Interim financial report

as at and for the period ended 30th June 2019

Translation from the Italian orginal which remains the definitive version

Unione di Banche Italiane Società per azioni UBI Banca Spa in abbreviated form

Head Office and General Management: Piazza Vittorio Veneto 8, Bergamo (Italy) Operating offices: Brescia, Bergamo and Milan Member of the Interbank Deposit Protection Fund and the National Guarantee Fund A member of the UBI VAT Group with VAT No. 04334690163 Tax Code and Bergamo Company Registration No. 03053920165 ABI (Italian Banking Association) 3111.2 Register of Banks No. 5678 Register of Banking Groups No. 3111.2 Parent of the Unione di Banche Italiane Banking Group Share capital as at 30th June 2019 Euro 2,843,177,160.24 fully paid up Certified email address (P.E.C.): [email protected]

www.ubibanca.it Contents

UBI Banca: company officers ...... 5 UBI Banca Group: the main investments as at 30th June 2019 ...... 6 UBI Banca Group: branch network as at 30th June 2019 ...... 7 UBI Banca Group: key figures and performance indicators ...... 8 The rating ...... 10

INTERIM CONSOLIDATED MANAGEMENT REPORT AS AT AND FOR THE PERIOD ENDED 30TH JUNE 2019

▪ The macroeconomic scenario ...... 14 ▪ Significant events in the first half of 2019 ...... 22 - The new governance ...... 22 - The trade union agreement of 27th March and 9th May 2019 ...... 26 - The 2018 SREP ...... 26 - Update to the Non-Performing Loans Strategic Plan ...... 27 - Developments in the regulatory framework ...... 28 ▪ The distribution network and market positioning ...... 33 ▪ Human resources ...... 37 ▪ Reclassified consolidated financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules ...... 40 ▪ The consolidated income statement ...... 51 ▪ General banking business with customers: funding ...... 62 - Total banking funding ...... 62 - Direct banking funding ...... 63 - Indirect banking funding and assets under management ...... 69 - Insurance deposits and technical reserves ...... 72 ▪ General banking business with customers: lending ...... 74 - Loans and advances to customers measured at fair value through profit or loss ...... 74 - Loans and advances to customers measured at amortised cost ...... 75 - Performance of the loan portfolio ...... 75 - Risk ...... 80 ▪ The interbank market and the liquidity position ...... 87 ▪ Financial activities ...... 92 ▪ Equity and capital adequacy ...... 110 ▪ Information on share capital, share performance, dividends paid and earnings per share ...... 117 ▪ Information on risks and on hedging policies ...... 122 - The principal risks and uncertainties for the second half of the year ...... 132 ▪ Consolidated companies: the principal figures ...... 138 ▪ Transactions with related parties and with connected persons ...... 141 ▪ Other information ...... 144 - Inspections and legal proceedings ...... 144 - Tax aspects ...... 149 ▪ Outlook for consolidated operations ...... 151

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30TH JUNE 2019 Mandatory interim consolidated financial statements as at and for the period ended 30th June 2019 ...... 155 ▪ Consolidated Balance Sheet ...... 156 ▪ Consolidated Income Statement ...... 158 ▪ Consolidated statement of comprehensive income ...... 159 ▪ Statement of changes in consolidated equity ...... 160

3 ▪ Consolidated statement of cash flows ...... 162 Explanatory notes ...... 163 ▪ Accounting policies ...... 164 - Basis of preparation ...... 164 - Other aspects ...... 168 - Information on transfers between portfolios of financial assets ...... 181 - Information on fair value ...... 181 - Information on “day one profit/loss” ...... 183 ▪ The scope of consolidation ...... 184 ▪ Information on the accounts ...... 188 - Explanatory tables for the consolidated income statement ...... 188 - Explanatory tables for the consolidated balance sheet ...... 193 . Assets ...... 193 . Liabilities ...... 197 - Litigation ...... 201 - Segment reporting ...... 205 - Transactions with related parties pursuant to IAS 24 ...... 208 ▪ Events occurring after the end of the first half ...... 211

STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND OF THE SENIOR OFFICER RESPONSIBLE FOR PREPARING THE COMPANY ACCOUNTING DOCUMENTS ...... 213

INDEPENDENT AUDITORS’ REPORT ...... 217

CALENDAR OF CORPORATE EVENTS

CONTACTS

Key The following abbreviations are used in the tables: - dash (-): when the item does not exist; - not significant (n.s.): when the phenomenon is not significant; - not available (n.a.): when the information is not available; - a cross “X”: when no amount is to be given for the item (in compliance with Bank of Italy instructions). All figures are given in thousands of euros, unless otherwise stated.

4 UBI Banca: company officers

Honorary Chairmen Gino Trombi Emilio Zanetti

Board of Directors (appointed by a Shareholders' Meeting on 12th April 2019)

Chairwoman Letizia Maria Brichetto Arnaboldi Moratti Deputy Chairman Roberto Nicastro Chief Executive Officer Victor Massiah (*) Letizia Bellini Cavalletti Paolo Boccardelli Paolo Bordogna Ferruccio Dardanello Silvia Fidanza Pietro Gussalli Beretta Osvaldo Ranica Alessandro Masetti Zannini (**) Alberto Carrara (**) Francesca Culasso (**) Simona Pezzolo De Rossi (**) Monica Regazzi (**)

General Management General Manager Victor Massiah (*) Senior Deputy General Manager Elvio Sonnino Deputy General Manager Frederik Geertman Deputy General Manager Rossella Leidi

Senior Officer Responsible in accordance with Art. 154 bis of the Consolidated Finance Law Elisabetta Stegher

Independent Auditors DELOITTE & TOUCHE Spa

(*) Appointed Chief Executive Officer and confirmed in the position of General Manager by the Board of Directors on 16th April 2019. (**) Members of the Management Control Committee, of which the Chairman is Alessandro Masetti Zannini.

* * *

Reference is made with regard to the corporate governance system adopted by UBI Banca and to the roles, responsibilities, composition, functioning and powers of the governing bodies, to the description given in the Articles of Association, which may be consulted in the Corporate Governance Section of the Group’s corporate website www.ubibanca.it.

5 UBI Banca Group: main investments as at 30th June 2019

UBI Banca Spa

ASSET FINANCIAL BANKS INSURANCE MANAGEMENT AND OTHER COMPANIES TRUST SERVICES

Pramerica BPB IW Bank Spa 100% UBI Leasing Spa 100% Aviva Vita Spa 20% 65% 100% SGR Spa Immobiliare Srl

Pramerica Lombarda UBI Factor Spa 100% 40% Management Co Sa 100% Kedomus Srl 100% Vita Spa Luxembourg

BancAssurance UBI Trustee Sa UBI Sistemi Prestitalia Spa 100% 100% (1) Popolari Spa 100% Luxembourg e Servizi SCpA 98.56%

Zhong Ou UBI Academy Asset Management 100% 25% SCRL Co. Ltd China

Fully consolidated companies

Companies accounted for using the equity method

(1) The remaining 1.44% is held by Cargas Assicurazioni Spa (the former UBI Assicurazioni Spa).

The percentages relate to the total interests held (directly or indirectly) by the Group in the entire share/quota capital. UBI Banca Group: branch network as at 30th June 2019

Trentino Alto Adige 1 Veneto 27 5 3 Lombardy 157 271 172 (608)

1 Valle d’Aosta Friuli Venezia Giulia 9

140 1 Piedmont 3 (144) Emilia Romagna 45

31 1 Liguria Marches 220 (32)

Umbria 33

88 4 Tuscany Abruzzo 61 2 (92) (63)

Molise 7

123 2 Latium Apulia 78 1 (125) (79) Basilicata 17

1 Sardinia 62 4 Campania (66) Calabria 68

Branches in Italy 1,638 Branches abroad 3

UBI Banca Spa 3 UBI Banca Spa Nizza, Mentone, Antibes (France) UBI Banca Spa - North West Macro Geographical 172 Area International Presences UBI Banca Spa - Milan and Emilia Romagna Macro 203 Geographical Area UBI Factor Spa Krakow (Poland) UBI Banca Spa - Bergamo and West Lombardy 274 Macro Geographical Area Pramerica Management Co. Sa UBI Banca Spa - Brescia and North East Macro Luxembourg 209 Geographical Area Zhong Ou Asset Management Co. Ltd UBI Banca Spa - Latium Tuscany Umbria Macro 244 Shanghai (China) Geographical Area

UBI Banca Spa - Marches and Abruzzo Macro UBI Trustee Sa 281 Geographical Area Luxembourg

UBI Banca Spa - South Macro Geographical Area 232 Representative offices Russia (Moscow), Asia (Mumbai, Shanghai, Hong Kong and Dubai), IW Bank Spa 20 North America (New York), South America (Sao Paolo) and Africa (Casablanca). UBI Banca Group: key figures and performance indicators

30.6.2019 31.3.2019 1.1.2019 31.12.2018 IFRS 16 IFRS 16 IFRS 16 IAS 17

ALTERNATIVE PERFORMANCE MEASURES (1)

STRUCTURAL INDICATORS Net loans and advances to customers at amortised cost/total assets 67.5% 68.7% 70.8% 71.0% Direct banking funding from customers/total liabilities 74.4% 73.9% 73.7% 73.6% Net loans and advances to customers at amortised cost/direct funding from customers 90.8% 93.0% 96.1% 96.5% Equity (inclusive of profit/loss) /total liabilities 7.3% 7.3% 7.3% 7.3% Assets under management/indirect banking funding from ordinary customers 70.6% 69.9% 70.0% 70.0% Financial leverage ratio (total assets - intangible assets)/(equity inclusive of profit/loss + equity attributable to minority interests - intangible assets) 16.6 16.5 16.6 16.5

PROFIT INDICATORS ROE (net profit/equity inclusive of profit/loss) 2.8% 3.5% 4.6% 4.6% ROTE [net profit/tangible equity (equity inclusive of profit/loss - intangible assets)] 3.5% 4.4% 5.7% 5.7% ROA (net profit/total assets) 0.2% 0.3% 0.3% 0.3% The cost:income ratio (operating expenses/operating income) 65.2% 65.7% 69.6% 69.6% Staff costs/operating income 39.4% 39.6% 42.4% 42.4% Net impairment losses on loans: loans to customers at amortised cost/net loans to customers at amortised cost (loan loss ratio) (2) 0.78% 0.59% 0.72% 0.72% Net interest income/operating income 48.5% 48.4% 50.9% 50.9% Net fee and commission income/operating income 44.4% 43.6% 44.9% 44.9% Net result on financial activities/operating income 3.0% 4.1% -0.2% -0.2%

RISK INDICATORS Net bad loans/net loans and advances to customers at amortised cost 2.88% 3.13% 3.11% 3.11% Net impairment losses on bad loans / gross bad loans (coverage for bad loans) 51.76% 49.13% 48.96% 48.96% Coverage for bad loans gross of write-offs 62.60% 59.68% 59.14% 59.14% Net non-performing loans/net loans and advances to customers at amortised cost 6.17% 6,61% 6,72% 6,72%

CAPITAL RATIOS Basel 3 phased-in Tier 1 ratio (Tier 1 capital after filters and deductions/RWAs) 12.05% 11.52% 11.70% Common Equity Tier 1 ratio (CET1 capital after filters and deductions/RWAs) 12.05% 11.52% 11.70% Total capital ratio (total own funds/RWAs) 15.10% 14.43% 13.80% Total own funds (figures in thousands of euro) 8,673,909 8,547,504 8,420,375 of which: Tier 1 capital after filters and deductions 6,922,914 6,819,934 7,138,925 Risk weighted assets (RWAs) 57,442,461 59,217,509 61,035,275

INCOME STATEMENT, BALANCE SHEET FIGURES (in thousands of euro), STRUCTURAL DATA (numbers) Profit (loss) for the period/year attributable to the shareholders of the Parent 130,919 82,208 425,608 425,608 Profit (loss) for the period/year attributable to the shareholders of the Parent before the impact of the Business Plan 173,635 124,881 470,419 470,419

Profit (loss) for the period/year attributable to the shareholders of the Parent normalised 183,366 124,881 302,439 302,439 Operating income 1,829,035 920,617 3,519,343 3,519,343 Operating expenses (1,192,188) (604,759) (2,448,195) (2,448,195) Net loans and advances to customers at amortised cost 86,074,151 87,095,528 88,987,596 88,987,596 of which: net bad loans 2,482,931 2,725,806 2,767,775 2,767,775 net non-performing exposures 5,312,235 5,760,732 5,975,964 5,975,964 Direct banking funding from customers 94,787,453 93,633,045 92,605,312 92,211,085 Indirect banking funding from ordinary customers 99,459,583 98,765,473 94,742,917 94,742,917 of which: assets under management 70,206,651 69,016,848 66,291,471 66,291,471 Total banking funding from customers 194,247,036 192,398,518 187,348,229 186,954,002 Equity attributable to the shareholders of the Parent (inclusive of profit/loss) 9,244,100 9,267,049 9,163,288 9,163,288 Intangible assets 1,720,771 1,721,712 1,729,727 1,729,727 Total assets 127,480,304 126,729,407 125,700,424 125,306,197 Branches in Italy 1,638 1,640 1,648 1,648 Total staff at the end of the period/year (actual employees in service + workers on agency leasing contracts) 20,242 20,386 20,394 20,392 Average total staff (3) (actual employees in service + workers on agency leasing contracts) 18,898 18,941 19,541 19,541 Financial advisors 687 689 684 684 The notes to the table are reported on the following page.

8 (1) The indicators have been calculated using the reclassified figures contained in the section “Reclassified consolidated financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules” in the Interim Consolidated Management Report. The profit indicators for the first six months of 2019 have been calculated by annualising the profit for the period relating to the Parent. The Alternative Performance Measures (APM) reported in this document (in the Interim Consolidated Management Report) take account of the ESMA guidelines issued on 5th October 2015, which the Consob incorporated in its supervisory practices (Communication No. 0092543 of 3rd December 2015). Those guidelines became applicable from 3rd July 2016. In this respect, on 18th August 2016, the Management Board approved the new UBI Banca Group guidelines on the identification of non-recurring items. (2) The calculation of the annualised loan loss rate for the first half of 2019 included impairment losses of €112.1 million recognised in the first half in relation to disposals concluded or planned (see in this respect the section entitled “Significant events in the first half of 2019” in the Interim Consolidated Management Report) without annualisation, since they are not regarded as factors that may be replicated to an equal degree in the second half of the year. The foregoing is not to be understood as a change in the method of calculating the indicator, since it is aimed solely at providing a more accurate representation of the actual loan loss rate in the reporting period. (3) Part time employees have been calculated within average total staff according to convention on a 50% basis.

Information on the share has been reported in a specific section of this Interim Report.

9 The rating

The ratings assigned to the UBI Banca Group by the main international agencies are given below.

(I) The ability to repay Long-term Deposits (with original MOODY'S maturity of one year or more) (Aaa: best rating – C: default) (II) The ability to repay Short-term Deposits (with original Long-term Bank Deposits Rating (I) Baa2 maturity of 13 months or less) (Prime-1: highest quality – Not Prime: not classifiable within Short-term Bank Deposits Rating (II) Prime-2 any of the prime categories) Baseline Credit Assessment (BCA) (III) ba2 (III) The BCA is not a rating but an opinion on the intrinsic

Long-term Issuer Rating (IV) Baa3 financial strength of the bank in the absence of external support (aaa: best rating – c: default) Long-term Counterparty Risk Rating (V) Baa2 (IV) Rating on the ability of the issuer to honour senior debt and Short-term Counterparty Risk Rating (V) Prime-2 bonds in the long-term (Aaa: best rating – C: default) Long-term Counterparty Risk Assessment (VI) Baa2 (cr) (V) The Counterparty Risk Ratings (CRRs) are opinions of the Short-term Counterparty Risk Assessment (VI) Prime-2 (cr) ability of entities to honour the uncollateralised portion of

Outlook (Long-term Bank Deposits Rating) Stable non-debt counterparty financial liabilities (excluding those Outlook generated by a bank performing its essential operating functions) and they also reflect the expected financial losses (Long-term Issuer Rating /Senior unsecured debt) Stable in the event such liabilities are not honoured (Aaa: best rating – C: default)

RATINGS ON ISSUES [P-1): best rating – Not Prime: not classifiable within any of the prime categories] Senior unsecured debt Baa3 (VI) The Counterparty Risk (CR) Assessment is not a rating but

Senior non-preferred debt Ba3 an opinion on the likelihood of a bank defaulting on payment obligations generated by it performing its essential Subordinated debt Ba3 customer-serving operating functions Covered Bonds [Aaa (cr): best rating – C (cr): Default]

(First Programme – residential mortgages) Aa3 [P-1 (cr): best rating – Not Prime (cr): not classifiable within

any of the Prime categories]

After the downgrade in October 2018, on 15th March 2019 Moody’s maintained its ratings for Italy (“Baa3”/”P-3”) and its stable outlook unchanged as part of its usual half-yearly review. The agency’s ratings reflect high levels of public debt (not expected to fall in future years, in view of the expansionary fiscal policies pursued), modest growth prospects in the medium term and a banking sector that is still weak. Italy’s broad and diversified economy is recognised as a strength.

On 13th March the agency announced that it had completed its periodic review of UBI Banca’s ratings. This was a periodic review of the appropriateness of the ratings in light of their methodologies, recent developments and a comparison with the financial and operating profiles of peers with similar ratings. As this was not the result of decisions taken by a committee, this communication constituted neither a rating action nor an indication of the likelihood of whether a rating action will take place or not in the near future.

On 30th July 2019 Moody’s announced that it affirmed UBI Banca’s ratings together with a change from negative to stable on the outlook for the Bank’s senior debt ratings. The outlook on the senior unsecured debt ratings was changed to stable, reflecting Moody’s expectation that the Bank’s senior and subordinated debt issuances over the medium term will be sufficient to keep the risk for this category of debt low, as measured by their loss-given-failure (LGF) analysis (also in light of the Bank’s funding plan carried forward in the first seven months of the current year). Moody’s LGF analysis measures the inherent risk of each type of instrument on the basis of the total amounts outstanding and those of the instruments with the highest subordination.

10

(i) The Issuer Credit Rating reflects the bank’s ability to meet S&P GLOBAL RATINGS its financial commitments. It is based on an assessment of its intrinsic creditworthiness, supplemented by an assessment of the potential extraordinary support (from

Long-term Issuer Credit Rating (i) BBB- government or from the group to which it belongs or alternatively from its additional ability to absorb losses) on

Short-term Issuer Credit Rating (i) A-3 which the bank could count if it ran into difficulties Short-term: ability to repay short-term debt with a maturity of less than one year (A-1: best rating – D: default) Long-term Resolution Counterparty Rating (ii) BBB Long-term: ability to pay interest and principal on debt with a maturity of longer than one year Short-term Resolution Counterparty Rating (ii) A-2 (AAA: best rating – D: default) (ii) The Resolution Counterparty Rating is a forward-looking Stand Alone Credit Profile (SACP) (iii) bbb- opinion on the risk of default by certain senior liabilities that may be protected from default within a bail-in process Outlook (Long-term Issuer Credit Rating) Stable [Long-term AAA: best rating – D: default; short-term A-1: best rating – D: default] (iii) The SACP is a rating of the intrinsic creditworthiness of the RATINGS ON ISSUES bank in the absence of external support (from government, from the group to which it belongs, or from additional Senior unsecured debt BBB- capacity to absorb losses). It is calculated on the basis of an “Anchor SACP”, which summarises economic and industry Senior non-preferred debt BB+ risk for the Italian banking sector. This is then adjusted to take account of bank-specific factors such as capital and Subordinated debt BB earnings, business position, exposure to risk, funding and liquidity, which are also assessed from a comparative viewpoint

On 26th April 2019 at the time of its half-yearly review, S&P Global Ratings confirmed its ratings for Italy (BBB/A-2) and its negative outlook. Although Italy’s economic and fiscal policies have set its public debt on a growth trajectory, the agency feels that Italy is continuing to benefit from factors that support its current rating. These include a prosperous and diversified economy which operates in surplus with the rest of the world and a reasonable long-term debt profile (an average weighted maturity of 6.8 years), which moreover is denominated almost exclusively in euro.

FITCH RATINGS (1) The ability to repay debt in the short-term (original maturity of up to 13 months) (F1+: best rating – D: default) (2) The ability to promptly meet financial commitments in the Short-term Issuer Default Rating (1) F3 long-term, independently of the maturity of individual obligations. This rating is an indicator of an issuer’s Long-term Issuer Default Rating (2) BBB- vulnerability to default

Long-term Deposit Rating BBB (AAA: best rating – D: default) (3) An assessment of a bank’s intrinsic strength in the event Viability Rating (3) bbb- that it cannot rely on forms of extraordinary external support Support Rating (4) 5 (aaa: best rating – f: default) NF (4) A rating of the likelihood of possible extraordinary external Support Rating Floor (5) (No Floor) support (from the state or large shareholders) if the bank runs into difficulty in honouring its senior obligations Outlook (Long-term Issuer Default Rating) Negative [1: high probability of external support – 5: no reliance may be placed on any possible support (as is the case for European banks subject to the BRRD resolution regime)] RATINGS ON ISSUES (5) This rating gives additional information, closely linked to the Support Rating, in that for each level of the Support Senior unsecured debt BBB- Rating it identifies the minimum level which the Issuer Default Rating could reach if negative events were to occur Senior non-preferred debt BBB- (No Floor for European banks subject to the BRRD resolution regime)

Subordinated debt BB+

On 22nd February 2019, Fitch Ratings affirmed its Long-term Issuer Default Rating for Italy at “BBB”, with a negative outlook (the short-term rating of “F2” was also affirmed). The “BBB” rating and the outlook reflect, amongst other things, the extremely high level of Italian government debt, the absence of structural fiscal adjustments, the still poor quality of assets in the banking sector, a very low growth trend for GDP and risks and uncertainties surrounding current policy dynamics. Support for the rating comes from, amongst other things, a diversified and high value added economy, moderate debt in the private sector, a sustainable public pension system and a relatively favourable average maturity for government debt (6.7 years).

11 As concerns the entry into force from 1st January 2019 of the “full depositor preference” in the hierarchy of creditors in the event of a bank’s insolvency, on 2nd April 2019, when it took action involving 16 Italian-based banks, Fitch gave UBI Banca a rating on its Long-term Deposits of “BBB”, one notch above its Long-Term Issuer Default Rating (“BBB-”). The action did not affect other ratings which therefore remained unchanged. The new rating reflects the agency’s expectation that the Bank will maintain adequate subordinated and senior liability buffers (preferred and non-preferred), also necessary for compliance with minimum requirements for own funds and eligible liabilities (MREL).

On 7th May 2019 Fitch Ratings placed the “Short-Term” (ST) ratings of 31 EMEA-based banks (Europe, Middle East, Africa) “Under Criteria Observation” (UCO), following the publication of new criteria for assigning short-term-ratings on 2nd May. The action did not affect UBI Banca. The new criteria introduce changes to the correspondence table between long-term and short-term ratings, to give greater differentiation with new “A” and “BBB+” cusp points. For banks with long-term ratings driven by their standalone profile, as reflected by their “Viability Ratings”, this agency will use the funding and the liquidity factor score as the principal determinant of the short-term rating to be assigned.

(I) The Issuer Rating is not a rating on issues but on the issuer, DBRS because it is an assessment of its creditworthiness. The rating is assigned on a long-term basis using the long-term rating scale and on a short-term basis using the relative Long-term Issuer Rating (I) BBB scale. In the banking sector, the Issuer Rating represents the final rating on the creditworthiness of a bank which Short-term Issuer Rating (I) R-2 (high) incorporates both the Intrinsic Assessment and possible considerations regarding external support Long-term Senior Debt (II) BBB LTIR – AAA: best rating – D: default STIR – R-1 (high): best rating – D: default Short-term Debt (II) R-2 (high) (II) The ability to repay long-term debt (maturing in more than

Long-term Deposits (III) BBB (high) one year), or short-term debt LTSD – AAA: best rating – D: default Short-term Deposits (III) R-1 (low) STD – R-1 (high): best rating – D: default

Intrinsic Assessment (IV) BBB (III) The ability to repay Long-term Deposits (maturing in more than one year) and short-term deposits LTD – AAA: best rating – D: Default Support Assessment (V) SA3 STD – R-1 (high): best rating – D: default

Long-Term Critical Obligations Rating (VI) A (low) (IV) The Intrinsic Assessment (IA) is a rating of the intrinsic financial strength of a bank in the absence of external Short-Term Critical Obligations Rating (VI) R-1 (low) support. It assesses a bank’s intrinsic fundamentals in five areas: commercial network, earnings capacity, liquidity and Trend (all ratings) Stable funding, risk profile and capitalisation AAA: best rating – CCC: worst rating (V) External support assessment (group to which it belongs or RATINGS ON ISSUES government) in case of need. SA1: internal support from the group to which it belongs; Senior unsecured debt BBB SA2: external support (government); SA3: no external support – SA4: potential support to the group to which it Senior non-preferred debt BBB (low) belongs

Subordinated debt BB (high) (VI) The Critical Obligations Rating (COR) is a rating on default

Covered Bonds risks intrinsic to some classes of obligations/exposures with

(First Programme – residential mortgages) AA high probabilities of being excluded from bail-in (such as those resulting from derivatives, payment services, covered Covered Bonds

(Second Programme – commercial mortgages) A bond issues, etc.) LTCOR – AAA: best rating – D: default STCOR – R-1 (high): best rating – D: default

After its confirmation on 11th January of its ratings for Italy [“BBB (high)”/“R-1 (low)”] with the assignment of a stable trend, these were again confirmed by DBRS on 12th July 2019 in its half-yearly review. According to the agency, the progress made by Italian banks in improving the quality of their assets and the government’s pledge to a more prudent fiscal strategy mitigate risks for future debt sustainability, despite the country’s high political uncertainty and lower-than-expected economic growth. The government’s pledge to maintain the 2019 deficit at 2% of GDP averted the opening of an excessive deficit procedure by the European Union and, to some extent, has restored investor confidence, contributing to a decline in sovereign yields.

12

INTERIM CONSOLIDATED

MANAGEMENT REPORT AS AT AND FOR THE PERIOD ENDED 30TH JUNE 2019

The macroeconomic scenario1

During the first half of 2019 the commercial and political risk factors in the global scenario became heightened. These could affect economic expansion, which is already dealing with signs of a slowdown, particularly in the euro area. In the first half of 2019, trade tensions between the US and China2 became increasingly sour, with both sides raising tariffs. This has led to a slowdown in trade, and increased volatility on the financial markets.

The overall macroeconomic scenario is still being influenced by numerous variables of a geopolitical nature:  the delicate diplomatic relations between the US and North Korea3;  the worrying exacerbation in diplomatic relations between the US and Iran4;  the continuing state of conflict between the US and Russia5;  the tensions between the US and Mexico on the issue of immigration6;  the difficult economic and social situations in Argentina, Venezuela, Libya and Turkey7.

1 Prepared on the basis of data available as at 17th July 2019 with the exception of the updates provide by the IMF (World Economic Outlook). 2 In the first few months of the year talks between the two superpowers to try and find a trade agreement were unsuccessful. The US international trade representative unexpectedly filed the documents for a 25% increase in tariffs on USD 200 million of imports from China, effective from 10th May. In turn China increased tariffs on approximately USD 60 billion of imports from the US. On 16th May US President Trump issued an executive order preventing US companies from purchasing products from companies that could pose a risk to national security, and a few hours later the Bureau of Industry and Security of the Department of Commerce included Huawei and 68 other affiliates on a list of companies that can only buy from US companies with the express authorisation of the US Government. Following these measures several US technology companies halted their supplies to the Chinese telecoms giant, while from June the US Administration further increased tariffs on Chinese products already subject to tariffs since September 2018. At the G20 held in Osaka at the end of June, China and the US restarted talks, and postponed the application of tariffs onto a further portion of Chinese exports currently not affected by the punitive measures. The US is once again working with Huawei as regards the supply of components originating from the US only. Whereas China has committed to purchasing significant quantities of products from the US agricultural sector. As far as relations with the EU are concerned, the US has postponed its decision on placing tariffs on imports of European cars and automotive components until mid-November. 3 At the end of February the North Korean leader and US President met for the second time since their first meeting in June 2018 to restart talks about the dismantling of the North Korean nuclear arsenal and to seek an agreement on the 1950-1953 postwar treaty. The initial optimism was not however followed by a preliminary draft agreement between the two parties. 4 In April the US announced it was withdrawing the exemptions that allowed eight countries, including Italy, to continue importing Iranian crude oil for several months notwithstanding the sanctions imposed on the Iranian Republic in November 2018. On 15th May Iran announced that it had breached its obligations on surplus enriched uranium under the nuclear agreement the US ditched in 2018. For its part, the US strengthened its air and sea presence in the Persian Gulf in response to a number of attacks on oil tankers and oil platforms in the region, which according to the US were carried out by Iran, as well as the subsequent shooting down of a US navy drone by an Iranian missile. The White House has also rolled out new punitive economic sanctions, preventing the leaders of Iran from accessing financial resources, the US banking system and any assets in the US. 5 At the beginning of February the US announced its withdrawal from the INF, the treaty signed by Reagan and Gorbachev in 1987 that bans intermediate-range nuclear missiles. The main purpose of the treaty was to remove the possibility that Europe could be reached by warheads located on Soviet territory, thus avoiding the need for Europe to have US missiles located in its territory as defence. 6 After declaring a state of emergency in February over the border between the US and Mexico, where President Trump plans to build a wall, the White House threatened to introduce tariffs on products imported from Mexico. The plan did not materialise at the last minute thanks to an agreement reached under which Mexico has agreed to mobilise its own troops to contain the wave of migrants trying to enter the United States. 7 In April the Argentinian president Macrì launched a package of emergency measures to try and slow down inflation, which rose at an annual rate in excess of 50% in March. At the end of January the leader of the Venezuelan opposition Guaidò proclaimed himself acting President, obtaining immediate international recognition from the US, Canada and other heads of state in Latin America and Europe, and promising free and impartial elections to put an end to the disastrous economic crisis aggravated by the extremely high level of inflation. Russia, China, Cuba and Turkey have instead confirmed their support for Nicolas Maduro. Since April Libya has seen a breakdown in the precarious balance between President Serraj’s government, recognised by the majority of the international community, and the troops of General Haftar, the strong man of Cyrenaica, which are trying to reach Tripoli to take power. This has led to civil war, with repercussions on oil production and the flow of migrants towards Europe. In Turkey elections were held to appoint the mayor of Istanbul for the second time in June, after President Erdogan petitioned to annul the March elections. The opposition candidate again won the re-run, leading to expectations that there could be a change in the country’s leadership given the continuing precarious state of Turkey’s economy. After criticising the Turkish Central Bank for failing to cut rates, on 6th July Erdogan removed the governor and replaced him with his deputy, which has raised considerable concerns about the independence of the Central Bank.

14 In Europe there have been additional specific political and social factors:  the continuing uncertainties about the timing and manner of the United Kingdom’s exit from the European Union8;  the crisis in the Spanish government brought about by rejection of the budget presented by Prime Minister Sanchez, which led to the end of the government just eight months after the fall of Rajoy’s government. The elections that took place on 28th April essentially confirmed the leadership of the main traditional parties, which meant the political powers had to begin discussions to create an alliance capable of forming a new government;  the build-up to the European elections that took place on 26th May. The results saw an alliance of the anti-European movements, which did not however manage to take control of the Parliament. The decline in power of the European People’s Party and the Socialists was in any case offset by the positive results for the Liberals and the Greens;  the continuing difficulties in managing migrants and a practically constant state of conflict between the Non-Governmental Organisations (NGOs), the Italian Government and the European Authorities every time a new boatload of foreigners arrives from the Libyan coast;  the concerns on the part of the European Authorities regarding the sustainability of Italy’s debt, which on 5th June led the European Commission to recommend starting proceedings to fine Italy for its excessive debt. Following the presentation by the Italian Government of an adjustment to the public finances, the Commission decided to withdraw its proposal on 3rd July, momentarily avoiding the application of a hitherto unprecedented measure;  on 7th July Greece held early elections which saw the victory of the centre-right party of the new Prime Minister Mitsotakis, who took over from Tsipras. The focus of the new PM’s manifesto is a redefinition of the harsh agreements with the EU entered into by his predecessor at the most critical point of the Greek financial crisis in 2015.

Ten-year BTP-Bund spread 600

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0 JFMAMJJA SONDJ FMAMJJ ASONDJ FMAMJJ ASONDJFMAMJ J ASONDJFMAMJJA SONDJFMAMJ JA SONDJ FMAMJJA SONDJ FMAMG 2012 2013 2014 2015 2016 2017 2018 2019 Source Thomson Financial Reuters

8 After the British Parliament rejected the Agreement with the EU signed on 25th November 2018, Prime Minister May tried to renegotiate the text with the 27 EU countries, proposing amendments concerning the issue of the Irish border. In March the British Parliament ruled out the possibility of the UK leaving the EU without a deal, opening the way to a new vote which postponed the exit beyond the date of 29th March. The lack of time forced the UK to take part in the European Parliament elections on 26th May. On 7th June Theresa May resigned, after failing to receive the backing of her own parliamentary party on several occasions. To date there is still uncertainty surrounding how and when the UK will leave the EU, the current deadline being set for 31st October 2019.

15 As a repercussion of the events that characterised Italian politics in the early months of the year, the gap between the ten-year government bond (BTP) and its German counterpart the Bund remained highly volatile, as shown by the graph. It peaked at 290 basis points in the first ten days of February and at the end of May, then fell rapidly in the following weeks, thanks to growing expectations about new non-conventional steps taken by the ECB to support the economy. After falling to 242 basis points at the end of June (253 b.p. at the end of December 2018), the spread began falling more rapidly, finishing below 200 b.p. in early July, as the risk of sanctions by the EU Commission became less likely.

In monetary policy, the major central banks have confirmed their accommodative policies, reassuring the markets that they are ready to take expansionary measures should there be increasing signs of a slowdown.

As concerns the European Central Bank:  after quantitative easing came to an end in December 2018, in the first half the Governing Council confirmed its intention of continuing to reinvest all of the capital repaid on securities reaching maturity within the framework of the Asset Purchase Programme for a prolonged period after the date on which it starts to raise reference interest rates, and in any case for as long as it is necessary to maintain liquidity rates that will help a broad level of monetary easing;  the rate on principal refinancing operations was kept at its record low of 0%, while the rate on deposits held by banks with the ECB remained at -0.40%. These levels will remain unchanged for at least the end first half of 2020 and in any case for as long as it is necessary in order to ensure that the medium- term inflationary target is achieved and maintained;  the introduction of a new series of seven quarterly targeted longer-term refinancing operations (TLTRO III) was announced at the Governing Council meeting of 7th March. These will start in September 2019 and end in March 2021, and will have a maturity of two years each. The essential parameters were approved on 6th June: the interest rate for each operation will be set at a level of 10 basis points above the average rate applied to the Eurosystem’s main refinancing operations over the life of the respective TLTROs; counterparties are also entitled to borrow up to 30% of the total eligible loans (excluding loans for house purchases) as at 28th February 2019. Under TLTRO III, banks whose eligible net lending is in excess of a benchmark will benefit from the average rate applied to deposits with the Central Bank for the duration of the operation plus 10 basis points9;  at the forum at Sintra (Portugal) which was held as usual in June, President Draghi finally declared that the ECB will not give up in the face of low inflation, and is prepared to use all the tools at its disposal. After the four increases in 2018, the Federal Reserve maintained a prudent approach in the first half, placing increasing focus on the signs of a slowdown in the economy. The reference rates were therefore confirmed at 2.25-2.50%, even if at the last meeting in June there were stronger signs of a possible cut, perhaps in July, given the increased risks for world trade posed by international trade tensions. The Bank of Japan confirmed its reference rate would remain below zero (-0.10%-0%), maintaining an expansionary tone with quantitative and qualitative easing focusing on controlling rates at the various maturities in order to achieve its inflation target of 2%. At its meeting on 25th April the Central Bank also declared that rates will remain at current levels until at least spring 2020, and an ETF Lending Facility could be introduced that would enable temporary lending to market players on the ETF held by the BOJ. While it waits to find out about the UK’s exit from the EU, the Bank of England has left its official interest rate at 0.75%. In the main emerging countries monetary policy varied10. On the Forex market, the euro weakened overall between January and June against all the leading international currencies. However, the euro-dollar exchange rate reflected a conflicting trend in the two quarters, with a recovery in the euro in June due also to the ECB’s announcement of new monetary stimuli in the absence of an improvement in macroeconomic data in the euro area. Also in the second quarter, the exchange rate between sterling and the euro was negatively affected by the increased risk in a no-deal Brexit on 31st October.

9 For Italian banks the maximum amount of lending in the seven operations in total will be approximately €260 billion, including loans already obtained with the TLTRO II (approx. €240 billion) which will reach maturity between June 2020 and March 2021 and may be replaced by the new operations. 10 The Central Bank of Brazil and the People’s Bank of China maintained their base rates respectively at 6.50% and 4.35%, the Central Bank of the Russian Federation reduced its base rate by 25 basis points to 7.50% in June and the Reserve Bank of India reduced rates three times by 25 basis points in February, April and June, bringing the repo rate to 5.75% from 6.50% at the end of 2018.

16 The signs of an The main exchange rates and oil (Brent) and commodities prices increasingly accommodative policy Jun-19 Mar-19 Dec-18 % change Sep-18 Jun-18 by the ECB and the A B C A/C D E

FED, together with the Euro/Dollar 1.1368 1.1217 1.1469 -0.9% 1.1608 1.1683 fears of a trade war Euro/Yen 122.64 124.33 125.65 -2.4% 131.96 129.28 between the US and Euro/Yuan 7.804 7.528 7.886 -1.0% 7.9724 7.7308 China, supported the Euro/Franc CH 1.1100 1.1160 1.1260 -1.4% 1.1398 1.1569 yen, which gradually Euro/Sterling 0.895 0.861 0.899 -0.4% 0.8907 0.8844 Dollar/Yen 107.88 110.84 109.56 -1.5% 113.68 110.66 gained strength in the Dollar/Yuan 6.8650 6.7110 6.9430 -1.1% 6.8680 6.6171 first half against both Futures - Brent (in $) 66.51 68.39 54.15 22.8% 82.73 79.23 the euro and the CRB Index (commodities) 189.83 191.54 175.96 7.9% 201.00 205.00 dollar. Source: Thomson Financial Reuters After an initial rise in value, the renminbi was affected by the continued trade tensions still ongoing with the US, showing a reverse trend against both the dollar and the euro in the second quarter.

The commodities price index rose 7.9% over the six-month period, incorporating the dramatic rise in energy commodities in the first four months of the year. The price of Brent oil (USD 54.15 at the end of 2018) reached USD 75 a barrel in April, mainly driven by the effect of production cuts decided by OPEC in December 201811, and by the reduction in supply on the part of Venezuela and Iran for geopolitical reasons. In the following weeks the fears of a trade war between the US and China and increase in United States inventories partly reversed the trend in crude oil prices, which fell to USD 66 a barrel at the end of June.

All of the above led to a moderate increase in consumer prices in some emerging countries, while in industrialised countries inflation remains below 2%, the medium to long-term goal of the main Central Banks.

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According to the International Monetary Fund’s latest forecasts12 the world economy will grow 3.2% in 2019, less than a year before (+3.6%), remaining uneven across different geographical areas (+4.1% in emerging areas and +1.9% in advanced countries). The global cycle therefore continues to be supported by the development of emerging economies, especially in Asia, while there have been signs of a slowdown for the US and a continuing weakness in the European economy, which is being held back also by the slowdown in the leading German economy.

Actual and forecast data: industrialised countries

Public Sector Deficit (+) Reference interest Gross domestic product Consumer prices Unemployment Surplus (-) (% of GDP) rates

Percentages 2018 2019(1) 2020(1) 2018(2) Jun-19(3) 2019(1)(2) 2018(2) Jun-19(3) 2019(1)(2) 2018 2019(1) 2020(1) Dec-18 Jul-19

United States 2.9 2.6 1.9 2.4 1.6 1.7 3.9 3.7 3.7 6.6 6.0 6.0 2,25-2,50 2,25-2,50 Japan 0.8 0.9 0.4 0.7 0.9 1.2 2.4 2.4 2.6 3.0 2.0 1.7 -0,10-0 -0,10-0 Euro Area 1.9 1.3 1.6 1.8 1.3 1.1 8.2 7.5 7.4 0.5 0.9 0.7 0.00 0.00 Italy 0.9 0.1 0.8 1.2 0.8 0.7 10.6 9.9 10.2 2.1 2.2 2.5 -- Germany 1.4 0.7 1.7 1.9 1.5 1.4 3.4 3.1 3.2 -1.7 -1.0 -0.9 -- France 1.7 1.3 1.4 2.1 1.4 1.2 9.1 8.6 8.7 2.5 3.3 2.2 -- Portugal 2.1 1.6 1.3 1.2 0.7 0.7 7.1 6.6 6.8 0.5 0.2 0.2 -- Ireland 6.8 4.2 3.1 0.7 1.1 0.8 5.7 4.4 5.3 0.0 0.1 0.1 -- Greece 1.9 1.0 0.7 0.8 0.2 0.5 19.6 18.1 18.5 -1.1 -0.7 -0.8 -- Spain 2.6 2.3 1.9 1.7 0.6 1.0 15.2 13.6 13.7 2.5 2.4 1.8 -- United Kingdom 1.4 1.3 1.4 2.5 2.0 2.0 4.1 3.7 4.1 1.5 1.5 2.5 0.75 0.75

(1) Forecasts Source: IMF, Prometeia and Official Statistics (2) Average annual rate (3) The latest available data has been used, w here data had not been published as at 30th June 2019.

11 The OPEC meeting of 1st July 2019 decided to continue with the cuts in production put in place on 1st January 2019 for a further nine months, until 31st March 2020. The decision was shared also in the meeting of OPEC Plus - the coalition between OPEC countries and the countries taking part in the crude oil production cuts agreed on several occasions since November 2016 (including Kazakhstan, Mexico and Russia) - held after the OPEC meeting. 12 World Economic Outlook update, July 2019.

17 Despite the temporary paralysis in the administration due to the shutdown that affected almost the whole of January, United States GDP rose by an annualised 3.1% in the first quarter (+2.2% in the last period of 2018), due to a higher contribution from net exports and inventories, against a lower one from consumption and fixed investments. However, advance information for the second half indicates a possible slowdown in the economy. Household and business confidence has continued to fall, affecting also the services industry. In May industrial production showed a recovery after a four-month fall and there was growth in the manufacturing sector despite the adoption of protectionist trade policies.

In China, the percentage Actual and forecast data: the principal emerging countries annual change in GDP Reference interest from April to June was Gross domestic product Consumer prices +6.2%, (+6.4% in the (average annual rate) rates Percentages 2018 2019(1) 2020(1) 2018(2) Jun-19(3) Dec-18 Jul-19 previous two quarters), reflecting a slowdown in China 6.6 6.2 6.0 2.1 2.7 4.35 4.35 domestic demand, fixed India 7.0 7.0 7.2 3.5 2.9 6.50 5.75 investments, industrial Brazil 1.1 0.8 2.4 3.7 3.4 6.50 6.50 production and the Russia 2.3 1.2 1.9 2.9 5.1 7.75 7.50 balance of trade only partly offset by signs of a (1) Forecasts Source: IMF, Prometeia and Official Statistics recovery in June. (2) Average annual rate (3) The latest available data has been used, w here data had not been published as at Economic policy measures 30th June 2019. put in place in previous months include a gradual reduction in the required reserve ratio for smaller banks in order to support lending to small and medium-sized enterprises. Until the effects of these can be felt, further measures to support business have been put in place, in particular a new series of special-bond issues by local government for investments in infrastructure. In the first quarter Japan’s GDP rose by 0.6% quarter-on-quarter (+0.5% in the 4th quarter of 2018), although driven by the substantial fall in imports which, despite a significant fall also in exports, made a positive contribution to economic growth. Non-residential investments and inventories performed less well, and there was a zero contribution from consumption. The general climate of uncertainty generated by trade tensions is having an effect on growth prospects because it is delaying investment choices especially those of the major exporters. As a result the SME indicators have continued to deteriorate. In the euro area the effects of the worsening external environment on exports and on investment planning did not prevent GDP growth from gathering speed. GDP rose 0.4% quarter-on-quarter (+0.2% from October to December 2018) thanks to a growing contribution from consumption and, to a lesser extent, from fixed investments and net exports, which more than offset the fall in inventories. The initial signs from the second quarter would appear to indicate a slowdown in the economic situation. The €-coin indicator developed by the Bank of Italy – which gives an estimate of core trends for European GDP – in fact began to fall again in June after rising slightly the previous month, reaching its lowest point since December 2014, while in May industrial production fell long-term for the third consecutive time (-0.5%), on the back of the figures from Germany (-4.3%)13. As far as public finances are concerned, the updates to the stability programmes of the EU countries were presented at the end of April. Only four countries had a deficit higher than 1% of GDP (France, Italy, Spain and Belgium).

In Italy the recessionary phase of the second half of 2018 has passed, but the Italian economy is still less dynamic that that of its major European partners. In the first quarter of 2019 GDP rose by +0.1% (-0.1% in the two previous quarters), thanks to net foreign demand and a positive, if small contribution from consumption and gross fixed investments, against a considerable fall in inventories. The latest information shows that in the spring months economic activity remained stationary or slightly reduced, as the overall weakness in industrial production seems to indicate. The seasonally adjusted year-on-year index fell by 0.7% in May in the majority of areas, albeit at varying levels of intensity. The only increases were in the “textiles, clothing, leather goods and accessories industries” (+2.8%), “other manufacturing industries” (+2.8%), “manufacture of electrical appliances” (+1.4%), “manufacture of chemical products” (+1%) and “electricity, gas, steam and air supplies” (+0.4%).

13 On 1st July the EU and Mercosur countries (Argentina, Brazil, Paraguay and Uruguay) signed a trade agreement that will affect 780 million people and consolidate the close political and economic links between the two blocs. The inter-regional agreement involves abolition of the majority of tariffs on EU exports to Mercosur and will increase the competitiveness of EU companies, saving them €4 billion a year in tariffs.

18 The unemployment rate has continued to fall since November 2018. In May it fell to 9.9% (10.4% in December 2018), the lowest level since February 2012, while the rate for the 15-24 age range fell to 30.5% (32.5% in December 2018)14. The overall figure continues to be mitigated by government-backed temporary redundancy schemes, which saw a year-on-year increase in the Wage Integration Fund between January and May: 116.4 million hours authorised compared with 104.4 million in the first half of 2018 (+11.4%), the result of an increase in extraordinary (long-term) benefits (+31.9%) which more than offset ordinary (short-term) (-5.6%) and exceptional benefits (-89.4%). Inflation (according to the Harmonised Index of Consumer Prices) – constantly lower than in the euro area – was 0.8% in June (1.2% in December 2018), with a dynamic that over the six months was also influenced by the trend in energy prices. The surplus on the balance of trade totalled €16.3 billion in the period January-May (€13.9 billion in the same period of 2018), due to a substantial increase in the surplus on non-energy products, over 50% of which is attributable to capital goods, which more than offset the energy deficit (-€17.1 billion). The overall surplus was driven by higher volumes of trade, with imports growing 4% and exports 2.9% year-on-year, with more marked progress in non-EU markets15. With regard to public sector finances, 2018 closed with deficit-to-GDP and debt-to-GDP ratios of 2.1% and 132.2% respectively. The failure to comply with the debt rules led to the European Commission’s proposal to recommend starting proceedings against Italy for its excessive debt, a proposal that was only withdrawn after the presentation on 1st July of a series of corrective measures for a total of €7.6 billion which, even with a freeze on the lower costs of the citizen’s wage and “Quota 100” early retirement scheme, will offset the 2018 and 2019 differences and provide reassurance for the 2020 budget.

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After the collapse at The principal share indices in local currency the end of 2018, stock Jun-19 Mar-19 Dec-18 % c ha nge Sep-18 Jun-18 markets ended the A B C A/C D E first half mainly with rallies across the Ftse Mib (Milan) 21,235 21,286 18,324 15.9% 20,712 21,626 Ftse Italia All Share (Milan) 23,159 23,314 20,148 14.9% 22,918 23,827 board, albeit with Xetra Dax (Frankfurt) 12,399 11,526 10,559 17.4% 12,247 12,306 geographical Cac 40 (Paris) 5,539 5,351 4,731 17.1% 5,493 5,324 variations, and despite Ftse 100 (London) 7,426 7,279 6,728 10.4% 7,510 7,637 the fluctuating trends S&P 500 (New York) 2,942 2,834 2,507 17.4% 2,914 2,718 DJ Industrial (New York) 26,600 25,929 23,327 14.0% 26,458 24,271 during the period. Nasdaq Composite (New York) 8,006 7,729 6,635 20.7% 8,046 7,510 There was a significant Nikkei 225 (Tokyo) 21,276 21,206 20,015 6.3% 24,246 21,812 rise from January to Topix (Tokyo) 1,551 1,592 1,494 3.8% 1,818 1,695 April – thanks also to MSCI emerging markets 1,055 1,058 966 9.2% 1,048 1,070 the overall positive risk Source: Thomson Financial Reuters appetite sustained by some positive macroeconomic figures from the US and the EU, as well as an easing in monetary policy in China. This was followed by a fall in May, the result of more bitter trade tensions between the US and China, which led to a fall in share prices magnified by shareholders cashing in after the gains made in the first part of the year. There was then another rally which started in June, thanks to the FED and the ECB being open to more accommodative monetary policy directions, which took the US stock markets to record highs. In Italy the volatility was even more marked due to tensions in the majority government, including in the run-up to the European elections, as well as to doubts about the strength of public accounts, with the rally picking up from the end of June, following more relaxed relations with the European Commission.

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14 This figure gives young people unemployed as a percentage of total young people in employment and seeking employment. 15 On 23rd March, during the visit to Italy of the Chinese President Xi Jinping, Italy joined the Belt and Road Initiative by signing a Memorandum of Understanding, which constitutes a framework agreement within which specific agreements will be subsequently negotiated in specific areas of the economy as part of a project involving 68 countries and approximately 65% of the world’s population. On the same occasion another 28 agreements were signed, including framework agreements and trade agreements aiming to strengthen relations with the world’s second large economy.

19 The fragile economic situation – most obvious in investments and only marginally so in household expenditure – is having repercussions on the banking system due to the slowdown in lending, while credit quality has continued to improve and there has been an increase in less risky forms of funding albeit with minimal remuneration.

According to initial estimates published by Italian Banking Association (ABI)16, at the end of June the year-on-year trend in direct funding (deposits of residents and bonds) in Italian banks rose to +2.2%, confirming the trend of gradual growth ongoing since the end of 2018 (+0.2% in December). There continues to be an opposing trend between deposits (+3.7% from +2.6% in December 201817) and bond funding (-6.4%, although this was an improvement in percentage terms on the -12.3% at the end of 201818), with more redemptions than issues, despite signs of a recovery in the early months of 2019. As emerges from detailed Bank of Italy data for May19, deposits have benefited mainly from an increase in current accounts (+4.3% over twelve months; +1.9% compared with December 2018) and in term deposits (+5.5% over twelve months; but +16.4% compared with end 2018), while the contribution of repurchase agreements has been marginal (+7.6% over the year, but -11% since the start of 2019).

Initial data for June published by the Italian Banking Association ABI shows that20 loans to residents belonging to the private sector increased year-on-year by 0.5% (+2% in December 2018) in terms of borrowers, showing a slowdown in the overall positive trend for households and non-financial companies (+1% from the +1.9% at the end of 2018) despite interest rates being at record lows. The detailed information provided by the Bank of Italy for May21 shows that annual growth in household loans stabilised at the end of 2018 (+2.6%), remaining solid both for residential mortgages and consumer credit. With regard to businesses, the year-on-year trend returned negative from January (-0.2% in May), also as a result of the statistical effect of the significant increase in loans at the beginning of 2018, the end of the period applicable to outstanding loans for calculating the rate to apply to TLTRO II loans. The dynamic remains weak due to a reduction in the demand for loans despite interest rates being at record lows, and is still feeling the effects of the trend in investments and the economic cycle.

In terms of risk, asset quality appears to be decidedly improving, boosted by the reduction in inflows of new non-performing exposures and by the scheduled disposals of bad loans. In May private sector bad loans gross of impairment losses19 fell to €91.6 billion, a significant year-on- year fall of 43.7%, (-7.7% since the start of the year). Total outstanding comprised €28.3 billion by households (-38.2% year-on-year) and €61.8 billion by businesses (-46%). The ratio of gross private sector bad loans to private sector loans therefore fell to 5.97% (6.5% in December and 10.27% in May 2018). Net bad loans of €32.6 billion decreased by 35.8% over 2018 but have increased slightly since the beginning of 2019 (+2.4%). The ratio of net bad loans to total loans fell as a consequence to 1.88% (1.85% at the end of 2018; 2.93% at the end of 2017). On the basis of the “Financial Stability Report” published by the Bank of Italy in May, gross non-performing exposures (bad loans, unlikely-to-pay loans and past-due loans) totalled €189 billion in June 2018, accounting for 8.6% of total gross loans (€2,185 billion22). Net of impairment losses, total non-performing exposures amounted to €90 billion, accounting for 4.3% of total net exposures (€2,074 billion). Coverage, measured as the ratio of impairment losses to gross non-performing loans, stood at 52.7%, while that for

16 Italian Banking Association, Monthly Outlook, Economia e Mercati Finanziari-Creditizi, July 2019. 17 The changes were calculated by excluding amounts relating to disposals of loans and transactions with central counterparties from deposits. 18 The changes were calculated by excluding the portion included within the investments in the securities portfolio from bond funding. 19 Supplement to the Statistics Bulletin “Banche e Moneta: serie nazionali”, July 2019. 20 Italian Banking Association, Monthly Outlook, Economia e Mercati Finanziari-Creditizi, July 2019. The change was calculated by the Italian Banking Association consistent with the criterion used by the Bank of Italy mentioned in the following footnote 21. 21 Supplement to the Statistics Bulletin “Banche e Moneta: serie nazionali”, July 2019. The growth rates for lending have been adjusted by the Bank of Italy to take account of securitisations and other loans disposed of and written off the balance sheets of banks. 22 To bring the method for calculating the incidence of non-performing exposures on total loans in line with that used by the ECB, in addition to customer loans the total shown includes interbank and central bank exposures.

20 bad loans was 65.4%, compared with 38.9% for unlikely-to-pay loans and 23.2% for exposures past due and/or in arrears.

Securities issued by residents in Italy held in the portfolio of Italian banks stood at €585.4 billion in May, increased both over twelve months (+€43.3 billion; +8%) and from December (+19.6 billion; +3.5%). The trend mainly reflects the trend of investments in Italian government securities, totalling €391.5 billion, up 38.4 billion year-on-year (+10.9%), of which €23.2 billion in the first five months of 2019 (+6.3%). More than two-thirds of the annual difference comprised longer-term securities. The total “Other securities” instead remained essentially unchanged, at €186.7 billion (+2.9% year-on-year, but -1.9% since December 2018). Of these, bank bonds have bucked the trend, -6,3% year-on-year but +4% since December 2018).

As concerns business with households and non-financial companies, in May the average interest rate on bank funding from customers calculated by the Italian Banking Association16 (which includes the yield on deposits, bonds and repurchase agreements in euro) fell to 0.57% (0.61% in December 2018), while the weighted average interest rate on loans in euro settled at 2.57%, slightly up on the record low of 2.55% reached in December 2018).

21 Significant events in the first half of 2019

The new governance

As part of the process to adopt a new governance system (a one-tier system of management and control in place of the two-tier system), during the first quarter of 2019 UBI Banca worked hard on a complex series of activities designed on the one hand to complete fine tuning of the procedures for the functioning of the new governance set up and on the other hand to comply with the formalities in preparation for the Ordinary Shareholders’ Meeting convened to appoint company officers according to the rules of the new governance system.

Resolutions approved by an Ordinary Shareholders’ Meeting of UBI Banca

On 12th April 2019 an Ordinary Shareholders’ Meeting was held in a single call under the chairmanship of Andrea Moltrasio (Chairman of the Supervisory Board), which resolved on the following items: • in relation to item 1 on the agenda, the Chairwoman of the Management Board, Letizia Moratti, reported on the performance and results achieved in 2018 as approved by the Supervisory Board on 7th March 2019. The meeting then resolved, with the vote in favour of 99.95% of the share capital present, to allocate the profit for the year of the Parent with the distribution of a dividend of €0.12 on each of the ordinary shares with entitlement (excluding treasury shares held in portfolio), to give a total dividend payout of approximately €136 million. The payment of the dividend commenced from 22nd May 2019, on presentation of coupon No. 22 with ex dividend date and record date of 20th May and 21st May 2019 respectively; • as concerns the second item on the agenda, which was the appointment of members of the Board of Directors and of the Management Control Committee for the three-year period 2019-2020-2021, the only slate presented (filed on 16th March 2019 by the shareholders Fondazione Cassa di Risparmio di Cuneo, Fondazione Banca del Monte di Lombardia, Mar.Bea Srl and Matteo Zanetti, the holders of a total of 118.153.595 shares (10.33% of the share capital of UBI Banca) received the vote in favour of 98.91% of the share capital represented in the Shareholders’ Meeting. The 15 members of the Board of Directors reported in the table were therefore appointed, 5 of whom were also appointed as members of the Management Control Committee. The following were also elected: (i) Letizia Maria Brichetto Arnaboldi Moratti as Chairwoman of the Board of Directors; (ii) Roberto Nicastro as Deputy Chairman of the Board of Directors; (iii) Alessandro Masetti Zannini as Chairman of the Management Control Committee. As shown in the table: (i) all members of the Management Control Committee and two thirds of the members of the entire Board of Directors have declared that they are in possession of the requirements of independence; (ii) three members of the Management Control Committee have declared that they are enrolled in the Register of Statutory Auditors of Accounts and that they have practiced as statutory auditors of accounts for a period of not less than three years (a minimum of two members is required by the Articles of Association); (iii) female representation is provided by 6 directors out of 15, equal to 40% (the minimum required by the Articles of Association is one third, i.e. five directors);

22 Independence Enrolled in the Composition of the Board of Directors requirements Register of Member of the pursuant to Auditors and Management appointed by a Shareholders’ Meeting on Position Art. 21 of the practising Control th 12 April 2019 Articles of statutory Committee Association auditor Letizia Maria Brichetto Arnaboldi Moratti Chairwoman Roberto Nicastro Deputy X Chairman Victor Massiah Board Member Ferruccio Dardanello Board Member X Pietro Gussalli Beretta Board Member Silvia Fidanza Board Member Paolo Bordogna Board Member X Osvaldo Ranica Board Member Letizia Bellini Cavalletti Board Member X Paolo Boccardelli Board Member X Alessandro Masetti Zannini Board Member X X Chairman Alberto Carrara Board Member X X X Monica Regazzi Board Member X X Francesca Culasso Board Member X X Simona Pezzolo De Rossi Board Member X X X

• as concerns item 3 on the agenda, the Shareholders' Meeting then approved the first section of the Remuneration Report, prepared in compliance with the regulations in force and disclosed to the public in accordance with the law. The first section provides information on decision-making processes for remuneration schemes, the main features, the procedures by which it is ensured that remuneration is linked to results, the main performance indicators employed, the reasons behind the choices of variable remuneration schemes and the other non-monetary benefits; • with regard to item 4 on the agenda, the Shareholders’ Meeting voted in favour of the proposal made by the shareholders Fondazione Cassa di Risparmio di Cuneo, Fondazione Banca del Monte di Lombardia, Mar.Bea Srl and Matteo Zanetti (the holders of a total of 118,153,595 shares, equal to 10.33% of the share capital of UBI Banca), to set: - €2,450,000 as the overall annual remuneration for members of the Board of Directors, inclusive therein of the Chairman, Deputy Chairman and members of the committees formed pursuant to Art. 31 of the Articles of Association, but not members of the Management Control Committee; - €180,000 as the specific annual remuneration for each of the members of the Board of Directors who are also members of the Management Control Committee and an additional €60,000 for the Chairman; in addition to the reimbursement of expenses incurred in carrying out their duties; • in relation to item 5, the Shareholders’ Meeting approved the remuneration schemes based on financial instruments to pay a portion of the short-term (annual) variable component of remuneration for “Identified Staff” in financial instruments and also approved, as a consequence, the relative proposal to authorise the purchase of treasury shares and to make them available to service the incentive scheme; • with regard to item 6 on the agenda, the Shareholders’ Meeting approved the criteria, limits and procedures for the payment of remuneration to be agreed in the event of the early termination of an employment relationship or early retirement from corporate office; • with regard to item 7, the Shareholders’ Meeting approved a proposal to set the ratio of fixed to variable components of remuneration up to a limit of 2:1 for the “Identified Staff” of the UBI Banca Group.

Establishment of board committees, appointment of the Chief Executive Officer and of members of the Supervisory Body

On 16th April 2019, under the chairmanship of Letizia Maria Brichetto Arnaboldi Moratti, the Board of Directors of UBI Banca resolved unanimously, with the abstention of the Directors involved, on the following:

23 1. The Establishment of UBI Banca board committees pursuant to Art. 31 of the Articles of Association The following internal committees of the Board of Directors were formed with the functions and powers provided for by the Articles of Association of UBI Banca and by the applicable regulations in force. They were composed as follows:

. APPOINTMENTS COMMITTEE: Letizia Bellini Cavalletti Chairwoman Pietro Gussalli Beretta Osvaldo Ranica Ferruccio Dardanello Roberto Nicastro

. REMUNERATION COMMITTEE: Paolo Boccardelli Chairman Letizia Bellini Cavalletti Osvaldo Ranica

. RISK COMMITTEE: Roberto Nicastro Chairman Simona Pezzolo De Rossi Paolo Bordogna

. RELATED PARTIES AND CONNECTED PERSONS COMMITTEE: Monica Regazzi Chairwoman Simona Pezzolo De Rossi Francesca Culasso

The relative regulations are published on the corporate website at www.ubibanca.it, in the corporate governance section. In accordance with the provisions of the Articles of Association of UBI Banca, the majority of the members of the Appointments Committee, the Remuneration Committee, the Risk Committee and the Related Parties and Connected Persons Committee declared that they were in possession of the requirements of independence in accordance with Art. 21 of the Articles of Association. More specifically, all the members of the Risk Committee and all the members of the Related Parties and Connected Persons Committee declared that they were in possession of the requirements of independence in accordance with Art. 21 of the Articles of Association.

2. Appointment of the Chief Executive Officer of UBI Banca On the basis of a proposal from the Appointments Committee, the Board of Directors, appointed Victor Massiah as Chief Executive Officer of UBI Banca and delegated to him the necessary and appropriate powers for the management of the Company, also in accordance with the provisions of the Articles of Association.

3. Appointment of the members of the Supervisory Body pursuant to Legislative Decree No. 231/2001 On the basis of a proposal from the Management Control Committee and having consulted the Appointments Committee, the Board of Directors appointed the members of the Supervisory Body of UBI Banca, created in accordance with Legislative Decree No. 231/2001. The Supervisory Body of UBI Banca is composed as follows: - Sergio Pivato external member and Chairman - Luca Troyer external member - Roberto Rovere Chief Compliance Officer of UBI Banca

Changes in the organisational structure of UBI Banca

In general terms, the one-tier model of management and control involves the following: • a clear division of roles and responsibilities between the various collegiate bodies: Board of Directors and Management Control Committee;

24 • the predominant presence of non-executive and/or independent directors, able to guarantee proper and balanced discussion within the Board of Directors and adequate checks and balances with regard to the Chief Executive Officer and to management more generally, with adequate monitoring of the decisions taken; • the attribution of a significant role to the Chair of the Board of Directors, as the linchpin in the system of checks and balances with regard to the executive members, designed to favour (i) concrete and effective discussion within the Board and also (ii) its effective functioning with a profitable contribution made from all directors; • a key role for the Bank’s control functions, which will be guaranteed direct access to company bodies to report the results of their control activities periodically, or immediately in cases of necessity, without restrictions or intermediaries.

More specifically, the following is underlined with reference to the collegiate bodies: - The Board of Directors, as a whole, is the Bank’s management and strategic supervision body. It is responsible for managing the business with the power to implement any transaction of both ordinary and extraordinary management necessary or in any case useful or appropriate for the best implementation of the corporate purpose. In addition to matters reserved to it by law, the Articles of Association reserves the following powers, amongst others, to the Board of Directors (i) to decide the general strategic policies and programmes of the issuer and of the Group, (ii) to approve the business and/or financial plans and budgets of the issuer and of the Group drawn up by the Chief Executive Officer to whom the Board of Directors may give prior guidelines and to decide on strategic operations and (iii) to approve the proposed individual financial statements and the consolidated financial statements. The members of the Board of Directors remain in office for three financial years and expire with the Shareholders' Meeting convened to resolve upon the financial statements relating to the final financial year of their office; - the Management Control Committee, formed as an internal committee of the Board of Directors composed of 5 members of the Board of Directors itself, carries out the duties assigned by the regulations currently in force to the control function. More specifically, in accordance with the provisions of the Articles of Association, amongst other things, the Management Control Committee: (i) shall oversee compliance with the rules of law, regulations and Articles of Association and respect of the principles of proper management; (ii) shall exercise the duties assigned by Art. 19 of Italian Legislative Decree No. 39 dated 27th January 2010 to the accounts control and auditing committee; and also (iii) shall report promptly to the Supervisory Authority and to Consob in relation to management irregularities and any violation of the regulations connected to banking activity, in accordance with Art. 52, 1st paragraph of Italian Legislative Decree No. 385 dated 1st September 1993, and Art. 149, paragraphs 3 and 4-ter of Italian Legislative Decree no. 58 dated 24th February 1998.

In addition to the collegiate bodies and the four internal board committees (Risk Committee, Appointments Committee, Remuneration Committee, Related Parties and Connected Persons Committee) with fact-finding, consultative and proposal-making functions, the new system also involves: • the transformation of managerial committees from consultative bodies to bodies which also have decision-making functions; • the update of “Primary Regulation” (policies and regulations) with a view to facilitating continuity in activities; • a revision of the organisational structure of UBI Banca which mainly regarded the following: - hierarchical reporting by the Chief Compliance Officer and the Chief Risk Officer to the Chief Executive Officer; - reorganisation of the Chief General Counsel’s activities with particular regard to Banking Legal Affairs and Litigation, Legal Financial Affairs and Extraordinary Operations, Corporate & Regulatory Affairs and the Secretariat for Collegiate Bodies.

At the same time the organisational structure of the bank was been revised, mainly in the commercial area. This regarded the Chief Commercial Officer’s activities, with the creation of new units designed to ensure a greater focus on and supervision of the “Top Private Banking”

25 and “Corporate & Investment Banking” commercial networks, and the activities of the Chief Wealth and Welfare Officer, through the reorganisation of the Welfare and Protection sectors with specialist units in different areas of expertise and reorganisation of the Finance area consistent with developments in the relative context and the growing complexity of proprietary asset and treasury finance. The organisational configuration of units under the Chief Compliance Officer were also revised in order to further increase the focus and specialisation of units and to improve the effectiveness of controls over these activities. The latest update of the Parent’s organisation chart is published on the Bank’s corporate website in the corporate governance section.

The trade union agreement of 27th March and 9th May 2019

As part of a further stage in the voluntary redundancy scheme related to increased efficiency and synergies set out in the UBI Banca Group’s 2017-2020 Business Plan, an agreement was signed on 27th March 2019 (and then supplemented with a memorandum agreement on the following 9th May) with all trade union representatives, to accept a further 215 applications for access to the sector’s “solidarity fund”.

The memorandum, which followed on from the agreement of 6th September 2018, continued along the same path set out in the General Agreement of 26th October 2017 which had received more voluntary applications than could be accepted, which were designed to implement it at the first stage. Furthermore, in view, amongst other things, of recent new legislation on pensions (including the “100 quota” legislation), provision was also made for a further 107 staff to leave, with direct access to INPS (State pension and benefits institute) pensions in 2019.

These redundancies commenced as early as May and the relative costs, amounting to approximately €64 million gross, had already been recognised in the preceding first quarter consolidated results. The consequent cost synergies are estimated at over €25.5 million per year. Finally, in compliance with the provisions of the Business Plan, generation turnover to support youth employment, which is related to the redundancy measures, is continuing. It will allow the recruitment of approximately 110 new staff by the end of 2020.

The 2018 SREP

The final “SREP Decision” received from the supervisory authority, disclosed on 11th February 2019, confirmed the disclosures already made in the annual financial report.

On conclusion of the supervisory review and evaluation process (SREP) conducted in accordance with Art. 4, paragraph 1, letter f) of Regulation (EU) No. 1024/2013, the ECB stated that with reference date 31st December 2017, the UBI Banca Group must comply with the following at consolidated level for 2019: - a minimum CET1 ratio requirement of 9.25% fully loaded, higher than for 2018 due solely to the full phase in of the Capital Conservation Buffer1 [the minimum CET1 ratio requirement is the result of the sum of the minimum Pillar 1 regulatory capital ratio (4.5%), the Pillar 2 requirement (2.25%) and the Capital Conservation Buffer (2.50%)]; - a minimum SREP total capital ratio requirement of 10.25%, unchanged compared with 2018 [the result of the sum of the minimum Pillar 1 regulatory capital ratio requirement (8%) and the Pillar 2

1 The CCB is included on the basis of its fully loaded value (2.50%) from 2019, while it had been included at a percentage of 1.875% in the requirements for 2018 and at 1.25% in the requirements for 2017, in application of the phased-in transition rules set for the sector by the Bank of Italy.

26 capital ratio requirement (2.25%)]. That requirement, added to the Capital Conservation Buffer of 2.50%, gives a minimum requirement in terms of the total capital ratio of 12.75%.

With a fully loaded CET1 ratio of 12% and a fully loaded total capital ratio of 15.05%, at the end of June 2019 the Group is already positioned well above the minimum levels set by the authority for 2019.

Update to the Non-Performing Loans Strategic Plan

The annual update of the strategic plan required by the guidelines on Non-Performing Loans (NPLs) published by the European Central Bank in March 2017, was submitted to the supervisory authority in March 2019. The new NPLs Plan confirms the priority given to pursuing the internal credit recovery management policy in view of the very good performance achieved and it also involves the disposal of non-performing positions with the aim of also obtaining, as recorded in 2018, a further substantial acceleration compared with the targets, in terms of reducing total outstanding NPLs, originally set in the 2017-2020 Business Plan.

As a result of the success of internal credit recovery activities, UBI Banca Group results as at and for the period ended 30th June 2019 showed a greater decrease in total gross NPLs than that indicated in the NPLs Plan submitted to the authority. During the second quarter of 2019, as planned, the disposal of factoring receivables subject to legal action was completed to a leading operator in the sector for a gross exposure of approximately €157 million, while as programmed, a particularly substantial transaction is currently being finalised by UBI Leasing in the real estate sector. More specifically, on 22nd July 2019 the Group disclosed its acceptance of a binding offer made by Credito Fondiario for the disposal of a bad-loan classified lease portfolio for a gross amount of approximately €740 million as at the reference date of 31st October 2018 (63% of UBI Leasing’s bad loan assets). Completion of the transaction is subject to the standard suspensive conditions generally practiced for these types of transaction, including certification by a public notary for the transferability of the assets. The disposal will take place in two stages and is expected to be completed by September 2019 and December 2019 respectively, which will allow full deconsolidation of the portfolio disposed of by year-end.

The transactions mentioned are classified as selective disposals because they allow the divestment of particularly complex portfolios. These transactions, which facilitate the internal management of credit recovery, gave rise in the first half of the year to impairment losses on loans of €112.1 million (€102.4 million in the second quarter), equivalent to an impact of €75 million net of tax (€70 million net in the second quarter). In terms of the CET1 ratio, this impact will be substantially offset, when all the sales are completed, by a reduction in risk weighted assets.

If total gross non-performing loans as a percentage of total gross loans measured at amortised cost (9.97% as at the 30th June) were adjusted to include the above-mentioned disposal of UBI Leasing bad loan positions that has been announced and is to be concluded with full deconsolidation by the end of 2019, it would be 9.23%.

27 Developments in the regulatory framework

Again in the first half of 2019, the general national and European regulatory framework in which Italian banks operate was in a state of change, placing the burden of a wide variety of monitoring and compliance activities on those banks. The main interventions regarded the areas listed below2.

OUTSOURCING Following a consultation exercise concluded in September 2018, on 25th February 2019 the European Banking Authority (EBA) issued “Guidelines on outsourcing arrangements” aimed at banks, investment firms, payment institutions and electronic money institutions. The guidelines are designed to ensure the application of a single regulatory framework which covers all banking, investment and payment services in order to ensure, amongst other things, equal conditions for the different types of financial institutions. The most important changes introduced include the following: (i) the creation of a register of all existing outsourcers to be made available to the supervisory authorities at the time of “Supervisory Review and Evaluation Processes” (SREPs), which is every three years and, in any event on request from the supervisory authority itself; (ii) the creation of a company function or the appointment of a senior manager as an outsourcing officer which reports directly to the management body; (iii) the strengthening of controls on risks resulting from outsourcing arrangements; (iv) the identification, management, monitoring and reporting of all risks (present and potential) resulting from agreements with third parties, regardless of whether or not these agreements constitute an outsourcing arrangement. The guidelines will be applied from September 2019. The UBI Banca Group has set up a working Group to identify and then start activities to implement the changes introduced by the supervisory authority.

BANKING PRODUCTS AND SERVICES Transparency in banking and financial transactions and services The main objective is to implement Directive 2015/2366/EU (PSD2) on payment services and to bring national regulations into line with the European regulatory framework3. Following on from a consultation concluded in September 2018, on 19th March 2019 the Bank of Italy therefore updated its “Provisions on transparency in banking and financial transactions and services. Proper conduct in relationships between the intermediaries and customers”. Areas subject to amendment included the following: i) pre- contractual information and communications to customers; ii) payment services; iii) real estate loans to consumers; iv) consumer credit; v) organisational requirements; vi) internal procedures; vii) the simultaneous offer of other contracts together with a loan; viii) remuneration policies and practices; ix) claims. With a provision dated 18th June 2019 the Bank of Italy set 1st January 2020 as the date for the entry into force of the new measures. The UBI Banca Group is taking steps to assess the new regulatory provisions in order to make the appropriate amendments to the pre-contractual information and procedures relating to the management of payment services.

With that same provision dated 18th June, based on a consultation concluded in February 2019, the Bank of Italy amended those transparency provisions in order to implement the “Payment Account Directive (PAD)”. Those amendments, applicable from 1st January 2020, regarded the following: i) pre- contractual information documentation; ii) periodic information documentation; iii) the terminology used in the prototype for the information sheet for current accounts offered to consumers. The UBI Banca Group had already started a specific project in the third quarter of 2018 to ensure implementation of the provisions of the PAD Directive relating to the new “Basic Account” and to the standardisation of the terminology. In compliance with the directive, action was taken to ensure the use of the standardised terminology to be used at EU level regarding the most typical services connected with payment accounts at national level to be used in the pre-contractual information documents, in periodic communications, in contracts (regarding both new accounts opened after that date and existing contracts) and in all other information provided to consumers and communications with them.

Payment services On 29th March, Regulation (EU) 2019/518 of 19th March 2019 on “Amendments regarding charges on cross-border payments in the Union and currency conversion charges” was published in the Official Journal of the Eurpoean Union. The purpose of the regulation is to align cross-border payments between countries in the Eurozone with non-EU country charges and to increase transparency on charges for

2 Reference is made to the notes to the condensed interim consolidated financial statements for the period ended 30th June 2019 for changes to the financial statements of banks. 3 Specifically, the action is designed to implement the following: Directive PSD2 and Chapter II-bis, Title VI of the Consolidated Banking Law on the transparency of payment services; the Mortgage Credit Directive and the Consumer Credit Directive; European Banking Authority guidelines on remuneration policies and practices related to staff who provide and sell banking products and services and to external staff in the sales network; ESAs’ guidelines on the management of claims.

28 currency conversions services throughout the European Union. The reform regards charges applicable to cross-border payments in euro for services such as credit transfers, card payments and cash withdrawals. These new provisions, which will be applicable from 15th December 2019, will inform consumers of the charges that apply before a transaction is made, due to the disclosure obligation. This will be in the form of a percentage increase, and will apply to all currency conversion charges on the basis of the available ECB exchange rate. The UBI Banca Group is taking steps to assess the new provisions in order to identify and therefore implement changes to corporate procedures for the management of charges for cross-border payment services. Credit Legislative Decree No 14 of 12th January 2019 entitled “Company failure and insolvency code” was published in the Italian Official Journal on 12th February 2019. This introduced a general reform of regulations for creditor actions designed to allow the early detection of companies encountering difficulties and to safeguard the ongoing concern capacity of those who are running into difficulties or liquidation. The changes introduced include the following: i) broadening of the scope of those that may resort to creditor actions4; ii) provision of a system of alerts to allow companies to exit a crisis with a view to turning them around and greater satisfaction of creditor claims; iii) priority is given, among the tools used to manage crises and insolvencies, to procedures available as an alternative to enforcement in the courts; iv) simplification of the various regulations governing creditor actions with reduced times and costs. Some articles of the code, designed to ensure greater efficiency and speed in processes to manage crises and insolvency, came into force on 16th March 2019, while those changes with the greatest impact for the Group in terms of compliance with regulatory provisions will come into force on 15th August 2020. The UBI Banca Group will modify and revise processes to manage and monitor creditor actions, in compliance with the terms and conditions set by the new regulations.

Again on 12th February, with regard to subsidised loans to SMEs the Ministry of Economic Development approved two decrees which establish new “Conditions for admissibility and provisions of a general nature for the guarantee fund for small to medium-size enterprises and details of guarantee measures”5, also with specific reference to financial transactions subject to “three-party” risk6. On the basis of the new provisions, guarantees by the fund may be granted: a) on application by the lenders, also in their capacity as leaders of a pool of lenders (direct guarantee); b) on application by the guarantors, also in their capacity as leaders of a pool of guarantors (reinsurance and counter guarantees). The UBI Banca Group has conducted an analysis of the impacts of the new regulations and, on the basis of the results, compliance action has been taken to change operational procedures and detailed company regulations on the grant of loans and the issue of guarantees.

Law No. 26 of 28th March 2019 was published in the Italian Official Journal dated 29th March which converted Decree Law No. 4 of 28th January 2019, as amended, containing urgent measures on citizenship and pension income. The various provisions introduced include many of interest, amongst which Art. 23 which makes it possible for employees of public administrations who decide to profit from the chance to retire with a “quota 100” pension (pension at age 62 with 38 years of contributions) to apply for a loan for early “end- of-service treatment”, up to a maximum of €45,000, to banks or financial intermediaries who decide to become a party to a special framework agreement which must be stipulated between the various ministries impacted and the Italian Banking Association. At the time of preparing this document details of the contents of the Italian Banking Association- Ministries framework agreement are not yet known and the DPCM (Decree of the President of the Council of Ministers) which must clarify the functioning of the regulation has not yet been issued.

SUPERVISORY REGULATIONS As regards the above, a series of regulations had already been introduced at European level in 20187. Following directly on from previous regulatory changes, two regulations and two directives of the European Parliament and Council dated 20th May 2019 were published in the Official Journal of the European Union on 7th June 2019. These form part of and implement the “banking package” which is

4 The scope of the measures has been extended to cover all types of debtor, whether natural persons or legal entities, collective institutions, consumers, professionals or persons carrying on commercial, agricultural or artisanal businesses, with the sole exception of public institutions. 5 The main changes introduced regard the following: a) structural changes to operational provisions; b) procedures for intervention by the fund and eligibility requirements for applications; c) the grant, management and guarantee enforcement processes; d) the process for the management of the financial transactions that are guaranteed. 6 Transactions for which the risk is equally divided between the fund, the lender and the applicant. 7 Please see the section “Other information” of the Consolidated Management Report for the year ended 31st December 2018 for a description.

