available-for-sale financial assets (AFS), asset item 40, are measured at fair value with the recognition of changes in a separate fair value reserve in equity, except for losses due to reductions in value that are considered significant or prolonged. In this case the reduction in value that occurred in the period is recognised through profit or loss, the amount being transferred from the negative or positive reserve that may have been recognised in equity previously. Following the recognition of impairment losses, recoveries in value continue to be recognised in the separate fair value reserve in equity. Any decreases below the level of the previous impairment losses are recognised through profit and loss. Definitions relating to the fair value hierarchy (levels one, two and three) are given in Section A.3 of Part A Accounting Policies in the Notes to the Financial Statements. Available-for-sale financial assets: composition Changes Figures in thousands of euro L 1 L 2 L 3 Total L 1 L 2 L 3 Total amount % Debt instruments 10,622, ,442 1,550 11,608,427 5,347, ,770 6,495 6,263,048 5,345, % of which: Italian government securities 10,156, ,247-10,555,429 4,828, ,292-5,166,877 5,388, % Equity instruments 150, , , ,568 45,131 56, ,617-85, % Units in O.I.C.R. (collective investment instruments) 37,894 51,878-89,772 39,004 61, ,149-10, % Financing Total 10,810,410 1,036, ,626 11,955,356 5,627,355 1,015,046 63,413 6,705,814 5,249, % At the end of 2012, financial assets available for sale had almost reached 12 billion, an increase of 5.2 billion over twelve months. This is largely attributable to changes in debt instruments (up to 11.6 billion) brought about, on the one hand, by new investments in Italian government bonds mainly during the first few months of the year (February: + 2 billion nominal in BTPs maturing June 2015; April: billion in BOTs and billion in CTZs maturing April ; December: billion in BTPs through switching operations towards the end of the year), and, on the other hand, by appreciations in value due to narrowing tenyear BTP-bund spreads from September onwards. In terms of fair value hierarchies, debt instruments were composed as follows: 10.6 billion at fair value level one (over 95% consisting of Italian government bonds, with the remainder made up of corporate bonds issued mainly by Italian banks, in addition to a residual 2.8 million in bonds from own securitisations 2 ); 1 billion at level two, including 399 million Italian government bonds and 585 million in unlisted bank bonds issued for the most part by Italian 1 Switch operations were carried out during the year in order to moderately extend the bonds maturities: the 2 billion in BTPs were sold and immediately replaced by buying BTPs with a maximum maturity of August 2016, while the BOTs ( 1.5 billion) and the CTZs ( 0.5 billion) were replaced in the same quantities between the end of August and the end of September, but with maturities between November 2013 and April Debt instruments (both available-for-sale and held for trading) also included Asset Backed Securities (ABS) issued as part of securitisations and eligible for refinancing with the ECB. The total amount still outstanding as at 31 st December 2012, amounting to 8 million ( 8.9 million last year) consists exclusively of own securitisations (eliminated in the consolidation), relating to: - Lombarda Lease Finance 4 (ABS instruments classified as available for sale, fair value level one) amounting to 2.8 billion ( 3.9 billion in 2011); - Orio Finance (RMBS classified as held for trading, fair value level three) amounting to 5.2 million ( 5 million). The section financial activities in the consolidated management report may be consulted for further information on exposures in ABS instruments and special purpose entities (SPEs). 35*

38 banks. Lastly, there was only one security at level three, issued by Banca Lombarda Preferred Capital Company LLC for a total of 1.6 million. Equity instruments 3 fell by 85.5 million to million, mainly due to the sale of 69,207,749 Intesa Sanpaolo shares, whose value therefore fell to million from million in December The sale was made in successive stages during the last months of the year, as follows: 6,832,000 shares in September, 8,450,000 shares in October and 53,925,749 shares in December. At the end of 2012, UBI Banca held a total of 111,007,749 shares, equivalent to 0.72% of the share capital with voting rights. The disposal was authorised by the Management Board, considering the non-strategic importance of the investment, as part of a wider action to reduce the volatility of investments in listed shares. The disinvestment programme continued in 2013, with the sale of 33,400,000 shares (of which 30,900,000 in January), further reducing UBI Banca s stake to 0.50%. Regarding the other listed securities (classified within fair value level one), the value of the stake in A2A declined (from 8.25 million to 4.9 million) and a new investment was made in Visa Inc. ( 0.9 million) in July as a result of the merger of B@nca In the first two months of 2013, UBI Banca sold 8,700,000 A2A shares, thereby reducing its stake to 0.08% (equal to 2,500,000 shares). An increase of approximately 5 million was recorded in unlisted fair value level two and three equity interests 4 due to the combined effect of disposals (Siteba and Società per i Mercati di Varese, valued in December 2011 at 0.7 billion and 1.5 billion, respectively), acquisitions (European Data Warehouse Gmbh for 251 thousand) and net increases in fair value (attributable in particular to: S.A.C.B.O million; Istituto Centrale Banche Popolare million; SIA million; Autostrade Lombarde million and Autostrada Pedemontana Lombarda million). Units of O.I.C.R.s (collective investment instruments) amounted to 89.8 million, a decrease of 10.4 million over the year, due mostly to the impairment of the investment in the Centrobanca Sviluppo Impresa closed-end property fund (a decrease to 15.3 million from 26.6 million at the end of 2011, the result, amongst other things, of a partial redemption) and the Polis fund (a decrease from 12.4 million to 8.4 million). The property funds included in the portfolio totalled 15.5 million as at December 2012 (approximately 20 million twelve months earlier). Held-to-maturity investments Asset item 50, Held-to-maturity investments (HTM), are comprised of financial instruments that an entity intends and is able to hold to maturity. These assets are measured at amortised cost with the recognition of impairment losses (and recoveries in value) through profit or loss. Held-to-maturity investments: composition Fair Value Carrying amount Figures in thousands of euro L 1 L 2 L 3 Total Carrying amount Debt instruments 3,158,013 3,243, ,243,103 - of which: Italian government securities 3,158,013 3,243, ,243,103 - Financing Total 3,158,013 3,243, ,243,103-3 Shareholdings that cannot be classified as companies subject to control, joint control or significant influence, and that are not held for merchant banking and private equity activities, are also recognised here. 4 For a more accurate reclassification of unlisted equities, instruments classed as level two at 31 st December 2011 were allocated to fair value level three in December *

39 Held-to-maturity investments which had not been held since 2009 and which had not been acquired for two years in compliance with the tainting rule under IAS 39 had a carrying value of 3.2 billion as at 31 st December This total consists exclusively of BTPs for a nominal amount of 3 billion with maturity in November They were purchased in February as part of investments made at the beginning of year, as outlined above. Financial instruments held for trading Financial assets held for trading Asset item 20, Financial assets held for trading (HFT), comprises financial trading instruments used to generate a profit from short-term fluctuations in price. They are recognised at fair value through profit or loss FVPL. Definitions relating to the fair value hierarchy (levels one, two and three) are given in Section A.3 of Part A Accounting Policies in the Notes to the Financial Statements. Financial assets held for trading: composition Changes Figures in thousands of euro L 1 L 2 L 3 Total L 1 L 2 L 3 Total amount % A. On-balance sheet assets Debt instruments 3,323,666-5,224 3,328,890 2,066,558-5,029 2,071,587 1,257, % of which: Italian government securities 3,323, ,323,651 1,832, ,832,049 1,491, % Equity instruments 2,573-5,368 7, ,807 7, % Units in O.I.C.R. (collective investment instruments) - - 1,070 1, ,447 1, % Financing Total (a) 3,326,239-11,662 3,337,901 2,067,504-13,283 2,080,787 1,257, % B. Derivative instruments Financial derivatives 1,744 1,424,233-1,425, ,432,237-1,432,457-6, % Credit derivatives - - 2,285 2, ,653 2, % Total (b) 1,744 1,424,233 2,285 1,428, ,432,237 2,653 1,435,110-6, % Total (a+b) 3,327,983 1,424,233 13,947 4,766,163 2,067,724 1,432,237 15,936 3,515,897 1,250, % As at 31 st December 2012, financial assets held for trading had risen to 4.8 billion, an increase of 1.3 billion over the year, attributable to net investments in Italian government securities made in February classified within fair value level one of debt instruments. More specifically, the trend of Italian government securities during 2012 can be summarised as follows: the first quarter saw a net investment of 1 billion, the aggregate result of 1.8 billion in matured and sold BTPs and BOTs outstanding at the end of 2011 and 2.8 billion in purchases of government securities (BOTs) with a maximum maturity of December 2012; in the second quarter, an additional 1.6 billion was invested in government securities, again with a maximum maturity of December 2012; in the third quarter natural maturities prevailed together with the total disposal of outstanding instruments in order to extend their maturities (- 2.1 billion in total); lastly, in the fourth quarter, as part of a switching operation that made it possible to realise profits on sales of BTPs and BOTs totalling 1.3 billion, 2.3 billion was invested, mainly in BOTs maturing between April and December Equity instruments amounted to 7.9 million, with contrasting performances within the item: fair value level one increased by 1.6 million as a result of new equity investments, while instruments classified within fair value level three where equities held for private equity are classified decreased to 5.4 million due to impairment losses on Medinvest International ( 2.3 million held in portfolio, down from 3.3 million at the end of 2011) and Manisa Srl ( 3.1 million compared to 3.5 million previously). 37*

40 Units in O.I.C.R.s (collective investment instruments) consisting of residual investments in hedge funds purchased before 30 th June 2007 and still held decreased slightly to 1.1 million ( 1.4 million in the financial year 2011). Financial assets classified as held for trading included derivative instruments, amounting to 1.4 billion (essentially unchanged over the year), almost entirely of a financial nature 5 and classified within fair value level two, consisting mainly of contracts on interest rates for which the changes must be interpreted in relation to the corresponding item recognised within financial liabilities held for trading. Financial liabilities held for trading Financial liabilities held for trading: composition Changes Figures in thousands of euro L 1 L 2 L 3 Total L 1 L 2 L 3 Total amount % A. On-balance sheet liabilities Due to banks 1,163, ,163, , , , % Due to customers , , , % Debt instruments Total (a) 1,163, ,163, , , , % B. Derivative instruments Financial derivatives 69 1,389,220-1,389, ,409,446-1,409,633-20, % Credit derivatives Total (b) 69 1,389,220-1,389, ,409,446-1,409,633-20, % Total (a+b) 1,163,939 1,389,220-2,553, ,088 1,409,446-1,847, , % At the end of 2012, financial liabilities held for trading totalled 2.6 billion, an increase of 0.7 billion compared to the preceding year, due to the performance of on-balance sheet liabilities (+ 0.7 billion), while financial derivatives remained practically unchanged. Regarding on-balance sheet liabilities, the amounts due to customers were eliminated and there was a significant increase in amounts due to banks, which include uncovered short positions on mainly foreign French and German government securities, totalling 1,110 million ( 228 million at the end of 2011), as well as Italian government securities, totalling 54 million ( 210 million twelve months previously). Financial assets designated at fair value The item financial assets designated at fair value is comprised of financial instruments classified as such in application of the fair value option (FVO). They are composed exclusively of units in OICRs (collective investment instruments) and include the remaining units in hedge funds subscribed after 1 st July These financial assets are recognised at fair value through profit or loss. Definitions relating to the fair value hierarchy (levels one, two and three) are given in Section A.3 of Part A Accounting Policies in the Notes to the Financial Statements. 5 The residual 2.3 million, classified within fair value level three, relates to credit derivatives created as part of the complex transaction that led to the issue of preference shares. 38*

41 Financial assets designated at fair value: composition Changes Figures in thousands of euro L 1 L 2 L 3 Total L 1 L 2 L 3 Total amount % Debt instruments Equity instruments Units in O.I.C.R. (collective investment instruments) 109,664-13, , ,846-21, ,174-2, % Financing Total 109,664-13, , ,846-21, ,174-2, % As at 31 st December 2012, financial assets designated at fair value, consisting of units in OICRs (collective investment funds) classified as levels one and three, totalled million, summarising opposed trends between the various components: listed Tages funds classified within level one increased by 4.9 million over the twelve months to million, while residual investments in hedge funds, classified within fair value level three, fell by 7.7 million, partly due to redemptions during the year. With regard to hedge funds classified within fair value level three, inclusive of the remaining amount of 1.1 million recognised within financial assets held for trading, the portfolio held by UBI Banca as at 31 st December 2012 amounted to 14.8 million, compared with 22.8 million the previous year. Operating figures reveal that redemptions of more than 4 million were received during the year, net of redemption fees. For what concerns redemption applications, those same management accounting figures again show that at the end of 2012 four funds, amounting to 6.6 million, were expected to pay and/or had declared that they were implementing a deferred redemption plan (known as a "gate") as allowed for in their respective regulations and another 17 funds have created side pockets for an amount of 8.2 million. Exposure to sovereign debt risk Country / portfolio of classification figures in thousands of euro Nominal amount Carrying amount Fair value Nominal amount Carrying amount Fair value - Italy financial assets and liabilities held for trading (net exposure) available-for-sale financial assets held-to-maturity investments loans and receivables Germany financial assets and liabilities held for trading (net exposure) France financial assets and liabilities held for trading (net exposure) Holland loans and receivables Argentina financial assets and liabilities held for trading (net exposure) Total on-balance sheet exposures On 28 th July 2011, the European Securities and Markets Authority (ESMA) published document No. 2011/266 relating to information on sovereign debt risk to be disclosed in annual and half year financial reports prepared by listed companies that adopt IFRS. Details of the exposures of the UBI Banca Group are given on the basis that, according to the instructions issued by this European supervisory authority, sovereign debt is defined as debt instruments issued by central and local governments and by government entities and also as loans granted to them. The book value of sovereign debt risk exposures of UBI Banca as at 31 st December 2012 increased to almost 16 billion, a reflection of investments made by the Parent during the year. 39*

42 The exposure is almost entirely concentrated in Italy: in addition to residual financing for Italian public administrations amounting to 27 million ( 26 million in 2011), UBI Banca held Italian government securities amounting to 17 billion, of which 10.5 billion classified within available-for-sale financial assets, 3.2 billion within held-to-maturity investments and 3.3 billion within financial assets held for trading (calculated net of uncovered short positions). Regarding sovereign exposures to other countries, while the modest exposures in December 2011 to the Netherlands and Argentina were eliminated, uncovered positions were found in Germany (- 434 million) and France (- 676 million), as part of normal trading activities. The table below shows the distribution by maturity of Italian government securities held in portfolio, net of the relative uncovered short positions. The average residual maturity of the AFS portfolio is 7.6 years and that of the HTM portfolio is 1.9 years, while that for Italian government securities classified in the HFT portfolio is 0.9 years. Comparison with the comparative figures for 2011 shows the effect of the aforementioned investments made during Specifically, it shows how the increase in the size of the investment has been accompanied by the polarisation of maturities up to three years, which accounts for nearly 60% of the entire government securities portfolio. In detail: the Six months to one year category which mostly refers to the trading portfolio has moved from 10.9% to 18.1% due to purchases of securities (mainly BOTs) with maximum maturities of December 2013; the One year to three years category increased from 24.1% to 40.4% as a result of the new investments classified as held-to-maturity and the switching operations carried out to extend maturities in the available-for-sale portfolio during the second half of the year. Investments with the longest maturities (over five years) more than half of the AFS portfolio include 5.5 billion of BTPs (hedged in part by asset swaps), which account for around a third of the total portfolio (52% in December 2011). Maturities of Italian government securities figures in thousands of euro Financial assets held for trading (*) Available-forsale financial assets Held-to-maturity investments Total % Financial assets held for trading (*) Available-forsale financial assets Held-to-maturity investments Total % Up to six months 299, , % 354,245 50, , % Six months to one year 2,725, ,138-3,076, % 739, , % One year to three years 245,458 3,461,575 3,158,013 6,865, % 451,206 1,183,365-1,634, % Three years to five years - 1,208,964-1,208, % 77, , , % Five years to ten years - 3,107,723-3,107, % 208 1,590,598-1,590, % Over ten years 3 2,426,029-2,426, % 3 1,944,458-1,944, % Total 3,269,599 10,555,429 3,158,013 16,983, % 1,622,392 5,166,877-6,789, % (*) net of the relative uncovered short positions. On 12 th November 2012, the European Securities and Markets Authority (ESMA) published document No. 725/2012 aimed at improving the disclosure of financial information by the listed companies that adopt IFRS. The European supervisory authority called for greater transparency on exposures to credit risk represented by securities other than sovereign debt. Accordingly, a table summarising the total debt instruments recorded in UBI Banca s assets (available-for-sale financial assets, financial assets held for trading, loans and advances to banks, loans and advances to banks, and loans and advances to customers) is provided below. As can be seen, there is a clear predominance of securities issued by Italian banks, 4.2 billion of which subscribed as part of intragroup interbank activities. 40*

43 Moreover, corporate securities from US issuers include around 200 million for repurchases of preference shares carried out by UBI Banca as part of the Public Exchange Offers in June 2009 and March 2012 (recorded among loans and advances to customers). Finally, in order to complete the ESMA disclosure requirements, in December 2012 (as well as in December 2011), UBI Banca had no outstanding credit derivative contracts (credit default products) and was not party to Debt instruments other than government securities recognised within assets figures in thousands of euro Issuer Nationality Carrying amount Fair Value Nominal amount Corporate Italy 118, , ,381 Corporate Jersey 20,314 20,314 19,150 Corporate Holland 10,854 10,854 10,000 Corporate United States 406, , ,803 Total Corporate 555, , ,334 Banking France 56,438 56,438 50,000 Banking Germany Banking Italy 4,770,227 4,594,292 4,759,735 Banking Luxembourg 52,050 52,051 50,000 Banking United Kingdom 74,374 74,374 70,000 Banking Sweden 37,869 37,869 33,890 Total Banking 4,990,959 4,815,025 4,963,628 E.I.B. Luxembourg Total Supranational Total debt instruments 5,546,625 5,343,014 5,546,974 any transactions involving these instruments during the year to increase its exposure or to acquire protection except as stated in Part E of the notes to the financial statements, Credit Derivatives, concerning protection purchases in relation to the issuance of Preference Shares (which, moreover, are intragroup derivatives eliminated in the consolidation). 41*

44 Equity and capital adequacy The equity of UBI Banca as at 31 st December 2012, inclusive of profit for the year, amounted to 8,607.7 million, compared with 7,609.8 million at the end of As can be seen from the statement of changes in equity as at 31 st December 2012 and from the statement of comprehensive income included among the separate financial statements, the increase of million that occurred during the year is attributable to: the payment of 45 million in Valuation reserves: composition dividends from the extraordinary reserve 1 Figures in thousands of euro ; Available-for-sale financial assets -526,707-1,145,740 an increase of million in Currency translation differences other reserves, almost entirely Actuarial gains/losses for defined benefit pension plans -4,921-1,980 related to the mergers of both Special revaluation laws 29,297 29,297 B@nca 24-7 ( million) Total -502,574-1,118,666 and Silf (- 3.7 million); an aggregate increase in the valuation reserve of approximately million, consisting of million relating to available-for-sale financial assets and million relating to actuarial losses on defined benefit plans; posting of profit for the year of million. Fair value reserves for available-for-sale financial assets: composition Figures in thousands of euro Positive reserve Negative reserve Total Positive reserve Negative reserve Total 1. Debt instruments 32, , , ,187,924-1,186, Equity instruments 75,072-2,307 72,765 47,850-1,895 45, Units in O.I.C.R. (collective investment instruments) 2,232-2, ,133-5,852-4, Financing Total 109, , ,707 49,931-1,195,671-1,145,740 As shown in the table, the overall increase of 619 million in the valuation reserve for available-for-sale financial assets largely reflects the significant increase in the fair values of debt instruments in the bank s portfolio (net of tax) thanks to the improvement in financial markets that took hold from September. Specifically, the negative balance of the reserve for this category almost halved compared to the end of 2011 ( million), with over 80% of the million increase in fair values relating to Italian government securities. As a result, the reserve for government securities went from - 1,054 million at the end of 2011 to million at the end of The amount of 14.5 million in the item Transfer of negative reserves to income statement, is attributable to the sale of securities from the UBI Banca portfolio; three quarters of these securities were public debt instruments. 1 The Shareholders Meeting also approved use of the share premium reserve to provide full replenishment of the 2,713.1 million loss posted in 2011, which was entirely attributable to impairments implemented on the group s equity investments and on goodwill. 42*

45 Fair value reserves of available-for-sale financial assets: annual changes Figures in thousands of euro Debt instruments Equity instruments OICR units (collective investment instruments) Financing Total 1. Opening balances as at 1st January ,186,976 45,955-4, ,145, Positive changes 589,391 28,670 5, , Increases in fair value 574,901 27,866 2, , Transfer to income statement of negative reserves 14, ,875-17,795 - following impairment losses ,426-2,856 - from disposal 14, , Other changes Business combinations Negative changes -1,715-1,860-1, , Decrease in fair value -1, , , Impairment losses Transfer to the income statement of positive reserves , Other changes Closing balances as at 31st December ,300 72, ,707 The fair value of equity instruments increased by 27.9 million, of which 20.2 million attributable to the stake in Intesa Sanpaolo, 4.1 million to the investment in S.A.C.B.O, 1.6 million to Sia and 1.4 million to Istituto Centrale delle Banche Popolari. Such increases also include 373 thousand for the acquisition of equity in Visa Inc. following the previously reported merger of B@nca The reserve for units in O.I.C.R. virtually cancelled out the original negative value thanks to an increase of around 3 million in fair values and the transfer of 2.9 million of negative reserves to the income statement, 2.4 million of which following impairment losses, which more than offset the rather limited decreases in fair values during the year. As reported in Section 2, Part F of the notes to the financial statements, at the end of 2012 the regulatory capital of UBI Banca totalled 14,195 million, including 9,447 million of tier one capital. This compares to 12,973 million as at 31 st December, including 8,974 million of tier one capital. The absorption of capital for credit and counterparty risk, market risk and operational risk (detailed in part F of the Notes to the Financial Statements) totalled 1,344 million, to give a tier one ratio of 56.23% and a total capital ratio of 84.49%. 43*

46 Relations with companies in the Group Details of relations with companies in the Group are given in part H of the notes to the financial statements as part of the information on related parties, distinguishing between subsidiaries (fully consolidated line-by-line) and associates (consolidated using the equity method). Research & Development Information on research and development is contained in the relative section of the consolidated management report presented in the first part of this publication. Projects were carried forward on a centralised basis by the Group service company, which examines current progress in technology and studies potential applications to support corporate processes and customer relationships. The system of internal control The document Report on the corporate governance and ownership structure of UBI Banca Scpa attached to these reports may be consulted for a description of the architecture, rules and organisational units of the system of internal controls. It also gives specific information required under Art. 123 bis of the Consolidated Finance Act (Legislative Decree No. 58/1998) concerning the risk management and internal control systems that govern the financial reporting process. A description of financial risk management objectives and policies is contained in Part E of the notes to the consolidated financial statements, where details are also given on risk exposures required by Art paragraph 3, point 6-bis) of the Italian Civil Code. 44*

47 Transactions with related parties With Resolution No of 12 th March 2010 amended by the subsequent Resolution No of 23 rd June 2010 the Consob (Italian securities market authority) approved a Regulation concerning related-party transactions. The regulations concern the procedures to be followed for the approval of transactions performed by listed companies such as UBI Banca with parties with a potential conflict of interest, including major or controlling shareholders, members of the management and supervisory bodies and senior managers including their close family members. The information pursuant to article 5, paragraph 8 of the aforementioned Consob Resolution 17221/2010 and in particular that concerning transactions of greater importance concluded by UBI Banca with related parties in 2012, is reported in the consolidated management report, which may be consulted. *** In compliance with IAS 24, part H of the notes to the financial statements also provides information on balance sheet and income state transactions between UBI Banca and its related parties and those items as a percentage of the total for each item in the financial statements. Further information is given in the Report on corporate governance and the ownership structure of UBI Banca Scpa attached to these reports. 45*

48 Share Performance and Shareholder Structure Share Performance The UBI Banca share is traded on the Mercato Telematico Azionario (electronic stock exchange) of Borsa Italiana in the blue chip segment and forms part of the 40 shares in the FTSE/Mib Index. Performance comparisons for the Unione di Banche Italiane share Amounts in euro A B C D E % change A/E F % change A/F Unione di Banche Italiane shares - official price % % - reference price % % Convertible bonds 2009/2013 (1) % - - FTSE Italia All-Share index 17,175 15,999 15,185 16,999 15, % 42, % FTSE Italia Banks index 9,429 8,445 7,838 9,791 9, % 54, % Source Datastream (1) traded on the MTA (electronic stock exchange) since 20 th July 2009 (quotation on 20 th July 2009: 107,190). In 2012 the Italian stock market was affected by the volatility caused by developments of the eurozone crisis. The first part of the year was characterised by a recovery, the result of injections of liquidity by the ECB and increased confidence in Italy, which came to a halt at the end of March with the re-emergence of pressures on the sovereign debts of some countries. The situation deteriorated further in the following months, leading to increasing doubts about the viability of the single currency, due to both political instability in Greece and uncertainty over whether it would remain part of the eurozone (only partly diminished following the 18 th June elections), and the request made to the ECB by Spain (thus joining Greece, Ireland and Portugal), for banks in difficulty. In a particularly critical context, uncertainties over the implementation of the anti-spread shield, amplified by speculation, pushed Italian and Spanish spreads to new record highs in July, with further damaging effects on the already heavily depreciated prices of bank shares and government securities. It wasn t until the beginning of September, when structural measures were announced, designed to guarantee the irreversibility of the euro, that pressures on the ten-year BTP/Bund spread began to ease (pushing it below 350 basis points) and equities made a gradual and partial recovery, which included the banking sector. In the last quarter of the year, an improvement in the perceived sovereign risk of peripheral eurozone countries (due to the aid granted to Greece, the intervention to support Spanish banks and progress on European banking union, with the agreement to establish single supervision of this sector) made it possible for the FTSE Italia All-Share index to end 2012 with an improvement of 8.4% compared to the previous year. Despite the recovery in the second half of the year, the banking sector index returned to the same levels as in December The UBI Banca share, despite the lows recorded in July, increased by 12.3% over twelve months, as a result of second half performance of +40.2%, easily outperforming the benchmark for the sector (+20.3%). 46*

49 Reflecting the changes described above, the stock market capitalisation (calculated on the official price) as at 30 th December was 3.16 billion ( 2.82 billion at the end of 2011), confirming UBI Banca s position among the banking shares with the highest capitalisation, in fourth place among Italian banking groups and in first place for popular banks At European level, the UBI Banca Group lies among the top forty in the classification drawn up by the Italian Banking Association in its European Banking Report, which considers the countries of the European Monetary Union plus Switzerland Performance of the UBI Banca share since 1st July2003(*) and volumes traded Graph No 1 120,000, ,000, ,000, ,000, ,000,000 95,000,000 90,000,000 85,000,000 80,000,000 75,000,000 70,000,000 65,000,000 60,000,000 55,000,000 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000, l o g a l o g a l o g a l o g a l o g a l o g a l o g a l o g a l o g a l o g (*) reference prices in euro Volumes Performance of the FTSE Italia All Share index, the FTSE Italia Banks index and the UBI Banca share (*) since 2nd April 2007 UBI Banca FTSE Italia All Share FTSE Italia Banks amg l a s o n d g fmamg l a s o nd g fmamg l a s o nd g fmamg l a s o nd g fmamg l a s o nd g fmamg l a s o nd g fm (*) reference prices in euro Graph No. 2 In 2012 almost 1.5 billion UBI Banca shares were traded on the electronic stock exchange for a value of 4.3 billion. A total of 1.8 billion shares were traded in 2011 for 7.5 billion. 47*

50 The signs of stabilisation and normalisation emerging towards the end of the year - despite the early resignation of the government and the uncertainty on the political scene - were confirmed in the early weeks of 2013 with the return of the BTP/Bund spread to mid 2011 levels and an increase in stock market momentum led by bank shares, benefiting from a relaxation of the Basel III liquidity rules. In this context, the UBI Share price reached 4, exceeding the threshold of the last increase in the share capital, performed at a price of The Italian stock market, and the banking sector in particular, have since been affected by the clamour of some legal proceedings and uncertainty over the outcome of elections, a reversal in the trend that has in effect wiped out almost all of the progress achieved since the start of The main information concerning the UBI Banca share is summarised below, along with the principal stock market indicators which have been calculated using consolidated figures. The UBI Banca share and the main stock market indicators Number of outstanding shares at the end of year 901,747, ,746,759 Average price of the UBI share (average of the official prices quoted daily by Borsa Italiana Spa) - in euro Minimum price (recorded during trading) - in euro Maximum price (recorded during trading) - in euro Dividend per share - in euro Dividend yield (dividend per share/average price) 1.71% 1.10% Total dividends - in euro (*) 45,087, ,027, Book Value (Consolidated equity, excluding profit for the year/number of shares) - in euro Book value calculated by deducting goodw ill attributable to the shareholders of the Parent from consolidated equity - in euro Book value calculated by deducting intangible assets attributable to the shareholders of the Parent from consolidated equity - in Stock market capitalisation at the end of the year (official prices) - in millions of euro 3,160 2,815 Price / book value [stock market capitalisation at the end of the year / (consolidated equity attributable to shareholders of the Parent net of profit)] Price/book value calculated by deducting goodw ill attributable to the shareholders of the Parent from consolidated equity Price / book value calculated by deducting intangible assets attributable to the shareholders of the Parent from consolidated equ EPS - Earning per share (consolidated profit per share pursuant to IAS 33) - in euro The indicators for 2011 have been calculated using consolidated equity net of the loss for the period to give a more appropriate indication of the capital value of the share and of the price/book value. (*) The total dividend payment for 2012 was calculated on 900,546,759 outstanding shares at the date of the approval of the proposal to declare a dividend by the Board of Directors. This number includes the 16 shares issued on 5 th February 2013 as part of a conversion of the bond issue and excludes the treasury shares held in portfolio on the same date (1,700,000). The total dividend payment for 2011 was calculated on 900,546,759 outstanding shares net of treasury shares repurchased. The convertible bond UBI 2009/2013 convertibile con facoltà di rimborso in azioni : conversions and General Meeting of the Bondholders As concerns the conversion rights held by bondholders, in accordance with article 5 of the regulations for the convertible bond UBI 2009/2013 convertibile con facoltà di rimborso in azioni, 244 bonds with a nominal value of were presented for conversion in June 2012 (for a total nominal amount of 3,111). Since UBI Banca did not intend to make use of its option to settle in cash under article 7 of the regulations, on 4 th July 2012 on the basis of the new conversion ratio 1 it issued 246 shares with a nominal value of 2.5 and dividend entitlement from 1 st January 2012 and paid the 44 residual fractions in cash as provided for under Art. 6 of the Regulations. On the same date, the share capital thus rose to 2,254,367,512.50, consisting of 901,747,005 shares in total. 1 The distribution of the 2011 dividend drawn from the extraordinary reserve involved a change in the conversion ratio (originally set at one new share for each bond) to the new ratio of (rounded to 1.01) UBI Banca shares for each convertible bond with a nominal value of presented for conversion. 48*

51 Following the end of the financial year, in the month of January 2013, a further 16 bonds were presented for conversion (with a total nominal value of 204). On 5 th February, the Bank issued a corresponding 16 shares (and paid the 16 residual fractions in cash), taking its share capital to 2,254,367, (901,747,021 shares). The table that follows shows changes in the number of convertible bonds outstanding at the date of this report. "UBI 2009/2013 convertibile con facoltà di rimborso in azioni" convertible bonds 10th July 2009* 31st December st December th March 2013 Number of bonds 50,129,088 50,128,484 50,128,240 50,128,224 Nominal value (in euro) 639,145, ,138, ,135, ,134,856 * Issue date of the bond Finally, the General Meeting of the Holders of the Bonds, "UBI 2009/2013 convertibile con facoltà di rimborso in azioni", convened for 9 th July 2012 in first call and for 10 th July 2012 in second call, to appoint a common representative of the bondholders and to decide the length of the term of office and the relative remuneration was not held due to the failure to reach a quorum for the valid constitution of the meeting. An application was subsequently made by UBI Banca in accordance with the law to the competent authority to appoint a common representative. On 29 th November 2012 the Court of Bergamo appointed Avv. Umberto Ambrosoli as common representative of the bondholders, confirming the appointment that had already been made in an order dated 9 th February Report on corporate governance and the ownership structure Conversion Law No. 221 of 17 th December 2012, converting Decree Law No. 179 of 18 th October 2012 Further urgent provisions for the Country s growth (known as Development Decree 2.0) introduced Art. 23 quater, which made some significant changes to the regulatory regime for popular banks regulated by Art. 30 of the Consolidated Banking Act (Legislative Decree No. 385/1993). The most important change relates to the increase in the limit on direct or indirect shareholdings (from 0.50% to 1% of share capital), without prejudice to the power conferred by the Articles of Association to set a lower proportion, in any event not less than 0.50%. The necessary investigations are being undertaken to evaluate any changes to the Articles of Association in relation to the further changes introduced by the above provisions. *** Under Art. 120 of the Consolidated Finance Act, persons holding more than 2% of the share capital in a share issuer which has Italy as its member state of origin must notify this to the company and to the Consob (Italian securities market authority). On the basis of reports received, at the date of this report the following holdings of over 2% of the share capital of UBI Banca existed: - Fondazione Cassa di Risparmio di Cuneo, with 2.230% (notice of 2011 dividend payment); - Fondazione Banca del Monte di Lombardia, with 2.207% (notice of 2011 dividend payment); - Norges Bank (the Norwegian central bank), which on 5 th June 2012 declared that it owned 2.177% of the share capital of UBI Banca (after reporting on 14 th May 2012 that its interest had fallen to 1.934%); - Silchester International Investors LLP, which had communicated on 1 st November 2011 that it held 5.001% of the share capital of UBI Banca for asset management purposes; 49*

52 - BlackRock Inc., which declared on 11 th January 2013 that it held 5.006% of the share capital through its asset management companies (the stake previously held was 2.023% 2 ). On the basis of updates to the shareholders register, registered shareholders numbered 83,690 as at 31 st December 2012 (81,891 at the end of 2011). 3 If account is taken of the shareholders who are not listed in the shareholders register, then the total of registered and unregistered shareholders numbered 150 thousand. According to the results of the last survey of the composition of shareholders conducted in December 2012, institutional investors hold approximately 40% of the share capital, similar to the previous survey of February On the basis solely of the portion of the share capital held by institutional investors identified by name (28% of the share capital), institutional investors are distributed geographically as follows: 37% in the United Kingdom and Ireland, 6% in Italy, 26% in the rest of Continental Europe, 25% in North America and approximately 6% in the rest of the world. The report on corporate governance attached to this publication and also published on the corporate website at in the corporate governance section, under corporate documents may be consulted for other information pursuant to Art. 123-bis of Legislative Decree No. 58 of 24 th February 1998 (Consolidated Finance Act), which includes compliance with the corporate governance code for listed companies established by Borsa Italiana and public access to the relative information. THE RESIGNATIONS OF TWO MEMBERS OF THE SUPERVISORY BOARD Following the resignations tendered with effect from 29 th March 2012 by the Members of the Supervisory Board Giovanni Bazoli and Alessandro Pedersoli, in compliance with Art. 36 of Decree Law No. 201 of 6 th December 2011 converted into law with Law No. 214/2011 entitled Protection of competition and personal cross shareholdings in credit and financial markets, the shareholders meeting of UBI Banca held on 28 th April 2012 (in the absence of candidates not elected on the majority list), proceeded to fill the places on the Supervisory Board, by appointing Enrico Minelli and Armando Santus. The term of office of the new Members of the Supervisory Board, together with that of the other Members of the Supervisory Board in office, will expire on the date of the shareholders meeting on 19 th and 20 th April THE ARTICLES OF ASSOCIATION OF UBI BANCA During 2012 the Supervisory Board in accordance with article 46 of the Articles of Association and in accordance with the authorisation of the Bank of Italy has made some amendments to the Articles of Association in order to bring them into line with the legislative changes introduced by the following regulations: - gender balance in the management and supervisory bodies of companies listed in regulated markets (Law No. 120 of 12 th July 2011); - a prohibition for those occupying positions on management, supervisory and control bodies and the senior managers of enterprises or groups of enterprises operating in the credit, insurance and financial markets on accepting and occupying positions in competing enterprises or groups of enterprises (the interlocking prohibition : Art. 36 of Law No. 214 of 22 nd December 2011). Moreover a request of authorisation was submitted to the Supervisory Authorities for the implementation of Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies (Legislative Decree No. 91 of 18 th June 2012), amending some provisions of the Italian Civil Code and the Consolidated Finance Act for the purpose of incentivising and facilitating the participation of registered shareholders in company life % of share capital on the date of the report. 3 At the date of this report the number of registered shareholders had risen to 89, *

53 For more details about the changes made, see the Report on Corporate Governance and the Ownership Structure attached to this report. Treasury shares As at 31 st December 2012, UBI Banca held 1,200,000 treasury shares accounting for 0.13% of the share capital, for an amount of 4.37 million at the purchase price. These shares were purchased on the market on 12 th and 13 th July 2011 in implementation of a shareholders resolution of 30 th April 2011, which involved the purchase of treasury shares to be granted to the "top management" of the Group as part of the Group incentive schemes. Report on the admission of new registered shareholders (pursuant to Art. 2528, paragraph five, of the Italian Civil Code) The applications for registration in the shareholders register submitted for the approval of the Management Board in 2012 numbered a total of 8,081 (3,731 in 2011 and 1,206 in 2010), all fully accepted. In detail, 7,555 applications were received by banks in the Group and the remaining 526 were received through other intermediaries. Admissions of new registered shareholders were decided subject to prior assessment of the applications in compliance with articles six and nine of the Articles of Association. In compliance with article 8, paragraph 2 of those Articles of Association, it was also verified that all applicants could demonstrate that they possessed at least 250 shares of UBI Banca. Report on mutual objects (in accordance with Art of the Italian Civil Code) UBI Banca pursues the mutual objects inherent in its institutional model of organisation in a manner consistent with its strategic objectives and with the values and principles of its Code of Ethics (see also the Social Report), through initiatives to provide concessions to its registered shareholders and also through active participation in the economic and social development of the local communities in which it operates. The UBI Club initiative is of importance with regard to the first aspect. It is a set of banking and insurance concessions, reserved to registered shareholders. The banking concessions (a current account at particularly attractive conditions and discounts on other products and services such as custody accounts, Qui UBI internet banking, safe deposit boxes and payment systems) are reserved to registered shareholders who hold a current account. The insurance cover is free of charge for registered shareholders and their families (a family civil liability policy with a maximum liability limit of 100 thousand, an accident life or permanent invalidity policy for invalidity equal to or greater than 66%, a policy that pays a daily indemnity in case of hospitalisation caused by an accident, a safe withdrawal policy) and it is provided to all registered shareholders. For what concerns the social and economic development of local communities in which the bank operates, operational decisions that are taken reflect the Bank s historical mission as a Popular Bank strongly rooted in the social and economic life of the community, committed to the promotion of harmonious and lasting development, by interpreting and implementing the original co-operative objects of popular banks in a new and broader manner. This is reflected above all in the organisational model adopted that integrates different corporate histories and cultures which each have a common vocation: strongly rooted in local areas, attention to the needs of local economic and social communities and a strong orientation to serve families and small to medium-size enterprises. By bringing banks which remain operationally and legally autonomous together in a federated organisational model, the Group has expanded to cover 51*

54 almost all Italian regions with banks which originated in them and which have grown to achieve a particularly large share of branches in their provinces of origin. The role of the branch networks is emphasised in the Group s banks: their primary objective is to focus on longstanding links with local economies and communities, to conserve traditional relationships between bank and customer and to create value in society. Branches are distributed throughout the country with a strong market presence (843 branches accounting for 48.8% of Group branches) in small towns with strong local economies. A programme to streamline and optimise the geographical distribution of branches was commenced in 2010, which involved substantial changes in It is designed to consolidate the presence of individual banks with a view to achieve both savings on costs and higher standards and efficiency in customer service. In the commercial sphere, the pursuit of our mission to serve families and small-to-medium sized enterprises included a series of initiatives designed to contribute to sustainable development through co-operation with business and social protagonists in local communities (described in detail in the Social Report which may be consulted). These included the following: co-operation with trade associations and guarantee bodies that represent local communities, in order to better direct the Bank s operations to assist local business communities through convention agreements to grant ordinary and specific loans to make small to medium-sized enterprises more competitive; involvement in national and local initiatives to support families and businesses in difficulty hit by the economic crisis or natural disasters; the launch of social bonds as part of the UBI Community product range, a dedicated service model for the third sector, designed to support the growth and the development of nonprofit organisations using a subsidiarity approach, thereby preserving and further developing the Group s consolidated ability to operate in this sector, as demonstrated by its constantly higher than national average funding from and lending to it; initiatives to assist persons who experience difficulty in gaining access to banking services because of disabilities (e.g. in co-operation with ASPHI Onlus for the partially sighted) or language problems (e.g. multi-lingual services on the commercial website and multilingual support on a dedicate toll free number); a commitment to develop alternative energy sources to improve the quality of the environment in the communities in which the Group operates through a range of green financial products supplied by the network banks and through financial services provided by UBI Leasing and project finance services provided by Centrobanca (a Green Project to support the diffusion of even medium and small sized projects locally); initiatives to educate customers on environmental matters, which includes promoting electronic accounting services provided with the Qui UBI home banking service to replace hardcopy documents for current accounts and custody accounts. Attention to local needs also involves support for social, cultural, scientific, welfare and environmental initiatives: the action performed directly by the Group s network banks is flanked by initiatives by UBI Banca and by the Foundations created by the Group, the Banca Popolare di Bergamo Onlus, Fondazione Unione di Banche Italiane per Varese Onlus, Fondazione CAB - Istituto di Cultura Giovanni Folonari, Fondazione Banca San Paolo di Brescia and Fondazione Banca Popolare di Vigevano (see also the special section in the consolidated management report on social and environmental responsibility). In accordance with their Articles of Association, the principal Banks in the Group grant a part of their profits to these activities, which are allocated to a special fund administered by their respective management bodies, part of which is also allocated to the Group s foundations ( 4.1 million in 2012). Similarly, the Bank gives priority, where possible, in its sponsorship activities to promote the Bank s image, to initiatives which link its brand name with associations and personalities in the world of voluntary work, culture and sport that provide positive examples to the community. 52*

55 Action was taken in the social sphere in 2012 involving funds totalling 13.5 million, almost a quarter of which as part of long-term commitments, or recurring activities, with which the Group contributed to the life of hundreds of organisations and associations, both church associated and others, spread throughout the community, to fuel intense activity that is important to individual local areas. This is in addition to 6.1 million of donations made by various network banks to local authorities in the context of treasury and collection services, destined to their welfare programmes. Obsolete IT equipment that is still functioning well is also given to authorities and associations that request it (more than 238, personal computers in 2012 to 35 beneficiaries). De jure and delegated powers of the corporate bodies (CONSOB - Italian securities market authority - recommendation No of 20 th February 1997) Information concerning the powers of the governing bodies of Unione di Banche Italiane Scpa, as required under Consob (Italian securities market authority) Recommendation No of 20 th February 1997 is contained in the Report on corporate governance and the ownership structure of UBI Banca attached to this publication. 53*

56 Other information Litigation Information on corporate litigation currently pending concerning UBI Banca is provided in the Consolidated Management Report, which may be consulted. Tax aspects Information on tax changes that have occurred during the year and on tax litigation is provided in the Consolidated Management Report, which may be consulted. Compliance with personal data regulations With a view to simplifying personal data requirements (Art. 45), Decree Law No. 5 of 9 th February 2012 urgent measures on simplification and development (published in the Official Journal No. 33 on 9 th February 2012) subsequently converted into Law No. 35 of 4 th April 2012, abolished the obligation to prepare an annual update of the Security Programme Document pursuant to Art. 34 of Legislative Decree No. 196 of 30 th June 2003 and subsequent amendments and additions ( Privacy Code ). Nevertheless, the changes introduced did not remove the obligation to comply with "Security Measures" required under Title V of the Privacy Code, to be met by each Data Controller. In this respect UBI Banca has maintained and updated the documentation relating to the list of personal data processing activities performed in the course of its activities, the analysis of the risks affecting this data, the minimum security measures and the relevant improvement plan, implemented and/or planned assessments and checks with reference to the above measures with a view to reducing the destruction or loss of data, unauthorised access or processing that is not permitted or not in accord with the purposes for which it was collected. Specific training initiatives were also undertaken to manage the foregoing aspects. Complaints UBI Banca performs supervision and coordination activities for the complaints Receipt channels units of the Group (within the network banks and product companies). Telephone; 0.2% Following the merger with B@nca 24-7, Hardcopy; 38.6% when it assumed the role of credit card ; 61.2% issuer and acquired the retail loans portfolio, the Parent also took over the direct management of complaints from and disputes with customers having the above relationships. During 2012, 769 complaints were recorded in relation to B@nca 24-7, received through remote channels in 61% of cases, with a finding in favour of customers in 31% of cases. 54*

57 In addition to initial complaints, UBI Banca also managed cases pending with alternative dispute resolution bodies: 59 applications to the Arbitro Bancario Finanziario [Banking and Financial Arbitrator] (50 concluded by the end of the year, of which 22 in favour of the complainant) and 28 applications for mediation, of which three resulted in a settlement agreement. The profile of customers making complaints is composed mainly of existing relationships, with only 11% of complaints received from non-customers. 50% 45% 40% 35% 30% 25% 20% 17% Complaints - by underlying grounds 45% The structure by product and/or service underlying the complaints highlights the specific character of the operations: 50.2% of the complaints relate to loans and mortgages, while 49.4% relates to credit and debit cards. 15% 10% 5% 0% 11% 12% 0% 3% 4% 0% 0% 8% The specific nature of the business areas also had an effect on the reasons underlying the complaints, with a significant concentration on frauds and losses (45%), closely linked with the role of credit card issuer. 55*

58 Principal risks and uncertainties to which UBI Banca is exposed UBI Banca, as the Parent Bank, plays a leading role in the process of assessing capital adequacy at consolidated level (ICAAP Internal Capital Adequacy Assessment Process) and it also performs centralised functions of risk measurement, monitoring and management detailed in the consolidated report on operations, which therefore may be consulted for a precise description and for details of the principal uncertainties. The merger of Banca 24-7 and some of the lines of business previously attributed to it, caused the credit risk of UBI Banca to increase, without affecting its capital strength. Subsequent events and the business outlook The main significant events occurring after the end of the year are reported in the notes to the financial statements (Part A Accounting Policies), in compliance with Bank of Italy Circular No. 262 of December 2005 and subsequent amendments. The corresponding section of the Consolidated Management Report may be consulted for information on the business outlook. 56*

59 Proposal for the allocation of profit for the year and dividend distribution. Dear Registered Shareholders, In compliance with Art bis of the Italian Civil Code and article 52 of the Articles of Association, we submit the following proposal for the allocation of profit and the declaration of a dividend: Profit (loss) for the year Euro 223,496, % to the legal reserve Euro -22,349, share allocated to the extraordinary reserve Euro -157,700, Remaining profit Euro 43,446, available for charitable, humanitarian, social, cultural and artistic purposes pursuant to Art. 52 of the Articles of Association Euro -651, Euro 42,795, change in the share allocated to the unavailable reserve pursuant to Art. 6, Legislative Decree No 38/2005 (*) Euro 2,285, from retained profit Euro 20, Distributable profit Euro 45,100, Euro 0.05 on each of the 901,747,021 ordinary shares with dividend entitlement 1st January 2012 (**) Euro -45,087, to retained profit Euro 13, b (*) Net gains relate to non-negotiable financial instruments. (**) Total outstanding shares at the date of the Management Board s decision. The dividend will paid on the number of outstanding shares on the ex dividend date, excluding treasury shares held in portfolio on the same date (1,700,000 on the date of this report). The Management Board has passed a resolution to submit a proposal to a shareholders meeting to distribute a dividend of 0.05 on each of the ordinary shares outstanding on the ex dividend date, (excluding treasury stock held in portfolio on that date, for which the share of the dividends will be allocated to the reserve), after the provisions required by the law and the allocation of million to the extraordinary reserve. That allocation is designed both to fully reconstitute the reserve, after its use for the distribution of the 2011 dividend and above all to strengthen capital in view of prudentials regulations governing of capital. The number of shares outstanding on the ex dividend date also includes shares with dividend entitlement from 1 st January 2012, issued on 5 th February 2013 following the exercise of conversion rights by some subscribers of the bond UBI 2009/2013 convertibile con facoltà di rimborso in azioni in accordance with article 5, paragraph 8, and article 8 of the regulations for that bond. Dividend payments, if approved, will be paid from 23 rd May against coupon No with the ex dividend date on 20 th May and the record date on 22 nd May. As a result of the tax reform which came into force on 1 st January 2004, there is no tax credit on the dividend and, depending on who receives it, it is either subject to a withholding tax or part of it constitutes taxable income 1. The total dividend payment will amount to 45.1 million drawn on the profit of the Parent after the allocations required by law and the Articles of Association. Bergamo, 12 th March 2013 The Management Board 1 From a tax viewpoint: - pursuant to Ministerial Decree of DM 2/4/2008, the entire amount of the unit dividend is considered as drawn from profits earned up until the financial year in progress as at 31 st December 2007 and therefore forms part of taxable income (IRPEF) on income tax for resident private individuals, who are holders of qualifying investments, for resident sole proprietors and partnerships for 40% of the amount. - in the case of recipients not resident for tax purposes in Italy, for the purposes of the application of the withholding tax at source of 1.375% for non resident companies and entities indicated in Art. 27, paragraph 3 ter of Presidential Decree No. 600/73, it is considered that the entire amount of the unit dividend is drawn from profits earned during the financial year following that in progress as at 31 st December *

