Reports

and Financial Statements

2015Translation from the Italian original which remains the definitive version

13th financial year

Joint Stock Company Head Office and General Management Bergamo – 8, Piazza Vittorio Veneto

Operating Offices: Bergamo, 8, Piazza Vittorio Veneto; Brescia, 74, Via Cefalonia Member of the Interbank Deposit Protection Fund and the National Guarantee Fund

Tax Code, VAT No. 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 31 December 2015: EUR 2,254,371,430 fully paid up

www.ubibanca.it

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Contents

Letter from the chairmen ....................................................................................................... p. 4 UBI Banca: company officers .................................................................................................. p. 7 UBI Banca Group: the main investments as at 31st December 2015 ...................................... p. 8 UBI Banca Group: branch network as at 31st December 2015 ............................................... p. 10 UBI Banca Group: principal figures and performance indicators ............................................. p. 11 The rating .............................................................................................................................. p. 12 Notice of call .......................................................................................................................... p. 15 CONSOLIDATED FINANCIAL STATEMENTS OF THE UBI BANCA GROUP AS AT AND FOR

THE YEAR ENDED 31ST DECEMBER 2015

CONSOLIDATED MANAGEMENT REPORT ................................................................................... P. 23

▪ The macroeconomic scenario ............................................................................................. p. 24 ▪ European banking union ................................................................................................... p. 35 ▪ Significant events in 2015 ................................................................................................. p. 40 ▪ Commercial activity ........................................................................................................... p. 50 ▪ The distribution network and market positioning .............................................................. p. 73 ▪ Human resources .............................................................................................................. p. 77 ▪ The scope of the consolidation ........................................................................................... p. 84 ▪ Reclassified consolidated financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules ................. p. 88 ▪ The consolidated income statement ............................................................................................ p. 97 ▪ General banking business with customers: funding ........................................................... p. 110

- Total funding ..................................................................................................................... p. 110 - Direct funding ................................................................................................................... p. 111 - Indirect funding and assets under management .......................................................... p. 116

▪ General banking business with customers: lending ........................................................... p. 119 - Performance of the loan portfolio .................................................................................... p. 119 - Risk .................................................................................................................................... p. 123

▪ The interbank market and the liquidity position ................................................................ p. 129 ▪ Financial activities ............................................................................................................ p. 133 ▪ Equity and capital adequacy ............................................................................................. p. 150 ▪ Research and Development ............................................................................................... p. 155 ▪ The internal controls system ............................................................................................. p. 157 ▪ Transactions with related parties and with connected parties ............................................ p. 159 ▪ Consolidated companies: the principal figures ................................................................... p. 163

- Information on the network banks ................................................................................. p. 167 - Information of the main company product companies ................................................. p. 174

▪ Other information ............................................................................................................. p. 179 - Treasury shares ................................................................................................................ p. 179 - Litigation ........................................................................................................................... p. 179 - Inspections ........................................................................................................................ p. 179 - Compound of interest ...................................................................................................... p. 182 - Tax aspects ....................................................................................................................... p. 183 - Investor and Media Relations activities .......................................................................... p. 188 - The “Italian Responsible Payments Code” ...................................................................... p. 191 - Social and environmental responsibility ........................................................................ p. 191

▪ Principal risks and uncertainties to which the UBI Banca Group is exposed ...................... p. 194 ▪ Subsequent events occurring and conslodated business outlook ...................................... p. 202

STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND OF THE SENIOR OFFICER RESPONSIBLE FOR

PREPARING THE CORPORATE ACCOUNTING DOCUMENTS ......................................................... P. 203

INDEPENDENT AUDITORS' REPORT .......................................................................................... p. 207

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CONSOLIDATED FINANCIAL STATEMENTS ................................................................................ p. 211

▪ Consolidated balance sheet ............................................................................................... p. 212 ▪ Consolidated income statement ......................................................................................... p. 213 ▪ Consolidated statement of comprehensive income .................................................................... p. 214 ▪ Statements of changes in consolidated equity .................................................................... p. 215 ▪ Consolidated statement of cash flows ................................................................................ p. 217

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................................................... p. 219

▪ Part A – Accounting policies .............................................................................................. p. 220 - A.1 – General part ............................................................................................................. p. 220 - A.2 – The main items in the financial statements .......................................................... p. 241 - A.3 – Information on transfers between portfolios of financial assets ......................... p. 267 - A.4 – Information on fair value ......................................................................................... p. 267 - A.5 – Information on “Day one profit/loss” ..................................................................... p. 278

▪ Part B – Notes to the consolidated balance sheet ............................................................... p. 279 - Assets ................................................................................................................................. p. 279 - Liabilities ........................................................................................................................... p. 309 - Other information .................................................................................................. p. 336

▪ Part C – Information on the consolidated income statement ............................................... p. 340 ▪ Part D – Consolidated statement of comprehensive income ..................................................... p. 358 ▪ Part E – Information on risks and the relative hedging policies .......................................... p. 359 ▪ Part F – Information on consolidated equity ....................................................................... p. 463 ▪ Part G – Business combination transactions concerning companies or lines of business .... p. 473 ▪ Part H – Transactions with related parties ......................................................................... p. 474 ▪ Part I – Share-based payments .......................................................................................... p. 478 ▪ Part L – Segment reporting ................................................................................................ p. 482

