Financials, 20 May 2020 Patria Group Hold

Initiation of coverage Price: RON 0.082 Price target: RON 0.085 Financing Romanian SMEs

We initiate coverage of Group with a price target (PT) of RON 0.085, offering upside of c.3.5%, and a HOLD rating. Patria Bank is Expected events micro-cap company, trading on the local , and a niche player, with expertise in issuing loans to SMEs and micro- WOOD’s virtual conference 28-29 May companies in the agricultural sector in Romania. We appreciate the Conference call 11 June bank’s specialised exposure and high margins but, on the negative side, 1H20 results 17 August 3Q20 results(stand-alone) 16 November we highlight its higher C/I ratio and NPLs, and weaker capital ratios vs. Conference call 23 November its peers. Despite this, we believe the bank should be able to weather the current COVID-19 crisis. We find the stock fairly valued at the current Key data share price levels, trading at 0.9x P/BV on our 2020E.

Patria Bank – a niche player in the Romanian market. The bank issues Market Cap USD 59m loans to SMEs, as well as micro-companies and entrepreneurs in the Free float 17% agricultural industry. This allows it to charge higher rates, and we expect NIMs 3M ADTV USD 4,000 Shares outstanding 3,115m of 3.5%, 3.7% and 3.8% on total average assets in 2020E, 2021E and 2022E, Major Shareholder EEAF (83.2%) respectively, higher than the NIMs we expect for its larger peers. Despite its Bloomberg Code PBK RO Equity higher NIMs, the bank is able to keep its COR within reasonable limits, which BET Index 7,964.0 is proved by its provisions-adjusted NIMs, i.e., NII less provisions over total average assets, which are comparable to some of Patria’s larger peers. We Price performance assume CORs of -1.70%, -1.50% and -1.30% in 2020E, 2021E and 2022E, respectively, elevated on the back of the current economic crisis. 52-w range 0.07-0.12 Profitability and earnings growth potential. Patria Bank, following the 52-w performance -3.98% Relative performance -0.82% merger with Banca Comerciala Carpatica in 2017, became profitable only recently. Its lower scale and higher cost structure prevent higher profitability. However, on the back of an increasing top line and some cost-saving potential, Patria 12M share price performance we believe Patria should continue to expand its bottom line and we anticipate 0.12 ROEs of 2.6% and 5.5% in 2021E and 2022E, respectively. We also calculate 0.11 0.10 a long-term ROE of 11.1%. The largest risk for its profitability is currently the 0.09 COR charges in 2020E and 2021E amid the COVID-19 crisis, in our view. 0.08 0.07 Weaker asset quality. The bank has carried a legacy book of NPLs since the 0.06

merger. While it has been quite successful in disposing of them, with the NPL

Jul-19

Oct-19 Apr-20

Jun-19 Jan-20

Feb-20 Mar-20

Aug-19 Sep-19 Nov-19 Dec-19 May-20 ratio dropping from 24.52% in 2017 to 12.05% in 2019, the ratio remains higher May-19 PBK RO Equity BET Index (rebased) than the sector averages. Due to the current economic backdrop, we believe the ratio may remain elevated, at 13-15% in 2020-21E, before starting to fall again in 2022E. The SME segment has the highest NPL ratio (16%), but also showed the largest decline in said period. Lower capital ratios at the start of the crisis than its peers. Patria’s capital is tighter when compared to its regional peers, despite the recent issue of Tier II-eligible subordinated bonds worth EUR 5m. The Tier I ratio was 14.92%, while the CAR was 17.40% as of 2019. The central bank’s decision to allow lenders to use their two capital buffers in force currently (a 250bps capital conservation buffer; a 100bps OSII buffer) should allow Patria some flexibility during the crisis, in our view. We see the bank trading near its fair value currently. Our PT of RON 0.085/share implies a 2020E P/BV of 0.98x, which is near the bank’s historical average. Similarly, the current discount vs. its peers on P/BV is hovering near its historical average. With such a valuation, we believe our HOLD rating is justified.

Year NII Net profit EPS PE BVPS P/BV ROTE DPS Dividend (RON m) (RON m) (RON) (x) (RON) (x) (%) (RON) yield 2017 117,421 -43,600 -0.0192 n.m. 0.099 1.3 n.m. 0.00 0.0% 2018 116,393 -3,978 -0.0015 n.m. 0.098 1.2 n.m. 0.00 0.0% 2019 129,861 3,416 0.0011 n.m. 0.103 0.9 1.3% 0.00 0.0% 2020E 116,432 -5,243 -0.0017 n.m. 0.091 0.9 n.m. 0.00 0.0% EQUITY 2021E 125,166 7,587 0.0024 33.7 0.094 0.9 3.1% 0.00 0.0% 2022E 133,502 16,417 0.0053 15.6 0.099 0.8 6.5% 0.00 0.0% RESEARCH Analysts: David Lojkasek; Alex Boulougouris, CFA Prague: +420 222 096 256 E-mail: [email protected], [email protected] Website: www.wood.com

Contents

Company snapshot – HOLD, PT RON 0.085 ...... 3

Investment case ...... 4

Valuation ...... 8

Financial forecasts – breaking even and further growth potential ...... 11

Risks ...... 15

Briefly on Patria Bank: financing “Second Romania” ...... 16

Financials ...... 18

Important disclosures ...... 20

Closing Prices as of 18 May 2020

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Patria Bank 2 WOOD & Company

Company snapshot – HOLD, PT RON 0.085

Patria Bank HOLD COMPANY DESCRIPTION Bloomberg ticker PBK RO 0.12 Closing price (RON) 0.082 0.11 Price target (RON) 0.085 0.10 Patria Bank is a micro-cap bank based in Romania, w here it issues loans to SMEs and micro-companies mostly Upside to PT 3.5% 0.09 operating in the agricultural industry. It w as established in 1993 as Romexterra Bank, w hich later changed to Shares outstanding (m) 3,115 0.08 Nextebank. In April 2014, Emerging Europa Accession Fund (EEAF), a private equity fund, took over the majority MCap (RON m) 255 0.07 stake in the bank, and also changed its name and brand to Patria Bank. In the first half of 2016, the bank acquired a Free float 17% 0.06 majority stake of more than 60% in Banca Comerciala Carpatica and the tw o merged. The merger w as 3M ADTV (USD ths) 4.0 finalised in May 2017. The bank operates in four segments – Agri, Micro, Retail and SMEs. 52 Week Range (RON) 0.07-0.12 PBK RO Equity BET Index (rebased)

