REPORT AND FINANCIAL STATEMENTS CONSOLIDATED 2017 Drawn up by the Parent company B A N C A S E L L A H O L D I N G 1 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements REPORT ON OPERATIONS Contents Map of the Group at 31 December 2017 .................................................................................................................................. 3 Corporate Officers of the Parent Company .......................................................................................................................... 4 Report on Consolidated Operations ..........................................................................................................................................6 Schedules from the Consolidated Financial Statements at 31 December 2017 ................................................... 114 Notes to the Consolidated Financial Statements .............................................................................................................. 124 Part A – Accounting Policies ...................................................................................................................................................... 125 Part B – Information on the Consolidated Balance Sheet Assets............................................................................. 177 Part B – Information on the Consolidated Balance Sheet Liabilities ....................................................................... 215 Part C – Information on the consolidated income statement .....................................................................................235 Part D – Consolidated Comprehensive Income ............................................................................................................... 259 Part E – Information on risks and related hedging policies........................................................................................ 261 Part F – Information on consolidated equity................................................................................... ..................................332 Part G – Aggregation Operations Regarding Companies Or Business Lines.....................................................343 Part H – Transactions with related parties.................................................................................... ..................................... 347 Part I – Payment Agreements Based On Own Equity Instruments......................................................................... 351 Part L – Segment information ................................................................................................................................................. 352 Report of the Board of Statutory Auditors ........................................................................................................................356 Independent Auditors’ Report ................................................................................................................................................. 361 Annexed to the Financial Statements ................................................................................................................................... 369 Note: Any lack of squaring between the figures presented is entirely due to rounding. 2 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements REPORT ON OPERATIONS Map of the Group at 31 December 2017 Other fully consolidated companies: Investee companies consolidated at Net Equity: Finanziaria 2010 S.p.A. Martin Maurel Sella Monaco S.A.M (transferred on 3 January Miret S.A. 2018) Sella Synergy India P.LTD HI-MTF Sim S.p.A Mars 2600 S.r.l. (special purpose vehicle for Group securitisation S.C.P. VDP 1 transactions) Enersel S.p.A. Sella Capital Management Sgr S.p.A. in liquidation DPixel S.r.l. 3 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements REPORT ON OPERATIONS Corporate Officers of the Parent Company BOARD OF DIRECTORS In office up to the approval of the 2018 financial statements Chairman Maurizio Sella Deputy Chairman Sebastiano Sella “ “ Giacomo Sella Honorary Deputy Chairman1 Franco Sella Chief Executive Officer Pietro Sella Director Francesca Arnaboldi “ Mario Bonzano “ Franco Cavalieri “ Massimo Condinanzi “ Jean Paul Fitoussi “ Giovanna Nicodano “ Giovanni Petrella “ Ernesto Rizzetti “ Caterina Sella “ Federico Sella RISK COMMITTEE Member - Chairman Giovanni Petrella “ Francesca Arnaboldi “ Mario Bonzano REMUNERATION COMMITTEE Member - Chairman Mario Bonzano “ Jean Paul Fitoussi “ Francesca Arnaboldi APPOINTMENTS COMMITTEE Member - Chairman Mario Bonzano “ Maurizio Sella “ Giovanni Petrella 1 the Honorary Deputy Chairman is not a member of the Board of Directors. 