UBI FINANCE CB 2 S.R.L.
COMPANY SUBJECT TO MANAGEMENT AND COORDINATION ACTIVITY BY UBI BANCA S.P.A. Foro Buonaparte 70 – 20121 Milan Quota capital Euro 10,000.00 = fully paid up Listed on the Companies Register of Milan Reg. no. and tax code 07639080964
FINANCIAL STATEMENTS
AT 31 DECEMBER 2017
This is a translation of the Italian original "Bilancio d’esercizio al 31 dicembre 2017" 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 2017
UBI FINANCE CB 2 S.R.L.
INDEX
CORPORATE BODY ...... 3 DIRECTORS’ REPORT ON OPERATIONS ...... 4 1 - GENERAL INFORMATION 4 1.1 - Management of the Company ...... 6 1.2 - Company organization ...... 7 1.3 - Research and development activities ...... 8 1.4 - Own shares and the holding company’s shares ...... 8 1.5 - Management and coordination activities ...... 8 1.6 – Related party transactions ...... 8 1.7 -. Going concern...... 8 2 - SUBSEQUENT EVENTS 8 3 - OUTLOOK 8 4 - PROFIT FOR THE YEAR 9 5 - OTHER INFORMATION 9 STATEMENT OF FINANCIAL POSITION ...... 10 INCOME STATEMENT ...... 11 STATEMENT OF COMPREHENSIVE INCOME ...... 12 STATEMENT OF CHANGES IN EQUITY ...... 13 CASH FLOW STATEMENT ...... 14 EXPLANATORY NOTES ...... 16 1. INTRODUCTION 16 2. PART A - ACCOUNTING POLICIES 16 A.1 General part ...... 16 A.2 The main aggregates of the financial statements ...... 20 A.3 Information on the transfer of financial assets between portfolios...... 22 A.4 Information on fair value ...... 23 A.5 Information on the so-called “Day one profit/loss” ...... 23 3. PART B - COMMENTS ON THE BALANCE SHEET 24 4. PART C – COMMENTS ON THE INCOME STATEMENT 29 5. PART D – OTHER INFORMATION 32 Section 1 - Specific notes on the operations carried out ...... 32 Section 3 – Information on risks and related risk management policies ...... 56 Section 4 – Comments on Equity ...... 58 Section 5 – Comprehensive Income Statement ...... 58 Section 6 – Transactions with related parties ...... 59 Section 7 – Other information ...... 62 INDEPENDENT AUDITOR’S REPORT ...... 63
2 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
CORPORATE BODY
BOARD OF DIRECTORS
CHAIRMAN OF THE BOARD : DOTT. RENZO PARISOTTO
DIRECTORS : DOTT. MARCO TRABATTONI
DOTT. ANDREA DI COLA
INDEPENDENT AUDITOR : DELOITTE & TOUCHE S.P.A.
3 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
DIRECTORS’ REPORT 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 30th 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. Law 130/99 was amended in 2005 in order 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 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 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’ 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) the Legislative Decree dated 13 August 2010 no. 141 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 Civil Code, of the covered bond holders, as per subsection 1 of Art. 7-bis of 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 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 other creditors, as per the previous subsection, are permitted. Unlike traditional securitisation transactions these programmes have a dynamic structure which consists of providing for
4 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L. 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 9 December 2016 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 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”. This Ruling was recently substituted by the Ruling dated 22 December 2017, which is applicable to financial statements that closed or are current at 31 December 2018. 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 Law 130/1999. Consequently these continue to be represented as they were in the 2016 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 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 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 ex art.107 and those registered in the General list ex art.106. This said, following the loss of the requisites for remaining in the new “Single Register ex art. 106”, on 27 July 2015, the Company requested cancellation as a Financial Intermediary from the General List ex 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 in Foro Buonaparte no. 70 Milan, whilst the duration is established until 31 December 2050. At incorporation, the quota capital of Euro 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 Euro 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 2017
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 02 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”), 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”), 4. Banca Popolare di Ancona S.p.A. (“BPA”), 5. Banco di San Giorgio S.p.A. (“BSG”), now UBI Banca by virtue of the merger by acquisition of BRE that took place 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”), and 8. Banca di Valle Camonica S.p.A. (“BVC”) 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 10. the Parent company of UBI Banca ( all together 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’.
6 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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
1.1.3 SIGNIFICANT EVENTS DURING THE PERIOD The following significant events occurring during 2017 are noted: The “SINGLE BANK” PROJECT: with effect from 20 February 2017, UBI Banca incorporated all the remaining banks in the UBI Group (i.e. Banco di Brescia S.p.A., Banca Popolare di Bergamo S.p.A., Banca Carime S.p.A., Banca di Valle Camonica S.p.A. and Banca Popolare di Ancona S.p.A.), thus completing all the phases of the “Single Bank” Project in advance. This made it necessary to adapt the CB2 Programme contracts to the new UBI Group structure on 23 May. SALE NO.10: on 30 May, the Company acquired a loan portfolio without recourse for Euro 307,018,204 from UBI Banca. Programme renewal: on 27 July, annual renewal of the Prospectus relating to the CB2 Programme. Minor contract amendments: on 12 December certain CB2 Programme contracts were amended so as to: (i) change the nominal value test; (ii) allow for the transfer of public entity bonds. The Sixth Series: on 21 December, UBI Banca issued the sixth series of covered bonds maturing on 21 December 2023 for an amount equal to Euro 300 million, the (“Sixth Series”); at the same time, the Company released the Guarantee for a total maximum granted amount equal to Euro 2,180,000,000.
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 ORGANIZATION 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.
7 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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 ACTIVITIES The Company has incurred no expenditure for research and development.
1.4 - OWN SHARES AND THE HOLDING COMPANY’S SHARES 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 subject to management and coordination activity by UBI Banca that holds 60% of the Company’s quota capital.
1.6 – RELATED PARTY 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. During the preparation of Financial Statements it has been assessed the existence of conditions relating to the Company’s ability to act as an operating entity with a time horizon of at least twelve months after the date of these Financial Statements. 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 Law 130/99, is the realization of one or more covered bond transactions. Consequently, these Financial Statements were prepared on a going concern basis, as there were no events or conditions that may lead to the emergence of doubts about the Company’s ability to keep on acting as an operating entity.
2 - SUBSEQUENT EVENTS For significant events occurring after 31 December 2017, please see section 3 of part A1 of the Explanatory Notes.
3 - OUTLOOK Company management will aim at continuing the CB2 Programme by UBI Banca for the covered bank bonds previously referred to.
8 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
4 - PROFIT FOR THE YEAR The financial period closes at break-even point since the functioning costs are debited to the separate capital in compliance with contractual agreement.
5 - OTHER INFORMATION There is nothing to report.
