UUBBII FFIINNAANNCCEE CCBB 22 SS..RR..LL..
COMPANY UNDER THE MANAGEMENT AND COORDINATION OF UBI BANCA S.P.A. Foro Buonaparte 70 – 20121 Milan Quota capital € 10,000.00 = fully paid up Listed on the Milan Business Register no. 07639080964 | REA 1973305 Tax ID no. 07639080964 Part of the UBI VAT Group, VAT no. 04334690163
FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS AATT 3311 DDEECCEEMMBBEERR 22001188
This is a translation of the Italian original "Bilancio d’esercizio al 31 dicembre 2018" and has been prepared solely for the convenience of international readers. In the event of any ambiguity the Italian text will prevail. The Italian original is available upon written request to UBI Finance CB 2 S.r.l., Foro Buonaparte 70 – 20121 Milan (Italy)
FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
CCONTENTS
ADMINISTRATIVE BODY ...... 3 REPORT ON OPERATIONS ...... 4 1 - GENERAL INFORMATION 4 1.1 - Management of the Company ...... 6 1.2 - Company organisation ...... 9 1.3 - Research and development ...... 9 1.4 – Treasury and parent company quotas ...... 9 1.5 - Management and coordination activities ...... 9 1.6 – Transactions with associated parties and infra-group transactions ...... 9 1.7 -. Going concern...... 9 2 - IMPORTANT EVENTS AFTER CLOSURE OF THE FINANCIAL YEAR 10 3 – BUSINESS OUTLOOK 10 4 - PROFIT FOR THE YEAR 10 5 - OTHER INFORMATION 10 BALANCE SHEET ...... 11 INCOME STATEMENT ...... 12 STATEMENT OF COMPREHENSIVE INCOME ...... 13 STATEMENT OF CHANGES IN EQUITY ...... 14 CASH FLOWS STATEMENT ...... 15 EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS ...... 17 1. INTRODUCTION 17 2. PART A – ACCOUNTING POLICIES 17 A.1 General part ...... 17 A.2 Part relative to the principal financial statement aggregates ...... 23 A.3 Information on the transfer of financial assets between portfolios...... 24 A.4 Information on fair value ...... 24 A.5 Information on “Day one profit/loss” ...... 25 3. PART B - COMMENTS ON THE BALANCE SHEET 26 4. PART C – COMMENTS ON THE INCOME STATEMENT 31 5. PART D – ADDITIONAL INFORMATION 34 Section 1 - Specific notes on the operations carried out ...... 34 H. Covered bonds ...... 34 Section 3 – Information on risks and related hedging policies ...... 59 Section 4 – Information on assets ...... 61 Section 5 – Comprehensive Income Statement ...... 61 Section 6 – Related party transactions ...... 62 Section 7 – Other information ...... 65 INDEPENDENT AUDITOR’S REPORT ...... 66
2 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
AADMINISTRATIVE BBODY
BOARD OF DIRECTORS
Chairman of the Board : RENZO PARISOTTO
DIRECTORS : MARCO TRABATTONI
ANDREA DI COLA
INDEPENDENT AUDITOR : DELOITTE & TOUCHE S.P.A.
3 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
RREPORT ON OPERATIONS
1 - GENERAL INFORMATION UBI FINANCE CB 2 S.R.L. (hereinafter the “Company”) is a vehicle securitisation company under Italian law incorporated on 20 December 2011. Pursuant to art. 2 of the Articles of Association, the Company’s sole purpose, within the scope of one or more transactions (meaning both single transactions and issue programmes) for the issue of covered bonds pursuant to art. 7-bis of Law 130 of 30 April 1999 (“Law 130/99”) and any subsequent modifications and additions and related implementation provisions, is to purchase from banks, in exchange for payment, residential and commercial mortgages, loans due from the Public Administration or guaranteed by them, also identifiable as a block, as well as securities issued within the scope of securitisation transactions concerning loans of the same nature, in accordance with the said legislation, by taking on loans granted or guaranteed also by the selling bank, as well as the issue of guarantees for the bonds issued by those or other banks. Italian Law 130/99 was amended in 2005 to allow the issue of covered bonds. At the date of this annual report, however, no regulatory interpretation related to the application of such Law has been issued by the Regulatory or Government body, except: (i) Decree no. 310 of the Italian Ministry of Economy and Finance of 14 December 2006 (the “MEF Decree”), that defined the technical requirements of the guarantee that can be given for covered bonds, (ii) Decree no. 29 of the Italian Ministry of Economy and Finance of 17 February 2009 that redefined the conditions under which financial intermediaries have be to registered in the Special List, with effect from the date of publication in the Gazzetta Ufficiale [Official Journal] of 20 October 2009; (iii) the Ruling of the Bank of Italy dated 16 April 2010, related to the supervisory provisions on covered bonds; (iv) Italian Legislative Decree no. 141 dated 13 August 2010 and its subsequent amendments and additions, which has entirely amended the regulation relating to financial intermediaries and other financial industry players, effective from 19 September 2010; and (v) the “New Supervisory Provisions” issued by the Bank of Italy on 24 June 2014 to bring national regulations on covered bonds into line with the new elements introduced by the European Regulation no. 575/2013 on covered bank bonds (the “CRR”). Therefore, such authorities or other authorities might issue other regulations on Law 130/99 and its application, whose impact cannot be foreseen by the Company at the date of this report. In accordance with the aforesaid legal provisions, the credits purchased by the Company and the amounts paid by the relevant debtors will go to satisfy the rights, also in accordance with Art. 1180 of the Italian Civil Code, of the covered bond holders, as per subsection 1 of Art. 7-bis of Italian Law no. 130/99, to whose benefit the Company has provided guarantee, of the counterparties of derivative contracts with the aim of hedging risks on credits and securities purchased and of other accessory contracts, as well as to the payment of other transaction costs, as a priority against the repayment of loans as per subsection 1 of Art. 7-bis of Italian Law no. 130/99. The loans purchased by the Company relating to an issue programme are accounted for separately for all intents and purposes from those of the Company and from those relating to other issue programmes, on which no actions by creditors other than covered bond holders and
4 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L. other creditors, as per the previous subsection, are permitted. Unlike traditional securitisation transactions these programmes have a dynamic structure which consists of providing for subsequent scenarios of buying and selling assets to maintain a high quality guarantee and comply with the maximum ratio to the covered bonds issued. The accounting treatment of the programme for the issue of covered bonds carried out by the Company complies with the provisions of Bank of Italy’s Instructions of 22 December 2017 on the matter of financial statements of IFRS intermediaries other than bank intermediaries. This in turn is in line with the contents of the preceding Ruling of 29 March 2000 and with the provisions of Italian Law 130/99, under which “loans relating to each transaction are segregated assets, to all effects, from those of the company and those of other transactions”. At the date of this Report, no specific alternative instructions had been received from the Entities or authorities with competence regarding the accounting treatment of securitisation transactions put in place in terms of the aforementioned Italian Law 130/1999. Consequently these continue to be represented as they were in the 2017 Financial Statements in the relative section of the Explanatory Notes to the financial statements, entitled “Part D – Other Information”, and are not included in the Financial Statement schedules. In order to achieve the business purpose, the Company was initially registered in the appropriate section of the General List, as per Art. 106 of Italian Legislative Decree no. 385 of 1 September 1993 (“TUB” - Consolidated Law on Banking) as no. 42013 and with ABI Intermediary code no. 337048. The reform of Title V TUB, started with Italian Legislative Decree no.141 of 13 August 2010 and completed with the issue of the MEF Decree no.53/2015 and with the publication on 12 May 2015 of the Bank of Italy’s new Supervisory Provisions for Financial Intermediaries (Circular no.288 of 3 April 2015) coming into force on 11 July 2015, in particular, (i) redefined a new operating perimeter for financial intermediaries, which does not include vehicle companies for the guarantee of Covered Bonds if belonging to a banking group as defined by Art.60 TUB, and (ii) established a single Register of financial intermediaries, thereby overcoming the pre-existing division between intermediaries registered in the Special list pursuant to Art.107 and those registered in the General list pursuant to Art.106. This said, following the loss of the requisites for remaining in the new “Single Register pursuant to Art. 106”, on 27 July 2015, the Company requested cancellation as a Financial Intermediary from the General List pursuant to Art. 106 TUB and the Bank of Italy confirmed that such cancellation had taken place on 3 August 2015. The Company’s registered office is at 70 Foro Buonaparte Milan, Italy, and the duration is established until 31 December 2050. At incorporation, the quota capital of € 10,000, fully paid up, was 90% held by Stichting Viola, a Dutch Foundation with registered office in Amsterdam (the Netherlands), in Luna Arena, Herikerbergweg 238, and the remaining 10% by Unione di Banche Italiane S.p.A., a joint stock company incorporated under Italian law, with registered office in Bergamo (Italy), piazza Vittorio Veneto no. 8, Parent of the banking group of the same name. Subsequently, on 20 March 2012, with a deed of transfer of quotas pursuant to art. 2479 of the civil code, Stichting Viola transferred an investment of a nominal € 5,000, equal to 50% of the quota capital, to Unione di Banche Italiane S.p.A. Following this act, the registered capital of € 10,000 is now held for a quota of 60% by UNIONE DI BANCHE ITALIANE S.P.A. (Hereinafter “UBI Banca”) and the remaining 40% by the Dutch foundation STICHTING VIOLA.
5 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
1..1 - MANAGEMENT OF THE COMPANY
1.1.1 DESCRIPTION OF THE CB2 PROGRAMME During 2012, in keeping with its business purpose, the Company, with the assistance of Barclays Bank PLC as Arranger and of the law firms Clifford Chance and Chiomenti, put into place with UBI Banca (the “Issuer”) a series of negotiations aimed at implementing the issue programme (the “CB2 Programme”) by UBI Banca for the issue of covered bonds pursuant to Law 130/1999 . In particular, the CB2 Programme provides for the fractional issuance of bonds by UBI Banca for an amount up to EUR 5,000,000,000, and in this context, the Company is committed to ensuring these issuances. As a matter of fact, the “Covered Bond Guarantee” agreement, underwritten on 2 April 2012, states that the Company issues an irrevocable guarantee, on a first demand, unconditional and independent in favour of the covered bond holders in respect of portfolios of loans from time to time sold by the Seller Banks, under which the Company will guarantee the repayment of all sums due in respect of capital and interest in relation to the covered bonds by the Issuer (the “Guarantee”). The Company is therefore committed, from time to time, to increase, where necessary, the Guarantee granted, based on the amount of single issue.
1.1.2 PERFORMANCE OF THE CB2 PROGRAMME In compliance with this CB2 Programme structure, the Company has acted as follows: (i) from March and April 2012, the following UBI Group banks adhered to the Program: 1. Banco di Brescia S.p.A. (“BBS”), now UBI Banca by virtue of the merger by acquisition with a deed dated 20 February 2017; 2. Banca Regionale Europea S.p.A. (“BRE”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 15 November 2016; 3. Banca Popolare di Bergamo S.p.A. (“BPB”), now UBI Banca by virtue of the merger by acquisition with a deed dated 20 February 2017; 4. Banca Popolare di Ancona S.p.A. (“BPA”), now UBI Banca by virtue of the merger by acquisition with a deed dated 20 February 2017; 5. Banco di San Giorgio S.p.A. (“BSG”), initially merged in BRE, now UBI Banca by virtue of the merger by deed dated 15 November 2016; 6. Banca Popolare Commercio e Industria S.p.A. (“BKI”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 15 November 2016; 7. Banca Carime S.p.A. (“BRM”), now UBI Banca by virtue of the merger by acquisition with a deed dated 20 February 2017; and 8. Banca di Valle Camonica S.p.A. (“BVC”), now UBI Banca by virtue of the merger by acquisition with a deed dated 20 February 2017. To this end, they sold portfolios of suitable assets to the Company at a purchase price of the previous portfolios equal to the book value stated on the latest financial statements approved by the Originating Bank, net of the principal amount collected in the period between the latest financial statements approved and the date of sale of the portfolio, and including the accrued interest at the date of the sale thereof; (ii) at the eighth transfer on 30 November 2015 the following banks of the UBI Group also joined the CB2 Program: 9. IW Bank S.p.A. (“IWB”), which on 25 May 2015 incorporated UBI Banca Private Investment S.p.A., and
6 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
10. the Parent company of UBI Banca (jointly defined as the “Seller Banks”);
(iii) simultaneously to each transfer, the Seller Banks granted a loan to the Company of the same amount, so that the Company could have the financing in order to purchase such portfolios, loan subordinated to the reimbursement of the covered bonds issued by UBI Banca; (iv) each transfer was publicised by a dedicated publication in the Gazzetta Ufficiale. The table below summarises the salient features of the covered bank bonds issued by UBI Banca from the start of the CB2 Programme up until the previous year to the one referenced in these financial statements:
EMISSION GUARANTEE Series date Maturity Initial issue maximum 1 28 May 2012 28 May 2018 € 1,800,000,000 € 2,100,000,000 2 29 October 2012 29 October 2022 € 500,000,000 € 2,620,000,000 3 05 March 2014 05 March 2019 € 200,000,000 € 2,580,000,000 4 14 July 2015 14 July 2021 € 650,000,000 € 2,610,000,000 5 24 June 2016 24 June 2022 € 300,000,000 € 2,440,000,000 6 21 December 2017 21 December 2023 € 300,000,000 € 2,180,000,000
1.1.3 ADHESION TO THE UBI VAT GROUP On 9 October 2018, the UBI Banca Board of Directors resolved to adhere the parent company to the VAT Group Regime, effective as of 1 January 2019, as envisaged under Articles 70 bis through 70 duodecies of Italian Presidential Decree 633/1972, and formulated the instruction, in the context of the management and coordination activities applying to UBI Banca, that each company in the UBI Group involved in the project also adhere to the same. Very briefly, the essential points relative to the above Decree are: - the option to adhere to the VAT Group Regime lasts for three years and cannot be revoked prior to natural expiry; - if opting for the VAT Group Regime, a new and independent entity with regards to the Value Added Tax is created, known as “VAT Group”; - if opting for the VAT Group Regime, this necessarily and automatically applies to all companies meeting the requirements established in the Decree, as any discretionary powers relative to the composition of those participating in the VAT Group are precluded (known as the “all in, all out principle”); - the VAT Group becomes the sole holder of all rights, obligations and responsibilities envisaged in Italian Presidential Decree 633/1972 and associated regulations: at the same time that all entities participating in the VAT Group maintain their own legal autonomy/separation, solely for VAT purposes they “merge” into a single entity, known as the VAT Group, which is identified by a new VAT number; - as an effect of the VAT Group Regime, infragroup transactions are irrelevant for VAT purposes (both sales of goods and provisions of services) which occur between participants in the VAT Group, given that these are operations internal to the newly established
7 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
taxpaying entity (the exception to this principal is transactions which occur between different segments of the VAT Group, known as “separate activities”); - transactions carried out relative to third parties by any participant of the group are considered to be carried out by the VAT Group for the purposes of VAT, and not by individual participants; - transactions carried out by third parties relative to any participant of the group are considered to be carried out relative to the VAT Group for the purposes of VAT and relative to the individual participants; - foreign permanent establishments (i.e. branches) are excluded from the VAT Group Regime pursuant to the law. This means services between the Italian parent company and a foreign branch, and vice versa, follow the ordinary rules relative to VAT (including those which determine the territorial location of the tax); - all rights and obligations deriving from the application of rules regarding VAT apply directly and only to the VAT Group and their fulfilment and execution is assigned solely to the representative of the group, which takes on all associated responsibilities; - the other participants are jointly responsible for greater taxes, interest and fines due following tax inspection, liquidation and auditing activities. Given the stated “all in, all out principle”, companies in the UBI Banca Group involved in the VAT Group Regime total 17, including the Company, which adhered on 14 November 2018. Relative to the stated joint responsibility, the parent company, as the representative of the UBI VAT Group, has relieved the Company of any charges, indemnity requirements and liabilities deriving from adhesion to the VAT Group Regime, in order to guarantee the Company that participation in the UBI VAT Group will not prejudice its position relative to the financial administration, as well as to protect the integrity of its separate equity, destined solely for subscribers of the securities it issues.