29 aimed at increasing the resilience of the European banking and financial system bringing the current prudential regime into line with the new regulations agreed at international level by the Basel Committee (BCBS) and by the Financial Stability Board (FSB). They enter into force from 27th June 2019. More specifically these are: i) Regulation 2019/8768; ii) Directive 2019/8789; iii) Regulation 2019/877; iv) Directive 2019/879. In detail:  Regulation 2019/876 (“CRR2”) implements into EU law the following Basel Committee standards: a) on the Total-Loss Absorbing Capacity (TLAC) of institutions of global systemic importance; b) on the new methods for calculating capital requirements for market risk; c) on the new methods for calculating capital requirements for counterparty risk; d) on the prudential treatment of exposures to central counterparties; e) on the net stable funding ratio; f) on the leverage ratio; g) on large exposures. Changes worthy of note include those regarding lighter prudential treatment, designed to support the grant of credit to the real economy. Reference is made to the following in particular: - confirmation and extension of the “supporting factor” for SMEs. The previous legislation allowed a reduction in the capital requirement for loans to SMEs of less than €1.5 million in amount, regardless of the risk weighting method employed. The amendment to the CRR increases the amount of the exposure to which the lower capital requirement is applied from €1.5 million to €2.5 million and a 15% reduction in the risk weighting is applied for that part of the loan that exceeds €2.5 million; - a 25% reduction in the capital requirements for loans to invest in infrastructure (which the Bank classifies in its “corporate” or “specialised lending” regulatory portfolios); - measures relating to salary or pension backed loans for which a reduction in the capital requirement from 75% to 35% of the risk-weighted assets is provided; - sterilisation of the impact of massive NPL exposures on the update of risk parameters. There will be no negative impacts for all massive NPL disclosures accounting for 20% of total non-performing exposures, taking place from November 2016 until 2023. The objective is to prevent the calculation of capital requirements for defaulted exposures held in portfolio from being conditioned by disposals of NPLs made in the past or already programmed for the future. Finally, further amendments regarded Pillar 3 disclosures for which the relative regulations were changed for compliance with the amendments made to the CRR listed above; reporting obligations by banks to the competent authorities; the subject of sustainable finance, which is addressed for the first time in the CRR with regard to measures concerning the calculation of capital requirements for exposures to investments;  one aspect of major importance in Directive 2019/878 (“CRD5”) regards the introduction of a single method for calculating a systemic risk buffer which institutions subject to these regulations are called upon to adopt. Another change introduced is the principle of separating the systemic risk buffer from the countercyclical and other capital buffers specific to other risks;  the amendments introduced to Regulation 2019/877 (“SRMR2”) and Directive 2019/879 (“BRRD2”) are essentially designed to ensure that global systemically important institutions have sufficient capacity to absorb losses and to recapitalise, such that they are able to continue to carry out essential functions, safeguarding taxpayers’ funds. The UBI Banca Group constantly monitors and manages the changes introduced by the banking package as part of its ordinary activities to monitor capital adequacy.

On 25th April 2019 Regulation (EU) 2019/630 of the European Parliament and Council dated 17th April 2019 was published in the Official Journal of the European Union which amended Regulation (EU) 575/2013 (the “CRR”) with regard to the minimum coverage for losses on non-performing exposures. The new regulation, applicable to new loans granted after 26th April 2019 and subsequently classified as non-performing (therefore excluding all loan agreements already existing as at the aforementioned date, unless changes occur which lead to greater exposure by the institution to the debtor), introduces minimum percentages of coverage for non-performing exposures to be applied, within determined time limits, starting from the first classification of a loan as a non-performing loan (an NPL). The coverage percentages are different for secured and non-secured loans. If the loans are not backed by any guarantee, the provisions must be 100% after three years since their classification as non-performing. However, where guarantees are in place, provisioning is gradual starting after three years to reach 100% after seven years in the presence of a financial guarantee and after nine years in cases of real estate collateral. If coverage is insufficient with respect to the regulatory limits, then remedial measures with an impact on capital must be considered. As part of a broader project entitled “Calendar provisioning”, already begun in 2018, the UBI Banca Group assessed the new regulation and implemented the large number of regulatory changes together with those introduced by the ECB to increase levels of provisioning by banks to cover non-performing exposures and to facilitate the deconsolidation of existing NPLs with the final aim of reducing risks in the banking sector.

8 This regulation amends Regulation 575/2013 (the “CRR”) with regard to the net stable funding ratio, the Minimum Requirement for own funds and Eligible Liabilities (MREL), counterparty risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure obligations. 9 This new provision amends Directive 2013/36/UE (“CRD4”) with regard to exempt institutions, financial holding companies and mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures.

30 On 26th November 2018 the European Central Bank published Regulation (EU) No. 2018/1845, with which it set a new threshold for assessing the materiality of credit obligations past due. Credit institutions must comply with this by 31st December 202010 at the latest. This threshold sets two limits which must both be exceeded for 90 consecutive days: 1 the sum of all amounts past due owed by the obligor must be greater than: €100 for retail exposures; €500 for exposures other than retail exposures; 2 the ratio between the past due credit obligation and the total amount of all on-balance sheet exposures to that obligor must be greater than 1%. On 26th June 2019, UBI Banca received authorisation from the ECB to use the new Definition of Default (DoD) from 1st July 2019. The regulatory change was accompanied by an overall revision of the processes and instruments as well as by organisational and training support activities. The main new features are as follows: • a revision of the criteria for the identification and management of past-due exposures; • complete alignment of the administrative statuses of counterparties at Group level; • enlargement of the default detection trigger catalogue to identify cases of unlikely-to-pay customers; • introduction of the new concept of a “diminished financial obligation” 11. Non-performing exposures On 19th June the EBA put a document out for consultation entitled “Guidelines on loan origination and monitoring”. The consultation document specifies internal governance measures for granting and monitoring credit facilities throughout their entire life cycle, introduces credit rating requirements for debtors and combines prudential and consumer protection objectives in a single document. The consultation procedure will end on 30th September 2019. The UBI Banca Group will assess the new provisions and identify activities to be carried out once the final documentation has been issued.

INVESTMENT PRODUCTS AND SERVICES AND THE STABILITY OF FINANCIAL MARKETS On 28th May 2018, the European Securities and Markets Authority (ESMA) published the final version of its guidance on certain aspects of the MiFID II adequacy requirements. The guidance, which does not constitute compulsory obligations for companies12, came into force on 8th March 2019 and its purpose is to clarify the application of determined aspects relating to adequacy requirements set by the MiFID II Directive in order to ensure common, uniform and consistent application of the provisions contained in it, greater convergence in supervisory approaches and a corresponding improvement in investor protection. This document, which is particularly important, comprises best practices for investment firms designed to include adequacy in the assessment, in line with the objectives of sustainable finance, and environmental and/or social variables. Three other documents put out for consultation in December 2018 are strictly connected with the guidance and address sustainability issues (environmental, social and governance factors) in the areas of securities trading, investment funds and credit rating agencies. Aspects concerning organisational requirements, operating conditions, risk management, conflicts of interest, product governance and disclosure requirements are of particular importance. The consultation procedure for the documents ended on 19th February 2019 and issue of the final documents is now expected. All these subjects are being studied by the UBI Banca Group by means of specific projects that address MiFID II. In view of the complexity of these regulations, the Bank is participating (Compliance, Commercial and Legal Functions) in a roundtable set up by the Italian Banking Association to assess the relative impacts. Actions to be undertaken will be also calibrated on the basis of responses generated at industry level and the guidelines that should be issued by the Italian Banking Association. On 22nd March 2019, two EU Commission regulations dated 13th December 201813 were published in the Official Journal of the European Union which identify information on securities financing transactions to be reported to trade repositories and which determine the frequency and format for these reports. As already anticipated in January14, the Italian government issued Decree Law No. 22 of 25th March 2019, converted with amendments by Law No. 41 of 20th May 2019, which amongst other things,

10 These new measures implement the new definitions of default (DoD) introduced by the EBA [Guidelines on the application of the definition of default in accordance with Art. 178 of Regulation (EU) No. 575/2013 – EBA/GL/2016/07 of 18th January 2017] within the Single Supervisory Mechanism (SSM), with particular reference to banks that use the IRB approach. 11 In agreement with the provisions of the EBA, a diminished financial obligation exists when the present value of the cash flows of an exposure are reduced by more than 1% compared with the previous loan plan following forbearance measures, which normally necessarily triggers classification of the counterparty as unlikely-to-pay when the operation is concluded. The diminished financial obligation is therefore calculated from 1st July 2019 solely for performing exposures for which the debtor is encountering or is about to encounter difficulties in honouring its financial commitments and for which the grant of forbearance measures is currently being considered by the Bank. 12 Market participants are nevertheless called upon to make every effort to comply with these. See Section II “Definitions”, point 8 and Section IV “Compliance and disclosure obligations”, point 12. 13 Commission Implementing Regulation (EU) No. 2019/363 and Commission Delegated Regulation (EU) No. 2019/356. Please also see the information given in the section “Other information” of the consolidated management report for the year ended 31st December 2018. 14 Please see the Ministry of Economics and Finance press release No. 15 of 24th January 2019.

31 finalises urgent measures to ensure the security, financial stability and integrity of markets should the United Kingdom leave the European Union. The main impacts expected for the Group regard risks relating to the management of financial instruments (OTC derivatives, financial instruments), but possible impacts are also underlined regarding RWAs and CET1 capital. In this respect a special working group has been set up to examine all the possible impacts according to the various scenarios which might arise. Please see the sub-section “Tax aspects” in the section “Other information” for details of tax matters15.

Partly on the basis of requests received from various financial institutions, on 26th February 2019 the EU agreed a postponement to the entry into force of the Benchmark Regulation (BMR)16, which reforms benchmarks and also involves Euribor benchmarks which affect floating interest rate mortgages. Banks have been granted an additional two years to adapt their products to the new “hybrid” interest rates, on which work is still in progress by the European Money Markets Institute (EMMI). The EU has formally allowed suppliers of “critical benchmarks” until 31st December 2021 in order to comply with the new requirements of the regulation and it has also introduced two supplementary years for recognition or approval of parameters produced in non-euro currencies. Debt instruments subject to bail-in “Full depositor preference”, a measure introduced with the implementation of the Bank Recovery and Resolution Directive (BRRD, Directive No. 2014/59/EU), came into force from 1st January 2019. However, its application in Italy had been postponed in order to avoid the risk of bondholders finding themselves with instruments with a greater risk than initially envisaged. Art. 91, paragraph 1-bis of the Consolidated Banking Law does in fact state that repayment claims on unsecured bank bonds will be met before claims on deposits of all companies and unsecured interbank deposits and before other unsecured creditors and unsecured deposits of natural persons and SMEs.

ANTI-MONEY LAUNDERING In the first half of 2019 the Bank of Italy brought its domestic supervisory regulations into line with European regulations on the fight against money-laundering and the finance of terrorism. In this context: - on 15th January it amended its “Supervisory regulations on penalties and administrative penalty procedures” 17 while; - following a consultation procedure which ended in the preceding February, on 26th March it updated its “Regulations on organisation, procedures and internal controls designed to prevent the use of intermediaries for the purposes of money-laundering and the finance of terrorism”18. The UBI Banca Group took steps to assess the impacts of the new regulations. A detailed study of the relative context in which the primary and secondary legislation was examined and recently updated regulatory provisions were considered, was submitted to the Board of Directors in April.

15 We report that Chapter III of the Decree also provides for the continuation of measures to dispose of bad loans recognised in the balance sheets of banks by means of the grant of state guarantees for securitisations which have bad loans as the underlying (bad loan securitisation guarantees – GACS). It has made amendments to the existing 2016 regulations (e.g. the guarantee scheme will last for 24 months from receipt of a positive EU opinion and may be extended for a further 12 months; also the minimum rating for loans eligible for the state guarantee is to be raised to BBB). 16 Regulation (EU) 2016/1011 of the European Parliament and Council of 8th June 2016 on indicators used as benchmarks for financial instruments and in financial contracts or to measure the performance of investment funds, which amends Directive 2008/48/EC and Directive 2014/17/EU and Regulation (EU) No. 596/2014 and related regulations. 17 The opportunity was taken here to align the provisions on penalties contained in the Consolidated Finance Law in order to implement the UCITS V (Directive UE 91/2014) and MiFID II (Directive UE 65/2014) directives. Finally we also report that the provision allows normal methods of notification to report violations by means of certified electronic mail. The new provisions take account of comments received during the public consultation stage; a forum for analysing and assessing these is available on the Bank of Italy’s website. The new provisions apply to penalty proceedings commenced after 22nd February 2019. 18 That document performs the following: a) it implements the provisions on organisation, procedures and internal controls contained in Legislative Decree No. 231 of 21st November 2007, as amended by Legislative Decree No. 90 of 25th May 2017, which implements the “Fourth directive on anti-money laundering”; b) it furnishes indications on requirements, procedures, control systems and functions on the central contact point, in compliance with Commission Delegated Regulation of the European Commission No. 1108/2018 of 7th May 2018; c) it implements the joint guidelines of European Supervisory Authorities adopted on 22nd September 2017 which, amongst other things, defines measures that the providers of payment services shall adopt to identify missing or incomplete data on the originator or the beneficiary.

32 The distribution network and market positioning

The branch network of the Group

The branch network of the UBI Banca Group in Italy and abroad

30.6.2019 31.12.2018 Change Number of branches

UBI Banca Spa 1,621 1,633 -12 (1) The figures are inclusive of 3 foreign branches. of which North West Macro Geographical Area (1) 175 175 -

of which Milan and Emilia Romagna Macro Geographical Area (2) 203 207 -4 (2) The figures do not include the 12 units of which Bergamo and West Lombardy Macro Geographical Area 274 274 - dedicated exclusively to pawn credit.

of which Brescia and North East Macro Geographical Area 209 211 -2 (3) The figures as at 31st December 2018 of which Latium, Tuscany and Umbria Macro Geographical Area 244 246 -2 included two foreign branches closed as of 1st January 2019. of which the Marches and Abruzzo Macro Geographical Area 281 283 -2

of which South Macro Geographical Area 232 232 - (4) The figures also include the financial advisors of which branches not comprised within macro geographical areas (3) 35-2 belonging to IW Bank Spa's Wealth Management Area IW Bank Spa 20 20 - TOTAL 1,641 1,653 -12 Total branches in Italy 1,638 1,648 -10

Financial advisors (4) 687 684 3 The branch network of the UBI Group as at 30th June 2019 consisted of 1,641 branches, of which 1,638 operating in Italy, down by 12 compared with the end of 2018, and down even further to 1,640 at the date of this report. The distribution network of the UBI Banca Group – divided into seven macro geographical areas – is shown on the map printed on the initial pages of this report.

The two foreign branches in Madrid and Munich ceased operations at the beginning of the year together with the following Italian mini-branches: Ospitaletto in Via Padana Superiore and Salò in the Rive district (Brescia) of the North East Macro Geographical Area (MGA); Macerata in Corso Cairoli and in Corso Cavour 341, San Severino Marche (Macerata) in Piazza del Popolo, Cagli (Pesaro-Urbino) in Via Alessandri and Osimo (Ancona) in Piazza Boccolino of the Marches and Abruzzo MGA; Rome in Via Antonina and in Via Regina Elena of the Latium, Tuscany and Umbria MGA; Rho (Milan) in Via Meda, Novafeltria (Rimini) in Via Trieste in the Perticara district, Milan in Via Boccaccio, Novate Milanese (Milan) in Via Amendola of the Milan and Emilia Romagna MGA. On the other hand, two mini branches commenced operations at Camerino (Marcerata) and Urbino at the university.

As already reported in the 2018 Annual Report, in concert with the organic rationalisation of the branch network, the UBI Banca Group is carrying out a plan of significant modernisation and reorganisation of the branches in line with the 2019-2020 Business Plan and aimed at innovating technologically and in terms of the service model, while also modernising the banking products and services as a whole. Approximately 60 branches were involved in renovation activity in the first half of 2019 with the aim of reaching 150 by the end of the year and continuing along the same lines in 2020. The units involved were distributed throughout the country in the seven macro geographical areas, with a particular focus on positioning and sides. Following on from activity started last year, the programme to modernise the Bank’s automated teller machines (ATMs) also continued in order to promote the digitalisation of teller services. In the first half of 2019 approximately 130 automatic ATMs and 50 evolved ATMs (of which 30 inside renovated branches) were replaced and 170 assisted self-service machines were installed, with the objective of continuing with the same volumes in the second half of the year.

1 Closed in July 2019.

33

Furthermore, the distribution model, Corporate & Investment Banking, Corporate Centres and Top introduced with the 2019/2020 Business Private Banking Centres Plan, is fully operational and was 30.6.2019 31.12.2018 composed as follows at the end of the first Corporate & Investment Banking 1 1 half: Large Corporate GRM 1 1 Corporate Centres (*) 49 49 - 27 Top Private Banking Centres and 56 North West Macro Geographical Area 5 5 “Corners” which report to the Head of Milan and Emilia Romagna Macro Geographical Area 7 7 Top Private Banking; Bergamo and West Lombardy Macro Geographical Area 7 7 Brescia and North East Macro Geographical Area 6 6 The Top Private Banking Centres remained Latium, Tuscany and Umbria Macro Geographical Area 8 8 stable compared with December while the The Marches and Abruzzo Macro Geographical Area 9 9 total number of “Corners” increased by one South Macro Geographical Area 7 7 (56 compared with 55 in December), the "Corners" 32 32 North West Macro Geographical Area 3 3 aggregate result of three new openings and Milan and Emilia Romagna Macro Geographical Area 9 9 two closures2. Bergamo and West Lombardy Macro Geographical Area 4 4 Brescia and North East Macro Geographical Area 8 8 - 49 Corporate Centres and 32 “Corners” Latium, Tuscany and Umbria Macro Geographical Area 1 1 belonging to the respective macro The Marches and Abruzzo Macro Geographical Area 4 4 South Macro Geographical Area 3 3 geographical areas, also unchanged Total 81 81 compared with December; Top Private Banking Centres 27 27 "Corners" 56 55 - the Corporate & Investment Banking Total 83 82 (CIB) Division, the exclusive manager (*) The figures do not include the three UBI Banca units in operation since for Large Corporate Groups 3 through 6th May 2013, which specialise solely in corporate clients. its “Large Corporate GRM” unit in Milan, employs a team of specialists, the Global Relationship Managers, who are single points of client contact for complex, ordinary and extraordinary operations.

Finally, we report that geographical market coverage also continues to be provided by a network of 687 financial advisors belonging to IW Bank (684 in December 2018).

2 On 15th February the “corner” at Sassuolo (Modena) closed and the “corner” at Cassina de’ Pecchi (Milan) commenced operations. On the other hand, the “corners” at Osimo (Ancona) and Reggio Calabria became operational on 1st March, while the units located in Bologna closed. 3 Large Corporate: counterparties with group turnover of greater than €250 million or with authorised credit at sector level of greater than €150 million.

34

The international presence

At the date of this report, the international presence of the UBI Banca Group was structured as follows:  three foreign UBI Banca branches in France (Nice, Menton and Antibes), while the branches in Munich and Madrid ceased operations on 1st January 2019. A feasibility study on the rationalisation of the foreign French branch network was concluded in the first half of the year and a plan of activities was commenced to centralise all the customer accounts of the Antibes and Menton branches in the Nice branch to be completed by the end of November 2019. The main activities currently in progress regard completing procedures to notify the authorities, inform customers and complete the trade union procedures required by local regulations together with the necessary administrative, accounting and tax formalities and the technical operations to centralise the accounts;  representative offices in Russia (Moscow), Asia (Mumbai, Shanghai, Hong Kong and Dubai), North America (New York), South America (Sao Paolo) and Africa (Casablanca). The necessary procedures will be started in the second half to open a new representative office in Singapore, planned for the first half of 2020. The objective of the new unit will be to further develop relations with the local banking sector and to facilitate relations between companies in Italy and companies in the ASEAN4 area;  equity investments (mainly controlling interests) in three foreign companies: UBI Trustee Sa (Luxembourg), Pramerica Management Co. Sa (Luxembourg) and Zhong Ou Asset Management Co. Ltd (China);  one branch of UBI Factor Spa in Krakow (Poland);  37 commercial co-operation agreements with foreign banks, unchanged in the six months (covering over 50 countries) – in addition to three “trade facilitation” agreements with the European Bank for Reconstruction and Development (EBRD), the International Financial Corporation (IFC) and the Asian Development Bank (ADB) – and also a “product partnership” in the Middle East and in Asia to guarantee effective assistance on all the principal markets in those areas for our corporate clients. As concerns agreements with non-banking counterparties, we report that in Milan on 20th March 2019 UBI Banca and SUMEC International Technology 5 signed a Memorandum of Understanding aimed at facilitating and supporting Italian exports of goods, plant and services to China with financing solutions. Under the collaboration agreements planned, SUMEC will consider UBI Banca as its preferred partner bank for Italy, while the Bank will help introduce this major Chinese company to its corporate clients in Italy. The preferential collaboration will last for at least two years.

4 The Association of Southeast Asian Nations, ASEAN (Singapore, Indonesia, Thailand, Vietnam, Malaysia, Philippines, Cambodia, Myanmar, Laos, Brunei) constitutes an area of particular future interest because of the positive forecasts for demographic and economic growth and the potential that these countries may be able to offer Italian companies. 5 SUMEC ITC, established at Nanjing in 1999, is a leading company in China for imports of machinery and it is controlled by SINOMACH, which is in turn owned by the Chinese state. Its activities cover 21 sectors and the production of textiles and clothing, and parts for automobiles, trains, ships and power stations in particular. This Chinese Group has over 30 thousand customers and it aims to become the leading go to player for Italian exports to China.

35 The positioning of the Group UBI Banca Group: market shares(*)

30.6.2019 31.3.2019

Deposits Loans Branches The table summarises the market positioning of the UBI Banca (**) (***) Group at both national and regional level and in provinces where a North Italy 6.4% 4.9% 6.7% more significant presence exists. Lombardy 12.9% 9.2% 10.7% The figures are based on the latest available data from the Bank of Prov. of Bergamo 23.9% 24.9% 23.7% th st Prov. of Brescia 21.1% 21.7% 25.8% Italy: 30 June 2019 for branches and 31 March 2019 for balance Prov. of Como 5.8% 5.4% 8.7% sheet items [the figures relate to branches and banks (including Prov. of Cremona 3.5% 3.2% 5.1% foreign branches and banks) operating in Italy, (and therefore Prov. of Lecco 4.8% 4.7% 7.0% Prov. of Lodi 3.1% 3.6% 4.5% excluding the foreign branches of Italian banks)]. Prov. of Mantua 4.9% 3.0% 3.3% The “matrix items” used are those with a breakdown by residence of Prov. of Milan 8.9% 5.1% 6.9% Prov. of Monza Brianza 9.8% 6.2% 9.6% the counterparties, which for loans means that it is possible to Prov. of Pavia 14.8% 10.1% 9.7% consider gross loans with the sole exception of bad loans. Prov. of Sondrio 4.7% 2.6% 6.0% Prov. of Varese 25.1% 19.9% 15.7% Piedmont 7.3% 3.9% 5.8% Market share in terms of branches at national level Prov. of Turin 2.8% 1.9% 4.5% Prov. of Alessandria 11.4% 4.6% 7.7% was 6.8%, unchanged compared with previous March Prov. of Biella 1.8% 1.4% 4.2% figures, with a significant percentage in the regions of Prov. of Cuneo 20.0% 14.2% 12.4% Prov. of Novara 4.6% 2.6% 4.5% Central Italy, which reflects the high concentration in Prov. of Vercelli 1.9% 1.3% 5.4% Prov. of Verbano Cusio Ossola 3.1% 1.7% 4.3% that area of the branches of the banks acquired in Liguria 4.7% 3.1% 6.5% 2017. Prov. of Genoa 4.5% 2.6% 6.9% Prov. of Imperia 4.7% 2.5% 5.9% Furthermore, the Group continues to have a Prov. of La Spezia 5.4% 6.4% 5.6% Prov. of Savona 4.5% 2.6% 5.8% substantial presence in Milan (8.9%) and in Rome Emilia Romagna 2.0% 1.2% 2.9% Prov. of Rimini 5.3% 2.9% 6.1% (5.8%), with shares of higher than 10% in as many as Prov. of Bologna 1.7% 0.9% 2.8% 22 Italian provinces. Prov. of Piacenza 4.0% 2.1% 4.0% Central Italy 9.3% 4.4% 5.8% Marches 27.1% 20.0% 20.9% The national market share of conventional funding, Prov. of Ancona 30.4% 22.3% 23.0% Prov. of Macerata 35.6% 30.2% 26.6% which does not include bonds, was 4.4% (unchanged Prov. of Pesaro and Urbino 26.9% 18.3% 19.5% Prov. of Fermo 22.6% 12.8% 16.5% compared with December 2018), while the share for Prov. of Ascoli Piceno 10.5% 5.8% 13.4% private sector loans, excluding bad loans, was 6% Umbria 8.1% 3.9% 6.7% Prov. of Perugia 9.3% 4.5% 7.2% (6.1% in December 2018). Prov. of Terni 4.0% 2.0% 4.8% Latium 6.0% 2.5% 4.9% Prov. of Rome 5.8% 2.5% 5.0% Prov. of Viterbo 14.8% 8.9% 9.7% In some areas where the Group’s historical presence Prov. of Rieti 11.1% 3.5% 4.9% Tuscany 5.1% 2.4% 2.2% is stronger, it continues to have a market share of Prov. of Arezzo 21.1% 12.7% 10.3% Prov. of Florence 4.0% 1.7% 1.7% conventional funding and/or lending that is greater Prov. of Siena 7.2% 2.7% 1.8% than the percentage of branches. Prov. of Grosseto 5.4% 3.1% 2.8% Prov. of Livorno 4.2% 2.1% 1.7% South Italy 8.5% 4.1% 5.8% Calabria 17.1% 8.9% 9.9% Prov. of Catanzaro 10.6% 6.7% 7.5% Prov. of Cosenza 19.9% 11.9% 13.2% Prov. of Crotone 16.1% 6.0% 7.1% Prov. of Reggio Calabria 19.6% 6.9% 7.9% Prov. of Vibo Valentia 14.3% 9.6% 10.4% Abruzzo 11.8% 6.3% 8.7% Prov. of Chieti 29.6% 14.1% 14.1% Prov. of Aquila 4.0% 1.6% 2.4% Prov. of Pescara 8.5% 5.1% 9.1% Prov. of Teramo 4.1% 2.3% 6.2% Molise 7.0% 2.3% 6.5% Prov. of Isernia 14.3% 3.6% 8.8% Prov. of Campobasso 5.1% 1.6% 5.7% Basilicata 8.2% 4.9% 6.7% Prov. of Potenza 7.8% 4.6% 7.0% Prov. of Matera 9.1% 5.4% 6.1% Apulia 7.5% 4.1% 4.5% Prov. of Bari 9.6% 5.4% 5.0% Prov. of Brindisi 10.3% 5.0% 4.8% Prov. of Foggia 5.3% 3.6% 4.8% Prov. of Lecce 4.2% 1.5% 3.5% Prov. of Barletta Andria Trani 6.3% 4.4% 3.6% Prov. of Taranto 8.5% 4.2% 4.4% Campania 5.5% 2.3% 4.8% Prov. of Naples 4.9% 2.4% 4.5% Prov. of Caserta 8.9% 2.7% 6.4% Prov. of Benevento 3.9% 2.0% 4.3% Prov. of Salerno 6.3% 2.7% 5.2% Total Italy 6.8% 4.4% 6.0%

(*) Source Bank of Italy: regulatory registers and lists for branch shares; matrix reports for balance sheet totals. (**) M arket shares by residence of the counterparty. The matrix report for funding is based on item 58030 relating to current accounts, certificates of deposit, savings deposits and repurchase agreements. Bonds and repurchase agreements with central counterparties are excluded. (***) M arket shares by residence of the counterparty. The matrix report for lending is based on item 58005 relating to loans to the private sector excluding the following types of bad loans: advances on receivables, current account overdrafts, mortgages, credit cards, salary backed loans, personal loans, factoring, leasing and other types of financing.

36 Human resources

Group staff

Employees actually in service Employees on the payroll

30.6.2019 31.12.2018 Changes 30.6.2018 30.6.2019 31.12.2018 Changes

Number ABA-BC DED-E

UBI Banca Spa 17,321 17,479 -158 18,102 18,278 18,447 -169 IW Bank Spa 311 305 6 308 252 251 1 UBI Sistemi e Servizi SCpA 1,784 1,831 -47 1,884 1,102 1,123 -21 UBI Leasing Spa 209 218 -9 221 202 208 -6 Prestitalia Spa 174 173 1 167 89 90 -1 Pramerica SGR Spa 162 159 3 156 129 125 4 UBI Factor Spa 133 138 -5 147 110 113 -3 BPB Immobiliare Srl 55 5 50 54 55 5 50 BancAssurance Popolari Spa 49 44 5 39 46 40 6 UBI Academy SCRL 16 16 - 14 - - - Palazzo della Fonte SCpA* 9 - 9 - 9 - 9 UBI Trus tee Sa 7 5 2 5 7 5 2 Kedomus Srl 6 6 - 6 - - - Pramerica Management Company Sa 5 4 1 4 4 3 1 BancAssurance Popolari Danni Spa - 9 -9 10 - 8 -8 Oro Italia Trading Spa - in liquidation - - - 2 - - - Assieme Srl - in liquidation** - - - 5 - - - Centrobanca Sviluppo Impresa Spa - in liquidation*** ------TOTAL 20,241 20,392 -151 21,124 20,283 20,418 -135 Workers on staff leasing contracts 1 2 -1 1 1 2 -1 TOTAL UBI BANCA GROUP STAFF 20,242 20,394 -152 21,125 TOTAL FTE STAFF 19,553.9 19,692.9 -139.0 20,410.9 On secondment outside the Group - out 48 32 16 29 - in 6 6 - TOTAL WORKFORCE 20,290 20,426 -136 21,154 20,290 20,426 -136

* The company was included within the consolidation scope from 5th June 2019, following the completion of the purchase by UBI Banca of all its shares and “profit-sharing equity instruments” (SFP - Strumenti Finanziari di Partecipativi). ** An Extraordinary Shareholders’ Meeting held on 10th September 2018 resolved this company’s early dissolution and voluntary liquidation (three of the staff in service as at the 30th June 2018 remained with the Group, while two staff stayed within the perimeter of the line of business sold prior to the liquidation of the company). The liquidation was concluded in May with the removal of the company from the Register of Companies at the same time. *** As at 30th June 2019 one person on partial secondment from another Group company was working at this company (one person in both of the comparative periods) and was therefore not included among employees actually in service. As already reported, the company was placed in liquidation with effect from 4th June 2019.

The table above gives details for each company of the actual distribution of ordinary employees (workers on permanent and temporary contracts and on apprenticeship contracts) as at 30th June 2019, 31st December 2018 and 30th June 2018 (columns A, B and C), adjusted to take account of secondments from and to other entities within or external to the Group. On the other hand, columns D and E give the number of employees on the payroll for each company as at 30th June 2019 and 31st December 2018.

We report the following with respect to information published previously: . UBI Banca staff as at 31st December 2018 were increased by two following two reinstatements. . UBI Banca staff as at 30th June 2018 were (i) reduced by one to take account of a dismissal with backdated effect decided in the following August and (ii) increased by two following two reinstatements.

Total staff of the UBI Banca Group as at 30th June 2019 numbered 20,242 of whom (i) nine attributable to the inclusion in the consolidation of the company Palazzo della Fonte, and (ii) one on a personnel leasing contract (at Pramerica Management Company). The total reduction in the first half was of 152 staff, of which one on a personnel leasing contract and sixteen for secondments outside the Group. In terms of full time equivalents (FTEs) on the other hand, which is with account taken of the part-time worker effect, Group staff numbered 19,553.9 to give a reduction in numbers of 139 compared with June.

Although the trend continues to be determined mainly by incentivised voluntary redundancies concluded as part of agreements entered into, which also explains the substantial reduction in the workforce year-on-year (down by 881 compared with 30th June 2018), incentivised departures in the reporting period were almost fully offset by new recruits. Consistent with

37 commitments entered into by the Group in recent years, new recruits appointed in the first half with a view to generation turnover and support for youth employment numbered 478, calculated net of nine staff arriving from the consortium company Palazzo della Fonte, against 447 incentivised redundancies, which brought the percentage completion of the existing incentive schemes to 93.7%. Staff still waiting to leave as at 30th June 2019 numbered 178.

As shown in the table, some Group companies recorded substantial changes compared with December. The most significant changes regarded the following: - UBI Banca (-158 staff) mainly in relation to incentivised redundancies in the period; - UBI Sistemi e Servizi (-47 staff) as a result of incentivised redundancies and the transfer of staff to other Group companies; - BPB Immobiliare (+50 staff) for the usual recruitment of staff on seasonal contracts that are not banking industry contracts; - the transfer of 6 Bancassurance Popolari Danni staff (-9) to Bancassurance Popolari (+5) due to the disposal of the non-life sector company.

The table relating to the type of contract for workers with ordinary employee contracts shows that over the six-month period a modest Employees on the payroll change in the mix of the workforce was seen: 30.6.2019 31.12.2018 at the end of June staff on temporary Changes contracts and apprentices taken together Number accounted for 1.7% of total employees on the Total employees 20,283 20,418 -135 of which: permanent 19,938 20,100 -162 payroll (1.6% in December 2018). on temporary contracts 202 77 125 apprentices (*) 143 241 -98

Net of the nine new recruits attributable to the (*) An apprenticeship is a contract for young people between the ages of 18 and 29, by which they acquire a qualification through training at work which provides them with inclusion of the consortium company Palazzo specific occupational skills. The duration of the currently existing contracts in the UBI della Fonte in the consolidation, the Group Banca Group is 24 months. recorded a decrease of 144 employees on the payroll, the result of 622 departures (577 on permanent contracts, 37 on temporary contracts and 8 apprentices) compared with the 478 recruits already mentioned (267 on permanent contracts, 193 on temporary contracts and 18 apprentices). The trend summarised in the table also incorporates 139 “stabilisations” (i.e. conversions of temporary contracts, mainly apprenticeships, to permanent contracts).

The percentage of employee workers on part-time contracts as at 30th June 2019 was 14.5%, while that of female personnel was 43.4% (14.5% and 42.8% respectively in December 2018).

The composition of banking staff by rank, details of which are given in the table, was more or Composition of staff on the payroll of Group Banks* by rank less in line with that of the UBI Banca Group in December 30.6.2019 31.12.2018 % % 2018, except for a slight Number change in the mix between Senior managers 311 1.7% 321 1.7% middle management and Middle managers 3rd and 4th level 3,018 16.3% 3,123 16.7% professional areas in relation Middle managers 1st and 2nd level 4,586 24.7% 4,634 24.8% 3rd Professional Area (office staff) 10,537 56.9% 10,523 56.3% to incentivised redundancies 1st and 2nd Professional Area (other staff) 78 0.4% 97 0.5% in the first half. TOTAL FOR BANKS 18,530 100.0% 18,698 100.0%

* The figures reported include UBI Banca and IW Bank staff * * *

Group staff numbers declined in the period April-June by 1441 staff. On the one hand the change incorporated the nine new recruits attributable to the consortium company Palazzo della Fonte, and on the other hand 11 secondments outside the Group that occurred during the quarter. Net of those components, the reduction in the workforce on the payroll numbered 142 staff, the aggregate result of 216 recruits and 358 departures.

1 We report that following a backdated departure that took place in the second quarter, the Group workforce as at 31st March 2019 was adjusted downwards by one to 20,386 staff.

38

* * *

We report the following with regard to trade union relations: • on 25th March 2019 an “understanding” was signed for the payment of company bonuses (formerly “value added per employee”) relating to the financial year 2018. Payment of the bonuses, which started in June, was subject to verification of improvements in the indicators (identified in the agreement) for productivity, profitability and efficiency as at 31st March 2019 compared with 31st March 2018; • a “record of agreement” was signed on 12th March 2019 designed to regulate impacts on staff resulting from the disposal of the operations relating to printing and preparation for mailing of communications to customers and of other material carried out at present at UBI.S by the organisational unit “Central Printing”.

39 Reclassified consolidated financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules

Reclassified consolidated balance sheet

30.6.2019 1.1.2019 (*) Changes % changes 30.6.2018 Changes % cha nge s

Figures in thousands of euro A B A-B A/B C A-C A/C

ASSETS 10. Cash and cash equivalents 616,670 735,249 -118,579 -16.1% 616,368 302 0.0%

20. Financial assets measured at fair value through profit or loss 1,660,974 1,463,529 197,445 13.5% 1,488,445 172,529 11.6% 1) Loans and advances to bank s 15,365 14,054 1,311 9.3% 14,796 569 3.8% 2) Loans and advances to customers 268,043 274,262 -6,219 -2.3% 313,580 -45,537 -14.5% 3) Securities and derivatives 1,377,566 1,175,213 202,353 17.2% 1,160,069 217,497 18.7% Financial assets measured at fair value through other 30. comprehensive income 11,618,770 10,726,179 892,591 8.3% 11,527,974 90,796 0.8% 1) Loans and advances to bank s ------2) Loans and advances to customers - 15 -15 -100.0% - - - 3) Securities 11,618,770 10,726,164 892,606 8.3% 11,527,974 90,796 0.8% 40. Financial assets measured at amortised cost 103,356,416 102,798,587 557,829 0.5% 103,886,299 -529,883 -0.5% 1) Loans and advances to bank s 12,393,150 10,065,772 2,327,378 23.1% 9,513,708 2,879,442 30.3% 2) Loans and advances to customers 86,074,151 88,987,596 -2,913,445 -3.3% 91,342,643 -5,268,492 -5.8% 3) Securities 4,889,115 3,745,219 1,143,896 30.5% 3,029,948 1,859,167 61.4% 50. Hedging derivatives 22,452 44,084 -21,632 -49.1% 59,804 -37,352 -62.5%

60. Fair value change in hedged financial assets (+/-) 541,946 97,429 444,517 n.s. 33,826 508,120 n.s. 70. Equity investments 266,897 254,128 12,769 5.0% 240,509 26,388 11.0% 80. Technical reserves of reinsurers - - - - 373 -373 -100.0% 90. Property, plant and equipment 2,506,708 2,394,858 111,850 4.7% 1,799,295 100. Intangible assets 1,720,771 1,729,727 -8,956 -0.5% 1,711,908 8,863 0.5% of which: goodwill 1,465,260 1,465,260 - - 1,465,260 - - 110. Tax assets 3,961,524 4,210,362 -248,838 -5.9% 4,122,268 -160,744 -3.9%

120. Non-current assets and disposal groups held for sale 7,349 2,972 4,377 147.3% 1,384 5,965 n.s. 130. Other assets 1,199,827 1,243,320 -43,493 -3.5% 1,415,721

Total assets 127,480,304 125,700,424 1,779,880 1.4% 126,904,174

LIABILITIES AND EQUITY 10. Financial liabilities measured at amortised cost 111,840,625 109,839,891 2,000,734 1.8% 111,617,355 a) Due to bank s 17,053,172 17,234,579 -181,407 -1.1% 16,607,300 445,872 2.7% b) Due to customers 70,840,373 68,815,614 2,024,759 2.9% 70,582,753 c) Debt securities issued 23,947,080 23,789,698 157,382 0.7% 24,427,302 -480,222 -2.0% 20. Financial liabilities held for trading 571,499 410,977 160,522 39.1% 386,959 184,540 47.7% 30. Financial liabilities designated at fair value 149,871 105,836 44,035 41.6% 75,488 74,383 98.5% 40. Hedging derivatives 230,655 110,801 119,854 108.2% 102,961 127,694 124.0%

50. Fair value change in hedged financial liabilities (+/-) 188,275 74,297 113,978 153.4% 54,008 134,267 n.s. 60. Tax liabilities 140,145 162,272 -22,127 -13.6% 208,390 -68,245 -32.7% 80. Other liabilities 2,290,570 3,092,941 -802,371 -25.9% 2,654,081 -363,511 -13.7% 90. Provision for post-employment benefits 299,460 306,697 -7,237 -2.4% 328,484 -29,024 -8.8% 100. Provisions for risks and charges: 415,665 505,191 -89,526 -17.7% 565,147 -149,482 -26.5% a) commitments and guarantees granted 51,951 64,410 -12,459 -19.3% 73,964 -22,013 -29.8% b) pension and similar obligations 87,892 91,932 -4,040 -4.4% 130,215 -42,323 -32.5% c) other provisions for risk s and charges 275,822 348,849 -73,027 -20.9% 360,968 -85,146 -23.6% 110. Technical reserves 2,070,095 1,877,449 192,646 10.3% 1,879,072 191,023 10.2%

120.+150.+160. Share capital, share premiums, reserves, valuation reserves +170.+180 and treasury shares 9,113,181 8,737,680 375,501 4.3% 8,756,026 357,155 4.1% 190. Minority interests (+/-) 39,344 50,784 -11,440 -22.5% 67,336 -27,992 -41.6% 200. Profit (loss) for the period/year (+/-) 130,919 425,608 -294,689 -69.2% 208,867 -77,948 -37.3%

Total liabilities and equity 127,480,304 125,700,424 1,779,880 1.4% 126,904,174

(*) For those items not impacted by the adoption of IFRS 16 (see the explanatory notes that accompany the Condensed Interim Consolidated Financial Statements) the date 1st January 2019 must be interpreted as 31st December 2018. It follows that for those items affected by IFRS 16 only, the figures as at 30th June 2019 are not comparable with those as at 30th June 2018.

40 Reclassified consolidated quarterly balance sheets

30.6.2019 31.3.2019 1.1.2019 (*) 30.9.2018 30.6.2018 31.3.2018 Figures in thousands of euro

ASSETS 10. Cash and cash equivalents 616,670 606,459 735,249 625,652 616,368 612,826

20. Financial assets measured at fair value through profit or loss 1,660,974 1,504,110 1,463,529 1,469,508 1,488,445 1,541,428 1) Loans and advances to bank s 15,365 14,715 14,054 13,444 14,796 14,900 2) Loans and advances to customers 268,043 270,459 274,262 283,496 313,580 340,800 3) Securities and derivatives 1,377,566 1,218,936 1,175,213 1,172,568 1,160,069 1,185,728 Financial assets measured at fair value through other 30. comprehensive income 11,618,770 11,237,472 10,726,179 10,640,301 11,527,974 12,645,089 1) Loans and advances to bank s ------2) Loans and advances to customers - 15 15 15 - - 3) Securities 11,618,770 11,237,457 10,726,164 10,640,286 11,527,974 12,645,089 40. Financial assets measured at amortised cost 103,356,416 103,161,917 102,798,587 103,431,623 103,886,299 102,740,393 1) Loans and advances to bank s 12,393,150 11,327,078 10,065,772 10,248,127 9,513,708 8,142,802 2) Loans and advances to customers 86,074,151 87,095,528 88,987,596 89,554,538 91,342,643 91,575,231 3) Securities 4,889,115 4,739,311 3,745,219 3,628,958 3,029,948 3,022,360 50. Hedging derivatives 22,452 20,298 44,084 65,350 59,804 67,656

60. Fair value change in hedged financial assets (+/-) 541,946 320,370 97,429 -6,002 33,826 -181 70. Equity investments 266,897 263,307 254,128 243,646 240,509 248,267 80. Technical reserves of reinsurers - - - 195 373 331 90. Property, plant and equipment 2,506,708 2,405,055 2,394,858 1,824,737 1,799,295 1,799,070 100. Intangible assets 1,720,771 1,721,712 1,729,727 1,710,712 1,711,908 1,723,921 of which: goodwill 1,465,260 1,465,260 1,465,260 1,465,260 1,465,260 1,465,260 110. Tax assets 3,961,524 4,121,232 4,210,362 4,076,685 4,122,268 4,017,911

120. Non-current assets and disposal groups held for sale 7,349 10,316 2,972 735 1,384 995 130. Other assets 1,199,827 1,357,159 1,243,320 1,123,257 1,415,721 1,165,674

Total assets 127,480,304 126,729,407 125,700,424 125,206,399 126,904,174 126,563,380

LIABILITIES AND EQUITY 10. Financial liabilities measured at amortised cost 111,840,625 111,409,557 109,839,891 110,633,386 111,617,355 111,520,617 a) Due to bank s 17,053,172 17,776,512 17,234,579 16,678,273 16,607,300 17,308,468 b) Due to customers 70,840,373 69,830,403 68,815,614 70,258,101 70,582,753 68,944,514 c) Debt securities issued 23,947,080 23,802,642 23,789,698 23,697,012 24,427,302 25,267,635 20. Financial liabilities held for trading 571,499 461,254 410,977 347,184 386,959 367,105 30. Financial liabilities designated at fair value 149,871 124,296 105,836 95,434 75,488 59,019 40. Hedging derivatives 230,655 107,022 110,801 93,351 102,961 98,872 50. Fair value change in hedged financial liabilities (+/-) 188,275 124,767 74,297 30,103 54,008 27,825 60. Tax liabilities 140,145 166,467 162,272 188,193 208,390 271,990 80. Other liabilities 2,290,570 2,271,216 3,092,941 2,116,819 2,654,081 2,035,487 90. Provision for post-employment benefits 299,460 307,910 306,697 323,809 328,484 336,807 100. Provisions for risks and charges: 415,665 495,298 505,191 567,401 565,147 584,088 a) commitments and guarantees granted 51,951 54,026 64,410 76,803 73,964 77,284 b) pension and similar obligations 87,892 87,111 91,932 128,496 130,215 135,190 c) other provisions for risk s and charges 275,822 354,161 348,849 362,102 360,968 371,614 110. Technical reserves 2,070,095 1,962,495 1,877,449 1,856,585 1,879,072 1,901,000 120.+150.+160. Share capital, share premiums, reserves, valuation reserves and +170.+180 treasury shares 9,113,181 9,184,841 8,737,680 8,688,096 8,756,026 9,183,186 190. Minority interests (+/-) 39,344 32,076 50,784 55,567 67,336 59,724 200. Profit (loss) for the period/year (+/-) 130,919 82,208 425,608 210,471 208,867 117,660

Total liabilities and equity 127,480,304 126,729,407 125,700,424 125,206,399 126,904,174 126,563,380

(*) For those items not impacted by the adoption of IFRS 16 (see the explanatory notes that accompany the Condensed Interim Consolidated Financial Statements) the date 1st January 2019 must be interpreted as 31st December 2018. It follows that for those items affected by IFRS 16 only, the end of quarter figures for 2018 are not comparable with those as at 1st January, 31st March and 30th June 2019.

41

Reclassified consolidated income statement

1H 2019 1H 2018 2nd Quarter 2nd Quarter FY 2018 Change % change Change % change 2019 2018

(IFRS 16) (IFRS 16) Figures in thousands of euro A B A-BA/BC D C-DC/DE

10.-20.-140. Net interest income 886,213 896,416 (10,203) (1.1%) 440,616 458,605 (17,989) (3.9%) 1,790,231 of which: TLTRO II 24,893 25,247 (354) (1.4%) 12,502 12,693 (191) (1.5%) 50,788 of which: IFRS 9 credit components * 66,657 61,206 5,451 8.9% 35,498 35,543 (45) (0.1%) 121,985 of which: IFRS 9 contractual modifications without derecognition components (10,437) (22,072) (11,635) (52.7%) (5,281) (13,412) (8,131) (60.6%) (37,383) 70. Dividends and similar income 7,210 8,369 (1,159) (13.8%) 2,040 3,232 (1,192) (36.9%) 22,931 Profits (losses) of equity-accounted investees 19,421 9,013 10,408 115.5% 13,106 1,752 11,354 n.s. 24,602 40.-50. Net fee and commission income 812,934 807,968 4,966 0.6% 411,998 400,630 11,368 2.8% 1,579,060 of which performance fees 7,153 8,489 (1,336) (15.7%) 4,171 6,745 (2,574) (38.2%) 13,889

80.+90. Net income (loss) from trading, hedging and disposal/repurchase activities and from +100.+110. assets/liabilities measured at fair value through profit or loss 55,084 56,105 (1,021) (1.8%) 17,649 22,123 (4,474) (20.2%) (5,404) 160.+170. Net income from insurance operations 7,436 11,003 (3,567) (32.4%) 3,934 5,548 (1,614) (29.1%) 17,034 230. Other net operating income/expense 40,737 51,761 (11,024) (21.3%) 19,075 23,394 (4,319) (18.5%) 90,889 Operating income 1,829,035 1,840,635 (11,600) (0.6%) 908,418 915,284 (6,866) (0.8%) 3,519,343 190. a) Staff costs (720,427) (749,859) (29,432) (3.9%) (355,993) (374,325) (18,332) (4.9%) (1,490,626) 190. b) Other administrative expenses (361,192) (392,557) (31,365) (8.0%) (175,161) (186,643) (11,482) (6.2%) (789,994) Depreciation, amortisation and net impairment losses on property, plant and 210.+220. equipment and intangible assets (110,569) (82,001) 28,568 34.8% (56,275) (40,384) 15,891 39.3% (167,575) Operating expenses (1,192,188) (1,224,417) (32,229) (2.6%) (587,429) (601,352) (13,923) (2.3%) (2,448,195) Net operating income 636,847 616,218 20,629 3.3% 320,989 313,932 7,057 2.2% 1,071,148 130. Net impairment losses for credit risk relating to: (393,378) (270,473) 122,905 45.4% (263,375) (146,128) 117,247 80.2% (638,277) 130. a) - financial assets measured at amortised cost: loans and advances to banks 724 (1,460) 2,184 n.s. 773 265 508 191.7% 2,867 130. a) - financial assets measured at amortised cost: loans and advances to customers (391,584) (261,624) 129,960 49.7% (263,016) (143,684) 119,332 83.1% (642,786) 130. a) - financial assets measured at amortised cost: securities (764) (104) 660 n.s. (277) 15 (292) n.s. 916 130. b) - financial assets measured at fair value through other comprehensive income (1,754) (7,285) (5,531) (75.9%) (855) (2,724) (1,869) (68.6%) 726

200. a) Net provisions for risks and charges - commitments and guarantees granted 1,943 14,540 (12,597) (86.6%) 2,505 3,477 (972) (28.0%) 23,923 200. b) Net provisions for risks and charges - other net provisions (2,229) (17,113) (14,884) (87.0%) 1,238 (15,700) 16,938 n.s. (4,491) 250.+280. Profits (losses) from the disposal of equity investments 4,188 963 3,225 n.s. 3,915 170 3,745 n.s. 5,344

290. Profit (loss) before tax from continuing operations 247,371 344,135 (96,764) (28.1%) 65,272 155,751 (90,479) (58.1%) 457,647 300. Taxes on income for the period from continuing operations (60,035) (116,908) (56,873) (48.6%) (9,232) (55,557) (46,325) (83.4%) 38,754 340. (Profit) loss for the period/year attributable to minority interests (13,701) (13,803) (102) (0.7%) (7,286) (7,794) (508) (6.5%) (25,982) Profit (loss) for the period/year attributable to the shareholders of the Parent before the Business Plan and other impacts 173,635 213,424 (39,789) (18.6%) 48,754 92,400 (43,646) (47.2%) 470,419 190. a) Redundancy expenses net of taxes and minority interests (42,583) - (42,583) - 2 (164) 166 n.s. (36,983) 190. b) Business Plan project expenses net of taxes and minority interests (133) (4,557) (4,424) (97.1%) (45) (1,029) (984) (95.6%) (4,930) Impairment losses on property, plant and equipment net of taxes and minority 210. interests ------(2,898) 350. Profit (loss) for the period/year attributable to the shareholders of the Parent 130,919 208,867 (77,948) (37.3%) 48,711 91,207 (42,496) (46.6%) 425,608

* The components relating to the reversal of time value associated with the measurement of non-performing exposures, to interest recognised on a net basis on non-performing loans, and also to the release of the time value of the PPA relating to loans resulting from the operation to acquire the New Banks. For those items affected by the adoption of IFRS 16 (see in this respect the notes to the preparation of these statements that follow) the figures relating to 2018 (the first half, full-year and second quarter) are not fully comparable with those for 2019 (the first half and second quarter).

42 Reclassified consolidated quarterly income statements

2019 2018 (IFRS 16) Figures in thousands of euro 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

10.-20.-140. Net interest income 440,616 445,597 441,066 452,749 458,605 437,811 of which: TLTRO II 12,502 12,391 12,750 12,791 12,693 12,554 of which: IFRS 9 credit components 35,498 31,159 29,961 30,818 35,543 25,663 of which: IFRS 9 contractual modifications without derecognition components (5,281) (5,156) (6,961) (8,350) (13,412) (8,660) 70. Dividends and similar income 2,040 5,170 14,417 145 3,232 5,137 Profits (losses) of equity-accounted investees 13,106 6,315 10,460 5,129 1,752 7,261 40.-50. Net fee and commission income 411,998 400,936 390,578 380,514 400,630 407,338 of which performance fees 4,171 2,982 1,755 3,645 6,745 1,744 80.+90. Net income (loss) from trading, hedging and disposal/repurchase activities and from +100.+110. assets/liabilities measured at fair value through profit or loss 17,649 37,435 (6,770) (54,739) 22,123 33,982 160.+170. Net income from insurance operations 3,934 3,502 2,000 4,031 5,548 5,455 230. Other net operating income/expense 19,075 21,662 14,199 24,929 23,394 28,367

Operating income 908,418 920,617 865,950 812,758 915,284 925,351 190. a) Staff costs (355,993) (364,434) (372,896) (367,871) (374,325) (375,534)

190. b) Other administrative expenses (175,161) (186,031) (198,738) (198,699) (186,643) (205,914) Depreciation, amortisation and net impairment losses on property, plant and 210.+220. equipment and intangible assets (56,275) (54,294) (44,612) (40,962) (40,384) (41,617)

Operating expenses (587,429) (604,759) (616,246) (607,532) (601,352) (623,065)

Net operating income 320,989 315,858 249,704 205,226 313,932 302,286 130. Net impairment losses for credit risk relating to: (263,375) (130,003) (239,138) (128,666) (146,128) (124,345) 130. a) - financial assets measured at amortised cost: loans and advances to banks 773 (49) 4,110 217 265 (1,725) 130. a) - financial assets measured at amortised cost: loans and advances to customers (263,016) (128,568) (253,481) (127,681) (143,684) (117,940) 130. a) - financial assets measured at amortised cost: securities (277) (487) 1,622 (602) 15 (119) 130. b) - financial assets measured at fair value through other comprehensive income (855) (899) 8,611 (600) (2,724) (4,561) 200. a) Net provisions for risks and charges - commitments and guarantees granted 2,505 (562) 12,322 (2,939) 3,477 11,063

200. b) Net provisions for risks and charges - other net provisions 1,238 (3,467) 14,767 (2,145) (15,700) (1,413) 250.+280. Profits (losses) from the disposal of equity investments 3,915 273 4,083 298 170 793

290. Profit (loss) before tax from continuing operations 65,272 182,099 41,738 71,774 155,751 188,384 300. Taxes on income for the period from continuing operations (9,232) (50,803) 181,828 (26,166) (55,557) (61,351) 340. (Profit) loss for the period attributable to minority interests (7,286) (6,415) (5,077) (7,102) (7,794) (6,009) Profit (loss) for the period attributable to the shareholders of the Parent before the Business Plan and other impacts 48,754 124,881 218,489 38,506 92,400 121,024 190. a) Redundancy expenses net of taxes and minority interests 2 (42,585) (103) (36,880) (164) 164 190. b) Business Plan project expenses net of taxes and minority interests (45) (88) (351) (22) (1,029) (3,528) Impairment losses on property, plant and equipment net of taxes and minority 210. interests - - (2,898) - - -

350. Profit (loss) for the period attributable to the shareholders of the Parent 48,711 82,208 215,137 1,604 91,207 117,660

For those items affected by the adoption of IFRS 16 (see in this respect the notes to the preparation of these statements that follow), the figures relating to quarters in 2018 are not fully comparable with those for the first two quarters of 2019.

43 Reclassified consolidated income statement net of the most significant non-recurring items

1H 2019 1H 2018 Change % change net of non- net of non- Figures in thousands of euro recurring items recurring items

Net interest income 886,213 896,416 (10,203) (1.1%) of which: TLTRO II 24,893 25,247 (354) (1.4%) of which: IFRS 9 credit components 66,657 61,206 5,451 8.9% of which: IFRS 9 contractual modifications without derecognition components (10,437) (22,072) (11,635) (52.7%)

Dividends and similar income 7,210 8,369 (1,159) (13.8%)

Profits (losses) of equity-accounted investees 19,421 9,013 10,408 115.5%

Net fee and commission income 812,934 807,968 4,966 0.6% of which: performance fees 7,153 8,489 (1,336) (15.7%) Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities measured at fair value through profit or loss 55,084 56,105 (1,021) (1.8%)

Net income from insurance operations 7,436 11,003 (3,567) (32.4%)

Other net operating income/expense 40,737 51,761 (11,024) (21.3%)

Operating income 1,829,035 1,840,635 (11,600) (0.6%) Staff costs (720,427) (749,859) (29,432) (3.9%)

Other administrative expenses (343,106) (379,672) (36,566) (9.6%) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (109,983) (82,001) 27,982 34.1%

Operating expenses (1,173,516) (1,211,532) (38,016) (3.1%)

Net operating income 655,519 629,103 26,416 4.2% Net impairment losses for credit risk relating to: (393,378) (270,473) 122,905 45.4% - financial assets measured at amortised cost: loans and advances to banks 724 (1,460) 2,184 n.s. - financial assets measured at amortised cost: loans and advances to customers (391,584) (261,624) 129,960 49.7% - financial assets measured at amortised cost: securities (764) (104) 660 n.s. - financial assets measured at fair value through other comprehensive income (1,754) (7,285) (5,531) (75.9%)

Net provisions for risks and charges - commitments and guarantees granted 1,943 14,540 (12,597) (86.6%)

Net provisions for risks and charges - other net provisions (2,229) (17,113) (14,884) (87.0%)

Profits (losses) from the disposal of equity investments - 963 (963) (100.0%)

Profit (loss) before tax from continuing operations 261,855 357,020 (95,165) (26.7%) Taxes on income for the period from continuing operations (64,788) (121,097) (56,309) (46.5%)

(Profit) loss for the period attributable to minority interests (13,701) (13,803) (102) (0.7%)

Profit (loss) for the period attributable to the shareholders of the Parent 183,366 222,120 (38,754) (17.4%)

For those items affected by the adoption of IFRS 16 (see in this respect the notes to the preparation of these statements that follow) the figures relating to the first half of 2019 are not fully comparable with those for the first half of 2018.

44 Reclassified consolidated income statement net of the most significant non-recurring items: details 2017-2020 Business Plan Other items 2017-2020 Business Plan

Extraordinary ExtraordinaryOther items Disposal of equity Redundancy Business Plan contribution to Redundancy Business Plan contribution to and other 1H 2019expenses project expenses the Resolution 1H 2019 1H 2018expenses project expenses the Resolution 1H 2018 investments Fund net of non- Fund net of non- recurring recurring Figures in thousands of euro items items

Net interest income 886,213 886,213 896,416 896,416

of which: TLTRO II 24,893 24,893 25,247 25,247

of which: IFRS 9 credit components 66,657 66,657 61,206 61,206

of which: IFRS 9 contractual modifications without derecognition components (10,437) (10,437) (22,072) (22,072) Dividends and similar income 7,210 7,210 8,369 8,369

Profits (losses) of equity-accounted investees 19,421 19,421 9,013 9,013

Net fee and commission income 812,934 812,934 807,968 807,968

of which: performance fees 7,153 7,153 8,489 8,489 Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities measured at fair value through profit or loss 55,084 55,084 56,105 56,105 Net income from insurance operations 7,436 7,436 11,003 11,003

Other net operating income/expense 40,737 40,737 51,761 51,761

Operating income 1,829,035 - - - - 1,829,035 1,840,635 - - - 1,840,635 Staff costs (720,427) (720,427) (749,859) (749,859)

Other administrative expenses (361,192) 18,086 (343,106) (392,557) 12,885 (379,672) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (110,569) 586 (109,983) (82,001) (82,001)

Operating expenses (1,192,188) - - 18,086 586 (1,173,516) (1,224,417) - - 12,885 (1,211,532)

Net operating income 636,847 - - 18,086 586 655,519 616,218 - - 12,885 629,103 Net impairment losses for credit risk relating to: (393,378) (393,378) (270,473) (270,473) - financial assets measured at amortised cost: loans and advances to banks 724 724 (1,460) (1,460) - financial assets measured at amortised cost: loans and advances to customers (391,584) (391,584) (261,624) (261,624) - financial assets measured at amortised cost: securities (764) (764) (104) (104) - financial assets measured at fair value through other comprehensive income (1,754) (1,754) (7,285) (7,285)

Net provisions for risks and charges - commitments and guarantees granted 1,943 1,943 14,540 14,540

Net provisions for risks and charges - other net provisions (2,229) (2,229) (17,113) (17,113)

Profits (losses) from the disposal of equity investments 4,188 (4,188) - 963 963

Profit (loss) before tax from continuing operations 247,371 - - 18,086 (3,602) 261,855 344,135 - - 12,885 357,020 (Profit) Taxesloss for on the income period for attributable the period to from minority continuing interests operations (13,701) (60,035) (5,880) 1,127 (13,701) (64,788) (13,803) (116,908) (4,189) (13,803) (121,097) Profit (loss) for the period attributable to the shareholders of the Parent before the Business Plan and other impacts 173,635 - - 12,206 (2,475) 183,366 213,424 - - 8,696 222,120 Redundancy expenses net of taxes and minority interests (42,583) 42,583 - - - -

Business Plan project expenses net of taxes and minority interests (133) 133 - (4,557) 4,557 - Profit (loss) for the period attributable to the shareholders of the Parent 130,919 42,583 133 12,206 (2,475) 183,366 208,867 - 4,557 8,696 222,120 The figures for the first half of 2018 (first column) are different from those reported in the final column of the Reconciliation schedule for the period ended 30th June 2018 on the line items: “Net interest income”, “Net trading income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities measured at fair value through profit or loss)” and “Net impairment losses for credit risk relating to: financial assets measured at amortised cost and financial assets designated at fair value through other comprehensive income (with a consequent change in the profits calculated from the sum of those items). This is a result of the reclassifications carried out on the basis of the Bank of Italy addendum letter dated 30th October 2018.

45 Reconciliation schedule for the period ended 30th June 2019

RECLASSIFIED CONSOLIDATED INCOME STATEMENT Reclassifications 1H 2019 1H 2019 Depreciation Profits (losses) Mandatory Net income Items for Profit of equity- from contractual 2017-2020 BP 2017-2020 BP Re cla ssifie d consolidated Tax from improvements accounted modifications redundancy project financial financial recoveries insurance to leased investees without expenses expenses sta te me nts statements operations Figures in thousands of euro assets derecognition 10.-20.-140. Net interest income 922,615 (25,965) (10,437) 886,213 of which: TLTRO II 24,893 24,893 of which: IFRS 9 credit components 66,657 66,657 of which: IFRS 9 contractual modifications without derecognition components - (10,437) (10,437) 70. Dividends and similar income 7,472 (262) 7,210 Profits (losses) of equity-accounted investees - 19,421 19,421 40.-50. Net fee and commission income 814,562 (1,628) 812,934 80.+90. Net income (loss) from trading, hedging and disposal/repurchase activities and from +100.+110. assets/liabilities measured at fair value through profit or loss 58,936 (3,852) 55,084 160.+170. Net income from insurance operations (13,752) 21,188 7,436 230, Other net operating income/expense 143,197 (113,044) 65 10,519 40,737 Operating income 1,933,030 (113,044) 65 19,421 - (10,437) - - 1,829,035 190.a Staff costs (784,110) 63,683 (720,427) 190.b Other administrative expenses (474,438) 113,044 202 (361,192) Depreciation, amortisation and net impairment losses on property, plant and 210.+220. equipment and intangible assets (110,504) (65) (110,569) Operating expenses (1,369,052) 113,044 (65) - - - 63,683 202 (1,192,188) Net operating income 563,978 - - 19,421 - (10,437) 63,683 202 636,847 130. Net impairment losses for credit risk relating to: (393,378) (393,378) 130. a) - financial assets measured at amortised cost: loans and advances to banks 724 724 130. a) - financial assets measured at amortised cost: loans and advances to customers (391,584) (391,584) 130. a) - financial assets measured at amortised cost: securities (764) (764) 130. b) - financial assets measured at fair value through other comprehensive income (1,754) (1,754) 140. Profit (loss) from contractual modifications without derecognition (10,437) 10,437 - 200. a) Net provisions for risks and charges - commitments and guarantees granted 1,943 1,943 200. b) Net provisions for risks and charges - other net provisions (2,229) (2,229) 250.+280. Profits (losses) from the disposal of equity investments 23,609 (19,421) 4,188 290. Profit (loss) before tax from continuing operations 183,486 - - - - - 63,683 202 247,371 300. Taxes on income for the period from continuing operations (38,909) (21,060) (66) (60,035) 340. (Profit) loss for the period attributable to minority interests (13,658) (40) (3) (13,701)

Profit (loss) for the period attributable to the shareholders of the Parent before the Business Plan and other impacts 130,919 - - - - - 42,583 133 173,635 190. a) Redundancy expenses net of taxes and minority interests - (42,583) (42,583) 190. b) Business Plan project expenses net of taxes and minority interests - (133) (133)

350. Profit (loss) for the period attributable to the shareholders of the Parent 130,919 ------130,919

46 Reconciliation schedule for the period ended 30th June 2018

RECLASSIFIED CONSOLIDATED INCOME STATEMENT Reclassifications 1H 2018 1H 2018 Profits (losses) Mandatory Net income Items Depreciation Profit of equity- from contractual 2017-2020 BP 2017-2020 BP Reclassified consolidated Tax from for leasehold accounted modifications redundancy project financial financial recoveries insurance improvements investees without expenses expenses statements statements operations Figures in thousands of euro derecognition 10.-20.-140 Net interest income 938,134 (19,910) (22,072) 896,152 of which: TLTRO II 25,247 25,247 of which: IFRS9 credit components 61,206 61,206 of which: IFRS 9 contractual modifications without derecognition components - (22,072) (22,072) 70. Dividends and similar income 9,811 (1,442) 8,369 Profits (losses) of equity-accounted investees - 9,013 9,013 40.-50. Net fee and commission income 808,810 (842) 807,968 80.+90. Net income (loss) from trading, hedging and disposal/repurchase activities and from +100.+110. assets/liabilities measured at fair value through profit or loss 54,831 (2,595) 52,236 160.+170. Net income from insurance operations (3,872) 14,875 11,003 230, Other net operating income/expense 159,044 (119,260) 2,063 9,914 51,761 Operating income 1,966,758 (119,260) 2,063 9,013 - (22,072) - - 1,836,502 190.a Staff costs (749,859) (749,859) 190.b Other administrative expenses (518,666) 119,260 6,849 (392,557) Depreciation, amortisation and net impairment losses on property, plant and equipment and 210.+220. intangible assets (79,938) (2,063) (82,001) Operating expenses (1,348,463) 119,260 (2,063) - - - - 6,849 (1,224,417) Net operating income 618,295 - - 9,013 - (22,072) - 6,849 612,085 130 Net impairment losses for credit risk relating to: (266,340) (266,340) 130. a) - financial assets measured at amortised cost: loans to banks (1,460) (1,460) 130. a) - financial assets measured at amortised cost: loans and advances to customers (258,166) (258,166) 130. a) - financial assets measured at amortised cost: securities (104) (104) 130. b) - financial assets measured at fair value through other comprehensive income (6,610) (6,610) 140. Profit (loss) from contractual modifications without derecognition (22,072) 22,072 - 200. a) Net provisions for risks and charges - commitments and guarantees granted 14,540 14,540 200. b) Net provisions for risks and charges - other net provisions (17,113) (17,113) 250.+280. Profits (losses) from the disposal of equity investments 9,976 (9,013) 963 290. Profit (loss) before tax from continuing operations 337,286 ------6,849 344,135 300. Taxes on income for the period from continuing operations (114,681) (2,227) (116,908) 340. (Profit) loss for the period attributable to minority interests (13,738) (65) (13,803) Profit (loss) for the period before the Business Plan and other impacts 208,867 ------4,557 213,424 190.a) Redundancy expenses net of taxes and minority interests - - 190. b) Business Plan project expenses net of taxes and minority interests - (4,557) (4,557)

350. Profit (loss) for the period attributable to the shareholders of the Parent 208,867 ------208,867

47 Reconciliation schedule for the year ended 31st December 2018

RECLASSIFIED CONSOLIDATED INCOME STATEMENT Reclassifications 31.12.2018 31.12.2018 Depreciation Profits (losses) Mandatory Net income Impairment Items for Profit of equity- from contractual 2017-2020 BP 2017-2020 BP Reclassified consolidated Tax from losses on improvements accounted modifications redundancy project financial financial recoveries insurance real estate to leased investees without expenses expenses statements statements operations properties Figures in thousands of euro assets derecognition 10.-20.-140. Net interest income 1,873,285 (45,671) (37,383) 1,790,231 of which: TLTRO II 50,788 50,788 of which: IFRS 9 credit components 121,985 121,985 of which: IFRS 9 contractual modifications without derecognition components - (37,383) (37,383) 70. Dividends and similar income 24,779 (1,848) 22,931 Profits (losses) of equity-accounted investees - 24,602 24,602 40.-50. Net fee and commission income 1,580,917 (1,857) 1,579,060 80.+90. Net income (loss) from trading, hedging and disposal/repurchase activities and +100.+110. from assets/liabilities measured at fair value through profit or loss 3,815 (9,219) (5,404) 160.+170. Net income from insurance operations (22,320) 39,354 17,034 230, Other net operating income/expense 293,471 (227,245) 5,422 19,241 90,889 Operating income 3,753,947 (227,245) 5,422 24,602 - (37,383) - - - 3,519,343 190.a Staff costs (1,545,909) 55,283 (1,490,626) 190.b Other administrative expenses (1,024,648) 227,245 7,409 (789,994) Depreciation, amortisation and net impairment losses on property, plant and 210.+220. equipment and intangible assets (166,447) (5,422) 4,294 (167,575) Operating expenses (2,737,004) 227,245 (5,422) - - - 4,294 55,283 7,409 (2,448,195) Net operating income 1,016,943 - - 24,602 - (37,383) 4,294 55,283 7,409 1,071,148 130. Net impairment losses for credit risk relating to: (638,277) (638,277) 130. a) - financial assets measured at amortised cost: loans and advances to banks 2,867 2,867 130. a) - financial assets measured at amortised cost: loans and advances to customers (642,786) (642,786) 130. a) - financial assets measured at amortised cost: securities 916 916 130. b) - financial assets measured at fair value through other comprehensive income 726 726 140. Profit (loss) from contractual modifications without derecognition (37,383) 37,383 - 200. a) Net provisions for risks and charges - commitments and guarantees granted 23,923 23,923 200. b) Net provisions for risks and charges - other net provisions (4,491) (4,491) 250.+280. Profits (losses) from the disposal of equity investments 29,946 (24,602) 5,344 290. Profit (loss) before tax from continuing operations 390,661 - - - - - 4,294 55,283 7,409 457,647 300. Taxes on income for the year for continuing operations 60,841 (1,396) (18,282) (2,409) 38,754 340. Profit (loss) for the year attributable to minority interests (25,894) (18) (70) (25,982) Profit for the year attributable to the shareholders of the Parent before the Business Plan and other impacts 425,608 - - - - - 2,898 36,983 4,930 470,419 190. a) Redundancy expenses net of taxes and minority interests - (36,983) (36,983) 190. b) Business Plan project expenses net of taxes and minority interests - (4,930) (4,930) 210. Impairment losses on real estate net of taxes and minority interests - (2,898) (2,898)

350. Profit (loss) for the year attributable to the shareholders of the Parent 425,608 ------425,608

48 Notes to the reclassified consolidated financial statements

The Mandatory Financial Statements have been prepared on the basis of Bank of Italy Circular No. 262/2005 of 22nd December 2005, as introduced by the 6th update, dated 30th November 20181. The latter implement the adoption of the international financial reporting standard IFRS 16 “Leases”, which supersedes IAS 17 “Leases” from 1st January 2019. The reclassified financial statements have been prepared in order to allow a meaningful management accounting commentary on capital and operating figures, not subject to audit by the independent auditors, on the basis of the financial statements pursuant to the 6th update of Bank of Italy Circular No. 262/2005.

As concerns income statement figures for the first half of 2019, the following is underlined on the basis of the provisions of IFRS 16: - net interest income includes interest on financial liabilities for leases within interest expense; - net depreciation and impairment losses on property, plant and equipment includes depreciation of the right-of-use assets resulting from lease contracts; - rentals relating to contracts falling within the scope of application of IFRS 16 are no longer recognised within “Other administrative expenses”2. In view of the above, the income statement figures for the comparative periods are not fully comparable.

In accordance with the ESMA/2015/1415 guidelines we report that, with a view to simplification of the presentation of the income statement, as of this half-year financial report, the line items “130. a) financial assets measured at amortised cost: loans and advances to customers subject to disposal” and “130. b) financial assets designated at fair value through other comprehensive income subject to disposal” – which included the reclassifications carried out between the items 100 and 130. a)/130. b) in compliance with the recommendations contained in the Bank of Italy addendum letter dated 30th October 2018 – have been reclassified within items “130. a) Financial assets measured at amortised cost: loans and advances to customers” and “130. b) financial assets designated at fair value through other comprehensive income”. The lines that have been eliminated had been introduced at time of the financial statements as at and for the year ended 31st December 2018 in order to show more clearly the amounts reclassified (also with regard to the preceding quarterly reports) in compliance with the provisions of the addendum letter in question, now fully in use. The comments contained in the section entitled “The income statement” report details of the amounts of credit risk impairment losses for credit risk related to disposal transactions where these are material.

Given the above, the reclassified financial statements are prepared in application of the following rules: - net interest income includes the result for item 140 [profits (losses) from contractual modifications without derecognition] in the mandatory income statement in order to ensure consistency with future financial reports, considering that the effect of the release of discounts will be recognised in net interest income. The result for that item is shown on a separate line as part of that interest income; - the item profits (losses) of equity-accounted investees includes the profits (losses) of equity-accounted investees included within item 250 in the mandatory financial statements; - net income from insurance operations comprises the following items of BancAssurance Popolari Spa and BancAssurance Popolari Danni Spa until the date of their deconsolidation (May 2019): net interest, dividends, net fees and commissions, the result for financial activities, net premiums (item 160), the balance on income and expenses of insurance operations (items 170 and 230). The remaining items have been consolidated line-by-line in the income statement; - the tax recoveries recognised within item 230 of the mandatory income statement (other net operating income/expenses) have been reclassified as a reduction in indirect taxes included within other administrative expenses; - the item other net operating income/expense includes item 230, net of the reclassifications mentioned under other points; - the item depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets includes items 210 and 220 in the mandatory income statement and also, for the comparative periods, the instalments relating to the depreciation of the costs incurred for leasehold improvements classified within item 2303;. - the item profits (losses) from the disposal of equity investments includes the item 250, net of profits (losses) of equity-accounted investees, and also item 280 in the mandatory income statement;

1 The update is applicable for financial statements ending as at 31st December 2019 or still open on that date. 2 On this subject, see the Explanatory Notes to the Condensed interim consolidated financial statements. 3 With the introduction of IFRS 16, “leasehold improvements”, relating to right-of-use assets regulated by the new standard, are recognised within property, plant and equipment, thereby increasing the value of the right-of-use assets to which they relate, and within the relative depreciation instalments recognised within net depreciation and net impairment losses on property, plant and equipment.

49 - expenses incurred in relation to the 2017-2020 Business Plan have been separated and stated on single lines (net of taxes and minority interests) at the foot of the statements as follows: • redundancy expenses partially include item 190. a) in the mandatory income statement; • “Business Plan Project expenses” comprise part of item 190. b) in the mandatory income statement. The reconciliation of the items in the reclassified financial statements with the figures in the mandatory financial statements is facilitated, on one hand, by the insertion in the margin of each item, of the corresponding number in the mandatory financial statement and, on the other hand, with the preparation of special reconciliation schedules. The comments on the performance of the main balance sheet and income statement items are made on the basis of the reclassified financial statements and the tables providing details included in the subsequent sections of the financial report have also been prepared on that same basis. In order to facilitate analysis of the Group’s operating performance and in compliance with Consob Communication No. DEM/6064293 of 28th July 20064, two special schedules have been included. One is a brief summary (which provides a comparison of the normalised results for the period) and one is more detailed, which shows the impact on earnings of the principal non-recurring events and items – since the relative effects on capital and cash flow, being closely linked, are not significant – which are summarised as follows:

First half 2019: - expenses for the 2017-2020 Business Plan, redundancy expenses in particular. - expenses for the extraordinary contribution to the Resolution Fund; - profits from the disposal of equity and other investments. First half 2018: - expenses for the 2017-2020 Business Plan; - expenses for the extraordinary contribution to the Resolution Fund.

4 Following the entry into force (on 3rd July 2016) of ESMA guidelines 2015/1415 which the Consob (Italian securities market authority) incorporated in its issuer and supervisory and monitoring practices, the UBI Banca Group criteria for the identification of non-recurring items (reported in the normalised statements) have been subject to review. The new criteria approved by the Management Board on 18th October 2016 limit the nature of non-recurring expenses to clearly specified items of income and expense (connected for example with the adoption of a Business Plan, or with the impacts of valuations and disposals of property plant and equipment, intangible and financial assets, with the effects of regulatory and methodological changes and also with extraordinary events including those of a systemic nature).

50 The consolidated income statement

The income statement figures commented on are based on the reclassified consolidated financial statements (the income statement and the income statement net of the more significant non-recurring items – in brief and detailed versions) contained in the relative section of this report. The detailed tables are those required by the sixth update of Circular No. 262. For a description of the changes made in preparing the reclassified statements, see both the explanatory notes following the statements themselves and the related reconciliations. The commentary examines the results for the first half of 2019 compared with the same period in the previous year, and also for the second quarter of 2019 compared with the first three months of the year (the latter are in italics in slightly smaller print). The first half of 2019 ended with a net profit of €130.9 million, which, however, included net non-recurring expenses of €52.41 million, compared with a net profit of €208.9 million in the same period in 2018 (which included net non-recurring expenses of €13.2 million). Normalised profit was therefore €183.4 million (€222.1 million in the comparative period). At the quarterly level, the net profit for the second quarter amounted to €48.7 million, compared with €91.2 million in the second quarter of 2018 and with €82.2 million in the first three months.

Ordinary operations generated operating income of €1.83 billion, essentially unchanged (-€11.6 million) over twelve months. The increase in net fee and commission income and the greater contribution of profits of equity-accounted investees offset the modest decline in net interest income, affected by a one-off negative item, and other income statement items, whereas the finance result remained stable. Overall income performance was affected by the decrease in other net operating income, which by nature consists of heterogeneous items of a non-structural character.

More specifically, net interest income fell to €886.2 million from €896.4 million in the first half of 2018 (-€10.2 million).