60 STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND OF THE SENIOR OFFICER RESPONSIBLE FOR PREPARING THE COMPANY ACCOUNTING DOCUMENTS 58*

61 Certification of the separate financial statements pursuant to Art. 81-ter of the Consob Regulation 14th May 1999, No and subsequent modifications and integrations 1. The undersigned Victor Massiah, Chief Executive Officer, and Elisabetta Stegher, Senior Officer Responsible for preparing the company accounting documents of UBI Banca Scpa, having taken account of the provisions of paragraphs 3 and 4 of article 154 bis of Legislative Decree No. 58 of 24th February 1998, hereby certify: the adequacy in relation to the characteristics of the company and the effective application of the administrative and accounting procedures for the preparation of the separate financial statements during the course of The model employed The assessment of the adequacy of the administrative and accounting procedures for the preparation of the separate financial statements as at and for the year ended 31st December 2012 was based on an internal model defined by UBI Banca Scpa and developed in accordance with the framework drawn up by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and with the framework Control Objectives for IT and related technology (COBIT) which represent the generally accepted international standards for internal control systems. 3.Furthermore, it is certified that: 3.1 the separate financial statements: a) were prepared in compliance with the applicable international financial reporting standards recognised by the European Community in accordance with the Regulation No. 1606/2002 (EC) issued by the European Parliament on 19th July 2002; b) correspond to the records contained in the accounting books; c) give a true and fair view of the capital, operating and financial position of the issuer. 3.2 the management report comprises a reliable analysis of the performance, operating results and position of the issuer, together with a description, insofar as they are known, of the main risks and uncertainties to which they are exposed. Bergamo, 12th March 2013 Victor Massiah Chief Executive Officer (signed on the original) Elisabetta Stegher Senior Officer Responsible for preparing the company accounting (signed on the original) 59*

62 60* AUDITORS REPORT

63

64

65 Separate Financial Statements

66 Balance sheet (Amounts in euro) ASSETS Cash and cash equivalents 203,441, ,014, Financial assets held for trading 4,766,162,654 3,515,897, Financial assets designated at fair value 123,381, ,173, Available-for-sale financial assets 11,955,355,919 6,705,814, Held-to-maturity investments 3,158,013, Loans and advances to banks 15,830,498,053 30,224,289, Loans and advances to customers 22,584,746,524 15,692,663, Hedging derivatives 925,692, ,454, Fair value change in hedged financial assets 196,827, Equity investments 10,911,720,906 10,889,970, Property, plant and equipment 586,806, ,655, Intangible assets 409, , Tax assets: 1,605,830,111 1,776,186,585 a) current 412,799, ,689,352 b) deferred 1,193,030,465 1,507,497,233 b1) pursuant to Law 214/ ,811,489 1,021,806, Non-current assets and disposal groups held for sale 2,328, ,301, Other assets 485,038, ,382,856 Total assets 73,336,253,827 70,895,253,082 LIABILITIES AND EQUITY Due to banks 28,081,434,487 24,228,129, Due to customers 7,897,194,935 8,022,863, Debt securities issued 23,405,765,186 27,200,141, Financial liabilities held for trading 2,553,158,583 1,847,533, Hedging derivatives 1,307,735, ,023, Tax liabilities: 230,963, ,940,430 a) current 165,766, ,622,090 b) deferred 65,197,558 73,318, Other liabilities 1,168,382, ,612, Post employment benefits 43,612,449 38,826, Provisions for risks and charges: 40,286,113 20,352,491 b) other provisions 40,286,113 20,352, Valuation reserves (502,574,408) (1,118,666,087) 160. Reserves 1,919,944,736 1,761,644, Share premiums 4,716,861,355 7,429,912, Share capital 2,254,367,512 2,254,366, Treasury shares (4,375,290) (4,375,290) 200. Profit (loss) for the year 223,496,468 (2,713,053,965) Total liabilities and equity 73,336,253,827 70,895,253,082 65* Notes to the separate financial statements

67 Income Statement (Amounts in euro) Interest and similar income 1,315,832,786 1,135,911, Interest expense and similar (1,342,603,532) (1,331,131,806) 30. Net interest (expense) income (26,770,746) (195,220,735) 40. Fee and commission income 75,983,474 27,929, Fee and commission expense (88,193,993) (14,845,971) 60. Net fee and commission (expense) income (12,210,519) 13,083, Dividends and similar income 339,095, ,419, Net trading income (loss) 77,473,667 (8,060,690) 90. Net hedging income 12,942,132 18,823, Income from disposal or repurchase of: 156,086,456 22,650,082 a) loans and receivables 1,741,090 (38) b) available-for-sale financial assets 140,036,108 8,562,778 d) financial liabilities 14,309,258 14,087, Net income (loss) on financial assets and liabilities designated at fair value 1,203,184 (38,848,617) 120. Gross income 547,820, ,846, Net impairment losses on: (110,347,940) (127,952,865) a) loans and receivables (67,600,361) (1,056,945) b) available-for-sale financial assets (53,289,858) (120,059,444) d) other financial transactions 10,542,279 (6,836,476) 140. Net financial income 437,472,108 38,893, Administrative expenses (331,771,935) (227,510,242) a) staff costs (157,102,885) (114,549,273) b) other administrative expenses (174,669,050) (112,960,969) 160. Net provisions for risks and charges (11,106,456) (594,979) 170. Net impairment losses on property, plant and equipment (24,137,573) (24,874,928) 180. Net impairment losses on intangible assets (38,400) (21,099,674) 190. Other operating income/(expense) 125,404,039 95,275, Operating expenses (241,650,325) (178,803,893) 210. Losses of equity investments (23,508,392) (2,507,432,209) 230. Net impairment losses on goodwill - (521,244,521) 240. Profits on disposal of investments 40,318 60, Profit (loss) from continuing operations before tax 172,353,709 (3,168,526,924) 260. Taxes on profit for the year from continuing operations 51,142, ,451, Post tax profit (loss) from continuing operations 223,496,468 (2,713,075,747) 280. Post-tax profit from discontinued operations - 21, Profit (loss) for the year 223,496,468 (2,713,053,965) 66* Notes to the separate financial statements

68 Statement of comprehensive income (Amounts in euro) Profit (loss) for the year 223,496,468 (2,713,053,965) Other comprehensive income net of taxes 20. Available-for-sale financial assets 619,033,350 (888,934,413) 90. Actuarial losses on defined benefit plans (2,838,130) (890,260) 110. Total other comprehensive income (loss) net of taxes 616,195,220 (889,824,673) 120. Comprehensive income (loss) (item ) 839,691,688 (3,602,878,638) The profit recognised for other comprehensive income is principally attributable to the improvement in fair value reserves for Italian government securities classified within item 40 available-for sale financial assets. Details of the various items are given in the notes to the detailed statement given in Part D Comprehensive Income. 67* Notes to the separate financial statements

69 Statement of changes in equity 31 st December 2012 Amounts in euro Balances as at Restatement of opening balances Balances as at Allocation of prior year profit Reserves Dividends and other uses Changes in reserves New share issues Repurchase of treasury shares Changes during the year Equity transactions Extraordinary distribution of dividends Change in equity instruments Derivatives on treasury shares Stock options Comprehensive income Equity as at Share capital: 2,254,366,897 2,254,366, ,254,367,512 a) ordinary shares 2,254,366,897-2,254,366, ,254,367,512 b) other shares Share premiums 7,429,912,824-7,429,912,824-2,713,053, , ,716,861,355 Reserves: 1,761,644,380 1,761,644, ,027, ,327,694-1,919,944,736 a) profit related b) other 1,528,839,090-1,528,839, ,027, ,483,811, ,805, ,805, ,327, ,132,984 Valuation reserves: -1,118,666,087-1,118,666, , ,195, ,574,408 a) available-for-sale -1,145,740, ,145,740, ,033, ,706,935 b) cash flow hedge c) foreign currency differences , , ,544 d) special revaluation laws 29,297,305-29,297, ,297,305 e) other -1,980, ,980, , ,838,130-4,922,234 Equity instruments Treasury shares -4,375, ,375, ,375,290 Profit (loss) for the year -2,713,053, ,713,053,965 2,713,053, ,496, ,496,468 Equity 7,609,828,759-7,609,828, ,027, ,224,153 3, ,691,688 8,607,720,373 The statement of changes in equity used for the preparation of these financial statements incorporates the changes resulting from the introduction of the EU Regulation No. 1274/2008. More specifically, the column comprehensive income has been inserted. Greater details on the item Valuation reserves point a) available-for-sale are given in Part D - Detailed statement of comprehensive income. 68* Notes to the separate financial statements

70 Statement of changes in equity 31 st December 2011 Amounts in euro Balances as at Restatement of opening balances Balances as at Allocation of prior year profit Reserves Dividends and other uses Changes in reserves New share issues Repurchase of treasury shares Changes during the year Equity transactions Extraordinary distribution of dividends Change in equity instruments Derivatives on treasury shares Stock options Comprehensive income Equity as at Share capital: 1,597,864,755 1,597,864, ,502,142 2,254,366,897 a) ordinary shares 1,597,864,755-1,597,864, ,502, ,254,366,897 b) other shares Share premiums 7,100,378,060-7,100,378, ,534, ,429,912,824 Reserves: 1,572,877,892 1,572,877, ,325,907-2,440,581-1,761,644,380 a) retained earnings b) other 1,340,246,318-1,340,246, ,325,907-2,266, ,528,839, ,631, ,631, , ,805,290 Valuation reserves: -226,574, ,574,549-2,266, ,824,673-1,118,666,087 a) available-for-sale -256,805, ,805, ,934,413-1,145,740,285 b) cash flow hedge c) foreign currency differences , , ,544 d) special revaluation laws 29,297,305-29,297, ,297,305 e) other 1,176,562-1,176, ,266, ,260-1,980,563 Equity instruments Treasury shares ,375, ,375,290 Profit (loss) for the year 283,720, ,720, ,325,907-97,394, ,713,053,965-2,713,053,965 Equity 10,328,266,465-10,328,266, ,394, , ,036,906-4,375, ,602,878,638 7,609,828,759 The statement of changes in equity used for the preparation of these financial statements incorporates the changes resulting from the introduction of the EU Regulation No. 1274/2008. More specifically, the column comprehensive income has been inserted. 69* Notes to the separate financial statements

71 Statement of cash flows (indirect method) amounts in euro A. OPERATING ACTIVITIES 1. Ordinary activities 267,553, ,608,440 - profit (loss) for the year (+/-) 223,496,468-2,713,053,965 - gains/losses on financial assets held for trading and financial assets/liabilities designated at fair value (-/+) -33,625,507 89,092,912 - gains/losses on hedging activities (-/+) -12,942,132-18,823,139 - net impairment losses on loans (+/-) 110,347, ,952,865 - net impairment losses on property, plant and equipment and intangible assets (+/-) 24,175,973 45,974,602 - net provisions for risks and charges and other expense/income (+/-) 11,106, ,979 - outstanding taxes and duties (+) -51,142, ,442,915 - net impairment losses on groups of assets held for disposal net of tax (+/-) other adjustments (+/-) -3,862,499 3,196,313, Net cash flows from/used by financial assets 10,228,015,686-3,635,415,268 - financial assets held for trading -1,223,614, ,958,704 - financial assets designated at fair value 1,429,411-19,681,836 - available-for-sale financial assets -4,227,165, ,595,372 - loans to banks: repayable on demand loans to banks: other loans 14,290,188,024-1,726,103,186 - loans to customers 1,128,335,503-1,182,404,635 - other assets 258,842, ,671, Net cash flows from/used by financial liabilities -7,570,826,006 2,235,878,066 - amounts due to banks repayable on demand amounts due to banks: other payables 3,005,284,499 1,635,610,008 - due to customers -116,246,029-3,380,337,590 - debt securities issued -9,774,407,345 3,260,197,698 - financial liabilities held for trading 676,571, ,965,563 - financial liabilities designated at fair value other liabilities -1,362,028, ,442,387 Net cash flows from/used by operating activities 2,924,743,621-1,126,928,762 B. INVESTING ACTIVITIES 1. Cash flows from 375,732, ,748,697 - disposals of equity investments 50,367,337 5,038,230 - dividends received on equity investments 325,323, ,774,930 - disposals of held-to-maturity investments disposals of plant. property and equipment 40, ,537 - disposals of intangible assets disposals of subsidiaries Cash flows used in -3,236,030, ,132,840 - purchases of equity investments -46,352, ,504,547 - purchases of held-to-maturity investments -3,188,072, purchases of plant, property and equipment -1,605,311-2,628,293 - purchases of intangible assets purchases of lines of business - - Net cash flows from/used in investing activities -2,860,298, ,615,857 C. FINANCING ACTIVITIES - issues/purchases of treasury shares 3, ,661, issues/purchases of equity instruments distribution of dividends and other uses -45,027,338-97,394,400 Net cash flows from/used in financing activities -45,024, ,267,217 CASH FLOWS GENERATED/USED DURING THE YEAR 19,421,378-11,045,688 Key: (+) generated (-) absorbed 70* Notes to the separate financial statements

72 Reconciliation of the statement of cash flows Balance sheet items Cash and cash equivalents at the beginning of the year 184,014, ,060,106 Business combination transactions 5,847 - Total net cash flows from/used during the year 19,421,378-11,045,688 Cash and cash equivalents: effect of changes in exchange rates - - Cash and cash equivalents at end of year 203,441, ,014,418 71* Notes to the separate financial statements

73 Part A Accounting policies A.1 General part A.2 Main balance sheet items A.3 Information on fair value Part B Notes to the Balance Sheet Assets Liabilities Other information Part C Notes to the Income Statement Part D Comprehensive income Part E Information on risks and the relative hedging policies Part F Information on equity Notes to the Separate Financial Statements Part G Business combination transactions concerning companies or lines of business Part H Transactions with related parties Part I Share based payments Part L - Segment Reporting The figures contained in the tables in the Notes to the Separate Financial Statements are stated in thousands of euro, unless specified otherwise. 72* Notes to the separate financial statements

74 Part A - Accounting policies A.1 GENERAL PART Section 1 Statement of compliance with IFRS This annual report of Unione di Banche Italiane has been prepared in compliance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and with the relative interpretations of the International Financial Reporting Interpretations Committee (IFRIC) 1 as endorsed by the European Commission and in force as at 31 st December 2012, implemented in Italian law by Legislative Decree No. 38/2005, which exercised the option under EC Regulation 1606/2002 concerning international accounting standards. No exceptions have been made in the application of IFRS international accounting standards. The separate financial statements, consisting of the balance sheet, income statement, statement of comprehensive income, statement of cash flows, statement of changes in equity, the notes to the financial statements and the report on operations, constitute the separate company report of the UBI Banca Scpa, the Parent of the Unione di Banche Italiane banking Group. The proposed annual financial statements approved by the Management Board on 12 th March 2013 and submitted to the Supervisory Board for approval on 27 th March 2013, contain a statement by the Chief Executive Officer and the Senior Officer Responsible pursuant to Art. 154 bis of Legislative Decree No. 58/1998 and they have been subjected to audit by the independent auditors Deloitte & Touche Spa, in implementation of a shareholders' resolution of 30 th April 2011, which engaged this firm until the preparation of the financial statements as at and for the year ended 31 st December Section 2 Basis of preparation These financial statements have been prepared in accordance with measurement criteria, adopted on the basis of a going concern assumption and in compliance with the accrual accounting principles, the relevance of the information and the predominance of substance over form. The financial statements have been clearly stated and give a true and fair view of the capital and financial position, the result for the year, the changes in equity and the cash flows. Unless otherwise indicated, the information contained in this annual report is expressed in euro as the accounting currency and the financial information, the balance sheet and income statement, the notes and comments and the explanatory tables are presented in thousands of euro. The relative rounding of the figures has been performed on the basis of Bank of Italy instructions. The mandatory financial statements used in this annual report comply with those defined in Bank of Italy Circular No. 262/2005 and subsequent amendments and additions. In addition to information on the accounts as at and for the period ended 31 st December 2012, they also provide the same comparative information as at and for the year ended 31 st December 2012 (which did not require adjustments with respect to the figures published in 1 See the List of IAS/IFRS standards endorsed by the European Commission. The standards listed there and the relative interpretations are applied on the basis of events occurring that are disciplined by them from the date on which their application becomes compulsory, unless specified otherwise. 73* Notes to the separate financial statements

75 those financial statements) and they do not include items for which there was no data for the current and the previous year. For the purposes of preparing this report, the Bank complied with the provisions indicated in the following addendum letters issued by the Bank of Italy, with which the supervisory bodies provided replies to requests for clarifications received and also required further reporting obligations: letter No /12 of 10 th February 2012; letter No /12 of 7 th March 2012; letter No /12 of 23 rd March 2012; letter No /12 of 7 th August 2012; letter No /13 of 15 th January The corresponding section of Part A.1 in the Consolidated Annual Report may be consulted with regard to the application of the provisions of letter No /12 of 7 th August 2012 concerning contingent assets. To complete the information, account was also taken of the following documents in the preparation of this separate annual report: joint document No. 5 issued by the Bank of Italy/Consob/Isvap on 15 th May 2012 on the accounting treatment for tax assets resulting from Law No. 214/2011; the ESMA 2 document of 12 th November 2012, European common enforcement priorities for 2012 financial statements designed to promote uniform application of IFRS by identifying subjects considered particularly significant for the financial statements of listed European companies, in consideration, amongst other things, of current market conditions. Accounting policies The accounting policies contained in Part A.2 concerning the classification, measurement and derecognition stages are the same as those adopted for the preparation of the 2011 annual financial statements except for possible changes reported under Other aspects in Part A.1 of the consolidated financial statements. Where it is impossible to measure items in the financial statements with precision, the application of those policies involves the use of estimates and assumptions which may even have a significant effect on the amounts recognised in the balance sheet and in the income statement. The use of reasonable estimates forms an essential part of the preparation of financial statements and we have listed here those items in the financial statements in which the use of estimates and assumptions is most significant: measurement of loans and receivables; measurement of financial assets not listed on active markets; measurement of indefinite useful life intangible assets and equity investments; quantification of provisions for risks and charges; quantification of deferred taxes; definition of the depreciation and amortisation charges for property, plant and equipment and intangible assets with finite useful lives; valuation of the provision for post-employment benefits. An adjustment may be made to an estimate following a change in the circumstances on which it was based or if new information is acquired or yet again on the basis of greater experience. A change in an estimate is applied prospectively and it therefore generates an impact on the income statement in the year in which it is made and, if it is the case, also in future years. 2 European Securities Market Authority. 74* Notes to the separate financial statements

76 No changes were made in the 2012 to the criteria previously employed for estimates in the financial statements as at and for the year ended 31 st December The corresponding section of Part A.1 in the Consolidated Annual Report may be consulted with regard to regulatory changes in IFRS. Section 3 Subsequent events With regard to the provisions of IAS 10, subsequent to 31 st December 2012, the reporting date, and until 12 th March 2013, the date on which the proposed Annual Report was authorised by the Management Board for submission to the Supervisory Board, no events occurred to make adjustments to the figures presented in the report necessary. For information purposes, the following events are mentioned: 2 nd January 2013: UBI Banca fully subscribed the first 300 million tranche of the capital increase for UBI Leasing approved by a resolution of an extraordinary general meeting of the company on 30 th November 2012 (see the section the Scope of consolidation in the consolidated management report for further information); 6 th February 2013: as already reported in the consolidated management report, which may be consulted, the relative corporate bodies of the UBI Banca Group commenced the project to merge Centrobanca into UBI Banca. The relative trade union negotiations began on the following 28 th February; 12 th February 2013: the verification stage with trade unions was completed concerning the plan for redundancies and the reduction/suspension of working hours in accordance with the Framework Agreement signed on 29 th November In view of the applications received for early retirement, the Parent signed a supplementary agreement with trade union organisations which involves the acceptance of additional applications with respect to the 650 planned at Group level, to give a total of 736 staff leaving on redundancy schemes by the end of the first quarter of In the specific case of UBI Banca, all of the 55 applications received were fully accepted (originally 41 had been planned in the Framework Agreement). In consideration of the greater number of redundancies agreed at consolidated level, 43 young people will be recruited in addition to the 240 already planned, again in the period 2013 to The section Significant events that occurred during the year contained in the consolidated management report may be consulted for further information. That section also gives information on the costs and benefits expected from the agreements entered into; 28 th February 2013: in implementation of a shareholders' resolution approved on 28 th April 2012 concerning the purchase of treasury shares for use in the incentive scheme for the Top Management of the Group, UBI Banca proceeded to purchase a total of 500,000 treasury shares. The purchases were made at an average price of per share. The transactions were performed on the regulated market in compliance with the limits set in the shareholders authorisation, with the provisions of the law and the regulations applicable, inclusive of EC Regulation 2273/2003, and with admissible market practices. As a result of those purchases UBI Banca now holds a total of 1,700,000 treasury shares, accounting for approximately 0.19% of the current share capital. 75* Notes to the separate financial statements

77 Section 4 Other aspects Impairment losses on available-for-sale equity instruments The fair valuation of available-for-sale equity instruments in 2012 resulted in recognition of impairment losses through profit and loss of 53.3 million, in accordance with accounting standard IAS 39. With regard to shareholdings in particular, for which impairment losses of 36.7 million were recognised, the main write-downs related to the following shares: Intesa Sanpaolo Spa: 30.8 million; A2A Spa: 3.5 million. The remaining impairment losses, totalling 19 million, were attributable mainly to investments in O.I.C.Rs (collective investment instruments) and in the Centrobanca Sviluppo Impresa Fund in particular. To complete the information, in compliance with the aforementioned accounting standard, any reversals of losses are recognised in a separate valuation reserve in equity. Leaving incentives Company reorganisation The plan to revise the organisational structure is described in the section Significant events that occurred during the year in the Management Report. The procedures relating to the trade union negotiations were concluded on 29 th November 2012, with an agreement containing provisions which basically involve a reduction in staff numbers and recourse to flexible working and reductions in working hours and temporary lay-offs from work, with the latter financed partially by use of the National Income Support Fund. Subsequently, the talks with the trade unions to confirm the redundancy incentive plan and reduction in working hours and temporary lay-offs from work pursuant to the above agreement ended on 13 th February 2013, and a supplement was signed to the agreement extending the number of applications from that originally provided for. As far as the purely accounting-related aspects of the operation are concerned, after a discounting effect of 0.3 million, an expense totalling 27.7 million was recognised under Staff costs in the income statement for Transformation of deferred tax assets (DTA) into tax credits As already reported in the interim report as at and for the period ended 30 th June 2012, under specific operating and financial conditions i.e. losses in the statutory financial statements Decree Law No. 225/2010, converted with amendments into Law No. 10/2011, allows companies to transform deferred tax assets recognised in their financial statements into tax credits, but only in the following cases: deferred assets relating to excesses in the write-downs of loans and receivables (article 106 of the Consolidated Income Tax Act); deferred assets relating to realignments of intangible assets such as goodwill and brands (article 15, paragraphs bis and 10-ter of Decree Law No. 185/2008). The above-mentioned law was subsequently added to by Law No. 214/2011, which extended the ability to convert deferred tax assets to include situations of tax losses, albeit following different procedures, even where the statutory accounts showed profits. The matter is regulated from an accounting viewpoint by joint document No. 5 issued by the Bank of Italy/Consob/Isvap on 15 th May , which states that the tax rules cited basically confer certainty on the recovery of the deferred tax assets, by considering that the probability test mentioned in IAS 12, paragraph 24 is automatically passed. According to that test deferred tax assets may only be recognised if it is probable that taxable income will be earned against which the asset may be used. 3 In this regard, in Letter No /12 of 21 st December 2012, the Bank of Italy also provided clarifications on the treatment of prepaid taxes for regulatory capital purposes in the light of the rules governing the conversion of tax credits in question. 76* Notes to the separate financial statements

78 As a consequence, the effects of the tax rules do not cause any change in the accounting classification of the deferred tax assets, which continue to be recognised within tax assets for prepaid taxes until the time of conversion, which transforms them into Current tax assets in accordance with the provisions of Decree Law No. 225/2010 and without generating any impacts on the income statement. As a result of the loss recorded in the financial statements in 2011, the Bank transformed million in deferred tax assets into tax credits, which were partly used during the year to offset payments due to the tax authorities totalling million. Therefore the residual amount of the tax credit resulting from the conversion of deferred tax assets stated under item 140 of the balance sheet Tax assets a) current recognised in the balance sheet as at 31 st December 2012 was 86.1 million. Recognition of credit for the corporate income tax (IRES) refund of local production tax (IRAP) on the cost of labour As mentioned in the interim report as at and for the year ended 30 th June 2012, Decree Law No. 201 of 6 th December 2011, the Salva Italia (Save Italy) Decree Law, converted with amendments by Law No. 214 of 22 nd December 2011, and Decree Law No. 16 of 2 nd March 2012, the Tax Simplifications Decree, respectively made it possible: a) to fully deduct the IRAP due in relation to expenses on employees and similar personnel, net of the relevant deductions, from the income subject to IRES for the 2012 tax year; b) to apply for IRES refunds, recalculated as a result of the deductibility of IRAP on the cost of labour, for prior years ( ). On 17 th November 2012 the tax authorities issued provision No. 2101/ approving the procedure and instructions for applying for refunds for tax periods prior to the current period ending on 31 st December 2012, pursuant to article 2, paragraph 1-quater of Decree Law No. 201/2011. In view of the above, in the 2012 financial statements, a credit was recognised within balance sheet item 140 Tax assets, against the recognition of lower taxation amounting to 3.3 million within item 290 of the income statement. This represents the amount that it will be possible to claim back as a refund for the tax years. To complete the information, the credit in question has not been discounted, because the relative refund dates are not known. Government-backed bonds The above-mentioned Salva Italia Decree (converted by Law No. 22 of December 2011) introduced the possibility until 30 th June 2012 for Italian banks to receive a government guarantee underwriting bonds issued with maturities of between three months and five years, or from 1 st January 2012 of up to seven years for covered bonds. UBI Banca took up the government initiative, issuing four bonds with government guarantees for a total of 6 billion nominal, of which 4 billion were three-year bonds and the remaining 2 billion were five-year bonds. After the bond issue, UBI Banca bought back the securities, which have the requisites to be used as assets eligible for refinancing with the European Central Bank. This buyback meant that the bonds issued were derecognised in the financial statements. The issue of a government guarantee involved payment of commission amounting to 42.8 million recognised under item 50 Commission expenses. Classification of financial assets as Held-to-maturity investments This year, as part of the asset liability management strategy, government securities were purchased which met the requirements of IAS 39 for classification in the held-to-maturity portfolio (HTM). These financial instruments were therefore recognised in the financial statements under item 50 "Held-to-maturity investments, for an amount of approximately 3,158 million. 77* Notes to the separate financial statements

79 The category in question became newly available after the two-year period specified by the tainting rule in force since 31 st December 2009, the date on which a considerable part of the HTM portfolio was sold. This involved reclassifying the assets in the HTM portfolio that were not sold under AFS, pursuant to the provisions of the standard, and meant that no financial instruments could be classified in the HTM portfolio until 31 st December Option for tax consolidation The Consolidated Income Tax Act (TUIR) allows companies belonging to the same group to calculate a single overall global income, which corresponds generally speaking with the sum of the taxable income of the various companies (parent companies and companies directly and/or indirectly majority owned according to specific requirements), and therefore to calculate a single income tax payment for the companies in the Group ("national tax consolidation, as regulated by articles of the TUIR). As a result of this option, almost all the Italian companies in the Group were included in national tax consolidation under the Parent, UBI Banca. As a consequence, the tax liabilities of the companies included in the consolidation were calculated according to the abovementioned law. 78* Notes to the separate financial statements

80 A.2 THE MAIN ITEMS IN THE FINANCIAL STATEMENTS 1.Financial assets and liabilities held for trading and financial assets and liabilities designated at fair value 1.1. Definition of financial assets and liabilities held for trading A financial asset or liability is classified as held for trading (at fair value through profit or loss FVPL) and is stated within either item 20 Financial assets held for trading or item 40 Financial liabilities held for trading, if it is: acquired or incurred for sale or repurchase in the short term; part of a portfolio of identified financial instruments which are managed together and for which there is evidence of a recent and effective strategy of short term profit taking; a derivative (except for derivatives designated and effective as a hedging instrument see the relative section below) Derivative financial instruments A derivative is defined as a financial instrument or other contract with the following characteristics: its value changes in response to the change in an interest rate, in the price of a financial instrument, in a commodity price, in a foreign currency exchange rate, in a price, interest rate or credit rating index, or credit worthiness index or other specific variable; it requires no initial investment, or a net initial investment that is smaller than would be required for other types of contract from which a similar response to changes in market factors would be expected; it is settled at a future date. The Bank holds derivative financial instruments for both trading and for hedging purposes (see the relative section below for information on the latter) Embedded derivative financial instruments An "embedded derivative financial instrument" is defined as a component of a hybrid (combined) instrument which also includes a host non derivative contract such that some of the cash flows of the combined instrument behave in a way similarly to the derivative as a stand-alone instrument. The embedded derivative is separated from the host contract and treated in the accounts as a stand-alone derivative if and only if: the economic risks and characteristics of the embedded derivative are not closely related to the economic risks and characteristics of the host contract; a separate instrument with the same conditions as the embedded derivative would satisfy the definition of a derivative; the hybrid (combined) instrument is not recognised within financial assets or liabilities held for trading Definition of financial assets and liabilities designated at fair value Financial assets or liabilities may be designated on initial recognition within financial assets and liabilities at fair value and recorded within items 30 Financial assets designated at fair value and 50 Financial liabilities designated at fair value. A financial asset/liability is designated at fair value through profit or loss on initial recognition only when: a) it is a hybrid contract containing one or more embedded derivatives and the embedded derivative significantly alters the cash flows that would otherwise be generated by the contract; 79* Notes to the separate financial statements

81 b) the designation at fair value through profit or loss allows better information to be provided because: it eliminates or considerably reduces an asymmetry in the valuation or in the recognition, which would otherwise result from the valuation of assets or liabilities or from recognition of the relative profits and losses on a different basis; or a group of financial assets, financial liabilities or of both is managed and its performance is valued on the basis of its fair value according to a documented risk management procedure or investment strategy and the information on the group is provided internally on that basis to senior managers with strategic responsibilities Recognition criteria The financial instruments Financial assets and liabilities held for trading and financial assets and liabilities designated at fair value are recognised either: at the time of settlement if they are debt or equity instruments; or, on the trade date, if they are derivative contracts. Measurement on initial recognition is at cost considered to be the fair value of the instrument without considering any transaction costs or income directly attributable to the instruments themselves Measurement criteria Subsequent to initial recognition, the financial instruments in question are measured at fair value with changes recognised in the income statement within item 80 Net trading income (loss), for assets/liabilities held for trading and within item 110 Net income/expense on financial assets and liabilities designated at fair value for financial assets/liabilities designated at fair value. The measurement of the fair value of the assets and liabilities in question is based on prices quoted on active markets or on internal valuation models which are generally used in financial practice as described in greater detail in Part A.3.2 of the Notes to the consolidated financial statements Fair Value Hierarchy Derecognition criteria Financial assets and liabilities held for trading and financial assets and liabilities designated at fair value are derecognised in the accounts when the rights to the cash flows from the financial assets or liabilities expire or when the financial assets or liabilities are transferred with the substantial transfer of all the risks and rewards deriving from ownership of them. The result of the transfer of financial assets or liabilities held for trading is recognised in the income statement within item 80 Trading income (loss), while the result of the transfer of financial assets or liabilities designated at fair value is recognised within item 110 Net income/expense on financial assets and liabilities designated at fair value. 2. Available-for-sale financial assets 2.1. Definition Available-for-sale financial assets (AFS) are defined as non-derivative financial assets designated on initial recognition as such or that are not classified as: (1) loans and receivables (see section below); (2) financial investments held until maturity (see section below); (3) financial assets held for trading and measured at fair value recognised through profit or loss (see section below). These financial assets are recognised within item 40 Available-for-sale financial assets. 80* Notes to the separate financial statements

82 2.2. Recognition criteria Available-for-sale financial assets are recognised initially when, and only when, the company becomes a party in the contract clauses of the instrument and that is on the date of settlement, at fair value which generally coincides with the cost of them. This value includes costs or income directly connected with the instruments themselves. The recognition of available-for-sale financial assets may result also from the reclassification out of held-to-maturity investments or, but only in rare circumstances and in any case only if the asset is no longer held for sale or repurchase in the short term, out of financial assets held for trading ; in these cases the recognition value is the same as the fair value at the moment of reclassification Measurement criteria Subsequent to initial recognition, available-for-sale financial assets continue to be recognised at fair value with interest (resulting from application of the amortised cost) recognised through profit or loss and changes in fair value recognised in equity within item 140 Valuation reserves, except for losses due to impairment, until the financial asset is derecognised, at which time the profit or loss previously recognised in equity must be recognised through profit or loss. Equity instruments for which the fair value cannot be reliably measured according to the methods described are recognised at cost. The measurement of the fair value of available-for-sale financial assets is based on the prices quoted on active markets or on internal measurement models which are generally used in financial practice as described in greater detail in Part A.3.2 of the Notes to the consolidated financial statements Fair Value Hierarchy. At the end of each financial year or interim reporting period, objective evidence of impairment is assessed, which in the case of equity instruments is also held to be significant or prolonged. As concerns the significance of the impairment, significant indications of impairment exist where the market value of an equity instrument is less than 35% of its historical cost of acquisition. In this case impairment is recognised through profit or loss without further analysis. If the impairment is less then it is recognised only if the measurement of the instrument performed on the basis of its fundamentals does not confirm the soundness of the company and that is its earning prospects. As concerns the permanence of the impairment, it is defined as prolonged when the fair value remains below its historical cost of purchase for a period of longer than 18 months. In this case the impairment is recognised through profit or loss without further analysis. If the fair value continues to remain below its historical purchase cost for periods shorter than 18 months, then any recognition of impairment through profit and loss is decided by considering, amongst other things, whether the impairment is attributable to general negative performance by stock markets, rather than to the specific financial and operating position of the counterparty. If there is permanent impairment, the cumulative change, including that previously recognised in equity under the aforementioned item, is recognised directly in the income statement within item 130 Net impairment losses on b) available-for-sale financial assets. Permanent impairment loss is recognised when the acquisition cost (net of any repayments of principal and amortisation) of an available-for-sale financial asset exceeds its recoverable amount. Any recoveries of value, which are only possible when the causes of the original permanent impairment no longer exist are treated as follows: if they relate to investments in equity instruments, then with a balancing entry directly in the equity reserve; if they relate to investments in debt instruments, they are recognised in the income statement within item 130 Net impairment losses on b) available-for-sale financial assets. 81* Notes to the separate financial statements

83 The amount of the reversal of the impairment loss may not in any case exceed the amortised cost which, in the absence of previous value adjustments, the instrument would have had at that time. Because UBI Banca applies IAS 34 Interim financial reporting to its half year interim reports with consequent identification of a half year interim period, any impairment losses are recognised historically at the end of the half year Derecognition criteria Available-for-sale financial assets are derecognised in the accounts when the contractual rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and benefits deriving from ownership of them. The result of the disposal of available-for-sale financial assets is recognised in the income statement within item 100 Income/expense from the disposal or repurchase of b) availablefor-sale financial assets. Upon derecognition, any corresponding amount of what was previously recognised in equity under item 140 Valuation reserves is written off against the income statement. 3. Held-to-maturity investments 3.1. Definition Held-to-maturity investments (HTM) are defined as non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity intends and is able to hold to maturity. Exception is made for those: (a) held for trading and those designated upon initial recognition at fair value through profit or loss (see previous section); (b) designated as available for sale (see previous section); (c) which satisfy the definition of loans and receivables (see section below). When annual and interim reports are prepared the intention and ability to hold financial assets until maturity is assessed. The assets in question are recognised under item 50 Held-to-maturity investments Recognition criteria Held-to-maturity investments are recognised initially when, and only when, the company becomes a party in the contract clauses of the instrument and that is on the date of settlement, measured at cost inclusive of any costs and income directly attributable to it. If the recognition of assets in this category is the result of the reclassification out of availablefor-sale financial assets or, but only and only in rare circumstances if the asset is no longer held for sale or repurchase in the short-term, out of the financial assets held for trading, the fair value of the assets as measured at the time of the reclassification is taken as the new measure of the amortised cost of the assets. 82* Notes to the separate financial statements

84 3.3. Measurement criteria Held-to-maturity investments are valued at amortised cost using the criteria of the effective interest rate (see the section below loans and receivables for a definition). The result of the application of this method is recognised in the income statement within the item 10 Interest and similar income. When annual financial statements or interim reports are prepared objective evidence of the existence of an impairment of the value of the assets is assessed. If there is permanent impairment, the difference between the recognised value and the present value of expected future cash flows discounted at the original effective interest rate is included in the income statement under the item 130 Net impairment losses on c) held-to-maturity investments. Any recoveries of value recorded, should the cause that gave rise to the previous recognition of impairment loss no longer exist, are recognised under the same item in the income statement. The fair value of held-to-maturity investments is measured for disclosure purposes or where effective currency and credit risk hedges exist (in relation to the risk hedged) and it is estimated as described in greater detail in Part A.3.2 of the notes to the consolidated financial statements, Fair Value Hierarchy Derecognition criteria Held-to-maturity investments are derecognised when the rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and rewards deriving from ownership of them. The result of the disposal of held-to-maturity financial assets is recognised in the income statement under the item 100 Income/expense from disposal or repurchase of c) held-to-maturity investments. 4. Loans and receivables 4.1. Definition Loans and receivables are defined as non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The following are exceptions: (a) those which it is intended to sell immediately or in the short-term, that are classified as held for trading and those that may have been designated on initial recognition as at fair value through profit or loss; (b) those designated upon initial recognition as available for sale; (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration; in this case they are classified as availablefor-sale. Loans and receivables are recognised under the items 60 Loans and advances to banks and 70 Loans and advances to customers Recognition criteria Loans and receivables are initially recognised in the accounts when the company becomes part of a loan contract, which is to say when the creditor acquires the right to the payment of the sums agreed in the contract. That moment corresponds to the date on which the loan is granted. Recognition in this category may result also from the reclassification out of available-forsale financial assets or, but only and only in rare circumstances if the asset is no longer held for sale or repurchase in the short term, out of financial assets held for trading. 83* Notes to the separate financial statements

85 The amount initially recognised is that of the fair value of the financial instrument which is the same as the amount granted inclusive of costs or income directly attributable to it and determinable from the outset, independently of when they are paid. The amount of the initial recognition does not include all those expenses that are reimbursed by the debtor counterparty or that are attributable to internal expenses of an administrative character. If the recognition is the result of reclassification, the fair value of the asset recognised at the time of the reclassification is taken as the new measure of the amortised cost of the assets. For loans not granted under market conditions, the initial fair value is calculated by using special measurement techniques described below; in these circumstances the difference between the fair value that is calculated and the amount granted is included directly in the income statement within the item interest. Contango and repo agreements with the obligation or right to repurchase or resell at term are recognised in the accounts as funding or lending transactions. For transactions with a spot sale and forward repurchase, the spot cash received is recognised in the accounts as borrowings while the spot purchase transactions with forward resale are recognised as lending for the spot amount paid Measurement criteria Loans are measured at amortised cost using the criteria of effective interest. The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability was measured upon initial recognition net of principal repayments, plus or minus the cumulative amortisation, calculated using the effective interest criterion, of any difference between that initial amount and the maturity amount, and minus any reduction (arising from an impairment or uncollectability). The effective interest criterion is a method of calculating amortised cost of an asset or liability (or group of assets and liabilities) and of distributing the interest income or expense over its relative life. The effective interest rate, which is used to discount payments or the estimated future receipts over the expected life of the financial instrument, renders the present value equal to the purchase value of the instrument itself. To determine the effective interest rate, the cash flows must be estimated taking into consideration all the contractual conditions of the financial instrument (e.g. payment in advance, a purchase option or similar), but future impairments of the loan are not considered. The computation includes all fees and basis points paid or received between parties to the contract which are integral parts of the effective interest, the transaction costs and all other premiums or discounts. At each reporting date or when interim reports are prepared, any objective evidence that a financial asset or group of financial assets has suffered impairment loss is assessed. This circumstance occurs when it is predictable that a company may not be able to collect amounts due on the basis of the original contracted conditions or, for example, in the presence of: (a) significant financial difficulties of the issuer or debtor; (b) an infringement of the contract such as default or failure to pay interest or repay principal; (c) the lender, because of the economic or legal factors relating to the financial difficulties of the debtor, granting a concession to the latter which the lender would not otherwise have considered; (d) the probability of the beneficiary declaring procedures for loan restructuring; (e) the disappearance of an active market for that financial asset due to financial difficulties; (f) available data which indicate a substantial decrease in expected future cash flows for a similar group of financial assets since the time of the initial recognition of those assets, although the decrease cannot yet be identified with the single financial assets of the group. The measurement of non-performing loans (loans which, according to the definitions formulated by the supervisory regulations in force issued by the Bank of Italy, are nonperforming, impaired, restructured or past due) is performed on a case-by-case basis. The 84* Notes to the separate financial statements

86 remaining loans are measured using, collective, statistical methods which group uniform classes of risk together. The method for calculating the impairment losses recognised on non-performing loans is based on discounting expected future cash flows for principal and interest, taking account of any guarantees attached to positions and of any advances received. The basic elements for determining the present value of cash flows are the identification of the estimated receipts, the relative maturity dates and the discount rate to apply. The amount of the loss is equal to the difference between the recognised value of the asset and the present value of expected future cash flows, discounted at the original effective interest rate. The measurement of performing loans relates to asset portfolios for which no objective evidence of impairment exist and which are therefore valued collectively. Percentage rates of loss, calculated from historical data series estimated according to the measurement method based on Basel 2 regulations, to which appropriate corrective factors are applied to give a measurement consistent with that required by the relative accounting standard, are applied to the estimated cash flows from the assets, grouped into uniform classes with similar characteristics in terms of credit risk. If a loan is subject to individual measurement and shows no objective impairment loss, it is placed in a class of financial assets with similar credit risk characteristics and subjected to collective measurement. Permanent impairment that is found is immediately recognised in the income statement under the item 130 Net impairment losses on a) loans as are reversals of part or all of the impairment losses previously recognised. Reversals of impairment losses are recognised where there is an improvement in credit quality sufficient to provide reasonable certainty of prompt collection of the principal and the interest according to the original conditions of the original loan contract, or in the presence of a progressive reversal of the present value calculated at the time of recognising the impairment loss. Where loans are measured on a collective basis, any upward value adjustments or reversals of impairment losses are recalculated as differences in relation to each performing loan at the measurement date. The fair value of medium and long-term loans is measured by considering future cash flows discounted at the replacement rate or the market rate existing at the measurement date and relating to a position with the same characteristics as the loan measured. The fair value is measured for all loans for information purposes only. For loans subject to effective hedging, the fair value is calculated in relation to the risk that is hedged for measurement purposes Derecognition criteria Loans are derecognised from the balance sheet when the rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and rewards deriving from ownership of them and also when events to extinguish the debt occur, in accordance with the definition provided in the supervisory regulations in force. Otherwise loans continue to be recognised on the balance sheet for an amount equal to the remaining involvement, even if legal title has been transferred to a third party. The assets in question are derecognised in the balance sheet even when the Bank maintains the contractual right to receive cash flows from them, but when at the same time it has a contractual obligation to pay those cash flows to a third party. If it results from disposals, the profit or loss from the derecognition of loans and receivables is recognised in the income statement within item 100 Income (loss) from the disposal or repurchase of a) loans, or if it results from the aforementioned events to extinguish debt, within item Net impairment losses on a) loans and receivables. In the latter case the events to extinguish debt consist of either official actions taken by the competent bodies of the Bank from which the total or partial non-recoverability of the financial asset results or the waiver of recovery activities for reasons of financial expediency. 85* Notes to the separate financial statements

87 5. Hedging derivatives 5.1. Definition Hedging transactions are designed to neutralise potential losses on a specific item (or group of items) attributable to a determined risk, by means of the gains realised on another instrument or group of instruments if that particular risk should actually result in losses. The Bank uses the following type of hedging transactions, appropriately represented in the accounts and described below: a fair value hedge: the objective is to offset adverse changes in the fair value of the asset or liability hedged; a cash flow hedge: the objective is to hedge against the exposure to variability in expected cash flows with respect to the initial expectations. Derivative contracts stipulated with external counterparties are designated as hedging instruments Recognition criteria As with all derivatives, derivative financial instruments used for hedging are initially recognised and subsequently measured at fair value and are classified in the balance sheet under assets within item 80 Hedging derivatives and under liabilities within item 60 Hedging derivatives. A relationship qualifies as a hedge and is appropriately represented in the accounts if, and only if, all the following conditions are satisfied: at the start of the hedging transaction the relationship is formally designated and documented, including the company s risk management objective and strategy for undertaking the hedge. This documentation includes identification of the hedging instrument, the item or transaction hedged, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness in offsetting the exposures to changes in the fair value of the item hedged or in the cash flows attributable to the risk hedged; the hedging is expected to be highly effective; the planned transaction hedged, for hedging cash flows, is highly probable and presents an exposure to changes in cash flows that could have effects on the income statement; the effectiveness of the hedging can be reliably measured; the hedging is measured on an ongoing basis and is considered highly effective for all the financial years in which it was designated Methods for testing effectiveness A hedge relationship is judged effective, and as such is appropriately represented in the accounts, if at its inception and during its life the changes in the fair value or cash flows of the hedged item attributable to the hedged risk are almost always completely offset by the changes in the fair value or cash flows of the hedging instrument. This conclusion is reached when the actual result falls within a range of between 80% and 125%. The effectiveness of a hedge is tested at inception and at each reporting date by means of a prospective test designed to demonstrate the expected effectiveness of the hedge during its life. Further retrospective tests are conducted monthly on a cumulative basis where the objective is to measure the degree of effectiveness of the hedge in the reporting period and therefore to verify whether the hedge has actually been effective in the period. Derivative financial instruments that are considered hedges from a profit and loss viewpoint but which do not satisfy the requirements to be considered effective instruments for hedging are recognised under item 20 Financial assets held for trading or under item 40 Financial 86* Notes to the separate financial statements