FINANCIALS (RON m) Growth rates 2017 2018 2019 2020E 2021E 2022E 2018 2019 2020E 2021E 2022E Net interest income 117,421 116,393 129,861 116,432 125,166 133,502 Loans and advances to customers 16.3% 3.7% 0.0% 7.5% 7.6% Net fee and commission income 22,233 23,147 26,316 22,892 24,284 26,027 Deposits -5.4% -10.8% 4.3% 2.7% 2.7% Other operating income 21,280 26,567 19,529 17,866 18,212 18,871 Equity 36.3% 4.5% -11.0% 2.7% 5.6% Net operating income 160,934 166,107 175,706 157,190 167,662 178,400 Assets -5.4% -7.7% 2.7% 2.7% 2.9% Total operating expenses -183,731 -169,877 -149,594 -134,329 -132,912 -134,888 Net income -90.9% n.m. n.m. n.m. 116.4% Profit before provisions, impairments -22,797 -3,770 26,112 22,862 34,750 43,512 Net interest income -0.9% 11.6% -10.3% 7.5% 6.7% Impairment of financial assets -19,950 580 -16,404 -28,105 -25,718 -23,968 Gross result -42,747 -3,190 9,708 -5,243 9,032 19,545 RATIOS & VALUATIONS Tax expense -853 -788 -6,292 0 -1,445 -3,127 2018 2019 2020E 2021E 2022E Net result for the period -43,600 -3,978 3,416 -5,243 7,587 16,417 Net loans to deposits 52.1% 60.6% 58.1% 60.8% 63.7% Deposits to assets 86.3% 83.4% 84.7% 84.7% 84.5% Cash and cash equivalents 642,914 517,436 437,958 490,195 412,174 429,596 Net loans to assets 45.0% 50.5% 49.2% 51.5% 53.8% Financial assets 1,251,030 719,825 503,631 515,448 520,104 425,452 Equity to assets 8.6% 9.8% 8.5% 8.5% 8.7% Due from banks 8,408 5,613 5,683 5,681 6,104 6,568 Capital adequacy ratio 15.7% 17.4% 14.6% 14.2% 14.1% Loans and advances to customers 1,370,125 1,593,914 1,653,586 1,652,874 1,776,222 1,911,145 Tier 1 capital ratio 14.4% 14.9% 12.9% 12.5% 12.5% Other assets 261,728 520,465 515,983 538,800 575,657 615,971 Intangible assets 45,280 42,799 45,763 45,763 45,763 45,763 Net interest margin 4.4% 5.1% 4.8% 4.9% 5.1% Property, plant and equipment 168,105 143,698 108,589 110,760 112,975 115,234 Net interest income to average assets 3.2% 3.8% 3.5% 3.7% 3.8% Total assets 3,747,590 3,543,750 3,271,193 3,359,521 3,448,999 3,549,730 Costs to average assets -4.7% -4.4% -4.1% -3.9% -3.9% Cost to income 102.3% 85.1% 85.5% 79.3% 75.6% Deposits from banks 95,967 6,951 18,627 19,425 19,949 20,489 Pre-tax income to average assets -0.1% 0.3% -0.2% 0.3% 0.6% Deposits from customers 3,231,281 3,057,030 2,728,114 2,844,948 2,921,758 3,000,799 Effective tax rate 24.7% -64.8% 16.0% 16.0% 16.0% Other liabilities 166,301 150,531 170,499 176,438 180,995 185,727 ROA n.m. 0.1% n.m. 0.2% 0.5% Subordinated debt 29,589 23,373 34,348 34,348 34,348 34,348 ROE n.m. 1.1% n.m. 2.6% 5.5% Total liabilities 3,523,138 3,237,885 2,951,588 3,075,159 3,157,050 3,241,363 ROTE n.m. 1.3% n.m. 3.1% 6.5% Retained earnings -33,069 -34,565 -24,184 -59,427 -51,840 -35,423 Other equity 257,522 340,430 343,790 343,790 343,790 343,790 P/E n.m. 83.9x n.m. 33.7x 15.6x Total shareholders’ equity 224,453 305,865 319,606 284,363 291,950 308,367 P/BV 1.2x 0.9x 0.9x 0.9x 0.8x Total liabilities and equity 3,747,591 3,543,750 3,271,194 3,359,521 3,448,999 3,549,730 P/Tangible BV 1.4x 1.0x 1.1x 1.0x 1.0x Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% LOANS AND ADVANCES TO CUSTOMERS 2017 2018 2019 2020E 2021E 2022E Consumer loans 13.2% 13.1% 9.3% 9.2% 9.1% 8.9% Mortgage loans 9.9% 9.5% 11.5% 11.4% 11.5% 11.5% CHARTS Loans to entrepreneurs 7.7% 9.4% 10.8% 10.9% 11.0% 11.0% SME loans 65.1% 65.2% 66.0% 66.2% 66.4% 66.6% 4,000 80% 2,250 State and municipal organizations 4.0% 2.9% 2.5% 2.3% 2.2% 2.0% 2,000 3,000 60% 1,750 1,500 Non-Performing Loan Ratio 24.5% 19.7% 12.1% 14.5% 13.5% 10.3% 1,250 2,000 40% NPL Ratio Consumer 7.1% 5.4% 2.6% 8.7% 8.2% 2.3% 1,000 NPL Ratio Mortgage 22.7% 18.7% 7.2% 12.1% 11.2% 6.2% 750 NPL Ratio Entrepreneurs 9.3% 6.6% 4.4% 6.9% 6.4% 3.7% 1,000 20% 500 NPL Ratio SMEs 31.6% 25.6% 15.9% 17.4% 16.2% 13.5% 250 0 NPL Ratio State and municipal 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0 0% 2017 2018 2019 2020E 2021E 2022E Total NPL Coverage 45.7% 55.9% 55.3% 51.1% 56.0% 73.5% 2017 2018 2019 2020E 2021E 2022E SME loans Loans to entrepreneurs Net loans (RON m) Mortgage loans Consumer loans DUPONT ANALYSIS 2018 2019 2020E 2021E 2022E Net interest income 3.2% 3.8% 3.5% 3.7% 3.8% 135 5% 200 Net fee and commission income 0.6% 0.8% 0.7% 0.7% 0.7% 130 5% Other operating income 0.7% 0.6% 0.5% 0.5% 0.5% 150 125 5% Net operating income 4.6% 5.2% 4.7% 4.9% 5.1% Total operating expenses -4.7% -4.4% -4.1% -3.9% -3.9% 120 5% 100 Profit before provisions, impairments -0.1% 0.8% 0.7% 1.0% 1.2% 115 4% Impairment of financial assets 0.0% -0.5% -0.8% -0.8% -0.7% 50 Gross result -0.1% 0.3% -0.2% 0.3% 0.6% 110 4% Tax expense 0.0% -0.2% 0.0% 0.0% -0.1% 105 4% 0 Net result for the period -0.1% 0.1% -0.2% 0.2% 0.5% 2017 2018 2019 2020E 2021E 2022E 2017 2018 2019 2020E 2021E 2022E NII (RON m) NIM Personnel expenses D&A expense Other expenses

Source: Bank data, Bloomberg, WOOD Research, all figures and indicators are consolidated at the Patria Bank Group level

Patria Bank 3 WOOD & Company

Investment case

We initiate coverage of Patria Bank with a HOLD and a price target (PT) of RON 0.085, offering upside of c.3.5%. Patria Bank is a micro-cap bank, issuing loans to SMEs and micro-companies mostly from the agricultural sector. We like the bank for its ability to charge higher interest, while keeping its COR relatively under control. While the bank strengthened its capital position recently, issuing a EUR 5m Tier-II eligible bonds, it still entered the current crisis less capitalised than its Romanian peers. We believe, however, that it should be able to withstand the challenge. The bank carries a legacy NPL book from the merger and restructuring process, but has been successful in reducing the NPL ratio in the past. Patria reached its breakeven point recently and, with the exception of 2020E, which is likely to be affected by the COVID-19 crisis, we expect the bank to continue to expand its profitability going forward. As the bank is trading currently close to its average historical P/BV multiples, as well as its average discount to its Romanian peers, we believe our HOLD rating is justified.