The table shows a decline in interest income on loans to customers attributable to financing activity (€948.7 million compared with €968.4 million in the first half of 2018), due to the decrease in average volumes (-4.1% the average balances of interest-bearing gross loans), essentially offset by the significant decline in interest expense on debt securities issued. This latter item reflects both a decline in the average balances of retail bonds (-€2.1 billion) and the partial inclusion of the cost of the institutional bonds issued during the first six months for a total of €2.4 billion, of which €1.2 billion in the second quarter. The customer spread amounted to 1.77%, showing an increase of four basis points due solely to the mark-down on medium to long-term funding, since the efficacy of the policy to safeguard spreads allowed the mark-up to be kept stable. There was also an increase in net interest paid on amounts due to banks (essentially to third banking counterparties within the framework of treasury and finance activity), only partially offset by the lower net cost of hedging derivatives.

In detail: • business with customers contributed €808.6 million, down slightly compared with the previous €814.1 million: this performance was affected by a one-off negative impact2 (waiver of interest income) of €7.4 million; net of this effect, the item increased by approximately €2 million over twelve months; • the securities portfolio generated net interest income of €92.8 million (€81.9 million in 2018), benefiting from an increase in interest on financial assets held in portfolio (+€1.2 million)3, but above all from a reduction in the negative impact of hedging derivatives (-€9.7 million). The spread on the securities portfolio, calculated on management accounting figures, remained stable;

1 €42.6 million net of redundancy expenses under the agreement signed on 27th March, €0.1 million of charges relating to the Business Plan (€4.5 million net in the first six months of 2018), €12.2 million net attributable to the extraordinary contribution to the Resolution Fund (€8.7 million in the first six months of 2018) and €2.5 million of net income on the disposal of equity and other investments. 2 In the second quarter of the year, net interest income was influenced by the adjustment, for the deferment period, of rates on corporate loans subject to a moratorium following the 2016 earthquake in Central Italy (the Marches and Abruzzo): the decision follows the other adjustments previously applied over time for individual customers. 3 The change indicated includes +€4.6 million attributable to financial assets measured at amortised cost, +€2.1 million to financial assets mandatorily measured at fair value, -€5.6 million to financial assets measured at fair value through other comprehensive income and +€0.1 million to assets held for trading.

51 • interbank activities recorded a loss of -€15.2 million (compared with a positive balance of €0.4 million in the first half of 2018), resulting from the net negative balance on business with banks other than the ECB (-€23.8 million), only partially offset by the positive balance on business with the ECB (+€8.6 million). The increase in the interest expense paid to the other banks is also a consequence of the increased repurchase agreement business as part of financial activity, which started in the fourth quarter of 2018. In business with the ECB, there was an increase of €3.1 million in the interest expense paid on the withdrawable compulsory reserve due to the increased average balance of the reserve, which partially offset the TLTRO benefit, stable at €25 million.

Interest and similar income: composition

Debt Other Financing 1H 2019 1H 2018 Figures in thousands of euro securities transactions

1. Financial assets measured at fair value through profit or loss 2,777 2,664 - 5,441 4,327 1.1 Financial assets held for trading 105 - - 105 49 1.2 Financial assets designated at fair value - - - - - 1.3 Other financial assets mandatorily measured at fair value 2,672 2,664 - 5,336 4,278 2. Financial assets measured at fair value through other comprehensive income 57,852 - X 57,852 63,453 3. Financial assets measured at amortised cost 38,812 952,687 - 991,499 1,005,787 3.1 Loans and advances to banks 303 4,007 X 4,310 3,194 3.2 Loans and advances to customers 38,509 948,680 X 987,189 1,002,593 4. Hedging derivatives X X (16,807) (16,807) (26,961) 5. Other assets XX110 110 88 6. Financial liabilities XXX30,016 29,908 Total 99,441 955,351 (16,697) 1,068,111 1,076,602 of which: interest income on impaired financial assets - 123,012 - 123,012 149,576 of which: interest income on finance leases - - -

Interest and similar expense: composition

Other Borrowings Securities 1H 2019 1H 2018 Figures in thousands of euro transactions

1. Financial liabilities measured at amortised cost (56,586) (195,027) - (251,613) (258,688) 1.1 Due to central banks - X X - - 1.2 Due to banks (27,995) X X (27,995) (15,341) 1.3 Due to customers (28,591) X X (28,591) (30,256) 1.4 Debt securities issued X (195,027) X (195,027) (213,091) 2. Financial liabilities held for trading (203) - - (203) - 3. Financial liabilities designated at fair value - - - - - 4. Other liabilities and provisions X X (39) (39) (13) 5. Hedging derivatives X X 91,772 91,772 96,660 6. Financial assets X X X (21,815) (18,145) Total (56,789) (195,027) 91,733 (181,898) (180,186) of which: interest expense relating to lease liabilities (4,209) - - (4,209) -

Net interest income 886,213 896,416

Quarterly contributions to net interest income

2019 2019 2018

Figures in thousands of euro 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

Banking business with customers 399,452 409,126 403,408 410,658 417,184 396,916 Financial activities 48,434 44,352 43,798 43,931 42,682 39,177 Interbank business (7,273) (7,949) (6,162) (1,877) (1,308) 1,690 Other items 3 68 22 37 47 28 Net interest income 440,616 445,597 441,066 452,749 458,605 437,811

Net interest income amounted to €440.6 million in the second quarter of 2019 (including the aforementioned negative effect of €7.4 million), compared with €445.6 million in the first quarter of the year and with €458.6 million in the second quarter of 2018. On a quarterly basis, business with customers, net of the charge of €7.4 million, was essentially stable, despite the increase in the cost of funding driven by the total impact of the cost of the bonds issued in the first quarter (including the subordinated bond of €500 million with a 5.875% coupon), offset by a further increase in the mark-up (+4 basis points). Financial activities provided a larger contribution, due above all to the improvement in the management spread of 8 points as a result of the reduction in the cost of funding against an increase in average volumes of €0.9 billion. Interbank business declined slightly due to a decrease in the repurchase agreements entered into as part of financial activities. The comparison with the second quarter of 2018 suffered, at the level of business with customers, above all due to the decline in average loan volumes (-4.2%), which more than offset the savings on the funding side (-1.8% in terms of average volumes) achieved in particular due to the significant retail bonds maturing. Financial activities made headway due to the lesser negative impact of the cost of hedging derivatives,

52 whereas interbank business showed a significant increase in interest expense, essentially on business with other banking counterparties.

During the period in question, dividends of €7.2 million were received (€8.4 million in the first six months of 2018), primarily on equity investments recognised within item 20, including €4.5 million (unchanged year-on-year) on Bank of Italy shares, €1.2 million attributable to SACBO (unchanged on the comparative period) and €1.1 million on equity securities measured at fair value through profit and loss (€1.2 billion in 2018).

Profits of equity-accounted investees4 amounted to €19.4 million, up considerably from €9 million in the first half of 2018 and were comprised of €4.4 million from Zhong Ou (€4 million in the comparative half-year), €8.4 million from Lombarda Vita (€6.5 million) and €6.6 million from Aviva Vita (-€1.7 million, affected by the impairment losses on securities in portfolio recognised during the period).

Net fee and commission income amounted to €812.9 million, an improvement on €808 million on the comparative period. It is composed of: €456.3 million (€458.3 million in the first half of 2018) from management, trading and advisory services5 (which included performance fees of €7.2 million and placement fees for Group funds and Sicav’s amounting to €73.7 million), whereas €356.6 million relates to banking services (€349.7 million in the comparative period). In detail6: • management, trading and advisory services mainly included contributions from portfolio management (€187.9 million compared with €193.7 million in 2018), from securities placement amounting to €133.9 million (a decrease compared with €145.7 million in the comparative period, due to the decline in up-front fees relating to Group funds and Sicav's of €15 million) and the distribution of third party services amounting to €140.4 million, of which €125.5 million on insurance products (€123 million in the first half of 2018, which had benefited from €109.3 million from insurance products); • ordinary banking business mainly comprises a contribution from other services amounting to €152.2 million (which includes €72.8 million of commitment fees), compared with €150.4 million in the first half of 2018 (inclusive of €77.4 million relating to commitment fees), from current account administration amounting to €124.2 million, an increase compared with €113.8 million in the comparative period due to the revision of pricing conditions undertaken since the second half of 2018, and, finally, from collection and payment services amounting to €59 million (€58.3 million in the first half of 2018). Commissions on guarantees declined €10.8 million (€17.2 million in the comparative period) as a result of the inclusion of expenses for synthetic securitisations (particularly those for the third synthetic securitisation undertaken in November 2018 for a nominal amount of €2.2 billion).

Fee and commission income: composition Fee and commission expense: composition

1H 2019 1H 2018 1H 2019 1H 2018 Figures in thousands of euro Figures in thousands of euro a) guarantees granted 26,218 25,561 a) guarantees received (15,447) (8,409) c) management, trading and advisory services 505,067 506,126 c) management and trading services: (44,608) (43,666) 1. trading in financial instruments 4,007 4,833 1. trading in financial instruments (4,509) (4,991) 2. foreign exchange trading 4,190 4,171 2. foreign exchange trading (2) (2) 3. portfolio management 191,759 197,650 3. portfolio management (3,837) (3,991) 3.1. individual 32,611 36,171 3.2. delegated to third parties (3,837) (3,991) 3.2. collective 159,148 161,479 4. custody and administration of securities (3,174) (3,407) 4. custody and administration of securities 4,953 3,888 5. placement of financial instruments (4,406) (3,013) 6. placement of securities 138,308 148,723 6. financial instruments, products and services 7. receipt and transmission of orders 15,694 19,323 distributed through indirect networks (28,680) (28,262) 8. advisory activities 5,779 4,485 d) collection and payment services (30,353) (27,630) 8.1 on investments 5,779 4,485 e) other services (20,797) (21,365) 9. distribution of third party services 140,377 123,053 9.1. portfolio management 210 320 Total (111,205) (101,070) 9.1.1. individual 210 320 9.2. insurance products 125,503 109,290 9.3. other products 14,664 13,443 d) collection and payment services 89,375 85,924 f) services for factoring transactions 6,258 5,918 i) current account administration 124,200 113,791 j) other services 173,021 171,718 Total 924,139 909,038 Net fee and commission income 812,934 807,968

4 The item consists of the net profits of the companies recognised on the basis of the percentage interest held by the Group. 5 The amount consists of management, trading and advisory services net of the corresponding expense items and is calculated excluding currency trading. 6 The contributions were calculated by subtracting commission expense from the respective commission income.

53 Quarterly net fee and commission income

2019 2018

Figures in thousands of euro 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

Management, trading and advisory services 230,734 225,537 209,131 198,391 227,822 230,469

Banking services 181,264 175,399 181,447 182,123 172,808 176,869 Net fee and commission income 411,998 400,936 390,578 380,514 400,630 407,338

On a quarterly basis, net fee and commission income rose to reach its highest level of the last six quarters in the second quarter of this year. Both segments improved at the quarterly level, driven by placement commissions and portfolio management on the one hand, and by collection and payment services and current account administration on the other, partially offset by the decrease in revenues on guarantees and factoring. The comparison with the same period in 2018 is also positive for both segments: management, trading and advisory services benefited from the distribution of insurance products, which offset the lesser revenues generated by portfolio management (also evident from the decline in performance fees from €6.7 to €4.2 million); commissions on banking service rose primarily due to current account administration, collection and payment services and other services, whereas the net contribution of guarantees was affected by the recognition of fee and commission expense on synthetic securitisations (the third, of a larger amount than the two prior transactions, was undertaken in November 2018 and the relative expense therefore was not included in the figures for the second quarter of 2018).

Over six months, financial activities generated a profit of €55.1 million, down slightly from €56.1 million in the comparative period. In detail: • trading (item 80) generated net income of €1.1 million, compared with €35.4 million in the first half of 2018: this outcome was due to foreign exchange/gold trading, primarily with corporate customers7, which resulted in a loss of €4.2 million (+€21.2 million in 2018 on greater underlying volumes) and a net loss of €3.6 million (+€1.8 million in the first half of 2018) relating to equity securities and the related derivatives, including the negative valuation of options on the Group's portfolio of equity investments of €3.3 million. Conversely, derivatives on debt securities and interest rates yielded a positive contribution of €7.5 million (+€12.9 million) and the net income relating to business in debt securities amounted to €1.1 million (-€0.6 million). Profits on shares of UCITS and the net income on other financial derivatives were of modest amount; • hedging8 (item 90), which consists of the net change in the fair value of derivatives and the relative items hedged against the relative risk, generated a loss of €8 million, attributable primarily to the valuation of macro-hedges on mortgage and other loans (a loss of €6.8 million due essentially to the decline in

market interest rates), compared with a loss of €4.2 million in the first six months of 2018; • the disposal of financial assets and the repurchase of financial liabilities (item 100) generated a profit of €20.7 million (€37.4 million in the comparative period), most of which (€26.3 million) consisted of the net income on the disposal of financial assets measured at fair value through other comprehensive income, relating primarily to foreign government bonds, and, to a lesser extent, Italian government and corporate bonds (€53.2 million in 2018, which had benefited from sales of Italian government bonds and, only to a very limited extent, from corporate bonds). Sales of loans classified as financial assets measured at amortised cost generated a loss of €4.2 million (-€11.7 million in the comparative period, including single-name sales of bad and unlikely-to-pay loans), whereas the repurchase of own liabilities (bonds) from customers yielded a net loss of €1.4 million (-€4.2 million during the period ended 30th June 2018); • the net income on financial assets/liabilities measured at fair value through profit or loss (item 110) came to €41.4 million, essentially due to the net unrealised gains on the equity securities of equity investment nature included in this item (€32.3 million, of which €21.2 million associated with Nexi), shares of UCITS for €3.8 million and the valuation effects on loans for €5.3 million (in the first half of 2018 a loss of €12.5 million was recognised, driven by the valuation effects of loans included in that portfolio, only partly offset by those on equity securities).

7 The Group does not enter into speculative positions and the results relate to business with customers and on own behalf generally balanced on the market. As a consequence, the items in question (line items 1.5, “Currency translation differences” and 3.1 “Currency and gold derivatives”) must be considered together as a whole. On the whole the items relate to the results of spot and forward currency trading by customers (transactions closed and/or existing) and also transactions on behalf of customers balanced operationally by UBI Banca on the market. 8 As already reported, the UBI Banca Group has chosen to take the “opt-out” option and therefore to continue to apply IAS 39.

54 Net trading income (Item 80)

Profits from Losses from Net income Net income Gains Losses trading trading 1H 2019 1H 2018

Figures in thousands of euro (A) (B) (C) (D) [(A+B)-(C+D)] [(A+B)-(C+D)]

1. Financial assets held for trading 1,447 14,226 (50) (1,466) 14,157 19,040 1.1 Debt securities 950 1,086 (10) (1,219) 807 (618) 1.2 Equity securities 497 185 (40) (20) 622 (190) 1.3 Shares in UCITS - 80.00 - (2) 78 4 1.4 Financing ------1.5 Other - 12,875 - (225) 12,650 19,844 2. Financial liabilities held for trading - 1,270 (883) (100) 287 - 2.1 Debt securities - 1,270 (883) (100) 287 - 2.2 Payables ------2.3 Other ------Financial assets and liabilities : exchange rate differenc XX XX (8,968) 5,114 3. Derivative instruments 257,729 54,570 (241,251) (67,549) (4,414) 11,206 3.1 Financial derivatives 257,729 54,570 (241,251) (67,549) (4,414) 11,206 - on deb t securities and interest rates 254,867 47,896 (235,247) (59,979) 7,537 12,875 - on equity securities and share indices 333 403 (3,555) (1,376) (4,195) 2,032 - on currencies and gold X X X X (7,913) (3,773) - other 2,529 6,271 (2,449) (6,194) 157 72 3.2 Credit derivatives ------of which: natural hedges related to the fair value option X X X X - - Total 259,176 70,066 (242,184) (69,115) 1,062 35,360

Net hedging income (loss) (item 90)

Figures in thousands of euro 1H 2019 1H 2018

Net hedging income (loss) (8,036) (4,227)

Profit (loss) from disposal/repurchase (Item 100)

Profits Losses 1H 2019 1H 2018 Figures in thousands of euro

Financial assets 1. Financial assets measured at amortised cost 5,860 (10,080) (4,220) (11,673) 1.1 Loans and advances to banks - - - - 1.2 Loans and advances to customers 5,860 (10,080) (4,220) (11,673) 2. Financial assets measured at fair value through other comprehensive income 26,430 (176) 26,254 53,227 2.1 Debt securities 26,429 (176) 26,253 53,227 2.2 Financing 1 - 1 - Total assets (A) 32,290 (10,256) 22,034 41,554 Financial liabilities measured at amortised cost 1. Due to banks - - - - 2. Due to customers 331 - 331 112 3. Debt securities issued 118 (1,804) (1,686) (4,238) Total liabilities (B) 449 (1,804) (1,355) (4,126) Total (a) + (B) 32,739 (12,060) 20,679 37,428

Net income (loss) from other financial assets and liabilities measured at fair value through profit or loss (Item 110)

Figures in thousands of euro 1H 2019 1H 2018

Net income (loss) from financial assets and liabilities measured at fair value through profit or loss 41,379 (12,456)

Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities measured at fair value through profit or loss 55,084 56,105

55 Quarterly performance by financial activities

2019 2019 2018 2018 2018 2018 Figures in thousands of euro 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Net trading income (loss) (2,553) 3,615 (1,363) 21,575 22,543 12,817 Net hedging income (loss) (3,141) (4,895) (2,936) (3,162) (2,698) (1,529) Total profit (loss) from asset disposals 9,124 12,910 13,532 (68,610) 16,674 24,880 Total profit (loss) from liability disposals (660) (695) (545) (901) (1,815) (2,311) Profit (loss) from disposal or repurchase 8,464 12,215 12,987 (69,511) 14,859 22,569 Net income (loss) on financial assets and liabilities designated at fair value 14,879 26,500 (15,458) (3,641) (12,581) 125 Net income 17,649 37,435 (6,770) (54,739) 22,123 33,982

The table shows that the net result for financial activities in the second quarter of 2019 was down on the previous quarter, with particular regard to the item “Net income (loss) on financial assets and liabilities designated at fair value”, which included most of the net capital gains on equity securities (Nexi of €17.7 million). The quarterly decline was also driven by the decrease in revenues on disposal and the net loss on trading, attributable to foreign exchange and gold trading. The comparison with the second quarter of 2018 shows a more modest decline (-€4.5 million): the breakdown shows that net trading income had benefited in 2018, as mentioned above, from the results of foreign exchange and gold trading and the significant profits on sale/repurchase, which included Italian government bond sales, despite the loss on the measurement of assets and liabilities at fair value.

The net income from insurance operations, referring to the insurance subsidiaries (BancAssurance Popolari and BancAssurance Popolari Danni – the latter for the component generated until its sale in May), amounted to €7.4 million (€11 million in the first half of 2018).

Other operating income/expense amounted to €40.7 million, compared with over €51.7 million in the first half of 2018, the result of a Other net operating income/expense decrease in income of €5.7 million and an 1H 2019 1H 2018 increase in expenses of €5.3 million, Figures in thousands of euro primarily attributable to prior year items, Other operating income 73,619 79,319 which by their nature are subject to Recovery of expenses and other income on current accounts 7,265 9,308 Recovery of insurance premiums 8,669 9,112 variation since they consist of components Recoveries of taxes 113,044 119,260 of a heterogeneous, non-structural nature. Rents and other income for property management 3,132 3,252 As may be observed from the table, income Recovery of expenses on finance lease contracts 8,593 7,545 Other income and prior year income 45,960 50,102 of €73.6 million essentially reflects the Reclassification of "tax recoveries" (113,044) (119,260) decrease in the item “other income and prior Other operating expenses (32,882) (27,558) year income”, which fell to €46 million (of Depreciation of leasehold improvements (65) (2,063) which €7.9 million represented by fast credit Costs relating to finance lease contracts (6,539) (5,170) Expenses for public authority treasury contracts (696) (993) processing fees and €2.5 million by the Other expenses and prior year expense (25,647) (21,395) indemnity arising from the signing of a Reclassification of depreciation of leasehold improvements 65 2,063 settlement agreement), compared with €50 Total 40,737 51,761 million in the comparative period (consisting of fast credit processing fees of €18.1 million9). Similarly, expenses were influenced by the increase in “other expense and prior year expense”, which included an administrative fine of €1.2 million10. At the quarterly level, the item amounted to €19.1 million in the second quarter of this year, essentially in line with the €21.7 million in the first quarter (which included the recognition of the above fine), but down from €23.4 million in the second quarter of 2018, characterised by a significantly lower incidence of expenses and prior year expenses.

9 The decline in the amount of fast credit processing fees reflects above all increasingly efficient monitoring of overdrafts, together with a revision of application rules. 10 See in this respect the sub-section “Inspections and legal proceedings” in the section “Other information”.

56 Operating expenses totalled €1.19 billion Sta ff costs: com posi tion (€1.22 billion in the first half of 2018), down 1H 2019 1H 2018 2.6% year-on-year. Figures in thousands of euro The following is an analysis of the three 1) Employees (715,212) (744,780) a) Wages and salaries (507,237) (524,409) components: b) Social security charges (135,018) (137,599) • staff costs amounted to €720.4 million, c) Post-employment benefits (29,308) (29,541) d) Pension expense (39) (34) down €29.4 million from €749.8 million in e) Provision for post-employment benefits (153) (492) the comparative period: the table shows a f) Pensions and similar obligations: (452) (978) - defined contribution - (487) significant decline in the item “wages and - defined benefit (452) (491) salaries” and the related items, reflecting g) Payments to external supplementary pension plans: (23,171) (22,468) the change in headcount (-835 in average - defined contribution (23,171) (22,366) terms), in the light of the voluntary - defined benefit - (102) incentivised departures under the i) Other employee benefits (19,834) (29,259) 2) Other staff in service (660) (505) agreements reached in previous years. The - Other expenses (660) (505) synergies achieved were partly offset by 3) Directors and statutory auditors (4,555) (4,574) natural growth in wages as a result of Total (720,427) (749,859) promotions and following the national trade union agreement increase which took effect from 1st October 2018.

• other administrative expenses amounted to Other administrative expenses: composition €361.2 million, down €31.4 million on an 1H 2019 1H 2018 annual basis. Figures in thousands of euro

In particular, the table shows two opposing A. Other administrative expenses (340,759) (372,010) trends that gave rise to this change: on the Rent payable (3,027) (37,319) one hand, the benefit of €34.3 million in the Professional and advisory services (54,951) (54,423) item “Rent payable”, which includes €24.5 Rentals hardware, software and other assets (13,975) (19,162) Maintenance of hardware, software and other assets (27,328) (26,266) million attributable to the effects of the Tenancy of premises (24,713) (24,459) application of IFRS 16 in the reporting Property maintenance (10,663) (11,425) year 11 and the recognition of lesser Counting, transport and management of valuables (6,079) (6,472) expenses due to the progressive acquisition, Membership fees (68,766) (48,737) Information services and land registry searches (4,913) (6,074) starting in the second half of 2018, of real Books and periodicals (537) (617) properties owned by a fund acquired Postal (6,475) (7,636) following the merger of the former New Insurance premiums (14,499) (15,542) Banks. On the other hand, there was an Advertising (10,433) (11,072) Entertainment expenses (480) (534) increase in “Membership fees” of €20 Telephone and data transmission expenses (24,208) (25,672) million, of which €18 million attributable to Outsourced services (27,609) (30,317) the increase in the ordinary and Travel expenses (8,435) (10,048) Credit recovery expenses (16,943) (22,877) extraordinary contributions to the Forms, stationery and consumables (3,069) (3,294) 11 Resolution Fund . Total contributions of Transport and removals (3,776) (3,847) €60.1 million were recognised in the first Security (6,885) (3,497) half of this year (of which €18.1 million of Other expenses (2,995) (2,720) B. Indirect taxes (20,433) (20,547) an extraordinary nature), compared with Indirect taxes and duties (5,198) (6,069) €42.1 million in the first six months of 2018 Stamp duty (103,324) (108,680) (of which €12.9 million of an extraordinary Municipal property tax (12,233) (11,636) nature). Other taxes (12,722) (13,422) Reclassification of "tax recoveries" 113,044 119,260 In a context of a general decline, the most Total (361,192) (392,557) significant savings were generated by lease payments for hardware, software and other assets (-€5.2 million, of which €3.9 million tied to the application of IFRS 16) and credit recovery expenses (-€5.9 million); • net impairment losses on property, plant and equipment and intangible assets amounted to €110.6 million (inclusive of impairment of real property of €0.6 million), up €28.6 million over twelve months, primarily due to the increased depreciation and amortisation arising from the application of IFRS 16 of €23.6 million11, an amount to be interpreted in combination with the increase already mentioned in administrative expenses. The remainder is almost entirely attributable to increased depreciation of real estate.

11 On this subject, see the Explanatory Notes to the Condensed interim consolidated financial statements.

57 Quarterly operating expenses

2019 2018 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Figures in thousands of euro

Staff costs (a) (355,993) (364,434) (372,896) (367,871) (374,325) (375,534) Other administrative expenses (b) (175,161) (186,031) (198,738) (198,699) (186,643) (205,914) of which: non-recurring items (SRF) (18,086) - - - (12,885) - of which: ordinary and extraordinary payments to the SRF and the DGS 15 (41,998) (2,799) (38,881) 5,016 (34,244) Other administrative expenses net of SRF and DGS payments (c) (157,090) (144,033) (195,939) (159,818) (178,774) (171,670) Net impairment losses on property, plant and equipment and intangible assets (d) (56,275) (54,294) (44,612) (40,962) (40,384) (41,617) of which: non-recurring items (e) (586) - - - - - Operating expenses (a+b+d) (587,429) (604,759) (616,246) (607,532) (601,352) (623,065) Operating expenses net of non-recurring items and payments to the SRF and DGS (a+c+d-e) (568,772) (562,761) (613,447) (568,651) (593,483) (588,821)

The table showing the quarterly performance of operating expenses highlights the results of the ongoing efforts towards structural containment of the Group's expenses. The final line, which presents the change in expenses net of non-recurring items and contributions to the system, albeit with some fluctuations dictated by seasonal factors, shows that in 2019 costs generally fell below the levels recorded in the various quarters of 2018. In particular, in the first six months of 2019 operating expenses totalled €1.13 billion, down 4.3% (-€50.8 million) compared with €1.18 billion in the first half of 2018.

As a result of the performance described above, net operating income amounted to €636.8 million, presenting record year-on-year growth of 3.3%. The quarterly comparison likewise shows progress of €1.6% quarter-on-quarter and of 2.2% year-on-year.

A total of €391.62 million was recognised within item 130.a) net impairment losses for credit risk relating to financial assets measured at amortised cost, €391.58 million of which related to loans to customers, compared with €261.62 million in the first half of 2018. The table details the following in particular: • €724 thousand of net reversals of impairment losses on loans and advances to banks, almost entirely attributable to the Parent (net impairment losses of €1.5 million in the first six months of 2018); • €764 thousand of net impairment losses on debt securities (line items A. and B. in the table) compared with €104 thousand in the comparative period; • €391.58 million of net impairment losses on loans and advances to customers (of which €34.8 million relating to loans and receivables disposed of, mainly by UBI Factor and marginally by the Parent). The item is the aggregate result of €374.33 million of specific impairment losses on exposures classified in stage three and €17.25 million of impairment losses on exposures classified in stages one and two. Two relevant aspects attributable to the second quarter affected the figure for the half-year: − the factoring of the state of progress of the sale scenarios of the portfolios being disposed of or being considered for disposal. The six-month period already includes €112.1 million attributable to the closing of the sale of factoring receivables subject to litigation and the acceptance of the binding offer from Credito Fondiario for the sale of a portfolio of leases classified as bad loans (the transaction is to be finalised in the second half of 2019); − the update of the measurement policy for non-performing exposures which introduced elements of refinement to its measurement models that also involved write-offs12.

During the period ended 30th June 2018, impairment losses on loans to customers amounted to €261.62 million, having benefited from net reversals of €56.16 million on exposures classified in stages one and two, essentially due to the one-off effect of the application of new models (the “Model Change”) recognised in the first quarter of 2018. Despite the decline in the volumes concerned, the change in portfolio impairment losses

12 On this subject, see the Explanatory Notes to the Condensed interim consolidated financial statements.

58 (+€73.4 million), which include most of the impairment losses on the UBI Factor portfolio disposed of13, accounts for over one-half of the increase recorded (+€130 million). As a percentage of total loans to customers recognised within item 40. 2) of the reclassified financial statements, the loan loss rate for the first six months of 2019 was 0.78% in annualised terms 14 (0.65% not considering the impairment losses on concluded and announced sales), compared with the 0.57% recorded in the first half of 2018.

The comparison with the first quarter of the year shows a deterioration at the level of both specific impairment losses (+€121.6 million) and portfolio impairment losses (+€12.9 million) due to the factors mentioned above. Those factors also explain the year-on-year changes (+€97.1 million for specific impairment losses and +€22.3 million for portfolio impairment losses).

Net impairment losses for credit risk relating to financial assets measured at amortised cost

Transactions/components of income Impairment / Reversals Impairment / Reversals

Stages one Stage three Stages one Stage three 1H 2019 1H 2018 and two and two

Figures in thousands of euro

A. Loans and advances to banks 258 - 258 (1,458) - (1,458) - Financing 724 - 724 (1,460) - (1,460) - Debt securities (466) - (466) 2 - 2 of which: purchased or originated credit-impaired loans ------B. Loans and advances to customers (17,554) (374,328) (391,882) 56,054 (317,784) (261,730) - Financing (17,256) (374,328) (391,584) 56,160 (317,784) (261,624) - Debt securities (298) - (298) (106) - (106) of which: purchased or originated credit-impaired loans ------Total (17,296) (374,328) (391,624) 54,596 (317,784) (263,188)

Net impairment losses for credit risk relating to financial assets measured at amortised cost - first and second quarters of 2019

Impairment / Impairment / Transactions/components of income Reversals Reversals

Stages Stage 1Q 2019 Stages Stage three 2Q 2019 one and three one and two two

Figures in thousands of euro

A. Loans and advances to banks (226) - (226) 484 - 484 - Financing (49) - (49) 773 - 773 - Debt securities (177) - (177) (289) - (289) of which: purchased or originated credit-impaired loans ------B. Loans and advances to customers (2,507) (126,371) (128,878) (15,047) (247,957) (263,004) - Financing (2,197) (126,371) (128,568) (15,059) (247,957) (263,016) - Debt securities (310) - (310) 12 - 12 of which: purchased or originated credit-impaired loans ------Total (2,733) (126,371) (129,104) (14,563) (247,957) (262,520)

13 See the section “General banking business with customers: lending” for further information on this subject. 14 The annualised loan loss rate for the first half of 2019 incorporated €112.1 million of impairment losses recognised in the first half in relation to concluded or prososed disposals included without annualisation because they are regarded as factors that are not replicable to an equal degree in the second half of the year. The foregoing is not to be understood as a change in the method of calculating the indicator, since it is aimed solely at providing a more accurate representation of the actual loan loss rate in the reporting period in question.

59 Net impairment losses for credit risk relating to financial assets measured at amortised cost - quarterly changes 2018

Impairment / Impairment / Impairment / Impairment / Transactions/components of income Reversals Reversals Reversals Reversals

Stages Stage 1Q 2018 Stages Stage three2Q 2018 Stages Stage three3Q 2018 Stages Stage three 4Q 2018 one and three one and one and one and two two two two Figures in thousands of euro

A. Loans and advances to banks (1,724) - (1,724) 266 - 266 217 - 217 4,110 - 4,110 - Financing (1,725) - (1,725) 265 - 265 217 - 217 4,110 - 4,110 - Debt securities 1 - 1 1 - 1 ------of which: purchased or originated credit-impaired loans ------B. Loans and advances to customers 48,821 (166,881) (118,060) 7,233 (150,903) (143,670) 6,540 (134,823) (128,283) (24,871) (226,988) (251,859) - Financing 48,941 (166,881) (117,940) 7,219 (150,903) (143,684) 7,142 (134,823) (127,681) (26,493) (226,988) (253,481) - Debt securities (120) - (120) 14 - 14 (602) - (602) 1,622 - 1,622 of which: purchased or originated credit-impaired loans - 4,782 4,782 - (4,782) (4,782) ------Total 47,097 (166,881) (119,784) 7,499 (150,903) (143,404) 6,757 (134,823) (128,066) (20,761) (226,988) (247,749)

Net impairment losses for Net impairment losses for credit risk relating to financial assets measured at fair value through credit risk relating to other comprehensive income financial assets measured at fair value through other Impairment / Reversals Impairment / Reversals comprehensive income Transactions/components of income Stages one and Stage Stages one and Stage (item 130.b) include the two three 1H 2019 two three 1H 2018 net adjustments of Figures in thousands of euro expected credit losses A. Debt securities (1,754) - (1,754) (7,285) - (7,285) related to debt securities B. Financing ------recognised within item 30 - To customers ------To banks ------of the consolidated of w hich: financial assets purchased or ------balance sheet (inclusive originated credit impaired Total (1,754) - (1,754) (7,285) - (7,285) also of net impairment losses on performing securities Net impairment losses for credit risk relating to financial assets measured at fair purchased in the period which, in value through other comprehensive income: quarterly changes accordance with IFRS 9, require immediate recognition of the 2019 2018 expected loss). A negative balance of Transactions/components of income

€1.8 million was recorded for this 2Q 1Q 4Q 3Q 2Q 1Q item in the first half, a substantial Figures in thousands of euro reduction compared with -€7.3 A. Debt securities (855) (899) 8,611 (600) (2,724) (4,561) million recognised in the same B. Financing ------To customers ------period of 2018. Performance at the - To banks ------of w hich: financial assets purchased or quarterly level shows a high degree ------originated credit impaired of variation, within a context of Total (855) (899) 8,611 (600) (2,724) (4,561) very small amounts.

The income statement for the first half of Net provisions for risks and charges 2019 also recorded net provisions for risks 1H 2019 1H 2018 and charges of €286 thousand. Figures in thousands of euro In terms of credit risk, a reversal of €1.9 Net provisions for credit risk relating to loan commitments and guarantees granted 1,943 14,540 million was recorded, compared with a Net provisions for other risks and charges (2,229) (17,113) reversal of €14.5 million in the first half of for revocation (clawback) risks 391 (519) 2018: this figure included €11.1 million for bonds in default 15 (229) for litigation (1,499) (13,360) recognised in the first quarter as other (1,136) (3,005) adjustments made to FTA values due to Total (286) (2,573) decreases in relative volumes concerned. Other provisions for risks and charges include provisions for €2.2 million net(-€17.1 million during the period ended 30th June 2018, essentially attributable to legal disputes, including a provision of approximately €10 million relating to an arbitration procedure launched by a company operating in the naval sector that was then concluded during the year). At the quarterly level, there were net reversals of €3.7 million in the second quarter of 2019, affecting both the component relating to credit risk on guarantees and commitments (€2.5 million) and other provisions for risks and charges (€1.2 million); in the first quarter, net provisions amounted to €4 million, of which €0.6

60 million due to credit risk relating to guarantees and commitments and €3.5 million to provisions for risks and charges, essentially attributable to legal disputes. The second quarter of 2018 had ended with net provisions of €12.2 million, as the combined effect of reversals of €3.5 million relating to credit risk on guarantees and commitments and conventional provisions for risks and charges of €15.7 million (inclusive of the aforementioned €10 million relating to an arbitration procedure).

Finally, the half-year recorded €4.2 million (almost all of which attributable to the Parent Company) as profit on the disposal of equity and other investments, almost entirely resulting from the disposal of real properties and, to a residual extent, from the sale of equity investments, including the sale in May of 100% of BancAssurance Popolari Danni, generating a capital gain of €208 thousand (€963 thousand was recognised in the first half of 2018 on the sale of real properties by the Parent and, to a marginal extent, by BPB Immobiliare). Most of the half-yearly profit (€3.9 million) was generated in the second quarter, compared with €273 thousand in the first quarter and with €170 thousand in the second quarter of 2018.

As a result of the performance described above, profit before tax from continuing operations was €247.4 million, compared with €344.1 million in the first half of 2018. Due to impairment losses for credit risk recognised during the period, the profit for the second quarter amounted to €65.3 million, down from both €182.1 million in the previous three months and €155.8 million in the second quarter of 2018.

At the consolidated level, taxes on income for the period from continuing operations amounted to €60 million (on a before-tax profit of €247.4 million), resulting in a tax rate of 24.27%, compared with taxes of €116.9 million during the period ended 30th June 2018 (on a before- tax profit of €344.1 million), with a tax rate of 33.97%. The ordinary tax rate (33.07%) was negatively affected, at the level of both IRES (corporate income tax) and IRAP (regional tax on production), by other non-deductible expenses (1.7 percentage points) and by the non-recoverability of the negative tax base for IRAP of certain product companies (1.2 percentage points), while also benefiting considerably, by approximately 6.5 percentage points, from the effect of the option to realign the tax values with the higher carrying amounts of property, plant and equipment and intangible assets, arising from the company reorganisation operations undertaken in 2017 and 201815. The remaining difference (5.2 percentage points) was due to a significant degree to the positive valuation of equity securities measured at FVTPL and equity investments according to the equity criterion, not relevant for tax purposes.

As a result of the performance of Group banks and companies, profit for the period attributable to minority interests (inclusive of the effects of consolidation entries) amounted to €13.7 million, compared with €13.8 million in the first half of the previous year.

Finally, the following item (subject to normalisation) has been stated separately net of tax and minority interests: . redundancy scheme expenses of €42.6 million (net of taxes of €21.1 million and minority interests of €40 thousand); . Business Plan project expenses of €133 thousand (net of taxes of €66 thousand and minority interests of €3 thousand); The first half of 2018 included only Business Plan project expenses of €4.6 million (net of taxes of €2.2 million and of minority interests of €65 thousand).

15 On this subject, see the Explanatory Notes to the Condensed interim consolidated financial statements.

61 The comments that follow are based on items in the consolidated balance sheet contained in the reclassified consolidated financial statements on which the relative tables furnishing details are also based. The section “Consolidated companies: the principal figures” may be consulted for information on UBI Banca and other Group companies.

General banking business with customers: funding

The figures as at 30th June and 31st March 2019 for direct banking funding comprise the effects of the adoption of IFRS 16. For a reconciliation of the figures as at 31st December 2018 and those resulting as at 1st January 2019 from the First- Time Adoption of the new Standard, refer to the Explanatory notes of the Interim consolidated financial statements as at and for the period ended 30th June 2019.

Total banking funding

Within the banking sector nationally, the direct funding of Italian banks increased on an annual basis, with the rate of growth rising over the period, confirming the gap between the positive performance of deposits and the negative performance – while improving in percent terms – of the bond component, which continues to show more redemptions than new issues, despite the signs of a recovery seen in the first half of 2019. These trends continue to be influenced, on the one hand, by the cost of access to funding on international markets, which only benefited from the partial reduction of the spread in the last two months, and, on the other, by an increase in risk-averseness among households, which showed a preference for less risky forms of funding, even where offering minimal returns.

Total banking funding from customers

30.6.2019 31.3.2019 Changes A-B 1.1.2019 (*) Changes A-C 30.6.2018 Changes A-D % % % % A B C D Figures in thousands of euro amount % amount % amount %

Direct banking funding 94,787,453 48.8% 93,633,045 48.7% 1,154,408 1.2% 92,605,312 49.4% 2,182,141 2.4% 95,010,055 49.1%

Indirect funding 99,459,583 51.2% 98,765,473 51.3% 694,110 0.7% 94,742,917 50.6% 4,716,666 5.0% 98,528,550 50.9% 931,033 0.9% of which: assets under management 70,206,651 36.1% 69,016,848 35.9% 1,189,803 1.7% 66,291,471 35.4% 3,915,180 5.9% 68,682,945 35.5% 1,523,706 2.2%

Total banking funding 194,247,036 100.0% 192,398,518 100.0% 1,848,518 1.0% 187,348,229 100.0% 6,898,807 3.7% 193,538,605 100.0%

Total banking funding net of institutional funding 176,083,736 174,511,723 1,572,013 0.9% 170,919,757 5,163,979 3.0% 177,416,754 of which: ordinary captive customers 176,082,869 174,510,483 1,572,386 0.9% 170,736,675 5,346,194 3.1% 177,115,218

(*) The date 1st January 2019 must be interpreted as 31st December 2018 for indirect funding and for assets under management.

Within the scenario described above, total Group banking funding, consisting of total amounts administered on behalf of customers, amounted to €194.2 billion as at 30th June 2019, up €6.9 billion on 1st January 2018 and €1.8 billion since March. As shown in the table, if the total is considered net of institutional and non-captive components, funding from ordinary captive customers amounted to €176.1 billion, recording growth of €5.3 billion over six months and of €1.6 billion over three months.

The half-yearly performance of the total reflects the positive performance of both components and in particular of indirect funding, which increased by €4.7 billion (+5.0%), having benefited, above all in the first quarter, from improved market prices. At the quarterly level, given the heightened market volatility, the increase in direct funding prevailed (+€1.1 billion; +1.2%).

62 Direct banking funding

Direct banking funding from customers

30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018 Changes A/C % % % Figures in thousands of euro A B amount %C amount %

Current accounts and sight deposits 66,928,796 70.6% 65,887,975 71.1% 1,040,821 1.6% 66,725,481 70.2% 203,315 0.3% Term deposits 801,065 0.9% 977,078 1.1% -176,013 -18.0% 1,292,162 1.4% -491,097 -38.0% Financing 1,623,636 1.7% 513,092 0.6% 1,110,544 216.4% 1,741,634 1.8% -117,998 -6.8% - repurchase agreements 1,317,254 1.4% 239,639 0.3% 1,077,615 449.7% 1,404,660 1.5% -87,406 -6.2% of which: repos with the CCG 1,287,280 1.4% 215,325 0.2% 1,071,955 497.8% 699,395 0.7% 587,885 84.1% - other 306,382 0.3% 273,453 0.3% 32,929 12.0% 336,974 0.3% -30,592 -9.1% Lease liabilities 409,855 0.4% 394,227 0.4% 15,628 4.0% - - 409,855 - Other payables 1,077,021 1.1% 1,043,242 1.1% 33,779 3.2% 823,476 0.9% 253,545 30.8% Total amounts due to customers [Liabilities item 10. b) Reclassified Consolidated Balance Sheet ] 70,840,373 74.7% 68,815,614 74.3% 2,024,759 2.9% 70,582,753 74.3% Bonds 23,743,103 25.1% 23,422,397 25.3% 320,706 1.4% 23,793,930 25.0% -50,827 -0.2% Certificates of deposit 203,977 0.2% 367,301 0.4% -163,324 -44.5% 633,372 0.7% -429,395 -67.8% Other certificates ------Total debt securities issued (**) [Liabilities item 10. c) Reclassified Consolidated Balance Sheet] 23,947,080 25.3% 23,789,698 25.7% 157,382 0.7% 24,427,302 25.7% -480,222 -2.0% of which: securities subscribed by institutional customers: 16,876,020 17.8% 16,213,147 17.5% 662,873 4.1% 15,422,456 16.2% 1,453,564 9.4% EMTN programme (***) 4,608,410 4.9% 3,746,679 4.0% 861,731 23.0% 4,702,184 4.9% -93,774 -2.0% The Covered Bond Programme 11,680,162 12.3% 10,961,828 11.9% 718,334 6.6% 10,720,272 11.3% 959,890 9.0% Covered Bond Repos 587,448 0.6% 1,504,640 1.6% -917,192 -61.0% - - 587,448 - securities subscribed by ordinary customers: 7,071,060 7.5% 7,576,551 8.2% -505,491 -6.7% 9,004,846 9.5% -1,933,786 -21.5% of the Group: - Certificates of deposit 203,977 0.2% 367,301 0.4% -163,324 -44.5% 633,372 0.7% -429,395 -67.8% - Bonds 6,866,216 7.3% 7,026,168 7.6% -159,952 -2.3% 8,069,938 8.5% -1,203,722 -14.9% external distribution networks: - Former Centrobanca Bonds 867 0.0% 183,082 0.2% -182,215 -99.5% 301,536 0.3% -300,669 -99.7%

Total direct funding 94,787,453 100.0% 92,605,312 100.0% 2,182,141 2.4% 95,010,055 100.0% Amounts due to customers net of institutional funding 69,553,093 68,600,289 952,804 1.4% 69,883,358 Total direct funding net of institutional funding 76,624,153 76,176,840 447,313 0.6% 78,888,204

(*) For those items other than “lease liabilities”, the date 1st January 2019 must be interpreted as 31st December 2018. (**) Within the item, subordinated securities, consisting of Lower Tier 2, issues, amounted to €2,569 million as at 30th June 2019 (of which €1,800 million consisting of three EMTNs), €2,420 million as at 1st January 2019 (of which €1,279 million consisting of two EMTNs) and €2,913 million as at 30th June 2018 (of which €1,272 million consisting of two EMTNs). (***) The corresponding nominal amounts were €4,523 million as at 30th June 2019 (of which €1,750 million nominal subordinated), €3,676 million as at 1st January 2019 (of which €1,250 million nominal subordinated) and €4,655 million as at 30th June 2018 (of which €1,250 million nominal subordinated).

The UBI Banca Group’s direct banking funding amounted to €94.8 billion as at 30th June 2019, an increase of €2.2 billion from €92.6 billion at the beginning of January. The increase was attributable to amounts due to customers (+€2 billion during the period) and, in a particular, to repurchase agreements and current accounts and sight deposits. Overall, securities issued increased modestly to €23.9 billion (+€0.2 billion), but with differing performances at the level of the individual components.

The Group's ability to access institutional markets even at moments of particular market complexity allowed it to implement an important institutional funding plan in early 2019 and then continue it in the weeks following the end of the half-year by seizing opportunities to move forward EMTN and covered bond issues, which effectively permitted lesser recourse to the retail market, with the volumes of bonds placed with ordinary customers now below €7 billion.

Within the EMTN programme, the new funding included both subordinated instruments (balanced between the Tier 2 and senior non-preferred types) and senior instruments. With regard to senior instruments:

63 Direct banking funding from customers

30.6.2019 31.3.2019 Changes A/D % % Figures in thousands of euro A D amount %

Current accounts and sight deposits 66,928,796 70.6% 65,659,436 70.1% 1,269,360 1.9% Term deposits 801,065 0.9% 873,212 0.9% -72,147 -8.3% Financing 1,623,636 1.7% 1,771,360 1.9% -147,724 -8.3% - repurchase agreements 1,317,254 1.4% 1,482,525 1.6% -165,271 -11.1% of which: repos with the CCG 1,287,280 1.4% 1,448,333 1.5% -161,053 -11.1% - other 306,382 0.3% 288,835 0.3% 17,547 6.1% Lease liabilities 409,855 0.4% 403,397 0.5% 6,458 1.6% Other payables 1,077,021 1.1% 1,122,998 1.2% -45,977 -4.1% Total amounts due to customers [Liabilities item 10. b) Reclassified Consolidated Balance Sheet ] 70,840,373 74.7% 69,830,403 74.6% 1,009,970 1.4% Bonds 23,743,103 25.1% 23,527,824 25.1% 215,279 0.9% Certificates of deposit 203,977 0.2% 274,818 0.3% -70,841 -25.8% Other certificates ------Total debt securities issued (*) [Liabilities item 10. c) Reclassified Consolidated Balance Sheet] 23,947,080 25.3% 23,802,642 25.4% 144,438 0.6% of which: securities subscribed by institutional customers: 16,876,020 17.8% 16,438,462 17.5% 437,558 2.7% The EMTN programme (**) 4,608,410 4.9% 3,416,983 3.6% 1,191,427 34.9% The Covered Bond Programme 11,680,162 12.3% 11,516,945 12.3% 163,217 1.4% Covered Bond Repos 587,448 0.6% 1,504,534 1.6% -917,086 -61.0% securities subscribed by ordinary customers: 7,071,060 7.5% 7,364,180 7.9% -293,120 -4.0% of the Group: - Certificates of deposit 203,977 0.2% 274,818 0.3% -70,841 -25.8% - Bonds 6,866,216 7.3% 7,088,122 7.6% -221,906 -3.1% external distribution networks: - Former Centrobanca Bonds 867 0.0% 1,240 0.0% -373 -30.1%

Total direct funding 94,787,453 100.0% 93,633,045 100.0% 1,154,408 1.2% Amounts due to customers net of institutional funding 69,553,093 68,382,070 1,171,023 1.7% Total direct funding net of institutional funding 76,624,153 75,746,250 877,903 1.2%

(*) Within this item, subordinated securities, consisting of Lower Tier 2 issues, amounted to €2,569 million as at 30th June 2019 (of which €1,800 million consisting of three EMTNs) and to €2,573 million as at 31st March 2019 (of which €1,800 million consisting of three EMTNs). (**) The corresponding nominal amounts were €4,523 million as at 30th June 2019 (of which €1,750 million nominal subordinated), and €3,343 million as at 31st March 2019 (of which €1,750 million nominal subordinated).

- in April UBI Banca brought to the market its first green bond, issued within a broader framework established in accordance with the guidelines set by the ICMA (International Capital Market Association), which in addition to green bonds also includes the possibility of issuing social and sustainable bonds; - private placements, almost all of the puttable variety, were likewise undertaken: the intrinsic characteristics of this type of security mean that they function similarly to instruments for managing shorter-term financial requirements. The above issues within the framework of the EMTN Programme totalled €1.9 billion nominal, against total maturities of €1.051 billion.

An issue of €500 million nominal was undertaken in February under the first covered bond programme. The details of all issues mentioned above are provided in the disclosure regarding funding from institutional customers presented below.

Amounts due to customers, which amounted to €70.8 billion (€69.8 billion in March and €70.6 billion in June 2018) were mainly composed as follows:  current accounts and sight deposits of €66.9 billion, up by over €1 billion at the half-yearly level, reflecting customers’ greater preference for liquidity;

64  term deposits of €0.8 billion (approximately €1 billion as at 1st January), originated almost entirely by the New Banks, having reduced progressively as no longer subject to renewal on maturity;  repurchase agreements with the Cassa di Compensazione e Garanzia (a central counterparty clearing house) of €1.3 billion (€1.4 million at 31st March, €215 million at the beginning of the year and €699 million in June 2018), used to optimise liquidity management, partly with a view to supporting net interest income. Repurchase agreements with customers outstanding at the end of the half-year amounted to €30 million (€34 million in March, €24 million in January and €705 million in June 2018, the latter attributable primarily to business with institutional counterparties by the Parent having non-Italian government securities as the underlying);  “financing – other” amounting to €306 million (€289 million in March, €273 million at the beginning of 2019 and €337 million as at 30th June 2018), inclusive of funds, net of amortisation and total repayments for the period of approximately €274 million (€251 million in March, €235 million in January and €291 million in June 2018), made available to UBI Banca by the Cassa Deposito e Prestiti (CDP – a lending and deposit institution under public control) as part of intervention to support SMEs;  lease liabilities amounting to approximately €410 million (€394 million on first-time adoption at the beginning of 2019), an item recognised following the application of IFRS 16 “Leases” which replaces IAS 17 “Leases” and the relative interpretations;  other liabilities of €1.1 billion, which remained stable in 2019.

Debt securities issued, amounting to €23.9 billion (€23.8 billion in both March and January and €24.4 billion in June 2018), were composed as follows: - bonds of €23.7 billion, up modestly in 2019, but down slightly on June 2018. The change in the aggregate reflects opposing trends at the level of the institutional component (+4.1% on a half-yearly basis and +9.4% on an annual basis), which benefited from the important issues undertaken in 2019, and the bonds placed with retail customers, which declined progressively over twelve months; - certificates of deposit amounting to €204 million, consisting almost entirely of instruments held by customers of the New Banks, down on all comparative periods due to non-renewal at maturity.

In terms of type of customer, FUNDING IN SECURITIES FROM INSTITUTIONAL CUSTOMERS was composed as follows:

 Euro Medium Term Notes (EMTNs) amounting to €4.6 billion (+€0.9 billion in the half-year, -€0.1 billion on June 2018), listed in Dublin and issued by UBI Banca as part of a programme for a maximum issuance of €15 billion. With value date 4th March 2019, UBI Banca issued a subordinated Tier 2 note, with ten- year maturity and a redemption option after five years, for €500 million at a fixed rate. In the first quarter two puttable senior bonds were issued through private placement, one of €118 million nominal in January maturing in one year and one of €100 million nominal in March maturing in November 2022. Total maturities during the quarter amounted to €1.051 billion nominal. The first green bond (senior preferred) issuance was made with settlement date 10th April 2019 for €500 million nominal, with a five-year maturity and a fixed rate. The second UBI Banca benchmark senior non-preferred bond was issued on 13th June, with settlement date of 20th June, maturity in five years and a fixed rate, amounting to €500 million nominal. In June, three private senior placements were also made for a total of €180 million nominal, of which two were puttable (€55 million and €120 million respectively, the first maturing in June 2021 and the second in June 2020). There were no maturities in the second quarter. It should be noted that the figures shown in the table also incorporate the effects of accounting adjustments on the securities; After the end of the half-year, within the framework of the EMTN Programme: (i) on 8th July UBI Banca held a puttable private placement of €100 million nominal with a maturity of one year; (ii) on 12th July it launched a Tier 2 subordinated bond issue with a maturity of ten years and a redemption option after five

65 years of €300 million nominal1; and (iii) on 22nd July it undertook a senior preferred private placement with a maturity of three years of €500 million nominal.

 Covered bonds of €11.7 billion (+€0.7 billion since January, +€1 billion over twelve months). With value date of 25th February 2019, UBI Banca made a six-year and seven-month benchmark fixed-rate issuance under its First Programme for €500 million. No issuances took place in the April-June period, against amortisation of €11.4 million nominal of the amortising bond entered into with the EIB. It should be noted that the changes shown in the table were also affected by the impacts of accounting adjustments on the securities.

The accounting adjustment relates to issues outstanding under the “First Programme”, backed by residential mortgages up to a maximum of €15 billion. These consist of 14 covered bond issues for €11,068 million nominal (unchanged at the date of this financial report)2. The bonds are traded in Dublin. As at 30th June 2019 the residential mortgage asset pool formed at UBI Finance to back the issuances amounted to €17.2 billion, of which 99.16% originated by UBI Banca and 0.84% by IW Bank. The portfolio continued to show a high degree of fragmentation, including over 219.5 thousand mortgages with average residual debt of €78.2 thousand, distributed with 63.14% in North Italy and in Lombardy especially (44.79% of the total). With effect from 1st May 2019, a transfer of residential mortgages to the programme was made by UBI Banca of remaining debt amounting to over €2.4 billion.

As already reported, UBI Banca also has a “Second Programme” operational with a ceiling of €5 billion, backed by commercial mortgages and by residential mortgages not used in the “First Programme”. So far the programme, listed on the Dublin stock exchange, has only been used for self-retained issuances3. At the end of June the commercial and residential asset pool formed at UBI Finance CB 2 to back these issuances amounted to €3.1 billion, of which 99.49% originated by UBI Banca and 0.51% by IW Bank. The portfolio includes approximately 29.5 thousand mortgages with average remaining debt of over €104.1 thousand, distributed, as for the First Programme, with a high concentration in North Italy (60%) and in Lombardy especially (40.7% of the total). With effect from 1st June 2019, a transfer of mortgages to the programme was made by UBI Banca of remaining debt amounting to approximately €675 million.

 Covered bond repos valued at €587.4 million (€1.5 billion as at both 31st March and 1st January 2019), executed in late 2018 using a portion of the self-retained issuances from the first and second covered bond programmes as the underlying. The reduction in the second quarter was related to the maturities during the period 4 and resulted in the concurrent release of eligible assets for use in refinancing with the ECB. This is a form of short-term funding with banking counterparties, accounted for among securities issued in accordance with Bank of Italy rules.

At the end of June, FUNDING IN SECURITIES FROM ORDINARY CUSTOMERS decreased to €7.1 billion (-€0.5 billion for the half-year and -€1.9 billion year on year), 97.1% of which comprised of bonds. The item included:

1 For details, see the chapter “Events occurring after the end of the first half” of the Explanatory Notes to the Condensed interim consolidated financial statements as at and for the period ended 30th June 2019. 2 Four self-retained issuances were made under the same programme for €2,500 million nominal, one for €500 million carried out in December 2015 and one concluded in October 2018 for €700 million and two carried out in December 2018 for €500 million and €800 million respectively. Because these were repurchased by UBI Banca itself, the liabilities are not recognised in the accounts, in accordance with IAS/IFRS. 3 Totalling €1,850 million nominal: one issuance for €400 million in 2012 (net of €100 million in amortisation); a second issuance of €650 million completed in July 2015, a third for €300 million completed in June 2016, a fourth for €300 million concluded in December 2017 and a fifth for €200 million performed in December 2018. As already reported, the €200 million issuance of March 2014 matured in March 2019. Because these were repurchased by UBI Banca itself, the liabilities are not recognised in the accounts, in accordance with IAS/IFRS. 4 The nominal value of the self-retained covered bonds underlying the repurchase agreements amounted to €675 million nominal as at 30th June 2019, all under the First Programme (€525 million on the issue of €700 million floated in October 2018 and €150 million on that of €500 million launched in December 2018). The following covered bond repos outstanding as at both 31st March and 1st January 2019, with a total nominal value of €1,032.5 million, reached maturity in the second quarter of 2019: €475 million relating to the First Programme (on the issue of €500 million in December 2015) and €557.5 million to the Second Programme (€60 million on the issue of €400 million in 2012 and of €300 million in 2017, €197.5 million on that of €650 million in 2015 and €240 million on that of €300 million in 2016).

66 - bonds issued by UBI Banca amounting to €6.9 billion5 (-€0.2 billion over six months and -€1.2 billion over twelve months). In the first quarter, the Bank made issuances for €1,079.8 million nominal, of which €20 million of social bonds, while bonds amounting to €838.2 million nominal6 reached maturity and bonds for €179.9 million nominal were repurchased. In the second quarter the Parent issued €629.8 million nominal, of which €20 million of social bonds, against maturities of securities of €663 million nominal6 and repurchases of €193.3 million nominal; - the remaining funding from non-captive customers, consisting of securities issued by the former Centrobanca and placed through indirect banking networks, was reduced essentially to zero (€0.9 million) following maturities amounting to €158 million nominal (almost entirely attributable to the first quarter of 2019). It should be noted that the figures shown in the table also incorporate the effects of accounting adjustments on the securities.

A summary is given below of maturities for bonds in issue at the end of June 2019.

Maturities of bonds outstanding as at 30th June 2019 *

3rd Quarter 4th Quarter Subsequent Nominal amounts in millions of euro 2020 2021 2022 2023 Total 2019 2019 years

UBI BANCA Bonds ordinary customers 541 936 737 2,338 1,521 7 13 6,093 Bonds institutional customers - 1,011 1,886 1,083 861 1,750 9,000 15,591 of which: EMTNs - - 363 60 850 500 2,750 4,523 Covered bonds - 1,011 1,523 1,023 11 1,250 6,250 11,068 Total 541 1,947 2,623 3,421 2,382 1,757 9,013 21,684

* The table does not include maturities of bonds (approximately €82 million nominal) issued in connection with the securitisations of the New Banks acquired nor securities that had matured and had not yet been redeemed at the end of June 2019 (€625.3 million nominal).

* * *

Two “UBI Comunità Social Bonds” were issued in the first six months of the year for a total of €40 million, making possible charitable donations of €140 thousand. From 2012 – the year of its launch – until the reporting date, 94 issuances have been placed to acquire funding of €1,078 million, resulting in charitable donations of €5.1 million and the grant of loans or the provision of loan pools amounting to €20.5 million.

* * *

5 This amount also includes approximately €82 million nominal still existing, issued in relation to securitisations of the New Banks acquired. 6 The maturities reported do not include bonds that had matured at the end of the period and which have not yet been redeemed.

67 Listed securities (at the date of this report)

Bonds listed on the MOT (electronic bond market) Nominal amount of Book value as at issue ISIN number 30.6.2019 31.12.2018 IT0001300992 Centrobanca 1999/2019 step dow n indicizzato al tasso sw ap euro 10 anni € 170,000,000 - € 109,333,501 IT0001312708 Centrobanca 1999/2019 step dow n eurostability bond € 60,000,000 - € 70,272,304 IT0004457070 UBI subordinato low er tier 2 fix to float con rimborso anticipato 13.3.2009-2019 € 370,000,000 - € 371,771,120 IT0004497050 UBI subordinato low er tier 2 fix to float con rimborso anticipato 30.6.2009-2019 € 365,000,000 € 365,000,000 € 365,025,603 IT0004841778 UBI subordinato low er tier 2 tasso misto 8.10.2012-8.10.2019 Welcome Edition € 200,000,000 € 202,117,552 € 202,152,591 IT0004842370 UBI subordinato low er tier 2 tasso fisso 6% con ammortamento 8.10.2012-8.10.2019 € 970,457,000 € 196,797,494 € 197,013,150

Covered bonds listed on the Dublin stock exchange Nominal amount of Book value as at issue ISIN number 30.6.2019 31.12.2018 IT0004558794 UBI Covered Bonds due 16 December 2019 4% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,036,812,628 € 1,032,585,668 IT0004599491 UBI Covered Bonds due 30 April 2022 floating rate amortising guaranteed by UBI Finance Srl € 250,000,000 € 68,094,337 € 79,419,245 IT0004682305 UBI Covered Bonds due 28 January 2021 5,25% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,074,570,814 € 1,114,979,119 IT0004966195 UBI Covered Bonds due 14 October 2020 3,125% guaranteed by UBI Finance Srl € 1,500,000,000 € 1,571,425,411 € 1,557,564,295 IT0004992878 UBI Covered Bonds due 5 February 2024 3,125% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,126,759,001 € 1,129,118,083 IT0005067076 UBI Covered Bonds due 7 February 2025 1,25% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,049,094,937 € 1,024,809,713 IT0005140030 UBI Covered Bonds due 27 January 2023 1,00% guaranteed by UBI Finance Srl € 1,250,000,000 € 1,295,812,643 € 1,286,799,347 IT0005215147 UBI Covered Bonds due 14 September 2026 0,375% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,014,300,921 € 964,377,205 IT0005283491 UBI Covered Bonds due 4 October 2027 1,125% guaranteed by UBI Finance Srl € 1,250,000,000 € 1,333,308,847 € 1,256,536,008 IT0005320665 UBI Covered Bonds due 15 January 2030 1,25% guaranteed by UBI Finance Srl € 500,000,000 € 540,544,265 € 505,334,177 IT0005320673 UBI Covered Bonds due 15 July 2024 0,50% guaranteed by UBI Finance Srl € 750,000,000 € 769,189,604 € 746,928,359 IT0005325151 UBI Covered Bonds due 23 February 2033 1,78% guaranteed by UBI Finance Srl € 90,000,000 € 103,235,741 € 95,060,851 IT0005325334 UBI Covered Bonds due 25 February 2033 1,75% guaranteed by UBI Finance Srl € 160,000,000 € 182,931,565 € 168,315,967 IT0005364663 UBI Covered Bonds due 25 September 2025 1,00% guaranteed by UBI Finance Srl € 500,000,000 € 514,081,606 -

The list does not include the EMTN issues listed in Dublin and securities generated by securitisations performed for internal purposes by UBI Banca (as the survivor of the mergers of the former network banks), the former B@nca 24-7 and UBI Leasing, all listed on the Dublin stock exchange. It also excludes securities issued by the SPEs relating to the New Banks acquired.

* * *

Geographical distribution of funding from Finally, the table “Geographical distribution of direct funding customers by the counterparty's region of residence (excluding repurchase agreements w ith central from customers by region of residence of the counterparty” counterparties and bonds)(*) gives the geographical distribution of traditional funding (consisting of current accounts, savings deposits and Percentage of total 30.6.2019 certificates of deposit) in Italy. Lombardy 50.75% Marches 10.30% Latium 7.53% Compared with December, the situation at the end of the Piedmont 6.95% half-year shows consolidation of the primary concentration Apulia 3.71% in North Italy (63.9% of the total) and in particular in the Calabria 3.29% Campania 3.18% regions of the North-west (which rose to 59.5%). Tuscany 3.09% Central Italy – the main area of reference of the Bank's Abruzzo 2.37% Emilia Romagna 2.30% operations acquired in 2017 – declined, while continuing to Liguria 1.80% account for 21.9%. Veneto 1.55% The regions of the South remained stable at 13.7%. Umbria 0.98% Basilicata 0.76% Friuli Venezia Giulia 0.33% Trentino Alto Adige 0.20% Molise 0.20% Sicily 0.12% Sardinia 0.05% Valle d'Aos ta 0.03% Abroad 0.51% Total 100.00%

North 63.9% - North West 59.5% - North East 4.4% Central 21.9% South 13.7% Abroad 0.5%

(*) The aggregates relate to banks only.

68 Indirect banking funding and assets under management

Despite benefiting significantly in terms of asset value from bull stock markets, the open-ended mutual funds segment reported a decline in net inflows since the beginning of the year, reflecting:  an increase in risk-averseness among households (which took advantage of the market rally early in the year to pare back their exposure to the financial markets);  a shift in the commercial policies of intermediaries, which in view of the situation of heightened uncertainty regarding economic prospects and financial markets, distributed products with a reduced risk-return profile;  the need for the banking channel to rethink its commercial structure to manage the gradual maturities of the coupon and target-date funds distributed in recent years. Based on Assogestioni figures7, net inflows by the sector in the first six months of 2019 amounted to €3.7 billion, the aggregate result of a positive trend for foreign registered funds (+€4 billion) and a negative contribution from Italian registered funds (-€7.7 billion). By type, the result was driven by bond funds (+€4.1 billion), money-market funds (+€2.9 billion) and balanced funds (+€1.1 billion), alongside a nearly equal decline in flexible and equity funds (-€5.8 billion and -€5.7 billion, respectively) and the essential stability of hedge funds (-€0.3 billion), reflecting a shift in investors' portfolios towards assets viewed as offering greater security.

Indirect banking funding from ordinary customers

30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018 Changes A/C % % % Figures in thousands of euro A B amount %C amount %

Assets under custody 29,252,932 29.4% 28,451,446 30.0% 801,486 2.8% 29,845,605 30.3% -592,673 -2.0%

Assets under management 70,206,651 70.6% 66,291,471 70.0% 3,915,180 5.9% 68,682,945 69.7% 1,523,706 2.2% Customer portfolio management 5,798,338 5.8% 5,823,484 6.1% -25,146 -0.4% 6,419,465 6.5% -621,127 -9.7% of which: fund based instruments 1,521,955 1.5% 1,661,780 1.8% -139,825 -8.4% 1,876,823 1.9% -354,868 -18.9% Mutual investment funds and Sicav’s 38,265,392 38.5% 35,775,933 37.8% 2,489,459 7.0% 38,033,982 38.6% 231,410 0.6% Insurance policies and pension funds 26,142,921 26.3% 24,692,054 26.1% 1,450,867 5.9% 24,229,498 24.6% 1,913,423 7.9% of which: Insurance policies 26,140,143 26.3% 24,689,276 26.1% 1,450,867 5.9% 24,226,720 24.6% 1,913,423 7.9%

Total 99,459,583 100.0% 94,742,917 100.0% 4,716,666 5.0% 98,528,550 100.0% 931,033 0.9%

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Indirect banking funding from ordinary customers

30.6.2019 31.3.2019 Changes A/D % % Figures in thousands of euro A D amount %

Assets under custody 29,252,932 29.4% 29,748,625 30.1% -495,693 -1.7% Assets under management 70,206,651 70.6% 69,016,848 69.9% 1,189,803 1.7% Customer portfolio management 5,798,338 5.8% 5,868,961 5.9% -70,623 -1.2% of which: fund based instruments 1,521,955 1.5% 1,636,116 1.7% -114,161 -7.0% Mutual investment funds and Sicav’s 38,265,392 38.5% 37,628,724 38.1% 636,668 1.7% Insurance policies and pension funds 26,142,921 26.3% 25,519,163 25.9% 623,758 2.4% of which: Insurance policies 26,140,143 26.3% 25,516,385 25.9% 623,758 2.4%

Total 99,459,583 100.0% 98,765,473 100.0% 694,110 0.7%

At the end of June, the UBI Banca Group's indirect funding amounted to €99.5 billion, up €4.7 billion on December (+5%), of which +€0.7 billion is attributable to the second quarter (+0.7%). This trend was driven by the positive volume effect and strong market performances (net of the performance effect, the change in the aggregate was a positive +0.8% over six months and slightly negative, at -0.1%, for the quarter).

In detail, assets under management reached €70.2 billion, accounting for 70.6% of the total aggregate, up €3.9 billion on the beginning of January (+5.9%), of which +€1.2 billion attributable to the second quarter (+1.7%).

7 “Monthly map of assets under management”, June 2019.

69 The table shows that approximately two-thirds of the half-yearly change is attributable to mutual funds and Sicav's, amounting to €38.3 billion, with an increase of approximately €2.49 billion, of which +€0.6 billion in the second quarter, the result, amongst other things, of positive results for the distribution of new products among mutual funds8. Customer interest in long-term Individual Savings Scheme (ISS, or PIR in Italian) products on the other hand was affected by the Government's delayed approval of the implementation decree needed to implement amendments introduced by the 2019 budget law9.

The trend for the insurance sector is a result of a recovery with respect to the second half of 2018 and in particular with regard to “Business sector I” policies (insurance contracts with lifetime duration and benefits payable in relation to the death, or life of the insured or both). At the end of the half-year, total insurance policies had reached €26.1 billion, an increase of €1.45 billion, of which +€0.6 billion in the second quarter, a trend which had benefited, amongst other things, from the distribution starting in 2018 of two innovative multi-sector life policies, which integrate investment and protection solutions with insurance, and, to a more modest extent, the BancAssurance Popolari Spa life policy and optional BluReddito life policy10. Customer portfolio management remained essentially stable over six months at €5.8 billion (-0.4%), despite the reduction in fund-based investments (-€139.8 million).

Assets under custody, which rose to €29.3 billion during the half year (+€0.8 billion; +2.8%), were positively affected by price performance, despite the negative trend seen in the second quarter (-€0.5 billion).

Over twelve months, indirect funding increased €0.9 billion (+0.9%), the net result of an increase of €1.5 billion in assets under management (+2.2%), primarily attributable to the insurance segment, and a decline of €0.6 billion (-2%) in assets under custody. Net of the performance effect, indirect funding increased 0.7%, reflecting the positive progress at the level of total volumes, within a scenario of a partial shift in the mix of customer investments towards forms of assets under management.

* * *

At the end of June, the Assogestioni11 data relating to Pramerica SGR Spa for MUTUAL FUNDS AND SICAV’S, was as follows for assets under management originated:  positive net inflows over six months of €164.4 million, amounting to 0.5% of assets under management as at 31st December 2018 (net inflows for the industry nationally on the other hand were negative by €3,733 million, amounting to -0.4% of assets managed at the end of 2018);  an overall increase in assets in the first six months (+€2.1 billion; +6.8%), in line with the positive change in the sample population (+€67.3 billion; +7%). In the second quarter, assets increased (+0.5 billion; +1.6%) at a faster rate, in percent terms, than the overall sample (+€9.4 billion; +0.9%);  assets of €32.5 billion, which puts the Group in ninth place with market share of 3.17% (3.15% in March 2019 and 3.18% both at the beginning of 2019 and in June 2018).

8 A series of new products were placed in the first half of 2019: Fondo Arca Opportunità Globali 2024 III – classes P and R (flexible); Fondo Arca 2024 Reddito Multivalore Plus VIII – classes P and R (flexible); Fondo Arca Cedola Attiva 2024 IX – classes P and R (flexible bond); Fondo Pramerica Cedola Certa 2024 A (flexible bond); Fondo Pramerica Cedola Certa 2024 B (flexible bond), Fondo Pramerica Cedola Certa 2024 C (flexible bond), Fondo Arca Opportunità Globali IV – classes P and R (flexible); Fondo Arca Cedola Attiva 2024 X – classes P and R (flexible bond); Fondo Arca 2024 Reddito Multivalore Plus IX – classes P and R (flexible); Fondo Pramerica Cedola Certa 2024 D (flexible bond); and Fondo Pramerica Cedola Certa 2024 E (flexible bond). Placement of the latter ended on 26th July. 9 The 30th April 2019 implementation decree was published in the Official Journal of the following 7th May. The Ministry of Economic Development will monitor the effects of the new measures introduced once six months have elapsed from the publication of the decree. 10 Please see the information given in the same section of the Consolidated Management Report for the year ended 31st December 2018. 11 “Monthly map of assets under management”, June 2019. For companies not included the “Quarterly map of assets under management”, March 2019.

70 Fund assets (including assets managed for the UBI Banca Group under a mandate)

UBI Banca Group 30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018 Changes A/C % % % Figures in millions of euro A B amount %C amount %

Equities 3,125 9.6% 2,800 9.2% 325 11.6% 3,083 9.6% 42 1.4% Balanced 11,508 35.4% 11,121 36.6% 387 3.5% 11,388 35.7% 120 1.1% Bond 15,600 48.1% 14,433 47.5% 1,167 8.1% 15,316 48.0% 284 1.9% Monetary 18 0.1% 340 1.1% -322 -94.7% 413 1.3% -395 -95.6% Flexible 2,203 6.8% 1,696 5.6% 507 29.9% 1,734 5.4% 469 27.0%

TOTAL (a) 32,454 100.0% 30,390 100.0% 2,064 6.8% 31,934 100.0% 520 1.6%

Sector 30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018 Changes A/C % % % Figures in millions of euro A B amount %C amount %

Equities 219,286 21.4% 197,687 20.7% 21,599 10.9% 228,051 22.7% -8,765 -3.8% Balanced 117,358 11.5% 98,426 10.3% 18,932 19.2% 102,895 10.2% 14,463 14.1% Bond 395,550 38.7% 375,134 39.3% 20,416 5.4% 387,029 38.5% 8,521 2.2% Monetary 35,911 3.5% 34,411 3.6% 1,500 4.4% 32,696 3.3% 3,215 9.8% Flexible 251,029 24.5% 245,961 25.7% 5,068 2.1% 250,316 24.9% 713 0.3% Hedge funds 3,522 0.4% 3,719 0.4% -197 -5.3% 3,946 0.4% -424 -10.7% Unclassified 24 0.0% 22 0.0% 2 9.1% - - 24 -

TOTAL (b) 1,022,680 100.0% 955,360 100.0% 67,320 7.0% 1,004,933 100.0% 17,747 1.8% Market share of the UBI Banca Group (a)/(b) 3.17% 3.18% 3.18% Market share of the UBI Banca Group limited to bank-related management companies only (**) 6.45% 6.29% 6.18%

(*) The date 1st January 2019 must be interpreted as 31st December 2018. The figure for UBI Banca Group bond and monetary funds was subject to a marginal internal reclassification with respect to the figure published in the 2018 Annual Report. (**) Market share calculated on the basis of a necessarily discretionary criterion in view of the difficulty in precisely identifying the perimeter of operators of a strictly banking nature. Source: Assogestioni (national association of asset management companies). Any differences compared with the data published previously were due to the periodic revision of data carried out by Assogestioni. As already reported, as part of the periodic surveys performed by Assogestioni, since June 2012 the figure for assets under management for the UBI Banca Group also includes, in consideration of their nature, also the management mandates granted to Pramerica Financial – the brand name used by Prudential Financial Inc. (USA) – a UBI Banca partner through Pramerica SGR (as at 30th June 2019 €5.44 billion of mutual funds and Sicav’s, of which €1.99 billion of equity funds and €3.45 billion of bond funds). This presentation provides a more consistent account of the actual assets under management of the UBI Banca Group.

It must nevertheless be considered that Assogestioni’s sample also includes non-banking operators. Consequently, market shares for the UBI Banca Group in the asset management sector (mutual investment fund business) are naturally smaller than those for direct funding, lending and number of branches. If the analysis is restricted to banks only, the Group’s market share as at 30th June 2019 was 6.45% – compared with 6.39% in March and 6.29% at the end of the year (6.18% in June 2018) – placing UBI Banca stably in fourth position among Italian operators in the sector.

The summary figures given in the table confirm the prudential approach of Group customers, showing: • a percentage of lower risk funds (monetary funds and bonds) that is again higher than the figure for the sector, but down over six months (from 48.6% to 48.2%)12 as also occurred for the Assogestioni sample (down from 42.9% to 42.2%); • at the same time, a greater percentage of balanced funds, although slightly down from 36.6% to 35.4%, compared with an average figure for the industry nationally up from 10.3% to 11.5%; • a percentage of equity funds up marginally and constantly lower than the benchmark sample (9.6% compared with 21.4%); • an increase in the percentage of flexible funds (6.8%), compared with a slight reduction for the industry nationally (24.5%); • no investment in hedge funds (0.4% of the Assogestioni sample).

* * *

12 In the second quarter of 2019, the performance of the two categories was affected by the conversion of the monetary fund “Pramerica Euro Cash” into “Pramerica Obbligazionario 12M”, a short-term bond fund.

71

As concerns, on the other hand, assets under management net of Group funds (which includes COLLECTIVE INSTRUMENTS AND CUSTOMER PORTFOLIO MANAGEMENT), at the end of the half- year the UBI Banca Group was in seventh place13 (in fourth place among Italian banking groups) with total assets for both ordinary and institutional customers amounting to €59.1 billion and a market share of 2.98%, down marginally compared with the beginning of the year (3.02%; 3.03% in June 2018), but recovering on March (2.95%). If the analysis is limited to banks only, the Group’s market share in June 2019 was 6.72%, up on 6.61% in March and 6.48% at the end of December (6.95% twelve months earlier), placing UBI Banca stably in fourth position among operators in the sector.

Insurance deposits and technical reserves

Insurance deposits and technical reserves

30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018 Changes A/C % % % A B C Figures in thousands of euro amount % amount %

Financial liabilities designated at fair value related to insurance business [Liability item 30. in the Reclassified Consolidated Balance Sheet] 149,871 6.8% 105,836 5.3% 44,035 41.6% 75,488 3.9% 74,383 98.5% of which: Pension funds 12,565 0.6% 11,954 0.6% 611 5.1% 12,038 0.6% 527 4.4% Unit-linked products 137,306 6.2% 93,882 4.7% 43,424 46.3% 63,450 3.3% 73,856 116.4%

Technical reserves [Liability item 110. in the Reclassified Consolidated Balance Sheet] 2,070,095 93.2% 1,877,449 94.7% 192,646 10.3% 1,879,072 96.1% 191,023 10.2% Life business sector 2,070,095 93.2% 1,877,449 94.7% 192,646 10.3% 1,877,285 96.0% 192,810 10.3% of which: mathematical reserves 2,059,691 92.7% 1,863,880 94.0% 195,811 10.5% 1,864,454 95.3% 195,237 10.5% reserves for sums to b e paid 8,505 0.4% 12,865 0.7% -4,360 -33.9% 11,636 0.6% -3,131 -26.9% other reserves 1,899 0.1% 704 0.0% 1,195 169.7% 1,195 0.1% 704 58.9% Non-life business sector (**) ------1,787 0.1% -1,787 -100.0% Insurance deposits and technical reserves 2,219,966 100.0% 1,983,285 100.0% 236,681 11.9% 1,954,560 100.0% 265,406 13.6%

(*) The date 1st January 2019 must be interpreted as 31st December 2018. (**) The company Bancassurance Popolari Danni was disposed of in May 2019 and has therefore been excluded from the scope of consolidation (for further details see the section entitled “The scope of consolidation” in the Explanatory Notes to the Condensed Interim Consolidated Financial Statements as at and for the period ended 30th June 2019).