* * * * * PROPOSAL FOR THE ALLOCATION OF PROFIT (LOSS) FOR THE YEAR
Dear Quotaholders, We believe we have sufficiently illustrated the Company’s situation at 31 December 2017 relative to the sixth financial year, with the obligatory accounting schedules prescribed by IAS 1, i.e. the Balance Sheet, the Income Statement, the Comprehensive Income Statement, the Statement of Changes in Equity, the Cash Flow Statement, the Explanatory Notes to the financial statements and this Directors' Report on Operations. We therefore invite you to approve the financial statement at 31 December 2017, which closes at break-even point. Milan, 19 February 2018
UBI FINANCE CB 2 S.R.L. For the Board of Directors The Chairman Dott. Renzo Parisotto
9 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
STATEMENT OF FINANCIAL POSITION
ASSETS
(values in Euro) Assets 2017 2016
60. Loans and receivables 10,040 10,040
120. Tax assets 387 462 a) current 387 462 b) advanced - - pursuant to Law 214/2011
140. Other assets 255,344 204,473
TOTAL ASSETS 265,771 214,975
LIABILITIES
(values in Euro) Liabilities and Equity 2017 2016
70. Tax liabilities 1,595 298 a) current 1,595 298 b) deferred - -
90. Other liabilities 254,158 204,659
120. Quota Capital 10,000 10,000
160. Reserves 18 18
180. Profit (Loss) for the year - -
TOTAL LIABILITIES AND EQUITY 265,771 214,975
10 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
INCOME STATEMENT
(values in Euro)
01/01/2017 - 01/01/2016 - Items 12/31/2017 12/31/2016
10. Interest income and similar income - -
NET INTEREST INCOME - -
110. Administrative expenses: (49,146) (40,882) a) staff costs (16,584) (10,143) b) other administrative expenses (32,562) (30,739)
160. Other operating income/expenses 50,741 41,151
OPERATING PROFIT 1,595 269
PROFIT (LOSS) BEFORE TAX FROM 1,595 269 CONTINUING OPERATIONS 190. Income taxes for the year from continuing operations (1,595) (269)
PROFIT (LOSS) AFTER TAX FROM - - CONTINUING OPERATIONS
PROFIT (LOSS) FOR THE YEAR - -
11 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
STATEMENT OF COMPREHENSIVE INCOME
(values in Euro)
Items 31/12/2017 31/12/2016
10. Profit (Loss) for the year - - Other income, net of taxes without transfer to income statement - - 20. Property, equipment and investment property - - 30. Intangible assets - - 40. Defined benefit plans - - 50. Non-current assets held for sale - - 60. Portion of reserves relating to equity-accounted investments - - Other income, net of taxes with transfer to income statement - - 70. Hedges of investments in foreign operations - - 80. Exchange rate differences - - 90. Cash flow hedges - - 100. Financial assets available for sale - - 110. Non-current assets held for sale - - 120. Portion of reserves relating to equity-accounted investments - - 130. Total other comprehensive income after tax - - 140. Comprehensive income (Items 10+130) - -
12 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
STATEMENT OF CHANGES IN EQUITY
MOVEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
(values in Euro) Previous year net Changes during the year income’s allocation Equity transactions
year 2017 year
12.31.2017
Reserves
allocations
Balance at 01.01.2017 at Balance
instruments
Extraordinary Extraordinary
Other changes Other
Quotaholders’ Equity at at Equity Quotaholders’
Change in equity inequity Change
Opening balance adjustments Openingbalance inreserves Change
Opening Balance at 12.31.2016 at OpeningBalance
Issue of new quotas newof Issue the for income Comprehensive
Dividendsand other
dividendsdistribution
Purchase of ownof shares Purchase
Quota Capital 10,000 - 10,000 - 10,000 Quota premium - - - - - Reserves: a) income-related 18 18 - 18 b) other - - - - - Valuation reserves - - - - - Equity instruments - - - - - Treasury quotas - - - - - Profit (Loss) for the year ------Quotaholders’ Equity 10,018 - 10,018 ------10,018
MOVEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016
(values in Euro) Previous year net Changes during the year income’s allocation Equity transactions
year 2016 year
12.31.2016
Reserves
allocations
Balance at 01.01.2016 at Balance
instruments
Extraordinary Extraordinary
Other changes Other
Quotaholders’ Equity at at Equity Quotaholders’
Change in equity inequity Change
Opening balance adjustments Openingbalance inreserves Change
Opening Balance at 12.31.2015 at OpeningBalance
Issue of new quotas newof Issue the for income Comprehensive
Dividendsand other
dividendsdistribution
Purchase of ownof shares Purchase
Quota Capital 10,000 - 10,000 - 10,000 Quota premium - - - - - Reserves: a) income-related 15 15 3 - 18 b) other - - - - - Valuation reserves - - - - - Equity instruments - - - - - Treasury quotas - - - - - Profit (Loss) for the year 3 - 3 (3) - - - Quotaholders’ Equity 10,018 - 10,018 ------10,018
13 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
CASH FLOW STATEMENT
DIRECT METHOD
(values in Euro) Amount Amount A. OPERATING ACTIVITIES 2017 2016 1. Management - - - interest income collected (+) - - - interest expense paid (-) - - - dividends and similar revenues (+) - - - net fee and commission (+/-) - - - staff costs (-) - - - other costs (-) - - - other revenues (+) - - - taxes and duties (-) - - - income/expenses of groups of assets held for disposal, net of the tax effect (+/-) - - 2. Net cash flows from/used in financial assets - - - financial assets held for trading - - - financial assets measured at fair value - - - financial assets available for sale - - - due from banks - - - due from financial entities - - - loans and advances to customers - - - other assets - - 3. Net cash flows from/used in financial liabilities - - - payables to banks - - - payables to financial entities - - - payables to customers - - - outstanding securities - - - financial liabilities held for trading - - - financial liabilities designated at fair value - - - other liabilities - - Net cash flows from/used in operating activities A - -
B. INVESTING ACTIVITIES
1. Cash generated by - sales of equity investments - - - dividends collected on equity investments - - sales/redemptions of financial assets held to maturity - - - sales of property, plant and equipment - - - sales of intangible assets - - - sales of business units - - 2. Cash used for - - - purchases of equity investments - - - purchases of financial assets held to maturity - - - purchases of property, plant and equipment - - - purchases of intangible assets - - - purchases of business units - - Net cash flow from/used in investing activities B - -
14 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
(values in Euro) Amount Amount C. FUNDING ACTIVITIES 2017 2016 - issues/purchases of own shares - - - issues/purchases of equity instruments - - - distribution of dividends and other purposes - - Net cash flow from/used in funding activities C - -
NET CASH GENERATED/USED DURING THE YEAR D=A+B+C - -
RECONCILIATION
Amount Amount 2017 2016 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
* This item of the Cash Flow Statement normally includes amounts due from banks available on demand
15 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
EXPLANATORY NOTES
1. INTRODUCTION
These EXPLANATORY NOTES are divided into the following parts: PART A - ACCOUNTING POLICIES PART B – COMMENTS ON THE BALANCE SHEET PART C – COMMENTS ON THE INCOME STATEMENT PART D – OTHER 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 the Legislative Decree 38/2005 and therefore pursuant to the possibility granted by art. 4, subsection 4 of the 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 2017 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 the aforementioned 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 – BASIS OF PREPARATION 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 9 December 2016 entirely replacing the Regulation of 14 February 2006 and subsequent amendments on the
16 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L. 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 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, please note that the accounting treatment under International Financial Reporting Standards of financial assets and/or groups of financial assets and financial liabilities as guarantee of 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 fair view of the financial positions, results of operations and cash flows for the year. This financial statement applies the following preparation criteria: . GOING CONCERN (IAS 1 PAR. 25 AND 26) Assets and liabilities are measured based on their function, since they are destined to last in time. . ACCRUALS PRINCIPLE (IAS 1 PAR. 27 AND 28) Costs and revenues are recognised, irrespective of the moment in which the amount is paid/received, under the accruals principle and matching criteria. . COHERENCE OF PRESENTATION (IAS 1 PAR. 29) Presentation and classification of items are maintained consistent over time in order to ensure the comparison of information, unless their modification is required by an International Financial Reporting Standard or by an interpretation or renders more appropriate in terms of significance and reliability, the representation of values. If a presentation or classification criterion is changed, the new criterion is also applied – when 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 groupings of significant items of a similar nature and function are shown separately. Elements of a different nature or function, if material, are shown separately. . PROHIBITION OF OFFSETTING (IAS 1 PAR. 32) Assets and liabilities, costs and revenues are not offset against each other, unless this is required by an International Financial Reporting Standard or by an interpretation or by the schedules and instructions of the Bank of Italy. . COMPARATIVE INFORMATION The comparative information of the previous year is shown for all data in the accounts, unless an International Financial Reporting Standard or an interpretation do not prescribe or allow otherwise. Disclosures are also included when useful for comprehension of data. The financial statements are composed of the mandatory schedules required by IAS 1, that is the Statement of financial position, the Income Statement, the Statement of Changes in Equity, the Statement of cash flows 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.