Patria Bank is a micro-cap bank and a niche player, operating as a lender to SMEs and local entrepreneurs operating mostly in the agri-business. The bank also operates in the so-called “Second Romania,” rural and semi-rural regions of Romania. These locations are chosen carefully and characterised by a lower level of the development of banking and financial services. The bank possesses the important know-how on issuing loans in these regions, while its larger competitors may lack the incentive to operate there. The bank operates in four segments – it is quite strong in the Agricultural and Micro-business loan segments; while it is also showing robust growth in its SME/Corporate and Retail loan books.

Loan book profile and geographical focus enable the bank to charge higher interest rates, while keeping its run-rate COR relatively under control. The bank’s loan book is comprised of loans with shorter maturities, lower face values and higher interest. We expect net interest margins of 3.5%, 3.7% and 3.8% on total average assets in 2020E, 2021E and 2022E, respectively, higher than the NIMs we expect for the larger Romanian banks, while the provisions-adjusted NIMs, i.e., NII less provisions over total average assets, are comparable to some of Patria’s larger peers. The bank’s loan book profile gives us some comfort too. Approximately 66% of its gross loans are issued to SMEs, c.11% to local entrepreneurs, c.11% are booked as mortgages and the rest are consumer loans. In our view, the through-the-cycle cost of risk could be around the level of 1.3% for Patria Bank. However, due to the current macroeconomic challenges caused by the epidemic, we assume CORs of -1.70%, -1.50% and - 1.30% in 2020E, 2021E and 2022E, respectively.

Patria Bank’s lower scale of operations and higher cost structure prevent higher profitability. The bank became profitable in 2018, following the merger and the restructuring process. We believe the bank should continue to expand its bottom-line profitability and, in terms of ROTE, we see it reaching 6.45% by 2022E, after reporting a net loss in 2020E, on our numbers. While this is quite low compared to the bank’s peers, its low scale of operations prohibits it from reaching higher ROEs, in our view. On the costs side, further savings could be obtained, we believe, even though the C/I ratio is likely to decline on the back of an increasing top line. However, in our forecast period, we believe that savings of c.RON 13.5m between 2019 and 2022E could be found in the other operating expenses, especially from the third-party services line and other expenses.

The NPL book is quite high, but the NPL ratio has been declining continually. The bank’s NPL book is rather a legacy, which remained on its books following the merger, and the highest NPL ratio is reported in the SME segment. However, the NPL ratio fell from 24.52% in 2017 to 12.05% in 2019, with all segments contributing to the decline. We expect both the NPL book and the NPL ratio to grow in the following periods, due to the COVID-19 crisis, especially once the loan moratorium has run its course. We estimate that the loan moratorium could concern 15-20% of the bank’s loan book. On our numbers, the NPL ratio could increase by c.2-3 percentage points, but certain comfort can be taken, in our view, from the bank’s quite conservative NPL coverage ratio of 55%, which we see dropping in 2020E, but reversing again in 2021E and 2022E.

The bank remains less capitalised than its Romanian peers. The bank remains weaker on the capital front than its larger peers, despite having issued Tier II-eligible subordinated bonds recently, worth EUR 5m. Currently, the Tier I ratio stands at 14.92%, while the CAR was at 17.40% as of 2019. We believe that the bank’s capital will be challenged during the COVID-19 crisis as profitability will deteriorate significantly on the back of lower NII and F&C activity, as well as on the expected higher cost of risk charge, but we anticipate that the bank should be able to weather the storm. Similarly, Patria’s capital ratios will come under pressure from its exposure to domestic government bonds, which are booked at FV through OCI. The central bank’s decision to allow local lenders to use their two capital buffers in force currently (a 250bps capital conservation buffer and a 100bps OSII buffer) has given the banks more flexibility to respond to the crisis. On our numbers, Patria’s Tier I ratio could decline to 12.88% in 2020E

Patria Bank 4 WOOD & Company

and 12.51% in 2021E. The capital ratios could begin expanding from 2022E-onwards, in our view, when we see the Tier I reaching 12.53% and the CAR as much as 14.10%. Prior to the COVID-19 crisis, the bank announced its plans to go ahead with another Tier II subordinated bond issue, which we believe has now been put on hold. At the same time, however, we are of the view that, once capital market conditions allow it, the bank will return to the plan.

The supportive macroeconomic backdrop is a fairy tale of the past as COVID-19 poses a major challenge. Romania has not been spared from the COVID-19 crisis. Our current in-house view assumes a GDP contraction of 5.9% this year and a rebound of 5.2% in 2021E. The government has announced fiscal measures worth up to 2% of GDP, which include 1.5% of GDP in loan guarantees and below 1% of GDP measures for a partial unemployment programme, as well as healthcare spending. Furthermore, the NBR has cut the policy rate by 50bps and we expect rates to fall further. Quantitative easing has also begun. A loan moratorium has been put in place: if a debtor can prove they have been affected directly by the epidemic and has no overdue loans, they can postpone loan instalments for up to nine months, which could prove to be a risk factor to our COR assumptions. At the same time, as the growth of COVID- 19 cases in the country slows, Romania is preparing for a slow reopening. While a number of emergency rules remain in place, we still see this as positive for the economy and, consequently, the banking sector.

Valuation-wise, we see the bank trading around its fair value currently. Our PT lands currently at RON 0.085/share, with potential upside of 3.5%. On historical multiples, the bank trades currently near its historical average, around 0.8-0.9x P/BV and, at the same time, the current discount vs. its peers seems to be near its historical average of 20% as well; thus, we have decided to rate the company a HOLD.

Patria Bank 5 WOOD & Company

Patria Bank: KPIs

6% 120% 0.06

5% 100% 0.05 4%

3% 80% 0.04

2% 60% 0.03 1%

0% 40% 0.02

-1% 20% 0.01 -2%

-3% 0% 0 2017 2018 2019 2020E 2021E 2022E 2017 2018 2019 2020E 2021E 2022E NIM (on IEA) Cost of Risk ROE (ra) C/I

20% Operating costs (RON m) 18% 200 16% 180 14% 160 12% 140 10% 120 8% 100 6% 80 4% 60 2% 40 0% 20 2017 2018 2019 2020E 2021E 2022E 0 2017 2018 2019 2020E 2021E 2022E CAR CET1 OCR OCR CET1 Personnel expenses D&A expense Other expenses OCR w/o buffers OCR CET1 w/o buffers

3,500 70% NPLs to gross loans 3,000 60% 30%

2,500 50% 25%

2,000 40% 20%

1,500 30% 15% 1,000 20% 10% 500 10% 5% 0 0% 2017 2018 2019 2020E 2021E 2022E 0% Net loans (RON m) Deposits L/D (ra) 2017 2018 2019 2020E 2021E 2022E

Source: WOOD Research, Patria Bank

Patria Bank 6 WOOD & Company

Patria Bank: investment thesis

Retail lending in all 41 counties (incl. Corporate lending in all 41 counties (incl. Bucharest) Bucharest) 15,000 200,000 First Romania Second Romania First Romania Second Romania

150,000 10,000

100,000

5,000

50,000

Retail loan/capita Retail loan/capita (RON) Loans/legal Loans/legal entity (RON)

0 0 0% 20% 40% 60% 80% 0% 20% 40% 60% 80% Share of population residing in rural area Share of population residing in rural area

Domestic credit to private sector [% of GDP] Domestic credit to private sector [% of GDP] 45% 70%