88 liabilities held for trading and the profits and losses under the corresponding item 80 Trading income (loss). If the above tests do not confirm the effectiveness of the hedge, then if it is not derecognised, the derivative contract is reclassified within derivatives held for trading and the instrument hedged is again measured according to the criterion applied for its balance sheet classification Measurement criteria Fair value hedging Fair value hedging is treated as follows: the profit or loss resulting from measuring a hedging instrument at fair value is included in the income statement under item 90 Net hedging income (loss) ; the profit or loss on the item hedged attributable to the hedged risk adjusts the value in the accounts of the hedged item and is recognised immediately, regardless of the type of asset or liability hedged, in the income statement within the aforementioned item. Hedge accounting is discontinued prospectively in the following cases: 1. the hedging instrument expires or is sold, terminated, or exercised; 2. the hedge no longer meets the hedge accounting criteria described above; 3. the entity revokes the designation. If the asset or liability hedged is measured at amortised cost, the higher or lower value resulting from measuring them at fair value as a result of the hedge becoming ineffective, or being revoked, is recognised through profit or loss, according to the effective interest rate method or at constant rates in the event of a hedge on a portfolio of assets and liabilities where that method is not feasible, or in a single amount if the hedge is derecognised. The methods used for measurement of the fair value of the risk hedged in the assets or liabilities subject to hedging are described in Part A.3.2 of the Notes to the consolidated financial statements, Fair value hierarchy Cash flow hedging When a derivative is designated as a hedge of exposure to changes in expected cash flows from an asset or liability in the balance sheet or a future transaction considered highly probable, the accounting treatment of the hedge is as follows: the profits or losses (from the measurement of the hedging derivative) attributable to the effective portion of the hedge are recognised in a special reserve in equity named 130 Valuation reserves ; the profits or losses (from measurement of the hedging derivative) attributable to the ineffective portion of the hedge are recognised directly in the income statement under item 90 Net hedging income (loss) ; the asset or liability hedged is measured according to the class of asset or liability to which it belongs. If a future transaction occurs which involves recognising non-financial assets and liabilities, the corresponding profits or losses initially recognised under item 130 Valuation reserves are then transferred from that reserve and included as an initial cost of the asset or liability that is recognised. If the future hedged transaction subsequently involves recognition of a financial asset or liability, the associated profits or losses that were originally recognised under the item 130 Valuation reserves are reclassified to the income statement in the same reporting period or periods during which the assets acquired or liabilities incurred have an effect on the income statement. If a portion of the profits or losses recognised in the aforementioned reserve are not considered recoverable, it is reclassified into the income statement within item 80 Net trading income (loss). 87* Notes to the separate financial statements

89 In all cases other than those already described, the profits or losses initially recognised under the item 130 Valuation reserves are transferred to the income statement to reflect the time and manner in which the future transaction is recognised in the income statement. An entity must discontinue hedge accounting prospectively in each of the following circumstances: (a) the hedging instrument expires or is sold, terminated, or exercised (for this purpose the replacement or exchange of one hedging instrument with another hedging instrument is not a conclusion or termination if that replacement or exchange forms part of an entity s documented hedging strategy). In this case the total profit (or loss) on the hedging instrument continues to be recognised directly in equity until the reporting period in which the hedge became effective and it continues to be recognised separately until the programmed hedging transaction occurs; (b) the hedge no longer satisfies the criteria for hedge accounting. In this case the total profit or loss on the hedging instrument continues to be recognised directly in equity starting from the reporting period in which the hedge became effective and it continues to be recognised separately in equity until the programmed hedging transaction occurs; (c) it is no longer considered that the future transaction should occur, in which case any related total profit or loss on the hedging instrument recognised directly in equity starting from the reporting period in which the hedge became effective must be recognised through profit or loss; (d) the entity revokes the designation. For hedges of a programmed transaction, total profits or losses on the hedging instrument recognised directly in equity starting from the reporting period in which the hedge became effective continues to be recognised separately in equity until the programmed transaction occurs or it is expected that it will no longer occur. If it is expected that the transaction will no longer occur the total profit (or loss) that had been recognised directly in equity is transferred to the income statement Hedging portfolios of assets and liabilities Hedging of portfolios of assets and liabilities ( macrohedging ) and appropriate accounting treatment is possible after first: identifying the portfolio to be hedged and dividing it by maturity dates; designating the risk to be hedged; identifying the interest rate risk to be hedged; designating the hedging instruments; determining the effectiveness. The portfolio for which the interest rate risk is hedged may contain both assets and liabilities. This portfolio is divided on the basis of expected maturity or repricing dates of interest rates after first analysing the structure of the cash flows. Changes in the fair value of the hedged instrument are recognised in the income statement under item 90 Net hedging income (loss) and in the balance sheet under item 90 Fair value change in hedged financial assets or under item 70 Fair value change in hedged financial liabilities. Changes occurring in the fair value of the hedging instrument are recognised in the income statement under item 90 Profits (losses) on hedging and in the assets of the balance sheet within item 80 Hedging derivatives or within the liability item 60 Hedging derivatives. 88* Notes to the separate financial statements

90 6. Equity investments 6.1. Definition Subsidiaries A subsidiary is defined as a company over which the Parent exercises control. Such a condition occurs when the latter has the power to govern, directly or indirectly the management and operational decisions of an enterprise so as to obtain benefits from its activities. The existence of potential immediately exercisable voting rights is assessed to determine the presence of control Associates An associate is defined as a company in which at least 20% of the voting rights are held or over which the investing company exercises significant influence and which is neither a subsidiary nor a company subject to joint control by the investing company. Significant influence is the power to participate in the financial and operating policy decisions of the company invested in but not to control or have joint control of it Companies subject to joint control A company subject to joint control is defined as a company governed by a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control Recognition criteria Equity investments are recognised at the cost of purchase inclusive of any accessory costs, with exception made for controlled equity investments acquired in business combinations Measurement criteria Equity investments are measured at cost. Any objective evidence that an equity investment has been subject to impairment is assessed as at each annual or interim reporting date. The recoverable amount is then calculated, considering the present value of the future cash flows which may be generated by the investment, including the final disposal value. If the recoverable amount calculated in this way is less than carrying value, the difference is recognised in the income statement under item 210 Profit (loss) of equity investments. Any future reversals of impairment are also included in the item where the reasons for the original impairment no longer apply Derecognition criteria Equity investments are derecognised in the balance sheet when the contractual rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and rewards deriving from ownership of them. The result of the disposal of equity-accounted investees is recognised in the income statement within item 210 Profits (losses) of equity investments. 7. Property, plant and equipment 7.1. Definition of assets for functional use 89* Notes to the separate financial statements

91 Assets for functional use are defined as tangible assets possessed to be used for the purpose of carrying on a company s business and where the use is planned to last longer than one year. Assets for functional use also include properties rented to employees, ex employees and their heirs, as well as works of art Definition of investment property Investment property is defined as properties held in order to earn rentals or for capital appreciation. As a consequence, investment property is to be distinguished from assets held for the use of the owner because they generate cash flows that are very different from the other assets held by the Bank. Finance lease contracts are also included within tangible assets (for functional use and held for investment) even if the legal title to the assets remains with the leasing company Recognition criteria Tangible assets for functional use and other tangible assets are initially recognised at cost (item 110 Property, equipment and investment property ), inclusive of all costs directly connected with bringing it to working condition for the use of the assets and purchase taxes and duties that are not recoverable. This amount is subsequently increased to include expenses incurred from which it is expected future benefits will be obtained. The costs of ordinary maintenance are recognised in the income statement at the time at which they are incurred while extraordinary maintenance costs (improvements) from which future benefits are expected are capitalised by increasing the value of the relative asset. Improvements and expenses incurred to increase the value of leased assets from which future benefits are expected are recognised: within the most appropriate category of item 110 Property, plant and equipment if they are independent and can be separately identified, whether they are third party assets held on the basis of an ordinary leasing contract or whether they are held under a finance lease contract; within item 110 Property, plant and equipment, if they are not independent and cannot be separately identified, as an increase to the type of assets concerned if held by means of a finance lease contract or within item 150 Other assets if they are held under an ordinary lease contract. The cost of property, plant and equipment is recognised as an asset if, and only if: it is probable that the future economic benefits associated with the asset will flow to the enterprise; the cost of the asset can be reliably determined Measurement criteria Subsequent to initial recognition, items of property, plant and equipment for use in operations are recognised at cost, as defined above, net of accumulated depreciation and any permanent cumulative impairment. The depreciable amount, equal to cost less the residual value (i.e. the amount that would be normally obtained from disposal, less disposal costs, if the asset was normally in the conditions, including age, expected at the end of its useful life), should be allocated on a systematic basis over the asset's useful life by adopting the straight line method of depreciation. The useful life of an asset, which is reviewed periodically to detect any significant change in estimates compared to previous figures, is defined as: the period of time over which it is expected that the asset can be used by a company or, the quantity of products or similar units that an entity expects to obtain from the use of the asset. 90* Notes to the separate financial statements

92 Since property, plant and equipment may consist of items with different useful lives, land, whether by itself or as part of the value of a building is not depreciated since it constitutes a fixed asset with an indefinite life. The value attributable to the land is deducted from the total value of a property for all buildings in proportion to the percentage of ownership. Buildings, on the other hand, are depreciated according to the criteria described above. Works of art are not depreciated because they generally increase in value over time. Depreciation of an asset starts when it is available for use and ceases when the asset is written off the accounts, which is the most recent of when it is classified as for sale and the date of elimination from the accounts. As a consequence depreciation does not stop when an asset is left idle or is no longer in use, unless the asset has already been fully depreciated. Improvements and expenses which increase the value are depreciated as follows: if they are independent and can be separately identified, according to the presumed useful life as described above; if they are not independent and cannot be separately identified, then if they are held under an ordinary leasing contract, over the shorter of the period in which the improvements and expenses can be used and that of the remaining life of the contract taking account of any individual renewals, or if the assets are held under a finance lease contract, over the expected useful life of the assets concerned. The depreciation of improvements and expenses to increase the value of leased assets recognised under item 150 Other assets is recognised within the item 190 Other operating income (expense). At the end of each annual or interim reporting period the existence of indications that demonstrate the impairment of the value of an asset are assessed. The loss is determined by comparing the carrying amount of the tangible asset with the lower recoverable amount. The latter is the greater of the fair value, net of any sales costs, and the relative use value intended as the present value of future cash flows generated by the asset. The loss is immediately recognised in the income statement within item 170 Net impairment losses on property, plant and equipment ; the item also includes any future reversal of impairment losses if the causes of the original impairment no longer exist Definition and measurement of fair value Properties The fair value is measured on the basis of the market value intended as meaning the best price at which the sale of a property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation, assuming: that the seller and the purchaser are independent counterparties; the intention of the seller to sell the assets is real; that there is a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the property and for the agreement of price and terms necessary to complete the sale; that the market trend, level of values and other circumstances were, at the date of signing the preliminary contract of purchase and sale, identical to those existing at the date of valuation; that no account is taken of bids by purchasers for whom the property has characteristics which make it outside the market range. The procedures adopted for determining the market value are based on the following methods: 91* Notes to the separate financial statements

93 the direct comparative or market method, based on a comparison between the asset in question and other similar asset subject to sale or currently on sale on the same market or competing markets; the income method based on the present value of potential market incomes for a similar property, obtained by capitalising the income at a market rate. The above methods are performed individually and the values obtained are appropriately averaged Determination of the value of land The method used for identifying the percentage of the market value attributable to land is based on an analysis of the location of the property, taking account of the type of construction, the state of conservation and the cost of rebuilding the entire building Property, plant and equipment acquired through finance leases A finance lease is a contract that substantially transfers all the risks and rewards incident to ownership of an asset. Legal title may or may not be transferred at the end of the lease term. The beginning of the lease term is the date on which the lessee is authorised to exercise his right to use the asset leased and therefore corresponds to the date on which the lease is initially recognised. When the contract commences, the lessee recognises the financial lease transactions as assets and liabilities in its balance sheet at the fair value of the asset leased or, if lower, at the present value of the minimum payments due. To determine the present value of the minimum payments due, the discount rate used is the contractual interest rate implicit in the lease, if practicable, or else the lessee s incremental borrowing rate is used. Any initial direct costs incurred by the lessee are added to the amount recognised for the asset. The minimum payments due are apportioned between the finance charges and the reduction of the residual liability. The former are allocated over the lease term so as to produce a constant rate of interest on the residual liability. The finance lease contract involves recognition of the depreciation charge for the asset leased and of the finance charges for each financial year. The depreciation policy used for assets acquired under finance leases is consistent with that adopted for owned assets. See the relative paragraph for a more detailed description Derecognition criteria Property, plant and equipment are derecognised in the balance sheet when they are disposed of or when they are permanently retired from use and no future economic benefits are expected from their disposal. Any gains or losses resulting from the retirement or disposal of the tangible asset, calculated as the difference between the net consideration on the sale and the carrying amount of the asset are recognised in the income statement under item 240 Profit (loss) on the disposal of investments. 8. Intangible assets 8.1. Definition An intangible asset is defined as an identifiable non-monetary asset without physical substance that is used in carrying on a company s business. The asset is identifiable when: 92* Notes to the separate financial statements

94 it is separable, which is to say capable of being separated and sold, transferred, licensed, rented, or exchanged; it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from other rights and obligations. An asset possesses the characteristic of being controlled by the enterprise as a result of past events and the assumption that its use will cause economic benefits to flow to the enterprise. An entity has control over an asset if it has the power to obtain future economic benefits arising from the resource in question and may also limit access by others to those benefits. Future economic benefits arising from an intangible asset might include receipts from the sale of products or services, savings on costs or other benefits resulting from the use of the asset by an enterprise. An intangible asset is recognised if, and only if: (a) it is probable that the expected future economic benefits attributable to the asset will flow to the entity; (b) the cost of the asset can be measured reliably. The probability of future economic benefits occurring is assessed on the basis of reasonable and supportable assumptions that represent the best estimate of the economic conditions that will exist over the useful life of the asset. The degree of probability attaching to the flow of economic benefits attributable to the use of the asset is assessed on the basis of the sources of information available at the time of initial recognition, giving greater weight to external sources of information. The main items considered to be intangible assets are goodwill and third party, or internally generated software, used over several years as well as customer relationships resulting from granting property loans to private individuals Intangible assets with a finite useful life A finite useful life is defined for an asset where it is possible to estimate a limit to the period over which the related economic benefits are expected to be produced. Intangible assets considered as having a finite useful life include software, customer relationships resulting from granting property loans to private individuals Intangible assets with an indefinite useful life An indefinite useful life is defined for an asset where it is not possible to estimate a predictable limit to the period over which the asset is expected to generate economic benefits for the Bank. The attribution of an indefinite useful life to an asset does not arise from having already programmed future expenses which restore the standard level of performance of the asset over time and prolong its useful life Recognition criteria Assets recognised under the balance sheet item 120 Intangible assets are recognised at cost and any expenses subsequent to the initial recognition are only capitalised if they are able to generate future economic benefits and only if those expenses can be reliably determined and attributed to the assets. The cost of an intangible asset includes: the purchase price including any non recoverable taxes and duties on purchases after commercial discounts and bonuses have been deducted; any direct costs incurred in bringing the asset into use. 93* Notes to the separate financial statements

95 8.3. Measurement criteria Subsequent to initial recognition intangible assets with a finite useful life are recognised at cost net of total amortisation and any losses in value that may have occurred. Amortisation is calculated on a systematic basis over the estimated useful life of the asset (see definition included in the sub-section Property, plant and equipment ) using the straight line method for all intangible assets with the exception of customer relationships resulting from granting property loans to private individuals which are amortised on the basis of the average life of the relationships or in other words of the portfolio of loans granted. Amortisation begins when the asset is available for use and ceases on the date on which the asset is eliminated from the accounts. Intangible assets with an indefinite useful life (see, goodwill, as defined in the section below if positive) are recognised at cost net of any impairment loss resulting from periodic reviews when tests are performed to verify the appropriateness of the carrying amount of the assets (see section below). As a consequence amortisation of these assets is not calculated. No intangible assets arising from research (or from the research phase of an internal project) are recognised. Research expenses (or the research phase of an internal project) are recognised as expenses at the time at which they are incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if the following can be demonstrated: (a) the technical feasibility of completing the intangible asset so that it becomes available for sale or use; (b) the intention of the company to complete the intangible asset to use it or sell it; (c) the capacity of the company to use or sell the intangible asset. At the end of each annual or interim reporting period the existence of potential impairment of the value of intangible assets is assessed. The impairment loss is given by the difference between the carrying amount of the assets and the recoverable amount and is recognised, as are any reversals of impairment losses, within the item 180 Net impairment losses on intangible assets, with the exception of impairment losses on goodwill which are recognised within item 230 Net impairment losses on goodwill Goodwill Goodwill is defined as the difference between the purchase cost and the fair value of assets and liabilities acquired as part of a business combination which consists of the union of separate enterprises or businesses in a single entity required to prepare financial statements. The result of almost all business combinations consists in the fact that a sole entity, an acquirer, obtains control over one or more separate businesses of the acquiree. When an entity acquires a group of activities or net assets that do not constitute a business it allocates the cost of the group to individual assets and liabilities identified on the basis of their relative fair value at the date of acquisition. A business combination may give rise to a holding relationship between a parent company and a subsidiary in which the acquirer is the parent company and the acquiree is the subsidiary. All business combinations are accounted for using the purchase method of accounting. The purchase method involves the following steps: (a) identification of the acquirer (the acquirer is the combining enterprise that obtains control of the other combining enterprises or businesses); (b) determination of the acquisition date; (c) determination of the cost of the business combination, intended as the consideration transferred by the purchaser to the shareholders of the acquiree; 94* Notes to the separate financial statements

96 (d) the allocation, as at the acquisition date, of the cost of the business combination by means of the recognition, classification and measurement of the identifiable assets acquired and the identifiable liabilities assumed; (e) recognition of any existing goodwill. Business combinations performed with subsidiary undertakings or with companies belonging to the same group are recognised on the basis of the significant economic substance of the transactions. In application of that principle, the goodwill arising from those transactions is recognised: (a) within asset item 120 of the balance sheet if significant economic substance is found; (b) as a deduction from equity if it is not found Allocation of the cost of a business combination to assets and liabilities and contingent liabilities The acquirer: (a) recognises the goodwill acquired in a business combination as assets; (b) measures that goodwill at its cost to the extent that it is the excess of the cost of the business combination over the acquirer's share of interest in the net fair values of the acquiree's identifiable assets, liabilities and contingent liabilities. Goodwill acquired in a business combination represents a payment made by the acquirer in the expectation of receiving economic future benefits from the asset which cannot be identified individually and recognised separately. After initial recognition, the acquirer values the goodwill acquired in a business combination at the relative cost net of cumulative impairment. The goodwill acquired in a business combination must not be amortised. The acquirer tests the asset for impairment annually or more frequently if specific events or changed circumstances indicate that it may have suffered a reduction in value, according to the relative accounting standard. The standard states that an asset (including goodwill) has suffered value impairment when the value recognised in the accounts exceeds the recoverable amount understood as the greater of the fair value, net of any sales expenses and its value in use, defined by section 6 of IAS 36. In order to test for impairment, goodwill must be allocated to cash generating units or to groups of cash generating units, in observance of the maximum aggregation limit which cannot exceed the operating segment identified in accordance with IFRS Negative goodwill If the acquirer s share of the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination the acquirer: (a) reviews the identification and measurement of the identifiable assets, liabilities and contingent liabilities of the acquiree and the determination of the cost of the business combination; (b) immediately recognises any excess existing after the new measurement in the income statement Derecognition criteria Intangible assets are derecognised in the balance sheet following disposal or when no economic future benefit is expected from its use or disposal. 95* Notes to the separate financial statements

97 9. Liabilities, debt securities issued (and subordinated liabilities) The various forms of interbank and customer funding are recognised within the balance sheet items 10 Due to banks, 20 Due to customers and 30 Debt securities issued. These items also include liabilities recognised by a lessee in financial leasing operations Recognition criteria The liabilities in question are recognised in the balance sheet at the time when the funding is received or when the debt securities are issued. The amount recognised is the fair value, which is normally the same as either the consideration received or the issue price, inclusive of any additional expenses or income that are directly attributable to the transaction and determinable from the outset, regardless of when they are paid. The amount of the initial recognition does not include all those costs that are reimbursed by the creditor counterparty or that are attributable to internal costs of an administrative character Measurement criteria After initial recognition medium to long-term financial liabilities are measured at amortised cost using the effective interest method as defined in previous paragraphs. Short term liabilities, for which the time factor is insignificant, are measured at cost Derecognition criteria Financial liabilities are derecognised in the balance sheet when they mature or are extinguished. The repurchase of own securities issued results in derecognition of the securities with the consequent redefinition of the liability for debt instruments issued. Any difference between the repurchase value of the own securities and the corresponding carrying value of the liabilities is recognised in the income statement under the item 100 Income from the disposal or repurchase of d) financial liabilities. Any subsequent re-issue of the securities previously subject to derecognition in the accounts constitutes a new issue for accounting purposes with the consequent recognition at the new issue price without any effect in the income statement. 10. Tax assets and liabilities Tax assets and liabilities are stated in the balance sheet within the items 130 Tax assets and 80 Tax liabilities Current tax assets and liabilities Current tax for the current and prior periods is recognised as a liability to the extent that it has not yet been settled; any excess compared to the amount due is recognised as an asset. Current tax liabilities (assets) for the current and prior years, are measured at the amount expected to be paid to/recovered from taxation authorities, using the tax rates and tax laws in force. Current tax assets and liabilities are derecognised in the accounts in the year in which the assets are realised or the liabilities are extinguished Deferred tax assets and liabilities 96* Notes to the separate financial statements

98 Deferred tax liabilities are recognised for all taxable temporary differences unless the deferred tax liability arises from: goodwill for which amortisation is not deductible for tax purposes or the initial recognition of an asset or a liability in a transaction which: is not a business combination and at the time of the transaction, affects neither the accounting nor the taxable profit. Deferred tax assets are not calculated for higher values of assets for which the tax regime has been suspended relating to equity investments and to reserves for which the tax regime has been suspended because it is considered there are no reasonable grounds to assume they will be taxed in future. Deferred tax liabilities are recognised within the balance sheet item 80 Tax liabilities b) deferred. A deferred tax asset is recognised for all deductible temporary differences if it is probable that a taxable income will be used against which it will be possible to use the deductible temporary difference, unless the deferred tax asset arises from: negative goodwill which is treated as deferred income; the initial recognition of an asset or liability in a transaction which: is not a business combination and affects neither the accounting profit nor the taxable profit at the time of the transaction. Deferred tax assets are recognised within the balance sheet item 130 Tax assets b) deferred. Deferred tax assets and deferred tax liabilities are subject to constant monitoring and are measured using the tax rates that it is expected will apply in the period in which the tax asset will be realised or the tax liability will be extinguished on the basis of the tax regulations established by laws currently in force. Deferred tax assets and deferred tax liabilities are derecognised in the accounts in the year in which: the temporary difference which gave rise to them becomes payable with regard to deferred tax liabilities or deductible with regard to deferred tax assets; the temporary difference which gave rise to them is no longer valid for tax purposes. Deferred tax assets and deferred tax liabilities must not normally be discounted to present values nor offset one against the other, 11. Non-current assets and disposal groups held for sale Liabilities associated with disposal groups held for sale Non-current assets and liabilities and groups of non-current assets and liabilities for which it is presumed that the carrying value will be recovered by selling them rather than by continued use are classified respectively under items 140 Non-current assets and disposal groups held for sale and 90 Liabilities associated with assets held for sale. In order to be classified within these items the assets or liabilities (or disposal groups) must be immediately available for sale and there must be active, concrete programmes to sell the assets or liabilities in the short term. These assets or liabilities are measured at the lower of the carrying amount and their fair value net of disposal costs. Profits and losses attributable to groups of assets or liabilities held for sale are recognised in the income statement under item 280 Pre-tax profit (loss) of non current assets and groups of assets held for disposal. Profits and losses attributable to individual assets held for disposal are recognised in the income statement under the most appropriate item. 97* Notes to the separate financial statements

99 12. Provisions for risks and charges Definition A provision is defined as a liability of uncertain timing or amount. A contingent liability, however, is defined as: a possible obligation, the result of past events, the existence of which will only be confirmed by the occurrence or (non occurrence) of future events that are not totally under the control of the enterprise; a present obligation that is the result of past events, but which is not recognised in the accounts because: it is improbable that financial resources will be needed to settle the obligation; the amount of the obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognised in the accounts, but are only reported, unless they are considered a remote possibility Recognition and measurement criteria A provision is recognised if and only if: there is a present obligation (legal or implicit) that is the result of a past event and it is probable that the use of resources suitable for producing economic benefits will be required to fulfil the obligation and a reliable estimate can be made of the amount arising from fulfilment of the obligation. The amount recognised as a provision represents the best estimate of the expenditure required to settle the present obligation at the reporting date and reflects the risks and uncertainties that inevitably characterise a number of facts and circumstances. The amount of a provision is measured by the present value of the expenditure that it is assumed will be necessary to settle the obligation where the effect of the present value is a substantial aspect. Future events that might affect the amount required to settle the obligation are only taken into consideration if there is sufficient objective evidence that they will occur. Provisions made for risks and charges include those for the risk attaching to any existing tax litigation Derecognition criteria The provision is reversed when it becomes improbable that the use of resources suitable for producing economic benefits will be required to settle the obligation. 13. Foreign currency transactions Definition A foreign currency is a currency other than the functional currency of the entity, which is the currency of the primary economic environment in which an entity operates Recognition criteria A foreign currency transaction is recorded at the time of initial recognition in the functional currency applying the spot exchange rate between the functional currency and the foreign currency ruling on the date of the transaction. 98* Notes to the separate financial statements

100 13.3. Measurement criteria At each reporting date: (a) foreign currency monetary amounts 4 are translated using the closing rate; (b) non-monetary items 5 measured at historical cost in foreign currency are translated using the exchange rate at the date of the transaction; (c) non-monetary items carried at fair value in a foreign currency are translated using the exchange rates that existed on the dates when the fair values were determined. Exchange differences arising from the settlement of monetary items or from the translation of monetary items at rates different from those at which they were translated when initially recognised during the year or in previous financial statements are recognised in the income statement for the year in which they originated. Exchange rate differences arising from a monetary item that forms part of a net investment in a foreign operation of an entity that prepares financial statements are recognised in the income statement of the individual company financial statements of the entity that prepares the financial statements or the individual company financial statements of the foreign operation. When a profit or loss on a non-monetary item is recognised directly in equity, each change in that profit or loss is also recognised directly in equity. However, when a profit or loss on a non-monetary item is recognised in the income statement each change in that profit or loss is recognised in the income statement. 14. Other information - Treasury shares Treasury shares if present in portfolio are deducted from equity. No profit or loss arising from the purchase, sale, issue or cancellation of treasury shares is recognised in the income statement. The differences between the purchase and sale price arising from these transactions are recorded in equity reserves. - Provisions for guarantees granted and commitments Provisions made on a case by case and collective basis to estimate possible payments to be made connected with the assumption of credit risks attaching to guarantees granted and commitments assumed are calculated by applying the same criteria as that reported for loans. These provisions are recognised within the item 100 Other liabilities against the item in the income statement 130d Net impairment losses on: other financial transactions. - Employee benefits Definition Employee benefits are defined as all forms of consideration given by an enterprise in exchange for services rendered by employees. Employee benefits can be classified as follows: 4 Monetary items are defined as relating to determined sums in foreign currency, which is to say to assets and liabilities which must be received or paid for a determined amount in foreign currency. The defining characteristic of a monetary item is therefore the right to receive or an obligation to pay a set or calculable number of foreign currency units. 5 See the note on monetary items for the contrary. 99* Notes to the separate financial statements

101 short-term employee benefits (not including benefits due to employees for severance payments and benefits paid in the form of equity instruments) due entirely within twelve months after the service is rendered by employees; post-employment benefits due after the contract of employment has terminated; post-employment benefit plans subsequent to the termination of the employment contract and that is agreements whereby the enterprise provides benefits subsequent to the termination of the employment contract; long-term benefits, other than the previous, due entirely within the twelve months subsequent to the end of the financial year in which employee rendered the relative service. Post-employment benefits and defined service provisions Recognition criteria Following the reform of supplementary pensions pursuant to Legislative Decree No. 252/2005, portions of post-employment benefit funds maturing from 1 st January 2007 constitute a defined benefit plan. The liability relating to those portions is measured on the basis of the contributions due without the application of any actuarial methods. However, post-employment benefits maturing up until 31 st December 2006 continue to constitute a post-employment benefit belonging to the defined benefit plan series and as such require the amount of the obligation to be determined on an actuarial basis and to be discounted to present values because the debt may be extinguished a long time after the employees have rendered the relative service. The amount is accounted for as a liability amounting to: (a) the present value of the defined benefit obligation as at the reporting date; (b) plus any actuarial gains (less any actuarial losses) recognised in a separate reserve in equity; (c) less any pension costs relating to past service rendered not yet recognised; (d) less the fair value at the reporting date of any assets at the service of the plan. Measurement criteria As concerns the accounting treatment for actuarial gains/losses, the Bank has opted for direct recognition of these items within fair value reserves in equity. Actuarial gains/losses comprise adjustments arising from the reformulation of previous actuarial assumptions as a result of actual experience or from changes in the actuarial assumptions themselves. The Projected Unit Credit Method is used to calculate the present value. This considers each single period of service as giving rise to an additional unit of severance payment and therefore measures each unit separately to arrive at the final obligation. This additional unit is obtained by dividing the total expected service by the number of years that have passed from the time service commenced until the expected payment date. Application of the method involves making projections of future payments based on historical analysis of statistics and of the demographic curve and discounting these flows on the basis of market interest rates. The rate used for discounting to present value is calculated with reference to market interest rates published on the reporting date of bonds issued by major companies, as the average of the swap, bid and ask rates appropriately interpolated for intermediate maturity dates. Stock Options/Stock Grants Stock option and stock granting plans are defined as personnel remuneration schemes where the service rendered by an employee or a third party is remunerated by using equity instruments (including options on shares). The cost of these transactions is measured at the fair value of equity instruments granted and is recognised in the income statement under item 150 Administrative expenses a) 100* Notes to the separate financial statements

102 personnel expense on a straight line basis over the original life of the plan. The fair value determined relates to the equity instruments granted at the time of grant and takes account of market prices, if available, and the terms and conditions upon which the instruments were granted. - Segment reporting Segment reporting is defined as the manner in which financial information on an enterprise is reported by operating segment. No segment reporting is given in this document because the separate company Annual Report for UBI Banca is published together with the consolidated annual report of the UBI Banca Group which gives that information for the Group as a whole. - Revenues Definition Revenues are the gross inflow of economic benefits resulting from business arising from the ordinary operating activities of an enterprise. These inflows create an increase in equity other than an increase resulting from payments made by shareholders. Recognition criteria Revenues are measured at the fair value of the consideration received or due and are recognised in the accounts when they can be reliably estimated. The result of the rendering of services can be reliably estimated when the following conditions are met: the amount of revenue can be measured reliably; it is probable that the economic benefits arising from the transaction will flow to the company; the stage of completion of the operation as at the reporting date can be measured reliably; the costs incurred, or to be incurred, to complete the transaction can be measured reliably. Revenue recognised in return for services rendered is recognised by reference to the stage of completion of the transaction. Revenue is only recognised when it is probable that the economic benefits arising from the transaction will be enjoyed by the company. Nevertheless when the recoverability of an amount already included within revenues is uncertain, the amount not recoverable or the amount for which recovery is no longer probable is recognised as a cost instead of adjusting the revenue originally recognised. Revenue arising from the use by third parties of the company s assets which generate interest or dividends are recognised when: it is probable that the economic benefits arising from the transaction will be received by the enterprise; the amount of the revenue can be reliably measured. Interest is recognised on an accruals basis that takes into account the effective yield of the asset. In detail: interest income includes the amortisation of any discounts, premiums or other differences between the initial carrying amount of a security and its value at maturity; arrears of interest that are considered recoverable are recognised within the item 10 Interest and similar income, but only the part considered recoverable. Dividends are recognised when shareholders acquire the right to receive payment. 101* Notes to the separate financial statements

103 Expenses or revenues resulting from the sale or purchase of financial instruments, determined by the difference between the amount paid or received for the transaction and the fair value of the instrument are recognised in the income statement on initial recognition of the financial instrument when the fair value is determined: by making reference to current and observable market transactions in the same instrument; by using valuation techniques which use, as variables, only data from observable markets. - Expenses Expenses are recognised in the accounts at the time at which they are incurred while following the criteria of matching expenses to revenues that result directly and jointly from the same transactions or events. Expenses that cannot be associated with revenues are recognised immediately in the income statement. Expenses directly attributable to financial instruments measured at amortised cost and determinable from the outset, regardless of the time at which they are settled, flow to the income statement by applying the effective interest rate, a definition of which is given in the section Loans and receivables. Impairment losses are recognised through profit and loss in the year in which they are measured. 102* Notes to the separate financial statements

104 A.3 INFORMATION ON FAIR VALUE A.3.1 Transfers between portfolios The Bank has performed no reclassifications either in the current year, or in the previous year in financial asset portfolios from asset classes recognised at fair value into classes recognised at amortised cost on the basis of the options introduced by EC Regulation No. 1004/2008 of the European Commission. A.3.2 Fair value hierarchy Part A.3 of the Notes to the consolidated financial statements may be consulted for the relative information, which includes a description of the measurement methods used. A Accounting portfolios: distribution by fair value level Financial assets/liabilities measured at fair value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Financial assets held for trading 3,327,983 1,424,233 13,947 2,067,724 1,432,237 15, Financial assets designated at fair value 109,664-13, ,846-21, Available-for-sale financial assets 10,810,410 1,036, ,626 5,627,355 1,015,046 63, Hedging derivatives - 925, ,454 - Total 14,248,057 3,386, ,290 7,799,925 3,063, , Financial liabilities held for trading 1,163,939 1,389, ,088 1,409, Financial liabilities designated at fair value Hedging derivatives - 1,307, ,024 - Total 1,163,939 2,696, ,088 2,307, * Notes to the separate financial statements

105 A Annual changes in financial assets recognised at fair value (Level 3) FINANCIAL ASSETS held for trading designated at fair value available-for-sale hedges 1. Opening balances 15,936 21,328 63, Increases 385 2,337 53, Purchases - - 1, Profits recognised in: 385 2,337 7, Income statement 385 2, of which gains Equity X X 7, Transfers from other levels , Other increases Decreases (2,374) (9,948) (8,583) Sales (397) - (7,345) Redemptions - (3,817) Losses recognised in: (1,944) (5,832) (1,030) Income statement (1,944) (5,832) (79) - - of which losses (1,944) (5,827) Equity X X (951) Transfers to other levels Other decreases (33) (299) (208) - 4. Closing balances 13,947 13, ,626 - Within the increases, item 2.3 transfers from other levels contains the equity investments in the companies SACBO Società per l Aeroporto Civile Orio al Serio, Sia Spa and Siteba Spa transferred to level three in compliance with the methodology described in point A.3.2. The most significant losses charged to the income statement regarded the following: impairment losses on equity investments in the companies Manisa Srl amounting to 414 thousand and Medinvest International Sca amounting to million and impairment losses on hedge funds of 137 thousand for activities held for trading; and impairment losses on hedge funds of 5.8 million for assets designated at fair value. A Annual changes in financial liabilities recognised at fair value (level 3) UBI Banca does not hold any financial liabilities designated at fair value. A.3.3 Information on day one profit/loss The information relates to paragraph 28 of the IFRS which concerns differences between transaction prices and the value obtained by using measurement techniques that emerge on initial recognition and that are not immediately recognised through profit and loss on the basis of paragraphs AG76 and AG76A of IAS 39. Where this type of event occurs, indication must be given of the accounting policies adopted by the bank for recognition through profit or loss of the differences that arise in this manner subsequent to initial recognition of the instrument. UBI Banca has not performed any transactions for which a difference between the purchase price and the value of the instrument obtained using internal measurement techniques has arisen on initial recognition. 104* Notes to the separate financial statements

106 Part B Notes to the balance sheet ASSETS Section 1 Cash and cash equivalents - Item Cash and cash equivalents: composition a) Cash in hand 203, ,014 b) Deposits with central banks - - Total 203, ,014 The amount for cash and cash equivalents relates to the centralisation at the Parent of the central treasury service for all the banks of the Group. 105* Notes to the separate financial statements

107 Section 2 Financial assets held for trading - Item Financial assets held for trading: composition by type Items/Amounts A. On-balance sheet assets Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt instruments 3,323,666-5,224 2,066,558-5, Structured instruments - - 5, , Other debt instruments 3,323, ,066, Equity instruments 2,573-5, , Units in O.I.C.R. (collective investment instruments) - - 1, , Financing Repurchase agreements Other Total A 3,326,239-11,662 2,067,504-13,283 B. Derivative instruments 1. Financial Derivatives: 1,744 1,424, ,432, for trading 1,744 1,424, ,432, connected with the fair value options other Credit derivatives: - - 2, , for trading - - 2, , connected with fair value options other Total B 1,744 1,424,233 2, ,432,237 2,653 Total (A+B) 3,327,983 1,424,233 13,947 2,067,724 1,432,237 15,936 Structured debt instruments classified within level 3 relate to an investment in the instrument ORIO Finance TV Class C for a remaining amount of 5.2 million, while equity instruments in this level include investments in the companies Manisa Srl amounting to 3.1 million and in Medinvest International Sca amounting to 2.3 million. Units in O.I.C.R.s (collective investment instruments) consist of the remaining investments in hedge funds. Derivatives held for trading consist of the fair value of credit default swaps connected with preference share issues and amounted to 2.3 million. 106* Notes to the separate financial statements

108 2.2 Financial assets held for trading: composition by borrowers/issuers Ite m s / A m o unts A. A S S ETS 1. D e bt ins trum e nts 3,3 2 8, ,0 7 1,5 8 7 a) Go vernments and Central Banks 3,323,651 2,066,452 b) Other public autho ritie s - 7 c) Banks d) Other is s uers 5,224 5, Equity ins trum e nts 7, ,7 5 3 a) Banks 1,557 - b) Other is s uers : 6,384 7,753 - ins uranc e c o mpa nie s fina ncial co mpanies 2,282 6,807 - no n financ ial c o mpa nie s 4, o the r Units in O.I.C.R. (co llective inves tme nt ins truments ) 1, , F ina nc ing - - a) Go vernments and Central Banks - - b) Other public autho ritie s - - c) Banks - - d) Other - - To ta l A 3,3 3 7, ,0 8 0,7 8 7 B. D ER IVA TIVE IN S TR UM EN TS a) Banks - fair value 1,186,302 1,256,890 b) Cus to mers - fair value 241, ,220 To ta l B 1,4 2 8, ,4 3 5,110 To ta l (A +B ) 4,7 6 6,16 3 3,5 15, * Notes to the separate financial statements

109 2.3 Financial assets held for trading: annual changes Debt instruments Equity instruments Units in O.I.C.R. (collective investment instruments) Financing Total Opening balances 2,071,587 7,753 1,447-2,080,787 B. Increases 20,130,642 3, ,134,502 B.1 Purchases 18,861,592 3, ,864,700 B.2 Positive changes in fair value 27, ,293 B.3 Other changes 1,241, ,241,509 C. Decreases (18,873,339) (3,492) (557) - (18,877,388) C.1 Sales (16,892,674) (1,822) - - (16,894,496) C.2 Redemptions (1,517,390) - (397) - (1,517,787) C.3 Negative changes in fair value (2) (1,442) (137) - (1,581) C.4 Transfers to other portfolios C.5 Other changes (463,273) (228) (23) - (463,524) D. Final balances 3,328,890 7,941 1,070-3,337,901 Within debt instruments, item B.3 other changes (increases), an amount of 1,163.9 million relates to uncovered short positions existing at the end of the year, while item C.5, other changes (decreases), includes an amount of million relating to the total uncovered short positions existing at the end of the year before. Section 3 Financial assets designated at fair value - Item Financial assets designated at fair value: composition by type Items/Amounts Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt instruments Structured instruments Other debt instruments Equity instruments Units in O.I.C.R. (collective investment instruments) 109,664-13, ,846-21, Financing Structured Other Total 109,664-13, ,846-21,328 Cost 109,664-13, ,846-21,328 Level 1 investments consisted of a hedge fund of the company Tages Capital Sgr. The amount stated within level 3 relates to the remaining non-group hedge funds. 108* Notes to the separate financial statements

110 3.2 Financial assets designated at fair value: composition by debtors/issuers Ite m s / A m o unts D e bt ins trum e nts - - a) Go vernments and Central Banks - - b) Other public autho ritie s - - c) Banks - - d) Other is s uers Equity ins trum e nts - - a) Banks - - b) Other is s uers : ins uranc e c o mpa nie s fina ncial co mpanies no n financ ial c o mpa nie s o the r Units in O.I.C.R. (co llec tive inves tment ins truments ) 12 3, , F ina nc ing - - a) Go vernments and ce ntra l banks - - b) Other public autho ritie s - - c) Banks - - d) Other - - To ta l 12 3, , Financial assets designated at fair value: annual changes D e bt ins trum e nts Equity ins trum e nts Units in O.I.C.R. (co llective inves tment ins truments ) F ina nc ing To ta l Ope ning ba la nc e s , ,17 4 B. Inc re a s e s , ,15 5 B.1 P urcha s es ,000-20,000 B.2 P o s itive c hange s in fair value - - 4,464-4,464 B.3 Other changes - - 2,691-2,691 C. D e c re a s e s - - (2 9,9 4 8 ) - (2 9,9 4 8 ) C.1 Sales C.2 Re demptio ns - - (23,697) - (23,697) C.3 Ne gative c hanges in fair value - - (5,827) - (5,827) C.4 Other changes - - (424) - (424) D. F ina l ba la nc e s , ,3 8 1 The majority of the amounts for purchases and sales relate to transactions performed during the year for investments and disposals of units in the funds of the company Tages Spa. Further information concerning changes is given at the foot of Table 7.1 in Income Statement Section 7 Net value change in financial assets/liabilities designated at fair value, which may be consulted. 109* Notes to the separate financial statements

111 Section 4 Available-for-sale financial assets - Item Available-for-sale financial assets: composition by type It e m s / A m o unts Le v e l 1 Le v e l 2 Le v e l 3 Le v e l 1 Le v e l 2 Le v e l 3 1. Debt ins truments 10,622, ,442 1,550 5,347, ,770 6, Structured ins truments 167, , Other debt ins truments 10,455, ,442 1,550 5,272, ,770 6, Equity ins truments 150, , ,568 45,131 56, Meas ured at fair value 150, , ,568 45,131 42, Meas ured at co s t - - 3, , Units in O.I.C.R. (co llective inves tment ins trum ents ) 37,894 51,878-39,004 61, Financing To t a l 10,8 10,4 10 1,0 3 6, , ,6 2 7, ,0 15, ,4 13 Item 1 Debt instruments consists mainly of government securities. The main debt instruments measured at fair value were as follows: SACBO SpA: 37.3 million; Istituto Centrale Banche Popolari Italiane: 32.4 million; Sia SpA: 12.9 million; Autostrada Pedemontana Lombarda SpA: 9.3 million; and Unione Fiduciaria SpA: 3.2 million. Debt instruments with a subordination clause not belonging to Group banks amounted to million. Other debt instruments classified within level three consisted of the security Banca Lombarda Preferred Capital Company Class A amounting to 1.55 million. The securities measured at fair value were Intesa Sanpaolo SpA, amounting to million and A2A SpA, amounting to 4.9 million. Instruments measured at cost were recognised at the purchase price because it is not possible to measure the fair value reliably. The main security recognised at cost was Net Insurance Spa, amounting to 2.8 million, while other smaller companies came to 0.8 million. Item 2, Equity instruments, in level 3, includes non-significant investments held for institutional purposes or for the development of commercial agreements. The units in O.I.C.R.s Level 1 relate to investments in the Polis Portafoglio Immobiliare fund amounting to 8.4 million, to the Trackers EURSTOXX50 ETF amounting to 19.5 million and to the LYXOR EU ST50 ETF amounting to 9.9 million. The units classified within level two relate to investments in private equity funds. 110* Notes to the separate financial statements

112 4.2 Available-for-sale financial assets: composition by debtors/issuers Ite m s / A m o unts D e bt ins trum e nts 11,6 0 8, ,2 6 3,0 4 8 a) Go vernments and Central Banks 10,555,429 5,166,877 b) Other public autho rities - - c) Banks 824, ,689 d) Other is s uers 228, , Equity ins trum e nts 2 5 7, ,6 17 a) Banks 178, ,840 b) Other is s uers : 78,933 77,777 - ins uranc e c o mpa nie s 2,825 2,825 - fina ncial co mpanies 5,703 5,859 - no n financ ial c o mpa nies 70,154 69,093 - o the r Units in O.I.C.R. (c o llective inves tment ins truments ) 8 9, , F ina nc ing - - a) Go vernments and Central Banks - - b) Other public autho rities - - c) Banks - - d) Other - - To ta l 11,9 5 5, ,7 0 5, Available-for-sale financial assets: subject to specific hedging Items/Amounts Financial assets subject to fair value specific hedge a) interest rate risk 3,752,525 3,467,694 b) price risk - - c) currency risk - - d) credit risk - - e) multiple risks Financial assets subject to cash flow specific hedge a) interest rate risk - - b) currency risk - - c) other - - Total 3,752,525 3,467,694 The assets subject to specific fair value hedges on interest rate risk consisted of debt instruments issued by the Italian government and by major Italian banks. The measurment of the assets in question and the relative hedging contracts resulted in the recognition of income of 3.2 million within item 90 of the income statement, Net hedging income. 111* Notes to the separate financial statements

113 4.4 Available-for-sale financial assets: annual changes Debt instruments Equity instruments Units in O.I.C.R. (co llec tive inves tment ins truments ) Financing Opening balances 6,263, , ,149-6,705,814 B. Increases 12,082,438 43,876 25,526-12,151,840 B.1. Purchases 10,906,133 1,645 17,238-10,925,016 B.1.1 Purchases 10,906,133 1,048 17,238-10,924,419 B.1.2 Business combination (+) B.2 Positive changes in fair value 1,002,838 27,943 4,130-1,034,911 B.3 Reversal of impairment losses ,346-3,776 - recognised in the income statement - X recognised in equity ,346-3,776 B.4 Transfers from other portfolios B.5 Other changes 173,467 13, ,137 C. Decreases (6,737,059) (129,336) (35,903) - (6,902,298) C.1 Sales (6,519,751) (93,397) (11,977) - (6,625,125) C.2 Redemptions (214,020) - (3,630) - (217,650) C.3 Negative changes in fair value (2,773) (951) (1,817) - (5,541) C.4 Impairment losses - (34,863) (18,427) - (53,290) - recognised in the income statement - (34,863) (18,427) - (53,290) - recognised in equity C.5 Transfers to other portfolios C.6 Other changes (515) (125) (52) - (692) D. Final balances 11,608, ,157 89,772-11,955,356 Total Purchases of debt instruments consisted of 10.9 billion in Italian government securities. Against these sales of government securities (and, to a minimal extent, of non-group bonds) of 6.5 billion were also recognised during the year. Redemptions of maturing securities came to 50 million for government securities and 164 million for bonds (of which 4 million pertained to Group securities). The effects of the narrowing of the BTP/Bund spread entailed an improvement in the market value of debt instruments with a relative positive net impact on the fair value reserve of 855 million and on other non-group bonds of million. Purchases of equity instruments concerned: Autostrade Lombarde amounting to 0.8 million, European Data Warehouse amounting to 0.25 million and Visa Inc. SpA amounting to 0.6 million. The latter was acquired as part of the merger of Banca 24-7 into the Bank. Purchases of O.I.C.R.s pertained to the LYXOR EU ST50 ETF amounting to 9.9 million and units of private-equity funds amounting to 7.3 million. The impairment losses charged to the income statement on equity instruments were as follows: - A2A SpA, amounting to 3.5 million, in relation to which a positive equity reserve of 165 thousand was recognised; - Intesa Sanpaolo SpA, amounting to 34.3 million, in relation to which an increase in equity of 20.2 million was recognised. The following table presents the details of the equity investment in Intesa Sanpaolo SpA. 112* Notes to the separate financial statements

114 number of shares price impairment loss carrying recognised in the amount/sales value income statement profit recognised in the income statement revaluation recognised in the equity reserve ,215, ,315,798 (108,774,070) sales 69,207, ,901,806 13,527, ,007, ,310,074 (30,834,872) 20,203,410 The profit realised is to be increased by the gain of 1.3 million pertaining to the exercise of the underlying put option, recognised under item 80 of the income statement, Net trading income from. Impairment losses on O.I.C.R.s charged to the income statement regarded the Centrobanca Sviluppo Impresa fund amounting to 12.5 million, the Polis Portafoglio Immobiliare fund amounting to 4.4 million and other private equity funds amounting to 1.5 million. Section 5 Held-to-maturity investments Item Held-to-maturity investments: composition by type Carrying amount Fair value Carrying Fair value Level 1 Level 2 Level 3 amount Level 1 Level 2 Level 3 1. Debt instruments 3,158,013 3,243, structured other 3,158,013 3,243, Financing These are government securities purchased during the year with the aim of supporting the contribution to net interest income. 5.2 Held-to-maturity investments: composition by debtors/issuers Type o f tra ns a c tio n/ Va lue s D e bt ins trum e nts 3,15 8, a) Go vernments and Central Banks 3,158,013 - b) Other public autho rities - - c) Banks - - d) Other is s uers F ina nc ing - - a) Go vernments and Central Banks - - b) Other public autho rities - - c) Banks - - d) Other - - To ta l 3,15 8, * Notes to the separate financial statements