1.1.4 OTHER SIGNIFICANT EVENTS DURING THE YEAR The following significant events occurring during 2018 are noted: SALE NO.11: on 31 May, the Company acquired a loan portfolio without recourse for € 268,921,248 from UBI Banca. REPURCHASES: During the year, UBI Banca repurchased certain assets from the Company, following the loss of the requirements established under the applicable regulations. The repurchases carried out were the following: 1) on 28 March, 1520 positions for € 94,070,274; and 2) on 23 May, 401 positions for € 53,592,711. MINOR CONTRACT AMENDMENTS: a) on 21 May, certain contracts for the CB2 Programme were amended, in order to: (i) replace the “English Account Bank” BNP Paribas Securities Services, London Branch with UBI Banca, consequently transferring the current accounts; and (ii) make certain amendments relative to MiFID II; b) on 3 August, certain contracts for the CB2 programme were amended in order to clarify the specific operations and relations with the Issuer for certain persons and entities located in blacklist countries (which are, as of 30 July 2018, Russia, Belarus, Burma, Ivory Coast, Cuba, Iraq, Libya, Liberia, Lebanon, South Sudan, Sudan, Ukraine, Yemen and Zimbabwe). THE SEVENTH SERIES: on 10 December, UBI Banca issued the seventh series of covered bonds maturing on 10 December 2024 for an amount equal to € 200 million, the (“Seventh
8 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
Series”). At the same time, the Company released the Guarantee for a total maximum granted amount equal to € 1,880,000,000.
A more detailed qualitative and quantitative description of the operation carried out is provided in “Part D – Other Information” of the Explanatory Notes to the financial statements.
1..2 - COMPANY ORGANISATION The Company has no employees, secondary offices, branch offices or local units. In view of the particular nature of the operation that the Company intends to carry out, it has outsourced all the typical functions of an organisational structure and the internal control systems to specially appointed third parties. In particular, within the scope of the CB2 Programme, the servicing activity is carried out by UBI Banca, as master servicer, charged with the collection of the loans subject to securitisation and the collection and payment services pursuant to Law 130/1999 and, as such, it will take on the commitments pursuant to Art. 2, par. 6 of Law 130/1999 (hereinafter “Master Servicer”). The Master Servicer then delegated the collection and management of loans to the Sellers. The Company has also directly charged the Sellers, each in the quality of sub-servicer for the Credit portfolio sold by the same, to perform certain monitoring and reporting activities.
1..3 - RESEARCH AND DEVELOPMENT The Company has incurred no expenditure for research and development.
1..4 – TREASURY AND PARENT COMPANY QUOTAS Pursuant to Art. 2428 of the Italian Civil Code, we inform you that during the period none of the Company’s own shares or shares of the holding company were bought, sold or held in the portfolio, either directly or through trustees or nominees.
1..5 - MANAGEMENT AND COORDINATION ACTIVITIES Pursuant to Art. 2497 of the Italian Civil Code, we note that the Company is under the management and coordination of UBI Banca, which holds 60% of the Company’s quota capital.
1..6 – TRANSACTIONS WITH ASSOCIATED PARTIES AND INFRA-GROUP TRANSACTIONS Concerning relationships with UBI Group companies and subsidiaries, please refer to Section 6 of part D of the Explanatory Notes.
1..7 -.. GOING CONCERN.. In preparing the financial statements, we assessed whether the basis existed to consider that the Company was able to operate as a going concern for at least twelve months following the financial statements reference date. To make this assessment, the following were taken into consideration: all available information and the specific activities performed by the Company whose sole corporate goal, in compliance with Italian Law 130/99, is the execution of one or more covered bond transactions. Consequently, these financial statements have been prepared with a view to the company as a going concern, as there are no events or situations that may give rise to any doubt as to its capacity to continue to operate in this fashion.
9 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
2 - IMPORTANT EVENTS AFTER CLOSURE OF THE FINANCIAL YEAR For significant events occurring after 31 December 2018, please see section 3 of part A1 of the Explanatory Notes.
3 – BUSINESS OUTLOOK Company management will aim at continuing the CB2 Programme by UBI Banca for the covered bank bonds previously referred to.
4 - PROFIT FOR THE YEAR The period closes with a break-even result, since management costs were debited to the separate capital as contractually agreed.
5 - OTHER INFORMATION There is nothing to report.
* * * * * PROPOSAL FOR THE ALLOCATION OF PROFIT (LOSS) FOR THE YEAR
Dear Quotaholders, We believe we have fully illustrated the Company’s financial statements as at and for the year ended 31 December 2018, its first year of activity, comprising the obligatory schedules required by IAS 1 that is the Balance Sheet, Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity, Cash Flow Statement, Explanatory Notes and this Directors’ Report on operations. We therefore ask you to approve the financial statement at 31 December 2018, which closes at break-even point. Milan, 20 February 2019
UBI FINANCE CB 2 S.R.L. For the Board of Directors The Chairman Renzo Parisotto
10 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
BBALANCE SSHEET
ASSETS
(amounts in euro) Asset Items 2018 2017
40. Financial assets measured at amortised cost 10,040 10,040 a) due from banks 10,040 10,040 b) due form financial companies - - c) due from customers - -
100. Tax assets 2,201 387 a) current 2,201 387 b) deferred - -
120. Other assets 311,063 255,344
TOTAL ASSETS 323,304 265,771
LIABILITIES
(amounts in euro) Liabilities and shareholders’ equity 2018 2017
60. Tax liabilities 782 1,595 a) current 782 1,595 b) deferred - -
80. Other liabilities 312,504 254,158
110. Quota Capital 10,000 10,000
150. Reserves 18 18
170. Profit (Loss) for the year - -
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 323,304 265,771
11 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
IINCOME SSTATEMENT
(amounts in euro)
01/01/2018 - 01/01/2017 - Items 31/12/2018 31/12/2017
160. Administrative costs: (54,611) (49,146) a) staff costs (16,801) (16,584) b) other administrative costs (37,810) (32,562)
200. Other operating income and expenses 55,314 50,741
210. OPERATING COSTS 703 1,595
PROFIT/(LOSS) BEFORE TAX FROM CONTINUING 260. 703 1,595 OPERATIONS 270. Income taxes for the year from continuing operations (703) (1,595)
PROFIT/(LOSS) AFTER TAX FROM CONTINUING 280. - - OPERATIONS
300. PROFIT (LOSS) FOR THE YEAR - -
12 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
SSTATEMENT OF CCOMPREHENSIVE IINCOME
(amounts in euro)
Items 31/12/2018 31/12/2017
10. Profit/(Loss) for the year - - Other income, net of taxes without transfer to income statement - - 20. Equity securities measured at fair value through other comprehensive income - - 30. Financial liabilities measured at fair value through profit and loss (changes in own credit standing) - - 40. Hedging of equity securities measured at fair value through other comprehensive income - - 50. Property, plant and equipment - - 60. Intangible assets - - 70. Defined benefit plans - - 80. Non-current assets and asset groups held for sale - - 90. Portion of reserves relating to equity-accounted investments - - Other income, net of taxes with transfer to income statement - - 100. Hedges of investments in foreign operations - - 110. Exchange rate differences - - 120. Cash flow hedges - - 130. Hedging instruments (macro) - - 140. Financial assets (other than equity securities) measured at fair value through other comprehensive income - - 150. Non-current assets and asset groups held for sale - - 160. Portion of reserves relating to equity-accounted investments - - 170. Total other comprehensive income after tax - - 180. Comprehensive income (Items 10+170) - -
13 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
SSTATEMENT OF CCHANGES IN EEQUITY
CHANGES AT 31 DECEMBER 2018
(amounts in euro) Allocation of result Changes in the year previous year Transactions on shareholders’ equity
Reserves
dividends
Balance at 01.01.2018 at Balance
Other changes Other
Changes inreserves Changes
Issue of new quotas newof Issue
Changes toChanges opening balances
Opening Balance at 12/31/2017 at OpeningBalance
Comprehensive income FY 2018 FY income Comprehensive
Distribution extraordinary Distributionextraordinary
Treasury quotas purchased quotas Treasury
Shareholders’ equity at 31/12/2018 at equity Shareholders’
Changes in equity instruments inequity Changes
Dividendsandallocations other
Quota Capital 10,000 - 10,000 - 10,000 Quota premium on issue - - - - - Reserves: a) profits 18 18 - 18 b) others - - - - - Valuation reserves - - - - - Equity instruments - - - - - Treasury quotas - - - - - Profit/(Loss) for the year ------Shareholders' equity 10,018 - 10,018 ------10,018
CHANGES AT 31 DECEMBER 2017
(amounts in euro) Allocation of result Changes in the year previous year Transactions on shareholders’ equity
Reserves
dividends
Balance at 01.01.2017 at Balance
Other changes Other
Changes inreserves Changes
Issue of new quotas newof Issue
Changes toChanges opening balances
Opening Balance at 12/31/2016 at OpeningBalance
Comprehensive income FY 2017 FY income Comprehensive
Distribution extraordinary Distributionextraordinary
Treasury quotas purchased quotas Treasury
Shareholders’ equity at 31/12/2017 at equity Shareholders’
Changes in equity instruments inequity Changes
Dividendsandallocations other
Quota Capital 10,000 - 10,000 - 10,000 Quota premium on issue - - - - - Reserves: a) profits 18 18 - 18 b) others - - - - - Valuation reserves - - - - - Equity instruments - - - - - Treasury quotas - - - - - Profit/(Loss) for the year ------Shareholders' equity 10,018 - 10,018 ------10,018
14 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
CCASH FFLOWS SSTATEMENT
DIRECT METHOD
(amounts in euro) Amount Amount A. OPERATING ASSETS 2018 2017 1. Operation - - - interest income collected (+) - - - interest expense paid (-) - - - dividends and similar revenues (+) - - - net fees and commissions (+/-) - - - staff costs (-) - - - other costs (-) - - - other revenues (+) - - - taxes and duties (-) - - - income/expenses of groups of assets held for disposal, net of the tax effect (+/-) - - 2. Cash generated/absorbed by the financial assets - - - financial assets held for trading - - - financial assets measured at fair value - - - other assets obligatorily measured at fair value - - - financial assets measured at fair value through other comprehensive income - - - financial assets measured at amortised cost - - - other assets - - 3. Cash generated/absorbed by the financial liabilities - - - financial liabilities measured at amortised cost - - - financial liabilities held for trading - - - financial liabilities measured at fair value - - - other liabilities - - Net cash generated/absorbed by operating activities A - -
- INVESTMENT ACTIVITIES
1. Cash generated by - sales of equity investments - - - dividends collected on equity investments - - - sales of property, plant and equipment - - - sales of intangible assets - - - sales of business units - - 2. Cash absorbed by - - - purchases of equity investments - - - purchases of property, plant and equipment - - - purchases of intangible assets - - - purchases of business units - - Net cash generated/used by investments B - -
B. FUNDING ACTIVITIES
- issues/purchases of own shares - - - issues/purchases of equity instruments - distribution of dividends and other purposes - - Net cash generated/absorbed by funding activities C - -
NET CASH GENERATED/ABSORBED IN THE PERIOD D=A+B+C - -
KEY (+) generated (-) absorbed
15 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
RECONCILIATION
Amount Amount 2018 2017 Cash and cash equivalents at beginning of year 10,040 10,040 Total net cash generated/used during the year - - Cash and cash equivalents at end of year 10,040 10,040
16 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
EEXPLANATORY NNOTES TO THE FFINANCIAL SSTATEMENTS
1. INTRODUCTION These NOTES TO THE FINANCIAL STATEMENTS are subdivided into the following sections: PART A – ACCOUNTING POLICIES PART B - INFORMATION ON THE BALANCE SHEET PART C - INFORMATION ON THE INCOME STATEMENT PART D – ADDITIONAL INFORMATION
2. PART A – ACCOUNTING POLICIES
A..1 GENERAL PART SECTION 1 - STATEMENT OF COMPLIANCE WITH IFRS STANDARDS The Company is part of the UBI Banca Group, which prepares a consolidated financial statement pursuant to the provisions contained in Art. 3 of Italian Legislative Decree 38/2005 and therefore pursuant to the possibility granted by Art. 4, subsection 4 of Italian Legislative Decree no. 38 of 28 February 2005 (“Italian Legislative Decree no. 38/2005”) and as in previous years has prepared the Financial Statement according to the accounting standards in force at 31 December 2018 issued by the International Accounting Standards Board (IASB) and the relative interpretations of the International Financial Reporting Interpretations Committee (IFRIC) approved by the European Commission and introduced into Italian legislation by Italian Legislative Decree 38/2005. The said standards have been issued by the International Accounting Standards Board (IASB) and allow for comparison between company financial statements in a context of greater competition and globalisation. The application of IAS/IFRS was defined at European level by the EU Regulation no. 1606 of 19 July 2002 for the consolidated financial statements of listed Companies, and it was finalised with the approval of the standards by the European Commission. At national level, the application of IAS/IFRS was extended by Legislative Decree no. 38/2005, in the exercise of the options provided by the European Regulation, to the individual financial statements of listed companies, banks and regulated financial institutions, as an option for 2005 and mandatory from 2006.