17 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
The financial statements are also accompanied by the Directors Report on Operations. These financial statements were audited pursuant to Legislative Decree 27 January 2010, no. 39 by Deloitte & Touche S.p.A., which was appointed by the quotaholders for the three-year period 2015-2017 on 10 March 2015. INTERNATIONAL ACCOUNTING STANDARDS IN FORCE SINCE 2017 Below we list the accounting standards, amendments and IFRS interpretations that came into force in 2017: On 18 May 2017, the IASB published IFRS 17 – Insurance Contracts that is intended to replace IFRS 4 – Insurance Contracts. The objective of the new principle is to guarantee that entities provide the relevant information to faithfully represent the rights and obligations resulting from insurance contracts that are issued. The IASB developed the standard to eliminate discrepancies and weaknesses in existing accounting policies, providing a single principle-based framework that encompasses all kinds of insurance contracts, including re-insurance contracts held by an insurer. The new principle further stipulates submission and disclosure requirements to improve comparability between the entities falling under this sector. The new principle measures an insurance contract based on a General Model or a simplified version of the latter, referred to as the “Premium Allocation Approach” (“PAA”). The main characteristics of the General Model are: estimates and assumptions for future cash flows are always current; the measurement reflects the time value of money; estimates require extensive use of information available on the market; there is current and explicit risk measurement; expected profit is deferred and aggregated in groups of insurance contracts with the initial recording; and, the expected profit is recorded during the period of insurance cover taking into consideration adjustments arising from changes in the assumptions relating to financial flows for each contract group. The PAA approach measures liabilities for the remaining coverage of an insurance contract group, provided that at the time of the initial statement, the entity ensures that this liability reasonably represents an approximation of the General Model. Contracts with a coverage period of one year or less are automatically suited to the PAA approach. The simplifications resulting from applying the PAA method do not apply to the assessment of liabilities for existing claims, which are measured using the General Model. Nonetheless, it is not necessary to analyse cash flows where the balance to be paid or collected is expected to take place within one year from the date on which the claim was made. The entity must apply the new principle to insurance contracts issued, including the reinsurance contracts issued, to reinsurance contracts held and also to investment contracts with a discretionary participation feature (DPF). The principle is applicable from 1 January 2021, but early application is permitted only in respect of entities that apply IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers.
On 7 June 2017, the IASB published the interpretative document IFRIC 23 – Uncertainty over Income Tax Treatments. The document deals with the issue of uncertainty over tax treatment in respect of income tax. The document states that uncertainties in determining tax payables or receivables should only be reflected in the financial statements when it is probable that the entity will pay or
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UBI FINANCE CB 2 S.R.L.
recover the amount in question. 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.
On 12 October 2017, the IASB published the document “Prepayment Features with Negative Compensation (Amendments to IFRS 9)”. This document specifies that debt instruments that include an early repayment option could qualify for the characteristics of contractual financial flows (“SPPI” test) and consequently, could be measured using the amortised cost method or the fair value through other comprehensive income even in the case where the “reasonable additional compensation” expected in the case of an early repayment is a “negative compensation” for the financing party. The amendment is applicable from 1 January 2019, but early application is permitted.
On 12 October 2017, the IASB published the document “Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)”. This document clarifies the need to apply IFRS 9 including the requirements linked to impairment, to long-term interests in associate companies and joint ventures to which the equity method is not applied. The amendment is applicable from 1 January 2019, but early application is permitted.
On 12 December 2017 the IASB published the document “Annual Improvements to IFRS 2015-2017 Cycle” implementing the amendments to some principles within the sphere of the annual improvement process of the same. The main amendments refer to: IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: the amendment clarifies that when an entity obtains control of a business that is a joint operation, it must remeasure the interests previously held in that business. This process is not applicable, however, in the case of joint control. IAS 12 Income Taxes: the amendment clarifies that all tax effects related to dividends (including payments on financial instruments classified under net equity) must be recognised consistently with the transaction generating said profits (income statement, OCI or net equity). IAS 23 Borrowing costs: the amendment clarifies that in the case of funding that remains in place even after the qualifying asset is ready for use or sale, this becomes part of the financing expenses used to calculate the funding costs.
The amendments are applicable from 1 January 2019, but early application is permitted. The Company does not expect any impact on its financial statements from the entry into force of these standards and/or amendments.
INTERNATIONAL ACCOUNTING STANDARDS IN FORCE SINCE 2018 A listing is provided below of the accounting standards that have become effective as from 1 January 2018, and are already approved by the European Commission:
IFRS 15 – Revenue from contracts with customers, which will be replacing the following 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
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UBI FINANCE CB 2 S.R.L.
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; IFRS 9 - Financial Instruments: 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. 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.
Based on the analyses conducted, the application of the aforementioned principles will not have a significant impact on the Company’s current asset and economic position.
SECTION 3 – SUBSEQUENT EVENTS Following the end of FY 2017, 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. Notice is hereby given that, pursuant to IAS 10, the date on which these financial statements were authorized for publication by the Board of Directors of the Company is 19 February 2018.