115 5.3 Held-to-maturity investments subject to specific hedging There are no held-to-maturity investments subject to specific hedging. 5.4 Held-to-maturity investments: annual changes Debt instruments Financing Total Opening balances B. Increases 3,188,073-3,188,073 B.1 Purchases 3,188,073-3,188,073 B.2 Reversals of impairment losses B.3 Transfers from other portfolios B.4 Other changes C. Decreases (30,060) - (30,060) C.1 Sales C.2 Redemptions C.3 Impairment losses C.4 Transfers to other portfolios C.5 Other changes (30,060) - (30,060) D. Final balances 3,158,013-3,158,013 Section 6 Loans and advances to banks - Item Loans and advances to banks: composition by type Type of transaction/amounts A. Loans to central banks 1. Term deposits Compulsory reserve requirement 917, , Repurchase agreements Other - - B. Loans to banks 1. Current accounts and deposits 2,340,057 2,265, Term deposits 3,211,629 10,258, Other financing: 5,194,158 5,876, Reverse repurchase agreements 4,622,451 5,291, Finance leases other 571, , Debt instruments 4,166,951 11,228, Structured instruments 603,873 4,705, Other debt instruments 3,563,078 6,522,620 Total (carrying amount) 15,830,498 30,224,290 Total (fair value) 15,673,391 28,902,254 UBI Banca performs its lending activities mainly to the banks in the Group. The sharp decrease in investments in deposits and reverse repurchase agreements compared with the previous year was almost entirely the result of the exposure to Banca 27-7 SpA as at December 2011 and eliminated following the merger of the latter. 114* Notes to the separate financial statements

116 The main items included the following: - current accounts and deposits with Group banks amounting to 638 million and 1,702 million with other banks (mainly margin deposits on derivatives); - term deposits with Group banks amounting to 3.2 billion (including 200 million with subordination clauses) and 2.7 million with other banks; - reverse repurchase agreements entered into with Group banks amounting to 3.7 billion and with other institutions amounting to 954 million; - intragroup debt instruments amounting to 4.1 billion ( 10 million with subordination clauses) and with other banks amounting to 50 million. 6.2 Loans and advances to banks subject to specific hedging The Bank has no specific hedging contracts for loans to banks. 6.3 Finance leases The Bank has no existing loans for finance leases. 115* Notes to the separate financial statements

117 Section 7 Loans and advances to customers - Item Loans and advances to customers: composition by type Type of transaction/amounts Performing Deteriorated Performing Deteriorated Purchased Other Purchased Other 1. Current account overdrafts 746, ,202, Reverse repurchase agreements 2,084, ,408, Long-term loans 6,042, , , Credit cards, personal loans and salary-backed loans 1,569,111-87, Finance leases Factoring Other financing 11,304,602-25,008 9,894, Debt instruments 321, , Structured instruments 321, , Other debt instruments , Total (carrying amount) 22,067, ,918 15,692, Total (fair value) 22,612, ,918 15,622, UBI Banca s lending to customers also consists mainly of loans to Group member companies. However, following the merger of Banca 24-7, UBI Banca acquired its loans to ordinary customers, with impacts on the items mortgages, credit cards and personal loans and other transactions. A summary of the main items is given below: - current accounts, which accounted for intragroup transactions amounting to 451 million (of which 333 million for margin deposits on securitisation transactions). The approximately 295 million which remained related to positions with major financial institutions; - reverse repurchase agreements entered into with UBI Leasing SpA amounted to 1.5 billion, those with the Cassa di Compensazione e Garanzia SpA (a central counterparty clearing house) to 463 million and those with other financial institutions to 156 million; - mortgages relate almost esclusively to non-intragroup loans to ordinary customers; - other transactions mainly regarded funding for Group member companies amounting to 10.9 billion, security deposits with Cassa di Compensazione e Garanzia Spa amounting to 144 million and interest bearing postal bonds amounting to 27 million. The item also includes the loans to ordinary customers deriving from the assets of the merged Banca 24-7, amounting to 200 million; - debt instruments pertain to intragroup transactions and are all subject to subordination clauses. 116* Notes to the separate financial statements

118 7.2 Loans and advances to customers: composition by debtors/issuers Type o f tra ns a c tio n/ A m o unts P e rfo rm ing D e te rio ra te d D e te rio ra te d P e rfo rm ing P urc ha s e d Othe r P urc ha s e d Othe r 1. D e bt ins trum e nts 321, , a) Go vernments b) Other public autho rities c) Other is s uers 321, , no n financial co mpanies financial ins titutio ns 321, , ins urance co m panies o ther F ina nc ing to : 21,746, ,918 15,266, a) Go vernments b) Other public autho rities c) Other 21,746, ,918 15,266, no n financial co mpanies 129,748-6,848 75, financial ins titutio ns 15,305, ,070, ins urance co m panies 98, , o ther 6,213, ,037 22, To ta l 2 2,0 6 7, , ,6 9 2, Loans and advances to customers: assets subject to specific hedging Type of transaction/amounts Loans subject to fair value specific hedge: a) interest rate risk 148,563 82,389 b) currency risk - - c) credit risk - - d) multiple risks Loans subject to cash flow specific hedge: a) interest rate risk - - b) currency risk - - c) other - - Total 148,563 82,389 The assets subject to specific fair value hedges on interest rate risk consisted of loans the measurement of which, along with that of the relative hedging contracts, entailed the recognition under item 90 of the income statement, Net hedging income, of a gain of 76 thousand. 7.4 Finance leases No finance leases with customers were recognised. 117* Notes to the separate financial statements

119 Section 8 Hedging derivatives - Item Hedging derivatives: composition by type of hedge and hierarchical level NOMINAL FAIR VALUE AMOUNT FAIR VALUE L1 L2 L3 L1 L2 L3 NOMINAL AMOUNT A. Financial derivatives - 925,693-13,828, ,454-11,871,024 1) Fair value - 925,693-13,828, ,454-11,871,024 2) Cash flow ) Foreign investments B. Credit derivatives ) Fair value ) Cash flow Total - 925,693-13,828, ,454-11,871, Hedging Derivatives: composition by portfolios hedged and type of hedge Transactions /Type of hedge Fair Value Cash flow Foreign investments Specific Macro-hedge Specific Macro-hedge Interest rate risk Currency risk Credit risk Price risk Multiple risks 1. Available-for-sale financial assets X - X X 2. Loans X - X - X X 3. Held-to-maturity investments X - - X - X - X X 4. Portfolio X X X X X - - X 5, Other transactions Total assets Financial liabilities 925, X - X - X X 2. Portfolio - - X Total liabilities 925, Expected transactions X X X X X X - X X 2. Portfolio of financial assets and liabilities X X X X X - X - - With regard to the details of the composition of the portfolios hedged, financial liabilities (consisting of bonds) include a positive amount of 925 million for hedging derivatives. 118* Notes to the separate financial statements

120 Section 9 Change in the fair value of financial assets subject to macrohedge - Item Fair value change in hedged assets: composition by portfolios hedged Fair value change in hedged assets / Amounts Positive changes 1.1 of specific portfolios: 196,828 - a) loans and receivables 196,828 - b) available-for-sale financial assets general Negative changes 2.1 of specific portfolios - - a) loans and receivables - - b) available-for-sale financial assets general - - Total 196, Assets subject to interest rate risk macro hedge Hedged assets Loans 1,199, Available-for-sale financial assets Portfolio - - Total 1,199,726 - On the whole, the assets subject to macro fair value hedges on interest rate risk consisted of loans the measurement of which, along with that of the relative hedging contracts, entailed the recognition under item 90 of the income statement, Net hedging income (loss), of a positive amount of 1 million. 119* Notes to the separate financial statements

121 Section 10 Equity investments - Item Equity investments in subsidiaries, companies subject to joint control and to significant influence: information on investments Name Registered address Percentage owned A. Companies subject to exclusive control Banca Carime Spa Cosenza 92.84% Banca di Valle Camonica Spa Breno (Bs) 74.24% Banca Lombarda Preferred Capital Company Llc Delaware (USA) % Banca Lombarda Preferred Securities Trust Delaware (USA) % Banca Popolare Commercio e Industria Spa Milan 75.08% Banca Popolare di Ancona Spa Jesi (An) 92.97% Banca Popolare di Bergamo Spa Bergamo % Banca Regionale Europea Spa Cuneo 79.83% Banco di Brescia San Paolo CAB Spa Brescia % Banque de Dépôts et de Gestion Sa Lausanne (Switzerland) % BPB Funding Llc Delaware (USA) % BPB Immobiliare Srl Bergamo % BPCI Funding Llc Delaware (USA) % Centrobanca Spa Milan 94.32% Coralis Rent Srl Milan % IW Bank Spa Milan 75.37% Lombarda Lease Finance 4 Srl Brescia 10.00% Prestitalia Spa Bergamo % Società Bresciana Immobiliare Mobiliare - S.B.I.M. Spa Brescia % Società Lombarda Immobiliare Srl - SOLIMM Brescia % UBI Academy Scarl Bergamo 68.50% UBI Banca International Sa Luxembourg 91.20% UBI Banca Private Investment Spa Brescia % UBI Factor Spa Milan % UBI Fiduciaria Spa Brescia % UBI Finance CB 2 Srl Milan 60.00% UBI Finance Srl Milan 60.00% UBI Finance 2 Srl Brescia 10.00% UBI Finance 3 Srl Brescia 10.00% UBI Lease Finance 5 Srl Milan 10.00% UBI Leasing Spa Brescia 98.99% UBI Pramerica SGR Spa Bergamo 65.00% UBI Sistemi e Servizi SCpA Brescia 70.36% UBI SPV BBS 2012 Srl Milan 10.00% UBI SPV BPA 2012 Srl Milan 10.00% UBI SPV BPCI 2012 Srl Milan 10.00% 24-7 Finance Srl Brescia 10.00% B. Companies subject to joint control C. Companies subject to significant influence Aviva Vita Spa Milan 50.00% Aviva Assicurazioni Vita Spa Milan 50.00% By you Spa Milan 10.00% Capital Money Spa Milan 20.67% Lombarda China Fund Management Company Shanghai (China) 49.00% Lombarda Vita Spa Brescia 40.00% Polis Fondi SGRpA Milan 19.60% Prisma Srl Milan 20.00% SF Consulting Srl Bergamo 35.00% UBI Assicurazioni Spa Milan 50.00% The percentages of the voting rights held by UBI Banca Scpa are the same as the percentage interests held in each company. The percentage ownership reported for Banca Regionale Europea Spa relates to the ordinary shares held. If the privileged and savings shares are also included then the percentage interest held is 74.72%. 120* Notes to the separate financial statements

122 10.2 Equity investments in subsidiaries, companies subject to joint control and to significant influence: accounting information Name Total assets Total revenues Profit (Loss) Equity Carrying amount A. Companies subject to exclusive control 10,553,489 Banca Carime Spa 9,184, ,893 (6,436) 1,537,458 1,476,571 Banca di Valle Camonica Spa 1,947,308 93,644 1, , ,955 Banca Lombarda Preferred Capital Company Llc 156,785 10,604 (45) Banca Lombarda Preferred Securities Trust 155,582 10, (360) 1 Banca Popolare Commercio e Industria Spa 9,779, ,351 24,003 1,184, ,609 Banca Popolare di Ancona Spa 8,841, ,868 (4,443) 867,212 1,024,937 Banca Popolare di Bergamo Spa 24,342,749 1,157, ,453 2,292,522 1,688,211 Banca Regionale Europea Spa 10,246, ,614 (26,564) 1,324,927 1,264,902 Banco di Brescia San Paolo CAB Spa 15,076, ,513 23,198 1,413,951 2,347,315 Banque de Dépôts et de Gestion Sa 405,091 15,551 (6,315) 72,396 59,045 BPB Funding Llc 303,890 20, ,000 BPB Immobiliare Srl 239,680 9,681 1, , ,898 BPCI Funding Llc 115,615 7,829 (49) 499 1,000 Centrobanca Spa 9,919, , , ,720 Coralis Rent Srl 4,467 4, , IW Bank Spa 4,219, ,862 11, ,369 90,595 Lombarda Lease Finance 4 Srl 123,567 1,998 (3) 74 1 Prestitalia Spa 3,270, ,441 (23,849) 160, ,933 Società Bresciana Immobiliare Mobiliare - S.B.I.M. Spa 67,621 6,773 1,781 45,570 60,993 Società Lombarda Immobiliare Srl - SOLIMM 3, ,790 2,587 UBI Academy Scarl 1,131 1, UBI Banca International Sa 4,441,983 91,984 2, , ,607 UBI Banca Private Investment Spa 761,172 91,865 3,180 78,109 62,795 UBI Factor Spa 2,439,618 87,221 3, , ,286 UBI Fiduciaria Spa 3,914 2,293 (193) 2,836 3,057 UBI Finance CB 2 Srl UBI Finance Srl 874, UBI Finance 2 Srl UBI Finance 3 Srl UBI Lease Finance 5 Srl 3,900, , UBI Leasing Spa 8,655, ,516 (69,810) 228,793 96,218 UBI Pramerica SGR Spa 217, ,199 39, , ,860 UBI Sistemi e Servizi SCpA 235, ,716-51,926 44,904 UBI SPV BBS 2012 Srl UBI SPV BPA 2012 Srl UBI SPV BPCI 2012 Srl Finance Srl 108 8, B. Companies subject to joint control C. Companies subject to significant influence 358,232 Aviva Vita Spa 4,659,000 1,049,900 28, ,483 77,772 Aviva Assicurazioni Vita Spa 2,371, ,100 16, ,988 59,000 By you Spa (1) 6,626 24,079 (6,625) (3,557) 901 Capital Money Spa (2) 7,187 12,372 (228) 3,422 - Lombarda China Fund Management Company 14,133 1,017 (2,381) 10,707 4,772 Lombarda Vita Spa 5,216,962 1,069,588 40, , ,755 Polis Fondi SGRpA (3) 9,692 3, ,109 2,115 Prisma Srl (61) SF Consulting Srl 7,069 6, UBI Assicurazioni Spa 712, ,744 17, ,257 48,831 Total 10,911,721 (1) The figures relate to the carrying amount as at 31 st December The company was placed in voluntary liquidation on 31 st July (2) The figures relate to the carrying amount as at 31 st December The investment was entirely written-down as at 31 st December (3) The figures relate to the carrying amount as at 30 th June There is no column for fair value in the table because the companies subject to significant influence consist entirely of companies that are not listed on active markets. 121* Notes to the separate financial statements

123 10.3 Annual changes in equity investments A. Opening balances 10,889,971 13,336,899 B. Increases 350, ,095 B.1 Purchases 305, ,505 B.1.1 Purchases 46, ,505 B.1.2 Business combinations 258,693 - B.2 Reversals of impairment losses - - B.3 Revaluations - - B.4 Other changes 45,315 78,590 C. Decreases (328,610) (2,634,023) C.1 Sales (50,367) (5,038) C.2 Impairment losses (60,718) (2,509,609) C.3 Other changes (217,525) (119,376) D. Final balances 10,911,721 10,889,971 E. Total revaluations - - F. Total impairment losses (2,348,715) (2,617,236) The main purchases made include the following transactions: - UBI Leasing Spa: 29.9 million; - IW Bank Spa: 15.5 million; - Banca Popolare di Ancona Spa: 506 thousand; Sales included: - UBI Insurance Broker: 19.1 million; - Arca Sgr: 31.2 million. As already reported in the commentary on the consolidated financial statements, the carrying amounts for equity investments are subject to systematic testing for impairment losses. During 2012, the impairment tests conducted on equity investments entailed an impairment loss of 59.3 million on UBI Leasing Spa. 122* Notes to the separate financial statements

124 10.4 Commitments relating to equity investments in subsidiaries Commitments relating to the possible exercise of options Banca Popolare Commercio e Industria/Banca Carime/Banca Popolare di Ancona bancassurance agreement with the Aviva Group: this agreement between UBI Banca and Aviva involves three call options granted to UBI on equity investments in the banks Banca Popolare Commercio e Industria, Banca Carime and Banca Popolare di Ancona, for which the trigger events are connected with the performance of the joint-venture or the termination of the distribution agreement or the exclusive distribution condition. If UBI fails to exercise the call options, Aviva will have the right from 30 th September 2016 (from 1 st January 2020 in the case of the investment in Popolare di Ancona), to exercise a put option on the same investments at a price equal to the fair value at the time of exercise Commitments relating to equity investments in companies subject to joint control Commitments connected with the possible payment of further tranches of the price No commitments connected with the possible payment of further tranches of the price exist Commitments relating to equity investments in companies subject to significant influence Commitments relating to the possible exercise of options Lombarda Vita Spa: as part of the renewal of life bancassurance agreements with the Cattolica Assicurazioni Group concluded on 30 th September 2010, the options on the respective investments in the Lombarda Vita joint venture were reformulated with purchase options only, exercisable on the basis of the occurrence of predetermined conditions. Lombarda China Fund Management Company: the partnership agreement signed between UBI Banca and Goudu Securities Banca Ltd in the asset management sector, focused on the Chinese market, involves a series of intersecting put/call options which can be exercised if determined trigger events occur concerning the respective investment held in Zhong Ou Fund Management. Recapitalisation commitments Aviva Vita Spa: on 13 th February 2012, a shareholders meeting of Aviva Vita passed a resolution to increase the share capital by a total of 15 million ( 7.5 million attributable to UBI Banca), in order to provide a more adequate solvency margin, which could be eroded by possible fluctuations in the prices of government securities held in portfolio. It granted the Board of Directors a mandate to request the payment if the solvency margin should fall below the established threshold of 120%. 123* Notes to the separate financial statements

125 Section 11 Property, plant and equipment - Item Property, plant and equipment: composition of assets valued at cost Assets/amounts A. Assets used in operations 1.1 owned 80,851 85,167 a) land 30,523 30,011 b) buildings 39,011 39,820 c) furnishings 3,822 4,964 d) electronic equipment 952 1,282 e) other 6,543 9, acquired through financial leasing - - a) land - - b) buildings - - c) furnishings - - d) electronic equipment - - e) other - - Total A 80,851 85,167 B. Assets held for investment 2.1 owned 476, ,934 a) land 241, ,709 b) buildings 234, , acquired through finance leases 29,626 30,555 a) land 15,614 15,735 b) buildings 14,012 14,820 Total B 505, ,489 Total (A+B) 586, , Property, plant and equipment: composition of assets designated at fair value or revalued The Bank has not exercised the option to designate property, plant and equipment at fair value. 124* Notes to the separate financial statements

126 11.3 Property, plant and equipment for functional use: annual changes Land Buildings Furnishings Electronic equipment Other Total A. Gross opening balances 31,351 80,936 64, , , ,775 A.1 Total net reductions in value (1,340) (41,116) (59,603) (188,126) (137,423) (427,608) A.2 Net opening balances 30,011 39,820 4,964 1,282 9,090 85,167 B. Increases ,269 3,573 B.1 Purchases ,269 2,138 B.1.1 Acquired ,148 1,580 B.1.2 Business combinations B.2 Capitalised improvement expenses B.3 Reversal of impairment losses B.4 Positive changes in fair value recognised in: a) equity b) income statement B.5 Positive exchange rate differences B.6 Transfers from properties held for investment B.7 Other changes ,269 C. Decreases - (1,737) (1,701) (635) (3,816) (7,889) C.1 Sales - - (273) (23) (96) (392) C.2 Depreciation - (1,641) (1,428) (612) (3,688) (7,369) C.3 Impairment losses recognised in: - (68) (68) a) equity b) income statement - (68) (68) C.4 Negative changes in fair value recognised in: a) equity b) income statement C.5 Negative exchange rate differences C.6 Transfers to: a) tangible assets held for investment b) assets held for sale C.7 Other changes - (28) - - (32) (60) D. Final net balances 30,523 39,011 3, ,543 80,851 D.1 Total net reductions in value (1,340) (42,853) (61,304) (188,761) (141,240) (435,498) D.2 Final gross balances 31,863 81,864 65, , , ,349 E. Value at cost * Notes to the separate financial statements

127 11.4 Property held for investment: annual changes Land Buildings A. Opening balances 271, ,292 A.1 Total net reductions in value (14,345) (275,247) A.3 Net opening balances 257, ,045 B. Increases 789 1,626 B.1 Purchases 5 20 B.2 Capitalised improvement expenses - 1,205 B.3 Positive changes in fair value - - B.4 Reversals of impairment losses - - B.5 Positive exchange rate differences - - B.6 Transfers from properties used in operations - - B.7 Other changes C. Decreases (913) (17,036) C.1 Sales - - C.2 Depreciation - (16,138) C.3 Negative changes in fair value - - C.4 Impairment losses (130) (433) C.5 Negative exchange rate differences - - C.6 Transfers to other asset portfolios: - - a) properties for use in operations - - b) non current assets held for disposal - - C.7 Other changes (783) (465) D. Final balances 257, ,635 D.1 Total net reductions in value (3,144) (14,960) D.2 Final gross balances 260, ,595 E. Fair value 252, ,064 External appraisers were appointed for impairment testing purposes to appraise the entire real estate portfolio; it found the value consistent with the carrying amounts. In this context the fair value of properties was determined on the basis of generally accepted valuation principles, by applying the following valuation criteria: - the direct comparative or market method, based on a comparison between the asset in question and other similar assets subject to sale or currently on sale on the same market or competing markets; - the income method, based on the present value of potential market incomes for a property, obtained by capitalising the income at a market rate. 126* Notes to the separate financial statements

128 Depreciation was calculated on the basis of the estimated useful life of the assets from the date on which use of the assets began. The estimated useful life for the main asset classes is given in months in the table below. Description Depreciation Useful life Land relating to properties NO Not depreciated Properties - Leased properties YES On basis of appraisal Lifting and weighing equipment YES 160 months Light constructions and scaffolding YES 120 months Furnishings and sundry fixtures YES 120 months Ordinary office furnishings and equipment YES 100 months ATM installations YES 96 months Safes and strong rooms YES 80 months Machinery and sundry equipment YES 80 months Fire fighting equipment YES 40 months Sundry machinery, furnishings and fixtures YES 80 months Bullet proof counters or with bullet proof glass YES 60 months Personal computers YES 60 months Canteen equipment YES 48 months Special internal communication equipment YES 48 months Alarm systems YES 40 months Electrical and electronic office machinery YES 30 months Motor vehicles YES 30 months Automobiles YES 24 months Leased automobiles YES Based on duration of contract 127* Notes to the separate financial statements

129 11.5 Commitments for the purchase of property, plant and equipment (IAS 16/74.c) A. Assets used in operations Assets / Amounts Owned: 278 1,131 - land buildings 222 1,131 - furnishings electronic equipment other In finance leases: land buildings furnishings electronic equipment other - - Total A 278 1,131 B. Assets held for investment 2.1 Owned: land buildings In finance leases: land buildings - - Total B - - Total A+B 278 1, * Notes to the separate financial statements

130 Section 12 Intangible assets - Item Intangible assets: composition by type of asset Assets/amounts Finite useful life Indefinite useful life Finite useful life Indefinite useful life A.1 Goodwill X - X - A.2 Other intangible assets A.2.1 Assets measured at cost: a) Internally generated intangible assets b) Other assets A.2.2 Assets at fair value a) Internally generated intangible assets b) Other assets Total * Notes to the separate financial statements

131 12.2 Intangible assets: annual changes Other intangible assets: internally Goodwill Other intangible assets: other generated Finite useful life Indefinite useful life Finite useful life Indefinite useful life A. Opening balances 569, , ,487 A.1 Total net reductions in value (569,694) - - (90,345) - (660,039) A.2 Net opening balances B. Increases B.1 Purchases B.2 Increases in intangible internal assets X B.3 Reversal of impairment losses X B.4 Positive changes in fair value in equity X in the income statement X B.5 Positive exchange rate differences B.6 Other changes C. Decreases (38) - (38) C.1 Sales C.2 Impairment losses (38) - (38) - Amortisation X - - (38) - (38) - Impairment losses equity X income statement C.3 Negative changes in fair value in equity X in the income statement X C.4 Transfers to non current assets held for sale. C.5 Negative exchange rate differences C.6 Other changes D. Final net balances D.1 Total net impairment losses (569,694) - - (90,383) - (660,077) E. Final gross balances 569, , ,487 F. Value at cost * Notes to the separate financial statements

132 12.3 Other information The useful life used for calculating the amortisation of the other finite useful life intangible assets is reported below for each type of asset Useful life Net value List of intangible assets - Software 36 months 373 There were no contractual commitments to purchase intangible assets. 131* Notes to the separate financial statements

133 Section 13 Tax assets and tax liabilities Asset item 130 and Liability item Deferred tax assets: composition Goodwill from merger realigned 812,929 Impairment losses on AFS securities 238,960 Property, plant and equipment - greater IAS depreciation 9,002 Impairment losses on loans to banks and customers and unsecured guarantees not deducted 6,714 Provisions for personnel expense 3,106 Provisions for risks and charges not deducted 8,274 Goodwill on depository bank operations from group member companies 1,577 Share capital increases deductible over five years 3,756 Mathematical reserve for Separately Managed Pension Fund former account 454 Loan impairment losses to be deducted on a straight line basis 107,882 Non recurring expenses not deducted 248 Post-employment benefit fund valuation 50 Other minor items 78 Total 1,193, Deferred tax liabilities: composition Purchase price allocation - equity investments 38,745 Revaluation of AFS securities 14,555 Property, plant and equipment - non-accounting excess depreciation deducted 5,102 Purchase price allocation - merger expenses 5,274 Intangible assets - leased properties recognised at fair value 1,370 Purchase price allocation - Bonds 79 Post-employment benefit fund valuation 73 Total 65, * Notes to the separate financial statements

134 13.3 Changes in deferred tax assets (balancing entry in income statement) Opening balance 1,051, , Increases 192, , Deferred tax assets arising during the year 70, ,396 a) relating to previous years - 33 b) due to changes in accounting policies - - c) reversals of impairment losses - - d) other 70, , New taxes or increases in tax rates Other increases - 5, Business combinations 122, Decreases (295,606) (52,383) 3.1 Deferred tax assets derecognised during the year (19,966) (47,552) a) reversals of temporary differences (19,966) (21,895) b) impairment losses on non-recoverable items - (25,657) c) due to changes in accounting policies - - d) other Reductions in tax rates Other decreases (268,551) (4,831) a) transformation in tax credits pursuant to Law 214/2011 (268,551) Business combination transactions (7,089) (4,831) 4. Final balance 948,805 1,051,472 Deferred tax assets are recorded in the accounts on the basis of the probability of there being sufficient future taxable income and also taking into account the consolidated tax regime adopted in accordance with articles 117 et seq of Presidential Decree No. 917/86. Deferred tax assets were not recognised for impairment losses on equity investments which satisfied the requirements for participation exemption. Owing to expectations of a negative taxable income for future years, which render recovery uncertain, deferred tax assets were recognised for the purposes of IRES (corporate income tax) only at a rate of 27.5% and not for the purposes of IRAP (local production tax). The opening balance is the amount for deferred tax assets arising up until 2011 with the balancing entry in the income statement. The deferred tax assets of 70,872 thousand recognised during the year included 59,764 thousand arising from the realignment of the tax and statutory values of goodwill, recognised in the consolidated financial statements in relation to the purchase of a controlling interest in Banca Popolare di Ancona, in accordance with Art. 23, paragraphs of Decree Law No. 98 of 6 th July 2011 (Law No. 111/2011) as added to and amended by Art. 20 of Decree Law No. 201 of 6 th December 2011 (Law No. 214/2011). In return for the payment of a substitute tax of 16% ( 34,772 thousand), exercising this option allows the amortisation of the amount subject to tax relief, a total of 217,322 thousand, to be tax-deductible at constant rates over ten years with effect from Consequently, in 2012 deferred tax assets of 59,764 thousand were recognised, corresponding to the future benefit arising from the deduction from IRES (corporate income tax) of amortisation on the goodwill subject to tax relief. The remaining portion of deferred IRES tax assets recognised during the year, amounting to 11,108 thousand, was generated as follows: 5,186 thousand in adjustments to loans and provisions for risks and charges recognised on the Salary Backed Loans business unit contributed by Banca 24-7 to Prestitalia prior to the former s merger; 4,086 thousand in 133* Notes to the separate financial statements

135 non-deductible provisions for risks and charges and personnel provisions; 1,162 thousand in non-deductible depreciation and amortisation; 664 thousand in impairment losses on unsecured guarantees; and 10 thousand in costs recognised during the current year but deductible in the following year. The increases of 122,067 thousand consisted of the deferred tax assets of Banca 24-7 and SILF acquired by UBI Banca due to the mergers completed during the year. Deferred taxes derecognised during the year amounted to 19,966 thousand and consisted of the following: 7,231 thousand from the recovery at constant rates of the impairment losses on the loans of the merged Banca 24-7; 6,802 thousand from the use of taxed provisions; 5,506 thousand in the adjustment of deferred taxes on the realignment of goodwill and other intangible assets applied in 2011; 323 thousand in depreciation of property, plant and equipment and other costs that became eligible for deduction during the year; 94 thousand from recoveries resulting from disbursements by the Pension Fund; and 10 thousand from the measurement of bonds to which the merger difference for 2007 was allocated (purchase price allocation). The other decreases amounted to 275,640 thousand and consisted of: 268,551 thousand from the transformation of deferred tax assets into receivables from the Treasury owing to the statutory loss reported by UBI Banca in 2011 pursuant to Law 214/2011; and 7,089 thousand in deferred tax assets on adjustments and provisions for risks pertaining to the salary backed loans business unit contributed to Prestitalia by Banca 24-7 on a tax-neutral basis prior to the merger of the latter Changes in deferred tax assets pursuant to Law No. 214/2011 (balancing entry in the income statement) Ope ning ba la nc e 1,0 2 1, , Inc re a s e s 17 4, , D e c re a s e s (2 7 5,7 8 1) (15,6 9 5 ) 3.1 Revers a ls o f te mpo rary differenc es (7,230) (15,695) 3.2 Trans fo rma tio n in tax credits (268,551) - a) re s ulting fro m lo s s fo r the year (268,551) - b) re s ulting fro m tax lo s s e s Other decrea s es F ina l ba la nc e 9 2 0,8 11 1,0 2 1, * Notes to the separate financial statements

136 13.4 Changes in deferred tax liabilities (balancing entry in income statement) Opening balance 71,040 95, Increases 72 1, Deferred tax liabilities arising during the year 72 1,060 a) relating to previous years - 4 b) due to changes in accounting principles - - c) other 72 1, New taxes or increases in tax rates Other increases Decreases (20,469) (26,563) 3.1 Deferred tax liabilities derecognised during the year (20,469) (21,859) a) reversals of temporary differences (20,469) (21,859) b) due to changes in accounting principles - - c) other Reductions in tax rates Other decreases - (4,704) 4. Final balance 50,643 71,040 Deferred tax liabilities are recognised on the basis of temporary differences between the financial accounting value of an asset or liability and its value for tax purposes. As concerns revaluations of equity investments which satisfied the requirements for equity exemption, deferred taxes were recognised on the 5% taxable portion. No deferred tax liabilities were recorded on untaxed reserves, because no events occurred to remove the tax exemption regime. For reasons that are given in the commentary to Table 13.3, deferred tax liabilities were recognised for IRES purposes only at a rate of 27.5% and not for IRAP purposes. The opening balance is the amount for deferred taxes arising up until 2011 with the balancing entry in the income statement. The deferred tax liabilities of 72 thousand recognised during the year may be attributed to depreciation of property, plant and equipment and amortisation of intangible assets relating to previous years. The deferred tax liabilities derecognised during the year came to 20,469 thousand and consisted of the following: 19,844 due to the elimination of deferred taxes owing to the tax relief on the non-accounting deductions still available as at 31 st December 2011 in connection with the loan impairment provision; 426 thousand due to the sale of the equity investment in Banco San Giorgio, revalued in previous years; 106 thousand due to the measurement of bonds dating to 2007; and 93 thousand in differences between the statutory and tax depreciation of property, plant and equipment. 135* Notes to the separate financial statements

137 13.5 Changes in deferred tax assets (balancing entry in equity) Opening balance 456, , Increases , Deferred tax assets arising during the year ,566 a) relating to previous years - - b) due to changes in accounting principles - - c) other , New taxes or increases in tax rates Other increases Decreases (212,711) (33,074) 3.1 Deferred tax assets derecognised during the year (212,711) (5,293) a) reversals of temporary differences (212,711) (5,293) b) impairment losses on non-recoverable items - - c) due to changes in accounting principles - - d) other Reductions in tax rates Other decreases - (27,781) 4. Final balance 244, ,025 The opening balance is the amount for deferred tax assets arising up until 2011 with the balancing entry in equity. Deferred tax assets recognised during the year, amounting to 911 thousand, were attributable to the valuation of securities and equity investments classified within available-for-sale financial assets. Taxes derecognised, amounting to 212,711 thousand, consisted of 211,348 thousand for the change in the value of available-for-sale securities, 1,232 thousand for expenses incurred for the share capital increase deductible in 2012 and 131 thousand for the amortisation charge on goodwill. 136* Notes to the separate financial statements

138 13.6 Changes in deferred tax liabilities (with balancing entry in equity) Opening balance 2,278 8, Increases 12, Deferred tax liabilities arising during the year 12, a) relating to previous years - - b) due to changes in accounting policies - - c) other 12, New taxes or increases in tax rates Other increases Business combinations 6-3. Decreases (417) (6,403) 3.1 Deferred tax liabilities derecognised during the year (417) (2,199) a) reversals of temporary differences (417) (2,199) b) due to changes in accounting policies - - c) other Reduction in tax rates Other decreases - (4,204) 4. Final balance 14,555 2,278 The opening balance is the amount for deferred tax arising up until 2011 with the balancing entry in equity. Deferred tax liabilities of 12,688 thousand recognised during the year, arose from fair value changes in securities classified as available-for-sale. Deferred tax liabilities derecognised during the year amounted to 417 thousand and related to the valuation of available-for-sale equity investments Other information Current tax assets The table below reports amounts for current tax assets Taxes paid on account 203,174 Withheld at source 9,869 Tax credits from transformation of DTAs in tax credits pursuant to Law 214/20 86,088 Tax credits for IRAP purposes 80,415 Other tax credits 33,254 Balance as at , * Notes to the separate financial statements

139 Current tax liabilities The table below reports amounts for current tax liabilities Balance as at ,622 Tax provision 163,287 Uses for payment of tax (206,143) Other changes (3,000) Balance as at ,766 Probability test on deferred taxes As reported in Part A Accounting policies of the notes, in accordance with the criteria set forth in IAS 12, deferred tax assets and liabilities are recognised as follows: deferred tax liabilities are recognised in respect of all taxable temporary differences, save for certain specific cases; deferred tax assets are recognised in respect of all deductible temporary differences where it is probable that taxable profit will be earned in a future period, against which that temporary difference may be used. The effects of articles 117 et seq of the Consolidated Income Tax Act are also taken into consideration when determining taxable income; Deferred tax assets are calculated on the basis of the tax rates that are expected to apply in year in which those assets will be recovered. Assets are periodically subject to testing to determine their degree of recoverability and the applicable rate levels, as well as any obligation to reassess assets that have not been recognised or have been derecognised because they did not meet the requirements. As at the date of this report, the deferred tax assets recognised under item 130 Tax assets b) deferred came to a total of 1,193 million and referred to the following trigger events: surplus impairment losses on loans pursuant to Art. 106, paragraph 3, of the Consolidated Income Tax Act: 108 million; goodwill and other intangible assets, including those subject to tax relief pursuant to the law, amortisation of which is deductible in subsequent years: 813 million, with respect to the amounts presented in both the separate and consolidated financial statements (Art. 15, paragraph 10-bis, of Decree Law No. 185/2008, introduced by Decree Law No. 98/2011, converted by Law No. 111/2011); write-downs in the AFS securities portfolio and provisions and expenses that are not deductible for accruals reasons pursuant to the Consolidated Income Tax Act: 272 million. With regard to deferred tax assets associated with impairment losses on loans and amortisation of goodwill and intangible assets, as already reported, Decree Law No. 225/2010, subsequently added to by Decree Law No. 201/2011, converted into Law No. 214/2011, Art. 9, establishes a right for companies and banks in particular to convert these assets into tax credits when losses for the year are reported in the separate financial statements and/or tax losses are incurred, where those assets have contributed to the formation of the losses concerned. Accordingly, the above new recovery procedure is in addition and supplementary to the ordinary probability test for recognition and is intended to ensure that the deferred tax assets may be recovered, regardless of the company s future profits. As stated in the 138* Notes to the separate financial statements

140 Document No. 5 of 15 th May 2012 issued by the Bank of Italy, Consob (Italian securities market authority) and ISVAP (Italian Insurance Authority), natural recovery through transfer to the respective expiry dates is now accompanied by a certain recovery method, provided that certain conditions are met, thereby ensuring that the probability test is automatically passed. In the presence of tax losses, attention should also be drawn to the amendment introduced to art. 84, paragraph 1, of the Consolidated Income Tax Act, which allows tax losses to be carried forward without time limits. On the basis of these requirements, the Bank has performed the following steps: it has identified the various types of deferred tax assets eligible for recognition and/or recognised and their ordinary recovery periods; it has identified the tax rates expected to apply at their respective expiry dates; it has forecast future profits at the level of both the separate financial statements and tax results for the purposes of IRES (corporate income tax) and IRAP (regional tax on production), while also taking account of automatic transformation into tax credits where certain circumstances occur. The calculations, which took account of the expected positive effects of the Group s recent reorganisation and restructuring initiatives, showed an entirely adequate tax base capable of permitting the recovery of the deferred tax assets recognised as at 31 st December * Notes to the separate financial statements

141 Section 14 Non current assets and liabilities and groups of assets and the associated liabilities held for disposal Asset item 140 and Liability item Non-current assets and disposal groups held for sale: composition by type of asset A. Single assets A.1 Financial assets - - A.2 Equity investments - 112,955 A.3 Property, plant and equipment 2,329 2,347 A.4 Intangible assets - - A.5 Other non current assets - - B. Groups of assets (discontinued operating units) Total A 2, ,302 B.1 Financial assets held for trading - - B.2 Financial assets designated at fair value - - B.3 Available-for-sale financial assets - - B.4 Held-to-maturity investments - - B.5 Loans and advances to banks - - B.6 Loans and advances to customers - - B.7 Equity investments - - B.8 Property, plant and equipment - - B.9 Intangible assets - - B.10 Other assets - - C. Liabilities associated with single assets held for sale Total B - - C.1 Borrowings - - C.2 Securities - - C.3 Other liabilities - - D. Liabilities associated with assets held for sale Total C - - D.1 Due to banks - - D.2 Due to customers - - D.3 Debt securities issued - - D.4 Financial liabilities held for trading - - D.5 Financial liabilities designated at fair value - - D.6 Provisions - - D.7 Other liabilities - - Total D * Notes to the separate financial statements

142 14.2 Other information There is no other significant information to report Information on equity investments in companies subject to significant influence not accounted for using the equity method There are no equity investments in companies subject to significant influence classified within non-current assets and groups of assets held for disposal. Section 15 Other assets - Item Other assets: composition Description/Amounts Balance of illiquid portfolio items 23,109 - Other assets - tax consolidation 149, ,394 Items in transit 168,182 34,725 Debtor items in transit not yet posted to destination accounts 36,704 11,283 Bills, securities, coupons and fees to be debited to customers and correspondents 22,271 21,523 Tax credits relating to prior years and related interest 3,157 - Cheques drawn on the bank 3,018 3,676 Tax credits on withholding tax 4,107 1,822 Stocks 3,603 3,606 Improvements to leased assets Accrued income Prepaid expenses 5, Sundry debtor items 64,460 45,897 Total 485, , * Notes to the separate financial statements

143 LIABILITIES Section 1 Due to banks - Item Amounts due to banks: composition by type Type o f tra ns a c tio n/ A m o unts D ue to c e ntra l ba nks 12,0 9 8,9 17 6,0 0 1, D ue to ba nks 15,9 8 2, ,2 2 6, Current a cco unts and depo s its 5,114,460 4,444, Term de po s its 9,278,069 11,174, Fina ncing 1,365,479 2,599, Repurchas e a greements 842,524 2,012, Other 522, , Amo unts due fo r co mmitments to repurchas e o wn e quity ins truments Other payables 224,509 7,864 To ta l 2 8,0 8 1, ,2 2 8,13 0 Fa ir v a lue 2 8,0 8 1, ,2 2 8,13 0 The item Due to central banks consists of the carrying amount of the financing received from the ECB. The item Due to banks current accounts and deposits includes intragroup amounts of 4.29 billion and financing from other banks of 828 million. Term deposits include financing from Group banks of 9.1 billion and financing from other banks of 159 million. Repurchase agreements include 562 million with Group counterparties and 280 million relating to positions with other banks. The item Financing other relates to outstanding transactions with the EIB. 1.2 Details of the item 10 Due to banks : subordinated liabilities Description/Amount Due to banks Subordinated 200, ,486 Subordinated liabilities due to banks related to term deposits by Banca Carime Spa. 1.3 Details of the item 10 Due to banks : structured debts The Bank has issued no structured debt to other banks. 142* Notes to the separate financial statements

144 1.4 Due to banks: liabilities subject to specific hedging Liabilities subject to fair value specific hedge: - 165,866 a) interest rate risk - 165,866 b) currency risk - - c) multiple risks Liabilities subject to specific cash flow hedge: - - a) interest rate risk - - b) currency risk - - c) other Amounts due for finance leases No amounts due to banks for finance leases have been recognised. 143* Notes to the separate financial statements

145 Section 2 Due to customers - Item Amounts due to customers: composition by type Type of transaction/amounts Current accounts and deposits 2,890,798 2,324, Term deposits 572, , Financing 4,411,448 5,089, Repurchase agreements 3,944,510 4,615, Other 466, , Amounts due for commitments to repurchase own equity instruments Other payables 22,485 35,454 Total 7,897,195 8,022,864 Fair value 7,897,195 8,022,864 The item Current accounts and deposits includes financing transactions with institutional counterparties of which 1.3 billion regards liquidity deposited by UBI Pramerica SGR funds and UBI Pramerica SGR customer portfolio managements. Repurchase agreements relate to financing transactions with Cassa di Compensazione e Garanzia SpA (a central counterparty clearing house). The item Financing other includes 441 million related to transactions with the Cassa Depositi e Prestiti (CDP state controlled fund and deposit institution). 2.2 Details of item 20 Due to customers : subordinated liabilities Description/Amount Due to customers Subordinated liabilities 572, ,996 Subordinated liabilities in respect of customers consist of deposits relating to preference share issues with: Banca Popolare di Bergamo Funding LLC for million, Banca Lombarda Preferred Capital Company LLC for million and Banca Popolare Commercio e Industria Funding LLC for million. 2.3 Details of item 20 Due to customers : structured debts The Bank has issued no structured debt to customers. 2.4 Due to customers: liabilities subject to specific hedge No outstanding amounts due to customers exist subject to specific hedges. 144* Notes to the separate financial statements

146 2.5 Amounts due for finance leases Residual debt to leasing companies - within 1 year 1,230 1,308 - between 1 and 5 years 4,189 4,298 - more than 5 years 21,003 22, * Notes to the separate financial statements

147 Section 3 Debt securities issued - Item Debt securities issued: composition by type Type of security/amounts Carrying Amount Fair Value Fair Value Carrying Amount Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Securities 1. bonds 23,405,765 18,512,245 4,406,001-27,200,141 18,319,920 6,562, structured 1,430, , ,458-2,023,673 1,319, , other 21,974,824 17,680,216 3,873,543-25,176,468 17,000,485 6,048, other securities structured other Total 23,405,765 18,512,245 4,406,001-27,200,141 18,319,920 6,562,895 - Level one structured bonds include a convertible bond issued on 10 th July 2009 with a carrying amount of million. The item other bonds includes issuances of covered bonds amounting to 5.8 billion (the carrying amount inclusive of the fair value of the delta hedge amounting to million was 6.3 billion). 3.2 Details of item 30 Debt securities issued : subordinated securities Description/Amounts Debt securities issued Debt securities issued - subordinated 4,966,003 3,954,133 A list of the individual positions is given in section 2 - Part F of this report which provides information on capital. 3.3 Debt securities issued subject to specific hedge Securities subject to specific fair value hedge: 14,717,708 12,920,504 a) interest rate risk 14,717,708 12,920,504 b) currency risk - - c) multiple risks Securities subject to specific cash flow hedge: - - a) interest rate risk - - b) currency risk - - c) other - - Greater use of bond issues and the performance of interest rates led to an increase in positions subject to fair value hedging on interest rates. The fair value change on the underlying bonds and the relative hedge contracts generated a gain of 8.8 million recognised within item 90 in the income statement Net hedging income. 146* Notes to the separate financial statements

148 Section 4 Financial liabilities held for trading - item Financial liabilities held for trading: composition by type Type of transaction/amounts A. On-balance sheet liabilities FV FV* FV NA L1 L2 L3 L1 L2 L3 1. Due to banks 1,100,000 1,163, ,163, , , , Due to customers , , , Debt instruments Bonds Structured X X Other bonds X X 3.2 Other securities Structured X X Other X X B. Derivative instruments NA Total A 1,100,000 1,163, ,163, , , , Financial derivatives X 69 1,389,220 - X 187 1,409, For trading X 69 1,389,220 - X X 187 1,409,229 - X 1.2 Connected with fair value options X X X X 1.3 Other X X X X 2. Credit derivatives X X For trading X X X X 2.2 Connected with fair value options X X X X 2.3 other X X X X Total B X 69 1,389,220 - X X 187 1,409,446 - X Total (A+B) 1,100,000 1,163,939 1,389,220-1,163, , ,088 1,409, ,901 Legend FV = fair value FV* = Fair value calculated excluding changes in value resulting from a change in the credit rating of the issuer since the date of issue NA = nominal or notional amount FV* The item Due to banks relates to outstanding uncovered short positions, of which 54 million with Italian government securities as the underlying, 434 million with German government securities as the underlying and 676 million with French government securities as the underlying. 4.2 Details of item 40 Financial liabilities held for trading : subordinated liabilities The Bank has issued no subordinated financial liabilities held for trading. 4.3 Details of item 40 Financial liabilities held for trading : structured debt The Bank has issued no structured financial liabilities held for trading. 4.4 Financial liabilities held for trading (excluding uncovered short positions ): annual changes The financial liabilities held for trading by the Bank consist solely of uncovered short positions and consequently no movements in these liabilities have been presented. 147* Notes to the separate financial statements

149 Section 5 Financial liabilities at fair value - Item 50 - The Bank holds no financial liabilities at fair value to report. Section 6 Hedging derivatives - Item Hedging derivatives: composition by type of hedge and hierarchical level N OM IN A L F air Value A M OUN T F a ir Value N OM IN A L A M O UN T L1 L2 L3 L1 L2 L3 A. F ina nc ia l de riv a tiv e s - 1,3 0 7, ,7 19, , ,3 3 4, ) Fair value - 1,307,735-4,719, ,024-4,334,863 2) Cas h flo w ) Fo reign inves tments B. C re dit de riv a tiv e s ) Fair value ) Cas h flo w To t a l - 1,3 0 7, ,7 19, , ,3 3 4, Hedging Derivatives: composition by portfolios hedged and type of hedge Trans a c t io ns / Typ e o f he d g e Fair Value C as h f lo w F o re ig n inves tments S p e c if ic M a c ro - he d g e S p e c if ic M a c ro - he d g e Int e re s t rat e ris k C urre nc y ris k C re d it ris k Pric e ris k M ult ip le ris ks 1. Available-for-sale financial assets 1,0 88, X - X X 2. Lo ans 11, X - X - X X 3. Held-to -maturity investments X - - X - X - X X 4. Po rtfolio x x x x X 2 0 5,3 69 X - X 5. Other transactions X - X - To t a l as s e t s 1,10 0, , Financial liab ilities 2, X - X - X X 2. Po rtfolio - - X To t a l lia b ilit ie s 2, Exp ected transactio ns X X X X X X - X X 2. Po rtfolio of financial assets and liabilities X X X X X - X - - With regard to specific hedges, the amount for hedging derivatives on available-for-sale financial assets relates mainly to positions on debt instruments issued by the Italian government. Hedges on loans relate to intragroup positions with UBI Leasing Spa, while for the financial liabilities, the amount for the derivatives relates to hedges on bonds. Macrohedge transactions hedges regarded the loan portfolio arising from the merger of Banca 24-7 Spa. 148* Notes to the separate financial statements