ATTACHMENTS TO THE CONSOLIDATED FINANCIAL STATEMENTS ................................................. p. 484

▪ Disclosures concerning the fees of the independent auditors and services other than auditing in compliance with Art. 149-duodecies of Consob Issuers’ Regulations ....... p. 485 ▪ Information pursuant to letters a), b) and c) of Attachment A to Part One, Title III,

Chapter 2 of Bank of Italy Circular No. 285 of 17th December 2013. Situation as at 31 December 2015 ........................................................................... p. 487

SEPARATE FINANCIAL STATEMENTS OF UBI BANCA SPA AS AT AND FOR THE YEAR

ENDED 31ST DECEMBER 2015

MANAGEMENT REPORT ........................................................................................................... P. 1*

▪ UBI Banca: key figures and performance indicators ........................................................... p. 2* ▪ The organizational structure of UBI Banca ........................................................................ p. 3* ▪ Introduction ...................................................................................................................... p. 6* ▪ Human resources .............................................................................................................. p. 6* ▪ Reclassified financial statements, reclassified income statement net of the most significant non-recurring items and reconciliation schedules .............................................................. p. 8* ▪ The income statement ....................................................................................................... p. 16* ▪ General banking business ................................................................................................. p. 26*

- Funding ................................................................................................................................... p. 26* - Lending ................................................................................................................................... p. 28* - Operations on the interbank market ................................................................................... p. 33*

▪ Financial activities ............................................................................................................ p. 36* ▪ Equity and capital adequacy ............................................................................................. p. 43* ▪ Relations with Group member companies .......................................................................... p. 45* ▪ Transactions with related parties and connected parties ........................................................ p. 45* ▪ Share performance and shareholder structure ................................................................... p. 47*

- Share performance ..................................................................................................... p. 47* - Report on corporate governance and the ownership structure ......................................... p. 49* - Treasury shares ..................................................................................................................... p. 50* - De jure and delegated powers of the corporate bodies ....................................................... p. 50*

▪ Other information ............................................................................................................. p. 51* - Litigation ................................................................................................................................. p. 51* - Complaint management ........................................................................................................ p. 51*

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▪ Principal risks and uncertainties to which UBI Banca is exposed ....................................... p. 53*

▪ Subsequent events and the business outlook business outlook ............................................................................................................... p. 53*

▪ Proposal for the allocation of profit for the year and dividend distribution .......................... p. 54*

STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND OF THE SENIOR OFFICER RESPONSIBLE FOR

PREPARING THE CORPORATE ACCOUNTING DOCUMENTS ......................................................... p. 55*

INDEPENDENT AUDITORS' REPORT .......................................................................................... p. 59*

SEPARATE FINANCIAL STATEMENTS ........................................................................................ p. 63*

▪ Balance sheet .................................................................................................................... p. 64* ▪ Income statement .............................................................................................................. p. 65* ▪ Statement of comprehensive income ........................................................................................... p. 66* ▪ Statement of changes in equity .......................................................................................... p. 67* ▪ Statement of cash flows ..................................................................................................... p. 69*

NOTES TO THE ACCOUNTS ...................................................................................................... p. 71*

▪ Parte A – Accounting policies ............................................................................................. p. 72* ▪ A.1 – General part ................................................................................................................ p. 72* ▪ A.2 – The main items in the financial statements ...................................................... p. 85* ▪ A.3 – Information on transfers between portfolios of financial assets ............................ p. 108* ▪ A.4 – Information on fair value ........................................................................................... p. 108* ▪ A.5 – Information on “Day one profit/loss” ....................................................................... p. 120*

▪ Part B – Notes to the balance sheet ................................................................................... p. 121* ▪ Assets ................................................................................................................................... p. 121* ▪ Liabilities ............................................................................................................................. p. 153* ▪ Other information ............................................................................................................... p. 171*

▪ Part C – Notes to the income statement ............................................................................. p. 175* ▪ Part D – Comprehensive income ........................................................................................ p. 195* ▪ Part E – Information on risks and the relative hedging policies .......................................... p. 197* ▪ Part F – Information on equity ........................................................................................... p. 286* ▪ Part G – Business combination transactions concerning companies or ▪ lines of business ............................................................................................................... p. 293* ▪ Part H – Transactions with related parties ......................................................................... p. 294* ▪ Part I – Share-based payments .......................................................................................... p. 302* ▪ Part L – Segment reporting ................................................................................................ p. 305*

ATTACHMENTS TO THE SEPARATE FINANCIAL STATEMENTS .................................................... p. 306*

▪ List of real estate properties .............................................................................................. p. 307* ▪ Convertible bonds ............................................................................................................. p. 312* ▪ Disclosures concerning the fees of the independent auditors and services other than revision in compliance with Art. 149-duodecies of Consob Issuers’ Regulations ........ p. 313*

REPORT ON THE CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE OF UBI BANCA SPA… p. 1** REPORT OF THE SUPERVISORY BOARD TO THE SHAREHOLDERS’ MEETING ……………………………p. 91** REPORTS ON THE OTHER ITEMS ON THE AGENDA OF THE SHAREHOLDERS’ MEETING…………..p. 109**

GLOSSARY .............................................................................................................................. .p. 214**

BRANCH NETWORK OF THE UBI BANCA GROUP CALENDAR OF CORPORATE EVENTS OF UBI BANCA FOR 2016 CONTACTS

Key

The following abbreviations are used in the tables: - dash (-): when the item does not exist; - not significant (n.s.): when the information 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.