40% 60%

35% 50% 30% 40% 25% 30% 20% 15% 20% 10% 10%

5% 0% 0% Romania Hungary Czech Poland Slovakia 2010 2011 2012 2013 2014 2015 2016 2017 2018 Republic

Domestic credit provided by financial sector Domestic credit provided by financial sector [% of GDP] [% of GDP] 90% 60% 80% 50% 70% 60% 40% 50% 30% 40% 30% 20% 20% 10% 10% 0% 0% Romania Hungary Czech Poland Slovak 2010 2011 2012 2013 2014 2015 2016 2017 2018 Republic Republic

20 250 10 0 200 -10 -20 150 -30 -40 100 -50

-60 50

Jul-10 Jul-17

Apr-12 Oct-15 Apr-19

Oct-08 0

Jan-07 Jun-13 Jan-14

Mar-08 Mar-15

Feb-11 Feb-18

Aug-07 Dec-09 Sep-11 Nov-12 Aug-14 Dec-16 Sep-18 Nov-19

May-09 May-16

Consumer confidence, SA

Jul-10 Jul-17

Oct-08 Apr-12 Oct-15 Apr-19

Jan-07 Jun-13 Jan-14

Mar-08 Feb-11 Mar-15 Feb-18

Dec-09 Nov-12 Dec-16 Nov-19

Aug-07 Sep-11 Aug-14 Sep-18 May-16 Manufacturing Confidence, SA May-09 Construction Indicator, SA Household deposits (RON bn) Credits to households (RON bn) Industrial production yoy (3MMA)

Source: WOOD Research, National Institute of Statistics of Romania, Central Bank of Romania, Patria Bank, World Bank, Bloomberg

Patria Bank 7 WOOD & Company

Valuation

We set our price target (PT) for Patria Bank at RON 0.085, implying upside of 3.5% to the 18 May close. We arrive at our PT by using the combination of an equally-weighted peer valuation and our excess return valuation model. Patria Bank: valuation summary

Excess return valuation (50%) 0.090 Peer valuation (50%) 0.080 Weighted average PT 0.085 Current price 0.082 Potential upside 3.50% Source: WOOD Research

Excess return model In our excess return valuation model, we have applied a risk free rate of 5%, a market risk premium of 5% and a beta of 1.2x, giving us a cost of equity of 11.00%. Currently, our long-term ROE estimate lands at 11.1% and we see the terminal growth rate at 3%. All-in-all, this implies a P/BV ratio of c.1.02x. Patria Bank: cost of equity assumptions Cost of equity Risk free rate 5.00% Market risk premium 5.00% Market return 10.00% 1Y monthly beta 1.20 Cost of equity 11.00% Source: WOOD Research

To calculate the fair value of Patria Bank’s shares, we sum up the present value of excess returns per share until 2027E, the present value of the excess return in the terminal period beyond 2027E and the current capital invested into the bank at the implied P/BV ratio of 1.02x (P/BV = (LT ROE – g)/( COE – g)), based on a long-term ROE of 11.1%, a COE of 11.0% and a long-term growth rate of 3%. The fair value of an individual share then lands at RON 0.081, giving us a 12M PT of RON 0.090/share. Patria Bank: excess return valuation model 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E + Net profit (EUR ths) 3,416 -5,243 7,587 16,417 26,802 36,017 42,747 47,089 49,688 51,179 growth yoy n/a n/a 116.4% 63.3% 34.4% 18.7% 10.2% 5.5% 3.0% Dividend distribution (EUR ths) 0 0 0 0 0 0 2,535 21,491 34,448 36,299 growth yoy n/a n/a n/a n/a n/a n/a 747.9% 60.3% 5.4% Shareholders' equity (EUR ths) 319,606 284,363 291,950 308,367 335,170 371,187 411,399 436,997 452,237 467,116 growth yoy 2.7% 5.6% 8.7% 10.7% 10.8% 6.2% 3.5% 3.3% Cost of equity (EUR ths) 35,157 33,218 31,697 33,017 35,395 38,850 43,042 46,662 48,908 50,564 growth yoy -5.5% -4.6% 4.2% 7.2% 9.8% 10.8% 8.4% 4.8% 3.4% Excess return (EUR ths) -31,741 -38,462 -24,110 -16,600 -8,592 -2,832 -295 427 780 7,677 ROE -1.7% 2.6% 5.5% 8.3% 10.2% 10.9% 11.1% 11.2% 11.1% Payout ratio 0.0% 0.0% 0.0% 0.0% 0.0% 7.0% 50.3% 73.2% 73.1%

Discount factor 0.62 1.62 2.62 3.62 4.62 5.62 6.62 7.62 8.62 Discounted excess return per share 0.94 0.84 0.76 0.69 0.62 0.56 0.50 0.45 0.41 Implied P/BV -0.0116 -0.0065 -0.0041 -0.0019 -0.0006 -0.0001 0.0001 0.0001 0.0010 Book value per share implied at P/BV 1.02x

Number of shares (m) 3,115 Fair value of Patria Bank's share 0.081 Target price 0.090

Valuation date 18 May 2020 Fiscal year end 31 December 2020 Time adjustment to the discount factor 0.62 Source: WOOD Research

Patria Bank 8 WOOD & Company

Below, we present the sensitivity analysis of our excess return model for Patria Bank. Patria Bank: sensitivity analysis of our excess return model

Long-term growth rate

0.130 2.00% 2.50% 3.00% 3.50% 4.00%

9.00% 0.131 0.147 0.165 0.185 0.210

10.00% 0.098 0.110 0.122 0.135 0.152

11.00% 0.072 0.081 0.090 0.099 0.111 equity Costof 12.00% 0.051 0.058 0.065 0.071 0.080 13.00% 0.034 0.039 0.044 0.049 0.056 Source: WOOD Research

Peer valuation In our multiples valuation, we use the average historical discount of the bank vs. its peers on our P/BV ratio of 20%. As, on our estimates, Patria’s Romanian peers trade currently at a P/BV multiple of 1.1x, the implied multiple for Patria is 0.9x. The fundamental value thus lands at RON 249.3m, or RON 0.080/share. Patria Bank: multiples valuation PBK RO Equity Average discount to Romanian peers 20% 2020E Romanian peers P/BV (x) 1.1 Implied 2020E P/BV (x) 0.9 2020E Equity book value (RON ‘000s) 284,363 Fundamental value (RON ‘000s) 249,307 Fundamental value per share (RON) 0.080 Current price (RON) 0.082 Source: WOOD Research

Patria Bank: historical multiples and discount vs. the bank’s Romanian peers

Historical P/BV ratio Discount to peers on P/BV 2.0 80% 1.8 60% 1.6 40% 1.4 20% 1.2 0% 1.0 -20% 0.8 -40% 0.6 -60% 0.4 0.2 -80%

0.0 -100%

Jul-17 Jul-18 Jul-19

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19 Jan-20

Jan-18 Jan-19 Jan-20

Mar-18 Mar-19 Mar-20

Sep-17 Nov-17 Sep-18 Nov-18 Sep-19 Nov-19

Mar-18 Mar-19 Mar-20

Sep-17 Nov-17 Sep-18 Nov-18 Sep-19 Nov-19

May-17 May-18 May-19

May-17 May-18 May-19

Source: WOOD Research, Bloomberg

On the next page, we present our checks on the bank’s multiples compared to the other two Romanian banks under our coverage, as well as other banks in the region. As Patria reached its breakeven point only recently, we caution that some of the multiples may need to be taken with a grain of salt, especially in the first years of our forecast period.