150 Section 7 Fair value change in financial liabilities subject to macrohedge - Item Fair value change in hedged liabilities The Bank has no contracts for macro-hedging of financial liabilities. Section 8 Tax liabilities - Item 80 - See Asset Section 13. Section 9 Liabilities associated with disposal groups held for sale -Item 90 - See Asset Section * Notes to the separate financial statements

151 Section 10 Other liabilities - Item Other liabilities: composition Description / Amounts Balance of illiquid portfolio items - 1,424 Other liabilities - tax consolidation 290, ,307 Credit items in transit in departments or branches pending posting to accounts 76, ,785 Items in transit 524,821 30,829 Tax withheld on income paid to third parties 7,115 12,366 Indirect taxes payable 9,366 - Dividends and sums due to shareholders Accrued expenses Deferred income 21,500 21,922 Payables for educational, cultural, charitable and social purposes 7,575 8,879 Payables for guarantees and commitments 19,864 31,734 Due to personnel 34,080 16,339 Residual creditor items 175, ,030 Total 1,168, , * Notes to the separate financial statements

152 Section 11 Post-employment benefit provision - Item Annual changes in post-employment benefits A. Opening balances 38,827 38,130 B. Increases 6,446 2,150 B.1 Allocation for the year 4,559 1,960 B.2 Other changes B.3 Business combinations 1,481 - C. Decreases (1,661) (1,453) C.1 Payments made (1,481) (1,395) C.2 Other changes (180) (58) D. Final balances 43,612 38, Other information The demographic and actuarial hypotheses adopted to value the post-employment benefit provision and leaving entitlements Method used as at Mortality rate The RGS48 tables (prepared by the State General Accounting Office) were used appropriately modified on the basis of historical data for the Group. Post-employment The probability of advance payments, calculated on the basis of historical data for the Group, benefit advances is 2% while the average amount requested is between 45% and 100% of the available provision. Inflation rates Long term forecasts of the scenario for inflation led to the use of a rate of 2%. Discount rates A discount rate of %, was used, calculated as the weighted average of the EUR Composite A curve as at , using, as weights, the ratios between the amount paid and advanced for each maturity date and the total amount to be paid and advanced until the extinction of the population considered. This was performed because IAS 19 states that reference should be made to the market yields of high quality corporate bonds, or to yields on securities with a low credit risk. By making reference to the definition of investment grade securities, where a security qualifies for that classification if its rating is equal to or higher than BBB for S&P or Baa2 for Moodys, it was decided to consider only securities issued by corporate issuers with a class A rating with the assumption that this class identifies an average level for investment grade securities and thereby excludes higher risk securities. Since IAS 19 makes no explicit reference to a specific market sector for the bonds, it was decided to opt for a composite market curve which therefore summarises the prevailing market conditions on the valuation date for securities issued by companies belonging to different sectors, including utilities, telephone, financial, banking and industrial sectors. The Euro area was used for the geographical area. 151* Notes to the separate financial statements

153 Method used as at Mortality rate The RGS48 tables (prepared by the State General Accounting Office) were used appropriately modified on the basis of historical data for the Group. Post-employment benefit The probability of advance payments, calculated on the basis of historical data for the advances Group, is 2% while the average amount requested is between 45% and 100% of the available provision. Inflation rates Long term forecasts of the scenario for inflation led to the use of a rate of 2%. Discount rates A discount rate of %, was used, calculated as the weighted average of the EUR Composite A curve as at , using, as weights, the ratios between the amount paid and advanced for each maturity date and the total amount to be paid and advanced until the extinction of the population considered. This was performed because IAS 19 states that reference should be made to the market yields of high quality corporate bonds, or to yields on securities with a low credit risk. By making reference to the definition of investment grade securities, where a security qualifies for that classification if its rating is equal to or higher than BBB for S&P or Baa2 for Moodys, it was decided to consider only securities issued by corporate issuers with a class A rating with the assumption that this class identifies an average level for investment grade securities and thereby excludes higher risk securities. Since IAS 19 makes no explicit reference to a specific market sector for the bonds, it was decided to opt for a composite market curve which therefore summarises the prevailing market conditions on the valuation date for securities issued by companies belonging to different sectors, including utilities, telephone, financial, banking and industrial sectors. The euro area was used for the geographical area. 152* Notes to the separate financial statements

154 Section 12 Provisions for risks and charges - Item Provisions for risks and charges: composition Items/Amounts Company pension funds Other provisions for risks and charges 40,286 20, litigation 14,703 3, costs for staff 9,319 11, other 16,264 5,605 Total 40,286 20, Provisions for risks and charges: annual changes Pension funds Other provisions Total A. Opening balances - 20,352 20,352 B. Increases - 52,088 52,088 B.1 Allocation for the year - 27,675 27,675 B.2 Changes due to passage of time B.3 Changes due to changes in discount rate B.4 Other changes B.5 Business combinations - 24,013 24,013 C. Decreases - (32,154) (32,154) C.1 Use for the year - (6,064) (6,064) C.2 Changes due to changes in discount rate C.3 Other changes - (16,129) (16,129) C.5 Business combinations - (9,961) (9,961) D. Final balances - 40,286 40,286 Details of items relating to business combination transactions are as follows: the merger of Banca 24-7 Spa into the Bank involved the acquisition of provisions amounting to 18.5 million of which: 324 thousand for risks relating to litigation in progress; 1.6 million for operational risks; 9.4 million for risks resulting from contractual disputes; 7.2 million connected with salary-backed lending operations, managed by third party service companies. These provisions increased by a further 4.2 million during the year and 1.5 million were released. A total of 9.9 million was transferred to Prestitalia SpA. the merger by incorporation of SILF Spa into the Bank involved the acquisition of provisions amounting to 5.5 million recognised mainly for indemnity charges and risks connected with litigation. The main items which increased during the year, in addition to the provisions for risks relating to salary backed lending operations, related mainly to the following: future staff costs of 8 million, expenses of 12 million forecast in relation to the position with the company BY YOU Spa and 2.5 million for risks connected with Banca 24-7 operations. Uses relate principally to the conclusion of legal cases during the year, to the payment of indemnities due to former Silf Spa agents and the payment of expenses relating to UBI Banca staff. 153* Notes to the separate financial statements

155 The main decreases regarded the release of provisions of 4.9 million recognised for litigation, releases of 7.5 million for staff costs and releases of 1.6 million for operational risks in addition to the releases of provisions for risks connected with salary backed lending operations already mentioned Defined benefit company pension funds There are no defined benefit company pension funds Provisions for risks and charges - other provisions Items/Components Other provisions for risks and charges 1. Provision for revocation risks Provision for adjustments on interest, commissions and expenses 1, Provision for bonds in default Other provisions for risks and charges 14,964 5,605 Total 16,264 5,605 Contingent liabilities Contingent liabilities Provision for staff litigation 453 Fund for tax litigation 151,597 Provision for other litigation 2,457 Total 154,507 The liabilities regulated by IAS 37, characterised by the absence of certainty over the timing or the amount of future expense required to settle presumed liabilities, can be classified as being of two types: probable liabilities; contingent liabilities (possible or remote). The correct identification of the nature of liabilities is of fundamental importance because it determines whether or not the risk deriving from an obligation must be recognised in the financial statements. The recognition of a provision for risks and charges in the financial statements represents a probable liability of uncertain timing or amount 6 and the amount recognised in the accounts represents the best estimate of the expenditure required to settle the obligation existing as at the reporting date and reflects the risks and uncertainties that inevitably characterise a number of different facts and circumstances. The amount of a provision is measured by the present value of the expenditure that it is assumed will be necessary to settle the obligation where the effect of the present value is significant. 6 Details of the criteria for recognising provisions are given in Part A.2 of the notes to the financial statements The main items in the financial statements, section 12 Provisions for risks and charges, which may be consulted. 154* Notes to the separate financial statements

156 Future events that might affect the amount required to settle the obligation are only taken into consideration if there is sufficient objective evidence that they will occur. The measurement of provisions is periodically reviewed to verify that they are reasonable. The general and theoretical legal parameters which govern the process of determining the present value of provisions, which is performed for each single case of litigation and for the relative residual life, are given below: type/nature of the litigation, to be assessed in the light of the legal claims formulated by the counterparty. Various macro-families are identifiable in this respect such as corporate litigation, labour law cases, financial intermediation litigation, litigation generically definable as compensation for damages (resulting from non performance of contract obligations, illegal actions, violation of regulations) etc.; degree of innovation in the litigation, to be assessed by considering whether the issues turn on matters already known and weighed by the Bank or on completely new matters which therefore require study (e.g. resulting from a change in the legislation or in legal orientations); degree of strategic importance of the litigation to the bank: for commercial reasons the Bank might for example decide to end a case very rapidly even if it had grounds of defence that would allow it to resist in court for a long time; average length of litigation, to be weighted taking account of geographical factors, which is to say the location of the jurisdiction in which the case is tried and the state of progress of the trial. In this respect a decision must be taken on the source of the statistics from which data is obtained and assistance can be obtained from the lawyers who represent the Bank in litigation and who have direct knowledge of the jurisdictions concerned for each case; the nature of the counterparty (e.g. a private individual or a legal entity, a professional operator or not, a consumer or not, etc.). A contingent liability is defined as: a possible obligation, the result of past events, the existence of which will only be confirmed by the occurrence or (non occurrence) of future events that are not totally under the control of the enterprise; a present obligation that is the result of past events, but which is not recognised in the accounts because: it is improbable that financial resources will be needed to settle the obligation; the amount of the obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognised in the financial statements but are only reported, unless they are considered a remote possibility. In the latter case, in compliance with IAS 37, no information is given on them in the notes to the financial statements. Amounts for contingent liabilities are also subject to periodic verification because it is possible that events may occur which make them remote or probable with the possible need, in the latter case, to make a provision for them in the financial statements. A list of contingent liabilities of a tax nature are listed below to which the Bank has attributed a possible risk. As already reported, UBI Banca is classed as a large taxpayer on the basis of the parameters set by tax authority directive No of 6 th April These companies are subject to more stringent inspection by the authorities and tutelage was also commenced, which on the basis of the policy as known, will provide taxpayers of large dimensions with constant assistance and supervision of their operations. 155* Notes to the separate financial statements

157 In this context, as already reported, UBI Banca was subject in 2009 to inspection for the tax years by the regional tax authorities for Lombardy Large Taxpayers Office. As a result an allegation was made of a failure to apply withholding taxes on interest paid to a foreign subsidiary on deposits of that subsidiary, which had been reclassified by the inspectors as financing, in a context of preference share transactions. These were complex transactions designed to strengthen capital, performed in 2001 with the authorisation of the Bank of Italy. This is an issue that affects a number of years and to date notices of assessment have been served for the 2004, 2005, 2006 and 2007 financial years (this last notice, preceded by notification to the Regional Department for Lombardy of the tax authorities for the 2007 and 2008 years by the officials who carried out the inspection referred to above, was served on 11 th December 2012). In detail: for 2004 higher withholding tax for 4.4 million was assessed together with fines for 6.5 million; for 2005 higher withholding tax for 4.4 million was assessed together with fines for 4.3 million; for 2006 higher withholding tax for 4.4 million was assessed together with fines for 1.3 million; for 2007 higher withholding tax for 4.4 million was assessed together with fines for 11 million. The Bank was assessed for alleged failure to pay total withholding taxes of 17.6 million for four years ( ) with fines of 23.2 million. Pending the outcome to the litigation a total of million was paid on a provisional basis as follows: 3.81 million for 2004, 2.68 million for 2005, 1.78 million for 2006 and 1.76 million for Appeals have been filed with the Provincial Tax Commission of Milan for all years (the appeal for 2007 was filed on 11 th February 2013) and for 2004, after suspension of the provisional payment was granted with an order of 2 nd December 2010, with ruling No. 358/35/11 deposited on 22/12/2011, the Provincial Tax Commission of Milan rejected the appeal lodged by UBI Banca for the 2004 tax year on the basis of the statements made by Bank of Italy for regulatory capital purposes, rather than on the provisions of the Italian Civil Code or tax legislation. Moreover, that same commission held that fines were not due because of the objective uncertainty surrounding the regulations. An appeal was promptly lodged against the ruling with the Regional Tax Commission and a date for a hearing has not yet been set. As regards 2005 a hearing was held before the Provincial Tax Commission of Milan on 16 th January 2013, further to which the matter was adjourned to 8 th May As regards 2006, an appeal has been filed and the parties are awaiting the setting of a date for a hearing in the matter. With regard to that litigation, in the light, amongst other things, of detailed expert opinions received, the risk of losing is considered unlikely and more specifically it is maintained that the objective legal basis of the appeal will be recognised in the courts. As regards the litigation stemming from a notice of assessment received in 2008 in connection with the transfer of a business unit in 2003 from BPU Banca (now UBI) to Immobiliare Serico, in its judgment No. 168 deposited on 29 th September 2011 the Regional Tax Commission of Lombardy rejected the tax authorities appeal and thus upheld the judgment at first instance that had ruled that the tax treatment of the transaction in question had been correct. That judgment has been appealed by the State Attorney s Office 156* Notes to the separate financial statements

158 on behalf of the Bergamo tax authorities to the Supreme Court, and the Bank has duly entered an appearance in the proceedings lodging its own cross appeal in the process. It is stressed that tax appeals to the Supreme Court can only relate to a point of law, whereas in the present case the Court is essentially addressing a question on the merits, in other words, whether what was transferred could actually constitute a business unit. It should be noted that in similar litigation (transfers of business units to Immobiliare Serico) numerous appeal judgments have been handed down in favour of the subsidiaries BPB Immobiliare (28 th November 2011 a judgment likewise appealed to the Supreme Court) and Banca Carime (4 th June 2012 the deadline for an appeal to the Supreme Court has not yet passed), confirming that the Group acted correctly. With regard to that litigation, in the light, amongst other things, of detailed expert opinions received, the risk of losing is considered unlikely also in view of the favourable rulings at first instance and on appeal. In May 2011 the Swiss tax authorities rejected the appeal made by UBI Banca and Banque de Dépôts et de Gestion against a demand concerning the failure by BDG to apply a withholding tax of 15% on dividends paid in the years to its parent, UBI Banca, because in the opinion of the Swiss authorities, as a co-operative, UBI Banca is not entitled to the exemption allowed for joint stock companies. The companies decided to appeal to the courts because they maintained that the case met all of the requirements for the application of both the Swiss-EU agreement on the taxation of savings (with consequent reduction of the withholding/preliminary tax from 35% to 15%) and the Italo-Swiss convention (reduction of the 15% withholding tax to zero). An initial unfavourable ruling by the Federal Administrative Court was followed by a totally favourable one from the Federal Court in October 2012, which can no longer be appealed and which entails recognition of the direct applicability of the withholding tax exemption for future distributions of profits/reserves and a refund of the withholding taxes previously paid on dividends. On 24 th May 2012 the Bergamo tax unit of the Guardia di Finanza (finance police) concluded the general tax inspection for IRES, IRAP and VAT purposes for the year 2008 extended to include the years 2007, 2009, 2010 and 2011 that it had started in The inspection which mainly concerned the tax aspects of capital strengthening operations regarding which the tax authorities had already issued notices of assessment for the years from 2004 to 2006 concluded with the delivery of a tax assessment report alleging that UBI Banca had failed to apply a withholding tax to interest paid to limited liability companies headquartered in Delaware (USA) but reclassified by the inspectors as resident for tax purposes in Italy. The withholding tax in question totalled 55.2 million (for the years from 2007 to 2011). However, the Regional Department for Lombardy of the tax authorities, acting within its remit, decided to shelve that tax assessment report by notice lodged with the Provincial Tax Commission of Milan within the context of a similar appeal concerning the same circumstances of Banco di Brescia in relation to Secondly, that tax assessment report led to the limited liability companies being charged (through tax assessment reports served on 7 th June 2012) with failure to file tax returns in Italy (without any taxes due) by the Provincial Department for Bergamo of the tax authorities. In that regard, the following notices of violation of tax laws were served: a) on BPCI LLC, for the years from 2007 to 2010, imposing a fine of 1,547 for each year; b) on BPB LLC for the year 2007, imposing a fine of 1,547. On 31 st October 2012 the above notices were cancelled internally by the Provincial Department for Bergamo of the tax authorities without giving any reasons therefor. As regards assessments and ensuing litigation concerning 2004 relating to UBI Banca and its subsidiaries Grifogest SGR (later merged into UBI Banca), Banco di Brescia, UBI Leasing and UBI Banca Private Investment, on 12 th December 2011 and subsequently on 17 th May 2012 deeds of conciliation/settlement were signed with the Regional Department for 157* Notes to the separate financial statements

159 Lombardy of the tax authorities, leading to the payment of additional tax totalling about 0.7 million compared to an original demand for 4.4 million (IRES and IRAP). The formal conclusion of that conciliation from a financial standpoint in view of the fact that 1.17 million had been provisionally paid will take place after the various Tax Commissions have issued orders acknowledging discontinuance of the litigation in light of the conciliation (some of which orders have already been issued but not all so far). By notice of assessment served on UBI Banca in July 2011, it was alleged that the latter had not paid mortgage and land registry taxes totalling 0.56 million in connection with the transfer in 2010 of a property complex (a transfer which by contrast was subject to VAT). The Bank promptly appealed to the Provincial Tax Commission of Milan, which after suspending collection of the tax by order of 24 th April 2012 later proceeded to grant the appeal in full by judgment of 1 st October If that judgment is not appealed by the tax authorities by the relevant deadline, it will become final on 2 nd April Furthermore, there is some other tax ligation pending, the majority of which relates to years prior to 2007, and in particular to the years from 1976 to It consists of cases pending before the Central Tax Commission (Milan section and Turin section), for most of which favourable decisions were already given in 2010 and 2011, some of which are final judgments and some of which, in the absence of an appeal to the Supreme Court by the authorities who have lost, it is considered will become final judgments. They are based mainly on the deductibility criteria for IRPEG (former corporate income tax) and ILOR (former local income tax) purposes of various expense items, because they relate specifically to assets from which income and proceeds subject to taxation is derived. They are also based on the non-taxability for IRPEG and ILOR purposes of interest due to the tax authorities on tax credits, in the light of legislation in force at the time (prior to the Consolidated Income Tax Act, enacted through Presidential Decree No. 917/1986) as well as on the non applicability of the withholding tax pursuant to article 26, paragraph 3, of Presidential Decree No. 600/1973 on interest paid by foreign banks to Italian banks relating to deposits and current accounts held by the latter on their own account with the former. Section 13 Redeemable shares No shares have been issued with redemption rights. 158* Notes to the separate financial statements

160 Section 14 Equity - Items 130, 150, 160, 170, 180, 190 and Share capital and Treasury shares : composition Number of ordinary shares 901,747, ,746,759 with nominal value in euro per share Number of treasury shares held in portfolio 1,200,000 1,200,000 with nominal value in euro per share Share capital - Number of shares: annual changes B.2 Outstanding shares: initial number 900,546,759 - B. Increases B.1 New issues by payment: business combinations conversion of bonds exercise of warrants other free of charge: in favour of employees in favour of directors other - - B.2 Sale of treasury shares - - B.3 Other changes - - C. Decreases - - C.1 Cancellation - - C.2 Purchase of treasury shares - - C.3 Company disposal operations - - C. 4 Other changes - - D. Outstanding shares: closing balances 900,547,005 - D.1 Treasury shares (+) 1,200,000 - D.2 Shares outstanding at the end of the year 901,747, fully paid up 901,747, not fully paid up * Notes to the separate financial statements

161 14.3 Share capital: other information Convertible bond issue UBI 2009/2013 convertibile con facoltà di rimborso in azioni On 18 th June 2009, the Management Board of UBI Banca, following the decisions taken on 27 th May 2009 and in implementation of the authorisation granted by an extraordinary shareholders meeting of 9 th May 2009, approved the final conditions for the convertible bond UBI 2009/2013 convertibile con facoltà di rimborso in azioni, offered as a rights issue to the shareholders of UBI Banca. The issuance of the convertible bonds was performed for a total nominal amount of 639,145,872, through the issue of 50,129,088 convertible bonds for a nominal amount of each, offered as a rights issue to the shareholders of UBI Banca at a ratio of four convertible bonds for every 51 ordinary shares of UBI Banca possessed. The issue price of each convertible bond was The convertible bonds confer the right on the holders to the payment of a fixed coupon equal to 5.75% gross per annum of the nominal amount of the convertible bonds to be paid annually and which will have a term running from 10 th July 2009 until 10 th July The Management Board also decided to increase the share capital at the service of the convertible bonds by a maximum amount of 639,145,872 through the issue of a maximum of 255,658,348 ordinary shares of UBI Banca, with a nominal value of 2.50 each, normal dividend entitlement and having the same characteristics of the ordinary shares of UBI Banca outstanding on the date of issue. As concerns the conversion and redemption rights attaching to the convertible bonds, when 18 months have elapsed since the issue date of the convertible bonds: bondholders have the right to convert the convertible bonds into UBI Banca shares at a ratio of one ordinary share for every one convertible bond held. If the conversion right is exercised, UBI Banca shall have the right to pay a sum of money in place of the shares, not less than the nominal amount of the bonds, calculated on the basis of the stock market share price of the UBI Banca shares; UBI Banca has the right to call the convertible bonds by payment in cash and/or in UBI Banca shares, with the addition of a premium equal to 10% of the nominal amount of the convertible bonds. The convertible bonds shall be redeemed at par on the maturity date. UBI Banca shall have the right to perform the redemption by payment in cash and/or ordinary shares of UBI Banca, in an amount not less than the nominal value of the convertible bonds. Also, with regard to the conversion right, UBI Banca has set a cap on the value of its share at 12.80, above which, redemption of the liability will be performed by repayment in shares. With regard to conversions performed during the year, details of all the movements in shares is given in the table below. 160* Notes to the separate financial statements

162 Share capital increase and repurchase of treasury shares Details of changes in the number of shares, in the share capital and in the share premiums that occurred in 2012 are given below. (Amounts in euro ) Date Reason Number of shares Share capital Share premium reserve ,746,759 2,254,366,898 7,429,912, Conversion Convertible bonds July ,496 Allocation of loss ,713,053, ,747,005 2,254,367,513 4,716,861,355 No repurchases of treasury shares were made during the year. The position as at was as follows: (Amounts in euro) Number of shares Share capital Share premium reserve Equity 1,200,000 3,000,000 1,375,290 4,375, Reserves of profits: other information Legal reserve 544, ,428 Reserve under Art. 22 Legislative Decree No. 153/ ,494 36,494 Extraordinary reserve 881, ,222 Reserve for the repurchase of treasury shares 7,250 69,703 Taxed profit reserve 4 4 Reserve under Art. 13 par.6 Legislative Decree No. 124/ Reserve under Art. 6 Legislative Decree No. 38/ ,939 10,939 Reserves of profits for ACT - health policy 2,267 2,267 Retained earnings Reserves of profits 1,483,812 1,528, Reserve for valuation of equity-accounted investees 12,153 12,153 Reserve for reversal of prior year depreciation and amortisation 61,649 61,649 Reserve under art. 7 par. 2 Law No. 218/ ,213 75,213 Reserve pursuant to Art. 7 par. 3 Law No. 218/ ,885 71,885 Reserves for transactions under common control 198,538-4,707 Reserves for supplementary pension reforms -3,618-3,618 Other reserves 20,313 20,230 Other reserves 436, , * Notes to the separate financial statements

163 The summary table below gives the origin, the availability for use and distribution of the items of equity (figures given to one hundredth of a euro ) in compliance with Art. 2427, paragraph 1, No. 7-bis) of the Italian Civil Code. Amount as at Amount available Possibility of use Tax constraint (1) Uses in the last 3 years A) SHARE CAPITAL Share capital 2,254,367, ,559, B) CAPITAL RESERVES Share premium reserve 4,716,861, ,716,861, AB (2)(3) 142,676, ,713,053, B) RESERVES OF PROFITS Legal reserve 544,428, ,428, B (4) 45,027, Extraordinary reserve 881,647, ,647, ABC Reserve under Art. 22 Legislative Decree No. 153/ ,494, ,494, ABC Reserve for the repurchase of treasury shares 7,250, ,874, ABC Reserve under Art. 13 par. 6 Legislative Decree No. 124/93 762, , ABC 762, Reserves unavailable pursuant to Art. 6 Legislative Decree No. 38/ ,938, Reserves of profits for ACT - health policy 2,266, Other reserves of profits and retained earnings 24, , ABC C) OTHER RESERVES Reserve for valuation of equity-accounted investees 12,152, ,152, AB 12,152, Reserve for reversal of prior year depreciation and amortisation (5) 61,649, ,649, ABC 61,649, Reserve pursuant to Art. 7 par. 2 Law No. 218/1990 (5) 75,213, ,213, AB (5) 65,769, Reserve pursuant to Art. 7 par. 3 Law No. 218/ ,884, ,884, AB (5) 71,884, Reserves for transactions under common control 198,537, Reserves for supplementary pension reforms -3,618, Other reserves 20,313, ,104, ABC D) VALUATION RESERVES Revaluation reserve Law No. 350/2003 1,844, ,844, AB (5) 1,844, Fair value reserve - available-for-sale financial assets -526,706, Fair value reserve adoption of fair value in place of cost (5) 27,453, ,453, AB 27,453, Reserve for actuarial gains/losses on post-employment benefit provision -4,922, Other valuation reserves -242, E) Treasury shares -4,375, TOTAL 8,384,223, ,453,394, ,752, Profit 223,496, Total equity as at 31st December ,607,720, A = for increase in the share capital B = to cover losses C = for distribution to shareholders Amounts on which tax is deferred (1) An amount of 2,713,053, was drawn from the share premium reserve in 2012 to replenish the 2011 loss. (2) Following the merger with Banca Lombarda Piemontese, the share premium reserve increased by 5,790,132,233.70, but that increase was reduced to 3,077,078, in 2012 as a result of replenishing the loss incurred in That replenishment was performed by drawing on part of that increase which originally amounted to 4,096,625,123, relating to the revaluation of items in the accounts of the merged bank and the recognition of goodwill following the allocation of the purchase price. In consideration of the lack of clarity in the legislation over whether the reserve that arose following the merger transaction recognised in the accounts in accordance with IFRS 3 is available for distribution to shareholders, the following is considered distributable: a) only the pre-existing portion amounting to 1,310,245,825.91; b) the portion set aside following the increase in the share capital that occurred in 2011, amounting to 329,534, It therefore follows that the amount distributable is 1,639,780, (4) Only that part of the reserve which exceeds one fifth of the share capital is available, even for an increase in capital and for distribution (Art. 2430, paragraph 1, Italian Civil Code). (5) Distribution to shareholders is dependent on compliance with the provisions of paragraphs 2 and 3 of Art of the Italian Civil Code. If it is used to cover losses, no distribution can be made until the reserve has been replenished. (6) The Value realignment reserve under L. 266/2005 with taxation deferred amounting to a total of 90,607, consisted of 27,453, recognised in the Valuation reserve adoption of fair value to replace cost, 61,649, in the Reserve for reversal of prior year amortisation and depreciation and 1,505, in the "Reserve under Art. 7, Par. 2, Law No. 218/90". When a dividend was distributed for the financial year 2008 an amount of 273,579, was drawn from the extraordinary reserve, while 45,027, was drawn for the distribution of the 2011 dividend. 162* Notes to the separate financial statements

164 Other information 1. Guarantees granted and commitments Transactions ) Guarantees granted of a financial nature 9,424,355 12,083,762 a) Banks 7,812,765 10,300,108 b) Customers 1,611,590 1,783,654 2) Guarantees granted of a commercial nature 3,567,386 3,911,898 a) Banks 3,535,901 3,811,312 b) Customers 31, ,586 3) Irrevocable commitments to pay funds 330, ,540 a) Banks 290, ,766 i) of certain use 290, ,766 ii) of uncertain use - - b) Customers 39,943 39,774 i) of certain use 38,458 39,774 ii) of uncertain use 1,485-4) Commitments underlying credit derivatives: protection sales - - 5) Assets pledged to guarantee obligations to third parties 500-6) Other commitments 11,900,705 8,617,486 Total 25,223,185 24,909,686 Guarantees granted of both a financial and a commercial nature and commitments to disburse funds are attributable almost totally to positions with Group banks and companies. 163* Notes to the separate financial statements

165 2. Assets pledged to secure own liabilities and commitments Portfolios Financial assets held for trading 293,167 1,137, Financial assets designated at fair value Available-for-sale financial assets 4,867,111 4,585, Held-to-maturity investments 3,158, Loans and advances to banks 252,928 2,249, Loans and advances to customers 477, , Property, plant and equipment - - The financial assets contained in the table relate to securities owned, pledged to guarantee liabilities and commitments of the Bank as follows: Portfolios To guarantee Liabilities or commitments Ow n securities issued by third parties issued by group banks and companies Financial assets for trading: Repurchase agreements 293,167 Financial assets for-sale: Bank of Italy advances 900,314 Repurchase agreements 3,930,902 Issue of bankers' drafts 1,380 Collateralised interbank market 6,902 Other transactions 27,613 4,867,111 Held-to-maturity investments: Repurchase agreements 3,158,013 Loans to banks: Repurchase agreements 202,860 Bank of Italy advances 50,068 Loans to customers: EIB Financing 477,803 In addition to the assets reported above, securities acquired through reverse repurchase agreements were also pledged as guarantees as follows: To guarantee Nominal amount of securities Liabilities or commitments issued by third parties issued by group banks and companies Bank of Italy advances 7,366,822 9,050,000 7,366,822 9,050,000 The securities issued by Group companies are securities senior tranches issued by the special purpose entities for securitisations of the following originators: 164* Notes to the separate financial statements

166 UBI Leasing: 4,114 million nominal; Banca Popolare di Ancona: 710 million nominal; Banco di Brescia: 665 million nominal; Banca Popolare Commercio e Industria: 576 million nominal; former Banca 24-7: 1,322 million nominal. The securities issued by the Bank consisted of fixed rate bonds backed by the government for a nominal amount of 6,000 million and other floating rate bonds for a nominal amount of 3,050 million. 3. Information on operating leases No operating lease contracts were entered into. 4. Management and intermediation on behalf of third parties Type of services Execution of orders on behalf of customers a) Purchases 1,342, Settled 1,340, Not settled 2,009 b) Sales 1,418, Settled 1,416, Not settled 2, Portfolio managements a) individual - b) collective - 3. Custody and administration of securities a) securities of third parties held on deposit : connected with depository bank activity (not including portfolio management) - 1. securities issued by the reporting bank - 2. other securities - b) securities of third parties held on deposit (not including portfolio management): other 78,375, securities issued by the reporting bank 11,103, other securities 67,272,024 c) securities belonging to third parties, deposited with third parties 78,375,196 d) own securities deposited with third parties 26,550,557 4) Other transactions 18,876,428 The Custody and administration of securities relates to financial instruments belonging to ordinary customers of the network banks. 165* Notes to the separate financial statements

167 Part C Notes to the Income Statement Section 1 Interest - Items 10 and Interest income and similar: composition Items / Type Debt instruments Financing Other transactions Financial assets held for trading 52, ,819 39, Available-for-sale financial assets 406, , , Held-to-maturity investments 96, , Loans and advances to banks 97,032 86, , , Loans and advances to customers 19, , , , Financial assets designated at fair value Hedging derivatives X X 5,964 5, Other assets x x Total 671, ,831 6,318 1,315,833 1,135,911 The contribution of interest income relating to loans and receivables acquired following the merger of Banca 24-7 Spa was as follows: million from the mortgage portfolio; million generated by the consumer credit portfolio; and 78.9 million generated by the salary backed loan portfolio, transferred to Prestitalia Spa on 1 st July The reduction in interest income from banks is attributable primarily to the absence of business with Banca 24-7 Spa following its merger. The increase in interest income from securities is attributable to the growth in investments in debt instruments (mainly Italian government securities) classified within available-for-sale financial assets and held-tomaturity investments. 1.2 Interest income and similar: hedging differentials Items A. Positive differentials on hedging transactions 501,098 - B. Negative differentials on hedging transactions (495,134) - C. Balance (A-B) 5, Interest and similar income: other information Interest income on financial assets held in foreign currency Ite ms Interest income on financial assets held in foreign currency 16,776 6, Interest income on finance lease transactions No interest income on finance lease transactions was recognised. 166* Notes to the separate financial statements

168 1.4 Interest expense and similar: composition Items/Type Borrowings Securities Other transactions Due to central banks (97,721) X - (97,721) (21,520) 2. Due to banks (258,515) X - (258,515) (317,623) 3. Due to customers (132,085) X - (132,085) (166,158) 4. Debt securities issued X (814,965) - (814,965) (811,902) 5. Financial liabilities held for trading (38,728) - - (38,728) (12,574) 6. Financial liabilities designated at fair value Other liabilities and provisions X X (590) (590) (645) 8. Hedging derivatives X X - - (710) Total (527,049) (814,965) (590) (1,342,604) (1,331,132) The increase in interest paid to central banks is attributable to the volume of financing received from the ECB. This consisted of two financing transactions for 6,000 million nominal each, with disbursement dates and and maturity dates of and respectively. The interest rate charged as at was 0.75% for both transactions. The interest maturing on the loans during the year totalled 97.4 million. 1.5 Interest expense and similar: hedging differentials Items A. Positive differentials on hedging transactions - 482,430 B. Negative differentials on hedging transactions - (483,140) C. Balance (A-B) - (710) 1.6 Interest expense and similar: other information Interest expense on liabilities held in foreign currency Items Interest expense on liabilities held in foreign currency (2,682) (7,882) Interest expense on liabilities for finance lease transactions Items Interest expense on liabilities for finance lease transactions (589) (645) 167* Notes to the separate financial statements

169 Section 2 Fees and commissions - Items 40 and Fee and commission income: composition Type o f s e rv ic e / A m o unts a) guarantees grante d 10,426 13,338 b) c redit deriva tives - - c) manageme nt, dealing a nd advis o ry s ervices : 12,071 12, trading in financial ins truments 6,599 7, fo reign excha nge tra ding po rtfo lio ma nage ment individual co lle ctive cus to dy and adminis tra tio n o f s ec urities 745 1, depo s ito ry banking placeme nt o f s ec uritie s receipt a nd trans mis s io n o f o rders advis o ry ac tivities 2,821 1, o n inves tments 2,821 1, o n financ ial s truc ture dis tributio n o f third party s e rvice s 1, po rtfo lio management individual co llective ins urance pro ducts o ther pro ducts d) c o llectio n and pa yment s ervic es 1,176 1,439 e) s ervice r activities fo r s e curitis atio n trans actio ns f) s ervices fo r fac to ring trans a ctio ns - - g) tax co lle ctio n a nd payment s ervices - - h) manageme nt o f multila te ra l trading s ys tems - - i) curre nt ac co unt adminis tratio n 17 7 j) o ther s ervic es 52, k) s to ck lending trans actio ns - - To ta l 7 5, ,9 2 9 Commissions on guarantees granted related mostly to activity on behalf of Group member companies. Fee and commission income for Other services came mainly from commissions for the receipt of loan repayments ( 5.5 million) and commissions on credit card business ( 41.6 million) from Banca 24-7 Spa s activities. 168* Notes to the separate financial statements

170 2.2 Fee and commission income: distribution channels for products and services Channels/Values a) Through own branches: Portfolio management Placement of securities Third party services and products b) through indirect networks: Portfolio management Placement of securities Third party services and products c) Other distribution channels: Portfolio management Placement of securities Third party services and products Fee and commission expense: composition S e rv ic e s / A m o unts a) guarantees rece ive d (42,865) (65) b) c redit deriva tives - - c) manageme nt and dealing s e rvices : (30,796) (6,715) 1. trading in financial ins truments (2,839) (4,457) 2. fo reign excha nge tra ding (2) (29) 3. po rtfo lio ma nage ment: - (1,387) 3.1. o wn - (1,387) 3.2. o n behalf o f third parties cus to dy and adminis tra tio n o f s ecurities (939) (753) 5. placeme nt o f fina ncial ins trume nts - (89) 6. fina ncial ins truments, pro ducts and s ervices dis tribute d thro ugh indire ct ne two rks (27,016) - d) c o llectio n and pa yment s ervic es (5,568) (1,290) e) o ther s e rvice s (8,965) (6,776) f) s to ck lending tra ns ac tio ns - - To ta l (8 8,19 4 ) (14,8 4 6 ) Commission expense for the distribution of financial instruments through indirect networks consisted mainly of commissions for the sale of credit cards by Group banks and companies and commissions for the distribution of insurance products, as part of Banca 24-7 Spa s operations. 169* Notes to the separate financial statements

171 Section 3 Dividends and similar income - Item Dividend and similar income: composition ERRORE! ERRORE! Ite m s / Inc o m e D iv ide nds Inc o m e fro m O.I.C.R. units (co llective investment instruments) D iv ide nds Inc o m e fro m O.I.C.R. units (co llective investment instruments) A. Financial as s ets held fo r trading B. Available-fo r-s ale financial as s ets 10,547 3,224 14,846 2,682 C. Financial as s ets des ignated at fair value D. Equity inves tments 325,324 X 336,775 X To ta l 3 3 5, , , ,6 8 2 Dividends received on available-for-sale financial assets included those from Intesa Sanpaolo Spa amounting to 9.01 million, which amounted to 11.2 million in Details are given below of dividends received from equity investments in subsidiaries and companies subject to significant influence On equity investments in subsidiaries 319, ,451 Banca di Valle Camonica Spa Banca Carime Spa 39,317 31,453 Banca Popolare Commercio e Industria Spa 35,307 14,808 Banca Popolare di Ancona Spa 1,910 15,323 Banca Popolare di Bergamo Spa 116, ,010 Banca Regionale Europea Spa 20,891 14,371 Banco di Brescia San Paolo CAB Spa 73,518 78,107 BPB Immobiliare Srl Centrobanca Spa 1,268 14,280 Società Bresciana Immobiliare Mobiliare - S.B.I.M. Spa 1,225 1,120 UBI Banca International Sa - 4,940 UBI Factor Spa 1,042 4,862 UBI Fiduciaria Spa UBI Insurance Broker Srl 3,200 3,200 UBI Pramerica SGR Spa 24,256 24,982 On equity investments in companies subject to significant influence 6,135 1,324 Arca SGR Spa - 1,156 Lombarda Vita Spa 3,905 - Polis Fondi SGRpA UBI Assicurazioni Spa 2,062 - Total 325, ,775 (*) Stake sold in 2012 Total dividends included an extraordinary distribution of retained earnings to the sole shareholder, UBI Banca, by Banca Popolare di Bergamo ( 65 million) and Banco di Brescia San Paolo CAB ( 45 million), approved by the respective shareholders meetings held in December 2012 and recognised in the fourth quarter. Those decisions were justified by the significant increase in equity achieved by the two banks on the basis of the Group policy in force concerning payouts, which meant that dividends paid over the last three years were not greater than 25% of distributable profit. 170* Notes to the separate financial statements

172 Section 4 Net trading income - Item Net trading income: composition Transactions/Components of income Gains (A) Income from trading (B) Losses (C) Losses from trading (D) Net income (loss) [(A+B)-(C+D)] 1. Financial assets held for trading 18,839 65,154 (1,598) (11,650) 70, Debt instruments 18,138 64,300 (19) (3,926) 78, Equity instruments (1,442) (227) (1,038) 1.3 Units in O.I.C.R. (collective investment instruments) (137) Financing Other (7,497) (6,752) 2. Financial liabilities held for trading 9, , Debt instruments 9, , Debts Other Financial assets and liabilities: exchange rate differences X X X X 7, Derivative instruments 109,375 1,533,091 (108,944) (1,544,110) (10,144) 4.1 Financial derivatives: 109,375 1,533,091 (108,577) (1,539,351) (5,018) - on debt instruments and interest rates 109,324 1,527,536 (108,529) (1,538,106) (9,775) - on equity instruments and share indices 51 5,555 (48) (1,245) 4,313 - on currencies and gold X X X X other Credit derivatives - - (367) (4,759) (5,126) Total 137,744 1,598,245 (110,542) (1,555,760) 77,474 Trading activity recorded a profit of 78.5 million on debt instruments against a loss linked to them in management terms of 9.8 million, incurred on debt instrument and interest rate derivatives. The result for trading in equity instruments was affected by fair value losses of 1 million on Medinvest International Sca and 0.4 million on Manisa Srl, while the net result for derivatives on equity instruments and share indices was a gain of 4.3 million, inclusive of the gain of 1.3 million realised on a put option to sell 12 million of Intesa Sanpaolo Spa shares. The result for foreign exchange trading must be interpreted in combination with item 1.5 Trading activities other, and it amounted to 591 thousand. Item 2.1, Financial liabilities held for trading debt instruments, contains the fair value change in securities consisting of uncovered short positions which was positive by 9.5 million. Trading losses on credit derivatives related to differentials on cash flows exchanged. 171* Notes to the separate financial statements

173 Section 5 Net hedging income - Item Net hedging income: composition Income components/amounts A. Income relating to: A.1 Fair value hedge derivatives 338, ,401 A.2 Hedged financial assets (fair value) 252, ,870 A.3 Hedged financial liabilities (fair value) 24,515 15,237 A.4 Cash flow hedge financial derivatives - - A.5 Assets and liabilities in foreign currency - - Total income from hedging activity (A) 615, ,508 B. Expense relating to: B.1 Fair value hedge derivatives (271,987) (409,336) B.2 Hedged financial assets (fair value) (22,584) (28,771) B.3 Hedged financial liabilities (fair value) (307,519) (443,578) B.4 Cash flow hedge financial derivatives - - B.5 Assets and liabilities in foreign currency - - Total expense from hedging activity (B) (602,090) (881,685) C. Net hedging income (loss) (A-B) 12,942 18,823 Details of the income and expense for hedging transactions in relation to the items hedged are as follows: Description Net result Assets: Available-for-sale debt instruments 3,197 Loans and advances to customers 849 Liabilities: bonds in issue 8,896 Net income on hedging 12, * Notes to the separate financial statements

174 Section 6 Income/losses from disposal or repurchase - Item Income (losses) from disposals/repurchases: composition Items/Income components Profits Losses Net result Profits Losses Net result Financial assets 1. Loans and advances to banks 2,251-2, Loans and advances to customers - (510) (510) Available-for-sale financial assets 140,041 (5) 140,036 8,619 (56) 8, Debt instruments 125, ,185 7 (2) Equity instruments 14,664 (1) 14,663 8,340 (54) 8, Units in O.I.C.R (collective investment instruments) 192 (4) Financing Held-to-maturity investments Total assets 142,292 (515) 141,777 8,619 (56) 8,563 Financial liabilities 1. Due to banks Due to customers Debt securities issued 15,188 (879) 14,309 14,271 (184) 14,087 Total liabilities 15,188 (879) 14,309 14,271 (184) 14,087 Profits relating to loans to banks include the gain realised on the disposal of certificates of deposit. As concerns Available-for-sale financial assets - debt instruments, the profits were mainly attributable to disposals of government securities and amounted to 124 million, while the largest component for equity instruments regarded a profit on the disposal of Intesa Sanpaolo Spa which amounted to 13.5 million. The repurchase of securities outstanding subscribed by institutional counterparties generated a profit of 14.3 million. 173* Notes to the separate financial statements

175 Section 7 Net income/expense on assets and liabilities designated at fair value - Item Net change in financial assets/liabilities designated at fair value: composition Transactions/Components of income Gains (A) Income from trading (B) Losses (C) Losses from trading (D) Net income (loss) [(A+B)-(C+D)] 1. Financial assets 4,464 2,691 (5,827) (125) 1, Debt instruments Equity instruments Units in O.I.C.R. (collective investment instruments) 4,464 2,691 (5,827) (125) 1, Financing Financial liabilities Debt securities issued Due to banks Due to customers Other financial assets and liabilities in foreign currency: foreign currency differences x x x x - 4. Credit and financial derivatives Total 4,464 2,691 (5,827) (125) 1,203 The table below gives the changes that occurred in the OICR (collective investment instruments) portfolio in description opening balances increases decreases/ redemptions profits/losses gains/losses exchange rate effects closing balance Tages Funds 104,846 20,000-19, , ,664 Madison Fund 10,777-5, ,532 Corinthian Fund 951-1,880 1, Other hedge funds 9,600-1, ,185 Total 126,174 20,000-23,697 2,566-1, , * Notes to the separate financial statements

176 Section 8 Net impairment losses - Item Net impairment losses on loans: composition Transactions/Components of income Impairment losses Reversals Specific Portfolio Specific Portfolio Write-offs Other Of interest Other reversals Of interest Other reversals A. Loans and advances to banks Financing Debt instruments B. Loans and advances to customers (3,298) (122,600) - 2,644 31,856-23,798 (67,600) (1,057) Deteriorated loans purchased Financing Debt instruments Other loans and receivables (3,298) (122,600) - 2,644 31,856-23,798 (67,600) (1,057) - Financing (3,298) (122,600) - 2,644 31,856-23,798 (67,600) (1,057) - Debt instruments C. Total (3,298) (122,600) - 2,644 31,856-23,798 (67,600) (1,057) Specific impairment losses on loans to customers consisted principally of impairment losses on mortgages and personal loans, resulting from the acquisition of Banca 24-7 SpA, which had deteriorated during the year. Collective reversals were due mainly to the reduction in loans, and in the relative loan provisions, acquired from Banca Net impairment losses on available-for-sale financial assets: composition Im pa irm e nt lo s s e s R e v e rs a ls Tra n s a c tio ns / C o m p o ne nts o f inc o m e S pe c ific S pe c ific Write -o ffs Othe r o f inte re s t o the r re v e rs a ls A. Debt ins truments B. Equity ins truments - (34,863) X X (3 4,8 6 3 ) (112,5 4 8 ) C. Units in O.I.C.R. (co llective inves tment ins truments ). - (18,427) X - (18,4 2 7 ) (7,5 11) D. Lo ans to banks E. Lo ans to cus to mers To ta l - (5 3,2 9 0 ) - - (5 3,2 9 0 ) (12 0,0 5 9 ) Impairment losses on available-for-sale financial assets related mainly to equity instruments, to the investment in Intesa Sanpaolo Spa, on which an impairment loss of 30.8 million was incurred and to the interest held in A2A Spa, written-down by 3.5 million. Units in OICRs (collective investment instruments), consisting of Centrobanca Sviluppo Impresa and Polis Portafoglio Immobiliare funds, were written down by 12.5 million and 4.4 million of respectively. Other private equity funds were written down by a total of 2 million. 8.3 Net impairment losses on held-to-maturity investments: composition No net impairment losses were recognised on held-to-maturity investments. 8.4 Net impairment losses on other financial transactions: composition 175* Notes to the separate financial statements

177 Transactions/ Components of income Impairment losses Reversals Specific Portfolio Specific Portfolio Write-offs Other Of interest Other reversals Of interest Other reversals A. Guarantees granted - (808) (1,786) - 10,183-2,953 10,542 (6,836) B. Credit derivatives C. Commitments to pay fund D. Other transactions E. Total - (808) (1,786) - 10,183-2,953 10,542 (6,836) The item, Impairment losses other, relates to impairment losses recognised on specific guarantees granted, while portfolio impairment is determined by using the calculation methodology employed for the recognition of collective impairment losses in all the banks in the Group. The intragroup guarantee granted by UBI Banca during the year, on the request of Prestitalia Spa, regarding losses on loans which the latter had disposed of, on behalf of Banca 24-7 Spa, formed part of the contribution of business operations. The guarantee, of which 1.3 million had been partially enforced, was extinguished in advance: this resulted in a recovery in value of 10.2 million. 176* Notes to the separate financial statements

178 Section 9 Administrative expenses - Item Personnel expenses: composition Type of expense/amounts ) Employees (211,506) (187,398) a) Wages and salaries (128,692) (127,946) b) Social security charges (34,692) (33,371) c) Post-employment benefits (7,307) (8,111) d) Pension expense - - e) Provision for post-employment benefits (988) (919) f) Provision for pension and similar: defined contribution defined benefits - - g) Payments to external supplementary pension plans: (6,698) (7,657) - defined contribution (6,698) (7,657) - defined benefits - - h) Expenses resulting from share based payments - - i) Other employee benefits (33,129) (9,394) 2) Other personnel in service (418) (495) 3) Directors and statutory auditors (7,809) (7,478) 4) Expenses for retired personnel - 16,123 5) Recoveries of expenses for staff on secondment to other companies 90,391 89,413 6) Reimbursements of expenses for staff on secondment at the Bank (27,761) (24,714) Total (157,103) (114,549) 177* Notes to the separate financial statements