4 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements REPORT ON OPERATIONS BOARD OF STATUTORY AUDITORS In office up to the approval of the 2017 financial statements Regular Auditor - Chairman Pierluigi Benigno “ “ Gianluca Cinti “ “ Daniele Frè Alternate Auditor Riccardo Foglia Taverna “ “ Pier Angelo Ogliaro GENERAL MANAGEMENT General Manager Pietro Sella Co-General Manager Attilio Viola ACCOUNTING FIRM Deloitte & Touche S.p.A. 5 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements Report on Consolidated Operations 6 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements REPORT ON OPERATIONS I. Banca Sella Group – Main figures and indicators Moody’s Investor Service assigned Banca Sella Holding the following ratings: Rating - Moody's Long-term rating for deposits Baa3 Prospects Negative Short-term rating for deposits P-3 According to Moody’s, the negative outlook for the long-term deposits rating reflects the likelihood that the stock of existing liabilities eligible for bail-ins will continue to decline over time, resulting in an increase in loss given failure. DBRS assigned Banca Sella Holding the following ratings: Rating - DBRS Long-term rating BBB (low) Short-term rating R-2 (middle) Trend Stable DBRS assigned Banca Sella the following ratings: Rating - DBRS Long-term rating BBB (low) Short-term rating R-2 (middle) Trend Stable Staff and Branches (at year end) 2017 2016 2015 2014 2013 2012 2011 Employees of banking group 4,217 4,242 4,253 4,117 4,001 4,100 4,121 Employees of other companies 23 22 51 44 41 42 44 Total employees of Banca Sella Group 4,240 4,264 4,304 4,161 4,042 4,142 4,165 7 Banca Sella Group 2017 Annual Report and Consolidated Financial Statements REPORT ON OPERATIONS Branches in Italy and abroad 297 300 304 304 304 332 334 Financial advisors authorised to make off-site sales 363 359 356 331 295 292 281 Banca Sella Group Summary Data (in thousands of euro) Changes BALANCE SHEET DATA 31/12/2017 31/12/2016 absolute % Total assets 13,797,060.1 13,298,375.6 498,684.5 3.7% Financial assets (1) 2,439,515.6 2,633,322.3 (193,806.7) -7.4% Cash loans, exclusive of repurchase agreements receivable 7,887,006.1 7,802,138.6 84,867.5 1.1% repurchase agreements receivable 126,989.6 103,381.3 23,608.3 22.8% Total cash loans (2) 8,013,995.6 7,905,519.9 108,475.8 1.4% Guarantees issued 198,639.0 205,423.6 (6,784.6) -3.3% Equity investments 2,475.1 12,169.9 (9,694.8) -79.7% Non-current assets and asset groups held for sale 10,695.8 - 10,695.8 100.0% Tangible and intangible fixed assets 338,422.4 288,711.1 49,711.3 17.2% Direct deposits, exclusive of repurchase agreements payable 10,988,696.6 10,969,997.0 18,699.6 0.2% repurchase agreements payable 19,286.0 12,278.1 7,007.9 57.1% Total direct deposits (3) 11,007,982.6 10,982,275.1 25,707.5 0.2% Direct deposits from credit institutions 48,573.0 84,154.6 (35,581.6) -42.3% Indirect deposits valued at market prices 24,194,090.6 22,108,047.5 2,086,043.1 9.4% Global deposits valued at market prices (4) 35,250,646.2 33,174,306.0 2,076,340.2 6.3% Global deposits valued at market prices exclusive of Banca 35,238,150.4 33,174,306.0 2,063,844.4 6.2% Sella Holding repurchase agreements payable (4) Common Equity Tier 1 (CET 1) 931,618.4 900,789.6 30,828.8 3.4% Additional Tier 1 capital (AT 1) 17,853.2 10,329.4 7,523.8 72.8% Tier 2 (T2) 152,689.5 131,481.2 21,208.3 16.1% Total own funds 1,102,161.1 1,042,600.2 59,560.9 5.7% Changes RECLASSIFIED ECONOMIC DATA (5) 31/12/2017 31/12/2016 absolute % Net interest income 226,296.4 241,739.8 (15,443.4) -6.4% Gross revenues from services 419,875.5 376,820.6 43,054.9 11.4% Fee expenses (112,417.4) (102,264.6) (10,152.8) 9.9% Net revenues from services (net of fee expenses) (6) 307,458.2 274,556.0 32,902.1 12.0% Net banking income 533,754.6 516,295.8 17,458.7 3.4% Operating costs net of recovery of stamp duties and other (402,471.8) (390,745.7) (11,726.2) 3.0% taxes (7) Operating profit/loss 131,282.7 125,550.2 5,732.6 4.6% Net value adjustments for impairment losses (47,814.4) (82,029.8) 34,215.4 -41.7% Other economic items (9,684.5) 56,677.0 (66,361.5) -82.9% Profit (loss) for the period pertaining to Parent Company 52,204.6 79,563.1 (27,358.5) -34.4% Profit (loss) for the period pertaining to minority interests 5,730.5 14,426.8 (8,696.3) -60.3% (1) The aggregate represents the sum of the following items in the Balance Sheet Assets: item 20 "financial assets held for trading", item 40 “financial assets available for sale" and item 50 "financial assets held to maturity"; (2) Represents item 70 of the Balance Sheet assets, "due from customers" and includes net bad loans; (3) The aggregate represents the sum of the following Balance Sheet liabilities items: item 20 “due to customers”