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Chairmen’s Letter

Dear shareholders, After the impairments booked as a consequence of the turbulent and uncertain macroeconomic scenario led to a loss of €726 million being recorded in 2014, UBI Banca Group closed 2015 with a net profit of €117 million, allowing the Board to propose the distribution of a dividend of €0.11 per share, an increase on the €0.08 per share paid the previous year. In normalised terms, i.e. net of non-recurring items, net profit increased by 33% to €195 million. This result was achieved thanks to constant cost control and a reduced need to make impairments on the loan portfolio, although income trends remained weak, well below the levels that could potentially be generated by the Group in a more benign scenario. The annual income statement included numerous non-recurring items, including the extraordinary charge for the intervention to rescue the four Central Italian banks placed in resolution proceedings, which burdened year-end accounts for the entire banking system, and the larger and better capitalised banks in particular. UBI Banca’s extraordinary contribution amounted to €65.3 million. In a period of stuttering macroeconomic recovery, normal banking activity generated €3.4 billion of operating income, more or less in line with the figure posted in 2014. In summary: • Net interest income decreased by -€1.6 billion, due to the disinvestment from Italian sovereign bonds (-€3.6

billion) and also the impact of interest rates turning negative for shorter maturities as of March 2015; • net fees and commissions income increased 6% to €1.3bn due to a good trend in investment services; • net income from financial activity increased to €0.3 billion, thanks to a positive non-recurring item

(amounting to €82 million) from the partial disposal of the stake in Istituto Centrale delle Banche Popolari, and above all to the sale of some of the government bonds held in the portfolio (generating earnings of €170 million).

In addition to the above-mentioned extraordinary contribution to the Resolution Fund, operating costs were also increased by the ordinary contribution to the Fund, made for the first time in 2015, as well as funding provided to the Deposit Guarantee System (for €22 million and €11 million respectively). Net of these items, overall costs decreased by 1.5% to €2.1 billion, a continuation of the Group’s strong track record in cost management. The Group also incurred €97 million of charges for early retirement packages, the lion’s share of which derived from the trade union agreement signed in December 2015, which included the offer of voluntary redundancy to all employees whose redundancy requests as part of the 2014 Framework Agreement were not granted due to overall requests exceeding the pre-set target. In light of these agreed departures, and in order to facilitate generational succession, in the 2016-17 the Group will step up recruitment, partly through making existing temporary employment contracts permanent. During the year, net impairment losses on loans decreased by 13.6% to €0.8 billion, driving an improvement in the cost of credit from the 1.08% recorded in 2014 to 0.95%, despite the usual annual update of historical series used in internal models, which now cover the entire period of the financial crisis up to the end of 2014. The cost of credit reflects both the ongoing improvement in the risk profile of the portfolio of performing loans – with the volume pertaining to the highest risk classes declining by 4.5% and those assigned the lowest class of risk increasing to 73.6% - and the lowest increase for a number of years in the stock of gross deteriorated loans, partially explained by a further drop in new inflows from the performing loans category (-7.5% over the full year, -15% in the final quarter). Taxation remained high - €161 million, a tax rate of 43.12% - although this includes a negative non-recurring item of some €26 million. As part of its efforts to limit the risks associated with contingent liabilities, including fiscal liabilities, on 4th February 2016 UBI Banca negotiated a settlement with the Italian tax authorities. The settlement closed litigation over preference shares and the “branch switch” for all years already assessed and those still being assessed, through the payment of taxes as recalculated by tax authorities, along with the associated interest. The impact on the consolidated income statement was calculated after deducting the relevant provisions periodically booked in the accounts. In terms of capital, total funding, comprising the sum of assets administered on behalf of customers, came to €171 billion as at 31st December 2015, an increase of €2 billion on the previous year. This growth was driven by indirect funding component (+€3.7 billion) and in particular assets under management (+€5.2 billion), whereas direct funding tracked a negative trend (-€1.7 billion), suffering from the reduction in medium to long term funding from bonds, due both to very low market yields (driving customers towards asset management products) and the company’s decision only to turn to the wholesale