179 9.2 Average number of employees by category ) EMPLOYEES 1,393 1,209 a. number of senior managers b. number of middle managers: 4th level c. number of middle managers 3rd level d. number of middle managers 2nd level e. number of middle managers 1st level f. remaining employees ) OTHER PERSONNEL a. number of non employee directors b. number of temporary agency staff - 3 c. number of workers on project contracts - - q. number of other workers on other types of contract - - TOTAL 1,425 1, Defined benefit company pension funds: total costs No defined benefit company pension funds exist. 9.4 Other benefits for employees Details are given below of other benefits for employees Leaving incentives (25,670) (1,811) Expenses for luncheon vouchers (2,136) (1,772) Insurance expenses (2,937) (2,551) Expenses for medical visits (29) (25) Expenses for attendance on personnel training courses (1,010) (1,630) Expenses for internal communciations and conventions (359) (436) Other expenses (988) (1,169) Total (33,129) (9,394) 178* Notes to the separate financial statements

180 9.5 Other administrative expenses: composition Type of service/amounts A. Other administrative expenses (158,839) (109,642) Rent payable (9,471) (9,194) Professional and advisory services (24,888) (20,647) Rentals on hardware, software and other assets (3,519) (3,043) Maintenance of hardware, software and other assets (534) (527) Tenancy of premises (7,306) (7,269) Property and equipment maintenance (2,329) (2,259) Counting, transport and management of valuables (5) (6) Membership fees (2,006) (1,561) Information services and land registry searches (1,081) (844) Books and periodicals (468) (551) Postal (2,856) (387) Insurance premiums (6,218) (1,004) Advertising (1,732) (2,142) Entertainment expenses (642) (695) Telephone and data transmission expenses (9,195) (9,001) Outsourced services (10,510) (3,584) Travel expenses (4,181) (3,788) Instalments on services provided by Group companies (57,099) (39,637) Credit recovery expenses (11,269) (63) Printing, stationery and consumables (1,237) (640) Transport and removals (452) (269) Security (1,124) (1,826) Other expenses (717) (705) B. Indirect taxes (15,830) (3,319) - Indirect taxes and duties (897) (704) - Stamp duty (6,538) (80) - IMU/ICI (Municipal property taxes) (5,216) (2,226) - Other taxes (3,179) (309) Total (174,669) (112,961) 179* Notes to the separate financial statements

181 Section 10 Net provisions for risks and charges - Item Net provisions for risks and charges: composition Provisions Releases Net provisions as at: Provisions Releases Net provisions as at: Provision for revocation risks Staff costs Provision for bonds in default Net provisions for litigation (2,260) 3, (407) Provisions for risks and charges (17,017) 5,022 (11,995) (1,003) 296 (707) Total (19,277) 8,171 (11,106) (1,410) 815 (595) The item provisions for litigation includes an amount of 1.6 million relating to litigation resulting from operations acquired by Banca Provisions for risks and charges include the following: charges resulting from the position with the former investment in BY YOU amounting to 12 million; charges for risks connected with salary-backed lending operations, acquired from Banca 24-7 and transferred to Prestitalia SpA, totalling 4.2 million; other charges for risks connected with operations acquired from Banca 24-7, totalling 0.8 million. Releases to the income statement consisted of the following: reversals consisting of the release of provisions following the conclusion of a dispute between Banca 24/7 and Group banks amounting to 0.8 million and releases following the conclusion of litigation connected with financial investments amounting to 1.6 million and the conclusion of other positions subject to litigation amounting to 0.7 million; the release of provisions for risks connected with the position with Banque de Dépôts et de Gestion amounting to 2.8 million in relation to sums recognised in favour of UBI Banca; releases of provisions for risks connected with salary backed lending operations acquired from Banca 24-7 and transferred to Prestitalia SpA, totalling 1.5 million; releases against other charges for risks connected with operations acquired from Banca 24-7, totalling 0.4 million; release of provisions concerning indemnity funds for Silf agents amounting to 0.3 million. 180* Notes to the separate financial statements

182 Section 11 Net impairment losses on property, plant and equipment - Item Net impairment losses on property, plant and equipment: composition Assets/Income components Depreciation (a) Impairment losses (b) Reversals of impairment losses (c ) Net result (a+b-c) A. Property, plant and equipment A.1 Owned (22,983) (631) - (23,614) (24,333) - For operational use (7,369) (68) - (7,437) (8,463) - For investment (15,614) (563) - (16,177) (15,870) A.2 Acquired through finance lease (524) - - (524) (542) - For operational use For investment (524) - - (524) (542) Total (23,507) (631) - (24,138) (24,875) 2011 Section 12 Net impairment losses on intangible assets - Item Net impairment losses on intangible assets: composition Assets/Income components Amortisation (a) Impairment losses (b) Reversals of impairment losses (c) Net result (a+b-c) 2011 A. Intangible assets A.1 Owned (38) - - (38) (21,100) - Internally generated by the Bank other (38) - - (38) (21,100) A.2 Acquired through finance lease Total (38) - - (38) (21,100) Section 13 Other operating income and expense - Item Other operating expense: composition Other operating expenses (13,061) (3,020) Depreciation of improvements to third party leased assets (127) (92) Fines and charges for late tax payments - (47) Other expenses and prior year expense (12,934) (2,881) The following were recognised within the line item Other expenses and prior year expense : extraordinary expenses connected with Banca 24-7 operations amounting to 7 million; extraordinary expenses of 3 million against which insurance compensation was recognised within the item other income; expenses of 1.6 million incurred in relation to Group companies in compliance with commercial agreements; other residual items amounting to 1.3 million. 181* Notes to the separate financial statements

183 13.2 Other operating income: composition Other operating income 138,465 98,297 Recoveries of taxes 8, Income for services to Group member companies 62,050 63,582 Charges to third parties for expenses on deposit and current accounts 1 1 Recovery of insurance premiums 5,822 - Other income for property management 2,765 2,638 Rent income 30,748 30,632 Other income, expense recoveries and prior year income 28,283 1,432 The item Other income, expense recoveries and prior year income includes: income of 8.5 million relating to Banca 24-7 securitisations. This income relates mainly to a securitisation of personal loans which was closed down early during the year; recoveries of expenses for credit card business amounting to 3.2 million; receipt of expenses connected with the management of former Banca 24-7 financing amounting to 1.5 million; insurance compensation of 2.9 million; other compensation of 4 million relating to Banca 24-7 financial investments in hedge funds; extraordinary income connected with Banca 24-7 operations amounting to 3.3 million, with SILF operations amounting to 0.6 million and with UBI Banca operations amounting to 1.4 million; other items amounting to 2.9 million. 182* Notes to the separate financial statements

184 Section 14 Profits (losses) of equity investments - Item Profits (losses) of equity investments: composition Component of income/ Amounts A. Income 37,260 2, Revaluations Profits on sale 37,260 2, Reversals of impairment losses Other income - - B. Expense (60,768) (2,509,728) 1. Write-downs Impairment losses (60,718) (2,509,609) 3. Losses on sale (5) (8) 4. Other expense (45) (111) Net result (23,508) (2,507,432) Details of impairment losses on equity investments are given in the assets section in Table 10.3, Equity investments annual changes, which may be consulted. Profits on disposal, amounting to 37.3 million, were realised mainly on the disposals of the equity investments Arca SGR ( 21.8 million) and UBI Insurance Broker Srl ( 15 million). Section 15 Net result of fair value changes in property, plant and equipment and intangible assets Item 220 No items of this type exist for the Bank. Section 16 Net impairment losses on goodwill - Item No net impairment losses on goodwill were recognised. Section 17 Profits (losses) on disposal of investments - Item Profits (losses) on disposal of investments: composition C o m po ne nt o f inc o m e / A m o unts A. Rea l Es tate As s et/buildings P ro fits o n s ale Lo s s es o n s ale - (122) B. Other as s e ts (26) (4) - P ro fits o n s ale Lo s s es o n s ale (41) (19) N e t re s ult * Notes to the separate financial statements

185 Section 18 Taxes on profit for the year for continuing operations - item Taxes on profit for the year from continuing operations: composition Income components/amounts Current taxes (-) (29,684) (426,083) 2. Change in current taxes of prior years (+/-) 9, Reduction in current taxes for the year (+) a Reduction in current taxes for the year for tax credits pursuant to Law 214/2011 (+) 268, Change in deferred tax assets (+/-) (217,645) 855, Change in deferred tax liabilities (+/-) 20,397 25, Taxes for the year (-) (-1+/-2+3+/-4+/-5) 51, ,451 Current taxes amounted to 29,684 thousand. They consisted of the following: 34,772 thousand for the substitute tax provision for the exercise of the option to realign goodwill recognised in the consolidated financial statements against the purchase of the investment in Banca Popolare di Ancona; 11,546 thousand for the substitute tax provision, for the tax relief on non-accounting deductions relating to the provision for losses on loans; 3,296 thousand for the IRAP (local production tax) provision for the year; and 72 thousand as a result of applying regulations on CFCs. That amount was adjusted for items of tax income resulting from participation in the tax consolidation by a total of 17,982 thousand and by 2,019 thousand resulting from writedowns of AFS securities. The change in prior year current taxes, which was positive by 9,524 thousand, consisted of 6,203 thousand for the adjustment of the tax provision with regard in particular to tax relief on amortisation and other intangible assets performed in 2011 and of 3,321 thousand from the recognition of a tax credit for a refund application for prior year IRES (corporate income tax), recalculated as a result of the full deduction for IRES purposes of the IRAP (local production tax) on the cost of labour, pursuant to article 2, paragraph 1 quater of Decree Law No. 201/2011. The reduction in current taxes, by thousand, is shown to highlight the transformation of deferred tax assets resulting from the loss incurred by UBI Banca in 2011 into tax credits, as requested by the addendum letter of 7 th August 2012 issued by the Bank of Italy. This reduction was fully offset by movements in tax assets because the transformation of deferred tax assets into tax credits had no impact on the income statement, in compliance with the instructions in the addendum letter cited and in Document No. 5 of 15 th May 2012, issued as a result of co-ordination between the Bank of Italy, Consob (Italian securities market authority) and Isvap (Italian insurance authority. The remainder of the change in deferred tax assets amounting to 50,906 thousand consists of the difference between the balance on increases and decreases shown in Table The change in deferred tax liabilities of 20,397 thousand consists of the balance on increases and decreases reported in table * Notes to the separate financial statements

186 18.2 Reconciliation between theoretical taxation and actual taxation recorded in the accounts IRES (CORPORATE INCOME TAX) Taxable income IRES % Theoretical IRES payable 172,354 (47,397) 27.50% Permanent increases - Non deductible interest expense 44,442 (12,221) 7.09% - Non business buildings 221 (61) 0.04% - I.M.U. (municipal property tax) 5,217 (1,435) 0.83% - Non deductible donations 147 (40) 0.02% - Non deductible auto expenses 640 (176) 0.10% - Non deductible losses and impairment 102,980 (28,320) 16.43% - Non deductible Pex losses % - Non deductible depreciation and amortisation % - Entertainment expenses 254 (70) 0.04% - Non deductible provisions 301 (83) 0.05% - Representative office expenses 470 (129) 0.07% - Recognition of gains on the disposal of equity investments 27,481 (7,557) 4.38% - other non deductible expenses 6,184 (1,701) 0.99% - CFC taxes (72) 0.04% - Purchase Price Allocation realignment (2,302) 1.34% Permanent decreases - PEX gains (60,764) 16, % - Exempt dividends (319,158) 87, % - Other changes (1,610) % - Sterilisation of gain on disposal of AFS equity investments with ta (78) % - Sterilisation of gain in disposal of equity investments with tax ded (15,030) 4, % ACE (economic growth law) concessions (25,057) 6, % - BPA realignment 24, % - Recognition of credit for IRES application for IRAP (local production tax) 3, % - Realignment of EC income tax return section 8, % - Deferred tax, other changes % - Release of tax provision for statute barred years 3, % Effective IRES payable (61,006) 54, % IRAP (local production tax) Taxable income IRAP % Theoretical IRAP payable 172,354 (9,600) 5.57% Permanent increases - Personnel expense 157,103 (8,751) 5.08% - Net impairment losses on loans 110,348 (6,146) 3.57% - Impairment on equity investments 60,769 (3,385) 1.96% - Non deductible interest expense 54,270 (3,023) 1.75% - Recovery of taxation on operating income 21,130 (1,177) 0.68% - Administrative expenses 17,467 (973) 0.56% - Amortisation and depreciation 16,525 (920) 0.53% - Non deductible provisions 11,106 (619) 0.36% - I.M.U. (municipal property tax) 4,695 (262) 0.15% - Other changes 10,994 (612) 0.36% Permanent decreases - Exempt dividends (167,936) 9, % - Income not taxed (125,404) 6, % - Net impairment losses on loans disposed of (90,023) 5, % - Impairment losses on AFS equity investments disposed of (60,892) 3, % - Amortisation of goodwill (56,906) 3, % - Tax wedge (39,042) 2, % - Disposal of non taxed equity investments (37,260) 2, % - Other changes (118) % Effective IRAP payable 59,180 (3,296) 1.91% Total effective IRES and IRAP tax expense 172,354 51, % 185* Notes to the separate financial statements

187 Section 19 Post-tax profit (loss) from discontinued operations - Item Post-tax profit (loss) from discontinued operations: composition Income components/ Amounts Income Expense Results of change in fair value of assets and associated liabilities Profit (loss) on sale Taxes and duties - (8) Profit (loss) Details of taxes on income in relation to discontinued operations Current taxation (-) Change in deferred tax assets (+/-) Change in deferred tax liabilities (-/+) Taxes on income for the year (-1+/-2+/-3) - 8 Section 20 Other information There is no further information of significance. Section 21 Earnings per share 21.1 The average number of ordinary shares with diluted share capital International accounting standards (IAS 33) specify a precise method for calculating earnings per share (EPS) with two formulas: basic earnings and diluted earnings per share. Basic EPS has been calculated by dividing the profit attributable to ordinary equity holders of the Parent by the weighted average number of ordinary outstanding shares during the year. 186* Notes to the separate financial statements

188 21.2 Other information The relative figures for basic and diluted EPS for the separate UBI Banca accounts are given below, while greater details of the methods of calculation and figures for the Group are given in the relative section of the consolidated financial statements Profit "attributable" Weighted average ordinary shares Earnings per share Profit "attributable" Weighted average ordinary shares Earnings per share Basic EPS 225, ,546, ,702, ,891, Diluted EPS 225, ,546, ,702, ,891, * Notes to the separate financial statements

189 Part D Comprehensive income Detailed statement of comprehensive income Items Gross amount Tax on income Net amount 10. Profit for the year 223,496 Other comprehensive income 20. Available-for-sale financial assets: a) changes in fair value 821,667 (218,530) 603,137 b) reversal to the income statement - impairment losses 3,776 (920) 2,856 - profits (losses) on sale 18,318 (5,277) 13,041 c) other changes 30. Property, plant and equipment 40. Intangible assets 50. Foreign investment hedges: a) changes in fair value b) transfer to the income statement c) other changes 60. Cash flow hedges a) changes in fair value b) transfer to the income statement c) other changes 70. Foreign currency differences: a) changes in value b) transfer to the income statement c) other changes 80. Non current assets held for sale.: a) changes in fair value b) transfer to the income statement c) other changes 90. Actuarial gains (losses) on defined benefit plans (3,887) 1,049 (2,838) 100. Share of fair value reserves of equity-accounted investees at equity: a) changes in fair value b) transfer to the income statement - impairment losses - profits and losses from sale c) other changes 110. Total other comprehensive income (expense) 839,874 (223,678) 616, Comprehensive income (item ) 839, * Notes to the separate financial statements

190 Details are given below of the main changes in fair value and of recognition through profit and loss (impairment losses): a) Changes in fair value gross change in reserve tax net change in reserve Government securities 644,638 (177,276) 467,362 Other debt instruments 147,329 (40,515) 106,814 Other certificates 29,700 (739) 28, ,667 (218,530) 603,137 The change in the reserve for government securities and debt instruments is determined by the credit risk component inherent in the market price of securities, because the interest rate risk component is hedged and recognised in the income statement within item 90 Net hedging income. A reduction in country risk for Italy occurred during the year, which resulted in a recovery in market prices for debt instruments issued by the Italian government and by banks. Overall, the recovery in the value of securities generated an improvement in the reserve of 603 million. b) transfer to the income statement (impairment losses) description gross change in reserve tax net change in reserve - Centrobanca Sviluppo Impresa Fund 2,929 (805) 2,124 - other 847 (115) 732 3,776 (920) 2, * Notes to the separate financial statements

191 Part E - Information on risks and the relative hedging policies In compliance with current regulations, the UBI Group has adopted a risk control system which disciplines and integrates the organisational, regulatory and methodological guidelines of the system of internal controls with which all Group member companies must comply in order to allow the Parent to perform its activities of strategic, management and operational control in an effective and economical manner. The Bank works pro-actively to identify the risks to which it is subject and to define the relative criteria for measuring, managing and monitoring them. The key principles on which Group risk analysis and management are based for the pursuit of an increasingly more knowledgeable and efficient allocation of economic and supervisory capital are as follows: - rigorous containment of financial and credit risks and strong management of all types of risk; - the use of a sustainable value creation approach to the definition of risk appetite and the allocation of capital; - definition of the Group s risk appetite with reference to specific types of risk and/or specific activities in a set of policy regulations for the Group and for the single entities within it. This part furnishes information on the risk profiles listed below, on the relative management and hedging policies pursued by the Bank and its activities relating to financial derivative instruments: a) credit risk; b) market risks: - interest rates, - price, - currency, c) liquidity risk; d) operational risks. A report on the general framework of the risks and uncertainties to which the Bank is exposed is given in a special section of the report on operations, prepared in compliance with Legislative Decree No. 32 of 2 nd February 2007, which implements EC Directive No. 2003/51/EC. Section 1 Credit risk Qualitative information 1. General aspects The strategies, policies and instruments for the assumption and management of credit risk are defined at the Parent by the Risk Officer in co-operation with the Chief Lending Officer, with the support and co-ordination of the relative specialist units. There is a particular focus in the formulation of policies to manage credit risk on maintaining an appropriate risk-yield profile and on assuming risks that are consistent with 190* Notes to the separate financial statements

192 the risk appetite defined by senior management and, more generally, with the mission of the UBI Group. The priorities in the orientation of the Group's credit management policies are to support local economies, families, businessmen, professionals and small to medium-sized enterprises. The particular attention paid to maintaining relationships established with customers and to developing them over the years is one of the strong points of the Group and it helps to eliminate information asymmetries and offers continuity in customer relationships with a view to long term support. Even in the continuing and difficult current economic situation, the Bank is ensuring that the economy has adequate access to credit by participating, amongst other things, in Agreements stipulated between the Italian Banking Association, the Ministry of Finance and trade associations, while preserving the quality of its assets and by employing an extremely selective approach to non-core exposures. With regard to business customers in particular, lending rules have been formulated and are being followed for the disbursement and management of loans, which in operational terms translate into action which ranges from the development to the containment of exposures. These rules are based on a number of drivers as follows: internal counterparty rating (average weighted rating for Groups of companies), linked to the degree of protection provided by any accessory guarantees there may be; degree of engagement of the UBI Group with the counterparty or Group of companies; the economic sector to which the counterparty or Group of companies belongs with a view to: the level of sector risk; the overall level of concentration of the UBI Group in the individual economic sector (with verification also of the concentration at individual bank or company level). Finally particular attention is paid to the definition of guidelines for the treatment of new products, with adequate reporting to senior management concerning observance of riskyield objectives, the calculation of minimum interest rates for granting loans, the quality of borrowers, guarantees received and expected rates of recovery in cases of insolvency. 2. Policies for the management of credit risk 2.1 Organisational aspects In the performance of its traditional banking business, the Bank is exposed to the risk that the loans it grants will not be repaid by borrowers when they are due and that they must be partially or fully written down. More specifically the risk profile for lending is sensitive to the performance of the economy as a whole, to the deterioration in the financial position of counterparties (shortage of liquidity, insolvency, etc.), or to changes in their competitiveness, to structural or technological changes in corporate debtors and to other external factors (e.g. changes in legislation, deterioration in the value of financial guarantees and mortgages connected with market performance). The organisational model on which the units which manage lending activity is based is as follows: Parent units for centralised monitoring and co-ordination; 191* Notes to the separate financial statements

193 the General Managements of banks and Group companies, to which the following report: - Credit Departments; - Local Credit Centres, - Branches; - Corporate Banking Units (CBUs); - Private Banking Units (PBUs). Reorganisation was launched in the network banks in January 2013, in order to combine personal services with a specialist approach to corporate customers. This led to the creation of units entitled Private Banking & Corporate Unity specifically for the management of both corporate and private banking customers. Furthermore, in view of the merger of B@nca 24/7, specific units have been created in the Credit Area at the Parent to manage loans from that company s operations. As a whole, the characteristics of that organisational model ensure strong standardisation between the units of the Parent and the corresponding units in the network banks, with consequent linearity in the processes and the optimisation of information flows. Loan granting activity is also differentiated, at local level, by customer segment (retail/private banking/corporate and institutional) and specialised by the status of the loan: performing (managed by retail, private banking and corporate lending units) and default (managed by problem loan units). The Parent oversees policy management, overall portfolio monitoring, the refinement of assessment systems, problem loan management and compliance with regulations through the Credit and Credit Recovery, Risks Control and the Strategic Development and Planning Macro Areas and the Audit Function of the Parent and the Group. Credit positions at UBI are principally connected with treasury activity performed for institutional counterparties and Group entities. Further details of credit risk management policies are given in the same section of the notes to the consolidated financial statements, which may be consulted. Management of the non-performing positions of all the UBI Group s network banks is entrusted to the Problem Loan and Credit Recovery Area of UBI Banca, within the unit relating to the Chief Lending Officer. This unit underwent substantial organisational change (completed in December), as part of the implementation of the new model for the management of non-performing loans, designed to improve credit recovery processes, by means of the following: the introduction of segmentation approaches and division into portfolios of nonperforming positions, on the basis of the size and complexity of the loan; the specialisation of recovery processes and the units responsible for it, consistent with the segments and portfolios identified; monitoring of processes for the management of positions; the assignment of recovery objectives to managers and assessment of results; the introduction of strategies designed to optimise recovery on specific portfolios, such as for example, recourse to property operators to value the properties which back mortgage loans. As part of that initiative, three specialist services on specific segments have been created within the above mentioned areas: 192* Notes to the separate financial statements

194 Small Sum Recovery Service, to manage non-performing unsecured loans to private individuals for amounts of less than 25,000; Large Loan Recovery Service, specialising in the management of non-performing loans to both private individuals and businesses for amounts of over 1 million, or with a net book value of over 500,000. Particularly complex types of position are also managed by this service (e.g. pool financing, etc.); Private Individual and Corporate Recovery Service, for the management of other types of loan which are not included within the scope of the two services just mentioned. This unit is organised into six specialist functions according to geographical criteria. 2.2 Management, measurement and control systems The Credit Risk Service is responsible for Group reporting on credit risk in order to monitor changes in the risk attached to lending for individual banks and commercial portfolios. The reports submitted to the Boards of Directors of the individual network banks each quarter illustrate the distributions by internal rating classes, LGD and expected loss and they therefore show changes in average risk for the loan portfolio, with a focus on the Corporate Market and the Retail Market, separately for businesses and private individuals. They describe impairment rates for loans and contain a section on the quarterly monitoring of concentration policy and of credit quality in terms of the distribution of loans and the values for risk parameters. The set of models which constitute the Group s internal rating system is managed by the Risk Management Area with the support of the Credit Area of the Parent. The system at present involves the use of automatic models for medium to large companies, private individuals and small-sized businesses. The rating and LGD models for medium-large companies were submitted for validation by the Supervisory Authority in the first half of 2012 and their regulatory application is limited to the network banks and to Centrobanca. Estimates for a new generation of rating and LGD models for the retail exposures regulatory portfolio are in progress for private individuals and small-sized businesses as part of the Basel 2 project. These are accompanied by the necessary interaction with the Supervisory Authority, designed to obtain authorisation in 2013 for the adoption of these models for the calculation of regulatory capital using the advanced internal rating based approach. The main features of this new generation of rating models are as follows: the development of new quantitative models for monitoring and granting loans, which assess the creditworthiness of small-sized businesses which integrate the following assessments: geo-sectoral; economic-financial; external and internal performance; the development of a new quantitative model for monitoring, which assesses the creditworthiness of private individuals supplementing it with personal data and external and internal performance assessments; the development of a new quantitative model for the grant of mortgages to private individuals, which assesses counterparty risk, supplementing it with personal data and product assessments. As concerns retail LGD, new models for the network banks were estimated, based on updated historical data series references and on re-estimated or updated components. 193* Notes to the separate financial statements

195 It was decided that as part of the roll-out plan, the Parent, UBI Banca, will be included in the 2013 validation perimeter for the application of the AIRB approach. As recommended by the Bank of Italy circular No. 263/2006, New Supervisory Instructions for Banks, the Group currently adopts the standardised approach for the determination of supervisory capital. It was decided to make use, for the businesses and other supervisory class of exposures in particular, of external credit ratings, where available, furnished by the agency Moody s which is an ECAI (External Credit Assessment Institution) recognised by the Bank of Italy. Activity also continued in 2012 to revise, update and adopt policies and regulations for credit risk management. Existing policies are listed below together with the principal contents. Credit Risk Management Policy, which unifies regulations for the management of different types of credit risk in a single document, which were previously contained in separate policies. This policy sets regulations for the following: - ordinary customers, for which, regulations, principles and limits to manage credit risk are set on the basis of the availability of internal ratings. The definition of the limits is based on a series of indicators expressed in terms of: capital allocation, values for maximum risk (i.e. target and maximum expected loss), limits on the assumption of risks in terms of the distribution of exposures by credit rating class and the management of credit quality; - institutional and ordinary counterparties resident in countries at risk for which the risk management policy, the relative regulations to implement it and the documents setting limits lay down rules and principles for managing credit granted to resident and non-resident institutional customers and also to ordinary customers in countries at risk. As with ordinary customers, the definition of the limits is based on a series of indicators expressed in terms of: capital allocation, limits on the assumption of risks in terms of the distribution of exposures by credit rating class and countries and the management of credit quality; - single name concentration risk, which sets maximum exposure limits on single counterparties in order to limit risks of instability that would arise from high rates of concentration for loans to major borrowers if one of these should default; policy for the distribution of mortgage loans through brokers, which regulates the procedures for the use of external distribution networks for granting mortgages to non-captive customers in order to contain potential credit, operational and reputational risks; policy on the portability, renegotiation, substitution and early repayment of the mortgages of direct customers of the network banks, which provides UBI Group guidelines for the portability (in both directions), the renegotiation, the substitution and early repayment (partial or total) of mortgages. It is designed with a view to minimising the times required, the conditions and the related costs (by setting minimum service standards, amongst other things) and also to equipping the Group with appropriate processes and instruments to manage the relative risks (credit, operational and reputational); policy on the portability, renegotiation, substitution and early repayment of mortgages granted through brokers, which relates to mortgages granted on the basis 194* Notes to the separate financial statements

196 of standing arrangements between the companies and banks in the Group and specific distribution networks; policy on risks resulting from securitisations, which sets guidelines for the Group to manage risks resulting from securitisations; policy on residual risk, which defines strategic orientations relating to the management of residual risk, defining the process of control over the acquisition and use of techniques to reduce credit risk in order to mitigate the risk in question; policy on internal controls to manage risk assets and conflicts of interest with regard to associate companies, which implements Bank of Italy recommendations. The policy defines guidelines and criteria for the adoption by the Group as a whole and by individual Group banks and companies of appropriate organisational structures, internal control systems and specific internal policies to manage that risk within two areas defined by the regulations: prudential limits and approval procedures; policy to manage equity risk the formulation of which was concluded in January 2013, which defines appropriate management controls designed to: contain the risk of locking up too much liquidity as a result of making equity investments in financial and non-financial companies and, with specific reference to non-financial companies, promote risk and conflicting interest management that complies with the criterion of sound and prudent management. 2.3 Techniques for mitigating credit risk The Bank applies policies to reduce counterparty risk through netting and collateralisation arrangements, both for credit and financial derivative instruments and also for repurchase agreements, with reference to institutional counterparties. This is performed through special contracts which regulate repurchase agreement transactions (termed Global Master Repurchase Agreements GMRAs), and OTC derivatives contracts (termed International Swaps and Derivatives Association agreements ISDAs, together with Credit Support Annexes CSAs). The GMRAs contain special margin lending clauses designed to cover exposure as each individual transaction is presented. Similarly the CSAs, which in fact are attachments to ISDAs, serve the purpose of regulating the exchange of collateral to support derivatives transactions, in order to contain counterparty risk. Further details of credit risk mitigation methods are given in Part E of the notes to the consolidated financial statements. 2.4 Deteriorated financial assets Deteriorated financial assets consist almost exclusively of the portfolio of loans and advances to ordinary customers acquired following the merger of Banca 24-7 Spa. Further details are given in the tables which follow. 195* Notes to the separate financial statements

197 Quantitative information A. CREDIT QUALITY A.1 Deteriorated and performing credit exposures: amounts, impairment losses, changes, economic and geographical distribution A.1.1 Distribution of credit exposures by portfolio and by credit quality (carrying amounts) Portfolios/quality Non-performing loans Impaired loans Restructured exposures Past-due exposures Other assets Total 1. Financial assets held for trading ,757,152 4,757, Available-for-sale financial assets ,608,427 11,608, Held-to-maturity investments ,158,013 3,158, Loans and advances to banks ,830,498 15,830, Loans and advances to customers 227, , ,904 22,067,829 22,584, Financial assets designated at fair value Financial assets held for disposal Hedging derivatives , ,693 Total , , ,904 58,347,612 58,864,530 Total ,302,872 56,303, * Notes to the separate financial statements

198 A.1.2 Distribution of credit exposures by portfolio and by credit quality (gross and net amounts) Portfolios/Quality Deteriorated assets Performing Gross exposure Specific impairment losses Net exposure Gross exposure Portfolio impairment losses Net exposure Total (net exposure) 1. Financial assets held for trading X X 4,757,152 4,757, Available-for-sale financial assets ,608,427-11,608,427 11,608, Held-to-maturity investments ,158,013-3,158,013 3,158, Loans and advances to banks ,830,498-15,830,498 15,830, Loans and advances to customers 913,994 (397,076) 516,918 22,133,332 (65,503) 22,067,829 22,584, Financial assets designated at fair value X X Financial assets held for disposal Hedging derivatives X X 925, ,693 Total ,994 (397,076) 516,918 52,730,270 (65,503) 58,347,612 58,864,530 Total ,530 (5,250) ,180,751 (1,030) 56,302,872 56,303,152 Deteriorated loans and advances to customers are mainly result of the acquisition of Banca 24-7 and they relate to non-performing, impaired and past due positions, resulting from residential mortgages and consumer loans. The relative loan impairment provisions were also acquired. Details of deteriorated UBI Banca positions relating to the counterparty Lehman Brothers are given below: Description gross exposure specific net exposure impairment losses Lehman Brothers Special Financing Lehman Brothers International Europe Total The composition of performing loans has changed compared to the previous year: loans and advances to customers increased ( 15.7 million as at 31/12/2011) and loans and advances to banks decreased ( 30.2 million as at 31/12/2011), both phenomena being largely the result of the acquisition of Banca The change in the composition of performing loans explains the increase in the recognition of portfolio impairment losses. 197* Notes to the separate financial statements

199 A.1.3 On- and off-balance sheet exposures to banks: gross and net amounts Type of exposure/amounts Gross exposure Specific impairment losses Portfolio impairment losses Net exposure A. On-balance sheet exposure a) non-performing loans - - X - b) Impaired loans - - X - c) Restructured exposures - - X - d) Past due exposures - - X - e) Other assets 16,654,520 X - 16,654,520 Total A 16,654, ,654,520 B. Off-balance sheet exposures a) Deteriorated - - X - b) Other 24,461,870 X - 24,461,870 Total B 24,461, ,461,870 Total A+B 41,116, ,116,390 A.1.4 On-balance sheet credit exposures to banks: changes in gross impaired exposures No deteriorated exposures to banks were recognised. A.1.5 On-balance sheet credit exposures to banks: changes in total impairment losses No impairment losses on deteriorated exposures to banks were recognised. 198* Notes to the separate financial statements

200 A.1.6 On- and off-balance sheet credit exposures to customers: gross and net amounts Type of exposure/amounts Gross exposure Specific impairment losses Portfolio impairment losses Net exposure A. On-balance sheet exposure a) Non-performing loans 586,953 (359,511) X 227,442 b) Impaired loans 218,967 (32,395) X 186,572 c) Restructured exposures - - X - d) Past due exposures 108,074 (5,170) X 102,904 e) Other assets 39,404,640 X (65,503) 39,339,137 Total A 40,318,634 (397,076) (65,503) 39,856,055 B. Off-balance sheet exposures a) Deteriorated 25,237 (5,704) X 19,533 b) Other 1,982,960 X (14,160) 1,968,800 Total B 2,008,197 (5,704) (14,160) 1,988,333 Total A+B 42,326,831 (402,780) (79,663) 41,844, * Notes to the separate financial statements

201 A.1.7 On-balance sheet credit exposures to customers: changes in deteriorated exposures Description/categories Non-performing loans Impaired loans Restructured exposures Past-due exposures A. Initial gross exposure 5, of which: exposures transferred not derecognised B. Increases 833, , ,235 B.1 transfers from performing credit exposures 40, , ,370 B.2 transfers from other categories of impaired exposures 95, , B.3 Other increases 698, ,519-82,021 - other changes 57,836 29,601 14,689 - business combinations 640, ,918 67,332 C. Decreases (252,557) (279,477) - (223,161) C.1 transfers to performing credit exposures (180) (6,232) - (21,290) C.2 write-offs (16,201) C.3 payments received (101,074) (39,170) - (18,421) C.4 from disposals (103,170) C.2 transfers to other categories of deteriorated exposures (5,347) (67,110) - (182,993) C.6 other decreases (26,585) (166,965) - (457) - other changes - business combinations (26,585) (166,965) (457) D. Final gross exposure 586, , ,074 - of which: exposures transferred not derecognised * Notes to the separate financial statements

202 A.1.8 On-balance sheet credit exposures to customers: changes in total impairment losses D e s c riptio n/ c a te g o rie s N o n-pe rfo rm ing lo a ns Im pa ire d lo a ns R e s truc ture d e xpo s ure s P a s t-due e xpo s ure s A. To ta l initia l ne t im pa irm e nt (5,2 5 0 ) o f which: expo s ures trans ferred no t dereco gnis ed B. Inc re a s e s (5 18,7 2 5 ) (6 9,7 5 0 ) - (7,3 2 8 ) B.1 impairment lo s s es (91,240) (48,360) - (3,480) B.1.a lo s s es o n dis po s al (510) B.2 trans fers fro m o ther catego ries o f deterio rated expo s ures (11,058) (2,674) - (114) B.3 o ther increas es (415,917) (18,716) - (3,734) - o ther changes (525) (3,507) (1,986) - bus ines s co mbinatio ns (415,392) (15,209) (1,748) C. D e c re a s e s 16 4, , ,15 8 C.1 unrealis ed revers als o f impairment lo s s es 16,980 1, C.2 realis ed revers als o f impairment lo s s es 14,493 1, C.2.a pro fits o n the dis po s al C.3 write-o ffs 16, C.4 trans fers to o ther catego ries o f impaired expo s ures 2,231 10,086-1,529 C.5 o ther decreas es 114,559 24, o ther changes 113, bus ines s co mbinatio ns ,866-5 D. To ta l c lo s ing ne t im pa irm e nt (3 5 9,5 11) (3 2,3 9 5 ) - (5,17 0 ) - o f which: expo s ures trans ferred no t dereco gnis ed The item other increases business combination transactions includes loans (and the relative loan impairment provisions) acquired from Banca The item other decreases business combination transactions includes loans (and the relative loan impairment provisions) contributed to Prestialia. Impairment losses of 24.1 million were recognised on these loans in the first half 2012 relating to impaired positions and reversals of impairment of 8.3 million were recognised on performing positions. The item losses on the disposal contains net income on the disposal, concluded in June, of a portfolio of non-performing loans relating to: mortgages amounting to 3.4 million gross, with impairment of 3.3 million; 201* Notes to the separate financial statements

203 captive consumer credit loans, amounting to 99.7 million gross, with impairment of 97 million. The disposal price was 2.3 million. Loans to customers: gross and net amounts Non-performing loans Impaired loans Restructured exposures Past-due exposures Country risk Performing loans Gross exposure 586, , ,074-22,133,332 - Financing 586, , ,074-21,811,894 - Securities ,438 Specific impairment losses (359,511) (32,395) - (5,170) - X - Financing (359,511) (32,395) - (5,170) - X - Securities X Portfolio impairment losses (65,503) - Financing (65,503) - Securities Total 227, , ,904-22,067, * Notes to the separate financial statements

204 A.2 Classification of exposures on the basis of external and internal ratings A.2.1 Distribution of on- and off-balance sheet credit exposures by external rating class Exposures External rating classes Class 1 Class 2 Class 3 Class 4 Class 5 Class 6 Unrated Intragroup Total A. On-balance sheet credit exposures 221,673 1,380,040 11,602,115 20, ,596,613 26,903,734 56,724,798 B. Derivatives - 32, ,865 1,016,554 1,558,267 B.1 Financial derivatives - 32, ,865 1,014,269 1,555,982 B.2 Credit derivatives ,285 2,285 C. Guarantees granted ,473,829 11,517,911 12,991,740 D. Commitments to grant funds ,206 11,549,958 11,900,197 E. Other Total 221,673 1,412,888 11,602,115 20, ,929,513 50,988,157 83,175,002 The following table gives the relationship between external rating classes reported in the table and the classes of the agency in question. Moody s. Class Moody's Ratings 1 Aaa,Aa,Aa1,Aa2,Aa3 2 A,A1,A2,A3 3 Baa,Baa1,Baa2,Baa3 4 Ba,Ba1,Ba2,Ba3 5 B,B1,B2,B3 Caa,Caa1,Caa2,Caa3,C 6 a,c,ddd,dd,d 203* Notes to the separate financial statements

205 A.2.2. Distribution of on- and off-balance sheet credit exposures by internal rating class Exposures Internal rating classes Unrated Total A. On-balance sheet exposure 31,434 34, , ,034, , ,400 39, , , ,412 57,866 1,815 50,405,903 56,510,574 B. Derivatives ,558,055 1,558,267 B.1 Financial derivatives ,555,770 1,555,982 B.2 Credit derivatives ,285 2,285 C. Guarantees granted - 49,706-44, ,725-17, ,226,836 12,991,740 D. Commitments to grant funds , , ,871,277 11,900,197 E. Other Total 31,434 84, ,003 44,783 4,708, , ,134 39, , , ,473 57,866 1,815 76,062,071 82,960,778 On-balance sheet exposures include equity instruments and units in OICRs (collective investment instruments) in accordance with the information already given in the preceding tables A.1.3 and A.1.6. Only approximately 9% of on-balance sheet exposures have been assigned an internal rating. This is due to the extremely small volume of the Bank s traditional lending business to customers and to the prevalence of positions in financial instruments. 204* Notes to the separate financial statements

206 A.3 Distribution of guaranteed/secured exposures by type of guarantee A.3.1 Guaranteed/secured credit exposures to banks Secured (1) Personal guarantees (2) Total (1)+(2) Amount of net exposure Mortgages Properties Finance leases Securities Other collateral CLN Governments and central banks Credit derivatives Other derivatives Other public authoritie s Banks Other Governments and central banks Unsecured guarantees Other public authorities Banks Other 1. On-balance sheet guaranteed/secured credit exposures 1.1. fully guaranteed/secured 3,704, ,727, ,727,204 - of which deteriorated partially guaranteed/secured 917, , ,215 - of which deteriorated Off-balance sheet guaranteed/secured credit exposures 2.1. fully guaranteed/secured 345, , ,632 - of which deteriorated partially guaranteed/secured 169, , ,490 - of which deteriorated The secured credit exposures to banks consist of reverse repurchase agreements. The amount for the net exposure relates to the carrying amount, while the market value of the underlying securities is given for the collateral. The counterparties in question consist of banks in the Group for 4.8 billion and of other banks for approximately 534 million of the amount. 205* Notes to the separate financial statements

207 A.3.2 Guaranteed/secured credit exposures to customers P e rs o na l g u a ra nte e s (2 ) To ta l (1)+(2 ) S e c ure d (1) C re dit de riv a tiv e s Uns e c ure d g u a ra nte e s A m o u nt o f ne t e xp o s u re M o rtg a g e s P ro pe rtie s F ina nc e le a s e s S e c urit ie s Ot he r c o lla te ra l C LN G o v e rnm e nts a nd c e nt ra l ba nks Othe r de riv a t iv e s Othe r public autho ritie s B a nks Ot he r Go v e rnm e n ts a n d c e ntra l ba n ks Othe r p ublic a utho riti e s B a n ks Othe r 1. On-ba la nc e s h e e t g ua ra nte e d/ s e c u re d c re dit e xpo s ure s 1.1. fully guaranteed/s ecured 6,907,694 9,142,283-1,872, ,500 2,181,578 13,3 3 3, o f which deterio rated 392, , , , , partially guaranteed/s ecured 328, , ,537 3, , o f which deterio rated 1, ,041 1,411 2, Off-ba la nc e s h e e t g ua ra nte e d/ s e c u re d c re dit e xpo s ure s 2.1. fully guaranteed/s ecured 1,974 2, , o f which deterio rated , partially guaranteed/s ecured o f which deterio rated The guaranteed/secured credit exposures to customers consist of the following: reverse repurchase agreements: the amount for the net exposure relates to the carrying amount, while the market value of the underlying securities is given for the collateral. Reverse repurchase agreements, which amounted to 3.1 billion, were entered into with the Group company UBI Leasing Spa amounting to 2.5 billion and with Cassa di Compensazione e Garanzia (a central counterparty clearing house) amounting to 916 million; residential mortgages backed by real estate; personal loans and exposure resulting from credit cards, backed by personal guarantees. 206* Notes to the separate financial statements

208 B. DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES B.1 Distribution by sector of on- and off-balance sheet credit exposures to customers (carrying amount) Governments Other public authorities Financial companies Insurance companies Non financial companies Other Exposures/Counterparties Net exposure Specific impairment losses Portfolio impairment losses Net exposure Specific impairment losses Portfolio impairment losses Net exposure Specific impairment losses Portfolio impairment losses Net exposure Specific impairment losses Portfolio impairment losses Net exposure Specific impairment losses Portfolio impairment losses Net exposure Specific impairment losses Portfolio impairment losses A. On-balance sheet exposure A.1 non-performing loans - - X - - X 9 (22) X - - X 3,141 (18,545) X 224,293 (340,944) X A.2 Impaired loans - - X - - X 19 (2) X - - X 1,883 (883) X 184,670 (31,510) X A.3 Restructured exposures - - X - - X - - X - - X - - X - - X A.4 Past due exposures - - X - - X 6 (1) X - - X 1,824 (162) X 101,074 (5,008) X A.5 Other exposures 17,037,093 X - - X - 15,861,066 X (4,755) 98,075 X - 129,748 X (1,223) 6,213,153 X (59,526) Total A 17,037, ,861,100 (25) (4,755) 98, ,596 (19,590) (1,223) 6,723,190 (377,462) (59,526) B. Off-balance sheet exposures B.1 Non-performing loans - - X - - X - - X - - X 13,445 (5,692) X - - X B.2 Impaired loans - - X - - X - - X - - X - - X - - X B.3 Other deteriorated assets - - X - - X - - X - - X 6,088 (12) X - - X B.4 Other exposures 69,817 X - 159,567 X (433) 902,531 X (3,139) 32,450 X (50) 585,854 X (1,145) 218,583 X (9,393) Total B 69, ,567 - (433) 902,531 - (3,139) 32,450 - (50) 605,387 (5,704) (1,145) 218,583 - (9,393) Total (A+B) ,106, ,567 - (433) 16,763,631 (25) (7,894) 130,525 - (50) 741,983 (25,294) (2,368) 6,941,773 (377,462) (68,919) Total (A+B) ,233, ,222 - (788) 16,332,554 (5,244) (1,270) 536,988 - (45) 1,355,417 (4,902) (5,352) 55,786 - (20,412) Exposures to governments increased following significant purchases of government securities, classified within the available-for-sale financial asset and held-to-maturity investment portfolios. Exposures to consumer households increased following the acquisition of Banca * Notes to the separate financial statements

209 B.2 Geographical distribution of on- and off-balance sheet credit exposures to customers (carrying amount) Expo sures/geo graphical areas ITALY OTHER EUR OPEAN CO UNTR IES AMER ICA ASIA RES T O F TH E WO RL D A. O n-balance sheet expo su re Net exp osure Tot al im pairm ent losses Net expo sure Total im pairm ent losses Net expo sure To tal imp airment losses Net exp osure Tot al im pairm ent losses Net expo sure Total imp air me nt losses A.1 Non-perform ing loan s 227, 442 (3 59, 511 ) A.2 Im paired loan s 186, 572 (32, 395 ) A.3 Restr uctured exposures A.4 Past due exposures 102, 903 (5, 170 ) A.5 Other exposures 38, 573, 754 (62, 022 ) 2 50, 583 (4 52) 5 14,7 84 (3,029 ) TO TAL A 3 9,09 0,67 1 (4 59,0 98 ) 25 0,58 3 (4 52 ) 5 1 4,78 4 ( 3,02 9) B. O ff-b alance sheet ex posu res B.1 Non -p erf ormin g loans B.2 Im pai red loans 13, 445 (5, 692 ) B.3 O th er deteriorated assets 6, 088 (12 ) B.4 other exposures 1, 836, 624 (14, 160 ) 4, , TO TAL B 1,85 6,15 7 (19,8 64 ) 4, , Tota l (A+B) ,94 6,82 8 (4 78,9 62 ) 25 5,13 6 (4 52 ) 6 4 2,40 8 ( 3,02 9) Tota l (A+B) ,59 5,95 4 (32,1 84 ) 54 3,96 6 (4 71 ) 5 2 5,50 5 ( 5,35 8) 7, * Notes to the separate financial statements

210 B.3 Geographical distribution of on- and off-balance sheet credit exposures to banks (carrying amount) Exposures/Geographical areas ITALY OTHER EUROPEAN COUNTRIES AMERICA ASIA REST OF THE WORLD Net exposure Total impairment losses Net exposure Total impairment losses Net exposure Total impairment losses Net exposure Total impairment losses Net exposure Total impairment losses A. On-balance sheet exposure A.1 Non-performing loans A.2 Impaired loans A.3 Restructured exposures A.4 Past due exposures A.5 Other exposures 14,456,694-2,190,907-3,652-2, TOTAL A 14,456,694-2,190,907-3,652-2, B. Off-balance sheet exposures B.1 Non-performing loans B.2 Impaired loans B.3 Other deteriorated assets B.4 other exposures 8,948,973-15,512, TOTAL B 8,948,973-15,512, Total (A+B) ,405,667-17,703,655-3,801-2, Total (A+B) ,732,127-17,725,354 (1) 76,103-4,250-1, * Notes to the separate financial statements