Patria Bank 9 WOOD & Company

Patria Bank: peer valuation table, as of 18 May 2020 Bank Last price Market Cap P/E P/BV ROE Div. lcl USD m 2020E 2021E 2020E 2021E 2020E 2021E 2020E 2021E Romania 1.9 2,237 10.2 9.7 1.2 1.1 11.5% 12.1% 6.4% 6.7% BRD-GSG 11.3 1,772 10.8 10.3 1.0 0.9 9.0% 9.3% 6.5% 6.8% Patria Bank 0.082 59 -48.7 33.7 0.9 0.9 n.m. 2.6% 0.0% 0.0% Czech Republic Komercni 510.0 3,813 7.0 7.1 0.9 0.8 12.8% 12.2% 9.3% 9.2% Moneta 49.9 1,003 6.7 5.7 1.0 0.9 14.4% 16.6% 13.3% 13.3% Hungary OTP 9,380.0 8,096 7.2 n/a 1.1 n/a 16.4% n/a 3.1% n/a Lithuania Siauliu Bankas 0.4 252 8.9 6.7 0.7 0.6 8.0% 10.0% 3.7% 5.3% Poland PKO BP 21.6 6,419 6.0 5.7 0.6 0.6 10.6% 10.8% 7.9% 8.3% Santander Bank 154.0 3,746 6.3 5.6 0.6 0.6 9.6% 10.3% 7.9% 9.0% Pekao 51.7 3,233 5.0 4.7 0.6 0.5 11.3% 11.8% 14.9% 16.1% ING BSK 133.6 4,142 9.6 9.0 1.1 1.0 11.9% 11.7% 3.1% 3.3% mBank 185.9 1,876 5.4 5.0 0.4 0.4 8.5% 8.4% 3.7% 4.0% Handlowy 36.8 1,146 7.8 7.4 0.7 0.6 8.6% 8.8% 9.7% 10.2% Millennium 2.7 780 3.6 3.1 0.3 0.3 9.7% 10.2% 0.0% 0.0% Alior Bank 13.6 423 2.9 2.5 0.2 0.2 8.4% 9.0% 0.0% 0.0% Slovenia NLB (GDRs) 7.2 787 4.2 4.2 0.4 0.4 10.4% 10.0% 16.8% 16.7%

Patria Bank est. 0.082 59 n.m. 33.7 0.9 0.9 n.m. 2.6% 0.0% 0.0% Patria Bank PT 0.085 n.m. 36.8 1.0 1.0 n.m. 2.6% 0.0% 0.0% Mean [region] 6.7 5.7 0.7 0.6 10.4% 10.3% 6.5% 7.6% Mean [Romania] 10.5 10.0 1.1 1.0 10.2% 10.7% 6.4% 6.7% Current premium/(discount) to Romanian banks n.m. 236% -18% -16% n.m. -8.1pts -6.4pts -6.7pts Source: WOOD Research

Patria Bank 10 WOOD & Company

Financial forecasts – breaking even and further growth potential Loans and deposits Loan generation should remain strong in the medium term, in our view, as the bank remains very liquid, with its gross loans to deposits ratio at 64.9% as of the end of 2019. We expect the ratio to grow slightly, to 68.9% by 2022E, with both loans and deposits increasing over our forecast period. This is supported by the limited loan penetration of the country and the bank’s focus on the SME segment, which remains underleveraged, according to data from a National Bank of Romania survey. Net loan generation is likely to practically come to a halt in 2020E, in our view, due to the COVID-19 crisis.

Our expected loan growth CAGR between 2019 and 2022E is 5%. After the slowdown in the loan growth this year, we believe that the bank’s loan book could grow above 7% annually, i.e., higher than the market. Lending focused on what the bank calls “Second Romania” should help to sustain higher growth rates, at least for the foreseeable future, in our view, with the majority of the growth being generated by the SME segment. This is not to say that the bank’s other segments are not expected to grow but, as the SME loans took up as much as 65% of the total net loan book in 2019, we expect SMEs to be the major engine supporting the overall growth.

The bank remains very liquid, despite seeing its deposits falling from RON 3.2bn in 2017 to RON 2.7bn in 2019, which was the result of the bank’s restructuring and the closing of a number of inefficient branches. We see this trend reversing in 2020E, and see the deposits growing in the following periods, albeit at a substantially slower rate than loans. The bank’s deposits could, in our view, reach its 2018 levels around 2022E. Our forecasts for the net loans to deposits ratios in 2020E, 2021E and 2022E are 58.1%, 60.8% and 63.7%, respectively.

Patria Bank: net loans to deposits and structure of Patria’s gross loan book (RON m)

3,500 70% 2,250

3,000 60% 2,000 1,750 2,500 50% 1,500 2,000 40% 1,250 1,000 1,500 30% 750 1,000 20% 500

500 10% 250 0 0 0% 2017 2018 2019 2020E 2021E 2022E 2017 2018 2019 2020E 2021E 2022E SME loans Loans to entrepreneurs Mortgage loans Consumer loans Net loans (RON m) Deposits L/D (ra) State & municipal org.

Source: WOOD Research, Patria Bank

Net interest income and F&C The growth of the net interest income of the Romanian banks is likely to lag behind the lending growth, in our view, especially as a result of the excessive liquidity and higher competitive pressures. We factor this into our Patria Bank model, expecting the bank’s NIM to increase only slightly between 2019 and 2022E. New loans generated are likely to see declining interest, which should be more than offset by the expanding loans to deposit ratio, on our numbers. Similarly, the bank’s domestic treasury bills, which continue to be high yielding, are a substantial part of its portfolio (26% of total assets as of the end of 2019), albeit their share is declining continually as the bank generates more loans. We expect net interest margins on interest earning assets of 4.75%, 4.95% and 5.06% in 2020E, 2021E and 2022E, respectively. The decline in the NIM in our 2020E estimate, compared to 2019, is the result of weaker loan growth in 2020E due to the COVID-19 crisis, while we pencil in almost no slowdown in the growth of deposits, in order to stay on the conservative size. Furthermore, Patria’s provision-adjusted NIMs are comparable to the NIMs of its larger Romanian peers.

In terms of fees and commissions, we believe there is large and untapped potential in the “Second Romania”, where we see undeveloped financial markets and low levels of financial education. The bank’s strategy, based on the expansion of its retail business, including cards, throughout the country, should drive its F&C line upwards. However, due to the COVID-19 crisis, we see net fees and commissions falling as much as 15% in 2020E, only to expand 6.3% yoy in 2021E and 7.3% in 2022E. We assume growing fees from the card activity business, as well from other non-cash transactions, with the share of fees from card activity increasing its share of the total gradually.