Insurance deposits and technical reserves

30.6.2019 31.3.2019 Changes A/D % % A D Figures in thousands of euro amount %

Financial liabilities designated at fair value related to insurance business [Liability item 30. in the Reclassified Consolidated Balance Sheet] 149,871 6.8% 124,296 6.0% 25,575 20.6% of which: Pension funds 12,565 0.6% 12,970 0.6% -405 -3.1% Unit-linked products 137,306 6.2% 111,326 5.4% 25,980 23.3%

Technical reserves [Liability item 110. in the Reclassified Consolidated Balance Sheet ] 2,070,095 93.2% 1,962,495 94.0% 107,600 5.5% Life business sector 2,070,095 93.2% 1,962,495 94.0% 107,600 5.5% of which: mathematical reserves 2,059,691 92.7% 1,888,575 90.5% 171,116 9.1% reserves for sums to be paid 8,505 0.4% 11,139 0.5% -2,634 -23.6% other reserves 1,899 0.1% 62,781 3.0% -60,882 -97.0% Non-life business sector ------

Insurance deposits and technical reserves 2,219,966 100.0% 2,086,791 100.0% 133,175 6.4%

13 The Group was in sixth place as at the 31st December 2018. The decline in the position was a consequence of the increase from January 2019 of individual institutional portfolio investment products by BancoPosta Fondi SGR attributable to the acquisition of new management mandates by entities belonging to the Poste Italiane Group (mandates to manage liquidity deposited on current accounts, but also mandates to manage part of Poste Vita Spa’s assets used to cover technical reserves).

72 Insurance deposits and technical reserves at the end of the half-year amounted to €2.2 billion, an increase of €236.7 million compared with approximately €2 billion as at 1st January 2019, continuing the trend seen in the first quarter of the year.

Financial liabilities relating to insurance business designated at fair value, representing “Business Sector III” (unit-linked products) and “Business Sector VI” (pension funds) insurance policies, account for a residual share of the Company’s policy portfolio and present an increase on a half-yearly basis of €44 million due (i) primarily to the positive balance of premiums collected and claims settled during the half-year of €39 million and (ii) the positive result of the management of financial instruments, which resulted in the revaluation of the insurance positions.

Technical reserves, consisting of insurance products in “Business Sector I” (policies that may be revalued and term life policies) and “Business Sector V” (policies that may be revalued), continue to represent the main component of the company’s policy portfolio. The improvement over six months, +€192.6 million, benefited from the positive balance of net premiums (€43.4 million), but above all from the recognition (€140.0 million) of a reserve (“shadow accounting”) that reflects the greater value, compared with 1st January, of the latent gains on the securities comprised within the Company's segregated management portfolios.

73 General banking business with customers: lending

Considering that the Group conducts mainly conventional banking business and holds a portfolio of loans originated in order to finance individuals and companies in their business activities as well as households, ‘Hold to Collect’1 is the business model adopted for the management of almost the entirety of the loan portfolio. The contractual characteristics of the UBI Banca Group’s loans to customers are normally such that they pass the SPPI test. They are therefore classified predominantly within financial assets measured at amortised cost [asset item 40 in the consolidated balance sheet] with recognition of net impairment losses determined in compliance with IFRS 9 rules on impairment recognised through profit or loss. However, loans which do not give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, where the SPPI test has not been passed, are recognised at fair value with changes in fair value recognised through profit or loss [asset item 20 in the consolidated balance sheet].

Total loans and advances to customers

30.6.2019 31.3.2019 1.1.2019 (*) Changes A/C30.6.2018 Changes A/D %%% % A B C D Figures in thousands of euro amount % amount % Loans and advances to customers measured at fair value through profit or loss [Asset item 20. 2) in the Reclassified Consolidated Balance Sheet] 268,043 0.3% 270,459 0.3% 274,262 0.3% -6,219 -2.3% 313,580 0.3% -45,537 -14.5% Financial assets measured at fair value through other comprehensive income (**) [Asset item 30. 2) in the Reclassified Consolidated Balance Sheet] - - 15 0.0% 15 0.0% -15 -100.0% - - - - Loans and advances to customers measured at amortised cost [Asset item 40. 2) in the Reclassified Consolidated Balance Sheet] 86,074,151 99.7% 87,095,528 99.7% 88,987,596 99.7% -2,913,445 -3.3% 91,342,643 99.7% -5,268,492 -5.8% Total 86,342,194 100.0% 87,366,002 100.0% 89,261,873 100.0% -2,919,679 -3.3% 91,656,223 100.0% -5,314,029 -5.8%

(*) The date 1st January 2019 must be interpreted as 31st December 2018. (**) The former Banca Popolare di Ancona policy that was included in this item as at 31st March and 1st January 2019 was cancelled in the second quarter.

As at 30th June 2019 the total loans of the UBI Banca Group stood at €86.3 billion which, as stated in the introduction, are primarily classified within “Financial assets measured at amortised cost” and to a residual extent within “Financial assets measured at fair value through profit or loss”. The total decreased by €2.9 billion on the beginning of the year (-3.3%), of which -€1 billion in the second quarter (-1.2%) and a decrease of €5.3 billion (-5.8%) over twelve months.

Loans and advances to customers measured at fair value through profit or loss Asset item 20. 2) in the Reclassified Consolidated Balance Sheet

As shown in the table entitled “Total loans and advances to customers”, at the end of June those loans that had not passed the SPPI test, and which were therefore classified within “Financial assets measured at fair value through profit and loss”, totalled €268 million, down by €6.2 million compared with the beginning of January (-€2.4 million in the second quarter) and by €45.5 million on an annual basis. Those exposures, which related exclusively to the Parent, were completely negligible compared with the total size of the Group’s lending assets, and were related also to business in gold with customers and the financing activity of the Corporate & Investment Banking (CIB) Division.

1 Financial instruments associated with the “Hold to Collect” business model are held within the framework of the management model the objective of which is to collect cash flows the contractual terms of which give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

74 Loans and advances to customers measured at amortised cost Asset item 40. 2) in the Reclassified Consolidated Balance Sheet

“Financial assets measured at amortised cost” are classified, in accordance with IFRS 9, within three different credit risk stages depending on the state of creditworthiness of the financial instrument as at the measurement date compared with the grant date. In detail: - performing exposures are divided into stage 1 (loans for which credit risk has not increased significantly since initial recognition) and stage 2 (loans for which credit risk has increased significantly since initial recognition); - non-performing exposures (past-due exposures, unlikely-to-pay loans and bad loans) are allocated within stage 3 (exposures which present objective evidence of impairment loss).

Performance of the loan portfolio

Composition of loans and advances to customers measured at amortised cost

30.6.2019 1.1.2019 (*) Changes of which: of which: Stages one Stage three Total Stages one Stage three Total (A+B)-(C+D) purchased or purchased or and two and two originated % originated % Figures in thousands of euro credit- credit- amount % A B impaired A+B C D impaired C+D

Current account overdrafts 6,339,048 563,590 123,651 6,902,638 8.0% 6,951,328 613,160 134,164 7,564,488 8.5% -661,850 -8.7% Reverse repurchase agreements ------Mortgage loans and other medium to long-term financing 54,539,858 3,489,261 305,645 58,029,119 67.4% 55,500,752 3,771,400 343,941 59,272,152 66.6% -1,243,033 -2.1% Credit cards, personal loans and salary-backed loans 3,561,346 63,823 2,850 3,625,169 4.2% 3,403,660 81,995 3,095 3,485,655 3.9% 139,514 4.0% Finance leases 4,999,244 698,876 56,467 5,698,120 6.6% 5,203,961 819,427 58,922 6,023,388 6.8% -325,268 -5.4% Factoring 1,957,215 65,412 - 2,022,627 2.4% 2,309,088 215,404 - 2,524,492 2.8% -501,865 -19.9% Other financing 9,365,205 431,273 54,319 9,796,478 11.4% 9,642,843 474,578 56,999 10,117,421 11.4% -320,943 -3.2% Total Asset item 40. 2) in the Reclassified Consolidated Balance Sheet 80,761,916 5,312,235 542,932 86,074,151 100.0% 83,011,632 5,975,964 597,121 88,987,596 100.0% -2,913,445 -3.3% of which: Stage one 71,569,350 83.1% 71,420,474 80.3% 148,876 0.2% Stage two 9,192,566 10.7% 11,591,158 13.0% -2,398,592 -20.7% Stage three 5,312,235 6.2% 5,975,964 6.7% -663,729 -11.1% of which: Short-term 17,661,468 18,721,743 21.8% 18,903,259 20,206,401 22.7% -1,484,658 -7.3% Medium to Long-term 63,100,448 67,352,408 78.2% 64,108,373 68,781,195 77.3% -1,428,787 -2.1%

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Composition of loans and advances to customers measured at amortised cost

30.6.2019 31.3.2019 Changes

Stages one Stage three of which: Total Stages one Stage three of which Total (A+B)-(E+F) and two purchased or and two purchased or originated % originated % Figures in thousands of euro amount % A B credit- A+B E F credit- E+F iid iid Current account overdrafts 6,339,048 563,590 123,651 6,902,638 8.0% 6,459,735 584,487 129,000 7,044,222 8.1% -141,584 -2.0% Reverse repurchase agreements ------Mortgage loans and other medium to long-term financing 54,539,858 3,489,261 305,645 58,029,119 67.4% 55,185,808 3,634,640 308,542 58,820,448 67.5% -791,329 -1.3% Credit cards, personal loans and salary-backed loans 3,561,346 63,823 2,850 3,625,169 4.2% 3,452,612 72,680 2,929 3,525,292 4.0% 99,877 2.8% Finance leases 4,999,244 698,876 56,467 5,698,120 6.6% 5,101,385 791,187 57,842 5,892,572 6.8% -194,452 -3.3% Factoring 1,957,215 65,412 - 2,022,627 2.4% 1,927,012 213,731 - 2,140,743 2.5% -118,116 -5.5% Other financing 9,365,205 431,273 54,319 9,796,478 11.4% 9,208,244 464,007 54,596 9,672,251 11.1% 124,227 1.3% Total Asset item 40. 2) in the Reclassified Consolidated Balance Sheet 80,761,916 5,312,235 542,932 86,074,151 100.0% 81,334,796 5,760,732 552,909 87,095,528 100.0% -1,021,377 -1.2% of which: Stage one 71,569,350 83.1% 69,207,390 79.5% 2,361,960 3.4% Stage two 9,192,566 10.7% 12,127,406 13.9% -2,934,840 -24.2% Stage three 5,312,235 6.2% 5,760,732 6.6% -448,497 -7.8% of which: Short-term 17,661,468 18,721,743 21.8% 17,594,991 18,857,216 21.7% -135,473 -0.7% Medium to Long-term 63,100,448 67,352,408 78.2% 63,739,805 68,238,312 78.3% -885,904 -1.3%

As at 30th June 2019 loans and advances to customers measured at amortised cost totalled €86.1 billion (accounting for 99.7% of the Group's total loan portfolio) and were down by €2.9

75 billion (-3.3%) in the FIRST HALF OF THE YEAR, with €1 billion attributable to the second quarter of the year (-1.2%).

As shown in the relative tables, this performance was mainly related to the reduction in net performing loans, classified to risk stages one and two, which at the end of June had fallen to €80.8 billion, down by €2.2 billion during the half-year (-2.7%)2, of which approximately €0.6 billion attributable to the April-June period. In a market scenario characterised by the persistent weakness of the economic cycle, these trends were influenced by the effects of the policy of safeguarding the spread implemented starting in the second half of 2018, which affected lending performance, while also supporting net interest income in the face of new medium to long-term grants that still fell short of maturing loan volumes.

From the standpoint of maturities, the decline of €2.2 billion in performing loans during the half-year was attributable: • for €1.2 billion (-6.6%) to forms of short-term lending, which at the end of June had declined to €17.7 billion, accounting for 21.9% – a reduction relating solely to the first three months of the year. On the basis of management accounting figures, the quarterly performance of the average balances of interest- bearing gross loans (i.e., excluding bad loans) declined more modestly, by €0.8 billion (-4.8%) in the second quarter, compared with modest growth (+€0.1 billion; +0.6%) in the first quarter. From January to June the decline was general, extending to “Current accounts” (-€612.3 million; -€120.7 million compared with the end of March), “Factoring” (-€351.9 million; +€30.2 million) and “Other transactions” (-€277.6 million; +€157 million); • for €1 billion (-1.6%) to medium to long-term types of funding, which at the end of June amounted to €63.1 billion, making up 78.1% of the total, with €639.4 million of the decline attributable to the April-June period. On the basis of management accounting figures, the quarterly performance of average balances shows a continuing reduction of €0.7 billion (-1%) in the second quarter, compared with a sharper decline (-€1 billion; -1.5%) in the first quarter. The decline in the total included €960.9 million attributable to “Mortgages and other medium to long-term financing” (-€646 million in the second quarter), due in part to the progressive decrease (-€1.1 billion over six months; -€0.4 billion over three months) in the remaining debt regarding loans granted to customers against TLTRO II funds3 and €204.7 million attributable to leasing (-€102.1 million in the second quarter), where selective policies based on prudent risk allocation prevailed. On the other hand, consumer lending performed positively over six months (+€157.7 million, of which +€108.7 million in the second quarter), due in part to Prestitalia salary and pension-backed lending. The €54.5 billion of mortgages and other performing medium to long-term financing outstanding at the end of June were composed, on the basis of management accounting figures, of residential mortgages totalling €24.7 billion, of which €23.5 billion granted to consumer households and €1.2 billion to businesses, more or less stable over the six-month period (€24.7 billion at the end of March, of which €23.5 billion granted to consumer households and €1.2 billion to businesses; €24.8 billion at the beginning of the year, of which €23.5 billion disbursed to consumer households and €1.3 billion to businesses)4. Including loans classified as stage three, mortgages amounted to €26.1 billion, of which €24.5 billion granted to consumer households and €1.6 billion to businesses (€26.2 billion at the end of March, of which €24.5 billion granted to consumer households and €1.7 billion to businesses; €26.3 billion at the beginning of the year, of which €24.6 billion to consumer households and €1.7 billion to businesses) 5.

Net non-performing loans classified within stage three declined further during the half-year (-€663.7 million, of which -€448.5 million since the end of March), falling to €5.3 billion as the effect above all of internal recovery activity, but also of the sale of factoring receivables subject to litigation of a significant overall amount, together with other sales of individual positions during the period.

2 -2.9% net of the Cassa di Compensazione e Garanzia (CCG – a central counterparty clearing house). As at 30th June 2019 the exposure to the CCG, recognised almost entirely within “Other financing”, totalled €215 million, relating to margin deposits required to back repurchase agreements on Italian government securities, in relation to changes in average volumes of business (€204.4 million in March; €79.3 million at the beginning of January 2019). 3 In addition to repayments, changes in total TLTRO lending was also affected by a progressive reduction in the maximum duration of new grants and the limits set on the target customers for the loans. 4 €25.2 billion in June 2018, of which €23.9 billion granted to consumer households and €1.3 billion to businesses. 5 €27 billion in June 2018, of which €25.1 billion granted to consumer households and €1.9 billion to businesses.

76 Composition of loans and advances to customers measured at amortised cost

30.6.2019 30.6.2018 Changes of which: of which Stages one Stage three Total Stages one Stage three Total (A+B)-(G+H) purchased or purchased or and two and two originated % originated % Figures in thousands of euro credit- credit- amount % A B impaired A+B G H impaired G+H

Current account overdrafts 6,339,048 563,590 123,651 6,902,638 8.0% 7,005,934 814,323 129,201 7,820,257 8.6% -917,619 -11.7% Reverse repurchase agreements - - - - - 983 - - 983 - -983 - Mortgage loans and other medium to long-term financing 54,539,858 3,489,261 305,645 58,029,119 67.4% 56,704,797 4,429,190 350,542 61,133,987 66.9% -3,104,868 -5.1% Credit cards, personal loans and salary-backed loans 3,561,346 63,823 2,850 3,625,169 4.2% 3,285,515 98,639 3,178 3,384,154 3.7% 241,015 7.1% Finance leases 4,999,244 698,876 56,467 5,698,120 6.6% 5,368,481 981,339 55,401 6,349,820 7.0% -651,700 -10.3% Factoring 1,957,215 65,412 - 2,022,627 2.4% 2,062,576 235,510 - 2,298,086 2.5% -275,459 -12.0% Other financing 9,365,205 431,273 54,319 9,796,478 11.4% 9,771,709 583,647 53,733 10,355,356 11.3% -558,878 -5.4% Total Asset item 40. 2) in the Reclassified Consolidated Balance Sheet 80,761,916 5,312,235 542,932 86,074,151 100.0% 84,199,995 7,142,648 592,055 91,342,643 100.0% -5,268,492 -5.8% of which: Stage one 71,569,350 83.1% 70,409,754 77.1% 1,159,596 1.6% Stage two 9,192,566 10.7% 13,790,241 15.1% -4,597,675 -33.3% Stage three 5,312,235 6.2% 7,142,648 7.8% -1,830,413 -25.6% of which: Short-term 17,661,468 18,721,743 21.8% 18,841,202 20,474,682 22.4% -1,752,939 -8.6% Medium to Long-term 63,100,448 67,352,408 78.2% 65,358,793 70,867,961 77.6% -3,515,553 -5.0%

Considering performance OVER TWELVE MONTHS on the other hand, total outstanding loans and advances measured at amortised cost (performing and non-performing) decreased by €5.27 billion (-5.8%). Over one-third of this change was attributable to non-performing exposures (-€1.83 billion; -25.6%), as a result above all of the significant accounting deconsolidations in the second half of 2018 associated with the securitisation of a package of bad loans backed by GACS (state bad loan securitisation guarantees) and the disposal in December of a second portfolio of almost exclusively unsecured bad loans 6 , but also to internal credit recovery activities and the other disposals during the period, including the aforementioned UBI Factor transaction. The comparison with the situation at the end of June 2018 – prior to the launch of the policy of protecting spreads in the following months – shows a decline in net performing loans of €3.44 billion (-4.1%)7. The average balances of interest-bearing gross loans also declined by 4.1% (-€3.6 billion) according to management accounting figures. The decline extended to both the short-term component (-€1.18 billion) and the medium to long-term component (-€2.26 billion), within which “Mortgages and performing medium to long-term financing” (-€2.16 billion) were affected by the trend in loans granted against TLTRO II funds (-€2.1 billion), whereas the consumer lending segment posted gains of €275.8 million.

In consideration of the different trend for the relative two aggregates, the loan to deposit ratio (net loans and advances to customers at amortised cost/direct funding from customers) stood at 90.8%, compared with 93% at the end of March 2019 and 96.1%8 at the beginning of the year (96.1% at the end of June 2018).

6 See the section “Significant events in 2018” of the Consolidated Management Report for the year ended 31st of December 2018 for further details of these two transactions. 7 -4.2% net of the Cassa di Compensazione e Garanzia (CCG). As at 30th June 2018, the total exposure to the CCG was €123.3 million and consisted almost solely (€122.3 million) of margin deposits backing repurchase agreements involving Italian government bonds of the Parent, correlated with the performance of average transaction volumes and, to a residual extent (€1 million), repos. 8 The value is different from that published in the 2018 Annual Report (96.5%) because it is calculated on total direct funding as at 1st January 2019, as recalculated on First-Time Adoption of IFRS 16.

77 Distribution of loans by economic sector and ATECO code (Bank of Italy classification)

30.6.2019 of w hich of w hich Total non- performing bad loans

Manufacturing and service companies (non-financial companies and producer ho 53.4% 7.6% 4.1% of which: manufacturing activities: 14.7% 1.0% 0.6% - Metallurgy, fabrication of metal products and processing of non-metallic minerals 3.9% 0.3% 0.2% - Fabrication of machinery 1.9% 0.1% 0.0% - Foodstuff, beverage and tobacco industries 1.8% 0.1% 0.1% - Fabrication of oil refinery, chemical and pharmaceutical products 1.4% 0.0% 0.0% - Textile industries, tailoring of articles in leather and fur, fabrication of articles in leather and similar 1.2% 0.2% 0.1% - Fabrication of articles in rubber and plastic 1.0% 0.0% 0.0% - Fabrication of electronic products, electrical and non-electrical equipment 0.9% 0.1% 0.0% - Timber industry and fabrication of furniture 0.8% 0.1% 0.1% - Fabrication of motor vehicles, trailers, semitrailers and other means of transport 0.7% 0.0% 0.0% - Fabrication of paper and paper products, printing and reproduction of recorded media 0.5% 0.0% 0.0% - Other manufacturing industries 0.6% 0.0% 0.0% Real estate activities 9.0% 2.0% 0.9% Wholesale and retail commerce, repair of motor vehicles and motorcycles 8.0% 0.8% 0.6% Constructions 6.1% 2.2% 1.2% Professional, scientific and technical activities 3.2% 0.2% 0.1% Supply of electricity, gas, steam and air conditioning 2.2% 0.1% 0.0% Transport and warehousing 2.0% 0.2% 0.1% Accommodation and catering services 1.9% 0.4% 0.2% Agriculture, forestry and fishing 1.9% 0.3% 0.1% Hire, travel agency, business support services 1.2% 0.1% 0.1% Information and communication services 1.1% 0.0% 0.0% Water supply; sewerage, waste management and cleanup activities 0.7% 0.0% 0.0% Financial and insurance activities 0.2% 0.0% 0.0% Extraction of minerals from quarries and mines 0.1% 0.0% 0.0% Residual activities 1.1% 0.1% 0.1% Consumer households 38.1% 2.8% 1.7% Financial companies 3.7% 0.1% 0.1% Public administrations 1.1% 0.0% 0.0% Other (not-for-profit institutions and the rest of the world) 3.7% 0.2% 0.1% Total 100.0%

Source: management accounting database (ICAAP). Total gross lending w ith Ateco codes (€90.48 billion as at 30th June 2019). The amount does not comprise the restatement in accordance w ith IFRS 3 of the gross non-performing exposures of the Banks acquired in 2017.

As may be seen from the table, which in management accounting figures gives the distribution of loans by economic sector and ATECO code (economic sector – Bank of Italy classification) of consolidated loans and advances at amortised cost, considered gross of impairment losses, as at 30th June 2019, 91.5% of outstanding loans continued to be to manufacturing and service companies and households, which confirms the traditional attention paid by the Group to local communities.

Loan concentration9 Concentration of risk In terms of concentration, data for the (largest customers or groups as a percentage of total gross loans, unsecured guarantees and securities - management accounting figures) end of June shows a slight reduction compared with December, with the sole Customers or 30.6.2019 31.3.2019 31.12.2018 30.9.2018 30.6.2018 exception of the segment relating to the Groups ten largest groups, mainly as a result of Largest 104.6% 4.5% 4.4% 4.1% 4.1% a reduction in loans to major groups of Largest 207.1% 7.0% 7.2% 6.6% 6.7% companies and to groups owned by the Largest 308.7% 8.8% 9.1% 8.3% 8.4% Italian state and by local public Largest 40 10.1% 10.1% 10.5% 9.7% 9.8% authorities. However, the levels are still Largest 50 11.1% 11.1% 11.7% 10.7% 10.8%

9 Concentration, large exposures and the breakdown of loans and advances to customers by geographical area are defined as relating to the total loan portfolio of the Group consisting of the sum of loans to customers classified within “Financial assets measured at amortised cost” and those classified within “Financial assets measured at fair value”, even if the unit and overall size of the latter are not sufficient to affect the results of the measurements.

78 low, which confirms the constant attention paid by the Group to this important qualitative aspect of the portfolio.

As concerns “large exposures”10, the supervisory report as at the 31st March 2019 shows the UBI Banca Group as compliant with the provisions of article 4 of Regulation (EU) 575/2013 (CRR) which, in line with “Guidelines on connected clients under Article 4 (1)(39) of Regulation (EU) 575/2013”, requires groups of customers connected on the basis of legal or economic relationships to be reported. Large exposures Specifically, with regard to the UBI Banca Group’s large exposures, the nominal and weighted values reported in the 30.6.2019 31.3.2019 table also include groups connected with the Ministry of Figures in thousands of euro Economics and Finance (MEF) but, in terms of the number of positions, the latter has been considered once only. Number of positions 6 6 Exposure 35,265,157 34,088,207 Consequently, the supervisory report as at 30th June Risk positions 3,960,660 4,074,174 2019 shows six positions for amounts equal to or greater than 10% of the qualifying capital for a total of approximately €35.27 billion (€34.09 billion in March). In detail: • a total of €19.40 billion relate to central government (€19.26 billion in March 2019). Of this €15 billion relates to the MEF (€14.90 billion in March), consisting mainly of investments in government securities by the Parent (and to a minor extent of current and deferred tax assets), while €4.40 billion (€4.36 billion) relates to counterparties connected with them (almost entirely corporate), which considered singly would not have exceeded the aforementioned 10% threshold; • €10.45 billion relates to funds deposited with the Bank of Italy (€9.03 billion); • €1.56 billion relates to investments in securities issued by the United States Treasury (€1.69 billion); • €1.48 billion relates to Cassa di Compensazione e Geographical distribution of loans to Garanzia (a central counterparty clearing house) mainly customers by the counterparty's region of for reverse repurchase agreements (€1.63 billion); residence (*)

• €1.29 billion relates to investments in Spanish Percentage of total 30.6.2019 government securities (€1.13 billion); • €1.09 billion relates to a major banking counterparty for Lombardy 50.22% Latium 9.69% reverse repurchase agreement business (€1.35 billion). Marches 7.15% Piedmont 6.50% Emilia Romagna 4.14% As a result, amongst other things, of the predominant Campania 3.40% application of a zero weighting factor for positions held with Veneto 2.72% governments, actual risk positions of the Group after Apulia 2.53% Tuscany 2.36% weighting totalled €3.96 billion (€4.07 billion in March), of Liguria 2.26% which €3.43 billion attributable to the central government Abruzzo 1.96% Calabria 1.58% (of which only €85.9 million relating directly to the MEF and Umbria 1.31% the remaining part, on the other hand, to groups of Friuli Venezia Giulia 0.62% companies connected with it). The percentage of the Sicily 0.51% Sardinia 0.50% qualifying capital is well below the limit of 25% set for Trentino Alto Adige 0.50% banking groups for each of the exposures reported, Basilicata 0.42% Molise 0.21% considered singularly. Valle d'Aosta 0.06% Abroad 1.36% A summary of the geographical distribution of loans in Italy Total 100.00% is given in the table “Geographical distribution of loans to North 67.0% customers by the counterparty's region of residence”. - North West 59.0% At the end of the half-year, the overall situation was - North East 8.0% essentially unchanged on the end of 2018, with the bulk of Central 20.5% South 11.1% the Group's loan portfolio continuing to be attributable to Abroad 1.4% borrowers based in the northern regions of Italy (67% of the (*) Financing to the private sector, excluding bad loans, relating total), and in the North West in particular (59%). The to the banking perimeter only.

10 Supervisory reporting on the basis of the provisions of the Basel 3 rules, in force from 1st January 2014: Bank of Italy Circulars No 285 and No 286 of 17th December 2013 and subsequent updates.

79 percentage of loans to the central regions of Italy at 20.5% 11 also reflects the Group's established presence in the local communities of the Banks acquired in 2017, whereas the percentage attributable to the South exceeded 11%.

Financing with funds provided by the European Central Bank (TLTRO)

With regard to targeted longer-term refinancing operations (TLTROs), as already reported, on 10th March 2016, the ECB approved a programme entitled “New series of targeted longer-term refinancing operations (TLTRO II)”, which involves four quarterly operations (from June 2016 to March 2017) each with a life of four years. The UBI Banca Group applied for funds under that programme totalling €12.5 billion, against a maximum of €14.5 billion12 that could be applied for. In detail:  in June 2016 the Group took part in the first of four auctions. It fully repaid funds obtained from the previous TLTRO operations totalling €8.1 billion13 and was allotted new funds amounting to €10 billion with the due date on 24th June 2020;  in March 2017 the Group took part in the fourth and last auction and obtained liquidity of €2.5 billion with the due date on 24th March 2021. As at 30th June 2019, loans to customers drawn on these funds presented a residual outstanding balance of €8.3 billion (€8.7 billion in March 2019; €9.4 billion at the beginning of 2019; €10.4 billion in June 2018).

Initiatives in co-operation with the European Investment Bank (EIB)

During the first half, the UBI Banca Group continued to offer medium to long-term loans (maximum term of ten years) to companies under attractive terms thanks to the positive collaboration with the European Investment Bank. In particular, a new financing facility of €250 million intended for SMEs and mid-caps was contracted from the EIB on 28th May. Use of the facility with customers will begin in the second half of the year. In the first half of the year, 131 loans of approximately €123 million were granted under the agreements reached in 2018.

Risk

The entry into force of international reporting standard IFRS 9 determined a revision of the procedures used for calculating impairment losses on loans, with a changeover from the concept of incurred credit loss to one of expected credit loss (ECL). The standard requires a different way of calculating impairment (ECL) based on deterioration of credit quality as follows: 1-year ECL for positions classified within the stage one and lifetime ECL of an instrument for those included within stages two and three. Estimates of ECL involve the inclusion of forward-looking scenarios and, in relation to portfolios to be sold, it reflects not only recovery through the ordinary management of loans, but also the presence of a “sales scenario” consistent with the Group's goals for the reduction of its outstanding non-performing loans.

During the six months of the reporting period, the Group's total gross non-performing exposures continued to decline sharply, a process that gained momentum in the second quarter – owing in particular to the results of the Group's internal recovery activities and also to disposals performed during the period – which drove such exposures down below 10% of total gross loans.

At the end of June, total gross non-performing exposures amounted to €9 billion, down by €713.9 over six months (-7.3%), of which -€455.6 million attributable to the second quarter of the year (-4.8%).

11 The share for the Latium Region may be affected by seasonal factors relating to business with companies controlled by central government organisations. 12 As communicated by the Bank of Italy. In terms of management accounting figures, in the second quarter of 2018 the amount of TLTRO II funds declined below €12.4 billion. The decrease in debt should be viewed within the framework of Decision (EU) 2016/810 of the European Central Bank, which established the final interest rates to be applied to the amounts awarded to counterparties in each TLTRO II auction. The Bank of Italy began to communicate the above rates to participating counterparties on 5th June 2018. In the case of the UBI Banca Group, the communication in question indicates the application of a negative rate of -0.40%, which is leading to a reduction in the debt contracted through the auction. 13 The total amount that had been allotted to the Group with its participation in three of the seven TLTRO I auctions held by the ECB.

80 Loans and advances to customers measured at amortised cost as at 30th June 2019 (*)

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (**) losses

Non-performing exposures (Stage three) (9.97%) 9,002,822 3,690,587 (6.17%) 5,312,235 40.99% - Bad loans (5.70%) 5,146,645 2,663,714 (2.88%) 2,482,931 51.76% - Unlikely-to-pay loans (4.20%) 3,794,244 1,020,242 (3.22%) 2,774,002 26.89% - Past-due exposures (0.07%) 61,933 6,631 (0.07%) 55,302 10.71% Performing exposures (Stages one and tw o) (90.03%) 81,282,373 520,457 (93.83%) 80,761,916 0.64% Total 90,285,195 4,211,044 86,074,151 4.66% The item as a percentage of the total is given in brackets.

Loans and advances to customers measured at amortised cost as at 31st March 2019 (*)

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (**) losses

Non-performing exposures (Stage three) (10.36%) 9,458,410 3,697,678 (6.61%) 5,760,732 39.09% - Bad loans (5.87%) 5,358,071 2,632,265 (3.13%) 2,725,806 49.13% - Unlikely-to-pay loans (4.42%) 4,039,595 1,059,103 (3.42%) 2,980,492 26.22% - Past-due exposures (0.07%) 60,744 6,310 (0.06%) 54,434 10.39% Performing exposures (Stages one and tw o) (89.64%) 81,876,631 541,835 (93.39%) 81,334,796 0.66% Total 91,335,041 4,239,513 87,095,528 4.64% The item as a percentage of the total is given in brackets.

Loans and advances to customers measured at amortised cost as at 1st January 2019 (***)

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (**) losses

Non-performing exposures (Stage three) (10.42%) 9,716,770 3,740,806 (6.72%) 5,975,964 38.50% - Bad loans (5.81%) 5,423,214 2,655,439 (3.11%) 2,767,775 48.96% - Unlikely-to-pay loans (4.53%) 4,222,577 1,078,162 (3.53%) 3,144,415 25.53% - Past-due exposures (0.08%) 70,979 7,205 (0.08%) 63,774 10.15% Performing exposures (Stages one and tw o) (89.58%) 83,562,023 550,391 (93.28%) 83,011,632 0.66% Total 93,278,793 4,291,197 88,987,596 4.60% The item as a percentage of the total is given in brackets.

Loans and advances to customers measured at amortised cost as at 30th June 2018

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (**) losses

Non-performing exposures (Stage three) (12.41%) 12,008,425 4,865,777 (7.82%) 7,142,648 40.52% - Bad loans (7.43%) 7,192,530 3,719,025 (3.80%) 3,473,505 51.71% - Unlikely-to-pay loans (4.83%) 4,676,478 1,132,267 (3.88%) 3,544,211 24.21% - Past-due exposures (0.15%) 139,417 14,485 (0.14%) 124,932 10.39% Performing exposures (Stages one and tw o) (87.59%) 84,748,042 548,047 (92.18%) 84,199,995 0.65% Total 96,756,467 5,413,824 91,342,643 5.60% The item as a percentage of the total is given in brackets.

(*) The final PPA to the New Banks' non-performing loans acquired in 2017 resulted in a positive reversal of €20.2 million in the first half of 2019 (€8.6 million in the second quarter and €11.6 million in the first quarter). (**) The coverage ratio is calculated as the ratio of impairment losses to gross exposure. In accordance with the Group's new policy introduced in the second quarter of 2019, impairment losses and gross exposures for bad loans and unlikely- to-pay loans are net of the write-offs recognised. Loan write-offs (corresponding to the cumulative amount of write-offs on financial assets still recognised in the accounts) amounted to €1.53 billion as at 30th June 2019 (of which €0.97 billion of partial write-offs), up compared with both the beginning of 2019 and the end of March. When adjusted to take account of loan write-offs, the coverage ratio for total non-performing exposures was 49.55% (46.96% at the end of March; 46.01% at the beginning of the year; 50.53% at the end of June 2018), while the ratio for bad loans was 62.60% (59.68%; 59.14%; 63.90%). For further information regarding write-offs, refer to the Explanatory Notes to the Condensed interim consolidated financial statements. (***) The date 1st January 2019 must be interpreted as 31st December 2018.

During the half-year, sales of bad loans and unlikely-to-pay loans amounted to a gross value for management accounting purposes of €184 million (€174 million in the second quarter14) and €79 million (€62 million in the second quarter).

The significant reduction in the amounts recorded in the year to date was not fully shown by its expression as a percentage, which fell slightly from 10.42% to 9.97% (10.36% in March), because they were penalised by the decrease in total gross loans measured at amortised cost

14 The amount includes the aforementioned disposal of factoring receivables subject to litigation.

81 used as the denominator for the ratio.

The decline in the total was attributable above all to unlikely-to-pay loans (-€428.3 million, of which -€245.4 million in the second quarter), but also to bad loans (-€276.6 million, of which -€211.414 million in the April-June 2019 period), whereas past-due exposures only declined to a residual extent (-€9 million, compared with +€1.2 million in the second quarter). If on the other hand a year-on-year analysis is considered, total gross non-performing loans decreased by €3 billion (-25%). Approximately two-thirds of the reduction was due to bad loans (-€2 billion; -28.4%) as a result of the following driving factors: • the deconsolidation from the accounts at the end of September 2018 of the securitised bad loans backed by GACS (state bad loan securitisation guarantees)15; • the disposal of a second portfolio of bad loans consisting almost entirely of unsecured positions at the end of December15; • the disposal of factoring receivables subject to litigation in the second quarter of 2019; • the other sales of individual positions of more modest amounts. Similarly, although to a more modest extent, unlikely-to-pay loans also declined (-€882.2 million; -18.9%) as a consequence of good results from internal management of credit recovery, but also following disposals carried out over twelve months amounting to approximately €200 million gross in management accounting terms. To complete the information we report that past-due exposures were more than halved (-€77.5 million).

Loans and advances to customers measured at amortised cost: quarterly changes in total gross non- performing exposures

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter Total 2018 Figures in thousands of euro 2018 2018 2018 2018 2019 2019

A. Initial gross exposure at beginning of period 12,413,612 12,378,749 12,008,425 10,491,621 12,413,612 9,716,770 9,458,410 B. Increases 902,505 792,302 773,991 744,608 3,213,406 422,342 569,824 B.1 inflows from performing exposures 390,350 313,332 312,938 289,209 1,305,829 164,985 251,044 transfers from other classes of non-performing B.3 exposures 239,856 242,930 297,443 315,642 1,095,871 167,072 232,322 B.4 contractual modifications without derecognition - - - - - 84 111 B.5 other increases 272,299 236,040 163,610 139,757 811,706 90,201 86,347 C. Decreases -937,368 -1,162,626 -2,290,795 -1,519,459 -5,910,248 -680,702 -1,025,412 C.1 outflows to performing exposures -95,170 -118,799 -82,733 -165,492 -462,194 -83,187 -249,424 C.2 write-offs (*) -183,359 -325,929 -934,886 -611,575 -2,055,749 -177,927 -235,477 C.3 payments received -391,543 -385,201 -294,125 -315,528 -1,386,397 -219,352 -224,226 C.4 profits from disposals -15,748 -65,642 -660,363 -96,435 -838,188 -17,476 -34,423 C.5 losses from disposals -1,051 -20,253 -17,928 -12,183 -51,415 -1,702 -6,886 transfers to other classes of non-performing C.6 exposures -239,856 -242,930 -297,443 -315,642 -1,095,871 -167,072 -232,322 C.7 contractual modifications without derecognition ------1,119 -737 C.8 other decreases -10,641 -3,872 -3,317 -2,604 -20,434 -12,867 -41,917 D. Total gross exposure at end of period 12,378,749 12,008,425 10,491,621 9,716,770 9,716,770 9,458,410 9,002,822

The information relating to the first two quarters of 2019 has been prepared in compliance with the provisions of Bank of Italy Communication of 30th October 2018 (an addendum letter) with regard to write-offs and disposals for consideration. The items “write-offs”, “profits from disposals”, “losses from disposals” and “other decreases” for the first and second quarter of 2019 are therefore not comparable with previous periods. (*) The item includes both cancellations, i.e. write-offs relating to creditor actions concluded during the period, and write-offs of positions on the books according to the broader scope of application of the new measurement policy for non-performing loans adopted in the second quarter of 2019.

The table “Loans and advances to customers measured at amortised cost: quarterly changes in gross non-performing exposures” confirms the progressive decline in the first half of the year in direct net inflows from performing status, which have now fallen below pre-crisis levels – €416 million compared with €703.7 million in the first half of 2018 and with quarterly values far below those of the previous year – with an annualised six-monthly default rate16 of 1%

15 See the section “Significant events in 2018” of the UBI Bank Group's Consolidated financial statements as at and for the year ended 31st December 2018 for further details of these two transactions. 16 The indicator is calculated according to the following ratio: annualised gross movements from performing to non-performing exposures/initial balances of gross performing loans.

82 (1.55% in 2018), below the target level of approximately 1.4% set in the Business Plan for 2020. Among the declining values, collections in the first half of the year fell by more than 40% compared with the first half of 2018, which essentially reflected the reduction in total outstanding non-performing exposures over twelve months and also the specific details of the operation to dispose of factoring receivables subject to litigation17. Accordingly, the recovery rate18 stood at an annualised 8.3% on a half-yearly basis (8.9% in the entire previous year). If the analysis is limited solely to bad loans, the annualised half-yearly recovery rate was 6.5% (5.2% in the entire previous year). In the second quarter of 2019 there was also an increase in outflows to performing exposures that reflects the reclassification from non-performing to performing status of the factoring receivables disposed of17.

Loans and advances to customers measured at amortised cost: changes in gross non-performing exposures in the first half of 2019 (In compliance with Bank of Italy communication dated 30th October 2018)

Past-due Bad loans Unlikely-to-pay Total Figures in thousands of euro loans exposures

A. Initial gross exposure as at 1st January 2019 5,423,214 4,222,577 70,979 9,716,770 B. Increases 457,448 416,760 60,589 934,797 B.1 inflows from performing exposures 42,801 297,860 59,971 400,632 B.3 transfers from other classes of non-performing exposures 334,255 37,559 372 372,186 B.4 contractual modifications without derecognition - 234 - 234 B.5 other increases 80,392 81,107 246 161,745 C. Decreases -734,017 -845,093 -69,635 -1,648,745 C.1 outflows to performing exposures -155,965 -149,806 -14,493 -320,264 C.2 write-offs (*) -333,950 -79,445 - -413,395 C.3 payments received -209,469 -211,359 -4,771 -425,599 C.4 profits from disposals -16,150 -35,749 - -51,899 C.5 losses from disposals -1,957 -6,631 - -8,588 C.6 transfers to other classes of non-performing exposures -4,355 -317,498 -50,332 -372,185 C.7 contractual modifications without derecognition - -1,846 -8 -1,854 C.8 other decreases -12,171 -42,759 -31 -54,961 D. Final gross exposure as at 30th June 2019 5,146,645 3,794,244 61,933 9,002,822

(*) The item includes both cancellations, i.e. write-offs relating to creditor actions concluded during the period, and write-offs of positions on the books according to the broader scope of application of the new measurement policy for non-performing loans adopted in the second quarter of 2019.

The table “Loans and advances to customers measured at amortised cost: changes in gross non-performing exposures in the first half of 2019” – prepared in accordance with the provisions of the “Communication of 30th October 2018” (addendum letter) published by the Bank of Italy – shows new inflows from performing status of €400.6 million, around three quarters of which attributable to unlikely-to-pay loans. The bad loans are primarily driven by transfers from other categories of non-performing exposures, essentially unlikely-to-pay loans, against much smaller inflows from performing status of €42.8 million. The decreases include outflows to non-performing exposures of €320.3 million, including the reclassification from non-performing to performing status of the factoring receivables subsequently sold in the second quarter17 and collections of €425.6 million, whereas write-offs and disposals due to sale amounted to €413.4 million and €51.9 million, respectively (the latter also include the effects of sales of non-performing positions during the period, excluding those relating to factoring receivables).

The decline in gross amounts allowed net non-performing exposures to fall to €5.3 billion, a reduction over six months of €663.7 million (-11.1%).

17 As part of a settlement agreement designed to settle an exposure already classified as bad loan, in April 2019 UBI Factor purchased, from a single seller, receivables from performing counterparties belonging to the government sector (health sector). These receivables, purchased for a total of €157 million, were subsequently sold to another investor in June, followed by the relative deconsolidation. 18 The indicator is calculated according to the following ratio: annualised receipts/(balance of gross non-performing exposures at the beginning of the period + increases).

83 The decrease, of which -€448.5 million was attributable to the second quarter, similarly to the gross total, was mainly due to unlikely-to-pay positions (-€370.4 million) and bad loans (-€284.8 million) and only to a residual extent to past-due exposures (-€8.5 million). The percentage of net non-performing loans fell as a result to 6.17% from 6.72% as at 1st January 2019, despite being conditioned by the fall in total net loans used as the denominator of the ratio.

Over twelve months on the other hand, the decrease was by €1.8 billion (-25.6%) and it mainly involved bad loans (-€990.6 million) and unlikely-to-pay loans (-€770.2 million), which benefited from the disposals already mentioned, while past-due exposures reduced by €69.6 million.

In terms of types of loan, the tables “Composition of loans and advances to customers measured at amortised cost”, confirms that net non-performing loans (stage three) are mainly concentrated in the item “mortgage and other medium to long-term financing”, backed moreover by collateral and with prudential loan to value (LTV) ratios, which results automatically in a lower level of coverage.

As a result of the reduction in total non-performing loans, the Texas Ratio19, which measures the ratio of net non-performing loans to tangible equity, fell to 71.5%20 at the end of June (76.9% and 84.7% in March and at the beginning of January 2019, respectively; 100.4% in June 2018), well below the target for the end of 2020 set in the Business Plan.

The progressive decline in total non-performing positions and the update in the second quarter of 2019 of the measurement policy for positions classified as non-performing loans (NPLs)21 were accompanied by a general increase in coverage.

The coverage ratio for non-performing exposures rose to 40.99% from 39.09% at the end of March, 38.50% at the beginning of 2019 and 40.52% twelve months before (coverage of 49.55% recalculated to reflect write-offs, compared with 46.96% in March, 46.01% at the beginning of 2019 and 50.53% in June 2018). It should also be noted that the coverage ratio must always be interpreted in close relation to the high percentage of positions backed by collateral which characterises the Group’s loan portfolio.

The increase extended to all categories of non-performing exposures. As concerns bad loans in particular, the level of coverage rose from 48.96% to 51.76%22 (49.13% in Total UBI Banca Group Performing Loan Portfolio - Risk profile March 2019; 51.71% at the end of Management accounting figures for the internal rating perimeter (UBI Banca and IW Bank) 85.0% June 2018) due to the effect, among 80.0% other things, of the disposals carried 75.0% out in the half-year, distinguished 70.0% 65.0% by a lower degree of provisioning 60.0% than the average for the category, 55.0% especially that of the 50.0% aforementioned factoring 45.0% 40.0% receivables. 35.0% The coverage ratio for unlikely-to- 30.0% pay loans increased from 25.53% to 25.0% 20.0% 26.89% (26.22% in March 2019; 15.0% 24.21% in June 2018). This trend 10.0% reflects primarily growth in write- 5.0% 0.0% downs connected with the rigorous High Risk Medium Risk Low Risk Unrated policy pursued by the Group to Jun-19 3.3% 11.6% 80.9% 4.2% Dec-18 3.4% 11.4% 80.8% 4.4% manage credit risk, even while making disposals in the period of positions written down greater than the average.

19 This indicator is calculated according to the following ratio: total net non-performing loans/[book equity attributable to shareholders of the Parent (exclusive of profit/inclusive of loss for the period) + minority interests – total intangible assets]. 20 71.9% if calculated excluding minority interests. 21 As reported above in the section “The income statement”, the measurement policy for non-performing loans was updated in the second quarter to introduce new features relating to the provisioning method, i.e. the approach to determining impairment losses. On the subject of write-offs, see the Explanatory Notes to the Condensed interim consolidated financial statements. 22 When adjusted to take account of loan write-offs, the coverage ratio for bad loans as at 30th June was 62.60% (59.68% in March 2019; 59.14% in January 2019; and 63.90% in June 2018).

84

As concerns performing loans, the distribution between stages one and two showed 83.1% of total net loans in stage one, up from 80.3% as at 1st January 2019 and 79.5% at the end of March, and the resulting parallel decline in the percentage in stage two to 10.7%. The shift reflects the refinement of the model used to determine possible increases in credit risk, based on historical migrations observed between risk classes. There again, management accounting figures for the internal rating perimeter confirmed the favourable risk profile of the Group’s performing portfolio, with the highest risk classes accounting for 3.3% of the total and the lower classes for stably over 80%.

The total coverage ratio of 0.64% was essentially unchanged on all the comparative periods.

Finally, as concerns forborne exposures, as may be seen from the relative tables, there was a general, progressive decline in such exposures over twelve months, extending to both non- performing and performing positions, together with an increase in the coverage ratio. Total exposures declined to €5.2 billion gross (-€378.4 million on January, of which -€202.8 million in the second quarter; -€705.6 million on an annual basis) and to €4.1 billion in net terms (-€380.8 million, of which -€203.3 million in the second quarter; -€704 million over twelve months).

As already reported, the performance of forborne exposures and their composition are also affected by the forbearance23 regulations introduced in September 2014. In fact non-performing positions must pass a minimum period of one year (cure period), after which the return of the customer’s credit quality is assessed before it can be reclassified among performing positions. On the other hand forborne positions classified as performing must pass a minimum period of two years (“probation period”) before a position can be released from its forborne status and therefore be eliminated from the category in supervisory reports.

23 This term is used to indicate a situation in which a debtor is not considered able to meet due dates and comply with contractual terms and conditions as a result of financial difficulties. Because of those difficulties the creditor decides to modify the due date and the contractual terms and conditions in order to allow the debtor to honour the debt or to refinance it, either fully or partially.

85 Forborne exposures measured at amortised cost as at 30th June 2019 Forborne exposures are composed of one of the categories of non-performing loans (stage 3) and of performing loans (stages 1 and 2) reported in the table “Composition of loans and advances to customers measured at amortised cost”..

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (*) losses

Non-performing exposures (62.30%) 3,240,392 968,378 (54.98%) 2,272,014 29.88% - Bad loans (20.20%) 1,050,472 432,922 (14.94%) 617,550 41.21% - Unlikely-to-pay loans (41.93%) 2,181,264 534,496 (39.85%) 1,646,768 24.50% - Past-due exposures (0.17%) 8,656 960 (0.19%) 7,696 11.09% Performing exposures (37.70%) 1,961,243 100,728 (45.02%) 1,860,515 5.14% Total 5,201,635 1,069,106 4,132,529 20.55% The item as a percentage of the total is given in brackets.

Forborne exposures measured at amortised cost as at 31st March 2019 Forborne exposures are composed of one of the categories of non-performing loans (stage 3) and of performing loans (stages 1 and 2) reported in the table “Composition of loans and advances to customers measured at amortised cost”..

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (*) losses

Non-performing exposures (61.87%) 3,343,716 965,729 (54.84%) 2,377,987 28.88% - Bad loans (18.86%) 1,019,468 406,254 (14.14%) 613,214 39.85% - Unlikely-to-pay loans (42.90%) 2,318,676 558,931 (40.59%) 1,759,745 24.11% - Past-due exposures (0.11%) 5,572 544 (0.11%) 5,028 9.76% Performing exposures (38.13%) 2,060,730 102,818 (45.16%) 1,957,912 4.99% Total 5,404,446 1,068,547 4,335,899 19.77% The item as a percentage of the total is given in brackets.

Forborne exposures measured at amortised cost as at 1st January 2019 (**) Forborne exposures are composed of one of the categories of non-performing loans (stage 3) and of performing loans (stages 1 and 2) reported in the table “Composition of loans and advances to customers measured at amortised cost”

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (*) losses

Non-performing exposures (61.22%) 3,416,221 961,805 (54.38%) 2,454,416 28.15% - Bad loans (18.07%) 1,008,364 401,239 (13.45%) 607,125 39.79% - Unlikely-to-pay loans (42.99%) 2,399,013 559,735 (40.75%) 1,839,278 23.33% - Past-due exposures (0.16%) 8,844 831 (0.18%) 8,013 9.40% Performing exposures (38.78%) 2,163,839 104,945 (45.62%) 2,058,894 4.85% Total 5,580,060 1,066,750 4,513,310 19.12% The item as a percentage of the total is given in brackets.

Forborne exposures measured at amortised cost as at 30th June 2018 Forborne exposures are composed of one of the categories of non-performing loans (stage 3) and of performing loans (stages 1 and 2) reported in the table “Composition of loans and advances to customers measured at amortised cost”.

Impairment Figures in thousands of euro Gross exposure Carrying amount Coverage (*) losses

Non-performing exposures (61.35%) 3,624,122 982,115 (54.63%) 2,642,007 27.10% - Bad loans (17.73%) 1,047,407 420,513 (12.96%) 626,894 40.15% - Unlikely-to-pay loans (43.32%) 2,559,172 560,075 (41.33%) 1,999,097 21.89% - Past-due exposures (0.30%) 17,543 1,527 (0.34%) 16,016 8.70% Performing exposures (38.65%) 2,283,080 88,581 (45.37%) 2,194,499 3.88% Total 5,907,202 1,070,696 4,836,506 18.13% The item as a percentage of the total is given in brackets.

(*) The coverage is calculated as the ratio of impairment losses to gross exposure. (**) The date 1st January 2019 must be interpreted as 31st December 2018.

86 The interbank market and the liquidity position

The UBI Banca Group’s net interbank position amounted to net borrowings of €4.6 billion as at 30th June 2018 (down on both the end of March and 1st January): net of transactions with the ECB, the Group’s main counterparty, the balance (-€2.6 billion), while still negative, does not represent a significant change with respect to either January or March.

Net interbank position

30.6.2019 31.3.2019 1.1.2019 (*) 30.6.2018 Figures in thousands of euro

Loans and advances to banks measured at fair value through profit or loss [Asset item 20. 1) in the Reclassified Consolidated Balance Sheet] 15,365 14,715 14,054 14,796 Loans and advances to banks measured at amortised cost [Asset item 40. 1) in the Reclassified Consolidated Balance Sheet] 12,393,150 11,327,078 10,065,772 9,513,708 Loans and advances to banks 12,408,515 11,341,793 10,079,826 9,528,504 of which: Loans and advances to central banks 10,353,201 8,935,116 8,204,801 7,660,634 Due to banks measured at amortised cost [Asset item 10. a) in the Reclassified Consolidated Balance Sheet] 17,053,172 17,776,512 17,234,579 16,607,300 of which: Due to central banks 12,355,361 12,367,894 12,380,250 12,474,154 Net interbank position -4,644,657 -6,434,719 -7,154,753 -7,078,796

Loans and advances excluding central banks 2,055,314 2,406,677 1,875,025 1,867,870 Due to banks excluding central banks 4,697,811 5,408,618 4,854,329 4,133,146 Net interbank position net of central banks -2,642,497 -3,001,941 -2,979,304 -2,265,276

(*)The date 1st January 2019 must be interpreted as 31st December 2018.

The Group continues to maintain a more than positive position in terms of liquidity buffers, demonstrated, amongst other things, by levels well in excess of 100% for both the specific short-term (Liquidity Coverage Ratio) and structural (Net Stable Funding Ratio) Basel 3 indicators. This latter indicator1 would still be greater than one even in the presence of an ordinary funding structure not based on TLTRO II support.

Loans and advances to banks, classified solely within stages one and two, increased to €12.4 billion from €10.1 billion at the beginning of the year. The table presenting quarterly changes in the net interbank position shows the presence of marginal exposures (€15.4 million) recognised at fair value through profit or loss (these relate exclusively to business in gold and with banking counterparties, which remained essentially stable over the different quarters), while the majority of this item continues to consist of exposures measured at amortised cost.

The table giving details of loans and advances to banks measured at amortised cost shows the following:  “loans and advances to central banks” up by €2.1 billion over the half-year to €10.4 billion (+€1.4 billion in the comparison with the second quarter), of which €0.7 billion relating to the compulsory reserve requirement and €9.7 billion to reserves freely available: it should be noted that the level of reserves freely available at year-end should not be regarded as representative of the performance in terms of average balance, since such reserves are subject to the peaks generated in the normal course of business.

1 As at 30th June 2019 the indicator already reflected the weighting reduction relating to the TLTRO tranche of €10 billion maturing in June 2020.

87 In addition, the account associated with the launch within the Group of the instant credit transfer service was opened with the Bank of Italy during the second quarter and had a balance of €20 thousand as at 30th June;  “current accounts and sight deposits”, amounting to €933 million, declining progressively both over six months and in the comparison with the end of March. The item includes deposits relating to ordinary interbank business as well those connected with margin deposits on derivatives held with international counterparties;  “term deposits” of €9.5 million, now representing an entirely marginal and progressively shrinking portion of the total (-€1.4 million over six months);  “financing - other” amounting to €1.1 billion (-€8 million compared with 1st January) which is used partly to recognise credit exposure to banks linked to industrial and/or financial groups that operate in the consumer credit sector and partly for international business with foreign counterparties used to support commercial transactions with customers; At the end of the half-year there were no loans and advances to banks in the form of repurchase agreements; as at the end of March, such repurchase agreements amounted to €459.5 million and had foreign government bonds as their underlying.

Composition of loans and advances to banks measured at amortised cost

30.6.2019 1.1.2019 (*) 30.6.2018 Changes (A/B) A B C

Stages one Stages one Stages one Total % Total % Total % Figures in thousands of euro and two and two amount % and two

A. Loans and advances to central banks 10,353,201 10,353,201 83.5% 8,204,801 8,204,801 81.5% 2,148,400 26.2% 7,660,634 7,660,634 80.5% 2. Compulsory reserve requirement 10,353,181 10,353,181 83.5% 8,204,801 8,204,801 81.5% 2,148,380 26.2% 7,660,634 7,660,634 80.5% 4. Other 20 20 0.0% - - - 20 - - - - B. Loans and advances to banks 2,039,949 2,039,949 16.5% 1,860,971 1,860,971 18.5% 178,978 9.6% 1,853,074 1,853,074 19.5% 1. Financing 2,039,949 2,039,949 16.5% 1,860,971 1,860,971 18.5% 178,978 9.6% 1,853,074 1,853,074 19.5% 1.1 Current accounts and sight deposits 933,070 933,070 7.5% 744,727 744,727 7.4% 188,343 25.3% 700,810 700,810 7.4% 1.2 Term deposits 9,494 9,494 0.1% 10,869 10,869 0.1% -1,375 -12.7% 12,759 12,759 0.1% 1.3 Other financing: 1,097,385 1,097,385 8.9% 1,105,375 1,105,375 11.0% -7,990 -0.7% 1,139,505 1,139,505 12.0% - Reverse repurchase agreements - - - 12 12 0.0% -12 -100.0% 664 664 0.0% - Finance leases ------other 1,097,385 1,097,385 8.9% 1,105,363 1,105,363 11.0% -7,978 -0.7% 1,138,841 1,138,841 12.0%

Total Asset item 40. 1) in the Reclassified Consolidated Balance Sheet 12,393,150 12,393,150 100.0% 10,065,772 10,065,772 100.0% 2,327,378 23.1% 9,513,708 9,513,708 100.0%

(*)The date 1st January 2019 must be interpreted as 31st December 2018.

Composition of loans and advances to banks measured at amortised cost

30.6.2019 31.3.2019 Changes (A/D) A D

Stages one Stages one Total % Total % Figures in thousands of euro and two and two amount %

A. Loans and advances to central banks 10,353,201 10,353,201 83.5% 8,935,116 8,935,116 78.9% 1,418,085 15.9% 2. Compulsory reserve requirement 10,353,181 10,353,181 83.5% 8,935,116 8,935,116 78.9% 1,418,065 15.9% 4. Other 20 20 0.0% - - - 20 -

B. Loans and advances to banks 2,039,949 2,039,949 16.5% 2,391,962 2,391,962 21.1% -352,013 -14.7% 1. Financing 2,039,949 2,039,949 16.5% 2,391,962 2,391,962 21.1% -352,013 -14.7% 1.1 Current accounts and sight deposi 933,070 933,070 7.5% 837,533 837,533 7.4% 95,537 11.4% 1.2 Term deposits 9,494 9,494 0.1% 9,562 9,562 0.1% -68 -0.7% 1.3 Other financing: 1,097,385 1,097,385 8.9% 1,544,867 1,544,867 13.6% -447,482 -29.0% - Reverse repurchase agreements - - - 459,466 459,466 4.0% -459,466 -100.0% - Finance leases ------Other 1,097,385 1,097,385 8.9% 1,085,401 1,085,401 9.6% 11,984 1.1%

Total Asset item 40. 1) in the Reclassified Consolidated Balance Sheet 12,393,150 12,393,150 100.0% 11,327,078 11,327,078 100.0% 1,066,072 9.4%

88 Interbank funding amounted to €17.1 billion, down by €181.4 million over six months and by €723.3 million over three months, essentially attributable to repurchase agreements.

Composition of amounts due to banks measured at amortised cost

30.6.2019 31.3.2019 Changes (A/B) 1.1.2019 (*) Changes (A/C) 30.6.2018 % % % % Figures in thousands of euro A B amount %C amount % D

1. Due to central banks 12,355,361 72.5% 12,367,894 69.6% -12,533 -0.1% 12,380,250 71.8% -24,889 -0.2% 12,474,154 75.1% 2. Due to banks 4,697,811 27.5% 5,408,618 30.4% -710,807 -13.1% 4,854,329 28.2% -156,518 -3.2% 4,133,146 24.9% 2.1 Current accounts and sight deposits 947,638 5.6% 993,847 5.6% -46,209 -4.6% 715,782 4.2% 231,856 32.4% 992,033 6.0% 2.2 Term deposits 27,151 0.1% 110,757 0.6% -83,606 -75.5% 84,618 0.5% -57,467 -67.9% 75,086 0.4% 2.3 Financing: 3,680,420 21.6% 4,265,442 24.0% -585,022 -13.7% 3,998,518 23.2% -318,098 -8.0% 3,033,379 18.3% 2.3.1 Repurchase agreements 2,237,701 13.1% 2,773,156 15.6% -535,455 -19.3% 2,460,728 14.3% -223,027 -9.1% 1,618,692 9.8% 2.3.2 Other 1,442,719 8.5% 1,492,286 8.4% -49,567 -3.3% 1,537,790 8.9% -95,071 -6.2% 1,414,687 8.5% 2.6 Other payables 42,602 0.2% 38,572 0.2% 4,030 10.4% 55,411 0.3% -12,809 -23.1% 32,648 0.2%

Total Asset item 10. a) in the Reclassified Consolidated Balance Sheet 17,053,172 100.0% 17,776,512 100.0% -723,340 -4.1% 17,234,579 100.0% -181,407 -1.1% 16,607,300 100.0%

(*)The date 1st January 2019 must be interpreted as 31st December 2018.

The main form of funding, amounting to €12.5 billion nominal 2 , continued to consist of unconventional refinancing operations with the ECB, TLTRO IIs (targeted refinancing operations designed to expand lending to businesses and households). UBI Banca was allotted €10 billion nominal of funds with value date 29th June 2016 (maturity June 2020) and a further €2.5 billion nominal with value date 29th March 2017 (maturity March 2021).

As part of the process of preparing its new Business Plan, the Group is assessing the best strategy for the TLTRO III auctions announced by the ECB in May, in the light of its prospective needs and market developments. The current view is that it is not in the Bank's interest to participate in the first auction scheduled for next September.

Net of that source of funding, amounts due to banks amounted to €4.7 billion, of which:  €975 million represented by current accounts and sight deposits, the performance of which reflects the natural volatility inherent in ordinary business. In particular, the second quarter of the year saw a significant decline in sight deposits tied to the decline in the balances of accounts held by two counterparties;  €2.2 billion of repurchase agreements, down by €223 million compared with the beginning of the year and by €535 million compared with March. The item mainly reflects financing of investments, above all in US Treasuries and it includes approximately €259 million of repurchase agreements on the senior tranche of notes originating from the bad loan securitisation, not sold to third parties and backed entirely by GACS (state bad-loan securitisation guarantee);  €1.4 billion of “financing – other”, consisting almost entirely of loans with the EIB, i.e. medium to long-term funding transactions with the European Investment Bank for investments designed to support SMEs. These loans, €1.25 billion of which was attributable to the Parent and the remainder to UBI Leasing, were down by approximately €95.1 million (-€49.6 million during the quarter) as a result of amortisations falling due during the period;  €42.6 million of other payables (€55.4 million in January and €38.6 million in March), consisting of funds amounting to €23.8 million relating to credit card settlement arrangements with Nexi (former Istituto Centrale Banche Popolari). This was down compared with the beginning of the year, when the balance relating to Nexi amounted to €48.3 million (€21.1 million in March).

2 The balance recognised in the accounts shown in the table is inclusive of interest expense accruing. The application of a negative rate of -0.40% is resulting in a decrease in the debt contracted at auction. The decline in debt should be viewed within the framework of Decision (EU) 2016/810 of the European Central Bank, which established that final interest rates applied to the amounts allotted to counterparties in each auction of the second series of longer-term refinancing operations (TLTRO II) are determined according to specific calculation procedures and notified to the participating counterparties from 5th June 2018.

89 Available liquidity reserve

30.6.2019 31.3.2019 Changes A/B 1.1.2019 (*) Changes A/C % % % A B amount % C amount % Management accounting figures in millions of euro - net of haircuts

ECB pool (a) 19,902 57.3% 18,663 57.4% 1,239 6.6% 18,659 61.3% 1,243 6.7% of which government securities 5,230 15.1% 5,079 15.6% 151 3.0% 5,025 16.5% 205 4.1% of which Italian government securities 4,463 12.9% 4,336 13.3% 127 2.9% 4,183 13.7% 280 6.7% Liquid securities not included in the ECB pool (b) 2,338 6.7% 2,202 6.8% 136 6.2% 2,483 8.2% -145 -5.8% of which government securities 2,338 6.7% 2,202 6.8% 136 6.2% 2,483 8.2% -145 -5.8% of which Italian government securities 1,406 4.0% 1,104 3.4% 302 27.4% 2,303 7.6% -897 -38.9% Government securities refinanced (c) 2,811 8.2% 3,385 10.4% -574 -17.0% 1,769 5.8% 1,042 58.9% of which Italian government securities 1,146 3.3% 1,428 4.4% -282 -19.7% 193 0.6% 953 n.s. Assets eligible for refinancing (**) (a)+(b)+(c) 25,051 72.2% 24,250 74.6% 801 3.3% 22,911 75.3% 2,140 9.3% Liquid part of compulsory reserve 9,669 27.8% 8,262 25.4% 1,407 17.0% 7,522 24.7% 2,147 28.5% Total liquidity reserve 34,720 100.0% 32,512 100.0% 2,208 6.8% 30,433 100.0% 4,287 14.1% ECB auctions (portion pledged) -12,355 -35.6% -12,368 -38.1% -13 -0.1% -12,381 -40.7% -26 -0.2% Government securities refinanced -2,811 -8.1% -3,385 -10.4% -574 -17.0% -1,769 -5.8% 1,042 58.9% Available liquidity reserve 19,554 56.3% 16,759 51.5% 2,795 16.7% 16,283 53.5% 3,271 20.1%

(*) The date 1st January 2019 must be interpreted as 31st December 2018. (**) The composition of assets eligible for refinancing by type is given in the table “Assets eligible: composition by type of underlying assets”.

The Group's liquidity reserve3 as at 30th June amounted, net of haircuts, to €34.7 billion, an increase compared with €30.4 billion at the beginning of the year and with €32.5 billion at the end of March. The composition was as follows: • €19.9 billion of assets pledged to the ECB collateral pool to secure access to the TLTRO II programme, up by €1.2 billion over six months, primarily due to the eligible assets (self-retained covered bonds issued within the First and Second Programme included in the pool) released following the maturity of part of the repurchase agreements entered into at the end of 2018. The maturity of the transactions marked the end of the reduction in value applied to the portion pledged in repurchase agreements. The other securities benefited from an increase in value due to the decline in the spread compared with the end of March and the inclusion in the pool of several securities not included at the end of the previous quarter or included for lesser amounts; • €2.3 billion of readily marketable spot and forward assets not lodged with the collateral pool and available to the Parent treasury for short-term liquidity management: the changes over six and three months were limited and were driven by both shifts in composition and, in the final part of the half- year, price rallies due to the narrowing of the spread; • €2.8 billion of government securities refinanced by means of repurchase agreements (with Italian bonds as the underlying for 41%, US Treasuries for 48% and French bonds for 11%), up by €1 billion over six months essentially due to the increase in repurchase agreements on Italian government bonds, but down on the first quarter due to the decrease in transactions with US Treasuries as the underlying; • the withdrawable part of the compulsory reserve of €9.7 billion (the portion in excess of the reserve requirement): due to the peaks that may arise in the normal course of business, the period-end figure does not reflect the total average balance for the half-year. As already reported the Group is pursuing a policy to gradually lighten and diversify the portfolios (by geographical area and by sovereign and corporate issuer), designed nevertheless to maintain sufficiently large investments in European domestic government securities to ensure optimum management of liquidity by means of the eligibility of these. The total liquidity reserve was equivalent to 52% of direct sight funding as at 30th June 2019.

In terms of composition by type of financial instrument, assets eligible for refinancing amounting to €25.1 billion, calculated net of haircuts, were essentially stable over six months, across the various types of instruments, with two exceptions:  an increase in eligible instruments in the securities portfolio (+€1.36 billion), essentially due to the increased value of the securities resulting from the improvement in the spread compared with the end of March and the inclusion of various new securities;  an increase of €0.75 billion in retained covered bonds due to the aforementioned maturity in the second quarter of part of the repurchase agreements entered into at the end of 2018 with self-retained issues included in the pool as the underlying: use in repurchase agreements had entailed a partial reduction in the value of the bonds concerned for the part pledged in the repos. At the end of the half-

3 An asset is considered liquid or marketable if the credit institution is able to convert it into cash rapidly without encountering practical or legal difficulties.

90 year, repurchase agreements with self-retained issues under the first covered bond programme as the underlying were still outstanding.

As a consequence of the dynamics described above, as at year-end the margin of available liquidity amounted to €19.6 billion, up from €16.3 billion as at 1st January 2019 and €16.8 billion as at 31st March 2019.

The margin of available liquidity amounted to approximately 29% of direct sight funding as at 30th June 2019. This margin is amply sufficient to meet the Group's bond maturities in the coming years (€8.5 billion by the end of 2021).

Assets eligible: composition by type of underlying assets

30.6.2019 31.3.2019 1.1.2019 (*)

Nominal amount net of Nominal amount net of Nominal amount net of Figures in billions of euro amount haircuts amount haircuts amount haircuts

Own securities (1) 11.58 10.99 12.09 11.11 10.76 9.63 Covered bonds ("self -retained" issues) 3.68 3.24 2.64 2.33 2.84 2.49 Securitisation of residential mortgages of the former B@nca 24-7 0.50 0.44 0.52 0.46 0.55 0.48 Marche M6 Srl securitisation 0.43 0.39 0.43 0.39 0.43 0.38 UBI Leasing assets securitisation 2.10 1.89 2.10 1.89 2.10 1.89 Securitisation of performing residential mortgages 2.09 1.78 2.09 1.78 2.09 1.77 Loans eligible due to participation in ABACO (2) 10.57 6.32 10.63 6.29 10.52 6.27 Assets eligible for refinancing 30.95 25.05 30.50 24.25 29.29 22.91

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

(1) Own securities, stated both at nominal value and net of haircuts, include the amount for refinanced securities. The item is therefore fully comparable with the figures reported in the table “Available liquidity reserve”, where the allocation (pool, non-pool, refinanced) of the government securities included here is reported. These represent the most significant part of the Group’s liquid assets.

(2) ABACO (bank assets eligible as collateral) is the name given to procedures drawn up by the Bank of Italy for the management of loans eligible for refinancing. In order to qualify as eligible, an asset must meet specific requirements contained in Bank of Italy regulations concerning the following: type of debtor (public sector, non-financial company, international and supranational institutions), credit rating (set by external ratings, rating tools of approved providers and internal ratings [for banks authorised by the Bank of Italy to use internal rating models]), minimum amount (€0.03 million for domestic loans) and type of asset.

91 Financial activities

The Group’s financial assets as at 30th June 2019 amounted to €17.89 billion, recording progressive growth compared with €15.65 billion as at 1st January 2019. If financial liabilities held for trading are considered, consisting almost entirely of financial derivatives, then net assets amounted to €17.31 billion (€15.23 billion at the beginning of 2019).

Strategic action, which started at the end of 2015, continued during the first half to progressively reduce the size of the Italian government securities portfolio, while maintaining an optimum amount for liquidity management purposes, as part of a broader change in the mix and diversification of investments. This strategy will also be deployed again in the second half of 2019.

As shown in the table, at the end of June, the most significant portfolios continued to consist of the categories “Financial assets measured at fair value through other comprehensive income” and “Financial assets measured at amortised cost”, which accounted for 65% and 27.3%. respectively, of the total. In terms of types of financial instrument, 54.5% of the total portfolios consisted of Italian government securities, down compared with 60.1% in January 2019 due to actions undertaken. On the other hand, an increase can be seen in the percentage of other debt securities accounting for 38.7% (up from 33.1% at the beginning of the year), due to the already mentioned diversification of investments into corporate and government securities, not only of European countries, but also of emerging countries. Both equity securities and UCITS shares are now of a marginal amount, accounting together for 4% (4.3%) of the total.

Financial assets/liabilities

30.6.201931.3.2019 Changes A/B 1.1.2019 (*) Changes A/C 30.6.2018 Changes A/D Carrying Carrying Carrying Carrying Figures in thousands of euro amount % amount % amount % amount % amount % amount % amount % A B C D

Financial assets designated as at fair value through profit or loss [Asset Item 20. 3) in the Reclassified Consolidated Balance Sheet] 1,377,566 7.7% 1,218,936 7.1% 158,630 13.0% 1,175,213 7.5% 202,353 17.2% 1,160,068 7.4% 217,498 18.7% Financial assets held for trading 528,103 3.0% 455,158 2.6% 72,945 16.0% 405,716 2.6% 122,387 30.2% 453,209 2.9% 74,894 16.5% of which: financial derivatives contracts 494,317 2.8% 445,552 2.6% 48,765 10.9% 400,316 2.5% 94,001 23.5% 443,099 2.8% 51,218 11.6% Financial assets designated at fair value 10,054 0.1% 8,937 0.1% 1,117 12.5% 11,028 0.1% -974 -8.8% 10,085 0.1% -31 -0.3% Financial assets mandatorily measured at fair value 839,409 4.6% 754,841 4.4% 84,568 11.2% 758,469 4.8% 80,940 10.7% 696,774 4.4% 142,635 20.5% Financial assets measured at fair value through other comprehensive income [Asset Item 30. 3) in the Reclassified Consolidated Balance Sheet] 11,618,770 65.0% 11,237,457 65.3% 381,313 3.4% 10,726,164 68.6% 892,606 8.3% 11,527,974 73.3% 90,796 0.8% Financial assets measured at amortised cost [Asset Item 40. 3) in the Reclassified Consolidated Balance Sheet] 4,889,115 27.3% 4,739,311 27.6% 149,804 3.2% 3,745,219 23.9% 1,143,896 30.5% 3,029,947 19.3% 1,859,168 61.4%

Financial assets (a) 17,885,451 100.0% 17,195,704 100.0% 689,747 4.0% 15,646,596 100.0% 2,238,855 14.3% 15,717,989 100.0% 2,167,462 13.8% of which: - debt securities 16,663,100 93.2% 16,032,726 93.2% 630,374 3.9% 14,580,129 93.2% 2,082,971 14.3% 14,663,726 93.3% 1,999,374 13.6% of which: Italian government securities (**) 9,741,570 54.5% 9,523,000 55.4% 218,570 2.3% 9,398,857 60.1% 342,713 3.6% 9,913,928 63.1% -172,358 -1.7% of which: Italian government securities excluding Insurance 8,454,042 8,284,378 169,664 2.0% 8,192,417 261,625 3.2% 8,681,231 -227,189 -2.6% - equity securities 310,601 1.7% 309,862 1.8% 739 0.2% 278,948 1.8% 31,653 11.3% 302,779 1.9% 7,822 2.6% - shares of UCITS 417,433 2.3% 407,564 2.4% 9,869 2.4% 387,203 2.5% 30,230 7.8% 308,385 2.0% 109,048 35.4%

Financial liabilities held for trading (b) 571,499 100.0% 461,254 100.0% 110,245 23.9% 410,977 100.0% 160,522 39.1% 386,959 100.0% 184,540 47.7% of which: financial derivatives contracts 543,598 95.1% 461,254 100.0% 82,344 17.9% 410,977 100.0% 132,621 32.3% 386,959 100.0% 156,639 40.5%

NET FINANCIAL ASSETS (a-b) 17,313,952 16,734,450 579,502 3.5% 15,235,619 2,078,333 13.6% 15,331,030 1,982,922 12.9%

(*) The date 1st January 2019 must be interpreted as 31st December 2018. (**) The increase shown in the table in the second quarter of 2019 relates almost entirely to accounting adjustments.

92 It can be clearly seen from the chart showing the trend for the banking group’s (excluding insurance companies) Italian government securities since January 2018 that, while the total has remained stable over the first six months of 2019, the percentage of the fair value component has reduced further and the part recognised through comprehensive gen-2018 mar-2018 giu-2018 sett-2018 gen-2019 mar-2019 income in particular. gen-18 mar-18 giu-18 sett-18 gen-19 mar-19 giu-19

Management accounting figures1 for 30th June 2019, show the following: - in terms of type of financial instrument, the Group’s securities portfolio was composed as follows: 85.94% of government securities; 10.32% of corporate securities, over half of which attributable to the financial sector (94.06% of these investments have an investment grade rating, 48.32% of which concentrated in the BBB segment and 36.27% in the A segment); the remaining 3.74% consisting of hedge funds, funds and equities (which included the stakes held in the Atlante Fund and the Bank of Italy); - from a financial viewpoint, floating rate securities accounted for 0.94% of the portfolio and fixed rate securities for 94.92%, while the remainder was composed of convertible, subordinated and securitisation securities; - as regards the currency of denomination, 86.33% of the securities were denominated in euro and 13.67% in dollars with natural currency hedges, while in terms of geographical distribution, 84.55% of the investments (excluding hedge funds and equity investments) were issued from countries in the euro area; - an analysis by rating (for the bond portfolio only) shows that 99.26% of the portfolio consisted of “investment grade” securities.

Financial assets measured at fair value through profit or loss

“Financial assets measured at fair value through profit or loss”, Asset Item 20 in the Consolidated Balance Sheet, were composed of the following categories:  Financial assets held for trading [Item 20 a)], i.e.: - financial instruments managed with the objective of realising cash flows through the sale of the assets because: (i) they were acquired or incurred principally for the purpose of selling or repurchasing them in the short-term; (ii) they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking; - derivatives held for trading;  “Financial assets designated at fair value” [Item 20 b)]: financial instruments classified in this category in application of the fair value option (FVO);  “Other financial assets mandatorily measured at fair value” [Item 20 c)]: financial instruments (i) for which the management strategy is determined on the basis of their fair value or (ii) they are instruments for which the objective contractual characteristics do not give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding where the solely payments of principal and interest test (“SPPI” test) has not been passed. These financial instruments are measured at fair value with changes in fair value recognised through profit or loss.

1 The management accounting analysis relates to a smaller portfolio than that stated in the consolidated financial statements, because they exclude some smaller portfolios and also financial derivatives contracts held for trading. Securities relating to insurance business are not included.

93 Financial assets held for trading

Financial assets held for trading [Asset item 20. a) in the Consolidated Balance Sheet]

30.6.20191.1.2019 (*) Changes A/B 30.6.2018 Carrying Carrying Carrying Figures in thousands of euro L 1 L 2 L 3 amount L 1 L 2 L 3 amount amount % L 1 L 2 L 3 amount A B C

On-balance sheet assets Debt securities 28,085 214 100 28,399 340 208 100 648 27,751 n.s. 498 289 100 887 of which: Italian government securities 11 - - 11 10 - - 10 1 10.0% 13 - - 13 Equity securities 5,385 - 2 5,387 4,725 - 26 4,751 636 13.4% 9,197 - 26 9,223 Shares of UCITS - - - - 1 - - 1 -1 -100.0% - - - - Total (a) 33,470 214 102 33,786 5,066 208 126 5,400 28,386 n.s. 9,695 289 126 10,110

Derivative instruments Financial derivatives 666 415,550 78,101 494,317 1,070 318,532 80,714 400,316 94,001 23.5% 1,704 369,949 71,446 443,099 Credit derivatives ------Total (b) 666 415,550 78,101 494,317 1,070 318,532 80,714 400,316 94,001 23.5% 1,704 369,949 71,446 443,099

Total (a+b) 34,136 415,764 78,203 528,103 6,136 318,740 80,840 405,716 122,387 30.2% 11,399 370,238 71,572 453,209

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Financial assets held for trading [Asset item 20. a) in the Consolidated Balance Sheet]

30.6.2019 31.3.2019 Changes A/D Carrying Carrying Figures in thousands of euro L 1 L 2 L 3 amount L 1 L 2 L 3 amount amount % A D

On-balance sheet assets Debt securities 28,085 214 100 28,399 367 205 100 672 27,727 n.s. of which: Italian government securities 11 - - 11 15 - - 15 -4 -26.7% Equity securities 5,385 - 2 5,387 8,932 - 2 8,934 -3,547 -39.7% Shares of UCITS ------Total (a) 33,470 214 102 33,786 9,299 205 102 9,606 24,180 251.7% Derivative instruments Financial derivatives 666 415,550 78,101 494,317 990 368,857 75,705 445,552 48,765 10.9% Credit derivatives ------Total (b) 666 415,550 78,101 494,317 990 368,857 75,705 445,552 48,765 10.9%

Total (a+b) 34,136 415,764 78,203 528,103 10,289 369,062 75,807 455,158 72,945 16.0%

At the end of June financial assets held for trading totalled €528.1 million, (€455.2 million in March, €405.7 million at the beginning of January and €453.2 million in June 2018), consisting of on-balance sheet assets of €33.8 million (€9.6 million, €5.4 million and €10.1 million) and of derivatives amounting to €494.3 million (€445.6 million, €400.3 million and €443.1 million).

