CONSOLIDATED HALF-YEAR REPORT AS AT 30 JUNE 2018.

Transcription

1 CONSOLIDATED HALF-YEAR REPORT AS AT 30 JUNE 2018.

2 The present document is the English translation of the Italian Consolidated half-year report, prepared for and used in Italy, and have been translated only for the convenience of international readers. The Consolidated half-year report was prepared using International Reporting Standards (IAS/IFRS); therefore they are not intended to present the financial position and results of operations and cash flows according to accounting principles and practices other than IAS/IFRS. BPER Banca S.p.A. Head office in Via San Carlo 8/20, Modena, Italy Tel. 059/ Fax 059/ Register of Banks no Parent Company of the BPER Banca S.p.A. Banking Group Registered in the Register of Banking Group with ABI code , since 7 August istituzionale.bper.it; bpergroup@bper.it Certified (PEC): bper@pec.gruppobper.it Tax Code, VAT number and Modena Companies Register no Modena Chamber of Commerce Share capital as at 31/12/2017 1,443,925, Member of the Interbank Deposit Guarantee Fund and of the National Guarantee Fund Ordinary shares listed on the MTA market 2

3 Contents Contents Directors and officers of the Parent Company as of the date of approval of the consolidated half-year report as at 30 June 2018 page 5 Group interim report on operations as at 30 June 2018 page 7 Condensed consolidated half year financial statements Consolidated half-year financial statements page 117 Consolidated explanatory notes page 125 Attachments Financial statements of the Parent Company page 239 Transition to IFRS 9 page 242 Certifications and other reports Certification of the condensed half-year consolidated financial statements at June 2018 pursuant to art. 81-ter of CONSOB Regulation no dated 14 May 1999 and subsequent additions and amendments Report of Deloitte & Touche s.p.a. on the review of the half-yearly condensed consolidated financial statements as at 30 June 2018 page 249 page 251 3

4 BPER: Gruppo Consolidated half-year report as at 30 June 2018 Contents 4

5 Corporate officers Directors and officers of the Parent Company as of the date of approval of the consolidated half-year report as at 30 June 2018 Board of Directors Chairman: Deputy chairman: Pietro Ferrari Giuseppe Capponcelli Chief Executive Officer: * Alessandro Vandelli Directors: * Riccardo Barbieri Massimo Belcredi Mara Bernardini * Luciano Filippo Camagni Alessandro Robin Foti Elisabetta Gualandri Roberta Marracino Ornella Rita Lucia Moro * Mario Noera Marisa Pappalardo * Rossella Schiavini Valeria Venturelli (*) Members of the Executive Committee Board of Statutory Auditors Chairman: Paolo De Mitri ( ) Acting Auditors: Substitute Auditors: Antonio Mele Diana Rizzo Francesca Sandrolini Vincenzo Tardini Cristina Calandra Buonaura ( ) Paolo De Mitri, Alternate Auditor appointed at the Shareholders' Meeting, replaced Giacomo Ramenghi on 8 May 2018 following his resignation from office (see Significant events and strategic transactions later in this Report). 5

6 Corporate officers General Management General Manager: Deputy General Managers: Fabrizio Togni Eugenio Garavini Claudio Battistella Pierpio Cerfogli Gian Enrico Venturini Manager responsible for preparing the Company's financial reports Manager responsible for preparing the Company's financial reports: Marco Bonfatti Independent Auditors Deloitte & Touche s.p.a 6

7 Group interim report on operations Group interim report on operations as at 30 June

8 Diamo valore al tuo domani, insieme. BPER Banca è da sempre a fianco delle persone, delle famiglie e dei territori con iniziative di sostegno concreto. Per saperne di più, vai su istituzionale.bper/sostenibilita Vicina. Oltre le attese. Messaggio pubblicitario istituzionale.

9 Group interim report on operations Content 1. Background page Key figures 2.1 BPER Banca Group structure as at 30 June 2018 page Summary of results page Performance ratios page Significant events and strategic transactions 3.1 Transition to the International Financial Reporting Standard IFRS 9 page Strategic transactions page European Single Supervisory Mechanism (SSM) page Contributions to the Single Resolution Fund and the Deposit Guarantee page 28 Fund and developments in the Interbank Deposit Guarantee Fund: Voluntary scheme and Solidarity Fund 3.5 Structured finance operations, securitisations and other particular page 30 financial transactions 3.6 Other significant events page Summary of activities and strategic direction of the BPER Banca Group 4.1 Market positioning page Relations with customers page Commercial and service policies page Media Relations page Lending policies page IT activities page Real estate sector page Human resources page Corporate Social Responsibility page Scope of consolidation of the BPER Banca Group 5.1 Composition of the Group as at 30 June 2018 page Changes in the scope of consolidation page The BPER Banca Group's results of operations 6.1 Balance sheet aggregates page Own funds and capital ratios page Reconciliation of consolidated net profit/shareholders' equity page Income statement aggregates page Employees page Geographical organisation page 87 9

10 Group interim report on operations 7. Principal risks and uncertainties 7.1 Risk management page Disclosure of exposures to sovereign debt held by listed companies page Main litigation and legal proceedings pending page The internal control system 8.1 Introduction page Risk management (RAF) page Development of the internal control system page Other information 9.1 Treasury shares page Share price performance page Rating at 30 June 2018 page Investigations and audits page Intercompany and related-party transactions page Information on atypical, unusual or non-recurring transactions page Information on business continuity, financial risks, impairment tests and page 111 uncertainties regarding the use of estimates 10. Significant subsequent events and outlook for operations 10.1 Significant events subsequent to 30 June 2018 page Outlook for operations page

11 Group interim report on operations 1. Background Overall, the world economy grew well during the first half of 2018, albeit in a less consistent manner than in the final months of last year. In particular, despite the flow of positive macroeconomic data from the United States, the principal indicators of growth in other areas have shown signs of consolidation and even slowing down in some cases. The future of world trade is uncertain, principally due to the increase in trade friction between the United States and the rest of the world following the introduction, at the start of the year, of import duties on aluminium and steel by the American administration. The general climate of confidence has also been burdened by the political crises in a number of major European countries, not least Italy and Germany. Central banks have continued the slow, steady process of normalising their monetary policies, with the Fed raising the interest-rate range twice, in March and June, by a total of 50 bps to 1.75% %. All these factors have had an inevitable impact on the financial markets, with periods of tension and volatility, and generally negative yields on the more risky asset classes. Analysing the principal areas in more detail, GDP growth in the United States is expected to pick up again, following the modest 2.0% q/q annualised growth reported for the first three months of the year. The expansionary effect of the tax reform approved by the government at the end of 2017 has consolidated over time, facilitating an increase in consumption that, by contrast, had previously been largely responsible for stifling growth. Inflation has risen steadily since the start of the year, reaching 2.9% y/y in June, mainly due to the increase in energy prices. This said, even the core rate - excluding the more volatile components - has risen, reaching 2.3% y/y. The headline unemployment rate of 4% in June suggests that job-seekers are almost fully employed, although modest wage growth remains below the historical average. Business confidence both in the manufacturing and service sectors remained at absolutely high levels, not least due to the tax cuts envisaged in the recent tax reform. On the political front, the US President - leveraging national security considerations - has stepped up his protectionist offensive by signing a series of measures that impose customs import duties on various categories of goods. The trade policies adopted by the White House target China in particular, given the large trade deficit with that country, although in reality some restrictions (duties on aluminium and steel) hit other countries too, including historical allies of the United States. These measures immediately resulted in a series of countermeasures and reprisals, with several countries introducing or threatening similar action against the USA. The Euro-zone achieved further economic growth during the first half of 2018, although GDP slowed considerably during the first quarter (+0.4% q/q) for physiological reasons (the sharp rise in GDP during the second half of 2017 was objectively unsustainable) and as a result of exceptional weather conditions. Recent data indicates that second quarter growth was in line with that in the first quarter, conditioned by weaker export demand. In particular, the PMI indices - classic leading indicators of the economic cycle - highlight a slowdown in manufacturing (the June statistic was the lowest since December 2016) and just a small bounce in the services sector. The ECB kept interest rates steady in June and announced the end of Quantitative Easing by December 2018, while stressing that this depends on the confirmation of data over the next few months. This Frankfurt-based institution also modified its guidance on monetary policy rates, committing to hold them at current levels until mid-2019 at the earliest. The approach adopted by the ECB, still very soft overall, is responsive to the rate of inflation in the Euro-zone which, by contrast with the United States, remains quite low: while the rise in the consumer price index did reach the ECB target of 2% y/y in June, in reality this was only achieved as a result of higher oil prices. Excluding the 11

12 Group interim report on operations most volatile components, the core rate of inflation remains fixed at 1% y/y, in line with the average for the whole of On the political front in Italy, the new, potentially Euro-sceptic government kept the markets in turmoil for some time, while the governing coalition in Germany faced collapse due to immigration policy issues. More broadly, although the Brexit negotiations between the EU and the United Kingdom made some progress, the delicate question of the Irish border remains unresolved. The economic cycle in Italy followed the trend experienced elsewhere in the Euro-zone during the first half of Expansion continued in absolute terms but, as in the other countries, macroeconomic conditions weakened. GDP rose by 0.3% q/q during the first three months, while the leading indicators for the manufacturing and service sectors suggest that growth consolidated at this level during the first six months. In addition to the marked decline in exports, the economy was affected by political uncertainties: firstly, the difficulty of forming a government after the general election on 4 March and, subsequently, the financial tensions caused by the announcement of measures with a major impact on the public purse, combined with strong criticism of the EU by certain exponents of the new administration. This caused international investors to reprice Italy's sovereign risk, which has tightened overall financial conditions. Inflation has ticked upwards (1.3% y/y in June), but remains lower than elsewhere in the Euro-zone. In Japan, GDP declined during Q (-0.2% y/y) for the first time since There were various reasons: primarily the stagnation of consumption, together with the slowdown in non-residential investment and the reduction in exports. More recent data points to a recovery during the second quarter, led in particular by an upturn in consumption. Inflation remains far from the target set by the central bank: the consumer price index rose by 0.7% y/y in May, while the core rate - excluding energy and fresh food - struggles to stay in positive territory (+0.1% y/y). As a result, the monetary policy adopted by the Bank of Japan (BoJ) remains highly expansionary with confirmation of the current quantitative and qualitative stimuli. Lastly, certain Emerging Countries experienced turbulence during the first half of 2018, following a string of adverse events. Economic events that signal less robust and synchronised global growth and financial events marked by simultaneous rises in US interest rates, the US dollar and the oil price. Three countries, in particular, were placed in the spotlight: Russia, whose economy has been hit by targeted US sanctions, but which has nevertheless benefited from the good progress made by energy raw materials; Argentina, which had to call on an urgent IMF loan when faced with a new economic crisis, and Turkey, where the President - albeit further strengthened by the recent elections - struggles to manage an economy afflicted by rising inflation (+15.4% y/y in June) and marked currency depreciation. China, always the focus of attention among the developing countries, grew well during the first half of the year. In particular, the rise in GDP during the first three months of 6.8% y/y, consequent to previous fiscal and monetary stimulus, was almost matched by Q2 growth of 6.7%. The introduction of trade sanctions by the United States clearly jeopardises export dynamics, which is one of the reasons why the People's Bank of China (PBoC) has decided to maintain an expansionary approach. The financial markets were influenced by many factors during the first half of the year, including the introduction of customs duties by the US administration, the elections in Italy, the rate increases by the Federal Reserve and the announced end of QE by the ECB. Overall, the situation was only good for the riskier asset classes during the first few weeks of the year, after which the markets began to fear an uncontrolled rise in US inflation and started to price-in the more aggressive application of restrictive 12

13 Group interim report on operations policies by the Fed. Subsequently, the risk appetite of investors was further curbed by two additional factors in particular: the trade frictions between the USA and the rest of the world, which have intensified over time, and the political tensions within the Euro-zone due, in the main, to the situation in Italy. Lastly, the general concern was also fuelled by the above-mentioned crises in Turkey and Argentina. Accordingly, the past six months have been challenging for investors, with the various financial markets sending somewhat different messages. With regard to equities, the flat performance (-0.67%) of the global Msci World index cloaks the true divergences that emerged. On the one hand, the US markets rose (S&P500 up 1.67%), with the Nasdaq technological index shaking off the March scandal (management of personal data by Facebook) to climb by almost 9% and actually become the best-performing market during the period. On the other, markets elsewhere flagged, especially in Japan (Topix -4.77%) and Europe (Eurostoxx 600 down 2.38%). Even the FtseMib in Milan eased by 1.04%. Fears about a more aggressive Fed, a stronger US dollar and the volatility of the oil price contributed to the weakness of the emerging markets, whose general index, the MSCI Emerging Markets (denominated in dollars), closed 7.68% down over the period to June. The Chinese market fared badly, down 13.90%, largely due to the threat of American protectionism, while the Russian Moex index (+8.83%) climbed due to the good performance of raw materials. The most incisive movement on the fixed-income front came from Italy, where the change in government was accompanied by a violent increase in the risk premium on public debt. Although this crisis of confidence has since eased in part, the premium is still much higher than it was in earlier months. The yield on 2-year BTPs rose from -0.25% at the start of the year to 0.69% at the end of the period, while the 10-year yield climbed from 1.75% to 2.41%. Investors have in fact rewarded the securities of countries considered to be more reliable, with the yield on the 10-year German Bund falling from 0.43% to 0.30%. By contrast, US rates rose on worries about the measures adopted by the Fed and the expansionary fiscal policy of the American administration; the yield on 10-year Treasuries rose from 2.40% at the start of 2018 to 2.86% at the end of the period. Again in the USA, the yield curve has flattened markedly (the differential between the 10-year and 2-year rates fell by about 20 basis points), which suggests that investors are somewhat skeptical that future economic growth will be sufficiently robust to absorb the normalisation of monetary policy. Lastly, the fears discussed in relation to equity markets in the emerging countries also affected their bond markets. Turning to currencies, after gaining ground initially the Euro steadily retrenched due to the political tensions in Italy mentioned above. Over the entire period, the Euro weakened as follows against the other principal currencies: -2.75% against the US dollar and -4.54% against the Japanese yen, which is a typical refuge currency at times of tension. However, the most significant depreciation was experienced by the emerging currencies, which were penalised - among other factors - by the monetary policy adopted by the Fed and by certain specific crisis situations. This downturn was led by the Argentinian peso (down 33.8% against the Euro) and the Turkish lira (-15%). Lastly, performance among the commodities varied considerably. The general CRB index closed up slightly over the period (+3.36%), but analysis of its components reveals, on the one hand, the marked weakness of industrial metals due to the possible contraction in world trade as a result of current frictions and, on the other, the excellent performance of oil. There were various factors behind this rise in the oil price (WTI climbed by more than 22% during the period), including: geopolitical risks, the announcement of new US sanctions against Iran, positive revisions of estimates regarding the fundamentals of supply and demand. Lastly, gold fell back during the first half of the year (-3.83%); following a strong rise in the early part of the year, the precious metal steadily dropped back, without benefiting from its historical role as a "refuge asset". 13

14 BPER: Gruppo Consolidated half-year report as at 30 June 2018 Group interim report on operations 2. Key figures 2.1 BPER Banca Group structure as at 30 June 2018 BPER: Ban ea.. Banca Pooolare dell Emilia Romaona!Europe) lntpifldtiorldl S.A. loocco% Cdssadi Rispar 1 io d Bra S.p.A. Gl.OOO"Io Hdnca d \dssari">.p A. Yl4,U I /% 2C,522.. r a~sadi Rrc;par mio di SaiLzzo SpA % ~rtr>ns~ tpi tovp,um Bond S r.l 60,000% (<) B.anco di SardegnaS.p.A % (a I.. BPER l1u.,l CullliJdiiY Sp,A, 100,000'/o (<) ~m l a Romagna!-actor ~. p.a Y'>.Y)4"l'. Tho os S.p.l\. 1 OO.OOOo/... Optima~ p.a. - SJM 100,000% Mutrra ~.rj. 10U,OOO'"/o (c),. Nuuwrd s.v.a. 100,000% Nadia S.pA ,000% Modena T erminal5 r I % Sardale-asing S.p.A. 99,b/4"/ l 4 Estense Covered Bond S.r.l. t-.rl.oflfl% (<) th 'tl.( \~rvicps ':>.l p.a luu,uuuo/o (h) 67,000%.,. BFER CrE'd1t Mdnagpm >nt S,C,p,A I OO,OOOo/o ldj a) Equ iv~len t to % o f the entire C ~pit~l Stock <Onsisting of or-dinary, ~ referr-ed and savings shares, the latter being non voting sha'es. b) Th' fo llowing Corrpanies also ar e shareholders of BPER Services S.Cpft. : - Banca di Sassari s.,.a. (0.400%): -Optima 5. ~..1\. SIM (0.400%): - Surduleusing S.p.A. (0.400%): - Cassa ci Hisparnio di Ora S.p.A. (0.400%): - BPER Credit Management S.C.o.A (0.400%) - (;,ss~ ci R isp~rroio di S<lhmo S.p.A (0.400%) c) SL.bsidiarf conpa,ies consolidated urder Ir e eq.rity met hod. d) Tre fo llowing Corrpanies also are shareholders of BPER ('edit Management S.C.p.A : - Sardaleasing S.o.A. (6.000%): - Banca di Sassari S.,.. A. (3.000%): - Cassa ci Risparroio di Bra S.p.A (2 000%): - Em ilia Rorragna Factor S.p.A. (l.odo%): - Cassa c i Risparmio di Saluno S.p.A. (1.000%): 11 duuiliofl to the d"'->ve "'"'''I""' of t'"" :>anking group, the scope of corsolidat'on also ncludes the following su:>sidiaries compan es which are not members of the banking g rocp since they do not contribute directly to its activities. These conjanies are consolidated under the equity method: - the Parent Company: -1\dra~ S.J.I\. ( I 00%): - ltaliana Valorinazioni lmmobilia'i S.r.l. ( 100%): -Polo C~rnpar i~ S.r.I.!100% ): -Sif<'l S.p.A. (51%). -Banca Farnese S.p.A. in liquidazione (65,13 %) N~di~ S,p,A,: -Galiei lrrmobiliare S.r.l. ( 100%). - ltaliana Valorizzazioni lmmobiliari S.r.l.: -Costruire Mu lino S.r.. ( I 00% ): -Frara S.r.l. (100%). 14

15 Group interim report on operations 2.2 Summary of results 1 The period closed with a net profit of Euro million, almost triple that reported for the first half of last year. Asset quality continues to improve for the eighth consecutive quarter, recording a sharp decline in the gross stock of NPLs for approximately Euro 1.7 billion since the beginning of the year, also thanks to the "4Mori Sardegna" securitisation of bad loans for Euro 900 million carried out by Banco di Sardegna last June: Gross NPE ratio at 17.4% from 19.9% at 1 January 2018 (-2.5 p.p.) down for the eighth consecutive quarter; Net NPE ratio at 8.4% from 9.2% at 1 January 2018; Improvement in annualised credit quality metrics with a default rate of 2% and a cure rate of 13.8%; Texas ratio of 95.5% (-6.0 p.p. on 1 January 2018). The coverage of non-performing loans amounts to 56.9%; this increase in cover benefited, in particular, from the additional provisions made on the adoption of IFRS 9 from 1 January 2018, resulting in the coverage of bad and unlikely-to-pay loans amounting to 64.9% and 41.9% respectively at 30 June The Group's high financial solidity is confirmed at the end of the period with a Phased-in CET1 ratio of 14.72%, which is well above the SREP 2018 requirement set by the ECB at 8.125%. Fully Phased CET1 ratio of 11.63%, much the same as in the first quarter, despite the rise in yields on the equity reserve for the securities in portfolio. As regards the figures in the income statement, reference is made to the reclassified consolidated financial statements 2 in which indirect tax recoveries, allocated for accounting purposes to "Other operating charges/income", have been reclassified as a reduction in the related costs and contributions to the SRF, DGS and FITD-SV funds have been shown separately from the specific accounting technical forms to show more clearly the trend in operating costs. The profit from current operations before tax amounts to Euro million in the period (Euro 109 million at 30 June 2017). Operating profit amounted to Euro 1,165.7 million, up by 14.78% on the same period of In particular: net interest income comes to Euro million. The second quarter result is equal to Euro million, down from Euro million in the first quarter of the year, mainly due to the "IFRS 9 reclassification" effect and to a lower contribution from the financial margin; net commission income amounted to Euro million. This positive performance was achieved mainly thanks to the resilience of net commission income on the commercial business and the increase in net commission income on inflows to asset management schemes and 1 The economic data reported as at 30 June 2017 (determined in accordance with IAS 39) has been classified in the new account captions envisaged in the 5th update of Bank of Italy Circular 262, without changing the net profit (loss) for the period. The balance sheet data reported as at 31 December 2017 (determined in accordance with IAS 39) has been classified in the new account captions in accordance with the new classification criteria introduced by IFRS 9, without changing the amounts reported for total assets or for total liabilities and shareholders equity. 2 As required by CONSOB in Communication DEM/ dated 28 July

16 Group interim report on operations "bancassurance", up on the same period of last year (+27.7%), bearing in mind that the scope is not entirely comparable. Operating costs totalled Euro 689 million, up 9.74% on the same period of In particular: payroll costs amount to Euro million, up 9.01% on with the same period last year; other administrative expenses amounted to Euro million, up 5.35% compared with the same period last year; net adjustments to property, plant and equipment and intangible assets amounted to Euro 56.3 million, which was more than in the first half of 2017 due to net writedowns of land and buildings totalling Euro 12.8 million. Net adjustments for credit risk, amounting to Euro 84.2 million, were almost entirely attributable to the financial assets measured at amortised cost (Euro 84.9 million); the cost of lending to customers amounted to 36 b.p. on an annualised basis (18 b.p. during the period), which was down significantly from 112 b.p. in In the balance sheet: the loans to customers measured at amortised cost total Euro 45.8 billion ( down by 3.79% since 31 December 2017); direct deposits (Euro 49.9 billion) decreased by 0.73%, with a loans/deposits ratio of 91.83% (94.75% at 31 December 2017); indirect deposits of Euro 36.3 billion are up by 1.08%. The capital ratios, calculated taking into account the internal model (AIRB) methodology for the credit risk requirement and with reference to the value of Own Funds, including the share of profit realised during the period, net of the likely dividend to be declared by the Parent Company and the effects of applying IFRS 9 for the first time, are as follows: Common Equity Tier 1 Ratio (Phased In) of 14.72% (14.61% at 31 March 2018 and 13.62% at 1 January ). This ratio calculated on a fully phased basis comes to 11.63% (11.71% at 31 March 2018); phased in Tier 1 ratio of 14.81% (14.70% at 31 March 2018 and 13.63% at 1 January ); Total Capital Ratio (Phased In) of 17.63% (17.50% at 31 March 2018 and 16.14% at 1 January ). Leverage ratios: transitional arrangements (Phased In) of 6.3% (6.4% at 31 March 2018 and 6.1% at 31 December 2017); full application (Fully Phased) of 4.9% (5.1% at 31 March 2018 and 6.0% at 31 December 2017). Liquidity levels are higher than the required minimums: Liquidity Coverage Ratio (LCR) of % (150.9% at 31 March 2018 and 113.7% at 31 December 2017); Net Stable Funding ratio (NSFR), which, although not yet available at 30 June 2018, is reckoned to be over 100% (106.4% at 31 March 2018 and 105.2% at 31 December 2017). 3 The comparative amount was determined at 1 January 2018, in order to take account of the effects of applying IFRS 9 for the first time. 4 See previous note. 5 See previous note. 16

17 Group interim report on operations 2.3 Performance ratios Financial ratios (*) Structural ratios net loans to customers/total assets 65.16% 66.08% net loans to customers/direct deposits from customers 91.83% 92.48% financial assets/total assets 23.23% 22.47% fixed assets/total assets 2.14% 2.16% goodwill/total assets 0.47% 0.47% direct deposits/total assets 88.91% 89.92% deposits under management/indirect deposits 54.70% 55.08% financial assets/tangible equity total tangible assets 7 /tangible equity net interbank lending/borrowing (in thousands of Euro) (9,476,734) (9,984,026) number of employees 8 11,655 11,653 number of national bank branches 1,219 1,218 Profitability ratios ROE % 3.62% ROTE % 4.04% ROA (net profit/total assets) 0.46% 0.17% Cost/income ratio % 61.82% Net adjustments to loans/net loans to customers 0.18% 0.69% Basic EPS Diluted EPS Risk ratios net non-performing exposures/net loans to customers 8.35% 9.21% net bad loans/net loans to customers 4.53% 4.99% net unlikely to pay loans/net loans to customers 3.61% 4.03% net past due loans/net loans to customers 0.22% 0.19% adjustments to non-performing exposures/gross non-performing exposures 56.85% 59.34% adjustments to bad loans/gross bad loans 64.89% 67.37% adjustments to unlikely to pay loans/gross unlikely to pay loans 41.94% 43.55% adjustments to past due loans/gross past due loans 12.71% 14.09% adjustments to performing exposures/gross performing exposures 0.40% 0.58% texas ratio % % (*) The comparative figures have been appropriately recalculated at 1 January 2018 to take into account the impact of the first-time adoption of IFRS 9, with the exception of those relating to profitability ratios for which reference is made to the figures at 30 June 2017, as per the Consolidated Half-Year Report as at 30 June 2017 (figures at 31 December 2017 in the Consolidated Financial Statements at 31 December 2017 only for ROE and ROTE). 6 Tangible equity: total shareholders' equity net of intangible assets. 7 Total tangible assets = total assets net of intangible assets. 8 The number of employees does not include the expectations. 9 ROE is calculated on an annual basis, replicating the result for the period for the remaining periods of the year. 10 ROTE is calculated on an annual basis, replicating the result for the period for the remaining periods of the year. 11 The cost/income ratio has been calculated on the basis of the layout of the Reclassified income statement (operating expenses/operating income); calculated using the formats envisaged in the 5th update of Bank of Italy Circular 262, the cost/income ratio is 64.16% (63.65% at 30 June 2017, as reported in the Interim consolidated financial statements at 30 June 2017). 12 The Texas ratio is calculated as the relationship between total gross non-performing loans and net tangible equity, including minority interests, increased by total provisions for non-performing loans. 17

18 Group interim report on operations (cont.) Financial ratios (**) Own Funds (Phased in) 13 Common Equity Tier 1 (CET1) 4,581,483 4,410,721 Own Funds 5,486,878 5,227,226 Risk-weighted assets (RWA) 31,130,491 32,394,482 Capital and liquidity ratios Common Equity Tier 1 Ratio (CET1 Ratio) - Phased in 14.72% 13.62% Tier 1 Ratio (T1 Ratio) - Phased in 14.81% 13.63% Total Capital Ratio (TC Ratio) - Phased in 17.63% 16.14% Common Equity Tier 1 Ratio (CET1 Ratio) - Fully Phased 11.63% 11.06% Leverage Ratio - Phased in % 6.1% Leverage Ratio - Fully Phased % 6.0% Liquidity Coverage Ratio (LCR) 146.9% 113.7% Net Stable Funding Ratio (NSFR) 16 n.d % Non-financial ratios (**) Productivity ratios (in thousands of Euro) direct deposits per employee 4, , loans to customers per employee 3, , assets managed per employee 1, , assets administered per employee 1, , core revenues per employee net interest and other banking income per employee operating costs per employee (**) The comparative figures have been appropriately recalculated at 1 January 2018 to take account of the impact of the first-time adoption of IFRS 9, with the exception of those relating to the Leverage Ratio (Phased In and Fully Phased), the LCR and the NSFR, for which reference is made to the figures at 31 December 2017, as per the Consolidated Financial Statements at 31 December 2017, and to the productivity ratios calculated on economic data for which reference is made to the figures at 30 June 2017, as per the Consolidated Half-Year Report as at 30 June The calculation is consistent with the provisions specified in Regulation (EU) 575/2013 (CRR), as amended by the Delegated Regulation (EU) 2395/ The calculation is consistent with the provisions specified in Regulation (EU) 575/2013 (CRR), as amended by the Delegated Regulation (EU) 62/ See previous note. 16 The Net Stable Funding Ratio (NSFR), not yet available, is estimated to exceed 100% (105.2% at 31 December 2017). Core revenues: net interest income + net commission income. 18

19 Group interim report on operations 3. Significant events and strategic transactions 3.1 Transition to the International Financial Reporting Standard IFRS 9 On 24 July 2014 the International Accounting Standards Board (IASB) issued the final version of IFRS 9 Financial instruments that, with effect from 1 January 2018, replaced IAS 39 which governed the classification and measurement of financial instruments up to and including 31 December Refer to the Consolidated explanatory notes for a discussion of the new accounting requirements. The BPER Banca Group has carried out and completed a project to examine in depth the various areas affected by the standard, determining its qualitative and quantitative impact, and has identified and implemented the software and organisational changes needed for adoption of the standard throughout the Group. Related refinements are currently in progress. More specifically, the project was organised into three parts, in line with the standard ("Classification and measurement", "Impairment", "Hedge Accounting"), identifying application and organisational interventions within the Group as a whole and for each entity belonging to it. The main Group functions most involved in the implementation of IFRS 9 were Administration and Reporting, which headed up the project; Risk Management, for the determination and validation of appropriate new risk measures; Credit and Finance, for determination of the portfolios, the consequent business model and the consequent repercussions on operations, and Strategic Marketing, for the analysis of the commercial lending products offered to customers. The operating divisions were also involved in the analysis of the process implications and for the related IT development work, with the aim of finding solutions consistent with the current infrastructure and identifying and exploiting potential synergies. In addition, the IT implementation work mainly involved activities associated with the transition to the new accounting standard and the implementation of additional software and organisational changes designed to ensure the "ongoing" application of the standard. In accordance with the current Group structure, the Systems function was actively involved in the project, with a coordination role in adopting and validating the process changes deriving from the implementation decisions made. Alongside the operating divisions, the internal control functions (Internal Audit, Manager responsible for preparing the company's financial reports, Board of Statutory Auditors) and the independent auditors were informed about the progress of the Project. Principal choices made by the BPER Banca Group The following brief presentation covers the work carried out in the principal areas affected ( Classification and measurement, Impairment, Hedge Accounting ). Classification and measurement of financial instruments The BPER Banca Group classifies and measures financial assets (loans and debt securities) with reference to the following drivers: 1. definition of the relevant business model; 2. examination of the characteristics of their cash flows. With regard to the first driver, the BPER Banca Group has defined the reasons for holding financial assets over time in order to generate cash flows, together with guidelines for processing for transition purposes the financial assets already held at 31 December

20 Group interim report on operations With regard to the second driver for the classification of financial assets (SPPI test to verify the contractual characteristics of financial instruments), the BPER Banca Group has carried out activities to determine whether the contractual cash flows of the financial assets held at the transition date represent exclusively the payment of principal and interest accrued on the outstanding principal to be repaid. Analysis of the debt securities identified that only a marginal percentage of the debt securities classified in the previous accounting categories at 31 December 2017, HTM, AFS and LRO, failed the SPPI test and, accordingly, were classified and measured at fair value through profit or loss. These securities have options unrelated to credit risk and the time value of money, or represent tranches of ABS or securitisations. On the basis of national and international working parties in relation to units in UCITS, closed and openended funds are classified as financial assets measured at fair value through profit or loss. Analysis of the loans portfolio distinguished the standard plain vanilla contracts, typical of retail accounts, from the non-standard, customised contracts essentially arranged with larger corporate customers. In essence, analysis of the characteristics of the cash flows deriving from the financial assets held by the BPER Banca Group at 31 December 2017 did not identify any need for significant reclassifications. With regard to the transition accounting treatment of equity instruments classified as AFS at 31 December 2017, the BPER Banca Group mainly made the irrevocable election, which requires subsequent changes in fair value to be recognised through the statement of comprehensive income; the remaining instruments will be measured at fair value through profit or loss. On the transition, all the equity instruments classified at 31 December 2017 in the previous HFT category were classified as measured at fair value through profit or loss, retaining the original held-for-trading objective. The classification and measurement of financial liabilities did not change significantly on their allocation to the new IFRS 9 portfolios; similarly, there were no reclassification and measurement effects in relation to trading and hedging derivatives. Impairment The IFRS 9 impairment model adopted by the BPER Banca Group for loans is founded on: a) Objective and quantitative criteria for identifying any significant increases in credit risk when assigning credit lines in Stage 1 or Stage 2. In particular, with regard to the objective criteria, the BPER Banca Group has identified the following conditions for the classification of credit lines in Stage 2 and applied them to estimate the related impact: lines that are past-due for at least 30 days at the reporting date; lines belonging to a counterparty in a state of forborne; lines for which there is no origination rating; lines classified as "Watchlist" in the Early Warning credit monitoring system. With regard to the quantitative criteria, the BPER Banca Group has classified in Stage 2 the loans that, at the reporting date, have experienced a Significant Increase in Credit Risk (SICR) since their initial recognition. As a consequence, all performing loans that did not satisfy the above objective and quantitative criteria at the reporting date have been classified in Stage 1. 20

21 Group interim report on operations b) The BPER Banca Group has not adopted the simplification allowed by IFRS 9 regarding the low credit risk exemption. c) Classification in Stage 3 of all non-performing impaired loans at 31 December 2017 in accordance with the definition of non-performing loans specified in the current regulations, consistent with the 7th update of Bank of Italy Circular 272 dated 30 July 2008, being those with the characteristics indicated in para. B of IFRS 9, which correspond to the Final draft Implementing Technical Standards (ITS) for forbearance (FBE) and non-performing exposures (EBA/ITS/2013/03/rev1 24/7/2014). The credit quality administrative classifications established by the Bank of Italy are retained within Stage 3. d) Different methods have been defined for measuring the impairment adjustments in each Stage, applying the Expected Loss or Expected credit losses (ECL) concept. For this purpose, the BPER Banca Group has adopted a model for calculating the provisions required to cover the expected losses on financial instruments based on: 1. the expected loss over the entire duration of the loan (Lifetime ECL), if the credit risk has increased significantly since initial recognition of the instrument and, otherwise, 2. on the portion of the lifetime ECL deriving from possible default events within 12 months of the reporting date (or transition to the new accounting standard), or a shorter time if the expected contractual duration is less. e) The models for the measurement of expected losses include the current macroeconomic conditions (Point-in-Time risk measures) in the risk parameters used for the Stage assignment, as well as forward-looking information (Forward-looking risk measures) about the future dynamics of the macroeconomic factors that influence lifetime ECL. With reference to exposures classified in Stage 3, following in-depth analyses and evaluation of the IFRS Foundation's document entitled "Inclusion of cash flows expected from the sale on default of a loan" and the "Guidelines for banks on non-performing loans (NPL)" published by the European Central Bank in March 2017 for the pro-active management of non-performing loans, the BPER Banca Group determined that the inclusion of forward-looking factors in scenario evaluations also had "measurement" implications for impaired assets. In order to apply the model consistently among the product portfolios held by the BPER Banca Group, the methods used to calculate the impairment adjustments for debt securities were borrowed, where possible, from the logic applied to loans (on and off-balance sheet) discussed above. Specifically, the BPER Banca Group has defined an impairment model for debt securities based on the following criteria: a) management of an inventory of debit securities for staging purposes, applying the FIFO method to relieve sold tranches from the portfolio; b) model for identifying significant increases in credit risk, in order to classify debt securities in Stage 1 or Stage 2, based on the following criteria: primary use of the internal rating model and, if unavailable, reference to Fitch, an external ratings agency; determination of the rating downgrade threshold by comparing the rating classes on origination with the rating classes on the measurement date (notching between rating classes); 21

22 Group interim report on operations classification in Stage 3 of all debt securities in default at 31 December 2017, applying the definition of default contained in the 2003 ISDA document entitled Credit Derivatives Definition. No securities were classified in Stage 3 on transition to the new accounting standard. Hedge accounting As regards hedge accounting, the standard provides with an option to implement the new standard, IFRS 9, rather than to continue with the old standard, IAS 39 (opt-in/opt-out option). Based on the work performed, the BPER Banca Group decided to take advantage of the opt-out option and, thus, hedging derivatives will continue to be recognised in accordance with IAS 39 (carve-out). Effects of the transition to the new accounting standard Based on the above, the impact of the first-time adoption of IFRS 9 on the consolidated shareholders' equity of the BPER Banca Group at 1 January 2018 is presented below. These effects, recognised in an equity reserve, principally resulted from: the classification and measurement of financial instruments in the new accounting categories; the allocation of assets to the new portfolios has led to positive changes in their measurement, equal to Euro 127 million; the identification of risk levels within the performing portfolio in accordance with the new impairment rules (Stages 1 and 2); the gross loans subject to SICR ("Stage 2") amount to Euro 7 billion, being 16.9% of gross performing loans to customers. The higher net provision as a result of applying these rules to total loans to customers amounted to Euro 27.7 million, plus Euro 2.6 million on total amounts due from banks and Euro 7.3 million on the securities portfolio owned; higher adjustments to non-performing loans (Stage 3) of about Euro 1.1 billion, deriving mainly from inclusion in the measurement process of the forward-looking factors introduced by IFRS 9, considering multi-scenario hypotheses and, in particular, the "disposal scenario". The amount indicated above, for the portion relating to the "disposal scenario", has been determined on the basis of the objectives and forecasts assumed in the process of defining the NPE strategy. Application of these effects led to a restatement of the opening balances for the year, the impact of which was recognised as a net equity adjustment of Euro 1,084 million (of which Euro 201 million pertaining to minority interests), net of tax effect where recorded. The detailed numbers are presented in the attachments to this interim consolidated financial report. Own Funds On 12 December 2017, the European Parliament and the Council issued Regulation (EU) 2395/2017 "Transitional provisions to mitigate the impact of introducing IFRS 9 on Own Funds" which updates Regulation 575/2013 CRR, inserting a new article 473 bis "Introduction of IFRS 9", which offers banks the possibility to mitigate the impact on Own Funds in a transitional period of 5 years (from March 2018 to December 2022) by sterilizing the effect in CET1 with the application of decreasing percentages over time. The BPER Banca Group has chosen to adopt the so-called "static approach" to be applied to the impact resulting from comparison between the IAS 39 adjustments at 31 December 2017 and the IFRS 9 adjustments at 1 January On 30 January 2018, the Group formally communicated to the 22

23 Group interim report on operations Supervisory Authority its decision to use the transitional regime for the gradual inclusion in regulatory capital of the provisions arising on application of IFRS 9. From 2018, banks adopting the transitional regime must nevertheless disclose information to the market about their Fully Loaded available capital, RWA, capital ratio and leverage ratio, as specified in the guidelines issued on 12 January Strategic transactions NPE Strategy: main actions and targets The BPER Banca Group has reviewed and updated the actions and targets contained in the NPE Strategy on the management of non-performing exposures. With a view to accelerating the process of improving asset quality and in line with the strategic action communicated to the market last November, we have selected a portfolio of gross non-performing loans potentially transferable of around Euro 6.4 billion, approximately two thirds of total gross doubtful loans. The net values of this portfolio have been quantified with reference to those realisable in a sale scenario, as envisaged in IFRS 9, which came into effect on 1 January This action led to additional provisions on first-time adoption totalling more than Euro 1.1 billion, resulting in coverage in line with the highest levels of the Italian banking sector. This amount is updated periodically, based on dynamics and the probability that the planned sale scenarios will occur. The initial consequence of this action was to reduce significantly the net NPE ratio, which is now 8.4% compared with 11.3% at the end of 2017 (already 9.3% at 31 March 2018), and the gross ratio will also decrease, thereby facilitating securitisations and block disposals. Specifically, the strategic guidelines for the next 3 years provide for the sale of bad loans at Group level with a total gross book value ("GBV") of between Euro 3.5 and Euro 4.5 billion, of which approximately Euro 3.0 billion via securitisations. The combined effect of these sales, improvements in the general market scenario and the trend in credit quality, as already seen over the past months, and the expected results from the routine management of non-performing loans by the internal structures of the Group, will help reduce the stock of NPEs over the three-year period by more than 40% compared with the levels recorded at the end of 2017, resulting in estimated gross and net ratios of around 11.5% and 5.5% respectively by 2020, with an expectation that they will fall below the 10% and 5% thresholds in The adjustment of coverage to take account of the forward-looking scenarios will also significantly improve Group profitability, as already reflected in the first-half results, by reducing substantially the cost of credit, which is estimated to be between 60 and 70 b.p. in the current year and less than 60 b.p. in 2020, with a coverage of nonperforming loans in excess of 55% at that time, assuming that the regulatory environment does not change. The current capital endowment of the Group, its organic generation deriving from the substantial increase in prospective profitability and the additional asset buffers that the Group has available will enable it to maintain an adequate level of capitalisation and to estimate a fully phased CET1 ratio of more than 12% by The significant portfolio of non-performing loans that could potentially be sold, identified in compliance with IFRS 9, and the high level of coverage reached together allow significant operational flexibility in terms of reducing the stock of non-performing loans even further: the objective is to reduce the gross ratio below the 10% threshold by

24 Group interim report on operations - 4 Mori operation Banco di Sardegna completed an operation to securitise bad loans at the end of June 2018, as part of broader action to derisk and improve the asset quality of the BPER Banca Group ( NPE Strategy ). In particular, a contract for the without-recourse sale of bad loans was signed on 7 June 2018, with economic effect from 1 January This transaction pursuant to Law 130/1999, with a gross book value (GBV) at 31 December 2017 of Euro 900 million (about 59% of the total gross bad loans of Banco di Sardegna, the Seller Bank ), has a gross collectible value of Euro 1,044 million and was arranged with 4Mori Sardegna S.r.l., which was formed specifically for this purpose (SPV). On 22 June 2018 the SPV issued three different classes of security (the Notes ) totalling Euro 253 million, as detailed below: the senior tranche, Euro 232 million, corresponding to 25.70% of the GBV of the loans sold, to which investment grade ratings have been assigned: A- (sf) by Scope Ratings GmbH and BBB (low) (sf) by DBRS Ratings Limited; coupon of 6m-Euribor + 90 bps; the mezzanine tranche, Euro 13 million, to which a BB- (sf) rating has been assigned by Scope Ratings GmbH and a B (sf) by DBRS Ratings Limited; the junior tranche, Euro 8 million, without rating. The total value of the securities issued therefore represented 28.10% of the GBV the loans sold. The consideration for this disposal, Euro 253 million (gross of collections of Euro 9.2 million received during the period 1 January June 2018, as required in art. 2, para. 1.a), of the Decree issued by the Ministry of the Economy and finance dated 3 August 2016, the Decree ), was recognised to the Seller Bank following its subscription for all the Notes issued by the SPV on 22 June On 27 June 2018 Banco di Sardegna sold 95% of the nominal value of the mezzanine and junior notes to an institutional investor at par for Euro 20 million in total. The Seller Bank continues to hold all the senior notes, for which the process of obtaining the GACS government guarantee has commenced. From an accounting standpoint, at 30 June 2018 Banco di Sardegna benefits from the deconsolidation of the loans sold. Having regard for the considerable coverage of the bad loans sold, this transaction only had marginal effects on the separate income statement of Banco di Sardegna and the consolidated income statement of the BPER Banca Group Cream 2 operation Consistent with the Group NPE Plan, Sardaleasing has also initiated a new programme of disposals to be carried out over the two-year period , drawing on the experience obtained from an earlier disposal of NPLs linked to property lease contracts (the Cream operation) arranged in In particular, a portfolio of bad loans (the Cream 2 operation) totalling about Euro 50 million was sold on 15 June 2018 (with economic effect from 1 April 2018), with a positive effect on the NPE ratio. The bad property lease contracts presented for the consideration of potential purchasers were identified in close collaboration with BPER Credit Management, the Group company specialised in the enforced recovery of loans. 17 Para of IFRS 9 states that On full derecognition of the financial asset, the difference between: a) the carrying amount (measured at the derecognition date) and b) the consideration received (including any new assets received, less any new liabilities accepted) must be recognised as a profit/(loss) for the period. 24

25 Group interim report on operations Following the completion of the tender process and the due diligence phase, offers were received from two potential purchasers: Arrow Global Ltd (AG) and Credito Fondiario (CF). The most competitive prices was proposed by Arrow Global Ltd, which was therefore awarded the transaction. The economic impact of the disposal (loss of about Euro 5.5 million) was compatible with the budget, in terms of the overall cost of risk. - Aqui operation At the end of February BPER Banca commenced work on the securitisation of bad loans totalling about Euro 2 billion (the Aqui Project ), with possible recourse to government guarantees (GACS) for the senior component. Alongside the Parent Company, the originators also include Cassa di Risparmio di Bra and Cassa di Risparmio di Saluzzo. This securitisation risk should be completed during the fourth quarter of Absorption of Carife Servizi Evolutivi Integrati s.r.l. by Nadia s.p.a On 12 March 2018 the Boards of Directors of Carife Servizi Evolutivi Integrati s.r.l. and Nadia s.p.a. approved the merger plan under which Carife Servizi Evolutivi Integrati s.r.l. would be absorbed by Nadia s.p.a. The purpose of the merger, among other things, is to simplify and rationalise the distribution, organisational and governance structure of the BPER Banca Group, as well as to achieve synergies in terms of operational efficiency. The plan, prepared in simplified form pursuant to art of the Italian Civil Code, was submitted to the Extraordinary Shareholders' Meeting of the two companies involved in the merger, after its filing and publication as required by law. The deed completing the absorption of Carife Servizi Evolutivi Integrati s.r.l. by Nadia s.p.a., as approved at the respective Extraordinary Shareholders' Meetings pursuant to art of the Italian Civil Code, was signed on 13 June The merger took legal effect from 15 June 2018, following registration of the deed by the Ferrara and Modena Companies Registers. The operation took tax and accounting effect from 1 January Recapitalisation of subsidiaries As part of its capital management actions, BPER Banca constantly monitors the levels of capitalisation of its subsidiaries. In this context, during January 2018, the Parent Company's Board of Directors decided to recapitalise a number of Group companies. The rationale underlying these proposals, for the most part common to all the companies concerned, included: reduction of the regulatory ceiling for Large Risks of Financial Companies from 40% to 25% of Own Funds with effect from 1 January 2018 (with alignment to the limits currently in force for the Banks); the event affects the thresholds applicable in both Sardaleasing and Emilia Romagna Factor; increase in capital requirements deriving from the growth in loans achieved and/or planned; in the case of Sardaleasing, the increase in volumes is also the result of the extraordinary acquisition of Nuova Carife's leasing portfolio. - Capital increase of Sardaleasing s.p.a. On 27 March 2018 the Extraordinary Meeting of Sardaleasing s.p.a. approved a divisible capital increase for cash totalling Euro 90.2 million, via the issue of 7,276,000 new ordinary shares. On the same date, 25

26 Group interim report on operations BPER Banca and Banco di Sardegna s.p.a. paid in their portions of the above amount, being Euro 46.4 million (3,742,760 shares) and Euro 42.3 million (3,414,852 shares) respectively. On 16 April 2018 BPER Banca subscribed for the 118,388 shares not taken up by S.F.I.R.S. s.p.a., the minority investor, paying an additional Euro 1.5 million. The capital increase was registered by the Sassari Companies Register on 19 April 2018; the new share capital of Sardaleasing is therefore Euro 184,173,750, being 52.74% held by BPER Banca S.p.a., 46.93% by Banco di Sardegna s.p.a. and 0.33% by S.F.I.R.S. s.p.a. - Capital increase of Emilia Romagna Factor s.p.a. On 10 April 2018 the Extraordinary Shareholders' Meeting of Emilia Romagna Factor s.p.a. authorised a divisible capital increase for cash via the issue of a maximum of 1,819,697 shares, nominal value Euro 10 each. BPER Banca subscribed for 1,802,534 shares in total (comprising its portion, 1,717,840 shares, and the 84,694 unsubscribed shares by other members), with a total payment of Euro 29.7 million. This fully-subscribed capital increase was registered by the Bologna Companies Register on 24 April 2018; the new share capital of the company amounts to Euro 54,590,910, of which 95.95% is held by BPER Banca. - Capital increase of Cassa di Risparmio di Bra s.p.a. On 16 April 2018 the Board of Directors of Cassa di Risparmio di Bra s.p.a. approved a divisible capital increase for cash totalling Euro 30 million, via the issue of a maximum of 57,750,000 new ordinary shares at a price of Euro 0.52 each. The proposed capital increase and related amendment of the articles of association was submitted to the competent Supervisory Authority for the required authorisations. Since ECB authorisation was not received by 30 June 2018, the Board of Directors of BPER Banca authorised the payment of Euro 20 million for future capital increases, in order to ensure that the subsidiary could satisfy the required capital ratios. The completion of this capital increase is discussed in the section on Significant subsequent events and outlook for operations. 3.3 European Single Supervisory Mechanism (SSM) BPER Banca and its Group are among the major European banks supervised directly by the ECB 18. Consistent with the European SSM, BPER Banca has organised a process of constant discussion and alignment with the ECB that includes the provision of detailed periodic information flows in response to requests from the Joint Supervisory Team (JST). On 22 November 2017, after completing the 2017 annual SREP prudential review and evaluation process, BPER Banca received notification from the ECB of the latest prudential requirements to be met on a consolidated basis pursuant to art. 16 of Regulation (EU) 1024/2013. Based on the outcome of the SREP performed, the ECB decided that BPER Banca should maintain the following consolidated minimum capital ratios from 1 January 2018: 18 Regulation (EU) 1024 of 15 October 2013 assigned specific tasks to the European Central Bank (ECB) regarding the prudential supervision of banks in cooperation with the national Supervisory Authorities of the participating countries, within the Single Supervisory Mechanism (SSM).The ECB accepted the tasks assigned by this Regulation on 4 November 2014; they are performed with assistance from the Bank of Italy, in the manner envisaged in Regulation (EU) 468/2014 of 16 April The ECB works closely with the various European Authorities including the European Banking Authority (EBA), as it has to perform its functions in compliance with EBA regulations. 26