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funding market for lower amounts and on a less frequent basis. At the same time, financial market turbulence and regulatory developments in terms of protection for savers have created a climate of uncertainty and trepidation that has translated into customers preferring to entrust their savings to current accounts, deposits into which have proved resilient. With regard to lending, the core business of the bank network is steadily confirming initial signs of a recovery (+1.2% vs. December 2014); nevertheless, the loan portfolio at the end of 2015 was down slightly to €84.6 billion, still affected by the reduction in the loan stock pertaining to captive customers of the Group’s product companies (partly deriving from previous third party network activities that have been sold and will not be replaced). In confirmation of the solidity of the Group’s capital, as at 31st December 2015 the Common Equity Tier 1 ratio (the most important capital indicator) stood at 12.08% (including the impact from withdrawal rights), 283 basis points above the new SREP requirement of 9.25% announced by the ECB in November (lower than the previous requirement of 9.50%), which the Group will have to meet as of 1st January 2016. The Total Capital Ratio stood at 13.93%. Dear Shareholders, The year that has just closed featured a comprehensive repositioning of the Group. First and foremost, in compliance with Law no. 33 of 24th March 2015, the Group initiated and completed the process of transforming from a joint stock cooperative company into an ordinary joint stock company. This process was carried out in a completely transparent manner, with full clarity being provided to both the Group’s shareholders and the market. In order to ensure the stability of the Bank and continue to operate in a prudential manner, the governing bodies, which we represent, believed it was appropriate to present the 2016 Shareholders’ Meeting with the opportunity to vote on the renewal of managerial mandates under the new legal configuration, with a clear framework of rules to allow Shareholders to define the governance for the next three years. As of 12th October 2015, when the relevant resolution adopted by the Extraordinary General Meeting on 10th October was filed with the Bergamo Companies Register, UBI Banca ceased to operate as a joint stock cooperative company and became an ordinary joint stock company. This involved the adoption of new Articles of Association, which were put to the same Shareholders’ Meeting for its approval. Most of the amendments related specifically to the rules that were no longer compatible with the new legal status, chiefly: the category of Regulated Shareholders (with the abrogation of all associated privileges), as in a regular joint stock company simple ownership of shares automatically endows the relevant dividend and voting rights; the introduction of a provision temporarily limiting voting rights to 5% of the share capital for a period of 24 months (up to 26th March 2017), although this limit will not apply to Undertakings for Collective Investments in Transferable Securities; shareholders’ meetings to be held in a single session and the abolition of secret ballots for appointments to the Boards of Directors; the removal of limits to the number of proxy votes that can be presented by an individual shareholder; the composition of the Management and Supervisory Boards, set at 7 and 15 members respectively (in compliance with the provisions of the Bank of Italy’s Resolution on Corporate Governance), together with a “simul stabunt, simul cadent” (“as they stand together, so shall they fall together”) clause and the introduction of a threshold of 1% of the share capital for the right to present candidate lists for the election of the Supervisory Board. In reality, as long ago as September 2013 the Group had already launched a project to reform its governance structure, which was completed in 2014. As part of a unitary and organic process, this self-reform, which was deployed taking regulatory developments, frequently reiterated guidance from the Bank of Italy and market trends into account, enabled the gradual transformation of UBI Banca’s structure to that of an “integrated cooperative bank”, allowing senior management to embody a balanced representation of all components of the company’s structure while remaining true to the one shareholder-one-vote principle. Both of the steps outlined above were welcomed and approved by a large majority in Shareholders’ Meetings, echoing the response received in preparatory meetings carried out throughout the bank’s reference territory. Dear Shareholders, The proposed renewal of the mandate of the Boards of Directors is the ideal time to assess the progress made under the previous mandate in the 2013-15 period. For both the Supervisory and Management Boards, this was a period of intense commitment and hard work, based on the underlying determination to bank fairly and well and an unending commitment to quality banking.

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From an organisational point of view, the Group’s structure has been streamlined through a series of rationalisation actions, starting with the mergers of Centrobanca (the Corporate Bank) into the Parent Company, of IW Bank (the on-line bank) into UBI Banca Private Investment (which has over 800 financial advisors) and SOLIMM into S.B.I.M (a Brescia-based real estate company); continuing with the disposals of Banque de Dépôts et de Gestion (Switzerland), UBI Insurance Broker, and other smaller companies, and culminating in the restructuring of the joint ventures in life insurance with the Aviva Group and in non-life insurance with the Cargeas group, as well as a disengagement from sectors that are no longer considered to be strategically important, such as fiduciary activities. In terms of governance, this entailed a cut in the number of Directors and Statutory Auditors, with a reduction in the associated compensation on the consolidated income statement; by 2015 this item had decreased by 23.5% from the figure booked in 2012. Digitalisation trends have gained momentum, forcing a rethink of the bank’s distribution channels, with the physical bank network steadily taking on a greater consultancy role and being less involved in traditional banking activity, on which the slack has largely been taken up by the flourishing digital Bank, a project that now encompasses over 100 personnel dedicated to the ongoing search for the best technological applications in an attempt to offer an excellent, innovative service to customers. A key example of this innovative approach is the award-winning “UBI PAY” service. As a consequence, the scope of the physical branch network has been the subject of continuous optimisation through huge branch closure and renovation programmes that have reduced the overall number of branches from 1,727 at the end of 2012 to the current 1,554. At the same time, the labour force has also been affected by the trend towards digital innovation, which has driven the need for a reduction in headcount through voluntary retirement plans agreed from time to time with trade unions. This has led to the overall workforce being reduced from 19,090 employees as at 31st December 2012 to 17,718 employees at the end of 2015. As a result, annual operating costs (net of non-recurring items) have been structurally reduced by 8.6% in the three-year period. There has also been a contemporary commitment to enhancing the Group’s human capital, both through investments in training programmes, enabling job conversion, upskilling and role-specific training, and in terms of the implementation of appropriate remuneration and incentive schemes. Faced with the severe global economic crisis experienced in the last three years, the Boards of Directors have chosen to secure the bank’s balance sheet. First and foremost, this involved the implementation of a de-risking policy through the abandonment of riskier activities in order strengthen capital solidity, while the company also retained a constant focus on structural equilibrium in terms of the maturities of assets and liabilities, a focus that has gone hand in hand with the formation of adequate liquidity reserves. From a commercial point of view, consistently with the mission of Banca dei Territori, the Group has tried to act as a “shock absorber”, guaranteeing its support to communities and businesses within its local territory, partly through specific anti-crisis initiatives, and consolidating its position as a key point of reference for non-profit organisations, thanks to “UBI Comunità”, the service model dedicated to the Third Sector, and the issue of Social Bonds. The Bank’s traditional vocation of financing its Territories is demonstrated by the 2015 accounts, which report that 92% of outstanding loans are dedicated to families and businesses, with 67% of the total being based in the Region of Lombardy, the company’s traditional stronghold. Dear Shareholders, The changes forced upon us by new regulations have affected governance rules, but not the guiding principles of the UBI Banca Group. The values that have long set our Bank apart remain at the forefront of all our actions, together with our commitment to economic and social growth in the Communities and Territories that we serve, while retaining a constant focus on ensuring the long-term sustainability of our business. Confident that we have always acted in the best interests of all stakeholders – shareholders, investors, customers, employees, suppliers and institutions – we would like to express our sincerest thanks to all those that have accompanied the Group on its journey and supported its activities over the past years. March 2016 The Chairman The Chairman of the Management Board of the Supervisory Board Franco Polotti Andrea Moltrasio