As shown in the table, debt securities, amounting to €28.4 million, represented the main item of on-balance sheet assets because they recorded an increase in the first half relating to (i) other debt securities, or more specifically to the purchase in April of €25 million nominal of French OATs and (ii) end-of-period accounting adjustments. As already reported, Italian government securities fell to almost zero in the first half of 2018 following redemptions of BOTs and CTZs.

Equity securities, amounting to €5.4 million (€4.7 million in January), were composed of many investments for small amounts made by the Parent totalling €4.4 million (€4.3 million at the beginning of the year) and of investments made by insurance companies amounting to approximately €1 million (€0.4 million).

Finally, with regard to derivative instruments, these consisted solely of financial derivatives, for which the changes must be interpreted in strict relation to the corresponding item recognised within financial liabilities held for trading. As at 30th June 2019 they amounted to €494.3 million, recording progressive growth compared with €400.3 million at the beginning of

94 the year. These are contracts without complex structures, consisting mainly of interest rate swaps attributable entirely to UBI Banca’s activities.

Financial assets designated at fair value

Financial assets designated at fair value [Asset item 20. b) in the Consolidated Balance Sheet]

30.6.20191.1.2019 (*) Changes A/B 30.6.2018 Carrying Carrying Carrying Figures in thousands of L 1 L 2 L 3 L 1 L 2 L 3 amount % L 1 L 2 L 3 euro amount amount amount A B C

Debt securities 10,054 - - 10,054 11,028 - - 11,028 -974 -8.8% 10,085 - - 10,085 of which: Italian government securities 5,594 - - 5,594 7,049 - - 7,049 -1,455 -20.6% 5,843 - - 5,843

Total 10,054 - - 10,054 11,028 - - 11,028 -974 -8.8% 10,085 - - 10,085

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Financial assets designated at fair value [Asset item 20. b) in the Consolidated Balance Sheet]

30.6.2019 31.3.2019 Changes A/D Carrying Carrying Figures in thousands of L 1 L 2 L 3 L 1 L 2 L 3 amount % euro amount amount A D

Debt securities 10,054 - - 10,054 8,937 - - 8,937 1,117 12.5% of which: Italian government securities 5,594 - - 5,594 5,309 - - 5,309 285 5.4%

Total 10,054 - - 10,054 8,937 - - 8,937 1,117 12.5%

Financial assets designated at fair value, amounting to €10.1 million, were down compared with €11 million as at 1st January 2019 (€8.9 million in March and €10.1 million as at 30th June 2018) relating entirely to the Group’s insurance business activities.

Debt securities, the sole component of this item, included Italian government securities amounting to €5.6 million (€7 million at the beginning of 2019) for which the performance was the result of:

 sales and redemptions of BTPs and CTZs amounting to €3.3 million nominal and purchases of BTPs and CTZs amounting to €1.1 million nominal, which took place in the first quarter;  net purchases of BTPs and CTZs amounting to €685 thousand in the second quarter (€5.6 million of purchases and €4.9 million of sales and redemptions). As already reported, the changes shown in the tables take account of end of period accounting adjustments.

Other debt securities, amounting to €4.5 million (approximately €4 million in January 2019), are composed of government securities of other countries (i.e. Germany, Spain, France, Holland and the United States) and, to a marginal extent, corporate securities.

95 Other financial assets mandatorily measured at fair value

Other financial assets mandatorily measured at fair value [Asset item 20. c) in the Consolidated Balance Sheet]

30.6.20191.1.2019 (*) Changes A/B 30.6.2018 Carrying Carrying Carrying Figures in thousands of L 1 L 2 L 3 L 1 L 2 L 3 amount % L 1 L 2 L 3 euro amount amount amount A B C

Debt securities 85,784 28,049 48,365 162,198 63,261 34,572 48,087 145,920 16,278 11.2% 91,998 36,044 17,012 145,054 of which: Italian government securities 2,927 - - 2,927 4,581 - - 4,581 -1,654 -36.1% 35,568 - - 35,568 Equity securities 55,787 223 203,768 259,778 22,241 2,377 200,729 225,347 34,431 15.3% 22,482 2,290 218,563 243,335 Shares of UCITS 191,403 185,551 40,479 417,433 154,454 192,184 40,564 387,202 30,231 7.8% 122,516 148,537 37,332 308,385

Total 332,974 213,823 292,612 839,409 239,956 229,133 289,380 758,469 80,940 10.7% 236,996 186,871 272,907 696,774

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Other financial assets mandatorily measured at fair value [Asset item 20. c) in the Consolidated Balance Sheet]

30.6.2019 31.3.2019 Changes A/D Carrying Carrying Figures in thousands of L 1 L 2 L 3 L 1 L 2 L 3 amount % euro amount amount A D

Debt securities 85,784 28,049 48,365 162,198 41,102 5,876 48,176 95,154 67,044 70.5% of which: Italian government securities 2,927 - - 2,927 8,923 - - 8,923 -5,996 -67.2% Equity securities 55,787 223 203,768 259,778 24,475 358 227,290 252,123 7,655 3.0% Shares of UCITS 191,403 185,551 40,479 417,433 167,001 200,084 40,479 407,564 9,869 2.4% Total 332,974 213,823 292,612 839,409 232,578 206,318 315,945 754,841 84,568 11.2%

At the end of the first half other financial assets mandatorily measured at fair value amounted to €839.4 million (€754.8 million in March, €758.5 million as at 1st January and €696.8 million as at 30th June 2018).

The table shows debt securities of €162.2 million (€145.9 million at the beginning of January), of which €2.9 million in Italian government securities, related entirely to the insurance segment (the €35.6 million held one year before included approximately €31 million held by the Parent and disposed of during the last quarter of 2018).

Other debt securities amounted to €159.3 million (€141.3 million in January), 31.3% of which related mostly to banking business. The €49.8 million comprised within the banking segment also includes: (i) a convertible bond in the amount of €42.9 million, which had already increased in value by €27.3 million in the fourth quarter of 2018; (ii) a share of over €2.3 million held in relation to the voluntary scheme created at the Interbank Deposit Protection Fund (IDPF), which, in relation to the actions to support Banca Carige, directly subscribed subordinated bonds of the Bank itself; (iii) 5% of the junior and mezzanine tranches related to the securitisation of a portfolio of bad loans backed by GACS (a government bad loan securitisation guarantee) not subject to sale to third parties, for a total carrying amount of €1.2 million2. The remaining €109.5 million relates to insurance business (€91.8 million at the beginning of 2019).

Equity securities, classified mostly within fair value level three, amounted to €259.8 million (€225.3 million in January 2019). Shareholdings recognised in fair value level three and totalling €161.1 million, were held in the Bank of Italy, SACBO and DepoBank (the former Istituto Centrale delle Banche Popolari), an amount that increased by €2.4 million in the second quarter of 2019 following the appreciation in value of SACBO. The stake held in NEXI,

2 See the information reported in the section “Significant events in 2018” in the consolidated management report of the UBI Banca Group for the year ended 31st December 2018.

96 partially written down by €9.3 million in the fourth quarter of 20183, was written up by €17.7 million in the first quarter of 2019 and by approximately €3.5 million in the second quarter and it was reclassified out of level three and into level one, for an amount of €32.5 million as at 30th June, following its listing on the stock exchange which took place in April.

Shares in UCITS totalled €417.4 million at the end of June (+€30.2 million compared with January). In addition to the shares subscribed by the insurance companies amounting to €139.8 million, level one mainly contained €43.4 million of shares in the fund Pramerica Global Multi Asset Allocation, €4.3 million of shares in the fund Polis (a capital redemption of €2.8 million was paid in the first three months of the period) and a residual amount of €2.1 million shares in the fund Tages, after disposals carried out at the end of 2017. Level two was composed largely of real estate funds (€46 million relating to UBI Banca and approximately €30 million to UBI Leasing) and it includes insurance investments amounting to €22.5 million. Only the shares of the Atlante Fund had been assigned to fair value level three.

Financial liabilities held for trading

Financial liabilities held for trading: composition [Liabilities item 20. in the Consolidated Balance Sheet]

30.6.20191.1.2019 (*) Changes A/B 30.6.2018 Carrying Carrying Carrying Figures in thousands of euro L 1L 2L 3amount L 1L 2L 3amount amount % L 1 L 2 L 3 amount A B C

On-balance sheet liabilities Due to banks ------Due to customers 27,901 - - 27,901 - - - - 27,901 - - - - - Debt securities ------Total (a) 27,901 - - 27,901 - - - - 27,901 - - - - -

Derivative instruments Financial derivatives 90 543,508 - 543,598 123 410,823 31 410,977 132,621 32.3% 398 386,415 146 386,959 Credit derivatives ------Total (b) 90 543,508 - 543,598 123 410,823 31 410,977 132,621 32.3% 398 386,415 146 386,959

Total (a+b) 27,991 543,508 - 571,499 123 410,823 31 410,977 160,522 39.1% 398 386,415 146 386,959

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Financial liabilities held for trading: composition [Liabilities item 20. in the Consolidated Balance Sheet]

30.6.2019 31.3.2019 Changes A/D Carrying Carrying Figures in thousands of euro L 1L 2L 3amount L 1 L 2 L 3 amount amount % A D

On-balance sheet liabilities Due to banks ------Due to customers 27,901 - - 27,901 - - - - 27,901 - Debt securities ------Total (a) 27,901 - - 27,901 - - - - 27,901 -

Derivative instruments Financial derivatives 90 543,508 - 543,598 635 460,619 - 461,254 82,344 17.9% Credit derivatives ------Total (b) 90 543,508 - 543,598 635 460,619 - 461,254 82,344 17.9%

Total (a+b) 27,991 543,508 - 571,499 635 460,619 - 461,254 110,245 23.9%

Financial liabilities held for trading amounted to €571.5 million in June (€461.3 million in March, approximately €411 million as at 1st January and €387 million in June 2018) and consisted mainly of financial derivatives, for which the amount and the performance must be interpreted consistently with the corresponding item recognised within financial liabilities held

3 The company distributed extraordinary dividends in the fourth quarter of 2018 amounting to €14.4 million.

97 for trading. At the end of the first half on-balance sheet liabilities amounted to €27.9 million (not present in previous comparative periods), following the purchase of a short position amounting to €26.8 million nominal in French OATs in April 2019.

Financial assets measured at fair value through other comprehensive income

“Financial assets measured at fair value through other comprehensive income”, Asset item 30 in the Consolidated Balance Sheet are composed of the following: (i) financial instruments associated with the “Hold to Collect and Sell” business model, which is to say they are held within the framework of a business model, the objective of which is achieved both by the collection of cash flows and by the sale of the instruments themselves and the contractual terms of which give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (the SPPI test is passed); (ii) equity securities for which an “OCI election” has been opted for to present changes in fair value in other comprehensive income4. The financial instruments referred to in item (i) are measured at fair value with changes recognised within “valuation reserves”. Impairment losses and reversals of those losses determined in compliance with IFRS 9 impairment rules are recognised through profit or loss against “valuation reserves” in the statement of comprehensive income, while the equity securities referred to in item (ii) are measured at fair value with changes recognised within “valuation reserves” within the statement of comprehensive income5.

Financial assets measured at fair value through other comprehensive income [Asset item 30. 3) in the Reclassified Consolidated Balance Sheet]

30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018 Carrying Carrying Carrying Figures in thousands of L 1 L 2 L 3 L 1 L 2 L 3 amount % L 1 L 2 L 3 euro amount amount amount A B C

Debt securities 11,474,054 99,280 - 11,573,334 10,589,504 87,810 - 10,677,314 896,020 8.4% 11,393,607 84,131 15 11,477,753 of which: Italian government securities 5,762,787 - - 5,762,787 6,275,680 - - 6,275,680 -512,893 -8.2% 6,848,166 - - 6,848,166 Equity securities - - 45,436 45,436 - - 48,850 48,850 -3,414 -7.0% - - 50,221 50,221

Total 11,474,054 99,280 45,436 11,618,770 10,589,504 87,810 48,850 10,726,164 892,606 8.3% 11,393,607 84,131 50,236 11,527,974

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Financial assets measured at fair value through other comprehensive income [Asset item 30. 3) in the Reclassified Consolidated Balance Sheet]

30.6.2019 31.3.2019 Changes A/D Carrying Carrying Figures in thousands of euro L 1 L 2 L 3 amount L 1 L 2 L 3 amount amount % A D

Debt securities 11,474,054 99,280 - 11,573,334 11,084,298 104,354 - 11,188,652 384,682 3.4% of which: Italian government securities 5,762,787 - - 5,762,787 5,616,846 - - 5,616,846 145,941 2.6% Equity securities - - 45,436 45,436 - - 48,805 48,805 -3,369 -6.9% Total 11,474,054 99,280 45,436 11,618,770 11,084,298 104,354 48,805 11,237,457 381,313 3.4%

As at 30th June 2019 financial assets measured at fair value through other comprehensive income amounted €11.6 billion, an increase of €0.9 billion over six months (€11.2 billion in March, €10.7 billion at the beginning of the year and €11.5 billion in June 2018).

As shown in the table, debt securities, amounting to €11.6 billion, included €5.8 billion of Italian government securities, of which almost €1.3 billion related to insurance business (€1.2 billion as at 1st January). Investments in Italian government securities decreased compared with January, attributable to divestments in the banking segment and to the sale of BTPs for €663.4 million nominal, which took place in the first quarter of the year.

4 In fact with reference to the provisions of IFRS 9, an entity may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. 5 With specific reference to equity securities, the amount recognised within “valuation reserves” is never transferred to the income statement (known as FVOCI with no recycling), not even when the investments are sold.

98 However, the increase of €146 million shown relating to the second quarter is attributable solely to a fair value effect which affected investments in both the banking and the insurance segments.

As regards, on the other hand, other debt securities, the total grew to €5.8 billion (€4.4 billion at the beginning of January). This performance reflects, again in the context of diversification of the portfolio, the purchase of €55 million nominal net of Portuguese government securities, €55 million nominal net of Belgian government securities, €75 million nominal net of Spanish Bonos and €500 million nominal net of French OATs, compared with $50 million nominal of US Treasuries. Transactions were carried out in the first half, with a nil net effect, in Irish government securities, Greek government securities and supranational securities. Government securities of emerging countries in the euro area recorded net purchases in the first half of approximately €45 million nominal, while those in the US area reported no significant changes. Corporate bonds on the other hand saw net investments of €347.5 million nominal and of approximately $97 million nominal net.

The item debt securities includes approximately €2 billion related to Bancassurance Popolari, i.e. the already mentioned approximately €1.3 billion of Italian government securities and €0.7 billion of government securities from other countries and corporate bonds. It must be considered that the changes in debt securities reported in the tables also take account of end-of- period accounting adjustments.

Equity securities for which the Group has made an OCI election consisted of many small investments for a small total amount and came to €45.4 million. They were down in both the quarterly and the half-yearly comparison (€48.8 million).

Financial assets measured at amortised cost

Asset item 40 in the Consolidated Balance Sheet, “Financial assets measured at amortised cost”, includes financial instruments associated with the “Hold to Collect” business model, which is to say they are held within the framework of a business model, the objective of which is to hold the assets in order to collect the cash flows and the contractual terms of which give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (the SPPI test is passed). These assets are measured at amortised cost with impairment losses and reversals of those losses determined in compliance with IFRS 9 impairment rules recognised through profit or loss.

Financial assets measured at amortised cost [Asset item 40. 3) in the Reclassified Consolidated Balance Sheet]

30.6.2019 1.1.2019 (*) Changes A/B 30.6.2018

Carrying amount A Fair value Carrying amount B Fair value Carrying amount C of w hich: of w hich: of w hich: purchased purchased purchased amount % Stages one Stage Stages one Stage Stages one Stage or or originated L 1 L 2 L 3 Total or originated L 1 L 2 L 3 Total and two three and two three and two three originated credit- credit- Figures in credit- impaired impaired thousands of euro impaired

Debt securities 4,889,115 - - 4,098,433 4,430 555,244 4,658,107 3,745,219 - - 2,795,836 106 633,342 3,429,284 1,143,896 30.5% 3,029,947 - - of which: Italian government securities 3,970,251 - - 3,721,650 - - 3,721,650 3,111,537 - - 2,795,836 - - 2,795,836 858,714 27.6% 3,024,338 - -

Total 4,889,115 - - 4,098,433 4,430 555,244 4,658,107 3,745,219 - - 2,795,836 106 633,342 3,429,284 1,143,896 30.5% 3,029,947 - -

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

99 Financial assets measured at amortised cost [Asset item 40. 3) in the Reclassified Consolidated Balance Sheet]

30.6.2019 31.3.2019 Changes A/D

Carrying amount A Fair value Carrying amount D Fair value

of w hich: of w hich: Stages one Stage purchased Stages one Stage purchased amount % L 1 L 2 L 3 Total L 1 L 2 L 3 Total and two three or originated and two three or originated Figures in credit- credit- thousands of euro impaired impaired

Debt securities 4,889,115 - - 4,098,433 4,430 555,244 4,658,107 4,739,311 - - 3,847,393 4,430 554,876 4,406,699 149,804 3.2% Italian government securities 3,970,251 - - 3,721,650 - - 3,721,650 3,891,907 - - 3,554,779 - - 3,554,779 78,344 2.0% Total 4,889,115 - - 4,098,433 4,430 555,244 4,658,107 4,739,311 - - 3,847,393 4,430 554,876 4,406,699 149,804 3.2%

At the end of June 2019 financial assets measured at amortised cost amounted to €4.9 billion (€4.7 billion in March, €3.7 billion as at 1st January and €3.0 billion in June 2018) and they were composed entirely of debt securities classified in stage one according to the rules of the new IFRS 9 accounting standard. The majority consisted of Italian government securities classified within fair value level one. The latter had increased by €858.7 million over the six- month period following the purchase, in January and February, of €725 million nominal of BTPs.

Other debt securities, amounting to €918.9 million (+€285.2 million in the first half) were composed primarily of: (i) the senior tranche of the notes resulting from a bad loan securitisation, not subject to sale to third parties and backed entirely by GACS (a government bad loan securitisation guarantee), for a total amount of €554.7 million (a decrease of €73.8 million in the first half as a result of a repayment of principal made in the first quarter); (ii) Spanish Bonos, purchased in February amounting to €200 million nominal; and (iii) investments in bonds issued by banks amounting to €150.8 million made mostly in the first three months of the year. As already reported, the changes shown in the tables take account of end-of-period accounting adjustments.

Risk

FVOCI debt securities, for which 99% of their gross value has been classified within stage one (99.3% in March, 98.8% in January), 0.9% in stage two (0.6%, 1.1%) and the remainder in stage three, had coverage ratios of 0.05%, 1.12% and 100% (0.05%, 1.59% and 100% in March; 0.04%, 1.51% and 100% at the beginning of 2019). Debt securities measured at amortised cost, on the other hand, were allocated entirely to stage one with a coverage ratio of 0.05% (0.04% in both the comparative periods).

Exposure to sovereign debt risk

The specific table “UBI Banca Group: exposures to sovereign debt risk” (presented with separate figures for the insurance business given the different nature of the underlying risk) shows that the carrying amount of the sovereign debt risk exposures of the Group as at 30th June 2019 amounted to €15.1 billion, of which €13.4 billion consisting of securities held in portfolio by Group banks and €1.7 billion attributable to insurance business. At country level the risk is concentrated mainly in Italy accounting for 71.29% of the total (€10.78 billion), in the Spain accounting for 10.54% (€1.59 billion) and in the United States accounting for 10.29% (€1.56 billion). As already reported, details of Group exposures are given on the basis that, according to the instructions issued by the European supervisory authority, (European Securities and Markets Authority, ESMA), “sovereign debt” is defined as debt securities issued by central and local governments and by government entities and also as loans granted to them.

100 UBI Banca Group: exposures to sovereign debt risk

Country/portfolio of classification 30.6.2019 Consolidated without insurance Insurance Nominal Carrying Nominal Carrying Figures in thousands of euro Fair value Fair value amount amount amount amount

- Italy 8,381,025 9,487,622 9,209,035 1,221,829 1,293,227 1,293,227 financial assets and liabilities held for trading (net exposure) 9 11 11 - - - financial assets designated at fair value - - - 5,516 5,594 5,594 financial assets mandatorily measured at fair value - - - 3,000 2,927 2,927 financial assets measured at fair value through other comprehensive income * 4,175,050 4,492,859 4,492,859 1,213,313 1,284,706 1,284,706 financial assets measured at amortised cost (government securities) 3,190,000 3,970,251 3,721,650 - - - financial assets measured at amortised cost (financing and other securities) 1,015,966 1,024,501 994,515 - - - - Spain 1,160,000 1,287,519 1,301,339 222,330 306,655 306,655 financial assets measured at fair value through other comprehensive income 960,000 1,079,336 1,079,336 219,650 303,886 303,886 Financial assets designated at fair value+B35 - - - 2,680 2,769 2,769 financial assets measured at amortised cost (government securities) 200,000 208,183 222,003 - - - - United States 1,537,786 1,555,306 1,555,306 557 558 558 Financial assets designated at fair value - - - 557 558 558 Financial assets measured at fair value through other comprehensive income 1,537,786 1,555,306 1,555,306 - - - - Belgium 80,000 89,481 89,481 - - - Financial assets measured at fair value through other comprehensive income 80,000 89,481 89,481 - - - - France 498,200 530,199 530,199 3,190 3,521 3,521 financial assets and liabilities held for trading (net exposure) -1,800 -156 -156 - - - Financial assets designated at fair value - - - 190 257 257 Financial assets measured at fair value through other comprehensive income 500,000 530,355 530,355 3,000 3,264 3,264 - Germany - - - 281 466 466 financial assets designated at fair value - - - 281 466 466 - Latvia - - - 2,000 2,110 2,110 financial assets measured at fair value through other comprehensive income - - - 2,000 2,110 2,110 - Holland 10 10 10 835 916 916 financial assets designated at fair value - - - 135 181 181 financial assets measured at fair value through other comprehensive income - - - 700 735 735 financial assets measured at amortised cost (financing and other securities) 10 10 10 - - - - Portugal 130,000 153,099 153,099 37,000 44,873 44,873 financial assets measured at fair value through other comprehensive income 130,000 153,099 153,099 37,000 44,873 44,873 - Rumania 19,478 21,400 21,400 5,000 5,666 5,666 financial assets measured at fair value through other comprehensive income 19,478 21,400 21,400 5,000 5,666 5,666 - Abu Dhabi 14,938 15,618 15,618 - - - financial assets measured at fair value through other comprehensive income 14,938 15,618 15,618 - - - - Algeria 3,786 2,993 2,993 - - - financial assets measured at amortised cost (financing and other securities) 3,786 2,993 2,993 - - - - Saudi Arabia 21,880 22,602 22,602 - - - financial assets measured at fair value through other comprehensive income 21,880 22,602 22,602 - - - - Argentina 672 378 378 - - - financial assets and liabilities held for trading (net exposure) 672 378 378 - - - - Bulgaria - - - 2,000 2,343 2,343 financial assets measured at fair value through other comprehensive income - - - 2,000 2,343 2,343 - Chile 5,712 6,052 6,052 1,500 1,631 1,631 financial assets measured at fair value through other comprehensive income 5,712 6,052 6,052 1,500 1,631 1,631 - Colombia 29,086 31,760 31,760 - - - financial assets measured at fair value through other comprehensive income 29,086 31,760 31,760 - - - '- South Korea 8,787 8,758 8,758 - - - financial assets measured at fair value through other comprehensive income 8,787 8,758 8,758 - - - - Croatia 5,000 5,014 5,014 2,500 2,929 2,929 financial assets measured at fair value through other comprehensive income 5,000 5,014 5,014 2,500 2,929 2,929 '- Philippines 22,181 26,007 26,007 - - - financial assets measured at fair value through other comprehensive income 22,181 26,007 26,007 - - - '- Indonesia 21,209 22,224 22,224 2,500 2,560 2,560 financial assets measured at fair value through other comprehensive income 21,209 22,224 22,224 2,500 2,560 2,560 - Israel 4,394 4,562 4,562 - - - financial assets measured at fair value through other comprehensive income 4,394 4,562 4,562 - - - '- Kazakhstan 5,000 5,514 5,514 - - - financial assets measured at fair value through other comprehensive income 5,000 5,514 5,514 - - - - Lithuania 12,151 12,750 12,750 - - - financial assets measured at fair value through other comprehensive income 12,151 12,750 12,750 - - - - Morocco 5,712 5,989 5,989 - - - financial assets measured at fair value through other comprehensive income 5,712 5,989 5,989 - - - - Mexico 30,387 31,640 31,640 2,500 2,627 2,627 financial assets measured at fair value through other comprehensive income 30,387 31,640 31,640 2,500 2,627 2,627 - Oman 4,613 4,527 4,527 - - - financial assets measured at fair value through other comprehensive income 4,613 4,527 4,527 - - - - Panama 21,353 22,565 22,565 - - - financial assets measured at fair value through other comprehensive income 21,353 22,565 22,565 - - - - Peru 5,076 6,190 6,190 - - - financial assets measured at fair value through other comprehensive income 5,076 6,190 6,190 - - - - Poland 16,696 17,717 17,717 - - - financial assets measured at fair value through other comprehensive income 16,696 17,717 17,717 - - - - Qatar 50,192 53,107 53,107 - - - financial assets measured at fair value through other comprehensive income 31,634 34,477 34,477 - - - financial assets measured at amortised cost (financing and other securities) 18,558 18,630 18,630 - - - - People's Republic of China 1,230 1,241 1,241 - - - financial assets measured at fair value through other comprehensive income 1,230 1,241 1,241 - - - - Slovak Republic 3,515 3,728 3,728 - - - financial assets measured at fair value through other comprehensive income 3,515 3,728 3,728 - - - - Serbia Montenegro 1,716 1,857 1,857 - - - financial assets measured at fair value through other comprehensive income 1,716 1,857 1,857 - - - - Slovenia 580 662 662 - - - financial assets measured at fair value through other comprehensive income 580 662 662 - - - - South Africa 4,394 4,747 4,747 - - - financial assets measured at fair value through other comprehensive income 4,394 4,747 4,747 - - - - Uruguay 8,348 9,028 9,028 - - - financial assets measured at fair value through other comprehensive income 8,348 9,028 9,028 - - - Total on-balance sheet exposure 12,115,107 13,451,866 13,187,099 1,504,022 1,670,082 1,670,082

* The carrying amount is different from that reported in the line “Italian government securities” in the table relating to “Financial assets measured at fair value through comprehensive income” due to the presence in this table of bonds issued by Cassa Depositi e Prestiti (a lending and deposit institution under public control) amounting to €14.8 million, of which €5.7 million relating to insurance business.

101 * * *

The table “Maturities of Italian government securities”, on the other hand, shows the distribution by maturity of Italian government securities held in portfolio.

Maturities of Italian government securities

30.6.2019 1.1.2019 (*) Financial Financial Other financial Financial Financial Financial Financial Other financial Financial Financial assets held assets assets assets assets assets held assets assets assets assets for trading designated mandatorily measured at measured at for trading designated mandatorily measured at measured at [Asset item 20. at fair value measured at fair value amortised [Asset item 20. at fair value measured at fair value amortised a) in the [Asset item 20. fair value through other cost a) in the [Asset item 20. fair value through other cost Consolidated Carrying Consolidated Carrying b) in the [Asset item 20. comprehensiv [Asset item 40. b) in the [Asset item 20. comprehensiv [Asset item 40. Balance Sheet] Consolidated % Balance Sheet] Consolidated % c) in the e income 3) in the amount c) in the e income 3) in the amount Balance Sheet] Consolidated Reclassified Balance Sheet] Consolidated Reclassified [Asset item 30. [Asset item 30. Balance Sheet] Consolidated Balance Sheet] Consolidated 3) in the 3) in the Balance Sheet] Balance Sheet] Reclassified Reclassified Figures in thousands Consolidated Consolidated of euro Balance Sheet] Balance Sheet]

Up to 6 months 1 1,214 - - - 1,215 0.0% 1 3,092 1,771 11,945 - 16,809 0.2% Six months to one year 1 2,562 - 22,048 - 24,611 0.3% 1 367 - 5,597 - 5,965 0.1% One year to three years 2 542 - 90,037 - 90,581 0.9% 4 1,973 - 93,240 - 95,217 1.0% Three years to five years 1 740 - 2,064,190 - 2,064,931 21.2% 1 158 - 2,272,239 - 2,272,398 24.2% Five years to ten years 3 378 2,927 3,017,390 1,990,926 5,011,624 51.4% 1 1,355 - 3,463,294 1,273,133 4,737,783 50.4%

Over ten years 3 158 - 569,122 1,979,325 2,548,608 26.2% 2 104 2,810 429,365 1,838,404 2,270,685 24.1% Total 11 5,594 2,927 5,762,787 3,970,251 9,741,570 100.0% 10 7,049 4,581 6,275,680 3,111,537 9,398,857 100.0%

The table shows the almost total concentration of investments in the time ranges “five years to ten years” (51.4% in June, 50.4% in January 2019), “over ten years” (26.2%, 24.1%) and “three years to five years” (21.2%, 24.2%). In addition to the automatic movements between time ranges due to the passage of time, the partial change in the mix between the three time ranges that took place since the beginning of January reflects the aforementioned disposals of financial assets measured at fair value through other comprehensive income as well as new investments made within financial assets measured at amortised cost.

Excluding securities relating to insurance business, amounting to approximately €1.3 billion at the end of the first half, the average life of the financial assets held for trading portfolio was 7.27 years (6.36 years at the beginning of 2019), that of the other financial assets mandatorily measured at fair value portfolio was 6.14 years (6.16 years), while that of government securities classified within financial assets measured at amortised cost was 11.4 years (13.32 years).

* * *

With a view to greater transparency on credit risk exposures consisting of debt instruments other than sovereign debt – as requested by the European Securities and Markets Authority (ESMA) in Document No. 725/2012 of 12th November 2012 – a table has been provided below summarising total debt instruments other than sovereign debt recognised among the assets of the UBI Banca Group balance sheet as at 30th June 2019. The carrying amount of these investments amounted to €2.55 billion, a substantial increase compared with almost €2 billion at the beginning of 2019, as a result of the progressive diversification strategy currently in progress. Of this amount €1.73 billion relates to corporate issuers (€1.44 billion in January) and €0.82 billion relates to banking issuers (€0.55 billion), while the remainder, relating to supranational issuers, is of negligible amount.

102 Debt securities other than government securities recognised within consolidated assets

Figures in thousands of euro 30.6.2019 Carrying Nominal Issuer Nationality Fair value amount amount

Corporate Italy 762,595 763,100 790,592 Corporate United States 240,030 240,030 229,210 Corporate Holland 139,665 139,665 132,299 Corporate United Kingdom 134,314 134,314 129,614 Corporate France 112,409 112,409 106,180 Corporate Luxembourg 60,941 60,941 59,379 Corporate Spain 58,218 58,218 54,200 Corporate Germany 45,369 45,369 42,000 Corporate Japan 27,519 27,519 25,848 Corporate Switzerland 24,413 24,413 23,280 Corporate Belgium 23,318 23,318 22,515 Corporate Ireland 13,300 13,300 14,501 Corporate Mexico 12,439 12,439 12,197 Corporate Finland 10,496 10,496 10,000 Corporate Jersey 10,186 10,186 10,000 Corporate Denmark 10,125 10,125 9,651 Corporate Marshall Islands 8,354 8,354 8,000 Corporate Czech Republic 6,057 6,057 5,000 Corporate Sweden 5,856 5,856 5,500 Corporate Cayman Islands 5,210 5,210 5,000 Corporate Canada 4,234 4,234 4,000 Corporate Rumania 3,736 3,736 3,500 Corporate Bermuda 2,701 2,701 2,500 Corporate Australia 2,666 2,666 2,500 Corporate Guernsey 2,594 2,594 2,500 Corporate Hong Kong 2,052 2,052 2,000 Corporate Cyprus - - 9,500 Corporate Brazil - - 62 Total Corporate 1,728,797 1,729,302 1,721,528 Banking Italy 307,412 310,857 304,914 Banking United Kingdom 58,645 58,645 56,885 Banking France 126,073 126,073 122,498 Banking Germany 102,860 102,860 101,076 Banking Spain 101,982 102,516 98,300 Banking Austria 24,173 24,173 24,770 Banking Ireland 14,215 14,215 14,000 Banking Holland 13,552 13,552 12,800 Banking Denmark 11,123 11,123 11,000 Banking United States 10,953 10,953 10,413 Banking Australia 10,635 10,635 10,409 Banking Sweden 6,919 6,919 6,879 Banking Switzerland 6,536 6,536 6,906 Banking Belgium 6,188 6,188 6,000 Banking Finland 6,068 6,068 6,000 Banking Norway 5,703 5,703 5,000 Banking Hong Kong 4,498 4,498 4,394 Banking Canada 2,640 2,640 2,636 Banking Japan 2,428 2,428 2,318 Total Banking 822,603 826,582 807,198 E.I.B. Luxembourg 2,953 2,953 2,870 Total Supranational 2,953 2,953 2,870 Total debt instruments 2,554,353 2,558,837 2,531,596

Finally, to complete the disclosures required by the ESMA, the Group held no credit default products as at 30th June 2019, nor did the Group carry out any transactions in those instruments during the first half, either to increase its exposure or to acquire protection.

103 Exposures to certain types of products

This section provides an update of the position of the UBI Banca Group with regard to some types of financial instruments, which are considered at high risk since the subprime mortgage crisis in 2007.

Special purpose entities

The involvement of the UBI Banca Group in special purpose entities (SPEs6) concerns the following types: 1. conventional securitisation transactions 7 performed by Group companies in accordance with Law No. 130 of 30th April 1999; 2. synthetic securitisation transactions8; 3. the issuance of covered bonds, in accordance with Art. 7 bis of Law No,130/1999.

1. The list of special purpose entities (SPEs) used for conventional securitisations in which the Group is involved is as follows: 24-7 Finance Srl; UBI SPV Lease 2016 Srl; UBI SPV Group 2016 Srl. The securitisations concerning 24-7 Finance Srl, UBI SPV Lease 2016 Srl and UBI SPV Group 2016 Srl were performed in order to create a portfolio of assets eligible as collateral for refinancing with the European Central Bank, consistent with Group policy for the management of liquidity risk. They were carried out on the following: performing residential mortgages of the former B@nca 24-7 (24-7 Finance Srl); performing UBI Leasing lease contracts (UBI SPV Lease 2016 Srl); performing residential mortgages granted to individuals and sole traders by the former Banca Popolare Commercio e Industria, the former Banca Regionale Europea, UBI Banca, the former Banca Popolare di Bergamo, the former Banco di Brescia, forma Banca Popolare di Ancona and Banca Carime (UBI SPV Group 2016 Srl). A transfers of assets was made in the first half of 2019 to UBI SPV Lease 2016 Srl in relation to the “revolving period” (which was extended following a revision of the transaction). More specifically a transfer was completed in April which regarded a portfolio totalling €302 million (in terms of the remaining principal debt). Furthermore, a transfer of assets was made in March 2019 to the special purpose entity UBI SPV Group 2016 Srl amounting to €758 million and to complete the information, in January 2019 assets were repurchased from the entity UBI SPV Group 2016 Srl amounting to €638.6 million. Although Group investment in the ownership capital of the SPEs is limited, the entities listed above are included in the consolidated accounts because these companies are in reality controlled, since their assets and liabilities were originated by Group companies. In the securitisations in question the senior securities issued by the entities – assigned a rating – are listed on the Dublin Stock Exchange.

2. Synthetic securitisations have been added to conventional securitisations since 2017 with the objective of improving the regulatory capital by reducing the degree of credit risk on the underlying portfolios9.

3. With regard to the issue of covered bonds, the creation of the SPEs UBI Finance Srl (in 2008) and UBI Finance CB 2 Srl (in 2011) was performed for the purchase of loans from banks in order to create cover pools for covered bonds issued by the Parent10.

6 Special Purpose Entities (SPEs) are special companies formed to achieve a determined objective. 7 With normal securitisations the originator sells the portfolio to a special purpose entity which then issues tranches of asset-backed securities in order to purchase it. 8 With a synthetic securitisation, the originator purchases protection for a pool of assets and transfers the credit risk attaching to the portfolio – either fully or in part – by using credit derivatives (credit default swaps - CDSs) and CLNs (credit-linked notes) or by means of personal guarantees. 9 Reference is made for further information to the information given in the special section of the Notes to the Financial Statements, Part E, C.1 “Securitisations”, in the 2018 Consolidated Annual Report.

104 The issuance of covered bonds is designed to diversify sources of funding and to contain its cost as well as to increase eligible reserves. Transfers were made in the first half to the entity UBI Finance Srl which regarded assets held by UBI Banca amounting to €2,433 million (with effect for accounting purposes from May 2019) and a transfer was made to the entity UBI Finance CB 2 Srl which regarded assets held by UBI Banca amounting to €675 million (with effect for accounting purposes from June 2019). At the date of this report, UBI Banca has issued covered bonds totalling €13.57 billion nominal (of which €2.5 billion relating to retained issuances) under the first programme (residential mortgages) for a maximum issuance of €15 billion and for a total of €1.85 billion nominal (all retained issuances) under the second programme (mainly commercial mortgages) with a maximum issuance of €5 billion. The originator banks issued subordinated loans to the SPE UBI Finance Srl and to the SPE UBI Finance CB 2 Srl, equal to the value of the loans progressively transferred, in order to fund the purchase. As at 30th June 2019 these loans amounted to €17.39 billion for UBI Finance Srl (€16.08 billion in December 2018) and to €3.19 billion for UBI Finance CB 2 (€2.7 billion in December 2018).

Ordinary lines of liquidity existed at the end of the first half granted by the Parent to the SPE 24-7 Finance Srl for a total of €97.6 million, which had been entirely drawn on (€97.6 million entirely drawn on also in December 2018). No exposures exist to SPEs or other conduit operations with underlying securities or investments linked to United States subprime and Alt-A loans. The total assets of SPEs relating to securitisations and to covered bonds amounted to €26.28 billion (€24.35 billion at the end of 2018). The table11 below reports details by asset class.

SPE underlying assets

Classification of underlying assets of the 30.6.2019 31.12.2018 Figures in millions of euro securitisation Measurement Gross of Net of Gross of Net of EntityTotal Class of underlying asset criteria impairment impairment impairment impairment assets adopted losses losses losses losses

24-7 Finance 827.8 Mortgages AC 721.7 716.9 767.2 761.7 UBI SPV Lease 2016 2,924.1 Leasing AC 2,893.0 2,867.9 2,868.4 2,840.7 UBI Finance 17,020.5 Mortgages AC 16,643.6 16,567.5 15,155.3 15,079.9 UBI Finance CB 2 2,994.6 Mortgages AC 2,775.6 2,752.3 2,291.2 2,269.4 UBI SPV GROUP 2016 2,508.9 Mortgages AC 2,482.0 2,469.5 2,475.6 2,461.7

Total impaired assets, mortgages and loans 1,224.1 845.6 1,234.9 877.2 Total impaired assets, leasing 67.2 56.2 73.8 61.0

TOTAL 26,275.9 26,807.2 26,275.9 24,866.4 24,351.6

* * * As concerns the New Banks Acquired, a summary is given below of the securitisations originated by them existing at the end of the first half and held by UBI Banca, following their merger into it in the last quarter of 2017:

10 The transfers are designed to create segregated portfolios to back the issues and do not involve derecognition of the assets in the financial statements of the originators. 11 We report that most of the assets transferred and not derecognised reported in this table have been recognised within asset item 40 “Financial assets measured at amortised cost – Loans and advances to customers” in the balance sheet and to a residual extent within item 20 “Other financial assets mandatorily measured at fair value”.

105  Mecenate 2007 12 , a securitisation of performing residential mortgages held by SPV Mecenate Srl (“Mecenate”), 95% controlled by UBI Banca. The total assets as at 30th June 2019 amounted to €58 million;  Marche M6 Srl13, a securitisation of the residential mortgage backed securities (RMBS) type, with residential and commercial mortgages as the underlying. Total assets as at 30th June 2019 amounted to €1.004 billion. As already reported, this securitisation relating to Marche Mutui 2 Società per la Cartolarizzazione a r.l.14 was closed down with the full repurchase of the loans in April 2019 and the subsequent redemption of the notes in May 2019.

Exposures in ABS, CDO, CMBS and other structured credit products

As at 30th June 2019 the Group held a direct investment in ABS instruments with a value of zero, while no indirect exposures existed to structured CDO and CMBS products.

Other subprime, Alt-A and monoline insurer exposures

As at 30th June 2019 no indirect exposures to subprime and Alt-A mortgages and to monoline insurers existed.

Leveraged Finance

As part of project work to implement ECB guidance15, the UBI Banca Group amended its definition of leveraged finance to bring it into line with the recommendations of that guidance. Committed financing to borrowers with a post-financing debt to EBITDA ratio that exceeds 4 times and/or to borrowers owned by one or more of the financial sponsors fall within this category. Loans with natural persons, institutions, credit institutions, investment firms, financial sector entities, public sector entities, specialised lending loans and exposures to borrowers with an internal or external investment-grade rating are excluded from the leveraged finance perimeter. Furthermore, exposures to small and medium-sized enterprises are not included except where they are owned by one or more financial sponsors. Finally, the transactions where the Group’s exposure to the borrowers is below €5 million are also not included. The project work to implement ECB guidelines on the definition of leveraged finance is still in progress and therefore account of this will be progressively taken in reporting the findings.

UBI Banca leveraged finance business The table summarises on- and off-balance

On-balance sheet exposure Off-balance sheet exposure sheet exposure for leveraged finance by the Figures in millions of euro gross exposure to customers gross exposure to customers UBI Banca Group at the end of June 2019. used impairment used impairment These on-balance sheet loans (inclusive of the relative margins) as a percentage of total on- 30th June 2019 5,266.1 36.2 604.9 3.5 balance sheet loans amounted to 31st December 2018 3,956.9 21.5 585.2 3.5 approximately 6.0%. It is underlined that the increase observable from the comparison with December 2018 is attributable to progress made with project activities to implement ECB Guidelines.

12 A securitisation originated on 29th March 2007 by the former Banca dell’Etruria e del Lazio with the transfer en bloc and without recourse of loans, classified as performing, and the relative legal relations attaching to a portfolio of ordinary and regulated mortgage loans, granted to private individual customers in the period between 31st March 1998 and 30th June 2006. In the May 2007 Mecenate issued notes as a consequence (99.5% of which had been assigned a rating and were listed on the Dublin stock exchange), all at floating rate and with quarterly coupons. The securities were subscribed by institutional investors when they were issued. 13 An RMBS securitisation, structured in July 2013 by the former Banca delle Marche, with a portfolio of loans originating from performing residential mortgage loan agreements as the underlying. The three senior classes (A1, A2, A3) were listed on the Luxembourg stock exchange and repurchased by the Bank to create a portfolio of assets eligible for principal refinancing operations with the European Central Bank. The junior class was also subscribed by the originator. The senior classes were assigned a rating. The classes A1 and A2 were sold on the market in June 2015. 14 An RMBS market securitisation, structured in October 2006 by the former Banca delle Marche, with a portfolio of performing loans as the underlying, originated from regulated mortgages backed by first mortgage agreements. 15 Guidance on Leveraged Transactions (May 2017).

106

The charts below show the distribution of leveraged exposures by geographical area and sector.

Distribution of UBI Banca leveraged exposures as at 30th June 2019

EXPOSURE BY GEOGRAPHICAL AREA EXPOSURE BY SECTOR

Other Construct- 3% ion 5%

Manufacturing Commerce sector 35% and services 60%

Italy 97%

Financial derivative instruments for trading with customers

The periodic analysis performed for internal monitoring purposes confirms that the risks assumed by customers continue to remain generally low and they outlined a conservative profile for UBI Group business in OTC derivatives with customers.

A quantitative data update as at 30th June 2019 showed the following: - the notional amount for existing contracts, totalling €8.4 billion, was attributable to interest rate derivatives amounting to €7.8 billion and currency derivatives amounting to €562 million, while the notional amount for commodities contracts (€40 million) was relatively negligible; - transactions in hedging derivatives accounted for all the notional amount traded in the case of interest rate derivatives and commodities and 99% of the notional amount in the case of currency derivatives; - the net total mark-to-market value (interest rate, currency and commodities derivatives) amounted to -€372 million. Those contracts with a negative mark-to-market for customers were valued at approximately -€379 million; - the total negative mark-to-market for customers stood at 4.5% of the notional amount of the contracts.

The rules governing trading in OTC derivatives with customers are contained in the “Policy for the trading, sale and subscription of financial products”, the “Policy for the management of counterparty risk” and the relative documents to implement them, updated in 2019, which provide details of the following: • customer segmentation and classes of customers associated with specific classes of products, stating that the purpose of the derivatives transactions must be hedging and that transactions containing speculative elements must be of a residual nature; • rules for assessing the appropriateness of transactions, defined on the basis of the products sold to each class of customer; • principles of integrity and transparency on which the range of OTC derivatives offered to customers must be based, in compliance with the guidelines laid down by the Italian Banking Association (and approved by the Consob) for illiquid financial products and with the recent ESMA opinions and a Consob communication on complex products; • rules for assessing credit exposure, which grant credit lines with maximum limits for trading with “qualified”, “professional” and “non-individual retail” counterparties and provide credit lines for single transactions for trading with individual retail counterparties, while counterparty risk is assessed on the basis of Regulation EU 575/2013 (the “CRR”); • rules for managing restructuring operations, while underlining their exceptional nature; • the rules for the settlement of transactions in OTC derivative instruments with customers that are subject to verbal or official dispute; • the catalogue of products offered to customers and the relative credit equivalents.

107 OTC derivatives: first five counterparties by bank (amounts in euro)

Data as at 30th June 2019 of which negative Bank Classification MtM MtM UBI Banca 2: Non-private individual retail -67,694,915 -67,694,915 2: Non-private individual retail -9,665,277 -9,665,277 3: Professional -9,752,299 -9,752,299 3: Professional -9,429,228 -9,429,228 3: Professional -8,217,816 -8,217,816

OTC interest rate derivatives: details of instrument types and classes of customer (amounts in euro)

Data as at 30th June 2019 Product Number of of which Type of instrument Customer classification Notional MtM class transactions negative MtM 1 Purchase of caps Qualified 12 101,163,187 27,725 - 3: Professional 52 149,020,053 34,663 - 2: Non-private individual retail 742 298,740,913 419,856 - 1: Private individual retail 410 41,292,007 21,006 - Purchase of caps Total 1,216 590,216,160 503,250 - Purchase of floors 3: Professional 3 68,369,176 507,179 - Purchase of floors Total 3 68,369,176 507,179 -

Capped swaps Qualified 2 17,812,890 -454,003 -454,003 3: Professional 41 200,199,134 -4,057,627 -4,057,627 2: Non-private individual retail 747 441,861,304 -8,916,315 -8,916,315 1: Private individual retail 943 100,083,527 -1,733,629 -1,733,629 Capped swaps Total 1,733 759,956,855 -15,161,574 -15,161,574

Plain Vanilla IRS Qualified 15 145,152,702 -6,707,047 -6,707,047 3: Professional 478 3,028,203,279 -122,727,227 -122,727,227 2: Non-private individual retail 1,864 2,151,979,596 -122,675,887 -122,675,887 1: Private individual retail 436 82,535,849 -4,835,565 -4,835,565 Plain Vanilla IRS Total 2,793 5,407,871,426 -256,945,726 -256,945,726

IRS Step up 3: Professional 3 16,114,090 -1,510,856 -1,510,856 2: Non-private individual retail 36 232,318,082 -73,716,329 -73,716,329 IRS Step up Total 39 248,432,172 -75,227,185 -75,227,185 Floored Swaps 3: Professional 80 439,688,071 -9,944,618 -9,944,618 2: Non-private individual retail 242 250,159,861 -5,603,970 -5,603,970 1: Private individual retail 26 6,048,608 -258,771 -258,771 Floored Swaps 348 695,896,540 -15,807,359 -15,807,359 Purchase of collars 2: Non-private individual retail 1 1,975,621 -9,173 -9,173 Purchase of collars Total 1 1,975,621 -9,173 -9,173

Total Class 1: hedging derivatives 6,133 7,772,717,950 -362,140,588 -363,151,017 Class 1: % of Group total 99.9% 99.7% 97.4% 97.4% 2 Purchase of caps with KI/KO 3: Professional 1 265,586 -887 -887 Purchase of caps with KI/KO Total 1 265,586 -887 -887 Purchase of collars with KI/KO 2: Non-private individual retail 1 23,082,270 -9,665,277 -9,665,277 Purchase of collars with KI/KO Total 1 23,082,270 -9,665,277 -9,665,277

IRS Convertible 3: Professional 1 875,000 -7,580 -7,580 2: Non-private individual retail 2 985,654 -98,849 -98,849 IRS Convertible Total 3 1,860,654 -106,429 -106,429

Total Class 2: hedging derivatives with possible exposure 5 25,208,510 -9,772,593 -9,772,593 to contained financial risks Class 2: % of Group total 0.1% 0.3% 2.6% 2.6%

Total UBI Banca Group 6,138 7,797,926,460 -371,913,181 -372,923,610

108 OTC currency derivatives: details of instrument types and classes of customer (amounts in euro)

Data as at 30th June 2019 Product Number of of which Type of instrument Customer classification Notional MtM class transactions negative MtM 1 Forward synthetic 3: Professional 105 246,582,911 1,027,730 -1,752,719 2: Non-private individual retail 42 22,227,934 -156,815 -175,689 Forward synthetic Total 147 268,810,845 870,915 -1,928,408

Plafond 3: Professional 147 130,339,447 -370,865 -1,693,929 2: Non-private individual retail 248 83,338,981 -1,063,049 -1,440,895 Plafond Total 395 213,678,428 -1,433,914 -3,134,824

Currency collars 3: Professional 1 1,010,545 -6,858 -6,858 Currency collars Total 1 1,010,545 -6,858 -6,858

Vanilla currency options purchased 3: Professional 10 11,132,261 88,888 - 2: Non-private individual retail 10 2,643,234 13,895 - Vanilla currency options purchased 20 13,775,495 102,783 -

Total Class 1: hedging derivatives 563 497,275,313 -467,074 -5,070,090 Class 1: % of Group total 93.8% 88.5% - 97.4% 2 Knock in collars 3: Professional 7 20,614,978 -19,708 -49,880 2: Non-private individual retail 1 335,441 467 - Knock in collars Total 8 20,950,419 -19,241 -49,880

Knock in forwards 3: Professional 21 30,777,915 233,428 -48,985 2: Non-private individual retail 1 534,148 -2,379 -2,379 Knock in forwards Total 22 31,312,063 231,049 -51,364

Plafond with accelerated condition 2: Non-private individual retail 1 307,557 -6,190 -6,190 Plafond with accelerated condition Total 1 307,557 -6,190 -6,190

Total Class 2: hedging derivatives with possible exposure 31 52,570,039 205,618 -107,434 to contained financial risks Class 2: % of Group total 5.2% 9.4% - 2.1% 3b Knock out knock in forwards 3: Professional 1 2,007,257 7,356 - Knock out knock in forwards Total 1 2,007,257 7,356 -

Knock out forwards 3: Professional 4 9,572,968 9,475 -11,512 Knock out forwards 4 9,572,968 9,475 -11,512

Knock out knock in collars 3: Professional 1 439,367 -13,394 -13,394 Knock out knock in collars Total 1 439,367 -13,394 -13,394

Total Class 3: derivatives not for hedging 6 12,019,592 3,437 -24,906

Class 3: % of Group total 1.0% 2.1% - 0.5% Total UBI Banca Group 600 561,864,944 -258,019 -5,202,430

OTC commodities derivatives: details of instrument types and classes of customer (amounts in euro)

Data as at 30th June 2019 Product Number of of which negative Type of instrument Customer classification Notional MtM class transactions MtM 2 Commodity swaps 3: Professional 190 37,141,703 606,710 -654,417 2: Non-private individual retail 21 2,715,150 -12,787 -34,260 Commodity swaps Total 211 39,856,853 593,923 -688,677

Total Class 2: hedging derivatives with possible exposure 211 39,856,853 593,923 -688,677 to contained financial risks Class 2: % of Group total 100.0% 100.0% - 100.0%

Total UBI Banca Group 211 39,856,853 593,923 -688,677

TOTAL UBI BANCA GROUP 6,949 8,399,648,257 -371,577,277 -378,814,717

109 Equity and capital adequacy

Changes in consolidated shareholders’ equity

Reconciliation between equity and profit for the period of the Parent with equity and profit for the period attributable to the shareholders of the Parent for the period ended 30th June 2019

of which: Profit for Figures in thousands of euro Equity period

Equity and profit for the period in the accounts of the Parent 8,988,399 182,660 Effect of the consolidation of subsidiaries including joint ventures 309,123 1,230 Effect of measuring other significant equity investments using the equity method 42,067 19,421 Dividends received during the period - -74,328 Other consolidation adjustments (including the effects of the PPA) -95,489 1,936 Equity and profit for the period attributable to the shareholders of the Parent in the consolidated accounts 9,244,100 130,919

Changes in the consolidated equity attributable to the shareholders of the Parent in the first half of 2019

Changes January-June 2019 30.6.2019 Allocation of prior year Balances as Restatement profit Equity Balances as Equity transactions at of opening Consolidated attributable to at 1.1.2019 Changes in 31.12.2018 balances Dividends comprehensive the reserves New share Reservesand other Stock options income shareholders issues Figures in thousands of euro uses of the Parent

Share capital: 2,843,177 - 2,843,177 ------2,843,177 a) ordinary shares 2,843,177 - 2,843,177 ------2,843,177 b) other shares ------Share premiums 3,294,604 - 3,294,604 ------3,294,604 Reserves 2,923,589 - 2,923,589 425,608 -142,088 -314 - - - 3,206,795 Valuation reserves -298,616 - -298,616 - - -340 - - 96,076 -202,880 Treasury shares -25,074 - -25,074 - - -3,530 89 - - -28,515

Result for period 425,608 - 425,608 -425,608 - - - - 130,919 130,919 Equity attributable to the shareholders of the Parent 9,163,288 - 9,163,288 - -142,088 -4,184 89 - 226,995 9,244,100

The equity attributable to the shareholders of the Parent, UBI Banca, as at 30th June 2019 inclusive of profit for the period was €9,244.1 million, an increase compared with €9,163.3 million at the beginning of the year.

As shown in the table “Changes in the consolidated equity attributable to the shareholders of the Parent in the first half of 2019”, the increase of €80.8 Valuation reserves attributable to the shareholders of the Parent: composition million is the result of the following: Figures in thousands of euro 30.6.2019 1.1.2019 (*)  an increase of €95.7 million in the balance on valuation Equity securities designated at fair value through other comprehensive income -15,315 -16,583 reserves, generated mainly by Financial assets (other than equity securities) measured at the impact of other fair value through other comprehensive income -123,674 -230,924 comprehensive income as Cash flow hedges 18 -22 follows: +€107.2 million for Exchange rate differences -243 -243 financial assets (other than Actuarial gains (losses) for defined benefit pension plans -123,391 -110,908 equity securities) measured at Special revaluation laws 59,725 60,064

fair value through other Total -202,880 -298,616 comprehensive income; +€1.3 (*) The date 1st January 2019 must be interpreted as 31st December 2018. million for equity securities measured at fair value through other comprehensive income; -€12.5 million for actuarial gains/losses relating to defined benefit pension plans; and +€40 thousand for cash flow hedges.

110 Furthermore, reserves relating to special revaluation laws decreased by €0.3 million;  an overall decrease of €3.4 million in treasury shares, which reflects an increase of €0.1 million for shares granted to a member of the Group’s staff who left, in accordance with the retention and deferral periods set, in compliance with the payout criteria for “Identified Staff”, by the applicable supervisory regulations, and a decrease of €3.5 million for the purchase of UBI Banca ordinary shares to service incentive schemes as mentioned in the subsequent section entitled “Information on share capital, the share, dividends paid and earnings per share”;  the allocation of €142.1 million of 2018 consolidated profit to dividends and other uses;  an aggregate negative impact of €0.3 million for other reserves;  the recognition of profit for the period of €130.9 million.

Fair value reserves of financial assets measured at fair value through other comprehensive income attributable to the shareholders of the Parent: composition

30.6.2019 1.1.2019 (*)

Figures in thousands of euro Positive reserve Negative reserve Total Positive reserve Negative reserve Total

1. Debt securities 41,455 -165,129 -123,674 6,821 -237,745 -230,924 2. Equity securities 2,371 -17,686 -15,315 1,680 -18,263 -16,583 3. Financing ------Total 43,826 -182,815 -138,989 8,501 -256,008 -247,507

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Fair value reserves of financial assets measured at fair value through other comprehensive income attributable to the shareholders of the Parent: changes in the period

Figures in thousands of euro Debt securities Equity securities Financing Total

1. Opening balances as at 1st January 2019 -230,924 -16,583 - -247,507

2. Positive changes 212,518 11,017 - 223,535 2.1 Increases in fair value 205,761 9,222 - 214,983 2.2 Impairment losses for credit risk 1,341 X - 1,341 2.3 Transfer to the income statement of negative reserves from disposal 5,385 X - 5,385 2.4 Transfers to other equity items (equity securities) - 1,206 - 1,206 2.5 Other changes 31 589 - 620

3. Negative changes -105,268 -9,749 - -115,017 3.1 Reductions in fair value -92,673 -9,335 - -102,008 3.2 Reversals for credit risk -468 - - -468 3.3 Transfer to income statement of positive reserves from disposal -12,127 X - -12,127 3.5 Other changes - -414 - -414 4. Closing balances as at 30th June 2019 -123,674 -15,315 - -138,989

As shown in the table, the total increase of €108.5 million in “Fair value reserves of financial assets measured at fair value through other comprehensive income” is attributable almost completely to debt securities held in portfolio (for which the negative balance improved by €107.3 million to -€123.7 million net of tax and minority interests) and one third of it relates to the Parent’s Italian government securities portfolio, the reserve for which increased by €33.3 million since the beginning of the year to -€151.9 million, and the remainder relates to the portfolio of non-Italian government securities held by the Parent.

The reserve relating to debt securities recorded increases in fair value of €205.8 million in the first six months, of which €113.4 million pertaining to the Parent (including €36.3 million in relation to Italian government securities, €52.2 million to foreign government securities and €24.9 million to other bonds) and €91.8 million to Lombarda Vita. The table also shows “Impairment losses for credit risk” amounting to €1.3 million, relating entirely to UBI Banca, and “Transfers to the income statement of negative reserves from disposal” amounting to €5.4 million, of which €2.5 million relating to the Parent (attributable almost entirely to disposals of foreign government securities) and €2.8 million to Lomarda Vita.

111 Decreases include the following: • reductions in fair value of €92.7 million attributable almost entirely to Lombarda Vita (€90.4 million) and marginally to UBI Banca (€1.7 million) and BancAssurance Popolari (€0.6 million); • a “Transfer to the income statement from positive reserves from disposals” amounting to €12.1 million relating primarily to UBI Banca (€10 million for disposals of Italian government securities, foreign government securities and other bonds) and to Lombarda Vita (€2.1 million).

As concerns equity securities, increases of €9.2 million in fair value and decreases of €9.3 million in fair value were recorded, both relating primarily to Lombarda Vita.

Capital adequacy

The new prudential rules for banks and investment companies contained in EU Regulation 575/2013 (the Capital Requirements Regulation, known as the CRR) and in the EU Directive 2013/36/EU (the Capital Requirements Directive, known as CRD IV), came into force on 1st January 2014. These transpose standards defined by the Basel Committee on Banking Supervision (known as the Basel 3 framework) into European Union regulations. In December 2013, the Bank of Italy published Circular No. 285 “Regulations for the prudential supervision of banks”, which implemented, within the scope of its remit, the new EU regulations, together with Circular No. 286 “Instructions for compiling supervisory reports for banks and stock brokerage firms” and an update to Circular No. 154 “Supervisory reporting for credit and financial institutions. Tables for data and instructions for filing reports”. The introduction of Basel 3 rules was subject to a transitional (phased-in) regime, which concluded in 2018 except for rules relating to capital instruments no longer qualifying, for which gradual exclusion from the capital aggregate used for supervisory purposes is scheduled to occur by 2021. Furthermore, the financial reporting standard IFRS 9 “Financial Instruments” supersedes the provisions of IAS 39 “Financial Instruments: Recognition and Measurement” as from 1st January 2018. As concerns the impacts on regulatory own funds, the Group has opted for adherence to the transitional regime provided for by Regulation EU 2017/2395, which amends Regulation 575/2013 (“CRR”). These measures allow the negative impacts of the adoption of the standard in question to be applied gradually, with the benefit allowed on the basis of decreasing quotas over a five-year period (95% in the 2018, 85% in the 2019, 70% in the 2020, 50% in the 2021, 25% in 2022).

The consolidated capital requirements asked of the UBI Banca Group for 2019, set at the end of the Supervisory Review and Evaluation Process (SREP) conducted in 2018 were as follows: • a minimum fully loaded CET1 ratio requirement of 9.25%1 (compared with 8,625%2 set for 2018), which had increased solely as a result of the entry into force of the Capital Conservation Buffer; • a minimum SREP total capital ratio requirement of 10.25%3, unchanged compared with 2018. If the capital conservation buffer of 2.50% is added, this then gives a minimum requirement in terms of the “overall total capital requirement” of 12.75% (12.125% in 2018).

Following the authorisations received from the Bank of Italy, the UBI Banca Group uses internal models to calculate capital requirements to meet credit risk relating to the corporate segment (exposures to companies) and to operational risks from the consolidated supervisory report as at 30th June 2012 and relating to the retail regulatory segment (exposures to small and medium-size enterprises and exposures backed by residential properties) from the consolidated supervisory report as at 30th June 2013. On 18th March 2019, the UBI Banca Group received authorisation to roll out internal models for the determination of capital absorption relating to corporate and retail portfolios originated by the New Banks and also for the progressive rollout of the IRB perimeter to the Other Private Individual and Qualifying Revolving Retail Segment.

At the end of the first half, the Common Equity Tier 1 (CET1) capital of the UBI Banca Group, which includes the part destined to charity and the dividend assumption, amounted to €6,923

1 The result of the sum of the minimum Pillar 1 Regulatory Capital Ratio (4.5%), the Pillar 2 requirement (2.25%) and the Capital Conservation Buffer (2.50%). 2 The result of the sum of the minimum Pillar 1 regulatory capital ratio (4.5%), the Pillar 2 requirement (2.25%) and the Capital Conservation Buffer (1.875%). 3 The result of the sum of the minimum Pillar 1 regulatory capital ratio (8%) and the Pillar 2 requirement (2.25%).

112 million, down by €216 million compared with the figure in December 2018 (+€103 million compared with the end of March).

The changes in the CET1 capital in the first half are attributable to the following factors: • +€152 million resulting from changes recorded in reserves, the economic result that qualifies for regulatory purposes and other items of accumulated other comprehensive income (the “OCI reserve”). • -€293 million resulting from reduction of the quota relating to the application of the transition arrangements for the accounting standard IFRS 9 (-€212 million) and to changes in the provision shortfall (-€81 million), which reflect changes in the perimeter relating to the previously mentioned rollout of the already validated AIRB models for corporate and retail exposures to the “New Banks” and of the IRB perimeter to the Other Private Individual and Qualifying Revolving Retail Segment. • -€75 million approximately resulting from the combined changes reported for intangible assets, prudential filters, the recalculation of the quotas of significant investments and regulatory deduction of DTAs from CET1 capital, treasury shares and other variations.

As on the other hand concerns the Tier 2 capital, this increased by approximately €470 million over the six months to €1,751 million. Compared with December 2018, the trend mainly reflected an increase in Tier 2 instruments as a result of a subordinated bond issued for €500 million partially offset by amortisation for the period and by the maturity of an eligible instrument.

Risk-weighted assets (RWAs) amounted to €57.4 billion, down by €3.6 billion compared with €61 billion at the end of 2018. This reduction was attributable primarily to credit risk (-€2.7 billion) as a result of the aforementioned rollout of AIRB models and to lower capital absorption resulting from lower volumes. These effects were only partially offset, amongst other things, by increases in RWAs following the adoption of the new accounting standard IFRS 16, which introduced new accounting procedures for lease contracts, and by hedge accounting.

With account taken of those changes, compliance with minimum capital requirements as at 30th June 2019, equal to total capital requirements for credit, counterparty, credit valuation adjustment, market and operational risk, required capital of €4,595 million (€4,737 million in March; €4,883 million in December 2018), against which the Group recorded Total Own Funds of €8,674 million (€8,548 million in March; €8,420 million in December 2018).

At the end of the first half, the UBI Banca Group’s capital ratios consisted of a Common Equity Tier 1 capital ratio and a Tier 1 capital ratio of 12.05% (11.52% in March; 11.70%4 in December 2018), well above the target thresholds set on conclusion of the SREP for 2019 (9.25%), and a total capital ratio of 15.10% (14.43%; 13.80%), also well above the required level. The fully loaded CET1 ratio calculated on the basis of the rules that will be in force at the end of the transitional period currently relating exclusively to IFRS 9 is estimated at 12% (11.47% in March; 11.34% at the end of 2018), while the total capital ratio is 15.05% (14.39%; 13.44%). As already reported, as a result primarily of the changeover to advanced models for credit positions previously subject to the standardised model, the phased-in ratio is now substantially in line with the fully loaded ratio5. Furthermore, the latter includes neither future DTAs nor capital optimisation actions.

4 As already fully described in the press release for the Group’s results for the period ended 31st March 2018, impairment losses recognised on first-time adoption of IFRS 9 on credit positions subject to the standardised approach (€255 million approx. for the period ended the 31st March 2018) were subject to the transition regime provided for by EU Regulation No. 2017/2395 and are therefore recognised progressively in the CET1 ratio (only 5% of the impact was therefore included in the phased-in CET1 ratio as at 31st December 2018, while the total impact will be included in the fully loaded CET1 ratio). Following the partial changeover to the advanced approach for credit positions previously recognised according to the standardised approach, the transition regime for the inclusion of the impairment losses in the CET1 capital no longer applied and therefore the negative impact of the remaining amount of the impairment losses recognised in relation to these positions (€220 million approx. as at 31st March 2019) was therefore fully included. That impact was only partially offset by the benefit on RWAs resulting from the changeover for the credit positions from the standard approach to advanced to approach. 5 The main difference remaining between the phased-in CET1 capital and the fully loaded CET1 capital relates to the progressive recognition in the phased-in CET1 of adjustments made on first-time adoption of IFRS 9 to lease positions still subject to the standardised model.

113

As also already reported, banks have been obliged to hold a countercyclical capital buffer since 1st January 2016. If it is considered that, as reported in the press release dated 21st December 2018, the Bank of Italy set the countercyclical capital buffer for the first quarter of 2019 at 0% for exposures to counterparties resident in Italy and also that the Group mainly has exposures to domestic counterparties, then the Group’s countercyclical capital buffer is negligible. With a communication dated 21st June 2019 the Bank of Italy confirmed a ratio of 0% for the countercyclical buffer also for the third quarter of 2019.

At the end of June, the leverage ratio6 according to Basel 3 was 5.23% (5.16% at the end of March; 5.45% at the end of 2018), while the fully loaded ratio was 5.21%.

With regard to the insurance business, we report that management accounting measurements of the solvency ratio comply with Solvency II regulations.

6 According to Basel 3 the leverage ratio is calculated as the ratio between the Tier 1 capital and the measure of the institution’s total exposure. The ratio was calculated according to the provisions of the CRR, as amended by the Delegated Act (EU) No. 62/2015.

114 Capital ratios (Basel 3)

30.6.2019 31.3.2019 31.12.2018 Figures in thousands of euro

Common Equity Tier 1 capital net of prudential filters 7,071,487 7,023,070 7,218,380 Deductions from Common Equity Tier 1 capital -148,573 -203,136 -79,455 of which: Deductions from Common Equity Tier 1 capital in relation to negative items for shortfall of provisions to expected losses -134,866 -134,647 -54,065

Common Equity Tier 1 capital 6,922,914 6,819,934 7,138,925 Additional Tier 1 capital before deductions - - - Deductions from Additional Tier 1 capital - - - of which: Negative items for shortfall of provisions to expected losses - - -

Additional Tier 1 capital - - -

Tier 1 capital ( Common Equity Tier 1 + Additional Tier 1) 6,922,914 6,819,934 7,138,925 Tier 2 capital before transitional arrangements 1,811,416 1,788,035 1,330,472 Effects of grandfathering provisions on Tier 2 instruments - - - Tier 2 capital after transitional arrangements 1,811,416 1,788,035 1,330,472 Deductions from Tier 2 capital -60,421 -60,465 -49,022 of which: Negative items for shortfall of provisions to expected losses - - -

Tier 2 capital after specific deductions 1,750,995 1,727,570 1,281,450 Total own funds 8,673,909 8,547,504 8,420,375 Credit risk 4,243,479 4,310,411 4,461,475 Credit valuation adjustment risk 4,037 4,144 3,805 Market risk 59,947 72,889 67,585 Operational risk 287,934 349,957 349,957

Total prudential requirements 4,595,397 4,737,401 4,882,822 Risk weighted assets 57,442,461 59,217,509 61,035,275 Common Equity Tier 1 ratio (Common Equity Tier 1 capital after filters and deductions / Risk w eighted assets) 12.05% 11.52% 11.70% Fully loaded Common Equity Tier 1 ratio 12.00% 11.47% 11.34% Tier 1 ratio (Tier 1 capital after filters and deductions / Risk w eighted assets) 12.05% 11.52% 11.70% Fully loaded Tier 1 ratio 12.00% 11.47% 11.34% Total capital ratio (Total ow n funds / Risk w eighted assets) 15.10% 14.43% 13.80% Fully loaded total capital ratio 15.05% 14.39% 13.44%

115 Subordinated securities

NOMINAL AMOUNT IAS AMOUNT MATURITY ISSUER TYPE OF ISSUE COUPON EARLY REDEMPTION DATE 30.6.2019 31. 12.2018 30.6.2019

2009/2019 - mixed rate Half year fixed rate 4% until 2014; 1 ISIN IT0004497050 - Currency euro 30-6-2019 From 30-6-2014 365,000 365,000 365,000 subsequently floating Euribor 6M + 1.85%. Listed on MOT (electronic bond market) 2012/2019 - mixed rate Quarterly fixed rate 7.25% until 2014; 2 ISIN IT0004841778 - Currency euro 8-10-2019 - 200,000 200,000 202,118 subsequently floating rate Euribor 3M + 5% Listed on MOT (electronic bond market)

2012/2019 - fixed rate Redemption by fixed rate annual UNIONE DI BANCHE 3 ISIN IT0004842370 - Currency euro Half year fixed rate 6% 8-10-2019 amortisation schedule from 08-10- 194,091 194,091 196,797 ITALIANE SPA Listed on MOT (electronic bond market) * 2015

2016/2026 - fixed rate EMTN Annual fixed rate 4.25% until 2021; if the early Ordinary subordinated 4 ISIN XS1404902535 - Currency euro redemption option is not exercised the rate changes to 5-5-2026 5-5-2021 750,000 750,000 756,628 bond issues Listed on the Irish Stock Exchange the EUSA5 + 4.182% (Lower Tier 2) 2017/2027 - fixed rate EMTN Annual fixed rate 4.450% until 2022; if the early 5 ISIN XS1580469895 - Currency euro redemption option is not exercised, the rate changes 15-9-2027 15-9-2022 500,000 500,000 527,057 Listed on the Irish Stock Exchange to the EUSA5 + 4.24% 2019/2029 - fixed rate EMTN Annual fixed rate 5.875% until 2024; if the early 6 ISIN XS1958656552 - Currency euro redemption option is not exercised, the rate changes 4-3-2029 4-3-2024 500,000 500,000 516,663 Listed on the Irish Stock Exchange to the EUSA5 + 5.751%

BANCASSURANCE 2014/2019 - fixed rate 7 Annual fixed rate 6.50% 29-9-2019 - 3,150 3,150 3,305 POPOLARI SPA ISIN IT0005055436 - Currency euro

2014/2019 - fixed rate 8 Annual fixed rate 6.50% 30-12-2019 - 1,700 1,700 1,755 ISIN IT0005072324 - Currency euro

Total 2,513,941 2,513,941 2,569,323

Total eligible 2,319,850 2,319,850 2,372,526

* In compliance with an interpretation given by the authorities on the qualification for the inclusion of subordinated liabilities, because that bond was issued after 31st December 2011 and has an amortisation schedule which starts to run before five years since issuance, it has not been included among the eligible liabilities. On 12th July 2019 the Group issued a new subordinated Tier 2 bond for €300 million nominal.

116 Information on share capital, share performance, dividends paid and earnings per share

Information on share capital and shareholder structure

On the basis of reports received in accordance with Art. 120 of the Consolidated Finance Law (Legislative Decree No. 58/1998), the following new notifications were received from HSBC Holdings Plc with respect to the information already reported in UBI Banca’s 2018 Separate Annual Report: on 19th February 2019 this company reported that it held an indirect stake of 4.889% in the share capital of UBI Banca (of which 4.842% relating to HSBC Bank Plc), while on 27th May it communicated a reduction in this stake to 4.886% (of which 4.837% relating to HSBC Bank Plc). The shareholders holding equity investments of greater than 3% are therefore as follows:  Fondazione Cassa di Risparmio di Cuneo with a 5.910% stake declared on 29th June 2017;  Silchester International Investors LLP with a 5.123% stake declared on 4th November 20151, held as part of its discretionary investment management;  Fondazione Banca del Monte di Lombardia with a 4.959% stake declared on 7th December 20172;  HSBC Holdings Plc (indirect) with a 4.886% stake declared on 27th May 2019. In that same declaration this company also declared a total indirect position of 4.976%, consisting of the investment already mentioned (4.886%) and an overall long position with settlement in cash (an equity swap) amounting to 0.090% with maturity date on 10th February 2023;  Capital Research and Management Company with a 4.873% stake declared on 28th September 2018 and held as part of its discretionary investment management. In that same notification, the company also declared that it held a potential investment of 0.0175% in relation to shares subject to stock lending contracts where the loan may be called at any time at the discretion of the lender.

Furthermore, with regard to equity investments in financial instruments and aggregate equity investments, we report the following:  Edoardo Mercadante declared on 16th November 2017, in accordance with Art. 119 of the Issuers’ Regulations, that he held indirectly, through the subsidiary management company Parvus Asset Management Europe Ltd, an overall long position with settlement in cash accounting for 5.091% of the share capital composed as follows: - 0.431% an equity swap contract with maturity date 3rd May 2018; - 0.020% an equity swap contract with maturity date 3rd July 2018; - 0.004% an equity swap contract with maturity date 7th August 2018; - 4.604% an equity swap contract with maturity date 27th March 2019; - 0.032% an equity swap contract with maturity date 5th July 2019.

It must nevertheless be considered that the percentage interests declared may no longer be those actually held if a change has occurred in the meantime which does not involve declaration obligations in accordance with the applicable regulations. Furthermore, those shareholders (investment management companies) who have taken advantage of the exemption pursuant to Art. 119-bis of the Issuers’ Regulations have not been considered.

On the basis of the latest update of the reports received from financial intermediaries, the shareholders of UBI Banca numbered approximately 139 thousand when the dividend for 2018 (for the financial year 2017) was paid.

1 On the basis of information received relating to receipt of the 2018 dividend, Silchester holds an 8.10% stake in the share capital of UBI Banca. 2 On the basis of information received relating to receipt of the 2018 dividend, this foundation held a 3.95% stake in the share capital of UBI Banca.

117 Shareholders' agreements known to UBI Banca in accordance with Art. 122 of the Consolidated Finance Law

At the date of this report the Bank has received communications relating to the existence of the following shareholders’ agreements: - Patto dei Mille (Pact of the Thousand), formed on 27th January 2016: on the basis of the latest communication received on 9th July 20193, ordinary shares amounting to 7.706% of the total voting rights representing the share capital of UBI Banca are bound by the pact - Sindacato Azionisti UBI Banca Spa (UBI Banca Spa Shareholders’ Syndicate), formed on 17th February 2016: on the basis of the latest report received on 6th March 2019, ordinary shares, amounting to 12.54% of the total voting rights representing the share capital of UBI Banca, had been brought to the syndicate.

To complete the information we report that on 20th December 2018 UBI Banca received a notification concerning the signing of an agreement which took place on 18th December 2018 between parties to the shareholders’ agreements Sindacato Azionisti UBI Banca Spa and Patto dei Mille and Fondazione Cassa di Risparmio di Cuneo, concerning consultation and possibly the presentation and vote of a slate for the appointment of the Board of Directors of UBI Banca at the Shareholders’ Meeting convened within 120 days of the end of the financial year 2018, in accordance with Art. 122, paragraph one of Legislative Decree No. 58/1998. The agreement brought together 21.518% of the share capital of UBI Banca. Following the Shareholders’ Meeting of UBI Banca held on 12th April 2019, which appointed the governing bodies, the aforementioned agreement is no longer in force.

The “Essential Information” pursuant to Art. 130 of the Issuers’ Regulations and the updated List of Participants are available in the Shareholders Section of the corporate website at www.ubibanca.it.

Treasury shares

As at 30th June 2019 UBI Banca held 9,406,731 treasury shares with no nominal value accounting for 0.82% of the share capital, of which: - 1,807,220 shares resulting from the exercise of a right of withdrawal, purchased with value date 8th April 2016 on the basis of an authorisation issued by the ECB on 31st March 2016; - 7,599,511 shares to service incentive schemes.

The following movements were recorded in the first half:  a total of 1,579,500 ordinary shares of UBI Banca were purchased with value date 14th February at an average weighted price of €2.2348 per share. The transactions form part of the programme to purchase treasury shares at the service of the long-term 2017-2019/20 incentive scheme and the 2018 short-term incentive scheme (concluded with that purchase), approved by a Shareholders Meeting held on 6th April 2018 and reserved to “Identified Staff” of the Group;  33,959 shares were granted with value date 18th February, in accordance with an agreement signed in 2017 with a member of staff comprised within the “Identified Staff” perimeter on leaving the position occupied and consequently ending the employment relationship in advance. These shares are granted on the basis of the retention and deferment periods defined in compliance with the payment criteria for “Identified Staff” set by the existing Supervisory Regulations.