SECTION 2 – GENERAL ACCOUNTING STANDARDS These Financial statements have been drawn up in application of the international accounting standards issued by the IASB and relative interpretations issued by the IFRIC approved by the European Union and bearing in mind the provisions of the Bank of Italy Provision of 22
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December 2017 entirely replacing the Regulation of 14 February 2006 and subsequent amendments on the schedules and rules for compiling the financial statements of financial intermediaries other than bank intermediaries. The Company’s sole activity is the purchase of receivables by taking on loans under Italian Law no. 130 of 30 April 1999 as a part of transactions for the issue of Bank Covered Bonds. The financial assets purchased and other transactions carried out as part of the scope of the aforementioned transactions are reported in the explanatory notes in compliance with Italian Law no. 130 of 30 April 1999, whereby receivables relating to each transaction are accounted for separately for all intents and purposes from those of the company and from those relating to other transactions. For the sake of completeness, the accounting treatment according to International Financial Reporting Standards of financial assets and/or groups of financial assets and financial liabilities to guarantee transactions for the issue of covered bonds has not yet been officially interpreted by the bodies responsible for International Financial Reporting Standards interpretation. The Financial Statements have been drafted in order to present a true and correct picture of the equity situation, the financial position, the economic results and the financial flows of the year. These Financial Statements are based on the application of the following general principles: . GOING CONCERN (IAS 1 PAR. 25 AND 26) Assets and liabilities are measured based on their function, since they are destined to last over time. . ACCRUALS PRINCIPLE (IAS 1 PAR. 27 AND 28) Costs and revenues are recognised, regardless of when the payments are actually made or received, according to the period in which they accrue and according to the criterion of correlation. . COHERENCE OF PRESENTATION (IAS 1 PAR. 29) The presentation and classification of items are kept constant over time to guarantee comparability of the information, unless a change is required by an International Accounting Standard or by an Interpretation or renders the presentation of amounts more appropriate in terms of significance and reliability. If a presentation or classification criterion is changed, the new criterion is also applied – where possible – to the previous financial statement; in such a case, the items concerned and the nature of and reason for the change are indicated. The financial statement schedule provided for by the Bank of Italy Provision of 9 December 2016 has been adopted in the presentation and classification of the items. . AGGREGATION AND RELEVANCE (IAS 1 PAR. 29) All significant aggregations of items with a similar nature or function are reported separately. The elements of a different nature or function, if material, are presented in a distinct manner. . PROHIBITION OF OFFSETTING (IAS 1 PAR. 32) The assets and liabilities, costs and revenues are not offset against each other unless required or permitted by an International Accounting Standard or Interpretation or by the formats and instructions laid down by the Bank of Italy. . COMPARATIVE INFORMATION The comparative information of the preceding period is given for all the data contained on the accounting schedules, unless an International Accounting Standard or an Interpretation prescribe or allow otherwise. Descriptive information is also given when useful for understanding the data. The financial statements are composed of the mandatory schedules required by IAS 1, that is the Balance Sheet, the Income Statement, the Statement of Changes in Equity, the Cash Flow
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Statement and these Explanatory Notes. The Financial Statement has been drafted using the Euro as the accounting currency; therefore, unless specified otherwise, the figures on this Statement are in Euro. The Financial Statements are accompanied by the Management Report. These financial statements were audited pursuant to Italian Legislative Decree 27 January 2010, no. 39 by Deloitte & Touche S.p.A., which was appointed by the Quotaholders for the three- year period 2018-2020 on 05 March 2018.
IFRS ACCOUNTING STANDARDS, AMENDMENTS AND INTERPRETATIONS APPLIED AS OF 1 JANUARY 2018 The following IFRS accounting standards, amendments and interpretations were applicable as of 1 January 2018: On 28 May 2014, the IASB published IFRS 15 – Revenue from contracts with customers, which, together with other clarifications published on 12 April 2016, will replace standards IAS 18 – Revenue and IAS 11 – Construction Contracts, including the interpretations IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers and SIC 31 – Revenues-Barter Transactions Involving Advertising Services. The standard provides a new model for recognising revenue, which will apply to all contracts entered into with customers, with the exception of those that fall within the sphere of application of other IAS/IFRS standards, like leasing, insurance contracts and financial instruments. The fundamental steps for recognising revenues based on the new model are: identifying the contract with the customer; identifying the performance obligations contained in the contract; determining the price; allocating the price to the performance obligations contained in the contract; the criteria for recognising the revenue when the entity satisfies each performance obligation. The standard was applied as of 1 January 2018.
On 24 July 2014, the IASB published the final version of IFRS 9 – Financial Instruments: recognition and measurement. The document includes the results of the IASB project aimed at replacing IAS 39. The new standard must be applied for financial statements relative to years starting on or after 1 January 2018. The principle introduces new criteria for the classification and measurement of financial receivables and payables. In particular, the new standard uses a single approach for financial assets, based on the management methods for the financial instruments and the features of the contract cash flows from the financial receivables so as to determine the measurement criterion, replacing the different rules contemplated under IAS 39. With financial liabilities on the other hand, the main change refers to the recognition of changes in the fair value of a financial liability designated as a financial payable valued at fair value in the income statement, in the case of these changes being the result of changes in the credit rating of the issuer in respect of the liability itself. Based on the new principle, these changes must be recorded under “Other comprehensive income” and no longer in the Income Statement. Additionally, in changes for financial assets defined as not significant, it is no longer allowed to spread out the financial effects of renegotiation over the residual duration of the debt,
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amending the effective interest rate at said date, but instead the relative effects must be recognised in the income statement. With regard to impairment, the new standard requires that the loss estimate on credits is done on the basis of the expected losses model (and not on the incurred losses model used with IAS 39), by utilising support information that is readily available without unreasonable expense or effort, and includes historic, current and forecast data. The standard requires that this impairment model is applied to all financial instruments, namely financial assets valued at amortised costs, to those valued at fair value through other comprehensive income, to receivables arising from rental contracts and trade receivables. Finally, the principle introduces a new hedge accounting model so as to adjust the requirements under the current IAS 39 that were sometimes considered too stringent and not appropriate in reflecting the company’s risk management policies. The main changes in the document involve: an increase in the type of transactions eligible for hedge accounting, including non- financial assets/liabilities eligible for managing under hedge accounting; the change in the method of accounting for forward contracts and options when included in a hedge accounting report, to reduce volatility in the income statement; changes to the efficacy test through replacement of previous methods based on the 80- 125% parameter with the “economic relation” principle between the item hedged and the hedging instrument; in addition, an assessment of the retrospective effectiveness of the hedge will no longer be required. The greater flexibility in the new accounting rules is counterbalanced by additional required disclosures regarding the company’s risk management activities. The standard was applied as of 1 January 2018.
On 20 June 2016, the IASB published the amendment to IFRS 2 “Classification and measurement of share-based payment transactions” (published on 20 June 2016), which contains certain clarifications in relation to the recognition of the effects of vesting conditions for cash-settled share-based payments, classification of share-based payments with net settlement features and recognition of changes to terms and conditions for a share- based payment that changes classification from cash-settled to equity-settled. The amendments apply as of 1 January 2018.
On 8 December 2016, the IASB published the document “Annual Improvements to IFRSs: 2014-2016 Cycle” which partially integrates pre-existing standards as part of the annual improvement process. The main amendments refer to: o IFRS 1 First-Time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters. The amendment applies as of 1 January 2018 and involves the elimination of certain short-term exemptions allowed under paragraph E3-E7 of Appendix E to IFRS 1 in that the benefits relative to these exemptions have now passed. o IAS 28 Investments in Associates and Joint Ventures – Measuring investees at fair value through profit or loss: an investment-by-investment choice or a consistent policy choice. The amendment clarifies that the option for a venture capital organisation or other similarly qualified entity (e.g. a mutual investment fund or similar entity) to measure investments in related companies and joint ventures at fair value through profit and loss (rather than using the shareholders’ equity method) is exercised for each individual investment at initial recognition. The amendment applies as of 1 January 2018.
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o IFRS 12 Disclosure of Interests in Other Entities – Clarification of the scope of the Standard. The amendment clarifies the scope of application for IFRS 12, specifying that the information required under the standard, with the exception of that established under paragraph B10-B16, applies to all investment units classified as held for sale, held for distribution to shareholders or as discontinued operating assets as established under IFRS 5. The amendment applies as of 1 January 2018.
On 8 December 2016, the IASB published the amendment to IAS 40 “Transfers of Investment Property”. These amendments clarify the presuppositions required to transfer a property to or from investment property. In particular, an entity must reclassify a property as or as no longer an investment property solely when there is evidence of a change in use of the property. This change must be traceable to a specific event that has already occurred and does not have to be limited to a change in the intentions of the entity’s management. These amendments apply as of 1 January 2018.
On 8 December 2016, the IASB published the interpretation “Foreign Currency Transactions and Advance Consideration (IFRIC Interpretation 22)”. The interpretation has the objective of providing guidelines for transactions in foreign currencies when non-monetary advances or deposits are recognised in the financial statements (as contra entries to cash received/paid), prior to recognition of the relative asset, cost or revenue. This document provides indications on how an entity should determine the date of a transaction, and consequently, the spot exchange rate to be used when transactions occur in foreign currencies relative to which payment is made or received in advance. The interpretation clarifies that the transaction is the earlier of: a) the date on which the advance payment or deposit received is recognised in the accounts of the entity; or b) the date on which the asset, cost or revenue (or part of the same) is recognised in the accounts (with consequent reversal of the advance payment or deposit received). If multiple advance payments are made or received, a specific transaction date must be identified for each one. IFRIC 22 applies as of 1 January 2018. Application of the above standards did not have any significant impact on the Company’s current equity and economic position.
IFRS AND IFRIC ACCOUNTING STANDARDS, AMENDMENTS AND INTERPRETATIONS APPROVED BY THE EUROPEAN UNION, NOT YET REQUIRED AND NOT ADOPTED IN ADVANCE AS OF 31 DECEMBER 2018 On 13 January 2016, the IASB published standard IFRS 16 – Leases which will replace standard IAS 17 – Leases, as well as the interpretations IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard provides a new definition of lease and introduced a criteria based on control (right of use) over an asset to distinguish lease contracts from contracts for the provision of services, identifying the following as discriminating factors: identification of the asset, right to replace the same, right to obtain substantially all economic benefits deriving from use of the asset and, finally, the right to direct use of the asset underlying the contract. The standard establishes a single model for recognising and measuring lease contracts for the lessee, which involves recognition of the asset subject to leasing, even if operating, in the
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assets, with a contra entry under financial liabilities. The Standard does not include any significant changes for lessors. The standard is applicable from 1 January 2019, but early application is permitted.
On 12 October 2017, the IASB published an amendment to “IFRS 9 Prepayment Features with Negative Compensation”. This document specifies that instruments which permit early redemption could pass the Solely Payments of Principal and Interest (“SPPI”) test even if the “reasonable additional compensation” to be paid in the case of early redemption is “negative compensation” for the financing entity. The amendment is applicable from 1 January 2019, but early application is permitted.
On 7 June 2017, the IASB published the interpretation “Uncertainty over Income Tax Treatments (IFRIC Interpretation 23)” (published on 7 June 2017). The interpretation deals with the issue of uncertainty over tax treatment in respect of income tax. In particular, the interpretation requires an entity to analyse uncertain tax treatments (individually or as a group, based on their features), always assuming that the tax authorities will examine the tax position in question with full knowledge of all relevant information. If the entity finds it unlikely that the tax authorities will accept the tax treatment used, the entity must reflect the effects of this uncertainty when measuring current and deferred income taxes. Furthermore, the document contains no new disclosure obligations, but highlights that the entity must establish whether it is necessary to provide information on the considerations made by management and relating to the uncertainties inherent to the recognition of taxes, in accordance with IAS 1. The new interpretation is applicable from 1 January 2019, but early application is permitted. The Company does not expect application of the aforementioned standards to have a significant impact on the Company’s current asset and economic position.