SECTION 4 – OTHER ASPECTS There is nothing to report.
A.2 THE MAIN AGGREGATES OF THE FINANCIAL STATEMENTS The accounting policies adopted for the items shown in these financial statements at 31 December 2017 are described below. For each item, the recognition, classification, measurement and recognition of costs and revenues as well as derecognition criteria are given.
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UBI FINANCE CB 2 S.R.L.
RECEIVABLES AND OTHER ASSETS RECOGNITION CRITERIA Loans and receivables are recognised on the date of disbursement, i.e. when the Company becomes a party to the contractual clauses and, consequently, has a legal right to receive cash flows. Initial recognition 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 VALUATION AND RECOGNITION OF THE INCOME COMPONENTS After initial entry, amounts due from banks are valued at their original value, equal to the presumed sale value; since they regard short term loans, the discounting factor has been considered negligible. Other receivables are examined at every accounting closure date, to verify whether there is any objective evidence of impairment. 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 Included in this item includes Tax liabilities and trade payables. CRITERIA FOR VALUATION AND RECOGNITION OF THE INCOME COMPONENTS Since these are short-term liabilities, for which the time value of money effect is negligible, they are measured at their original amount, equal to their settlement amount. DERECOGNITION CRITERIA They are derecognised when the liabilities expire or are extinguished.
CURRENT AND DEFERRED TAX ASSETS AND LIABILITIES RECOGNITION CRITERIA Taxes are recognised when the various types of withholdings and taxes are identified. CLASSIFICATION CRITERIA This item includes current and deferred tax assets and liabilities. CRITERIA FOR VALUATION AND RECOGNITION OF THE 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 taxes paid in advance. Current tax liabilities relative to withholding taxes are also entered at nominal value, while the income taxes for the period are calculated on a realistic forecast of the tax burdens to
21 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L. be absolved in compliance with the tax laws in force. 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 forecast 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 the assets or the decrease in the liabilities. The main revenue item on the Company’s financial statement is the re-debit 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.
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UBI FINANCE CB 2 S.R.L.
A.4 INFORMATION ON FAIR VALUE
QUALITATIVE INFORMATION Given the company operations, there are no significant elements to report.
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 31/12/2017 31/12/2016 measured at fair value on a non-recurrent basis BV L1 L2 L3 BV L1 L2 L3 1. Financial assets held to maturity ------2. Loans and receivables 10,040 - - 10,040 10,040 - - 10,040 3. Tangible assets held for investment purposes ------4. Non-current assets and disposal groups classified as held for sale ------Total 10,040 - - 10,040 10,040 - - 10,040 1. Payables ------2. Outstanding securities ------3. Liabilities associated with assets held for sale ------Total ------
KEY: 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. The IFRS 13 principle establishes a fair-value hierarchy depending on the degree of observability of the inputs involved in value-measurement techniques. The fair-value hierarchy level associated with the assets and liabilities is defined as the minimum level of all the significant inputs used. Generally speaking, a valuation input is not considered significant for the fair value of an instrument if the remaining inputs explain most of the variance of said fair value over a period of time of three months. Specifically, three levels are envisaged: - level 1: the fair value of the instruments classified at this level is determined based on quoted prices in active markets; - level 2: the fair value of the instruments classified at this level is determined based on evaluation models using observable inputs in active markets; - level 3: the fair value of the instruments classified at this level is determined based on evaluation models using mainly significant inputs which are not observable in active markets.
A.5 INFORMATION ON THE SO-CALLED “DAY ONE PROFIT/LOSS” There is nothing to report.
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UBI FINANCE CB 2 S.R.L.
3. PART B - COMMENTS ON THE BALANCE SHEET
ASSETS
SECTION 6 – RECEIVABLES – ITEM 60 6.1 DUE FROM BANKS
Composition Total 31/12/2017 Total 31/12/2016 Fair value Fair value Book Value Book Value L1 L2 L3 L1 L2 L3
1. Deposits and current accounts 10,040 - - 10,040 10,040 - - 10,040 2. Loans ------2.1 Repurchase agreements ------2.2 Lease agreements ------2.3 Factoring ------with Recourse ------without Recourse ------2.4 Other loans ------3. Debt securities ------structured securities ------other debt securities ------4. Other assets ------Total carrying amount 10,040 - - 10,040 10,040 - - 10,040
KEY: L1 = level 1 L2 = level 2 L3 = level 3
The item “Deposits and current accounts” refers to receivables available on demand deposited on the ordinary current account n. 89447 at UBI Banca S.p.A., the fair value of which, being short-term credit, coincides at 31 December 2017 with the book value.
24 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
SECTION 12 – TAX ASSETS AND TAX LIABILITIES – ITEM 120 AND ITEM 70 12.1 BREAKDOWN OF ITEM 120 “TAX ASSETS: CURRENT AND ADVANCED”
Total 2017 Total 2016 a) current: 387 462 - tax assets (advances, withholdings, etc.) - - - IRES advance payment 80 - - IRAP advance payment 193 421 - offset IRES receivables - 12 - Reg. Business Tax credit subject to offsetting 114 29 b) assets for advanced payment: - - - IRES advanced payment - - - IRAP advanced payment - - Total 387 462
12.2 BREAKDOWN OF ITEM 70 “TAX LIABILITIES: CURRENT AND DEFERRED”
Total 2017 Total 2016 a) current: 1,595 298 - due to the Tax Authorities for withholding taxes to be paid - - - due to the Tax Authorities for stamp duty - - - current IRES and IRAP 1,595 298 b) liabilities for deferred taxes - IRES - - - IRAP - - Total 1,595 298
The item consists of IRAP payables for € 835 and IRES payables for € 760.
12.3 CHANGES IN DEFERRED TAX ASSETS (RECOGNISED IN THE INCOME STATEMENT) There is nothing to report.
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UBI FINANCE CB 2 S.R.L.
SECTION 14 – OTHER ASSETS – ITEM 140 14.1 BREAKDOWN OF ITEM 140 “OTHER ASSETS” Other assets are composed of the items detailed in the following table:
Description Total 2017 Total 2016 - Receivables from segregated assets 255,344 204,473 Total 255,344 204,473
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 7 – TAX LIABILITIES – ITEM 70 See Section 12 of the Assets.
SECTION 9 – OTHER LIABILITIES – ITEM 90 9.1 BREAKDOWN OF ITEM 90 “OTHER LIABILITIES”
Total 2017 Total 2016 - Payables to segregated assets 225,425 189,114 - Payables to the Board of Directors 261 261 - Payables to Deloitte & Touche S.p.A. Invoices received 11,190 - - Payables to Deloitte & Touche S.p.A. Invoices to be received 17,282 15,284 Total 254,158 204,659
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 12 - EQUITY - ITEMS 120, 130, 140 AND 150 12.1 BREAKDOWN OF ITEM 120 “QUOTA CAPITAL” The quota capital amount is of € 10,000.00 and is divided into quotas pursuant to Art. 2468 of the Civil Code. At the reporting date, it was fully subscribed and paid up.