27 Group interim report on operations Common Equity Tier 1 Ratio: of 8.125%, being the sum of the minimum requirement pursuant to art. 92 of EU Regulation 575/2013 (4.50%), plus the additional Pillar 2 requirement in accordance with art. 16 of EU Regulation 1024/2013 (the P2R equating to 1.75%), plus the capital conservation buffer in accordance with art. 129 of Directive 2013/36/EU as transposed into national law (1.875%); Total Capital Ratio: of %, being the sum of the minimum requirement pursuant to art. 92 of EU Regulation 575/2013 (8.00%), plus the additional Pillar 2 requirement in accordance with art. 16 of EU Regulation 1024/2013 (1.75%), plus the capital conservation buffer in accordance with art. 129 of Directive 2013/36/EU as transposed into national law (1.875%). In accordance with regulations for the prudential supervision of banks, failure to comply with the CET1 Ratio and Total Capital Ratio minimum requirements would lead to limitations on the distribution of earnings and the need to adopt a plan for the conservation of capital. The ECB has confirmed that the Italian Group banks and the Luxembourg bank must constantly meet the requirements for Own Funds and liquidity on the basis of Regulation (EU) 575/2013, of national legislation enabling Directive 2013/36/EU, and of any applicable national liquidity requirement, in compliance with Article 412 paragraph 5 of EU Regulation 575/2013. These quantitative capital objectives were accompanied by the following qualitative requests to be sent to the ECB: presentation of a new strategic and operational plan as regards NPLs, accompanied by an analysis of the rationales underlying the strategy and preparation of specific periodic reporting on NPEs; preparation of governance mechanisms appropriate for monitoring and control NPLs; preparation of a half-yearly report to the ECB on the implementation of a strategic and operational plan for the governance of NPLs; developments in the field of risk measurement and reinforcement of discussions on ICAAP and ILAAP (Internal Capital/Liquidity Adequacy Assessment Process) with the Corporate Bodies. BPER Banca has taken appropriate steps to comply with the Supervisory Authority's requirements within the necessary time frames. During the first half of 2018: Consistent with the indications contained in Bank of Italy Circular 285/2013, the regulatory updates on periodic reporting introduced by the EBA 19 and the ECB 20, the regulatory updates on disclosure requirements, the regulations governing the 2018 Supervisory Review and Evaluation Process (SREP) and the observations of the Regulator contained in the 2017 SREP Letter, the BPER Banca Group completed preparation of the ICAAP and ILAAP reports and sent them to the European Supervisory Authority by the established deadlines; BPER Banca completed the collection of quali-quantitative information needed to prepare the 2018 Resolution Plan for the BPER Banca Group and sent it to the Resolution Authority by the established deadline; work on the 2018 ECB regulatory stress test will be completed by the end of 2018; the updated NPE plan has been presented. 19 EBA Consultation Paper "Guidelines on ICAAP and ILAAP information collected for SREP purposes" (11 December 2015), which provides information relating to the ICAAP framework and process, to strategy and the business model, to governance principles and to assessment for ICAAP purposes. 20 "BCE Supervisory expectations on ICAAP and ILAAP and harmonised information collection on ICAAP and ILAAP" (8 January 2016) whereby the Supervisory Authority highlights the need to align ICAAP and ILAAP content to the EBA Guidelines and confirms the particular relevance assumed by this process as part of the SREP 27

28 Group interim report on operations 3.4 Contributions to the Single Resolution Fund and the Deposit Guarantee Fund and developments in the Interbank Deposit Guarantee Fund: Voluntary scheme and Solidarity Fund Single Resolution Fund (SRF) On 1 January 2015, the European Directive 2014/59/EU (BRRD - Bank Recovery and Resolution Directive), which established the SRF (Single Resolution Fund), came into force. The directive was transposed into Italian law by: the European Delegation Law of 2 July 2015; Legislative Decree 180 (referred to as "Resolution") and by Legislative Decree no. 181 (relating to the pertinent "CBA and CFA amendments"), both published in the Official Gazette on 16 November As of 1 January 2016, the Regulation on the Single Resolution Mechanism (2014/806/EU - SRMR) entered into force, consisting of a Single Resolution Mechanism (SRM) managed by a Single Resolution Board (SRB). In its capacity as the National Resolution Authority, the Bank of Italy set up the Single Resolution Fund, to which banks operating in Italy are asked to contribute. In this context, at 30 June 2018 the Group is requested to make the following payments: ordinary contributions for 2018 totalling Euro 20.3 million (Euro 16.8 million from the Parent Company). As in prior years, BPER Banca exercised the right to pay 15% of the total amount in the form of collateralisable Irrevocabile Payment Commitments (IPC); additional contribution for 2016, levied solely on the Italian banks in the Group, totalling Euro 8.6 million (Euro 7.4 million from BPER Banca). In this last regard, Law 208/2015 (the Stability Law ) allows the Bank of Italy to request additional contributions, up to triple the amount of the ordinary contributions paid, as envisaged in arts. 70 and 71 of Regulation (EU) 806/21014, if the endowment of the National Resolution Fund is insufficient to support the required action. Solely with regard to 2016, the Stability Law established the need to make two additional contributions, which had already been requested by the end of Decree 15 dated 23 December 2016, as enacted on 17 February 2017, establishes that the Bank of Italy can determine the amount of additional contributions within two years of the year to which they relate and can require the payments to be made over a time period not exceeding five years. Given this, the residual additional contributions that may be requested from the Group for 2016, to be finalised by the end of the current year, currently total about Euro 44 million. Deposit Guarantee Scheme (DGS) The Deposit Guarantee Scheme (DGS) is foreseen by Directive 2014/49/EU (Deposit Guarantee Scheme Directive DGSD), which establishes a harmonised regulatory framework at European Union level concerning deposit guarantee schemes. On 15 February 2016, the Official Gazette of the Italian Republic published Legislative Decree 30, which transposed Directive 2014/49/EU into Italian law. The Legislative Decree's framework, in line with the DGSD, had the aim of ensuring a high level of protection for depositors. In fact, deposit guarantee schemes are an important instrument for the management of banking crises: they make interventions aimed at cushioning the impact of a crisis, reimbursing depositors up to a certain ceiling in the event of liquidation of the intermediary, as well as preventing the crisis in the first place, if possible. The Legislative Decree's framework establishes: 28

29 Group interim report on operations the maximum amount that can be reimbursed to depositors (Euro 100,000): this level of coverage has been harmonized by the Directive and applies to all guarantee schemes, irrespective of where the deposits are located within the European Union; the minimum level of funding that the national guarantee schemes must have; identifies in a timely manner the procedures for interventions on the part of the guarantee systems; harmonizes the procedures for repayment of depositors in the event of a bank default; requires to adopt an ex-ante system of funding, with a target set at 0.8% of guaranteed deposits to be achieved in 10 years. The Legislative Decree 30 amended Italian regulations concerning deposit guarantee schemes, as contained in: the Consolidated Banking Act (Legislative Decree 385 of 1 September 1993, Section IV, Title IV); Legislative Decree 180 of 16 November 2015 that had transposed the BRRD into Italian law. For 2018, Italian banks will be required to pay their contribution with reference to the contribution base existing as of 30 September 2018, so only on that date will it be quantified for the current year, as foreseen by IAS 37 "Provisions, Contingent Liabilities and Contingent Assets. In this regard, BPER Europe (International) s.a., the Luxembourg subsidiary, paid Euro 12 thousand during the first six months of the year. Interbank Deposit Guarantee Fund (IDGF) scheme of intervention on a voluntary basis Reference should be made to the consolidated financial statements at 31 December 2017 for an explanation of the voluntary mechanism introduced by an update made to the by-laws of the Interbank Deposit Guarantee Fund in 2016, which makes it possible to act in a completely independent way, separately from the obligatory scheme, for the management of the DGS, using private resources provided by participating banks on a voluntary basis, in addition to the mandatory contributions payable. Solidarity Fund established by the 2016 Stability Law The Solidarity Fund was set up by the 2016 Stability Law (Law 208 of 28 December 2015, art. 1, paragraphs ) and subsequently regulated by Decree Law 59 (Banks Decree), converted into Law 119/2016, in force from 3 July The Fund aims to provide protection to small investors who held subordinated securities issued by the four banks put up for resolution on 22 November 2015, upon the occurrence of the conditions expressly provided for and attributes the management and feeding of the Solidarity Fund to the Interbank Deposit Guarantee Fund. There are no specific reasons to record any adjustments at 30 June

30 Group interim report on operations 3.5 Structured finance operations, securitisations and other particular financial transactions In view of the importance of maintaining an adequate liquidity profile, appropriate initiatives have been devised to diversify the forms of medium/long-term funding. These include refinancing operations with the European Central Bank and the placement of bonds in the domestic and international markets. Guaranteed bank bonds Estense Covered Bond programme In February 2011, the Board of Directors of BPER Banca had authorised the structuring of a programme for the issue of guaranteed bank bonds ("GBB" or covered bonds). This programme envisages the issue to institutional investors on several occasions, by 31 December 2018, of covered bonds totalling a maximum of Euro 5 billion (subject to annual renewal of the related prospectus prepared in compliance with the relevant EU regulations). The issue programme is described in the consolidated financial statements at 31 December The residual liability on outstanding operations at 30 June 2018, Euro 3,540 million, is unchanged since 31 March Estense CPT Covered Bond programme On 3 March 2015, the Board of Directors of BPER Banca approved the structuring of a second programme for the issue of guaranteed bank bonds, using a new SPV, Estense CPT Covered Bond, in which to segregate a portfolio consisting of commercial and residential mortgage loans granted to employees. The second programme envisages the issue of GBB (subject to annual renewal of the related prospectus prepared in compliance with the relevant EU regulations) to institutional investors or for refinancing transactions with the European Central Bank, within 10 years from the first issue. The issue programme is described in the consolidated financial statements at 31 December The residual nominal amount outstanding on the first series issued on 16 December 2015, Euro 475 million, was repaid early, in full, on 22 January The fourth issue, with a nominal value of Euro 420 million, took place on 25 January 2018 and was entirely self-subscribed with a view to refinancing with the European Central Bank. The residual liability on outstanding operations at 30 June 2018, Euro 860 million, is unchanged since 31 March Securitisations arranged by the Parent Company BPER Banca has completed a number of securitisations pursuant to Law 130 of 30 April 1999 in order to strengthen the funding available from the ECB to tackle liquidity risk. The operations of this kind still outstanding at 30 June 2018 were as follows: Casa d Este, arranged in November 2004 by Cassa di Risparmio di Ferrara with the sale to Casa d Este Finance s.r.l. of residential and commercial mortgages originally amounting to Euro 281 million. The notional amount outstanding on the Senior securities after the June 2018 payment date comes to Euro 6.4 million, while the Mezzanine and Junior Securities at 30 June 2018 amount to Euro 35.2 million and Euro 1.4 million respectively. Casa d Este 2, arranged in December 2008 by Cassa di Risparmio di Ferrara, with loans originally amounting to Euro million that were sold to the same SPV. The notional amount outstanding on the Senior securities after the April 2018 payment date comes to Euro

31 Group interim report on operations million, while the Mezzanine and Junior Securities at 30 June 2018 amount to Euro 80.7 million and Euro 1.9 million respectively. Estense Finance, securitisation of residential mortgages carried out in 2009 with the incorporation of Estense Finance s.r.l., an SPV held 9.9% by the Parent Company, to which performing loans were sold without recourse in exchange for asset-backed bonds issued by the SPV. After the last payment date in May 2018, the notional amount outstanding on senior securities totalled Euro 251 million, while the balances on the mezzanine e junior securities totalled Euro 40 million and Euro 133 million respectively. The notes subscribed in exchange for repurchase by the bank of the outstanding loans were then repaid as part of a project to restructure the above operation. The repurchased loan portfolio can be used for other, more efficient types of refinancing transaction. As a result, the operation has been closed out and the SPV put into voluntary liquidation. Securitisations arranged by Group Banks and Companies Cassa di Risparmio di Bra s.p.a. arranged a self-securitisation (Dedalo Finance) in 2011 and The securities, recognised as eligible by the ECB, comprise: Senior Securities (class A) issued for Euro million, subscribed by Cassa di Risparmio di Bra s.p.a. for Euro 77 million (after the April 2018 payment date, the securities show a nominal value of Euro 22.8 million) and Junior Securities (class B) issued for Euro 33.8 million, subscribed by Cassa di Risparmio di Bra s.p.a. for Euro 15.6 million (after the April 2018 payment date their nominal value amounted to Euro 15.6 million). Towards the end of 2015 (with the issue of securities in February 2016) Sardaleasing s.p.a. arranged a self-securitisation named Multi Lease II in response to the need to transform the assets of the Group into negotiable securities eligible for repo transactions with the ECB. This securitisation was closed out early, in July 2018, with the repurchase of the residual portfolio for about Euro 614 million with economic effect on 30 June In pursuit of the original objective, the company - in collaboration with the Parent Company - has already completed preparations for a new operation, named Multi Lease III, with an underlying portfolio of performing lease contracts; in particular, criteria for selecting the performing contracts have been defined in collaboration with the Arranger (Zenith Services) and the Legal Advisor (Baker McKenzie), a preliminary analysis of the eligible portfolio has been carried out and the two Rating Agencies (Standard & Poor s and DBRS) have completed their due diligence work. The inclusion of leases arranged in and contracts that were not yet eligible at the end of 2015 has resulted in the achievement of critical mass for the loans to be assigned to Multilease AS, the SPV, possibly totalling Euro 1,200 million. The sale of the pool of performing lease contracts to Multilease AS was formalised on 3 August and the related securities are due to be issued in September Banco di Sardegna s.p.a. arranged a self-securitisation (Sardegna Re-Finance) during the second half of In mid-march 2018 the Irish Central Bank formally recognised the eligibility of the senior securities to guarantee refinancing operations with the ECB. Additional loans relating to 6,100 accounts with a total outstanding balance of about Euro 400 million were securitised in June This second sale of loans has increased the current value of outstanding senior and junior securities to Euro 1,413 million and Euro 450 million respectively. The securitisation is structured to accept disposals totalling a maximum of Euro 2,200 million. 31

32 Group interim report on operations Consideration will be given over the next 12 months to making a third disposal totalling about Euro 300 million, in order to make full use of the above capacity. Securis Real Estate Fund The Securis Real Estate Fund (Securis Fund) was established in 2008 to manage and sell properties repossessed by the leasing companies owned by banks; this thirty-year, closed-end property mutual fund reserved for qualified investments is managed by InvestiRE SGR s.p.a. Sardaleasing s.p.a. has sold properties in several tranches to the Securis Fund, as summarised below: in 2013, Sardaleasing s.p.a. made two separate contributions of properties for a total of Euro 15.2 million; on 30 June 2014, a third contribution of 25 properties was formalised for a value appraised by CB Richard Ellis of Euro 22 million; a further contribution (the fourth) of 45 properties for a total of Euro 27.1 million was formalised on 23 December Following similar action in the prior year, as described in the consolidated financial statements at 31 December 2017, a partial redemption was made on 19 June 2018 totalling Euro 376, (Euro for each of the 955 units held). On 30 June 2018, Sardaleasing recorded an adjustment of Euro 983 thousand in the income statement, following a decrease in the fair value of the units of the Securis Fund compared with December As a result, at 30 June 2018 Sardaleasing holds 955 units classified as Other financial assets mandatorily measured at fair value through profit or loss with a carrying amount of Euro 55 million. Securis Real Estate II Fund On 30 December 2015, Sardaleasing s.p.a. sold the Securis II Fund (established in 2013 with the same characteristics as the first one) 35 properties deriving from "non-performing contracts", with a value appraised by Reag s.p.a. (a company belonging to the American Group Duff & Phelps and appointed by InvestiRE SGR s.p.a) of Euro 33.2 million, compared with a net book value of Euro 32.5 million. Here too, following similar action in the prior year, as described in the consolidated financial statements at 31 December 2017, a partial redemption was made on 19 June 2018 totalling Euro 304, (Euro for each of the 343 units held). On 30 June 2018, Sardaleasing recorded an adjustment of Euro 530 thousand in the income statement, following a decrease in the fair value of the units of the Securis II Fund compared with December As a result, at 30 June 2018 Sardaleasing holds 343 units classified as Other financial assets mandatorily measured at fair value through profit or loss with a carrying amount of Euro 25 million. 32

33 Group interim report on operations Securis Real Estate III Fund On 20 December 2016, Sardaleasing s.p.a. sold the Securis III Fund (established with the same characteristics as the first two) 25 properties deriving from "non-performing contracts", with a value appraised by Reag s.p.a. (a Company belonging to the American Group Duff & Phelps and appointed by Investire SGR s.p.a) of Euro 15.7 million, compared with a net book value of Euro 15.8 million. In exchange for the properties sold, Sardaleasing obtained 176 units in the Securis III Fund, with a provisional nominal value of Euro 91.6 thousand, which are classified as "Other financial assets mandatorily measured at fair value through profit or loss". In the same manner as described above, a partial redemption was made on 19 June 2018 totalling Euro 256, (Euro 1, for each of the 190 units held). On 30 June 2018, Sardaleasing recorded a further adjustment of Euro 368 thousand in the income statement, following a decrease in the fair value of the units of the Securis III Fund compared with December As a result, at 30 June 2018 Sardaleasing holds 190 units classified as Other financial assets mandatorily measured at fair value through profit or loss with a carrying amount of Euro 15 million. Polis fund The BPER Banca Group and other qualified investors took part in the launch of three reserved closed-end real estate mutual investment funds, established and managed by Polis S.G.R. s.p.a., a company in which the BPER Banca Group has an interest of 19.60%. Further details are provided in the report accompanying the 2017 consolidated financial statements. There were no changes during the first six months of 2018 with respect to the situation at the end of the prior year. Targeted Long Term Refinancing Operations TLTRO II On 10 March 2016, the Executive Council of the European Central Bank (ECB) approved a new series of targeted longer-term refinancing operations (TLTRO II) to be launched through four quarterly auctions commencing from the first half of BPER Banca took part in three of the four auctions (the first in June 2016 for Euro 4 billion, the third in December 2016 for Euro 1 billion and the fourth in March 2017 for Euro billion). To these have to be added Euro 129 million for the subscription by Cassa di Risparmio di Saluzzo (Euro 95 million at the first auction in June 2016 and Euro 34 million at the last auction in March 2017). Having reached the target set on 31 January 2018, BPER Banca and Cassa di Risparmio di Saluzzo at 30 June 2018 have accrued total interest income of Euro 18.6 million with reference to the negative interest rate of 0.40%. 33

34 Group interim report on operations 3.6 Other significant events Shareholders' Meeting of the Parent Company: - Allocation of the net profit for 2017 of the Parent Company On 14 April 2018, the Shareholders' Meeting approved the allocation of the net profit of Euro million earned in 2017 by the Parent Company, with the declaration of a dividend of Euro 0.11 per share (Euro 52.9 million in total) and an allocation to the extraordinary reserve of Euro million, after the allocations to reserves required by law (Euro 11.8 million). - Corporate bodies: new appointments The Shareholders' Meeting held on 14 April 2018 appointed the Board of Directors and the Board of Statutory Auditors for the three-year period The following directors were appointed pursuant to art. 19 of the Articles of Association: Alessandro Vandelli, Riccardo Barbieri, Massimo Belcredi (independent), Mara Bernardini (independent), Luciano Filippo Camagni (independent), Giuseppe Capponcelli (independent), Pietro Ferrari, Elisabetta Gualandri (independent), Ornella Rita Lucia Moro (independent), Mario Noera (independent), Rossella Schiavini (independent), Valeria Venturelli (independent) drawn from list no. 1 and Roberta Marracino (independent), Alessandro Robin Foti (independent), Marisa Pappalardo (independent) drawn from List no. 2 the Junior Minority List. The following Statutory Auditors were appointed pursuant to art. 33 of the Articles of Association: (i) as Serving Statutory Auditors: Antonio Mele, Diana Rizzo, Francesca Sandrolini, Vincenzo Tardini - drawn from List no. 2 and Giacomo Ramenghi, Chairman - drawn from List no. 1; (ii) as Alternate Statutory Auditors: Cristina Calandra Buonaura - drawn from List no. 2 and Paolo De Mitri - drawn from List no. 1. At the meeting held on 17 April 2018, the Board of Directors appointed Pietro Ferrari as Chairman, Giuseppe Capponcelli as Deputy Chairman and Alessandro Vandelli as Chief Executive Officer, confirming him in this role. The same meeting established the following Board Committees: Executive Committee: Rossella Schiavini (Chairman), Alessandro Vandelli, Riccardo Barbieri, Luciano Filippo Camagni and Mario Noera; Control and Risk Committee: Elisabetta Gualandri (Chairman), Alessandro Robin Foti, Ornella Rita Lucia Moro and Valeria Venturelli; Nominations Committee: Massimo Belcredi (Chairman), Mara Bernardini and Roberta Marracino; Remuneration Committee: Mara Bernardini (Chairman), Elisabetta Gualandri and Roberta Marracino; Independent Directors Committee: Valeria Venturelli (Chairman), Elisabetta Gualandri and Marisa Pappalardo. 34

35 Group interim report on operations Resignation of the Chairman of the Board of Statutory Auditors On 8 May 2018 Giacomo Ramenghi notified the Company of his resignation as the Chairman of the Board of Statutory Auditors, solely and exclusive for personal reasons. Pursuant to art. 34, para. 1, of the Articles of Association, he was replaced by Paolo De Mitri, born in Milan on 14 October 1963, who was the Alternate Auditor elected from the list from which the outgoing Chairman was drawn. Alignment with IFRS 15 IFRS 15, published on 22 September 2016, introduces a new model for the recognition of revenues deriving from contracts with customers. Refer to the explanatory notes to the consolidated financial statements for a discussion of the new regulatory requirements. Implementation of the new standard has been coordinated by a working group reporting to the Administration and Reporting Area, which has carried out specific analyses at Group level, involving the subsidiaries where necessary. Following analyses to identify the contracts with customers and potential changes in revenue recognition, application of the new standard has not had any significant effects. Tax aspects The tax calculation has taken account of the changes introduced by the Decree of the Ministry of the Economy and Finance dated 10 January 2018, which contains coordinating instructions for the determination of direct taxation (Ires and Irap) following entry into force of IFRS 9. Unipol increases its investment in BPER Banca Following authorisation from the competent Authorities, the Unipol Group increased its interest in the share capital of BPER Banca to 15.06% at the end of June Commenting publicly on this initiative, the shareholder confirmed its desire to support the activities of the Bank over the medium-long term. This strategic objective was well received by the management of the Parent Company. JESSICA Sardinian Urban Development Fund In 2011, the Autonomous Region of Sardinia (RAS) activated JESSICA (Joint European Support for Sustainable Investment in City Areas), an EU investment instrument. This instrument was devised in 2006 as a joint initiative between the European Commission and the EIB, in collaboration with the Council of Europe Development Bank (CEB), in order to promote sustainable investment, growth and employment in city areas. RAS and the EIB signed a loan agreement for the creation of a JESSICA Sardinia Investment Fund (FPJS) that would manage the resources available under Axes III and V of the ERDF Regional Operational Programme In order to transfer resources from the EIB to the managers, two urban development funds (UDF) endowed with Euro 33.1 million each were established: the Energy Fund and the Urban Renewal Fund. The managers of these two UDF were chosen by means of a competitive selection process, with Banco di Sardegna being selected for lot 1 with the technical consultancy of Sinloc: Urban Renewal (Axis V). In July 2012, the EIB and Banco di Sardegna signed an operational agreement at the Regional Planning Centre of the Sardinia Region for the granting of a loan amounting to Euro 33.1 million (subject to possible increases), to be accompanied by co-financing of about Euro 99 million from Banco di Sardegna and other lenders identified by the latter, and invested on a rotating basis. In order to implement the 35

36 Group interim report on operations JESSICA Project, Banco di Sardegna decided to create a separate fund within the UDF by making a loan for a specific purpose, pursuant to art decies of the Italian Civil Code. The JESSICA instrument allows investment in eligible projects within an integrated Plan that are presented, implemented and managed by public entities or, alternatively, presented by public entities and implemented and managed by private parties. The resources may be made available in the following ways: direct loans to authorities and public entities; loans to private companies, selected by a public call for tenders, for the design, construction and management of publicly-owned facilities created under a direct concession or on a projectfinancing basis; investment in the risk capital of selected private companies. The amendment to the Operating Agreement of 19 July 2012 between the EIB and Banco di Sardegna, for the allocation of Euro 6.3 million of additional resources, was signed on 29 December This is a concrete demonstration of approval of the way that Banco di Sardegna has managed the Fund, confirming recognition of the excellent work celebrated at the public event held in July 2015 in the presence of representatives of the EIB and the Sardinia Region. The additional resources were paid in full to the UDF on 20 January As of 30 June 2018, the Investment Committee of the UDF has approved the following loans and all of the resources available have been disbursed. 36

37 Group interim report on operations Purchase of 12 modern trolleybuses. Two loans Construction and running of a natural gas distribution network (*) Construction and running of a new cruise terminal at the "Molo Rinascita" in Cagliari. Two loan Two projects involving the construction and running of a natural gas distribution network based on two separate catchment areas (*) Renovation and expansion of the Municipal Market of Oristano with adjacent parking Investment JESSICA loan Investment in the capital of JESSICA Contract date Loan Disbursed as at Disbursements (in Euro) Risk capital Paid as at ,126,000 6,769,700-18/12/2013 6,161,505-45,120,239 7,000,000-15/04/2014 7,000, , ,173-18/12/ /07/ ,297-38,913,569 8,000,000 4,000,000 16/02/2015 8,000,000 4,000,000 4,133,055 1,140,000-12/06/ ,000-37

38 Group interim report on operations (in Euro) Redevelopment of a building owned by the Municipality of Borutta destined to bar diner Construction of a residential and daytime comprehensive rehabilitation centre for the intellectually and relationally disabled in the Municipality of Selargius Redevelopment of Alghero Town Hall Investment JESSICA loan Investment in the capital of JESSICA Contract date Disbursements Loan Disbursed as at Risk capital Paid as at , ,750-22/06/ ,400-2,150,000 1,432,695-31/08/2015 1,269, , ,000-30/10/ ,000 - Construction of the municipal indoor swimming pool in 2,100,000 1,915,026-30/05/2016 1,659,689 - Alghero Redevelopment of the multi-purpose sports area in the 560, ,000-24/06/ ,800 - Latte Dolce district of Sassari Redevelopment of the multi-purpose sports area in the 750, ,500-24/06/ ,250 - Monte Rosello district of Sassari Redevelopment of the multi-purpose sports area in the 600, ,000-24/06/ ,000 - Carbonazzi district of Sassari Redevelopment of the "Roberta Serradimigni" sports 4,300,000 4,085,000-24/06/2016 3,676,500 - hall in Sassari Total 107,332,863 33,512,844 4,000,000 31,469,069 4,000,000 (*) The capital expenditure indicated only takes into account of the technical costs associated with the project. This excludes the financial costs of the operation (costs associated with working capital, interest, commissions, DSRA, etc. which still have to be financed during construction) 38

39 Group interim report on operations The following table shows simplified accounts for the JESSICA Urban Development Fund at 30 June Balance sheet (in Euro) Assets Financial assets measured at amortised cost 1,749,111 1,520,078 Total assets 1,749,111 1,520,078 Liabilities and shareholders' equity (in Euro) Financial liabilities measured at amortised cost 1,682,104 1,189, Other liabilities 104, , Profit (loss) for the period (37,479) 222,372 Total liabilities and shareholders' equity 1,749,111 1,520,078 Income statement Captions (in Euro) Interest and similar income 246, , Net interest income 246, , Commission expense (284,171) (301,153) 60. Net commission income (284,171) (301,153) 300. Net profit (loss) for the period (37,479) 111,439 Sustainable Growth Fund Banco di Sardegna, in association with MCC and other national banks, won an Agreement with the Ministry of Economic Development (MISE) for management of the activities of the Sustainable Growth Fund (new name for the Technological Innovation Fund (FIT) following the reform of business incentives introduced by the 2012 Growth Decree). The Parent Company considered it appropriate to involve Banco di Sardegna when preparing for the tender, given its specialist team within the BPER Banca Group as a whole. The endowment of the Fund, which will include all national resources allocated for sustainable growth until 2020, will finance programmes and action that will have a significant impact on the competitiveness of the productive system at national level, with a particular focus on: promoting research, development and innovation of strategic importance in order to relaunch the competitiveness of the productive system, not least by consolidating the R&D centres and organisations of firms; strengthening the productive system, the reuse of productive plant and the relaunch of areas of national importance hit by complex crises, via the signature of programme agreements; 39

40 Group interim report on operations promoting the international presence of businesses and attracting investment from abroad, partly in coordination with the actions to be implemented by ICE - Agency for the promotion abroad and internationalisation of Italian businesses. Banco di Sardegna has an internal team dedicated to evaluating and granting the assistance and soft loans made available by the Fund. The activities of the Fund are based on calls for applications and directives from the Ministry of Economic Development; at 30 June 2018 eleven calls for applications have already been made and the total value of the projects examined exceeds Euro 3.2 billion. 40

41 Group interim report on operations 4. Summary of activities and strategic direction of the BPER Banca Group 4.1 Market positioning The BPER Banca Group operates mainly in the traditional banking sector, i.e. loans and deposits and providing credit to customers, who are mainly represented by households and small and medium-sized businesses through the parent company BPER Banca, which operates throughout the country, except in Piedmont and Sardinia: the former is served by Cassa di Risparmio di Bra s.p.a. and by Cassa di Risparmio di Saluzzo s.p.a.; the latter is served by Banco di Sardegna s.p.a. Through a network of product companies, the Group offers its customers a wide range of services in Corporate and Investment Banking, Wealth Management and Insurance, Leasing, Factoring and Consumer Credit. At 30 June 2018, the Group's network consists of 1,219 branches located in 18 Italian regions, as well as a branch office in the Grand Duchy of Luxembourg, with a domestic market share, updated to 31 March 2018, of 4.50% 21. On the Italian banking scene, the BPER Banca Group ranks sixth by total assets and loans. Positioning with respect to competitors Figures at 31 March 2018 (total assets in Euro/bn) Source: Accounts of banking groups 21 Source: Planus Corp. analysis of Regulatory Reports 41

42 Group interim report on operations Within the domestic banking system, the Group's market share 22 of loans to customers, excluding bad loans, was 2.63% at 31 March 2018, up from 2.58% one year earlier due, in part, to the absorption of Nuova Carife by BPER Banca. The market share of loans to households has also risen (2.45% in March 2018 compared with 2.26% in March 2017), as has the share of loans to family businesses (4.12% compared with 3.86%); the market share of loans to medium-large companies has also increased (3.26% compared with 3.23% at the end of March 2017). Market share of deposits as of March 2018 was up on the same period in 2017 (2.60% versus 2.45%). The increase is distributed across all categories of customers: the amounts relating to deposits from family businesses and households increased respectively from 5.35% to 5.41% in March 2018 and from 2.18% to 2.24%. The share relating to companies also increased from 3.71% in March 2017 to 3.76% in March The Group has also achieved good results in the asset management sector over the past year. In fact, the national market share of assets under management 23 increased from 0.85% in March 2017 to 0.95% in March Relations with customers The wealth of relations with customers and their trust represent for the BPER Banca Group - key resources for building shareholder and stakeholder value and, more generally, for growth and development in the territories served. Customer and attention are integral to the DNA of the BPER Banca Group, consistent with the values inherited from the principles of cooperation and support that have guided the Bank ever since inception. The multi-channel model for operations is implemented in this light, coordinating the various touchpoints made available in order to optimise the customer experience and the level of service in general. Composition of the customer base Consistent with the values expressed by territorial support and understanding, the BPER Banca Group confirms its vocation as a bank for households and SMEs, committed to supporting and promoting the territories served. In line with this vision, the structure of the BPER Banca Group is broadly spread throughout Italy, with 1,219 branches present in almost all regions. As in prior years, the composition of the customer base analysed by age band remains in line with the national average: Mature customers, being those over 56 years of age, represent almost half the base, despite the steady increase in younger customers, especially those in the age group. Analysis of the duration of customer relationships highlights their essential stability, with more than 60% of customers having held their accounts for over 11 years. 22 Source: Planus Corp. analysis of Regulatory Reports 23 Source: Assogestioni 42

43 Group interim report on operations Main trends in the customer base The metrics addressing customer dynamics, which are fundamental for monitoring and guiding the business strategies of the Group, show that customer acquisitions and retentions remain essentially in line with prior years. Acquisitions and losses net out among private customers, while they reflect a modest net increase in the business sector. Brand During the first half of 2018 the BPER Banca brand was supported by an integrated advertising campaign for personal loans, with a view to generating leads and building brand awareness. This exposure in the leading media also resulted in greater brand recognition. In particular, surveys show a further improvement in BPER Banca recognition, with total recognition of 45% in the first half of Communications BPER Banca communications during the first half of 2018 supported the priority business objective: personal loans for individuals. Adopting a new and upbeat style, a multi-target campaign was run across all media: TV, radio, social and digital. Two subjects were targeted during the first flight of the campaign, which will be repeated in September and October: mobility and travel, to intercept the needs of current and prospective customers interested in loans for motor vehicles and to meet their travel/liquidity requirements. The second flight will also address the home, in order to satisfy needs linked to renovations and home furnishings. This campaign promoting loans highlighted the ability of BPER Banca to support the dreams of customers: To do everything that you wish for is the concept that underpins the messages developed. During the period January-June 2018, the new website bper.it received 15.5 million visits and 2,603 requests for in-branch appointments from its launch in May 2018, supported by the Contact Centre which call the interested users and arranged their branch visits. The BPER Banca digital marketing campaigns in support of other products also continued during the first half of 2018, generating useful contacts for the development of business at branch level. In support of the commercial initiatives, use was also made of the channel for the delivery of DEM to customers. The new institutional website was launched in June 2018, providing a point of access and collecting together all the institutional and financial information about BPER Banca and the BPER Banca Group. Customer Satisfaction (CS) and Net Promoter Score (NPS) From 2017, the semi-central organisations and individual branch managers of BPER Banca can monitor every week the evidence gathered by IESS, a system that reports on the Customer Experience and Service Satisfaction at branch level. Following the absorption of Nuova Carife by BPER Banca, the planned number of telephone interviews of BPER Banca customers has been increased to 56,000, addressing the Family, Personal and Small Economic Operator portfolio of all branches, excluding the mini-branches. All tracked indicators increased significantly during the first six months of The following table shows the results at bank level at 30 June 2018 for the two main indicators: Customer Satisfaction (CS) 24 and Net Promoter Score (NPS) The CS indicator expresses the level of customer satisfaction on a scale from 0 to

44 Group interim report on operations Bank IESS - BPER Banca Segment Summary index of customer satisfaction NPS Private Banking 85 46% POE 83 39% 4.3 Commercial and service policies Processes The new process for the development and approval of commercial proposals became fully operational during In compliance with the new European regulations on Product & Oversight Governance, this process applies to the development of new products or services, entry into new markets or the signature of distribution agreements. Various business and support functions are involved in the process, collaborating on product design, the analysis of customer needs, identification of the target market, definition of the characteristics of the initiative, and the analysis and assessment of risks. The process of developing and approving commercial proposals, described in the specific Group Regulation, is an integral part of the broader product governance framework adopted by the Group. This comprises the definition of commercial strategies, guidelines for the developing proposals and the annual product plan, the development and approval of commercial proposals, distribution and monitoring and the review of proposals. Products and commercial activities Individuals and SEO With regard to Bancassurance, the BPER Banca Group is working with Arca to offer new solutions to the insurance needs of customers, introducing new methods of internal training, making product innovations, implementing new payment methods (e.g. monthly policy payments) and, lastly, offering customised discounts. As part of work on the Consumer Finance Project, the range of products and distribution channels has been broadened (Traditional network or Self) in order to become more competitive in the consumer loans market. During 2018, the BPER Banca Group provided strong support to the Fishing and Agriculture sectors, with a special focus on businesses operating in the Organic sector, while also assisting small economic operators with customised loans and via the various sector revolving funds. Turning to multi-channel developments, the following products were released during the first half of 2018: my Money: Personal Financial Management app made available by the BPER Banca Group for financial planning and the management of spending with greater awareness; 25 The NPS indicator measures the willingness of customers to recommend a product, brand or service and is represented by the proportion of "promoters" net of "detractors". Promoters" are customers that would certainly recommend the product/service to their friends and colleagues (votes of 9 or 10 on a scale of 0 to 10), whereas "detractors" are those who would not recommend it (votes of 0 to 6). Votes of 7 or 8 are considered "neutral" and are not taken into account by the indicator 44

45 Group interim report on operations digital loans from Smart Mobile Banking: on-line arrangement of Fixed or Mini digital personal loans, with the same characteristics as those offered by branches; revision of certain aspects of the graphic layout of the Smart Website, making it more modern and progressive; new functions for the Smart Website and Smart Mobile Banking (smartphone app) so that Amazon accounts can be topped up with direct debit to the associated current account; development and implementation of a POS-related loyalty scheme that enables individual merchants/consortiums to create and monitor campaigns for their customers. Personal and Private The first six months of 2018 was marked by consolidation of the advanced customer management model, via methods of interaction that focus increasingly on the multi-channel approach. The requirements of MiFid II have been adopted, with a new version of the profiling questionnaire, which has been completely reformatted, enhancements to the advisory models and processes and the development of a specific software application; updates and training on these matters were developed for the financial advisors active in the commercial network. The commercial catalogue for the investment sector was upgraded in order to provide advanced solutions that are even more suited to the needs of customers. Companies Following initial testing in 2017, it was decided to extend the Business Global Advisory initiative to all Territorial Divisions, comprising a cycle of meetings held at the Head Office or at Territorial level. In May 2018, work resumed on the upgrade of corporate banking users from WebCBI to the new BPER CBI platform. This activity seeks to rationalise the solutions offered to Business customers, proposing an updated and competitive digital platform and implementing the requirements of the PSD2 directive. The migration process has been revised in order to relieve the burden placed on the network organisations, with the implement of automation that ensures the operational efficiency of branch staff. The target companies for this initiative have been divided into migration groups and the process should be completed by December After the initial design/test phase, Welfare for me has been added to the catalogue. This welfare solution portal, dedicated to all SMEs, has been devised together with Sisalute and Willis Towers Watsons. Under this agreement among the first in Italy in this context business customers now have access to a portal that provides advanced welfare services to their employees. This customisable platform, which is easy to use and accessible via various channels (pc, tablet and smartphone), enables employees to convert their bonuses into welfare goods and services. The range of goods and services available can be customised to suit the needs of each business and its employees. With regard to credit insurance, a referral agreement has been signed with SACE BT for the proposal of a policy that covers the risk associated with export transactions for up to 24 months. It is possible to insure an individual contract, an individual customer, several customers or one or more countries. 45

46 Group interim report on operations 4.4 Media Relations In the first six months of 2018, the activities of the Media Relations office were focused on many important institutional appointments and events in the life of the Bank, as well as a series of important initiatives that required effective and widespread communication, with the aim of adequately enhancing the various operations being carried out: from the organisation and management of numerous meetings, to the Shareholders' Meeting held on 14 April 2018 and the presentation of the 2017 financial statements and interim reports to the market. Specifically, the following events took place: event held on 28 March 2018 at the Bologna Children's Book Fair, as part of the official Strega Prize activities, to present the BPER Banca award for the promotion of literature and the BPER Banca award for the best review. The Deputy General Manager of the Bank, Gian Enrico Venturini, also attended the presentation of the Strega Prize at the "Villa Giulia" National Etruscan Museum in Rome. These events received broad media attention as a result of the press releases issued and the radio and TV interviews carried out; two round tables organised on 15 May 2018 in Bologna at FICO (Fabbrica Italiana Contadina) and 15 June 2018 in Carpi together with Poligrafici Editoriale (QN-il Resto del Carlino-La Nazione-Il Giorno) on "How to create value for the local economy", on innovation, social responsibility, the mission of banks and businesses for economic recovery and new frontiers for tourism, with considerable participation by the general public; coordination of the spring cycle (from 14 January 2018 to 25 March 2018) of the "Meetings with the author" events sponsored by BPER Banca. Guests at BPER Forum Monzani di Modena included the most important names in contemporary Italian literature, drawing large attendances; the publication in March and April 2018 of two issues of the company magazine "Per Voi"; the efforts made through the press conferences on 28 May 2018 and various press releases to advertise the initiative entitled "BPER Beach Volley Italia Tour 2018", which took place in 6 stages in different locations throughout Italy. The Games were well attended by the general public and the brand gained considerably in terms of recognition as a result; organisation and coordination of the award ceremonies for the "Fondazione Centocinquantesimo" study grants assigned by BPER Banca in 2018 to deserving students from the Italian provinces served by the Bank, based on their performance in the school year; media relations activities designed to ensure adequate coverage of the awards received by BPER Banca at the MF Awards and Welfare Awards ceremonies, both of which were held in Milan on 12 June In volume terms, about 21,000 articles (press and web) mentioned BPER Banca during the first six months of 2018 in relation to: corporate life and governance of BPER Banca; institutional news; initiatives in favour of customers and the territory; changes in the presence and structure of the Group; initiatives concerning corporate social responsibility. BPER was mentioned on national and local television about 550 times in the above period. 46

47 Group interim report on operations 4.5 Lending policies Within the macroeconomic context described in the Background chapter, the BPER Banca Group has adopted lending policies that are fully consistent with the budgeting process, identifying a target scenario for the restructuring of the loans portfolio in qualitative and quantitative terms. The objective is to guarantee, over time, the consistency of operations with the various risk-return profiles of loans, as well as support for and the growth of the territories served, in compliance with current regulations and the rules of healthy and prudent management. The following drivers were adopted when defining the 2018 guidelines for lending policy: expansion of the IN sectors (in line with expected improvements in the macroeconomic scenario and the quality of the outstanding loans portfolio); broader focus on Segments and Rating classes. Specific instructions have also been provided on lending activity developed directly or through the Group's product companies, having regard for the intrinsic characteristics of the products distributed (leasing, factoring, personal loans and lending-against-salary) and their lower risk profile compared with similar banking transactions. The Group has participated in the initiatives promoted by ABI since 2015, which have now been extended to 31 July These cover both SMEs ("2015 lending agreement Companies in the recovery phase) and Individuals ("Suspension of loan repayments by households"). In addition, the Group also continues to support other measures that help households in difficulty, including the "Mortgages Solidarity Fund", the "First Home Guarantee Fund" and the initiatives established by law suspending loan payments in areas hit by natural calamities. 4.6 IT activities The Group's IT function is handled by the consortium BPER Services s.cons.p.a., which is a wholly-owned subsidiary of BPER Banca Group and which is responsible for: the study, design, development, supply, management, maintenance and enhancement of IT and related systems and applications, as well as for the provision of data processing and transmission services; the provision of back office services, including accounting, administration and operational support, as well as the management of purchasing and shipments of all kinds, the handling of correspondence, valuables and accounting materials, the processing, management and storage of data, and the management of archives and stores. Also belonging to the Group is a company named Numera (based in Sardinia and fully held by Banco di Sardegna), which is involved in e-money and electronic document management and which provides services within and outside the Group. The software used by the Group is essentially owned by the consortium, which at 30 June 2018 recognised an amount relating to it in intangible assets of Euro million, net of accumulated amortisation. The value of the software held by the consortium increased during the first half of 2018 by Euro 11.9 million, while the amortisation charge for the period was Euro 19.9 million. 47

48 Group interim report on operations The principal project work carried out by the Systems Division of BPER Services during the first half of the year is summarised below: DEA - Digitalisation of cheques. The legislation on the payment of cheques in electronic form envisages their digitalisation on receipt by the branch and the exchange between banks of data and images, rather than the physical exchange of paper in the clearing room. In this context, the project completed by management has revised the cheque negotiation process at branch level, making it more efficient, and completely renewed cheque management procedures. VBM - VALUE BASE MANAGEMENT. Building on the components already defined, the objective of this project is to evolve and implement the Control Model for the BPER Banca Group in line with the principal characteristics of the Group's business model in order to provide operational support for the Business Model Analysis and, at the same time, ensure consistency with the Supervisory instructions. New BPER Banca and institutional websites. Work has commenced on new institutional websites in order to improve the communications and brand positioning of the BPER Banca Group, adopting new technologies that facilitate implementation and use of the service (cloud based). Sardaleasing - Consistent with the adoption plan for the Basel II models, the processes used by Sardaleasing for the granting and management of credit and the assignment of risk measures have been integrated with the BPER Banca Group IT system. PSD2 - Action to comply with the new regulation, as PSD2 makes several important changes to the methods and processes used by banks to communicate with end users. Data Governance project. The purpose of this project is to implement the regulatory requirements on data governance (11th update of Bank of Italy Circular 285/13), while also supporting operational and business needs regarding the availability and quality of business data. Digital Transformation. Work continues on the digital transformation of the direct channels used by the Group (Internet banking, Mobile Banking, Contact Centre) via the implementation of support functions for product management activities: remote proposal of personal loans, sale of personal loans via the Internet banking and mobile app channels, after-sales support for personal loans, Amazon top-up and SmartWeb Money functions. E-money Big Data Platform. The purpose of this project is to make the data generated by emoney products (revolving and full repayment credit cards, debit cards, prepaid cards, POS, Western Union and INPS vouchers) available in the data warehouse. IT alignment of CR Saluzzo. As part of the IT alignment of CR Saluzzo, analysis has been completed prior to the start of the integration process. MiFID II. Work has been carried out on the Pico application as part of the alignment of advisory processes and the investor protection model with the MiFID II Directive (Directive 2014/65/EU). Consumer Finance: Lending-against-salary and personal loans. In order to improve administrative efficiency, the new OCS platform for the sale and after-sales support of loans against salary has been activated, following migration from the previous application. This activity is currently managed by a network of external agents. At the same time, the loans granted were transferred to Banca di Sassari from the other Group banks. After-sales support of personal loans has also been implemented on the OCS platform. NPE Program. As part of work to implement the ECB guidelines on the control of bad loans, certain Supervisory recommendations have been adopted and changes have been made to the 48

49 Group interim report on operations processes of granting and managing loans in support of the plan to reduce the non-performing exposures. Disposal of mortgage loan portfolios. In support of the Group's Liquidity Plan, procedural changes have been made regarding the selection and management of the loan portfolios eligible for securitisations and the issue of covered bonds. GDPR. The action required in order to comply with the new GDPR requirements mainly relate to IT security, both in governance and ICT terms. The ongoing project work involves implementation of the data protect technologies acquired. ECB inspection. The BPER Banca Group was audited by ECB inspectors during the first quarter of 2018; their work addressed Operational IT Risk. Important areas addressed included the various aspects of IT and logical security. A large volume of documents was produced and reorganised in support of all this audit work, including responses to detailed requests for information about processes, current projects and the activities of the ICT Security Office, in part via in-depth interviews. The commercial revenues of Numera, a wholly-owned subsidiary of Banco di Sardegna, grew significantly during the first half of 2018 following consolidation of the IT orders service, the growth of the POS market and other IT activities. Preparatory work has been completed for the launch of the PagoPA service, as Technological Partner for the Public Administration with support for Payment Service Providers (PSP), and the company has already started selling the service, with positive initial feedback. In this context, careful cross-selling policies are being implemented with other products designed for the Public Administration (SIOPE+ system). 4.7 Real estate sector The real estate sector within the Group is managed by Nadia s.p.a., a wholly-owned subsidiary of BPER Banca based in Modena, and by Tholos, a wholly-owned subsidiary of Banco di Sardegna based in Sardinia. The real estate assets of the BPER Banca Group are managed and developed by the competent organisations within the legal entities and coordinated by the Real Estate Department of the Parent Company. At 30 June 2018, the total carrying amount of the real estate owned by the Group totals Euro million (of which Euro million relating to land and Euro million to buildings ). These amounts include properties (previously classified as Other assets ) representing the inventories of the Group's real estate companies, with a carrying amount of Euro 18.4 million. Principal income statement captions involved: other administrative expenses (ordinary maintenance); work that adds value to properties (capital expenditure). Ordinary maintenance work is principally dedicated to: implementing safety measures for properties whose defects or deterioration could cause injury to persons and/or possessions; guaranteeing reasonable usability; rendering properties that currently do not generate income capable of being leased or sold. Significant work to increase the value of property in Italy (capital expenditure) has included: 49