SECTION 3 – EVENTS AFTER CLOSURE OF THE FINANCIAL PERIOD Following the end of FY 2018, the management of the programme of covered bank bonds structured by UBI Banca, in which the company is involved, took place as forecast. At the date of preparation of these financial statements, there are no known events, subsequent to the reporting date, which could negatively influence the financial position and results of operations of the Company. It should be noted that, pursuant to IAS 10, the date on which these financial statements were authorised for publication by the Company’s Board of Directors is 20 February 2019.
SECTION 4 – OTHER ASPECTS There is nothing to report.
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A..2 PART RELATIVE TO THE PRINCIPAL FINANCIAL STATEMENT AGGREGATES The accounting policies adopted for the items shown in these financial statements at 31 December 2018 are described below. For each item, the recognition, classification, measurement and recognition of costs and revenues as well as derecognition criteria are given. RECEIVABLES AND OTHER ASSETS RECOGNITION CRITERIA Receivables are entered as of the date they are disbursed, i.e., when the company becomes a party in the contractual clauses and, as a consequence, has a legal right to receive financial flows. Initial entry is at fair value, which usually corresponds to the amount disbursed or the price paid. CLASSIFICATION CRITERIA This item includes amounts due from banks which represent the Company’s liquidity deposited with banks and the loans and receivables classified under “Other assets” such as tax assets or assets arising from the recharging of operating expenses to the Covered Bank Bond Programme. CRITERIA FOR MEASUREMENT AND RECOGNITION OF INCOME COMPONENTS After initial recognition, amounts due from banks are recognised at the amortised cost, equal to the initial recognition value minus capital repayments, decreased/increased by writedowns/writebacks and decreased by amortisation of the difference between the amount disbursed and that repayable at maturity. As these are short-term receivables, the discounting factor was judged irrelevant and hence the assessment is done at the historical cost. DERECOGNITION CRITERIA Receivables are derecognised when the relative assets are sold with the substantial transfer of all connected risks and rewards, or when the relative contractual rights expire, or when the assets are considered as definitively uncollectable.
PAYABLES AND OTHER LIABILITIES RECOGNITION CRITERIA Payables are recognised on the date of disbursement, i.e. when the Company becomes a party to the contractual clauses and has a consequent legal obligation to pay the relative amounts. Initial recognition of payables is at fair value which usually corresponds to the amount to be paid. CLASSIFICATION CRITERIA This item includes payables to the tax authorities or suppliers. CRITERIA FOR MEASUREMENT AND RECOGNITION OF INCOME COMPONENTS Since these are short-term liabilities, for which the temporal effect is negligible, they are entered at their original value, which is also the same as their extinction value. DERECOGNITION CRITERIA Payables are derecognised when they have expired or are paid.
CURRENT AND DEFERRED TAXES RECOGNITION CRITERIA Taxes are recognised when the various types of withholdings and taxes are identified. CLASSIFICATION CRITERIA Current and deferred tax assets and liabilities are included in this item.
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CRITERIA FOR MEASUREMENT AND RECOGNITION OF INCOME COMPONENTS Current and deferred tax assets and liabilities are entered without any offsetting. Current tax assets are entered at the nominal value of the receivables relative to the prepaid taxes. Current tax liabilities are also entered at the nominal value of the withholding taken, while fiscal year taxes are determined on the basis of a realistic forecast of the taxes to be paid in application of current tax law. Deferred tax liabilities are calculated independently of the tax situation relative to present or future losses; the entry of deferred tax assets depends on the reasonable expectation of their recovery. DERECOGNITION CRITERIA Current tax (assets and liabilities) are derecognised when, at the legal expiry date, the various taxes collected as a withholding agent are paid. Deferred taxes are cancelled according to forecasts of their recoverability.
COSTS AND REVENUES Costs are recognised in the income statement at the moment of a decrease in the future economic benefits which leads to a decrease in assets or an increase in liabilities with a value which can be reliably determined. Costs are recognised in the income statement according to the criterion of direct association between the costs incurred and the earning of specific income items (costs-revenue matching). All costs relating to the securitisation processes are charged back directly to the covered bank bond programme structured by UBI Banca in which the Company participates. Revenue is recognised in the income statement at the moment of an increase in the future economic benefits which leads to an increase in assets or a decrease in liabilities with a value which can be reliably determined. This means that the revenue is recognised at the same time as the increase in assets or the decrease in liabilities. The main revenue item on the Company’s financial statement is the re-debiting of the costs relative to the aforesaid securitisation process.
A..3 INFORMATION ON THE TRANSFER OF FINANCIAL ASSETS BETWEEN PORTFOLIOS There is nothing to report.
A..4 INFORMATION ON FAIR VALUE QUALITATIVE INFORMATION Given the company operations, there are no significant elements to report.
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UBI FINANCE CB 2 S.R.L.
QUANTITATIVE INFORMATION A.4.5.4. Assets and liabilities not measured at fair value or measured at fair value on a non-recurrent basis: division according to levels of fair value
Assets and liabilities not measured at fair value or 31/12/2018 31/12/2017 measured at fair value on a non-recurrent basis BV L1 L2 L3 BV L1 L2 L3 1. Financial assets measured at amortised cost 10,040 - - 10,040 10,040 - - 10,040 2. Tangible assets held for investment purposes ------
3. Non-current assets and asset groups held for sale ------Total 10,040 - - 10,040 10,040 - - 10,040 1. Financial liabilities measured at amortised cost ------2. Liabilities associated with assets held for sale ------Total ------
KEY: BV = Book Value L1 = level 1 L2 = level 2 L3 = level 3
The fair value of amounts due from banks may coincide with the financial statement value inasmuch as such receivables consist solely of short-term elements, relative to current accounts.
A..5 INFORMATION ON “DAY ONE PROFIT/LOSS” There is nothing to report.
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3. PART B - COMMENTS ON THE BALANCE SHEET
ASSETS
SECTION 4 - FINANCIAL ASSETS MEASURED AT AMORTISED COST - ITEM 40 4.1 FINANCIAL ASSETS MEASURED AT AMORTISED COST: SECTOR BREAKDOWN OF AMOUNTS DUE FROM BANKS
Composition Total 2018 Total 2017
Book Value Fair value Book Value Fair value of which: of which: Stage one and Stage Stage one and Stage acquired or L1 L2 L3 acquired or L1 L2 L3 stage two three originated stage two three originated impaired impaired 1. Deposits and current 10,040 - - - - 10,040 10,040 - - - - 10,040 accounts 2. Financing ------2.1 Repurchase agreements 2.2 Lease agreements 2.3 Factoring - with Recourse - without Recourse 2.4 Other loans
3. Debt securities ------3.1 structured securities 3.2 other debt securities
4. Other assets ------Total 10,040 - - - - 10,040 10,040 - - - - 10,040
KEY: L1 = level 1
L2 = level 2
L3 = level 3
The item shows the balance of current account 89447 open with UBI Banca S.p.A. which contains sums deposited by quotaholders for quota capital. Fair value at 31 December 2018 coincides with the book value, since these are receivables available on demand.
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UBI FINANCE CB 2 S.R.L.
SECTION 10 – TAX ASSETS AND LIABILITIES – ITEM 100 AND ITEM 60 10.1 BREAKDOWN OF ITEM 100 “TAX ASSETS: CURRENT AND DEFERRED”
Total 2018 Total 2017 a) current: 2,201 387 - tax receivables (advances, withholdings, etc.) - - - IRES advance payment 1,198 80 - IRAP advance payment 924 193 - offset IRES receivables - - - Reg. Business Tax credit subject to offsetting 79 114 b) assets for advanced payment: - - - IRES advanced payment - - - IRAP advanced payment - - Total 2,201 387
10.2 BREAKDOWN OF ITEM 60 “TAX LIABILITIES: CURRENT AND DEFERRED”
Total 2018 Total 2017 a) current: 782 1,595 - tax payables for taxes withheld at source, not yet paid in - - - due to the Tax Authorities for stamp duty - - - current IRES and IRAP 782 1,595 b) liabilities for deferred taxes: - IRES - - - IRAP - - Total 782 1,595
The item consists of IRAP payables for € 709 and IRES payables for € 73.
10.3 CHANGES IN PREPAID TAXES (OFFSET ON THE INCOME STATEMENT) There is nothing to report.
SECTION 12 – OTHER ASSETS – ITEM 120 12.1 BREAKDOWN OF ITEM 120 “OTHER ASSETS” The Other Assets consist of the items detailed in the table below:
Description Total 2018 Total 2017 - Receivables from segregated assets 311,063 255,344 Total 311,063 255,344
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The item “Receivables from segregated assets” represents the receivable (cumulative since the beginning of the securitisation Operation) for the recharge of the separate assets of the costs necessary to preserve the existence of the Company.
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UBI FINANCE CB 2 S.R.L.
LIABILITIES
SECTION 6 – TAX LIABILITIES – ITEM 60 See Section 10 of the Assets.
SECTION 8 – OTHER LIABILITIES – ITEM 80 8.1 BREAKDOWN OF ITEM 80 “OTHER LIABILITIES”
Total 2018 Total 2017 - Payables to segregated assets 293,030 225,425 - Payables to the Board of Directors 261 261 - Payables to Deloitte & Touche S.p.A. Invoices received 19,213 11,190 - Payables to Deloitte & Touche S.p.A. Invoices to be received - 17,282 Total 312,504 254,158
The item “Payables to the segregated assets” represents the payable (cumulative since the beginning of the securitisation Operation) for the costs of the existence of the Company paid from the segregated assets.
SECTION 11 – EQUITY – ITEMS 110, 120, 130, 140, 150, 160 AND 170 11.1 BREAKDOWN OF ITEM 110 “QUOTA CAPITAL” The quota capital is € 10,000.00 and it is subdivided into quotas pursuant to Art. 2468 of the Italian Civil Code. At the reporting date, it was fully subscribed and paid up.
Types Amount 1. Quota Capital 10,000 1.1 Ordinary shares - 1.2 Other shares/Stakes 10,000
At 31 December 2018, the quota capital is held as follows: . € 4,000, or 40% of the quota capital, by the Dutch foundation Stichting Viola, a Dutch foundation, based in Amsterdam (Netherlands), in Luna Arena, Herikerbergweg 238; . € 6,000, equal to 60% of the quota capital, by UBI BANCA S.P.A. with head office in Bergamo, Via V. Veneto n. 8, tax code and Bergamo Businesses Registration number 03053920165.
11.2 BREAKDOWN OF ITEM 120 “TREASURY QUOTAS” No shares have been issued or repurchased.
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UBI FINANCE CB 2 S.R.L.
11.3 BREAKDOWN OF ITEM 130 “EQUITY INSTRUMENTS” No equity instruments have been issued.
11.4 BREAKDOWN OF ITEM 140 “QUOTA PREMIUMS” There is nothing to report.
11.5 OTHER INFORMATION The table below illustrates the composition of the quotaholders’ equity reserves and relative use of the same during the period:
Retained Legal reserve Others Total earnings A. OPENING BALANCE 18 - - 18 B. INCREASES - - - - B.1 Profits allocated - - B.2 Other changes - - C. DECREASES - - - - C.1 Uses - to cover losses - distribution - transfer to capital C.2 Other changes D. CLOSING BALANCE 18 - - 18
With regard to the information referred to in art. 2427, paragraph 7-bis of the Italian Civil Code, reference is made to the details in the following table:
EQUITY USABILITY AND DISTRIBUTION POSSIBILITIES
Use in the Amount at Possibility of Available Description three previous 31/12/2018 use quota periods QUOTA CAPITAL 10,000 - - -
INCOME-RELATED RESERVES:
- LEGAL RESERVE 18 B 18 -
- RETAINED EARNINGS - - - -
- OTHERS - - - -
PROFIT (LOSS) FOR THE YEAR - - - -
KEY: “A” to increase capital “B” to cover losses “C” for distribution to shareholders
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UBI FINANCE CB 2 S.R.L.
4. PART C – COMMENTS ON THE INCOME STATEMENT
SECTION 10 - ADMINISTRATIVE COSTS – ITEM 160 10.1 BREAKDOWN OF ITEM 160.A “STAFF COSTS” These expenses represent only the fees to the Directors for the financial year increased by the relative expenses for third party liability insurances. The Company does not have any employees.
Description Total 2018 Total 2017 - Directors’ fees 9,538 9,538 - Third party liability insurance 7,263 7,046 Total 16,801 16,584
Items / Sectors Total 2018 Total 2017 1. Employed staff - - a) wages and salaries - - b) social security expenses - - c) post-employment indemnity - - d) welfare expenses e) provisions to staff post-employment benefits - - f) provisions to pension funds and similar commitments - - - defined contribution - defined benefit g) payments to external supplementary welfare provisions: - defined contribution - defined benefit h) other employee benefits 2. Other active staff 3. Directors and Auditors 16,801 16,584 4. Staff on leave 5. Recovery of expenses for employees seconded to other companies 6. Reimbursement of expenses for employees seconded to the company 16,801 16,584
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10.3 BREAKDOWN OF ITEM 160.B “OTHER ADMINISTRATIVE COSTS:” “Administrative expenses: b) Other administrative expenses” consists of the following:
Total 2018 Total 2017 - Audit fees 37,380 32,132 - Tax for Government concessions 310 310 - Chamber of Commerce fees 120 120 Total 37,810 32,562
SECTION 14 - OTHER OPERATING INCOME AND EXPENSES – ITEM 200 14.1 OTHER OPERATING EXPENSES: BREAKDOWN
Description Total 2018 Total 2017 - Extraordinary Expenses 404 130 Total 404 130
14.2 OTHER OPERATING INCOME: BREAKDOWN
Description Total 2018 Total 2017 - Revenues from the recharge to the segregated assets 55,718 50,871 Total 55,718 50,871
“Revenues from the recharge to the segregated assets” represents the proceeds arising from the recharge to segregated assets of the costs of existence of the Company for the period.