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UBI Banca: company officers

Honorary Chairman Giuseppe Vigorelli

Supervisory Board (appointed by the Shareholders' Meeting of 20th April 2013) Chairman Andrea Moltrasio Senior Deputy Chairman Mario Cera Deputy Chairman Alberto Folonari Deputy Chairman Armando Santus Dorino Mario Agliardi Antonella Bardoni Letizia Bellini Cavalletti Marina Brogi Pierpaolo Camadini Luca Vittorio Cividini Alessandra Del Boca Ester Faia Marco Giacinto Gallarati Carlo Garavaglia Gian Luigi Gola Lorenzo Renato Guerini Alfredo Gusmini(*) Federico Manzoni Mario Mazzoleni Enrico Minelli Sergio Pivato Andrea Cesare Resti Maurizio Zucchi

Management Board (appointed by the Supervisory Board on 23rd April 2013) Chairman Franco Polotti Deputy Chairman Giorgio Frigeri Chief Executive Officer and General Manager Victor Massiah(**) Silvia Fidanza Luciana Gattinoni Italo Lucchini Ettore Giuseppe Medda(***) Flavio Pizzini Elvio Sonnino

General Management General Manager Victor Massiah(**) Senior Deputy General Manager Elvio Sonnino Deputy General Manager Rossella Leidi Deputy General Manager Ettore Giuseppe Medda

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

Independent auditors DELOITTE & TOUCHE Spa

(*) Secretary to the Supervisory Board (**) Since 1st June 2015, Victor Massiah has filled the position of General Manager for a period that will not last beyond the expiry of

the Management Board’s term of office (2016 Annual General Meeting). The position became vacant after Francesco Iorio resigned and also ceased to be a member of the Management Board at the same time.

(***) Appointed by the Supervisory Board on 14th July 2015.

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UBI Banca Group: the main investments as at 31st December 2015

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UBI Banca Group: branch network as at 31st December 2015

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UBI Banca Group: principal figures and performance indicators1

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 Consolidated Management Report. Information on the share is reported in the relative section of the UBI Banca Management Report. The profit indicators for 2014 and 2011 were calculated on profit for the year before redundancy costs and impairment losses.

2 The figures as at 31st December 2013 and as at 31st December 2012 were calculated according to AIRB Basel 2 rules and relate to the following ratios respectively: the tier one ratio (tier one capital/risk weighted assets); the core tier one ratio after specific deductions from the tier one capital (tier one capital net of preference shares and savings or privileged shares held by non-controlling interests/risk weighted assets); total capital ratio (regulatory capital + tier three /risk weighted assets). For previous periods the figures were calculated according to the Basel 2 standard rules.

3 Part time employees have been calculated within total average staff numbers according to convention on a 50% basis.

31.12.2015 31.12.2014 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 31.12.2008

STRUCTURAL INDICATORS

Net loans and advances to customers/total assets 72.2% 70.3% 71.2% 70.1% 76.8% 78.0% 80.1% 79.0%

Direct funding from customers/total liabilities 78.1% 76.5% 74.5% 74.6% 79.2% 81.8% 79.5% 80.0%

Net loans and advances to customers/direct funding from customers 92.4% 91.9% 95.5% 94.0% 97.0% 95.4% 100.8% 98.7%

Equity (including profit/loss for the year)/ total liabilities 8.5% 8.1% 8.3% 7.4% 6.9% 8.4% 9.3% 9.1% Assets under management/indirect funding from private individual customers 61.1% 57.1% 55.2% 54.3% 51.2% 54.6% 53.2% 53.1% Financial leverage ratio (total assets - intangib le assets) /(equity inclusive of profit (loss) for the year + equity attributab le to non-controlling interests -intangib le assets ) 13.2 14.0 14.7 17.0 18.5 19.3 17.1 17.3