50 Group interim report on operations renovations with the introduction of a new branch concept at the Matera and Sassuolo (MO) main branches; replacement of air conditioning systems in various branches where the installations had operating and/or obsolescence problems; Savignano sul Panaro (Modena): total renovation of the property, with the restructuring of 3 apartments and renewal of the roofing; L'Aquila (head office): the building was hit by an earthquake in 2009 and, following the receipt of government grants for reconstruction (published on 26 October 2015), reconstruction work started on the property on 30 March 2016 that is expected to be completed by the end of 2018; Cavezzo (Modena): the building was hit by an earthquake in 2012 and, following the receipt of government grants for reconstruction (obtained in January 2017), reconstruction work started on the property in December 2016 that is expected to be completed by the end of March 2019; Concordia (Modena): the building was hit by an earthquake in 2012 and, following the receipt of government grants for reconstruction (obtained on 20 October 2015), reconstruction work started on the property in October 2016 that is expected to be completed by the end of September During the first half of 2018, Nadia S.p.a. continued significant repurposing and restructuring work to improve its real estate assets and make them available for sale/rent. Key elements included work in Modena at Centro Emilia Est, including the repurposing of the former Hotel Real Fini, at Forum Monzani and in Corso Canalgrande, as well as elsewhere in the province: Finale Emilia, Concordia, Limidi di Soliera, Pavullo nel Frignano, Mirandola and Medolla. In addition to managing real estate maintenance, Nadia s.p.a. is also responsible for leasing properties to the Group and to third parties. Following the entry into force of the recent Regional Law 24/2017 Regional regulations for the protection and use of the territory, and subsequent resolutions adopted by the Modena Municipal Council, Nadia unfortunately had to drastically scale back expectations for certain projects relating to a major parcel of land owned in Modena, resulting in a prudent impairment writedown of Euro 7.6 million, as well as adopt - with agreement from the Parent Company, additional resolutions regarding membership of the Group. The Real Estate Department within the Parent Company arranged new lease contracts on behalf of BPER Banca and Nadia s.p.a., generating annual income of Euro 475,320. It also completed 8 sales on behalf of the Parent Company and Nadia s.p.a. for a total of Euro 403,900, giving rise to a capital gain of Euro 48,349. In addition, following the absorption of Nuova Carife by BPER Banca (completed on 30 June 2017) and Carife Servizi Evolutivi Integrati s.r.l. by Nadia s.p.a. (on 13 June 2018), certain properties were subjected to due diligence work designed to check compliance with the building-planning regulations and the adequacy of their installations. The carrying amount of the real estate assets of Tholos, a subsidiary of Banco di Sardegna, is Euro 50.5 million. The company is continuing to take all possible steps to enhance the value of its real estate assets, via their sale or rental. At the same time, the technical and administrative management of leased properties continues, in order to safeguard and increase the returns generated. 50

51 Group interim report on operations 4.8 Human resources The human resources of the BPER Banca Group are coordinated by the Human Resources Department of the Parent Company, which works in close collaboration with the various personnel functions at Group banks and companies. Staff search and selection In the first half of 2018, the recruitment of external resources focused very much on the need to find specialists, while the replacement of normal staff turnover was limited. Depending on the nature of the staff positions that need to be filled and the type of person required, recourse was made to the following contractual opportunities offered by current law: permanent contracts for hiring candidates with specialist skills (with personal negotiation of entry salary and position, in order to preserve internal balances as much as possible, also from a remuneration point of view); apprenticeship contracts were used for junior members of staff; in other cases (temporary replacements), short-term contracts were used, mainly under temping contracts and, marginally, under fixed-period contracts. Management and Development of Resources With regard to the Availability and Usage project, the department manages the dynamics leading to the desired employment level, monitoring the numbers as they are approved so that a proper baseline can be identified for the next plan. In terms of the new network, semi-central and central organisation structures, the situation has settled down after release of the various waves of projects contained in the previous business plan. The alignment and merger of the former Nuova Carife and the subsequent normalisation phases were especially challenging. With regard to the personnel development activities, the analysis of abilities and potential has never ceased, together with the consequent projects to strengthen them even further. In this regard, the preparation, presentation and release of the management development and succession planning project was particularly important, involving all top managers and executives within the Group. This project is now fully underway, with the start of skill coaching and practical training to maximise the related benefits. Cost control and remuneration policies The routine work of monitoring and budgeting payroll costs has continued in As in the past, specific initiatives have been planned and implemented in order to contain these costs (holidays, travel), at least in part, and to comply with corporate directives. The development of new cost control and guidance tools continues, in order to manage availability and usage more effectively (redeployment of available resources to functions with insufficient staff), as well as to orient properly the planning of resources at Group level. The Planning and Control Unit, in consultation with other relevant corporate functions, helps the Corporate Bodies to define suitable remuneration and development policies by performing analyses and by monitoring the Group and the banking system as a whole, ensuring that these policies are consistent 51

52 Group interim report on operations with those approved by the shareholders. Moreover, it determines and manages the MBO (Management By Objectives) process. Training During the first half of 2018, the principal training initiatives focused on the development of managerial, behavioural, regulatory and technical skills. With a view to the constant development of lending skills, the "Executive program in corporate finance and credit analysis" has continued, delivered by SDA Bocconi. The personnel dedicated to managing Anomalous Loans and Ordinary Loans have been trained in the analysis of business plans, for the assessment of businesses, and in the diagnosis of corporate crisis situations. From 2018, corporate account managers have been involved in this continuous training process, with four days in the classroom on the drivers of business results: the roles of the sector, segment, management and owners and on business investment, business valuation, financial structure and the cost of capital. As part of the specialist training provided to BPER Credit Management (BCM), personnel attended the "Executive program non-performing exposures (NPE): corporate finance, restructuring and real estate". This eight-day course was designed together with SDA Bocconi and involved 80 persons in classroom sessions. Again with regard to NPEs, training has been provided to the Anomalous Loans and Ordinary Loans departments and is now being extended to the entire network, with completion expected in March Training to retain the IVASS certification has commenced with release of the first fifteen hours of online courses. In addition with regard to Ivass matters, two programmes were organised and completed for the certification of personnel in the insurance broking sector. With a view to supplementing the skills of personnel arriving from Nuova Carife, sessions were held on induction into their new roles and on the Personal, Family Business and Corporate service models. Private Banking colleagues not yet registered as financial advisors took a twelve-day course in preparation for the related examination. Lastly, the training of Private Bankers linked to the Global Advisor project has been completed. Branch managers and heads of General Management offices took part in management courses to strengthen their leadership skills and team spirit. These courses highlighted legal and regulatory issues, such as anti-money laundering, privacy, the MiFID legislation, transparency, updating the Organisation, Management and Control Model under Legislative Decree 231/01 and the State-Regions Agreement in connection with Law 81/06. The regulation relating to market abuses (MAD II) was given special attention, with the completion of an on-line specialist course by all network personnel and an on-line course dedicated to personnel in the central offices. In addition, in order to guarantee the proper use of IT equipment, two on-line courses on Social Media Security and Social Engineering have been made available to all personnel. Labour Relations Negotiations continued during the first half of 2018 on the union procedures associated with some of the most important special operations included in the business plan; in this regard, a specific understanding was signed to extend the effectiveness of the union relations protocol at Group level. Processes have been implemented to apply the economic and regulatory clauses contained in the important Footprint and Home-Work Travel understandings that were signed during the second half of In addition, work has begun on the special operation to migrate Cassa Risparmio di Saluzzo, with 52

53 Group interim report on operations activation of the IT alignment project and the centralisation of activities within the Banking Group, adoption of the Footprint model and the reorganisation of General Management at that subsidiary. The difficulty of managing and governing the complexity caused by economic, social and political conditions, made even more unstable and uncertain by the constant changes faced by the banking system, has not prevented productive discussions between the parties that have resulted in the signature of important understandings. The following agreements that the Group has entered into with the unions are of particular importance: the Agreement on the Absorption of Nuova Cassa di Risparmio di Ferrara S.p.A. by BPER Banca S.p.a., via which the parties completed the procedures commenced in application of art. 47 of Law 428/90 and arts. 17, 20 and 21 of the National Employment Contract dated 31 March In addition to reconfiguring the distribution structure to improve the efficiency and supervision of both lending and commercial operations, the above procedures also allowed significant reorganisations to be implemented within the Parent Company and at certain companies in the Banking Group. The understanding also allowed the territorial transfer of personnel to structures within Parent Company and other Group companies and defined the economic terms and regulations applying to the personnel concerned. agreement for the "Rationalisation of the Group's branch network Banco di Sardegna branches", in which the parties resolved how to tackle the effect on the working conditions of those employees involved in the rationalisation of 14 branches operated by Banco di Sardegna. Work continued during the first half of 2018 on the improvement, in IT and other terms, of the Welfare portal available to both the Parent Company and the other Group companies. This work took account of the changes in the regulations governing corporate welfare, the steady increase in the use of benefits and services by employees, and the numerous agreements on bonuses signed with the unions in order to take advantage of the important regulatory developments. 4.9 Corporate Social Responsibility During the first half of 2018, the activities of the Corporate Social Responsibility (CSR) function were mainly focused in the following areas: preparing the Sustainability Report for the BPER Banca Group covering 2017, applying the guidelines of the Global Reporting Initiative GRI-G4, which are recognised at international level. The consolidated Sustainability Report contains the consolidated non-financial declaration required by Decree 254/16. The Sustainability Report followed the same approval procedure (methods and timing) as the financial statements and was subjected to a limited examination by Deloitte & Touche s.p.a. Via the Sustainability Report, the BPER Banca Group explains to stakeholders how the wealth created has been redistributed throughout the territory and analyses the impact of the Group on the environment and society, with a 360 degree assessment of the market risks and opportunities available in the context in which the Group operates; training and advice for Banco di Sardegna on the topics of sustainability and sustainability reporting, with a view to the preparation of a summary Sustainability Report for 2017, using the data gathered for the preparation of the consolidated Sustainability Report; 53

54 Group interim report on operations development of a communications plan and materials useful for the dissemination of the Sustainability Report; collaboration on the organisation of the roundtable discussion entitled Sustainable banks help business, held in Bologna on 15 May 2018; the 2018 consolidated Sustainability Report will have to use the updated GRI guidelines to the GRI Standards. As a result, training has been organised for all personnel involved in the reporting of data at the companies included within the scope of consolidation; preparation of the Environmental Policy of the BPER Banca Group; start of work on drafting the Regulation for preparing the Consolidated non-financial declaration ; establishment of a working party on Mobility management and the organisation of an internal survey of personnel working in the Municipality of Modena, with a view to preparing the first "Home-Work" travel plan for BPER Banca; design and implementation of a training day on ESG (Environmental, social, governance) investments; establishment of a working party involving the Buying Office to define a sustainability rating system covering Group suppliers; participation in the I need less light energy awareness campaign and the first Walk to work ; monitoring of micro credit activities (Agreement with PerMicro and Ente Nazionale Microcredito); participation in the Gambling craze project organised by the Municipality of Bergamo against addictive gambling; attendance at conferences on pathological gambling and the management of companies active in the armaments sector; drafting and implementing of revised procedures for the management of companies active in the armaments sector; verification of full compliance with Group guidelines governing the network's relations with defence contractors and manufacturers of armaments, and preparation of the Armaments Report for 2016; design and implement of the first Crowdfunding appeal for the service sector via the portal bper.produzionidalbasso.com in support of education projects for teenagers from 13 to 19 years of age; organisation of activities associated with sponsorship of the "Reporters in class" competition together with "Il Resto del Carlino", Modena edition; organisation of the collaboration with FEDUF (ABI Foundation for financial education and saving); participation as representatives of the BPER Banca Group in various working groups (ABI, Fondazione per l Educazione Finanziaria e al risparmio, Forum per la Finanza Sostenibile, Associazione aziende modenesi per la RSI, Impronta Etica, Centro Servizi per il Volontariato di Modena etc.) on the theme of Sustainability, Sustainable Finance, Climate Change, Welfare, financial inclusion and Legislative Decree 254/16 on non-financial reporting; development of content for the ABI Green finance and sustainability improvement publication and the ABI Guidelines for the reporting of non-financial banking information ; revision of the areas dedicated to sustainability on the websites bper.it and istituzionale.bper.it; preparation of communications materials for social media channels (Facebook, Twitter, LinkedIn); 54

55 Group interim report on operations collaboration on the drafting of articles for the "PerVoi" magazine; collaboration with the Brand and Marketing Communications Office on the communications for the "GRANDE!!" financial education project; coordination of the Ferrara-based "Il mantello" social solidarity emporium, the Modena Portobello emporium and the Vignola Eko emporium; increased planning of CSR activities by BPER Banca with a view to including projects with a positive environmental impact: specifically, collaboration has commenced with the Tosco National Park in Emilia in order to support educational activities addressing sustainability; organisation of a graduation award in the memory of Andrea Cavazzoli to students graduating from a university in the Emilia-Romagna Region who had submitted a brilliant thesis for their postgraduate or second level degree course on corporate social responsibility during the 2016/2017 academic year; formalisation of the application to join the Global Compact Network. 55

56 Group interim report on operations 5. Scope of consolidation of the BPER Banca Group 5.1 Composition of the Group as at 30 June 2018 The BPER Banca Group has been registered since 7 August 1992 with code no in the Register of Banking Groups referred to in art. 64 of Legislative Decree 385 of 1 September The following is a list of the banks and companies included in the scope of consolidation at 30 June 2018, distinguishing between banks and companies consolidated line-by-line and banks and companies, whether or not belonging to the Group, measured using the equity method. The BPER Banca Group has decided to align the consolidation methodology used for accounting purposes with that required for prudential reporting purposes. This is discussed further in the consolidated Explanatory Notes. Details are also provided of the percentage held by the Group26, with further specific information provided, where necessary, by means of footnotes. a) Group companies consolidated on a line-by-line basis: 1) BPER Banca S.p.A., based in Modena (Parent Company); 2) Banca Popolare dell Emilia Romagna (Europe) International s.a., based in the Grand Duchy of Luxembourg (100%); 3) Banco di Sardegna s.p.a., based in Cagliari, which is held as follows: 51% of ordinary shares, % of preference shares and % of savings shares (without voting rights, listed on the Italian Stock Exchange), representing % of total capital; 4) Banca di Sassari s.p.a., based in Sassari (99.017%) 27 ; 5) Cassa di Risparmio di Bra s.p.a., based in Bra (Cuneo) (67%); 6) Cassa di Risparmio di Saluzzo s.p.a., based in Saluzzo (Cuneo) (100%); 7) Nadia s.p.a., based in Modena, property company (100%); 8) Modena Terminal s.r.l., based in Campogalliano (Modena), the activities of which are the storage of goods, the storage and ageing of cheeses and the cold storage of meat and perishable products (100%); 9) BPER Services s.cons.p.a., based in Modena, IT services consortium (100%) 28 ; 10) Emilia Romagna Factor s.p.a, based in Bologna, a factoring company (95.954%); 11) Optima s.p.a. SIM, based in Modena, investment broker (100%); 12) Sardaleasing s.p.a., based in Sassari, leasing company (99.674%) 29 ; 13) Numera s.p.a., based in Sassari, IT company and subsidiary of Banco di Sardegna s.p.a. which holds 100% of share capital; 14) Tholos s.p.a., based in Sassari, property company and subsidiary of Banco di Sardegna s.p.a. which holds 100% of share capital; 15) BPER Credit Management s.cons.p.a., based in Modena, a consortium for the recovery and management of non-performing loans (100%) 30 ; 26 unless otherwise specified, the percentage shown refers to the Parent Company. 27 held by: the Parent Company (78.495%) and Banco di Sardegna s.p.a. (20.522%). 28 held by: the Parent Company (92.838%), Banco di Sardegna s.p.a. (4.762%), Banca di Sassari s.p.a. (0.400%), Optima s.p.a. SIM (0.400%), Sardaleasing s.p.a. (0.400%), Cassa di Risparmio di Bra s.p.a. (0.400%), BPER Credit Management s.cons.p.a. (0.400%) and Cassa di Risparmio di Saluzzo s.p.a. (0.400%). 29 held by: the Parent Company (52.741%) and Banco di Sardegna s.p.a. (46.933%). 30 held by: the Parent Company (67.000%), Banco di Sardegna s.p.a. (20.000%), Sardaleasing s.p.a. (6.000%), Banca di Sassari s.p.a. (3.000%), Cassa di Risparmio di Bra s.p.a. (2.000%), Emilia Romagna Factor s.p.a. (1.000%) and Cassa di Risparmio di Saluzzo s.p.a. (1.000%). 56

57 Group interim report on operations b) Other subsidiaries measured using the equity method 31 : 1) Mutina s.r.l., based in Modena, used as a vehicle for the securitisation of receivables (100%); 2) Estense Covered Bond s.r.l. based in Conegliano (Treviso), a vehicle for the issue of Guaranteed Bank Bonds under art. 7 bis of Law 130/99 (60%); 3) BPER Trust Company s.p.a., based in Modena, with the role of trustee for trusts established by customers, as well as providing advice on trust matters (100%); 4) Estense CPT Covered Bond s.r.l., based in Conegliano (Treviso), a vehicle for the issue of Guaranteed Bank Bonds under art. 7 bis of Law 130/99 (60%). Following the alignment of the consolidation methodologies described in the consolidated explanatory notes, the above companies have been measured using the equity method rather than consolidated on a line-by-line basis, since art. 19 of Regulation (EU) 575/2013 (CRR) requires the exclusion of financial and operating companies, including those belonging to the Banking Group, if their total assets and offbalance sheet amounts fall below the lower of the following amounts: Euro 10 million; 1% of the total assets and off-balance sheet amounts of the parent company or the company that holds the investment. In addition to the above companies that belong to the Banking Group, the following direct and indirect subsidiaries are including in this grouping at 30 June 2018, even though they are not members of the Banking Group since they do not contribute to its banking activities 32 : Italiana Valorizzazioni Immobiliari s.r.l. (100%); Adras s.p.a. (100%); Polo Campania s.r.l. (100%); Galilei Immobiliare s.r.l. wholly owned by Nadia s.p.a.; Costruire Mulino s.r.l., a wholly-owned subsidiary of Italiana Valorizzazioni Immobiliari s.r.l; Frara s.r.l. (formerly Sviluppo Formica s.r.l.), a wholly-owned subsidiary of Italiana Valorizzazioni Immobiliari s.r.l. 33 ; SIFA - Società Italiana Flotte Aziendali s.p.a. (51%); Banca Farnese s.p.a. in liquidation (65.127%). c) Companies measured using the equity method 1) Cassa di Risparmio di Fossano s.p.a., based in Fossano (Cuneo) (23.077%); 2) Cassa di Risparmio di Savigliano s.p.a., based in Savigliano (Cuneo) (31.006%); 3) Alba Leasing s.p.a., based in Milan (33.498%); 4) CO.BA.PO. - Consorzio Banche Popolari s.con., based in Bologna (23.587%); 5) Sofipo s.a. in liquidation, based in Lugano, held by Banca Popolare dell Emilia Romagna (Europe) International s.a. which holds 30% of share capital; 6) CONFORM - Consulenza Formazione e Management s.c.a.r.l., based in Avellino (49.410%) 34 ; 7) CAT Progetto Impresa Modena s.c.r.l., based in Modena (20%); 8) Resiban s.p.a., based in Modena (20%); 9) Unione Fiduciaria s.p.a., based in Milan (24%); 10) Atriké s.p.a., based in Modena (45%); 31 following alignment of the consolidation methodology with that used for prudential reporting purposes. 32 following alignment of the consolidation methodology with that used for prudential reporting purposes. 33 company that during 2018 had not yet started operating and is still dormant. 34 held by: the Parent Company (46.430%) and Banco di Sardegna s.p.a. (2.980%). 57

58 Group interim report on operations 11) Sarda Factoring s.p.a., based in Cagliari (21.484%) 35 ; 12) Emil-Ro Service s.r.l., based in Bologna (25%) 36 ; 13) Lanciano Fiera - Polo fieristico d Abruzzo - consortium based in Lanciano (25%); 14) Arca Holding s.p.a., based in Milan (32.752%); 15) Immobiliare Oasi nel Parco s.r.l., based in Milan (36.80%). 5.2 Changes in the scope of consolidation Companies consolidated on a line-by-line basis The scope of consolidation has changed since 31 December 2017 due to the absorption of Carife Servizi Evolutivi Integrati s.r.l. by Nadia s.p.a., as discussed in the chapter on Significant events and strategic transactions. The following change in interests took place during the period: Banco di Sardegna s.p.a.: the Parent Company, which already owned % at 31 December 2017, increased its holding to % after buying savings shares on the market; Banca di Sassari s.p.a.: the Parent Company's interest has increased from % at 31 December 2017 to % at 30 June 2018; Emilia Romagna Factor s.p.a.: the Parent Company's interest has increased from % at 31 December 2017 to % at 30 June 2018, following subscription under option for new ordinary shares and subscription for shares not taken up by other shareholders; Sardaleasing s.p.a.: the Parent Company's interest has increased from % at 31 December 2017 to % at 30 June 2018, following subscription under option for new ordinary shares and subscription for shares not taken up by other shareholders. Significant investments carried at equity The following changes occurred during the period: Lanciano Fiera - Polo fieristico d Abruzzo - consortium: following the exclusion of Provincia di Chieti, the interest previously held by the Province has been allocated to the other members; the Parent Company currently holds 25% of the Consortium Fund (20% at 31 December 2017). 35 held by: Banco di Sardegna s.p.a. (13.401%) and the Parent Company (8.083%). 36 held by: the Parent Company (16.667%) and Emilia Romagna Factor s.p.a. (8.333%). 58

59 Group interim report on operations 6. The BPER Banca Group's results of operations 6.1 Balance sheet aggregates The most important consolidated accounting aggregates and captions at 30 June 2018 are presented below on a comparative basis with the figures at 31 December 2017, in thousands of Euro, indicating the changes between periods in absolute and percentage terms. The amounts at 31 December 2017 (determined in accordance with IAS 39) has been classified in the new account captions envisaged in the 5th update to Bank of Italy Circular 262, in accordance with the new classification criteria introduced by IFRS 9, without changing the amounts reported for total assets or for total liabilities and shareholders equity. For additional clarity in presenting the results for the period, the formats envisaged in the 5th update to Bank of Italy Circular 262/2005 are presented below on a reclassified basis. In particular: debt securities measured at amortised cost (caption 40 "Financial assets measured at amortised cost") have been reclassified to caption "Financial assets". "Other assets include captions 110 "Tax assets" and 130 "Other assets". "Other liabilities and shareholders equity" include captions 60 "Tax liabilities", 80 "Other liabilities", 90 "Provision for termination indemnities" and 100 "Provisions for risks and charges". Assets (in thousands of Euro) Assets Change Change % Cash and cash equivalents 353, ,299 (66,525) Financial assets 16,331,689 15,665, , a) Financial assets held for trading 350, ,424 (75,036) b) Financial assets designated at fair value 221, ,192 (1,567) c) Other financial assets mandatorily measured at fair value through profit or loss 849, , , d) Financial assets measured at fair value through other comprehensive income 9,295,682 13,398,757 (4,103,075) e) Debt securities valued at amortised cost 5,614, ,941 4,674, banks 1,075, , , customers 4,539, ,607 3,792, Loans 48,948,599 50,621,645 (1,673,046) a) loans to banks 3,146,234 3,012, , b) loans to customers 45,802,365 47,609,130 (1,806,765) Hedging derivatives 50,066 54,061 (3,995) Equity invesments 448, ,367 (5,377) Property, plant and equipment 1,056,260 1,063,483 (7,223) Intangible assets 497, ,627 (9,287) of which; goodwill 327, , Other assets 2,610,017 2,553,026 56, Total assets 70,296,735 71,338,807 (1,042,072)

60 Group interim report on operations Loans to customers Net loans to customers consist solely of loans allocated to the asset caption 40 b) Financial assets measured at amortised cost loans to customers. The prior year comparative figures have been restated and thus differ from those presented in the consolidated financial statements for the year ended at 31 December (in thousands of Euro) Captions Change % Change Current accounts 4,630,973 5,151,220 (520,247) Mortgage loans 27,722,054 28,783,725 (1,061,671) Repurchase Agreement 71,059-71,059 n.s. Leases and factoring 3,631,984 3,622,836 9, Other transactions 9,746,295 10,051,349 (305,054) Net loans to customers 45,802,365 47,609,130 (1,806,765) Loans to customers, net of adjustments, amount to Euro 45,802.4 million (Euro 47,609.1 million at 31 December 2017) down by Euro 1,806.8 million on the 31 December This was principally due to the significant increase in risk coverage and the securitisation by Banco di Sardegna of a portfolio of bad loans with a gross value of about Euro 900 million, as well as to the usual seasonality effect during the first part of the year. With the objective of accelerating the process of improving asset quality and in line with the NPE strategy , the BPER Banca Group selected a portfolio of potentially saleable non-performing loans with a gross value of about Euro 6.4 billion, whose net carrying amount was then quantified with reference to the amount deemed realisable in a sale scenario, as envisaged in IFRS 9 which entered into force on 1 January This process resulted in the recognition of provisions totalling about Euro 1.1 billion. NET LOANS TO CUSTOMERS in millions of euro 48,000 47,000 46,997 46,907 47,609 46,000 45,000 45,404 45,802 44, The amounts for 30 June 2017 and 30 September 2017 were reported in balance sheet caption 70 Loans to customers, as required by the 4th update to Bank of Italy Circular no. 262/2005. The average interest rate for the period, based on Group lending rates to customers, was 2.45%, a decrease of around 4 bps compared with the average rate for the first half of last year. The spread between lending and deposit rates of Group relationships with customers came to 2.04% (1.96% at 30 June 2017). The overall gap between the average annual rate of return on interest-bearing assets and the average annual cost of interest-bearing liabilities amounts to 1.68%, down on the same period last year (1.75%). 60

61 Group interim report on operations (in thousands of Euro) Captions Change % Change Gross non-performing exposures 8,866,349 10,530,726 (1,664,377) Bad loans 5,905,826 7,109,135 (1,203,309) Unlikely to pay loans 2,846,565 3,317,327 (470,762) Past due loans 113, ,264 9, Gross performing exposures 42,145,541 42,432,925 (287,384) Total gross exposure 51,011,890 52,963,651 (1,951,761) Adjustments to non-performing exposures 5,040,499 5,128,962 (88,463) Bad loans 3,832,156 4,215,945 (383,789) Unlikely to pay loans 1,193, , , Past due loans 14,488 11,050 3, Adjustments to performing exposures 169, ,559 (56,533) Total adjustments 5,209,525 5,354,521 (144,996) Net non-performing exposures 3,825,850 5,401,764 (1,575,914) Bad loans 2,073,670 2,893,190 (819,520) Unlikely to pay loans 1,652,710 2,415,360 (762,650) Past due loans 99,470 93,214 6, Net performing exposures 41,976,515 42,207,366 (230,851) Total net exposure 45,802,365 47,609,130 (1,806,765) The previously described strategic action has led to a significant increase in coverage of loans to customers. Adjustments to non-performing loans amount to Euro 5,040.5 million (Euro 5,129.0 million at 31 December 2017; -1.72%) with a coverage ratio of 56.85% (48.70% at 31 December 2017), while adjustments that relate to performing loans amount to Euro 169 million (Euro million at 31 December 2017; %), giving a coverage ratio of 0.40% (0.53% at 31 December 2017). If we take into account the direct writedowns of bad loans involved in bankruptcy proceedings for Euro million (Euro million at 31 December 2017), the coverage ratio increases to 60.06% (52.57% at 31 December 2017). The total coverage ratio is 10.21% versus 10.11% at 31 December Based on the same considerations set out above concerning direct writedowns, the total effective coverage of loans comes to 11.45% (11.54% at 31 December 2017). 61

62 Group interim report on operations Loans to customers Gross Net Gross Net % Gross change (in thousands of Euro) % Net change % Coverage ratio 1. BPER Banca S.p.A. 39,904,908 35,777,498 41,114,761 37,240, Bper (Europe) International s.a. 233, , , , Banca di Sassari s.p.a. 785, , , , Banco di Sardegna s.p.a. 7,595,798 7,024,070 8,765,404 7,736, Cassa di Risparmio di Bra s.p.a. 1,194,197 1,019,392 1,210,569 1,060, Cassa di Risparmio di Saluzzo s.p.a. 692, , , , Total banks 50,406,418 45,452,505 52,561,938 47,421, Sardaleasing s.p.a. 3,299,394 3,060,918 3,312,943 3,119, Emil-Ro Factor s.p.a. 855, , , , Other companies and consolidation adjustments (3,549,188) (3,549,188) (3,718,764) (3,718,764) Total of balance sheet 51,011,890 45,802,365 52,963,651 47,609, Net non-performing loans amounts to Euro 3,825.8 million (-29.17%), being 8.35% of total net loans to customers (11.35% at 31 December 2017), while gross non-performing loans represent 17.38% of loans to customers (19.88% at 31 December 2017). More specifically, net bad loans amount to Euro 2,073.7 million (-28.33%), net unlikely to pay loans total Euro 1,652.7 million (-31.58%) and net past due amounts total Euro 99.5 million (+6.71%). Following the strategic action described above, the coverage ratio has increased significantly to 56.85% from 48.70% at the end of 2017, up by about 815 bps. Considering the direct write-offs of bad loans involved in bankruptcy proceedings, Euro million (Euro million at 31 December 2017), the effective coverage ratio is 60.06% (52.57% at 31 December 2017). Non-performing loans Gross Net Gross Net % Gross change (in thousands of Euro) % Net change % Coverage ratio 1. BPER Banca S.p.A. 6,587,334 2,587,718 7,149,278 3,446, Bper (Europe) International s.a. 9,798 4,061 9,567 5, Banca di Sassari s.p.a. 11,908 6,544 12,020 5, Banco di Sardegna s.p.a. 1,138, ,305 2,151,514 1,147, Cassa di Risparmio di Bra s.p.a. 316, , , , Cassa di Risparmio di Saluzzo s.p.a. 111,371 49, ,652 58, Total banks 8,175,501 3,379,624 9,778,851 4,845, Sardaleasing s.p.a. 655, , , , Emil-Ro Factor s.p.a. 35,495 19,542 30,483 17, Total of balance sheet 8,866,349 3,825,850 10,530,726 5,401, Direct write-downs of bad loans 711, , n.s Adjusted total 9,577,919 3,825,850 11,389,354 5,401, Non-performing loans (Total of balance sheet)/loans to customers 17.38% 8.35% 19.88% 11.35% Net bad loans amount to Euro 2,073.7 million (-28.33%) or 4.53% of total net loans to customers (6.08% at 31 December 2017), while on a gross basis the ratio of bad loans to total loans to customers is 11.58% (13.42% at 31 December 2017). The coverage of bad loans is 64.89%, up compared with 59.30% at 31 December

63 Group interim report on operations Considering the direct write-offs made to bad loans involved in bankruptcy procedures, Euro million (Euro million at 31 December 2017), the total gross value of bad loans is Euro 6,617.4 million (Euro 7,967.8 million at 31 December 2017) and the effective coverage ratio is 68.66% (63.69% at 31 December 2017). Bad loans Gross Net Gross Net % Gross change (in thousands of Euro) % Net change % Coverage ratio 1. BPER Banca S.p.A. 4,621,310 1,513,343 4,870,977 1,854, Bper (Europe) International s.a. 5, ,590 1, Banca di Sassari s.p.a. 4, , Banco di Sardegna s.p.a. 633, ,146 1,586, , Cassa di Risparmio di Bra s.p.a. 214,391 69, ,102 54, Cassa di Risparmio di Saluzzo s.p.a. 67,601 20,043 84,314 23, Total banks 5,547,077 1,896,394 6,718,792 2,650, Sardaleasing s.p.a. 336, , , , Emil-Ro Factor s.p.a. 21,879 7,953 21,679 8, Total of balance sheet 5,905,826 2,073,670 7,109,135 2,893, Direct write-downs of bad loans 711, , n.s Adjusted total 6,617,396 2,073,670 7,967,763 2,893, Bad loans (Total of balance sheet)/loans to customers 11.58% 4.53% 13.42% 6.08% Net unlikely to pay loans total Euro 1,652.7 million (-31.58%), representing 3.61% of total net loans to customers (5.07% at 31 December 2017), while on a gross basis the ratio is 5.58% (6.26% at 31 December 2017). The coverage of likely defaults has increased significantly since the end of 2017 to 41.94%, compared with 27.19% at 31 December

64 Group interim report on operations Unlikely to pay loans Gross Net Gross Net % Gross change (in thousands of Euro) % Net change % Coverage ratio 1. BPER Banca S.p.A. 1,920,240 1,035,243 2,245,013 1,562, Bper (Europe) International s.a. 4,064 3,799 3,977 3, Banca di Sassari s.p.a. 3,066 2,069 4,222 2, Banco di Sardegna s.p.a. 476, , , , Cassa di Risparmio di Bra s.p.a. 95,747 69, , , Cassa di Risparmio di Saluzzo s.p.a. 43,657 29,518 45,337 35, Total banks 2,543,086 1,410,404 3,004,092 2,145, Sardaleasing s.p.a. 294, , , , Emil-Ro Factor s.p.a. 8,495 6,548 1, Total of balance sheet 2,846,565 1,652,710 3,317,327 2,415, Unlikely to pay loans/loans to customers 5.58% 3.61% 6.26% 5.07% The net amount of past due loans of Euro 99.5 million (+6.71%) represents 0.22% of total net loans to customers (0.20% at 31 December 2017), whereas, on a gross basis, the ratio of past due loans to total loans to customers is 0.22% (0.20% at 31 December 2017). The coverage of past due loans is 12.71% (10.60% at 31 December 2017). Past due loans Gross Net Gross Net % Gross change (in thousands of Euro) % Net change % Coverage ratio 1. BPER Banca S.p.A. 45,784 39,132 33,288 28, Bper (Europe) International s.a Banca di Sassari s.p.a. 4,231 3,704 1,974 1, Banco di Sardegna s.p.a. 28,444 24,126 14,893 13, Cassa di Risparmio di Bra s.p.a. 6,766 5,775 5,811 5, Cassa di Risparmio di Saluzzo s.p.a Total bank 85,338 72,826 55,967 49, Sardaleasing s.p.a. 23,499 21,603 40,725 36, Emil-Ro Factor s.p.a. 5,121 5,041 7,572 7, Total of balance sheet 113,958 99, ,264 93, Past due loans/loans to customers 0.22% 0.22% 0.20% 0.20% 64

65 Group interim report on operations The distribution of loans to non-financial businesses is analysed by ATECO category below: Distribution of loans to resident non-financial businesses (in thousands of Euro) % A. Agriculture, forestry and fishing 652, B. Mining and quarrying 44, C. Manufacturing 6,774, D. Provision of electricity, gas, steam and air-conditioning 797, E. Provision of water, sewerage, waste management and rehabilitation 301, F. Construction 2,791, G. Wholesaling and retailing, car and motorcycle repairs 4,221, H. Transport and storage 1,060, I. Hotel and restaurants 1,256, J. Information and communication 425, L. Real estate 3,110, M. Professional, scientific and technical activities 499, N. Rentals, travel agencies, business support services 901, O. Public administration and defence, compulsory social security 2,131 - P. Education 26, Q. Health and welfare 374, R. Arts, sport and entertainment 186, S. Other services 240, Total loans to resident non-financial businesses 23,665, Individuals and other not included above 16,379, Financial businesses 3,484, Governments and other public entities 2,273, Total loans 45,802,

66 Group interim report on operations Financial assets and equity investments Debt securities measured at amortised cost included in financial assets consist solely of bonds allocated to the asset captions 40 a) and b Financial assets measured at amortised cost due from banks and loans to customers. The prior year comparative figures have been restated and thus differ from those presented in the consolidated financial statements for the year ended at 31 December (in thousands of Euro) Captions Change % Change Financial assers measuered at fair value through profit or loss 1,421,443 1,326,601 94, of which derivatives 119, ,533 (8,891) Financial assets measured at fair value through other comprehensive income 9,295,682 13,398,757 (4,103,075) Debt securities valued at amortised cost 5,614, ,941 4,674, a) banks 1,075, , , b) customers 4,539, ,607 3,792, Total financial assets 16,331,689 15,665, , Financial assets amount to Euro 16,331.7 million, including Euro 15,423.8 million of debt securities (94.44% of the total): of these, Euro 6,741.8 million relates to sovereign States and Central Banks (+6.89% compared with 31 December 2017) and Euro 6,273.2 million to Banks (+5.46%). Equities come to Euro million (2.60% of the total), inclusive of Euro million of stable equity investments classified in the FVOCI portfolio. "Financial assets held for trading" include financial derivatives of Euro million (-6.92%) made up of derivatives linked to debt securities classified in "Financial assets designated at fair value through profit or loss" and forward transactions in foreign currencies (traded with customers and/or used in managing the foreign exchange position), interest rate and foreign exchange derivatives intermediated with customers, derivatives related to securitisations and other operational hedging derivatives. At 30 June 2018 the Group has not entered into any of the "long-term structured repo transactions" mentioned in the document issued jointly by the Bank of Italy, CONSOB and IVASS on 8 March

67 Group interim report on operations (in thousands of Euro) Financial assets Change % Change 1. BPER Banca S.p.A. 14,327,778 14,232,305 95, Bper (Europe) International s.a. 185, ,595 (402) Banca di Sassari s.p.a. 7,536 6,327 1, Banco di Sardegna s.p.a. 1,372, , , Cassa di Risparmio di Bra s.p.a. 150, ,539 18, Cassa di Risparmio di Saluzzo s.p.a. 259, ,184 (20,554) Total banks 16,302,463 15,775, , Other companies and consolidation adjustments 29,226 (109,930) 139, Total 16,331,689 15,665, , (in thousands of Euro) Captions Change % Change Equity investments 448, ,367 (5,377) of which subsidiaries 33,827 34,567 (740) of which associates 415, ,800 (4,637) Following the alignment of the consolidation methodologies described in the explanatory notes, this caption comprises significant investments (non-group companies subject to considerable influence being, usually, investments in which the equity interest is greater than or equal to 20%), subsidiaries that are not members of the Banking Group since they do not contribute to its banking activities, and Group companies not meeting the requirements of art. 19 of Regulation 575/2013 that are measured using the equity method. The part relating to goodwill in the "Equity investments" portfolio amounted to Euro million (unchanged compared with 31 December 2017). Fixed assets (in thousands of Euro) Captions Change % Change Intangible assets 497, ,627 (9,287) of which goodwill 327, , Intangible assets include amounts of goodwill for a total of Euro million, as follows: 67

68 Group interim report on operations Goodwill Group companies 327, , Banks 40,080 40,080 - Banco di Sardegna s.p.a. 27,606 27,606 - Cassa di Risparmio di Bra s.p.a. 4,574 4,574 - Cassa di Risparmio di Saluzzo s.p.a. 7,900 7, Parent Company BPER 280, ,236 - Purchase of UNICREDIT branches 83,650 83,650 - Meliorbanca s.p.a. 104, ,685 - Banca CRV - Cassa di Risparmio di Vignola s.p.a. 2,272 2,272 - Banca Popolare di Lanciano e Sulmona s.p.a. 1,655 1,655 - Banca Popolare di Aprilia s.p.a. 10,151 10,151 - CARISPAQ - Cassa di Risparmio della Provincia dell'aquila s.p.a. 13,477 13,477 - Banca Popolare di Ravenna s.p.a. 6,876 6,876 - Banca Popolare del Mezzogiorno s.p.a. 6,124 6,124 - Banca della Campania s.p.a. 51,346 51, Other companies 6,768 6,768 - Emilia Romagna Factor s.p.a. 6,768 6,768 Total 327, ,084 The detailed figures relating to the Parent Company BPER Banca represent a purely historical and accounting situation, in any case combined in the only identifiable CGU represented by the Legal Entity BPER Banca. (in thousands of Euro) Captions Change % Change Property, plant and equipment 1,056,260 1,063,483 (7,223) of which owned land and buildings 937, ,156 (19,646)

69 Group interim report on operations Interbank and liquidity position (in thousands of Euro) Net interbank position Change % Change A. Due from banks 3,146,234 3,012, , Current accounts and deposits 197, ,261 (61,923) Reverse repurchase agreements - 300,025 (300,025) Other 2,948,896 2,453, , B. Due to banks 12,622,968 12,984,226 (361,258) Total (A-B) (9,476,734) (9,971,711) 494, The amount due from banks comprises solely the loan component allocated to balance sheet caption 40 a) Financial assets measured at amortised cost due from banks. The prior year balances have therefore been restated with respect to the information published in the consolidated financial statements at 31 December The following table gives details of such operations with the ECB. There has been no change in the outstanding principal since 31 December (in millions of Euro) Refinancing transactions with the European Central Bank Capital Maturity 1. Targeted Long Term Refinancing Operation (TLTRO-II) -BPER Banca 4, Targeted Long Term Refinancing Operation (TLTRO-II) - CR Saluzzo Targeted Long Term Refinancing Operation (TLTRO-II) - BPER Banca 1, Targeted Long Term Refinancing Operation (TLTRO-II) -BPER Banca 4, Targeted Long Term Refinancing Operation (TLTRO-II) - CR Saluzzo Total 9,265 The BPER Banca Group has therefore obtained the maximum allowed amount of the TLTRO II loan. The original amount, Euro 9,265 million, has decreased to Euro 9,204 million at 30 June 2018 after deducting the accrued interest income. At 30 June 2018, the Central Treasury held significant resources relating to securities eligible for refinancing at the European Central Bank, with an overall amount, net of margin calls, of Euro 17,024 million (Euro 15,897 million at 31 December 2017). The available portion amounts to Euro 4,296 million (Euro 3,305 million at 31 December 2017). 69

70 Group interim report on operations Counterbalancing Capacity Nominal value Guarantee value Restricted portion (in millions of Euro) Available portion Eligible securities and loans 17,024 12,728 4,296 1 Securities as collateral for own and third-party commitments Securities subject to funding repurchase agreements 3,009 3,009 3 Securities and loans not transferred to the Pooling Account 2,280 2,280 4 Securities and loans transferred to the Pooling Account 11,220 9,204 2,016 of which: Own debt guaranteed by the Italian Government Own securitisations 1,676 1,463 Guaranteed Bank Bonds issued by the Bank 1,900 1,596 Collaterized Bank Assets (A.BA.CO.) 4,486 2,504 As summarised in the table, at 30 June 2018, the Pooling account of the Central Treasury possessed significant resources relating to securities eligible for refinancing by the European Central Bank, of an overall amount, net of margin call, of Euro 11,220 million, of which Euro 9,204 million has been refinanced (Euro 2,016 million is still available). These include: securities from self-securitisations of performing residential mortgage portfolios given to the Bank's own customers (currently Euro 1,436 million, eligible for refinancing up to Euro 1,244 million), using the special purpose vehicles Dedalo s.r.l. and Sardegna RE Finance s.r.l.; securities from self-securitisations of performing residential mortgage portfolios given to the Bank's own customers in the small and medium-sized businesses segment (currently Euro 240 million, eligible for refinancing up to Euro 219 million), using the special purpose vehicle Multi Lease AS s.r.l.; Guaranteed Bank Bonds issue by the Bank with a nominal value of Euro 1,900 million, eligible for refinancing up to Euro 1,596 million, using the special purpose vehicle Estense CPT Covered Bond s.r.l.; Collateralised Bank Assets (A.BA.CO.) for Euro 4,486 million at 30 June 2018, of which Euro 2,504 million eligible for refinancing. 70

71 Group interim report on operations Liabilities and shareholders' equity (in thousands of Euro) Liabilities and shareholders' equity Change Change % Due to banks 12,622,968 12,984,226 (361,258) Direct deposit 49,879,284 50,246,417 (367,133) a) Due to customers 43,291,051 42,694, , b) Debt securities issued 6,588,233 7,552,339 (964,106) Financial liabilities held for trading 241, ,046 70, Hedging derivatives 42,918 23,795 19, Other liabilities captions 2,772,599 2,197, , Minority interests 474, ,010 (178,652) Shareholders' equity pertaining the Parent Company 4,263,595 5,063,721 (800,126) a) Valuation reserves 60,974 75,089 (14,115) b) Reserves 1,527,996 2,445,454 (917,458) c) Share premium reserve 930, , d) Share capital 1,443,925 1,443, e) Treasury shares (7,258) (7,258) - - f) Profit (loss) for the period pertaining to the Parent Company 307, , , Total liabilities and shareholder's equity 70,296,735 71,338,807 (1,042,072) (in thousands of Euro) Captions Change % Change Current accounts and demand deposits 36,602,575 35,285,793 1,316, Time deposits 1,858,242 2,455,533 (597,291) Repurchase agreements 2,101,811 2,148,650 (46,839) Other short-term loans 2,728,423 2,804,102 (75,679) Bonds 4,739,076 5,391,780 (652,704) subscribed by institutional customers 3,039,336 3,037,251 2, subscribed by ordinary customers 1,699,740 2,354,529 (654,789) Certificates 61,612 69,771 (8,159) Certificates of deposit 1,787,545 2,090,788 (303,243) Direct customer deposits 49,879,284 50,246,417 (367,133) Indirect deposits (off-balance sheet figure) 36,252,779 35,864, , of which managed 19,831,311 19,754,236 77, of which administered 16,421,468 16,110, , Customer funds under management 86,132,063 86,111,070 20, Bank borrowing 12,622,968 12,984,226 (361,258) Funds under administration or management 98,755,031 99,095,296 (340,265) Direct borrowing from customers, Euro 49,879.3 million, fell by 0.73% since 31 December 2017 due, in the main, to the decision not to use forms of institutional funding that are particularly onerous; these are being transformed into indirect deposits, as part of the established policy in this regard. Of the various technical forms, there has been a reduction in bonds of Euro million (-12.11%, mainly due to bonds placed with ordinary customers, which are down by Euro million), in certificates of deposit of Euro million (-14.50%) and in other short-term loans of Euro 75.7 million (-2.70%). Repurchase agreements have decreased by Euro 46.8 million (-2.18%) and restricted deposits have declined by Euro million (-24.32%). On the other hand, there have been increases in current accounts of Euro 1,316.8 million (+3.73%). Indirect customer deposits, marked to market, come to Euro 36,252.8 million, up on 31 December 2017 (+1.08%). Total funds administered or managed by the Group, including deposits from banks (Euro 12,623 million) amount to Euro 98,755 million, a slight decrease of 0.34% compared with 31 December

72 Group interim report on operations The average cost of direct customer deposits incurred by the Group during the period was 0.41%, which is down by about 4 basis points with respect to the first six months of last year (0.45%). Against total interest-bearing liabilities, the cost incurred came to 0.31%, a decrease of 3 bps compared with 0.34% in the same period of the previous year. (in thousands of Euro) Direct deposits Change % Change 1. BPER Banca S.p.A. 36,556,946 36,885,323 (328,377) Bper (Europe) International s.a. 774, ,847 (54,176) Banca di Sassari s.p.a. 117, ,606 (36,465) Banco di Sardegna s.p.a. 10,925,806 11,031,484 (105,678) Cassa di Risparmio di Bra s.p.a. 829, ,682 (1,661) Cassa di Risparmio di Saluzzo s.p.a. 742, ,023 (45,594) Total banks 49,946,014 50,517,965 (571,951) Other companies and consolidation adjustments (66,730) (271,548) 204, Total 49,879,284 50,246,417 (367,133) Direct deposits include subordinated liabilities: (in thousands of Euro) Captions Change % Change Non-convertible subordinated liabilities 791, ,778 (56,706) Total subordinated liabilities 791, ,778 (56,706) The reductions reflect the payment of instalments on loans issued by the Parent Company that fell due on 31 December 2017 and were settled by the custodian bank on 2 January There are no convertible subordinated liabilities at 30 June 2018 (as at 31 December 2017). (in thousands of Euro) Indirect deposits Change % Change 1. BPER Banca S.p.A. 31,569,008 31,639,460 (70,452) Bper (Europe) International s.a. 672, ,612 20, Banco di Sardegna s.p.a. 3,800,715 3,741,020 59, Cassa di Risparmio di Bra s.p.a. 521, ,566 17, Cassa di Risparmio di Saluzzo s.p.a. 360, ,029 (1,047) Total banks 36,924,454 36,897,687 26, Other companies and consolidation adjustments (671,675) (1,033,034) 361, Total 36,252,779 35,864, ,

73 Group interim report on operations The graph shows the dynamics of direct and indirect deposits in the last five years: DEPOSITS in millions of Euro 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 50,246 49,879 46,183 47,256 47,748 35,865 36,253 32,871 30,374 28, DIRECT INDIRECT Indirect deposits do not include the placement of insurance policies, which has increased by 2.42% since 31 December 2017, mainly due to the life insurance business. (in thousands of Euro) Bankassurance Change % Change Insurance policy portfolio 4,903,801 4,787, , of which life sector 4,804,893 4,694, , of which non-life sector 98,908 93,472 5, If life insurance premiums are added to the managed portion of indirect deposits, the total comes to Euro 24,636.2 million, which represents 60% of the overall total of indirect deposits and life insurance premiums (Euro 41,057.7 million). 73