SECTION 19 - INCOME TAXES FOR THE YEAR FROM CONTINUING OPERATIONS – ITEM 270 19.1 BREAKDOWN OF ITEM 270 “INCOME TAXES FOR THE YEAR FROM CONTINUING OPERATIONS”
Total 2018 Total 2017 1. Current taxes (703) (1,595) 2. Changes to previous year current taxes - - 3. Reduction in current taxes - - 3.1 Reduction in current taxes for tax credits, under Law 214/2011 - - 4. Change in advanced tax - - 5. Change in deferred tax - - Taxes for the year (703) (1,595)
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The amount recorded in the financial statements is the payable for current IRES of € 73 and for current IRAP of € 630.
19.2 RECONCILIATION BETWEEN THEORETICAL AND EFFECTIVE TAX BURDEN
(amounts in euro) 2018 2017 Type of operation/Amounts IRES IRAP IRES IRAP Profit before taxes 709 20,725 1,595 22,993 Difference between production value and cost - - - - Ordinary rate applicable 27.50% 5.57% 27.50% 5.57% Theoretical taxation 195 1154 439 1,281 Tax effect of temporary/permanent differences: Non-deductible costs - - 1,167 - Other differences (445) - - - Regional business tax deduction - (8,000) - (8,000) Adjusted taxable income 264 12,725 2,762 14,993 Changes in deferred tax liabilities - - - - Effective taxation 73 709 760 835 Effective rate 10.24% 3.42% 47.62% 3.63%
33 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
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5. PART D – ADDITIONAL INFORMATION
SECTION 1 - SPECIFIC NOTES ON THE OPERATIONS CARRIED OUT
H.. COVERED BONDS
H.1 - SUMMARY TABLE OF ASSETS UNDERLYING COVERED BANK BONDS AND LOANS RECEIVED
(amounts in euro units)
FY 2018 FY 2017 A. Securitised Assets 2,486,734,003 2,820,369,642 A1) Loans and receivables 2,486,734,003 2,820,369,642 B. Use of funds from the management of loans 138,977,633 63,828,540 B3) Others 138,977,633 63,828,540 C. Securities issued - - D. Financing received 2,726,412,741 2,955,513,955 E. Other Liabilities 22,654,176 26,034,124 Difference (A+B)-(C+D+E)* (123,355,281) (97,349,897)
F. Interest expense on securities issued - - G. Fees and commissions on the transaction 2,323,626 2,002,777 G1) For servicing 2,246,144 1,906,489 G2) For other services 77,482 96,288 H. Other charges 63,792,237 62,170,094 I. Interest income on securitised assets 40,110,479 45,515,236 L. Other income - 28,110 Difference (F+G+H)-(I+L)** 26,005,384 18,629,525
* This difference represents the cumulative imbalance of the Transaction ** This difference represents the imbalance for the period for the Transaction
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UBI FINANCE CB 2 S.R.L.
CRITERIA USED FOR DRAWING UP THE SUMMARY TABLE This schedule was prepared in line with the guidelines set out by the Bank of Italy relating to the companies transferring the assets underlying the covered bank bonds (Ruling of 22 December 2017); all the items indicated correspond to the figures taken from the company’s accounting records and information system of the Servicer, UBI Banca. In particular, the measurement criteria adopted for the most significant entries are provided below.
LOANS AND RECEIVABLES - Receivables from financial institutions are recognised at their nominal value, which corresponds to their presumable realisation value. - The assets underlying the covered bank bonds have been recognised at transfer value and are measured according to the expected realisation value bearing in mind the solvency of the debtor. Such value is in fact determined by subtracting the principal and interest loss estimates from the overall amount disbursed. - The loans of the amount available are expressed at nominal value, equal to collection value. - Accrued income and deferred expenses have been calculated on an accruals basis, applying the principle of correlating costs and revenues according to the financial year.
OTHER ASSETS Other assets are shown at their nominal value, corresponding to the presumed realisable value.
PAYABLES Payables are recognised at their nominal value.
OTHER LIABILITIES Other Liabilities are recognised at their nominal value.
COSTS AND REVENUES Costs and revenues are recognised according to the accruals principle. All costs relative to securitisation processes are charged back directly to the covered bank bond programme.
35 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
BREAKDOWN OF THE ITEMS ON THE SUMMARY TABLE
A. ASSETS UNDERLYING THE COVERED BANK BONDS 2,486,734,003
These are composed of the realisation value of the existing loans at 31/12/2018:
2018 2017 - IWB loan portfolio 17,095,274 19,592,363 - Accrued interest on IWB loan portfolio 10,972 12,049 - Allowance for impairment on IWB loan portfolio (67,219) (31,571) - UBI loan portfolio 2,539,716,395 2,851,493,998 - Accrued interest on UBI loan portfolio 15,014,861 16,883,765 - Allowance for impairment on UBI loan portfolio (85,036,280) (67,580,962) 2,486,734,003 2,820,369,642
B. USE FO FUNDS FROM CREDIT MANAGEMENT OF LOANS 138,977,633
The item includes:
2018 2017 - Due from banks 138,671,103 63,441,787 - Due from ordinary management 293,030 225,425 - Deferred income 13,128 7,345 - Collections to be credited 372 153,983 138,977,633 63,828,540
C. SECURITIES ISSUED -
The Company did not and will not issue notes, as it is the guarantor - with the loan portfolios purchased by the Sellers from time to time - of the CB2 programme by UBI Banca.
D. FINANCING RECEIVED 2,726,412,741
The item includes:
36 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
2018 2017 - IWB Subordinated loan 18,699,799 20,725,797 - UBI Subordinated loan 2,707,712,942 2,934,788,158 2,726,412,741 2,955,513,955
E. OTHER LIABILITIES 22,654,176 These consist of:
2018 2017 - Payables for ordinary management 311,063 255,345 - Payables to service providers for invoices to be received 920,746 786,377 - Payables to service providers for invoices received 17,750 15,655 - Accrued Additional Premium IWB 59,143 71,620 - Accrued Additional Premium UBI 21,345,474 24,905,127 22,654,176 26,034,124
It is specified that the payables for “Additional premiums” will only be repaid upon conclusion of the CB2 Programme and if there is enough money available in the funds in place at that time. The loss accumulated at 31/12/2018 of € 123 million would not enable the repayment of such debts and the partial repayment of further portions of subordinate loans.
37 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
G. FEES AND COMMISSIONS ON THE OPERATION 2,323,626 These consist of:
2018 2017 - Servicer 2,246,144 1,906,489 Total "G1) For servicing services" 2,246,144 1,906,489
- London Account Bank Commissions 6,100 25,417 - Trustee 18,935 19,116 - Corporate Servicer 52,447 51,755 Total "G2) For other services" 77,482 96,288
H. OTHER CHARGES 63,792,237 These include:
2018 2017 - Interest expense on IWB Loan & Additional Premium 2,608,171 258,533 - Interest expense on UBI Loan & Additional Premium 34,942,176 42,664,903 - Impairment losses on IWB loans 35,648 15,888 - Impairment losses on UBI loans 17,455,318 9,194,603 - Losses on UBI loans 8,530,536 9,694,139 - Interest expense 159,281 283,524 - Administrative expenses recharged by Ordinary Management 55,718 50,871 - Administrative expenses 2,651 3,715 - Rounding off 1 - - Notary expenses 2,047 3,720 - Bank charges 690 198 63,792,237 62,170,094
38 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
I. INTEREST GENERATED BY ASSETS UNDERLYING THE COVERED 40,110,479 BANK BONDS These consist of:
2018 2017 - Interest income on IWB loans 222,499 274,210 - Interest income on UBI loans 41,025,647 44,873,170 - Interest income accrued and not collected on IWB loans (1,077) (504) - Interest income accrued and not collected on UBI loans (1,868,904) (280,505) - Penalties from UBI loans 312,208 330,350 - Default interest on IWB loans 523 102 - Default interest on UBI loans 419,583 318,413 40,110,479 45,515,236
L. OTHER INCOME - These consist of:
2018 2017 - Income not accrued - 28,108 - Rounding - 2 - 28,110
39 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
QUALITATIVE INFORMATION H.2 - DESCRIPTION AND TREND OF THE OPERATION
THE CB2 During 2012, the Company, with the assistance of Barclays Bank PLC as PROGRAMME Arranger and of the law firms Clifford Chance and Chiomenti, put in place with UBI Banca (“Issuer”) some negotiations aimed at implementing a programme (the “CB2 Programme”) by UBI Banca for the issue of covered bonds (the “Covered Bonds” or “OBG”) pursuant to Law 130/1999.
More specifically, the CB2 Programme establishes on the one hand, transfers without recourse of pecuniary receivables deriving from residential loans, as better identified below, to the Company by some banks of the UBI Banca Group, specifically:
1. Banco di Brescia S.p.A. (“BBS”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 20 February 2017; 2. Banca Regionale Europea S.p.A. (“BRE”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 15 November 2016; 3. Banca Popolare di Bergamo S.p.A. (“BPB”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 20 February 2017; 4. Banca Popolare di Ancona S.p.A. (“BPA”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 20 February 2017; 5. Banco di San Giorgio S.p.A. (“BSG”), initially merged in BRE, now UBI Banca by virtue of the merger by deed dated 15 November 2016; 6. Banca Popolare Commercio e Industria S.p.A. (“BKI”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 15 November 2016; 7. Banca Carime S.p.A. (“BRM”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 20 February 2017; 8. Banca di Valle Camonica S.p.A. (“BVC”), now UBI Banca by virtue of the merger by acquisition that took place by deed dated 20 February 2017; 9. IW Bank S.p.A. (“IWB”), which on 25 May 2015 incorporated UBI Banca Private Investment S.p.A., and 10. the Parent company of UBI Banca (jointly the “Originating Banks”),
and on the other, the split issue of covered bank bonds by UBI Banca for up to € 5,000,000,000. In this context, the Company has undertaken to cover said emissions. As a matter of fact, the “Covered Bond Guarantee” agreement, signed on 2 April 2012, states that the Company issues an irrevocable guarantee, on a first demand, unconditional and independent in favour of the covered bond holders in respect of portfolios of loans from time to time sold by
40 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
the Seller Banks, under which the Company will guarantee the repayment of all sums due in respect of capital and interest in relation to the covered bonds by the Issuer (the “Guarantee”). The Company is therefore committed, from time to time, to increase, where necessary, the Guarantee granted, based on the amount of single issue.
In compliance with this CB2 Programme structure, the Company has acted as follows. THE INITIAL On 29 February 2012, the Company stipulated a transfer contract with all TRANSFER the Originating Banks for the pecuniary loans identified en bloc, in accordance with and pursuant to the combined provisions of Articles 7- bis and 4 of Italian Law no. 130/99 and Article 58 of the Consolidated Law on Banking, by virtue of which the Company undertakes to regularly acquire on a without recourse basis, according to a transfer programme, portfolios of loans deriving from performing mortgage loans disbursed by the Transferring Banks during its core business (the “Initial Loans”). Therefore, in March and April 2012, all Originating Banks subscribed to the CB2 Program, selling portfolios of suitable assets to the Company at a purchase price of the previous portfolios equal to the book value stated on the latest financial statements approved by the Originating Bank, net of the principal amount collected in the period between the latest financial statements approved and the date of sale of the portfolio, and including the accrued interest at the date of the sale thereof. Specifically: A. on 1 March 2012 the Company purchased the following new non- recourse loan portfolios: - € 356,526,938 from BRE; - € 331,748,471 from BKI; - € 511,170,873 from BPA and - € 100,616,524 from BVC; B. on 01 April 2012 the Company purchased the following new non- recourse loan portfolios: - € 561,183,597 from BPB; - € 628,274,868 from BBS as amended by letter dated 29 May 2012; - € 309,027,265 from BRM and - € 208,552,704 from BSG. INITIAL LOANS At such date, such loans were identifiable as a “block” according to and SUBJECT TO TRANSFER by effect of the combination of articles 7-bis and 4 of the Law 130/99 and of article 58 of TUB, since they met the following common criteria: (1) which may be: (A) land property mortgage loans (i) with risk weighting factor of no more than 35% and where the ratio between outstanding principal added to the outstanding principal of any preceding mortgage loans on the same property is not higher than 80% of the property value, pursuant to the Decree no. 310, or (ii) where there are properties concerned by the related mortgage guarantee of which at least one is a residential property, with a risk weighting factor of more than 35% and in relation to which the ratio between outstanding principal added to the
41 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
outstanding principal of any preceding mortgage loans on the same property is not higher than 80% of the property value; or (B) commercial mortgage loans (i) with risk weighting factor of no more than 50% and where the ratio between outstanding principal added to the outstanding principal of any preceding mortgage loans on the same property is not higher than 60% of the property value, pursuant to the Decree no. 310, or (ii) where there are several properties concerned by the related mortgage guarantee of which at least one is a commercial property, which have a risk weighting factor of above 50% and in relation to which the ratio between outstanding principal added to the outstanding principal of any preceding mortgage loans on the same property is not higher than 60% of the property value; (2) with respect to which the consolidation term of the mortgages is concluded and they are not subject to challenge pursuant to Art. 67 of Royal Decree No. 267 of 16 March 1942 and, when applicable, Art. 39, Clause four, of Italian Legislative Decree No. 385 of 1 September 1993; (3) that have been disbursed or acquired from Banca Carime S.p.A.; (4) that are regulated by the Italian law; (5) that are performing and been paid for more than 30 day since the expected payment date; (6) that do not include clauses that limit the possibility for Banca Carime S.p.A. to transfer loans coming from the corresponding agreement or that decide that the permission of the debtor is required for such transfer and Banca Carime S.p.A. has obtained such permission; (7) in relation to which at least one subscription was paid by the debtor; (8) according to which all payments receivable from the debtor are made in Euro; (9) that were fully issued; (10) that have been granted to a natural person (including natural persons who are, or were, on the related disbursement date, employees of the company belonging to the Unione di Banche Italiane S.p.A. banking group), to a legal entity (with the exclusion of public sector entities, territorial entities and central administrations and central banks) or several natural persons or legal entities holding them jointly; (11) that provide for the payment by the debtor of a variable interest rate (determined each time by Banca Carime S.p.A.) or fixed; (12) backed by first degree mortgages.