Categories Amount 1. Quota Capital 10,000 1.1 Ordinary shares - 1.2 Other shares/Stakes 10,000
At 31 December 2017 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; . Euro 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.
12.2 BREAKDOWN OF ITEM 130 “TREASURY QUOTASS” No shares have been issued or repurchased.
27 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
12.3 BREAKDOWN OF ITEM 140 “EQUITY INSTRUMENTS” No equity instruments have been issued.
12.4 BREAKDOWN OF ITEM 150 “QUOTA PREMIUM” There is nothing to report.
12.5 OTHER INFORMATION The following table illustrates the composition of the equity reserves and the relative occurrences during the financial year:
Retained Legal Other Total earnings A. OPENING BALANCE 18 - - 18 B. INCREASES - - - - B.1 Allocation of profits - - B.2 Other changes - - C. DECREASES - - - - C.1 Utilisation - coverage of losses - distribution - transfer to quota 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, one should refer to the details in the following table:
EQUITY USABILITY AND DISTRIBUTION POSSIBILITIES
Use in the Amount at Possibility of Available Description three previous 31/12/2017 use quota periods QUOTA CAPITAL 10,000 - - -
INCOME-RELATED RESERVES:
- LEGAL RESERVE 18 B 18 -
- RETAINED EARNINGS - - - -
- OTHER - - - -
PROFIT (LOSS) FOR THE YEAR - - - -
KEY: “A” to increase capital “B” to cover losses “C” for distribution to quotaholders
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UBI FINANCE CB 2 S.R.L.
4. PART C – COMMENTS ON THE INCOME STATEMENT
SECTION 9 - ADMINISTRATIVE EXPENSES – ITEM 110 9.1 BREAKDOWN OF ITEM 110.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 2017 Total 2016 - Directors’ fees 9,538 9,538 - Third party liability insurance 7,046 605 Total 16,584 10,143
Items/Segments Total 2017 Total 2016 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 benefits g) payments to external supplementary welfare provisions - defined contribution - defined benefits h) other expenses 2. Other active staff 3. Directors and Auditors 16,584 10,143 4. Staff placed on rest 5. Recoveries of expenses for employees seconded to other companies 6. Reimbursement of expenses for employees seconded to the company 16,584 10,143
29 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
9.3 BREAKDOWN OF ITEM 110.B “OTHER ADMINISTRATIVE EXPENSES” “Administrative expenses: b) Other administrative expenses” consists of the following:
Total 2017 Total 2016 - Audit fees 32,132 30,012 - Notary expenses - 217 - Tax for Government concessions 310 310 - Chamber of Commerce fees 120 200 Total 32,562 30,739
SECTION 14 - OTHER OPERATING INCOME AND EXPENSES – ITEM 160 14.1 BREAKDOWN OF ITEM 160 “OTHER OPERATING INCOME/EXPENSES”
Description Total 2017 Total 2016 - Revenues from the recharge to the segregated assets 50,871 41,131 - Extraordinary Revenues - 42 - Extraordinary Expenses (130) (22) Total 50,741 41,151
“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 17 - INCOME TAXES FOR THE YEAR FROM CONTINUING OPERATIONS – ITEM 190 17.1 BREAKDOWN OF ITEM 190 “INCOME TAXES FOR THE YEAR FROM CONTINUING OPERATIONS”
Total 2017 Total 2016 1. Current taxes (1,595) (269) 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 (1,595) (269)
The amount recorded in the financial statements is the payable for current IRES of € 760 and for current IRAP of € 835.
30 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
17.2 RECONCILIATION BETWEEN THEORETICAL AND EFFECTIVE TAX BURDEN
(values in Euro) 2017 2016 Items/Technical forms IRES IRAP IRES IRAP Profit before taxes 1,595 22,993 409 13,239 Difference between value and cost of production from F/S - - - - Applicable ordinary rate 27.50% 5.57% 27.50% 5.57% Theoretical tax 439 1281 112 737 Tax effect of temporary/permanent differences: Non-deductible costs 1,167 - - - Other differences - - (387) - IRAP deduction - (8,000) - (8,000) Adjusted taxable income 2,762 14,993 22 5,239 Change in deferred tax - - - - Current effective tax 760 835 6 292 Current effective rate 47.62% 3.63% 1.48% 2.20%
31 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
5. PART D – OTHER 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
(values in Euro)
2017 2016 A. Securitised assets 2,820,369,642 2,995,747,431 A1) Loans and receivables 2,820,369,642 2,995,747,431 B. Use of funds from the management of loans 63,828,540 97,169,478 B3) Other 63,828,540 97,169,478 C. Issued notes - - D. Loans received 2,955,513,955 3,143,849,473 E. Other Liabilities 26,034,124 27,787,808 Difference (A+B)-(C+D+E)* (97,349,897) (78,720,372)
F. Interest expense on notes issued - - G. Fees and commissions on the transaction 2,002,777 2,017,016 G1) For servicing 1,906,489 1,886,330 G2) For other services 96,288 130,686 H. Other expenses 62,170,094 76,886,676 I. Interest income on securitised assets 45,515,236 52,572,109 L. Other revenues 28,110 105,601 Difference (F+G+H)-(I+L)** 18,629,525 26,225,982
* Such difference represents the cumulative balance of the Transaction ** Such difference represents the balance of the Transaction for the year
32 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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 9 December 2016); all the items indicated correspond to the figures taken from the company’s accounting records and information system of the Servicer, UBI Banca. The following measurement criteria were used for the most significant entries.
LOANS AND RECEIVABLES - Receivables from financial institutions are measured at nominal amount which presumably corresponds to their 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 recognised at nominal amount corresponding to the presumable realisation value.
PAYABLES Payables are shown at nominal amount.
OTHER LIABILITIES Other liabilities are recognised at nominal amount.
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.
33 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
BREAKDOWN OF THE ITEMS IN THE SUMMARY TABLE
A. ASSETS UNDERLYING THE COVERED BANK BONDS 2,820,369,642
These are composed of the realisation value of the existing loans at 31/12/2017:
2017 2016 - IWB loan portfolio 19,592,363 22,029,086 - Accrued interest on IWB loan portfolio 12,049 12,553 - Allowance for impairment on IWB loan portfolio (31,571) (15,683) - UBI loan portfolio 2,851,493,998 3,014,943,564 - Accrued interest on UBI loan portfolio 16,883,765 17,164,270 - Allowance for impairment on UBI loan portfolio (67,580,962) (58,386,359) 2,820,369,642 2,995,747,431
Following the merger by acquisition of Banco di Brescia S.p.A., Banca Popolare di Bergamo S.p.A., Banca Carime S.p.A., Banca di Valle Camonica S.p.A. and of Banca Popolare di Ancona S.p.A in UBI Banca on 20 February 2017, the latter’s portfolio includes the securitised loans, the impairment losses and the accrued interest matured by the portfolios of these bank networks.