74 Group interim report on operations Shareholders' equity (in thousands of Euro) Captions Change % Change Consolidated shareholders' equity 4,263,595 5,063,721 (800,126) of which net profit (loss) for the period 307, , , of which shareholders' equity excluding net profit (loss) for the period 3,955,710 4,887,283 (931,573) (in thousands of Euro) Captions Change % Change Minority interests 474, ,010 (178,652) of which net profit (loss) pertaining to minority interests 14, , of which: shareholders' equity pertaining to minority interests excluding their share of net profit (loss) for the period 460, ,566 (192,487) (in thousands of Euro) Shareholders' equity Change % Change 1. BPER Banca S.p.A. 4,053,262 4,677,987 (624,725) Bper (Europe) International s.a. 56,080 54,226 1, Banca di Sassari s.p.a. 263, ,288 3, Banco di Sardegna s.p.a. 852,256 1,182,886 (330,630) Cassa di Risparmio di Bra s.p.a. 44,781 62,926 (18,145) Cassa di Risparmio di Saluzzo s.p.a. 47,130 55,765 (8,635) Total banks 5,317,253 6,294,078 (976,825) Other companies and consolidation adjustments (901,464) (754,229) (147,235) Total 4,415,789 5,539,849 (1,124,060) Profit (Loss) for the period pertaining to the Parent Company 307, , , Profit (loss) for the period pertaining to minority interests 14, , Total shareholders' equity 4,737,953 5,716,731 (978,778) This figure is made up of liability captions 120, 150, 160, 170, 180, 190 and 200. The total net tangible shareholders' equity (after deduction of intangible assets of Euro million) amounted to Euro 4,240.6 million. 74

75 Group interim report on operations 6.2 Own funds and capital ratios The harmonised rules for banks and investment companies contained in Regulation (EU) 575/2013 (CRR) and in the 2013/36/EU Directive (CRD IV) approved on 26 June 2013 and published in the Official Journal of the European Union the next day, entered into force on 1 January This regulatory framework, which is the only set of rules that seeks to harmonise prudential regulations of the Member States of the European Community, was made applicable in Italy by the Bank of Italy's Circular 285, published on 17 December 2013 and subsequent updates. From 30 June 2015 the accounting scope of consolidation is aligned with that required for prudential reporting purposes: companies excluded are treated in the same way as the banks and companies subject to significant influence and measured using the equity method. On 30 June 2018, the BPER Banca Group adopted internal models for measuring the capital requirements relating to the credit risk represented by both business and retail customers. The model scope 37 includes BPER Banca, Banco di Sardegna and Banca di Sassari. Cassa di Risparmio di Bra, Sardaleasing and Cassa di Risparmio di Saluzzo are formally included in the roll-out plan and will adopt the IRB Approach as scheduled in the plan. The other BPER Banca Group companies and asset classes not included in the roll-out plan will continue to use the Standardised Approach. The use of internal models has given rise to an increase in the capital buffer over and above the ECB's minimum requirement at the time of the 2018 SREP (8.125% Phased in and 8.75% Fully Phased). Compared with that limit, the amount of available equity at 30 June 2018 can be quantified at Euro 2,052 million (about 659 bps of CET1) under the phased in transitional arrangements, while on a fully phased basis it can be put at Euro 887 million, about 288 bps. Considering all of the above, the amount of CET1 has been calculated taking into account the portion of the profit for the first half of the year that is allocable to equity, namely Euro million. BPER Banca has made the required communication to the ECB regarding its inclusion for prudential supervision purposes, both pursuant to art. 3 of Decision (EU) 656/2015 of the European Central Bank dated 4 February 2015 and as envisaged in art. 26, para. 2, of Regulation (EU) 575/2013 (CRR), and is waiting for authorisation. The following table shows the BPER Banca Group's capital ratios and the minimum capital adequacy requirements for regulatory purposes as at 30 June The ECB authorised the use of internal models on 24 June

76 Group interim report on operations Fully Phased Phased in Fully Phased Phased in (in thousands of Euro) Changes in % Phased in Change Common Equity Tier 1 capital- CET1 3,585,003 4,581,483 4,455,677 4,522,957 58, Additional Tier 1 capital - ATI 29,360 28,066 32,099 28,330 (264) Tier 1 capital - Tier 1 3,614,363 4,609,549 4,487,776 4,551,287 58, Tier 2 capital - Tier 2 - T2 876, , , ,544 (8,215) Total Own Funds 4,490,861 5,486,878 5,366,236 5,436,831 50, Total Risk-weighted assets (RWA) 30,837,240 31,130,491 32,573,002 32,573,002 (1,442,511) CET1 Ratio (CET1/RWA) 11.63% 14.72% 13.68% 13.89% 83 b.p. Tier 1 Ratio (Tier 1/RWA) 11.72% 14.81% 13.78% 13.97% 84 b.p. Total Capital Ratio (Total Own Funds/RWA) 14.56% 17.63% 16.47% 16.69% 94 b.p. RWA/Total assets 43.87% 44.28% 45.66% 45.66% -138 b.p. As stated previously, the following capital ratios were determined after taking into account the AIRB validation, the profit for the period to 30 June 2018, net of the expected dividend, and the application of IFRS 9: Common Equity Tier 1 Ratio (Phased In) of 14.72% (14.61% at 31 March 2018 and 13.89% at 31 December 2017). This ratio calculated on a fully phased basis comes to 11.63% (11.71% at 31 March 2018 and 13.68% at 31 December 2017); phased in Tier 1 ratio of 14.81% (14.70% at 31 March 2018 and 13.97% at 31 December 2017); Total Capital Ratio (Phased In) of 17.63% (17.50% at 31 March 2018 and 16.69% at 31 December 2017). The capital ratios (Phased in) are all much higher than the minimum levels required by the regulations (at 30 June 2018 equal to 6.375%, 7.875% and 9.875% respectively). The CET1 ratio is also well above the specific obligations for additional Own Funds imposed by the ECB as part of the 2018 SREP process, set at 8.125%. Note that the BPER Banca Group uses different methods for calculating risk-weighted assets, which are summarised below: credit risk - for Group entities represented by BPER Banca, Banco di Sardegna and Banca di Sassari, the credit risk measurement is performed using the AIRB method. For Banks and other Companies that are not in the scope of validation and for other risk assets not included in the validated models, the standardized approach has been maintained; credit down-rating risk - the standardized approach is used; market risk - the standardized approach is used for assessing market risk (general and specific risk on equities, general risk on debt securities and positioning risk for units in investment funds) to determine the related individual and consolidated capital requirement; operational risk - operational risk measurement uses the standardized approach (TSA). 76

77 Group interim report on operations 6.3 Reconciliation of consolidated net profit/shareholders' equity Consolidated net profit comprises the sum of the Group's interest in the net profits (losses) at 30 June 2018 of the following Group banks and companies included in the scope of line-by-line consolidation. (in thousands of Euro) Reconciliation of consolidated net profit BPER Banca S.p.A. 332,176 Other Group companies: 19,696 Bper (Europe) International s.a. 597 Banco di Sardegna s.p.a., (Consolidated value) 16,460 Banca di Sassari s.p.a. 3,538 Cassa di Risparmio di Bra s.p.a. 962 Cassa di Risparmio di Saluzzo s.p.a. 560 Nadia s.p.a. (7,599) BPER Services s.c.p.a. (99) Optima s.p.a. SIM 1,939 Modena Terminal s.r.l. 188 Emilia Romagna Factor s.p.a. 3,038 Sardaleasing s.p.a. 112 BPER Credit Management s.c.p.a. - Total Group share 351,872 Consolidation adjustments (43,987) Consolidated net profit (loss) 307,885 The result for the BPER Services s.c.p.a. and BPER Credit Management s.c.p.a. consortia refers exclusively to the alignment with IAS/IFRS. 77

78 Group interim report on operations As required by current regulations, the following statement is presented with regard to the position at 30 June 2018: Reconciliation of the shareholders equity and results of the Parent Company with the related consolidated amounts Net profit (loss) for the period Increase (decrease) Shareholders' equity AMOUNTS RELATING TO THE PARENT COMPANY * 332,176 4,385,437 DIFFERENCES between the shareholders' equity of companies consolidated on a line-by-line basis (net of minority interests) and the book value of the related equity investments held by their parent companies, as follows: (20,250) (244,621) - adjustments to badwill related to consolidated companies (30,239) - elimination of intercompany profits and losses (9,707) - share of the results of fully consolidated companies, net of tax effect 19,696 DIVIDENDS collected from companies consolidated on a line-by-line basis or stated under the equity method (11,171) DIFFERENCE between book value and the interest in shareholders' equity (including results for the period) of companies consolidated at equity method 7, ,779 NET PROFIT FOR THE PERIOD AND SHAREHOLDERS' EQUITY OF THE PARENT COMPANY AS AT ,885 4,263,595 NET PROFIT FOR THE PERIOD AND SHAREHOLDERS' EQUITY OF MINORITY INTERESTS 14, ,358 TOTAL CONSOLIDATED NET PROFIT FOR THE PERIOD AND SHAREHOLDERS' EQUITY AS AT ,164 4,737,953 TOTAL CONSOLIDATED NET PROFIT FOR THE PERIOD AND SHAREHOLDERS' EQUITY AS AT ,232 TOTAL CONSOLIDATED NET PROFIT FOR THE PERIOD AND SHAREHOLDERS' EQUITY AS AT ,716,731 78

79 Group interim report on operations 6.4 Income statement aggregates Summary data from the consolidated income statement at 30 June 2018 is presented below in thousands of Euro, appropriately compared with the amounts at 30 June 2017 and highlighting the changes in absolute and percentage terms. The amounts reported at 30 June 2017 (determined in accordance with IAS 39) have been suitably reclassified to the new captions introduced by the 5th update of Bank of Italy Circular 262, without changing the net profit (loss) for the period. The amounts relating to the first half of 2017 do not include the data for Nuova Cassa di Risparmio di Ferrara s.p.a., which was acquired by the Parent Company on 30 June 2017 and subsequently absorbed. The results presented have been reclassified to the formats envisaged in the 5th update to Bank of Italy Circular 262/2005. The principal reclassifications related to the following captions: "Net result from financial activities" includes items 80, 90, 100 and 110 in the standard reporting format; indirect tax recoveries, allocated for accounting purposes to item 230 "Other operating charges/income", have been reclassified as a reduction in the related costs under "Other administrative expenses" (Euro 63,452 thousand at 30 June 2018 and Euro 60,982 thousand at 30 June 2017); "Net adjustments to property, plant and equipment and intangible assets" include captions 210 and 220 in the standard reporting format; "Gains (losses) on equity investments, disposal of investments and Impairment losses on goodwill"" include captions 250, 270 and 280 in the reporting format; "Contributions to the DGS, SRF and IDGF-VS funds" has been shown separately from the specific accounting technical forms to give a better and clearer representation, as well as to leave the "Other administrative costs" as a better reflection of the trend in the Group's operating costs. In particular, at 30 June 2018, this caption represents the component allocated for accounting purposes to administrative costs in relation to: o the 2018 contribution to the SRF (Single Resolution Fund) for Euro 20,347 thousand; o additional contribution requested by the SRF (Single Resolution Fund) for 2016 from Italian banks for Euro 8,593 thousand; o the 2018 contribution to the DGS (Deposit Guarantee Schemes) for Euro 12 thousand, representing only the amount required of Bper (Europe) International s.a. for the halfyear. 79

80 Group interim report on operations Consolidated income statement Item Change Change % Net interest income 573, ,119 3, Net commission income 389, ,224 29, Dividends 13,461 11,124 2, Net trading income 170,065 50, , (*) Other operating charges/income 19,659 24,608 (4,949) Operating income 1,165,743 1,015, , a) Payroll (420,434) (385,676) (34,758) b) (*) (**) Other administrative expenses (212,266) (201,492) (10,774) Net adjustments to property, plant, equipment and intangible assets (56,325) (40,697) (15,628) Operating costs (689,025) (627,865) (61,160) 9.74 Net operating income 476, ,743 88, a) Net impairment adjustments to Financial assets measured at amortised cost (84,934) (323,232) 238, b) Net impairment adjustments fo Finacial assets at fair valut through other 1,904 (71,617) 73, comprehensive income 140 Profit/loss from contract changes without derecognition (1,183) - (1,183) n.s. Net impairment adjustments to credit risk (84,213) (394,849) 310, Net provisions for risks and charges (37,039) (5,168) (31,871) ### Contributions to SRF, DGS, IDGF - VS (28,952) (15,947) (13,005) Gains (Losses) on disposal of investments and impairment losses on goodwill 5,418 6,548 (1,130) ### Gain on a bargain purchase - 130,722 (130,722) Profit from current operations before tax 331, , , Income taxes on current operations (9,768) 10,183 (19,951) Profit (Loss) for the period 322, , , Profit (Loss) for the periodo pertaining to minority interests (14,279) (170) (14,109) -- Profit (Loss) for the period pertaining 350 the Parent Company 307, , , Captions net of: (*) Recovery of indirect taxs 63,452 60,982 2, (**) Contributions to SRF, DGS, IDGF - VS (28,952) (15,947) (13,005)

81 Group interim report on operations Consolidated income statement by quarter at 30 June 2018 Captions 1st quarter nd quarter st quarter nd quarter 2017 (in thousands of Euro) 3rd 4th quarter quarter Net interest income 293, , , , , , Net commission income 198, , , , , , Dividends , , Net trading income 153,634 16,431 24,664 25,869 20,489 32, (*) Other operating charges/income 11,485 8,174 10,310 14,298 23,565 10,017 Operating income 657, , , , , , a) Payroll (207,534) (212,900) (194,125) (191,551) (191,656) (206,146) 190 b) (*) (**) Other administrative costs (102,285) (109,981) (96,628) (104,864) (107,465) (116,654) Net adjustments to property, plant and equipment and intangible assets (21,339) (34,986) (18,685) (22,012) (20,653) (26,079) Operating costs (331,158) (357,867) (309,438) (318,427) (319,774) (348,879) Net operating income 325, , , , , , a) Net impairment adjustments to Financial assets measured at amortised cost (26,141) (58,793) (133,573) (189,659) (89,722) (123,021) 130 b) Net impairment adjustments to Financial assets measured at fair value through other comprehensive income 1, (17,381) (54,236) (29,383) (3,628) 140 Profit/loss from contract changes without derecognition - (1,183) Net impairment adjustments tocredit risk (24,378) (59,835) (150,954) (243,895) (119,105) (126,649) 200 Net provisions for risks and charges (11,663) (25,376) (1,014) (4,154) (2,822) (37,901) ### Contributions to SRF, DGS, IDGF - VS (20,282) (8,670) (18,061) 2,114 (20,205) (1,569) Gains (Losses) on disposal of investments and impairment losses on goodwill 2,827 2,591 3,705 2,843 4,885 (21,319) ### Gain on a bargain purchase ,722-60, Profit from current operations before tax 272,403 59,529 25,011 84,038 52,560 37, Income taxes on current operations (6,918) (2,850) (7,743) 17,926 (23,696) (8,725) 330 Profit (loss) for the period 265,485 56,679 17, ,964 28,864 28, Profit (loss) for the period pertaining to minority interests (14,462) 183 (2,710) 2,540 1,032 (1,306) 350 Profit (Loss) for the period pertaining to the Parent Company 251,023 56,862 14, ,504 29,896 27,480 Captions net of: (*) Recovery of indirect taxes 31,823 31,629 29,981 31,001 31,382 33,811 (**) Contributions to SRF, DGS, IDGF - VS (20,282) (8,670) (18,061) 2,114 (20,205) (1,569) Net interest income Net interest income comes to Euro million, an increase of 0.59% (Euro million as at 30 June 2017); the result includes the benefit accruing to the first half of participating in emissions of TLTRO II for Euro 18.6 million. Furthermore, following application of the 5th update of Bank of Italy Circular 262/2005, the amount reported at 30 June 2018 includes interest income of Euro 51.7 million relating to the time value of non-performing loans (at 30 June 2017 this interest was classified in captions 130 Net impairment adjustments to loans ), as well as the writedown of part of the interest charged on nonperforming loans to customers, amounting to Euro 5.3 million in the first half of

82 Group interim report on operations (in thousands of Euro) Net interest income Change % Change 1. BPER Banca S.p.A. 398, ,150 (10,872) Bper (Europe) International s.a. 2,189 2, Banca di Sassari s.p.a. 14,943 8,536 6, Banco di Sardegna s.p.a. 107, ,380 3, Cassa di Risparmio di Bra s.p.a. 11,318 11, Cassa di Risparmio di Saluzzo s.p.a. 7,455 6, Total banks 541, , Other companies and consolidation adjustments 32,226 29,491 2, Total 573, ,119 3, Net interest income in thousands of Euro 300, , , , , , , , , , , , , , , ,000 2Q Q Q Q Q 2018 The quarterly amounts reported for 2017 have not been recalculated in accordance with the 5th update of Bank of Italy Circular 262/2005. Net commission income Net commissions, Euro million, were 8.30% higher than in the comparative period of This positive performance was achieved mainly thanks to the resilience of net commission income on the commercial business and the sharp increase in net commission income from indirect deposits and "bancassurance" (+26.57%), bearing in mind that the scope of consolidation is not entirely comparable. 82

83 Group interim report on operations (in thousands of Euro) Net commission income Change % Change Trading in currency/financial instruments 2,912 3,033 (121) Indirect deposits and insurance policies 136, ,640 28, Credit cards, collections and payments 72,884 70,090 2, Loans and guarantees 159, ,115 (522) Other commissions 17,422 18,346 (924) Total net commission income 389, ,224 29, NET COMMISSION INCOME in thousands of Euro 200, , , , , , , , , , , , , , , ,000 2Q Q Q Q Q 2018 Net result from financial activities The net result from financial activities (including dividends of Euro 13.5 million) was net income of Euro million (Euro 61.7 million for the period ended 30 June 2017). The net income was attributable, in particular, to gains on disposals of securities of Euro million and to other income of Euro 5.1 million, offset by total losses on disposals of financial assets of Euro 7.9 million. (in thousands of Euro) Net trading income (including dividends) Change % Change Dividends 13,461 11,124 2, Gain from disposal of financial assets and loans 172,857 29, , Capital gains on financial assets 23,990 27,674 (3,684) Capital Losses on financial assets (31,856) (7,899) (23,957) Other revenues (losses) 5,074 1,442 3, Total 183,526 61, ,

84 Group interim report on operations Operating income Considering other operating charges/income of Euro 19.7 million (24.6 million at 30 June 2017), Operating income totalled Euro 1,165.7 million (14.78% higher than in the first half of last year). Operating costs Operating costs totalled Euro 689 million, up by 9.74% compared with the first six months of The main components of operating costs are as follows Payroll costs, Euro million, were higher than in the comparative period (+9.01%). Other administrative expenses, stated net of indirect taxes recovered (Euro 63.5 million at 30 June 2018) and the contributions paid to the Resolution fund (Euro 29 million during the first half), amounted to Euro million, up by 5.35% compared with the same period in the previous year. "Net impairment losses on tangible and intangible assets" amounted to Euro 56.3 million (Euro 40.7 million in the first six months of 2017). This result was influenced by net impairment adjustments to land and buildings totalling Euro 12.8 million (Euro 3.4 million at 30 June 2017). Operating costs Change % Change 1. BPER Banca S.p.A. 494, ,210 47, Bper (Europe) International s.a. 1,928 1, Banca di Sassari s.p.a. 17,859 15,824 2, Banco di Sardegna s.p.a. 137, ,550 5, Cassa di Risparmio di Bra s.p.a. 11,163 10, Cassa di Risparmio di Saluzzo s.p.a. 10,798 10, Total banks 674, ,193 56, Other companies and consolidation adjustments 14,877 10,672 4, Total 689, ,865 61, The net result from operations was therefore Euro million (Euro million at 30 June 2017). Net impairment adjustments for credit risk The net impairment adjustments for credit risk, calculated in accordance with the rules introduced by IFRS 9, amounted to Euro 84.2 million. More specifically, the net adjustment of financial assets measured at amortised cost totalled Euro 84.9 million, while a writeback on debt securities measured at fair value amounted to Euro 1.9 million. At 30 June 2017, the net impairment adjustments calculated in accordance with IAS 39 totalled Euro million, of which Euro million related to loans to customers and Euro 71.6 million to financial assets available for sale. As already discussed, the coverage of non-performing loans (56.85%) has risen since the end of 2017 (+815 b.p.). 84

85 Group interim report on operations The net impairment adjustments for credit risk on loans to customers are analysed below: Net impairment adjustments for credit risk on loans to customers Captions 130 a) (in thousands of Euro) Change % Change 1. BPER Banca S.p.A. 46, ,877 (205,710) Bper (Europe) International s.a. 1, , Banca di Sassari s.p.a. 1,928 (107) 2, Banco di Sardegna s.p.a. 14,642 52,117 (37,475) Cassa di Risparmio di Bra s.p.a. 5,758 5,916 (158) Cassa di Risparmio di Saluzzo s.p.a. 2,120 1, Total banks 71, ,535 (239,551) Other companies and consolidation adjustments 10,704 11,697 (993) Total 82, ,232 (240,544) the overall cost of credit at 30 June 2018, calculated with reference to customer loans, is 18 b.p. or 36 b.p. on an annualised basis; the cost of credit at 30 June 2017 was 69 b.p., while the actual cost for the year to 31 December 2017 was 112 b.p. Net provisions for risks and charges Net provisions for risks and charges come to Euro 37 million; as envisaged in the 5th update of Bank of Italy Circular 262/2005 adopting IFRS 9, this caption includes net writebacks on commitments and guarantees granted totalling Euro 11.9 million (up by Euro 5.5 million compared with the first half of last year). Contributions to the SRF, DGS and IDGF-VS Funds The contributions paid during the first half totalled Euro 29 million (Euro 15.9 million at 30 June 2017). This amount comprises the ordinary contribution for 2018 paid to the SRF (European Single Resolution Fund), Euro 20.3 million, the additional contributions for 2016 requested from Italian banks by the SRF (Euro 8.6 million) and the amount paid to the DGS (Deposit Guarantee Fund) by Bper (Europe) International s.a., Euro 12 thousand. Gains (losses) on equity investments, disposal of investments and impairment losses on goodwill The net gain of Euro 5.4 million (Euro 6.5 million at 30 June 2017) mainly resulted from the measurement of equity investments using the equity method, Euro 7.1 million, net of writedowns on the investments held in Immobiliare Oasi nel Parco s.r.l. (Euro 1.6 million) and Galilei Immobiliare s.r.l. (Euro 0.1 million). 85

86 Group interim report on operations Net profit The profit from current operations before tax amounts to Euro million (Euro 109 million at 30 June 2017); the results for the first six months of the prior year were influenced by the gain on a bargain purchase recorded on the acquisition of Nuova Carife s.p.a. Income taxes for the period amounted to Euro 9.8 million, principally as a result of deferred taxation. No deferred tax assets have been recognised in relation to carried-forward tax losses totalling Euro 1,465.1 million. Net profit after taxes amounted to Euro million (Euro million at 30 June 2017). The minority interest in net profit totalled Euro 14.3 million (Euro 0.2 million at 30 June 2017). The net profit pertaining to the Parent Company amounted to Euro million (Euro million at 30 June 2017). (in thousands of Euro) Net profit Change % Change 1. BPER Banca S.p.A. 332,176 4, , Bper (Europe) International s.a ,783 (1,186) Banca di Sassari s.p.a. 3,978 1,287 2, Banco di Sardegna s.p.a. 31,300 1,089 30, Cassa di Risparmio di Bra s.p.a. 1, , Cassa di Risparmio di Saluzzo s.p.a. 560 (374) Total banks 370,047 8, , Other companies and consolidation adjustments (62,162) 110,137 (172,299) Total 307, , , Employees Employees Change 1. BPER Banca S.p.A. 8,329 8, Bper (Europe) International s.a Banca di Sassari s.p.a Banco di Sardegna s.p.a. 2,439 2,451 (12) 5. Cassa di Risparmio di Bra s.p.a Cassa di Risparmio di Saluzzo s.p.a (1) Total banks 11,273 11,279 (6) Subsidiaries consolidated line-by-line Total of balance sheet 11,655 11,653 2 The employment numbers stated relate to the position at 30 June Group employment at 30 June 2018 includes 1,467 persons seconded within the Group (1,463 at 31 December 2017), of which 1,064 are with BPER Services s.c.p.a. (1,061 at 31 December 2017) and 164 with BPER Credit Management s.c.p.a (163 at 31 December 2017) 86

87 Group interim report on operations 6.6 Geographical organisation Branches Change 1. BPER Banca S.p.A Banco di Sardegna s.p.a Cassa di Risparmio di Bra s.p.a Cassa di Risparmio di Saluzzo s.p.a Total Italian bank 1,219 1, Bper (Europe) International s.a. - Lussemburgo Total 1,220 1,219 1 The BPER Banca Group's Italian banks are located throughout the country as can be seen from the following table: 87

88 Group interim report on operations Details BPER Banca BSAR CR BRA CR SALUZZO Emilia - Romagna Bologna Ferrara Forlì Cesena Modena Parma Piacenza Ravenna Reggio Emilia Rimini Abruzzo Chieti L Aquila Pescara Teramo Basilicata Matera Potenza Calabria Catanzaro Cosenza Crotone Reggio Calabria Vibo Valentia Campania Avellino Benevento Caserta Naples Salerno Lazio Frosinone Latina Rieti Roma Viterbo Liguria Genova La Spezia Savona Lombardy Bergamo Brescia Cremona Lecco Lodi Mantua Milan Monza Brianza Varese Marche Ancona Ascoli Piceno Fermo Macerata Pesaro-Urbino

89 Group interim report on operations Details BPER Banca BSAR CR BRA CR SALUZZO Molise Campobasso Isernia Piemonte Alessandria Asti Cuneo Torino Puglia Bari Barletta Andria Trani Foggia Taranto Sardegna Cagliari Nuoro Oristano Sud Sardegna Sassari Sicilia Agrigento Catania Messina Palermo Siracusa Toscana Firenze Pisa 1 1 Livorno Lucca Pistoia Prato Trentino-Alto Adige Trento Umbria Terni Veneto Belluno Padova Rovigo Treviso Venezia Verona Vicenza Total as at ,219 Total as at ,218 Changes during the period of the Group's territorial organization 1 89

90 Group interim report on operations 7. Principal risks and uncertainties 7.1 Risk management BPER Banca Group establishes its risk governance, assumption, control and monitoring policies on the basis of guidelines approved by the Parent Company's Board of Directors and that are applicable to all organisational units of the Parent Company and other Group companies; these regulate the management and control process, which is designed to cope with the risks to which they are exposed, as well as the roles of the bodies and functions involved. To ensure the achievement of strategic and operational objectives, BPER Banca Group considers its Internal Control System (governed by "Group Guidelines - Internal Control System", in line with Bank of Italy Circular 285 of 17 December 2013 Supervisory instructions for banks) to be a fundamental element of the risk governance system and as a means of ensuring that the business is run in line with its corporate strategies and policies, as well as in compliance with concepts of sound and prudent management. This system is organised to improve profitability, protect its financial strength, ensure compliance with internal and external regulations and codes of conduct, promote transparency towards the market by managing the risks taken on by the Group and, more in general, to ensure that the business is run in accordance with the Group's strategies and declared risk appetite. BPER Group's internal control system involves corporate bodies, control functions and line structures and is designed to take account of the business specifics of each Group Company and to comply with the principles established by the Supervisory Authorities, being: proportionality in the application of rules according to size and operations; gradual and progressive transfer to more advanced methodologies and processes for measuring risk and the capital that is available as a result; unity in the definition of the approaches used by the various functions foreseen in the Group's organisational system; economy: containment of costs for intermediaries. The BPER Banca Group uses the Risk Appetite Framework (RAF) to monitor the risk profile deemed acceptable for implementation of the business strategies adopted by the Group (for further details, refer to section 8.2 "Governance of risks (RAF)"). To ensure the implementation, BPER Banca Group, in compliance with prudential supervisory regulations (Bank of Italy Circular no. 285 of 7 December 2013), performs the identification of major Pillar 1 and Pillar 2 risks to which it is or could be exposed by taking account of its operations and markets, in a current and future perspective. The risk identification process forms a basis for regular updates to the Group risk map, which establishes the scope of major risks in a current and future perspective, whereby the Group risk map is acknowledged to be of value for the management and governance of risks. In line with the RAF defined by the Parent Company, for each risk identified as significant, the Board of Directors of BPER Banca sets, with a special "governance policy", the risk objectives, the related risk exposure and operational limits and the "process of risk assumption and management". In line with the relevant regulations, the Corporate Bodies have a central role in the process of risk governance, providing for certain responsibilities with regard to the design, implementation, evaluation and external communication, as part of the development of the Group's system of internal controls. 90

91 Group interim report on operations The Parent Company's Board of Directors therefore performs the strategic supervision function at Group level, intervening in all phases envisaged by the model and, by issuing strategic directives, involving the Boards of Directors of the individual Group Banks and Companies for the activities that are their responsibility, i.e.: it gives the CEO adequate powers and resources to implement the strategic guidelines, the RAF and risk governance policies defined by the Board of Directors of the Parent Company in the design of the internal control system and is responsible for taking all the necessary steps to ensure that the organisation and its internal control system comply with the principles and requirements laid down in regulatory provisions, monitoring compliance on an ongoing basis; it receives, either directly or through the CEO, the information flows required to gain a full awareness of the various risk factors and the ability to govern them, as well as to plan and implement interventions to ensure the compliance and adequacy of the Internal Control System. The various bodies of the Parent Company with delegated powers (i.e. the Executive Committee, Chief Executive Officer and Executive Board, in other words those with appropriate powers to carry on the functions of day-to-day management) perform the management function in all stages of the model. Added to these are the delegated bodies of the individual Companies that ensure implementation of management's strategies and policies at their own level. The Boards of Statutory Auditors of the Parent Company and of Group companies, each to the extent of its own responsibilities, carry out the assessment of the internal control system foreseen by law and the articles of association and have the responsibility of ensuring the completeness, suitability and functionality of the internal control system and of the RAF. The results of these assessments are brought to the attention of the respective Boards of Directors. Risk governance is also assisted by the articulated and consolidated system of Group Committees, which meet on a regular basis (also expanded to include the General Management of Group Banks), monitoring of the overall risk profile of the Group and contributing, together with the Parent Company's Board of Directors, to the definition of the risk management policies. The following tasks are generally assigned to the Committees: to communicate and share information on changes in the Group s risk profile; to implement the function of guidance and coordination entrusted to the Parent Company; to support the competent Corporate Bodies in the area of risk management; to identify and propose strategic guidelines and policies for the management of Group risk. In particular, the Risks Committee, a body with consultative powers, assists the Chief Executive Officer in the determination and implementation of the risk appetite framework, of risk governance policies and of the capital adequacy process for the Group and the companies pertaining thereto, as well as in the preparation of management reporting on risks and development and monitoring of the system of operating limits. To this effect, the Committee is responsible for examining the following issues: risk capacity, risk appetite, risk tolerance, risk profile and risk limits under both normal and stressed conditions; consistency of and constant link between and among the business model, the strategic plan, the RAF, ICAAP and ILAAP processes, the budget, business administration and the internal control system; the risk management process indicates the series of rules, procedures, methodologies and models, resources (human, technological and organisational) and control activities to identify, 91

92 Group interim report on operations measure or assess, monitor, prevent or mitigate and to communicate, by means of a specific reporting process, all risks assumed or assumable by the Group. The Risks Committee is also responsible for the examination of methodologies, tools, reporting and internal regulations attributable to the Risk Control, Compliance, Anti-Money Laundering and Validation functions and to the Manager responsible for preparing the company's financial reports (hereinafter Manager responsible). Decentralised at the individual Group companies there are people who act as "Contacts" for all of the second level control functions, in addition to the manager responsible for preparing the company s financial report for the area, for the following purposes: overseeing operations in line with the Parent Company's duties of guidance and coordination, taking into account specific local aspects and the type of business carried on by individual Group companies; ensuring effective operational links between the Parent Company and each Group company; all communication flows to corporate bodies. With respect to reporting, the Group has prepared an organic set of periodic reports to ensure the provision of adequate information to the Corporate Bodies of the Parent Company and the Group Banks about their risk exposure. The analyses contained in these reports are discussed in the various committees and are the basis of the assessment of capital adequacy, subsequently brought to the attention of Parent Company's Board of Directors. Credit risk With regard to credit risk, the measurements made by the internal rating system are used for management reporting purposes. In particular: on a quarterly basis we elaborate the Credit Risk Book, which is the basic information support for the Risk Committee and contains detailed reports at a consolidated and individual company level; a summary report is prepared on a monthly basis, including the monitoring of supervisory thresholds set for credit and concentration risk; a network reporting tool is prepared, characterised by different views of the loan portfolio, with different levels of aggregation (Branch, Regional Division, General Management, Bank and Group) and hierarchical visibility cones. Important activities in the first half of 2018 concerning the Basel 2 project included the following: the LGD (Loss Given Default) model update; recalibration of the risk models used to calculate the PD (Probability of Default) for corporate and retail counterparties. Advanced methodologies (AIRB) based on internal ratings have long been used as part of the process of defining capital adequacy (ICAAP). Following the ECB's authorisation in June 2016 to use internal models for measuring capital requirements for credit risk, starting from the June 2016 Regulatory Reports, the BPER Banca Group 92

93 Group interim report on operations began using AIRB methods for the banks included in the scope of the first validation (BPER Banca, Banco di Sardegna and Banca di Sassari) for the following asset classes: "Exposures to retail businesses"; "Exposure to companies". The other Group companies and asset classes for which Permanent Partial Use (PPU) is not required or which are not included in the roll-out plan, the BPER Banca Group will continue to use the Standardised Approach and the external ratings supplied by the ECAIs (external agencies for the assessment of creditworthiness) recognised by the Supervisory Authority. In particular, the Group used the Cerved Rating for "Exposures to companies," the Scope Ratings AG Rating for "Exposures to central administrations or central banks", the Fitch Rating for "Financial Instruments" lodged in guarantee, "Exposures to UCITS" and "Exposures to securitisation". Financial risk An analytical system is used to measure, monitor and report on market, counterparty, liquidity and interest-rate risks. Guidance on management policies for market risk (VaR - Value at Risk), interest rate risk (ALM) and liquidity risk (operational and structural) is provided by the ALCO and Finance Committee and the Liquidity Committee. Operational reports are prepared on the risk profile, with frequencies varying from daily to monthly dependent on the characteristics of each risk that is monitored. Every quarter, an overall report on financial risks is presented to the Risks Committee and the Board of Directors. Operational risk As regards the governance of operational risk, starting from the supervisory reports at 31 December 2013, the BPER Banca Group adopted the Traditional Standardised Approach (TSA) to calculate the capital requirement for operational risk. The model of operational risk governance and management adopted by the BPER Banca Group, designed to identify, assess, monitor, mitigate and report operational risks to the appropriate hierarchical levels, is formalised in specific internal rules. It provides for the centralised management at the Parent Company by the Credit and Operational Risk Department, which has a Contact of the Risk Management Department in place at all Group banks and companies. The BPER Banca Group has specific criteria for allocating the relevant indicator to the lines of business foreseen in the regulations. The operational risk management and measurement system adopted by the BPER Banca Group is ensured by: the Loss Data Collection process: a system for collecting and recording loss events resulting from operational risks; the Prospective measurement of operational risk process: identification and measurement of the exposure to operational risk; system of reporting and communication to the Board of Directors and Senior Management, together with procedures to undertake appropriate mitigation actions based on the information flows sent. The combined analysis of loss data collection and the prospective measurement of operational risk makes it possible to identify areas of vulnerability in which operating losses are more concentrated, in order to understand the underlying causes and highlight the opportunity for corrective actions, including insurance cover (external transfer of risk). 93

94 Group interim report on operations The prospective measurement of operational risk, based on subjective estimates of the exposure to operational risk collected from the individual business units within the Group (Risk Self Assessment), has been supplemented since 2016 by a component that uses quantitative models to provide a summary measure of the exposure to operational risk (Scenario Analysis). Since 2015, the BPER Banca Group has implemented an analytical framework for IT risk, with the aim of providing a representation of the current situation and the adjustment interventions necessary to avoid exceeding the threshold set for the Group's risk appetite. Specific analysis is conducted on the security of internet payments. Reputational risk Commencing from 2017, the BPER Banca Group has implemented a framework for the management of reputational risk in order to monitor, manage and periodically present in an organised manner the position of the Group in relation to this risk, together with the corrective actions needed to mitigate any vulnerabilities identified. The principal elements comprising the framework for the management of reputational risk are described and formalised in the "Group policy on the governance of reputational risk". This document centralises the management of this activity within the Operations and Credit Risk Department of the Parent Company, and specifies the responsibilities of the organisational units within the Parent Company and the Group companies concerned, both under normal operating conditions and should any "critical reputational events" occur. The system of reputational risk management adopted by the BPER Banca Group has the following components: identification and assessment of risk based on Reputational Data Collection and Reputational Self Assessment; monitoring of the Group's exposure to reputational risk using a series of specific Key Risk Indicators; management of critical reputational events (escalation): management of particularly critical reputational events, by means of a functional escalation process and the determination of short and long term responses and mitigation; reporting: preparation of suitable reports, based on the various processes/sub-processes comprising the framework, in order to present in summary form the outcome of the risk management activities to all bodies and functions concerned. No objectives or operational or exposure limits have been defined for this risk, as no internal capital is allocated to cover it. Business Continuity The annual activities involved in the Routine management of operational business continuity were progressed during the first half of 2018, with a view to updating the Continuity Plans of the Parent Company and the banks and companies within the banking group. New elements introduced during the first half of 2018 process included: 94

95 Group interim report on operations publication of the Group Organisational Procedure for the Routine management of operational business continuity, which completed the detailed governance of the sub-processes underlying the update of impact analyses and the preparation of Continuity Plans; finalisation of the ORBIT system (software version 4) which, from the current year, guarantees the effective management and use of the information needed to ensure continuity at banks and group companies, as well as prepare the technical attachments to the Business Continuity Plan; adoption of a mass notification solution that will be useful in emergency situations; delivery of additional training sessions designed to decentralise business continuity skills, thus empowering the managers of critical processes; finalisation of the layout of forms and the adoption of quali/quantitative parameters usable by individual process managers to update them, as envisaged in the current regulations. Activity during the period also included: a Quality Review of the Business Continuity programme by an external company (Panta Ray), which was carried out in accordance with the methodological principles promoted by the BCI Good Practice Guidelines and in compliance with the principles promoted by the main standards (ISO 22301:2012). The very positive outcome stated: the BPER Banca Group achieves absolute excellence in the area of operational business continuity in Italy and abroad, due to the assignment of specific responsibilities to staff at all levels, including with regard to ensuring the operational continuity of critical suppliers. In particular, the report noted that the Quality Review highlights that the BPER Banca Group and its Management recognise Business Continuity as a value, an investment and an opportunity for the sustainability and profitability of the business over the long term Indeed, the documentation relating to operational continuity is compliant, complete, organised and fully comprehensive with regard to both the regulatory requirements - Bank of Italy Circular and the requirements of the relevant international standards - ISO 22301: The detailed documentation is available from the Business Continuity Manager at the Parent Company; internal audit work to Assess the framework and check its adequacy/conformity and Analyse the management and functioning of the Business Impact Analysis BIA over the three-year period The outcome of this work was also favourable overall; two matters were identified with medium-low impact (one relating to the high level of manual involvement in certain aspects and the other to the need to request the managers of critical processes for the expected value of the Recovery Point Objective when carrying out the BIA) that are already being resolved. The routine update of the Group's Business Continuity Plans will be completed during the second half of the year, consistent with the guidelines given. Lastly, the principal camper used as a Mobile Branch at fairs and during emergencies (road vehicles equipped as branches, used in particular following the floods and earthquakes in Emilia and Abruzzo) will be replaced with a suitably-equipped vehicle. 95

96 Group interim report on operations 7.2 Disclosure of exposures to sovereign debt held by listed companies Details are provided below of bonds issued by central and local governments and by government entities, as well as loans granted to them as required by CONSOB Communication DEM/ of 5 August Debt securities Issuer Rating Cat Nominal value Book value Fair Value OCI Reserves % Governments (*): 5,989,198 6,496,540 6,327,125 (19,213) 96.36% Italy BBB 5,057,954 5,592,699 5,421,490 (28,825) 82.96% FVTPLT 14,437 14,392 14,392 # FVO 170, , ,189 # FVTPLM 50,000 50,667 50,667 # FVOCI 1,561,017 1,626,415 1,626,415 (28,825) AC 3,262,500 3,695,036 3,523,827 # European Stability Fund AA 215, , ,070 8, % FVTPLT # FVO # FVTPLM # FVOCI 170, , ,921 8,836 AC 45,000 50,123 48,149 # U.S.A. AAA 240, , ,739 (4,005) 3.03% FVTPLT # FVO # FVTPLM # FVOCI 120, , ,301 (4,005) AC 120, , ,438 # Spain A- 200, , , % FVTPLT # FVO # FVTPLM # FVOCI AC 200, , ,892 # Belgium AA+ 120, , , % FVTPLT # FVO # FVTPLM # FVOCI AC 120, , ,287 # 96

97 Group interim report on operations Issuer Rating Cat Nominal value Book value Fair Value OCI Reserves % France AA 100,000 98,987 98,987 4, % FVTPLT # FVO # FVTPLM # FVOCI 100,000 98,987 98,987 4,883 AC # Others 56,244 52,812 52,660 (102) 0.78% FVTPLT 2,244 2,275 2,275 # FVO # FVTPLM # FVOCI 19,000 17,277 17,277 (102) AC 35,000 33,260 33,108 # Other public entities : 251, , ,436 1, % Italy - 5,150 2,415 2, % FVTPLT 2, # FVO # FVTPLM # FVOCI AC 1,484 1,483 1,625 # Canada - 48,000 48,154 48, % FVTPLT # FVO # FVTPLM # FVOCI 48,000 48,154 48, AC # Japan - 31,000 25,738 25,738 (685) 0.38% FVTPLT # FVO # FVTPLM # FVOCI 31,000 25,738 25,738 (685) AC # France - 95,000 94,973 96,008 1, % FVTPLT # FVO # FVTPLM # FVOCI 80,000 80,010 80,010 1,853 AC 15,000 14,963 15,998 # Germany - 72,000 73,939 73, % FVTPLT # FVO # FVTPLM # FVOCI AC 72,000 73,939 73,979 # Total as at ,240,348 6,741,759 6,573,561 (17,773) % (*) The individual percentages shown in the above table may not agree with the total because of roundings. The ratings indicated are those of Fitch Rating at 30 June

98 Group interim report on operations Loans and advances Issuer Rating Cat Nominal value Book value Fair value AFS Reserves % Governments: 1,976,898 1,976,898 1,975, % Italy BBB 1,976,898 1,976,898 1,975, % FVTPLT # FVO # FVTPLM - FVOCI # AC 1,976,898 1,976,898 1,975,948 # Other public entities: 296, , , % Italy - 292, , , % FVTPLT # FVO # FVTPLM FVOCI # AC 292, , ,580 # Algeria - 3,757 3,757 3, % FVTPLT # FVO # FVTPLM FVOCI # AC 3,757 3,757 3,757 # Total loans 2,273,519 2,273,519 2,281, % The ratings indicated are those of Scope Ratings at 30 June Based on their "Book Value", repayment of these exposures is distributed as follows: on demand until 1 year 1 to 5 years over 5 years Total Debt securities - 332,483 1,782,177 4,627,099 6,741,759 Loans 283,040 5, ,203 1,854,684 2,273,519 Total 283, ,075 1,912,380 6,481,783 9,015, Main litigation and legal proceedings pending At 30 June 2018, the total risks of tax disputes covered by the provisions included in "Provisions for risks and charges" amounted to Euro 2,890 thousand, entirely attributable to the Parent Company, partly in its role as the absorbing company. Details are provided below about the main disputes and the status of the main issues mentioned in previous financial statements, to which reference should be made for further information. 98

99 Group interim report on operations a) BPER Banca (formerly Emro Finance Ireland Ltd) tax years By the time of preparing this report, the Bologna regional tax commission has ruled partially in favour of the appeal filed by the Tax Authorities to overturn the first-level ruling, which was entirely favourable to the taxpayer. On 13 June 2018 the Bank appealed to the Court of Cassation, in the absolute conviction that it has operated properly. Considering the fiscal opinion issued by legal counsel, which does not believe it likely that the case will be lost, the Bank has not recorded any related provisions for risks and charges at the time of preparing this report. b) BPER Banca (former Cassa di Risparmio della Provincia dell Aquila and former Banca popolare di Lanciano e Sulmona): subsidised loans relating to the "Abruzzo earthquake" for the tax years No new elements have arisen at the time of preparing this report. Please refer to the consolidated financial statements at 31 December At 30 June 2018, the related provisions total Euro 1,410 thousand. c) BPER Banca (former Meliorbanca): writedown of agricultural loans as per art. 106 of the Consolidated Income Tax Law, tax year 1999 No new elements have arisen at the time of preparing this report. Please refer to the consolidated financial statements at 31 December At 30 June 2018, there is a provision of Euro 871 thousand for the tax still to be paid. d) BPER Banca: litigation with the Tax Authorities: "IRES - IRAP 2012" On 3 April 2017, the Emilia-Romagna Regional Tax Authorities informed BPER Banca of two partial notices of assessment pursuant to article 41-bis of Presidential Decree 600/73, aimed at the recovery of higher IRES and IRAP, plus sanctions and interest, for a total of Euro 1,755 thousand. Disputes concern alleged violations of transfer pricing (art. 110, paragraph 7 of the Consolidated Income Tax Law) and the principle of correlation of costs and revenues for IRAP purposes (art. 6 of Legislative Decree 446/97). No agreement was reached through the amicable settlement procedure, which had been activated by the Bank as a preventive measure; so on 29 September 2017, appeals were filed against the assessment notices in order to have the matter heard before the Provincial Tax Commission of Bologna. The Bank does not currently believe that this matter will have adverse consequences. BPER Banca (former Cassa di Risparmio dell Aquila) - Investigation into what the media have labelled the "Parioli scam" As regards what the media have labelled the "Parioli scam", in the civil case brought by the alleged victims, the Bank is defended by a special team of lawyers formed and coordinated by Prof. Francesco Astone of Rome, with whom an agreement has been signed. At this time, 52 cases are pending before the first-level court, while rulings have been made on another 23 cases. With the first ruling, in chronological order, BPER Banca was sentenced to pay limited damages of Euro 16 thousand. With regard to this decision, for which the reasons appear to be groundless, the Bank presented its appeal based on a series of reasons. The subsequent twenty-two rulings made from 2015 to 2018 have all rejected the 99

100 Group interim report on operations applications with, in some cases, the plaintiffs being required to pay the litigation expenses incurred by the Bank. The respective plaintiffs have appealed against fifteen of these rulings, which were in favour of the Bank, to the civil Court of Appeal of Rome. Given the above, it is currently believed that there is only a remote possibility that the Bank will suffer adverse consequences as a result of this matter; consequently, in accordance with IAS 37, it was decided not to make any provision. Banco di Sardegna s.p.a - Audits by the Tax Authorities During the period, no materially significant notices of assessment or dispute were received. - Litigation concerning Istituto per il Credito Sportivo No significant events took place during the first half of 2018 in relation to the dispute with Istituto di Credito Sportivo, the ruling on which has been deferred to 28 January Istituto per il Credito Sportivo returned to ordinary operations on 1 March 2018, with the first operational board meeting that appointed the General Manager. Following the end of the compulsory administration period, the Institute must now comply with the new supervisory rules on lending. - IRPEG ILOR-IRAP tax assessments for The Court of Cassation has rejected the appeals filed by the Tax Authorities against the rulings of the regional commission, which had confirmed the cancellation of two separate notices of assessment issued for the 1997 and 1998 tax years. The principal matters raised by the Tax Authorities related to the Sardinia 1 securitisation. In particular, they disputed the definitive nature of the loan disposals and, accordingly, the tax significance of the resulting loss. Additional matters related to the commissions that Banco di Sardegna paid to Casse comunali di credito agrario for its services, which the Tax Authorities did not believe were proper deductible business expenses. Based on the matters raised, the Tax Authorities demanded the payment of about Euro 76 million for taxes, penalties and interest. These decisions of the Court of Cassation, confirming the favourable rulings handed down by the various tax commissions, have marked the end of a long, insidious and complicated set of proceedings that derived from a 2001 tax inspection carried out by the Sardinian Regional Department of the Tax Authorities. - Warrant issued by the Public Prosecutor On 3 March 2017 Banco di Sardegna was sent a notice under art. 415-bis of the Code of Criminal Procedure, with the conclusions of the investigations that originated from the results of the Inspection carried out by the Bank of Italy at Banco di Sardegna in the first half of This notice concerns criminal proceedings brought by the Public Prosecutor at the Court of Cagliari against Banco di Sardegna S.p.A., under Legislative Decree 231/2001, and its officers during the period 2010/2012 and refers to an alleged offence under art of the Italian Civil Code. On 25 May 2018 the magistrate in charge of the investigation requested that the case be filed and the related decree was registered on 26 July