SUBORDINATE LOANS At the same time as the Initial Transfer, each Originating Bank granted FROM THE the Company a loan for the same amount, so that the latter could have ORIGINATING BANKS the funds necessary for the purchase of the above-mentioned loan portfolio - redemption subordinated to the repayment of the covered bonds issued by UBI Banca.
42 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
SUBSEQUENT Under the scope of the CB2 programme, once the Initial Transfer had TRANSFERS been made, each Originating Bank has the right to transfer new portfolios to the Company in order to: (a) integrate the portfolio held by the Company in exchange for the issue, by UBI Banca, of further Series of Guaranteed Bank Bonds in the context of the CB2 Programme; (b) guarantee the conformity of the portfolio of tests envisaged by the legislation and contracts or rather with the 15 percent threshold in relation to the Supplementary Suitable Assets established by the provisions of the MEF Decree and Instructions; or (c) invest available funds in excess with respect to that needed, in order that the tests are respected, in further suitable assets or supplementary suitable assets. Therefore, until the date of the financial statements the following Subsequent Transfers were made: TRANSFER 3 On 28 March 2013, the Company purchased the following new non- recourse loan portfolios: . € 103,821,224 from BBS; . € 97,264,697 from BPA; . € 68,619,076 from BKI, and . € 51,636,781 from BRM. TRANSFER 4 On 28 November 2013, the Company purchased the following new non- recourse loan portfolios: . € 152,607,619 from BRE; . € 248,308,229 from BPB, and . € 45,537,727 from BVC. In 2014, the following Subsequent Transfers were made: TRANSFER 5 On 30 April 2014, the Company purchased the following new non- recourse loan portfolios: . € 47,835,632 from BRE; . € 60,470,554 from BPA; . € 28,590,624 from BKI, and . € 38,687,351 from BRM. TRANSFER 6 On 28 November 2014, the Company purchased the following new non- recourse loan portfolios: . € 84,632,519 from BPB, and . € 90,813,907 from BBS. TRANSFER 7 On 29 May 2015, the Company purchased the following new non- recourse loan portfolios: . € 156,608,215 from BBS; . € 65,108,817 from BPA; . € 42,023,000 from BKI, and . € 50,286,921 from BRE.
43 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
TRANSFER 8 On 30 November 2015, the Company purchased the following new non- recourse loan portfolios: . € 59,380,464 from BPB; . € 31,608,618 from BVC; . € 25,732,448 from IWB; . € 27,535,286 from Carime, and . € 13,405,564 from UBI. TRANSFER 9 On 30 May 2016, the Company purchased the following new non- recourse loan portfolios: . € 32,340,136 from BRE; . € 52,226,091 from BBS; . € 36,634,961 from BPA; . € 207,348,270 from BPB, and . € 23,331,135 from BKI. TRANSFER 10 On 30 May 2017, the Company acquired a loan portfolio without recourse for € 307,018,204 from UBI Banca.
TRANSFER 11 On 31 May 2018, the Company acquired a loan portfolio without recourse for € 268,921,248 from UBI Banca. These OBGs are “retained”, meaning that they are maintained by UBI Banca to be used for allocation in the European Central Bank and/or the Bank of Italy, thereby going towards increasing the liquid reserves of the UBI Group. Moreover, they have been admitted for listing on the London Stock Exchange. The schedule regulating covered bonds constitutes the “base prospectus” pursuant to Directive 2003/71/EC. WARRANTY TO THE Pursuant to Article 4 of the MEF Decree, and applicable to all loan ISSUER portfolios that will be transferred to the Company, the Company on 28 May 2012 issued an irrevocable guarantee, at first demand, unconditional and independent, in favour of the covered bonds holders, based on which the Company guarantees the repayment of all amounts due for principal or interest, related to the covered bonds by the Issuer, for an amount of € 2,100 million.
ISSUE OF THE Afterwards, UBI Banca has issued the additional series of covered bonds SUBSEQUENT SERIES and therefore the Company has increased the maximum granted amount OF OBG pursuant to the Guarantee, in order to include the issuance of each series. The table below summarises the salient features of the covered bank bonds issued by UBI Banca from the start of the CB2 Programme:
44 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
AMENDMENTS ON Since the beginning of the programme CB2, the Company has put in THE PROGRAMME place certain measures to amend the structure and contractual STRUCTURE documentation of the programme itself. The most significant refer to the following:
FITCH RATING On 12 December 2013, the CB2 Programme contracts were amended. These initially were structured in the form of a retained programme, and were amended to assume the characteristics of a programme of the so- called public type. Consequently, the covered bonds were assigned a rating and the same could be placed on the market, in addition, then, to the provision in liquidity operations within the Eurosystem. After this, UBI Banca succeeded in getting an “A+” rating for the covered bank bonds from the rating agency Fitch Ratings Ltd. TRANSFER STOCK During the 2014 financial year, on the advice of UBI Banca, for EXCHANGE LISTING efficiency reasons, it became necessary to change the listing stock market OBG of the covered bank bonds, initially listed on the London Stock Exchange to the Irish Stock Exchange, both with regard to future emissions and emissions already existing within the programme. In view of this, the company partnered with UBI Banca, as issuer, in order to: (i) perfect the passporting procedure for the base prospectus relating to the CB2 Programme (the “Prospectus”), (ii) carry out the necessary requirements in order to request and obtain the listing of the Covered Bank Bonds on the Irish Stock Market, (iii) carry out the delisting of the series of covered bank bonds listed on the London Stock Exchange, (iv) participate in the preparation and negotiation of the new Prospectus to be approved by the Irish authorities, and (v) make all necessary and appropriate communications to dealers of the CB2 Programme and the holders of the covered bank bonds in order to give information to them regarding implementation of the above activities. On 23 May 2014, the passporting procedure was completed and the bonds are now listed on the Irish Stock Exchange. REPLACEMENT During 2015, at the instructions of UBI Banca, the need arose to change
45 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
ACCOUNT BANK some definitions contained in the CB2 Programme agreements, among which those of “Eligible Institution”, “Eligible Investment” and “Top Up Assets” among other things so as to align the contractual documentation with changes to the EU Regulation no. 575/2013 (“CRR”) (and to the relative implementing regulations) and that of “Eligible Assets” so as to exclude the ABS securities from the portfolio of assets suitable for selling to the Company. In addition to the above, it was held appropriate to replace UBI Banca International SA (“UBI Lux”) as Account Bank of the CB2 Programme with BNP Paribas Securities Services, London branch. As a result on 16 July 2015 the following changes were made to the structure of the CB2 Program: (i) the Company terminated its agreement with UBI Lux as “Luxembourg Account Bank”; (ii) appointed BNP Paribas Securities Services, London branch “English Account Bank” (“BNPP”); (iii) opened new current accounts at BNPP; (iv) transferred to the new English current accounts the balance of funds and securities deposited with UBI Lux, inclusive of the interest accrued up to the effective refund date, and (v) lastly closed the existing accounts at UBI Lux. REPLACEMENT OF Following the withdrawal of its rating on the first programme of covered FITCH WITH DBRS bank bonds set up by UBI Banca for business reasons, the rating agency Fitch Ratings Limited decided in October 2015 not to renew the three year agreement for the assessment of the CB2 Programme for which the company is guarantor. As a result, on 15 October 2015 the contractual structure of the CB2 programme required changing so as to replace Fitch Ratings Limited with DBRS Ratings Limited as the rating agency of the CB2 Programme. SINGLE BANK On 27 June 2016 the Parent company UBI Banca approved the “Group PROJECT Industrial Plan”, which provides– inter alia - for the adoption of an operating structure as a simpler and more efficient “single bank” with the merger by acquisition of BPB, BdB, BPCI, BRE, BPA, CARIME and BVC (hereinafter the “Incorporated Banks”) in UBI Banca by the first half of 2017. This merger project, approved by the Bank of Italy on 30 August 2016, consists of three phases: (i) a first merger by acquisition agreement of Banca Regionale Europea S.p.A. and Banca Popolare Commercio e Industria S.c.p.A. in UBI Banca; (ii) a second merger agreement relative to the acquisition of Banca Popolare di Bergamo S.p.A., Banca di Valle Camonica S.p.A. and Banco di Brescia S.p.A., and lastly (iii) a third merger agreement relative to the acquisition of Banca Carime S.p.A. and Banca Popolare di Ancona S.p.A. FIRST PHASE On 15 November 2016 UBI Banca stipulated the two merger deeds pursuant to art. 2504 of the Civil Code respectively relating to the merger by acquisition of BPCI and BRE of the Parent Company.
46 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
The contracts of the CB2 programme were simultaneously amended to have UBI Banca step in as Originator and Sub-Servicer of the CB2 Programme, in the rights and obligations of the two banks acquired. SECOND AND THIRD Contrary to the previsions in the “Plan”, on 20 February 2017, UBI PHASE Banca incorporated the remaining banks in the UBI Group, completing all the phases of the “Single Bank” in advance. This in turn made it necessary to make the following changes to the CB2 Programme on 23 May 2017: a) the cancellation of the sub-servicing contracts subscribed to by UBI Banca as Master Servicer and the Incorporated Banks as Sub- Servicers, with the Master Servicer delegating certain activities regarding collections and the management of loans to the Incorporated Banks that had been ceded by the latter, because these activities are carried by UBI Banca after the Merger; b) the closure of the “Italian Collection Accounts” and “English Collection Accounts” that had been opened by the Company to deposit the collections deriving from Portfolios sold by the Incorporated Banks (the “Relevant Accounts”), because subsequent to the Merger, these collections were transferred to the corresponding accounts opened by the Company with l’ Account Bank with reference to the UBI Portfolio (the “UBI Accounts”), whereas collections received subsequent to the Merger were credited directly to UBI accounts, c) the extinction of the lien established by the Company in favour of Noteholders and other covered creditors, on the Relevant Accounts referred to in point (b) above that were closed.
PERFORMANCE OF Started in 2012, the OBG Programme has generated payments in line THE TRANSACTION with the plan for the period. The following figure summarises the structure of the transaction:
47 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
H.3 - ENTITIES INVOLVED In addition to UBI FINANCE CB 2 S.R.L. (the “Guarantor”), the main subjects involved in the CB2 Programme are:
ISSUER, UNIONE DI BANCHE ITALIANE SOCIETÀ PER AZIONI MASTER SERVICER, (“UBI Banca”) CALCULATION AGENT & Piazza Vittorio Veneto no. 8 - 24122, Bergamo ITALIAN ACCOUNT BANK
REPRESENTATIVE OF THE BNY MELLON CORPORATE TRUSTEE SERVICES LTD. COVERED BONDHOLDERS One Canada Square E14 5AL London - UNITED KINGDOM
ORIGINATING BANKS, . Banco di San Giorgio S.p.A. (“BSG”) (1), SUB-SERVICER & . Banca Regionale Europea S.p.A. (“BRE”) (2), SUBORDINATED LOAN . Banca Popolare Commercio e Industria S.p.A. PROVIDER (“BKI”) (2), . Banco di Brescia S.p.A. (“BBS”) (3), . Banca Popolare di Bergamo S.p.A. (“BPB”) (3), . Banca Popolare di Ancona S.p.A. (“BPA”) (3), . Banca Carime S.p.A. (“BRM”) (3), . Banca di Valle Camonica S.p.A. (“BVC”) (3),
48 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
. IW Bank S.p.A. (“IWB”), and . UBI Banca.
ASSET MONITOR BDO ITALIA S.P.A. (former - Mazars & Guérard) Viale Abruzzi 94 – 20131 Milan
PRINCIPAL PAYING THE BANK OF NEW YORK MELLON (LUXEMBOURG) AGENT S.A., ITALIAN BRANCH Via Mike Bongiorno 13 - 20100 Milan
ENGLISH ACCOUNT BANK BNP PARIBAS SECURITIES SERVICES 3, Rue d’Antin, 75002, Paris– FRANCE operating through the London office 55, Moorgate - EC2R 6PA London - UNITED KINGDOM
OLD LUXEMBOURG UBI BANCA INTERNATIONAL S.A. ACCOUNT BANK 37/A Avenue J. F. Kennedy 1855 Luxembourg - LUXEMBOURG
GUARANTOR CORPORATE TMF MANAGEMENT ITALY SRL SERVICER Foro Buonaparte, 70 - 20121 Milan
COVERED BOND SWAP Appointment not yet assigned PROVIDER
(1) On 15 October 2012, Banco di San Giorgio S.p.A. stipulated the deed of merger by acquisition by Banca Regionale Europea S.p.A., a deed that took effect as from 22 October 2012. BANCO DI SAN GIORGIO S.P.A. WAS THE TRANSACTION SUB-SERVICER AND Subordinated Loan Provider, in relation to its transferred loans until the merger date. (2) On 15 November 2016, Banca Regionale Europea S.p.A. and Banca Popolare Commercio e Industria S.c.p.A stipulated the deed of merger by acquisition by UBI Banca, a deed that took effect as from 21 November 2016. BRE AND BKI WERE ORIGINATORS, SUB-SERVICERS OF THE OPERATION AND Subordinated Loan Providers, in relation to its transferred loans until the merger date. (3) On 20 February 2017 Banco di Brescia S.p.A., Banca Popolare di Bergamo S.p.A., Banca Carime S.p.A. and Banca Popolare di Ancona S.p.A. stipulated the deed of merger by acquisition in UBI Banca. BBS, BPB, BRM and BPA were originators, sub-servicers of the operation and Subordinated Loan Providers, in relation to its transferred loans until the merger date.