211 B.4 Large exposures On the basis of updates to Bank of Italy Circular No. 263 of 27 th December 2006 and subsequent regulatory clarifications issued by the supervisory authority, the number of large risks presented in the table was determined by making reference to the non-weighted exposures, including those towards Group counterparties, with a nominal value equal to or greater than 10% of the regulatory capital, where exposures are defined as the sum of on-balance sheet risk assets and off-balance sheet commitments (excluding those deducted from regulatory capital) to a customer of group of connected customers, without the application of weighting factors. These exposure criteria result also in the inclusion in the balance sheet table of large risk of postions which although they have a weighting factor of 0% - have a non-weighted exposure of greater than 10% of the capital valid for the purposes of large risks. Individual banks belonging to banking groups are subject to an individual limit of 40% of their regulatory capital. The latter limit relates to the risk position, which is the weighted exposure according to the rules of the current regulations Number of positions 3 Exposure 88,413,346 of which intragroup 66,836,796 Risk position 618,692 of which intragroup 477,517 Exposures to other Group companies amounted to 66,864 million ( million considering weighting factors). Other large exposures consisted of exposures to: 16,983 billion to the Ministry of the Treasury ( 0 million considering weighting factors) mainly in relation to investments in government securities; the CCG, as a result of total transactions amounting to 4,566 million ( million considering weighting factors). C. Securitisations and the transfer of assets C.1 Securitisation transactions Qualitative information Albenza, Albenza 2 and Albenza 3 transactions Three securitisations were performed in 1999, 2000 and 2001 by the former Banca Popolare di Bergamo Credito Varesino, now UBI Banca, pursuant to Law No. 130/99, on performing mortgage loans to private individuals resident in Italy. These securitisations were performed to support the considerable expansion in the home mortgage lending sector. All the securitisation transactions described above were carried out with the assistance of special purpose entities (SPEs) established for that purpose, as provided for by Law No. 130/1999. The Bank holds no interests in those companies, in order: Albenza Srl, Albenza 2 Società per la Cartolarizzazione Srl and Albenza 3, Società per la Cartolarizzazione Srl. The special purpose entities which transferred the securitised loans engaged UBI for the servicing activity which in turn signed a sub-servicing contract with its subsidiary Banca Popolare di Bergamo Spa, delegating to it principally the task of managing relations with customers, the receipt of instalments on mortgage repayments and in-court and out-ofcourt debt collection. The Albenza and Albenza 2 transactions were wound up in advance in 2008 and 2009 respectively, in accordance with the provisions of the contract. In 2012 servicing activity 210* Notes to the separate financial statements

212 was therefore only performed in relation to the Albenza 3. securitisation. The consideration paid to UBI Banca during the year for that activity amounted to 37 thousand. Other transactions The other securitisations with underlying portfolios originated by banks in the Group UBI are not reported in this section, because all the securitised securities were fully subscribed by each originator at the time of issue. The relative sections of the notes to the financial statements have therefore not been compiled as allowed by regulations. For full information we have nevertheless reported the main characteristics of the transactions existing at the time of preparing these notes to the financial statements. UBI Finance 2 transaction A securitisation transaction was performed in the first half of 2009 by transferring loans to small to medium-sized enterprises classified as performing and held by the subsidiary, Banco di Brescia S.p.A., to a special purpose entity named UBI Finance 2 Srl. The main characteristics of the UBI Finance 2 securities issued on 27 th February 2009 were as follows: class A notes (senior tranches): nominal amount 1,559,500, at floating rate, assigned the highest rating by Fitch. These securities, subscribed by the originator when issued, have been made available to UBI Banca by means of repurchase agreements to be used as collateral in repo transactions with the ECB or to guarantee intraday transactions with the Bank of Italy; class B securities (junior tranches): nominal amount 519,850, with no rating and with a yield equal to the additional return on the transaction. In order to comply with the new requirements for the eligibility of securitised instruments as collateral in refinancing operations with the ECB, in the first quarter of 2011 Moody s, the rating agency, was asked to assign a second rating to the class A securities. The rating initially assigned was Aaa. From 20 th July 2011, the progressive amortisation of the class A notes commenced, amounting to approximately 1,210 million. Therefore as at 31 st December 2012, the senior tranches amounted to 311,042,587, nominal while the amount of the class B notes, which because of their subordination received no amortisation payment, remained unchanged. For full information, we report that the subsequent amortisation date was 20 th January On this occasion a further 43 million approximately was repaid on the class A note, while no repayment has been received on the Class B note. The roles of cash manager and English account Bank were performed for the securitisation transaction by Bank of New York Mellon, while UBI Banca, as the Parent, filled the roles of Italian account bank, calculation agent and servicer. Acting as the sub-service, the originator, Banco di Brescia, was responsible for collecting payments and managing relations with customers for the securitised assets (except for those positions classified as non-performing which were handled by the Credit Area of the Parent). UBI Banca received consideration for the activities mentioned above, which totalled 370 thousand in As already reported previously, the credit ratings of UBI Banca assigned by three agencies, Moody s, Fitch and Standard and Poor s were downgraded in the second half of 2012 and subsequently in the first months of 2012, following the downgrading of the rating for Italy. The progressive reduction in UBI Banca s rating, which as the Parent plays key roles in the 211* Notes to the separate financial statements

213 structure of securitisation transactions, had already triggered some guarantee mechanisms in 2011 (e.g. the need to make guarantee and margin deposits for swap contracts to which Parent or the bank involved are counterparties and in the first quarter of 2012 the replacement of UBI Banca International with Bank of New York Mellon as the account bank for the transaction). Following the downgrade of UBI Banca s rating, the rating assigned to the securitised notes was progressively reduced to the current level of A+ for Fitch and A2 for Moody s. The new ratings assigned to the class A notes nevertheless remain compatible with the eligibility requirements for refinancing operations with the central bank. UBI Finance 3 transaction The structuring of the UBI Finance 3 securitisation was commenced at the end of 2010 with the transfer to a special purpose entity named UBI Finance 3 Srl of a portfolio of loans to small and medium-sized businesses, classified as performing, and held by Banca Popolare di Bergamo S.p.A., while the securities resulting from the securitisation were issued in the following The purpose of the transaction was to create securities to be used as collateral eligible for refinancing operations. Consequently the notes issued were repurchased entirely by the originator Banca Popolare di Bergamo, which subsequently made them available to UBI Banca by means of repurchase agreements for use as collateral eligible for refinancing operations with central banks. The characteristics of the notes issues are as follows: class A notes (senior tranches): nominal amount 1,863,600, at floating rate, maturity in 2050, assigned an AAA rating by Fitch and an Aaa rating by Moody s. Reference may be made to the information given above with regard to changes in ratings for the transaction, while the current ratings assigned to the UBI Finance 3 transaction are A- (Fitch) and A2 (Moody s); class B notes (junior tranches): nominal amount 897,300,000.00, maturity 2050, unrated and with a yield equal to the additional return on the transaction. In view of the contract clauses and the length of the pre-amortisation period for the senior note until the 18 th month following the issuance, the securitised notes have not yet been redeemed and the remaining debt as at corresponded to the full nominal amount issued. The UBI Finance 3 securitisation is a revolving operation and therefore two further transfers of loans were made in 2012 with which Banca Popolare di Bergamo transferred additional assets to UBI Finance 3, with characteristics similar to those of the portfolio initially transferred. These operations, concluded in March and September, involved loans of approximately 594 million and 125 million respectively, in terms of the remaining principal. For the UBI Finance 3 also, the roles of cash manager and English account Bank were performed by Bank of New York Mellon, while UBI Banca, as the Parent, filled the roles of Italian account bank, calculation agent and servicer. However, the collection of payments and managing relations with customers for the securitised assets were delegated to the originator, Banca Popolare di Bergamo, as the sub-servicer (here too, except for those positions reclassified as non-performing, which will be handled by the Credit Area of the Parent). The consideration due to UBI Banca in 2012 for the above activities amounted to 224 thousand. 212* Notes to the separate financial statements

214 Securitisation Transactions UBI SPV BPA 2012, UBI SPV BPCI 2012 and UBI SPV BBS 2012 The structuring of three new securitisations were commenced simultaneously in the first half of 2012, with the transfer to three new special purpose entities named UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BBS 2012 Srl, of loans to small to mediumsized enterprises classified as performing, held by Banca Popolare di Ancona, Banca Popolare Commercio and Industria ed Banco di Brescia respectively. The transfer of the mortgages was completed for all three transactions, with effect for accounting purposes from 1 st June The portfolio transferred totalled 2.76 billion, distributed as follows among the three originator banks: Originator Bank Remaining principal debt Banca Pop. di Ancona 1,016,844, % Banca Pop. Comm. e Industria 852,086, % Banco di Brescia 888,575, % % 2,757,506, % When the mortgages were transferred, servicing and sub-servicing contracts were also signed at the same time, in compliance with the model also adopted for the other transactions, by which UBI Banca as the Parent fills the role of servicer, while the collection of payments and managing relations with customers for the securitised assets were delegated to the three originator banks, as the sub-servicers (here too, except for those positions reclassified as non-performing, which will be handled by the Credit Area of the Parent). The consideration due to UBI Banca in 2012 for the above servicing activities totalled 242 thousand. The transactions were therefore concluded in the second half with the issuance of the notes, which took place at the same time on 30 th October 2012 for all three transactions. The characteristics of the securities issued for each securitisation are as follows: 1) Securitisation UBI SPV BPA 2012 class A notes (senior tranches): nominal amount 709,800,000 at floating rate, maturity in 2057, assigned ratings A- by Standard & Poor s and A (low) by DBRS at the time of issue; class B notes (junior tranches): nominal amount 307,800,000, maturity 2057, unrated and with a yield equal to the additional return on the transaction. 2) Securitisation UBI SPV BPCI 2012 class A notes (senior tranches): nominal amount 575,600,000 at floating rate, maturity in 2057, assigned ratings A- by Standard & Poor s and A (low) by DBRS at the time of issue; class B notes (junior tranches): nominal amount 277,100,000, maturity 2057, unrated and with a yield equal to the additional return on the transaction. 213* Notes to the separate financial statements

215 3) Securitisation UBI SPV BBS 2012 class A notes (senior tranches): nominal amount 644,600,000 at floating rate, maturity in 2057, assigned ratings A- by Standard & Poor s and A (low) by DBRS at the time of issue; class B notes (junior tranches): nominal amount 244,400,000, maturity 2057, unrated and with a yield equal to the additional return on the transaction. The roles of cash manager and English account bank are performed for all three transactions by Bank of New York Mellon. These new securitisations were also structured with the objective of creating collateral for the Group eligible for refinancing with central banks, according to the model described above. As a consequence on this occasion too, the originator banks fully subscribed the entire amount of the securitised notes when they were issued and then made only the class A notes available to UBI Banca, by means of repurchase agreements. Here too, the new ratings assigned to the above securities are compatible with the eligibility requirements for refinancing operations with the central bank. The transactions in question are revolving operations and therefore it is possible for further transfers of mortgages within 18 months of issue by the originators, to be financed by the three special purpose entities with the receipts of each securitised portfolio. Transaction 24-7 Finance The securitisation 247 Finance Srl was performed in 2008 with the underlying assets held by Banca 24-7 Spa, a company which, as is known, was merged into UBI Banca in The assets types which were securitised consist of three portfolios: performing loans resulting from mortgages granted to private individuals resident in Italy, secured by a prime grade mortgages on residential properties located in Italy all fully built; performing loans resulting from salary backed loans to private individuals resident in Italy, secured by a deducted for non-payment clause and by a job-loss insurance policy; performing loans resulting from personal loans and dedicated loans to private individuals resident in Italy; on which three different issuances of securitised notes were structured by the special purpose entity 24-7 Finance Srl, to which the portfolios were transferred beforehand. Details of the three issuances are as follows: 1) Mortgages: class A notes (senior notes): nominal amount 2,279,250,000, at floating rate, to which an Aaa rating was initially assigned by Moody s; 214* Notes to the separate financial statements

216 class B notes (junior securities): nominal amount 225,416,196, maturity 2055, unrated and with a yield equal to the additional return on the underlying portfolio. 2) Salary backed loans: class A notes (senior notes): nominal amount 722,450,000 at floating rate, maturity 2023, to which an Aaa rating was initially assigned by Moody s; class B notes (junior securities): nominal amount 113,728,307, unrated and with a yield equal to the additional return on the underlying portfolio. 3) Consumer loans: class A notes (senior securities): nominal amount 2,128,250,000, at floating rate, to which an Aaa rating was initially assigned to the issue by Moody s; class B securities (junior securities): bonds for an amount of 435,940,000, unrated and with a yield equal to the additional return on the underlying portfolio. The securitisation transaction for salary backed loans was wound up in advance in Similarly the securitisation transaction with consumer loans for the underlying portfolio was also wound up in advance in Consequently only the mortgages transaction still existed as at 31.12,2012. The class A note, amortised from February 2010, was worth 1,322,386,049 nominal as at that date, while the class B note has not been amortised, because of the subordination clause. The next amortisation payment date was 20 th February On this date a further amortisation of the class A note was performed of 21 million, while the class B note has not received any repayment. The senior note is wholly owned by UBI Banca, which uses it, as it does for the securitised notes described above, as collateral eligible for refinancing operations with central banks. The current rating level is A2 for Moody s, while the second rating, assigned by DBRS in 2011, in order to comply with eligibility requirements, is A (high). For these transactions, the role of cash manager and calculation agent is filled by Bank of New York Mellon which acts as the account bank. Banca 24-7 filled not only the role of originator, but also performed servicer functions for the transaction, a role that is now filled by UBI Banca following the merger of the two entities. The consideration due to UBI Banca for servicing activities carried out in 2012 totalled 644,000 thousand. 215* Notes to the separate financial statements

217 Quantitative information C.1.1 Exposures resulting from securitisation transactions by quality of the underlying assets Quality of underlying assets/exposures On-balance sheet exposures Guarantees granted Credit lines Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure Gross exposure Net exposure A. With own underlying assets: a) Deteriorated b) Other B. With underlying assets of others: ,395 2,395 5,224 5, a) Deteriorated b) Other ,395 2,395 5,224 5, C.1.2 Exposures resulting from the principal own securitisation transactions by type of securitised assets and by type of exposure No exposures resulting from own securitisation transactions to report. 216* Notes to the separate financial statements

218 C.1.3 Exposures resulting from the principal third party securitisation transactions by type of securitised assets and by type of exposure On-bala nce sheet exposures Guarantee s granted Credit lines Senior Mezzanine Junior Se nior Mezzanine Junior Senior Mezzanine Junior Type of underlying assets/exposures Carrying amount Impairment losses/re versals Carrying amount Impairment losses/reversals Carrying amount Impairment losse s/reversals Carrying amount Impairment losses/reversals Carrying amount Impairment losses/reversals Carrying amount Impairment losses/ reversals Carrying amount Impairment losses/ reversals Carrying amount Impairment losses/ reversals Ca rrying amount Impairment losses/ reversals A. Fully derecognised from the financial sta tements A.1 LOMB LEASE F4 22 TV C ABS instruments 412 (114) A.2 ORIO FINANCE 3 PLC Mortgages on properties , A.3 LOMB LEASE F4 22 TV A ABS instruments - - 2,395 (74) The Orio Finance 3 PLC security was classified within asset item 20, Financial assets held for trading and the relative impairment loss was recognised within income statement item 80, Net trading income. The remaining securities were classified within asset item 40, Availablefor-sale financial assets, with a consequent balancing entry in the valuation reserve in equity. 217* Notes to the separate financial statements

219 C.1.4 Exposures resulting from securitisation transactions by portfolio and type Exposure/portfolio Financial assets held for trading Financial assets fair value options Available-for-sale financial assets Held-to-maturity investments Loans and receivables On-balance sheet exposures 5,224-2, ,031 8,878 - " Senior" ,447 - " Mezzanine" - - 2, ,395 2,402 - " Junior" 5, ,224 5, Off-balance sheet exposures " Senior" " Mezzanine" " Junior" * Notes to the separate financial statements

220 C.1.5 Total amount of the securitised assets underlying the junior securities or other forms of lending support Assets/amounts Traditional securitisations Synthetic securitisations A. Own underlying assets: - - A.1 Subject to full derecognition Non-performing loans Impaired loans Restructured exposures Past due exposures Other assets - - A.2 Subject to partial derecognition Non-performing loans Impaired loans Restructured exposures Past due exposures Other assets - - A.3 Not derecognised Non-performing loans Impaired loans Restructured exposures Past due exposures Other assets - - B. Underlying assets of others: 12,219 - B.1 Non-performing loans B.2 Impaired loans B.3 Restructured exposures - - B.4 Past due exposures 31 - B.5 Other assets 11, * Notes to the separate financial statements

221 C.1.6 Interests in special purpose entities Name Registered address % interest Lombarda Lease Finance 4 Via XX Settembre, 8 - Brescia 10% UBI Lease Finance 5 Via Foro Bonaparte, 70 - Milano 10% 24-7 Finance Via XX Settembre, 8 - Brescia 10% UBI Finance Via Foro Bonaparte, 70 - Milano 60% UBI Finance 2 Via XX Settembre, 8 - Brescia 10% UBI Finance 3 Via XX Settembre, 8 - Brescia 10% UBI Finance CB 2 Via Foro Bonaparte, 70 - Milano 60% UBI SPV BBS 2012 Srl Via Foro Bonaparte, 70 - Milano 10% UBI SPV BPCI 2012 Srl Via Foro Bonaparte, 70 - Milano 10% UBI SPV BPA 2012 Srl Via Foro Bonaparte, 70 - Milano 10% Information on special purpose entities is given in Part E of the notes to the consolidated financial statements, where a description is given of all the securitisations performed by Group member companies and the relative interests of UBI Banca as the Parent. C.1.7 Servicer activity payments received on securitised loans and redemptions of securities issued by the special purpose entity Special purpose entity Securitised assets (end of period figure) Payments received on loans during year Percentage of securities redeemed (end of period figure) Senior Mezzanine Junior Deteriorated Performing Deteriorated Performing Impaired assets (%) Performing assets (%) Impaired assets (%) Performing assets (%) Impaired assets (%) Performing assets (%) Albenza 3 Società per la cartolarizzazione Srl 1,043 11, , % % * Notes to the separate financial statements

222 C.2 Transfers C.2.1. Financial assets transferred not derecognised: carrying amount and full value Type/ Portfolio Financial assets held for trading Financial assets designated at fair value Available-for-sale financial assets Held-to-maturity investments Loans to banks Loans to customers Total fully recognised (BV) partially recognised (BV) partially recognised (full value) fully recognised (B V) partially recognised (BV) partially recognised (full value) fully recognised (BV) partially recognised (BV) partially recognised (full value) fully recognised (BV) partially recognised (BV) partially recognised (full value) fully recognised ( BV) partially recognised (BV) partially recognised (full value) fully recognised (BV) partially recognised (BV) partially recognised (full value) A. On-balance sheet assets 1. Debt instruments 293, ,930, , ,426,929 5,507, Equity instruments X X X X X X X X X - 232, O. I.C.R. (Coll ective investment instruments) X X X X X X X X X Financing B. Derivative instruments X X X X X X X X X X X X X X X - - Total , ,930, , ,426,929 x of which deteriorated x Total ,137, ,490, ,111, x 5,739,903 of which deteriorated x - The assets transferred and not derecognised relate to own securities pledged in repurchase agreement transactions. 221* Notes to the separate financial statements

223 C.2.2 Financial liabilities resulting from financial assets transferred not derecognised: carrying amount Lia bility/ A s s e t po rtfo lio F ina nc ia l a s s e ts he ld fo r tra ding F ina nc ia l a s s e ts de s ig na te d a t fa ir v a lue A v a ila ble -fo r-s a le fina nc ia l a s s e ts He ld-to -m a turity inv e s tm e nts Lo a ns to ba nks Lo a ns to c us to m e rs To ta l 1. D ue to c us to m e rs 2 8 6, ,3 2 6, ,6 13,4 6 5 a) a gains t fully re co gnis ed as s e ts 286,993-3,326, ,6 13,4 6 5 b) a gains t pa rtially rec o gnis e d a s s ets D ue to ba nks 6, , , ,113 a) a gains t fully re co gnis ed as s e ts 6, , , ,113 b) a gains t pa rtially rec o gnis e d a s s ets To ta l , ,8 9 4, , ,3 6 6,5 7 8 To ta l ,12 6, ,5 2 4, , ,6 3 0, * Notes to the separate financial statements

224 C.2.3 Transfers with liability backed exclusively by the assets transferred Type/Portfolio Financial assets held for trading Financial assets designated at fair value Available-for-sale financial assets Held-to-maturity investments (fair value) Loans and advances to banks (fair value) Loans and advances to customers (fair value) Total Total A B A B A B A B A B A B A. On-balance sheet assets 1. Debt instruments 293, ,930, , ,412,200 5,376, Equity instruments X X X X X X - 232, O.I.C.R X X X X X X Financing B. Derivative instruments - - X X X X X X X X X X - - Total assets 293, ,930, , ,412,200 5,608,954 C. Associated liabilities X X 1. Due to customers 286, ,326, X X 2. Due to banks 6, , , X X Total liabilities 293, ,894, , ,366,577 5,630,822 net value , , ,623 X net value , (33,482) (311) X (21,868) 223* Notes to the separate financial statements

225 C.3 Covered bond operations Covered bond programme worth 10 billion Residential Programme The objectives In 2008 the Management Board of UBI Banca passed a resolution to proceed to implement a structured programme for the issue of covered bonds designed to produce benefits in terms of funding, while containing the cost at the same time. In detail, the Management Board performed the following: it identified the objectives of the programme; it identified the basic structure of an operation to issue covered bonds in the light of the legislation and explained and examined the main elements, including the portfolio of loans, the criteria for selecting them, the structure of the financial transaction and the relative tests; it assessed and approved the impacts and the organisational, IT and accounting changes that would be required. These changes were performed to ensure proper risk management by the Parent and also by the single banks participating. Account was also taken, in drawing up the procedures, of the requirements set by regulations issued by the Bank of Italy; it assessed the risks connected with the operation to issue covered bonds; it assessed the organisational and operating structure of the special purpose entity concerned in order to ensure that the contracts involved in the operation contained clauses that would guarantee the proper and efficient performance of the functions of the special purpose entity itself; it assessed the legal aspects through an in-depth examination of the parties and contract documents used, with particular attention paid to the nature of the guarantees given by the special purpose entity and the relations between the issuing bank, the originator banks and the special purpose entity. The structure The basic structure of the operation to issue covered bonds involved the performance of the following activities: one bank (the originator) transfers a set of assets with determined characteristics to a special purpose entity to form a separate set of assets termed a cover pool ; the originator bank (acting here as a financing bank) grants a subordinated loan to the special purpose entity designed to fund the purchase of the assets by the entity; the bank (the issuing bank) issues covered bonds backed by a primary, unconditional and irrevocable guarantee given by the special purpose entity to the sole benefit of the holders of the covered bonds and the hedging counterparties involved in the transaction. The guarantee is backed by all the assets transferred to the special purpose entity and which form part of the cover pool. As part of the structure described above, the UBI Banca Group has launched a programme for issues of ten billion euro of covered bonds. The structure that was adopted also allows the transfer of the portfolios which constitute the segregated assets of the special purpose entity from more than one originator bank, which are not issuer banks. To achieve this, a special purpose entity, UBI Finance Srl was formed, which as the guarantor of the issue performed by UBI Banca acquired a portfolio of residential mortgages transferred to it from network banks of the Group, which participated in the programme both as originator banks and as financing banks. 224* Notes to the separate financial statements

226 The roles of master servicer, calculation agent and cash manager of the transaction were performed by the Parent, while that of paying agent was performed by Bank of New York (Luxembourg) Sa. The representative of the bondholders is BNY Corporate Trustee Services Limited. UBI Banca then delegated responsibility for servicing activity, consisting of collecting payments and managing relations with customers for the portfolio transferred by each originator (except for positions reclassified as non-performing, handled by the Credit Area of the Parent), to the originator banks as sub-servicers. The originator banks also perform the role of swap counterparties in the balance guarantee swaps stipulated with the special purpose entity in order to normalise the cash flows generated by the mortgage portfolio. A summary of the main features of the structure of UBI Banca s covered bond programme is given below. Asset Monitor Loan granted Interest on loan (monthly) Annual Coupon (fixed) Covered Bond Funding from covered bond issue Covered bond investors Guarantee Sellers Interest on subordinated loan Euribor + spread Asset SWAP Interest on Cover Pool Subordinated Loan Granted UBI Finance SRL SPE Euribor + spread floating (monthly) LIABILITY SWAPS Coupon (fixed) Mortgage cover pool A). Covered Bonds. UBI Banca issues covered bonds under the programme; B). Bond Loan. In order to allow the funding acquired on institutional markets from the issue of covered bonds to flow back to the originator banks, these banks may issue bonds and the right to require subscription of them by UBI Banca, within the limits of their quota of participation in the programme. These bonds shall have the same maturity as the covered bonds and a yield equal to (or slightly higher than) that of the covered bonds. C). Subordinated Loan. In order to fund the purchase of mortgages by the special purpose entity, the originator banks grant subordinated loans to it. The yield on these loans is calculated as a premium or extra spread equal to the amount of the interest received, which remains in the accounts of the special purpose entities once priority amounts in the chain of payments have been deducted, relating to items such as the expenses incurred by the entity, payments to swap counterparties and allocations to reserve accounts. D). Swaps to hedge interest rate risk. If the covered bonds are issued at a fixed rate, UBI Banca hedges the interest rate risk by entering into swap contracts with market counterparties, thereby transforming the exposure to a variable rate. These swaps lie outside the perimeter of the covered bond programme and are entered into with a view to interest rate risk management as part of the Parent s ALM. 225* Notes to the separate financial statements

227 E). Asset Swaps. Asset swap contracts are entered into between the originator banks and the special purpose entity to normalise the cash flows consisting of the interest instalments on the portfolios transferred. Each of these swaps has an initial notional value equal to the value of the portfolios transferred to UBI Finance by each originator. This notional amount is then adjusted monthly on the basis of the contraction of the portfolio and increases due to the addition of new mortgages. The duration of the swaps are related to the maturities of the mortgages in each portfolio transferred. Since the individual originator banks are not assigned ratings themselves and as a consequence would not comply as swap counterparties with the criteria set by the rating agencies to rate the programme, UBI Banca backs the payments between the originator banks and UBI Finance by signing a guarantee. The swap contracts involve the monthly flow back to the originator banks of the interest received on the loans present in each portfolio (net of the expenses of the special purpose entity and of provisions in its accounts as indicated in the chain of payments) against the payment of a sum equal to the notional return indicated at the Euribor rate plus a spread. F). Liability Swaps. A liability swap contract is entered into between UBI Banca and UBI Finance for each fixed rate issue. These are designed to protect against interest rate risk, which might affect the cash flows received from the special purpose entity (including those from the asset swaps) and the amounts due from the special purpose entity to investors (fixed rate coupons on the covered bonds) in the event of default by UBI Banca. The structure of the liability swaps only requires the exchange of cash flows between UBI Banca and the special purpose entity in the event of default by UBI Banca or when UBI Banca assigns a swap contract to another eligible counterparty. Both the asset and the liability swaps are structured in a manner to comply with all the conditions required by the rating agencies and they incorporate all the standard provisions required by the market for a downgrade. The total hedging of the bonds using derivatives contracts was a necessary condition for obtaining an AAA rating on the programme. UBI Banca s rating levels at the time when the programme was structured was sufficiently high to allow it to be the direct counterparty in these swaps with the special purpose entity (directly on the liability Swaps and indirectly on the asset swaps, providing a guarantee to the transferring banks). In view of the downgrades of UBI Banca, which occurred in the year just ended, UBI Banca and the transferring banks are considering restructuring the contracts with third party counterparties. This restructuring process is in progress at the time of preparing these notes to the financial statements and is subject to assessments by the rating agencies and by the representative of the holders of the covered bonds. G). Current accounts. The operation involves a complex system of current accounts to pay and receive the cash flows involved in the operation. A series of accounts were opened in the name of the special purpose entity for each originator bank as follows: collection account at UBI Banca Scpa linked to each originator bank into which sums received are paid consisting of interest and principal on the portfolios of each originator, and, where applicable, other assets transferred to the special purpose entity under the programme (e.g. eligible assets and top-up assets); interest account with Bank of New York Mellon, London Branch linked to each originator bank into which all interest paid into the collections accounts will be paid on a daily basis and also all amounts paid to the special purpose entity by the counterparties of the swap contracts. principal account with Bank of New York Mellon, London Branch linked to each originator bank into which all the principal repayment amounts paid into the collection account will be paid on a daily basis; 226* Notes to the separate financial statements

228 a Reserve Fund Account, with Bank of New York Mellon, London Branch into which interest accruing on the covered bonds is paid monthly in order to guarantee the payment of current coupons; an expense account, into which the amounts required to meet the expenses of the special purposes entity will be paid, drawn from interest accounts, in proportion to the quota of participation in the programme of each originator bank. Effectiveness tests. Effectiveness tests are performed monthly on the whole cover pool and separately on the portfolios transferred by each originator, in order to determine the financial integrity of each bank s portfolio. As required by the regulations, because it is a multioriginator programme, with cross-collateralisation of the originator banks portfolios, the only valid test for investors is that performed on the whole cover pool, while the tests performed on the individual portfolios are used to determine the integrity of each originator s portfolio for the purposes of cross-collateralisation between the different originator banks. In detail: the nominal value test verifies whether the nominal value of the loans in the transferred portfolio is greater than the nominal value of the covered bonds issued. In order to ensure an adequate degree of over collateralisation in the portfolio, while the covered bonds are considered at their nominal value, the loans in the portfolio are weighted on the basis of the relative collateral backing them and the total amount is further reduced by an asset percentage; the net present value test verifies whether the present value of the loans remaining in the portfolio is greater than the present value of the covered bonds issued; the interest cover test verifies whether the interest received and held in accounts and the cash flows from interest to be received net of the entity s expense is greater than the interest to be paid to the holders of the covered bonds; amortisation test (similar to the nominal value test, but only performed if UBI Banca is downgraded by rating agencies); the top-up assets test verifies whether, before UBI Banca defaults, the total amount of additional assets and liquidity is not 15% greater than the nominal value of the loans remaining in the portfolio transferred, in compliance with the Ministry of the Economy and Finance and Bank of Italy instructions. If all the tests are passed simultaneously then the special purpose entity may proceed to pay all the parties involved in the programme, including the originator banks as the lenders of the subordinated loan, in the order indicated in the payment chain. However, if the results of the tests are negative, then the contract states that the UBI Banca Group must increase the collateral of the portfolio by transferring new mortgages to it and that is top up with extra assets. Failure to pass the tests, once the time limit allowed for the Group to add assets has passed, results in an issuer event of default with a consequent enforcement of the guarantee issued by UBI Finance. In this event the originator banks would only receive the repayments of the subordinated loans granted after the redemption of the covered bonds by the special purpose entity and within the limits of the remaining funds. Organisational action and control procedures As part of an initial organisational analysis process, four general processes were identified to which the main activities of the programme were assigned. In detail: 1. identification of the liquidity requirements and approval of the operation by the competent bodies. This general process involves assessment of proposals for the issue of covered bonds by the competent internal committees of UBI Banca and 227* Notes to the separate financial statements

229 approval of the guidelines by the Management Board. Subsequently the network banks involved are informed, which assess the proposals and their involvement in the issues on the basis of the information received. In this context an arranger is identified who will supervise the operation and the internal organisational units involved are also brought in; 2. planning and arrangement of the transaction: this general process involves verifying the criteria for extracting and validating the assets which form part of the portfolio which is to cover the issue. It interfaces with the rating agencies and external auditors and preparatory work is done for proper segregation of the asset portfolio and for transfer to the special purpose entity and all the relative contracts are prepared by internal units of the bank and external advisors; 3. management of the operations: this general process involves opening current accounts for the operations of the special purpose entity, granting the subordinated loan, entering into derivatives contracts between the network banks and the special purpose entity, once the chain of payments has been determined, performing tests on the effectiveness of the portfolio and identifying the mortgage loans to top-up the cover pool which backs the covered bonds issued. These activities are performed on a continuous basis; 4. regulatory controls: this general process involves putting internal and external controls required by regulations in place to: analyse and monitor obligations to ensure the quality and integrity of the assets transferred to back the portfolio; to define effectiveness tests and to produce summary reports; to verify compliance with limits set on the transfer of eligible assets; to verify cover for financial risks; to verify compliance by the special purpose entities with the obligations resulting from the guarantee given; to verify the contract documents employed; and to verify the completeness of the controls to be performed by the Parent. External controls are also put in place to ensure compliance of the measurement criteria applied by the bank with those required for the preparation of annual financial statements and also to guarantee the proper performance of the transaction and the validity of the guarantee given to back redemption of the covered bonds. A series of organisational activities is in progress carried out by the competent units of the UBI Group designed to define a project to develop the current processes for the issuance and management of the covered bonds described above. This is also being performed in consideration of the growing complexity and pervasiveness in Group units of the activities to manage the issuance of covered bonds and the structuring of a second programme concluded during the year just ended, an account of which is given in the following pages. The risks connected with the operation: In 2012 the Bank revised its analysis of the risks identified with the programme when it was approved in June 2008 and it prepared a new map of those risks. The risks identified, listed below, are derived from the current regulatory framework (EU and Italian) and they are based on the current methodologies used by rating agencies. The different types of risk are attributable to the following four general categories: 1. Risk of UBI Banca downgrade, which includes the risk relating to the swap contracts to which UBI Banca is a counterparty and the risk relating to the account bank activities performed by UBI Banca. 2. Risk tied to the underlying mortgages (collateral). The issuance of covered bonds bases its rating on the credit enhancement provided by the portfolio of mortgages transferred to back the special purpose entity. The criteria used by the rating agencies require the amount of the mortgage portfolio which provides the guarantee to be maintained at levels higher than the value of the bonds issued (known as over-collateralization). A decrease in the level of over-collateralization would lead primarily to a downgrade of the operation and, in the most serious cases, to a default 228* Notes to the separate financial statements

230 of the issuer, if the minimum level provided for in the contracts were not guaranteed and/or the regulatory tests were not passed. Various mechanisms are provided within the programme to address these risk. They include the following: a nominal value test and various degrees of over-collateralization, designed to ensure that the special purpose entity is able to fully guarantee the covered bonds issued even in the event of some defaults on the underlying assets; the ability to inject liquidity in order to guarantee the issues (within the limits of 15% of the total amount of the assets held by the special purpose entity); the ability to also insert assets with a higher rating in the cover pool such as RMBSs with a higher rating in compliance with regulations or government securities and finally, with regard to redemption by the special purpose entity (or by UBI Banca in the event of its default) of the capital maturing, the maturity of the covered bonds may be extended by one year (termed a soft bullet maturity ). In any event, the units responsible at UBI Banca periodically verify the adequate availability of mortgages in the assets of Group banks in order to ensure the necessary overcollateralization for covered bonds already issued and for those to be issued in the coming year. 3. Risks associated with continuous management of the programme: the programme involves various third parties (asset monitors, bank account providers, trustees, possible swaps providers), for each of which there is a risk of insolvency. Counterparty replacement rules have been put in place to limit that risk if determined events occur. The programme also requires continuous management of matters which include servicing activities, investment activities, the management of possible swap contracts, the calculation of regulatory tests and the production of reports. In order to manage the related risks, the Bank initially adopted the tools and processes described above, which are undergoing further revision and update. 4. Legal risks, which, due to the particular multi-originator structure of the UBI Banca programme, include the risk of cross-collateralization. The participation of a number of originator banks in the programme mean that all the transferor banks are subordinated creditors on an equal basis of the special purpose entity and above all, they assume the obligation to restore the portfolio to the levels specified by the tests if these are failed, even if the failure is not caused by the assets for which they are responsible. To mitigate that risk, the contract documents state that if the transferor bank required to restore assets does not meet that obligation, in the first instance the Parent will be required to restore the cover pool until the required level of overcollateralization is reached, while the transferor banks will only be required to restore the cover pool if the Parent fails to do so. History of the UBI Banca Residential Covered Bond Programme In the context of the procedures described above, the UBI Banca Group launched a ten billion euro programme for the issue of covered bonds in July 2008, with the first transfers of mortgages performed by two banks in the Group, Banco di Brescia and Banca Regionale Europea, for a total amount, as at that time, of approximately two billion euro. Subsequently, in the years , all the Group s network banks joined the programme progressively transferring portions of their assets. Further transfers of assets were then concluded in each of the following years. In 2012 in particular two transfers of assets were made: the first concluded on 1 st February 2012, for a total of billion, of which approximately 347 million transferred by Banco di Brescia, approximately 452 million by Banca Popolare di Bergamo, approximately 280 million by Banca Carime and approximately 92 million by UBI Banca Private Investment. The second was on 1 st October 2012 for a total billion, of which approximately 225 million transferred by Banca Regionale Europea, approximately 141 million transferred by Banco di San Giorgio (subsequently merged into Banca Regionale Europea), approximately 603 million by Banca Popolare Commercio ed Industria, approximately 94 million by Banca di Valle Camonica and approximately 348 million by Banca Popolare di Ancona. 229* Notes to the separate financial statements

231 As at 31 st December 2012, the cover pool of mortgages for the issues, which for accounting purposes is recognised within the assets of each originator bank, amounted to a total of over 11 billion. The table below gives the distribution of the portfolio (remaining principal debt) for each originator bank and the total by class of credit quality as at TYPE OF LOAN TOTAL PORTFOLIO originated by BRE originated by Banco di Brescia originated by Banca Popolare di Bergamo originated by Banca Popolare di Ancona originated by Banca Popolare di Commercio e Industria originated by Banca Carime originated by Banca di Valle Camonica originated by UBI Banca Private (Remaining principal debt figures in thousands of euro) Performing loans 9,623,411 1,501,944 1,859,876 2,241,142 1,068,919 1,879, , , ,752 Delinquent loans 1,377, , , , , ,735 78,645 35,632 27,557 Cover pool (1+2) 11,000,818 1,716,929 2,247,244 2,508,945 1,221,602 2,091, , , ,309 Defaulted loans 207,177 35,701 49,477 52,692 15,352 27,385 17,804 3,979 4,786 Total UBI Finance portfolio 11,207,995 1,752,630 2,296,720 2,561,637 1,236,954 2,119, , , ,094 In 2012 this portfolio generated total payments received of approximately 1.3 billion, distributed as follows among the portfolios of the different originators: TYPE OF LOAN TOTAL PORTFOLIO Originated by BRE (*) originated by Banco di Brescia originated by Banca Popolare di Bergamo originated by Banca Popolare di Ancona Originated by Banca Popolare di Commercio e Industria originated by Banca Carime originated by Banca di Valle Camonica originated by UBI Banca Private (figures in thousands of euro) payments received in ,333, , , , , , ,181 26,191 21,272 As part of the 10 billion of issues allowed under the programme, in the years UBI Banca issued covered bonds for a total of 5,750,000,000. The tables give details of the individual issues: Number in order ISIN Name Issue date Maturity date Principal (*) Coupon (**) 1 (public) IT UBI BANCA 3.625% CB due 23/9/ /09/ /09/2016 1,000,000,000 36,250,000 2 (public) IT UBI BANCA 4.000% CB due 16/12/ /12/ /12/2019 1,000,000,000 40,000,000 3 (private) IT UBI BANCA TV CB due 30/04/ /04/ /04/ ,909,092 1,010,766 4 (public) IT UBI BANCA 3.375% CB due 15/09/ /09/ /09/2017 1,000,000,000 33,750,000 5 (public) IT UBI BANCA 3.125% CB due 18/10/ /10/ /10/ ,000,000 15,625,000 6 (public) IT UBI BANCA 5.250% CB due 28/01/ /01/ /01/2021 1,000,000,000 52,500,000 7 (public) IT UBI BANCA 4.500% CB due 22/02/ /02/ /02/ ,000,000 33,750, * Notes to the separate financial statements

232 8 (private) IT UBI BANCA TV CB due 18/11/ /11/ /11/ ,000,000 3,900,100 (*) For issues subject to amortisation the remaining principal is given as at the reporting date. (**) For floating rate issues, the amount of the current coupon as at the reporting date is given. All the bonds indicated above (when issued) had received the highest ratings from Fitch (AAA) and Moody s (Aaa). Three new floating rate covered bonds were issued in the first quarter of 2012 for 250 million each, which were repurchased by the Parent in order to use them as eligible collateral in operations with the central bank. These new issues initially received ratings of AA+ (Fitch) and Aa2 (Moody s). Details of these latest issues are given below: Number in order ISIN Name Issue date Maturity date Principal Coupon(*) 9 (private) IT UBI BANCA TV CB due 17/02/ /02/ /02/ ,000,000 1,700, (private) IT UBI BANCA TV CB due 18/02/ /02/ /02/ ,000,000 1,700, (private) IT UBI BANCA TV CB due 19/02/ /02/ /02/ ,000,000 1,719,250 (*) The coupons are quarterly floating rate and the amount indicated relates to the coupons maturing as at the reporting date. With regard to the rating assigned to the covered bond programme, from the second half of 2011 onwards, the three agencies, Moody s, Fitch and Standard and Poor s, repeatedly downgraded the Bank s rating as a consequence of the progressive downgrades of the rating for Italy. As concerns the covered bond transaction, even if the rating for a covered bond programme due to the specific structure of these transactions is not instantly and directly related to the rating of the issuer, we must report that following further actions taken by Fitch and Moody s in 2012, the rating for the UBI Banca Programme was also downgraded from the maximum rating assigned initially to AA- for Fitch and A2 for Moody s. The UBI Banca covered bond programme on commercial mortgages In the first half of 2012, a new covered bond programme was structured for the issue of new bonds to be retained (subscribed by UBI Banca itself) and used as collateral for posting with the European Central Bank in order to strengthen the pool of assets eligible for refinancing available to the Group. To achieve this, a specific new special purpose entity, named UBI Finance CB2 Srl was formed, to function as the guarantor of the issues of the new series of covered bonds. The Group banks transferred to UBI Finance CB2 Srl mainly commercial mortgages and, in addition, residential mortgages eligible according to national legislation and regulations, but not covered by the rating agency methodologies for the first programme. In fact, as opposed to the procedures applied for the residential programme, the retained programme is not 231* Notes to the separate financial statements

233 assessed by the rating agencies, but benefits solely from the senior rating of the Parent, UBI Banca. UBI Banca will be able to issue covered bonds under that programme for a total amount, from time to time, of not greater than 5 billion. Again, for this second programme, the Management Board has: identified the objectives of the programme and of the first issuance; identified the basic structure of the operation, examining the initial loan portfolio and the criteria used to select it as well as the financial structure of the transaction and the tests; assessed and approved the impacts and the organisational, IT and accounting changes that would be required, considering that those actions had already been carried out to ensure proper risk management for the first programme; assessed the risks connected with the operation to issue covered bonds; assessed the organisational and operating structure of the special purpose entity; assessed the legal aspects of the programme. We refer to what has already been reported above concerning the residential programme for that which regards the structural, organisational and risk aspects of the operation, while here we report only those points where the 5 billion programme differs from that which has already been reported: A. asset swaps: in consideration of the retained nature of the programme and the absence of a specific rating on the issues, no swap contracts have been taken out at present on the portfolio; B. liability swaps: at present no fix rate issuances have been made and therefore no liability swap contracts exist between the special purpose entity and third party counterparties; C. current accounts. Interest and principal collection accounts have been opened for the second programme with UBI Banca International and not with Bank of New York Mellon; D. the liquidity generated by the programme. In consideration of the type of operation performed by the Group with the retained programme, designed to increase the quantity of assets available for refinancing operations with the Eurosystem, no issuance of bonds is put in place to channel funds back to the originator banks. History of the UBI Banca Retained Covered Bond Programme The portfolio to back the retained programme was transferred in two tranches: on 1 st March 2012 the first assets were transferred by Banca Regionale Europea (approximately 356 million), Banca Popolare di Ancona (approximately 512 million), Banca Popolare Commercio ed Industria (approximately 332 million) and Banca di Valle Camonica (approximately 101 million), while on the following 1 st April assets were transferred by Banca Popolare di Bergamo (approximately 562 million), Banco di Brescia (approximately 628 million), Banco di San Giorgio (approximately 209 million) and Banca Carime (approximately 310 million). UBI Banca Private also participated in the second covered bond programme, but has not yet transferred any assets. The portfolio transferred, which as already was the case for the first programme continued to be recognised as assets on the books of each originator bank, amounted to 2.7 billion as at 31 st December The table below gives the distribution of the portfolio (remaining principal debt) for each originator bank and the total by class of credit quality as at * Notes to the separate financial statements

234 TYPE OF LOAN TOTAL PORTFOLIO (Remaining principal debt figures in thousands of euro) originated by BRE Originated by Banco di Brescia originated by Banca Popolare di Bergamo originated by Banca Popolar e di Ancona originated by Banca Popolare di Commercio e Industria originated by Banca Carime originated by Banca di Valle Camonica Performing loans Delinquent loans Cover pool (1+2) Defaulted loans 2,316, , , , , , ,609 75, ,137 62, ,447 51,413 98,829 24,873 30,476 10,140 2,701, , , , , , ,084 85,362 44,526 5,341 9,938 10,675 8,811 1,907 3,708 4,146 Total UBI Finance CB2 portfolio 2,745, , , , , , ,793 89,508 Also for the portfolio transferred to UBI Finance CB 2, the master servicer, UBI Banca, delegated responsibility for servicing activity, consisting of collecting payments and managing relations with customers for the portfolio transferred by each originator (except for positions reclassified as non-performing, handled by the Credit Area of the Parent), to the originator banks as sub-servicers. The total sums received in payments on the portfolio in 2012 are given below: TYPE OF LOAN TOTAL PORTFOLIO originated by BRE (*) originated by Banco di Brescia originated by Banca Popolare di Bergamo originated by Banca Popolare di Ancona originated by Banca Popolare di Commercio e Industria originated by Banca Carime originated by Banca di Valle Camonica (figures in thousands of euro) payments received in ,030 60,350 68,278 54,364 53,164 42,732 32,059 13,082 In the first year of the second programme, two covered bonds were issued for a total 2.3 billion, details of which are given in the following table: Number in order ISIN Name Issue date Maturity date Principal Coupon (*) 1 (retained) IT UBI BANCA TV CB2 due 28/05/ /05/ /05/2018 1,800,000,000 10,074,060 2 (retained) IT UBI BANCA TV CB2 due 29/01/ /10/ /10/ ,000,000 3,453,833 (*) The coupons are floating rate and the amount indicated relates to the coupons maturing as at the reporting date. 233* Notes to the separate financial statements

235 D. Models for the measurement of credit risk With regard to the measurement of credit risk, the UBI Group has developed a portfolio credit risk model by using an Algorithmics PCRE portfolio credit risk engine which considers the total risk of a credit portfolio by modelling and capturing the component that results from the correlation of counterparty defaults, calculating credit losses and capital at credit risk at portfolio level. The model includes PD and LGD used for supervisory purposes among its input variables. Section 2 Market risk 2.1 Interest rate risk and price risk supervisory trading portfolio Qualitative information Information on general and organisational aspects is given in the corresponding section interest rate risk - trading portfolio in the consolidated report. The main operational limits for 2012 (including reallocations and any new limits set in the second half of the year) are as follows: maximum acceptable loss for the UBI trading book early warning threshold on maximum acceptable loss (MAL) One day VaR limit for the UBI trading book early warning threshold on VaR 83 million 70% MAL 17.5 million 80% VaR 234* Notes to the separate financial statements

236 Quantitative information 1.1 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in Euro Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets - 5, ,106 2,725, , Debt instruments - 5, ,106 2,725, , with early redemption option other - 5, ,106 2,725, , Other assets On-balance sheet liabilities , , Repurchase agreements Other liabilities , , Financial derivatives (8,000) (363,408) 737,096 (50,154) 72, , ,304 (3,150) 3.1 With underlying security - 3, (101) - (1) (3,150) - Options (100) Long positions Short positions Other derivatives - 3, (1) - (1) (3,250) - Long positions - 80,556 70, Short positions - 77,309 70, , Without underlying security (8,000) (366,655) 737,030 (50,154) 72, , , Options - (43,911) 309 (1,654) (16,481) , Long positions - 2,509,475 16, ,181 2,335 2,562, Short positions - 2,553,386 16,535 1,666 19,662 2,077 2,500, Other derivatives (8,000) (322,744) 736,721 (48,500) 89, , , Long positions 284,368 31,129,423 7,746,776 2,895,138 18,775,024 5,261,611 2,718, Short positions 292,368 31,452,167 7,010,055 2,943,638 18,685,718 4,960,469 2,462, * Notes to the separate financial statements

237 1.2 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in United States Dollars Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets Debt instruments with early redemption option other Other assets On-balance sheet liabilities Repurchase agreements Other liabilities Financial derivatives - 9,654 (156,903) 6,697 4,430 (379) With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security - 9,654 (156,903) 6,697 4,430 (379) Options - 3, Long positions - 8, Short positions - 4, Other derivatives - 5,816 (156,903) 6,697 4,430 (379) Long positions - 735,425 8,838 10,354 52,710 37, Short positions - 729, ,741 3,657 48,280 38, * Notes to the separate financial statements