B. USE OF FUNDS FROM MANAGEMENT OF LOANS 63,828,540
The item includes:
2017 2016 - Due from banks 63,441,787 96,973,019 - Due from ordinary management 225,425 189,114 - Prepayments 7,345 7,345 - Collections to be credited 153,983 - 63,828,540 97,169,478
C. ISSUED NOTES -
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.
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UBI FINANCE CB 2 S.R.L.
D. LOANS RECEIVED 2,955,513,955
The item includes:
2017 2016 - IWB Subordinated loan 20,725,797 22,726,590 - UBI Subordinated loan 2,934,788,158 3,121,122,883 2,955,513,955 3,143,849,473
Following the merger by acquisition of Banco di Brescia S.p.A., Banca Popolare di Bergamo S.p.A., Banca Carime S.p.A., Banca di Valle Camonica S.p.A. and Banca Popolare di Ancona S.p.A in UBI Banca on 20 February 2017, the subordinate funding for this includes the subordinate residual loans of these bank networks.
E. OTHER LIABILITIES 26,034,124 These are composed of:
2017 2016 - Payables to Ordinary Management 255,345 204,474 - Payables to suppliers for invoices still to be received 786,377 937,585 - Payables to suppliers for received invoices 15,655 19,706 -Collections to be attributed - 16,651 - Output VAT - 1,037 - Accrued Additional Premium IWB 71,620 90,783 - Accrued Additional Premium UBI 24,905,127 26,517,572 26,034,124 27,787,808
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 31/12/2017 of € 97 million would not enable the repayment of such debts and the partial repayment of further portions of subordinate loans.
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UBI FINANCE CB 2 S.R.L.
G. FEES AND COMMISSIONS ON THE TRANSACTION 2,002,777 The item includes:
2017 2016 - Servicer 1,906,489 1,886,330 Total “G1) Servicing fees” 1,906,489 1,886,330
- London Account Bank Commissions 25,417 50,160 - Trustee 19,116 32,544 - Corporate Servicer 51,755 47,982 Total “G2) For other services” 96,288 130,686
H. OTHER EXPENSES 62,170,094 These include:
2017 2016 - Interest expense on IWB Loan & Additional Premium 258,533 363,901 - Interest expense on UBI Loan & Additional Premium 42,664,903 49,763,927 - Impairment losses on IWB loans 15,888 - - Impairment losses on UBI loans 9,194,603 13,547,460 - Rounding - 5 - Losses on UBI loans 9,694,139 12,796,801 - Interest expense 283,524 363,834 - Administrative expenses recharged by Ordinary Management 50,871 41,131 - Administrative expenses 3,715 3,985 - Costs not Accrued - 305 - Notary expenses 3,720 5,177 - Bank charges 198 150 62,170,094 76,886,676
36 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
I. INTEREST GENERATED BY ASSETS UNDERLYING THE COVERED 45,515,236 BANK BONDS The item includes:
2017 2016 - Interest income on IWB loans 274,210 377,468 - Interest income on UBI loans 44,873,170 52,232,089 - Interest income accrued and not collected on IWB loans (504) 3,757 - Interest income accrued and not collected on UBI loans (280,505) (645,374) - Penalties from UBI loans 330,350 294,329 - Default interest on IWB loans 102 122 - Default interest on UBI loans 318,413 309,718 45,515,236 52,572,109
L. OTHER REVENUES 28,110 The item includes:
2017 2016 - Bank interest income on IWB Bank accounts - 5 - Bank interest income on UBI Bank accounts - 267 - Interest income on Reserve Account - 19 - Write-ups on BVC loans - 94,683 - Write-ups on IWB loans - 10,626 - Revenues not Accrued 28,108 - - Rounding 2 1 28,110 105,601
37 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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”), 2. Banca Regionale Europea S.p.A. (“BRE”), 3. Banca Popolare di Bergamo S.p.A. (“BPB”), 4. Banca Popolare di Ancona S.p.A. (“BPA”), 5. Banco di San Giorgio S.p.A. (“BSG”) now BRE by virtue of the merger by acquisition that took place by deed dated 15 October 2012, 6. Banca Popolare Commercio e Industria S.p.A. (“BKI”), 7. Banca Carime S.p.A. (“BRM”), 8. Banca di Valle Camonica S.p.A. (“BVC”), 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, underwritten on 02 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.
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,
38 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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 01 March 2012 the Company purchased the following new non- recourse loan portfolios: - Euro 356,526,938 from BRE; - Euro 331,748,471 from BKI; - Euro 511,170,873 from BPA and - Euro 100,616,524 from BVC; B. on 01 April 2012 the Company purchased the following new non- recourse loan portfolios: - Euro 561,183,597 from BPB; - Euro 628,274,868 from BBS as amended by letter dated 29 May 2012; - Euro 309,027,265 from BRM and - Euro 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 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;
39 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
(2) in respect to which the period of consolidation applicable to the relative mortgages has ended and the mortgage is not subject to dispute pursuant to Art. 67 of the Royal Decree no. 267 of 16th March 1942 and, where applicable, of Art. 39, paragraph four, of 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 the FROM THE Company a loan for the same amount, so that the latter could have the ORIGINATING BANKS funds necessary for the purchase of the above-mentioned loan portfolio - redemption subordinated to the repayment of the covered bonds issued by UBI Banca.
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.
40 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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: . Euro 103,821,224 from BBS; . Euro 97,264,697 from BPA; . Euro 68,619,076 from BKI, and . Euro 51,636,781 from BRM. TRANSFER 4 On 28 November 2013 the Company purchased the following new non- recourse loan portfolios: . Euro 152,607,619 from BRE; . Euro 248,308,229 from BPB, and . Euro 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: . Euro 47,835,632 from BRE; . Euro 60,470,554 from BPA; . Euro 28,590,624 from BKI, and . Euro 38,687,351 from BRM. TRANSFER 6 On 28 November 2014 the Company purchased the following new non- recourse loan portfolios: . Euro 84,632,519 from BPB, and . Euro 90,813,907 from BBS. TRANSFER 7 On 29 May 2015 the Company purchased the following new non-recourse loan portfolios: . Euro 156,608,215 from BBS; . Euro 65,108,817 from BPA; . Euro 42,023,000 from BKI, and . Euro 50,286,921 from BRE. TRANSFER 8 On 30 November 2015 the Company purchased the following new non- recourse loan portfolios: . Euro 59,380,464 from BPB; . Euro 31,608,618 from BVC; . Euro 25,732,448 from IWB; . Euro 27,535,286 from Carime, and . Euro 13,405,564 from UBI. TRANSFER 9 On 30 May 2016 the Company purchased the following new non-recourse loan portfolios: . Euro 32,340,136 from BRE; . Euro 52,226,091 from BBS; . Euro 36,634,961 from BPA;
41 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
. Euro 207,348,270 from BPB, and . Euro 23,331,135 from BKI. TRANSFER 10 On 30 May 2017, the Company acquired a loan portfolio without recourse for Euro 307,018,204 from UBI Banca.