Patria Bank 11 WOOD & Company

Patria Bank: net interest income and fees

160 12% Provisions-adj. NIMs 4.5% 140 10% 4.0% 120 3.5% 8% 100 3.0% 80 6% 2.5%

60 2.0% 4% 1.5% 40 2% 1.0% 20 0.5% 0 0% 0.0% 2017 2018 2019 2020E 2021E 2022E 2018 2019 2020E 2021E 2022E NII (RON m) NIM Loan yield Patria TLV BRD

30 20%

25 15%

10% 20 5% 15 0% 10 -5%

5 -10%

0 -15% 2017 2018 2019 2020E 2021E 2022E

Net F&C (RON m) F&C growth (ra)

Source: WOOD Research, Patria Bank

Operating costs Patria Bank has managed to reduce its operating costs quite substantially in the past couple of years as it has been extracting synergies from the merger and has been working to increase the overall efficiency of its branch network. Total operating expenses fell from c.RON 183.7m to c.RON 149.6m in 2019, with the C/I ratio following the downward trend, from 114.2% in 2017 to 85.1% in 2019. Going forward, we see the ratio continuing to trend downwards, reaching levels as low as 75.61% by 2022E. While there are further synergies and cost reduction potential, in our view, we believe the decline in operating costs is likely to slow down gradually. Our CAGR for total operating costs from 2019 to 2022E is -3%.

While Patria Bank has the potential to save further in terms of personnel expenses, we believe that most of the savings in costs should be extracted eventually from the other operating and administrative expenses, where the bank has managed to reduce its expenditures on third-party services, as well as rent, which could, to a certain extent, continue this year.

Patria Bank 12 WOOD & Company

Patria Bank: operating costs breakdown and cost to income ratio

200 C/I ratio 180 120% 160 100% 140

120 80% 100 80 60% 60 40% 40

20 20% 0 2017 2018 2019E 2020E 2021E 2022E 0% 2017 2018 2019E 2020E 2021E 2022E Personnel expenses D&A expense Other expenses

Source: WOOD Research, Patria Bank

Asset quality and cost of risk Currently, the bank’s NPL ratio stands at 12.1% and the SME segment has the highest ratio of NPLs, at almost 16%. This is, however, a legacy the bank has been carrying since the merger a couple of years ago, and it has been working well to offload the NPLs from its balance sheet. The SME segment’s NPL ratio has fallen from 31.64% in 2017 to the current 15.9% and, going forward, we assume further gradual declines in the medium term, resulting from an overall increase in the segment’s loans, as well as from a decline in the actual NPL book. The bank has a strategy in place to manage its NPL book internally. In the short term, however, we anticipate an increase in the NPL ratio in 2020E, amid the current macroeconomic challenges being experienced in Romania and elsewhere. On our numbers, in 2020E, the NPL ratio could increase by c.2-3 percentage points. This is subject to the extent and length of the moratorium, as well as the pace at which Romania cautiously reopens its economy.

While we recognise the profile of the bank’s loan book and its geographical focus may result in a slightly higher COR, we do not expect it to exceed the market’s rate considerably. For Patria Bank, following the reversals of 2018, the cost of risk landed at -1% in 2019. In the following periods, we assume an increase in the COR to -1.7% in 2020E amid the challenging macroeconomic environment, while 2021E and 2022E could see the cost of risk falling to -1.50% and -1.30%, respectively. We believe -1.3% could be the current run-rate for the bank. Pencilling in our COR assumptions for our forecast period, we believe the NPL coverage ratio should strengthen in the medium term, when the COVID-19 crisis has run its course, further increasing the quality and safety of the bank’s balance sheet.

Patria Bank: capital adequacy and NPL coverage

NPLs to gross loans NPL coverage 30% 80%

70% 25% 60% 20% 50%

15% 40%

30% 10% 20% 5% 10%

0% 0% 2017 2018 2019 2020E 2021E 2022E 2017 2018 2019 2020E 2021E 2022E

Source: WOOD Research, Patria Bank

Capital While the bank’s capital may seem to be tighter than the rest of the industry, we believe the bank should be able to weather the storm successfully. The current capital requirements stand at 10.19%, 12.42% and 15.39% for the OCR CET1, the OCR Tier 1 and the OCR, respectively, including the two capital buffers that the central bank has decided to allow local lenders to use up during the current crisis (a 250bps capital conservation buffer and a 100bps OSII buffer).

Patria Bank 13 WOOD & Company

We expect the capital adequacy ratio to decline from the 17.40% reported in 2019 to 14.65% and 14.18% in 2020E and 2021E, respectively, on the back of depressed profitability levels on the NII and F&C lines, as well as the higher cost of risk charge. Similarly, the bank’s quite large portfolio of sovereign bonds at fair value through OCI may depress the capital ratios significantly. On our calculations, the hit could amount to as much as 150bps on the capital level. This estimate is subject to an increased risk, given the volatility of the Romanian five-year government bond (see below). Currently, treasury bills issued by the local ministries account for more than 26% of total assets at the bank (2019), while assets held at FV through OCI take up c.13% of total assets. We expect similar levels for this year. In our view, however, the capital ratios are likely to start growing from 2022E-onwards.

Furthermore, the bank has tested the market’s appetite for its bonds recently and successfully floated a EUR 5m Tier II eligible issue on the local market. The issue was reportedly oversubscribed and has been traded quite actively, to a degree, on the Bucharest Stock Exchange. Earlier in the year and prior to the COVID-19 crisis, the bank planned another, similar issue of EUR 10m. We believe that the bank may revive such plans, when there is more clarity on the current economic backdrop. We do not pencil this into our model just yet.

Patria Bank: capital ratios and Romanian sovereign bond yields

20% Current Romanian 5Y sovereign bond: YTM 18% (Bid) (%) 16% 14% 5.5 12% 10% 5.0 8% 4.5 6% 4% 4.0 2% 0% 3.5 2017 2018 2019 2020E 2021E 2022E 3.0 CAR CET1 OCR OCR CET1 OCR w/o buffers OCR CET1 w/o buffers

Source: WOOD Research, Bloomberg

Patria Bank 14 WOOD & Company

Risks

 Interest margins. For Patria Bank, we assume higher interest margins than for the market, due to the bank’s exposure and loan book profile. Should, for any reason, higher margins not materialise, our price target could, as a result, be reduced substantially. Furthermore, the banking industry in Romania is crowded and margin pressure could come in the form of increased competition in Patria Bank’s regional markets.

 Asset quality. The risk associated with the bank’s loan book may be higher than the market’s, due its geographical allocation and overall profile. We assume a higher COR than for the market, as a result, but we also see a gradual decline in the bank’s NPL ratio. In the SME segment, where the bank has carried over a larger share of legacy NPLs since the merger, we assume further declines in the NPL stock. Should the COVID-19 crisis be longer than expected initially, our COR, NPL and other asset quality assumptions could be subject to downside risk.

 COVID-19. At this stage, it is difficult to estimate and quantify the effect of the current crisis on the country’s economy, politics and business. While we have pencilled a number of negative effects into our model, the uncertainty remains high.

 Political risks. While we believe that any risks of an industry-wide “greed” tax are quite low at the moment, the political risk in Romania remains elevated.

 Demographics. Romania’s population peaked in the early-1990s and has been declining at a high pace since then. Should such a trend continue, or increase, the risks for the economy are vast.

 Trading turnover too low. The 3M ADTV of Patria Bank’s shares is less than USD 10,000, which increases the overall risk of the investment.

Patria Bank 15 WOOD & Company

Briefly on Patria Bank: financing “Second Romania” About the bank and its history Patria Bank of Romania was established in 1993 as Romexterra Bank, which later changed to Nextebank. In April 2014, Emerging Europa Accession Fund (EEAF), a private equity fund, took over the majority stake in the bank, which also brought the change of the bank’s name and brand to Patria Bank. In the first half of 2016, the bank acquired a majority stake of more than 60% in Banca Comerciala Carpatica and the two banks merged in May 2017. Prior to the merger, Banca Comerciala Carpatica’s shares were listed on the Bucharest Stock Exchange, and the merged entity has continued to be traded in the Premium Category on the exchange.