PROFIT INDICATORS

ROE (Net profit/equity including profit (loss) for the year ) 1.2% 2.4% 2.4% 0.8% 3.9% 1.6% 2.4% 0.6%

ROTE [net profit/tangib le equity (equity inclusive of profit (loss), net of intangib le assets )] 1.4% 2.9% 3.4% 1.2% 5.9% 3.1% 4.6% 1.2%

ROA (net profit/total assets ) 0.10% 0.19% 0.20% 0.06% 0.27% 0.13% 0.22% 0.06%

The cost/income ratio (operating expenses/operating income ) 64.5% 61.8% 62.3% 64.3% 69.5% 70.6% 64.4% 63.9%

Staff costs/operating income 38.4% 38.2% 37.9% 39.0% 41.4% 41.5% 37.5% 38.8%

Net impairment losses on loans/net loans to customers (loan losses ) 0.95% 1.08% 1.07% 0.91% 0.61% 0.69% 0.88% 0.59%

Net interest income/operating income 48.4% 53.3% 50.9% 52.8% 61.7% 61.3% 61.5% 68.7%

Net fee and commission income/operating income 38.6% 36.0% 34.5% 33.5% 34.7% 33.9% 31.1% 33.3%

Net result on financial activities/operating income 8.6% 5.9% 9.4% 7.3% 0.2% 1.0% 3.2% -5.9%

RISK INDICATORS

Net bad loans (prev. non-performing loans)/net loans to customer 5.07% 4.70% 3.89% 3.18% 2.49% 1.91% 1.36% 0.88% Net impairment losses on bad loans/gross bad loans (coverage for bad loans - previously "non-performing loans" ) 38.64% 38.56% 41.60% 42.60% 43.31% 48.69% 51.57% 54.58%

Coverage for bad loans, gross of write-offs of positions subject to bankruptcy proceedings and the relative impairment losses 52.50% 53.36% 56.05% 57.63% 59.06% 63.62% 66.10%

Net non-performing loans/net loans to customers 11.45% 11.10% 10.53% 8.73% 6.30% 5.17% 4.62% 2.40%

CAPITAL RATIOS Basel 3 from 31 3 20142

Tier one 1 (tier 1 capital after filters and deductions/risk weighted assets ) 12.08% 12.33% 13.23% 10.79% 9.09% 7.47% 7.96% 7.73%

Common Equity Tier 1 ratio (Common Equity Tier 1 capital after filters and deductions/risk weighted assets ) 12.08% 12.33% 12.60% 10.29% 8.56% 6.95% 7.43% 7.09%

Total capital ratio (total own funds/risk weighted assets] 13.93% 15.29% 18.91% 16.01% 13.50% 11.17% 11.91% 11.08%

Total own funds (figures in thousands of euro) 8,545,017 9,441,598 11,546,144 12,203,619 12,282,153 10,536,200 10,202,555 9,960,812

of which: Tier 1 capital after filters and deductions 7,408,894 7,615,265 8,075,247 8,263,720 8,276,278 7,047,888 6,816,876 6,944,723

Risk weighted assets 61,344,866 61,762,588 61,045,600 76,589,350 91,010,213 94,360,909 85,677,000 89,891,825

INCOME STATEMENT, BALANCE SHEET FIGURES (in thousands of euro), STRUCTURAL DATA (number)

Profit (loss) for the year attributable to the shareholders of the Parent 116,765 (725,767) 250,830 82,708 (1,841,488) 172,121 270,099 69,001

Profit for the year attributable to the shareholders of the Parent before redundancies and impairment 182,774 233,230 314,550 184,581 349,373 177,293 289,022 88,810

Profit for the year attributable to the Parent normalised 195,132 146,537 100,220 97,324 111,562 105,116 173,380 425,327

Operating income 3,370,864 3,409,630 3,437,292 3,526,311 3,438,339 3,496,061 3,906,247 4,089,739

Operating expenses (2,175,181) (2,108,222) (2,141,798) (2,266,660) (2,389,626) (2,468,564) (2,514,347) (2,611,348)

Net loans and advances to customers 84,586,200 85,644,223 88,421,467 92,887,969 99,689,770 101,814,829 98,007,252 96,368,452

of which: net bad loans 4,287,929 4,025,079 3,437,125 2,951,939 2,481,417 1,939,916 1,332,576 848,671

net impaired loans 9,688,549 9,508,105 9,312,273 8,105,174 6,279,884 5,261,129 4,532,234 2,315,913

Direct funding from customers 91,512,399 93,207,269 92,603,936 98,817,560 102,808,654 106,760,045 97,214,405 97,591,237

Indirect funding from customers 79,547,957 75,892,408 71,651,786 70,164,384 72,067,569 78,078,869 78,791,834 74,288,053

of which: assets under management 48,567,539 43,353,237 39,553,848 38,106,037 36,892,042 42,629,553 41,924,931 39,430,745

Total funding from customers 171,060,356 169,099,677 164,255,722 168,981,944 174,876,223 184,838,914 176,006,239 171,879,290Equity attributable to the shareholders of the Parent (inclusive of profit (loss) for the year ) 9,981,862 9,804,048 10,339,392 9,737,882 8,939,023 10,979,019 11,411,248 11,140,207