H.4 - FEATURES OF THE ISSUES As anticipated in the “Description of the transaction” section, the Company, as guarantor - with the loans portfolios purchased by the Sellers from time to time - of the programme for the issue of covered bonds guaranteed by UBI Banca pursuant to art. 7-bis of Law 130/99, did not and will not issue securities.
49 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
H.5 - CONNECTED FINANCIAL TRANSACTIONS
SELLER’S GUARANTEES AND INDEMNITY At the date of transfer, the Company agreed with each Seller a Warranty and Indemnification Contract according to which the Seller itself has made certain representations and guarantees in favour of the Company concerning the Loan Portfolio sold and has accepted to hold the same harmless from certain costs, expenses and liabilities incurred in relation to the purchase and ownership of the securitised portfolio.
SUBORDINATED LOAN When the Company bought the credit portfolios, it stipulated a subordinated loan contract with each Seller (“Subordinated Loan Agreement”), for the same amount, in order to have the funds necessary for the purchase of the credit. The loan is subordinated to the repayment of the covered bonds that will be subsequently issued by UBI Banca. To remunerate such loan, at each payment date the Company pays each Seller a base annual interest equal to 0.001% plus a “Premium” resulting from the difference between the interest collected from the loan portfolio and most operating costs concerning the existence of the Company and the CB2 Programme.
INTERCREDITOR AGREEMENT The Company, in return for the transfer of any and all right, ownership and interest on each asset concerning the CB2 Programme, obtains from the Representative of the Noteholders, the guarantee of coverage of any and all right, ownership and interest on the amounts deposited, from time to time, on the current accounts of the transaction, in favour of the same Noteholders and all creditors of the CB2 Programme. H.6 - OPERATING FACULTIES OF THE TRANSFEREE COMPANY The Company has no operating faculties concerning the prepayment of covered bonds.
50 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
QUANTITATIVE INFORMATION
H.7 – CASH FLOW DATA FOR RECEIVABLES In the year, acquired loans have had the following movements:
(amounts in euro units)
From 01/01/2018 to From 01/03/2012* to 31/12/2018 31/12/2017 Opening balance 2,820,369,642 - of which: Loan portfolios purchased 2,871,086,361 - Accrued interest on loans 16,895,814 - Allowance for impairment (67,612,533) - Increases: 364,157,731 5,608,029,988 Loan portfolio purchase 323,273,726 5,256,515,309 Accrued interest on loans 40,884,005 351,514,679 Decreases: (697,793,370) (2,787,660,346) Collections of principal (637,548,418) (2,385,428,948) Collections of interest (42,753,986) (334,618,865) Writedowns of receivables (17,490,966) (67,612,533) Closing balance: 2,486,734,003 2,820,369,642 of which: Receivables portfolio 2,556,811,669 2,871,086,361 Accrued interest on loans 15,025,833 16,895,814 Allowance for impairment (85,103,499) (67,612,533)
* Date of Initial Transfer
At each reporting date, it is assessed whether there is any objective evidence that a financial asset or group of financial assets is impaired. This occurs when it is foreseen that the company will not be able to collect the amount due, according to the contractual terms, e.g. in the following cases: a) significant financial difficulty of the issuer or obligor; b) a breach of contract, such as default or delinquency in interests or principal payment; c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting a concession to the borrower which the lender would not otherwise consider; d) it becoming probable that the borrower will enter financial reorganisation; e) the disappearance of an active market for that financial asset because of financial difficulties; f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of similar financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group. The valuation of non-performing loans (loans that, based on the definitions given by the Bank of Italy, are non-performing, doubtful, restructured or past-due) is performed based on
51 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L. analytical methods. The valuation of the remaining loans is made based on collective methods, with grouping in similar risk classes. The criteria for determining the doubtful accounts to be registered for non-performing loans are based on the discounting of the expected financial flows, for capital and interests, taking into account any collateral covering the positions and any advance payments received. In determining the present value of future cash flows, the basic requirement is the identification of estimated collections, the timing of payments and the rate used. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted using the original effective interest rate. The valuation of performing loans regards the portfolios of assets for which no objective element of impairment has been found, and which are therefore assessed collectively. To the estimated cash flows of the assets, grouped in homogeneous classes with similar characteristics in terms of credit risk, the percentage loss that can be deduced from the historical statistics is applied. If a loan subjected to analytical assessment does not show significant value reductions, it is included in a group of financial assets with similar credit risk characteristics and assessed collectively.
H.8 - TREND OF PAST-DUE LOANS On 31 December 2018, the situation of the credit positions which have reached expiry but which have not been collected is the following:
(amounts in euro units)
UBI Loans UBI Loans IWB Loans IWB Loans
2018 2017 2018 2017 30 –60 days 10,842,747 17,284,808 - - 61 – 90 days 8,262,966 13,259,463 - - 91 – 120 days 4,285,147 14,585,892 - - More than 120 days 13,556,232 13,101,095 - - More than 210 days 228,586,053 250,142,531 5,976 6,348 Total 265,533,145 308,373,789 5,976 6,348
The loans are therefore classified as follows:
(amounts in euro units) UBI Loans IWB Loans Provision for Provision for 2018 % Coverage 2018 % Coverage impairment impairment Unimpaired loans 2,247,181,135 21,672,623 0.96% 17,089,298 65,540 0.38% Past due impaired loans 3,404,177 214,541 6.30% - - - Probable default 144,010,872 23,588,868 16.38% 5,976 1,679 28.10% Non-performing loans 145,120,211 39,560,248 27.26% - - - Total 2,539,716,395 85,036,280 3.35% 17,095,274 67,219 0.39%
52 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
(amounts in euro units) UBI Loans IWB Loans Provision for Provision for 2017 % Coverage 2017 % Coverage impairment impairment Unimpaired loans 2,550,800,451 10,378,920 0.41% 19,586,015 29,735 0.15% Past due impaired loans 4,161,867 220,333 5.29% - - 0.00% Probable default 139,752,577 17,543,591 12.55% 6,348 1,836 28.92% Non-performing loans 156,779,103 39,438,118 25.16% - - 0.00% Total 2,851,493,998 67,580,962 2.37% 19,592,363 31,571 0.16%
The organizational structure and policies adopted by the UBI Banca Group in the management of impaired loans is reported below and divides into: a) Impaired expired and/or excess loans (“Past-Due”), b) Probable default (also defined “Unlikely to pay”), c) Non-performing (also defined “Bad Loans”).
a) EXPIRED AND/OR EXCESS LOANS (PAST-DUE) This class includes “customer loans” for expired or excess amounts meeting all the following conditions: - of a continuous nature; - lasting more than 90 days; - for an amount equal to or greater than the threshold for detection (otherwise known as “materiality threshold”) identified each time by the Bank of Italy. Inclusion of the previously solvent debtor among these loans is automatic upon occurrence of the aforesaid regulatory requisites. The automatic classification of the debtor in: - “Performing loans” in the event of paying off the expired and/or excess loan; - in the category “Probable Operating Default” after 180 days of remaining continuously in the “Past-Due” state is also provided for. In such regard it is to be noted that for the customer classified as Past-Due ( status acquired 90 days after the anomaly occurring) who continues to present excesses and payments in arrears, a classification proposal of “Probable Operating Default” will be generated after 60 days, such status which will have a maximum duration of a further 120 days. Counter parties (individual subjects or economic groups) with exposure of above € 1 billion at Group level may remain in the Past-Due state for over 120 days after obtaining a preventive opinion from the Parent company. In any case, 180 days after acquiring Past-Due status, positions which continue to remain in such status, consequently continuing to present excesses or arrears will be automatically classified as “Probable Operating Default”. The faculty to manually classify the loan in “Past-Due” within a different default status is however acknowledged, after resolution by the competent body. Management of the counter parties classified in Past-Due is the responsibility of the Bank Networks of the Group.
b) PROBABLE DEFAULT This is how the loans which the Bank deems improbable that the debtor will repay in full (in terms of principal and/or interest) without the Bank putting into place actions aimed at safeguarding its claims, are classified.
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UBI FINANCE CB 2 S.R.L.
For the purposes of internal management only, the UBI Group distinguishes between: - “Probable Restructured Default”: the set of loans for which the debtor, on account of deterioration of his/her economic-financial position, obtains formalized restructuring agreements; - “Probable Operating Default”: the set of positions classified as “Probable Default” for which there is an intention to regularize the position within a time frame of not more than 12 months; - “Probable Recovery Default”: the set of positions classified as “Probable Default” for which there is an intention to proceed with total decommitment of the loan with the customer. Counter parties “undergoing restructuring” i.e. positions which, regardless of the administrative classification status, have the following characteristics: - counterparties for whom objective elements regarding the customer’s wish to proceed with a loan restructuring plan (“objective restructuring”) have been observed. - counter parties for whom, in the face of significant financial tension, the Bank deems it opportune to activate a support plan by opening a negotiation (“potential restructuring”) also fall within “Probable Restructured Default”. The Banks in the Group have the faculty to independently classify and impair to such administrative state, in line with the degree of deterioration of the risk profile of the counter party; they are also bound, after making such classification, to ask the Parent Company for a preventive opinion on consistency with the Group’s guidelines on credit in relation to the management proposal concerning such counter parties (including therein the extent of analytical impairments). Counter parties “undergoing restructuring “ (as defined previously) are an exception to the above rule for whom the relative classification in the state of “Probable Restructured Default” is made by the Bank after obtaining an opinion from the Parent Company UBI Banca. The management of counter parties “undergoing restructuring” and of those classified in “Probable restructured default” falls within the sphere of competence of the Impaired Loans and Credit Collection Area, where the customers of the Banks in the Group have granted a specific mandate to the Parent Company by means of a framework agreement. In other cases the management of counter parties classified as “probable restructured default”/ “undergoing restructuring” remains with the individual Banks. As regards Probable Operating and Recovery Default, Banks have the faculty to independently classify and impair them, they are also bound, after making such classification, to ask the Parent Company for a preventive opinion on consistency with the Group’s guidelines. Counter parties “undergoing restructuring” classified as “Probable restructured default” subject to centralised management are an exception for whom the relative classification of the positions of such subsidiaries, is the responsibility of the Banks which granted a management mandate to the Parent Company, after making an application to the Parent Company.
c) NON-PERFORMING LOANS This item includes cash receivables due from parties in a state of insolvency, even if not yet legally ascertained, or in equivalent situations, regardless of any loss forecasts formulated by the Bank. To enable prompt attribution of the Non-performing status to the counter parties concerned, the Bank has the faculty to independently classify and impair in such administrative state, in line with the degree of deterioration of the risk profile of the counter
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UBI FINANCE CB 2 S.R.L.
party; the Banks are bound, immediately after making such classification, to inform the Parent Company and request a preventive opinion on its consistency with the Group’s guidelines. The management of Non-performing customer loans of the Banks which have granted a specific mandate to the Parent Company by means of a framework agreement falls within the sphere of competence of the Impaired Loans and Credit Collection Area of the Parent Company, and in particular of the competent Credit Recovery Service; in the absence of a mandate granted to the Parent Company the management of Non-performing counter parties remains with the individual Banks. UBI’s Impaired Loans and Credit Collection Area may avail of the contribution of External Debt Collection companies or the professional assistance of external law firms in its activities. Upon conclusion of the credit recovery, whether in or out of court, if the credit is partially recovered by the Bank or is not recovered, the part of the credit not recovered will be accounted for in the losses, following resolution by the Body chosen according to the company regulations currently in force. Such resolution will not in any case entail the waiving of any residual credits due.
55 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
H.9 - CASH FLOWS The cash flows that occurred during the year ended 31 December 2018 are summarized in the following table:
(amounts in euro units) FY 2018 FY 2017 Description Partial Total Partial Total
Collections in the year 672,777,386 509,527,002 - from receivables 672,777,386 509,527,002 - from notes issued - - - from guarantee lines - - - from liquidity lines - - - from derivative contracts - - - other collections - -
Payments in the year (597,548,070) (543,058,234) - to noteholders - - - to Originator 597,234,864 542,160,177 - on guarantee lines - - - on liquidity lines - - - on derivative contracts - - - other payments 313,206 898,057
Net income/(outgoing) 75,229,316 (33,531,232)
Cash and cash equivalents 63,441,787 96,973,019 at the start of the year Cash and cash equivalents 138,671,103 63,441,787 at the end of the year
Net change in cash 75,229,316 (33,531,232)
The cash flows of the period are in line with the forecasts. Forecast flows for FY 2019 come to approximately € 364.5 million, divided up into € 307.9 million for capital and € 56.6 million for interest.
H.10 - SITUATION OF GUARANTEES AND CREDIT LINES There are no credit lines granted or received from third parties, and no resort was made to any temporary funding source.
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H.11 – BREAKDOWN ACCORDING TO RESIDUAL LIFE
TABLE BEING PREPARED
ASSETS: All the monetary loans, arising from performing loans in portfolio, follow a scheduled repayment plan with the following residual life, calculated by taking the maturity date of the loan itself as a reference:
(amounts in euro units)
UBI Loans UBI Loans IWB Loans IWB Loans 2018 2017 2018 2017 Up to three months 10,820,389 11,511,319 5,912 6,359 From three months to one year 24,428,183 25,235,760 77,347 189,447 From one to five years 435,053,387 467,589,746 596,441 700,726 More than five years 2,069,414,436 2,347,157,173 16,415,574 18,695,831 Total 2,539,716,395 2,851,493,998 17,095,274 19,592,363
The “Other assets” fall due within a maximum period of 18 months.
LIABILITIES: The “Other liabilities” are due in the short term.