101 Group interim report on operations 8. The internal control system 8.1 Introduction The Board of Directors of the Parent Company 38 has established internal control guidelines for the entire BPER Banca Group by issuing and implementing "Guidelines for the Group internal control system" 39, in line with the Regulations for the prudential supervision of banks (Bank of Italy Circular 285 of 17 December 2013 "Supervisory Instructions for Banks" and subsequent updates). The development of this system is discussed in the "Directors' report on Group Operations" accompanying the consolidated financial statements at 31 December Risk management (RAF) The Risk Appetite Framework (RAF) forms part of the Group's internal control system and acts as a frame of reference, in terms of methodologies, processes, policies, controls and systems, designed to establish, communicate and monitor the Group's risk appetite, this being understood as the set of values that reflect the Group's risk objectives (or "risk appetite"), tolerance thresholds (or "risk tolerance"), as well as the related operational limits. in both ordinary and stress conditions, which the Group intends to respect in pursuing its strategic guidelines, defining consistency levels and the maximum risk that it is able to take on ("risk capacity"). The BPER Banca Group identifies the Risk Appetite Framework (RAF) as a tool for overseeing the risk profile that the Group intends to take in the implementation of its business strategies, considering it as an essential element to ensure that the risk governance policy and process by which risks are handled comply with the principles of sound and prudent business management. The RAF takes on the importance of a management tool that not only permits concrete application of the regulations, but also makes it possible to activate synergistic governance of the planning, control and risk management activities. It is also a key element to: strengthen the ability to govern business risks, facilitating the development and dissemination of an integrated risk culture; ensure alignment between strategic guidelines and the levels of risk assumed, through the formalisation of consistent objectives and limits; develop a quick and effective system of monitoring and reporting the risk profile taken on. The key principles of the RAF are formalised and approved by BPER Banca, which periodically reviews them, ensuring that they are in line with the strategic guidelines, business model and regulatory requirements in force at the time. Lastly, the Group periodically monitors the overall RAF metrics, in order to control on a timely basis any overruns of the tolerance thresholds and/or risk limits assigned and, if appropriate, handle the necessary communications to the Corporate Bodies and subsequent remedies. The Group's risk appetite is expressed: in specific areas of analysis defined in accordance with the Supervisory Provisions (capital adequacy, liquidity and measures that reflect risk capital or economic capital) and the expectations and interests of other Group stakeholders; through summary indicators (RAF metrics) that represent regulatory constraints and the risk profile defined in accordance with the capital adequacy verification process and risk management processes. The RAF metrics are defined at Group level and can be adapted to 38 Throughout the chapter, any reference to the Board of Directors or the Chief Executive Officer or any other Corporate Bodies are to be understood as referring to the Parent Company BPER Banca, unless otherwise specified. 39 Last update approved by Board of Directors of the Parent Company on 29 November

102 Group interim report on operations individual risks of strategic importance for the Bank and other relevant analysis axes identified in the strategic planning process. More specifically, the RAF management process is split into the following stages: set up of the RAF structure: definition of the elements that express the Group's level of risk appetite for measurable and non-measurable risks; calibration of measurements for RAF metrics: definition of the calibration rules for RAF metrics and quantification of the levels of risk appetite, risk capacity and risk tolerance, consistent with management's decision in terms of strategic planning and economic/financial forecasting; formalisation and approval of the decisions taken within the ambit of the RAF in the Risk Appetite Statement (RAS), which is subject to periodic update; declension of the RAF metrics by type of risk or other relevant analysis axes to transfer the levels of risk appetite and risk tolerance to the corporate structures involved in taking on the risk so as to direct operations in a consistent manner; monitoring and managing threshold overruns by verifying the trend in the risk profile compared with the risk tolerance, operational limits and risk capacity and consequent activation of measures to reduce any overruns; periodic communication and reporting on the evolution of the risk profile compared with the risk appetite, risk tolerance and risk capacity thresholds and on implementation of diversified action plans according to the purpose of the communication and the recipients in terms of the corporate bodies/functions of the Company and the Group. The process defines the roles and responsibilities of the corporate bodies and functions involved, adopting coordination mechanisms that ensure the effective inclusion of risk appetite within operational activities. In particular, the Group reconciles the RAF, business model, strategic plan, ICAAP and budget in a consistent manner via a complex system of coordination mechanisms. In line with the RAF process, the Board of Directors of the Parent Company, at its meeting of 28 November 2017, approved the proposal to revise the structure of the RAF and to update the list of indicators. At the subsequent meeting of 19 December 2017, the Board of Directors of the Parent Company proceeded to calibrate the limits and the monitoring thresholds on the set of indicators defined. At the meeting held on 25 January 2018, the process of defining the Risk Appetite Statement was completed with the definition of the qualitative statements for non-measurable risks. 8.3 Development of the internal control system The Parent Company manages the Group's internal control system through a cyclical process that involves the following phases: design; implementation; measurement; communicating outside the Group. The individual phases are described in the consolidated financial statements at 31 December

103 Group interim report on operations 9. Other information 9.1 Treasury shares No quotas or shares in Group companies are held through trust companies or other third parties; furthermore, such parties were not used during the period to buy or sell shares or quotas in Group companies. The carrying amount of the Group s interest in the treasury shares held by consolidated companies, classified as a deduction from shareholders' equity caption 180, is Euro 7,258 thousand, of which Euro 7,253 thousand relates to BPER Banca shares held by the Parent Company. Shares of BPER Banca S.p.A. Number of shares Total par value Group interest Total as at ,458 1,366,374 7,253,180 Total as at ,458 1,366,374 7,253,180 There are also 55,919 shares relating to Banca di Sassari s.p.a., held by it, for a total of Euro 5 thousand. 9.2 Share price performance The Euro Stoxx 50 index declined by 3.1% during the first half of 2018, while the Italian FTSE MIB eased by 1.0%. The Italian exchange outperformed the other European indices until mid-may; subsequently, political tensions resulted in a major market correction and the 10-year BTP-Bund spread widened. Against this difficult background, the price of BPER shares rose by 11.8%, which was among the best in the sector. The official share price of BPER Banca rose from Euro at 31 December 2017 to Euro at 30 June 2018, despite the overall fall in the Italian index and that of the domestic banking sector (-8.1%). The trading volumes of BPER Banca shares stabilised at a daily average of over 6 million shares a day in the period, reflecting the stock's good liquidity and visibility for investors. 103

104 Group interim report on operations BPER share price and volumes Volumes Share price 9.3 Rating at 30 June 2018 Fitch Ratings On 27 April 2018, Fitch Ratings confirmed the long-term and short-term ratings at BB and B respectively and raised the outlook for BPER Banca to positive from stable. This action was influenced by the expected strengthening of the financial profile of the BPER Banca Group, given the important steps planned in order to improve credit quality. Fitch also highlighted improvements in the indicators of asset quality, the satisfactory level of capitalisation with respect to the regulatory minimums and the expected gradual improvement in operating profitability. The ratings assigned to BPER Banca are detailed below: Long-term Issuer Default Rating: remained BB; Outlook revised upwards to positive from stable; Short-term Issuer Default Rating: remained B; Viability Rating: remained bb; Support Rating: remained 5; Support Rating Floor: remained No Floor. International Rating Agency Issue date Short Term Long Term Outlook Viability Rating Support rating Support rating floor Fitch Ratings B BB Positive bb 5 No floor Short Term (Issuer Default Rating): Debt repayment capacity in the short term (less than 13 months) (F1: best rating D: default). Long Term (Issuer Default Rating): Ability to meet financial commitments in a timely manner regardless of the maturity of the individual bonds. This rating is an indicator of the issuer's probability of default. (AAA: best rating D: default). Outlook: indicates the possible future evolution of the rating, which can be "positive", "stable" or "negative". Viability Rating: Evaluation of the bank's intrinsic solidity, seen on the assumption that it cannot rely on extraordinary forms of external support (aaa: best rating f: default). Support rating: Judgement on the probability of any extraordinary external intervention (by the Government or by reference shareholders) if the bank finds it difficult to honour its senior bonds. [1: high probability of external support 5: inability to rely on any support (as in the case of European banks under the BRRD resolution scheme). 104

105 Group interim report on operations Support rating floor: This rating is an accessory piece of information, closely related to the Support Rating, as it identifies, the minimum level for each level of Support Rating that the Issuer Default Rating could reach in the case of negative events (No Floor for European Banks under the BRRD resolution scheme). Moody s The rating issued by Moody's on 24 October 2017 has been confirmed, as detailed below. International Rating Agency Issue date Short Term Deposit Long Term Deposit Outlook (Longterm Deposit) Long Term Issuer Outlook (Longterm Issuer) Senior Unsecured Medium- Term Note Program Baseline Credit Assessment ( BCA ) Moody's P-3 Baa3 Negative Ba3 Negative Ba3 ba3 Short Term Deposit: Ability to repay deposits in local currency in the short term (original maturity equal to or less than 13 months) (Prime-1: highest quality Not Prime: not classifiable among the Prime categories). Long Term Deposit: Ability to repay deposits in local currency in the long term (original maturity equal to or greater than 1 year) (Aaa: best rating C: default). Outlook: it indicates the possible future evolution of the rating that can be "positive", "stable", "negative" or "developing". Long Term Issuer: Opinion on the issuer's ability to honour senior debt and bonds (Aaa: best rating C: default). Baseline Credit Assessment (BCA): The BCA is not a rating but an opinion on the intrinsic financial strength of the bank in the absence of external support (aaa: best rating c: default). Senior Unsecured Medium Term Note Program: it represents the long-term rating assigned to the debt. 9.4 Investigations and audits CONSOB At the date of this report, no investigations or audits are in progress. The Brokers Division held a meeting to discuss topics related to the new MiFID II regulations in March European Central bank ECB The following information relates to the audits of the BPER Banca Group carried out by the European Central Bank (ECB). 1) An inspection at BPER Banca between 15 December 2016 and 28 March 2017 to assess the accuracy of the calculation of its financial position. On 16 August 2017, the ECB sent its follow-up letter on the results of the inspection, with an indication of the action to be taken by BPER Banca to resolve the weaknesses found in the following areas: internal control processes and procedures to assess the compliance of capital transactions with regulatory requirements; acceptance of instruments representing own funds as a guarantee of credit lines. The recommendations made by the ECB concern: the structuring of internal control processes to assess compliance with regulatory requirements for capital transactions; the implementation of specific controls on cross-holdings; internal regulation to govern the non-acceptance of BPER's own shares or subordinated bonds to guarantee credit lines granted by the BPER Group or, in the case of acceptance, the deduction of such equity instruments from the calculation of Own Funds. 105

106 Group interim report on operations On 11 September 2017, BPER Banca sent the ECB the Action Plan to implement the Supervisory Authority's recommendations. All of the interventions are scheduled to be completed by 30 September Progress on the Action Plan is reported to the ECB on a quarterly basis. 2) From 20 September 2017 to 13 December 2017, BPER Banca was involved in an inspection to assess the systems of management and control of market and liquidity risks. The ECB follow-up letter on the results of the inspection was received on 21 June The principal areas for improvement included: further strengthening of the Risk Appetite Framework (RAF), including greater coverage of the risks deriving from management of the financial portfolios; expansion of the framework for the management of liquidity with a general policy on guarantees, as well as indicators/variables in order to provide daily estimates of the LCR coefficient; implementation of the Group's internal regulatory framework in relation to the FTP model; strengthening of market risk measures, including expansion of the tools considered when calculating VaR; improved monitoring of the risks deriving from the exposures in the banking book, including the coverage of all trend indicators. On 19 July 2018 BPER Banca sent the ECB the Action Plan on the Supervisory Authority's recommendations. This work is scheduled for completion by 30 June Progress on the Action Plan is reported to the ECB on a quarterly basis. 3) The BPER Banca Group was audited between 12 March 2018 and 8 June 2018 in order to assess its operational risks. The results of this audit have not yet been received at the time of approving this consolidated interim financial report. The following assessment activities were also carried out by the ECB on the BPER Banca Group, mainly in "remote" mode, as part of the ongoing supervisory procedures. h) Activities in relation to Non-performing Loans (NPL) From the end of January 2016 to March 2017, the BPER Banca Group was involved in an assessment of the strategy, governance, processes and methodology adopted by the Group concerning non-performing loans (NPLs). This activity has been carried out at European level and also involved other Italian banks. The ECB's letter on the results of the NPL qualitative assessment was received on 30 March The principal recommendations included: need for more appropriate segmentation and granularity of the quantitative objectives for impaired loans and greater integration of the NPL strategy within the Risk Appetite Framework (RAF), the internal capital adequacy assessment process (ICAAP) and the recovery plan; these aspects are an integral part of the strategic plan for the management of non-performing loans (NPL) prepared by BPER as part of the 2016 Supervisory Review and Evaluation Process (SREP) and sent to the ECB on 27 March 2017; closer Board supervision of impaired loans via a specific monitoring system supported by key performance indicators, as well as by efficient and effective controls over the framework for the management of impaired loans; 106

107 Group interim report on operations development of "decision trees" for the implementation of forbearance strategies and related standardized solutions for segments of similar debtors with less complex exposures; strengthened policies and procedures for identifying NPLs via greater differentiation of the triggers used to determine the difficulty of repayment (UTP) and identify debtors in financial difficulty, as well as improved specification of the criteria for classifying forborne positions and making disclosures to the public; further development of policies and the procedural documents for making provisions to include methodologies for estimating future cash flows and criteria and methodologies for determining provisions for going concerns and in the event of business interruption, as well as the definition of a policy for writing off loans or those parts of them that are deemed to be unrecoverable; strengthened procedures for updating the appraised value of the properties that secure impaired loans, applying the criteria indicated in the guidelines for impaired loans. The corrective measures proposed in these recommendations were set out in an Action Plan sent to the ECB on 28 April All the work was completed by 31 March e) Audit on the topic of implementing IFRS 9 From 2 December 2016 to 31 March 2017, BPER Banca was audited on the topic of implementing IFRS 9, in order to assess preparations and the impact of the new accounting rules on processes, the infrastructure and capital for supervisory purposes. As far as we know, this assessment was also carried out at other major banks. The results of this analysis were received on 4 September 2017, together with recommendations for action to be taken by BPER Banca in order to address the weaknesses found, given that the IFRS 9 implementation process was only partially in line with ECB expectations. The main recommendations made regarding the areas under investigation concerned: the structuring of processes and methodologies regarding the measurement of the accounting adjustments for Expected Credit Losses (ECL) and updating the related documentation; the inclusion in internal regulations of internal controls and disclosure procedures regarding the changes involved in the implementation of IFRS 9, as well as specific criteria for identifying business models; the internal evaluation of the effectiveness and soundness of the procedure for classification of financial instruments; the refinement in internal regulations of provisions regarding the interaction between governance, risk management, remuneration, dividend policy and the identification of the business model; the refinement of processes and internal regulations on SPPI (Solely Payments of Principal and Interest); the implementation of models for measuring the fair value of unlisted equity instruments; the finalisation of internal regulations for application of the definition of default for IFRS 9 purposes. The ECB assessment of the implementation of IFRS 9 by BPER Banca continued until 30 November The results of the second part of this analysis were received on 18 April 2018, together with recommendations for action to be taken by BPER Banca in order to address the weaknesses found. The main recommendations made regarding the areas under investigation concerned: adoption of a specific SICR (significant increase in credit risk) policy in order to finalise definition of the term; 107

108 Group interim report on operations the structuring of a clear framework for scenarios relating to the incorporation of forward looking information (FLI) in expected credit loss (ECL) models and the adoption of an appropriate policy; completion of development work on the framework for validating the IFRS 9 models and processes, plus definition of the related internal guidelines; finalisation of the methodological framework for calculating the expected credit loss (ECL); definition of internal policies governing the use of external data for securities and for subsidiaries whose IT systems are not aligned (in cases where the AIRB parameters cannot be used). The corrective actions addressing the recommendations that emerged from both phases have been documented in Action Plans sent to the ECB and the detailed steps were identified by 30 June f) Audit of profitability factors From 9 March 2017 to 30 September 2017 the Bank was audited on the topic of profitability factors. The ECB letter regarding the results of this audit was received on 24 April The principal recommendations included: structure further the capital allocation process; detail further the framework for the allocation and management of costs, in order to identify cost factors better and govern them more effectively; given that the Bank already has a detailed framework for the pricing of loans and carries out periodic analyses of ex ante profitability, develop further the related ex post analyses; strengthen the methodologies, processes, policies and reporting linked to the FTP (Funds Transfer Pricing) framework. The corrective measures addressing these recommendations were set out in an Action Plan sent to the ECB on 22 May The related work is scheduled for completion by 31 December Progress on the Action Plan will be reported to the ECB quarterly from 30 June g) Analysis of internal governance and the management of credit risk at Banco di Sardegna During the first six months of 2018 Banco di Sardegna was the subject of a detailed analysis of internal governance and the management of credit risk, with the following preliminary objectives: compliance with internal regulations and with the thresholds set by the Parent Company for the granting and management of credit, as well as with policies regarding conflict of interest; consistency between the Parent Company's strategy and directives and effective implementation at the subsidiary; alignment between the role and activities of the bank's Executive Committee and that of the Parent Company. The formal outcome of this work is not available at the time of preparing this document. The Parent Company has been informed that a targeted review of internal models (TRIM) will start in September 2018, and that a further credit quality review addressing the Corporate portfolios will be carried out between November and December

109 Group interim report on operations 9.5 Intercompany and related-party transactions Relations between the various companies included within the scope of consolidation and with associates and related parties were all of a routine nature and were conducted properly. For details, as required by art bis of the Italian Civil Code and by the CONSOB Communication DEM dated 28 July 2006, reference should be made to Part H of the consolidated Explanatory Notes. In accordance with CONSOB's Regulation 17221/10 and subsequent amendments, issued on the subject of related-party transactions, the BPER Banca Group has approved specific internal rules to ensure transparency and substantial and procedural correctness of transactions with related parties. In this context, the Parent Company BPER Banca adopted the "Group policy for the governance of noncompliance risk concerning conflicts of interest with related parties and risk activities with associated persons", which was also implemented by the other Group banks and companies. This Policy also complies with the Bank of Italy's requirements in terms of "Risk activities and conflict of interest versus related parties and associated persons" as contained in the 9th update on 12 December 2011 of Circular no. 263 dated 27 December The document is published on BPER Banca's website ( in the "Related Parties" section) and on the websites of the other Group banks. Note that on 30 June 2018, the only Group Bank that is listed and therefore required to observe CONSOB Regulation no /10, in addition to the Parent Company, is Banco di Sardegna s.p.a. Without prejudice to the disclosure requirements of the ruling IAS 24, the following is a summary of transactions with related parties at 30 June 2018, for which information is provided under Regulation no /

110 Group interim report on operations 1 No. a) more significant individual transactions concluded during the reference period Company that initiated the transaction BPER Banca S.p.A. Name of the transaction counterparty Banco di Sardegna S.p.A. Nature of the relationship with the counterparty Directly controlled subsidiary Object of the transaction 8 finance transactions/ treasury concluded in the 1st half of 2018 Consideration for each transaction completed (Euro/000) (*) Other information Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Emilia Romagna Factor S.p.A. Directly controlled subsidiary Credit line 900,000 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Sardaleasing S.p.A. Directly controlled subsidiary Credit line 715,000 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Sardaleasing S.p.A. Directly controlled subsidiary Credit line 654,500 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Sardaleasing S.p.A. Direct parent company Credit line 497,000 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Banca di Sassari S.p.A. Directly controlled subsidiary Credit line 630,000 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Banco di Sardegna S.p.A. Directly controlled subsidiary Credit line 400,000 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation BPER Banca S.p.A. Cassa di Risparmio di Bra S.p.A. Directly controlled subsidiary Credit line 300,000 Transaction exempt from market disclosure pursuant to art. 14 paragraph 2 of Regulation With regard to the bilateral finance/treasury operations concluded between the Parent Company and Banco di Sardegna s.p.a., it should be noted that these allow the subsidiary to source liquidity from the market more effectively. (*) The 8 transactions mentioned above fall in the range between Euro 1,000,000 thousand and Euro 289,487 thousand. 110

111 Group interim report on operations b) other individual transactions with related parties as defined under article 2427, second paragraph, of the Italian Civil Code, entered into in the reporting period, that have materially impacted the financial position and results of the company As required by CONSOB Regulation 17221/10 with regard to other transactions with related parties, it is confirmed that no transactions have had a significant effect on the balance sheet or results of the company. CARIFE SERVIZI EVOLUTIVI INTEGRATI S.r.l. was absorbed by NADIA S.p.A. on 15 June Both were members of the BPER Banca Group at the time. This is considered to be a less material transaction. c) changes or developments in related-party transactions disclosed in the last Annual report that have had a material effect on the financial position or results of the companies during the period During the period, there have been no changes or developments in the related-party transactions described in the last annual report that would have an effect on the financial position or results of the Company. 9.6 Information on atypical, unusual or non-recurring transactions During the first half of 2018 there were no atypical or unusual transactions, as defined by CONSOB Communication DEM dated 28 July Neither were there any non-recurring transactions during the period. 9.7 Information on business continuity, financial risks, impairment tests and uncertainties regarding the use of estimates Joint document 2 issued by the Bank of Italy, CONSOB and ISVAP (now IVASS) on 6 February 2009 requests directors to include adequate information in their reports on Group's operations on business continuity (going concern), financial risks, impairment tests and uncertainties regarding the use of estimates. Summary information is given below. Going Concern In preparing the condensed half-year consolidated financial statements at 30 June 2018, the Directors considered the going-concern assumption to be appropriate because they did not find any uncertainties related to events or circumstances that, individually or collectively, could give rise to doubts about the business's ability to continue. To confirm and strengthen this assessment, it should be noted that, on 19 December 2017, the Parent Company's Board of Directors approved the 2018 Budget, which foresees the achievement of a positive economic result and the maintenance of an adequate capital base. 111

112 Group interim report on operations Financial risks Part E of the explanatory notes provides qualitative and quantitative information on the principal types of financial risk normally faced by the Group, especially credit risk. With regard to market risks, the quantification of the capital required to cover them shows that the amount is insignificant (Euro 59.7 million, being 2.42% of total capital requirements at 30 June 2018). The characteristics of the financial instruments held, both in terms of counterparty and type, enable management to state confidently that the portfolio, which does not include complex or innovative derivatives, is not exposed to significant financial risks. As a primary activity, the Parent Company trades on own account. With regard to liquidity, analysis of the composition of assets highlights a net loans/direct borrowing from customers ratio of 91.83% (down from 94.75% at 31 December 2017, as reclassified in accordance with the new IFRS 9 criteria) and a ratio of financial investments (captions a) e 40b) in relation to securities) to borrowing from customers (liability caption 10 b) of 37.73% (36.69% at 31 December 2017, as restated) and to direct deposits of 32.74% (31.18% at 31 December 2017, as restated). Net interbank borrowing at 30 June 2018 totals Euro 9,477 million (Euro 9,972 million at the end of 2017), mainly due to the TLTROII operations with the ECB. At the same date, the pooling account managed by the Central Treasury holds funds totalling Euro 2,016 million that, together with securities and loans not transferred to the guarantee account of Euro 2,280 million, result in a total counterbalancing capacity of Euro 4,296 million. In view of the amount of securities available for refinancing, the Parent Company's overall operating liquidity is satisfactory overall, steadily improving throughout the period. The quality and size of the refinanceable portfolio, subject to continuous refinement, allow any significant risks concerning the liquidity position to be properly addressed. Moreover, these risks are subject to constant monitoring by the relevant functions. Impairment tests on assets As regards testing goodwill for impairment, when preparing the separate and consolidated financial statements, the Group carries out specific impairment tests on an annual basis as required by the accounting standards. This rule applies unless significant changes or discontinuities take place during the year, with respect to the values used and assumptions made in the previous test. For example, the assumptions used to calculate the discount rate (Ke) and/or profit forecast (budget and business plans) of the Companies or CGUs whose goodwill is to be tested. Disclosure has been made of the methodologies and assumptions adopted for the performance of these activities in Parts A and B of the explanatory notes to the consolidated financial statements at 31 December 2017, which also include the results of specific stress tests, as required by law. Para. 9 of IAS 36 requires an assessment to be made on each accounting reference date about whether or not an asset may be impaired; in addition, paras. 12 to 14 of IAS 36 describe certain situations that might be evidence of impairment. Goodwill was checked at 30 June 2018 following the changes in certain external parameters and the results of operations during the first half of the year. In particular, this work involved: update of the parameters underlying the ke; update of the forecast results for 2018 included in the plans, given the results achieved in the first part of the year; review of the impact of adopting IFRS 9, considering the actual amounts identified. Based on the above assumptions and processes, it was not necessary to adjust the value of goodwill at 30 June

113 Group interim report on operations Impairment testing is also used to determine the fair value of the property held for whatever reason, as discussed in the explanatory notes to the consolidated financial statements at 31 December The testing for impairment revealed the need to make adjustments at 30 June 2018 to the overall investment portfolio of Euro 13.3 million. Uncertainties in the use of estimates Given the current, extremely uncertain macroeconomic conditions, any assumptions about the present and future value of assets and liabilities are inevitably exposed to risk. Accordingly, it is impossible to state that currently unforeseeable future events, perhaps arising very soon, will not result in significant adjustments to the carrying amounts of the various items comprising this condensed consolidated halfyear report. As always, the Group has taken the greatest possible care when measuring its exposures at 30 June 2018, considering the estimated realisable value of all financial assets with reference to external information (e.g. market prices for securities) or internal evidence (with regard to loans to customers). The related methodology is described in Part A2 of the explanatory notes. 113

114 Group interim report on operations 10. Significant subsequent events and outlook for operations 10.1 Significant events subsequent to 30 June 2018 Capital increase of Cassa di Risparmio di Bra s.p.a. The European Central Bank has authorised the increase in the share capital of Cassa di Risparmio di Bra s.p.a.. On 26 July the Extraordinary Shareholders' Meeting of Cassa di Risparmio di Bra authorised the capital increase approved at the meeting of the Board of Directors held on 16 April The minority shareholder (Fondazione Cassa di Risparmio di Bra) did not take up the shares under option and, accordingly, the entire amount was paid in by BPER Banca, raising its equity interest from 67% to %. On the same date, the Parent Company paid in the residual amount with respect to the advance paid on 29 June First Covered Bond Programme - 8th issue On 19 July 2018 BPER Banca issued a covered bond maturing in 5 years with a nominal value of Euro 500 million. The security is guaranteed by high quality, Italian residential mortgages with a Moody s rating of Aa2. Cooperative compliance BPER Banca was admitted to the cooperative compliance regime by a Tax Authority Decision dated 25 July 2018, following a process that commenced in December 2017 on presentation of the application and a subsequent investigation to check the adequacy of the Bank's Tax Control Framework. As envisaged in the relevant regulation, BPER Banca has been added to the list of companies admitted to the regime, which is published on the institutional website of the Tax Authorities. The objective of the cooperative compliance regime, introduced in Italy in 2015, is to establish a relationship of trust between the taxpayer and the Administration, thereby raising the level of certainty with regard to significant fiscal matters: this is achieved via constant discussions intended to address possible tax risks in advance. The principal advantages deriving from the new regime are summarised below: Sole contact person within the Administration; Shortened clearance procedures, with the Tax Authorities committed to responding to questions from companies within forty-five days; In the case of risks notified on a complete and timely basis, application of penalties at 50% of the standard rate and, in all cases, if the Tax Authorities do not agree with the position taken by the company, not exceeding the minimum allowed, with the suspension of collection until the assessment has been finalised; Waiver of the need to lodge guarantees for any reimbursements requested. 114

115 Group interim report on operations 10.2 Outlook for operations During the second half of the year, the pressure on net interest income due to the persistence of market rates at all-time lows should be offset by an expected increase in volumes and an easing of competitive pressures on the return on commercial assets. Important support for revenues is expected to come from commissions, particularly from the asset management and bancassurance sector, while the core banking business should remain substantially stable. A significant contribution to the Group's profitability is expected to come from the substantial reduction in the cost of credit that began in the first half of the year, as a result of a further improvement in asset quality. All of these factors should help support the Group's profitability prospects for the current year. Modena, 7 August 2018 The Board of Directors The Chairman Pietro Ferrari 115

116 BPER: Gruppo Consolidated half-year report as at 30 June 2018 Group interim report on operations 116

117 Consolidated financial statements Consolidated half year financial statements 117

118 Consolidated financial statements Consolidated balance sheet as at 30 June 2018 page 119 Consolidated income statement as at 30 June 2018 page 120 Consolidated statement of comprehensive income page 121 Consolidated statement of changes in shareholders equity page 122 Consolidated statement of cash flows page

119 Consolidated balance sheet as at 30 June 2018 Consolidated half-year report as at 30 June 2018 Consolidated financial statements (in thousands of Euro) Assets Cash and cash equivalents 353, , Financial assets measured at fair value through profit or loss 1,421,443 1,326,601 a) Financial assets held for trading 350, ,424 b) Financial assets designated at fair value 221, ,192 c) Other financial assets mandatorily measured at fair value through profit 849, ,985 or loss 30. Financial assets measured at fair value through other comprehensive 9,295,682 13,398,757 income 40. Financial assets measured at amortised cost 54,563,163 51,561,586 a) Loans to banks 4,221,694 3,205,849 a) Loans to customers 50,341,469 48,355, Hedging derivatives 50,066 54, Equity investments 448, , Property, plant and equipment 1,056,260 1,063, Intangible assets 497, ,627 - goodwill 327, , Tax assets 1,734,961 1,848,127 a) current 454, ,441 b) deferred 1,280,822 1,272, Other assets 875, ,899 Total Assets 70,296,735 71,338,807 Liabilities and Shareholders' equity Financial liabilities measured at amortised cost 62,502,252 63,230,643 a) Due to banks 12,622,968 12,984,226 b) Due to customers 43,291,051 42,694,078 c) Debt securities issued 6,588,233 7,552, Financial liabilities held for trading 241, , Hedging derivatives 42,918 23, Tax liabilities 90, ,218 a) current 3,724 2,258 b) deferred 87, , Other liabilities 1,963,775 1,416, Provision for termination indemnities 186, , Provisions for risks and charges 531, ,178 a) Commitments and guarantees granted 67,420 46,793 b) pensions and similar commitments 132, ,148 c) other provisions 332, , Valuation reserves 60,974 75, Reserves 1,527,996 2,445, Share premium reserve 930, , Share capital 1,443,925 1,443, Treasury shares (-) (7,258) (7,258) 190. Minority interest(+/-) 474, , Net Profit (Loss) for the period (+/-) 307, ,438 Total liabilities and Shareholders' Equity 70,296,735 71,338,807 The data reported as at 31 December 2017 (determined in accordance with IAS 39) has been classified in the new account captions in accordance with the new classification criteria introduced by IFRS 9, without changing the amounts reported for total assets or for total liabilities and shareholders equity 119

120 Consolidated financial statements Consolidated income statement as at 30 June 2018 (in thousands of Euro) Item Interest and similar income 720, , Interest and similar expense (146,877) (136,482) 30. Net interest income 573, , Commission income 406, , Commission expenses (17,652) (17,403) 60. Net commission income 389, , Dividends and similar income 13,461 11, Net trading income 16,482 19, Net hedging gains (losses) 2,410 (259) 100. Gains/losses on disposal or repurchase of: 147,978 30,386 a) Financial assets measured at amortised cost (11,447) (7,852) b) Financial assets measured at fair value through other comprehensive income 159,255 38,160 c) Financial liabilities Net results on financial assets and liabilities measured at fair value through profit or loss 3, a) financial assets and liabilities designated at fair value (2,943) 417 b) other financial assets mandatorily measured at fair value 6, Net interest and other banking income 1,146, , Net impairment adjustments for credit risk relating to: (83,030) (394,849) a) Financial assets measured at amortised cost (84,934) (323,232) b) Financial assets measured at fair value through other comprehensive income 1,904 (71,617) 140. Profit/loss from contractual modifications without derecognition (1,183) Net profit from financial activities 1,061, , Administrative costs: (725,104) (664,097) a) payroll (420,434) (385,676) b) other administrative costs (304,670) (278,421) 200. Net provisions for risks and charges (37,039) (5,168) a) Commitments and guarantees granted 11,923 6,434 b) Other provisions (48,962) (11,602) 210. Net adjustments to property, plant and equipment (33,354) (21,124) 220. Net adjustments to intangible assets (22,971) (19,573) 230. Other operating charges/income 83,111 85, Operating costs (735,357) (624,372) 250. Profit (loss) of equity investments 5, , Gains (losses) on disposal of investments Profit (loss) from current operations before tax 331, , Income taxes on current operations (9,768) 10, Profit (loss) from current operations after tax 322, , Net profit (loss) 322, , Net profit (loss) pertaining to minority interests (14,279) (170) 350. Profit (loss) for the period pertaining to the Parent Company 307, , Basic EPS Diluted EPS The data reported as at 30 June 2017 (determined in accordance with IAS 39) has been classified in the new account captions envisaged in the 5th update of Bank of Italy Circular 262, without changing the net profit (loss) for the period. 120

121 Consolidated statement of comprehensive income Consolidated half-year report as at 30 June 2018 Consolidated financial statements (in thousands of Euro) Consolidated statement of comprehensive income Profit (loss) for the period 322, ,232 Other income taxes, net of income taxes, not reclassified to profit or loss 20. Equity instruments designated at fair value through other comprehensive income 31, Defined benefit plans 534 5, Portion of the valuation reserves of equity instruments carried at equity (4,972) (890) Other income items, net of income taxes, reclassified to profit or loss Cash-flow hedges 43 (73) 140. Financial assets (other than equities) measured at fair value through other comprehensive income (186,858) (10,143) 170 Total other element of income (net of income taxes) (159,999) (5,737) 180 Total comprehensive income (Captions ) 162, , Total comprehensive income pertaining to minority interests 2,920 (5,895) 200 Consolidated comprehensive income attributable to the Parent Company 159, ,390 The data reported as at 30 June 2017 has been classified in the new account captions envisaged in the 5th update of Bank of Italy Circular 262, without changing the consolidated comprehensive income for the period. 121

122 Consolidated financial statements Consolidated statement of changes in shareholders equity (in thousands of Euro) B alance a s at C hanges in o pening ba lanc es B a la nc e as a t A llo c at io n o f prio r ye ar results R ese rv es D ivide nds C ha nge s in and o ther res erv es a llo ca tio ns Iss ue o f new sha res P urc has e o f t rea sury share s Transactions on shareholders' equity Extrao rdinary distributio n of dividends Changes during the period C ha nges in e quity ins truments D e rivat iv es o n t rea sury s ha res St o ck o ptio ns C ha nges in pa rticipa to ry interest s C o mprehensive inco me a s at Shareho lders ' equity as a t Gro up M ino rity intere st s Share capital: 1,563,027-1,563, (19 ) 23, (3,314 ) - 1,443, ,030 a) o rdinary shares 1,563,027-1,563, (19) 23, (3,314) - 1,443, ,030 b) o ther shares Share premium reserve 1,013,409-1,013, (1) (432) - 930,073 83,565 R es erv es : 2,8 6 0,2 3 5 (1,2 13,0 6 7 ) 1,6 4 7, , (2 7,7 2 3 ) ,5 2 7, ,6 4 1 a) from profits 2,259,633 (1,213,067) 1,046, ,192 - (31,023) , ,556 b) o ther 600, , , ,817 44,085 Valuation reserves: 110, , ,643-5, (159,999) 60,974 23,844 Equity instrume nts T reas ury shares (7,2 5 9 ) - (7,2 5 9 ) (7,2 5 8 ) (1) N et pro fit (lo ss ) fo r the perio d 17 6, ,8 8 2 (12 2, 19 2 ) (5 4,6 9 0 ) , , ,2 7 9 Group shareholders' equity 5,063,721 (882,676) 4,181,045 - (52,894) (34,317 ) , ,245 4,263,595 - M ino rity interests 6 5 3, 010 (2 0 1,18 5 ) 4 5 1, (1,7 9 6 ) 11, , (14,2 6 2 ) 2, ,3 5 8 B alance a s at C hanges in o pening ba lanc es B a la nc e as a t A llo c at io n o f prio r ye ar results R ese rv es D ivide nds C ha nge s in and o ther res erv es a llo ca tio ns Iss ue o f new sha res P urc has e o f t rea sury share s Extrao rdinary distributio n of dividends Changes during the period Transactions on shareholders' equity C ha nges in e quity ins truments D e rivat iv es o n t rea sury s ha res St o ck o ptio ns C ha nges in pa rticipa to ry interest s C o mprehensive inco me a s at Shareho lders ' equity as a t Gro up M ino rity intere st s Share capital: 1,563,547-1,563, (2 ) (10 ) - 1,443, ,610 a) o rdinary shares 1,563,547-1,563, (2) (10) - 1,443, ,610 b) o ther shares Share premium reserve 1, 013, 810-1, 013, (11) - 930,073 83,726 R es erv es : 2,8 3 8, ,8 3 8,8 5 6 (8, 5 0 1) - 9, (14,3 7 7 ) , 40 5, ,2 5 4 a) from profits 2,238,357-2,238,357 (8,501) - 5, (14,377) ,843, ,820 b) o ther 600, , , ,431 43,434 Valuation reserves: 130, , (5,020) (5,737) 85,263 34,925 Equity instrume nts T reas ury shares (7,2 5 9 ) - (7,2 5 9 ) (7,2 5 8 ) (1) N et pro fit (lo ss ) fo r the perio d 15, , ,5 0 0 (2 4,3 14 ) , , Group shareholders' equity 4,881,347-4,881,347 (1) (14,473) 4, (14,377) ,390 4,976,188 - M ino rity interests 6 7 4, , (9,8 4 1) (6 0 ) (5,8 9 5 ) ,

123 Consolidated financial statements Consolidated statement of cash flows Indirect method (in thousands of Euro) A. Operating activities Cash generated from operations 641, ,135 net profit (loss) for the period 307, ,062 net gains/losses from financial assets held for trading and financial assets/liabilities measured at fair value through profit or loss 5,191 (11,994) gains (losses) from hedging activities (2,410) 259 impairment/write-backs to credit risk (+/-) 183, ,415 impairment/write-backs to property, plant and equipment and intangible assets (-/+) 56,325 40,697 net provisions for risks and charges and other costs/income (+/-) 81,057 42,150 net premiums not collected (-) - - Other income/ insurance charges not collected (-/+) - - unsettled taxes (-/+) 9,767 (10,183) impairment/write-backs to discontinued operations, net of tax effect (-/+) - - other adjustments (-/+) (79) (137,271) 2. Cash generated/absorbed by financial assets (417,332) (3,480,594) financial assets held for trading 68,838 42,215 financial assets designated at fair value (1,376) 3,284 other financial assets mandatorily measured at fair value (201,212) - financial assets measured at fair value through other comprehensive income 4,109,654 (1,197,887) financial assets measured at amortised cost (4,318,762) (2,268,877) other assets (74,474) (59,329) 3. Cash generated/absorbed by financial liabilities (244,574) 3,083,173 financial liabilities measured at amortised cost (728,906) 2,061,081 financial liabilities held for trading 70,967 (33,804) financial liabilities designated at fair value - (178,354) other liabilities 413,365 1,234,250 Net cash generated/absorbed by operating activities (20,854) 33,714 B. Investing activities Cash generated by 5,070 2,278 sale of equity investments - - dividends collected on equity investments - - sale of property, plant and equipment 5,069 2,260 sales of intangible assets 1 18 sales of lines of business - 2. Cash absorbed by (19,490) 3,269 purchase of equity investments - purchase of property, plant and equipment (5,972) (16,177) purchase of intangible assets (13,518) (12,627) purchase of lines of business - 32,073 Net cash generated/absorbed by investing activities (14,420) 5,

124 Consolidated financial statements C. Financing activities issues / purchase of treasury shares - - issues / purchase of equity instruments - - dividend distribution and other (54,690) (38,691) sales/sales/ purchase of third parties 23,242 - Net cash generated/absorbed by financing activities (31,448) (38,691) Net cash generated/absorbed in the period (66,722) 570 Reconciliation Captions Cash and cash equivalents at beginning of the period 420, ,879 Net cash generated/absorbed in the period (66,722) 570 Cash and cash equivalents: effect of exchange rate variations Cash and cash equivalents at end of the period 353, ,772 The caption "sale/purchase of equity interests by third parties" relates to payments made by third parties to increase the capital of Sardaleasing s.p.a. and Emilia Romagna Factor s.p.a. The data reported as at 30 June 2017 has been classified in the new account captions envisaged in the 5th update of Bank of Italy Circular 262, without changing the amount of cash generated/absorbed during the period. Key: (+) generated (-) absorbed 124

125 Consolidated Explanatory notes Consolidated explanatory notes 125

126 Part A - Accounting policies page 127 Part B - Information on the consolidated balance sheet page 159 Part C - Information on the consolidated income statement page 185 Part E - Information on risks and related hedging policy page 203 Part F - Information on consolidated shareholders' equity page 217 Part G - Business combinations page 221 Part H - Related-party transactions page 223 Part I - Equity-based payments page 227 Key to abbreviations in tables: FV: Fair value FV*: Fair value excluding variations due to changes in the credit worthiness of the issuer since the issue date NV: Nominal or notional value BV: Book value L1: Fair value hierarchy Level 1 L2: Fair value hierarchy Level 2 L3: Fair value hierarchy Level 3 #: not applicable 126

127 Consolidated Explanatory notes Part A Accounting policies 127

128 A.1 General information Section 1 - Declaration of compliance with International Financial Reporting Standards The Condensed consolidated half-year financial statements included in the Consolidated half-year report as at 30 June 2018 prepared as per art. 154 of Legislative Decree 58 of 24 February 1998 and subsequent updates have been prepared by applying the international accounting standards (IAS) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), endorsed by the European Commission, as set out in EU Regulation 1606 of 19 July 2002, and currently in force, including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and of the Standing Interpretations Committee (SIC). In particular, the consolidated half-year report complies with IAS 34, which dictates the minimum content and principles for recognition and measurement in interim financial statements. In accordance with the provisions of IAS 34, 10, the Group exercised the option to prepare a summary report, instead of the full one provided for the annual report (which has to comply with the provisions of IAS 1). The Report has also been prepared in compliance with CONSOB Resolution (Issuers Regulations) of 14 May 1999 and subsequent amendments. Section 2 - Basis of preparation The condensed consolidated half-year report consists of the consolidated balance sheet, the consolidated income statement, the consolidated statement of comprehensive income, consolidated statement of changes in shareholders equity, the consolidated statement of cash flows and the consolidated explanatory notes. Figures are expressed in thousands of Euro. The condensed consolidated half-year report is accompanied by the Group's interim report on operations. The above statements present amounts in thousands of Euro, unless specified otherwise, and were prepared in accordance with Bank of Italy Circular 262/2005, issued on 22 December 2005, and subsequent updates. The 5th update issued on 22 December 2017 adopted the amendments envisaged in IFRS 9 and IFRS 15. The data reported as at 31 December 2017 (determined in accordance with IAS 39) has been classified in the new account captions in accordance with the new classification criteria introduced by IFRS 9, without changing the amounts reported for total assets or for total liabilities and shareholders equity (refer to the attachment to this report entitled "Transition to IFRS 9 by the BPER Banca Group"). The general principles adopted for the preparation of the consolidated half-year report, the consolidation criteria and the accounting policies adopted are all unchanged with respect to those applied when preparing the 2017 consolidated financial statements, except as stated in the Consolidated interim report at 31 March 2018 regarding the transition to the new IFRS 9 and IFRS 15 and the information provided in Part A2 below (relating to the principal financial statement captions). The consolidated explanatory notes provide additional information to help give a complete, true and fair view of the company s situation, even if such information is not expressly required by law. 128

129 Consolidated Explanatory notes Uncertainties in the use of estimates The preparation of the condensed consolidated half-year financial statements requires recourse to estimates and assumptions that may affect the amounts recorded in the balance sheet and the income statement, as well as the information about contingent assets and liabilities disclosed in the financial statements. The development of such estimates involves the use of available information and the adoption of subjective assessments, partly based on historical experience, in order to make reasonable assumptions for the recognition of operating events. By their nature, the estimates and assumptions used may change from period to period and, accordingly, it may be that the actual amounts recorded in the condensed consolidated half-year financial statements in subsequent periods are significantly different as a consequence of changes in the subjective assessments made. The principal situations in which management is required to make subjective assessments include: quantification of the losses arising from the impairment of loans and, in general, other financial assets; determination of the fair value of financial instruments for disclosure purposes; in particular, the use of measurement models to determine the fair value of financial instruments that are not listed in active markets; quantification of the provisions for employee benefits and the provisions for risks and charges; estimates and assumptions about the recoverability of deferred tax assets; measurement of goodwill/intangible assets. Section 3 - Scope of consolidation and methodology The international accounting standards referred to when preparing the Condensed consolidated half-year financial statements, when the circumstances arise, are IFRS 3 "Business Combinations" (issued with EC Regulation 495/2009), IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint agreements", IAS 27 "Separate Financial Statements", IAS 28 "Investments in associates and joint ventures" (all issued with EC Regulation 1254/2012 and in force since 1 January 2014). The consolidation criteria and methodology are described in Part A of the explanatory notes to the consolidated financial statements at 31 December 2017, as supplemented by the information presented in part A2 below. The BPER Banca Group has decided to adopt the consolidation methodology envisaged for prudential supervisory purposes. This approach was also applied when determining the financial disclosures to be made, thus aligning the two levels of consolidation. This decision was necessary in order to rationalise, simplify and streamline the production of consolidated information for supervisory and financial reporting purposes. Its effects on the latter are negligible. In terms of the areas affected, the marginal dynamics previously indicated in the income statement on a line-by-line basis are now summarised in the "Profit (loss) from equity investments" line item; in the balance sheet, the "Equity investments" caption reports the amounts that have not been eliminated that were previously recognised on a line-by-line basis, while shareholders' equity remains unchanged. 129

130 The following companies are members of the Banking Group but, at 30 June 2018, do not satisfy the requirements of art. 19 of the CRR40: Mutina s.r.l.; Estense Covered Bond s.r.l.; BPER Trust Company s.p.a.; Estense CPT Covered Bond s.r.l.; the other subsidiaries that are not members of the banking Group, since their activities do not contribute to its banking operations, are: Italiana Valorizzazioni Immobiliari s.r.l.; Adras s.p.a.; Polo Campania s.r.l.; Galilei Immobiliare s.r.l.; SIFA - Società Italiana Flotte Aziendali s.p.a.; Costruire Mulino s.r.l.; Frara s.r.l; 41 Banca Farnese s.p.a. in liquidation. At 30 June 2018, these companies have been consolidated under the equity method. 40 Circular 575/2013 states "An entity, financial entity or supporting operational company in which an equity investment is held must not be consolidated if the total of its assets and off-balance sheet amounts is less than the lower of the following two amounts: a) Euro 10 million; b) 1% of the total assets and off-balance sheet amounts of the parent company or the entity that holds the equity investment" 41 company that during the first half of 2018 had not yet started operating and is still dormant 130

131 Consolidated Explanatory notes 1. Investments in subsidiaries 1.1 Equity investments of the Group consolidated line-by-line Name 1. Banco di Sardegna s.p.a. 2. Banca di Sassari s.p.a. 3. Cassa di Risparmio di Bra s.p.a. 4. Cassa di Risparmio di Saluzzo s.p.a. 5. Bper (Europe) International s.a. Operational head office Registered head office Type of relationship (1) Share capital in Euro Nature of holding % Voting Parent company % held rights (2) Sassari Cagliari 1 155,247,762 BPER Banca Sassari Sassari 1 74,458,607 BPER Banca B. Sard Bra Bra 1 27,300,000 BPER Banca Saluzzo Saluzzo 1 33,280,000 BPER Banca Luxembourg Luxembourg 1 30,667,500 BPER Banca Nadia s.p.a. Modena Modena 1 87,000,000 BPER Banca BPER Services Modena Modena 1 10,920,000 BPER Banca s.cons.p.a. B. Sard Optima B.S.S Sardaleasing CR Bra BCM CR Saluzzo Sardaleasing Milan Sassari 1 184,173,750 BPER Banca s.p.a. B. Sard Optima s.p.a. Modena Modena 1 13,000,000 BPER Banca S.I.M. 10. Tholos s.p.a. Sassari Sassari 1 52,015,811 B. Sard Numera s.p.a. Sassari Sassari 1 2,065,840 B. Sard Modena Terminal Campogalliano Campogalliano 1 8,000,000 BPER Banca s.r.l. 13. Emilia Romagna Bologna Bologna 1 54,590,910 BPER Banca Factor s.p.a. 14. BPER Credit Modena Modena 1 1,000,000 BPER Banca Management s.cons.p.a. B. Sard B.S.S CR Bra CR Saluzzo EmilRo Factor Sardaleasing The "% voting rights" column is only used if the actual share of votes exercisable at the Ordinary Shareholders' Meeting is different from the interest held in the company's share capital. Key: (1) Type of relationship: 1 Majority of votes at the ordinary shareholders' meeting. (2) Voting rights at ordinary shareholders' meeting, distinguishing between actual and potential. 131

132 1.2 Equity investments belonging to the Group consolidated under the equity method Name Operational head office Registered head office Type of relationship (1) Share capital in Euro Nature of holding % Voting Parent company % held A. Subsidiaries Companies that are not members of the Banking Group 1. Galilei Immobiliare Modena Modena 1 100,000 Nadia s.r.l. 2. Polo Campania s.r.l. Avellino Avellino 1 110,000 BPER Banca Adras s.p.a. Milan Milan 1 1,954,535 BPER Banca Italiana Valorizzazioni Milan Milan 1 2,000,000 BPER Banca Immobiliari s.r.l. 5. SIFA' - Società Italiana Milan/Reggio Trento 1 122,449 BPER Banca Flotte Aziendali s.p.a. Emilia 6. Banca Farnese s.p.a. in Ferrara Ferrara 1 27,965,637 BPER Banca liquidazione 7. Costruire Mulino s.r.l. Milan Milan 1 10,000 IVI B. Subsidiaries Companies that are members of the Banking Group but do not satisfy the requirements of art. 19 of the CRR 8. Mutina s.r.l. Modena Modena 1 10,000 BPER Banca Estense Covered Bond s.r.l. 10. BPER Trust Company s.p.a. 11. Estense CPT Covered Bond s.r.l. Conegliano Conegliano 1 10,000 BPER Banca Modena Modena 1 500,000 BPER Banca Conegliano Conegliano 1 10,000 BPER Banca rights (2) The "% voting rights" column is only used if the actual share of votes exercisable at the Ordinary Shareholders' Meeting is different from the interest held in the company's share capital. Frara s.r.l. (formerly Sviluppo Formica s.r.l.) has not been included in the list as it is not yet operational at 30 June Key: (1) Type of relationship: 1 Majority of votes at the ordinary shareholders' meeting. (2) Voting rights at ordinary shareholders' meeting, distinguishing between actual and potential. 2. Significant assessments and assumptions made when determining the scope of consolidation As regards the companies included in the scope of consolidation, no facts and circumstances, as foreseen in IFRS 10, took place during the first half of 2018 that might change our assessment of possession of control, joint control or significant influence. For further details about changes in the scope of consolidation until 30 June 2018, please refer to the Directors' Report on Group Operations under "Scope of consolidation of the BPER Banca Group". 132