Intangible assets 1,757,468 1,776,925 2,918,509 2,964,882 2,987,669 5,475,385 5,523,401 5,531,633

Total assets 117,200,765 121,786,704 124,241,837 132,433,702 129,803,692 130,558,569 122,313,223 121,955,685

Branches in Italy 1,554 1,668 1,725 1,727 1,875 1,892 1,955 1,944

Total staff at the end of the year (actual employees in service + workers on agency leasing contracts ) 17,718 18,132 18,337 19,090 19,407 19,699 20,285 20,680

Average total staff 3 (actual employees in service + workers on agency leasing contracts ) 16,756 17,462 17,625 18,490 18,828 19,384 20,185 20,606

Financial advisors 824 713 671 672 713 786 880 924

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The rating

The ratings assigned to the UBI Banca Group by the main international agencies are given below. On conclusion of a consultation process started in September 2014, on 16th March 2015 Moody’s published its new rating methodology for banks. The revision introduced important new changes: a macro profile and a broader range of qualitative and quantitative items for observation for the determination of the BCA, an indicator which expresses the intrinsic financial strength of a bank (while the Bank Financial Strength Rating was eliminated at the same time); an analysis of the liability structure of banks subject to a resolution regime in order to assess the impacts in terms of expected loss that a bank’s failure would have on its various debt instruments issued and its deposits in the absence of any support (loss given failure – LGF – analysis) and an assessment of counterparty risk i.e. the risk of default, in relation to the bank’s operating obligations and contractual commitments (covered bonds, derivatives, guarantees, etc.), generally not considered by existing resolution systems. On 17th March this agency therefore revised its ratings of all banks worldwide. On 22nd June 2015, on conclusion of the review for Italy, which also incorporated new assessments regarding the reduced probability of government support, Moody’s announced changes to ratings for 17 banks/banking groups, including UBI Banca. The rating on deposits and on long-term debt was raised from “Baa3” to “Baa2”, with a stable outlook. The short-term rating also rose from “P-3” to “P-2”, while the BCA remained unchanged at “ba1”. The long-term rating on deposits and senior debt benefited from a two notch upgrade with respect to the BCA on the basis of the results of the LGF analysis carried out on the UBI Banca Group which, in consideration of the high volume of senior debt and the limited amount of subordinated securities, showed an extremely low expected loss in the event of resolution. In the meantime UBI Banca has been assigned a “Baa1” and “P-2” rating for counterparty risk which made an improvement from “Aa3” to “Aa2” possible for its first covered bond programme, officially announced on 23rd June. On 10th November the agency revised the outlook of the Italian banking system upwards, from negative to stable. Finally, on 25th January 2016, following the entry into force of the decrees transposing the BRRD in Italy – which have set the date for application of the “extended depositor preference” as 1st January 20191 – and having completed the review it started on 29th October 2015, Moody's announced that it had increased the ratings on the long-term deposits of 18 Italian banks. The rating on UBI Banca long-term deposits has been upgraded to Baa1 from Baa2 (+1 notch), with a stable outlook. All the other ratings have remained unchanged.

(I) The ability to repay long-term debt (maturing in or after one

year) in local currency (Aaa: best rating – C: default)

(II) The ability to repay debt in local currency maturing in the short-term (due in less than one year). (Prime -1: highest quality – Not prime: not classifiable within any of the prime categories)

(III) The BCA is not a rating but an opinion on the intrinsic financial strength of the bank in the absence of external support (aaa: best rating – c: default)

(IV) Opinion on the issuer's ability to honour the senior debt and the obligations (Aaa: miglior rating – C: default)

(V) The counterparty risk (CR) assessment is not a rating but an opinion on the likelihood of a default on certain senior operating obligations and other contractual commitments entered into by the bank [Aaa(cr): best rating – C (cr): default)] [P-1 (cr): best rating – Not Prime (cr): not classifiable within any of the prime categories]

1 The section “European Banking Union” of the consolidated management report may be consulted for details;

MOODY'S

Long-term Bank deposits rating (I) Baa1

Short-term Bank deposits rating (II) Prime-2

Baseline Credit Assessment (BCA) (III) ba1

Long-term Issuer Rating (IV) Baa2

Long-term Counterparty Risk Assessment (V) Baa1(cr)

Short-term Counterparty Risk Assessment (V) Prime-2(cr)

Outlook Stable

RATINGS ON ISSUES

Senior unsecured rating Baa2

Euro Commercial Paper Programme Prime-2

Covered Bond (First Programme – residential mortgages) Aa2

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After a consultation process started in November 2014, on 27th April 2015 Standard & Poor’s published a development of its rating methodologies for banks with the introduction of a new component of analysis, “Additional Loss-Absorbing Capacity (ALAC)”. This is a form of potential outside support which could be incorporated in the issuer credit rating to take account of the lower risk of default by senior bonds in the presence of regulations which require banks to hold “bail-inable” liabilities, i.e. liabilities that can be written down and converted into share capital to prevent the default or insolvency of the bank. On 3rd July 2015 this agency revised its outlook on the Group’s long-term rating up from negative to stable. According to S&P the stabilisation of economic conditions and the slowdown in the deterioration of the UBI Banca’s assets will allow it to continue to gradually strengthen its core capital through internal generation. In November S&P revised economic and industry risk for the Italian banking sector from stable to positive.