ISSUE OF THE FIRST On 28 May 2012, UBI Banca issued the first series of OBG for a total SERIES OF COVERED value of Euro 1,800 million. BONDS 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 Euro 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:
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
AMENDMENTS ON Since the beginning of the programme CB2, the Company has put in place THE PROGRAMME certain measures to amend the structure and contractual documentation STRUCTURE of the programme itself. The most significant refer to the following:
FITCH RATING On 12 December 2013 CB2 Programme contracts were modified so that the same, initially structured as a programme of the so-called retained type, assumed the characteristics of a programme of the so-called public type and that, consequently, the covered bonds were assigned a rating and the
42 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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 efficiency EXCHANGE LISTING reasons, it became necessary to change the listing stock market of the OBG 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 of 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 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.
43 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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. 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 Banca PHASE 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,
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UBI FINANCE CB 2 S.R.L.
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.
PROGRESS OF THE Started in 2012, the OBG Programme has generated payments in line with TRANSACTION the plan for the period. The following figure summarises the structure of the transaction:
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
45 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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), . 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 S.R.L. 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.
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UBI FINANCE CB 2 S.R.L.
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.
H.5 - CONNECTED FINANCIAL TRANSACTIONS
WARRANTY AND INDEMNIFICATION OF THE SELLER 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 (the so-called “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.
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UBI FINANCE CB 2 S.R.L.
QUANTITATIVE INFORMATION
H.7 - CASH FLOW DATA RELATIVE TO LOANS In the year, acquired loans have had the following movements:
(values in Euro)
From 01/01/2017 to From 01/03/2012* to 12/31/2017 12/31/2016 Opening Balance 2,995,747,431 - of which: Loan portfolios purchased 3,036,972,648 - Accrued interest on loans 17,176,824 - Allowance for impairment (58,402,041) - Increases: 352,533,444 5,255,496,544 Loan portfolios purchased 307,018,204 4,949,497,105 Accrued interest on loans 45,515,240 305,999,439 Decreases: (527,911,233) (2,268,959,605) Principal collected (472,904,491) (1,912,524,457) Interest collected (45,796,250) (288,822,615) Impairment losses on loans (9,210,492) (67,612,533) Closing Balance: 2,820,369,642 2,995,747,431 of which: Loan portfolios 2,871,086,361 3,036,972,648 Accrued interest on loans 16,895,814 17,176,824 Allowance for impairment (67,612,533) (58,402,041)
* 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 loans) is performed based on analytical methods. The valuation of the remaining loans is made based on collective methods, with grouping in similar risk classes.
48 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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 At 31 December 2017, the position of the loans due but not yet collected is the following:
UBI Loans UBI Loans IWB Loans IWB Loans 2017 2016 2017 2016 30 –60 days 17,284,808 11,584,532 - - 61 – 90 days 13,259,463 16,332,127 - 3,143 91 – 120 days 14,585,892 11,677,618 - - More than 120 days 13,101,095 23,984,656 - 6,348 More than 210 days 250,142,531 224,147,398 6,348 - Total 308,373,789 287,726,331 6,348 9,491
To enable a comparison with the figures at 31/12/2016, the portfolios of BBS, BPB, BPA, BRM and BVC at 31/12/2016 were aggregated in the UBI portfolio, following the merger by acquisition.
The loans are therefore classified as follows:
49 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
(values in Euro) 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%
(values in Euro) UBI Loans IWB Loans Provision for Provision for 2016 % Coverage 2016 % Coverage impairment impairment Unimpaired loans 2,736,967,202 11,438,070 0.42% 22,022,738 15,389 0.07% Past due impaired loans 6,675,878 457,566 6.85% 6,348 294 4.63% Probable default 149,013,259 16,205,950 10.88% - - 0.00% Non-performing loans 122,287,223 30,284,772 24.77% - - 0.00% Total 3,014,943,562 58,386,358 1.94% 22,029,086 15,683 0.07%
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 (so-called 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 in bonis 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
50 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L. 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. 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 (so-called 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 (so-called “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
51 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
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 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.
52 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
H.9 - CASH FLOWS The cash flows that occurred during the year ended 31 December 2017 are summarized in the following table:
(values in Euro) 2017 2016 Description Partial Total Partial Total
Collections of the period 509,527,002 535,190,877 - from loans 509,527,002 535,190,877 - from notes issued - - - from guarantee lines - - - from liquidity lines - - - from derivative contracts - - - other collections - -
Payments of the period (543,058,234) (511,826,999) - to noteholders - - - to Originator 542,160,177 510,845,405 - on guarantee lines - - - on liquidity lines - - - on derivative contracts - - - other payments 898,057 981,594
Net income/(outgoing) (33,531,232) 23,363,878
Cash and cash equivalents at the start of 96,973,019 73,609,141 the year Cash and cash equivalents at the 63,441,787 96,973,019 end of the year
Net cash flows (33,531,232) 23,363,878
The cash flows produced during the year were in line with expectations. Forecast flows for FY 2018 come to approximately Euro 403.9 million, divided up into Euro 338.5 million for capital and Euro 65.4 million for interest.
H.10 - SITUATION OF GUARANTEES AND CREDIT LINES No credit lines were given or received from third parties nor was any temporary financing used.
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UBI FINANCE CB 2 S.R.L.
H.11 - BREAKDOWN BY RESIDUAL LIFE 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:
(values in Euro) UBI Loans UBI Loans IWB Loans IWB Loans 2017 2016 2017 2016 Up to three months 11,511,319 6,375,024 6,359 21,125 From three months to one year 25,235,760 25,104,827 189,447 28,426 From one to five years 467,589,746 484,542,125 700,726 909,912 Beyond five years 2,347,157,173 2,498,920,586 18,695,831 21,069,623 Total 2,851,493,998 3,014,942,562 19,592,363 22,029,086
The “Other assets” are due within max. 18 months.
LIABILITIES: The “Other liabilities” are due in the short term.
H.12 - BREAKDOWN BY GEOGRAPHIC SEGMENT
Country of residence of debtors: ITALY
(values in Euro) UBI Loans UBI Loans IWB Loans IWB Loans 2017 2016 2017 2016
Italy 2,851,493,998 3,014,943,562 19,592,363 22,029,086 Abroad - - - -
Total 2,851,493,998 3,014,943,562 19,592,363 22,029,086
Currency of the credit positions: EURO.
54 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
H.13 - CONCENTRATION OF RISK The following tables summarize the number and total value of loans by amount for each Seller Bank.
(values in Euro) Amounts at 12/31/2017
Amount range UBI Loans IWB Loans
(Euro) Contract no. Amount % incidence Contract no. Amount % incidence >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
(values in Euro) Amounts at 12/31/2016
Amount range UBI Loans IWB Loans
(Euro) Contract no. Amount % incidence Contract no. Amount % incidence >0 < 25,000 5,851 72,789,235 2.41 20 239,453 1.09 >25,000 < 75,000 10,163 491,517,145 16.30 50 2,352,226 10.68 >75,000 < 250,000 9,281 1,150,798,731 38.17 60 7,430,002 33.73 >250,000 1,785 1,299,838,451 43.11 15 12,007,405 54.51 Total 27,080 3,014,943,562 100 145 22,029,086 100
It is also reported that there are no individual loans greater than 2% of the total loans in the portfolio.