After the end of the first half, on 1st July 154,931 treasury shares were granted at the end of the retention periods set in the 2014 and 2016 incentive schemes. At the date of this report, treasury shares held therefore numbered 9,251,800. Finally, as already reported, an Ordinary Shareholders’ Meeting held on 12th April 2019 approved, amongst other things, the incentive scheme for 2019 based on financial instruments. This involves payment of part of the short-term (annual) variable component of remuneration for the Group’s “Identified Staff” not belonging to its asset management company (i.e. Pramerica SGR) in financial instruments (UBI Banca ordinary shares). As a consequence, it also approved the relative proposal to authorise the purchase of treasury shares for up to a maximum of €6 million and to make those treasury shares purchased available to service the incentive scheme.

3 A notification was received on 28th May 2019 regarding shares bound by the pact accounting for 6.940% of the total voting rights representing the share capital of UBI Banca.

118 Share performance

The UBI Banca share is traded on the Mercato Telematico Azionario (MTA - electronic stock exchange) of Borsa Italiana in the blue chip segment and forms part of the 40 shares in the FTSE/Mib Index.

Performance comparisons for the Unione di Banche Italiane share

28.6.2019 29.3.2019 28.12.2018 % change 28.9.2018 29.6.2018 % change

Amounts in euro A B C A/C D E A/E

Unione di Banche Italiane shares - official price 2.392 2.350 2.532 -5.5% 3.483 3.296 -27.4% - reference price 2.400 2.358 2.533 -5.3% 3.456 3.292 -27.1% FTSE Italia All-Share index 23,159 23,314 20,148 14.9% 22,918 23,827 -2.8% FTSE MIB index 21,235 21,286 18,324 15.9% 20,712 21,626 -1.8% FTSE Italia Banks index 7,828 8,592 7,613 2.8% 9,267 10,045 -22.1%

Source: Datastream

After a first quarter in which world share prices recorded significant rallies, in recent months performance on stock markets has fluctuated more, affected in particular by worsening trade negotiations between the USA and China. Share prices did not start to rise again until June, driven by more accommodative orientations by both the Federal Reserve and the ECB. Nationally, tensions within the government majority, uncertainties over European elections and doubts on the stability of public accounts penalised share prices until May. In June, however, prices recovered on the back of government reassurances at the end of the first half that it would contain the budget deficit. In this context the FTSE Italia All-Share and the FTSE MIB indices ended the first half at the same levels as at the end of March to record an improvement over six months of +14.9% and +15.9% respectively (-2.8% and -1.8% compared with June 2018). On the other hand, the FTSE Italia Banks index was penalised in the second quarter by heightened volatility due to greater Italian sovereign risk and by downward revision of profit expectations for the industry which reduced the improvement to 2.8% compared with the end of 2018 (a change of -22.1% on an annual basis). The UBI Banca share was affected to a greater extent than the performance for the sector (down by 5.5% in the first half; down by 27.4% over twelve months based on official prices) and has showed signs of recovery since the first weeks of July, which then brought prices back up at the end of the month to the same level as on 30th June.

In the first half of 2019 1.26 billion UBI Banca shares were traded on the electronic stock market for a value of €3.1 billion (trades in the first half of last year involved approximately 1.5 billion shares for a value of €5.8 billion).

At the end of the period the stock market cap (calculated on the official price) had fallen to €2.7 billion from €2.9 billion at the end of 2018, which ranked UBI Banca in third place among Italian commercial banking groups listed4 on the FTSE MIB.

At European level, the UBI Group was again among the first 45 institutions on the basis of the classification drawn up by the Italian Banking Association in its European Banking Report, which considers the EU14 countries plus Switzerland (EBR International Flash, June 2019).

4 The Group is positioned in the fourth place if all listed banking groups are considered.

119 Performance of the UBI Banca since 2nd January 2018 and volumes traded Volumes 9 85,000,000 80,000,000 8 75,000,000 70,000,000 7 65,000,000 60,000,000 6 55,000,000 50,000,000 5 45,000,000 40,000,000 4 35,000,000 30,000,000 3 25,000,000

2 20,000,000 15,000,000 1 10,000,000 5,000,000 0 0 2018 2019 J FMAM J J A SOND J FMAMJ J

reference prices in euro

120 The main information concerning the UBI Banca share is summarised below, along with the principal stock market indicators, which have been calculated using consolidated figures.

The UBI Banca share and the main stock market indicators

First half 2019 Full Year 2018

Number of shares outstanding at the end of period/year 1,144,285,146 1,144,285,146 Average price of the UBI share (average of the official prices quoted daily by Borsa Italiana Spa) - in euro 2.443 3.481 Minimum price (recorded during trading) - in euro 2.090 2.383 Maximum price (recorded during trading) - in euro 2.867 4.420 Dividend per share - in euro - 0.12 Dividend Yield (dividend per share/average price) - 3.45% Total dividends - in euro (*) - 136,185,410 Book Value [consolidated equity attributable to the shareholders of the Parent (excluding the part of profit not relating to badwill)/number of sharesygg] - in euro qy 7.96 7.64 in euro 6.47 6.13 Stock market capitalisation at the end of period/year (official prices) - in millions of euro 2,737 2,897 Price / Book Value [stock market capitalisation at year-end/(consolidated equity attributable to the shareholders of the Parent excluding that part of profit relating to badwill) ] 0.30 0.33 Price / book value calculated by deducting intangible assets attributable to the shareholders of the Parent from consolidated 0.37 0.41 it

(*) The total dividend payment for 2018 was calculated on 1,134,878,415 outstanding shares net of 9,406,731 treasury shares repurchased.

Dividends paid

The 2018 dividend totalling €136,185,409.8 and corresponding to €0.12 on each of the 1,134,878,415 UBI Banca shares outstanding (excluding treasury shares repurchased), was paid with value date 22nd May 2019 (ex dividend date 20th May and record date 21st May) against coupon No. 22.

Earnings per share

January - June 2019 Consolidated earnings attributable Weighted average ordinary shares Consolidated earnings per share (in thousands of euro) (in euro) Basic EPS 95,794 1,135,253,189 0.0844 “Annualised” Basic EPS (*) 226,713 1,135,253,189 0.1997 Diluted EPS 95,794 1,135,408,120 0.0844 “Annualised” diluted EPS (*) 226,713 1,135,408,120 0.1997

Full Year 2018 Consolidated earnings attributable Weighted average ordinary shares Consolidated earnings per share (in thousands of euro) (in euro

Basic EPS 392,774 1,135,253,189 0.3460 Diluted EPS 392,774 1,135,408,120 0.3459

January - June 2018 Consolidated earnings attributable Weighted average ordinary shares Consolidated earnings per share (in thousands of euro) (in euro

Basic EPS 204,781 1,135,253,189 0.1804 “Annualised” Basic EPS (*) 413,648 1,135,253,189 0.3644 Diluted EPS 204,781 1,135,408,120 0.1804 “Annualised” diluted EPS (*) 413,648 1,135,408,120 0.3643

(*) The numerator used for the purposes of the calculation does not indicate a forecast of profitability for the whole year because it has been obtained by annualising the net result achieved in the first half. It will be recalled that in accordance with IAS 33, the weighted average of the ordinary shares in issue in the reporting period is used for the calculation of earnings per share. Consequently, the figures shown for the period January – June 2018 and for the full year 2018 are different from those published in the financial report for the period ended 30th June 2018 and in the 2018 Annual Report.

121 Information on risks and on hedging policies

The measurement of risks in the strategic and competitive scenarios in which the UBI Banca Group has set its annual and medium-term planning takes the form of defining limits and rules for the assumption of risk, which are able to guarantee capital strength and value creation oriented towards sustainable growth. The key principles on which Group risk analysis and management are based are as follows: - rigorous containment of financial and credit risks and strong management of all types of risk; - the use of a sustainable value creation approach to the definition of risk appetite and the allocation of capital; - definition of the Group’s risk appetite with reference to specific types of risk and/or specific activities in a set of policy regulations for the Group and for the single entities within it.

The assessments performed by the Parent were carried out with account taken of the operating nature and the relative profiles of each company in the Group in order to formulate integrated and consistent policies and guidelines. In order to achieve that objective, the governing bodies of UBI Banca perform their functions with reference not only to their own corporate reality but also by assessing the operations of the Group as a whole. The policies that are set by the UBI Banca Board of Directors are then translated into operational regulations.

1 – Banking Group risks

1.1 – Credit risk

Qualitative information The strategies, policies and instruments for the assumption and management of credit risk are defined at the Parent by the Chief Risk Officer in co-operation with the Chief Lending Officer, with the support and co-ordination of the relative specialist units. There is a particular focus in the formulation of policies to manage credit risk on maintaining an appropriate risk-yield profile and on taking risks that are consistent with the risk appetite defined by senior management and, more generally, with the mission of the Group. Key factors are reported below which impacted risk management in the first half of 2019, while full details on organisational aspects, management, measurement and control systems and credit risk mitigation techniques used by the UBI Banca are given in the Notes to the Consolidated Financial Statements in the 2018 Annual Report (Part E Information on risks and on the relative hedging policies).

With regard to the Basel 2 project, in 2012 and 2013 the Bank of Italy authorised the Group to use the Advanced Internal Rating Based (AIRB) approach to calculate capital requirements to meet credit risk for the regulatory retail segments “exposures backed by residential properties (individuals)”, “exposures backed by properties (SME-retail)”, “other retail exposures (SME- retail)” and for the “corporate” regulatory segment. During the first half of 2018, the Group received authorisation to extend the advanced internal systems to the retail regulatory segment “exposures backed by non-residential properties (individuals)” and, during the first quarter of 2019, also received authorisation to extend the advanced internal systems to the Corporate and Retail portfolios of the New Banks and to gradually extend the IRB perimeter (as defined by the roll-out) to the Other Individual Retail and Qualifying Revolving segments. The authorisation calls for the use of internal estimates of Probability of Default (PD), Loss Given Default (LGD) and Exposure At Default (EAD) for these portfolios.

122 For all the other portfolios, the standardised approach is used, to be applied in accordance with the roll-out plan submitted to the Supervisory Authority, which calls for specific deadlines. At the date of this report, the scope of application of the approaches authorised in terms of companies is as follows: • AIRB: UBI Banca1 and IW Bank2; • the remaining legal entities in the Group will continue to use the standardised approach until the date of the respective authorisation/roll-out.

PD THRESHOLDS UBI INTERNAL RATING MODELS EXTERNAL RATINGS The output of the models consists of nine rating Master Corporate Small Retail Private Scale and Large Moody's (1) classes that correspond to Busine ss Busine ss individuals Min PD Max PD Corporate the relative PDs, updated in Class Class Class Class Class December 2016. These PDs MS1 0.030% 0.049% Aaa Aa1 Aa2 Aa3 are mapped on the Master MS2 0.049% 0.084% 11A1 A2 A3 Scale to 14 classes MS3 0.084% 0.174% 112 Baa1 Baa2 (comparable with the ratings MS4 0.174% 0.298% 2 Baa3 MS5 0.298% 0.469% 2 2 3 Ba1 of the main external rating MS6 0.469% 0.732% 333 Ba1 / Ba2 agencies) exclusively for MS7 0.732% 1.102% 4 Ba2 reporting purposes. MS8 1.102% 1.867% 444 Ba3 MS9 1.867% 2.968% 55 5 B1 B2 As concerns LGD, LGD MS10 2.968% 5.370% 65 B3 Caa1 models have been developed, MS11 5.370% 9.103% 7 666 Caa1/Caa2 differentiated by regulatory MS12 9.103% 13.536% Caa2 class. MS13 13.536% 19.142% 8 777 Caa3 MS14 19.142% 99.999% 9 8-9 8-9 8-9 Ca-C (1) See Moody's "Corporate Default and Recovery Rates, 1920-2017", Exhibit 29, Average One-Year Alphanumeric. Rating Migration Rates, 1983-2017. Furthermore, with specific reference to the methodological framework for calculating impairment losses, from 1st January 2018 the Group has adopted the new financial reporting standard IFRS 9 which introduces important new changes regarding lending: • transition from the incurred loss approach calculated over a 12-month time horizon to an expected loss approach calculated over the entire useful lifetime of the loan; • classification of loans in three different stages for which different methods for calculating losses to be recognised are used. Stage one contains performing positions which have undergone no significant increase in credit risk and which are otherwise positioned in stage two 3 . Stage three contains all positions classified as non-performing according to the current rules employed by the Group. One of the changes introduced by the new IFRS 9 standard is the inclusion of forward looking factors in the methods of assessing performing positions.

In this context, in its estimates of impairment losses on performing loans the Group has adopted a methodology for determining significant increases in credit risk which involve the classification of instruments in stages one and two, by combining statistical factors (i.e. quantitative) with performance factors (i.e. qualitative). In this regard the main indicator (the “significant indicator”) consists of the change beyond determined thresholds in the lifetime probability of default since the time of initial recognition of the financial instrument.

Once the allocation to stages one and two has been made, determination of the expected credit losses is achieved by applying regulatory risk parameters adjusted for compliance with IFRS 9 for example by employing them on a “point-in-time” basis. More specifically, the determination of loss given default is carried out by applying specific corrective factors to regulatory internal LGDs (i.e. management accounting LGDs).Where internal models are not applicable, models

1 The legal entity, UBI Banca, incorporates the exposures of the former B@nca 24-7, the former Centrobanca, the former network banks (merged into the Parent), and the former New Banks (i.e. Banca Adriatica, Banca Tirrenica and Banca Teatina). 2 The company IW Bank incorporates the exposures of the former UBI Banca Private Investment and the former IW Bank. 3 The main factors defined by the UBI Banca Group to identify a significant increase in credit risk with respect to the origination (approval of the extension of credit) and which therefore determine the passage to stage two are linked to the occurrence of one or more staging trigger events, verified monthly (deterioration of the lifetime probability of default; classification as forborne; the existence of an exposure continuously past due or in arrears at counterparty level for at least 30 days, with the amount 5% higher than the overall exposure of the position).

123 are applied starting with the empirical recovery rates of the ECAI agencies, or with simplified risk information such as for example the default rates for specific segments or portfolios.

Forward-looking components are incorporated in risk parameters with the use of internal satellite models developed for credit risk stress test purposes. Underlying the forward-looking component there are expected macroeconomic scenarios the indicators of which are estimated for three possible future scenarios (baseline, best and worst) for which a likelihood of occurrence is associated to each one.

With regard to the inclusion of forward-looking information, we report that this component has also been broadened for the bad loans that the Group expects to sell to a third party along the same lines as the framework adopted for performing loans by including a multi-scenario analysis which considers two scenarios. The first factors in the estimate of the recovery deriving from ordinary and internal credit management, while the second considers a recovery through sale and consists in quantifying the adjustments based on a hypothetical/available price for the sale. The two scenarios are mediated by adopting a probability of disposal (PoD) determined according to criteria that take into account the presence of the relevant factors that characterise the gradual finalisation of the sales.

Quantitative information Classification of exposures on the basis of internal ratings

The following is given below: a) regulatory coverage determined on the basis of the rules set by EU Regulation 575/2013 (the “CRR”) and by Bank of Italy Circular No. 285 of 17th December 2013 and subsequent updates; b) distribution of the IRB perimeter on Master Scale classes: Corporate Exposures; Retail Exposure.

UBI Banca Group: regulatory coverage for internal IRB perimeter (UBI Banca + IW Bank): ratings by regulatory class Distribution of EAD on the Master Scale (30th June 2019) 90.0% 20.0% 86.3% 18.0% 85.0% 16.0% 80.9% 14.0% 80.0% 12.0% 10.0% 75.0% 8.0% 6.0% 70.0% 4.0%

65.0% 2.0% 0.0%

60.0% Corporate Retail

124 1.2 – Market risk

1.2.1 Interest rate risk and price risk – Supervisory trading portfolio

Qualitative information General aspects Information on organisational and methodological aspects, which are unchanged, is given in Part E, Section 2, Point 1.2 – Market risk of the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which may be consulted. The main operational limits set for 2019 (including reallocations and any new limits set during the year) are as follows: UBI Banca Group Trading Book Capital Allocated €30 million Early Warning Threshold on UBI Banca Group Trading Book Capital Allocated €25 million Early Warning Threshold on UBI Banca Group Trading Book 1-day Expected Shortfall (ES) €5 million

Quantitative information Supervisory trading book: internal models and other methods of sensitivity analysis

Change in market risk: daily market ES for the UBI Banca Group trading portfolios in the first six months of 2019

1,000,000 900,000 800,000 700,000 600,000 Changes in the trend shown in the chart were related to 500,000 movements in the portfolio since no exogenous shocks were 400,000 recorded. 300,000 200,000 100,000 0

The expected shortfall by risk factor calculated on the entire trading book of the UBI Group as at 30th June 2019 is given below.

Trading book 30.6.2019 Average Minimum Maximum 31.12.2018

Currency risk 85,191 54,638 11,696 221,630 91,382 Interest rate risk 556,477 476,718 247,416 840,920 426,279 Equity risk 161,718 184,128 147,942 216,570 150,509 Credit risk 13,352 194,952 7,926 483,225 317,561 Volatility risk 93,727 94,014 49,645 217,344 78,844 Diversification effect (1) (249,065) (553,564) Total (2) 661,400 612,511 363,310 909,682 511,011

(1) The diversification effect is due to the imperfect correlation between the different risk factors present in the Group’s portfolio (2) The maximum ES was recorded on 15th April, the minimum ES on 15th January.

125 Backtesting analyses

UBI Banca Group trading book: backtesting for first half of 2019

2 Millions Profit & Loss VaR

1

0

-1 02/01 16/01 30/01 13/02 27/02 13/03 27/03 10/04 24/04 08/05 22/05 05/06 19/06

Actual backtesting analysis of the supervisory portfolios of the Group found no days when the P&L was worse than the ES calculated by the risk management system.

Theoretical stress tests

The analysis shows a heightened sensitivity of the portfolios to credit spread shocks (consistent with the presence of Italian government securities and corporate securities, especially in the HTC&S portfolio) and to interest rate shocks (consistent with the presence of bonds and interest-rate derivatives within the portfolios).

UBI GROUP BANCA UBI BANCA GROUP TOTAL Supervisory Trading Book Banking Book UBI BANCA GROUP 30th Data as at 30th June 2019 30th June 2019 30th June 2019 June 2019

in whole euro Change in NAV Change in NAV Change in NAV

Risk Factors IR Shock Shock +1bp 26,753 0.06% -1,383,074 -0.01% -1,356,320 -0.01% Risk Factors IR Shock Shock -1bp -27,154 -0.06% 1,383,752 0.01% 1,356,598 0.01% Risk Factors IR Shock Bear Steepening 656,216 1.40% -37,240,269 -0.39% -36,584,053 -0.39% Risk Factors IR Shock Bull steepening -964,776 -2.06% 24,356,321 0.26% 23,391,546 0.25% Risk Factors IR Shock Bear Flattening 1,513,832 3.23% -22,426,361 -0.24% -20,912,529 -0.22% Risk Factors IR Shock Bull Flattening 628 0.00% 39,347,061 0.42% 39,347,689 0.41% Risk Factors Equity Shock -10% -229,685 -0.49% -4,892,615 -0.05% -5,122,301 -0.05%

Risk Factors Credit Spread Shock 2,442 0.01% -5,682,499 -0.06% -5,680,056 -0.06%

Flight to quality scenario -4,547,850 -9.72% -455,898,556 -4.83% -460,446,407 -4.85%

126 1.2.2 Interest rate risk and price risk – Banking book

Qualitative information Information on organisational and methodological aspects, which are unchanged, is given in Part E, Section 2, Point 1.2 – Market risk of the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which may be consulted. Quantitative information The exposure of the UBI Banca Group to interest rate risk as at 30th June 2019 measured in terms of the sensitivity of the net economic value of the component relating to the HTC&S portfolio, was approximately -€39.47 million, thereby remaining within the limits set by the Policy to Manage Financial Risks. In detail, the sensitivity originated by the product companies was -€57.39 million, while the Parent contributed a total of +€17.91 million. In compliance with the Policy to Manage Financial Risks, the exposure includes an estimate of the impact of early repayments and modelling of on-demand items on the basis of the internal model. On the basis of the standard scenario set by current supervisory regulations, the end of period measurement as at 30th June 2019, recorded a change in economic value of -€308.49 million. Although negative, that threshold fell within the risk limit set. Sensitivity analysis of net interest income focuses on changes in profits resulting from a set of scenarios for changes in interest rates measured over a time horizon of twelve months. UBI Banca Group’s exposure to interest rate risk as at 30th June 2019, estimated in terms of an impact on net interest income of a reduction in reference interest rates of -100 bp, was -€92.41 million, a figure which stood within the limits set by Group policy. The total level of exposure includes an estimate of the impact of early repayments and of the viscosity of demand items. The impact on net interest income showed the effects of changes in interest rates on the portfolio monitored, excluding hypotheses of future changes in the mix of assets and liabilities. These factors mean that the indicator cannot be used to assess the Bank’s future strategy.

* * *

The main operational limits for 2019 (including reallocations and any new limits set during the year) are as follows: UBI Banca Group Banking Book Capital Allocated €875 million Early Warning Threshold on UBI Banca Group Banking Book Capital Allocated €840 million Early Warning Threshold on UBI Banca Group Banking Book 1-day Expected Shortfall (ES) €130 million

Change in market risk: daily market ES for the Group banking book in the first six months of 2019

120,000,000

115,000,000

110,000,000 105,000,000 Changes in the trend shown in the chart were strictly related to movements in the portfolio. 100,000,000

95,000,000

90,000,000

127 The expected shortfall by risk factor calculated on the entire banking book of the Group as at 30th June 2019 is given below.

Banking book 30.6.2019 Average Minimum Maximum 31.12.2018

Currency risk 59,094 26,868 110 95,572 55,990 Interest rate risk 6,620,900 5,535,903 3,705,609 6,823,821 3,869,040 Equity risk 101,684,853 100,724,143 98,217,560 110,893,002 734,585 Credit risk 573,921 598,923 565,357 744,543 110,707,095 Volatility risk - - - - - Diversification effect (1) (6,493,024) (4,110,224) Total (2) 102,445,744 101,323,908 98,810,176 111,429,136 111,256,486

(1) The diversification effect is due to the imperfect correlation between the different risk factors present in the Group’s portfolio. (2) The maximum ES was recorded on 2nd January, the minimum ES on 15th May.

1.2.3 Currency risk Further information on general aspects and on processes for the management and methods for the measurement of currency risk is given in Part E, Section 1, Point 1.2 – Market risk of the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which may be consulted.

1.3 – Liquidity risk

Qualitative information The section on the interbank market in this interim report on consolidated operations may be consulted for information on net interbank debt recognised and details of the UBI Banca Group’s liquidity reserve.

Short-term liquidity analysis is monitored using a net liquidity balance model of analysis at consolidated level, supplemented with stress tests designed to assess the Group’s ability to withstand crisis scenarios characterised by an increasing level of severity. The position as at 30th June 2019 was one of ample funds. Medium to long-term liquidity indicators (structural liquidity) also recorded values within the limits set by the Policy to Manage Financial Risk.

Further information on liquidity risk is given in Part E, Section 2, Point 1.4 – Liquidity risk – of the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which may be consulted.

1.4 – Operational risks

Part E section 2, Point 1.5 – Operational risks of the Notes to the Financial Statements in the 2018 Annual Report may be consulted for qualitative information (general aspects, management processes, measurement methods and the reporting system).

Legal risk The companies in the UBI Banca Group are party to a number of disputes and proceedings of a legal nature arising from the ordinary performance of their business. As a result of those disputes and proceedings, appropriate provisions have been made in the accounts on the basis of a calculation of the amounts potentially at risk and an assessment of the risk in terms of the degree of “probability” and/or “possibility”, as defined in the accounting standard IAS 37, and with account taken of established legal opinion. Therefore, while it is not possible to predict final outcomes with certainty, it is considered that an unfavourable conclusion of these proceedings, both taken singly or as a whole, would not have a significant effect on the financial and operating position of the Group. Specific sections of this consolidated condensed interim financial report may be consulted for information on corporate litigation, including tax litigation.

128 Quantitative information

Descriptive data Between 1st July 2014 and 30th June 2019, the main sources of operational risk for the Group were centred around the risk drivers “processes” (93% of frequencies and 83% of the total impacts detected) and “external causes” (6% of frequencies and 13% of the total impacts detected).

The “process” risk driver includes, amongst other things, unintentional errors and incorrect application of regulations. The “external causes” risk driver includes, amongst other things, human actions performed by third parties and not directly under the control of the Bank.

Percentage of operational losses by risk driver (detection 1st July 2014 – 30th June 2019)

Event frequency Profit impact

The types of event4 which recorded the greatest concentration of operational losses during the period examined were “customers, products and professional practices” (86% of frequencies and 56% of the total impacts detected), “execution, delivery and process management” (7% of frequencies and 27% of the total impacts detected) and “external fraud” (4% of frequencies and 10% of the total impacts detected).

4 Reference is made to regulatory types of event laid down by EU Regulation 575/2013 as follows: - internal fraud: losses due to acts of fraud, misappropriation of property, circumvention of the articles of association, laws, regulations or company policies, (excluding discrimination events or diversity events) which involve at least one internal party of the company; - external fraud: losses due to acts of fraud, misappropriation of property, circumvention of the articles of association, laws regulations or company policies, (excluding discrimination events) carried out by third parties; - employment and workplace safety: losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal injury claims or from diversity/discrimination events. - customers, products and business practices: losses arising from the failure to meet professional obligations to specific clients (inclusive of fiduciary requirements and requirements to disclose information on investments) or from the nature or design of a product. - damage from external events: losses arising from damage to, destruction or loss of physical assets, and from human and other losses due to natural disasters or other events. - business disruption and system failures: losses arising from malfunctions and faults in systems and/or consequent business disruptions. - execution, delivery and process management: losses arising from failed transaction processing or process management and from relations with trade counterparties and vendors.

129 Percentage of operational losses by type of event (detection 1st July 2014 – 30th June 2019)

Event frequency Profit impact

Operational losses in the first six months of 2019 were concentrated on the following risk factors: ‘processes’ (96% of frequencies and 87% of the total impacts detected) and ‘external causes’ (4% of frequencies and 12% of the total impacts detected).

Percentage of operational losses by risk driver (detection 1st January 2019 – 30th June 2019)

Event frequency Profit impact

Operational losses incurred in the period were concentrated mainly in the following types of event: “Customers, products and professional practices” (93% of frequencies and 81% of the total impacts detected); “external fraud” (2% of frequencies and 11% of the total impacts detected); and “execution, delivery and process management” (3% of frequencies and 5% of the total impacts detected).

130 Percentage of operational losses by type of event (detection 1st January 2019 – 30th June 2019)

Event frequency Profit impact

Capital requirement The capital requirement net of expected losses for which provisions for risks and charges have been made is €288 million (-18% compared with €350 million as at the 31st December 2018). The reduction compared to the previous half-year period was mainly due to the exclusion from the dataset of the accounting entries made outside the holding period following the achievement of 10 years of historical depth for the first perimeter of validation (in particular, the removal of the €25 million loss related to the DD Growth hedge fund).

As a form of risk mitigation, the UBI Banca Group has taken out adequate insurance policies to cover the principal transferable operational risks with due account taken of the requirements of supervisory regulations. The Group has not taken up the option available under the regulations in force to deduct the effects of insurance policies and other risk transfer mechanisms from the capital requirement.

2 – Insurance company risks

The information that follows has been prepared on the basis of the provisions of paragraphs 38 and 39 letters a) and b) of IFRS 4 which states the following: “An insurer shall disclose information that helps users to understand the amount, timing and uncertainty of future cash flows from insurance contracts” (ref. par. 38) and “To comply with paragraph 38, an insurer shall disclose: (a) its objectives in managing risks arising from insurance contracts and its policies for mitigating those risks. (b) those terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the insurer’s future cash flows” (ref. par. 39).

Qualitative information Information on organisational and methodological aspects, which are unchanged, is given in Part E, Section 3 – Insurance company risks of the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which may be consulted.

In the 2019 Risk Appetite Framework, specific capital for insurance risk was defined in consideration of the investment that the Parent Company holds in the insurance company BancAssurance.

131 The internal capital is calculated in compliance with the framework provided for the calculation of regulatory capital by the relative supervisory regulations.

Quantitative information The main operational limits for 2019 are as follows: UBI Banca Group Insurance Risk Capital Allocated €80 million

The limits reported above were complied with in the first half of 2019.

The principal risks and uncertainties for the second half of the year

Risks

The UBI Banca Group attributes primary importance to the measurement, management and monitoring of risk, as activities necessary to ensure the sustainable creation of value over time and to the consolidation of its reputation on its markets. Consequently, it has a system of risk governance and management in place which takes account of organisation, regulations and methods in order to ensure consistency in its operations and its relative risk appetite (RAF - Risk Appetite Framework). More specifically, the Group has adopted a risk management framework consistent with Group regulations and strategies which have been developed over the years, consistent in turn with developments in the regulatory framework. The main parts of the current framework regard the following:  definition of the risk appetite (Risk Appetite Statement - RAS);  definition of the framework to verify future risk as an integral part of the strategic planning process;  definition of the stress test framework;  definition of risk management policies;  definition of RAF-related methodologies;  definition of the non-viability risk management framework associated with the Group Recovery Plan;  interpretation and governance of RAF in Group companies;  definition of the framework and criteria for the identification of transactions of greater significance (TGS).  definition of the risk monitoring and self-assessment framework from an SREP viewpoint.

Articles 97 and following of Section III of Directive 2013/36/EU (“CRD IV”) regulate the Supervisory Review and Evaluation Process (SREP), and that is the regulatory control, review and assessment process for which the supervisory authority is responsible by which it formulates an overall opinion on the bank and institutes corrective measures if necessary. To achieve this, in accordance with Art. 107 (3) of CRD IV, the European Banking Authority (EBA) has published “Guidelines”5 with the objective of generating procedures and methodologies common to the competent authorities in order to support the Supervisory Review and Evaluation Process (SREP).

Internal processes make a considerable contribution to the calculation and assessment of capital adequacy (Internal Capital Adequacy Assessment Process – ICAAP) and liquidity adequacy (Internal Liquidity Adequacy Assessment Process – ILAAP) and on the basis of these the Group carries out a self-assessment each year focused on identifying risks and the conditions of its current and future capital and liquidity adequacy including under stress conditions6.

5 See “Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP)”, EBA/GL/2014/13 of 19th December 2014. These guidelines were finalised on 19th July 2018 and are applicable from January 2019. 6 See Final Report “Guidelines on ICAAP and ILAAP information collected for SREP purposes”, EBA/GL/2016/10 of 3rd November 2016.

132 In compliance with the regulations in force, by the end of April the UBI Banca Group had submitted its 2018 ICAAP and ILAAP reports to the supervisory authority. The results of the capital and liquidity adequacy assessments contained in those reports confirmed the availability of significant margins sufficient to maintain the capital and liquidity position, both current and future and under stress conditions above the requirements requested.

With regard to these processes, very careful identification of risks to be subjected to measurement is carried out on a continuous basis. Risk identification activity is designed to verify the magnitude of risks already subject to measurement and to detect signals of other types of risk which may manifest. Identification involves precise conceptual definition of the risks to which the Group is exposed, an analysis of the factors which combine to generate them and a description of the relative manner in which they manifest. This activity is achieved by means of a centralised process of analysis supplemented by self-assessment conducted on all the entities of the Group.

Once the activity to identify significant risks is completed, the ICAAP process involves measuring the risks to which internal capital is attributed and calculating the “available financial resources” (AFR)7 required to meet them (capital adequacy), both at present and in the future. The Bank also makes use of specific stress tests (by assessing impacts on a single risk) and global stress tests (by assessing impacts on all risks at the same time) to perform a better assessment of exposure to risk and of systems for mitigating and monitoring them and calculating capital requirements. Use of these tests is also based on instructions provided by the European Central Bank as part of the official stress test exercise organised by the EBA and concluded in November 2018. In this regard, it should be noted that, despite a particularly severe stress test (both in terms of macro and methodological scenarios), the Group’s capital ratios remained resilient and showed an impact in the hypothesis of an adverse scenario of better than the average of the European sample analysed. It should also be noted that the 2018 stress test based on the year-end figures for 2017, which did not yet reflect the expected benefits from Business Plan which was updated in May 2017 and is now being progressively implemented. More specifically it did not reflect the strong curb on operating expenses following the rapid integration of the banks in Central Italy, a substantial reduction in staff numbers and branches, etc. Furthermore, the static balance sheet approach prescribed by the stress test methodology did not allow account to be taken of the progressive reduction in non-performing loans, due to the importance of both the credit recoveries and the sale of NPLs that is ongoing.

Details are given below of risks which have potential significant impacts for the UBI Banca Group and the action taken to mitigate them. It is considered that risks other than those reported below, which are of marginal importance within the Group, will not change during the course of the year.

Credit risk Credit risk, which consists of the risk of incurring losses resulting from the default of counterparties with whom credit exposure exists, constitutes the most important characteristic risk of the UBI Banca Group. On a historical basis it absorbs over 90% of the regulatory risk capital. The Group has always considered the quality of its loan portfolio and efficient management of non-performing loans to be one of its top strategic priorities. In this sense, the development of credit monitoring and credit recovery models has produced a profound organisational overhaul in terms of processes and support instruments and it has allowed the Group to come to terms with the difficult economic environment existing in recent years. The main strengths included the following:  implementation of a complex project aimed at putting into practice the guidelines issued by the European Banking Authority (EBA) regarding rules and processes for the classification

7 Available financial resources (AFR) or alternatively total capital, is defined as the sum of the capital items that the Group considers can be used to meet “internal capital” and “total internal capital” requirements. “Internal capital” is defined as risk capital, the capital requirement for a determined risk that is considered necessary to cover losses above a given expected level. “Total internal capital” is defined as internal capital required for all significant risks assumed by the Group, including possible internal capital requirements due to considerations of a strategic character.

133 of counterparties as defaulted (EBA/GL/2016/7). In order to address a change of this magnitude, the preparatory actions implemented by the UBI Banca Group have complied with a challenging action plan with regard to the timing of execution and commitment of professional and IT resources. In particular, the most significant changes concerned: more stringent criteria for classification in the administrative status of past due; the alignment of administrative status at the banking-group level; the propagation of default status to connected customers; the introduction of a monitoring period prior to returning to default customers who have regularised their positions; the introduction of a parametric threshold used to compare the calculation of the “reduced financial obligation” (forbearance measures granted to performing customers) and the exceeding of which constitutes a mandatory trigger for classification as unlikely-to-pay;  the definition and introduction of strategies for the grant of loans customised by type of customer, based on the level of risk and sector outlook and carried out by the implementation of special purpose tools used to monitor the correct assignment of credit policies;  support for digital innovation in lending in order to drive growth in loans with high standards of credit quality selection by means in particular of granting personal loans to individuals after first carrying out automated processes to pre-assess requirements relating to counterparty reliability;  the continuous refinement of a new organisational model for “Loan Settlement” (the former Arrears Management Model), with a view to improving effectiveness of the management and settlement of irregular positions by reorganising and improving the operational and organisational model in order to provide useful assistance to the distribution network in loan settlement;  the effective local management of credit exposures by means of qualified and experienced specialised staff who work on positions that present irregularities, supporting distribution network units in the relative settlement;  the refinement of early warning indicators designed to achieve substantial benefits in terms of focus on the detection of irregularities, by detecting more of these earlier and by interrupting flows to non-performing status, in compliance with the recommendations given in recent ECB regulations (Guidance to Banks on Non-performing Loans);  expansion of the centralised management unit for non-performing counterparties, which involves specialised treatment of the positions based on the “clusters” to which they belong, with a view to “regularising” positions and supervising the credit quality of the portfolios assigned to them, with the presence of dedicated specialist roles (“NPL Account Managers”);  the improvement of default detection triggers, in compliance with ECB guidance on non- performing loans and IFRS 9 international reporting standard rules, which constitute specific indicators of the deterioration of positions, which when triggered require the Bank to assess the classification of the counterparty as either unlikely-to-pay or bad, or alternatively to intervene directly in the presence of high degrees of risk;  the finalisation, as support for the new credit governance model (divided into “Performing Processes” and “Non-performing Processes”), of new and unequivocal reporting (a “Credit Control Framework”) with a high degree of automation which allows data to be presented in a standardised manner with an adequate level of detail and showing divergences from budget figures, Strategic NPL Plan figures and Business Plan figures;  improvement of the credit recovery model by revising the structure of the organisational area and refining the rules for the assignment of customers classified as “bad loan” status in order to render the management of these positions by credit recovery units faster and more effective;  the finalisation of transactions for the sale of non-performing loans with a view to maximising the final net benefit for the Group in terms of de-risking and overall post-sale capital position.

For the second half of 2019, the most significant event is the entry into force of the new regulatory framework on the subject of classification of defaults referenced above. The UBI Banca Group intends to further develop its infrastructure to support credit management activities across the various stages of the credit life cycle by means of specific action designed to:  finalise and strengthen the IT management tools supporting the introduction of the new regulatory framework for classification of defaults;

134  further support the growth of loans with high standards of credit quality selection by monitoring loan grant strategies that are customised by type of customer, based on the level of risk and on recently introduced sector outlooks and additionally by commencing the grant of personal loans to businesses in the POE (small economic operators) segment with support from automated processes to pre-assess requirements relating to counterparty reliability;  further strengthen credit processes with particular reference to the settlement of unlikely- to-pay positions, by, amongst other things, developing the management model by revising and broadening the perimeter of counterparties to be assigned to outside specialist firms;  with regard to unlikely-to-pay and bad loans, further optimise the credit recovery model by taking IT action designed to increase the efficiency of both administrative and management activities.

Business risk Competition on prices with regard to the loans granted by banks following access to forms of funding regulated by the European Central Bank (i.e. Targeted Longer-Term Refinancing Operations, or TLTROs) remains high. The macroeconomic environment, the extreme volatility on markets and the pressure of competition resulting from the substantial liquidity flooding credit markets has compressed margins and the profitability of operators. The UBI Banca Group is therefore continuing to take appropriate action on its distribution network designed to achieve goals identified in terms of volumes and pricing of loans consistent with targets for the quality of credit.

Sovereign risk While exposure to government securities still remains substantial (and to Italian government securities 8 in particular), a plan is in progress to diversify and gradually reduce the concentration of the banking book portfolio in accordance with strategic guidelines laid down in the Business Plan. The banking Group’s securities portfolio has therefore been reduced and diversified precisely by decreasing the concentration in Italian government securities over the course of the Business Plan.

Insurance risk Following the acquisition of the New Banks, the perimeter of the Group also includes the insurance company BancAssurance Popolari SpA (life business sector) 9 . Limited to the insurance perimeter only, we report that management accounting measurements of the solvency ratio comply with Solvency II regulations.

Uncertainties

An uncertainty is defined as a possible event for which the potential impact, attributable to one of the risk categories just mentioned, cannot be determined and therefore quantified at present.

The Group is operating in a scenario in which growth expectations are confirmed as favourable, but which is nevertheless overshadowed by specific risk factors that are potentially negative for growth. These factors of uncertainty could manifest with impacts attributable primarily to credit, but without affecting the capital strength of the UBI Banca Group. In addition, the potential worsening and persistence of financial market tensions – with the possible closure of institutional markets – could cause slowdowns in raising the liquidity needed to finance the Bank’s core medium/long-term lending, while also leading to an increase in the cost of funding.

8 See the sub-section “Exposure to sovereign debt risk” in the section “Financial Activities” of this report for details of the value of sovereign debt risk exposures. 9 Until the disposal in May 2019, the perimeter also included BancAssurance Popolari Danni SpA (non-life business sector).

135 In detail, the main uncertainties identified for the second half of 2019 are linked to the following aspects: - developments in the macroeconomic situation10: . certain specific risk factors, such as the tensions that have escalated between the United States and China and the related trade agreements that the U.S. administration is carrying out on many fronts, show no signs of decreasing. Once the agreement with Mexico was concluded, signs of détente between the U.S. and China emerged from the G20 in Osaka, which contributed to signs of improvement on the trade front. Expanding the time horizon, the risks of potential stalling persist in negotiations between Washington and Beijing, as well as the possibility of future pressures on Europe – and on Germany first and foremost – aimed at revising existing trade agreements; . as regards Europe more specifically, the main factors of uncertainty are represented by Brexit and by the level of debt characterising the Italian economy. With regard to: (i) the United Kingdom, after the resignation of Prime Minister May, we await the next moves out of London, particularly in terms of how the exit currently expected for the end of October will take place. In particular, the consequences that are feared are those of a disorderly Brexit and of the related commercial agreements that should be reviewed at the national level. As concerns the economy, major repercussions have been seen in construction (which accounts for over 6% of the British economy) in an industry that was affected by uncertainty surrounding a postponement of investments in the face of concerns over an exit from the EU, and the industry is shedding jobs at the fastest pace since 2012. On the European side, there does not seem to be any willingness to negotiate further; (ii) the Italian question, the infringement procedure for excessive debt was avoided thanks to the correction made by the Government by way of drafting a bill for the adjustment of the budget and a decree under which the debt is supposed to be reduced by €7.6 billion compared to the Economy and Finance Document of April. These measures have established the conditions for making the start of an infringement procedure against Italy unjustified. However, risks remain both for the stability of the public accounts from now until 2020 and for possible downgrades by the major ratings agencies; - political developments10. Given, prudentially, that achievement of an advanced phase of economic expansion requires constant, preventive analysis aimed at identifying signs of a cycle reversal, there are specific risk factors that could compromise a framework that remains favourable: (i) as-yet unresolved geopolitical issues; (ii) changes in trade balances between major international partners; and (iii) the high level of global debt; - developments in the regulatory framework11. The regulatory context is subject to various processes of change following both the issue of a number of regulatory provisions at European and national level, with the introduction of the relative regulations to implement them, relating to the provision of banking services and also the related legal recommendations. This scenario requires particular effort both in terms of interpretation and implementation and has at times directly affected the profits of banks, and/or costs for customers. Of particular note there are: . the revision of the calculation of regulatory requirements with the objective of greater alignment at European level of some regulations through the reduction of national discretion and changes to internal models relating to credit risk by the supervisory authorities could lead to adaptations of the internal rating and LGD models and in the write-down of loans. Of note in this regard is the ECB initiative, launched at the end of 2015 and to be concluded by 2019, relating to the targeted review of the internal models (TRIM) aimed at making the results of the models themselves homogeneous and robust and the RWA values determined using the IRB approach more comparable at the European level; . a revision of the Basel 3 involves modifications to methods for calculating risk-weighted assets for credit risk, operational risk and market risk. Definition of these rules, which fall within the Basel 4 framework, is aimed at better aligning certain areas of application of the regulation itself at the European level by issuing specific implementing standards

10 See in this respect the information provided in the section “The macroeconomic scenario” . 11 The section “Significant events in the first half of 2019” may be consulted for further information.

136 that could require the Bank to make adjustments relating to management of the models and of the processes relating to credit risk and capital adequacy. These regulatory changes are subject to constant monitoring and are continually factored into company projections and business planning.

Elements of focus also continue to be defined by the Payment Services Directive (PSD2), which entered into force on 3rd January 2018 and which could lead to an increase in the level of competition and to a threat of disintermediation in favour of new types of competitors allowed to operate in the financial sector. The same could also be said for the recent dissemination of new payment methods/technologies that are undermining the electronic payments sector and that of payment systems generally, which have thus far been the purview of the banking industry.

* * *

The risks and uncertainties described above were subject to a process of assessment designed, amongst other things, to examine the impacts of changes in market parameters and conditions on corporate performance. The Group does in fact possess instruments to measure the possible impacts of risks and uncertainties on its operations (sensitivity analysis and stress tests in particular), which allow it to rapidly and continuously adapt its strategies – in terms of its distribution, organisation and cost management systems – to changes in the operating context. Risks and uncertainties are also under constant observation through the implementation of the policies and regulations to manage risk adopted by the Group: policies are updated in relation to changes in strategy, context and market expectations. Periodic monitoring of policies is designed to verify their state of implementation and their adequacy. The findings of the analyses performed show that the Group is able to meet the risks and uncertainties to which it is exposed, which therefore confirms the assumption that it is a going concern.

137 Consolidated companies: the principal figures

Net profit for the period

First half First half Full Year Change % change Figures in thousands of euro 2019 2018 2018 A-B A-B A B C

Unione di Banche Italiane Spa 182,660 204,276 (21,616) (10.6%) 467,506 Centrobanca Sviluppo Impresa Spa (99) (81) 18 22.2% (637) IW Bank Spa 5,122 2,023 3,099 153.2% 4,458 Pramerica SGR Spa 39,943 37,592 2,351 6.3% 72,291 Zhong Ou Asset Management Co. Ltd (25%) 4,423 3,963 460 11.6% 6,978 UBI Leasing Spa (39,701) 10,224 (49,925) n.s. (39,048) UBI Factor Spa (2,707) 1,055 (3,762) n.s. (9,159) Prestitalia Spa 9,265 10,679 (1,414) (13.2%) 18,439 BPB Immobiliare Srl (757) (270) 487 180.4% (339) UBI Sistemi e Servizi SCpA 1,681 8,218 (6,537) (79.5%) - BancAssurance Popolari Spa 2,978 4,387 (1,409) (32.1%) 7,239 BancAssurance Popolari Danni Spa (*) (81) 41 (122) n.s. 2 Aviva Vita Spa (20%) 6,560 (1,680) 8,240 n.s. 5,220 Lombarda Vita Spa (40%) 8,410 6,528 1,882 28.8% 12,108 Pramerica Management Co. Sa (**) 336 443 (107) (24.2%) 893 UBI Trustee Sa (**) 6 115 (109) (94.8%) (4)

CONSOLIDATED 130,919 208,867 (77,948) (37.3%) 425,608

(*) The profit relates to the part earned up until the disposal of the company which took place in May. (**) The result shown is from the financial statements prepared for the consolidation according to the accounting policies followed by the Parent.

138 Net loans and advances to customers

30.6.2019 1.1.2019 (*) Change % change 30.6.2018 Change % change Figures in thousands of euro A B A-B A/B C A-C A/C

Unione di Banche Italiane Spa 85,876,219 88,542,570 -2,666,351 -3.0% 90,708,049 -4,831,830 -5.3% Prestitalia Spa 1,612,614 1,488,837 123,777 8.3% 1,431,103 181,511 12.7% IW Bank Spa 501,867 528,744 -26,877 -5.1% 553,062 -51,195 -9.3% UBI Factor Spa 2,125,065 2,624,510 -499,445 -19.0% 2,325,959 -200,894 -8.6% UBI Leasing Spa 5,964,491 6,289,170 -324,679 -5.2% 6,641,511 -677,020 -10.2%

CONSOLIDATED 86,342,194 89,261,873 -2,919,679 -3.3% 91,656,223 -5,314,029 -5.8%

Loans and advances to customers include items 20. 2), 30. 2) and 40. 2) in the asset section of the Reclassified Balance Sheet. (*) The date 1st January 2019 must be interpreted as 31st December 2018, except for UBI Banca, which includes the totally marginal effects of IFRS 16.

Risk indicators

Net bad loans/net loans to customers at amortised Total net non-performing loans/Net loans to cost customers at amortised cost

Percentages 30.6.2019 1.1.2019 (*) 30.6.2018 30.6.2019 1.1.2019 (*) 30.6.2018

Unione di Banche Italiane Spa 2.38% 2.34% 2.90% 5.20% 5.47% 6.40% Prestitalia Spa 0.08% 0.09% 0.42% 1.79% 2.52% 3.32% IW Bank Spa 1.23% 1.31% 1.83% 3.00% 2.99% 3.65% UBI Factor Spa 1.89% 7.25% 8.75% 3.32% 8.41% 10.35% UBI Leasing Spa 6.68% 8.06% 9.47% 12.50% 13.93% 15.75%

CONSOLIDATED 2.88% 3.11% 3.80% 6.17% 6.72% 7.82%

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

139 Direct banking funding from customers

30.6.2019 1.1.2019 Change % change 30.6.2018 Change % change Figures in thousands of euro A B A-C A/C C A-C A/C

Unione di Banche Italiane Spa 92,426,089 90,364,676 2,061,413 2.3% 92,666,800 IW Bank Spa 3,017,314 2,814,507 202,807 7.2% 2,879,623

CONSOLIDATED 94,787,453 92,605,312 2,182,141 2.4% 95,010,055

Direct funding from customers includes amounts due to customers and debt securities issued, with the exclusion of bonds and other securities subscribed directly by companies in the Group.

Indirect banking funding from ordinary customers (market prices)

30.6.2019 1.1.2019 (*) Change % change 30.6.2018 Change % change Figures in thousands of euro A B A-B A/B C A-C A/C

Unione di Banche Italiane Spa 88,537,146 84,555,406 3,981,740 4.7% 87,465,086 1,072,060 1.2% Pramerica SGR Spa 35,299,802 33,253,840 2,045,962 6.2% 35,323,384 -23,582 -0.1% IW Bank Spa 8,825,661 8,257,949 567,712 6.9% 9,085,674 -260,013 -2.9% BancAssurance Popolari + BancAssurance Popolari Danni Spa (1) 2,223,294 1,986,931 236,363 11.9% 1,956,735 266,559 13.6% Lombarda Vita Spa (2) 8,075,449 7,951,546 123,903 1.6% 7,843,069 232,380 3.0% Aviva Vita Spa (2) 15,273,647 14,152,369 1,121,278 7.9% 13,686,117 1,587,530 11.6%

CONSOLIDATED 99,459,583 94,742,917 4,716,666 5.0% 98,528,550 931,033 0.9%

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

Assets under management (at market prices)

30.6.2019 1.1.2019 (*) Change % change 30.6.2018 Change % change Figures in thousands of euro A B A-B A/B C A-C A/C

Unione di Banche Italiane Spa 61,685,420 58,400,536 3,284,884 5.6% 60,229,531 1,455,889 2.4% Pramerica SGR Spa 35,299,802 33,253,840 2,045,962 6.2% 35,323,384 -23,582 -0.1% IW Bank Spa 6,409,738 5,949,722 460,016 7.7% 6,459,499 -49,761 -0.8% BancAssurance Popolari + BancAssurance Popolari Danni Spa (1) 2,223,294 1,986,931 236,363 11.9% 1,956,735 266,559 13.6% Lombarda Vita Spa (2) 8,075,449 7,951,546 123,903 1.6% 7,843,069 232,380 3.0% Aviva Vita Spa (2) 15,273,647 14,152,369 1,121,278 7.9% 13,686,117 1,587,530 11.6%

CONSOLIDATED 70,206,651 66,291,471 3,915,180 5.9% 68,682,945 1,523,706 2.2%

(*) The date 1st January 2019 must be interpreted as 31st December 2018.

(1) The figure stated is for the total managed by the two companies for the periods ended 30th June 2018 and 1st January 2019. As they are fully consolidated, the total is included in consolidated funding in full: the portion subscribed by customers of UBI Banca is included in the aggregate relating to the Parent. (2) The figure stated is for the total managed by the companies. Since these companies are consolidated with the equity method, it is underlined that only the part subscribed by Group customers is considered in the calculation for consolidated funding.

140 Transactions with related parties and with connected persons

Related parties

With Resolution No. 17221 of 12th March 2010 – amended by the subsequent Resolution No. 17389 of 23rd June 2010 – the Consob (Italian securities market authority) approved a Regulation concerning related-party transactions. The regulations concern the procedures to be followed for the approval of transactions performed by listed companies and the issuers of shares with a broad shareholder base with parties with a potential conflict of interest, including major or controlling shareholders, members of the management and supervisory bodies and senior managers including their close family members.

The regulations currently apply within the UBI Banca Group to the Parent, UBI Banca Spa, only, as a listed company. In November 2010 the Supervisory Board had already appointed a specific committee from among its members to which transactions falling within the scope of the regulations must be submitted in advance. In order to implement Art. 2391-bis of the Italian Civil Code and the Consob (Italian securities market authority) regulation on related parties, UBI Banca has adopted a special “Regulation to govern the Related Party Transactions of UBI Banca”, containing rules relating to the identification, approval and execution of related party transactions entered into by UBI Banca, either directly or through its subsidiaries, in order to ensure their transparency and substantive and procedural fairness (the “RPT Regulation”).

In compliance with Consob recommendations, transactions with related-parties of UBI Banca performed by subsidiaries are also subject to the regulations in question if, under the provisions of the Articles of Association or internal regulations adopted by the Bank, the Board of Directors, or even a senior officer of the Bank on the basis of powers conferred on that officer, must preliminarily examine or approve a transaction to be performed by subsidiaries.

It is underlined that, effective from 2nd November 2018, the RPT Regulation (as amended and added to from time-to-time) has been replaced by the “Group Regulation on Related Parties in accordance with Consob Regulation No. 17221/2010, Connected Persons in accordance with Bank of Italy Supervisory Regulations Circular No. 263, ‘Identified Staff’ of the UBI Group, Significant Parties in accordance with Art. 136 of the Consolidated Banking Law and Other Significant Parties” (the “Single Regulation”) 1. This provides unified regulation of procedural and decision-making rules which Group companies are required to implement with reference to the management of transactions with, amongst others, the related parties of UBI Banca and the connected persons of the UBI Banca Group.

Transactions of greater importance

In accordance with Art. 5, paragraph 8 of Consob Resolution No. 17221/12 March 2010, “Public disclosures on related-party transactions”, the following related-party transactions of greater importance concluded in the first half of 2019 were excluded from the scope of application of the “Single Regulation”, because they were concluded with subsidiaries:

1 The Single Regulation is available on the corporate website of the Bank at www.ubibanca.it, Corporate Governance Section/Corporate Documents, together with the “Single Policy on related-party transactions in accordance with Consob Regulation No. 17221/2010, Connected Persons in accordance with Bank of Italy Supervisory Regulation No. 263, ‘Identified Staff’ of the UBI Banca Group, Significant Parties in accordance with Art. 136 of the Consolidated Banking Law and Other Significant Parties” (the “Single Policy” ).

141  the approval of credit lines for UBI Leasing on 19th April: six of the ordinary current account overdraft type, for a total of €710.3 million; four of the “very short term lending” type for a total of €728.4 million; and one of the “commercial portfolio maximum” type for €508.5 million;  approval of credit lines of the type “subordinated unsecured for securitisation”: three on 22nd May granted to UBI Finance Srl for a total of €2.7 billion and two on 19th June granted to UBI Finance CB2 Srl totalling €1.2 billion;  approval of three credit lines of the “corporate bond” type on 9th May granted to 24/7 Finance Srl for a total of €1.6 billion;  the approval of one transfer of assets by UBI Banca on 1st May to the special purpose entity UBI Finance Srl, to back the first covered bond programme on 1st May for a total of €2,433.2 million;  the approval of one transfer of assets by UBI Banca to the special purpose entity UBI Finance CB2 Srl, to back the second covered bond programme on 1st June for a total of €668.9 million;  the approval of one repurchase of assets from the special purpose entity UBI SPV Group 2016 Srl, on 31st January, for a total of €640.5 million and the approval of one transfer of assets to the special purpose entity UBI SPV Group 2016 Srl, on 27th March, for a total of €760.3 million;  the approval of five repurchase agreement transactions by UBI Banca, with UBI Leasing as the counterparty, relating to the senior tranche of the securitisation UBI SPV Lease 2016 Srl, for €2.1 billion nominal each on 1st February, 27th February, 28th March, 30th April and 30th May respectively.

We report that no other transactions with related parties were performed in the reporting period, as defined within the meaning of Art. 2427, paragraph 22 bis) of the Italian Civil Code, which influenced the capital position or the results of the companies.

Information is reported in the notes to the condensed consolidated interim financial statements in compliance with IAS 24 on balance sheet and income statement transactions between related parties of UBI Banca and Group member companies and on balance sheet and income statement transactions between UBI Banca and its own related parties, together with those items as a percentage of each item in the condensed consolidated interim financial statements.

Connected Persons

In implementation of article 53, paragraphs 4 et seq of the Consolidated Banking Law and Inter-Ministerial Credit Committee Resolution No. 277 of 29th July 2008, on 12th December 2011 the Bank of Italy issued the ninth update of the “New regulations for the prudential supervision of banks” (published in the Official Journal of 16th January 2012) regarding risk assets and conflicts of interest concerning persons connected to banks or banking Groups, where connected persons are defined as a related party and all the persons connected to it. The regulations are designed to guard against the risk that the closeness of persons to decision-making centres might compromise the objectivity and impartiality of decisions concerning loans to and/or other transactions with those persons. The first measure therefore regards the introduction of supervisory limits for risk assets (of a bank and/or of a group) lent to connected persons. These limits differ according to the type of related party, with stricter levels for relations between banks and industry. The supervisory limits have been supplemented in the regulations with special approval procedures, together with specific recommendations concerning organisational structure and internal controls.

In compliance with the provisions of Title V, Chapter 5 of Circular No. 263 of 27th December 2006 (as subsequently added to and/or amended), UBI Banca has adopted a specific “Regulation concerning measures regarding risk assets and conflicts of interest with regard to connected parties” (the Connected Persons Regulation), which contains decision-making

142 processes designed to conserve the integrity of decision-making-processes regarding transactions with connected persons carried out by UBI Banca and by the banking and non- banking members of the Group that it controls including foreign subsidiaries, compatibly with the laws and regulations of the country in which these are registered.

With effect from 2nd November 2018, the Connected Parties Regulation – together, as already anticipated, with the RPT Regulation – has been replaced by the “Single Regulation”.

In line with the provisions of the previous Connected Parties Regulation, the “Single Regulation” requires the bodies of Group companies with strategic supervisory responsibility to oversee (with support from the competent functions) the proper application of the provisions of the regulations governing transactions carried out by the respective companies.

In order to achieve this, a report must be issued on at least a quarterly basis to bodies with the strategic supervision function of the companies in the UBI Banca Group on all transactions concluded in the previous quarter, inclusive of those not subject to a prior opinion from the committee in accordance with the “Single Regulation”. It shall specify the connected person, the type of transaction and its value and, if the transaction has not been subject to prior examination by the committee, the reasons given for the exemption, the maximum limit set for the “General Approvals” and a detailed report on its periodic use.

Also in order to allow the Parent to constantly comply with the consolidated limit on risk assets, the Board of Directors oversees compliance of the Single Regulation with the principles recommended in the Supervisory Provisions and also observance, at consolidated level, of the procedural and substantive rules contained in them and it reports to shareholders in accordance with Art. 153 of the Consolidated Finance Law. To achieve this, bodies of other Group companies with responsibility for strategic supervision submit lists quarterly to the Board of Directors of all transactions with connected persons concluded in the previous quarter.

The UBI Banca Group has always been within the time limits laid down by supervisory regulations in all the consolidated quarterly reports to the Supervisory Authority in the first half of 2019 (in March and June) (Bank of Italy Circular No. 263 of 27th December 2006 “New Regulations for the Prudential Supervision of banks” and subsequent amendments).

143 Other information

Inspections and legal proceedings

European Central Bank and Bank of Italy Inspections

On 26th February 2016 the European Central Bank commenced inspections into the Parent, UBI Banca, on the subject of the BUSINESS MODEL AND PROFITABILITY. The inspections were concluded on 20th May 2016. On 10th March 2017 the Bank sent the Supervisory Authority its reply to the findings in the final report received on the previous 10th January and the action plan, followed by regular updates on the actions taken until the completion of the activities found with reference to 30th June 2019.

In a letter dated 22nd June 2016, the European Central Bank (ECB) ordered new inspections in the areas of GOVERNANCE, REMUNERATION AND INTERNAL CONTROLS, with a particular focus on how the Bank and the Group deal with conflicts of interest and verify policies and procedures to identify and manage Group related parties and therefore potential conflicts of interest and the adequacy of internal control systems to detect such conflicts. These inspections were completed on 5th August 2016. On 27th January 2017 the ECB sent the results of the inspection performed and on 7th March the Parent replied to the Supervisory Authority by sending the action plan it had drawn up. Periodic updates on the progress of the remedial actions have since been provided, the last was sent to the ECB on 15th July 2019, informing them that the required actions had been completed. On 23rd July 2018, the Bank of Italy announced the commencement of a sanctioning procedure against the Bank for violations subject to administrative fines. These proceedings originated from inspections into governance, remuneration and internal controls, conducted by the European Central Bank in the period from 27th June 2016 to 5th August 2016, intended to assess the Group’s ability to prevent and manage CONFLICTS OF INTEREST. More specifically, the formal notification of dispute declared by the Bank of Italy regarded shortcomings found by the European Central Bank in processes and procedures designed to manage conflicts of interest (mapping, criteria for the identification of ordinary and extraordinary financial conditions, monitoring carried out by the internal control functions). UBI Banca submitted its defence documents on 21st September 2018. On conclusion of the proceedings, on 12th April 2019 the Bank of Italy informed the Bank that the Directors had decided not to continue with the sanctioning proceedings.

The ECB inspection of the CREDIT AND COUNTERPARTY RISK MANAGEMENT AND RISK CONTROL SYSTEM – relating to the Group’s portfolio of performing and non-performing loans to corporates (specialised lending, large corporate, corporate and small business, with the exclusion of retail businesses) (UBI Banca, UBI Leasing and UBI Factor) – commenced on 18th September 2017 and was concluded on 23rd February 2018. The outcomes were presented during the exit meeting of 7th May 2018 and the Bank sent its considerations to the ECB on 18th May. On 25th June the final outcome arrived from the Authority. On 4th September 2018 the Bank received a Draft Follow up Letter containing a draft version of the findings. The contents of the reply sent by the Bank to the ECB on 20th September were discussed with the Supervisory Authority as part of the closing meeting held on 18th October. Following receipt of the Final Follow up Letter on 30th November, the Bank sent its preliminary results on 10th December and the action plan on 21st December 2018. The requests formulated by the ECB are essentially already complied with in the 2018 consolidated financial statements. On 29th March 2019 the status report on the actions that the Group undertook to perform by 31st March 2019 was sent and on 31st May the Bank completed the last action in connection with the remedial plan sent to the Supervisory Authority.

144 On 6th November 2017 the Bank of Italy commenced inspections designed to assess: (i) the state of implementation of corrective action requested following the previous inspections on ANTI-MONEY LAUNDERING, reported in detail in the 2016 annual report; (ii) the suitability of the organisational structure for producing accurate reports of overall average effective interest rates and preventing violations of USURY regulations. The inspection was concluded on 14th February 2018. On 17th April the Bank of Italy communicated the results of the inspections in question, giving a partially negative assessment, which included some allegations regarding anti-money laundering (with the commencement at the same time of administrative sanctioning procedures against the Bank, in accordance with Law No. 241 of 7th August 1990). UBI Banca sent its objections to the sanctioning on 15th June 2018 and on the following 13th July it sent its full reply and plans for corrective actions to be undertaken of an organisational, procedural and operational nature with an indication of the time needed to complete them (the “Plan”). On conclusion of the proceedings, on 22nd March 2019 the Bank of Italy notified the Bank of a provision concerning the imposition against it of an administrative fine of €1.2 million (compared with a statutory minimum “equal to 10% of total annual revenues1"). An appeal was lodged against the sanctioning provision with the Court of Appeal of Rome in accordance with the procedures and time limits pursuant to Art. 145, paragraph 4 of the Consolidated Banking Law. The discussion hearing is scheduled for 24th October 2019. On 25th January the Bank of Italy wrote to the Bank asking it to act more swiftly and take action to be completed by the end of 2019, concerning the identification, assessment and reporting of potentially suspect transactions in relation to which the Bank had planned to upgrade its dedicated IT platform (“anti-money laundering portal”). The competent units promptly took action to implement the requests made by the Supervisory Authority and prepared a new work plan, communicated to the Bank of Italy on 8th February 2019. The actions in progress at the date of this report are in line with the new plan, as reported in the state of progress sent to the Bank of Italy on 5th July 2019. On that date, as requested by the Supervisory Authority in the aforementioned communication of 25th January 2019, the Bank provided an update on the reorganisational measures, together with the assessments made by the management and supervisory bodies, which the supervisory authority will later verify as necessary in accordance with the procedures it considers most appropriate.

On 19th February 2018 the European Central Bank started an internal model investigation in the context of a TARGETED REVIEW OF INTERNAL MODELS for the retail mortgages model perimeter, which concluded on 4th May 2018. The outcomes were presented during the exit meeting of 6th September and the Bank sent its considerations to the authority on 20th September. On 31st October the Bank received the final assessment report. On 29th March 2019 a “Draft Decision” was received from the ECB and the Bank replied to it with its observations on the following 12th April. On 5th July 2019 the “Final Decision” was received from the ECB, in response to which the Bank will send the action plan for the measures requested by the supervisory authority within four weeks. The results are in line with the information given at the time of the inspection and do not imply any possible impacts on capital with respect to the models currently in use.

As already anticipated by the European Central Bank in a communication dated 28th March, on 7th May 2018, it commenced an inspection into INTERNAL GOVERNANCE AND RISK MANAGEMENT with a focus on IT strategy and governance, management of the IT projects portfolio and on

1 In accordance with a Bank of Italy provision dated 18th December 2012 containing measures on penalties and administrative penalty procedures, as last amended by a provision dated 3rd May 2016, revenue is defined as “the aggregate defined in Art. 316, Table 1 of Regulation (EU) No. 575/2013 (the ‘CRR’)”. Table 1 of the provision cited contains the following items: 1 - Interest receivable and similar, 2 - Interest payable and similar charges 3 - Income from shares and other variable/fixed-yield securities 4 - Commissions/fees receivable 5 - Commissions/fees payable 6 - Net profit or net loss on financial operations 7 - Other operating income On the basis of the approach followed for the calculation of the relevant indicator with regard to operational risk, in accordance with the provisions of Art. 316 of the CRR, the revenue of the UBI Banca Group (Regulatory Perimeter) for the year ended 31st December 2017 (IAS 39) amounted to €3,491,640 thousand.

145 recent initiatives taken regarding the digital distribution channel and payment services in the light of regulatory developments. This on-site inspection was concluded on 27th July 2018 and the outcomes were presented in an “exit meeting” on 14th November. Following on from the Bank’s considerations, sent on 29th November, the ECB sent its Final Report on the following 21st December. On 6th March 2019 the Bank received the “Draft Follow up Letter”. On 7th May the Bank received the “Final Follow up Letter”, the contents of which were substantially in line with the findings already contained in the “Final Report” designed to ensure optimum allocation of financial resources and monitoring of IT services. On 14th June the Bank sent an action plan intended to resolve the issues identified during the inspection by the end of the first quarter of 2020.

On 14th May 2018, as announced by the European Central Bank with a letter dated 6th April, an investigation of the INTERNAL MODEL commenced, for the approval of the extension of the perimeter for internal models relating to credit risk, consistent with the Group’s rollout plan. The inspections were concluded on 3rd August 2018. The outcomes were presented during an “exit meeting” of 11th October and the Bank sent its considerations to the ECB on the following 22nd October. On 26th October the Bank received the final assessment report. On 18th March 2019, the UBI Banca received the ECB’s “Final Decision” with authorisation to apply the new models, starting with supervisory reports as at 31st March 2019, (i.e. the rollout of internal models for the determination of capital absorption relating to the corporate and retail portfolios originated by the New Banks and also for the progressive rollout of the IRB perimeter to the Other Private Individual and Qualifying Revolving Retail Segment). On 12th April the Bank sent the ECB the action plan to respond to the observations made by the Supervisory Authority by the end of 2020, in relation to which quarterly status reports must be made and sent to the said Supervisory Authority: the first of these was sent on 28th June with reference to 30th June 2019.

In a letter dated 26th June 2018, the European Central Bank announced the start of an inspection regarding a CREDIT QUALITY REVIEW for the Residential Real Estate (RRE) portfolio. The inspection was started on 1st October 2018 and was concluded on 15th February 2019. The preliminary draft results received on 4th June 2019 were discussed with the Supervisory Authority on 13th June; as a response the Bank sent its considerations on 27th June, prior to the completion of the Final Report which was received on 2nd August. The ECB has adopted an across-the-board assessment methodology for this review activity in the context of a “campaign at European level”. The methodology involves the selection of a limited sample identified on the basis of statistical criteria to which prudential assessment criteria are applied defined on the basis of standard guidelines, and which therefore do not take full account of the specific assets that back the various banks subject to inspection. For this reason the inspection team stated that the results of the on-site analyses will be considered by the ECB as part of its ordinary SREP process and could potentially lead to discussions with the Bank on the subject of credit rating policies.

On 10th September 2018 the European Central Bank commenced an internal model investigation in the context of the TARGETED REVIEW OF INTERNAL MODELS on the perimeter of the Corporate-Other and Corporate-SME models. The inspections were concluded on 23rd November. On 30th January 2019, the related “Draft Report” was received, which was discussed in an "exit meeting" on 4th February, in relation to which the Bank sent its comments on the 15th February. On the following 20th February UBI Banca received the “Final Assessment Report” and at the date of this financial report it is waiting to receive the ECB’s “Decision”.

The branch inspection into TRANSPARENCY at 20 branches of UBI Banca, started by the Bank of Italy on 17th September 2018, was concluded on 16th November. The Bank received the outcomes of the inspection on 27th May 2019. The anomalies found related to charges for credit authorisations and overdrawn accounts, pre-contractual information concerning contracts for real estate loans to consumers and the early closure phase for some types of business. The Bank has set up an inter-functional working group to define the overall action plan, implementation procedures, schedule for completion and managers. The planned remediation actions envisage progressive releases on the basis of the various main types and must be

146 completed by the end of June 2020. In certain cases, the aforementioned anomalies also involved charging customers fees that were not due; for most of these the Bank has already refunded the customers concerned and implemented actions to correct the related procedures. The Bank’s considerations concerning the outcomes of the investigation and the action plan will be sent to the Supervisory Authority by the end of August and will be the subject of quarterly updates as to the state of progress of the activities.

On 4th March 2019 a Bank of Italy inspection of Prestitalia commenced regarding COMPLIANCE WITH LEGISLATION AND REGULATIONS AND SUPERVISORY GUIDELINES ON THE TRANSPARENCY OF TRANSACTIONS AND INTEGRITY WITH CUSTOMER RELATIONSHIPS CONCERNING THE SALARY AND PENSION BACKED SECTOR. It was concluded on 5th April. The Bank is waiting to receive the results of the inspection.

With a letter dated 18th March 2019, the European Central Bank informed the Bank of an inspection regarding GOVERNANCE PROCESS, with a focus on governance culture, which will take place from 9th May to 9th July 2019. The Bank is waiting to receive the results of the inspection.

* * *

The aforementioned inspections, which take place in the form of on-site inspections by ECB or Bank of Italy inspectors at UBI Banca, are accompanied (as part of the “Supervisory Examination Programme” formulated by the Supervisory Authority) by many “remote” inspection activities conducted by means of email exchanges and periodic meetings which have taken the form to-date of initiatives entitled “Thematic Review”, "Deep Dive" and "Quality Assessment". The Thematic Review regarding IFRS 9 (designed to acquire information on the state of operations for the adoption of the new accounting standard) was concluded on 31st March 2017. The preliminary results of the analysis were discussed with the ECB on 13th July and on 22nd August the Supervisory Authority delivered its relative draft letter, on which UBI Banca submitted its comments on 18th September 2017. On 12th October 2017 the ECB sent its final letter containing the results of its review. The authority’s findings were that management involvement in the project to implement the new standards was adequate, but that the formalisation of the methodological and implementation choices could be improved. On the following 15th November the Bank provided the ECB with the required reply concerning the actions identified for the management of the recommendations made by the same authority, followed on 21st December 2017 and 12th January 2018 by two updates on setting out the corrective actions undertaken. At the date of this report the corrective actions have been completed.

Consob inspections

With a letter dated 14th November 2018, the Consob informed the Bank that it would begin an inspection at the Parent concerning the following topics: (i) procedures adopted for the purpose of customer profiling; (ii) the functioning of controls on concentration risk in customer portfolios, specifically regarding UBI Banca issuer risk. The inspection team’s work concluded on 14th March 2019. The Bank is waiting to receive the relative results.

Legal proceedings

Information is reported below on specific issues. • With regard to the ongoing proceedings at the Court of Bergamo (see the recent information given in the 2018 Annual Report for details) the Bank is certain and has no doubt that by examining the facts, the proceedings of the trial will demonstrate that there are no grounds to these accusations directed at the Bank and its senior officers, because it considers that there has been no hindrance to the Supervisory authorities, no secret pact, no failure to disclose information and no undue influence in determining majorities in Shareholders’ Meetings.

147 The court proceedings are currently under way; to-date hearings have been scheduled until December 2019. If UBI Banca is convicted of the offences with which it has been charged in accordance with Legislative Decree No. 231/2001, it will be fined. The fine for the predicate offence pursuant to article 2636 of the Italian Civil Code would be comprised between a minimum of €37,500 and a maximum of €511,170, while the crime pursuant to article 2638 of the Italian Civil Code would be comprised between a minimum of €51,600 and a maximum of €619,600. To complete the information we report that following the renewal of the governing bodies of UBI Banca in the Shareholders’ Meeting held on 12th April 2019, only one of the 28 senior officers of the UBI Banca Group involved at the time in the proceedings currently holds office as a member of the Board of Directors. The Bank stresses its proper conduct and is confident that its compliance with the law and with organisational regulations will be confirmed in the courts at all levels, as already clearly demonstrated by the judgment No 879/2017 of 17th May 2017, published on the following 19th June issued by the Court Appeal of Brescia which recognised UBI Banca’s proper conduct and that of its senior officers in relations with the supervisory authorities and with the market. On 14th November 2017 UBI Banca received notification of an appeal by the Consob against ruling No. 879/2017 before the Supreme Court of Cassation and it immediately filed its defence. The Consob immediately filed a counter appeal against the Bank’s incidental appeal. At the first public hearing on 11th July 2019 the Public Prosecutor set out his reasoned conclusions, in agreement with the arguments of the defendants and therefore requesting that the appeal filed by Consob should be rejected. The ruling is still pending. In consideration of the nature of the matter, it is felt that it can have no repercussions on Group assets.

• As concerns IW Bank: - as already reported in previous financial reports, on 3rd December 2015, some current and former IW Bank directors and managers received notification of a search and seizure warrant, also informing them they are suspects in investigations under the Milan Public Prosecutor, pursuant to articles 369 and 369 bis of the Italian Penal Code. The alleged offences are: criminal conspiracy (Criminal Code Art. 416), money-laundering and conspiracy to launder money (Criminal Code, Art. 110 and Art. 648-bis), self-money laundering and conspiracy to commit self-money laundering (Criminal Code, Art. 110 and Art. 648.1-ter), as well as the criminal tax offence (and relative conspiracy offence as per Criminal Code Art. 110) of “fraudulent concealment of assets in relation to the payment of taxes” (pursuant to Art. 11 of Legislative Decree No. 74/2000). Finally, criminal violation of customer due diligence obligations was alleged (pursuant to Art. 55 of Legislative Decree No. 231/2007). In relation to the proceedings in question, on 20th July 2017 the Guardia di Finanza (finance police) notified the Bank that it was a suspect in investigations, with the closure at the same time of the preliminary investigations in which the Public Prosecutor alleged liability of the members of IW Bank’s Board of Directors and its Board of Statutory Auditors in the period running from May 2008 to May 2014 for the offence of hindrance of the public supervisory authorities in the exercise of their duties (pursuant to Art. 2638 of the Italian Civil Code) and in particular to have failed to make full reports to the Bank of Italy on alleged shortcomings regarding anti-money laundering controls and procedures. With regard to that same predicate offence of hindrance of the public supervisory authorities in the exercise of their duties, the Public Prosecutor’s Office charged IW Bank with corporate liability in accordance with Legislative Decree No. 231 of 2001 (pursuant to Art. 25-ter of the aforementioned decree). With sole reference to the alleged offence of hindrance of the public supervisory authorities in the exercise of their duties (pursuant to Art. 2638 of the Italian Civil Code), on 26th October 2017 the Office of the Judge for the preliminary hearing at the Court of Milan notified IW Bank, in its capacity as the entity responsible pursuant to Legislative Decree No. 231 of 2001, of an order setting the date for the preliminary hearing for 12th April 2018, following a request for committal to trial filed by the Public Prosecutor on 17th October 2017.

148 It is underlined that the more serious offences cited in the search warrant executed in December 2015 do not appear in both the notice of the closure of the preliminary investigations and in the subsequent application for committal to trial. Within the context of the preliminary hearing, all the defendants as well as IW Bank, in its capacity as responsible entity pursuant to Legislative Decree 231/2001, called for the settlement of the matter by means of abbreviated proceedings. The judge accepted the request and scheduled debate of the abbreviated ruling to the hearing of 26th November 2018. Following further adjournment, the hearing for the debate was held on 25th March 2019, with continuation on 26th and 28th March 2019. On the following 10th April, the judge for preliminary investigations at the Court of Milan acquitted IW Bank and its directors and former directors and its senior officers and former senior officers in full “because there was no case to answer”. - on 11th July 2019, following a request made by the Public Prosecutor and a favourable ruling from the GIP (Preliminary Investigating Magistrate) of the Court of Milan, an advance seizure of assets from the Bank amounting to almost €4 million was made by the legal authorities, targeted, according the arguments of the prosecution, on the profits of the crimes of fraud and aggravated unauthorised financial activities of which a former financial advisor at the Bank is accused. IW Bank considers that it operated fairly and made a significant contribution to the detection of the conduct under investigation. Initially, independently and in advance, it met the customers concerned, finding out from them if they were aware of the transaction performed through the financial advisor (and in any event ending the relationship with these customers). It then proceeded to precautionary suspension, followed by the dismissal of the advisor for just cause, the submission of a statement to the Public Prosecutor’s Office of Milan and the notification of Consob and IVASS. The Bank is preparing an application for the lifting of the order for the advance seizure of assets that has been made against it, even though it considers itself unconnected with the offences.

* * *

In order to implement board resolutions passed on 23rd July 2019 and 31st July 2019, UBI Banca Spa and UBI Leasing Spa set internal procedures in motion to initiate ordinary civil legal proceedings before the Court of Bergamo in order to obtain compensation for patrimonial and non-patrimonial damages resulting from the broadcast of a programme that aired on the RAI 3 television channel on 1st April 2019 during the transmission of the “Report”.

Tax aspects

Various developments occurred with regard to tax aspects in the first half of 2019. Those considered important are reported below.

Law No. 58 of 28th June 2019, “Conversion into law, with amendments, of Decree Law No. 34 of 30th April 2019, containing urgent measures for economic growth and the resolution of specific crisis situations” (the “Growth Decree”) Law No. 58 of 28th June 2019 contains economic growth measures. These include the following which must be underlined: - the reintroduction of “super-depreciation”: “super-depreciation” (depreciation of greater than the actual cost) is restored for investments in new property, plant and equipment made in the period running from 1st April 2019 to 31st December 2019 up to a limit on the total investment of €2.5 million. Super- depreciation is recognised at 130% of the cost for tax purposes; - mini-corporate income tax (IRES) revision: the bonus mechanism introduced by the 2019 Budget Law is abolished and replaced with the ability to apply a reduced rate for IRES on that part of taxable income that corresponds to profits earned and allocated to reserves. The IRES surtax applied to banks and other taxpayers to which the legislation applies is increased in the same amount as the concession, thereby neutralising the effect of the measure; - meetings with the tax authorities: with the exception of a few specific cases, it introduces a general obligation for the tax authorities to initiate a joint consultation with the taxpayer before issuing a notice of assessment (relates solely to notices of assessment issued from 1st July 2020);

149 - bonus for business combinations: under determined conditions, the value of goodwill and that attributed to property, plant and equipment and intangible assets resulting from the recognition of a share swap merger deficit in an amount not greater than €5 million is recognised for tax purposes in cases of mergers and spin-offs completed by 31st December 2022 by parties not belonging to the same Group of companies or associated by an equity investment of not greater than 20%. The same provisions also apply to capital contributions; - incentives for builiding development: transfers of buildings to construction or restructuring firms before and not later than 31st December 2021 are subject to a flat-rate registration, mortgage and cadastral tax if the firms (i) demolish and rebuild the buildings (or refurbish them), rendering them compliant with anti-seismic regulations and the NZEB energy standard, A or B and (ii) dispose of the said assets within ten years of the date of purchase; - transferability of quarterly VAT credits: it regulates the possibility of transferring quarterly VAT credit refunds applied for from 1st January 2020; - securitisations: concessions are introduced for the securitisation of receivables arising from finance lease contracts; - long-term European investment funds: a tax regime exempting profits from long-term European investment funds from taxation is introduced. This regime, subject to the satisfaction of set conditions, will be applied on an experimental basis to investments made in 2020; - local taxes: the deductibility of IMU (municipal property tax) from income tax is increased to 50% for the tax year 2019, to 60% from the tax years 2020 and 2021 and to 70% from the tax year 2022 onwards. IMU will be fully deductible from 2023.