133 Consolidated Explanatory notes 3. Investments in subsidiaries with significant minority interests Minority interests are considered significant based on the materiality of total equity compared with the equivalent consolidated figure. 3.1 Minority interests, Voting rights of third parties and dividends distributed to third parties Name % Minority interests % Voting rights of third parties (1) Dividends distributed to third parties 1. Banco di Sardegna s.p.a , Cassa di Risparmio di Bra s.p.a Banca di Sassari s.p.a Emilia Romagna Factor s.p.a. 4,046 4, Sardaleasing s.p.a. 0,326 0,326 - For consolidation purposes, we used the consolidation of the sub-holding company Banco di Sardegna and its subsidiaries. The dividends relate to profit for 2017 that was distributed in Key: (1) Voting rights at ordinary shareholders' meeting. 3.2 Investments with significant minority interests: accounting information Name Total assets Cash and cash equivalents Financial assets Property, plant and equipment and intangible assets Financial liabilities Shareholders' equity Net interest income Net interest and other banking income 1. Banco di Sardegna s.p.a. 12,344,536 91,165 11,712, ,570 11,058, , , , Cassa di Risparmio di Bra s.p.a. 1,310,352 5,736 1,255,055 13,778 1,242,144 46,217 11,318 18, Banca di Sassari s.p.a. 1,048, ,950 17, , ,722 14,943 22, Emilia Romagna Factor s.p.a. 863, ,951 6, , ,570 5,365 9, Sardaleasing s.p.a. 3,317, ,163,367 40,167 3,087, ,644 24,566 16,

134 (cont.) Name Operating costs Profit (Loss) from current operations before tax Profit (Loss) from current operations after tax Profit (Loss) after tax on non-current assets held for sale Net profit (loss) for the period(1) Other elements of income, net of income taxes (2) Comprehensive income (3)= (1)+(2) 1. Banco di Sardegna s.p.a. (130,679) 33,847 31,300-31,300 (19,953) 11, Cassa di Risparmio di Bra s.p.a. (11,378) 1,361 1,436-1,436 (5,145) (3,709) 3. Banca di Sassari s.p.a. (15,227) 5,764 3,978-3,978 1,112 5, Emilia Romagna Factor s.p.a. (3,870) 5,001 3,166-3,166 (34) 3, Sardaleasing s.p.a. (7,261) (1,059) (32) 114 The amounts provided are before intercompany eliminations. The economic and financial information refers to the situation at 30 June Significant restrictions At the banks and companies that make up the BPER Banca Group's scope of consolidation, there are no significant restrictions as foreseen by IFRS Other information The line-by-line consolidation was carried out using the approved financial statements prepared at 30 June 2018 by the subsidiaries concerned. These financial statements have been prepared in accordance with IAS/IFRS by the individual banks and financial companies subject to Bank of Italy supervision. All the other Group companies and Bper (Europe) International s.a. included within the scope of consolidation normally prepare their financial statements under Italian accounting standards. These companies therefore prepared separate accounting schedules and data under the international accounting standards used for consolidation purposes. The value of Group subsidiaries carried at equity was measured with reference to their accounting information prepared and approved at 30 June The other equity investments carried at equity were measured with reference to their financial statements at 31 December 2017, except for Cassa di Risparmio di Fossano s.p.a. and Alba Leasing s.p.a., for which the accounts prepared and approved at 31 March 2018 were used, and for Arca Holding s.p.a. and Sarda Factoring s.p.a., for which the accounts prepared and approved at 30 June 2018 were used. 134

135 Consolidated Explanatory notes Section 4 Subsequent events The consolidated half-year report, which includes these consolidated financial statements, was approved on 7 August 2018 by the Board of Directors of BPER Banca. Reference is made to the detailed information provided in the "Significant subsequent events and outlook for operations" section of the directors report on operations. Section 5 Other aspects Amendments to accounting standards endorsed by the European Commission As required by IAS 8, the following table shows the new international accounting standards or amendments to standards already in force, whose application is mandatory from EC Approval Title Regulation 1905/2016 EU Commission Regulation 2016/1905 of 22 September 2016, published in the Official Journal L 295 of 29 October 2016, endorsed IFRS 15 Revenue from contracts with customers, the objective of which is to improve financial reporting about revenue and, thus, the comparability of reported revenue. 2067/2016 EU Commission Regulation 2016/2067 of 22 November 2016, published in the Official Journal L 323 of 29 November 2016, endorsed IFRS 9 Financial instruments, the objective of which is to improve financial reporting about financial instruments by addressing relevant issues that arose during the financial crisis. In particular, IFRS 9 responds to the G20 s call to move to a more forward-looking model for the recognition of expected losses on financial assets. In force from years beginning /2017 EU Commission Regulation 2017/1987 of 31 October 2017, published in the Official Journal L 291 of 9 November 2017, adopts Clarifications of IFRS 15 "Revenues from contracts with customers". The amendments aim to clarify certain requirements and provide a further transitional facilitation for companies applying the standard

136 EC Approval Regulation Title 1988/2017 EU Commission Regulation 2017/1988 of 3 November 2017, published in the Official Journal L 291 of 9 November 2017 adopts Amendments to IFRS 4 Joint application of IFRS 9 Financial instruments and IFRS 4 Insurance contracts. The amendments to IFRS 4 aim to remedy the temporary accounting consequences of the mismatch between the date of entry into force of IFRS 9 and the effective date of the new accounting standard on insurance contracts that replaces IFRS 4 (IFRS 17). The financial conglomerates referred to in the definition in article 2 (14) of Directive 2002/87/EC can decide that none of its entities operating in the insurance sector pursuant to article 2 (8) (b) of the same Directive will apply IFRS 9 to the consolidated financial statements for the years commencing before 1 January 2021, if all of the following conditions are met: a) after 29 November 2017, between the insurance sector and the other sectors of the financial conglomerate, no financial instruments other than those measured at fair value are transferred for which the changes in fair value are recognised in profit or loss for the year by both of the sectors involved in the transfers; b) the financial conglomerate indicates in the consolidated financial statements the group insurance companies that apply IAS 39; c) the additional information required by IFRS 7 is provided separately for the insurance sector that applies IAS 39 and for the rest of the group that applies IFRS 9. In force from years beginning /2018 Commission Regulation (EU) 2018/182 of 7 February 2018, published in the Official Journal L 34 of 8 February 2018, adopts the Annual Improvements to IFRS Standards Cycle that introduces amendments to IAS 28 Investments in Associates and Joint Ventures, to IFRS 1 Firsttime Adoption of International Financial Reporting Standards and to IFRS 12 Disclosure of Interests in Other Entities. The purpose of the annual improvements is to deal with necessary topics relating to inconsistencies in IFRSs or clarifications in terminology that are not particularly urgent, but that have been discussed by the IASB during the project cycle. 1 January 2018 for IAS 28 and IFRS 1 1 January 2017 for IFRS /2018 Commission Regulation (EU) 2018/289 of 26 February 2018, published in the Official Journal L 55 of 27 February 2018, adopts Amendments to IFRS 2 Share-based payment arrangements aimed at clarifying how entities should apply the standard in certain specific cases. 400/2018 Commission Regulation (EU) 2018/400 of 14 March 2018, published in the Official Journal L 72 of 15 March 2018, adopts Amendments to IAS 40 Investment Property Transfers of investment property. The amendments clarify when an entity is authorised to transfer a property that not was previously classified as investment property or vice versa

137 Consolidated Explanatory notes EC Approval Title Regulation 498/2018 Commission Regulation (EU) 2018/498 of 22 March 2018, published in the Official Journal of 26 March 2018, adopts amendments concerning IFRS 9. The date of entry into force and the transitional provisions of the prepayment elements with negative compensation have been changed. 519/2018 Commission Regulation (EU) 2018/519 of 28 March 2018, published in the Official Gazette of 3 April 2018, amending Annex no.1126 / 2008 by introducing IFRIC 22 "Transactions in foreign currency and advances". The interpretation clarifies the accounting for transactions that include the reception or payment of advances in foreign currency. In force from years beginning 1 January 2019 and 1 January 2018 for IFRS 9 adopters The following table shows the new international accounting standards or amendments to standards already in force, whose application is mandatory from 1 January 2019 or later date (if the financial statements do not coincide with the calendar year). The Group has decided not to take advantage of the possibility of early implementation. EC Approval Regulation Title 1986/2017 EU Commission Regulation 2017/1986 of 31 October 2017, published in the Official Journal L 291 of 9 October 2017, adopts IFRS 16 Leases, which aims to improve the accounting treatment of leasing contracts. In force from years beginning 1 January 2019 IFRS 9 IFRS 9 replaced IAS 39, governing the classification and measurement of financial instruments, with effect from 1 January IFRS 9 is divided into three parts: Classification and measurement of financial instruments; Impairment; Hedge accounting. IFRS 9 has introduced a model for the classification of financial assets with reference to the contractual characteristics of the related cash flows and business objectives established for the portfolios concerned (so-called Business Model). Based on the results of applying this model, IFRS 9 has replaced the five previous accounting classifications ("Financial assets held for trading", "Financial assets available for sale", "Financial assets held to maturity", "Loans", "Financial assets measured at fair value through profit or loss") with three new groupings (business models): "Hold to Collect", "Hold to Collect and Sell" and "Other", as described below: financial assets are only measured at amortised cost or at fair value through other comprehensive income if the instruments pass the contractual cash flow characteristics test (Solely Payment of Principal and Interest SPPI test) and the business model test (hold to collect or hold to collect and sell); financial assets held for trading (Other business model) and those mentioned above that fail the SPPI test must be classified as assets measured at fair value through profit or loss; 137

138 equity instruments held for trading are normally classified as measured at fair value through profit or loss; it is also possible to make an irrevocable election at initial recognition to recognise changes in fair value of such equity instruments in an equity reserve, which will never be transferred to profit or loss, not even in the event of disposal of the equity instrument. IFRS 9 does not change the requirements of IAS 39 concerning financial liabilities (which continue to be measured at amortised cost), except for the accounting treatment of own credit risk with regard to financial liabilities designated at fair value, changes in which are now recognised in equity in accordance with IFRS 9, while the residual amount of changes in the fair value of liabilities must be recognised through profit or loss. The second part of IFRS 9 addresses stage allocation and the consequent methodology for the determination of impairment. Instruments classified as measured at amortised cost or at fair value through other comprehensive income, except for irrevocably elected equity instruments, must be adjusted using a model based on forward looking expected losses, rather than on the current incurred losses model. The aim is to pre-empt and monitor the status of credit exposures in a timely and continuous manner. Specifically, IFRS 9 requires calculation of the 12-month expected loss from the time of initial recognition of the financial instrument until a significant increase in credit risk occurs, in which case (Stage 2), the residual life-time expected loss is calculated. For default positions (Stage 3), the expected loss is calculated over the entire residual life of the impaired instruments (so-called "lifetime expected loss"), which includes forward-looking factors and multi-scenario assessments; in addition, certain related aspects have changed, such as the calculation of interest revenue. The aim of the new hedge accounting model, which is addressed in the third part of IFRS 9 and which does not currently extend to macro hedge accounting, is to bring the management and accounting representation of assets closer to the equivalent assets used in the risk management area, increasing disclosure on these risk management actions. In addition, the standard provides an option to implement the new standard, IFRS 9, or continue with IAS 39 (opt-in/opt-out option). Based on the work performed, the BPER Banca Group has elected to opt-out and, thus, hedging transactions continue to be recognised in accordance with IAS 39 (carve-out). IFRS 15 The new standard will replace the current requirements of IFRS on revenue recognition: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue Barter Transaction involving Advertising Services. On 27 October 2017 the European Securities and Market Authority (ESMA) published a document entitled "European common enforcement priorities for 2017 IFRS financial statements", laying down common European priorities so as to promote consistent application of IFRS. In this document, ESMA outlines the expectations of "disclosure" that credit institutions should provide in the financial statements at 31 December 2017 in relation to IFRS 15. The principle is effective from 1 January 2018 and includes specific rules for first-time application; in particular, there is the possibility of choosing between a "full retrospective" approach and a "modified retrospective" approach. The standard establishes a new model of revenue recognition, which will apply to all contracts with customers, with the exception of those falling within the scope of other IAS/IFRS such as leases, insurance contracts and financial instruments. The fundamental steps for accounting for revenues according to the new model are: 138

139 Consolidated Explanatory notes identification of the contract with the customer; identification of the performance obligations of the contract; determination of the price; allocation of the price to the performance obligations of the contract; the criteria for recording the revenue when the entity satisfies each performance obligation. IFRS 15 provides for the recognition of revenues for an amount that reflects the consideration that the entity deems to be entitled to in exchange for the transfer of goods or services to the customer. Documents of the Supervisory Authority Bank of Italy During the second quarter of 2018, the Bank of Italy issued instructions: setting the ratios for the Countercyclical Capital Buffer (CCyB) equal to 0% (unchanged compared with the previous quarter); updating Circular 285 "Supervisory instructions for banks" (22nd update) on the adoption of ECB guidelines and EBA guidance. Domestic tax group election Commencing from 2007, BPER Banca has elected to establish a domestic tax group, which was introduced by Legislative Decree 344/2003 and subsequent amendments and is governed by arts of the Consolidated Income Tax Law. Under this optional arrangement, which is binding for three years, the subordinate members transfer their results to the parent, for fiscal purposes only, which then calculates the consolidated taxable income or tax loss. The effects of the tax consolidation are reported in the financial statements of the Parent Company in the "Other assets - due from members of the tax group" caption, as the matching entry for the IRES provisions classified as "Current tax liabilities" by the above group companies, gross of withholdings and the advances paid. Again with reference to the Parent Company, the "Other liabilities - due to members of the tax group" caption represents the matching entry for the IRES advances and withholding taxes paid by the above group companies, which are classified as "Current tax assets" following their transfer to the consolidating company. At a consolidated level, the "Other assets - Due from members of the domestic group" and "Other liabilities - Due to members of the tax group" captions are eliminated against the corresponding balance sheet captions of the companies that are members of the tax group. The tax group elections made by Banca di Sassari s.p.a. and Sardaleasing s.p.a. expired on 31 December The election for the three-year period will be made by the companies by 31 October 2018 as usual, on presentation of the income tax return of the consolidating company. 139

140 Consolidated companies Banca di Sassari s.p.a. x x x Banco di Sardegna s.p.a. x x x Cassa di Risparmio di Bra s.p.a. x x x Cassa di Risparmio di Saluzzo s.p.a x x x Optima s.p.a. SIM x x x Emilia Romagna Factor s.p.a. x x x Sardaleasing s.p.a. x x x BPER Trust Company s.p.a. x x x Audit The condensed consolidated half-year financial report have been subjected to a limited review by Deloitte & Touche s.p.a., which was appointed for the period at the Shareholders' Meeting held on 26 November 2016, as required by Legislative Decree 39 of 27 February

141 Consolidated Explanatory notes A.2 Main captions in the financial statements The principal captions whose presentation in the financial statements has been changed by the 5th update of Bank of Italy Circular 262 are discussed below. Unless specified otherwise, reference is made to the consolidated financial statements as at 31 December Caption 20. Financial assets measured at fair value through profit or loss Recognition Financial assets represented by debt or equity instruments are initially recognised on the settlement date, while derivative contracts are recognised on the date of signature. In particular, any changes in the fair value of the asset to be received between the settlement date and the earlier arrangement date are recognised at the time of settlement, in the same way in which the asset acquired is recorded. Financial assets measured at fair value through profit or loss are initially recorded at fair value; unless stated otherwise, this is represented by the consideration paid for the transaction, without considering any related costs or income attributable to them, which are recorded directly in the income statement. Classification a) financial assets held for trading Financial assets held for trading comprise those whose business model is defined as "Other". This business model applies to financial assets whose cash flows will be generated from their sale (IFRS 9 B4.1.5). It also applies to equity instruments held for trading for which no irrevocable election was made to recognise subsequent changes in fair value in the statement of comprehensive income. Additionally, the model includes investments in mutual funds that are held for trading. b) financial assets designated at fair value This category comprises the financial assets for which the fair value option has been exercised. c) other financial assets mandatorily measured at fair value through profit or loss This category includes financial assets whose business model is defined as "Hold to Collect" or "Hold to Collect & Sell", but which fail the SPPI test and therefore do not satisfy the requirements for classification therein. It also includes equity instruments not held for trading for which no irrevocable election was made to recognise subsequent changes in fair value in the statement of comprehensive income. Additionally, the category includes investments in mutual funds that are not held for trading. 141

142 Measurement Subsequent to initial recognition, these assets continue to be measured at fair value. If the fair value of derivatives classified as "financial assets held for trading" becomes negative, this caption is recognised as a financial liability. The methodologies used to determine fair value are presented in Part A.2 of the explanatory notes at 31 December 2017, in chapter 21 "Methodology for the determination of fair value". Derecognition Financial assets are derecognised when the contractual rights to the cash flows deriving from them expire, when substantially all the risks/benefits associated with them are assigned, or when substantial changes are made to them. If the Group sells a financial asset classified among the "Financial assets measured at fair value through profit or loss", it is derecognised on the transfer date (settlement date). Criteria applied for the recognition of components affecting the income statement The positive components of income, represented by the interest income deriving from financial assets classified as "Financial assets measured at fair value through profit or loss", are recognised on an accruals basis in the "interest" captions of the income statement. Gains and losses deriving from changes in the fair value of "Financial assets measured at fair value through profit or loss - financial assets held for trading" are recognised in income statement caption 80 "Net trading income". Gains and losses deriving from changes in the fair value of financial assets designated at fair value are recognised in income statement caption 110 a) "Net results of financial assets and liabilities measured at fair value through profit or loss - assets and liabilities designated at fair value", while financial assets mandatorily measured at fair value are recognised in caption 110 b) "Net results of other financial assets and liabilities measured at fair value through profit or loss - other financial assets mandatorily measured at fair value". Caption 30. Financial assets measured at fair value through other comprehensive income Recognition Financial assets represented by debt or equity instruments are initially recognised on the settlement date, while loans are recognised on the payout date. On initial recognition, these financial assets are recorded at their fair value, which usually corresponds to the consideration paid, inclusive of the transaction costs or income directly attributable to the instruments concerned. Classification This category comprises: financial assets whose defined business model is "Hold to Collect & Sell" and whose contractual terms pass the SPPI test; investments in equity instruments, not held in the context of a trading business model, for which an irrevocable election was made on initial recognition to record subsequent changes in fair value in the statement of comprehensive income. 142

143 Consolidated Explanatory notes Measurement Subsequent to initial recognition, these financial assets continue to be measured at fair value. Changes in the fair value of financial assets, other than equity instruments for which the above irrevocable election has been made, are recognised in a specific equity reserve net of expected credit losses and the related tax effect. Derecognition Financial assets are derecognised when the contractual rights to the cash flows deriving from them expire, when substantially all the risks/benefits associated with them are assigned, or when substantial changes are made to them. Recognition of components affecting the income statement The components of income deriving from "Financial assets measured at fair value through other comprehensive income", excluding investments in equity instruments for which the above irrevocable election has been made, are recognised as described below: expected credit losses recognised during the period are recorded in caption 130 "Net adjustments/writebacks for credit risks on :b) financial assets measured at fair value through other comprehensive income"; on derecognition, the amount accumulated in the specific equity reserve is released to income statement caption 100 "Gains/losses on disposal/repurchase of: b) financial assets measured at fair value through other comprehensive income". With regard to investments in equity instruments for which the above irrevocable election has been made, only the related dividends are recognised in the income statement, in caption 70 "Dividends and similar income". Changes in fair value subsequent to initial recognition are recorded in a specific equity reserve; on derecognition, the amount accumulated in the above reserve is not released to the income statement, but is reclassified among the profit reserves. Caption 40. Financial assets measured at amortised cost Recognition Financial assets represented by debt instruments are initially recognised on the settlement date, while loans are recognised on the payout date; this caption includes: - loans to banks; - loans to customers. The initial value reflects the fair value of the financial instrument, generally representing the amount of the loan granted inclusive of the costs/income directly attributable to each instrument, or the subscription price in the case of debt instruments. 143

144 Classification This category comprises the financial assets whose defined business model is "Hold to Collect" and whose contractual terms pass the SPPI test. The "Financial assets measured at amortised cost" caption includes loans to customers and amounts due from banks. These captions comprise commercial loans, repurchase agreements, loans originated by finance leases (recognised using the "financial method" pursuant to IAS 17) and debt securities. Measurement After initial recognition, loans are measured at their amortised cost, corresponding to the initially recognised amount less principal repayments, net impairment adjustments and amortisation - calculated using the effective interest method of the difference between the amount paid out and the amount repayable on maturity, which is generally attributable to the costs/income directly allocated to the individual loans. The effective interest rate is the rate that discounts the flow of estimated payments over the expected duration of the loan back to its initial net book value, inclusive of directly-related costs and revenues. In financial terms, this method of recognition distributes the economic effect of these costs and revenues over the expected residual life of the loan. The amortised cost method is not used in relation to short-term loans (up to 12 months), since the effect of discounting would be negligible. These loans are stated at historical cost. Costs and revenues relating to loans without a fixed term or repayable on demand are recorded directly in the income statement. At each reporting date, financial assets measured at amortised cost are adjusted for impairment by recognising any expected credit losses. This category includes non-performing loans (so-called Stage 3 ), which are identified as bad, unlikely to pay or past due in compliance with the current rules established by the Supervisory Authorities. The amount of the adjustment of each balance is equal to the difference between its carrying value at the time of measurement (amortised cost) and the present value of expected future cash flows. The estimate of expected cash flows comes from assessing analytically the position of bad loans for "unlikely to pay" loans with exposures above the thresholds set by internal procedures. The cash flows expected from "unlikely to pay" loans, with exposures below the thresholds set by internal procedures, and from past due loans are calculated using a forfeit approach based on the operational version of LGD, which includes forward-looking factors. The adjustments are recorded in the income statement. The original value of loans is reinstated in subsequent periods, to the extent that the reasons for the adjustments made cease to apply, on condition that this assessment is objectively linked with events that took place subsequent such adjustments. The reversal of the impairment loss may not exceed the amortised cost of the loan had the impairment not been recognised in the past. Adjustments or writebacks to loans and advances classified as "Stage 1" or "Stage 2" performing loans are calculated differently considering, respectively, the 12-month or lifetime "Expected Loss" or "Expected credit losses" ("ECL"). 144

145 Consolidated Explanatory notes Recognition of components affecting the income statement The interest on instruments measured at amortised cost (amounts due from banks and loans to customers) is calculated using the effective interest method, i.e. using the rate (IRR) that discounts the related cash flows exactly over the expected life of the instrument concerned. The IRR and, therefore, amortised cost are determined having regard for any acquisition discounts or premiums, costs or commissions that are an integral part of the discounted cost. Expected credit losses are recognised in income statement caption 130 "Net adjustments/writebacks for credit risk". Caption 90. Property, plant and equipment Recognition Property, plant and equipment are initially recorded at purchase price, including all directly statements attributable costs of purchasing and bringing the asset to working condition. Expenditure on improvements that will generate future economic benefits is added to the value of the assets concerned, while routine maintenance costs are charged to the income statement. Classification Property, plant and equipment comprise land, property used for operating purposes, installations, furniture, furnishings and all types of equipment. These are tangible assets that will be used for more than one accounting period and which are held for use in the production of business or the supply of goods and services, for rental to third parties or for administrative purposes. This caption also includes assets held under finance lease contracts, even though the lessor remains the legal owner. This caption also includes certain assets classified in accordance with IAS 2 "Inventories", comprising assets deriving from the enforcement of guarantees or from purchases at auction that the business intends to sell in the near future, without carrying out significant renovation work, as well as the property portfolios held by the property companies within the Group, including construction land, buildings under construction, completed buildings and property development initiatives held for sale. Measurement Property, plant and equipment, including investment property, are carried at cost less accumulated depreciation and any accumulated impairment losses. Property, plant and equipment are systematically depreciated over their useful lives, on a straight-line basis, except for: land acquired separately or included in the value of property, since it has an indefinite useful life. The value of land included in property is deemed to be separable from the value of buildings; the allocation of value between land and buildings is based on independent appraisals carried out solely in relating to free-standing buildings; works of art, since the useful life of a work of art cannot be estimated and its value normally appreciates over time; inventories classified in accordance with IAS

146 If there is any evidence at a reporting date that the value of an asset may be impaired, its carrying value is compared with its recoverable value, being its fair value net of any selling costs or its value in use, as represented by the present value of the cash flows generated by the asset, whichever is greater. Any adjustments are recorded in the income statement. If the reasons for recognising an impairment loss cease to apply, the loss can be written back but without exceeding the carrying value that the asset would have had (net of depreciation) if no impairment losses had been recognised in prior years. Assets recognised pursuant to IAS 2 are measured at the lower of cost or net realisable value, subject to comparison of the carrying amount of each asset with its recoverable value, should evidence suggest that its carrying amount may be impaired. Any adjustments are recognised in the income statement. Derecognition Property, plant and equipment are derecognised on disposal, or when the assets concerned are permanently taken out of use and no further economic benefits are expected from their disposal. Recognition of components affecting the income statement Both the depreciation determined on a straight-line basis and any net impairment adjustments are recorded in caption 180 "Net adjustments to property, plant and equipment" of the income statement. Disposal gains and losses are however recorded in caption 250 "Gains (losses) on disposal of investments" of the income statement. Caption 10. Financial liabilities measured at amortised cost Recognition These liabilities are initially recognised at their fair value, usually corresponding to the amount collected or the issue price, plus any additional costs/proceeds directly attributable to the individual funding transaction or issue. This caption includes: - "Due to banks"; - "Due to customers"; - "Debt securities issued". Classification "Due to banks", "Due to customers" and "Debt securities issued" comprise the various forms of interbank and customer funding. These captions also include liabilities recognised by the lessee under finance leases, as well as funding through certificates of deposit and debt securities issued, net of any repurchases. Measurement Following initial recognition, financial liabilities are measured at amortised cost using the effective interest method, except for current liabilities given the negligible effect of the time factor. Debt securities issued are stated net of any repurchased amounts. Derecognition Financial liabilities are derecognised when they expire or are settled. The repurchase of debt securities issued in prior periods results in their derecognition. The difference between the carrying amount of the liability and the amount paid to repurchase it is recorded in the income statement. 146

147 Consolidated Explanatory notes Recognition of components affecting the income statement The negative elements of income represented by interest and similar expense are recorded in the interest captions of the income statement on an accruals basis, using the effective interest method. Costs/revenues relating to short-term payables are recorded directly in the income statement. The difference between the carrying amount of a liability and the amount paid to acquire it is recorded in income statement caption 100 c) "Gains (losses) on disposal or repurchase of financial liabilities". Caption 20. Financial liabilities held for trading Recognition These financial instruments are recognised at their fair value on the subscription or issue date, without considering any transaction costs or income directly attributable to them. Classification This category of liabilities includes trading derivatives with a negative fair value, as well as derivatives with negative fair value that are embedded in complex contracts - in which the primary contract is a financial liability - but not closely correlated with them. Measurement All liabilities held for trading are measured at fair value. Derecognition criteria Financial liabilities held for trading are derecognised on expiry of the contractual rights over the related cash flows, or when the financial liability is assigned with the transfer of substantially all the risks and benefits deriving from its ownership. Recognition of components affecting the income statement The criteria applied for the recognition of income components of financial assets held for trading are adopted with suitable modifications. Caption 30. Financial liabilities designated at fair value Recognition These liabilities are initially recognised at fair value, net of transaction costs or revenues. Classification A financial liability is designated at fair value if one of the following conditions applies: - classification in this category eliminates "accounting asymmetries"; - they are part of groups of liabilities managed together whose performance is measured at fair value, as part of a documented risk-management strategy. 147

148 Measurement Subsequent to initial recognition, these liabilities continue to be measured at fair value; the methodologies used to determine fair value are presented in Part A.2 of the explanatory notes at 31 December 2017, in chapter 21 "Methodology for the determination of fair value". The new accounting treatment envisaged in IFRS 9 for the above liabilities requires the changes in fair value associated with the own credit risk for liabilities designated at fair value to be recognised by a matching entry to a specific equity reserve, unless that treatment would create or amplify an accounting asymmetry in the economic result; in that case, the entire change in the fair value of the liability must be recognised in the income statement. The standard also establishes that the amount recognised in the specific equity reserve must not be "released" to the income statement, even if the liability is settled or expires. Derecognition Financial liabilities designated at fair value through profit or loss are derecognised when they expire or are settled. The repurchase of debt securities issued in prior periods results in their derecognition. The renewed placement of treasury securities subsequent to their repurchase is deemed to represent a new issue, with the recognition of a new placement price, without any effect on the income statement. Recognition of components affecting the income statement The negative elements of income represented by interest are recorded in the interest captions of the income statement on an accruals basis. The results of measurement are recorded in the "Net result on financial assets and liabilities designated at fair value" caption, together with the profits and losses arising on settlement. Caption 100. Provisions for risks and charges Recognition The provisions for risks and charges cover liabilities whose timing and extent are uncertain, when all the following conditions are met: - a current obligation exists at the balance sheet date, deriving from a past event. The origin of the obligation must either be legal (deriving from a contract, regulation or the provisions of law) or implicit (arising when the business causes third parties to expect that commitments will be met, even if these do not fall into the category of legal obligations); - a financial outflow is likely; - the extent of the obligation can be estimated reliably. For liabilities that are merely potential and not likely, no provision has been made, but information is provided in the Directors' report on Group operations in the section "Principal risks and uncertainties". Classification This caption includes the provisions relating to long-term benefits and post-employment benefits governed by IAS 19, discussed in point 17 below, and the provisions for risks and charges governed by IAS 37. Sub-caption "commitments and guarantees granted" comprises the credit risk provisions for funding commitments and financial guarantees granted that are subject to the impairment rules of IFRS 9 (see para. 2.1, letter e); para. 5.5; appendix A), as well as the provisions for other commitments and guarantees not subject to those impairment rules. 148

149 Consolidated Explanatory notes Measurement Where the time element is significant, the provisions are discounted using current market rates. Provisions are charged to the income statement. Recognition of components affecting the income statement Adjustments and write-backs of commitments and guarantees granted are recorded in caption 170 a) "Net provisions for risks and charges commitments and guarantees granted". Provisions for risks and charges and the related write-backs, including the effects of the passage of time, are classified in caption 170 b) "Net provisions for risks and charges Other net provisions". Provisions are made on the basis of the best estimate of the amount that the company would reasonably pay to settle the obligation or to transfer it to third parties at the balance sheet date. When the financial effect of time is significant and the payment dates of obligations can be reliably estimated, the provision is calculated by discounting the expected future cash flows taking into account the risks associated with the obligation; the increase in the provision due to the passage of time is recognised in the income statement. Income statement: Revenues In accordance with IFRS 15, revenues deriving from contracts with customers are recorded at the amount of the consideration to which the BPER Banca Group is entitled, in exchange for the transfer of goods and services to the customer. Revenues may be recognised: at a specific time, when the entity fulfils the obligation to transfer the promised goods or services to the customer, or over time, as the entity fulfils the obligation to transfer the promised goods or services to the customer. In this context, goods are transferred when, or over the period in which, the customer obtains control over them. The price of the transaction is the amount of consideration that the entity is entitled to receive in exchange for the transfer to the customer of the promised goods or services, excluding any amounts collected on behalf of third parties (e.g. sales taxes). In order to determine the price of the transaction, BPER Banca Group considers the contract terms and conditions and its normal business practices, including all the following elements to the extent applicable: variable consideration, if it is highly likely that the amount will not be adjusted in future; restrictions on the estimates of variable consideration; existence in the contract of a significant financial component; non-monetary consideration; consideration payable to the customer. Other types of revenue, such as interest and dividends, are recognised applying the following criteria: interest on instruments measured at amortised cost is calculated using the effective interest method; dividends are recognised when the shareholders' right to receive payment is determined. 149

150 Income statement: Costs Costs are recognised in the income statement on an accruals basis; the costs incurred to obtain and execute contracts with customers are recognised in the income statement in the periods in which the related revenues are recognised. Marginal costs and revenues directly attributable to the acquisition of an asset or issue of a financial liability measured at amortised cost are recognised in the income statement together with the interest on the financial asset or liability using the effective interest method. Other information Criteria for the classification of financial assets IFRS 9 requires financial assets to be classified into three accounting categories, using the following criteria: the business model used to manage them; the contractual characteristics of their cash flows (SPPI test). The classification of financial assets depends on a combination of these two criteria, as indicated below: Financial assets measured at amortised cost: assets covered by the Hold to collect (HTC) business model that pass the SPPI test; Financial assets measured at fair value through other comprehensive income (FVOCI): assets covered by the Hold to collect and sell (HTCS) business model that pass the SPPI test; Financial assets measured at fair value through profit or loss (FVTPL): this residual category comprises the financial assets that cannot be classified in the above categories, considering the business model or the characteristics of their contractual cash flows (SPPI test not passed). Business Model IFRS 9 proposes three possible business models: "Collect": collection of the cash flows envisaged in the contract. This business model applies to assets that are likely to be held until maturity; "Collect and Sell": collection of the cash flows envisaged in the contract or via sale of the instrument. This business model applies to assets that may be held until maturity, but also sold beforehand; "Other": collection of cash flows via disposal of the instrument. This business model applies to assets whose cash flows will be realised via trading activities. The business model applicable to each portfolio is determined with reference to scenarios that are deemed to be reasonably likely, considering all the relevant and objective information available at the time. However, information about how the previous cash flows of the destination portfolio were realised and other relevant information must also be considered on a prospective basis when classifying subsequent purchases / recognising a new asset. The "Collect" business model applies to financial assets held by the entity with a view to collecting the contractual cash flows over the life of the contract. This means that the entity manages the assets held in the portfolio in order to collect these flows, rather than realise them via disposal of the instrument. These instruments are measured at amortised cost, on condition that they pass the SPPI (Solely Payment of Principal and Interest) test. 150

151 Consolidated Explanatory notes The following elements are considered when determining whether or not the cash flows are realised by holding the instrument: the frequency with which sales are made, as well as their value, timing and related reasons and expectations. The sale of an asset is not, in itself, the decisive factor in determining the applicable business model. A "Collect" business model does not necessarily imply that the instrument will be held until maturity. In particular, the business model may be to hold the assets until maturity, even if the entity decides to sell certain financial assets following an increase in credit risk. Such sales do not conflict with the "Collect" business model, since the quality of the financial asset is important when determining whether or not the entity will be able to collect the contractual cash flows. Infrequent sales (even if the amount is significant) or sales of low value, individually and/or collectively (even if frequent), may be consistent with the "Collect" business model. The "Collect and Sell" business model applies to financial assets held by the entity either in order to collect the contractual cash flows or to realise them via the sale of the financial assets concerned. These instruments are measured at fair value with a matching entry in a specific equity reserve (FVOCI) - on condition that the SPPI test is passed. The purpose of this business model may be to manage liquidity requirements, maintain a specific level of net interest income, balance the maturities of assets and liabilities, or maximise the return on a given portfolio. The "Collect and Sell" business model will have more frequent and higher value sales, as they are integral to how cash flows are realised. However, there is no minimum frequency or value of sales for the application of this business model, as both the collection of contractual cash flows and the sale of financial assets are essential for the pursuit of its objective. The "Other" business model applies to financial assets represented by debt securities held by the entity in order to realise cash flows from their sale. These assets are measured at fair value through profit or loss. Decisions on whether to hold or sell the financial assets concerned mainly depend on the market opportunities available at any given time. In this case, the entity will usually make frequent purchases and sales. SPPI Test Financial assets are classified with reference to the characteristics of the contractual cash flows, which are analysed via the SPPI (Solely Payments of Principal and Interest) test. The SPPI test is passed (and, therefore, the contractual cash flows of the financial asset consist solely of payments of principal and the interest accrued on the outstanding principal) when the contractual terms are compatible with a basic lending arrangement. For SPPI definition purposes, the amount of principal is deemed to be the fair value of the financial asset at the time of initial recognition. Interest, on the other hand, represents the remuneration of just those components that would exist within a basic lending arrangement: the time value of money, credit risk and other risks and costs associated with the basic loan (e.g. liquidity risk, administrative costs), profit margin compatible with a basic lending arrangement. Contractual clauses that introduce exposures to other risks not mentioned above or volatility in the contractual cash flows not associated with a basic lending arrangement (e.g. exposure to changes in the prices of equity instruments or commodities, do not give rise to SPPI contractual cash flows. 151

152 The purpose of the SPPI test is, therefore, to determine if the contractual cash flows solely comprise payments of principal and interest accrued on the outstanding principal. The SPPI test must be passed in order to measure the instrument at AC (amortised cost) or FVOCI (Fair Value through Other Comprehensive Income), depending on the business model identified. Accordingly, it is only necessary to carry out the SPPI test if the HTC or HTC&S business models are adopted. Impairment The new impairment model introduced by IFRS 9 is based on the "forward looking" concept of measurement, considering both the 12-month and lifetime expected loss. Under the Expected Loss model, losses are recognised with reference to the objective evidence of impairment already identified at the reporting date (as in the past, under the Incurred Loss model), as well as to the expected future losses not yet evident at the reporting date. The new impairment rules apply to the following financial instruments: "financial assets measured at amortised cost"; "financial assets measured at fair value through other comprehensive income", excluding equity instruments; commitments to disburse funds and guarantees granted not measured at fair value through profit or loss. The expected loss (determined after assigning the Stage to each transaction within the scope of IFRS 9) is calculated by applying the risk parameters estimated using IFRS 9 methodology to determine the periodic/multi-periodic Probability of Default (PD), the Loss Given Default (LGD) and the Exposure At Default (EAD). The resulting expected loss must reflect: current conditions in the economic cycle (Point-in-Time risk measures); the probability that three different scenarios might occur (Probability weighted); the effect of discounting at the reporting date using the contractual interest rate (consistent with the choice of the contractual cash flows); forward-looking information about risks, considering the dynamics of the (external) macroeconomic factors that affect the lifetime expected loss. Criteria for the classification of financial instruments in Stages The Stage Assignment Framework adopted by the BPER Banca Group establishes the requirements for classifying financial instruments with reference to the actual "deterioration" of credit risk, consistent with the requirements of IFRS 9, applying an approach that is consistent among the various portfolios and within the Banking Group. This classification in stages of increasing risk is determined using all the significant information contained in Group processes, as supported where applicable by updates and the credit monitoring processes. Specifically, financial assets are classified into three stages of risk, each of which applies a different method to calculate the related impairment adjustments, while consistently applying the "Expected Loss" or "Expected Credit Losses" (ECL) concept: Stage 1: comprises all performing loans (originated or acquired) without any "significant increase in credit risk" (SICR) since initial recognition; the impairment adjustments reflect the expected losses that might arise on default within the next 12 months (12-month ECL); Stage 2: comprises all performing loans with a "significant increase in credit risk" since initial recognition; the impairment adjustments reflect the expected losses that might arise on default at any time in the life of the financial instrument (lifetime ECL); Stage 3: comprises all accounts in default at the reporting date, the impairment adjustments for which consider the lifetime ECL. 152

153 Consolidated Explanatory notes In particular, regarding the classification of loans in Stage 2, it is essential to identify correctly the SICR criteria used in the stage assignment process. For this purpose, the BPER Banca Group has structured a framework designed to identify the increase in credit risk before the credit lines granted show clear signs of impending default. While the distinction between performing and non-performing is made at counterparty level, classification into stages of risk is carried out at account level. In order to distinguish loans within the performing portfolio that do not show SICR (Stage 1) from those that do (Stage 2), the BPER Banca Group has decided to use all the following available significant factors as criteria for the analysis of credit quality: Relative quantitative criteria, such as the definition of internal thresholds of change between the PD identified on originating the contractual relationship and the PD at the measurement date, that identify a significant increase in credit risk. In this context, in order to identify the changes in PD and the related thresholds, the framework adopted by the BPER Banca Group makes reference to the Lifetime PD curves, which contain forward-looking information, so that due consideration is given to macroeconomic factors and other elements, such as market type, sector of activity, type of financial instrument and the residual duration of the instrument concerned. Absolute qualitative criteria that, via the identification of a risk threshold, identify the transactions to be classified in Stage 2 based on the specific risk information available. This category includes the adverse events impacting credit risk that are identified by the credit performance monitoring system; Backstop indicators, including: the presence of exposures with a significant past due balance for more than 30 days; the presence of a regulatory probation period of 24 months for forbearance measures; the absence of a rating or the presence of a default status at the credit origination date; the presence of watchlist exposures in the Early Warning credit monitoring system. The criteria for the classification in stages of the debt securities portfolio have been borrowed, where possible, from the staging logic applied to the loans portfolio. The standard also envisages the possible use of a practical expedient, intended to reduce the implementation burden for transactions that, at the measurement date, have a low credit risk and can be classified in Stage 1 without first carrying out the SICR test. The standard considers an asset to have a low credit risk if the debtor is well able to meet the short-term cash flow requirements deriving from its contractual obligations and adverse changes in the long-term economic situation might reduce that ability, but not necessarily. The BPER Banca Group has decided not to adopt this practical expedient. Should the conditions giving rise to the SICR cease to apply at a subsequent measurement date, the financial instrument is once again measured with reference to the 12-month ECL, which might result in a writeback to the income statement. 153

154 Purchased Originated Credit Impaired - POCI - financial assets If a credit exposure classified in caption 30 "Financial assets measured at fair value through other comprehensive income" or in caption 40 "Financial assets measured at amortised cost" at the time of initial recognition becomes impaired, it is identified as "Purchased Originated Credit Impaired - POCI". By convention, POCI financial assets are classified in Stage 3 on initial recognition. Should these assets become performing, following an improvement in the creditworthiness of the counterparty, they are reclassified to Stage 2. They can never be classified in Stage 1, as the expected credit loss must always be calculated over the residual duration. The BPER Banca Group identifies as POCI financial assets any credit exposures originating from the restructuring of impaired exposures that resulted in the granting of significant new funds, either in absolute terms or in proportion to the amount of the original exposure. A.3 Information on transfers of financial assets between portfolios No financial assets were reclassified during the period. A.4 Information on fair value Qualitative information A.4.1 Fair value Levels 2 and 3: valuation techniques and inputs used A description of the valuation techniques and inputs used has been disclosed in Chapter 21 of Part A.2 of the Explanatory notes in the Consolidated financial statements at 31 December 2017 "Techniques for the determination of fair value". 154

155 Consolidated Explanatory notes A.4.2 Measurement process and sensitivity Assets and liabilities categorised within Level 3 of the fair value hierarchy mainly consist of: inter-related derivative transactions offsetting each other and linked with self-securitisation contracts classified as "Financial assets measured at fair value through profit or loss - financial assets held for trading" and "Financial liabilities held for trading"; limited investments in equities measured at nominal value or using the equity method, classified as "Financial assets measured at fair value through other comprehensive income"; non-controlling equity investments, often held to maintain contact with the territory, or to develop commercial relations (mainly measured using the equity method or at cost), classified as "Financial assets measured at fair value through other comprehensive income"; investments in asset-backed securities classified as "Financial assets measured at amortised cost" or "Financial assets measured at fair value through profit or loss - other financial assets mandatorily measured at fair value through profit or loss". For the latter, the related sensitivity is provided below: Financial asset/liability Non-observable parameter Change in parameter Sensitivity (in thousands) Investiments in Asset Backed Securities Credit spread +25 bps (1,165) For the other positions which have just been illustrated, given the use of valuation techniques involving the use of estimates, the measurement thereof is incapable of being significantly impacted by changes in inputs. A.4.3 Fair value hierarchy A description of the fair value hierarchy has been disclosed in Part A.2 of the Explanatory notes in the Consolidated financial statements at 31 December 2017 in Chapter 21 "Techniques for the determination of fair value". A.4.4 Other information Reference should be made to Chapter 31 of Part A.2 of the Explanatory notes in the Consolidated financial statements at 31 December 2017 "Techniques for the determination of fair value" for further information on fair value. 155

156 Quantitative information A.4.5 Fair value hierarchy A Assets and liabilities measured at fair value on a recurring basis: breakdown by fair value levels Financial assets/liabilities designated at fair value 1. Financial assets measured at fair value with impact on income statement L1 L2 L3 L1 L2 L3 402, , , , , ,835 a) Financial assets held for trading 194, ,484 10, , ,609 20,331 b) Financial assets designated at fair value 83, ,491-84, ,660 - c) Other financial assets mandatorily measured at fair value through 125,164 98, , , , ,504 profit or loss 2. Financial assets measured at amortised cost 8,060, , ,523 11,958,351 1,169, , Hedging derivatives - 50, , Property, plant and equipment Intangible assets Total 8,462,879 1,362, ,847 12,428,479 1,609,204 1,048, Financial liabilities held for trading 73, ,244 11,341 1, ,695 16, Financial liabilities designated at fair value Hedging derivatives - 42, ,795 - Total 73, ,162 11,341 1, ,490 16,955 Transfers of assets from Level 1 to Level 2 of the fair value hierarchy during the period amounted to 43,508 thousand and those from Level 2 to Level 1 amounted to 80,518 thousand. The former are due to a loss of significance of the prices quoted in the principal market, while, for the latter, the dealer market showed an improvement in the negotiability of the instruments in terms of volumes and in the width and depth of the prices quoted. Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 156

157 Consolidated Explanatory notes A Assets and liabilities not measured at fair value or at fair value on a non-recurring basis: breakdown by fair value levels Assets/Liabilities not measured at fair value or at fair value on a non-recurring 1. Financial assets measured at amortised cost 2. Investment property, plant and equipment 3. Non-current assets and disposal groups held for sale BV L1 L2 L3 BV L1 L2 L3 54,563,163 5,366,109 60,607 50,578,390 51,561, ,336 44,408 50,639, , , , , Total 54,845,806 5,366,109 60,607 50,887,458 51,843, ,336 44,408 50,946, Financial liabilities measured at amortised cost 62,502,252 3,073,633 1,773,059 57,701,564 63,230,643 3,106,380 2,592,624 57,769, Liabilities associated with non-current assets held for sale Total 62,502,252 3,073,633 1,773,059 57,701,564 63,230,643 3,106,380 2,592,624 57,769,092 Key: BV = Book value L1 = Level 1 L2 = Level 2 L3 = Level 3 A.5 Information on "day one profit/loss" In the case of Level 3 transactions, the fair value according to the model may differ from the transaction price: in the case of a positive difference (day one profit), this is amortised over the residual life of the instrument; in case of a negative difference (day-one loss), it is charged to the income statement for prudence sake. There were no differences at 30 June 2018 between the value of transactions and their corresponding fair values. 157

158 158

159 Consolidated Explanatory notes Part B Information on the consolidated balance sheet 159

160 Consolidated Explanatory notes Assets Section 2 Financial assets measured at fair value through profit or loss Caption Financial assets held for trading: product breakdown by sector Description/Amounts A. Cash assets Total Total L1 L2 L3 L1 L2 L3 1. Debt securities 66,779 34, ,810 35, Structured securities 20,939 4, Other securietes 45,840 29, ,810 35, Equities 83,904 2, ,839 1, UCITS units 43, , Loans Repurchase agreements Others Total (A) 194,037 36, ,436 37, B. Derivative Financial derivates ,810 10, ,180 20, trading ,810 10, ,180 20, conncected with the fair value option others Credit derivates trading connected with the fair value option others Total (B) ,810 10, ,180 20,305 Total (A+B) 194, ,484 10, , ,609 20,331 The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December

161 Consolidated Explanatory notes 2.2 Financial assets held for trading: breakdown by debtors/issuers/counterparties Description/Amounts A. Cash assets 1. Debt securities 101, ,548 a) Central Banks - - b) Public Administrations 16,668 68,465 c) Banks 39,598 32,263 d) Other financial companies 31,566 34,871 of which: insurance companies 2,470 - e) Non financial companies 13,263 16, Equity instruments 86,297 99,556 a) Banks 18,792 21,317 b) Other finanzial companies 6,239 7,250 of which: Insurance companies 3,219 3,931 c) Non financial companies 61,266 70,989 d) Other issuers UCITS units 43,354 44, Loans - - a) Central Banks - - b) Public Administrations - - c) Banks - - d) Other financial companies - - of which: insurance companies - - e) Non financial companies - - f) Families - - Total (A) 230, ,891 B. Derivative instruments a) Central counterparties - 70,985 b) Others 119,642 57,548 Total (B) 119, ,533 Total (A+B) 350, ,