55 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
SECTION 3 – INFORMATION ON RISKS AND RELATED RISK MANAGEMENT POLICIES
3.1 CREDIT RISK QUALITATIVE INFORMATION 1. GENERAL ASPECTS (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 Euro 10,040. (ii) SEGREGATED ASSETS - The Company is subject to risks deriving from: - missing collection of amounts due from the transferred debtors; - default of the Servicer in collecting sufficient funds to meet the payment obligations deriving from the CB2 Program. These 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 (so-called “over-collateralization”).
3.2 MARKET RISK 3.2.1 INTEREST RATE RISK QUALITATIVE INFORMATION 1. GENERAL ASPECTS (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 Euro 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 overcollateralization.
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UBI FINANCE CB 2 S.R.L.
3.3 OPERATIONAL RISK QUALITATIVE INFORMATION 1. GENERAL ASPECTS, PROCESSES AND METHODS FOR ESTIMATING AND MANAGING THE OPERATING RISK This is the risk of suffering losses generated by inefficiencies of Company processes, malfunctioning of technological systems, external events which cause or might cause objective and measurable losses for the Company. The Basel Committee associates unexpected losses to four factors: human errors, system failures, inadequate procedures and controls, external events. Operational risk is a pure risk, that is only negative outcomes are associated. 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 practice 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 on demand deposits in bank accounts of Euro 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 cover
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UBI FINANCE CB 2 S.R.L.
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 – COMMENTS ON EQUITY 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 120 and 160.
SECTION 5 – COMPREHENSIVE INCOME STATEMENT As during financial year 2017 no changes in value were observed for the assets offset against the valuation reserves, the Company’s Profit/Loss coincides with its comprehensive income.
58 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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SECTION 6 – TRANSACTIONS WITH RELATED PARTIES
6.1 DETAILS OF REMUNERATION PAID TO KEY MANAGEMENT PERSONNEL Directors 9,538 Statutory Audit - Total 9,538 The fees for the Board of Directors are shown in the table. The Company does not have a Board of Statutory 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 TRANSACTIONS WITH RELATED PARTIES 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 Euro 10,040 at 31 December 2017.
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 economic 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
FINANCIAL STATEMENTS OF THE COMPANY CARRYING OUT THE MANAGEMENT AND COORDINATION ACTIVITY - KEY FIGURES (ART. 2497 BIS OF THE ITALIAN CIVIL CODE) - 2016 FINANCIAL STATEMENTS - UBI BANCA S.P.A.
59 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
BALANCE SHEET (in thousands of Euro)
12.31.2016 Amounts in thousands of Euros
Assets 10. Cash and cash equivalents 204,188 20. Financial assets held for trading 808,081 30. Financial assets at fair value 188,449 40. Financial assets available for sale 9,447,492 50. Financial assets held to maturity 7,327,544 60. Loans and advances to banks 12,254,559 70. Loans and advances to customers 37,111,384 80. Hedging derivatives 433,489 90. Value adjustment of generically-hedged financial assets (+/-) 1,631 100. Equity investments 7,322,989 110. Property, equipment and investment property 944,989 120. Intangible assets 343,636 of which goodwill 315,815 130. Tax assets 2,055,015 a) current 305,841 b) deferred 1,749,174 pursuant to Law 214/2011 1,306,637 140. Non-current assets and disposal groups classified as held for sale 2,657 150. Other assets 851,605 TOTAL ASSETS 79,297,708
12.31.2016 Amounts in thousands of Euros
LIABILITIES AND EQUITY 10. Loans and advances from banks 21,415,235 20. Payables to customers 16,247,370 30. Outstanding securities 30,567,375 40. Financial liabilities held for trading 881,981 60. Hedging derivatives 178,200 80. Tax liabilities 127,320 a) current 8,009 b) deferred 119,311 100. Other liabilities 1,304,128 110. Post-employment benefits 111,973 120. Provisions for risks and charges: 134,472 a) pensions and similar commitments 23,536 b) other provisions 110,936 130. Valuation reserves -27,803 160. Reserves 2,621,570 170. Share premiums 3,798,430 180. Quota Capital 2,440,751 190. Treasury quotas (-) -9,869 200. Profit (Loss) for the year (+/-) -493,425 TOTAL LIABILITIES AND EQUITY 79,297,708
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UBI FINANCE CB 2 S.R.L.
INCOME STATEMENT (in thousands of Euro)
12.31.2016 Amounts in thousands of Euros
10. Interest income and similar income 1,053,569 20. Interest expense and similar expenses (732,496) 30. Net interest expense 321,073 40. Fee and commission income 379,928 50. Fee and commission expense (46,511) 60. Net fee and commission income 333,417 70. Dividends and similar income 221,676 80. Net result of trading 47,303 90. Net result of hedges (2,244) 100. Profit (Loss) on disposal or repurchase of: 109,181 a) loans (9,195) b) financial assets available for sale 143,168 d) financial liabilities (24,792) 110. Net result of financial assets/liabilities carried at fair value (8,421) 120. Net trading income 1,021,985 130. Net impairment losses on: (623,079) a) loans (517,981) b) financial assets available for sale (89,282) d) other financial transactions (15,816) 140. Net result of financial operations 398,906 150. Administrative expenses: (997,568) a) staff expenses (512,531) b) other administrative expenses (485,037) 160. Provisions for risks and charges (818) 170. Net impairment losses on property, equipment and investment property (30,766) 180. Net impairment losses on intangible assets (28,223) 190. Other operating expense/income 167,582 200. Operating costs (889,793) 210. Profit (Loss) on associates (206,726) 240. Profit (Loss) on disposal of investments 20,793 250. Profit (Loss) on continuing operations before tax (676,820) 260. Income taxes for the year on continuing operations 183,395 270. Profit (Loss) from continuing operations after tax (493,425) 290. Profit (Loss) for the year (493,425)
61 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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SECTION 7 – OTHER INFORMATION
7.1 AVERAGE NUMBER OF EMPLOYEES BY CATEGORY The Company does not have employees.
7.2 FEES TO THE AUDITING FIRM 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. These fees, relative to the 2017 financial year are those pursuant to contract, and do not include any indexation, out-of-pocket expenses and VAT.
Type of services Service provider Service beneficiary Fees (€) Auditing of the accounts 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 auditing firm provided no additional services during the 2017 financial year.
* * * * *
Milan, 19 February 2018
UBI FINANCE CB 2 S.R.L. For the Board of Directors The Chairman Dott. Renzo Parisotto
62 FINANCIAL STATEMENTS AT 31 DECEMBER 2017
UBI FINANCE CB 2 S.R.L.
INDEPENDENT AUDITOR’S REPORT
63