238 1.3 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in UK Sterling Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets Debt instruments with early redemption option other Other assets On-balance sheet liabilities Repurchase agreements Other liabilities Financial derivatives - (16,689) (17,895) With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security - (16,689) (17,895) Options Long positions Short positions Other derivatives - (16,689) (17,895) Long positions - 93,349 1, Short positions - 110,038 19, * Notes to the separate financial statements

239 1.4 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in Swiss Francs Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets Debt instruments with early redemption option other Other assets On-balance sheet liabilities Repurchase agreements Other liabilities Financial derivatives - (488,717) (158,377) (456) With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security - (488,717) (158,377) (456) Options Long positions Short positions Other derivatives - (488,717) (158,377) (456) Long positions - 161, Short positions - 650, , * Notes to the separate financial statements

240 1.5 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in Canadian Dollars Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets Debt instruments with early redemption option other Other assets On-balance sheet liabilities Repurchase agreements Other liabilities Financial derivatives With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security Options Long positions Short positions Other derivatives Long positions - 22, Short positions - 22, * Notes to the separate financial statements

241 1.6 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in Japanese Yen Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets Debt instruments with early redemption option other Other assets On-balance sheet liabilities Repurchase agreements Other liabilities Financial derivatives - (31,565) (5) With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security - (31,565) (5) Options - (3,573) Long positions - 4, Short positions - 8, Other derivatives - (27,992) (5) Long positions - 144,281 15, Short positions - 172,273 15, * Notes to the separate financial statements

242 1.7 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and liabilities and financial derivatives Denominated in Other Currencies Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets Debt instruments with early redemption option other Other assets On-balance sheet liabilities Repurchase agreements Other liabilities Financial derivatives - (142,834) 17, With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security - (142,834) 17, Options Long positions Short positions Other derivatives - (142,834) 17, Long positions - 81,936 17, Short positions - 224, * Notes to the separate financial statements

243 2. Supervisory trading portfolio: distribution of exposures in equities and share indices by the principal markets in which they are listed Listed Unlisted Type of operation/where listed ITALY FEDERAL REPUBLIC OF GERMANY A. Equity instruments (2,573) long positions (2,573) short positions B. Trades in equity instruments not yet settled 3, long positions short positions 3, C. Other derivatives on equity instruments (85) long positions (85) short positions D. Derivatives on share indices (52,282) long positions (52,282) (1,113) - - short positions - 1,181 - The item A Equity instruments long positions relates to owned equity instruments in currencies other than euro. The derivatives contracts relate to futures contracts on share indices and on equity instruments. 3. Supervisory trading portfolio: internal models and other methods of sensitivity analysis The graph below shows the changes in VaR in 2012, for the trading portfolios of UBI Banca. VaR by risk factor calculated on the UBI Banca trading book as at 31 st December 2012 is given below. Change in market risk: daily market VaR for UBI Banca in ,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, * Notes to the separate financial statements

244 UBI Banca trading book Currency risk 330,761 Interest rate risk 304,100 Equity risk 1,257,978 Credit risk 11,996,659 Volatility risk 259,940 Diversification effect (1) (1,769,107) Total 12,380,331 (1) The diversification effect is due to the imperfect correlation between the different risk factors present in the Group s portfolio. Backtesting analyses Backtesting analysis is designed to test the predictive power of the adopted VaR model adopted. It uses an actual profit and loss calculated on the basis of returns on positions in the portfolio on the previous day. The backtesting analysis for the trading book of UBI Banca is given below for UBI Banca Trading Book: Backtesting Millions Profit & Loss VaR * Notes to the separate financial statements

245 Stress test analyses The Group has a stress testing programme designed to analyse the reaction of portfolios to risk factor shocks with the objective of verifying the ability of the regulatory capital to absorb very large potential losses and to identify possible measures needed to reduce risks and conserve the capital itself. Stress tests based on theoretical shocks consist of specially created extreme shifts in interest rate (short, medium and long term), credit spread, exchange rate, equity price and volatility curves. The table below gives the results of the theoretical stress tests performed on the UBI Banca portfolios. The effect of theoretical shocks on the UBI Banca trading and banking books Data as at 31/12/12 UBI TRADING BOOK 31/12/12 UBI BANKING BOOK 31/12/12 TOTAL UBI 31/12/12 Change in NAV Change in NAV Change in NAV Risk Factors IR Shock Shock +1bp -178, % -1,205, % -1,383, % Risk Factors IR Shock Shock -1bp 178, % 1,204, % 1,382, % Risk Factors IR Shock Shock +100bp -17,692, % -126,207, % -143,900, % Risk Factors IR Shock Shock -100bp 4,100, % 35,333, % 39,433, % Risk Factors IR Shock Bear Steepening -484, % 78,223, % 77,738, % Risk Factors IR Shock Bull steepening 1,907, % 1,152, % 3,060, % Risk Factors IR Shock Bear Flattening -1,916, % -2,292, % -4,208, % Risk Factors IR Shock Bull Flattening 417, % -106,116, % -105,699, % Risk Factors Equity Shock +10% 3,244, % 4,552, % 7,796, % Risk Factors Equity Shock -10% -2,321, % -4,552, % -6,873, % Risk Factors Volatility Shock +20% 473, % 3,080, % 3,554, % Risk Factors Volatility Shock -20% -460, % -3,506, % -3,967, % Risk Factors Forex Shock +15% -2,701, % 8, % -2,692, % Risk Factors Forex Shock -15% 2,701, % -8, % 2,692, % Risk Factors Credit Spread Shock -21,826, % -588,356, % -610,183, % Flight to quality scenario -27,850, % -592,908, % -620,758, % The analysis shows the heightened sensitivity of the UBI Banca portfolios to credit spread shocks (consistent with the presence of Italian government securities and corporate 244* Notes to the separate financial statements

246 securities) and to interest rate shocks (consistent with the presence of bonds and interest rate derivatives within the UBI portfolios). The system of controls for the trading book portfolios are also used for some of the portfolios in the banking book. The graph below shows the changes in VaR in 2012, for the portfolios in the UBI Banca banking book. Change in market risk: daily market VaR for the UBI Banca banking portfolios in ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 Market VaR does not include VaR on hedge funds, instruments for which a specific investment policy is employed. VaR by risk factor calculated on the entire UBI Banca banking book as at 31 st December 2012 is given below. UBI Banca banking book Currency risk 791 Interest rate risk 9,799,976 Equity risk 1,525,134 Credit risk 208,961,274 Volatility risk 830,161 Diversification effect (1) (4,492,895) Total 216,624,441 (1) The diversification effect is due to the imperfect correlation between the different risk factors present in the Group s portfolio. 245* Notes to the separate financial statements

247 2.2 Interest rate and price risk Banking portfolio The banking portfolio consists of all those financial instruments, assets and liabilities, not included in the trading portfolio, dealt with in section 2.1. Qualitative information A. General aspects, management processes and methods of measurement of interest rate risk and price risk Interest rate risk consists of changes in interest rates which have the following effects: on net interest income and consequently on the profits of the bank (cash flow risk); on the net present value of assets and liabilities, which has an impact on the present value of future cash flows (fair value risk). The control and management of structural interest rate risk - fair value and cash flow is performed in a centralised manner by the Parent within the framework, defined annually, of the Policy to Manage Financial Risks of the UBI Banca Group, which identifies measurement methods and models and limits or early warning thresholds in relation to net interest income and the economic value of the Group. Measurement, monitoring and reporting of interest rate risk exposure is performed at consolidated and individual level by the Risk Management Area of the Parent, which performs the following on a monthly basis: a sensitivity analysis designed to measure changes in the value of assets on the basis of parallel shocks on interest rate levels for all the time buckets of the curve; a simulation of the impact on net interest income for the current year by means of a static gap analysis (i.e. assuming that the positions remain constant during the period), considering the effect of elasticity on demand deposits. On the basis of the periodic reports produced, the ALM service of the Parent Bank takes appropriate action to prevent the limits and early warning thresholds from being exceeded. Exposure to interest rate risk is measured by using gap analysis and sensitivity analysis models on all those financial instruments, assets and liabilities, not included in the trading book, in accordance with supervisory regulations. Sensitivity analysis of economic value includes an estimate of the impacts resulting from the early repayment of mortgages and long-term loans, regardless of whether early repayment options are contained in the contracts. This is accompanied by an estimate of the change in net interest income. The analysis of the impact on net interest income is over a time horizon of twelve months, with account taken of both the variation in the profit on demand items (inclusive of viscosity phenomena) and that variation for items to held to maturity. This analysis also includes an estimate of the impact of reinvesting/refinancing maturing interest flows. The 2012 Policy to Manage Financial Risks of the UBI Banca Group sets a sensitivity early warning threshold of 1% of the separate company regulatory capital for maturing items only. The amount to compare with the early warning threshold is the absolute figure for the negative sensitivity resulting from the application of the two different interest rate scenarios (parallel shock of +/-100 b.p. of the yield curve). Compliance with individual limits is pursued by Group member companies by means of hedging derivative contracts entered into with the Parent. UBI Banca may then close the position with counterparties outside the Group, acting in accordance with strategic policies and within the consolidated limits set by the governing bodies. 246* Notes to the separate financial statements

248 Further information is given in the corresponding sub-section of the Notes to the Consolidated Financial Statements which may be consulted. B. Fair value hedging Specific and macro hedges were entered into in 2012 using derivative financial instruments designed to reduce exposure to adverse changes in fair value (fair value hedges) due to interest rate risk. More specifically, the following were subject to hedging: mortgages and personal loans (former B247 macro-hedge) totalling approximately 1.6 billion; bond issues (specific hedges) at fixed rate, totalling approximately 2.7 billion nominal. The derivative contracts used were of the interest rate swap type. Activity to test the effectiveness of hedges is performed by the Risk Management Area of the Parent. Tests for effectiveness are performed, in compliance with international accounting standards, prospectively when a hedge is first implemented followed by monthly retrospective tests. The interest rate risk hedging policy pursued in the UBI Group consists mainly of normal hedges on fixed rate asset items, by taking out derivatives contracts. While on the one hand this activity ensures the elimination of interest rate risk on differences resulting from different maturities on balance sheet items (yield curve risk), on the other hand it has led to a proliferation and stratification of derivative contracts over the years. In compliance with UBI Group Policy to manage financial risks, it was decided from 2013 to accompany the ordinary hedging described with natural hedging techniques. Consequently hedges existing at the end of the year were rationalised by closing the following: all asset hedge derivatives (macro-hedges) except for those with interest rate options as the underlying; asset hedge derivatives on available-for-sale financial assets (specific hedges), with maturities between 1 st January 2016 and 31 st December 2019; liability hedge derivatives (bond issues) with maturities after 31 st December This action also involved a reduction in the Bank s exposure to interest rate risk. C. Cash flow hedging UBI Banca performs no cash flow hedging activities. 247* Notes to the separate financial statements

249 Quantitative information 1.1 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities Denominated in Euro Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 13,320,193 16,202,908 4,525, ,022 10,164,727 3,441,091 3,262, Debt instruments 178,178 2,199,330 3,188, ,160 8,098,600 2,797,968 2,396, with early redemption option other 178,178 2,199,330 3,188, ,160 8,098,600 2,797,968 2,396, Financing to banks 2,944,937 6,824, ,661 61,315 37, Customer finance 10,197,078 7,178, , ,547 2,029, , , current accounts 714, other financing 9,482,373 7,178, , ,547 2,029, , , with early redemption option 66,029 3,838, , ,489 1,923, , , other 9,416,344 3,340, ,551 85, , ,002 26, On-balance sheet liabilities 9,903,908 29,315,487 3,377,639 4,173,400 8,092,100 2,604,998 14, Due to customers 3,335,812 3,565, , ,812 4,287 6,754 14, current accounts 2,873, other payables 461,983 3,565, , ,812 4,287 6,754 14, with early redemption option other 461,983 3,565, , ,812 4,287 6,754 14, Due to banks 6,344,106 17,476,108 1,451,055 2,285, current accounts 4,775, other payables 1,568,863 17,476,108 1,451,055 2,285, Debt instruments 223,990 8,274,138 1,730,877 1,703,688 8,087,813 2,598, with early redemption option 4, , , other 219,108 7,728,730 1,371,950 1,703,688 8,087,813 2,598, Other liabilities with early redemption option other Financial derivatives (4,969) (7,430,226) (1,841,175) 886,386 8,063,845 1,805,856 (2,171,582) 656, With underlying security (208,101) (335,848) (112,783) 656,731 - Options (208,101) (335,848) (112,783) 656,731 - Long positions ,135 1, ,631 - Short positions , , , ,817 1,900 - Other derivatives Long positions Short positions Without underlying security (4,969) (7,430,226) (1,841,175) 886,386 8,271,946 2,141,704 (2,058,799) - - Options (4,969) (843,225) (1,421) 4, , , , Long positions - 2,304 1,543 6, , , , Short positions 4, ,529 2,964 2, , Other derivatives - (6,587,001) (1,839,754) 882,343 8,162,502 1,983,750 (2,601,840) - - Long positions - 4,038,929 1,535, ,257 9,249,197 2,613, Short positions - 10,625,930 3,374, ,914 1,086, ,433 2,601, Other off-balance sheet items 5,000 (5,000) Long positions 5, Short positions - 5, * Notes to the separate financial statements

250 1.2 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities Denominated in United States Dollars Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 20, , , Debt instruments , with early redemption option other , Financing to banks 18, , , Customer finance 2, , current accounts 2, other financing , with early redemption option other , On-balance sheet liabilities 245, ,920 1, Due to customers 9, current accounts 9, other payables with early redemption option other Due to banks 236, ,920 1, current accounts 236, other payables ,920 1, Debt instruments with early redemption option other Other liabilities with early redemption option other Financial derivatives - (758) With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security - (758) Options Long positions Short positions Other derivatives - (758) Long positions Short positions Other off-balance sheet items Long positions Short positions * Notes to the separate financial statements

251 1.3 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities Denominated in UK Sterling Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 16,301 13,479 18, Debt instruments with early redemption option other Financing to banks 15,270-18, Customer finance 1,031 13, current accounts 1, other financing 7 13, with early redemption option other 7 13, On-balance sheet liabilities 16, Due to customers current accounts other payables with early redemption option other Due to banks 16, current accounts 16, other payables Debt instruments with early redemption option other Other liabilities with early redemption option other Financial derivatives With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security Options Long positions Short positions Other derivatives Long positions Short positions Other off-balance sheet items Long positions Short positions * Notes to the separate financial statements

252 1.4 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities Denominated in Swiss Francs Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 9, ,111 8, Debt instruments with early redemption option other Financing to banks 9, ,111 8, Customer finance current accounts other financing with early redemption option other On-balance sheet liabilities 56, Due to customers current accounts other payables with early redemption option other Due to banks 56, current accounts 56, other payables Debt instruments with early redemption option other Other liabilities with early redemption option other Financial derivatives With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security Options Long positions Short positions Other derivatives Long positions Short positions Other off-balance sheet items (217,860) - 217, Long positions , Short positions 217, * Notes to the separate financial statements

253 1.5 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities - Denominated in Canadian Dollars Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 5, Debt instruments with early redemption option other Financing to banks 1, Customer finance 4, current accounts 4, other financing with early redemption option other On-balance sheet liabilities 2,696 3, Due to customers current accounts other payables with early redemption option other Due to banks 2,696 3, current accounts 2, other payables - 3, Debt instruments with early redemption option other Other liabilities with early redemption option other Financial derivatives With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security Options Long positions Short positions Other derivatives Long positions Short positions Other off-balance sheet items Long positions Short positions * Notes to the separate financial statements

254 1.6 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities - Denominated in Japanese Yen Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 12,278 15, Debt instruments with early redemption option other Financing to banks 12,278 15, Customer finance current accounts other financing with early redemption option other On-balance sheet liabilities Due to customers current accounts other payables with early redemption option other Due to banks current accounts other payables Debt instruments with early redemption option other Other liabilities with early redemption option other Financial derivatives With underlying security Options Long positions Short positions Other derivatives Long positions Short positions Without underlying security Options Long positions Short positions Other derivatives Long positions Short positions Other off-balance sheet items Long positions Short positions * Notes to the separate financial statements

255 1.7 Banking portfolio: distribution by residual maturity (repricing date) of financial assets and liabilities Denominated in Other Currencies Type/Residual maturity On demand Up to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years 5 years to 10 years Over ten years Indeterminate maturity 1. On-balance sheet assets 45, , Debt instruments with early redemption option other Financing to banks 21,828 4, Customer finance 23, , current accounts 23, other financing , with early redemption option other , On-balance sheet liabilities 13,621 6,632 1, Due to customers 7, current accounts 7, other payables with early redemption option other Due to banks 6,196 6,632 1, current accounts 6, other payables 6 6,632 1, Debt instruments with early redemption option other Other liabilities with early redemption option other Financial derivatives - (9,633) (17,011) - (2,317) - - 2, With underlying security (2,317) - - 2,317 - Options (2,317) - - 2,317 - Long positions ,317 - Short positions , Other derivatives Long positions Short positions Without underlying security - (9,633) (17,011) Options Long positions Short positions Other derivatives - (9,633) (17,011) Long positions Short positions - 9,633 17, Other off-balance sheet items 1,277 (1,277) Long positions 1, Short positions 448 1, * Notes to the separate financial statements

256 2. Banking portfolio: internal models and other methods of sensitivity analysis For UBI Banca, the relevant scenario for monitoring interest rate risk on maturing items only, measured through sensitivity analysis, is that associated with a parallel shock on the yield curve of +100 bp. At the end of the period this indicator stood at million ( million as at 31 st December 2011), of which million attributable to ALM actions taken with Group companies, consistent with the Group Financial Risks Policy on centralised interest rate risk management. Net of that component the sensitivity of the UBI Banca position itself amounted to approximately million. Inclusive of the AFS portfolio, sensitivity net of the impact of the early repayment of mortgages was million. The indicator was affected by the merger of Banca 24-7 into UBI Banca. The table below gives the risk measured for the periods cited in a scenario of a parallel shift in interest rates of +200 bp, in compliance with the requirements of supervisory regulations, measured on the regulatory capital at the end of the period. Risk indicators - end of period values 31/12/ /12/2011 parallel shift of +200 bp sensitivity/regulatory capital 5.68% 2.09% The impact as at 31 st December 2012, on net interest income assuming a shift of +100 basis points on the yield curve was million, while if a decrease in interest rates is hypothesised (-100 bp), the impact on net interest income is estimated at million. Details are given below of the capital profile by repricing date used as input to the internal model for calculating exposure to interest rate risk. Gap data for the period Repricing gap Hedging derivatives Millions Early repayments Total gap ON DEMAND 1M 3M 6M 1Y 3Y 5Y 7Y 10Y 15Y 20Y Longer Repricing gap -1, , , , , , Hedging derivatives - -3, , , , , , Early repayments Total gap -1, , , , , , , * Notes to the separate financial statements

257 2.3 Currency risk Qualitative information A. General aspects, management processes and methods for measuring currency risk Currency risk is calculated on the basis of the methods recommended by the Bank of Italy and amounts to 8% of the net foreign exchange position. The latter is calculated as the higher (in absolute terms) of the sum of the net long positions and the sum of the net short positions (position for each currency) to which the currency risk implicit in investments in OICRs (collective investment instruments) is added. B. Currency risk hedging Information on the analysis of hedging for currency risk is contained in the section on the analysis of interest rate risk which may be consulted. 256* Notes to the separate financial statements

258 Quantitative information The absorption of capital for currency risk at the end of the year was nil. 1. Distribution of assets, liabilities and derivatives by foreign currency in which they are denominated Items US DOLLARS UK STERLING YEN Currencies CANADIAN DOLLARS SWISS FRANCS OTHER CURRENCIES A. Financial assets 575,474 48,160 28,491 5, , ,250 1,510,201 A.1 Debt instruments 10, ,285 A.2 Equity instruments 13, ,783 A.3 Financing to banks 370,967 33,650 28,491 1, ,848 25,859 1,139,938 A.4 Financing to customers 180,439 14,510-4, , ,195 A.5 Other financial assets B. Other assets 5,197 2, ,692 1,113 14,587 C. Financial liabilities 440,231 16,327 23,406,289 6,312 56,331 21,505 23,946,995 C.1 Due to banks 430,736 16, ,312 56,324 14, ,261 C.2 Due to customers 9, ,425 16,969 C.3 Debt instruments ,405, ,405,765 C.4 Other financial liabilities D. Other liabilities E. Financial Derivatives (137,259) (34,584) (31,568) 4 (647,548) (154,518) (1,005,473) - Options 3,838 - (3,573) - - (2,051) (1,786) + Long positions 8,757-4, ,727 + Short positions 4,919-8, ,051 15,513 - Other derivatives (141,097) (34,584) (27,995) 4 (647,548) (152,467) (1,003,687) + Long positions 672,796 94, ,342 22, ,694 98,947 1,209,756 + Short positions 813, , ,337 22, , ,414 2,213,443 Total assets 1,262, , ,087 28, , ,310 2,748,271 Total liabilities 1,259, ,446 23,602,169 28, , ,970 26,175,951 Balance (+/-) 3, (23,409,082) 178 (19,339) (2,660) (23,427,680) TOTAL 2. Internal models and other methods of sensitivity analysis. Information is reported in the corresponding part on interest rate and price risk (section ). 257* Notes to the separate financial statements

259 2.4 Derivative instruments A. FINANCIAL DERIVATIVES A.1 Supervisory trading portfolio: end of period and average notional amounts Underlying assets/type of derivative Over the counter Central counterparties Over the counter Central counterparties 1. Debt instruments and interest rates 70,996, ,493 90,391, ,007 a) Options 4,865,791-5,065,987 - b) Swaps 66,130,672-85,325,397 - c) Forwards d) Futures - 693, ,007 e) Other Equity instruments and share indices - 54,703 7,383 1,440 a) Options - 42,600 7, b) Swaps c) Forwards d) Futures - 12,103-1,340 e) Other Currencies and gold 2,898,374-3,312,504 - a) Options 22, b) Swaps c) Forwards 2,875,519-3,312,504 - d) Futures e) Other Commodities Other underlying Total 73,894, ,196 93,711, ,447 Average amounts 70,775, ,321 90,226,185 1,567, * Notes to the separate financial statements

260 A.2 Banking portfolio: end of period notional and average amounts A.2.1 For hedging Underlying assets/type of derivative Over the counter Central counterparties Over the counter Central counterparties 1. Debt instruments and interest rates 18,548,565-16,205,887 - a) Options 125, ,000 - b) Swaps 18,423,565-16,080,887 - c) Forwards d) Futures e) Other Equity instruments and share indices a) Options b) Swaps c) Forwards d) Futures e) Other Currencies and gold a) Options b) Swaps c) Forwards d) Futures e) Other Commodities Other underlying Total 18,548,565-16,205,887 - Average amounts 17,563,325-16,001,732 - The table reports the notional amounts for derivative contracts by type of contract. The swap contracts consist of swaps on interest rates performed mainly to hedge available-forsale financial assets and own issued bonds. 259* Notes to the separate financial statements

261 A.2.2 Other derivatives Underlying assets/type of derivative Over the counter Central counterparties Over the counter Central counterparties 1. Debt instruments and interest rates a) Options b) Swaps c) Forwards d) Futures e) Other Equity instruments and share indices 1,729,434-2,072,971 - a) Options 1,729,434-2,072,971 - b) Swaps c) Forwards d) Futures e) Other Currencies and gold a) Options b) Swaps c) Forwards d) Futures e) Other Commodities Other underlying Total 1,729,434-2,072,971 - Average amounts 1,765,539-2,016, * Notes to the separate financial statements

262 A.3 Financial derivatives: gross positive fair value - by type of product Portfolio/type of derivative Positive fair value Positive fair value Over the counter Central counterparties Over the counter Central counterparties A. Supervisory trading portfolio 1,424,233 1,744 1,432, a) Options 418 1,675 1, b) Interest rate swaps 1,397,652-1,386,460 - c) Cross currency swaps d) Equity swaps e) Forwards 26,163-44,026 - f) Futures g) Other B. Banking portfolio - for hedging 925, ,454 - a) Options b) Interest rate swaps 925, ,454 - c) Cross currency swaps d) Equity swaps e) Forwards f) Futures g) Other C. Banking portfolio - other derivatives a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures g) Other Total 2,349,926 1,744 2,048, * Notes to the separate financial statements

263 A.4 Financial derivatives: gross negative fair value - by type of product Portfolio/type of derivative Negative fair value Negative fair value Over the counter Central counterparties Over the counter Central counterparties A. Supervisory trading portfolio 1,389, ,409, a) Options 1,454-2,492 - b) Interest rate swaps 1,362,065-1,355,831 - c) Cross currency swaps d) Equity swaps e) Forwards 25,701-50,907 - f) Futures g) Other B. Banking portfolio - for hedging 1,307, ,024 - a) Options b) Interest rate swaps 1,307, ,024 - c) Cross currency swaps d) Equity swaps e) Forwards f) Futures g) Other C. Banking portfolio - other derivatives a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures g) Other Total 2,696, ,307, * Notes to the separate financial statements

264 A.5 OTC financial derivatives: supervisory trading portfolio: notional amounts, gross positive and negative fair values by counterparty contracts not covered by clearing agreements Contracts not covered by clearing agreements Governments and Central Banks Other public authorities Banks Financial companies Insurance companies Non financial companies Other 1) Debt instruments and interest rates - notional amount ,254,435 16,222, positive fair value , , negative fair value ,895 42, future exposure ,657 59, ) Equity instruments and share indices - notional amount positive fair value negative fair value future exposure ) Currencies and gold - notional amount - - 1,861,360 1,013, positive fair value ,915 3, negative fair value - - 4,694 20, future exposure ,793 10, ) Other securities - notional amount positive fair value negative fair value future exposure * Notes to the separate financial statements

265 A.6 OTC financial derivatives - supervisory trading portfolio: notional amounts, gross positive and negative fair values by counterparty contracts covered by clearing agreements Contracts covered by clearing agreements Governments and Central Banks Other public authorities Banks Financial companies Insurance companies Non financial companies Other 1) Debt instruments and interest rates - notional amount ,917,630 1,601, positive fair value ,469 26, negative fair value ,648 57, ) Equity instruments and share indices - notional amount positive fair value negative fair value ) Currencies and gold - notional amount , positive fair value negative fair value ) Other securities - notional amount positive fair value negative fair value * Notes to the separate financial statements

266 A.7 OTC financial derivatives: banking portfolio notional amounts, gross positive and negative fair values by counterparty contracts not covered by clearing agreements Contracts not covered by clearing agreements Governments and Central Banks Other public authorities Banks Financial companies Insurance companies Non financial companies Other 1) Debt instruments and interest rates - notional amount positive fair value negative fair value future exposure ) Equity instruments and share indices - notional amount , , , ,895 4,886 - positive fair value negative fair value future exposure ,348 13,789 33,854 23, ) Currencies and gold - notional amount positive fair value negative fair value future exposure ) Other securities - notional amount positive fair value negative fair value future exposure * Notes to the separate financial statements

267 A.8 OTC financial derivatives: banking portfolio: notional amounts, gross positive and negative fair values by counterparty contracts covered by clearing agreements Contracts covered by clearing agreements Governments and Central Banks Other public authorities Banks Financial companies Insurance companies Non financial companies Other 1) Debt instruments and interest rates - notional amount ,026,948 1,521, positive fair value ,782 17, negative fair value - - 1,148, , ) Equity instruments and share indices - notional amount positive fair value negative fair value ) Currencies and gold - notional amount positive fair value negative fair value ) Other securities - notional amount positive fair value negative fair value * Notes to the separate financial statements

268 A.9 Residual maturity of OTC financial derivatives: notional amounts Underlying asset/residual maturity Up to 1 year 1 year to 5 years More than 5 years Total A) Supervisory trading portfolio A.1 Financial derivatives on debt instruments and interest rates 25,357,095 28,509,776 17,129,593 70,996,464 A.2 Financial derivatives on equity instruments and share indices A.3 Financial derivatives on exchange rates and gold 2,893,641 4,734-2,898,375 A.4 Financial derivatives on other securities B) Banking portfolio B.1 Financial derivatives on debt instruments and interest rates 2,243,218 10,435,891 5,869,456 18,548,565 B.2 Financial derivatives on equities and share indices 639, , ,862 1,729,435 B.3 Financial derivatives on exchange rates and gold B.4 Financial Derivatives on other securities Total ,133,089 39,403,839 23,635,911 94,172,839 Total ,145,216 44,942,785 27,902, ,990, * Notes to the separate financial statements

269 A.10 OTC financial derivatives: counterparty risk/financial risk Internal models UBI Banca does not use internal models to measure counterparty risk and financial risk for OTC financial derivatives. B. CREDIT DERIVATIVES B.1 Credit derivatives: end of period and average notional amounts Categories of transactions Supervisory trading portfolio Banking portfolio on a single object on a basket of items on a single object on a basket of items 1. Protection purchases a) Credit default products 415, b) Credit spread products c) Total rate of return swaps d) Other Total , Average amounts 415, Total , Protection sales a) Credit default products b) Credit spread products c) Total rate of return swaps d) Other Total Average amounts Total Credit default products relate to credit derivative contracts entered into in relation to issues of preference shares by Banca Popolare di Bergamo Llc for 300 million and Banca Popolare Commercio e Industria Funding Llc for 115 million. B.2 OTC credit derivatives: gross positive fair value - by type of product Portfolio/type of derivative Positive fair value Positive fair value A) Supervisory trading portfolio a) Credit default products 2,285 2,653 b) Credit spread products - - c) Total rate of return swaps - - d) Other - - B. Banking portfolio a) Credit default products - - b) Credit spread products - - c) Total rate of return swaps - - d) Other - - Total 2,285 2,653 The positive fair value result relates to the residual amount of the premium paid in relation to the contracts reported in the preceding table. This amount is classified within item 20 of the balance sheet, Financial assets held for trading. 268* Notes to the separate financial statements

270 B.3 OTC credit derivatives: gross negative fair value - by type of product No OTC credit derivatives with a gross negative fair value were recognised. B.4 OTC credit derivatives: gross fair value (positive and negative) by counterparty contracts not covered by clearing agreements Contracts not covered by clearing agreements Governments and Central Banks Other public authorities Banks Financial companies Insurance companies Non financial companies Other Supervisory trading 1) Protection purchases - notional amount , positive fair value , negative fair value future exposure , ) Protection sales - notional amount positive fair value negative fair value future exposure Banking portfolio 1) Protection purchases - notional amount positive fair value negative fair value ) Protection sales - notional amount positive fair value negative fair value B.5 OTC credit derivatives: gross fair value (positive and negative) by counterparty contracts covered by clearing agreements No OTC credit derivatives with contracts covered by clearing agreements were recognised. 269* Notes to the separate financial statements

271 B.6 Residual maturity of credit derivatives: notional amounts Underlying asset/residual maturity Up to 1 year 1 year to 5 years More than 5 years Total A) Supervisory trading portfolio A.1 Credit derivatives with "qualified" "reference obligation" , ,000 A.2 Credit derivatives with "unqualified" "reference obligation" B) Banking portfolio B.1 Credit derivatives with "qualified" "reference obligation" B.2 Credit derivatives with "unqualified" "reference obligation" Total , ,000 Total , ,000 B.7 Credit derivatives: counterparty risk and financial risk Internal models UBI Banca does not use internal models to measure counterparty and financial risk for credit derivatives. C. FINANCIAL AND CREDIT DERIVATIVES C.1 OTC financial and credit derivatives: net fair value and future exposure by counterparty No OTC financial and credit derivatives with contracts covered by clearing agreements were recognised. 270* Notes to the separate financial statements

272 Section 3 Liquidity risk Qualitative information A. General aspects, processes for the management and methods for the measurement of liquidity risk Internal policies require centralised liquidity management to be performed on behalf of Group member companies by the ALM and Funding Area of the Parent, with the exception of IW Bank and foreign subsidiaries. Monitoring and control of liquidity risk are performed by the Risk Management Area of the Parent, primarily by verifying the structural balance between assets and liabilities and the degree of cover for the Bank s liquidity requirement. This is calculated from the maturity gaps between risk-sensitive assets and liabilities (excluding items that can be readily liquidated, which constitute available liquidity). A detailed description of the processes employed to manage liquidity risk and the methods used to measure it is given in the relative section of the consolidated financial statements which may be consulted. 271* Notes to the separate financial statements

273 Quantitative information 1.1 Over time distribution of financial assets and liabilities by residual contractual maturity Denominated in Euro Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 12,749, , ,180 5,875,075 2,433,297 2,311,214 4,127,052 15,372,706 10,052, ,703 A.1 Government securities ,625-63, ,106 3,285,982 7,818,995 5,200,002 - A.2 Other debt instruments - - 2,515 50, , , ,254 3,912, ,927 - A.3 Units in OICR (collective investment instruments) 201, A.4 Financing 12,547, , ,040 5,825,050 2,242,226 1,198, ,816 3,640,782 4,073, ,703 - Banks 2,349, , ,739 3,751,643 1,128, , , ,521 39, ,703 - Customers 10,198, , ,301 2,073,407 1,113, , ,414 3,128,261 4,034,253 - On-balance sheet liabilities 9,620,383 3,434, ,681 2,598,746 4,127,485 1,976,349 6,354,511 25,898,979 5,050,194 - B.1 Deposits 8,170,449 50, ,599 2,376,319 1,948,406 1,416,210 2,286, Banks 5,296,620 50, ,599 2,376,319 1,948,406 1,416,210 2,286, Customers 2,873, B.2 Debt instruments - 1,126 3, ,531 1,652, ,706 3,568,610 13,277,774 4,324,331 - B.3 Other liabilities 1,449,934 3,383, ,456 87, , , ,729 12,621, ,863 - Off-balance sheet transactions 43,337 66,656 15, , , ,004 6,530 (212,614) (448,721) 654,331 C.1 Financial derivatives with exchange of principal - 53,998 15, , , ,854 (6,540) (212,614) (448,721) 654,331 - Long positions - 340,378 17,639 1,107, , , ,385 2, ,731 - Short positions - 286,380 1, ,566 17,592 80, , , ,763 4,400 C.2 Financial derivatives without exchange of principal 36,052 12,658 (65) 165 (5,856) 46,150 13, Long positions 1,384,224 12, ,081 82, , Short positions 1,348, ,937 36, , C.3 Deposits and financing to be received 5, (5,000) Long positions 5, Short positions , C.4 Irrevocable commitments to disburse funds Long positions Short positions C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal 2, Long positions 2, Short positions * Notes to the separate financial statements

274 1.2 Over time distribution of financial assets and liabilities by residual contractual maturity - Denominated in USD Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 33,249 70,499 1, ,220 93, ,510-9, A.1 Government securities A.2 Other debt instruments , A.3 Units in OICR (collective investment instruments) 12, A.4 Financing 20,339 70,499 1, ,220 93, , Banks 18,015 17,443 1,138 35,141 93, , Customers 2,324 53, , On-balance sheet liabilities 245, ,083 25,014 15,162 13,686 1, B.1 Deposits 245, ,083 25,014 15,162 13,686 1, Banks 236, ,083 25,014 15,162 13,686 1, Customers 9, B.2 Debt instruments B.3 Other liabilities Off-balance sheet transactions (186) (6,139) 19,649 5,807 (10,800) (156,903) 6,697 4, C.1 Financial derivatives with exchange of principal - (6,139) 19,649 5,807 (10,800) (156,903) 6,697 4, Long positions - 33,046 27, ,087 18,481 8,838 10,354 4, Short positions - 39,185 7, ,280 29, ,741 3, C.2 Financial derivatives without exchange of principal (186) Long positions 15, Short positions 15, C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable commitments to disburse funds Long positions Short positions C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal Long positions Short positions * Notes to the separate financial statements

275 1.3 Over time distribution of financial assets and liabilities by residual contractual maturity - Denominated in CHF Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 9, ,263 4,225 6, ,146 8, A.1 Government securities A.2 Other debt instruments A.3 Units in OICR (collective investment instruments) A.4 Financing 9, ,263 4,225 6, ,146 8, Banks 9, ,263 4,225 6, ,146 8, Customers On-balance sheet liabilities 56, B.1 Deposits 56, Banks 56, Customers B.2 Debt instruments B.3 Other liabilities Off-balance sheet transactions (217,860) (16,172) (166) (73,033) (399,346) 59,483 (456) C.1 Financial derivatives with exchange of principal - (16,172) (166) (73,033) (399,346) (158,377) (456) Long positions - 158,960-2, Short positions - 175, , , , C.2 Financial derivatives without exchange of principal Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable commitments to disburse funds (217,860) , Long positions , Short positions 217, C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal Long positions Short positions * Notes to the separate financial statements

276 1.4 Over time distribution of financial assets and liabilities by residual contractual maturity - Denominated in GPB Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 16, ,481-18, A.1 Government securities A.2 Other debt instruments A.3 Units in OICR (collective investment instruments) A.4 Financing 16, ,481-18, Banks 15, , Customers 1, , On-balance sheet liabilities 16, B.1 Deposits 16, Banks 16, Customers B.2 Debt instruments B.3 Other liabilities Off-balance sheet transactions - (19,901) (61) 3, (17,895) C.1 Financial derivatives with exchange of principal - (19,901) (61) 3, (17,895) Long positions - 20,640-72, , Short positions - 40, , , C.2 Financial derivatives without exchange of principal Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable commitments to disburse funds Long positions Short positions C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal Long positions Short positions * Notes to the separate financial statements

277 1.5 Over time distribution of financial assets and liabilities by residual contractual maturity - Denominated in JPY Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 12, ,141 9, A.1 Government securities A.2 Other debt instruments A.3 Units in OICR (collective investment instruments) A.4 Financing 12, ,141 9, Banks 12, ,141 9, Customers On-balance sheet liabilities B.1 Deposits Banks Customers B.2 Debt instruments B.3 Other liabilities Off-balance sheet transactions - (106) (12,617) (14,646) (4,196) (5) C.1 Financial derivatives with exchange of principal - (106) (12,617) (14,646) (4,196) (5) Long positions ,292 4,970 15, Short positions - 1,095 12, ,938 9,166 15, C.2 Financial derivatives without exchange of principal Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable commitments to disburse funds Long positions Short positions C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal Long positions Short positions * Notes to the separate financial statements

278 1.6 Over time distribution of financial assets and liabilities by residual contractual maturity - Denominated in CAD Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 5, A.1 Government securities A.2 Other debt instruments A.3 Units in OICR (collective investment instruments) A.4 Financing 5, Banks 1, Customers 4, On-balance sheet liabilities 2, , B.1 Deposits 2, , Banks 2, , Customers B.2 Debt instruments B.3 Other liabilities Off-balance sheet transactions (86) C.1 Financial derivatives with exchange of principal (86) Long positions , Short positions , C.2 Financial derivatives without exchange of principal Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable commitments to disburse funds Long positions Short positions C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal Long positions Short positions * Notes to the separate financial statements

279 1.7 Over time distribution of financial assets and liabilities by residual contractual maturity Other Currencies Items/maturities On demand 1 to 7 days 7 to 15 days 15 days to 1 month 1 month to 3 months 3 months to 6 months 6 months to 1 year 1 year to 5 years More than 5 years Indeterminate maturity On-balance sheet assets 45,562 2, , A.1 Government securities A.2 Other debt instruments A.3 Units in OICR (collective investment instruments) A.4 Financing 45,562 2, , Banks 21,826 2, Customers 23, , On-balance sheet liabilities 13,615 5, ,183 1, B.1 Deposits 13,615 5, ,183 1, Banks 6,190 5, ,183 1, Customers 7, B.2 Debt instruments B.3 Other liabilities Off-balance sheet transactions 1,277 (9,706) (22,495) (121,267) (276) - - (2,317) - 2,317 C.1 Financial derivatives with exchange of principal - (8,429) (22,495) (121,267) (276) - - (2,317) - 2,317 - Long positions - 2, , , ,317 - Short positions - 10,560 23, ,407 1,182 17,011-2, C.2 Financial derivatives without exchange of principal Long positions Short positions C.3 Deposits and financing to be received 1,725 (1,725) Long positions 1, Short positions - 1, C.4 Irrevocable commitments to disburse funds (448) Long positions Short positions C.5 Financial guarantees issued C.6 Financial guarantees received C.7 Credit derivatives with exchange of principal Long positions Short positions C.8 Credit derivatives without exchange of principal Long positions Short positions * Notes to the separate financial statements

280 279* Notes to the separate financial statements

281 Section 4 Operational risk Qualitative information A. General aspects, procedures for the management and methods for the measurement of operational risk Operational risk is defined as the risk of loss resulting from inadequate or failed procedures, human resources and internal systems or from external events. This definition comprises legal 7 and compliance risk 8, while it excludes reputational 9 and strategic risk 10. In order to ensure a risk profile consistent with the risk appetite defined by the Strategic Supervisory Body, the Group has defined an organisational model based on the combination of various components identified according to the role filled and by the responsibility assigned in the organisation chart. The different components are identified centrally at the Parent and locally in the individual legal entities consistent with the Group s federal model of organisation. The model involves centralisation at the Parent of policy-setting functions and of second and third level internal controls as described below: the Operational Risks Committee (ORC): is the consultation and reporting body for the entire operational risk management process. Its composition, functional rules, duties and powers are governed by the General Corporate Regulations; Second Level Control Functions: consistent with the regulations in force 11, these activities are delegated to the Operational Risks and Internal Validation Functions; Third Level Control Functions: consistent with Bank of Italy recommendations, these activities are delegated to the internal audit function. Various levels of responsibility have been identified within the Bank, listed below, assigned on the basis of the operating area: Operational Risks Officer (ORO): this is the General Manager. The Operational Risk Officer is responsible, within his/her legal entity for implementing the entire operational risk management system as defined by Group policy; Local Operational Risk Support Officer (LORSO): this role is the figure responsible for the unit in charge of local risk control. Within his/her legal entity, this officer supports the Operational Risks Officer in the implementation and co-ordination of the operational risk management system as defined by Group policy 12 ; 7 Defined as the risk of losses resulting from violations of laws and regulations and from contractual or non contractual responsibilities or from other litigation. 8 Defined as the risk of incurring legal or administrative penalties, or substantial financial losses as a consequence of violations of compulsory rules (laws or regulations) or internal regulations (e.g. articles of association, codes of conduct and voluntary codes). 9 Defined as the present or future risk of incurring loss of profits or capital resulting from a negative perception of the image of the Bank by customers, counterparties, shareholders, investors or supervisory authorities. 10 Defined as the risk attaching to errors in decision-making concerning business strategies or bad timing in decisions relating to markets. 11 Bank of Italy Circular No. 263/2006 and subsequent updates. 280* Notes to the separate financial statements

282 Risk Champion (RC): this role is responsible for units which report directly to the General Management, to Department Managers and to the managers of units who are responsible for specialists activities including the following operations: logical security physical security disaster recovery and operational continuity prevention and protection at work as defined by the legislation 81/2008 anti money-laundering and anti-terrorism activities accounting controls as defined by legislation 262/2005 complaints securities brokering legal and tax matters. They are assigned responsibility for operational supervision of the proper performance of the operational risk management process in relation to the activity for which they are responsible and for co-ordinating the Risk Owners that report to them; Risk Owner (RO): this role is that of the managers of the units which report hierarchically to a Risk Champion. Their task is to recognise and report loss events, both actual and/or potential, attributable to operational risk factors which occur in the course of everyday operations. The measurement system The measurement system takes account of internal and external operational loss data, operational context factors and the system of internal controls, in a manner whereby it detects the main determinants of risk (especially those which impact on the distribution tail) and incorporates changes that occur in the risk profile. The model implemented by the UBI Banca Group takes account of operating context factors and of the system of internal controls through the use of self risk assessment techniques. The Operational Risk Management System of the Group is composed of the following: Loss Date Collection (LDC): is a decentralised process for collecting data on operational losses designed for integrated and systematic detection of damaging events that occur which result in an actual loss, almost a loss (a near miss ) or a profitable event; Self Risk Assessment (SRA): is a process of self-diagnosis of exposure to potential risk of future losses, of the effectiveness of the control system and of the mitigation measures in place; Italian Database of Operational Losses (IDOL): the measurement systems makes use of external data in order to compensate for shortage of internal data and to assess risks from new operating segments for which historical data series are not available. In this respect the UBI Group has participated since 2003 in Italian Banking Association s Italian Database of Operational Losses (DIPO) in order to gain access to loss data for the Italian banks that participate. Further details on the functioning of the calculation model are given in the section on the capital requirement which may be consulted. The reporting system Monitoring of the operational risks assumed is carried out by means of a standard reporting system organised on the basis of the same levels of responsibility present in the 281* Notes to the separate financial statements

283 organisational model. Management reporting activities are carried out by the operational risk control function which periodically prepares the following: an analysis of changes in operating losses detected by the loss data collection system; benchmark analyses using the Italian Database of Operational Losses; a summary of assessments of exposure to potential risks; details of areas of vulnerability identified and the mitigation action undertaken. On conclusion of the assessment of exposure to potential operational risks for each area of activities analysed, or as a result of operational losses detected historically by the loss date collection process, appropriate corrective actions are identified. These are defined as project action if they fall within the annual projects programme, or ordinary if they form part of the planning activity of each unit responsible. As a further form of mitigation, the UBI Banca Group has taken out adequate insurance policies to cover the principal transferable operational risks with due account taken of the requirements of supervisory regulations. Legal risk The Bank is party to a number of legal proceedings arising from the ordinary performance of its business. In order to meet the claims received, the Bank has made appropriate provisions on the basis of a reconstruction of the amounts potentially at risk and an assessment of the risk in terms of the degree of probability and/or possibility as defined in IAS 37. Therefore, while it is not possible to predict final outcomes with certainty, it is considered that an unfavourable conclusion of these proceedings, both taken singly or as a whole, would not have a significant effect on the financial and operating position of the Bank. The specific sections of this report may be consulted for information on corporate litigation not directly related to ordinary business operations and on tax litigation. Quantitative information The graphs below show that the main sources of operational risk for the Bank in the period from January 2008 to December 2012 were external causes (91% of frequencies and 76% of the total impacts detected) and processes (8% of frequencies and 22% of the total impacts detected). The external causes risk driver included, amongst other things, human actions performed by third parties and not directly under the control of the Bank. The process risk driver included unintentional errors and incorrect application of regulations. 282* Notes to the separate financial statements

284 Percentage of operational losses by risk driver (detection 1 st January st December 2012) Number of events Impact on profit 0.83% 75.92% 21.98% 1.27% Operational losses during the year were concentrated on the following risk factors: external causes (80% of frequencies and 80% of the total impacts detected) and processes (17% of frequencies and 15% of the total impacts detected). Percentage of operational losses by risk driver (detection 1 st January st December 2012) Number of events Impact on profit The types of event which recorded the greatest concentration of operational losses during the period examined were external fraud (88% of frequencies and 75% of the total impacts detected), execution, delivery and process management (6% of frequencies and 16% of the total impacts detected). Percentage of operational losses by type of event (detection from 1 st January 2008 to 31 st December 2012) Number of events Impact on profit 283* Notes to the separate financial statements

285 Operational losses incurred during the year were concentrated mainly in the following types of event: external fraud (75% of frequencies and 79% of the total impacts detected) and customers, products and professional practices (6% of frequencies and 11% of the total impacts detected). Percentage of operational losses by type of event (detection from 1 st January 2012 to 31 st December 2012) Number of events Impact on profit The operational losses detected were concentrated above all in the retail banking line of business (93% of the total impacts detected). Capital requirements With Provision No of 16 th May 2012, the UBI Banca Group was authorised by the Bank of Italy to use the advanced internal model (advanced measurement approach AMA) to calculate the capital requirement for operational risks. The first consolidated supervisory report submitted on the basis of this model was made for the report as at and for the period ended 30 th June The measurement of operational risk using the AMA methodology is performed using an extreme value theory (EVT) approach, based on operational losses measured internally (loss data collection LDC), empirical data acquired from outside the Group (IDOL - Italian database of operational losses ) and potential losses evaluated using self risk assessment (SRA) scenarios. The first two information sources represent the quantitative component of the measurement model and furnish a historical view of the internal risk profile and of the Italian banking sector. On the other hand, the scenario analyses constitute a qualitative and quantitative information component, because they are derived from risk assessments provided as part of the internal self risk assessment process, where the purpose is to provide a forward looking view of the internal risk profile, operational context factors and the system of internal controls. The model developed follows the loss distribution approach and it involves estimating severity distributions for each class of risk on two distinct components: a generalised pareto distribution (GPD) for the tail and an empirical distribution for the body. The estimates of severity obtained on the tails are subsequently integrated, by applying credibility theory, 284* Notes to the separate financial statements