162 Consolidated Explanatory notes 2.3 Financial assets measured at fair value through profit or loss: breakdown by sector Description/Amounts Total Total L1 L2 L3 L1 L2 L3 1.Debt securities 83, ,491-84, , Structured securities Other debt securities 83, ,491-84, , Loans Structured Others Total 83, ,491-84, ,660 - The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December Key: L1 = Level 1 L2 = Level 2 L3 = Level Financial assets measured at fair value through profit or loss: breakdown by debtors/issuers Description/Amounts Total Total Debt securities 221, ,192 a) Central Banks - - b) Public Administrations 206, ,625 c) Banks 7,086 7,210 d) Other financial companies 8,350 8,357 of which: Insurance companies 3,899 3,994 e) Non financial companies Loans - - a) Central Banks - - b) Public Administrations - - c) Banks - - d) Other financial companies - - of which: Insurance companies - - e) Non financial companies - - f) Families - - Total 221, ,

163 Consolidated Explanatory notes 2.5 Other financial assets mandatorily measured at fair value through profit or loss: product breakdown Descriptio/Amounts Total Total L1 L2 L3 L1 L2 L3 1. Debt securities - 98, , , , Structured securities Other debt securities - 98, , , , Equity instruments 4, ,336 3, , UCITS units 120, , , , Loans Repurchase agreements Others Total 125,164 98, , , , ,504 The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 163

164 Consolidated Explanatory notes 2.6 Other financial assets mandatorily measured at fair value through profit or loss: breakdown by debtors/issuer Total Total Equity instruments 52,394 68,725 of which: banks 38,044 32,457 of which: other financial companies 4,533 6,205 of which: non-financial companies 9,817 20, Debts securities 480, ,967 a) Central Banks - - b) Public Administrations 50,667 53,009 c) Banks 30,157 30,305 d) Other financial companies 397, ,698 of which: insurance companies - - e) Non financial companies 1,975 1, UCITS Units 316, , Loans - - a) Central Banks - - b) Public Administrations - - c) Banks - - d) Other financial companies - - of which: insurance companies - - e) Non financial companies - - f) Families - - Total 849, ,

165 Consolidated Explanatory notes Section 3 Financial assets measured at fair value through other comprehensive income Caption Financial assets measured at fair value through other comprehensive income: breakdown by sector Total Total Description/Amounts L1 L2 L3 L1 L2 L3 1. Debts securities 8,060, ,452 15,842 11,958,342 1,169,100 15, Structured securities Other debt securities 8,060, ,452 15,842 11,958,342 1,169,100 15, Equity instruments , , Loans - - 3, ,322 Total 8,060, , ,523 11,958,351 1,169, ,901 The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 165

166 Consolidated Explanatory notes 3.2 Financial assets measured at fair value through other comprehensive income: breakdown by debtors/issuers Description/Amounts Total Total Debt securities 9,005,790 13,142,750 a) Central Banks - - b) Public entities 2,176,734 5,317,160 c) Banks 5,120,902 5,685,213 d) Other financial companies 1,137,816 1,474,174 of which: insurance companies 52,844 7,767 e) Non financial companies 570, , Equity securities 286, ,685 a) Banks 93,370 97,822 b) Other issuers: 193, ,863 - other financial companies 163, ,918 of which: insurance companies 104,330 63,777 - non financial companies 29,438 27,900 - others Loans 3,370 3,322 a) Central Banks - - b) Public entities - - c) Banks - - d) Other financial companies 3,370 3,322 of which: insurance companies 3,370 3,322 e) Non financial companies - - f) Families - - Total 9,295,682 13,398, Financial assets measured at fair value through other comprehensive income: gross carrying amount and total write-downs Gross value Writedown Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Debt securities 8,505, , , Loans 3, Total ,508, , , Total ,573, , At 30 June 2018 none of the debt securities classified in Stage 3 have been written off. 166

167 Consolidated Explanatory notes Section 4 Financial assets measured at amortised cost Caption Financial assets measured at amortised cost: breakdown by sector of amounts due from banks Total Total Type of transaction/ Amounts Gross book value Fair value Balance value Fair value Stage 1 and Stage 2 Stage 3 L1 L2 L3 Stage 1 and Stage 2 Stage 3 L1 L2 L3 A. Due from central banks 2,548, ,548,428 2,040, ,040, Time deposits 8,924 - X X X - - X X X 2. Reserve requirement 2,532,032 - X X X 2,035,870 - X X X 3. Repurchase agreements - - X X X - - X X X 4. Others 7,472 - X X X 4,504 - X X X B. Due from banks 1,673,266-1,053,966 12, ,806 1,165, , , Loans 597, , , , Current accounts and demand 151,301 - X X X 97,588 - X X X deposits 1.2. Time deposits 46,037 - X X X 161,673 - X X X 1.3 Other loans: 400,468 - X X X 712,880 - X X X - Repurchase agreements - - X X X 300,025 - X X X - Finance leases - - X X X - - X X X - Others 400,468 - X X X 412,855 - X X X 2. Debts securities 1,075,460-1,053,966 12, , , Structured securities Other debt securities 1,075,460-1,053,966 12, , , Total 4,221,694-1,053,966 12,891 3,146,234 3,205, ,349-3,012,515 The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December

168 Consolidated Explanatory notes 4.2 Financial assets measured at amortised cost: breakdown by sector of loans to customers Type of transaction/values Total Total Book value Fair value Balance value Fair value Stage 1 and Stage 2 Stage 1 Stage 3 L1 L2 L3 and Stage 2 Stage 3 L1 L2 L3 1. Loans 41,976,515 3,825, ,422,835 42,207,366 5,401, ,609, Current accounts 1.2. Repurchase agreements 4,090, ,068 X X X 4,327, ,471 X X X 71,059 - X X X - - X X X 1.3. Mortgages 25,418,882 2,303,172 X X X 25,448,156 3,335,569 X X X 1.4. Credit cards, personal loans and assignments of 1,887,253 28,243 X X X 1,806,361 35,376 X X X one-fifth of salary 1.5. Financial leasing 2,374, ,688 X X X 2,308, ,907 X X X 1.6. Factoring 820,903 12,778 X X X 772,338 10,081 X X X 1.7. Other loans 7,312, ,901 X X X 7,544, ,360 X X X 2. Debt securities 4,539,104-4,312,143 47,716 9, , ,987 44,408 17, Structured securities Other debt securities 4,539,104-4,312,143 47,716 9, , ,987 44,408 17,629 Total 46,515,619 3,825,850 4,312,143 47,716 47,432,156 42,953,973 5,401, ,987 44,408 47,626,759 The sub-caption "Other loans" of performing loans includes: 3,432 million of bullet loans (-7.27%), 2,112 million of advances on invoices subject to collection (-5.71%), 786 million of import/export advances (4.11%), 51 million of credit assignment (-8.93%) and 932 million of other miscellaneous entries (+12.56%). The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December Finance leases Time bands Present value Present value Up to 3 months 81, ,098 Between 3 months and 1 year 53,523 77,655 Between 1 year and 5 years 1, ,149 Beyond 5 years 2,661,594 2,477,515 Total 2,798,303 2,840,

169 Consolidated Explanatory notes 4.4 Financial assets measured at amortized cost: breakdown by debtors/issuers of loans to customers Total Total Type of transaction / Values Stage 1 and Stage 2 Stage 3 Stage 1 and Stage 2 Stage 3 1. Debt securities 4,539, ,607 - a) Public Administrations 4,291, ,911 - b) Other financial company 213,205-57,867 - of which: insurance companies 4, c) Non financial companies 34,398-27, Loans: 41,976,515 3,825,850 42,207,366 5,401,764 a) Public Administrations 2,259,729 13,791 2,302,602 13,291 b) Other financial company 3,399,551 84,608 2,940,785 96,149 of which: insurance companies 14,743-17,887 - c) Non financial companies 20,677,479 2,988,112 24,655,910 4,674,298 d) Families 15,639, ,339 12,308, ,026 Total 46,515,619 3,825,850 42,953,973 5,401, Financial assets measured at amortized cost: gross carrying amount and total writedowns Gross book value Total writedown Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Debt securities 5,576,838 39,898-2, Loans 38,881,007 6,413,817 8,866,349 96,133 75,942 5,040,499 Total ,457,845 6,453,715 8,866,349 98,284 75,963 5,040,499 Total ,385,382-10,530, ,559-5,128,962 In the comparative data at 31 December 2017, all performing exposures are classified in Stage 1. Bad loans written off total million ( million at 31 December 2017) 169

170 Consolidated Explanatory notes Section 5 Hedging derivatives Caption Hedging derivatives: breakdown by type and level FV NV FV NV L1 L2 L L1 L2 L A. Financial derivatives 1. Fair Value - 50,066-2,400,997-54,061-3,958, Cash flows Foreign investments B. Credit derivatives 1. Fair Value Cash flows Total - 50,066-2,400,997-54,061-3,958, Hedging derivatives: analysis by hedged portfolio and type of hedge Transaction / Type of hedge Specific Fair Value Cash-flow hedges debt securities and interest rates equities and stock indices currency and gold credit goods others General Specific General Foreign investments 1. Financial assets measured at fair value through other 19, X X X - X X comprehensive income 2. Financial assets measured at 130 X - - X X X - X X amortised cost 3. Portfolio X X X X X X - X - X 5. Other operations X - X - Total assets 19, Financial Liabilities 30,511 X X - X X 2. Portfolio X X X X X X - X - X Total liabilities 30, Expected transactions X X X X X X X - X X 2. Portfolio of financial assets and liabilities X X X X X X - X

171 Consolidated Explanatory notes Section 9 Property, plant and equipment Caption Property, plant and equipment used for business purposes: breakdown of assets valued at cost Description/Amounts Total Total Assets owened 739, ,903 a) lands 183, ,616 b) buildings 471, ,683 c) furniture 32,143 32,342 d) electronic system 22,680 25,152 e) other 30,302 32, Assets purchase under finance leases 15,264 16,723 a) lands - - b) buildings 3,247 3,305 c) furniture - - d) electronic system 12,017 13,418 e) other - - Total 755, , Investment property: breakdown of assets valued at cost Description/Amounts Book value Fair value Fair value Book L1 L2 L3 value L1 L2 L3 1. Assets owened 282, , , ,042 a) lands 92, ,169 95, ,204 b) buildings 190, , , , Assets purchase under finance leases a) lands b) buildings Total 282, , , ,042 The BPER Banca Group has opted to measure both assets used in the business and investment property at cost. Depreciation is provided over the estimated useful life of each asset from the time it enters into service. Further information is provided in the explanatory notes to the consolidated financial statements at 31 December

172 Consolidated Explanatory notes The 5th update of Bank of Italy Circular 262/2005 recognises that these tangible assets may be classified as inventories pursuant to IAS 2. IFRS 15, which came into effect from 1 January 2018, amends IAS 2: land and other property held for resale was previously classified in the "Other assets" caption. 9.5 Inventories of tangible assets governed by IAS 2: breakdown Items/Amounts Total Total Inventories of tangible assets arising from the recovery of guarantees received - - a) lands - - b) buildings - - c) furnitures - - d) electronic systems - - e) others Other tangible assets 18,361 - Total 18,361 - The data at 31 December 2017 has not been reclassified as the amount is not significant ( 18.6 million). 172

173 Consolidated Explanatory notes Section 10 Intangible assets Caption Intangible assets: breakdown by type Description/Amounts Defined duration Total Total Undefined duration Defined duration Undefined duration A.1 Goodwill X 327,084 X 327,084 A.1.1 attributable to the group X 327,084 X 327,084 A.1.2 attributable to minority interests X - X - A.2 Other intangible asset 170, ,543 - A.2.1 Carried at cost: 170, ,543 - a) intangible assets generated internally b) other assets 170, ,543 - A.2.2 Carried at fair value a) intangible assets generated internally b) other assets Total 170, , , ,084 "Other intangible assets" mainly comprise applications software measured at cost and amortised on a straight-line basis over a period, not exceeding five years, that depends on the degree of obsolescence involved. The remaining "Other intangible assets" comprise 11,339 thousand representing the value of the client relationships identified on allocation of the purchase price of the former UNICREDIT branches acquired at the end of 2008 (these relationships are estimated as having a useful life of 18 years), 4,240 thousand representing the value of the core deposits identified on allocation of the price paid for control of Cassa di Risparmio di Bra in 2013, and 8,180 thousand relating to the core deposits following finalisation of the PPA (Purchase Price Allocation) relating to Cassa di Risparmio di Saluzzo; their useful life is estimated to be 18 years. The goodwill recognised in the consolidated financial statements is described in the Group interim report on operations. 173

174 Consolidated Explanatory notes Section 11 Tax assets and liabilities Asset caption 110 and liability caption Deferred tax assets: breakdown IRES IRAP Total Adjustments to loans to customers 685,385 60, ,896 Write-downs of equity investments and securities 38,460 12,866 51,326 Goodwill 129,148 26, ,304 Personnel provisions 57,178 4,629 61,807 Endorsement credits, revocatory action during bankruptcy proceedings and outstanding lawsuits 70,099 4,395 74,494 Depreciation of property, plant and equipment and amortisation of intangible assets 25,747 2,398 28,145 Tax losses 114,443 6, ,540 ACE (aid to economic growth) concession 23,154-23,154 Other deferred tax assets 18,490 1,666 20,156 Total 1,162, ,718 1,280,822 The total includes tax assets under Law 214/2011 for an amount of 1,021.5 million. The other deferred tax assets involving temporary differences, amounting to million, have been recognised based on the likelihood of adequate profits in the future to reabsorb them. At 30 June 2018, no deferred tax assets have been recognised on tax losses totalling 1,465.1 million; the recognition of deferred tax assets and their recoverability depends on the likelihood of earning sufficient taxable income in future, the assessment of which has been deferred until approval of the new business plan towards year end Deferred tax liabilities: breakdown IRES IRAP Total Gains from the sale of shares and bonds 28,200 10,326 38,526 Equity investments Other deferred tax liabilities 15,918 2,894 18,812 Payroll costs 1,647-1,647 Gains from the sale of property, plant and equipment Depreciation of property, plant and equipment and amortisation of intangible assets 10,343 1,340 11,683 Goodwill 12,914 2,616 15,530 Total 69,472 17,568 87,040 "Deferred tax assets" and "Deferred tax liabilities" are determined on the basis of IRES and IRAP tax rates which are expected to be in force at the time of their recovery. 174

175 Consolidated Explanatory notes Section 13 Other assets Caption Other assets: breakdown Taxes withheld on interest, withholdings and tax credits on dividends, advance taxation 158, ,448 Amounts recoverable from the tax authorities for higher taxes paid for previous years and related accrued interest 4,017 4,745 Sundry amounts to be charged to customers 67, ,242 Bank charges to be debited to customers or banks 40,616 59,330 Cheques being processed 1,538 8,022 Cheques drawn on other banks 68,071 96,185 Items relating to securities transactions 29,838 12,512 Items in transit with branches Leasehold improvement expenditure 6,514 7,198 Gold, silver and precious metals Accrued income and prepaid expenses 40,318 40,172 Other items for sundry purposes 457, ,053 Total 875, ,899 The data at 31 December 2017 includes 18.6 million in property held for sale that has not been reclassified as inventories because the amount is not significant. 175

176 Consolidated Explanatory notes Liabilities and shareholders' equity Section 1 Financial liabilities measured at amortised cost Caption Financial liabilities measured at amortised cost: breakdown by sector of amounts due to banks Total Total Type of transactions/captions Fair Value Fair Value B V B V L1 L2 L3 L1 L2 L3 1. Due to Central Banks 9,204,351 X X X 9,222,974 X X X 2. Due to banks 3,418,617 X X X 3,761,252 X X X 2.1 Other current accounts and demand deposits 192,787 X X X 213,245 X X X 2.2 Time deposits 5,296 X X X 2,461 X X X 2.3 Loans 3,219,615 X X X 3,527,864 X X X Repurchase agreement 2,683,064 X X X 3,063,189 X X X Other 536,551 X X X 464,675 X X X 2.4 Payables for commitments to repurchase own equity - X X X - X X X instruments 2.5 Other payables 919 X X X 17,682 X X X Total 12,622, ,622,968 12,984, ,984,226 Total 1.3E E+07 The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements as at 31 December 2017 Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 176

177 Consolidated Explanatory notes 1.2 Financial liabilities measured at amortised cost: breakdown by sector of amounts due to customers Type of transactions/values Total Total BV Fair Value Fair Value BV L1 L2 L3 L1 L2 L3 1. Current accounts and demand deposits 36,602,575 X X X 35,285,793 X X X 2. Time deposits 1,858,242 X X X 2,455,533 X X X 3. Loans 4,121,202 X X X 4,125,867 X X X 3.1 repurchase agreements 2,101,811 X X X 2,148,650 X X X 3.2 Other 2,019,391 X X X 1,977,217 X X X 4. Payables for commitments to repurchase own equity instruments - X X X - X X X 5. Other payables 709,032 X X X 826,885 X X X Total 43,291, ,291,051 42,694, ,694,078 The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December 2017 Key: L1 = Level 1 L2 = Level 2 L3 = Level Financial liabilities measured at amortised cost: breakdown by sector of debt securities issued Type of transaction/values Total Total BV Fair Value Fair Value L1 L2 L3 BV L1 L2 L3 A. Securities 1. bonds 4,739,076 3,073,633 1,710,803-5,391,780 3,106,380 2,522, structured ,2 other 4,739,076 3,073,633 1,710,803-5,391,780 3,106,380 2,522, other securities 1,849,157-62,256 1,787,545 2,160,559-70,425 2,090, structured 61,612-62,256-69,771-70, other 1,787, ,787,545 2,090, ,090,788 Total 6,588,233 3,073,633 1,773,059 1,787,545 7,552,339 3,106,380 2,592,624 2,090,788 "Bonds" include subordinated bonds issued totalling 791,072 thousand, none of which are convertible into shares. In the "Level 3" column of point 2.2, the fair value is assumed to be the same as the book value as these are short term transactions The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements at 31 December 2017 Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 177

178 Consolidated Explanatory notes Analysis of caption "Debt securities issued": changes of bond Nominal value Book value 1. New issues 53,006 53, Market resales 8,841 8, Other positive changes - 2, Market repurchases 53,373 55, Redemptions 650, ,

179 Consolidated Explanatory notes Section 2 Financial liabilities held for trading Caption Financial liabilities held for trading: breakdown by sector Type of transactions / Values NV Total Total Fair Value Fair Fair Value Value NV L1 L2 L3 * L1 L2 L3 Fair Value * A. Cash liabilities 1. Due to banks 75,500 72, , Due to customers Debt securities X X 3.1 Bonds X X Other securities X X Other bonds X X 3.2 Other securities X X Structured X X Other X X Total A 75,600 72, , B. Derivative instruments 1. Financial derivatives X ,244 11,341 X X ,689 16,955 X 1.1 For trading X ,316 7,074 X X ,149 16,955 X 1.2 Connected with the fair value X - 36,928 - X X - 1,918 - X option 1.3 Other X - - 4,267 X X - 3,622 - X 2. Credit derivatives X X X X 2.1 For trading X X X X 2.2 Connected with the fair value X X X X option 2.3 Other X X X X Total B X ,244 11,341 X X ,689 16,955 X Total (A+B) X 73, ,244 11,341 X X 1, ,695 16,955 X The caption "cash liabilities" concerns the balance of "technical shorts" generated by capital market transactions. The classification levels used (fair value hierarchy) are described in Part A.2 of the explanatory notes to the consolidated financial statements as at 31 December Key: L1 = Level 1 L2 = Level 2 L3 = Level 3 Fair value*: Fair value excluding variations due to changes in the creditworthiness of the issuer since the issue date 179

180 Consolidated Explanatory notes Section 4 Hedging derivatives Caption Hedging derivatives: breakdown by type and level NV Fair value NV Fair value L1 L2 L L1 L2 L3 A) Derivatives 3,923,150-42,918-2,290,560-23,795-1) Fair value 3,873,150-39,374-2,200,560-16,368-2) Cash flows 50,000-3,544-90,000-7,427-3) Foreign investments B. Credit derivatives ) Fair value ) Cash flows Total 3,923,150-42,918-2,290,560-23,795 - Key: L1 = Level 1 L2 = Level 2 L3 = Level Hedging derivatives: analysis by hedged portfolio and type of hedge Fair Value Cash flow Operations/Type of hedge debt securities and interest rates equities and stock indices Specific currency and gold credit goods others General Specific General Foreign invest. 1. Financial assets measured at fair value through other comprehensive income 23, X X X 3,544 X X 2. Financial assets measured at amortised cost 13,709 X - - X X X - X X 3. Portfolio X X X X X X - X - X 4. Other operations X - X - Total assets 37, , Financial liabilities 2,105 X X - X X 2. Portfolio X X X X X X - X - X Total liabilities 2, Expected transactions X X X X X X X - X X 2. Portfolio of financial assets and liabilities X X X X X X - X

181 Consolidated Explanatory notes Section 6 Tax liabilities Caption 60 See asset section 11 Section 8 Other liabilities Caption Other liabilities: breakdown Amounts due to banks 29,793 37,434 Amounts due to customers 959, ,249 Net adjustments on collection of receivables for third parties 34,376 39,244 Staff emoluments and related social contributions 67,280 35,055 Amounts due to third parties for coupons, securities and dividends to be collected 146,648 37,351 Amounts due to the tax authorities on behalf of customers and personnel 174, ,496 Bank transfers for clearance 24,977 15,948 Advances for the purchase of securities Due to suppliers 178, ,054 Third-part payments as surety for loans Repayment to be made to INPS Items in transit 9,717 8,331 Accrued expenses and deferred income 13,443 24,833 Other liabilities to third parties 323, ,567 Total 1,963,775 1,416,

182 Consolidated Explanatory notes Section 10 Provisions for risks and charges Caption Provisions for risk and charges: breakdown Items Funds for credit risk related to financial obligations and warranties 52,910 46, Funds on other obligations and warranties release 14, Pensions and similar commitments 132, , Other provisions for risk and charges 332, , legal and fiscal controversies 172, , personnel expenses 88, , others 71,219 48,999 Total 531, ,178 At 31 December 2017 the Provisions for other commitments and other guarantees granted, determined in accordance with IAS 39, were classified as Other liabilities pursuant to the 4th update of Circular 262/2005. Section 13 Shareholders equity Captions 120, 130, 140, 150, 160, 170 and "Share capital" and "Treasury shares": breakdown "Share capital" relates solely to the Parent Company. It consists solely of ordinary shares. Treasury shares: breakdown Company Number shares Nominal value BPER Banca S.p.A. 455,458 1,366,374 Total 455,458 1,366,374 Their recognised value is different to their nominal value and amounts to Euro 7,253 thousand. There are also 55,919 shares relating to Banca di Sassari s.p.a., held by it, for a total of about Euro 5 thousand. 182

183 Consolidated Explanatory notes 13.2 Share capital - number of shares of the Parent Company: change in the year Caption/Types Ordinary Other A.Outstanding shares: at the beginning of the year 481,308, fully paid 481,308, not fully paid - - A.1 Treasury shares (-) (455,458) - A.2 Shares issued: opening balance 480,852,977 - B. Increases - - B.1 New share issues for payment: on business combinations on conversion of bonds exercise of warrants other bonus issues: to employees to 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 Disposal of businesses - - C.4 Other changes - - D. Outstanding shares: closing balance 480,852,977 - D.1 Treasury Shares (+) 455,458 - D.2 Outstanding shares at the end of the year 481,308, fully paid 481,308, not fully paid

184 Consolidated Explanatory notes Section 14 Minority interests Caption Analysis of caption 190 "Minority interests" Name Equity investments in consolidated companies with significant minority interests 473, , Banco di Sardegna (*) 395, , Banca di Sassari s.p.a. 31,083 30, Cassa di Risparmio di Bra s.p.a. 9,685 22, Sardaleasing s.p.a. 32,774 30, Emilia Romagna Factor s.p.a. 5,081 5,038 Other equity investments Total 474, ,010 (*) consolidation of the sub-holding company Banco di Sardegna and its subsidiaries. To determine the relevance of minority interests, see Part A of these Explanatory Notes. Minority interests not considered significant have been recognised under "Other investments". 184

185 Consolidated Explanatory notes Part C Information on the Consolidated income statement 185

186 Consolidated Explanatory notes Section 1 Interests Captions 10 and Interest and similar income: breakdown Captions/Technical forms Debt securities Loans Other transactions Total Total Financial assets measured at fair value through profit or loss: 6, ,408 33, Financial assets held for trading 1, ,779 4, Financial assets designated at fair value 2, , Other financial assets mandatorily measured at fair value through profit or loss 2, ,065 27, Financial assets measured at fair value through other comprehensive income 62, X 62,986 68, Financial assets measured at amortised cost: 25, ,024 X 625, , Loans to banks 4,116 1,099 X 5,215 1, Loans to customers 21, ,925 X 620, , Hedging derivatives X X Other assets X X Financial liabilities X X X 24,346 21,001 Total 95, , , ,601 Interest on loan exposures, classified as impaired, amounts to 51,181 thousand, being the amounts shown in the "Loans" column relating to "Loans to customers", plus 2 thousand shown in the "Debt securities" column. Caption "6. Financial liabilities" includes the benefit, 18.6 million, deriving from application of the negative rate of 0.40% applied on the funding obtained from the ECB under the TLTRO II programme. The interest income at 30 June 2017, reported only in total, derives from the data published in the Interim consolidated financial statements at 30 June 2017, prepared in conformity with the 4th update of Bank of Italy Circular 262/2005. The following details are provided - 4,846 thousand on Financial assets held for trading; thousand on Financial assets measured at fair value through profit or loss - 68,862 thousand on Assets available for sale - 27,996 thousand on Financial assets held to maturity; - 1,527 thousand on Loans to banks - 581,431 thousand on Loans to customers thousand on Hedging derivatives - 21,001 thousand on Other assets. 186

187 Consolidated Explanatory notes 1.3 Interest and similar expense: breakdown Captions/Technical forms Debts securities Loans Other transactions Total Total Financial liabilities measured at amortised cost 63,998 65,511 X 129, , Due to central banks - X X Due to banks 18,921 X X 18,921 12, Due to customers 45,077 X X 45,077 47, Debt securities issued X 65,511 X 65,511 69, Financial liabilities held for trading 1,120-2,202 3,322 1, Financial liabilities designated at fair value , Other liabilities and provisions X X , Hedging derivatives X X 8,050 8, Financial assets X X X 5,702 - Total 65,118 65,511 10, , ,

188 Consolidated Explanatory notes Section 2 Commissions Captions 40 and Commission income: breakdown Type of service/amounts Total Total a) guarantees granted 13,683 14,585 b) credit derivatives - - c) management, brokerage and consulting: 157, , trading in financial instruments trading in foreign exchange 2,934 2, asset management 15,044 11, individuals 15,044 11, collectives custody and administration of securities 2,564 2, custodian bank placement of securities 84,727 67, order taking and trasmission 6,947 6, advisory services 3,514 2, regarding investments regarding financial structuring 3,514 2, distribution of third-parties services 41,357 35, asset management individuals collectives insurance products 26,661 19, other products 13,703 15,547 d) collection and payments services 63,209 60,335 e) services related to securitisation f) services for factoring transactions 4,937 5,213 g) tax collection services - - h) management of multilateral trading sistem - - i) maintenance and management of current accounts 77,754 75,544 j) other services 89,231 90, commissions income on loans in c/c to customers commissions income on other loans to customers 63,900 65, commissions income on pos and pagobancomat services 12,350 12, other commisions income 12,981 12,731 Total 406, ,

189 Consolidated Explanatory notes 2.2 Commission expenses: breakdown Type of services/amounts Total Total a) guarantees received b) credit derivatives - - c) management and brokerage services 1, trading in financial instruments trading in foreign exchange asset management: own portfolio third party portfolio custody and administration of securities placement of financial instruments offer of securities, financial products and services through financial promoters - - d) collection and payment services 2,675 2,596 e) other services 13,279 13,114 Total 17,652 17,403 Section 3 Dividends and similar income Caption Dividends and similar income: breakdown Captions/Income Total Total Dividends Similar income Dividends Similar income A. Financial assets held for trading 2, , B. Other financial assets mandatorily measured at fair value through profit or loss C. Financial assets measured at fair value through other comprehensive income 10,246-8, D. Equity investments Total 12, ,

190 Consolidated Explanatory notes Section 4 Net trading income Caption Net trading income: breakdown Transactions /Income items Capital gains (A) Trading profits (B) Capital losses (C) Trading losses (D) Net result 1. Financial assets held for trading 10,976 8,181 (11,578) (2,054) 5, Debt securities 5,470 5,605 (2,539) (1,836) 6, Equity instruments 4,568 2,519 (7,999) (199) (1,111) 1.3 UCITS units (1,040) (19) (69) 1.4 Loans Others Financial liabilities held for trading Debt securities Debts Others Financial assets and liabilities: exchange differences X X X X 2, Derivatives 23,677 71,497 (31,549) (54,961) 8, Financial derivatives: 23,378 71,486 (31,549) (54,932) 8,400 - From debt securities and interest rates 20,161 68,244 (28,519) (53,609) 6,277 - On equities and equity indices 3, (3,030) (673) On currency and gold X X X X 17 - Others - 2,317 - (650) 1, Credit derivatives (29) 281 of which: natural hedges connected with the fair - value option X X X X Total 34,653 79,678 (43,127) (57,015) 16,

191 Consolidated Explanatory notes Section 5 Net hedging gains (losses) Caption Net hedging gains (losses): breakdown Income items/amounts Total Total A. Income relating to: A.1 Fair value hedges 23,051 30,710 A.2 Hedged financial assets (fair value) 32,909 3,854 A.3 Hedged financial liabilities (fair value) 4,814 11,828 A.4 Cash-flow hedging derivatives - 2 A.5 Foreign currency assets and liabilities - - Total income from hedging activity (A) 60,774 46,394 B. Charges relating to: B.1 Fair value hedges (38,132) (17,496) B.2 Hedged financial assets (fair value) (17,793) (29,085) B.3 Hedged financial liabilities (fair value) (2,438) (72) B.4 Cash-flow hedging derivatives (1) - B.5 Foreign currency assets and liabilities - - Total charges from hedging activity (B) (58,364) (46,653) C. Net hedging gains (losses) (A-B) 2,410 (259) 191

192 Consolidated Explanatory notes Section 6 Gains (losses) on disposal or repurchase Caption Gains (losses) on disposal or repurchase: breakdown Total Total Caption/Income items Net Gain Losses Gain Losses Net profit profit Financial assets 1. Financial liabilities measured at amortised cost 5,169 (16,616) (11,447) 6,643 (14,495) (7,852) 1.1 Due to banks ,191-1, Due to customers 5,169 (16,616) (11,447) 5,452 (14,495) (9,043) 2. Financial assets measured at fair value through other comprehensive income 168,324 (9,069) 159,255 38,330 (170) 38, Debt securities 168,324 (9,069) 159,255 38,330 (170) 38, Loans Total assets (A) 173,493 (25,685) 147,808 44,973 (14,665) 30,308 Financial liabilities measured at amortised cost Due to banks Due to customers Debt securities issued 429 (259) (482) 78 Total liabilities (B) 429 (259) (482) 78 The net result from "Financial assets measured at amortised cost" includes the net losses realised on the "Cream 2" ( 5.5 million) and "4Mori Sardegna" ( 5.6 million) operations. The gains realised on the FVOCI portfolio mainly relate to the disposal of debt securities classified in the HTC portfolio. The net result at 30 June 2017, reported only in total, refers to the data published in the Interim consolidated financial statements at 30 June 2017, prepared in conformity with the 4th update of Bank of Italy Circular 262/2005. The net result from financial activities ( 30,308 thousand) is analysed below: - net profit of 1,191 thousand on amounts due from banks - net loss of 9,043 thousand on loans to customers - net profit of 37,844 thousand on Financial assets available for sale (of which 30,432 thousand on debt securities, 7,206 thousand on equity instruments and 206 thousand on units in UCITS) thousand on Financial assets held to maturity, while the net result from Financial liabilities ( 78 thousand) related to the Debt securities issued. 192

193 Consolidated Explanatory notes Section 7 Net results from financial assets and liabilities measured at fair value through profit or loss Caption Net result on financial assets and liabilities measured at fair value through profit or loss: breakdown on financial assets and liabilities measured at fair value Transactions / Income components Capital gains (A) Gains on disposal (B) Capital losses (C) Losses on disposal (D) Net results 1. Financial assets 13 - (2,993) - (2,980) 1.1 Debt securities 13 - (2,993) - (2,980) 1.2 Loans Financial liabilities Debt securities Due to banks Due to customers Other financial assets and liabilities: exchange differences X X X X 37 Total 13 - (2,993) - (2,943) 7.2 Net result on financial assets and liabilities measured at fair value through profit or loss: breakdown of other financial assets and liabilities mandatorily measured at fair value Transactions/Income components Capital gains (A) Gains on disposal (B) Capital losses (C) Losses on disposal (D) Net Result (A+B)- (C+D) 1. Financial assets 13,001 2,432 (9,413) (46) 5, Debt securities 3, (2,663) (5) 1, Equity securities 6, (479) - 6, UCITS units 2,654 1,322 (6,271) (41) (2,336) 1,4 Loans Financial assets: exchange differences X X X X 164 Total 13,001 2,432 (9,413) (46) 6,

194 Consolidated Explanatory notes Section 8 Net impairment adjustments for credit risk Caption Net impairment adjustments for credit risk relating to financial assets measured at amortised cost: breakdown Transactions/Income Adjustments (1) Write - backs (2) Total Total Third stage Stage 1 Stage 1 and Writeoff Stage and Stage 3 Others Stage 2 2 A. Loans to banks (791) (785) - - Loans (459) (453) - - Debt securities (332) (332) - B. Loans to customers (3,007) (42,540) (391,793) 45, ,016 (84,149) (323,232) - Loans (1,545) (42,540) (391,793) 45, ,016 (82,688) (319,838) - Debt securities (1,462) (1,461) (3,394) Total (3,798) (42,540) (391,793) 45, ,016 (84,934) (323,232) 8.2 Net impairment adjustments for credit risk relating to financial assets measured at fair value through other comprehensive income: breakdown Transactions/Income items Stage 1 and Stage 2 Adjustments (1) Write - backs (2) Total Total Third stage Stage 1 Write-off Others and Stage 2 Stage A. Debt securities (117) - - 2,021-1,904 (71,617) B. Loans to customers to banks Total (117) - - 2,021-1,904 (71,617) The adjustments at 30 June 2017, reported only in total, refer to the data published in the Interim consolidated financial statements at 30 June 2017, prepared in conformity with the 4th update of Bank of Italy Circular 262/2005, and relate to: - 4,392 thousand for net adjustments to debt securities; - 12,489 thousand for net adjustments to equity instruments - 54,736 thousand for net adjustments to units in UCITS. 194

195 Consolidated Explanatory notes Section 12 Administrative expenses Caption Payroll: breakdown Type of expense/amounts Total Total ) Employees 408, ,090 a) wages and salaries 298, ,694 b) social security charges 77,992 71,307 c) Termination indemnities 16,234 15,610 d) Pension expenses - - e) provision for termination indemnities f) provision for post-retirement benefits and similar commitments: defined contribution defined benefit g) payments to external supplementary pension funds: 8,337 7,945 - defined contribution 8,337 7,945 - defined benefit - - h) costs deriving from payment agreements based on own capital instruments 58 (72) i) other personnel benefits 5,991 5,780 2) Other activity employees 7,687 7,044 3) Directors and Statutory Auditors 4,298 4,175 4) Retired personnel Total 420, , Average number of employees, by level Employees: 11,138 10,714 a) Managers b) Middle managers 3,615 3,385 c) Other employees 7,303 7,111 Other personnel

196 Consolidated Explanatory notes Number of employees, by level: banking group Employees: 11,655 12,014 a) Managers b) Total 3rd and 4th level middle managers 1,518 1,529 c) Total 1st and 2nd level middle managers 2,187 2,242 d) Other employees 7,727 8,012 Other personnel Other administrative expenses: breakdown Captions Indirect taxes and duties 72,618 70,286 Stamp duty 60,198 57,421 Other indirect taxes with right of recourse 3,798 4,504 Municipal property tax 4,873 4,979 Others 3,749 3,382 Other costs 232, ,135 Maintenance and repairs 21,893 19,574 Rental expense 31,155 29,936 Post office, telephone and telegraph 9,371 8,232 Data transmission fees and use of databases 15,849 14,882 Advertising 6,215 8,006 Consulting and other professional services 42,909 35,017 Lease of IT hardware and software 12,713 14,089 Insurance 3,334 5,529 Cleaning of office premises 4,633 4,328 Printing and stationery 3,394 3,345 Energy and fuel 6,959 7,509 Transport 6,364 6,356 Staff training and expense refunds 7,556 6,704 Information and surveys 6,041 6,203 Security 4,691 4,553 Use of external data gathering and processing services 4,007 3,359 Membership fees 3,608 3,279 Condominium expenses 1,886 1,559 Contribution to SRF, DGS, IDGF-VS 28,952 15,947 Sundry other 10,522 9,728 Total 304, ,421 The SRF, DGS, FITD-SV contributions include the ordinary 2018 contribution to the SRF (European Single Resolution Fund), Euro 20,347 thousand; the additional contribution requested by the SRF (European Single Resolution Fund) for 2016 from Italian banks, Euro 8,593 thousand; and the 2018 contribution to the DGS (Deposit Guarantee Scheme), Euro 12 thousand, representing the amount requested from Bper (Europe) International s.a. during the period. 196

197 Consolidated Explanatory notes Section 13 Net provisions for risks and charges Caption Net provisions for credit risk on commitments to disburse funds and financial guarantees granted : breakdown Type of risks and charges Adjustments Write-backs Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Commitments to disburse funds (497) (178) (5) 1, ,597 6,434 Financial guarantees granted - (1,722) (1,562) ,455 1,571 - Total (497) (1,900) (1,567) 2, ,465 3,168 6,434 The amount at 30 June 2017, reported only in total, refers to the data published in the Interim consolidated financial statements at 30 June 2017, prepared in conformity with the 4th update of Bank of Italy Circular 262/2005, in relation to the net writebacks on guarantees granted Net provisions on other commitments and other guarantees granted: breakdown Type of risks and charges Adjustments Write-backs Other guarantees granted (6,257) 14,996 8,739 - Other commitments (10) Total (6,267) 15,022 8, Net provisions for risks and charges: breakdown Type of risks and charges A. Provisions (61,429) (23,598) 1. for legal disputes (31,376) (23,304) 2. other (30,053) (294) B. Write-backs 12,467 11, for legal disputes 10,282 11, other 2, Total (48,962) (11,602) 197

198 Consolidated Explanatory notes Section 14 Net adjustments to property, plant and equipment Caption Impairment on property, plant and equipment: breakdown Asset/Income items Depreciation Impairment Write-backs Net result adjustments (a) (b) (c) (a + b - c) A. Property, plant and equipment A.1 Owned (20,359) (13,453) 516 (33,296) - For business purpose (18,214) (4,604) - (22,818) - For investment purpose (2,145) (8,719) 516 (10,348) - Inventories X (130) - (130) A.2 Held under finance lease (58) - - (58) - For business purpose (58) - - (58) - For investment purpose Total (20,417) (13,453) 516 (33,354) The "Impairment adjustments" derive from the impairment test carried out in compliance with IAS 36 on a number of property units used for business and investment purposes. Section 15 Net adjustments to intangible assets Caption Net adjustments to intangible assets: breakdown Impairment Depreciation Asset/Income items adjustments Write-backs Net risult (a) (b) (c) (a + b - c) A. Intangible assets A.1 Owned (22,971) - - (22,971) - Generated internally by the company Other (22,971) - - (22,971) A.2 Held under finance leases Total (22,971) - - (22,971) 198

199 Consolidated Explanatory notes Section 16 Other operating charges/income Caption Other operating charges Description/Amounts Amortisation of leasehold improvement expenditure (1,436) (1,594) Out-of-period expense (764) (1,451) Other (35,589) (12,938) Total (37,789) (15,983) 16.2 Other operating income Description/Amounts Rental income 3,856 3,667 Recovery of taxes 63,452 60,982 Other income 53,592 36,924 Total 120, ,

200 Consolidated Explanatory notes Section 17 Profit (Loss) from equity investments Caption Profit (Loss) from equity investments: breakdown Items/Amounts Total Total ) Companies under joint control A. Income Revaluations Gains on disposals Writebacks Other income - - B. Charges Write-downs Impairment write-downs Loss from disposals Other charges - - Net result - - 2) Companies subject to significant influence A. Income 8, , Revaluations 8,697 7, Gains on disposals Writebacks Other income - 130,722 B. Charges (3,358) (662) 1. Write-downs (1,563) (579) 2. Impairment write-downs (1,795) (83) 3. Loss from disposals Other charges - - Net result 5, ,254 Total 5, ,254 The "Impairment adjustments" derive from the impairment test carried out on the equity investments in Immobiliare Oasi nel parco s.r.l. ( 1,654 thousand) and Galilei immobiliare s.r.l. ( 141 thousand) The "Revaluations" and "Writedowns" reflect the results of the companies measured using the equity method. "Other income" at 30 June 2017 reflects allocation of the provisional "badwill" recognised on the acquisition of Nuova Cassa di Risparmio di Ferrara s.p.a. 200

201 Consolidated Explanatory notes Section 23 Profit (loss) pertaining to minority interests Caption Analysis of caption 340 "Profit (loss) pertaining to minority interest Name Consolidated equity investments with significant minority interests 14, Banco di Sardegna (*) 13, Banca di Sassari s.p.a Cassa di Risparmio di Bra s.p.a Sardaleasing s.p.a. 34 (169) 5. Emilia Romagna Factor s.p.a Other equity investments (3) - Total 14, (*) consolidation of the sub-holding company Banco di Sardegna and its subsidiaries. To determine the relevance of minority interests, see Part A of these Explanatory Notes. Minority interests not considered significant have been recognised under "Other investments". Section 25 Earnings per share IAS 33 requires disclosure of basic and diluted earnings per share (EPS), specifying how each is calculated. Basic earnings per share reflect the relationship between: the earnings attributable to ordinary shareholders, and the weighted average number of shares outstanding during the period. Diluted earnings per share reflect the relationship between: the earnings used to calculate Basic EPS, as adjusted by the economic effects of converting all outstanding convertible bonds into shares at period end; the number of shares in circulation used to calculate basic EPS, as adjusted by the weighted average of the potential ordinary shares with a diluting effect deriving from the conversion of bonds outstanding at period end. Attributable earnings Weighted average ordinary shares Earnings per share (Euro) Attributable earnings Weighted average ordinary shares Earnings per share (Euro) Basic EPS 307, ,852, , ,852, Diluted EPS 307, ,852, , ,852,

202 Consolidated Explanatory notes The following tables reconcile the weighted average number of ordinary shares outstanding used to calculate basic earnings per share with the number of ordinary shares used to calculate diluted earnings per share; they also reconcile net profit for the year with the net income used to determine basic and diluted earnings per share Average number of ordinary shares (fully diluted) Weighted average number of outstanding ordinary shares for Base EPS calculation ,852, ,852,977 Weighted dilutive effect the potential conversion of convertible bonds - - Weighted average number of outstanding ordinary shares for diluted EPS calculation 480,852, ,852, Other informations Net profit for the period 307, ,062 Allocations not attributable to the shareholders - - Net profit for Basic EPS calculation 307, ,062 Change in income and charges deriving form conversion - - Net profit for diluted EPS calculation 307, ,

203 Consolidated Explanatory notes Part E - Information on risks and related hedging policy 203

204 Consolidated Explanatory notes In compliance with the prudential regulations intended to strengthen the ability of banks to absorb shocks deriving from economic and financial tensions, the Group monitors capital adequacy, the exposure to risks and the general characteristics of the related management and control systems, in order to facilitate market discipline. This document has been prepared pursuant to the requirements of Circular 285 of 17 December 2013 and subsequent updates issued by the Bank of Italy, Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 (CRR) and the EBA Guidelines dated 23 December 2014 that came into force on 1 January The document entitled "Public Disclosures Pillar 3 at 30 June 2018" was published together with the Interim consolidated financial statements at 30 June 2018 on the website of the Parent Company istituzionale.bper.it 204

205 Consolidated Explanatory notes Introduction With regard to a summary of the Group's risk governance organisation, of the related processes and key functions, reference should be made to the details provided in the section on "Principal risks and uncertainties" in the directors' report on Group operations. Section 1 - Accounting risks - Group Quantitative information A. Credit quality A.1 Non-performing and Performing loans: amounts, adjustments, trends and economic distribution A.1.1 Breakdown of credit exposure by portfolio and credit quality (book value) Portfolios/quality Bad loans Unlikely to pay exposures Deteriored expired exposures Not impaired past due exposures Performing exposures 1. Financial assets measured at amortized cost 2,073,670 1,652,710 99, ,865 49,758,448 54,563, Financial assets measured at fair value through other comprehensive income ,009,141 9,009, Financial assets designated at fair value through profit or loss , , Other financial assets mandatorily measured at fair value through profit or loss , , Financial assets being sold Total ,073,689 1,653,689 99, ,865 59,468,915 64,274,628 Total ,893,206 2,416,347 93, ,371 58,859,128 65,042,266 Total 205

206 Consolidated Explanatory notes A.1.2 Distribution of financial assets by portfolio and quality of lending Non-performing loans Performing loans Portfolio/quality Gross exposure Overall writedowns of value Net exposure Gross exposure Overall writedowns of value Net exposure Total (net exposition) 1. Financial assets measured at amortised cost 8,866,349 5,040,499 3,825,850 50,911, ,247 50,737,313 54,563, Financial assets ai fair value through other comprehensive income ,014,126 4,985 9,009,141 9,009, Financial assets designated at fair value through profit or loss X X 221, , Other financial assets mandatorily measured at fair value through profit or loss X X 479, , Financial assets being sold Total ,867,355 5,040,507 3,826,848 59,925, ,232 60,447,780 64,274,628 Total ,531,740 5,128,973 5,402,767 59,837, ,559 59,639,499 65,042,266 Bad loans written off total million ( million at 31 December 2017) Portfolio/quality Low credit quality assets Other activities Cumulated losses Net exposures Net exposures 1. Financial assets held for trading , Hedging Derivatives ,066 Total ,960 Total ,

207 Consolidated Explanatory notes Section 2 - Prudential risks - Group 1.1 Credit risk Qualitative information The Group's organisation centralises the credit risk control function at the Parent Company. 1. General aspects The slowdown in growth seen during the first part of the year continued in the second quarter of 2018, with an estimated 0.2% rise in GDP between April and June, compared with 0.3% over the first three months; economic activity expanded in the service sector, albeit modestly, but the industrial sector remained weak with downside risks due to the weakness of manufacturing. Exports were conditioned by the uncertainties affecting world trade and the risks linked to the introduction of protectionist policies, while the rising prices of energy products contributed to the growth of inflation. Nevertheless, based on the macroeconomic projections contained in the latest Economic Bulletin from the Bank of Italy, further growth is expected during the second half of 2018 (although at a lower rate than was forecast at the start of the year) and over the next three years (despite the effects of higher oil prices). Given this scenario, the BPER Banca Group has established prudent guidelines for lending policy, consistent with its operations, the development and knowledge of the territories served and compliance with current regulations, in order to optimise the loans portfolio (in risk-return terms). When determining these quali-quantitative guidelines for the current year, BPER Banca focused on: broadening the target sectors (consistent with the favourable macroeconomic outlook and the improved quality of the outstanding loans portfolio); increasing the exposure to Segments and Rating classes. Specific instructions have also been provided on lending activity developed directly or through the Group's product companies, having regard for the intrinsic characteristics of the products distributed (leasing, factoring, personal loans and lending-against-salary) and their lower risk profile compared with similar banking transactions. Lastly, the Group has continued to support the ABI initiatives, first promoted in 2015 and then extended to 31 July 2018, in favour of SMEs ("2015 lending agreement Companies in the recovery phase) and Individuals ("Suspension of loan repayments by households"). The BPER Banca Group also continues to support other measures that help households in difficulty, including the "Mortgages Solidarity Fund", the "First Home Guarantee Fund" and the initiatives established by law suspending loan payments in areas hit by natural calamities. 207

208 Consolidated Explanatory notes 2. Credit risk management policies The lending policy of the Group pursues the aim of carefully selecting counterparties through an analysis of their creditworthiness, including the use of well-established tools such as the rating system, having regard for the achievement of commercial and support objectives. In view of the Group s strategic objectives and operations, the general risk management strategy is to accept a moderate level of risk involving: the assessment of the current and prospective creditworthiness of counterparties; the diversification of the portfolio, limiting the concentration of exposures towards individual counterparties and sectors of economic activity. 2.1 Organisational aspects The Group s credit risk management model has the following objectives: apply the instructions issued by the Supervisory Authorities, while taking account of the Group s specific operating characteristics; ensure that credit risk is managed appropriately by each bank and at a consolidated level. These objectives are achieved via the segregation of responsibilities and duties between the bodies that manage credit risk and those with a control function. The following elements underpin work to manage and control the exposure to credit risk: independence of the function responsible for the measurement of credit risk with respect to the various business functions; clear definition of delegated powers and the resulting structure of limits imposed by the Board of Directors of the Parent Company; coordination by the Parent Company of credit risk management processes, while leaving individual companies with operational autonomy for the management of credit risk; consistent application of measurement models throughout the Group, in line with international best practice; transparent methodology and measurement criteria to facilitate understanding of the risk measures adopted; performance of periodic stress tests which use endogenous and exogenous shock scenarios to provide deterministic and/or probability-based indicators of risk. 2.2 Systems for managing, measuring and monitoring The management of risk involves applying a system of methodologies and approaches for the ongoing measurement and/or assessment of risk. This system helps to guide operational decisions and quantify the level of capital required by the Group in order to cover the risks that have been accepted. Each Bank analyses the various components of credit risk and identifies the exposure associated with the loan portfolio using suitable measurement methodologies. In particular, the Bank uses many tools to measure and monitor credit risk in relation to both performing and non-performing loans. The characteristics of the rating models developed by the Parent Company for the calculation of PD (Probability of default: i.e. the probability that the borrower will not be able to meet their commitments) depend on the risk segment to which the counterparty belongs, the amount of the exposure and the 208

