Banca Popolare di Milano : Results as at 30 June 2016 approved

BIPIEMME GROUP RESULTS AS AT 30 JUNE 2016 APPROVED NET PROFIT IN H1 2016: €158.1 MILLION, +2.6% Y/Y THANKS TO:

• STABLE NET INTEREST INCOME

• FINANCIAL RESULT: €99.6 MILLION

• LOWER COST OF RISK: 90 BPs VS. 101 BPs IN H1 2015

  SECOND QUARTER NET FROFIT: €109.8 MILLION, +€61.5 MILLION Q/Q:

• NET FEES AND COMMISSION: +0.5%

• NET FINANCIAL RESULT: €86.1 MILLION

• OPERATING COST UNDER CONTROL: -2.8%

  GOOD TREND IN VOLUMES:
• CUSTOMER LOANS: +1% Q/Q, +3.1% Y/Y

• DIRECT FUNDING (NET OF REPO1) +5.5% Q/Q, +6.4% Y/Y o/w

 SIGHT DEPOSITS2: +3.9% Q/Q, +14.3% Y/Y

 AUM: +1.9% Q/Q, +5.1% Y/Y

NPE COVERAGE UP: 40.5%, +90 BPs YEAR TO DATE AND +120 BPs Y/Y NET NPEs DOWN: (-1.8% Y/Y), STEADY FALL OVER THREE QUARTERS BPM's CAPITAL RATIOS ARE MUCH HIGHER THAN THE REGULATORY REQUIREMENTS (SREP 9%):

• COMMON EQUITY TIER1 RATIO3: 11.73% VS. 11.64% IN Q1 2016

• COMMON EQUITY TIER1 RATIO FULLY LOADED: 12.17%4

  1 Repos traded on the "MTS" repo market.

  2 Current accounts and demand savings deposits.

  3 Includes the capitalised profit from the half-year results.

  4 Includes the AFS reserves on government bonds as at 30.06.16.

  Main P&L Results:

  • Net Interest Income: €403.1 million, stable Y/Y; -4.8% Q/Q;

  • Net fees and commission: €303.3 million, -1.1% Y/Y; +0.5% Q/Q;

  • Net result from financial activities: €99.6 million, +€28.7 million Y/Y; +€72.7 million Q/Q;

  • Operating costs up 3.4% Y/Y, down 2.8% Q/Q;

  • Net profit for the period: €158.1 million, +2.6% Y/Y; +€61.5 million Q/Q.

    Main balance-sheet results:

  • Core funding5: €26.1 billion, +3.9% Q/Q; +6.7% YTD;

     AUM: €21.3 billion, +1.9% Q/Q; +1.7% YTD;

  • Customer loans: €34.5 billion, +1.0% Q/Q; +1.0% YTD;

  • Strong liquidity position both short term and mid-term;

  • Annualised cost of risk in H1 2016: 90 bps.

    Milan, 4 August 2016 - In today's meeting, the Management Board of Banca Popolare di Milano examined and approved BPM Group's results as at 30 June 2016.

    In the first half of 2016, the Italian economy still showed signs of weakness. The estimate for 2016 GDP was revised down to +0.8% from +1% (Source: Prometeia) with the estimate for the second half of the year now being a mere +0.1%. Interest rates - in the wake of the ECB's Quantitative Easing programme - are still negative, with the average Euribor 3M down to -0.27% in June.

    In addition to the negative economic situation there was the outcome of the UK's Brexit referendum. The Leave result triggered further uncertainty as fears over a possible slowdown in economic growth in the EU and the consequent increase in market volatility set in.

    Given this backdrop, Bipiemme Group's core operating trends in the first half of 2016 were more than positive. Specifically we point out:

  • P&L Results: the positive performance recorded in revenues, the basically stable net interest income and the positive financial result, as well as a lower cost of risk;
  • Balance-sheet Results:

    • the positive trend in customer loans, which have grown steadily since December 2014;

    • the good trend in AUM, up both Y/Y and Q/Q;

    • the increase in core funding and, in particular, in sight deposits (+€2.9 billion Y/Y);

  • the group's sound liquidity position, as highlighted by the significant amount of unencumbered eligible securities (€6.7 billion) and the net liquidity balance of €6.8 billion spot and more than €4 billion at 3 months6;

  • excellent capital ratios: at the end of June 2016, the bank's "Own Funds" totalled €5.0 billion and the Common Equity Tier 17 ratio was 11.73%.

BALANCE-SHEET RESULTS AS AT 30 JUNE 2016 Direct customer funding and securities issued

Direct customer funding totalled €36,790 million, down vs. both March 2016 (-1.4%) and 31 December 2015 (-2.2%). The YTD decrease reflects on the one hand the growth in sight deposits (+6.5%) and in time deposits (+11.6%) and on the other hand the decrease in wholesale funding (-€1.9 billion).

5 Current accounts + savings deposits + other technical forms.

6 Weekly liquidity report as at 26 July 2016

7 Includes the capitalised profit from the half-year results.

Specifically, "amounts due to customers" (€29,617 million) increased by 3.5% vs. December 2015, mainly due to the increase in current accounts and savings deposits (+ €1.6 billion). In particular we point out the increase in sight current accounts (+€1.4 billion), which was driven by both retail and corporate customers. On the other hand, repos were down (-€655 million) because of the fewer trades on the "MTS Repo" market, which was also due to the lower funding needs following the shrinking of the securities portfolio.