Law No. 41 of 20th May 2019, “Conversion into law, with amendments, of Decree Law No. 22 of 25th March 2019, containing urgent measures to ensure the security, financial stability and integrity of markets and the protection of the health and freedom to abide of Italian and United Kingdom citizens should the United Kingdom leave the European Union” Law No. 41 of 20th May 2019 lays down the legislative framework to be applied if the United Kingdom leaves the European Union in the absence of an agreement (a “no deal” scenario). As far as tax is concerned, the law states that in the 18 months following the leaving date the provisions of all the current direct tax legislation inclusive of that applied under European law will continue to apply. That same provision also applies to value added tax and to excise duties if the regulations are compatible. The procedures to implement the law are delegated to a special decree to be issued by the Ministry of the Economy and Finance.

Ministry of the Economy and Finance Decree of 10th May 2019 Article 2, paragraph 5 of Legislative Decree No. 127 of 5th August 2015 provides for the substitution of the electronic storage and transmission of fees, replacing the procedures for fulfilling the requirement to issue tax certification for fees for transactions pursuant to paragraph 22 of Presidential Decree No. 633 of 26th October 1972. On the basis of the decree of 10th May 2019, the procedure for the electronic storage and transmission of fees does not apply to transactions carried out by banks and financial intermediaries.

Ministry of the Economy and Finance Decree of 20th June 2019 Ministry of the Economy and Finance Decree of 20th June 2019 definitively changes the time limits for sending annual declarations for the purposes of the CRS (Common Reporting Standard for the automatic exchange of financial information) and FATCA (Foreign Account Tax Compliance Act) regulations from 30th April to 30th June of the year following the reporting year. The decree also (i) recognised the interpretative value of the CRS Commentary and Implementation Handbook issued by the OECD for the purposes of the CRS and (ii) modified the Ministry of the Economy and Finance Decree of 28th December 2015, providing that foreign jurisdictions to which annual declarations are submitted must be identified on the basis of Annex C to the said decree, as updated on 15th May of each year.

* * *

Mention is made of the following administrative practices documents issued in 2019: . Circular No. 6/E/2019: the Revenue Agency commented on provisions relating to the settlement of pending tax disputes with concessions introduced by Art. 6 of Decree Law No 119 of the 23rd October 2018; . Circular No. 7/E/2019: the Revenue Agency illustrated the main features of the settlement of tax assessments with concessions introduced by Art. 1 of Decree Law No 119 of 23rd October 2018; . Circular No. 8/E/2018: this document provided the first clarifications on the measures introduced by Law No 145 of 30th December 2018 (the “2019 Budget Law”); . Circular No. 14/E/2019: the Revenue Agency commented on measures relating to electronic invoicing in force since 1st January 2019; . Ministry of the Economy and Finance Circular No. 1/DF/2019: summarised regulations and operating procedures for digital tax collection, which became mandatory on 1st July 2019.

150 Outlook for consolidated operations

The second half of the year will be influenced by further accommodative interest rate policies recently announced by the Central European Bank. UBI Banca will continue with its strategy of rigorous discipline over loan pricing to safeguard overall margins.

The good performance by fee and commission income is expected to continue under current market conditions.

The strategy to diversify financial assets in the banking book is confirmed.

Costs will benefit, amongst other things, from the departure of approximately 300 staff which took place in implementation of the March 2019 trade union agreement, and also from continuous control over administrative costs.

The Group will continue to reduce its non-performing exposures by means of internal management of credit recovery, the key factor in its NPL strategy, and it will complete the disposals of UBI Leasing bad loan positions. Any further selective disposals will be considered only if they are efficient from a capital viewpoint, consistent with those recently concluded.

Bergamo, 2nd August 2019

THE BOARD OF DIRECTORS

151

152

CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30TH JUNE 2019

MANDATORY INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE PERIOD ENDED 30TH JUNE 2019

Consolidated Balance Sheet

30.6.2019 31.12.2018 Figures in thousands of euro

ASSETS 10. Cash and cash equivalents 616,670 735,249 20. Financial assets measured at fair value through profit or loss 1,660,974 1,463,529 a) financial assets held for trading 528,103 405,716 b) financial assets designated at fair value 10,054 11,028 c) other financial assets mandatorily measured at fair value 1,122,817 1,046,785 30. Financial assets measured at fair value through other comprehensive income 11,618,770 10,726,179 40. Financial assets measured at amortised cost 103,356,416 102,798,587 a) loans and advances to banks 12,544,061 10,065,881 b) loans and advances to customers 90,812,355 92,732,706 50. Hedging derivatives 22,452 44,084 60. Fair value change in hedged financial assets (+/-) 541,946 97,429 70. Equity investments 266,897 254,128 90. Property, plant and equipment 2,506,708 1,965,234 100. Intangible assets 1,720,771 1,729,727 of which: goodwill 1,465,260 1,465,260 110. Tax assets 3,961,524 4,210,362 a) current 1,223,708 1,376,567 b) deferred 2,737,816 2,833,795 - of which pursuant to Law No. 214/2011 1,793,775 1,804,988 120. Non-current assets and disposal groups held for sale 7,349 2,972 130. Other assets 1,199,827 1,278,717

Total assets 127,480,304 125,306,197

156 Consolidated Balance Sheet

30.6.2019 31.12.2018 Figures in thousands of euro

LIABILITIES AND EQUITY 10. Financial liabilities measured at amortised cost 111,840,625 109,445,664 a) due to banks 17,053,172 17,234,579 b) due to customers 70,840,373 68,421,387 c) debt securities issued 23,947,080 23,789,698 20. Financial liabilities held for trading 571,499 410,977 30. Financial liabilities designated at fair value 149,871 105,836 40. Hedging derivatives 230,655 110,801 50. Fair value change in hedged financial liabilities (+/-) 188,275 74,297 60. Tax liabilities 140,145 162,272 a) current 34,958 30,287 b) deferred 105,187 131,985 80. Other liabilities 2,290,570 3,092,941 90. Provision for post-employment benefits 299,460 306,697 100. Provisions for risks and charges: 415,665 505,191 a) commitments and guarantees granted 51,951 64,410 b) pension and similar obligations 87,892 91,932 c) other provisions for risks and charges 275,822 348,849 110. Technical reserves 2,070,095 1,877,449 120. Valuation reserves -202,880 -298,616 150. Reserves 3,206,795 2,923,589 160. Share premiums 3,294,604 3,294,604 170. Share capital 2,843,177 2,843,177 180. Treasury shares (-) -28,515 -25,074 190. Minority interests (+/-) 39,344 50,784 200. Profit (loss) for the period/year (+/-) 130,919 425,608

Total liabilities and equity 127,480,304 125,306,197

157 Consolidated Income Statement

Figures in thousands of euro 1H 2019 1H 2018

10. Interest and similar income 1,104,669 1,118,476 - of which: interest income calculated with the effective interest method 1,001,942 1,027,618 20. Interest and similar expense (182,054) (180,342) 30. Net interest income 922,615 938,134 40. Fee and commission income 925,790 909,892 50. Fee and commission expense (111,228) (101,082) 60 Net fee and commission income 814,562 808,810 70. Dividends and similar income 7,472 9,811 80. Net trading income (loss) 871 34,180 90. Net hedging income (loss) (8,036) (4,227) 100. Income (losses) from disposal or repurchase of: 23,290 40,186 a) financial assets measured at amortised cost (4,220) (14,867) b) financial assets measured at fair value through other comprehensive income 28,865 59,179 c) financial liabilities (1,355) (4,126) 110. Net income (loss) from other financial assets and liabilities measured at fair value through profit or loss 42,811 (15,308) a) financial assets and liabilities designated at fair value 292 (531) b) other financial assets mandatorily measured at fair value 42,519 (14,777) 120. Gross income 1,803,585 1,811,586 130. Net impairment losses for credit risk relating to: (393,378) (266,340) a) financial assets measured at amortised cost (391,624) (259,730) b) financial assets measured at fair value through other comprehensive income (1,754) (6,610) 140. Profits (losses) from contractual modifications without derecognition (10,437) (22,072) 150. Financial income 1,399,770 1,523,174 160. Net insurance premiums 159,533 257,661 170. Other income/expenses of insurance operations (173,285) (261,533) 180. Net income from banking and insurance operations 1,386,018 1,519,302 190. Administrative expenses (1,258,548) (1,268,525) a) staff costs (784,110) (749,859) b) other administrative expenses (474,438) (518,666) 200. Net provisions for risks and charges (286) (2,573) a) commitments and guarantees granted 1,943 14,540 b) other net provisions (2,229) (17,113) 210. Depreciation and net impairment losses on property, plant and equipment (73,286) (42,072) 220. Amortisation and net impairment losses on intangible assets (37,218) (37,866) 230. Other net operating income/expense 143,197 159,044 240. Operating expenses (1,226,141) (1,191,992) 250. Profits (losses) of equity investments 19,421 9,013 280. Profit (loss) from disposal of investments 4,188 963 290. Profit (loss) before tax on continuing operations 183,486 337,286 300. Taxes on income for the period for continuing operations (38,909) (114,681) 310. Profit (loss) after tax from continuing operations 144,577 222,605 330. Profit (loss) for the period 144,577 222,605 340. (Profit) loss for the period attributable to minority interests (13,658) (13,738) 350. Profit (loss) for the period attributable to the shareholders of the Parent 130,919 208,867

Annualised basic earnings per share 0.1997 0.3644 Annualised diluted earnings per share 0.1997 0.3643

158 Consolidated statement of comprehensive income

1H 2019 1H 2018 Figures in thousands of euro

10. PROFIT (LOSS) FOR THE PERIOD 144,577 222,605

Other comprehensive income net of taxes without transfer to the income statement 20. Equity securities designated at fair value through other comprehensive income 862 (1,288) 50. Property, plant and equipment - (736) 70. Defined benefit plans (12,495) 2,210 90. Share of valuation reserves of equity accounted investees 405 (77)

Other comprehensive income net of taxes with transfer to the income statement 120. Cash flow hedging 40 (190) 140. Financial assets (other than equity securities) measured at fair value through other comprehensive income 105,174 (249,176) 160. Share of valuation reserves of equity-accounted investees 2,077 (1,468)

170. Total other comprehensive income (loss) net of taxes 96,063 (250,725)

180. COMPREHENSIVE INCOME (LOSS) (Item 10. + 170.) 240,640 (28,120)

190. CONSOLIDATED COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO MINORITY INTERESTS 13,645 13,579

200. CONSOLIDATED COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT 226,995 (41,699)

159 Statement of changes in consolidated equity for the period ended 30th June 2019

30th June 2019 Allocation of prior year Equity transactionsChanges January - June 2019 profit Restate- Consolidated Balances as Changes Derivatives ment of Balances as comprehensive at Reserves in reserves on treasury attributable to opening at 1.1.2019 Dividends Repurchase Extraordinary Change in income attributable 31.12.2018 New share shares Stock Changes in the balances and other of treasury distribution of equity Equity to minority issues options shareholdings shareholders uses shares dividends instruments interests Figures in thousands of euro of the Parent

Share capital: 2,852,571 - 2,852,571 ------14 - 2,852,557 2,843,177 9,380 a) ordinary shares 2,852,571 - 2,852,571 ------14 - 2,852,557 2,843,177 9,380 b) other shares ------

Share premiums 3,294,704 - 3,294,704 ------4 - 3,294,700 3,294,604 96

Reserves 2,939,068 - 2,939,068 451,502 -167,162 -314 ------6 - 3,223,100 3,206,795 16,305 a) of profits 1,035,354 - 1,035,354 451,502 -167,162 -869 ------1,318,825 1,302,526 16,299 b) other 1,903,714 - 1,903,714 - - 555 ------6 - 1,904,275 1,904,269 6 - -339 ------96,063 -202,975 -202,880 95 Valuation reserves -298,699 - -298,699 - Equity instruments ------

Treasury shares -25,074 - -25,074 - - - 89 -3,530 ------28,515 -28,515 -

Profit (loss) for the period 451,502 - 451,502 -451,502 ------144,577 144,577 130,919 13,658

Equity 9,214,072 - 9,214,072 - -167,162 -653 89 -3,530 - - - - -12 240,640 9,283,444 9,244,100 39,344 Equity attributable to the shareholders of the Parent 9,163,288 - 9,163,288 - -142,088 -654 89 -3,530 - - - - - 226,995 9,244,100 X X Equity attributable to minority interests 50,784 - 50,784 - -25,074 1 ------12 13,645 39,344 X X

160 Statement of changes in consolidated equity for the period ended 30th June 2018

Allocation of prior year profit Restate- Balances as ment of Balances as Changes January - June 2018 at 31.12.2017 opening at 1.1.2018 30th June 2018 Equity transactions balances Consolidated attributable to Dividends Changes Repurchase Extraordinary Change in Derivatives attributable New share Stock Changes in comprehensive the Reserves and other in reserves of treasury distribution of equity on treasury Equity to minority issues options shareholdings income shareholders Figures in thousands of euro uses shares dividends instruments shares interests of the Parent Share capital: 2,859,257 - 2,859,257 - - -5 ------2,859,252 2,843,177 16,075 a) ordinary shares 2,859,257 - 2,859,257 - - -5 ------2,859,252 2,843,177 16,075 b) other shares ------

Share premiums 3,323,321 - 3,323,321 -12,023 - -6 ------3,311,292 3,294,604 16,688

Reserves 3,229,985 -866,855 2,363,130 729,015 -151,341 1,725 ------2,942,529 2,921,489 21,040 a) of profits 1,329,642 -866,855 462,787 729,015 -151,341 1,024 ------1,041,485 961,398 80,087

b) other 1,900,343 - 1,900,343 - - 701 ------1,901,044 - -250,7251,960,091 -285,520 -59,047 -285,315 -205

Valuation reservesEquity instruments -114,866 80,076 -34,790 ------5 ------

Treasury shares -9,818 - -9,818 - - - - -8,111 ------17,929 -17,929 -

Profit (loss) for the period 716,992 - 716,992 -716,992 ------222,605 222,605 208,867 13,738

Equity 10,004,871 -786,779 9,218,092 - -151,341 1,709 - -8,111 ------28,120 9,032,229 8,964,893 67,336 Equity attributable to the shareholders of the Parent 9,925,183 -786,779 9,138,404 - -125,415 1,714 - -8,111 ------41,699 8,964,893 X X Equity attributable to minority interests 79,688 - 79,688 - -25,926 -5 ------13,579 67,336 X X

161 Consolidated statement of cash flows (indirect method)

1H 2019 1H 2018 Figures in thousands of euro

A. OPERATING ACTIVITIES 1. Ordinary activities 657,912 600,812 - profit (loss) for the period (+/-) 144,577 222,605 - gains/losses on financial assets held for trading and on other assets/liabilities measured at fair value through profit or loss (-/+) -30,442 -8,673 - gains/losses on hedging activities (-/+) 8,036 4,227 - net impairment losses for credit risk (+/-) 393,378 266,340 - depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (+/-) 110,504 79,938 - net provisions for risks and charges and other expense/income (+/-) 286 2,573 - net premiums not received (-) -850 -1,025 - other insurance income/expense not received (-/+) 1,989 5,180 - outstanding taxes, duties and tax credits (+/-) 38,909 29,738 - net impairment losses on discontinued operations net of tax (-/+) - - - other adjustments (+/-) -8,475 -91 2. Net cash flows from/used by financial assets -2,176,060 -1,198,964 - financial assets held for trading -122,513 461,913 - financial assets designated at fair value 427 529 - other financial assets mandatorily measured at fair value -44,917 37,555 - financial assets measured at fair value through other comprehensive income -722,691 531,046 - financial assets measured at amortised cost -959,890 -2,334,912 - other assets -326,476 104,905 3. Net cash flows from/used by financial liabilities 1,701,545 590,232 - financial liabilities measured at amortised cost 1,969,930 434,579 - financial liabilities held for trading 160,522 -24,694 - financial liabilities designated at fair value 44,035 32,467 - other liabilities -472,942 147,880 Net cash flows from/used in operating activities 183,397 -7,920 B. INVESTING ACTIVITIES 1. Cash flows from 18,134 12,504 - disposals of equity investments 6,551 - - dividends received on equity investments 7,472 9,811 - disposals of property, plant and equipment 3,627 2,561 - disposals of intangible assets 484 132 - disposals of subsidiaries and lines of business - - 2. Cash flows used in -149,507 -40,342 - purchases of equity investments -35,950 - - purchases of property, plant and equipment -85,226 -18,765 - purchases of intangible assets -28,331 -21,577 - purchases of subsidiaries and lines of business - - Net cash flows from/used in investing activities -131,373 -27,838 C. FINANCING ACTIVITIES - issues/repurchases of treasury shares -3,441 -8,111 - issues/repurchases of equity instruments - - - distribution of dividends and other uses -167,162 -151,341 - sale/purchase of minority interests Net cash flows from/used in financing activities -170,603 -159,452 NET CASH GENERATED/USED DURING THE PERIOD -118,579 -195,210

Reconciliation

1H 2019 1H 2018 Figures in thousands of euro

Cash and cash equivalents at beginning of period 735,249 811,578 Total net cash flows generated/used during the period -118,579 -195,210 Cash and cash equivalents: effect of changes in exchange rates - - Cash and cash equivalents at the end of the period 616,670 616,368

162 162

EXPLANATORY NOTES

Accounting policies

Basis of preparation

The Interim financial report for the period ended 30th June 2019 of the UBI Banca Group1, approved by the Board of Directors on 2nd August 2019 which authorised its publication in compliance, amongst other things, with IAS 10, comprises the interim management report on consolidated operations and the condensed interim consolidated financial statements. It has been prepared in compliance with article 154 ter of Legislative Decree No. 58/1998, with the IFRS international accounting standards issued by the International Accounting Standards Board (IASB) and with the relative interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as endorsed by the European Commission and in force on 30th June 2019 to which no exceptions have been made. Those standards, implemented in Italian law by Legislative Decree No. 38/2005, which took advantage of the option allowed under EC Regulation 1606/2002, are applied on the basis of events occurring that are disciplined by them from the date on which their application becomes compulsory, unless specified otherwise.

More specifically, the condensed interim consolidated financial statements include the following: . the Balance Sheet, Income Statement, Statement of Comprehensive Income, Statements of Changes in Equity, Statement of Cash Flows and the Explanatory Notes. They have been prepared in compliance with IAS 34 which regulates interim financial reporting and in view of the option allowed by the standard just mentioned, they have been presented in condensed form and therefore they do not provide all the full information required for annual financial statements and must be read in conjunction with the annual report prepared for the year ended 31st December 2018. . the Parent, UBI Banca and the companies comprised within the scope of the consolidation2 and they have been prepared by using the positions of the single companies included within the consolidation, corresponding to their individual interim financial statements examined and approved by their respective governing bodies and appropriately modified and reclassified, where necessary, for compliance with the accounting policies adopted by the Group. The condensed interim consolidated financial statements contain a statement by the Chief Executive Officer and the Senior Officer Responsible pursuant to Art. 154 bis of Legislative Decree No. 58/1998 and they have been subjected to a limited audit by the independent auditors Deloitte & Touche Spa.

* * *

These condensed interim consolidated financial statements as at and for the period ended 30th June 2019 have been clearly stated and give a true and fair view of the capital and financial position, the result for the period, the changes in equity and the cash flows generated.

The condensed interim consolidated financial statements result from the application of IFRS and measurement criteria, adopted on the basis of a going concern assumption and in compliance with the principles of accrual accounting, the relevance of the information and the predominance of substance over form. These principles and criteria were updated as of 1st January 2019, compared to what was applied until 31st December 20183, based on the applicability of the provisions of IFRS 16 “Leasing”, the related impacts of which are described in the section “Other aspects” below.

1 The Group’s business is not significantly subject to seasonal and/or cyclical factors. 2 Details are given in the section “The scope of the consolidation”, in which changes that occurred during the period are also given. 3 Reference is made in this respect to the “Main items of the financial statements” illustrated in the subsequent sub-section “Other aspects”.

164 164

Where it is impossible to measure items in the financial statements with precision, the application of the aforementioned standards involves the use of estimates and assumptions which may have a significant effect on the amounts recognised in the balance sheet and in the income statement. The use of reasonable estimates forms an essential part of the preparation of financial statements and we have listed here those items in the financial statements in which the use of estimates and assumptions is most significant: - determination of expected losses on loans and receivables, securities, guarantees issued and commitments; - measurement of financial assets not listed on active markets; - measurement of indefinite useful life intangible assets and equity investments; - quantification of provisions for risks and charges; - quantification of deferred taxes; - definition of the depreciation and amortisation charges for property, plant and equipment and intangible assets with finite useful lives; - measurement of technical reserves.

An estimate may be adjusted following changes in the circumstances on which it was based or if new information is acquired or yet again on the basis of greater experience. If in the future those estimates and assumptions, which are based on management’s best judgement at the date of this financial report, should differ from the actual circumstances, they will be modified appropriately in the period in which circumstances deviate.

Part A.1, section 2, sub-section “Accounting policies” in the Notes to the Consolidated Financial Statements as at and for the year ended 31st December 2018 may be consulted for a fuller description of the most significant accounting measurement processes for the Group. To complete the information, we report the following: - with particular reference to the determination of the expected credit losses on loans, securities, guarantees granted and commitments, see the more detailed information provided in the Notes to the Consolidated Financial Statements as at and for the year ended 31st December 2018, Part A.2 “The main items in the financial statements” and Part E “Information on risks and on the relative hedging policies”. We also report that, in accordance with the provisions of IFRS 9, such losses are also determined on the basis of forward-looking information, including in particular future changes in macroeconomic scenarios used in calculating the impairment losses. The development of those scenarios, and also how they are weighted, is subject to quarterly assessment with consequent updating if necessary; - The Group periodically updates the following aspects of the parameters adopted to measure credit positions that may also be recovered through sale to third parties to reflect any developments relating to possible sales: . the set of positions that may potentially be sold; . the probability of occurrence of the scenarios in question; and . the sales price in the sale scenario. The valuation impact resulting from that update is recognised within the relevant item in the income statement; - in compliance with the provisions of IAS 34, income taxes are recognised on the basis of the best estimate of the weighted average rate expected for the full year.

In this respect, we report that no changes were made in the first half to the criteria already employed for estimates in the preparation of the financial statements as at and for the year ended 31st December 2018, except for that which mainly regards the calculation of expected losses on financial instruments which, in accordance with IFRS 9, are subject to provisions on impairment based on the update to the main parameters and the refinement of the related models.

The information contained in this report is expressed, unless otherwise indicated, in euro as the accounting currency.

165 165 The Mandatory Financial Statements and the Explanatory Notes have been prepared in thousands of euro4 and comply with those defined in Bank of Italy Circular No. 262/20055 and in addition to the financial statements as at and for the period ended 30th June 2019 they provide the following comparative information: - Balance sheet: as at 31st December 2018; - Income statement: for the period ended 30th June 2018; - Statement of comprehensive income: for the period ended 30th June 2018; - Statement of changes in equity: for the period ended 30th June 2018; - Statement of cash flows (indirect method): for the period ended 30th June 2018.

We report that in accordance with the provisions of the new accounting standard IFRS 16, entities that have opted for the use of the “modified retrospective” approach on first-time adoption do not need to recalculate the comparative figures. As a consequence, the balance sheet and income statement as at and for the period ended 30th June 2019 are not fully compatible those for the comparative periods because the latter were calculated in application of the international accounting standard IAS 17 in force during the reporting period.

A reconciliation of the balance sheet figures pursuant to IAS 17 published in the Consolidated Financial Statements of the UBI Group as at 31st December 2018 with those calculated as at 1st January 2019 in application of the provisions of IFRS 16 in terms of the recognition of lease contracts in the balance sheets of the lessees is provided in the section entitled “Other aspects” under the item “Transition to the new financial reporting standard IFRS 16”.

* * *

The minimum information required under paragraphs 15 B and 16 A of IAS 34 relating to trends for loan provisions and dividends paid is given in the Interim Consolidated Management Report. With regard, on the other hand, to the provisions of IAS 10, concerning events occurring subsequent to the balance sheet date of the Condensed Interim Consolidated Financial Statements, subsequent to 30th June 2019, the balance sheet date, and until 2nd August 2019, the date on which the Interim Financial Report was approved by the Board of Directors, no events occurred to make adjustments to the figures presented in the report necessary.

Furthermore, account was also taken in the preparation of this half-year financial report of the following: - provisions introduced with documents issued jointly by the supervisory authorities6; - ESMA and Consob documents which refer to the application of some IAS/IFRS provisions.

Regulatory developments

The most important aspects of changes in international accounting standards are given below with the periods from which they run.

INTERNATIONAL ACCOUNTING STANDARDS IN FORCE FROM 2019 With specific reference to the introduction, on 1st January 2019, of IFRS 16 “Leases”, see the next sub-section “Other aspects” below for a description of the changes introduced by IFRS 16 as well as of the impacts for the UBI Banca Group as a result of First-Time Adoption (FTA) of said standard.

4 The relative rounding of the figures has been performed on the basis of Bank of Italy instructions. 5 The balance sheet lists assets and liabilities in order of decreasing liquidity and the income statement recognises expenses according to their nature. 6 In detail, the joint Bank of Italy/Consob (securities market authority)/Isvap (insurance authority) Document No. 4 of 3rd March 2010. See the subsequent sub-section “Other aspects” in relation to the goodwill impairment test.

166 166 In addition, the European Commission has published the following Regulations: - on 26th March 2018, Regulation (EU) No. 2018/498, endorsing the Amendment to IFRS 9: Prepayment Features with Negative Compensation, was published. This amendment makes certain marginal amendments to IFRS 9 “Financial instruments” designed to specify that the instruments which involve early repayment could pass the SPPI test even in cases where reasonable additional compensation, to be paid in cases of early repayment, constitutes “negative compensation” for the lending entity; - on 24th October 2018, Regulation (EU) No. 2018/1595 endorsing IFRIC 23 “Uncertainty over Income Tax Treatments” was published with the aim of specifying which factors to consider in the event of uncertainty when recognising income taxes; - on 11th February, Regulation (EU) No. 2019/237 endorsing the Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures was published with the aim of transposing the application of IFRS 9 to such interests; - on 13th March, Regulation (EU) No. 2019/402 endorsing the Amendment to IAS 19: Plan Amendments, Curtailment or Settlement was published with the aim of specifying the methods for recording income statement components relating to the modification, reduction or extinction of defined benefit plans; - on 14th March, Regulation (EU) No. 2019/412 endorsing the Annual Improvements to IFRS Standards 2015-2017 Cycle, which contains minor changes to IFRS 3, IFRS 11, IAS 12, and IAS 23.

The introduction of amendments pursuant to these regulations did not lead to any significant impacts for the UBI Banca Group.

INTERNATIONAL ACCOUNTING STANDARDS IN FORCE SUBSEQUENT TO 2019 As of the date of this report, no accounting standards or related amendments that are required to be adopted after 2019 have been endorsed.

INTERNATIONAL ACCOUNTING STANDARDS NOT ENDORSED AS AT 30TH JUNE 2019

Standard (IAS/IFRS) Amendments Date of publication Interpretation (SIC/IFRIC) IFRS 14 Regulatory deferral accounts 30/01/2014 Sale contribution of assets between an investor and its IFRS 10, IAS 28 11/09/2014 Associate or Joint Venture IFRS 17 Insurance Contracts 18/05/2017 Amendments to References to the Conceptual Conceptual framework 29/03/2018 Framework in IFRS Standards

IFRS 3 Amendment to IFRS 3 Business Combinations 22/10/2018

IAS 1, IAS 8 Amendments to IAS 1 and IAS 8: Definition of Material 31/10/2018

The standards listed above are not applicable for the purposes of the preparation of the 2019 first half report because their application is subject to endorsement by the European commission through the issue of specific EU Regulations7.

7 With regard to IFRS 14, we report that the European Commission has decided to suspend the endorsement process for the standard while waiting for the definition of the new standard relating to “rate regulated activities”.

167 167 Other aspects

The transition to the new accounting standard IFRS 16

. Introduction The information provided below, which has also been presented in the Interim Financial Report for the period ended 31st March 2019 as the first financial report prepared in application of the provisions of IFRS 16 “Leases”, is intended to provide an adequate understanding of the transition from IAS 17 “Leases”8 to IFRS 16.

It is composed of a summary overview of the most important aspects of the new standard, together with a description of the transition process in the UBI Banca Group and information on first time adoption of IFRS 16 in terms of qualitative and quantitative impacts.

. Summary of the rule changes From 1st January 2019, the accounting standard IFRS 16 “Leases” supersedes IAS 17 “Leases” and the relative interpretations (IFRIC 4 “Determining whether an agreement contains a lease”, SIC 15 “Operating leases – Incentives” and SIC 27 “Evaluating the substance of transactions involving the legal form of a lease”).

IFRS 16 was published by the IASB on the 13th January 2016 and its endorsement by the EU took place with the publication in the Official Journal of the European Union9 of Regulation (EU) No. 2017/1986 of the 31st October 2017.

IFRS 16 applies to all lease contracts, with the exception of the following cases, which already fall within the scope of application of other standards: a. leases for the exploration or extraction of minerals, petroleum, natural gas and similar non- renewable resources (IFRS 6 “Exploration for and Evaluation of Mineral Resources”); b. leases of biological assets (IAS 41 – Agriculture) held by the lessee; c. service concession arrangements (IFRIC 12 - Service concession arrangements); d. intellectual property licences granted by a lessor (IFRS 15 “Revenue”); e. rights held by a lessee under licensing agreements for items such as films, video recordings, theatrical works, literary works, patents and copyrights (IAS 38 “Intangible Assets”)10.

The new standard introduces new accounting rules for lease contracts with regard to the lessees (i.e. the users of the assets under contract in the lease). These rules are based on the definition of ‘lease’ as a contract in which the right of use of an identified asset is granted to the lessee for a specified period of time, in exchange for payment. The new provisions provide for a single model for the recognition of lease agreements, requiring, as a general rule, recognition of the right to use an asset (“right-of-use assets”) and of the related “lease liability”, which represents the obligation to make lease payments over the duration of the agreement. Except in limited exceptions, it is no longer permissible to adopt the accounting treatment previously applicable for operating leases (consisting of the expensing of lease payments on an accruals basis).

To complete the information, we underline that in accordance with an express provision of Legislative Decree No. 38/2005, at national level, having maintained its powers to define accounting statements and schedules and the contents of the notes of financial statements, on 30th November 2018 the Bank of Italy issued the 6th update of Circular No. 262/2005 “Financial statements of banks, presentations and compilations”11.

. Project for the transition to IFRS 16 During the course of 2018, the UBI Banca Group carried out a specific project dedicated to analysing the standard in order to identify the impacts of its introduction.

As already reported, the project, which has already been described in previous financial reports, covered three main lines of activity, summarised below.

8 The provisions of which applied until 31 December 2018. 9 Published on 9th November 2017. 10 A lessee has an option, but not an obligation, to apply IFRS 16 to lease contracts governing intangible assets. 11 The update is applicable starting from financial statements ending as at 31st December 2019 or still open on that date.

168 168 a. Definition of the scope of application and analysis of impacts on processes The UBI Group carried out an internal assessment in order to identify the perimeter of the contracts subject to IFRS 16 and it chose not to take advantage of “grandfathering”12 options but to make a precise identification of the contracts which constitute or contain a lease contract on the basis of IFRS 16. The following types of contracts that fall within the scope of application of the new standard were identified: a) property lease contracts; b) motor vehicle lease contracts; c) enterprise server lease contracts and other hardware lease contracts.

While if a lease contract contains non-lease components 13 the lessee must account for the lease components and the non-lease components separately and allocate the consideration for the contract to the different components on the basis of the relative stand-alone prices, for the contracts specified in letters b) and c) the UBI Banca Group decided to separate the non-lease component, the recognition of which is subject to the provisions of IFRS 1514.

Following the identification of the scope of application of the standard, the Group took steps to fully remap the corporate processes affected by the transition from IAS 17 to IFRS 16 and the controls over those processes. b. Definition of the rules and accounting processes The Group defined accounting rules and processes designed to govern the new balance sheet and income statement treatment for lease transactions in which the Group is a party to the contract, inclusive of intragroup leases. Subsequently choices were made regarding the transition to the new standard and the accounting processes needed to govern initial recognition and subsequent measurement of the Group’s lease contracts and the relative company regulations were updated. c. Selection and implementation of the IT solution This stage was designed primarily to select the IT solution used to manage lease contracts in the Group’s accounts with adjustments to the systems currently in use in order to ensure the necessary integration. Subsequently steps were taken to define, implement and activate necessary customisations to the software adopted that are specific to the UBI Banca Group. Finally the testing phase was completed and the IT solution selected went into production.

. Possible options for the transition to the new standard available under IFRS 16 On initial application the lessee may implement the new standard for lease contracts: a) retrospectively by applying IAS 8 “Accounting policies, changes in accounting estimates and errors” and restating the comparative figures; or b) retrospectively, according to the “modified approach”, by accounting for the cumulative effect of the application of the standard as an adjustment to the opening balance of retained earnings (or, where appropriate, another component of equity) without restating the comparative figures, as illustrated below.

Where the option set out in point b) above is exercised, for leases previously treated as operating leases, on the date of initial application the lessee: - recognises a lease liability at the present value of the remaining lease payments on the lease contract using the lessee’s incremental borrowing rate as at the date of initial application as the discounting rate; - recognises an asset consisting of the right to use the asset underlying the lease contract either: i. at its carrying amount, determined as if the standard had been applied since the inception of the lease, but discounted according to the lessee's marginal interest rate at the date of initial application; ii. at an amount equal to the amount of the lease liability (adjusted by any accrued or prepaid lease payments recognised before the date of initial application); - measures the right-of-use asset on the basis of IAS 36.

Where advantage is taken of the “modified approach” the lessee may also take advantage of the following practical expedients for the recognition of lease contracts:

12 i.e. the option to apply the new standard solely to contracts that had been previously identified as lease contracts, applying IAS 17 “Leases” and IFRIC 4 “Determining whether an agreement contains a lease”. 13 One example would be the provision of ordinary maintenance services. 14 Thereby waiving the option under the standard to use the practical expedient which allows entities not to separate lease components from non-lease components for certain classes of goods, by recognising the entire contract on the basis of the provisions of IFRS 16.

169 169 - apply a single discount rate to a portfolio of leases; - rely on previous assessments made on the basis of IAS 37 relating to “onerous contracts” in order to recognise accumulated impairment of a right-of-use asset at the date of initial application; - account for lease contracts with a remaining term of not longer than twelve months directly through profit or loss (independently of the length of the original term of the lease); - exclude the initial direct costs from the measurement of the right-of-use asset at the date of initial application; - estimate the lease term on the basis of hindsight and information available at the date of initial application with regard to the exercise of extension or early termination options.

. The transition to IFRS 16 in the UBI Banca Group Application choices The UBI Group made the following choices with regard to the IFRS 16 transition project: - it chose not to take advantage of grandfathering, with the resulting redetermination of the scope of the leases to be subject to the new standard; - it chose to recognise the effects of initial application of the standard according to the “modified approach”, i.e. without retrospectively recognising the effects of application of the standard in compliance with IAS 8; - it chose to recognise the right-of-use asset underlying the lease as at the date of first-time application at a value equal to the amount of the liability for the lease. This choice means that adoption of IFRS 16 has no impact on the Group’s equity as at the date of first-time application; - it chose not to take advantage of the option to apply IFRS 16 to lease contracts having intangible assets as their underlying.

Since the Group opted to recognise right-of-use assets underlying lease contracts at a value equal to the lease liability, the following practical expedients in the transition to the new standard “on a lease-by- lease basis” were used on the basis of the options allowed under IFRS 16: - accounting for lease contracts with a remaining term of not longer than twelve months directly through profit or loss (independently of the length of the original term of the lease); - exclusion of the initial direct costs of measuring the right-of-use asset; - estimate of the term of the lease on the basis of hindsight and information available at the date of initial application with regard to the exercise of the extension or early termination options.

The Group also chose to take advantage of the following practical expedients applicable when IFRS 16 is fully applied: - not subject operating lease contracts that have a term of less than twelve months to the provisions of the standard (that term is measured with account also taken of explicit or tacit renewal options); - not apply the new accounting requirements regarding the recognition and measurement of right-of- use assets and lease liabilities to contracts where the underlying asset is of low value.

Finally the Group has decided to adopt: - €5,000 as the materiality threshold; - in order to calculate the incremental borrowing rate used to calculate lease liabilities, discount rate curves were constructed internally with consideration given to the interbank risk-free rate plus a credit spread which reflects the groups real unsecured funding operations from institutional customers adjusted to take account of the asset underlying the lease contract.

Impacts of initial application as at 1st January 2019 - Shareholders’ equity: following the UBI Banca Group’s decision on transition to IFRS 16, to take advantage of the “modified approach” by recognising right-of-use assets at an amount equal to the lease liability, no impacts were identified on shareholders’ equity (attributable to the Parent and minority interests) as at 1st January 2019. As a result of the recognition in the balance sheet of new “right-of-use” assets consisting of real estate properties, motor vehicles and plant and equipment, assets stated under item 90 “Property, plant and equipment” increased by a total of €394.2 million. Balance sheet liabilities increased by the same amount against the recognition within item 10 “Financial liabilities measured at amortised cost” of the financial liability represented by the obligation to make future lease rental payments; - CET1 ratio: following the effect on risk weighted assets (RWAs) arising from the recognition of new “Property, plant and equipment” assets, the introduction of IFRS 16 resulted in a slight decrease in the fully loaded CET1 ratio by a total of 7 basis points.

170 170 Reconciliation between balance sheet items as at 31st December 2018 (pursuant to IAS 17) and the balance sheet items as at 1st January 2019 (pursuant to IFRS 16). A reconciliation between balance sheet items as at 31st December 2018 (pursuant to IAS 17) and the balance sheet items as at 1st January 2019 (pursuant to IFRS 16) is reported below.

Figures in thousands of euro

IFRS 16 Circular No 262/2005 6th Update 31.12.2018 1.1.2019 FTA ASSETS (IAS 17) (IFRS 16) impact 10. Cash and cash equivalents 735,249 735,249 20. Financial assets measured at fair value through profit or loss 1,463,529 1,463,529 a) financial assets held for trading 405,716 405,716 b) financial assets designated at fair value 11,028 11,028 c) other financial assets mandatorily measured at fair value 1,046,785 1,046,785 Financial assets measured at fair value through other comprehensive 30. 10,726,179 10,726,179 income 40. Financial assets measured at amortised cost 102,798,587 102,798,587 a) loans and advances to banks 10,065,881 10,065,881 b) loans and advances to customers 92,732,706 92,732,706 50. Hedging derivatives 44,084 44,084 60. Fair value change in hedged financial assets (+/-) 97,429 97,429 70. Equity investments 254,128 254,128 80. Technical reserves of reinsurers -- 90. Property, plant and equipment 1,965,234 429,624 2,394,858 100. Intangible assets 1,729,727 1,729,727 of which: - goodwill 1,465,260 1,465,260 110. Tax assets 4,210,362 4,210,362 a) current 1,376,567 1,376,567 b) deferred 2,833,795 2,833,795 - of which pursuant to Law No 214/2011 1,804,988 1,804,988 120. Non-current assets and disposal groups held for sale 2,972 2,972 130. Other assets 1,278,717 -35,397 1,243,320 Total assets 125,306,197 394,227 125,700,424

171 171 Figures in thousands of euro

IFRS 16 Circular No 262/2005 6th Update 31.12.2018 1.1.2019 FTA LIABILITIES AND EQUITY (IAS 17) (IFRS 16) impact 10. Financial liabilities measured at amortised cost 109,445,664 394,227 109,839,891 a) due to banks 17,234,579 17,234,579 b) due to customers 68,421,387 394,227 68,815,614 c) debt securities issued 23,789,698 23,789,698 20. Financial liabilities held for trading 410,977 410,977 30. Financial liabilities designated at fair value 105,836 105,836 40. Hedging derivatives 110,801 110,801 50. Fair value change in hedged financial liabilities (+/-) 74,297 74,297 60. Tax liabilities: 162,272 162,272 a) current 30,287 30,287 b) deferred 131,985 131,985 70. Liabilities associated with disposal groups held for sale - - 80. Other liabilities 3,092,941 3,092,941 90. Provisions for post-employment benefits 306,697 306,697 100. Provisions for liabilities and charges 505,191 505,191 a) commitments and guarantees granted 64,410 64,410 b) pension and similar obligations 91,932 91,932 c) other provisions for risks and charges 348,849 348,849 110. Technical reserves 1,877,449 1,877,449 120. Valuation reserves (298,616) (298,616) 150. Reserves 2,923,589 2,923,589 160. Share premiums 3,294,604 3,294,604 170. Share capital 2,843,177 2,843,177 180. Treasury shares (-) (25,074) (25,074) 190. Minority interests (+/-) 50,784 50,784 200. Profit (loss) for the year (+/-) 425,608 425,608 Total liabilities and equity 125,306,197 394,227 125,700,424

The increase in property, plant and equipment totalling €429.6 million is attributable to recognition of right-of-use assets as follows: - €410.5 million for real estate properties; - €15 million for hardware; - €4.1 million for motor vehicles; of which €35.4 million relating to extraordinary maintenance costs classified as “improvements to leased assets”, concerning contracts subject to IFRS 16, reclassified out of item “Other assets” into the item “Property, plant and equipment ”, in compliance with the provisions of the 6th update of Bank of Italy Circular No 262/2005.

On the basis of the above, right-of-use assets (pursuant to IFRS 16) totalling €457.5 million were recognised in the balance sheet as at 1st January 2019, of which: - €394.2 million relating to new assets recognised; - €63.3 million relating to assets already recognised in the balance sheet in accordance with the provisions of IAS 17 (€27.9 million) and assets reclassified as an increase in right-of-use assets (€35.4 million).

Information on the incremental borrowing rate used The average weighted incremental borrowing rate used to measure lease assets at the date of initial application was 2.09%.

Reconciliation of future commitments for lease contracts with lease liabilities Information is given below on the reconciliation of future commitments for lease contracts pursuant to IAS 17 with lease liabilities recognised in the balance sheet as at 1st January 2019.

172 172 Figures in thousands of euro

COMMITMENTS FOR LEASE CONTRACTS LEASE LIABILITIES DIFFERENCE (PURSUANT TO IAS 17) (PURSUANT TO IFRS 16)

443,215 394,227 48,988

The difference is attributable entirely to the effect of the incremental borrowing rate used to discount future cash flows arising from lease contracts.

Lastly, it should be noted that, during the first half of 2019, the UBI Banca Group proceeded to recognise each of the new operating leases and the agreements subject to renewal that fall within the scope of application based on the provisions of IFRS 16. The curve used to determine the incremental borrowing rate has been updated on a monthly basis.

The main items of the financial statements The following relates solely to the item “Property, plant and equipment”. It describes the accounting criteria employed, as updated from 1st January 2019 following the introduction of the accounting standard IFRS 16, with respect to the version published in the 2018 Annual Report.

In compliance with the 6th update of Bank of Italy Circular No. 262/2005, these same details will be reported in Part A.2, on the main items of the financial statements, in the Notes to the Consolidated Financial Statements for the year ended 31st December 2019.

PROPERTY, PLANT AND EQUIPMENT - Definition and classification Property, plant and equipment includes assets for functional use (i.e. business assets)15, investment property16, land, moveables, furnishings and equipment of various types, which it is considered will be used over a time horizon of longer than one year. This item also comprises property, plant and equipment, measured according to IAS 2 “Inventories”, resulting both from the enforcement of guarantees and purchases at auction. From 1st January 2019 it also comprises right-of-use assets acquired through lease contracts and the relative use of the physical assets (for the lessees) that are granted under operating leases (for the lessors) and also improvements and costs for additions incurred on owned assets and right-of-use physical assets arising from lease contracts.

- Recognition criteria Tangible assets, functional and other, are initially recognised at cost (item “90. Property, plant and equipment”), inclusive of all costs directly connected with bringing it to working condition for the use of the assets and purchase taxes and duties that are not recoverable. This amount is subsequently increased to include expenses incurred from which it is expected future benefits will be obtained. The costs of ordinary maintenance on assets are recognised in the income statement at the time at which they are incurred, while extraordinary maintenance costs (improvements) from which future benefits are expected are capitalised by increasing the value of the relative assets. Improvements and expenses incurred to increase the value of leased assets resulting from lease contracts pursuant to IFRS 16 from which future benefits are expected are recognised: . within the most appropriate category of item “90. Property, plant and equipment” if they are independent and can be separately identified; . within item “90. Property, plant and equipment”, if they are not independent and cannot be separately identified, as an increase in the right-of-use asset to which they relate on the basis of the provisions of IFRS 16. Improvements and expenses incurred to increase the value of leased assets other than those in the preceding paragraph are recognised: . within the most appropriate category of item “90. Property, plant and equipment” if they are independent and can be separately identified; . within item “130. Other assets” if they are not independent and cannot be separately identified. The cost of property, plant and equipment is recognised as an asset if, and only if:

15 “Assets for functional use” are defined as tangible assets possessed to be used for the purpose of carrying on a company’s business and where the use is planned to last longer than one year. Assets for functional use also include properties rented to employees, ex employees and their heirs, as well as works of art. 16 “Investment property” is defined as properties held in order to earn rentals or for capital appreciation. As a consequence, investment property is to be distinguished from assets held for the use of the owner because they generate cash flows that are very different from the other assets held by the banking group.

173 173 . it is probable that the future economic benefits associated with the asset will flow to the enterprise; . the cost of the asset can be reliably determined.

- Measurement criteria Subsequent to initial recognition, items of property, plant and equipment for use in operations are recognised at cost, as defined above, net of accumulated depreciation and any permanent cumulative impairment. The depreciable amount, equal to cost less the residual value (i.e. the amount that would be normally obtained from disposal, less disposal costs, if the asset was normally in the conditions, including age, expected at the end of its useful life), should be allocated on a systematic basis over the asset's useful life by adopting the straight line method of depreciation. The useful life of an asset, which is reviewed periodically to detect any significant change in estimates compared to previous figures, is defined as: . period of time over which it is expected that an asset can be used by a company; or . the quantity of products or similar units that an entity expects to obtain from the use of the asset. Since property, plant and equipment may consist of items with different useful lives, land, whether by itself or as part of the value of a building is not depreciated since it constitutes a fixed asset with an indefinite life. The value attributable to the land is deducted from the total value of a property for all buildings in proportion to the percentage of ownership. Buildings, on the other hand, are depreciated according to the criteria described above. Works of art are not depreciated because they generally increase in value over time. Depreciation of an asset starts when it is available for use and ceases when the asset is written off the accounts, which is the most recent of when it is classified as for sale and the date of elimination from the accounts. As a consequence depreciation does not stop when an asset is left idle or is no longer in use, unless the asset has already been fully depreciated. Improvements and expenses which increase the value are depreciated as follows: . if they are independent and can be separately identified, according to the presumed useful life as described above; . if they are not independent and cannot be separately identified, then if they are held under an ordinary lease contract, over the shorter of the period in which the improvements and expenses can be used and that of the remaining life of the lease contract with account taken of renewal options if the lessee is reasonably certain that the option will be exercised. When the lease contract involves the transfer of ownership of the asset at the end of the lease term then the depreciation period can be the same as the useful life of the underlying asset. At the end of each annual or interim reporting period the existence of indications that demonstrate the impairment of the value of an asset are assessed. The loss is determined by comparing the carrying amount of the property, plant or equipment with the lower recoverable amount. The latter is the greater of the fair value17, net of any sales costs, and the relative value in use intended as the present value of future cash flows generated by the asset. The loss is immediately recognised in the income statement within item 210. “Net impairment losses on property, plant and equipment”; the item also includes any future recovery in value if the causes of the original recognition of impairment no longer exist. Property, plant and equipment recognised in accordance with IAS 2 is measured at the lower of the cost or the net realisable value, which is the estimated net amount18 that the entity would expect to realise from the sale.

- Property, plant and equipment shown as right-of-use assets relating to lease contracts According to IFRS 16, a lease is a contract or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. A finance lease contract transfers substantially all the risks and rewards incident to ownership of an asset to the lessee (the user). Otherwise the leases is considered an “operating lease”. The beginning of the lease term is the date on which the lessee is authorised to exercise its right to use the asset leased and corresponds to the date on which the lease is initially recognised and includes any “rent-free” periods, i.e. periods under the contract during which the lessee uses the asset free-of-charge. When the contract commences, the lessee recognises: . a right-of-use asset for the asset underlying the lease contract. The asset is recognised at cost calculated as the sum of the following: - the lease liability; - any lease payments made before or at the commencement date (net of any lease incentives already received); - initial direct costs; and

17 The procedures employed to calculate the fair value of real estate assets are described in Part A.4 “Information on fair value” of the Notes to the 2018 consolidated financial statements. 18 This is the estimated cost of completion and the estimated costs necessary to make the sale.

174 174 - an estimate of any costs for dismantling or restoring the underlying asset; . a lease liability19 equal to the present value of the payments due for the lease. The discount rate used is the implicit interest rate20, if determinable; otherwise, the lessee’s incremental borrowing rate is used21. Where a lease contract contains “non-lease components” (e.g. the provision of services such as ordinary maintenance to be recognised according to IFRS 15) the lessee must account for the lease components and the non-lease components separately and allocate the consideration for the contract to the different components on the basis of the relative stand-alone prices. A lessee may opt to recognise lease payments as follows: . directly as an expense in the income statement on a straight-line basis over the lease term; . by using another systematic basis representative of the pattern of the lessee’s benefit, where: − it is a short-term lease (equal to or less than twelve months) which does not include a purchase option on the asset leased by the lessee; − a lease for which the underlying asset is of low value22. The UBI Banca Group opted for direct recognition as an expense in the income statement on a straight- line basis over the lease term. The lease term is determined with account taken23 of: . periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; . periods covered by an option to terminate the lease if the lessee is reasonably certain to exercise that option. During the course of the lease term a lessee shall: . measure the right-of-use at cost less accumulated depreciation24 and accumulated impairment losses determined and recognised on the basis of the provisions of the IAS 36 “Impairment of assets”, adjusted to take account of any remeasurement of the lease liability; . increase the liability arising from the lease following the accrual of interest expense calculated at the interest rate implicit in the lease or alternatively at the incremental borrowing rate and increase it for payments of principal and interest made. If changes are made to the lease payments then the lease liability must be reassessed. The impact of the reassessment of the liability is recognised as an adjustment to the right-of-use asset as the balancing entry.

- Derecognition criteria Property, plant and equipment are derecognised in the balance sheet when they are disposed of or when they are permanently retired from use and no future economic benefits are expected from their disposal. Any gains or losses resulting from the retirement or disposal of the tangible asset, calculated as the difference between the net consideration on the sale and the carrying amount of the asset are recognised in the income statement within item “280. Profits (losses) on the disposal of investments”. The right-of-use asset arising from a lease contract is derecognised at the end of the lease term.

Impairment tests on goodwill The provisions of IAS 36 require goodwill and therefore the cash generating units (CGUs) or groups of CGUs to which it was allocated, to be tested for impairment at least annually and also certain qualitative and quantitative indicators of presumed impairment to be monitored continuously to see whether the necessary conditions of presumed impairment exist for repeating goodwill impairment tests more frequently.

19 In order to provide full information we report that the liability is recognised by the lessee within the item “Financial liabilities measured at amortised cost”. 20 The interest rate implicit in the lease is the discount rate by which, on commencement of the lease, the present value of a) the lease payments and b) the unguaranteed residual value is equal to the fair value of the underlying asset and any initial direct costs of the lessor. 21 The incremental borrowing rate of a lessee is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of an analogous value to the right-of-use asset in a comparable economic environment. 22 It is not possible to classify assets that are subleased by a lessee as being of low value. 23 Termination options held solely by the lessor are not considered when determining the lease term. 24 Account must be taken when determining the depreciation period of whether or not ownership of the underlying asset may be transferred at the end of the lease term or whether or not the cost of the right-of-use asset reflects that the lessee will exercise a purchase option. In the first case the depreciation period is that of the useful life of the underlying asset determined at the commencement date. In the second case the depreciation period is the useful life of the right-of-use asset or the lease term if it is shorter.

175 175 Since the stock market capitalisation as at 30th June 2019 was lower than the book equity, all the main elements were analysed from internal and external inputs which might lead to a fundamental presumption of impairment (i.e. the presumption that the recoverable amounts are less than the carrying amounts of the CGUs to which impairment is allocated).

Analysis of external and internal inputs of presumed impairment

External inputs It should first be noted that, as at the date of the analysis, the market capitalisation, compared to 31st December 2018, reported an increase of 3.32%, while the equity value implicit in the consensus target price decreased. Compared with 31st December 2019, the equity value implicit in the consensus target price had fallen 12.12%. On the other hand, the book equity implicit in the maximum target price had fallen 9.30%. During the first half of the year, there was also a significant drop in the credit default swaps of UBI Banca.

The following fundamental external factors were analysed: i. the cost of equity (cost of own funds) for UBI Banca (and its determinants); ii. the interest rate scenario; iii. trends in consensus net profit forecasts (and other income statement items) made by equity analysts both for 2019 and subsequent years.

The estimate of the cost of equity (and its determinants) as at 30th June 2019 had fallen due to the reduction in the betas and in the risk-free rate, as reported in the table below.

(a) 30.06.2019 (b) 31.12.2018 (c) Delta = (a) - (b) A) Risk Free (average daily 1 year BTP 10-yr) 2.82% 2.95% -0.13% B) Beta (5-yr monthly vs FTSE Italia All Share) 1.515x 1.616x -0.101 C) Equity risk premium 5.00% 5.00% 0.00% D) Cost of Equity = A + B x C 10.39% 11.03% -0.64%

The table shows that the estimate of the cost of equity (CoE) in June 2019 was 10.39%, a decrease of 64 basis points from the estimate carried out as at 31st December 2018 (11.03%).

With regard to the interest rate scenario (for the forecast of earnings), a survey was carried out on external input–based forecasts used as a basis for the 2019-2023 projections. More specifically, a reduction was found in the rates implicit in the yield curve: the future rate for the 3- month Euribor for 2022 and 2023 was lower than the same estimates formulated by Management at the end of 2018 and used as the basis for projections developed for impairment test purposes in December 2018. In this regard, it should be noted that a reduction in market rates reduces the expected performance of the Group. It should also be noted, however, that this trend is accompanied by the aforementioned reduction in the credit default swaps of UBI Banca, which, on equal terms, has a positive impact on the reduction of future interest expense (and on net interest income).

Finally, net profit forecasts by equity analysts as at 30th June 2019 had worsened compared with the same forecasts formulated at the beginning of the year. The analysis conducted allowed the deterioration in cash flows to be attributed to the worsening of the interest rate scenario.

In order to check the resilience of the values tested as at 31st December 2018, a sensitivity analysis was carried out to verify the impact on consolidated Group figures, considering an decrease of 0.64% in the opportunity cost of capital, together with a worsening of cash flows projections in the amount adopted by equity analysts. It should also be noted that the analysis in question leads to values that are substantially in line (improvements on the order of +2.7%) with the estimates as at 31st December 2018 and\ with the change in the market price of UBI Banca’s shares during the relevant period of analysis.

Internal inputs As concerns the internal inputs we report that a comparison of the consolidated results for the period ended June 2019 with budget forecasts for the same period showed no negative changes in net operating profit.

Conclusions Based on the above, which shows no evidence of a need for impairment, it was not deemed necessary to repeat impairment testing for the purposes of this interim financial report.

176 176 Realignment of values for tax purposes with the book values of property, plant, equipment, and intangible assets

Articles 172, paragraph 10-bis, and 176, paragraph 2-ter, of Italian Presidential Decree No. 917 of 29th December 1986 (the Consolidated Income Tax Act) allow for fiscal values to be realigned with the higher values attributed to assets for financial reporting purposes, such as for property, plant and equipment, and intangible assets relating to acquired companies, for the previous two financial years. This misalignment stems from the fact that corporate reorganisations (e.g. mergers) generally entail a degree of “fiscal neutrality”. By virtue of this principle, in the event of any accounting remeasurements of property, plant and equipment or intangible assets in compliance with the related accounting standards, the corresponding fiscal values are to remain unchanged25.

The realignment, when involving a valuable consideration, is carried out by way of payment of a substitute tax, the percentage amount of which is a function of various brackets in terms of higher values recognised26.

Within this context, during the second quarter the UBI Banca Group proceeded with the realignment of the aforementioned values with reference to certain corporate reorganisations carried out in the 2017 and 2018 tax years. In this case, the assets subject to remeasurement relate to the following corporate mergers into the Parent, UBI Banca: . mergers of Banca Popolare di Bergamo Spa, Banco di Brescia Spa, Banca Popolare di Ancona Spa, Banca Carime Spa and Banca di Valle Camonica Spa (2017), the accounting recognition of which entailed the recognition, in the separate financial statements of UBI Banca, of property, plant and equipment, and intangible assets, due to the inclusion of those already present in the consolidated financial statements; . mergers of Banca Adriatica Spa, Carilo Spa, Banca Tirrenica Spa, Banca Federico del Vecchio Spa (2017) and Banca Teatina Spa (2018), which gave rise to the recognition of intangible assets due to the purchase price allocation resulting from the acquisition of the New Banks.

The substitute tax due for these realignments amounted to approximately €16.9 million, to be paid obligatorily in three annual instalments. Against payment of the first instalment of the substitute tax due amounting to €5.1 million27, which took place on 27th June by offsetting with receivables arising from deferred tax assets (DTAs), from an accounting point of view greater taxes of €16.9 million were recognised, as was the simultaneous release, amounting to €32.9 million, of the provision previously recognised for deferred taxation on the greater book values recorded, given that the difference between the book values and the tax values on the assets subject to realignment was less, and this had a positive net effect on the income statement in the amount of €16 million.

Accounting for the extraordinary contribution to the National Resolution Fund

The 2016 Legge di Stabilità (“stability law” – annual finance law)28 provides, in the event that the resources of the National Resolution Fund (NRF) are not sufficient to sustain the resolution actions carried out over time, that the banks are to pay additional contributions to the NRF, within the overall limit, inclusive of ordinary and extraordinary contributions paid to the Single Resolution Fund (SRF), provided for under Articles 70 and 71 of Regulation (EU) 2014/80629. Art. 25 of Decree Law No. 237 of 23rd December 2016 specifies that such additional contributions are to be paid to cover any and all of NRF’s obligations, losses, costs and liabilities arising from or in any event related to the execution of provisions to start resolutions and with the requirement to ensure that they can be effectively executed, even if as a consequence of amendments made to them.

25 This entails, when recognising the revalued amounts, the recognition of deferred tax liabilities. 26 More specifically, this is 12% up to €5 million, 14% for the portion exceeding €5 million and up to €10 million, and, lastly, 16% on the portion that exceeds €10 million. 27 The second and third instalments are to be paid in the two fiscal periods subsequent to that in which the realignment option is exercised or by 30th June 2020 and 30th June 2021, respectively. 28 See Art. 1, paragraph 848, Law No. 208/2015 of 28th December 2015. 29 Amounting to at most three times the ordinary contribution. With reference to 2016, in the second quarter of 2018 the Bank of Italy had taken steps to call up additional contributions from the UBI Banca Group in the amount of €12.9 million. For 2016 only, two additional quotas on top of the regular contribution to the Single Resolution Fund (SRF) were also to be called up. These amounts, for a total of €74.7 million, were called up on 27th December 2016 by the Bank of Italy as the national resolution authority.

177 177 In this regard, taking into account the financial needs of the fund, on 7th June 2019 the Bank of Italy, in its capacity as the national resolution authority and with reference to the year 2017, proceeded to call up additional contributions from the UBI Banca Group for a total of €18.1 million30. The cost in question, relating to the second quarter, was recognised in accordance with IFRIC 2131, within the item “Other administrative expenses”.

Write-off (or “derecognition”) of impaired positions

In accordance with the provisions of IFRS 9, the gross book value of a financial asset is to be written off when there is no reasonable expectation of recovery 32 . In other words, this write-off constitutes a derecognition33. This can concern the financial asset in its entirety or a portion of it, and it may be recognised before the legal actions taken in order to recover the exposure are completed.

In accordance with the provisions of this ECB guidance and in light of the provisions of IFRS 9, the UBI Banca Group has adopted a policy, subject to refinement during the first half of the year, on the subject of write-offs aimed at assessing the existence or otherwise of a reasonable expectation of recovery, taking into consideration: • the status of the exposure (bad loan, unlikely-to-pay); • whether or not they are subject to bankruptcy proceedings; • how long the position has been classified as impaired (the “vintage”); • the presence and value of any accessory collateral and the evolution of the collection process.

More specifically, the UBI Banca Group writes off non-performing positions in the following cases: • irrecoverability of the exposure, based on objective, precise information, as described below: - involvement in bankruptcy proceedings. In this case, the write-off is done according to different timing based on the position’s status (unlikely-to-pay or bad loan); - the vintage. Unsecured positions and positions secured by personal guarantees, classified as bad loans and not subject to bankruptcy proceedings, are written off when they surpass a vintage of 10 years from the date of classification as NPL, determined on the basis of historical collection data, such that the position can no longer reasonably be considered collectable; - positions backed by mortgages. In this case, the write-off is carried out if the foreclosure procedure ends with the asset not being sold; • debt forgiveness, which may, for example, take place if it is no longer cost effective to proceed or continue with credit collection efforts.

List of the main IFRS standards endorsed by the European Commission

IAS/IFRS ACCOUNTING STANDARDS EU REGULATIONS IAS 1 Presentation of financial statements 1274/08, 53/09, 70/09, 494/09, 243/10, 149/11, 475/12, 1254/12, 1255/12, 301/13, 2113/15, 2173/15, 2406/15, 1905/16, 2067/16, 1986/17 IAS 2 Inventories 1126/08, 1255/12, 1905/16, 2067/16, 1986/17 IAS 7 Statement of cash flows 1126/08, 1274/08, 70/09, 494/09, 243/10, 1254/12, 1174/13, 1986/17, 1990/17 IAS 8 Accounting policies, changes in accounting estimates and 1126/08, 1274/08, 70/09, 1255/12, errors 2067/16 IAS 10 Events after the reporting date 1126/08, 1274/08, 70/09, 1142/09, 1255/12, 2067/16 IAS 12 Income taxes 1126/08, 1274/08, 495/09, 475/12, 1254/12, 1255/12, 1174/13, 1905/16, 2067/16, 1986/17, 1989/17, 412/19 IAS 16 Property, plant and equipment 1126/08, 1274/08, 70/09, 495/09, 1255/12, 301/13, 28/15, 2113/15, 2231/15, 1905/16, 1986/17 IAS 19 Employee benefits 1126/08, 1274/08, 70/09, 475/12, 1255/12, 29/15, 2343/15, 402/19

30 The contribution was paid on 28th June 2019. 31 This was along the same lines as that which was done with regard to the additional contributions recognised in 2016 in compliance, moreover, with the Bank of Italy notification entitled “Additional contributions to the national resolution fund: accounting treatment and treatment for supervisory reporting” dated 25th January 2017. 32 In this regard, the European Central Bank’s guidance to banks on non-performing loans (NPLs), published in March 2017 and subsequently amended in October 2018, provides guidelines concerning the policies for the derecognition (or “write-off”) of NPLs. 33 A write-off does not necessarily imply that the Bank has waived its legal right to recover the credit. Such a waiver known as cancellation of the debt or “debt forgiveness”, nevertheless involves cancellation or write-off of the impaired position.

178 178 IAS 20 Accounting for government grants and disclosure of 1126/08, 1274/08, 70/09, 475/12, government assistance 1255/12, 2067/16 IAS 21 The effects of changes in foreign exchange rates 1126/08, 1274/08, 69/09, 494/09, 149/11, 475/12, 1254/12, 1255/12, 2067/16, 1986/17 IAS 23 Borrowing costs 1260/08, 70/09, 2113/15, 2067/16, 1986/17, 412/19 IAS 24 Related party disclosures 632/10, 475/12, 1254/12, 1174/13, 28/15 IAS 26 Retirement benefit plans 1126/08 IAS 27 Consolidated and separate financial statements 1254/12, 1174/13, 2441/15 IAS 28 Investments in associates and joint ventures 1254/12, 2441/15, 1703/16, 2067/16, 182/18, 237/19 IAS 29 Financial reporting in hyperinflationary economies 1126/08, 1274/08, 70/09 IAS 32 Financial instruments: presentation 1126/08, 1274/08, 53/09, 70/2009, 495/09, 1293/09, 149/11, 475/12, 1254/12, 1255/12, 1256/12, 301/13, 1174/13, 1905/16,2067/16, 1986/17 IAS 33 Earnings per share 1126/08, 1274/08, 495/09, 475/12, 1254/12, 1255/12, 2067/16 IAS 34 Interim financial reporting 1126/08, 1274/08, 70/09, 495/09, 149/11, 475/12, 1255/12, 301/13, 1174/13, 2343/15, 2406/15, 1905/16 IAS 36 Impairment of assets 1126/08, 1274/08, 69/09, 70/09, 495/09, 243/10, 1254/12, 1255/12, 1374/13, 2113/15, 1905/16,2067/16 IAS 37 Provisions, contingent liabilities and contingent assets 1126/08, 1274/08, 495/09, 28/15, 1905/16, 2067/16, 1986/17 IAS 38 Intangible assets 1126/08, 1274/08, 70/09, 495/09, 243/10, 1254/12, 1255/12, 28/15, 2231/15, 1905/16, 1986/17 IAS 39 Financial instruments: recognition and measurement 1126/08, 1274/08, 53/2009, 70/09, 494/09, 495/09, 824/09, 839/09, 1171/09, 243/10, 149/11, 1254/12, 1255/12, 1174/13, 1375/13, 28/15, 1905/16, 2067/16, 1986/17 IAS 40 Investment property 1126/08, 1274/08, 70/09, 1255/12, 1361/14, 2113/15, 1905/16, 1986/17, 400/18 IAS 41 Agriculture 1126/08, 1274/08, 70/09, 1255/12, 2113/15, 1986/17 IFRS 1 First-time adoption of international financial reporting 1126/09, 1164/09, 550/10, 574/10, standards 662/10, 149/11, 475/12, 1254/12, 1255/12, 183/2013, 301/13, 313/13, 1174/13, 2343/15, 2441/15,1905/16, 2067/16, 1986/17, 182/18, 519/18 IFRS 2 Share-based payment 1126/08, 1261/08, 495/09, 243/10, 244/10, 1254/12, 1255/12, 28/15, 2067/16, 289/18 IFRS 3 Business combinations 495/09, 149/11, 1254/12, 1255/12, 1174/13, 1361/14, 28/15, 1905/16, 2067/16, 1986/17, 412/19 IFRS 4 Insurance contracts 1126/08, 1274/08, 1165/09, 1255/12, 1905/16, 2067/16, 1986/17, 1988/17 IFRS 5 Non-current assets held for sale and discontinued 1126/08, 1274/08, 70/09, 494/09, operations 1142/09, 243/10, 475/12, 1254/12, 1255/12, 2343/15, 2067/16 IFRS 6 Exploration for and evaluation of mineral resources 1126/08 IFRS 7 Financial instruments: disclosures 1126/08, 1274/08, 53/09, 70/2009, 495/09, 824/09, 1165/09, 574/10, 149/11, 1205/11, 475/12, 1254/12, 1255/12, 1256/12, 1174/13, 2343/15, 2406/15, 2067/16, 1986/17 IFRS 8 Operating segments 1126/08, 1274/08, 243/10, 632/10, 475/12, 28/15 IFRS 9 Financial instruments 2067/16, 1986/17, 498/18 IFRS 10 Consolidated financial statements 1254/12, 313/13, 1174/13, 1703/16 IFRS 11 Joint arrangements 1254/12, 313/13, 2173/15, 412/19 IFRS 12 Disclosure of interests in other entities 1254/12, 313/13, 1174/13, 1703/16, 182/18 IFRS 13 Fair value measurement 1255/12, 1361/14,2067/16, 1986/17 IFRS 15 Revenue from contracts with customers 1905/16, 1986/17, 1987/17 IFRS 16 Leases 1986/17

179 179 SIC/IFRIC INTERPRETATION DOCUMENTS EU REGULATIONS IFRIC 1 Changes in existing decommissioning, restoration and 1126/08, 1274/08, 1986/17 similar liabilities IFRIC 2 Members' shares in co-operative entities and similar 1126/08, 53/09, 1255/12, 301/13, instruments 2067/16 IFRIC 5 Rights to interests arising from decommissioning, 1126/08, 1254/12, 2067/16 restoration and environmental rehabilitation funds IFRIC 6 Liabilities arising from participating in a specific market - 1126/08 waste electrical and electronic equipment IFRIC 7 Applying the restatement approach under IAS 29 1126/08, 1274/08 “Financial reporting in hyperinflationary economies” IFRIC 10 Interim financial reporting and impairment 1126/08, 1274/08, 2067/16 IFRIC 12 Service concession arrangements 254/09, 1905/16, 2067/16, 1986/17 IFRIC 14 Prepayments of a minimum funding requirement 1263/08, 1274/08, 633/10, 475/12 IFRIC 16 Hedges of a net investment in a foreign operation 460/09, 243/10, 1254/12, 2067/16 IFRIC 17 Distributions of non-cash assets to owners 1142/09, 1254/12, 1255/12 IFRIC 19 Extinguishing financial liabilities with equity instruments 662/10, 1255/12, 2067/16 IFRIC 20 Stripping costs in the production phase of a surface mine 1255/12 IFRIC 21 Levies 634/14 IFRIC 22 Foreign currency transactions and advance consideration 519/18 IFRIC 23 Uncertainty over income tax treatments 1595/18 SIC 7 Introduction of the euro 1126/08, 1274/08, 494/09 SIC 10 Government assistance – no specific relation to operating 1126/08, 1274/08 activities SIC 25 Income taxes – Changes in the tax status of an enterprise 1126/08, 1274/08 or its shareholders SIC 29 Service concession arrangements: disclosures 1126/08, 1274/08, 70/09, 1986/17 SIC 32 Intangible assets – Website costs 1126/08, 1274/08, 1905/16, 1986/17

180 180 Information on transfers between portfolios of financial assets

The UBI Banca Group did not modify its business models governing the management of its financial assets during the period and therefore it did not carry out any reclassifications on them.

Information on fair value

Qualitative information Reference is made to section A.4 “Information on fair value” in the Notes to the Consolidated Financial Statements contained in the 2018 Annual Report for full details of methods employed to measure fair value.

Quantitative information

A.4.5.1 Assets and liabilities measured at fair value on a recurring basis: distribution by fair value level

Financial assets/liabilities measured at fair value 30.6.2019 31.12.2018

Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Financial assets measured at fair value through profit or loss 377,164 753,144 530,666 257,120 672,276 534,133 a) financial assets held for trading 34,136 415,764 78,203 6,136 318,740 80,840 b) financial assets designated at fair value 10,054 - - 11,028 - - c) other financial assets mandatorily measured at fair value 332,974 337,380 452,463 239,956 353,536 453,293 2. Financial assets measured at fair value through other comprehensive income 11,474,054 99,280 45,436 10,589,504 87,810 48,865 3. Hedging derivatives - 22,452 - - 42,479 1,605 4. Property, plant and equipment ------5. Intangible assets ------Total 11,851,218 874,876 576,102 10,846,624 802,565 584,603

1. Financial liabilities held for trading 27,991 543,508 - 123 410,823 31 2. Financial liabilities designated as at fair value - 149,871 - - 105,836 - 3. Hedging derivatives - 230,655 - - 110,801 - Total 27,991 924,034 - 123 627,460 31

181 181 A.4.5.2 Changes in the first half in assets measured at fair value on a recurring basis (level 3)

Financial assets measured at fair value through profit or loss Financial assets of which: c) measured at of which: b) other financial Hedging Property, plant Intangible of which: a) fair value Total financial assets assets derivatives and equipment assets financial assets through other A) + b) + C) designated at mandatorily held for trading comprehensive fair value measured at fair income Figures in thousands of euro value

1. Opening balances 534,133 80,840 - 453,293 48,865 1,605 - -

2. Increases 47,345 2,832 - 44,513 492 - - - 2.1. Purchases 1,209 20 - 1,189 - - - - 2.2. Profits recognised in: 22,782 1,003 - 21,779 492 - - - 2.2.1. Income statement 22,782 1,003 - 21,779 1 - - - - of which gains 18,912 988 - 17,924 - - - - 2.2.2. Equity X X X X 491 - - - 2.3. Transfers from other levels 1,809 1,809 ------2.4. Other increases 21,545 - - 21,545 - - - -

3. Decreases (50,812) (5,469) - (45,343) (3,921) (1,605) - - 3.1. Sales (1,054) (50) - (1,004) (564) - - - 3.2. Redemptions (13,425) (5) - (13,420) (328) - - - 3.3. Losses recognised in: (21,029) (4,321) - (16,708) (853) - - - 3.3.1. Income statement (21,029) (4,321) - (16,708) - - - - - of which losses (19,695) (3,471) - (16,224) - - - - 3.3.2. Equity X X X X (853) - - - 3.4. Transfers to other levels (1,093) (1,093) - - - (1,605) - - 3.5. Other decreases (14,211) - - (14,211) (2,176) - - - 4. Closing balances 530,666 78,203 - 452,463 45,436 - - -

A.4.5.3 Changes in the first half in liabilities measured at fair value on a recurring basis (level 3)

Financial Financial liabilities Hedging liabilities held for designated at fair derivatives trading Figures in thousands of euro value

1. Opening balances 31 - -

2. Increases - - - 2.1 Issuances - - - 2.2. Losses recognised in: - - - 2.2.1. Income statement - - - - of which losses - - - 2.2.2. Equity X - - 2.3. Transfers from other levels - - - 2.4. Other increases - - -

3. Decreases (31) - - 3.1. Redemptions - - - 3.2. Repurchases - - - 3.3. Profits recognised in: - - - 3.3.1. Income statement - - - - of which gains - - - 3.3.2. Equity X - - 3.4. Transfers to other levels (31) - - 3.5. Other decreases - - - 4. Closing balances - - -

Financial assets held for trading

The increases in financial assets held for trading are due primarily to transfers to fair value level three (€1.8 million) in relation to derivatives for which the counterparty risk was greater than the limits set by Group Policy (10% of the gross book fair value). Losses recognised through profit and loss mainly refer to losses on derivatives amounting to €3.5 million (of which €3.3 million relating to options on equity investments). Decreases due to transfers to other levels, amounting to €1.1 million, related to derivatives on the basis of valuations carried out according to the Group policies indicated above.

182 182 Other financial assets mandatorily measured at fair value Increases in profits recognised through profit and loss include capital gains of €17.9 million (of which €11.5 million on equity investments, €0.3 million on profits on disposals, and the remaining portion attributable to the measurement of loans). Other increases – in addition to changes in fair value related to the performance of lending for the period – include €7 million related to equity instruments arising from the conversion of loans. Redemptions include the repayment of credit positions in the amount of €12.2 million. Losses recognised through profit and loss are mainly represented by losses on equity investments (€2.3 million) and negative valuations of defaulted loans (€13.1 million). Other decreases include the equity investment in Nexi SpA in the amount of €11.3 million, in consideration of the fact that the company began and completed its public listing process during the first half of the year. Lastly, it includes €2.9 million attributable to UBI Leasing relating to quota of a UCITS fund.

Financial assets measured at fair value through other comprehensive income Among the increases, the result of the measurement of financial assets totalling €0.5 million have been recorded as profits recognised through profit and loss. The decreases are mainly attributable to the effects of the measurement of securities and equity investments included as losses recognised through profit and loss (€0.9 million), as well as to sales made during the first half of the year (€0.6 million). Other decreases include the reversal of €2.2 million relating to the Class A and B shares of the consortium company Palazzo della Fonte acquired in its entirety by UBI Banca and therefore recognised within equity investments and consolidated on a line-by-line basis.

Derivatives The decreases, in the amount of €1.6 million, are represented by the transfer to another level of a CCS derivative to hedge against currency risk.

Assets/liabilities not measured at fair value or measured at 30.6.2019 31.12.2018 fair value on a non-recurring basis

Figures in thousands of euro BV L1 L2 L3 BV L1 L2 L3

1. Financial assets measured at amortised cost 103,356,416 4,098,433 33,121,165 67,761,189 102,798,587 2,795,836 29,901,127 73,439,518 2. Tangible assets held for investment 275,929 - - 350,253 257,931 - - 335,458 3. Non-current assets and disposal groups held for sale 7,349 - - - 2,972 - - - Total 103,639,694 4,098,433 33,121,165 68,111,442 103,059,490 2,795,836 29,901,127 73,774,976 1. Financial liabilities measured at amortised cost 111,840,625 19,186,111 4,846,611 87,853,037 109,445,664 17,096,164 6,434,671 85,493,786 2. Liabilities associated with assets held for sale ------Total 111,840,625 19,186,111 4,846,611 87,853,037 109,445,664 17,096,164 6,434,671 85,493,786

Information on “day-one profit/loss”

The information relates to differences between transaction prices and the value obtained by using measurement techniques that emerge on initial recognition and that are not immediately recognised through profit or loss on the basis of paragraph B5.1.2 A of IFRS 9. Given the above, we report that in the period in question the UBI Banca Group has not performed any transactions for which a difference between the purchase price and the value of the instrument obtained using internal measurement techniques has arisen on initial recognition.

183 183 The scope of consolidation

The companies that formed part of the consolidation as at 30th June 2019 are listed below, divided into subsidiaries (consolidated line-by-line) and associates (consolidated using the equity method). The percentage of control or ownership attributable to the Group (direct or indirect), their headquarters (registered address or operating headquarters) and the share capital are also given for each of them.