Currently, the bank’s majority shareholder is EEAF, whose main investors are EBRD, EIF and other European institutions.

Patria Bank: ownership structure and PBK share price performance

0.12

0.11 Others 0.10 17% 0.09

0.08

0.07

0.06 EEAF

83%

Jul-19

Oct-19 Apr-20

Jun-19 Jan-20

Mar-20

Feb-20

Aug-19 Sep-19 Nov-19 Dec-19

May-19 May-20

PBK RO Equity BET Index (rebased)

Source: WOOD Research, Patria Bank, Bloomberg

Currently, the Patria Group includes Patria Bank, Patria Credit IFN, a company with expertise in microfinance, European funds and financial products designed for the agriculture sector, and SAI Carpatica Asset Management.

Operations The bank operates in four segments – Agri and Micro-business loans, where it has managed to build a significant portfolio, benefiting mostly from its subsidiary Patria Credit; and SMEs and Retail, to which the bank’s focus has now shifted and from which the bank generates most of its growth. Romania, as a country, can be split into two different parts, according to the bank: the urbanised part, where the financial system generates more than 50% of the country’s loan supply; and the so-called “Second Romania”, where the financial system and services remain quite underdeveloped, and where Patria Bank operates.

Patria Bank: loan book structure

2,250 2019 net loan book structure Consumer State & 2,000 municipal loans org. 9% 1,750 3% 1,500 Mortgage loans 1,250 12% 1,000 750 500 SME loans 250 65% Loans to 0 entrepreneurs 2017 2018 2019 2020E 2021E 2022E 11% SME loans Loans to entrepreneurs Mortgage loans Consumer loans State & municipal org.

Source: WOOD Research, Patria Bank

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Within the retail division, the bank offers consumer loans and other banking services, while the micro- business segment aims to serve micro and small enterprises, regardless of the legal structure of the entity seeking loans, with a turnover limit of up to EUR 1m. The SME division looks after Romanian entities with turnovers of over EUR 1m, regardless of the firm’s industry or line of business. Finally, the agricultural segment meets the needs of clients operating in the agriculture industry. The bank’s AGRI Client Banking advisors work directly with farmers and other entrepreneurs in the agricultural sector.

Patria Bank – Board of Directors Dragoș Horia Manda, Chairman of the Board of Directors. Mr. Manda has served as a Chairman of the Board of Directors for a number of private equity firms and has over 17 years of experience in the industry. He has a PhD in Mathematics from Paris VII University, a joint MBA from McGill University and the Academy of Economic Studies Bucharest, and a MSc in Physics from the University of Bucharest.

Daniela Elena Iliescu, CEO, Executive Member of the Board of Directors. Ms. Iliescu has extensive experience with major institutions, such as the EEAF and Balkan Accession Fund. She also worked for PwC Romania, coordinating audit and financial advisory services for major clients. Ms. Iliescu is a member of the ACCA, the Chamber of Romanian Auditors and the Romanian Accountants Organization. She graduated from the Academy of Economic Studies in Bucharest and has an MBA from the University of Vienna.

Bogdan Merfea, Member of the Board of Directors. Previously, Mr. Merfea served as CEO of Patria Bank and has management experience of more than 10 years. Prior to Patria, Mr. Merfea was CEO at Patria Credit IFN and Raiffeisen Bank Kosovo. He has a PhD in Mechanical Engineering and a Masters in Business Management.

Nicolae Surdu, Independent Member of the Board of Directors. Mr. Surdu has over 20 years of experience in the banking sector. His expertise is general banking management and reorganisation, restructuring and organisational recovery. Mr. Surdu graduated from the Faculty of Commerce of the ASE Bucharest and he has an MBA from Indiana Wesleyan University, US.

Vasile Iuga, Member of the Board of Directors. Mr. Iuga has extensive experience, serving as a Country Managing Partner for Romania between 2004 and 2015, and a Partner for Southeast Europe between 2008 and 2015. He has also served as CEO at PwC for CEE. He is a financial consultant with complex experience of over 26 years. Mr. Iuga graduated from the Faculty of Aeronautics of the Polytechnic Institute of Bucharest, Harvard Business School, London Business School, INSEAD, and IMD, Lausanne.

Patria Bank 17 WOOD & Company

Financials

Income statement (RON ‘000s) 2017 2018 2019 2020E 2021E 2022E Interest income 152,009 156,051 173,477 160,686 169,890 181,034 Interest expense -34,588 -39,658 -43,616 -44,254 -44,724 -47,532 Net interest income 117,421 116,393 129,861 116,432 125,166 133,502 Fee and commission income 28,184 28,814 31,716 28,444 29,853 31,619 Fee and commission expense -5,951 -5,667 -5,400 -5,552 -5,570 -5,592 Net fee and commission income 22,233 23,147 26,316 22,892 24,284 26,027 Net trading income 9,096 7,900 1,786 5,637 6,858 7,375 Net gain from disposal of securities at FV through OCI 471 -2,346 4,275 1,761 1,886 2,028 Net gain from investments -1,205 8,226 -3,160 -3,160 -3,160 -3,160 Net gains on derecognition of FAs at amortised cost 0 152 -1,539 -1,539 -1,539 -1,539 Net gains from repossessed assets 3,923 -1,065 1,103 1,103 1,103 1,103 Other operating income 8,995 13,700 17,064 14,064 13,064 13,064 Net operating income 160,934 166,107 175,706 157,190 167,662 178,400 Personnel expenses -85,124 -77,737 -68,408 -67,499 -67,329 -69,028 Depreciation and amortisations expense -16,042 -19,145 -22,691 -20,115 -20,517 -20,927 Other operating and administrative expenses -82,565 -72,995 -58,495 -46,715 -45,065 -44,932 Total operating expenses -183,731 -169,877 -149,594 -134,329 -132,912 -134,888 Profit before provisions and impairments -22,797 -3,770 26,112 22,862 34,750 43,512 Impairment of financial assets -19,950 580 -16,404 -28,105 -25,718 -23,968 Gross result -42,747 -3,190 9,708 -5,243 9,032 19,545 (Expenses)/income with current profit tax -853 -788 -6,292 0 -1,445 -3,127 (Expenses)/income with deferred tax 0 0 0 0 0 0 Net result for the period -43,600 -3,978 3,416 -5,243 7,587 16,417 Source: WOOD Research, Patria Bank

Balance sheet (RON ‘000s) 2017 2018 2019 2020E 2021E 2022E Cash and cash equivalents 642,914 517,436 437,958 490,195 412,174 429,596 Financial assets 1,251,030 719,825 503,631 515,448 520,104 425,452 Due from banks 8,408 5,613 5,683 5,681 6,104 6,568 Loans and advances to customers 1,370,125 1,593,914 1,653,586 1,652,874 1,776,222 1,911,145 Investments in debt instruments at amortised cost 0 368,115 340,759 363,632 390,769 420,452 Investment property 76,541 79,942 130,302 130,246 139,966 150,598 Other assets 162,471 49,413 28,009 28,009 28,009 28,009 Deferred income tax assets 22,716 22,995 16,913 16,913 16,913 16,913 Intangible assets 45,280 42,799 45,763 45,763 45,763 45,763 Property, plant and equipment 168,105 143,698 108,589 110,760 112,975 115,234 Total assets 3,747,590 3,543,750 3,271,193 3,359,521 3,448,999 3,549,730