Debt securities issued totalled €7,071 million, down 20.1% vs. December 2015. Specifically we point out:

• the stock of bonds and structured securities decreased (-€853 million Q/Q) due to the redemption of a €1 billion EMTN in January 2016 and the issue of a €750 million Covered Bond, in addition to the decision of subscribers of retail bonds to change their investment strategy mainly to AUM products when their investments matured;

• the decrease in Repos on "own securities" repurchased (-€893 million) following the expiry of related transactions.

  Indirect customer loans

  Indirect customer loans as at June 2016 totalled €32,364 million, down both Q/Q (-2.0%) and vs. December 2015 (-5.0%), because of the decrease in AUC (down to €11,111 million), due to clients' decisions to move their investments to AUM, to the trend in financial markets and to the reduction in AUC zero-margin securities of corporate clients.

  Assets under management totalled €21,253 million, up 1.9% Q/Q and 1.7% vs, December 2015, and net inflows in the first half of the year were €577 million, approx. 44% in insurance products and 56% in units of UCITS/segregated accounts.

  Compared with December 2015, the positive trend in the item was due to the increase in mutual funds (+2.3%) and in insurance products (+4.1%).

  Customer loans

  Customer loans in June 2016 totalled €34,520 million, up both Q/Q and vs. December 2015 (+1.0%). Compared with December 2015, the increase was mainly in the technical forms of mortgages (+2.1%) and other forms of loans (+1.0%). A segment8 comparison with December 2015 shows:

  • retail loans: +1.2%;

  • corporate loans9 +2.3%, thanks to an overall increase in almost all the industrial sectors, particularly in services, financial and insurance activities and in manufacturing.

    The group's loans market share was 1.97% (May 2016 figure), in line with December 2015 (1.96%).

    Though there are still signs of uncertainty from a macroeconomic aspect, asset quality shows some signs of a recovery.

    Specifically, as at 30 June 2016, the group's gross NPEs totalled €6,068 million (+0.4% Q/Q), while net NPEs (€3,611 million) were down by 0.2% Q/Q. This trend confirmed the slowdown in NPE formation and the group's conservative approach to provisioning. Specifically we point out:

    • net bad loans: +0.6% Q/Q, due to the inflow of positions classified as unlikely to pay;

    • unlikely to pay: -0.3% Q/Q;

       past-due: -11.8% Q/Q.

      8 Management data by customer segment calculated at a point in time.

      9 Corporate loans include Corporate, SMEs, Small business, Specialised Lending and Real Estate Funds.

      The total coverage rate on NPEs is 40.5%, (+40 bps Q/Q). When we include cancellations carried out on single exposures the coverage rate increases to 45.2%.

      Specifically, the coverage rate on single items is significant, as shown in comparison with March 2016:

    • bad loans: 54.4% (+10 bps), which rises to 60.5% including cancellations;

    • unlikely to pay: 23.0% (+40 bps);

       past-due: 10.1% (+130 bps);

    • total coverage: 7.1% (stable).

The coverage rate on performing loans is 0.55%.

As at 30 June 2016, the group's net equity was €4,571 million.

The Common Equity Tier 1 ratio10 was 11.73%, up vs. 11.64% in March 2016; the Common Equity Tier 1 Basel 3 fully phased11 was 12.17%.

Risk weighted assets totalled €35.1 billion.

P&L RESULTS Total income

Bipiemme Group's total income as at 30 June 2016 was €839.1 million, up by 1.9% Y/Y. The trend in total income reflects the good performance in net interest income, basically stable, despite the decrease in the Euribor 3M (-25 bps Y/Y), the slight decrease in net fees and commission and the strong increase in other operating income, which was driven by the net profit from financial activities.

Specifically, net interest income was €403.1 million vs. €402.9 million in first half 2015. This item was stable despite the decrease in interest rates, which were driven by the trend in the Euribor 3M. The decrease in interest rates, which weighed on customer spreads (-17 bps Y/Y), was only partially offset by the uptick in volumes. The lower contribution from the government-bond portfolio was more than offset by the decrease in the cost of wholesale funding.

"Non-net interest income" (€436.1 million; +3.7% Y/Y) benefitted from the increase in net profit from financial activities (+€28.7 million; +40.6% Y/Y), which was mainly due to the increase in "profit/loss from disposals or repurchase of financial assets/liabilities" (+€ 45.3 million) following the capital gains from the disposal of government bonds.

The slight decrease in net fees and commission (-1.1% Y/Y) reflects the lower management fees (-8.9%) and the good increase in traditional banking commission (+7.8%).

Operating costs

The operating costs in H1 2016 totalled €497.6 million, (+3.4%) Y/Y, mostly due to the increase in staff costs.

Specifically, staff costs (€314.9 million) rose by 3.8% Y/Y mainly due to the adjustment to the national labour agreement CCNL as well as the higher national insurance, health and pension dues and to the higher variable amounts that are tied to results.

"Other administrative expenses" (€145.0 million) were stable Y/Y. Net of the SRF contribution of

€14.4 million - which totalled €12.4 million in the first half of 2015 - this item was down by 1.4% Y/Y.

Net adjustments on tangible and intangible assets totalled €37.8 million, up Y/Y by approx. 4.6 million due to the higher investments carried out in financial year 2015.