209 Consolidated Explanatory notes stage in the lending process at which they are applied (initial payout or monitoring). The classifications are represented by 13 classes of merit differentiated by risk segment. All of the Parent Company's systems share a number of common characteristics: the rating is determined with reference to the specific counterparty; the rating systems are established with reference to the loan portfolio of the BPER Banca group (the rating is unique for each counterparty, even if shared by several banks in the Group); the models process internal performance information derived from reports issued by the central risk database, as well as financial information in the case of businesses; the models for Corporate SMEs, Long-term Property SMEs, Holding, Financial Companies and Large Corporates add a qualitative element to the purely statistical side. The rating allocation process for these segments also allows the account manager to activate an override process i.e. to request an exception to the quantitative rating based on true and documented information not processed by the model. The requested exception is evaluated by a central function that operates at Group level; to support risk analysis in the Large Corporate, Holding and Financial Companies segment, another component was added to the model to take into account whether counterparties belong to a group; the Probability of Default is calibrated with reference to regulatory anomalies, which include past due amounts; the time series used in order to develop and calibrate the models cover a broad time horizon, consistent with the requirements of current regulations; the ratings are analysed and reviewed at least once each year; the Bank has also defined a process for the monitoring of each rating, causing the rating to lapse if it no longer represents the true risk profile of the counterparty and there are signs of deterioration in the quality of the related lending; use is made of a rating calculation model for counterparties acting as guarantors for individuals, aimed at the quantification and measurement of credit risk attributable to private counterparties that provide personal guarantees to BPER Banca Group's customers. Determination of the final rating depends on the type of counterparty. In particular, the rating allocation process involves a level of investigation that is proportional to the complexity/scale of the counterparty under review: a more complex and sophisticated structure is foreseen for medium-large businesses (Corporate SMEs, Long-term Property SMEs, Holding, Financial Companies and Large Corporates), which are fewer but with larger average exposures, while there is a simpler structure for Retail customers (Retail SMEs, Individuals and Small Businesses), which are more numerous, but with lower exposures. The estimation of LGD (Loss Given Default: representing the extent of the loss expected to occur on default of the borrower, dependent on type of exposure to the counterparty) is based on information on the borrower (segment, geographical area, internal administrative status), the product (technical form, size of exposure), and the presence, type and coverage of guarantees. LGD estimation includes the impact of the recession phase in the economic cycle (downturn LGD). In terms of the management and development of the internal rating system, the principal activities during the first half of 2018 included: update of the LGD model; 209

210 Consolidated Explanatory notes recalibration of the risk models used to calculate the PD (Probability of Default) for corporate and retail counterparties; the activities envisaged in the roll-out plan for the various internal methodologies; the preliminary activities of the "Target Review of Internal Models" (TRIM) which will be launched by the Supervisory Authority by the end of In addition to indicating the principles of governance, assumption and management of credit risk, the Group Credit Risk Governance Policy defines the BPER Group's credit risk appetite. For this purpose, the policy provides for a new system of credit risk exposure limits, establishing supervisory thresholds that have to be monitored periodically. The document also explains the principles for calculating analytical and collective loan loss provisions and for the classification of loans by status. In order to manage credit risk, the Group has developed a system of credit limits designed to regulate the lending process, together with a system for authorisations that takes account of the riskiness of the customer and/or the transaction, consistent with the risk evaluation systems adopted. This system ensures compliance with the principle that the level of authorisation be consistent with the riskiness of the transaction, envisaging that the limits on decision making are established with reference to one or more aspects of the specific counterparty and transaction risk (in particular counterparty rating, expected loss, amount of the facility). The internal rating system s risk measures are used for management reporting purposes; in particular: a Credit Risk Book is prepared on a quarterly basis and is an essential tool for the Risk Committee. This is the basic information support for the Risk Committee and contains detailed reports on credit risk at consolidated and individual level (distribution of the portfolio by type and rating classes, dynamics of risk parameters and expected loss, transition matrices, dynamics of general and analytical provisions and decay rates), with differentiated analyses for risk and management segments and geographical area; a summary report is prepared on a monthly basis, including the monitoring of supervisory thresholds set for credit risk. A network reporting tool is also available, characterised by different views of the loan portfolio, with different levels of aggregation (Branch, Regional Division, General Management, Bank and Group) and hierarchical visibility cones. Lastly, following the ECB's authorisation in June 2016 to use internal models for measuring capital requirements for credit risk, starting from the 30 June 2016 regulatory reports, BPER Banca Group began using AIRB methods for the banks included in the scope of the first validation (BPER Banca, Banco di Sardegna and Banca di Sassari) for retail exposures and exposures to companies. 210

211 Consolidated Explanatory notes 2.3 Methods for measuring expected losses Methodology for estimating IFRS 9 ECL: frequency of scenario updates For IFRS 9 purposes, the Group has decided to update the macroeconomic scenarios every six months in order to guarantee greater consistency between forward-looking macroeconomic scenario and the projected lifetime ECL. The updates are made on 30 June and 31 December each year. This decision was motivated by the following considerations: macroeconomic scenarios updated at the two key moments during the year; consistency with the date on which the principal business processes that use macroeconomic scenarios are updated. The BPER Banca Group also believes that the inclusion of forward-looking factors in the assessment of each scenario also impacts on the measurement of impaired assets. Consequently, the BPER Banca Group has decided to develop a disposal scenario, consistent with the approach established in the Group "NPE Business Plan". The impact of the transition to IFRS 9 on loans classified in Stage 3 whose measurement considers a disposal scenario was estimated by weighting their estimated realisable value under the two possible scenarios, workout and disposal, and applying to them a probability of occurrence. 2.4 Credit risk mitigation techniques Mitigation techniques are an important tool for reducing or transferring part of the credit risk associated with the portfolio of exposure. Consistent with the low propensity to accept risk that characterises operations, the Group seeks to mitigate credit risk, in particular, by obtaining and managing secured and unsecured guarantees. For this purpose, the Group has prepared suitable IT procedures and systems for managing mortgages and financial guarantees in compliance with prudent supervisory requirements, as well as appropriate internal regulations for managing the lifecycles of the other tangible security obtained. The secured guarantees obtained by the Group generally comprise mortgages on residential and nonresidential property, as part of retail lending and, to a lesser extent, loans to Corporate customers, as well as pledges on securities, receivables and cash. An internal procedure developed over a number of years gathers information in an organised fashion on the property assets of borrowers and on the properties given in guarantee. The value of property is periodically remeasured and updated with reference to the statistical databases maintained by a leading operator in the sector, and steps are taken to renew the related appraisals; an internal function covering the entire banking group has been established to supervise this process and monitor constantly the value obtained to cover exposures, as required by the new regulations. Likewise, the collateral represented by financial instruments is managed within a procedure that updates the fair value on the basis of market trends. The principal types of unsecured guarantees consist of "specific guarantees" and "restricted omnibus guarantees", mainly given by entrepreneurs in favour of their companies and by Parent Companies in favour of their subsidiaries in the form of binding letters of patronage. Guarantees granted by various guarantee consortiums in favour of their members firms are becoming more significant, as well as 211

212 Consolidated Explanatory notes guarantees granted by third party institutions, such as SACE; MCC (Guarantee Fund for SMEs); EIF (European Investment Fund); First Home Guarantee Fund, also subject to periodic monitoring. During 2017, the Parent Company adopted the new guidance on NPLs issued by the ECB. 3 Impaired loans Impaired financial assets are managed by the classification thereof within risk categories established by supervisory regulations based on the risk profile attributed thereto. The classification of each anomalous position is decided both automatically and by means of an analysis described in an internal regulation that governs in detail the transfer of a counterparty to a certain administrative position when a certain deterioration of its credit quality has occurred. The classifications of the positions within problem items, when not automatic, takes place on the basis of subjective performance assessments based on monitoring of the credit chain. The tools that we have available make it possible to identify on a timely basis any signs of deterioration in risk relationships, allowing punctual analysis of the credit worthiness and classification of the position to the correct category of risk. The consistency of the classification of a position in the right risk category, with respect to internal rules and Bank of Italy regulations, is also ensured by second-level checks that, by applying a suitable method, verify not only that classifications are correct, but also the adequacy of provisions, the presence of firstlevel controls and the effectiveness of recovery processes, so as to ensure strong supervision throughout the entire credit chain. The improvement in the risk profile of counterparties leads to a transfer to better internal classifications; after the completion of subjective and analytical assessments; this may result, in the final analysis, a return to "performing" status. In order to optimise the process of monitoring customers, the Parent Company made some refinements to an early warning model, which is capable of analysing performing loans by level of risk, with a view to suggesting timely action to be taken by the responsible functions. The model was developed using methodology that responds to two key needs in the process of managing performing counterparties: the need to identify as a first step those counterparties that, for the sake of prudence, should be monitored actively in order to avoid a deterioration in their position, or to implement actions that will improve the counterparty s risk profile or contain possible future losses; the need to define processes for observing these positions, determining the priorities and the rules for monitoring them, in order to optimise the organisational effort of the account managers and the results of such action. With regard to the credit management process as a whole, the methodologies and instruments developed have been implemented in 2018 pursuant to IFRS 9; in particular: - introduction of new groupings for credit lines (Stages 1 and 2), that identify levels of increasing risk among performing loans; - the need for the Bank to arrange for greater coverage of the Stage 2 credit lines, given the significant increase in credit risk. 212

213 Consolidated Explanatory notes Quantitative information A. Credit quality A.1.4 Prudential Consolidated - Cash and off-balance sheet exposures to banks: gross and net values Type of exposure/amounts Nonperforming loans Gross exposures Performing loans Total value adjustments and total credit risk provisions Net Exposure A. Cash exposures a) Bad loans - X of which: forborne exposures - X - - b) Unlikely to pay loans - X of which: forborne exposures - X - - c) Impaired past due loans - X of which: forborne exposures - X - - d) Not impaired past due loans X 12, ,221 - of which: forborne exposures X e) Other performing assets X 9,413,415 6,199 9,407,216 - of which: forborne exposures X Total (A) - 9,425,707 6,270 9,419,437 B. Off-balance sheet credit exposures a) Non-performing exposures - X - - b) Performing exposures X 731, ,768 Total (B) - 731, ,768 Total (A+B) - 10,157,649 6,444 10,151,

214 Consolidated Explanatory notes A.1.5 Prudential Consolidated - Cash and off-balance sheet exposures to customers: gross and net values Type of exposure/amounts Nonperforming loans Gross exposures Performing loans Total value adjustments and total provisions Net exposure A. Cash exposures f) Bad loans 5,905,852 X 3,832,163 2,073,689 - of which: forborne exposures 863,849 X 500, ,631 g) Unlikely to pay loans 2,847,545 X 1,193,856 1,653,689 - of which: forborne exposures 1,483,981 X 598, ,616 h) Impaired past due loans 113,958 X 14,488 99,470 - of which: forborne exposures 1,821 X 206 1,615 i) Not impaired past due loans X 980,825 14, ,644 - of which: forborne exposures X 55,883 1,530 54,353 j) Other performing asssets X 50,321, ,781 50,162,794 - of which: forborne exposures X 687,861 11, ,100 Total (A) 8,867,355 51,302,400 5,213,469 54,956,286 B. Off-balance sheet credits exposures c) Non performing exposures 436,360 X 42, ,834 d) Performing exposures X 19,966,749 14,587 19,952,162 Total (B) 436,360 19,966,749 57,113 20,345,996 Total (A+B) 9,303,715 71,269,149 5,270,582 75,302,

215 Consolidated Explanatory notes Determination of impairment of performing loans ("collective" method) Banks aligned with the Group's IT system The Parent Company has determined the collective impairment using the Expected Credit Loss calculation: the losses recognised must be based on objective evidence of the loss already available at the reporting date, as well as on the expected losses not yet evident at that date, as calculated for each exposure by applying the following formula to Stage 1 credit lines: EEE = EEE LLL PP Dt EaD (IFRS 9) is Exposure at Default; LGD (IFRS 9) is the Loss Given Default; PD (IFRS 9) is the 12-month Probability of Default; Dt is the discounting factor for the expected loss, discounted for 12 months from the first period subsequent to the reporting date. The following formula is applied in the case of Stage 2 credit lines: T EEE t = PP t LLL t EEE t D t t=1 EaDt (IFRS 9) is the Exposure at Default at time t, LGDt (IFRS 9) is the Loss Given Default at a forward default event between 1 and t, PDt (IFRS 9) is the Probability of Default between 1 and t, Dt is the discounting factor for the expected loss at time t, up to the current reporting date, determined using the effective interest rate, T is the contract maturity date. Banks and non-banking companies not aligned with the Group's IT system The collective impairment is determined for unaligned group companies by the Parent Company, using Group logic. 215

216 BPER: Gruppo Consolidated half-year report as at 30 June 2018 Consolidated Explanatory notes 216

217 Consolidated Explanatory notes Part F Information on consolidated shareholders equity 217

218 Consolidated Explanatory notes Section 1 Consolidated shareholders equity Qualitative information Equity management and its continuous monitoring in terms of size and quality compared with the risks assumed is an activity that the BPER Banca Group carries on constantly to ensure an adequate level of capitalisation in compliance with the prudential rules. A suitable combination of different capitalisation instruments and continuous monitoring have enabled the Group to achieve one of the best capital profiles among Italian banking groups. By means of an active style of capital management, the Parent Company has succeeded in combining development projects and the best possible use of its capital; the size of the Group's consolidated capital resources and those of the individual Group companies are verified periodically and brought to the attention of management and of the Board of Directors and Board of Statutory Auditors. The capital position is monitored as part of the RAF (Risk Appetite Framework) process, by the Risk Committees, in periodic reports relating to the financial statements and in the impact simulations relating to extraordinary transactions and regulatory changes. As Parent Company, BPER Banca performs the role of coordination and guidance of Group companies, coordinating the management of capital in each company and providing appropriate guidelines. The Parent Company is subject to the capital adequacy requirements established by the Basel Committee, in accordance with the rules defined by EU Regulation 575/2013 (CRR). In regulatory terms, BPER Banca, Banco di Sardegna s.p.a. and Banca di Sassari s.p.a. were authorised from 30 June 2016 to use the AIRB approach for measuring credit risk for corporate and retail segments, while all other entities of the BPER Banca Group continue to use the "Standardized Approach" (SA). Preparations are in progress for extending use of the advanced methodology to the other Group companies aligned with the IT system, which must be authorised in advance by the Supervisory Body. Capital management, planning and allocation activities are intended to govern the current and future financial strength of the Group with the use of levers linked to the improvement of the level of capital, such as conservative pay-out policies, strategic finance transactions (capital increases, convertible bonds, subordinated bonds) and levers linked to the limiting of risk, such as insurance, managing lending policy on the basis of counterparty risk, type of exposure and the guarantees provided. These activities are considered necessary in order to mitigate the impact of applying IFRS 9 which, from the start of 2018, has resulted in changing the methodology for making provisions. In this regard, the Board of Directors of the Parent Company has made the election envisaged in Regulation (EU) 2395/2017 of the European Parliament and of the Council on "transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds". The five-year transition period envisaged in that regulation will end on 1 January 2023 (for 2018 a decreasing 95% correction factor will be applied), when the provisions recorded will be included in full in the calculation of own funds. BPER Banca has also decided that the entire banking group will adopt the "static" option, which limits deferral of the impact on capital only to the first FTA regulatory application. 218

219 Consolidated Explanatory notes Quantitative information B.1 Consolidated Shareholders' equity: breakdown by business type Captions Prudential consolidation Insurance companies Other businesses Consolidation adjustments and eliminations Total 1. Share capital 2,262, (679,639) 1,582, Share premium 1,334, (321,015) 1,013, Reserves 2,553, (812,273) 1,741, Equity instruments (Treasury shares) (7,258) - - (1) (7,259) 6. Valuation reserves: 84, ,818 - Equity instruments designated at fair value through other 52, (2,561) 49,571 comprehensive income - Hedging of equity instruments designated at fair value through other comprehensive income - Financial assets (different from equity instruments) at fair value through other comprehensive 9, ,008 12,087 income - Property, plant and equipment Intangible assets Foreign investments hedges Cash flow hedges (1,491) (1,491) - Hedging instruments [nondesignated elements] Exchange differences Non-current assets and disposal groups held for sale Financial liabilities designated at fair value through profit or loss (variation due to changes in the credit worthiness) - Actuarial gains (losses) on defined benefit plans (123,477) (123,477) - Provisions for valuation reserves related to equity investments measured at shareholders' equity - Special revaluation laws 147, , Profit (Loss) of Exercise (+/-) of Group and Third Parties 368, (46,633) 322,164 Net assets 6,596, (1,858,822) 4,737,

220 Consolidated Explanatory notes Section 2 Own funds and capital adequacy ratios Information about own funds and capital adequacy is provided in the "Public Disclosures at 30 June 2018 Pillar 3" document prepared pursuant to the requirements of Circular 285 of 17 December 2013 and subsequent updates issued by the Bank of Italy, Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 (CRR) and the EBA Guidelines dated 23 December 2014 that came into force on 1 January This document was published together with the Interim consolidated financial statements at 30 June 2018 on the website of the Parent Company 220

221 Consolidated Explanatory notes Part G Business combinations 221

222 Consolidated Explanatory notes Section 1 Transactions carried out during the first half of Business combinations No business combinations pursuant to IFRS 3 were carried out during the period to 30 June Operations between entities under common control As stated in the Interim report on operations, to which reference is made, Nadia s.p.a. has absorbed Carife Servizi Evolutivi Integrati s.r.l.. This operation was part of work to rationalise the BPER Banca Group in order to improve competitiveness and, being an internal business combination between entities under common control, was not subject to IFRS 3; accordingly, the merger was recorded using book values. Section 2 Transactions carried out subsequent to the first half of 2018 No business combinations have been carried out after 30 June

223 Consolidated Explanatory notes Part H Related-party transactions 223

224 Consolidated Explanatory notes 1. Information on the remuneration of Managers with strategic responsibilities Description Directors - short-term benefits (as shown in the Parent Company s annual report) 1,474 1,427 - other long-term benefits (as shown in the Parent Company s annual report) directors emoluments received from other banks and companies within the scope of consolidation on a line-by-line basis Statutory Auditors - short-term benefits (as shown in the Parent Company s annual report) Statutory Auditors emoluments received from other banks and companies within the scope of consolidation on a line-by-line basis - - Other managers with strategic responsibilities (General Manager, Deputy General Managers, Manager responsible for preparing the company's financial reports and Manager of the executive subcommittees): 1 - short-term benefits (as shown in the Parent Company s annual report) 1,680 1,214 includes salaries, social security contributions, indemnities in lieu of untaken vacation, paid leave of absence and any fringe benefits, such as insurance, housing and car. - other short-term benefits - contributions for social contributions (as shown in the Parent Company's annual report) Directors emoluments received from other Banks and Companies withit the scope of consolidation on a line-by-line basis post-employment benefits includes payments to supplementary pension funds and provisions for termination indemnities 3 other long-term benefits indemnities for termination of employment share-based payments - - The information provided is consistent with that required by IAS 24. The amounts shown for the Directors, including the emoluments of the Chief Executive Officer, the Statutory Auditors and other Managers with strategic responsibilities represent their emoluments for the period, regardless of when paid. These amounts are classified in the income statement caption 190-a "Payroll". As regards the Directors, note that the amount shown ( 1,474 thousand) consists of their emoluments for the period in accordance with art. 11 of the Articles of Association. More specifically: thousand ( 757 thousand at 30 June 2017), comprising the fees payable to the directors ( 441 thousand), the additional emoluments due to members of the Executive Committee ( 82 thousand) and all other Board committees ( 181 thousand), as well as the attendance fees payable for participating in meetings of the Board of Directors ( 59 thousand); thousand ( 245 thousand at 30 June 2017) of additional emoluments payable to Directors appointed to particular positions in compliance with the Articles of Association (specifically Chairman and Deputy Chairmen); in fact, this remuneration has to be set by the Board of Directors, after having sought the opinion of the Board of Statutory Auditors; thousand (unchanged compared with the same period of the previous year) of additional emoluments payable to the Chief Executive Officer, again in compliance with the Articles of Association, plus 64 thousand of variable remuneration and 4 thousand of further non-monetary benefits. The amounts shown for other Managers with strategic responsibility (the General Manager, 4 Deputy General Managers, the Manager responsible for preparing the company's financial reports and 3 other Group Senior Managers in the Parent Company BPER Banca) belong to the types of costs detailed above. They are disclosed in the Report on Remuneration (art. 123-ter of Legislative Decree 58/1998) in accordance with CONSOB requirements. 224

225 Consolidated Explanatory notes 2. Related-party disclosures Other related parties comprise parties controlled or significantly influenced by Directors, Statutory Auditors or Managers, or parties that may exercise significant influence over these individuals, as defined in IAS 24. Assets Liabilities Guarantees granted Revenues Costs Subsidiary 230,880 8,181-1,622 1,266 Associates 761,834 6,882 42,948 2, Directors, Statutory Auditors and Managers 666 1, Other related parties 32,650 3, Total ,026,030 20,316 43,611 4,595 3,044 Subsidiary 194,977 4,338-2,002 2,235 Associates 752,819 7,670 43,038 6,286 2,192 Directors, Statutory Auditors and Managers 448 1, Other related parties 5,771 6, ,502 Total ,015 20,595 43,937 8,569 6,935 Total ,879 3,219 There are no critical outstanding balances or transactions with related parties. They all relate to routine banking and other services and arose normally during the year, as a consequence of needs and requirements in the common interests of the parties or, where applicable, of the Group. The conditions applied to individual balances and transactions with these companies are in line with those currently applied in the market. The total amount of cash and endorsement loans due from Directors, Statutory Auditors, Managers and their related parties comes to 4.3 million ( 7.1 million at 31 December 2017).The above amount represents 0.01% of total cash and endorsement loans. With reference to the entry into force, in 2012, of the regulation on Risk Activities and Conflicts of Interest with Related Parties" contained in the 9th update to Bank of Italy Circular 263/2006, the BPER Banca Group has adopted a series of regulations that include the Group policy governing non-compliance risk in relation to conflicts of interest with related parties and risk activities involving related parties, which describes the prudential limits placed on risk activities involving related parties; continuous monitoring of the limits; managing situations where the limits have been exceeded. An internal threshold of attention establishes an individual limit on the weighted consolidated exposure that is lower than the regulatory threshold. This threshold is set at such a level as to constitute an adequate precaution against accepting particularly significant exposures to related parties and persons associated with them. The provisions for doubtful loans to associates total 1.6 million; no losses on these amounts were recognised during the period. Assets Liabilities Guarantees granted Revenues Costs Total reference amounts ,296,735 65,558,782 2,834,278 1,247, ,422 Total reference amounts ,338,807 65,622,076 2,703,813 2,413,048 1,736,561 Total reference amounts ,184, ,965 The total reference amounts for revenues include interest income (caption 10), commission income (caption 40) and other operating income (detail of caption 230); costs include interest expense (caption 20), commission expense (caption 50), other operating expenses (detail of caption 230) and administrative expenses (caption 190). 225

226 Consolidated Explanatory notes Related party transactions presented as a percentage of reference amounts (financial position and results) Assets Liabilities Guarantees granted Revenues Costs Subsidiary 0.33% 0.01% 0.00% 0.13% 0.14% Associates 1.08% 0.01% 1.52% 0.23% 0.11% Directors, Statutory Auditors and Managers 0.00% 0.00% 0.00% 0.00% 0.00% Other related parties 0.05% 0.01% 0.02% 0.01% 0.09% Total % 0.03% 1.54% 0.37% 0.34% Subsidiary 0.27% 0.01% 0.00% 0.08% 0.13% Associates 1.06% 0.01% 1.59% 0.26% 0.13% Directors, Statutory Auditors and Managers 0.00% 0.00% 0.00% 0.00% 0.00% Other related parties 0.01% 0.01% 0.03% 0.01% 0.14% Total % 0.03% 1.62% 0.35% 0.40% Total % 0.38% Subsidiary companies Assets Liabilities Guarantees granted Revenues Costs CO.BA.PO. Consorzio Banche Popolari dell'emilia Romagna Sofipo s.a CONFORM-Consulenza Formazione e Management s.cons.a r.l. 17 1,419 1, Cassa di Risparmio di Fossano s.p.a CAT progetto Impresa Modena s.c.r.l Cassa di Risparmio di Savigliano s.p.a Resiban s.p.a Unione Fiduciaria s.p.a. 5,984 2, Sarda Factoring s.p.a. 35, Alba Leasing s.p.a. 692,425 1,826 40,819 2, Atrikè s.p.a. 1, Emil-Ro Service s.r.l Lanciano Fiera - Polo Fieristico d'abruzzo Consorzio Brozzu e Cannas s.r.l. in liquidazione 1, Compagnia Finanziaria Olbia Produce s.r.l. in liquidazione Arca Holding s.p.a. 24, Gestione esazioni convenzionate - Gec in liquidazione Immobiliare Oasi nel Parco s.r.l Total as at ,834 6,882 42,948 2,

227 Consolidated Explanatory notes Part I Equity-based payments 227

228 Consolidated Explanatory notes Qualitative information 1. Description of equity-based payments On 8 March 2018 the Bank's Board of Directors approved: the Remuneration Report pursuant to art. 123-ter of Legislative Decree 58 dated 24 February 1998, relating to the remuneration policies for 2018 of the BPER Banca Group; the remuneration plan pursuant to art. 114-bis of Legislative Decree 58 dated 24 February 1998, implementing the remuneration policies for 2018 of the BPER Banca Group. The Plan covers those employees of the BPER Banca Group identified as "key personnel" in accordance with the 7th update of 18 November 2014 of Circular 285 "Supervisory Provisions for banks", Title IV, Chapter 2 "Remuneration and incentive policies and practices" and in Delegated EU Regulation 604 of 4 March Both documents were approved by BPER's Shareholders' Meeting held on 14 April 2018 at single calling. The remuneration of key personnel is composed of a fixed element and a variable element that is lower than the maximum of 60% of the fixed component, though there are certain exceptional situations 42 in which it is possible to raise this percentage to 100%, and it is governed by particularly stringent rules (Bank of Italy's Circular 285, 7th update of 18 November 2014, Section III, paragraphs 1.2, 2.1 points 3 and 4, and 2.2.2). With particular regard to risk alignment before the event, this is based on actual and lasting results, it also takes qualitative objectives into account, it is parameterised to performance indicators, it is measured net of risks and takes into account the level of capital resources. The sustainability of the overall maximum amount of variable remuneration allocated to key personnel (those most responsible for running the company), is assessed in relation to the economic and financial stability of the Group as a whole. The payment of bonuses is in fact dependent on achieving basic economic and financial objectives (the so-called "entry gates") that have to be achieved at the same time. The entry gates that have been identified are based on the following parameters: Consolidated Common Equity Tier 1 ratio (CET 1); Consolidated Return On Risk-Weighted Assets (RORWA); Consolidated Liquidity Coverage Ratio (LCR). If all the above entry gates are achieved, the company's results are subjected to an assessment that results in the application of a multiplier/demultiplier mechanism which acts directly on the individual target bonuses. In particular, for key personnel belonging to the Parent Company, with the exception of those belonging to the branch network, the target bonus is determined entirely on the basis of the Group's gross profit, For key personnel belonging to Group companies and key personnel of the parent company belonging to the network, the target bonus is determined on the basis of both the Group's Gross Profit and the Gross Profit of the company to which they belong. For those belonging to consortium companies, the same rules apply as for the key personnel of the parent company. 42 Entry bonus or incentive packages designed to facilitate the acquisition of resources that the company deems necessary for the achievement of important objectives. 228

229 Consolidated Explanatory notes After verifying that the entry gates have been exceeded and the target bonus has been calculated (and the size of the available bonus pool checked), the actual allocation of the bonus and the related amount of the variable remuneration, within the maximum limits 43, are defined via an assessment of individual performance that includes an analysis of various quantitative and qualitative indicators. If the Bonus exceeds a specific amount established by the Board of Directors, the Plan envisages an allocation (which can also be deferred) of part of the total bonus through an assignment of "Phantom stock" 44. In particular, this Plan provides for: (apart from as provided by the stricter regulations foreseen for the CEO of the Parent Company): in the case of a bonus of more than Euro 100 thousand: 60% is attributed at the date the bonus is granted ("upfront portion"); the remainder of 40% is attributed in equal portions on a deferred basis: for bonuses lower than Euro 120 thousand, it is attributed over the subsequent three years; for bonus amounting to between Euro 120 thousand and Euro 150 thousand, the deferral period is increased to 4 years; for bonuses higher than Euro 150 thousand, there is a 5 year deferral period. The allocation of 50% of the up-front and deferred portions takes place through phantom stock, the other 50% in cash; for bonuses amounting to between Euro 60 thousand and Euro 100 thousand: 50% of the bonus is attributed at the grant date in cash; the remainder of 50% is allocated through phantom stock, attributed in equal portions in the three years subsequent to the grant year; for bonuses amounting to between Euro 30 thousand 45 and Euro 60 thousand: the first Euro 30 thousand is attributed at the grant date in cash; the allocation of the portion of the bonus exceeding Euro 30 thousand 46 takes place through phantom stock entirely attributed in equal portions in the three years subsequent to the grant year; for bonuses of less than Euro 30 thousand and less than 30% of the fixed remuneration: the amount in question is attributed at the grant date in cash; in the case of the Bank's Chief Executive Officer, assignment of 50% of the bonus in the form of phantom stock; 40% of the portion represented by phantom stock is allocated at the time the Bonus is granted (up-front subject to a 2-year retention period), whereas the other 60% is allocated in equal portions over the next three, four or five 47 years, providing adequate earnings and capital standards are maintained (subject to a 1 year retention period from the vesting date of each deferred portion). 43 The theoretical maximum amount of the bonus payable is the sum of the maximum bonuses obtainable at an individual level. 44 Phantom Stock:these are "virtual" financial instruments (free, personal and not transferable inter vivos) that assign to each recipient the right to demand on maturity an amount of money corresponding to the value of the BPER Banca stock, calculated as per paragraph 3.8 of the information document on the remuneration plan based on financial instruments - Phantom Stock 2018, at the payment date. 45 Or 30% of the fixed remuneration, if lower. 46 Or 30% of the fixed remuneration, if lower.in exceptional and unlikely circumstances where the bonus is more than 60% of the fixed remuneration, but less than Euro 60 thousand, 50% of the bonus is paid in cash up-front and 50% in phantom stock deferred over three years. 47 The time period varies according to the amount of the bonus awarded. 229

230 Consolidated Explanatory notes The deferred instalments are subject to malus rules that can reduce the instalment to zero in the event of failure to achieve the access thresholds ("entry gates") for the financial year preceding the year of payment of each deferred instalment. The malus mechanism, which can block payment of the deferred portions of the bonus, also acts on activation of the clawback clauses. Note that there are compensation plans still outstanding for the years 2014, 2015 and

231 Consolidated Explanatory notes Part L Segment reporting 231

232 Consolidated Explanatory notes According to IAS/IFRS, the disclosures in the financial statements must include descriptive information or more detailed analysis of the values shown in the other schedules of the financial statements (balance sheet, income statement, statement of comprehensive income and statement of changes in shareholders' equity, cash flow statement). In addition, the Conceptual Framework of Financial Information points out that financial statements can include additional information compared with what is specifically requested by the Standards, when, in the opinion of those who are preparing the financial statements, this is likely to give a clearer explanation of the company's business. In this sense, paragraph 1 of the IFRS 8 establishes as the objective of the Standard to provide the information that allows readers of the financial statements to assess the nature and the effects on the financial statements of the various business activities of the company and the economic contexts in which it operates. Based on these recommendations, the following representation is structured in a broader way with more detailed information than is used in the top management reporting system, which is mainly based on a vision by legal entity 48, although it is aligned with it and can be reconciled with it. The criteria used to allocate the various captions being analysed are based on qualitative and quantitative parameters that are consistent with the customer segmentation adopted by the Bank only for defining its commercial policies; each segment identified has similar economic characteristics and is internally consistent in terms of: nature of products and services offered and distribution processes; type of customers; marketing approach; nature of regulatory environment. The segments identified are covered in the disclosures made, even if their results are quantitatively lower than the thresholds envisaged, since this is deemed helpful to users of the financial statements. Segments Economic and financial information is presented for the following segments: Retail This segment comprises the economic and financial information deriving from relations with the following types of customers: individuals and joint accounts not regulated by the "BPER Private Banking" service; sole traders; Partnerships or limited companies with turnover of less than Euro 2.5 million and with agreed facilities with the Banking Group of less than Euro 1 million. This segment also includes the results and financial position of Optima s.p.a. SIM, a Group company, that, by its nature, offers products and services to retail customers. 48 Information on the individual legal entities can be found in the schedules attached to these consolidated financial statements 232

233 Consolidated Explanatory notes Private This segment comprises the economic and financial information deriving from relations with the following types of customers: individuals and joint accounts regulated by the "BPER Private Banking" service. Corporate This segment comprises the economic and financial information deriving from relations with the following types of customers: public administration; non financial and non resident companies; non-financial partnerships and companies with turnover equal to or greater than Euro 2.5 million but less than Euro 250 million; non-financial partnerships and companies with turnover greater than Euro 250 million or belonging to a corporate group (as reported in the general register) with reported consolidated turnover equal to or greater than Euro 250 million; financial companies. This segment also includes the results and financial position of Group companies that, by their nature, offer products and services to Corporate customers (Sardaleasing s.p.a. and Emil-Ro Factor s.p.a.). Large Corporate This segment comprises the economic and financial information deriving from relations with the following types of customers: partnerships and companies, which on their own or as part of a group, ought to be considered in the Corporate macrosegment, but which are considered as Large Corporate to ensure maximum supervision. (Assignment to this segment is performed solely in expert mode and not automatically). Finance This segment includes the results and financial position deriving from treasury activities, management of the Group s investment portfolio, access to financial markets and specialist operational support for the commercial network. Corporate centre Included herein are income statement and balance sheet captions arising from activities related to the governance of the Group, to strategic decisions and results thereof (shareholders' equity, equity investments, etc.) or from activities not directly connected to other areas of the business. Other activities This segment also includes the results and financial position of those non-banking Group companies that are not allocated to the other segments. 233

234 Consolidated Explanatory notes A.1 Distribution by segment: income statement Based on the requirements established in IFRS 8, the income statement by segment contains the following information: Captions Retail Private Corporate Large Corporate Finance Corporate centre Other activities Total Net interest income 163, ,765 8,228 65, ,506 2, ,502 Net commission income 258,354 37,160 82,839 9, , ,056 Net interest and other banking income 421,403 37, ,853 17, , ,531 4,461 1,146,084 Net profit from financial activities ,103 37, ,749 19, , ,531 3,053 1,061,871 Net profit from financial activities ,011 31, ,819 17,016 96,167 55,341 4, ,585 Operating costs (348,184) (14,496) (102,439) (15,838) (3,729) (176,057) (74,614) (735,357) Profit (Loss) from current operations before tax ,919 23,310 63,310 3, , (71,966) 331,932 Profit (Loss) from current operations before tax (31,992) 18,440 3,170 1,058 93,535 79,144 (54,306) 109,049 The above captions have been allocated to the various segments using the information held on the management information system, which can be reconciled with the accounting system. The amounts relating to the prior period are those published in the Interim consolidated financial statements at 30 June Detailed information about net commission income by segment is presented below, pursuant to paras. 114 and 115 of IFRS 15 "Revenues from contracts with customers". type of services Retail Private Corporate Large Corporate Other activities Total Guarantees granted 3, ,124 1, ,683 Management, brokerage and consulting services 109,749 35,877 7,615 3, ,391 - placement of securities 62,484 20,588 1, ,727 - distribution of third-party services 30,494 5,781 3,437 1,645-41,357 Collection and payment services 45, , ,209 Maintenance and management of current accounts 66, , ,754 Other commission income 44, ,628 3, ,671 - commission income on other loans to customers 26, ,149 2,923-63,900 Total assets as at ,468 37,834 87,830 10,217 1, ,708 Management fees are recognised periodically in line with fulfillment of the performance obligation, while performance fees are recorded when it becomes highly likely that a significant reversal will not be necessary in view of the absence of doubt about their collection, as specified in para. 56 of IFRS

235 Consolidated Explanatory notes A.2 Distribution by segment: balance sheet Based on the requirements established in IFRS 8, the balance sheet by segment contains the following information: Captions Retail Private Corporate Large Corporate Finance Corporate centre Other activities Total Financial assets measured at amortised cost 48,678-97,833-10,399, ,485 10,717,125 Loans to banks - - 3,483-4,169,408-48,803 4,221,694 - debt securities measured at amortised cost 1,075,460-1,075,460 -loans 3,483 3,093,948-48,803 3,146,234 Loans to customers 19,682, ,516 22,850,022 2,725,916 4,525, ,640 50,341,469 - debt securities measured at amortised cost 4,525,366 13,738 4,539,104 - loans 19,682, ,516 22,850,022 2,725, ,902 45,802,365 Other assets 709,855 27, ,510 29,828 66,482 3,392, ,208 5,016,447 Total assets as at ,440, ,458 23,284,848 2,755,744 19,160,385 3,392, ,136 70,296,735 Total assets as at ,654, ,605 24,343,159 3,106,288 18,432,479 3,615, ,128 71,338,807 Due to banks ,643-12,280, ,622,968 Due to customers 28,616,800 1,515,497 9,179,057 1,131,401 2,076, ,280 43,291,051 Debt securities issued 6,093, , ,712 2, ,588,233 Other liabilities and equity 55, ,822 5, ,925 7,076, ,060 7,794,483 Total liabilities and shareholders equity ,765,826 1,867,824 9,874,234 1,139,281 14,640,461 7,076, ,145 70,296,735 Total liabilities and shareholders equity ,927,668 1,940,956 9,388,637 1,246,243 15,305,526 7,571, ,643 71,338,807 Balance sheet information has been allocated to the segments using the criteria adopted for the allocation of the income statement. Financial information by geographical area All the activities of the BPER Banca Group are essentially concentrated in Italy. 235

236 BPER: Gruppo Consolidated half-year report as at 30 June 2018 Consolidated Explanatory notes 236

237 Attachments Attachments 237

238 Attachments Financial statements of the Parent Company Balance sheet of the Parent Company as at 30 June 2018 pag. 239 Income statement of the Parent Company as at 30 June 2018 pag. 240 Statement of changes in shareholders equity pag. 241 Transition to IFRS 9 by the BPER Banca Group pag

239 Attachments Balance sheet of the Parent Company as at 30 June 2018 (in thousands of Euro) Assets Cash and cash equivalents 250, , Financial assers measuered at fair value through profit or loss 1,058,970 1,180,456 a) financial assets held for trading 378, ,938 b) financial assets designated at fair value 205, ,123 c) other financial assets mandatorily measured at fair value through profit or loss 474, , Financial assets measured at fair value through other comprehensive income 8,192,135 12,185, Financial assets measured at amortised cost 45,085,306 41,978,946 a) loans to banks 5,334,648 4,093,351 b) loans to customers 39,750,658 37,885, Hedging derivatives 49,206 52, Equity investments 1,783,881 1,686, Property, plant and equipment 452, , Intangible assets 293, ,036 - goodwill 280, , Tax assets 1,455,954 1,571,957 a) current 440, ,528 b) deferred 1,015,042 1,016, Other assets 506, ,510 Total Assets 59,129,272 60,180,186 Liabilities and Shareholders' equity Financial liabilities measured at amortised cost 52,384,313 53,427,164 a) Due to banks 15,827,367 16,541,840 b) Due to customers 30,776,509 30,386,711 c) Debt securities issued 5,780,437 6,498, Financial liabilities held for trading 247, , Hedging derivatives 37,285 20, Tax liabilities 59,659 74,009 b) deferred 59,659 74, Other liabilities 1,488,525 1,082, Provision for termination indemnities 116, , Provisions for risks and charges 410, ,290 a) Commitments and guarantees granted 56,721 36,722 b) pensions and similar commitments 130, ,674 c) other provisions 223, , Valuation reserves (20,133) (21,008) 140. Reserves 1,706,650 2,332, Share premium reserve 930, , Share capital 1,443,925 1,443, Treasury shares (-) (7,253) (7,253) 180. Net Profit (Loss) for the period (+/-) 332, ,844 Total liabilities and Shareholders' Equity 59,129,272 60,180,

240 Attachments Income statement of the Parent Company as at 30 June 2018 (in thousands) Items Interest and similar income 535, , Interest and similar expense (137,078) (121,567) 30. Net interest income 398, , Commission income 317, , Commission expenses (19,147) (15,183) 60. Net commission income 298, , Dividends and similar income 24,555 38, Net trading income 15,476 18, Net hedging gains (losses) 2,510 (313) 100. Gains/losses on disposal or repurchase of: 155,613 14,450 a) Financial assets measured at amortised cost 4,554 (8,605) b) Financial assets measured at fair value through other comprehensive income 150,856 22,888 c) Financial liabilities measured at amortised cost Net results on financial assets and liabilities designated at fair value 3,978 (411) a) financial assets and liabilities designated at fair value through profit or loss (2,943) (411) b) other financial assets mandatorily measured at fair value through profit or loss 6, Net interest and other banking income 898, , Net impairment adjustments for credit risk relating to: (46,145) (313,754) a) Financial assets measured at amortised cost (48,102) (251,877) b) Financial assets measured at fair value through other comprehensive income 1,957 (61,877) 140. Profit/loss from contractual modifications without derecognition (579) Net profit from financial activities 852, , Administrative costs: (554,953) (494,652) a) payroll (273,117) (243,294) b) other administrative costs (281,836) (251,358) 170. Net provisions for risks and charges (13,286) (230) a) Commitments and guarantees granted 5,148 5,882 b) Other provisions (18,434) (6,112) 180. Net adjustments to property, plant and equipment (10,608) (10,103) 190. Net adjustments to intangible assets (1,138) (1,259) 200. Other operating charges/income 64,849 68, Operating costs (515,136) (438,022) 220. Profit (loss) of equity investments (1,654) (4,944) 280. Gains (losses) on disposal of investments (22) Profit (loss) from current operations before tax 335,414 (5,380) 270. Income taxes on current operations (3,238) 10, Profit (loss) from current operations after tax 332,176 4, Profit (loss) for the period pertaining to the Parent Company 332,176 4,

241 Attachments Statement of changes in shareholders equity B alance as at C hanges in o pening balances B alance as at A llo catio n o f prio r year results R eserves D ividends and o ther allo catio ns C hanges in reserves Issue o f new shares P urchase o f treasury shares Changes during the year Transactions on shareholders' equity Extrao rdinary distributio n of dividends C hanges in equity instrum ents D erivatives o n treasury shares Sto ck o ptio ns (in thousands of Euro ) C o mprehens ive inco me as at Shareho lders equity as at Share capital: 1,443,925-1,443, ,443,925 a) ordinary shares 1,443,925-1,443, ,443,925 b) other shares Share premium reserve 930, , ,073 R eserves: 2,296,812 (744,892) 1,551, ,950 - (1,220) ,706,650 a) from profits 1,795,306 (744,892) 1,050, ,950 - (362) ,206,002 b) other 501, , (858) ,648 Valuation reserves 14,430 84,058 98, (118,621) (20,133) Equity instruments T reasury shares (7,253) - (7,253) (7,253) N et pro fit (lo ss) 208, ,844 (155,950) (52,894) , ,176 Shareho lders' equity 4,886,831 (660,834) 4,225,997 - (52,894) (1,220) ,555 4,385,438 B alance as at C hanges in o pening balances B alance as at A llo catio n o f prio r year results R eserves D ividends and o ther allo catio ns C hanges in Issue o f new shares reserves P urchase o f treasury shares Changes during the year Transactions on shareholders' equity Extrao rdinary distributio n of dividends C hanges in equity instrum ents D erivatives o n treasury shares Sto ck o ptio ns C o mprehens ive inco me as at Shareho lders equity as at Share capital: 1,443,925-1,443, ,443,925 a) ordinary shares 1,443,925-1,443, ,443,925 b) other shares Share premium reserve 930, , ,073 R eserves: 2,307,997-2,307,997 4, , ,297,845 a) from profits 1,806,490-1,806,490 4, , ,796,338 b) other 501, , ,507 Valuatio n reserves (11,747) - (11,747) ,918 (3,829) Equity instruments T reasury shares (7,253) - (7,253) (7,253) N et pro fit (lo ss) 18,699-18,699 (4,225) (14,474) ,994 4,994 Shareho lders' equity 4,681,694-4,681,694 - (14,474) (14,377) ,912 4,665,

242 Attachments Transition to IFRS 9 by the BPER Banca Group Presentation in the balance sheet of the effects of the transition to IFRS 9 With regard to presenting the effects of adopting the standard for the first time, the Group has made the election envisaged in the standard 49, whereby without prejudice to the retrospective application of the new measurement and presentation rules required by the standard it is not necessary to restate the comparative data on a consistent basis when adopting the new standard for the first time. As specified in the document accompanying the 5th update of Bank of Italy Circular 262, banks that elect not to redetermine the comparative amounts must include in the first financial statements prepared under the new Circular 262 a description of the methodology used and a reconciliation of the data contained in their latest approved financial statements with that reported in the first financial statements prepared in accordance with the new instructions. Reconciliation of the balance sheet as at 31 December 2017, recalculated in accordance with the 5th update of Circular 262, with the balance sheet as at 1 January 2018 that includes the effects of applying the new measurement criteria envisaged in IFRS 9. The balances as at 31 December 2017 reported in these schedules reflect the effect of applying the new measurement and impairment rules in order to determine the opening balances in accordance with IFRS 9, which took effect from 1 January paragraph of IFRS 9 242

243 Attachments Consolidated balance sheet reflecting the effects of the first-time application of IFRS 9 Assets (in thousands of Euro) Impact IFRS Cash and balance with central banks 420, , Financial assets measured at fair value through profit or loss 1,326,601 (33,519) 1,293,082 a) Financial assets held for trading 425, ,424 b) Financial assets designated at fair value 223, ,192 c) Other financial assets mandatorily measured at fair value through profit or loss 677,985 (33,519) 644, Financial assets measured at fair value through other comprehensive income 13,398, ,937 13,550, Financial assets measured at amortised cost 51,561,586 (1,133,870) 50,427,716 a) Loans to banks 3,205,849 (8,937) 3,196,912 b) Loans to customers 48,355,737 (1,124,933) 47,230, Hedging derivatives 54,061-54, Equity investments 454, , Property, plant and equipment 1,063,483-1,063, Intangible assets 506, ,627 of which: - - goodwill 327, , Tax assets 1,848,127 (2,516) 1,845,611 a) current 575, ,441 b) deferred 1,272,686 (2,516) 1,270, Other assets 704, ,899 Total assets 71,338,807 (1,017,968) 70,320,839 (in thousands of Euro) Liabilities and shareholders' equity Impact IFRS Financial liabilities measured at amortised cost 63,230, ,231,158 a) Due to banks 12,984,226-12,984,226 b) Due to customers 42,694,078-42,694,078 c) Debt securities issued 7,552, ,552, Financial liabilities held for trading 170, , Hedging derivatives 23,795-23, Tax liabilities: 106,218 51, ,256 a) current 2, ,636 b) deferred 103,960 50, , Other liabilities 1,416,660-1,416, Provision for termination indemnities 187, , Provisions for risks and charges 487,178 14, ,518 a) Commitments and guarantees granted 46,793 14,340 61,133 b) pensions and similar commitments 137, ,148 c) other provisions 303, , Valuation reserves 75, , , Reserves 2,445,454 (1,012,009) 1,433, Share premium reserve 930, , Share capital 1,443,925-1,443, Treasury shares (7,258) - (7,258) 190. Minority interests 653,010 (201,185) 451, Profit (loss) for the period pertaining to the Parent Company 176, ,438 Total liabilities and shareholders' equity 71,338,807 (1,017,968) 70,320,

244 Attachments Reconciliation at 31 December 2017 of the accounting schedules required by the 4th update of Circular 262 with those required by the 5th update of Circular 262 (reclassification of balances at 31 December 2017) The following schedules reconcile the accounting schedules required by the 4th update of Bank of Italy Circular 262 with those required by the 5th update of Circular 262, which adopts the presentation criteria envisaged in IFRS 9. The accounting balances at 31 December 2017 presented in these schedules (determined in accordance with IAS 39) have been reclassified to the new accounting captions using the classification criteria introduced by IFRS 9, without applying the new measurement criteria and, therefore, without changing the amounts reported for total assets and total liabilities and shareholders equity. 244