Fully consolidated companies (control is by the Parent of the Group where no other indication is given):

1. Unione di Banche Italiane Spa - UBI Banca (Parent) registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €2,843,177,160.24 2. UBI Trustee Sa (100% controlled) registered address: 37/A, Avenue J.F. Kennedy, L – Luxembourg – share capital: €250,000 3. Prestitalia Spa (100% controlled) registered address: Bergamo, Via A. Stoppani, 15 – share capital: €205,722,715 4. IW Bank Spa (100% controlled) registered address: Milan, Piazzale F.lli Zavattari, 12 – share capital: €67,950,000 5. Centrobanca Sviluppo Impresa Spa1 - in liquidation (100% controlled) registered address: Milan, Corso Europa, 16 – share capital: €2,000,000 6. Pramerica SGR Spa (65% controlled) operating headquarters: Milan, Via Monte di Pietà, 5 – share capital: €19,955,465 7. Pramerica Management Company Sa (100% controlled by Pramerica SGR) registered address: 37/A, Avenue J.F. Kennedy, L – Luxembourg – share capital: €125,000 8. UBI Leasing Spa (100% controlled) registered address: Brescia, Via Cefalonia, 74 – share capital: €644,952,808 9. Unione di Banche Italiane per il Factoring Spa - UBI Factor Spa (100% controlled) registered address2: Milan, Via Cavriana, 20 – share capital: €36,115,820 10. BPB Immobiliare Srl (100% controlled) registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €185,680,000 11. Palazzo della Fonte SCpA (99.8814% controlled and 0.1186% held by BancAssurance Popolari) registered address: Arezzo, Corso Italia, 177 – share capital: €33,727,000 12. BancAssurance Popolari Spa (“BAP Vita e Previdenza Spa”, 100% controlled) registered address2: Milan, Via Monte di Pietà, 7 – share capital: €61,080,900 13. Oro Italia Trading Spa - in liquidation (100% controlled) registered address: Arezzo, Via P. Calamandrei, 255 – share capital: €500,000 14. Kedomus Srl (100% controlled) registered address: Brescia, Via Cefalonia, 74 – share capital: €300,000 15. UBI Sistemi e Servizi Scpa3 – Consortium Stock Company (91.9362% controlled and 4.3141% interest held by IW Bank; 1.4385% held by Pramerica SGR; 0.7192% held by UBI Factor; 0.0719% held by Prestitalia and by BancAssurance Popolari ; and 0.0097% held by UBI Academy) registered address: Brescia, Via Cefalonia, 62 – share capital: €36,149,948.64

1 With a note dated 12th January 2018, the Bank of Italy removed this company from the register of asset management companies. As already reported, this asset management company managed the Sviluppo Imprese Fund, which was liquidated on 16th August 2016. 2 UBI Factor transferred its headquarters from Via Fratelli Gabba, 1 to Via Cavriana, 20, also in Milan as of 8th March 2019. BancAssurance Popolari transferred its headquarters from Arezzo, Via P. Calamandrei, 255 to Milan, Via Monte di Pietà, 7 as of 11th June 2019. 3 The Group holds a controlling 98.5615% interest in the share capital of UBI.S; the remaining 1.4385% is held by Cargeas Assicurazioni Spa (the former UBI Assicurazioni Spa).

184 16. UBI Academy SCRL - Limited Consortium Company (88% controlled and 3% held by: IW Bank and UBI.S; 1.5% held by: Pramerica SGR, UBI Leasing, UBI Factor and Prestitalia) registered address: Bergamo, Via f.lli Calvi, 9 – share capital: €100,000 17. UBI Finance Srl4 (60% controlled) registered address: Milan, Foro Bonaparte, 70 – share capital: €10,000 18. UBI Finance CB 2 Srl5 (60% controlled) registered address: Milan, Foro Bonaparte, 70 – share capital: €10,000 19. 24-7 Finance Srl6 20. UBI Finance 2 Srl - in liquidation7 21. UBI SPV Group 2016 Srl8 22. UBI SPV Lease 2016 Srl9 23. Mecenate Srl10 (95% controlled) registered address: Arezzo, Via P. Calamandrei, 255 – share capital: €10,000 24. Marche M6 Srl11 25. Focus Impresa12

Companies consolidated using the equity method (the investment is by the Parent where no other indication is given):

1. Aviva Vita Spa (20% interest held) registered address: Milan, Via A. Scarsellini, 14 – share capital: €155,000,000 2. Lombarda Vita Spa (40% interest held) registered address: Brescia, Corso Martiri della Libertà, 13 – share capital: €185,300,000 3. Polis Fondi SGRpA (19.6% interest held) registered address: Milan, Via Solferino, 7 – share capital: €5,200,000 4. Zhong Ou Asset Management Co. Ltd (25% interest held13) registered address: 5th Floor, 333 Lujiazui Ring Road, Shanghai 200120 (China) share capital: yuan/renminbi 220,000,000

4 A special purpose entity in accordance with Law No. 130/1999, this company, enrolled on the general list of intermediaries pursuant to Art. 106 of the Consolidated Banking Law, was formed on 18th March 2008 to allow UBI Banca to implement the first programme to issue covered bonds backed by residential mortgages. 5 A special purpose entity in accordance with Law No. 130/1999, this company, enrolled on the general list of intermediaries pursuant to Art. 106 of the Consolidated Banking Law, was formed on 20th December 2011 to allow UBI Banca to implement a second programme to issue covered bonds backed mainly by commercial non-residential mortgages. 6 A special purpose entity used in compliance with Law No. 130/1999 for the securitisations of the former B@nca 24-7 performed in 2008. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by a Group member company. UBI Banca holds a 10% stake. 7 A special purpose entity used in accordance with Law No. 130/1999 for the securitisation of a portfolio of Banco di Brescia performing loans at the beginning of 2009. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by a Group member company. UBI Banca holds a 10% stake. The securitisation was closed down in May 2014. A Shareholders’ Meeting held on 26th February 2015 resolved to put the entity into early voluntary liquidation (with the relative records filed with the Company Registrar on 16th March 2015). 8 A special purpose entity formed in accordance with Law No. 130/1999 for the securitisation of residential mortgages recognised on the books of the former network banks (BPB, BBS, BPCI, BRE, BPA, Carime) carried out in August 2016. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by a Group member company. UBI Banca holds a 10% stake. 9 A special purpose entity formed in accordance with Law No. 130/1999 for the securitisation of performing loans by UBI Leasing in July 2016. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by a Group member company. UBI Banca holds a 10% stake. 10 A special purpose entity used in accordance with Law No. 130/1999 for the former Banca dell’Etruria e del Lazio securitisations performed in 2007, 2009 and 2011, relating to performing residential mortgages. The securitisations structured in 2009 and 2011 were closed down. 11 A special purpose entity formed in accordance with 130/1999 for a former Banca delle Marche securitisation performed in 2013 of the RMBS type, concerning a portfolio of performing residential mortgage loan agreements. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by a Group member company. The Group holds no equity interests in this company. 12 This is a closed-end fund, reserved for “qualified investors” recognised within financial assets measured at FVTPL [balance sheet Item 20 c)], consolidated in relation to an investment that had been made by the former Banca delle Marche and to the predominant position exercised in shareholders meetings by subscribers of the fund (80.7692% of the shares held). 13 On the basis of agreements reached at the end of 2013, 1.7% of the share capital was recognised within assets held for sale. In January 2019 the Company increased its share capital from 188 million to 220 million yuan/renminbi. The operation was concluded by the conversion of capital reserves and it therefore had no dilutive effect on the stake held by UBI Banca, which remained unchanged.

185 5. SF Consulting Srl (35% interest held) operating headquarters: Mantova, Via P.F. Calvi, 40 – share capital: €93,600 6. UFI Servizi Srl (23.1667% interest held by Prestitalia) registered address: Rome, Via G. Severano, 24 – share capital: €150,000 7. Montefeltro Sviluppo SCRL (26.3699% interest held) registered address: Urbania (PU), Via A. Manzoni, 25 – share capital: €73,000

Changes in the scope of consolidation

The scope of consolidation underwent the changes reported below compared with 31st December 2018.

• UBI SPV BBS 2012 Srl - in liquidation, UBI SPV BPCI 2012 Srl - in liquidation and UBI SPV BPA 2012 Srl - in liquidation: these three special purpose entities were formed, in accordance with Law No. 130/1999, for the securitisation of performing loans to SMEs of some former network banks (Banco di Brescia, Banca Popolare Commercio e Industria and Banca Popolare di Ancona) carried out in the last part of 2012. They were put into voluntary liquidation in accordance with company records filed with the Company Registrar on 15th May 2018 after respective Shareholders’ Meetings had resolved to voluntarily wind the companies up on 9th May. They formed part of the scope of consolidation because they were in reality controlled, since their assets and liabilities were originated by Group companies. UBI Banca held a 10% interest in each of them. In March 2019 (20th March for UBI SPV BBS 2012 and 21st March for the other two companies) the liquidation procedures were concluded with the removal of the three companies from the Register of Companies;

• Bancassurance Popolari Danni Spa: as already anticipated in the Annual Report and consistent with the Group’s strategic and business framework, this company transferred almost the whole of its non-life sector policy portfolio to Cargeas Assicurazioni Spa on 1st November 2018. The sale of 100% of the share capital of the company to AmTrust Italia Holdings Llc (a company belonging to the international group AmTrust Financial Services) was decided at the time of that operation. The transaction was concluded on 15th May 2019 and resulted in a profit of €208 thousand; • Assieme Srl: on 10th September 2018 in the presence of i) BancaAssurance Popolari Spa, in its capacity as the direct Parent and guarantor, and of ii) UBI Banca Spa, in its capacity as the indirect Parent and counter-guarantor, this company signed a deed for the sale of its line of business, consisting of the total assets organised for carrying on its insurance brokerage business, to Sinergie Italia Broker di Assicurazioni Srl. On the same day, an Extraordinary Shareholders’ Meeting of the company resolved its early dissolution and voluntary liquidation. This was filed with the Company Registrar of Arezzo and took place on the following 18th September. The liquidation was completed on 27th May 2019 with the removal of the company from the Register of Companies; • Marche Mutui 2 Società per la Cartolarizzazione a r.l.: on 28th May 2019 all the notes were redeemed and the MM2 securitisation was closed down (the relative loans were repurchased by UBI Banca in April 2019). As already reported, this securitisation, performed by the former Banca delle Marche in 2006 was of the RMBS type and concerned a portfolio of performing regulated mortgages backed by first mortgage guarantees. As the Group held no equity interest in it and substantial control was longer held, the company was excluded from the consolidation scope on that same date; • Palazzo della Fonte SCpA: in accordance with resolutions passed by the UBI Banca’s Management Board and its Supervisory Board on 23rd October 2018 and 13th November 2018 respectively, on 5th June 2019 the purchase by UBI Banca of all the shares and “profit-sharing equity instruments” (SFP - Strumenti Finanziari Partecipativi) of the consortium not yet held by the Group was completed.

186 More specifically, approximately 91% of the capital with voting rights was acquired together with more than 5% of the capital without voting rights (this totalled over 66% of the overall capital) as well as all of the profit-sharing equity instruments. UBI Banca’s 100% equity stake is now also held through its subsidiary BAP Vita e Previdenza, which already held 0.17% of the capital with voting rights (0.12% of the overall capital, as the subsidiary holds neither shares without voting rights, nor profit-sharing equity instruments). As already reported, Palazzo della Fonte is the owner of business premises leased by UBI Banca and has been awarded a facility management contract for the management of real estate assets. UBI Banca’s original investment was obtained indirectly as a result of the acquisition of control over and subsequent merger into itself of the former Banca dell’Etruria e del Lazio Spa.

* * *

We also report that on 24th May 2019, a Shareholders’ Meeting of Centrobanca Sviluppo Impresa Spa resolved to dissolve the company in advance and put it into liquidation, with effect from the date on which the resolution was filed with the competent Company Registrar which took place on the following 4th June 2019.

187 Information on the accounts

This section contains the principal information relating to the consolidated balance sheet, financial position and income statement. The changes that occurred in the reporting period (first six months of 2019) and the operating performance for the period January-June 2019 are commented on in the Interim Management Report on consolidated operations for the period ended 30th June 2019.

As already reported, the balances as at the 30th June 2019 are published in compliance with IFRS 16 “Leases”, which superseded IAS 17 “Leases” as of 1st January 2019, and in accordance with the 6th update of Bank of Italy Circular No. 262/2005. Consistent with the provisions of the new accounting standard for entities that have opted for the use of the “modified retrospective” approach, no recalculation of the comparative figures has been carried out and, as a consequence, the income statement figures for the period ended 30th June 2018 and the balance sheet figures as at 31st December 2018 affected by the application of IFRS 16 are not fully comparable with the position as at 30th June 2019.

Explanatory tables for the consolidated income statement

1.1 Interest income and similar: composition (item 10)

Debt Other Items/Type Financing 1H 2019 1H 2018 securities transactions

Figures in thousands of euro

1. Financial assets measured at fair value through profit or loss 5,474 2,664 - 8,138 4,327 1.1 Financial assets held for trading 105 - - 105 49 1.2 Financial assets designated at fair value 63 - - 63 - 1.3 Other financial assets mandatorily measured at fair value 5,306 2,664 - 7,970 4,278 2. Financial assets measured at fair value through other comprehensive income 81,270 - X 81,270 83,496 3. Financial assets measured at amortised cost 38,812 963,130 - 1,001,942 1,027,618 3.1 Loans and advances to banks 303 4,013 X 4,316 3,217 3.2 Loans and advances to customers 38,509 959,117 X 997,626 1,024,401 4. Hedging derivatives X X (16,807) (16,807) (26,961) 5. Other assets XX110 110 88 6. Financial liabilities XXX30,016 29,908 Total 125,556 965,794 (16,697) 1,104,669 1,118,476 of which: interest income on impaired financial assets - 123,012 - 123,012 149,576 of which: interest income on finance leases - - - -

1.3 Interest and similar expense: composition (item 20)

Other Items/Type Borrowings Securities 1H 2019 1H 2018 transactions Figures in thousands of euro

1. Financial liabilities measured at amortised cost (56,586) (195,183) - (251,769) (258,844) 1.1 Due to central banks - X X - - 1.2 Due to banks (27,995) X X (27,995) (15,341) 1.3 Due to customers (28,591) X X (28,591) (30,256) 1.4 Debt securities issued X (195,183) X (195,183) (213,247) 2. Financial liabilities held for trading (203) - - (203) - 3. Financial liabilities designated at fair value - - - - - 4. Other liabilities and provisions X X (39) (39) (13) 5. Hedging derivatives X X 91,772 91,772 96,660 6. Financial assets X X X (21,815) (18,145) Total (56,789) (195,183) 91,733 (182,054) (180,342) of which: interest expense relating to lease liabilities (4,209) - - (4,209)

188 2.1 Fee and commission income: composition (item 40) 2.2 Fee and commission expense: composition (item 50)

Type of service/Amounts 1H 2019 1H 2018 Type of service/Amounts 1H 2019 1H 2018

Figures in thousands of euro Figures in thousands of euro a) guarantees granted 26,218 25,561 a) guarantees received (15,447) (8,409) c) management, trading and advisory services 505,067 506,126 c) management and trading services: (44,612) (43,677) 1. trading in financial instruments 4,007 4,833 1. trading in financial instruments (4,509) (4,991) 2. foreign exchange trading 4,190 4,171 2. foreign exchange trading (2) (2) 3. portfolio management 191,759 197,650 3. portfolio management (3,837) (3,991) 3.1. individual 32,611 36,171 3.1. own - - 3.2. collective 159,148 161,479 3.2. delegated to third parties (3,837) (3,991) 4. custody and administration of securities 4,953 3,888 4. custody and administration of securities (3,174) (3,416) 5. depository banking - - 5. placement of financial instruments (4,410) (3,015) 6. placement of securities 138,308 148,723 6. financial instruments, products and services distributed 7. receipt and transmission of orders 15,694 19,323 through indirect networks (28,680) (28,262) 8. advisory activities 5,779 4,485 d) collection and payment services (30,353) (27,630) 8.1 on investments 5,779 4,485 e) other services (20,816) (21,366) 8.2 on financial structure - - Total (111,228) (101,082) 9. distribution of third party services 140,377 123,053 9.1. portfolio management 210 320 9.1.1. individual 210 320 9.1.2. collective - - 9.2. insurance products 125,503 109,290 9.3. other products 14,664 13,443 d) collection and payment services 89,375 85,924 e) servicer activities for securitisation transactions - - f) services for factoring transactions 6,259 5,918 i) current account administration 124,200 113,791 j) other services 174,671 172,572 Total 925,790 909,892

4.1 Net trading income (loss) (item 80)

Profits from Losses from Net income Transactions/components of income Gains Losses trading trading 1H 2019

Figures in thousands of euro (A) (B) (C) (D) [(A+B)-(C+D)]

1. Financial assets held for trading 1,460 14,273 (300) (1,467) 13,966 1.1 Debt securities 950 1,086 (10) (1,219) 807 1.2 Equity securities 510 232 (290) (21) 431 1.3 Shares in UCITS - 80 - (2) 78 1.4 Financing - - - - - 1.5 Other - 12,875 - (225) 12,650

2. Financial liabilities held for trading - 1,270 (883) (100) 287 2.1 Debt securities - 1,270 (883) (100) 287 2.2 Payables - - - - - 2.3 Other - - - - -

Financial assets and liabilities : exchange rate differences X X X X (8,968)

3. Derivative instruments 257,729 54,570 (241,251) (67,549) (4,414) 3.1 Financial derivatives 257,729 54,570 (241,251) (67,549) (4,414) - on debt securities and interest rates 254,867 47,896 (235,247) (59,979) 7,537 - on equity securities and share indices 333 403 (3,555) (1,376) (4,195) - on currencies and gold X X X X (7,913) - other 2,529 6,271 (2,449) (6,194) 157 3.2 Credit derivatives - - - - - of which: natural hedges related to the fair value option X X X X - Total 259,189 70,113 (242,434) (69,116) 871

189 5.1 Net hedging income (loss): composition (item 90)

Income components/Amounts 1H 2019 1H 2018

Figures in thousands of euro

A. Income relating to: A.1 Fair value hedge derivatives 721,319 156,387 A.2 Hedged financial assets (fair value) 1,114,829 163,612 A.3 Hedged financial liabilities (fair value) 36,612 41,804 A.4 Cash flow hedge financial derivatives - - A.5 Assets and liabilities in foreign currency - - Total income from hedging activity (A) 1,872,760 361,803

B. Expense relating to: B.1 Fair value hedge derivatives (1,187,368) (207,624) B.2 Hedged financial assets (fair value) (231,718) (38,284) B.3 Hedged financial liabilities (fair value) (461,710) (120,122) B.4 Cash flow hedge financial derivatives - - B.5 Assets and liabilities in foreign currency - - Total expense from hedging activity (B) (1,880,796) (366,030)

C. Net hedging income (loss) (A - B) (8,036) (4,227)

6.1 Profit (loss) from disposal or repurchase (item 100)

Items/Income components Net profit Net profit Profits Losses 1H 2019 1H 2018 Figures in thousands of euro Financial assets 1. Financial assets measured at amortised cost 5,860 (10,080) (4,220) (14,867) 1.1 Loans and advances to banks - - - - 1.2 Loans and advances to customers 5,860 (10,080) (4,220) (14,867) 2. Financial assets measured at fair value through other comprehensive income 29,916 (1,051) 28,865 59,179 2.1 Debt securities 29,915 (1,051) 28,864 59,179 2.2 Financing 1 - 1 - Total assets (A) 35,776 (11,131) 24,645 44,312 Financial liabilities measured at amortised cost 1. Due to banks - - - - 2. Due to customers 331 - 331 112 3. Debt securities issued 118 (1,804) (1,686) (4,238) Total liabilities (B) 449 (1,804) (1,355) (4,126) Total 36,225 (12,935) 23,290 40,186

190 7.2 Net change in fair value of other financial assets and liabilities measured at fair value through profit or loss: composition of other financial assets mandatorily measured at fair value [item 110 B)]

Transactions/components of income Gains Profits on sale Losses Losses on Net income (A) (B) (C) sale (D) [(A+B) - (C+D)] Figures in thousands of euro

1. Financial assets 45,055 1,954 (13,941) (580) 32,489 1.1 Debt securities 137 111 (5) (211) 33 1.2 Equity securities 34,588 707 (2,766) (89) 32,440 1.3 Shares in UCITS 6,133 1,137 (2,737) (8) 4,524 1.4 Financing 4,198 - (8,434) (271) (4,508) 2. Financial assets: exchange rate differences XXXX10,030 Total 45,055 1,954 (13,941) (580) 42,519

8.1 Net impairment losses for credit risk relating to financial assets measured at amortised cost [item 130 a)]

Impairment losses Reversals Transactions/components of income Stages one Stage three Stages one Stage 1H 2019 1H 2018 and two and two three

Figures in thousands of euro Write-offs Other

A. Loans and advances to banks (466) - - 724 - 258 (1,458) - Financing - - - 724 - 724 (1,460) - debt securities (466) - - - - (466) 2 of which: purchased or originated credit-impaired loans ------

B. Loans and advances to customers (17,554) (38,776) (497,431) - 161,879 (391,882) (258,272) - Financing (17,256) (38,776) (497,431) - 161,879 (391,584) (258,166) - debt securities (298) - - - - (298) (106) of which: purchased or originated credit-impaired loans ------Total (18,020) (38,776) (497,431) 724 161,879 (391,624) (259,730)

8.2 Net impairment losses for credit risk relating to financial assets measured at fair value through other comprehensive income: composition [item 130 b)]

Impairment losses Reversals Transactions/components of income Stages Stages one Stage three 1H 2019 1H 2018 one and Stage three and two Figures in thousands of euro Write-offs Other two

A. Debt securities (2,508) - - 754 - (1,754) (6,610) B. Financing ------To customers ------To banks ------of which: purchased or originated credit-impaired financing ------Total (2,508) - - 754 - (1,754) (6,610)

9.1 Profits (losses) from contractual modifications without derecognition

This item which amounted to a loss of €10.4 million in the first half of 2019 incorporates the impacts of contractual modifications to financial assets which, not being of a substantial amount, (in compliance with IFRS 9 and also Group accounting practices) do not involve derecognition of the assets in question, but recognition through profit or loss of the modifications to the contractual cash flows.

191 10.1 Net insurance premiums: composition (item 160)

Premiums from insurance business 1H 2019 1H 2018 Direct work Indirect work

Figures in thousands of euro

A. Life sector A.1 Gross premiums recognised (+) 159,628 - 159,628 256,516 A.2 Premiums reinsured (-) (95) X (95) (44) A.3 Total 159,533 - 159,533 256,472

B. Non-life sector B.1 Gross premiums recognised (+) - - - 957 B.2 Premiums reinsured (-) - X - (173) B.3 Change in gross premiums reserve (+/-) - - - 411 B.4 Change in reinsurer premium reserves (+/-) - - - (6) B.5 Total - - - 1,189 C. Total net premiums 159,533 - 159,533 257,661

11.1 Balance on other income and expenses from insurance operations: composition (item 170)

1H 2019 1H 2018 Figures in thousands of euro

1. Net change in technical reserves (40,841) (135,162) 2. Claims relating to the period paid in the period (128,527) (124,482) 3. Other income and expense on insurance operations (3,917) (1,889) Total (173,285) (261,533)

12.5 Other administrative expenses: composition [item 190 b)]

1H 2019 1H 2018 Figures in thousands of euro

A. Other administrative expenses (340,961) (378,859) Rent payable (3,027) (37,319) Professional and advisory services (54,951) (59,142) Rentals hardware, software and other assets (13,975) (19,162) Maintenance of hardware, software and other assets (27,328) (26,483) Tenancy of premises (24,713) (24,545) Property maintenance (10,663) (12,263) Counting, transport and management of valuables (6,079) (6,478) Membership fees (68,766) (48,737) Information services and land registry searches (4,913) (6,074) Books and periodicals (537) (617) Postal (6,475) (7,687) Insurance premiums (14,701) (16,044) Advertising (10,433) (11,072) Entertainment expenses (480) (534) Telephone and data transmission expenses (24,208) (25,704) Outsourced services (27,609) (30,342) Travel expenses (8,435) (10,048) Credit recovery expenses (16,943) (22,877) Forms, stationery and consumables (3,069) (3,360) Transport and removals (3,776) (4,129) Security (6,885) (3,497) Other expenses (2,995) (2,745) B. Indirect taxes (133,477) (139,807) Indirect taxes and duties (5,198) (6,069) Stamp duty (103,324) (108,680) Municipal property tax (12,233) (11,636) Other taxes (12,722) (13,422) Total (474,438) (518,666)

192 Explanatory tables for the consolidated balance sheet

ASSETS

2.1 Financial assets held for trading: composition by type [asset item 20. a)]

Items/Amounts 30.6.2019 Total31.12.2018 Total

Figures in thousands of euro L1 L2 L3 L1 L2 L3

A. On-balance sheet assets 1. Debt securities 28,085 214 100 28,399 340 208 100 648 1.1 Structured securities 27,746 27 100 27,873 1 32 100 133 1.2 Other debt securities 339 187 - 526 339 176 - 515 2. Equity securities 5,385 - 2 5,387 4,725 - 26 4,751 3. Shares of UCITS - - - - 1 - - 1 4. Financing ------4.1 Repurchase agreements ------4.2 Other ------Total (A) 33,470 214 102 33,786 5,066 208 126 5,400

B. Derivative instruments 1. Financial derivatives 666 415,550 78,101 494,317 1,070 318,532 80,714 400,316 1.1 for trading 666 415,550 9,324 425,540 1,070 318,532 8,625 328,227 1.2 connected with fair value options ------1.3 other - - 68,777 68,777 - - 72,089 72,089 2. Credit derivatives ------2.1 for trading ------2.2 connected with fair value options ------2.3 other ------Total (B) 666 415,550 78,101 494,317 1,070 318,532 80,714 400,316 Total (A+B) 34,136 415,764 78,203 528,103 6,136 318,740 80,840 405,716

2.3 Financial assets designated as at fair value: composition by type [asset item 20. b)]

Items/Amounts 30.6.2019 Total 31.12.2018 Total

Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Debt securities 10,054 - - 10,054 11,028 - - 11,028 1.1 Structured securities ------1.2 Other debt securities 10,054 - - 10,054 11,028 - - 11,028 2. Financing ------2.1 Structured ------2.2 Other ------Total 10,054 - - 10,054 11,028 - - 11,028

2.5 Other financial assets mandatorily measured at fair value: composition by type [asset item 20. c)]

Items/Amounts 30.6.2019 Total31.12.2018 Total

Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Debt securities 85,784 28,049 48,365 162,198 63,261 34,572 48,087 145,920 1.1 Structured securities 2,953 27,427 48,365 78,745 2,942 33,970 48,087 84,999 1.2 Other debt securities 82,831 622 - 83,453 60,319 602 - 60,921 2. Equity securities 55,787 223 203,768 259,778 22,241 2,377 200,729 225,347 3. Shares of UCITS 191,403 185,551 40,479 417,433 154,454 192,184 40,564 387,202 4. Financing - 123,557 159,851 283,408 - 124,403 163,913 288,316 4.1 Repurchase agreements ------4.2 Other - 123,557 159,851 283,408 - 124,403 163,913 288,316 Total 332,974 337,380 452,463 1,122,817 239,956 353,536 453,293 1,046,785

193 3.1 Financial assets measured at fair value through other comprehensive income: composition by type (asset item 30)

Items/Amounts 30.6.2019 Total 31.12.2018 Total

Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Debt securities 11,474,054 99,280 - 11,573,334 10,589,504 87,810 - 10,677,314 1.1 Structured securities 1,034,770 7,439 - 1,042,209 714,515 6,688 - 721,203 1.2 Other debt securities 10,439,284 91,841 10,531,125 9,874,989 81,122 9,956,111 2. Equity securities - - 45,436 45,436 - - 48,850 48,850 3. Financing ------15 15 Total 11,474,054 99,280 45,436 11,618,770 10,589,504 87,810 48,865 10,726,179

4.1 Financial assets measured at amortised cost: composition of loans and advances to banks by type [asset item 40. a) ]

30.6.2019 31.12.2018 Type of transaction/Amounts Carrying amount Fair value Carrying amount Fair value of which: of which: purchased purchased Stages one or Stages one or Stage three L1 L2 L3 Stage three L1 L2 L3 and two originated and two originated credit- credit- Figures in thousands of euro impaired impaired

A. Loans and advances to central banks 10,353,201 - - - - 10,353,201 8,204,801 - - - - 8,204,801 1. Term deposits - - - X X X - - - X X X 2. Compulsory reserve requirement 10,353,181 - - X X X 8,204,801 - - X X X 3. Reverse repurchase agreements - - - X X X - - - X X X 4. Other 20 - - X X X - - - X X X

B. Loans and advances to banks 2,190,860 - - 154,780 111 2,039,946 1,861,080 - - - 113 1,860,964 1. Financing 2,039,949 - - - 3 2,039,946 1,860,971 - - - 7 1,860,964 1.1 Current accounts and sight 933,070 - - X X X 744,727 - - X X X 1.2. Term deposits 9,494 - - X X X 10,869 - - X X X 1.3. Other financing: 1,097,385 - - X X X 1,105,375 - - X X X - Reverse repurchase agreements - - - X X X 12 - - X X X - Finance leases - - - X X X - - - X X X - Other 1,097,385 - - X X X 1,105,363 - - X X X 2. Debt securities 150,911 - - 154,780 108 - 109 - - - 106 - 2.1 Structured securities ------2.2 Other debt securities 150,911 - - 154,780 108 - 109 - - - 106 - Total 12,544,061 - - 154,780 111 12,393,147 10,065,881 - - - 113 10,065,765

4.2 Financial assets measured at amortised cost: composition of loans and advances to customers by type [asset item 40. b)]

30.6.2019 31.12.2018 Type of transaction/Amounts Carrying amount Fair value Carrying amount Fair value of which: of which: purchased purchased Stages one or Stages one or Stage three L1 L2 L3 Stage three L1 L2 L3 and two originated and two originated credit- credit-

Figures in thousands of euro impaired impaired

1. Financing 80,761,916 5,312,235 542,932 - 33,116,732 54,812,798 83,011,632 5,975,964 597,121 - 29,901,014 62,740,411 1.1. Current account overdrafts 6,339,048 563,590 123,651 X X X 6,951,328 613,160 134,164 X X X 1.2. Reverse repurchase agreements - - - X X X - - - X X X 1.3. Mortgages 54,539,858 3,489,261 305,645 X X X 55,500,752 3,771,400 343,941 X X X 1.4. Credit cards, personal loans and salary-backed loans 3,561,346 63,823 2,850 X X X 3,403,660 81,995 3,095 X X X 1.5. Finance leases 4,999,244 698,876 56,467 X X X 5,203,961 819,427 58,922 X X X 1.6. Factoring 1,957,215 65,412 - X X X 2,309,088 215,404 - X X X 1.7. Other financing 9,365,205 431,273 54,319 X X X 9,642,843 474,578 56,999 X X X

2. Debt securities 4,738,204 - - 3,943,653 4,322 555,244 3,745,110 - - 2,795,836 - 633,342 2.1. Structured securities ------2.2. Other debt securities 4,738,204 - - 3,943,653 4,322 555,244 3,745,110 - - 2,795,836 - 633,342 Total 85,500,120 5,312,235 542,932 3,943,653 33,121,054 55,368,042 86,756,742 5,975,964 597,121 2,795,836 29,901,014 63,373,753

194 5.1 Hedging derivatives: composition by type of hedge and by level (asset item 50)

FV 30.6.2019NA FV 31.12.2018 NA 30.6.2019 31.12.2018 L1 L2 L3 L1 L2 L3 Figures in thousands of euro

A. Financial derivatives - 22,452 - 27,671,252 - 42,479 1,605 23,057,090 1) Fair value - 20,973 - 27,646,873 - 42,479 - 23,032,269 2) Cash flow - 1,479 - 24,379 - - 1,605 24,821 3) Foreign investments ------

B. Credit derivatives ------1) Fair value ------2) Cash flow ------Total - 22,452 - 27,671,252 - 42,479 1,605 23,057,090

Property, plant and equipment

9.1 Property, plant and equipment for functional use: composition of assets measured at cost (asset item 90)

Assets/amounts 30.6.2019 31.12.2018 In application of the standard IFRS 16 “Leases”, Figures in thousands of euro as of 1st January this item includes those 1. Owned assets 1,759,150 1,666,706 assets, almost entirely buildings, defined as a) land 866,805 840,542 b) buildings 702,148 636,505 right-of-use assets, previously excluded from c) furnishings 48,106 44,521 leased assets because they were classified as d) electronic equipment 82,576 83,429 rented assets, with consequent recognition e) other 59,515 61,709 through profit or loss. See the Explanatory 2. Right-of-use leased assets 471,629 27,689 Notes to the Condensed Interim Consolidated a) land 15,946 15,946 b) buildings 438,798 11,743 Financial Statements as at and for the period c) furnishings - - ended 30th June 2019 for further details. d) electronic equipment 13,392 - e) other 3,493 - Total 2,230,779 1,694,395 of which: obtained through the enforcement of guarantees received 41,402 37,523

9.2 Tangible assets held for investment: composition of assets measured at cost (asset item 90)

30.6.2019 31.12.2018 Assets/amounts Carrying Fair value Carrying Fair value Figures in thousands of euro amount L1 L2 L3amount L1 L2 L3

1. Owned assets 275,745 - - 350,066 257,745 - - 335,270 a) land 153,518 - - 188,825 154,618 - - 193,639 b) buildings 122,227 - - 161,241 103,127 - - 141,631

2. Right-of-use leased assets 184 - - 187 186 - - 188 a) land 33 - - 33 33 - - 33 b) buildings 151 - - 154 153 - - 155 Total 275,929 - - 350,253 257,931 - - 335,458 of which: obtained through the enforcement of guarantees received ------

195 Intangible assets

Composition of the item "Goodwill"

30.6.2019 31.12.2018 Figures in thousands of euro

UBI Banca Spa 1,195,840 1,195,840 Pramerica SGR Spa 170,284 170,284 IW Bank Spa 88,754 88,754 UBI Factor Spa 8,260 8,260 UBI Sistemi e Servizi SCpA 2,122 2,122 Total 1,465,260 1,465,260

Commitments to purchase property, plant and equipment and intangible assets

9.9 Commitments to purchase property, plant and equipment

30.6.2019 31.12.2018 Figures in thousands of euro

A. Assets for functional use 1.1 owned: 82,477 108,024 - land - - - buildings 45,112 94,438 - furnishings 3,857 290 - electronic equipment 24,491 - - other 9,017 13,296 1.2 through finance leases: - - - land - - - buildings - - - furnishings - - - electronic equipment - - - other - - Total A 82,477 108,024

B. Investment property 2.1 owned: - - - land - - - buildings - - 2.2 through finance leases: - - - land - - - buildings - - Total B - - Total (A+B) 82,477 108,024

196 LIABILITIES

1.1 Financial liabilities measured at amortised cost: composition of amounts due to banks by type [liability item 10. a)]

30.6.2019 31.12.2018 Type of transaction/Amounts for the Group Fair value Fair value BV BV Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Due to central banks 12,355,361 X X X 12,380,250 X X X

2. Due to banks 4,697,811 X X X 4,854,329 X X X 2.1 Current accounts and sight deposits 947,638 X X X 715,782 X X X 2.2 Term deposits 27,151 X X X 84,618 X X X 2.3 Financing 3,680,420 X X X 3,998,518 X X X 2.3.1 Repurchase agreements 2,237,701 X X X 2,460,728 X X X 2.3.2 Other 1,442,719 X X X 1,537,790 X X X 2.4 Amounts due for commitments to repurchase own equity instruments - X X X - X X X 2.5 Lease liabilities 15 X X X - XX X 2.6 Other payables 42,587 X X X 55,411 X X X Total 17,053,172 - - 16,988,809 17,234,579 - - 17,064,259 Totale 0 0

1.2 Financial liabilities measured at amortised cost: composition of amounts due to customers by type [liability item 10. b)]

30.6.2019 31.12.2018 Type of transaction/Amounts for the Group Fair value Fair value BV BV Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Current accounts and sight deposits 66,928,796 X X X 65,887,975 X X X 2. Term deposits 801,065 X X X 977,078 X X X 3. Financing 1,623,636 X X X 513,092 X X X 3.1 Repurchase agreements 1,317,254 X X X 239,639 X X X 3.2 Other 306,382 X X X 273,453 X X X 4. Amounts due for commitments to repurchase own equity instruments - X X X - X X X 5. Lease liabilities 409,855 - 6. Other payables 1,077,021 X X X 1,043,242 X X X Total 70,840,373 - - 70,846,274 68,421,387 - - 68,409,267

1.3 Financial liabilities measured at amortised cost: composition of debt securities issued by type [liability item 10. c)]

30.6.2019 31.12.2018 Type of securities / Amounts Fair value Fair value BV BV Figures in thousands of euro L1 L2 L3 L1 L2 L3

A. Securities 1. Bonds 23,743,103 19,186,111 4,642,634 17,954 23,422,397 17,096,164 6,067,370 20,260 1.1 structured 3,797,494 2,193,879 1,635,895 16,200 2,943,357 2,090,203 760,812 18,553 1.2 other 19,945,609 16,992,232 3,006,739 1,754 20,479,040 15,005,961 5,306,558 1,707 2. Other securities 203,977 - 203,977 - 367,301 - 367,301 - 2.1 structured ------2.2 Other 203,977 - 203,977 - 367,301 - 367,301 - Total 23,947,080 19,186,111 4,846,611 17,954 23,789,698 17,096,164 6,434,671 20,260

197 2.1 Financial liabilities held for trading: composition by type (liability item 20)

30.6.2019 31.12.2018 Type of transaction/Amounts Fair value Fair value NA Fair value * NA Fair value * Figures in thousands of euro L1 L2 L3 L1 L2 L3

A. On-balance sheet liabilities 1. Due to banks ------2. Due to customers 26,800 27,901 - - 27,901 - - - - - 3. Debt securities ------3.1 Bonds ------3.1.1 Structured - - - - X - - - - X 3.1.2 Other bonds - - - - X - - - - X 3.2 Other securities ------3.2.1 Structured - - - - X - - - - X 3.2.2 Other - - - - X - - - - X Total A26,800 27,901 - - 27,901 - - - - -

B. Derivative instruments 1. Financial derivatives - 90 543,508 - 543,598 - 123 410,823 31 410,977 1.1 for trading X 90 543,508 - X X 123 410,823 31 X 1.2 connected with fair value options X - - - X X - - - X 1.3 other X - - - X X - - - X 2. Credit derivatives ------2.1 for trading X - - - X X - - - X 2.2 connected with fair value options X - - - X X - - - X 2.3 other X - - - X X - - - X Total B X 90 543,508 - X X 123 410,823 31 X Total (A+B) X 27,991 543,508 - X X 123 410,823 31 X

* Fair value calculated excluding changes in value resulting from a change in the credit rating of the issuer since the date of issue

3.1 Financial liabilities designated at fair value: composition by type (liability item 30)

30.6.2019 31.12.2018 Type of transaction/Amounts Fair value Fair value NA Fair value * NA Fair value * Figures in thousands of euro L1 L2 L3 L1 L2 L3

1. Due to banks ------1.1 Structured - - - - X - - - - X 1.2 Other - - - - X - - - - X of which: - loan commitments - X X X X - X X X X - financial guarantees granted - X X X X - X X X X

2. Due to customers 149,871 - 149,871 - 149,871 105,836 - 105,836 - 105,836 2.1 Structured - - - - X - - - - X 2.2 Other 149,871 - 149,871 - X 105,836 - 105,836 - X of which: - - - loan commitments - X X X X - X X X X - financial guarantees granted - X X X X - X X X X

3. Debt securities ------3.1 Structured - - - - X - - - - X 3.2 Other - - - - X - - - - X Total 149,871 - 149,871 - 149,871 105,836 - 105,836 - 105,836

* Fair value calculated excluding changes in value resulting from a change in the credit rating of the issuer since the date of issue

4.1 Hedging derivatives: composition by type of hedge and by level (liability item 40)

30.6.2019 31.12.2018 NA Fair value NA Fair value Figures in thousands of euro L1 L2 L3 L1 L2 L3

A) Financial derivatives 20,211,894 - 230,655 - 18,866,020 - 110,801 - 1) Fair value 20,211,894 - 230,655 - 18,866,020 - 110,801 - 2) Cash flow ------3) Foreign investments ------

B. Credit derivatives ------1) Fair value ------2) Cash flow ------Total 20,211,894 - 230,655 - 18,866,020 - 110,801 -

198 11.1 Technical reserves: composition (liability item 110)

Direct Indirect 30.6.2019 31.12.2018 Figures in thousands of euro work work

A. Non-life sector - - - - A.1 Premium reserves - - - - A.2 Claims reserves - - - - A3. Other reserves - - - -

B. Life sector 2,070,095 - 2,070,095 1,877,449 B.1 Mathematical reserves 2,059,691 - 2,059,691 1,863,880 B.2 Reserves for sums to be paid 8,505 - 8,505 12,865 B3. Other reserves 1,899 - 1,899 704 C. Technical reserves where the investment risk is borne by the insurers - - - - C1. reserves relating to contracts on which performance is linked to investment funds and market indexes - - - - C2. reserves resulting from the management of pension funds - - - - D. Total technical reserves 2,070,095 - 2,070,095 1,877,449

199 Provisions for liabilities and charges

10.1 Provisions for risks and charges: composition (liability item 100)

Items/Components 30.6.2019 31.12.2018 Figures in thousands of euro 1. Provisions for credit risk relating to commitments and guarantees granted 51,951 64,410 2. Provisions on other commitments and guarantees granted - - 3. Company pension funds 87,892 91,932 4. Other provisions for risks and charges 275,822 348,849 4.1 litigation and tax 110,778 117,826 4.2 staff costs 50,568 62,963 4.3 other 114,476 168,060 Total 415,665 505,191

10.3 Provisions for credit risk relating to commitments and guarantees granted (liability item 100)

Provisions for credit risk relating to commitments Items/Components and guarantees granted 30.6.2019

Stage one Stage two Stage three Total Figures in thousands of euro

Commitments to pay funds 8,526 4,430 53 13,009 Financial guarantees granted 6,722 6,577 25,643 38,942 Total 15,248 11,007 25,696 51,951

10.6 Provisions for risks and charges: other provisions [liability item 100. c)]

Items/Components 30.6.2019 31.12.2018 Figures in thousands of euro

1. Provision for revocation (clawback) risks 6,230 20,176 2. Provision for defaulted bonds 1,986 2,220 3. Other provisions for risks and charges 106,260 145,664 Total 114,476 168,060

Contingent liabilities

10.7 Contingent liabilities

30.6.2019 31.12.2018 Figures in thousands of euro

for personnel litigation - - for revocation (clawback) risks 8,566 8,566 for compounding of interest 554 - for claim risks - - for tax litigation 4,536 140,157 for other litigation 945,905 910,531 Total 959,561 1,059,254

A detailed report on both ordinary litigation and tax litigation, for which provisions were made or for which contingent liabilities were identified, is given in the following sub-sections which may be consulted.

200 Litigation

Ordinary litigation

Compared to the situation presented in the Notes to the Consolidated Financial Statements as at and for the period ended 31st December 2018, which may be consulted, with reference to significant litigation for which a possible risk (or a contingent liability) has been estimated, we note that UBI LEASING has been joined as a party to the proceedings by the receivership of a bankrupt company, for the cancellation of a contract under which in 2009 the said company sold Medioleasing Spa (a company that was merged into the former Banca Adriatica) a property in the context of a sale and lease back operation (with a building yet to be constructed). The first hearing is set for 19th September 20191. A claim for a refund of payments due to the alleged breaching, by UBI BANCA (former Banca Adriatica) of the usury rate limit, as well as for damages against a pool of banks (including the former Banca Adriatica) for alleged violation of agreements contained in the Interbank Convention connected with the plaintiff company’s debt repayment plan pursuant to article 67 of the Bankruptcy Law has also been reclassified out of probable risk to possible risk. Judgment is currently reserved pending preliminary objections2.

With respect to the information reported in the financial statements, we note that the following significant legal disputes have been concluded: • a writ of summons - previously classified as a possible risk - brought by a guarantor against UBI BANCA (former Banca Adriatica), in which the guarantor requests that fiduciary guarantees granted by the Bank be declared null and void, due to the failure to establish a maximum amount guaranteed pursuant to article 1938 of the Civil Code. The proceedings were stayed and were not resumed within the time limit2; • a dispute - previously classified as a possible risk - regarding the cancellation of current account credit authorisations by UBI BANCA and subsequent disposal of pledged securities, an action which was carried out to offset debt exposures in the current account that had arisen as a result of intense trading in shares (especially foreign stocks) between 1999 and 2002, by means that are themselves the subject of a dispute. The dispute was concluded in July 2019 with a settlement agreement involving, amongst other things, the payment of the total amount agreed to the Bank by December 2019 and the withdrawal by the counterparty of the case pending; • litigation - previously classified as probable risk - with a customer of UBI FACTOR concerning the application for a declaration that the transfers of receivables performed from April 2006 were ineffective or unenforceable due to the absence of advances or lack of any connection between the advances paid and the transfers of the receivables to which they related, leading to an application for the reimbursement of the amounts received and the cancellation of the payments made by the transferor since April 2011. The litigation was concluded in April 2019 as part of a broader settlement agreement of the proceedings brought by the customer which involved the discontinuation of the case.

* * *

1 The third-party summons is linked to another position relating to UBI Banca already recorded in the financial statements as at 31st December 2018. More specifically, it relates to a summons served against the Parent (traced back to the former Medioleasing Spa) by the receivership of a bankrupt company, to declare null and void a contract under which, in 2009, the said company sold Medioleasing Spa a property in the context of a sale and lease back operation (with a building yet to be constructed) and to consequently return the building itself to the receivership, along with its present and future returns and revenue. The 18th January 2017 agreement between UBI Banca and the National Resolution Fund is applicable to this dispute (for further details see the following note). 2 For this dispute, the 18th January 2017 agreement between UBI Banca and the National Resolution Fund is applicable, given that the case concerns the operations of the New Banks prior to the acquisition. As already reported, the contract for the acquisition of the New Banks contained determined declarations, guarantees and releases from liability provided by the seller (the National Resolution Fund) in favour of UBI Banca [the guarantees and releases from liability related also to the period prior to the formation of the “Bridge Entities” (23rd November 2015) and they therefore also cover liabilities that may have originated from activities carried out by the banks (i.e. the “Old Banks”), before they were subject to resolution procedures]. This regarded, amongst other things, relations with REV Gestioni Crediti Spa and with the Atlante Fund II [as the transferors of the loans and receivables of those banks classified as bad and unlikely-to-pay (disposals of loans took place “without recourse” and therefore the seller assumed all the risks and rewards of the loans sold, IAS 39 – Derecognition)], regarding risks of a legal nature or risks in general relating to existing or threatened legal action, which is to say regarding violations of the law and any contingent liabilities.

201

In order to provide full information, we note that on 19th June 2019 the Autorità Garante della Concorrenza e del Mercato (AGCM – Italian Competition Authority) launched an investigation into UBI Banca for alleged unfair market practices relating to the sale of insurance policies offered or marketed by the Bank linked to agreements for mortgages or transferable property mortgages and the simultaneous request for information and the production of documents. On 2nd August the AGCM extended the proceedings to the opening of current accounts linked to the aforementioned contracts and requested information and documents in relation to this. The conclusion of the proceedings is scheduled for 9th November 2019, which may be postponed by the Authority for investigative purposes.

Anti-money laundering notifications

In the first half of 2019 the UBI Banca Group was not served with any “Written notifications of findings” for failure to report suspect transactions in accordance with “Anti-Money Laundering” law.

As concerns the claims for failure to report suspect transactions pursuant to Art. 35 of Legislative Decree No. 231/2007, the updates (with respect to the information reported in the Notes to the Consolidated Financial Statements as at and for the period ended 31st December 2018) are as follows: New positions - notification served by the Guardia di Finanza (Finance Police) for failure to report transactions involving credit transfers from abroad totalling €3.3 million. In the notification the Guardia di Finanza indicated that a fine of €3 thousand would be imposed. The relevant defence documents were submitted to the Ministry of Economics and Finance (MEF) within the established time limits. Updates to pre-existing positions - a fine of €70 thousand imposed in 2013 on the Bank jointly and severally (on charges dating back to 2008 for which the relevant employee was fined €120 thousand), notified to a branch manager of the former Banca Carime, regarding transactions totalling €1.2 million, against which an appeal was filed to the first instance court in 2013, which was rejected in 2015. An appeal to the appellate court was then filed and in 2016 a suspension request was rejected and the court was adjourned until final pleadings. The Rome Court of Appeal issued a ruling on 13th February 2019, against which an appeal will be lodged with the Court of Cassation. In the meantime the fine of €124,269.23 has been paid, as well as €9.5 thousand in costs to the Ministry of the Economy and Finance.

During the period, the UBI Banca Group received 14 formal notifications for non-compliance with the provisions of Title III of amended Legislative Decree No. 231/2007, for which the total maximum fine is €210 thousand. Eight of those notifications have been settled by means of payments in exchange for the cancellation of any criminal charges, while for two others, defence documents have been submitted.

Concerning the status of notifications served to the former “New Banks”, we report that no notifications were received in 2019 of alleged infractions or violations of these regulations.

Tax litigation

Tax inspections and other investigative activities On 6th December 2017 the Arezzo Police Tax Unit of the Guardia di Finanza (finance police) commenced a general tax inspection into Oro Italia Trading Spa in liquidation for the tax years 2013, 2014 and 2015. The inspection was concluded on 5th July 2018 with notification of a tax assessment report already forwarded to the Tuscany Regional Department of the Revenue Agency, responsible for making the necessary checks in preparation for the issue of a possible notice of assessment. Oro Italia Trading Spa in liquidation took advantage of the pace fiscale (tax peace agreement) regulation (pursuant to article 1 of Decree Law No. 119/2018) and ended the case without waiting for an assessment for taxes. All the requirements for the assessment were put in place in May 2019, taking account of the contractual agreements for the acquisition of the New Banks.

On 18th May 2019 the Tax Control Office of the Regional Department of Calabria of the Revenue Agency

202 undertook a tax inspection into the merged Banca Carime relating to the tax year 2016. The inspection concluded on 4th July 2019 with a written notification of findings. The appropriate internal assessments to resolve the issues arising are taking place, without waiting for an assessment for taxes.

On 20th November 2018 the Madrid Revenue Agency (Agencia Tributaria) undertook an inspection into income tax for the tax years 2014 and 2015 and VAT for the tax year 2015 at the Madrid branch of UBI Banca (which was a branch of UBI Banca International S.A. during the years in question). The inspection is still in progress. We note that the branch closed on 31st December 2018.

Assessment notices UBI BANCA SPA (FOR ITSELF AND FOR THE MERGED BANCA CARIME) AND BPB IMMOBILIARE: THE ASSIGNMENT OF IMMOBILIARE SERICO This is litigation brought by companies in UBI Banca Group (UBI Banca Spa for itself and for the merged Banca Carime Spa and BPB Immobiliare Srl) against action taken by the tax authorities designed to reclassify operations to contribute lines of property business carried out in 2003 to the company Immobiliare Serico as the disposal of real estate properties. The reclassification carried out by the tax authorities resulted in a demand for additional IRPEG (former corporate income tax) and VAT and the relative fines totalling €82.8 million plus interest. The actions brought by companies in the UBI Banca Group were successful before the courts of both first and second instance, but going through the State Attorney the tax authorities appealed the rulings made before the court of second instance to the Supreme Court of Cassation. UBI Banca Spa (for itself and for the merged Banca Carime Spa) and BPB Immobiliare Srl took advantage of the pace fiscale regulation (pursuant to article 6 of Decree Law No. 119/2018) and ended the dispute by paying approximately €989 thousand (UBI Banca Spa) and approximately €820 thousand (for BPB Immobiliare Srl). All the administrative requirements for the assessment were put in place in May 2019. UBI BANCA: 2003 IRPEG (FORMER CORPORATE INCOME TAX) In November 2011 UBI Banca Spa (the former BPU Banca) was served with a notice of assessment in relation to its tax treatment for IRPEG (former corporate income tax) purposes on the transfer of banking operations made on 1st July 2003 to the then newly formed Banca Popolare di Bergamo and Banca Popolare Commercio e Industria. In particular, the full deduction by the transferor BPU Banca of the taxed provisions for risks and charges in previous years was disputed. The Revenue Agency’s objection resulted in a demand for additional IRPEG (former corporate income tax) and the relative fines totalling €43.1 million plus interest. UBI Banca won its case in the courts of both first and second instance. The tax authorities then appealed going through the State Attorney before the Supreme Court of Cassation on 8th May 2017 and UBI Banca applied to appear in its defence within the legal time limits, taking advantage of the pace fiscale regulation (pursuant to article 6 of Decree Law No. 119/2018) and ended the dispute by paying approximately €900 thousand. All the administrative requirements for the assessment were put in place in May 2019. UBI BANCA FORMER BANCA CARIME: IRPEG AND ILOR (FORMER CORPORATION TAX-FORMER LOCAL INCOME TAX) 1996 AND 1997 This litigation regards two notices of tax assessment regarding the claimed usefulness over more than one year of costs incurred in 1996 and 1997 and fully charged to the income statement in those years. Banca Carime Spa contested these assessment notices and, in 2011, won its case at the second instance. The Revenue Agency then filed an appeal to the Supreme Court of Cassation and the Bank applied to appear in defence within the legal time limits. Following a hearing held in the Council Chamber on 10th July 2018, with a ruling deposited on 26th September 2018, the Court of Cassation accepted the appeal of the Revenue Agency and remitted the case to the Calabria Regional Tax Commission, where UBI Banca resumed the proceedings within the legal time limits (acting as the bank that acquired Banca Carime). UBI Banca took advantage of the pace fiscale regulation (pursuant to article 6 of Decree Law No. 119/2018) and ended the dispute by paying approximately €2.9 million. All the administrative requirements for the assessment were put in place in May 2019. Because Banca Carime was purchased by IntesaBCI (now Intesa SanPaolo Spa) and the tax years assessed are covered by a full contractual guarantee properly implemented in favour of UBI Banca Spa, no provision was made to cover this litigation. UBI BANCA FORMER BANCA DELLE MARCHE: MARINE LEASE “MAXI-INSTALMENT” On 23rd December 2008 the Revenue Agency of Ancona served a notice of assessment for 2003 on the then Banca delle Marche Spa, reclassifying a marine lease as a sale due to the high initial payment and therefore demanded additional VAT of €210 thousand and fines of €263 thousand, plus interest. Banca delle Marche challenged the assessment and won the first instance case. The Revenue Agency lodged an appeal against the ruling with the Marche Regional Tax Commission. UBI Banca took advantage of the pace fiscale regulation (pursuant to article 6 of Decree Law No. 119/2018) and ended the dispute by paying approximately €84 thousand. All the administrative requirements for the assessment were put in place in May 2019.

203 UBI BANCA: REGISTRATION TAX The Bologna office of the Revenue Agency issued a notice of payment to UBI Banca Spa for registration tax on a deed of pledge for quotas of an Srl (private limited liability company) and demanded additional taxes due totalling €108 thousand. UBI Banca, together with the counterparty of the deed of pledge, lodged an appeal before the Provincial Tax Commission of Bologna on 16th February 2019. The date for the hearing has yet to be scheduled. UBI BANCA (FORMER BANCA TIRRENICA) AND ORO ITALIA TRADING: 2014 VAT As part of payment of Group VAT in operation up to 31st December 2014, on 28th December 2015 Nuova Banca dell’Etruria e del Lazio and Oro Italia Trading Spa submitted an application to the Department of the Region of Tuscany of the Revenue Agency for a VAT rebate for the tax year 2014 amounting to approximately €3.2 million, which prudentially had not been deducted due to possible contestations of an alleged “carousel fraud”. The Revenue Agency denied the right to the rebate and in April 2016 the two companies appealed to the Tax Commission of the Province of Florence. The hearing, originally set for May 2017, was adjourned with no date set. UBI LEASING: RESOLUTION OF VARIOUS TAX DISPUTES FOR 2003 (IRPEG, IRAP AND VAT) AND 2004 (IRES AND IRAP) In December 2008, the Revenue Agency notified UBI Leasing Spa of two assessments for taxes containing findings regarding IRPEG (the former Italian corporate income tax), IRAP (regional production tax) and VAT for tax year 2003, and demanded additional taxes due totalling €257 thousand, plus interest and fines. These claims are related to invoices issued by two suppliers for transactions that, according to the Revenue Agency, objectively did not take place (specifically, equipment sold several times to several different companies that operate financial leasing businesses). UBI Leasing challenged these notices and won both the first and second instance court cases (the appeals to the two notices were combined into one case beginning with the first instance). In 2013, the Revenue Agency, through the State Attorney, submitted an appeal to the Supreme Court of Cassation. The Bank applied to appear in defence within the legal time limits. On 13th October 2009, the Revenue Agency notified UBI Leasing of an assessment for taxes containing findings regarding IRES (corporate income tax) and IRAP (regional production tax) for tax year 2004. This assessment report essentially concerns non-deductible depreciation and amortisation of long-term costs, provisions for impairment losses on loans implicit in financial leasing contracts (the main finding in numerical terms) and costs considered non-deductible, amounting to additional taxes due totalling €217 thousand, plus interest and fines. The leasing company accepted some of the findings and during the case the tax demand was reduced to approximately €158 thousand. UBI Leasing took advantage of the pace fiscale regulation (pursuant to article 6 of Decree Law No. 119/2018) and ended all the aforementioned disputes by paying approximately €15 thousand. All the administrative requirements for the assessment were put in place in April 2019. IW BANK: FINE FOR PARTIAL NON-PAYMENT OF BALANCE OF WITHHOLDING TAXES ON INTEREST INCOME FOR 2007 In 2010, IW Bank Spa proceeded to remedy its position for partial non-payment of the balance of withholding taxes on customers’ interest income from deposits and current accounts paid in 2007. This was accomplished by paying the full amount of withholdings deemed unpaid, plus the related interest, followed by the submission of corrections to tax returns. IW Bank still expected administrative fines to be issued, given that the time limit to submit a dutiful acknowledgement of taxes owed had lapsed. In 2011, the Revenue Agency initially imposed an administrative fine for filing inaccurate tax returns for the full amount of the undeclared withholdings (this fine was paid by IW Bank in accordance with the law), and subsequently served a further payment demand for approximately €624 thousand (30% of the withholdings not paid). The bank challenged this payment demand in the courts, and won in both the first and second instance. In 2014, the Revenue Agency filed an appeal to the Supreme Court of Cassation, and IW Bank applied to appear in defence within the legal time limits. The date for the hearing has yet to be scheduled. IW BANK: FINE FOR PARTIAL NON-PAYMENT OF WITHHOLDING TAX PAYMENTS ON ACCOUNT ON INTEREST INCOME FOR 2007 In May 2011, the Revenue Agency served IW Bank with a payment demand for approximately €102 thousand, citing an alleged insufficient payment on account of withholding taxes on interest income from deposits and current accounts paid to customers, also imposing a fine of €94 thousand plus collection fees. The dispute lies in the fact that the bank made the advance payment on withholding taxes for an amount equal to 90% of the amount due for the previous tax year, whereas the Revenue Agency contended that the appropriate payment to make was 100% of the amount due for the previous year. IW Bank challenged this payment demand in the courts, and won in both the first and second instance. In 2014, the Revenue Agency filed an appeal to the Supreme Court of Cassation, and IW Bank applied to appear in defence within the legal time limits. The date for the hearing has yet to be scheduled.

204 Segment reporting

Distribution by operating segment: income statement for the period ended 30th June 2019 Figures in thousands of euro

Corporate Centre Non-banking (Aggregate + Banking Insurance item/operating segment financial Intercompany + TOTAL (Aggregate) (Aggregate) (Aggregate) Consolidation entries except PPA)

Net interest income 558,533 109,057 25,811 229,214 922,615 Net fee and commission income 774,078 77,601 (161) (36,956) 814,562 Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities measured at fair value through profit or loss 22,175 (999) 3,852 33,908 58,936 Dividends - 893 262 6,317 7,472 Gross income 1,354,786 186,552 29,764 232,483 1,803,585 Net impairment losses for credit risk (258,669) (132,923) 2 (1,788) (393,378) Profits (losses) from contractual modifications without derecognition (10,453) 56 - (40) (10,437) Net financial income (loss) 1,085,664 53,685 29,766 230,655 1,399,770 Net income from insurance operations - - (21,679) 7,927 (13,752) Net income from banking and insurance operations 1,085,664 53,685 8,087 238,582 1,386,018 Administrative expenses (1,017,585) (65,294) (4,063) (171,606) (1,258,548) Net provisions for risks and charges (1,161) 18,080 - (17,205) (286) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (66,163) (2,813) (233) (41,295) (110,504) Other net operating income/expense 130,252 8,645 (31) 4,331 143,197 Operating expenses (954,657) (41,382) (4,327) (225,775) (1,226,141) Profits (losses) of equity investments - - 14,986 4,435 19,421 Profits (losses) on disposal of investments - 476 - 3,712 4,188 Profit (loss) before tax from continuing operations 131,007 12,779 18,746 20,954 183,486 Taxes on income for the period from continuing operations (43,767) (6,142) (1,090) 12,090 (38,909) (Profit) loss for the period attributable to minority interests - (14,098) - 440 (13,658) Profit (loss) for the period 87,240 (7,461) 17,656 33,484 130,919

The UBI Banca Group did not modify its operating segments (pursuant to IFRS 8) for the purposes of the condensed first half financial statements: banking, non-banking financial (consisting of the Group’s product companies), insurance and corporate centre. The banking segment comprises the banking line of business consisting as at 30th June 2019 primarily of UBI Banca Spa and IW Bank Spa. The non-banking financial segment mainly comprises UBI Leasing Spa, UBI Factor Spa, Pramerica SGR Spa, and Prestitalia Spa. The insurance segment comprises BancAssurance Popolari Spa (in addition to BancAssurance Popolari Danni Spa, but only for income generated until its disposal in May), Lombarda Vita Spa and Aviva Vita Spa, with the latter consolidated using the equity method. The corporate centre segment comprises UBI Banca Spa (net of its banking business, as specified above), UBI Sistemi e Servizi SCpA, BPB Immobiliare Srl, Kedomus Srl, UBI Academy SCRL, Oro Italia Trading Spa in liquidation, Focus Impresa and Palazzo della Fonte SCpA (but only for the balance sheet component since its purchase was concluded on 5th June 2019). Furthermore, that segment also includes all the consolidation entries and eliminations with the exception of entries relating to the purchase price allocation (PPA) and those relating to goodwill, allocated to the individual sectors to which they belong. The algebraic sum of the four segments identified in this manner represents the income statement and balance sheet of the UBI Banca Group as at and for the period ended 30th June 2019.

205 Net fee and commission income Figures in thousands of euro

Corporate Centre Non-banking (Aggregate + Banking Insurance item/operating segment financial Intercompany + TOTAL (Aggregate) (Aggregate) (Aggregate) Consolidation entries except PPA)

a) guarantees granted 24,819 (1,533) - (12,515) 10,771 c) management, trading and advisory services 338,885 90,365 (1,209) 32,414 460,455 1. trading in financial instruments 4,343 - - (4,845) (502) 2. foreign exchange trading 3,736 - - 452 4,188 3. portfolio management - 188,466 - (544) 187,922 4. custody and administration of securities 4,744 - (133) (2,832) 1,779 6. placement of securities 212,226 (98,603) (1,076) 21,351 133,898 7. receipt and transmission of orders 14,684 - - 1,010 15,694 8. advisory activities 2,661 196 - 2,922 5,779 9. distribution of third party services 96,491 306 - 14,900 111,697 d) collection and payment services 52,140 (337) (61) 7,280 59,022 f) services for factoring transactions - 6,259 - - 6,259 i) current account administration 134,408 - - (10,208) 124,200 j) other services 223,826 (17,153) 1,109 (53,927) 153,855 Total net fee and commission income 774,078 77,601 (161) (36,956) 814,562

Net fee and commission income of the Group is attributable almost entirely to the banking segment (over 95%) and more specifically it relates to the following activities: (i) placement of securities, (ii) distribution of third party services, (iii) collection and payment services and (iv) current account administration. The non-financial segment earns fees and commissions relating to portfolio management and the placement of securities, which is mainly intragroup business with the preceding banking segment. Further details are given in the tables reported in the section “Information on the accounts – Explanatory tables for the consolidated income statement”.

Other operating income and expense consists almost totally of income relating primarily to the banking segment (91% approx.) and more specifically it consists of (i) recovery of taxes, (ii) fast credit processing fees and (iii) charging third parties for deposit and current account expenses. Income earned by the non- banking financial segment, which is markedly less, relates to recoveries of expenses and charges on lease contracts and tax recoveries.

Distribution by operating segment: balance sheet as at 30th June 2019 Figures in thousands of euro

Corporate Centre Non-banking (Aggregate + Banking Insurance item/operating segment financial Intercompany + TOTAL (Aggregate) (Aggregate) (Aggregate) Consolidation entries except PPA)

Financial assets measured at amortised cost - loans and advances to banks - - 18,839 5,196,563 5,215,402 Financial liabilities measured at amortised cost - due to banks - 9,724,513 - - 9,724,513 Other net financial assets 283,408 26,264 2,138,582 10,255,588 12,703,842 Financial assets measured at amortised cost - loans and advances to customers 76,283,012 9,792,473 850 4,736,020 90,812,355 Financial liabilities measured at amortised cost - due to customers 69,400,577 152,516 - 1,287,280 70,840,373 Financial liabilities measured at amortised cost - debt securities issued 19,338,670 75,034 10,339 4,523,037 23,947,080 Technical reserves - - 2,070,095 - 2,070,095 Equity-accounted investees - 45 229,062 37,790 266,897 Minority interests (+/-) 13 25,214 - 14,117 39,344

The items "Financial assets measured at amortised cost – Loans and advances to banks" and "Financial liabilities measured at amortised cost – Due to banks" have been stated in the four segments on the basis of the prevailing balance and show an overall net interbank balance of -€4,509 million. The items "Financial assets measured at amortised cost – Loans and advances to banks” and “Financial liabilities measured at amortised cost – Loans and advances to banks” relating to the banking segment have been included, together with the relative consolidation entries, in the corporate centre segment.

The item "Financial assets measured at amortised cost – Loans and advances to customers” includes securities measured at amortised cost attributed to the corporate centre segment, along the same lines as other financial assets.

206

The item “Net financial assets” includes loans and receivables mandatorily measured at fair value (i.e. loans and receivables that have failed the SPPI test set by IFRS 9) and have been attributed to the banking segment along the same lines as other loans and receivables.

The item "Minority interests" in the banking, non-banking financial and insurance segments is the only portion of equity and of the profit for the period of the companies not wholly owned. It does not include minority interests of equity investments and the part of consolidated items attributable to minority interests which have been attributed to the "corporate centre".

Absolute amounts are reported for liability items.

207 Transactions with related parties pursuant to IAS 24

In compliance with IAS 24, information is provided below on balance sheet and income statement transactions between related parties of UBI Banca and Group member companies, as well as those items as a percentage of the total for each item in the consolidated financial statements.

According to IAS 24, a related party is a person or entity that is related to the entity that is preparing its financial statements (the “reporting entity”). (a) A person or close family member of that person is related to the reporting entity if that person: (i) has control or joint control over the reporting entity: (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (b) An entity is related to a reporting entity if any of the following conditions apply: (i) the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); (iii) both entities are joint ventures of the same third party; (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) the entity is a post-employment defined benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity; (vi) the entity is controlled or jointly controlled by a person identified in (a); (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); (viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.

In compliance with the regulations in force, we report that all transactions carried out by Group member companies with related parties were conducted in observance of correct principles both in substance and form, under conditions analogous to those applied for transactions with independent parties.

More specifically and in line with the organisational model of the Group, the Parent UBI Banca and some of its subsidiaries, in particular UBI Sistemi e Servizi Scpa and UBI Academy Scrl, provide the various Group member companies with a series of services governed by intragroup contracts drawn up in accordance with the principles of consistency, transparency and uniformity.

The current framework for outsourcing within the Group centralises strategic and management activities at UBI Banca, technical, operational and IT activities at UBI Sistemi e Servizi Scpa and the service for managing training at UBI Academy Scrl.

The prices agreed for the services provided under the contracts were determined on the basis of market prices or, where appropriate reference parameters could not be found in the marketplace, in accordance with the particular nature of the services provided and also in relation to the service contracts signed by UBI.S with its consortium shareholders, on the basis of the costs incurred for the services provided.

We report with regard to transactions between companies in the Group and all of its related parties, that no atypical and/or unusual transactions were performed; furthermore, no transactions of that type were even performed with counterparties that were not related parties. Atypical and/or unusual transactions, in compliance with Consob Communications No. 98015375 of 27th February 1998 and No. 1025564 of 6th April 2001, are intended to mean all those transactions which, because of their significance/importance, the nature of the counterparties, the content of the transaction (even in relation to ordinary operations), the way in which the transfer price is decided and the timing of the event (close to the end of the financial year) might give rise to doubts concerning: the correctness/completeness of the

208 information in the accounts, a conflict of interests, the security of the company’s assets and the rights of non-controlling shareholders.

The information pursuant to article 5, paragraph 8 of Consob Resolution 17221/2010 on transactions of “greater importance” concluded with related parties in the first half of 2019, is reported in the Interim Consolidated Management Report, which may be consulted.

Principal transactions with related parties in the balance sheet

Financial assets measured at fair value Financial assets measured Financial liabilities measured at amortised through profit or loss at amortised cost cost

Financial assets Other financial Financial measured at Financial assets Loans and Loans and Debt Financial assets fair value Due to Guarantees assets held mandatorily advances to advances to Due to banks securities liabilities held Commitments designated at through other customers granted for trading measured at banks customers issued for trading fair value comprehensive fair value Figures in thousands of income euro

As s ociates - - 26,657 - - 102,083 - 164,071 38,428 - 50 25,750 Senior managers (1) - - - - - 4,051 - 33,264 337 - - 555 Other related parties - - - - - 56,468 - 230,571 2,232 - 3,446 36,556 Total - - 26,657 - - 162,602 - 427,906 40,997 - 3,496 62,861

(1) A “Senior manager” is defined as “a manager with strategic responsibilities of the entity or of its parent, where a manager with strategic responsibility is defined as those who have power and responsibility for the planning, management and control of the activities of the entity including its directors”.

Percentage of related-party transactions in the consolidated balance sheet

Financial assets measured at fair value Financial assets measured at Financial liabilities measured at amortised cost through profit or loss amortised cost

Financial assets Other financial Financial measured at fair Financial assets Loans and Loans and Financial assets value through Due to Debt securities Guarantees assets held mandatorily advances to advances to Due to banks liabilities held Commitments designated at other customers issued granted for trading measured at banks customers for trading fair value comprehensive fair value income Figures in thousands of euro

With related-parties (a) - - 26,657 - - 162,602 - 427,906 40,997 - 3,496 62,861 Total (b) 528,103 10,054 1,122,817 11,618,770 12,544,061 90,812,355 17,053,172 70,840,373 23,947,080 571,499 5,878,902 35,681,514 Percentage (a/b*100) - - 2.37% - - 0.18% - 0.60% 0.17% - 0.06% 0.18%

209 Principal transactions with related parties in the income statement

Dividends and similar Net fee and Other net operating Other administrative Net interest income Staff costs income commission income income/expense expenses Figures in thousands of euro

Associates -353 - 104,572 130 39 -953 Senior managers(1) 15 - 110 -5,960 - -15 Other related parties 525 - 1,183 -234 8 -773 Total 187 - 105,865 -6,064 47 -1,741

(1) A “Senior manager” is defined as “a manager with strategic responsibilities of the entity or of its parent, where a manager with strategic responsibility is defined as those who have power and responsibility for the planning, management and control of the activities of the entity including its directors”.

Percentage of related-party transactions in the consolidated income statement

Other Dividends and similar Net fee and Other net operating Net interest income Staff costs administrative income commission income income/expense expenses Figures in thousands of euro

With related-parties (a) 187 - 105,865 -6,064 47 -1,741 Total (b) 922,615 7,472 814,562 -784,110 143,197 -474,438 Percentage (a/b*100) 0.02% - 13.00% 0.77% 0.03% 0.37%

Principal balance sheet items with associate companies subject to significant influence

Financial assets measured at fair value Financial assets measured Financial liabilities measured at amortised through profit or loss at amortised cost cost

Other financial Other assets Financial financial Financial measured at fair Loans and Loans and Debt Financial assets assets Due to Guarantees assets held value through advances to advances to Due to banks securities liabilities held Commitments designated mandatorily customers granted for trading other banks customers issued for trading at fair value measured at comprehensive fair value income Figures in thousands of euro

Aviva Vita Spa - - - - - 81,092 - 118,355 38,428 - - - Zhoung Ou Asset Management Co. Ltd ------Lombarda Vita Spa - - - - 19,987 - 35,773 - - - 25,000 Polis Fondi SGRpA - - 26,657 - - - - 1,104 - - - - SF Consulting Srl - - - - - 1,004 - 8,788 - - - 750 UFI Servizi Srl ------Montefeltro Sviluppo ------51 - - 50 - Total - - 26,657 - - 102,083 - 164,071 38,428 - 50 25,750

Principal income statement items with associate companies subject to significant influence

Dividends and similar Net fee and Other net operating Other administrative Net interest income Staff costs income c ommis s ion inc ome income/expense expenses Figures in thousands of euro

Aviva Vita Spa -354 - 68,791 -4 6 - Zhoung Ou Asset Management Co. Ltd ------Lombarda Vita Spa 1 - 35,190 - 20 -953 Polis Fondi SGRpA ------SF Consulting Srl - - 591 134 13 - UFI Servizi Srl ------Montefeltro Sviluppo ------Total -353 - 104,572 130 39 -953

210 Events occurring after the end of the first half

No events of importance that might affect the consolidated balance sheet and the income statement presented occurred after 30th June 2019, the reporting date of this half year financial report, and until 2nd August 2019, the date of its approval by the Board of Directors of UBI Banca Spa.

The following is nevertheless reported for your information:

. 11th July 2019: information was provided during the course of customary meetings with trade union organisations relating to the Bank’s intention during the last quarter of the year to carry out closures or upgrades/downgrades in the distribution network that will involve approximately 110 branches;

. 12th July 2019: UBI Banca placed a subordinated Tier 2 note issuance on the international market under its EMTN Programme with ten-year maturity and a redemption option after five years, for €300 million to complete its issuance plan for this type of instrument through to the end of 2020, as provided for under the current funding plan. Positive perception of UBI Banca’s credit quality by the market was confirmed by solid demand for the issuance which reached four times the amount of the issuance and allowed the spread to reduce from an initial level of 510 bps to a final level of 475 bps above the five-year mid-swap rate. The issuance was allotted to over 150 investors, with the following geographical distribution: Italy (34%), United Kingdom (23%), France (15%), Germany and Austria (8%), Switzerland (7%) and others (5%). In terms of type of investor, subscriptions came mainly from investment funds (65%), banks and private banks (24%), insurance and pension funds (6%), official institutions (4%) and others (1%). The note pays a fixed coupon of 4.375%, the equivalent of a spread of 475 bps above the five-year mid-swap rate. The coupon will be paid in arrears on 12th July of each year starting from 12th July 2020;

. 22nd July 2019: again under the same EMTN Programme, UBI Banca placed a senior preferred bond issuance with a three-year maturity for €500 million. A private puttable issuance for €100 million with maturity in July 2020 was carried out on the previous 8th July;

. 22nd July 2019: the Group disclosed its acceptance of a binding offer from Credito Fondiario relating to the disposal of a portfolio of UBI Leasing receivables classified as bad loans for a gross amount of approximately €740 million (in this respect see the section entitled “Significant events in the first half 2019” in the Interim Consolidated Management Report);

. 27th July 2019: two information letters were sent to trade union organisations concerning the transfer of UBI Sistemi e Servizi Scpa lines of business (relating to central treasury, cheques, interbank transfers, interbank corporate banking, tax and pensions, payment services transfer, cards, mortgage activation and cancellation, archives, records and shipments activities), following which discussions with trade unions themselves will commence designed to define the relative repercussions on staff working in the lines of business subject to disposal;

. 30th July 2019: the rating agency Moody’s Investors Service confirmed its ratings and assessments of the Bank and at the same time it changed the outlook on the bank’s senior unsecured debt to “Stable” from “Negative”.

211

212

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

Statement on the condensed interim financial report pursuant to article 81-ter of Consob Regulation No. 11971 of 14th May 1999 and subsequent amendments and additions

1. The undersigned Victor Massiah, Chief Executive Officer, and Elisabetta Stegher, Senior Officer Responsible for preparing the company accounting documents of UBI Banca Spa, having taken account of the provisions of paragraphs 3 and 4 of article 154 bis of Legislative Decree No. 58 of 24th February 1998, hereby certify to:

. the adequacy in relation to the characteristics of the company and . the effective application of the administrative and accounting procedures for the preparation of the half year condensed financial statements, during the first half of 2019.

2. The model employed The assessment of the adequacy of the administrative and accounting procedures for the preparation of the condensed interim financial report as at and for the half year ended 30th June 2019 was based on an internal model defined by UBI Banca SpA, developed in accordance with the framework drawn up by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and with the framework Control Objectives for IT and related technology (COBIT) which represent the generally accepted international standards for internal control systems.

3. They also certify that: 3.1 the condensed interim financial report: a) was prepared in compliance with the applicable international accounting standards recognised by the European Community in accordance with the Regulation No. 1606/2002 (EC) issued by the European Parliament on 19th July 2002; b) corresponds to the records contained in the accounting books of the company; c) provides a true and fair view of the capital, operating and cash flow position of the issuer and the companies included in the scope of the consolidation. 3.2 The half year management report comprises a reliable analysis of the important events that occurred in the first six months of the year and of their impact on the half year condensed financial statements, together with a description of the main risks and uncertainties relating to the remaining six months of the year. The half year management report also comprises a reliable analysis of information on significant related party transactions.

Bergamo, 2nd August 2019

Victor Massiah Elisabetta Stegher

Chief Executive Officer Senior Officer Responsible for preparing the company accounting documents (signed on the original) (signed on the original)

216

INDEPENDENT AUDITORS’ REPORT

218 Deloitte & Touche S.p.A. Via Tortona, 25 20144 Milano Italia

Tel: +39 02 83322111 Fax: +39 02 83322112 www.deloitte.it

REPORT ON REVIEW OF THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders of Unione di Banche Italiane S.p.A.

Introduction

We have reviewed the accompanying condensed interim consolidated financial statements of Unione di Banche Italiane S.p.A. and its subsidiaries (the “Unione di Banche Italiane Group”), which comprise the consolidated balance sheet as of June 30, 2019, and the consolidated income statement, consolidated statement of comprehensive income, statement of changes in consolidated equity, consolidated statement of cash flows for the six-month period then ended and the related explanatory notes. The Directors are responsible for the preparation of the condensed interim consolidated financial statements in accordance with the International Accounting Standard applicable to the interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on the condensed interim consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with the criteria recommended by the Italian Regulatory Commission for Companies and the Stock Exchange (“Consob”) for the review of the half-yearly financial statements under Resolution n° 10867 of July 31, 1997. A review of condensed interim consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed interim consolidated financial statements of Unione di Banche Italiane Group as at June 30, 2019 are not prepared, in all material respects, in accordance with the International Accounting Standard applicable to the interim financial reporting (IAS 34) as adopted by the European Union.

DELOITTE & TOUCHE S.p.A.

Signed by Enrico Gazzaniga Partner

Milan, Italy August 8, 2019

This report has been translated into the English language solely for the convenience of international readers

Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Roma Torino Treviso Udine Verona

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220 Calendar of corporate events of UBI Banca for 2019

Date Event

Board of Directors: 8th November 2019 approval of the interim financial report as at and for the period ended 30th September 2019

The date for the presentation of the quarterly results to the financial community will be announced in due course.

Financial calendar

Contacts

All information on periodic financial reporting is available on the website www.ubibanca.it

Investor Relations: Tel. 035 392 2217 email: [email protected]

Media Relations: Tel. 02 7781 4213 / 02 7781 4938 / 02 7781 4139 email: [email protected]

Corporate & Regulatory Affairs: Tel. 035 392 2312 / 035 392 2155 email: [email protected]

Contacts