H.12 - BREAKDOWN BY GEOGRAPHIC SEGMENT
TABLE BEING PREPARED
Borrowers’ country of residence: ITALY
(amounts in euro units) UBI Loans UBI Loans IWB Loans IWB Loans 2018 2017 2018 2017 Italy 2,539,716,395 2,851,493,998 17,095,274 19,592,363 Not in Italy - - - - Total 2,539,716,395 2,851,493,998 17,095,274 19,592,363
Currency of the credit positions: EURO.
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H.13 - CONCENTRATION OF RISK
The following tables summarize the number and total value of loans by amount for each Seller Bank.
(amounts in euro units) Amounts at 31/12/2018
Amount bracket UBI Loans IWB Loans
(euro) Contracts nos. Amount occurrence % Contracts nos. Amount occurrence % >0 < 25,000 6,150 65,085,268 2.56 22 295,286 1.73 >25,000 < 75,000 9,235 442,386,707 17.42 41 1,908,474 11.16 >75,000 < 250,000 8,168 1,006,142,210 39.62 49 6,162,300 36.05 > 250,000 1,405 1,026,102,510 40.40 10 8,729,314 51.06 Total 24,958 2,539,716,695 100 122 17,095,374 100
(amounts in euro units) Amounts at 31/12/2017
Amount bracket UBI Loans IWB Loans
(euro) Contracts nos. Amount occurrence % Contracts nos. Amount occurrence % >0 < 25,000 6,004 73,864,011 2.59 18 221,149 1.13 >25,000 < 75,000 10,219 493,133,325 17.29 47 2,079,932 10.62 >75,000 < 250,000 8,991 1,113,821,418 39.06 56 6,844,796 34.94 > 250,000 1,604 1,170,675,244 41.05 13 10,446,486 53.32 Total 26,818 2,851,493,998 100 134 19,592,363 100
It is also reported that there are no individual loans greater than 2% of the total loans in the portfolio.
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UBI FINANCE CB 2 S.R.L.
SECTION 3 – INFORMATION ON RISKS AND RELATED HEDGING POLICIES
3.1 CREDIT RISK QUALITATIVE INFORMATION 1. GENERAL (i) ORDINARY MANAGEMENT - The Company is not subject to credit risk since it only has “credit with banks” represented by current account deposits amounting to € 10,040. (ii) SEGREGATED ASSETS - The Company is subject to risks deriving from: - failure to collect sums due from transferred debtors; - default of the Servicer in collecting sufficient funds to meet the payment obligations deriving from the CB2 Program. Such risks are mitigated by the following techniques: - the issue by UBI Banca of a total amount of covered bank bonds with a value lower than that of the credit portfolios sold (“over-collateralisation”).
3.2 MARKET RISK 3.2.1 INTEREST RATE RISK QUALITATIVE INFORMATION 1. GENERAL (i) ORDINARY MANAGEMENT - The Company is not subject to credit risk since it only has “credit with banks” represented by current account deposits amounting to € 10,040. (ii) SEGREGATED ASSETS - For the Company, interest rate risk exists only when the Issuer is no longer able to sustain the commitments deriving from the issue of the covered bonds (“Issuer Default Notice”), and it is mainly due to the potential loss arising from changes in interest rates of the securitised assets and the issued bonds. The latter, in fact, follow the trend of the variable rate Euribor market, whilst the performing loans, which constitute the securitisation assets, are not necessarily linked to the Euribor. As a result of this misalignment between interest income and interest expense, if the Euribor should exceed a certain level, the Company might not have sufficient funds to provide for the payment of all the obligations deriving from the CB2 Programme. The main element for the mitigation of this risk is the overcollateralisation.
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3.3 OPERATIONAL RISKS QUALITATIVE INFORMATION 1. GENERAL ASPECTS, MANAGEMENT PROCESS AND MEASUREMENT METHODS FOR OPERATIONAL RISK This refers to the risk of sustaining losses generated by inefficient company processes, the malfunctioning of technological systems, or external events which cause, or could cause, objective and measurable losses for the Company. The Basel Committee ascribes unexpected losses to the occurrence of four factors: human error, system failures, inadequate procedures and controls and external events. Operational risk is a pure risk; i.e. it is connected only to the negative effects of an event. The ability of the Company to fulfil its obligations pursuant to the covered bank bond programme structured by UBI Banca, in which the company participates, depend exclusively on third-party subjects to which all the functions typical of an organised structure, as well as the internal auditing systems, are delegated; the Company, in fact, by its nature, has no employees. In particular, the positive outcome of the CB2 Programme depends on the ability of the Servicer to manage the loans portfolio according to the terms of the Servicing Agreement. Therefore, in order to mitigate the risk deriving from the servicing activity and to ensure that the credit is managed in a coherent and uniform manner, the Servicer: - has acknowledged that its obligations pursuant to the Serving contract are those that it must honour in the normal performance of its professional activity; - has undertaken to manage the servicing activity with maximum professional diligence, it remaining understood that if, in the execution of the mandate, a conflict should arise between its own interests and that of the bank which issues other services relative to the transferred borrowers and the Company’s interests, the Service shall report the fact to the Company and to the Noteholders’ Representative, and shall, in any case, follow the directives issued by this latter; - is held to perform the servicing activity through its own operating structure, and to guarantee that this is provided with all the infrastructures, and technical and organisational and information technology resources necessary for the efficient execution of the aforesaid activities.
3.4 LIQUIDITY RISK QUALITATIVE INFORMATION 1. GENERAL ASPECTS, PROCESSES AND METHODS FOR ESTIMATING AND MANAGING THE LIQUIDITY RISK a) ORDINARY MANAGEMENT - The Company is not subject to liquidity risk since it has “Receivables from banks” for demand deposits in bank accounts of € 10,040. b) SEGREGATED ASSETS - The liquidity risk is connected with the possibility of incurring losses, in terms of the price for disposing of assets/liabilities as resulting from the need to liquidate the positions promptly due to unforeseen financial needs in the event of default by the Issuing Bank. In this case, in fact, the Company would be forced to sell the
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cover pool on the market, as the funds collected may not suffice to make timely payment of the interest and capital on the Covered Bank Bonds issued. The main elements for mitigating this risk are: - the high level of over-collateralisation; - the quality of the loans portfolio sold; - the dynamic management of the cover pool itself, considering that the funds obtained from the instalments collected by way of capital on the loans of the cover pool are in fact re-invested in new loans with similar characteristics. As far as quantitative information is concerned, please refer to paragraph “H. Covered bank bonds” in the Notes.
SECTION 4 – INFORMATION ON ASSETS The characteristic of the Company’s business, specifically dictated by Italian Law no. 130/99 is the separate equity of the company’s assets and liabilities with respect to those of the covered bank bond programme structured by UBI Banca, in which the Company is involved. Given this separation, the corporate costs incurred to maintain the Company in good standing are limited and in any case recovered by means of specific contractual clauses that establish the charging back of the programme. This means that the company selling the assets underlying the covered bank bonds UBI Finance CB 2 S.r.l. retains suitable equity levels during implementation of the covered bond programme. For quantitative information, please refer to the section on Liabilities, relative to the composition of items 110 to 170.
SECTION 5 – COMPREHENSIVE INCOME STATEMENT As during financial year 2018 no changes in value were observed for the assets offset against the valuation reserves, the Company’s Profit/Loss coincides with its comprehensive income.
61 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
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SECTION 6 – RELATED PARTY TRANSACTIONS 6.1 DETAILS OF REMUNERATION PAID TO KEY MANAGEMENT PERSONNEL Directors 9,538 Statutory auditors - Total 9,538 The fees for the Board of Directors are shown in the table. The Company does not have a Board of Auditors.
6.2 LOANS AND GUARANTEES ISSUED IN FAVOUR OF DIRECTORS AND STATUTORY AUDITORS No loans or guarantees have been granted to directors.
6.3 INFORMATION ON RELATED PARTY TRANSACTIONS The Company, whose capital is subscribed by 60% by Unione Banche Italiane S.p.A. and for the remaining 40% by the Dutch foundation Stichting Viola, is subject to Management and Coordination activity by Unione Banche Italiane S.p.A. itself. Concerning relationships with UBI Banca Group companies, the Company has at UBI Banca S.p.A., a current bank account regulated by market conditions, number 89447, for an amount of € 10,040 at 31 December 2018.
INFORMATION ON THE PARENT COMPANY UBI Finance CB 2 S.r.l. is part of the UBI Banca Banking Group registered in the Register of Banking Groups; the parent company is the Unione di Banche Italiane S.p.A., with head office in Bergamo, piazza Vittorio Veneto 8. Pursuant to art. 2497 bis of the Italian civil code, the essential data of the last approved financial statement of UBI Banca, the parent company responsible for the direction and coordination of the Company, is indicated below. For a full understanding of UBI Banca’s financial situation at 31 December 2016, and of the financial result achieved by the bank in the annual period ending at such date, please read the financial statements which, accompanied by the auditors’ report is available from the company’s head office or on the website www.ubibanca.it.
62 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
FINANCIAL STATEMENTS OF THE COMPANY CARRYING OUT THE MANAGEMENT AND COORDINATION ACTIVITY - KEY FIGURES (ART. 2497 BIS OF THE ITALIAN CIVIL CODE) - 2017 FINANCIAL STATEMENTS - UBI BANCA S.P.A.
STATEMENT OF FINANCIAL POSITION (in thousands of euro)
31/12/2017 Amounts in thousands of euro
Asset Items 10. Cash and cash equivalents 687,323 20. financial assets held for trading 866,146 30. Financial assets at fair value 52,253 40. Financial assets available for sale 7,994,129 50. Financial assets held until maturity 5,937,872 60. Loans and advances to banks 7,387,337 70. Loans and advances to customers 90,499,872 80. Hedging derivatives 169,907 90. Value adjustment of generically-hedged financial assets (+/-) -2,035 100. Equity investments 1,435,674 110. Property, plant and equipment 1,586,709 120. Intangible assets 1,287,239 of which goodwill 1,195,839 130. Tax assets 3,744,182 a) current 1,330,394 b) deferred 2,413,788 pursuant to Law 214/2011 1,678,355 140. Non-current assets and asset groups held for sale 333 150. Other assets 1,653,898 TOTAL ASSETS 123,300,839
31/12/2017 Amounts in thousands of euro
LIABILITIES AND SHAREHOLDERS’ EQUITY 10. Due to banks 17,142,746 20. Due to customers 65,308,907 30. Outstanding securities 27,499,949 40. Financial liabilities held for trading 411,931 60. Hedging derivatives 99,171 80. Tax liabilities 173,881 a) current 30,685 b) deferred 143,196 100. Other liabilities 2,492,840 110. Post-employment benefits 319,346 120. Provisions for risks and charges: 400,670 a) pensions and similar commitments 101,770 b) other provisions 298,900 130. Valuation reserves -142,929 160. Reserves 3,466,364 170. Quota premiums 3,306,627 180. Quota Capital 2,843,177 190. Treasury quotas (-) -9,818 200. Profit (Loss) for the year (+/-) -12,023 TOTAL LIABILITIES AND EQUITY 123,300,839
63 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
INCOME STATEMENT (in thousands of Euro)
31/12/2017 Amounts in thousands of euro
10. Interest income and similar income 1,854,720 20. Interest expense and similar (573,381) 30. Net interest expense 1,281,339 40. Fee and commission income 1,329,732 50. Fee and commission expense (81,807) 60. Net fee and commission income 1,247,925 70. Dividends and similar income 98,957 80. Net result of trading 122,269 90. Net result of hedges (1,308) 100. Profit (Loss) on disposal or repurchase of: 109,591 a) loans (43,499) b) financial assets available for sale 107,110 c) financial assets held to maturity 55,937 d) financial liabilities (9,957) 110. Net result of financial assets/liabilities carried at fair value 12,806 120. Net trading income 2,871,579 130. Net impairment losses on: (817,795) a) loans (685,675) b) financial assets available for sale (157,531) d) other financial transactions 25,411 140. Net result of financial operations 2,053,784 150. Administrative costs: (2,195,841) a) staff costs (1,161,058) b) other administrative expenses (1,034,783) 160. Provisions for risks and charges (7,552) 170. Net impairment losses on property, equipment and investment property (58,278) 180. Net impairment losses on intangible assets (7,160) 190. Other operating expense/income 282,399 200. Operating costs (1,986,432) 210. Profit (Loss) on associates (69,639) 240. Profit (Loss) on disposal of investments 1,176 250. Profit (Loss) on continuing operations before tax (1,111) 260. Income taxes for the year on continuing operations (10,912) 270. Profit (Loss) from continuing operations after tax (12,023) 290. Profit (Loss) for the year (12,023)
64 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
SECTION 7 – OTHER INFORMATION 7.1 AVERAGE NUMBER OF EMPLOYEES BY CATEGORY The Company has no employees.
7.2 FEES FOR THE INDEPENDENT AUDITOR Pursuant to Art. 2427, paragraph 1, no. 16-bis of the Italian Civil Code, below is a table giving information on the fees paid to the independent auditing firm Deloitte & Touche S.p.A. and to the companies belonging to its network. The fees pertaining to the fiscal year 2018 are the ones stated by the contract including ISTAT remeasurement, but excluding expenses, the supervisory contribution and VAT:
Type of service Service provider Service receiver Fees (€) Independent auditing Deloitte & Touche S.p.A. UBI Finance CB 2 S.r.l. 21,500 Other services Deloitte & Touche S.p.A. UBI Finance CB 2 S.r.l. 3,000 Total 24,500
The independent auditor did not provide any additional services in the 2018 financial year.
* * * * *
Milan, 20 February 2019
UBI FINANCE CB 2 S.R.L. For the Board of Directors The Chairman Renzo Parisotto
65 FINANCIAL STATEMENTS AT 31 DECEMBER 2018
UBI FINANCE CB 2 S.R.L.
IINDEPENDENT AAUDITOR’’S RREPORT
66