Deposits from banks 95,967 6,951 18,627 19,425 19,949 20,489 Deposits from customers 3,231,281 3,057,030 2,728,114 2,844,948 2,921,758 3,000,799 Borrowed funds 39,893 37,403 46,772 48,775 50,092 51,447 Other liabilities 126,408 113,128 123,727 127,662 130,903 134,280 Subordinated debt 29,589 23,373 34,348 34,348 34,348 34,348 Total liabilities 3,523,138 3,237,885 2,951,588 3,075,159 3,157,050 3,241,363 Share capital 231,418 315,829 315,829 315,829 315,829 315,829 Share premium -67,569 -67,569 -67,569 -67,569 -67,569 -67,569 Retained earnings (Accumulated deficit) -33,069 -34,565 -24,184 -59,427 -51,840 -35,423 Other equity 93,673 92,170 95,530 95,530 95,530 95,530 Total shareholders’ equity 224,453 305,865 319,606 284,363 291,950 308,367 Total liabilities and shareholders’ equity 3,747,591 3,543,750 3,271,194 3,359,521 3,448,999 3,549,730 Source: WOOD Research, Patria Bank

Patria Bank 18 WOOD & Company

Du Pont analysis (%) 2018 2019 2020E 2021E 2022E Net interest income 3.2% 3.8% 3.5% 3.7% 3.8% Net fee and commission income 0.6% 0.8% 0.7% 0.7% 0.7% Other operating income 0.7% 0.6% 0.5% 0.5% 0.5% Net operating income 4.6% 5.2% 4.7% 4.9% 5.1% Personnel expenses -2.1% -2.0% -2.0% -2.0% -2.0% Depreciation and amortisations expense -0.5% -0.7% -0.6% -0.6% -0.6% Other operating and administrative expenses -2.0% -1.7% -1.4% -1.3% -1.3% Total operating expenses -4.7% -4.4% -4.1% -3.9% -3.9% Profit before provisions and impairments -0.1% 0.8% 0.7% 1.0% 1.2% Impairment of financial assets 0.0% -0.5% -0.8% -0.8% -0.7% Gross result -0.1% 0.3% -0.2% 0.3% 0.6% (Expenses)/income with current profit tax 0.0% -0.2% 0.0% 0.0% -0.1% (Expenses)/income with deferred tax 0.0% 0.0% 0.0% 0.0% 0.0% Net result for the period (ROA) -0.1% 0.1% -0.2% 0.2% 0.5% Source: WOOD Research, Patria Bank

KPIs and multiples Growth rates (%) 2017 2018 2019 2020E 2021E 2022E Loans and advances to customers 16.3% 3.7% 0.0% 7.5% 7.6% Deposits -5.4% -10.8% 4.3% 2.7% 2.7% Equity 36.3% 4.5% -11.0% 2.7% 5.6% Assets -5.4% -7.7% 2.7% 2.7% 2.9% Net income -90.9% n.m. n.m. n.m. 116.4% Net interest income -0.9% 11.6% -10.3% 7.5% 6.7% Balance sheet ratios (%) Net loans to deposits 42.4% 52.1% 60.6% 58.1% 60.8% 63.7% Deposits to assets 86.2% 86.3% 83.4% 84.7% 84.7% 84.5% Net loans to assets 36.6% 45.0% 50.5% 49.2% 51.5% 53.8% Equity to assets 6.0% 8.6% 9.8% 8.5% 8.5% 8.7% Capital adequacy ratio 11.0% 15.7% 17.4% 14.6% 14.2% 14.1% Tier 1 capital ratio 9.8% 14.4% 14.9% 12.9% 12.5% 12.5% Loan quality (%) NPLs to gross loans 24.5% 19.7% 12.1% 14.5% 13.5% 10.3% Provisions to gross loans 11.2% 11.0% 6.7% 7.4% 7.5% 7.6% NPL coverage 45.7% 55.9% 55.3% 51.1% 56.0% 73.5% Profitability (%) Net interest margin on IEA 4.4% 5.1% 4.8% 4.9% 5.1% NII to average assets 3.2% 3.8% 3.5% 3.7% 3.8% NII to average assets adj. for provisions [WOOD calculation] 3.2% 3.3% 2.7% 2.9% 3.1% Costs to average assets -4.7% -4.4% -4.1% -3.9% -3.9% Cost to income 114.2% 102.3% 85.1% 85.5% 79.3% 75.6% Cost of Risk -1.5% 0.0% -1.0% -1.7% -1.5% -1.3% Pre-tax income to average assets -0.1% 0.3% -0.2% 0.3% 0.6% Effective tax rate 2.0% 24.7% -64.8% 16.0% 16.0% 16.0% ROA n.m. 0.1% n.m. 0.2% 0.5% ROE n.m. 1.1% n.m. 2.6% 5.5% ROTE n.m. 1.3% n.m. 3.1% 6.5% Per share data (x*) Number of shares outstanding (m) 2,271 3,115 3,115 3,115 3,115 3,115 Average price per share 0.13 0.12 0.09 0.08 0.08 0.08 EPS (RON) -0.019 -0.001 0.001 -0.002 0.002 0.005 BVPS (RON) 0.099 0.098 0.103 0.091 0.094 0.099 Tangible BVPS (RON) 79 84 88 77 79 84 P/E n.m. n.m. 83.9x n.m. 33.7x 15.6x P/BV 1.3x 1.2x 0.9x 0.9x 0.9x 0.8x P/Tangible BV 1.6x 1.4x 1.0x 1.1x 1.0x 1.0x DPS (RON) 0.0 0.0 0.0 0.0 0.0 0.0 Dividend yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Source: WOOD Research, Patria Bank; *if not specified otherwise

Patria Bank 19 WOOD & Company

Important disclosures

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This investment research was completed on 19/05/2020 at 11:30 CET and disseminated on 20/05/2020 at 07:40 CET.

WOOD&Co’s rating and price target history for Patria Bank in the preceding 12-month period: Date Rating Date PT 20/05/2020 HOLD – initiation of coverage 20/05/2020 RON 0.085

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WOOD Research Disclosures (as of 20 May 2020) Company Disclosures Alior Bank 5 AmRest 5 ANY Security Printing Company PLC 5 Banca Transilvania 5 4 BRD 5 Bucharest Stock Exchange 5 Santander Bank Polska 5 CCC 5 CD Projekt 5 CEZ 5 CME 5 Dino 5 DO&CO 5 5 Erste Group Bank 5 Eurobank 4 Eurocash 4, 5 Fortuna 5 4, 5 Graphisoft Park 5 ING BSK 5 Kazatomprom 5 Kernel 5 Kety 5 KGHM 5 Kofola CS 5 Komercni 4, 5 Kruk 5 Lotos 5 MedLife 4 MONETA Money Bank 5 NLB Group 1, 2, 3 O2 Czech Republic 1, 2, 4, 5 OMV 5 Orange PL 5

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Pekao 4, 5 PGE 5 PGNiG 5 Philip Morris CR 5 PKN Orlen 5 PKO BP 4, 5 Purcari Wineries 1,2, 3, 4 PZU 4, 5 5 Santander Bank Polska 5 Siauliu Bankas 1, 4 Tauron 5 5 5 Warsaw Stock Exchange 5

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Patria Bank 21 WOOD & Company

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