(i) The issuer credit rating reflects the agency’s opinion of the intrinsic creditworthiness of the bank combined with an assessment of the potential for future support that the bank might receive in the event of default (from government or from the group to which it belongs).

Short-term: ability to repay short-term debt with a maturity of less than one year (A-1: best rating – D: default)

Long-term: ability to pay interest and principal on debt with a maturity of longer than one year (AAA: best rating – D: default)

(ii) The SACP is a rating of the intrinsic creditworthiness of the bank in the absence of external support (from government or from the group to which it belongs). It is calculated on the basis of an “anchor SACP”, which summarises economic and industry risk for the Italian banking sector. This is then adjusted to take account of bank-specific factors such as capitalisation, market positioning, exposure to risk and the funding and the liquidity situation, which are also assessed from a comparative viewpoint.

As part of an annual review of its ratings for the four largest Italian Banks, on 1st April 2015, Fitch Ratings downgraded its rating for UBI Banca to BBB/F3 (from BBB+/F2) with a stable outlook. While acknowledging the improvements to UBI Banca’s operating profitability, its sound capitalisation, its stable liquidity, its low risk appetite and sound franchise, the Agency’s decision reflects its still substantial deteriorated assets generated in these recent years of recession. On 8th April 2015 its rating for the first covered bond programme was changed to “A” (from “A+”) and placed on negative watch – which was then lifted on 28th April, with confirmation of the A rating and a stable outlook – while the rating on the second programme remained unchanged on “BBB+” with a stable outlook. On conclusion of a review of government support at global level announced in March 2014, in view of developments in progress concerning banking crisis resolution procedures, on 19th May 2015 Fitch took action on the ratings of Italian banks. In consideration of the disappearance of the likelihood of government intervention in the event of default, for nine banks the support rating was reduced to “five”, the lowest level, while the support rating floor became “NF” (no floor). On 24th August 2015 UBI Banca announced that it had asked Fitch Ratings to withdraw its rating assigned to the first covered bond programme with residential mortgages as the underlying, guaranteed by UBI Finance Srl. On the basis of the request received, on 23rd September the agency first confirmed its “A” rating with a stable outlook and then withdrew its rating on the programme. With regard on the other hand to the second covered bond programme with commercial mortgages and residential mortgages not used in the first programme as the underlying and backed by UBI Finance CB 2 Srl, following the non-renewal of the mandate granted to Fitch Ratings, on 19th October 2015 UBI Banca officially abandoned its “BBB+” previously assigned by that agency. At the request of UBI Banca, on 23rd December 2015 Fitch confirmed its F3 rating on the Euro Commercial Paper and French deposit certificate short-term programmes, and then cancelled them.

STANDARD & POOR’S

Short-term Issuer Credit Rating (i) A-3

Long-term Issuer Credit Rating (i) BBB-

Stand Alone Credit Profile (SACP) (ii) bbb-

Outlook (long-term rating) Stable

RATINGS ON ISSUES

Senior unsecured debt BBB-

French Certificats de Dépôt Programme A-3

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(1) The capacity to repay debt in the short term (less than 13

months). (F1+: best rating – D: default) (2) The ability to meet financial commitments in the long-term,

independently of the maturity of individual obligations. This rating is an indicator of the probability that an issuer will default. (AAA: best rating – D: default)

(3) An assessment of a bank’s intrinsic strength in the event that it cannot rely on forms of external support (aaa: best rating - f: default).

(4) A rating of the possibility of concrete and timely external support (from the state or large institutional investors) if the bank finds itself in difficulty (1: best rating – 5: worst rating)

(5) This rating gives additional information, closely linked to the Support Rating, in that for each level of the Support Rating it identifies the minimum level which the Issuer Default Rating could reach if negative events were to occurs.

* On 24th March 2016, after the approval of the present document by the Supervisory Board of UBI Banca, Fitch downgraded the Outlook from Stable to Negative.

On 25th November 2015 the DBRS agency officially assigned its first public rating to the UBI Banca Group. In the previous weeks it had been announced that an “AA” (low) rating had been assigned to the covered bond programme backed by residential mortgages (confirmed on 15th October) and an “A” (low) rating had been assigned to the second covered bond programme, with commercial mortgages and residential mortgages not used in the first programme as the underlying (27th October 2015). On 2nd February 2016 the Agency published the new methodology – Critical Obligations Rating (COR) – involving assigning a specific rating in order to take into account the risks of default inherent in some specific categories of bonds/exposures considered critical but highly likely to be excluded from the bail-in (such as those resulting from derivatives, payment services, the issue of covered bonds, etc.). Then on 4th February DBRS announced the assignment of these new ratings to 33 European banking groups, including UBI Banca: the ratings assigned are “R-1 (low)” and “A” for the short term and the long term respectively (in the latter case with a two-notch increased from the Intrinsic Assessment).

(I) Issuer Rating is not an issue rating but an issuer rating, reflecting the basic assessment of its creditworthiness. The opinion is generally assigned over a long-term horizon using the long-term rating scale

(II) The capacity to repay long-term debt (maturing in more than 1 year) (AAA: highest credit quality – C: very highly speculative)

(III) The capacity to repay debt maturing in the short term (due in less than 1 year) [R-1 (high): highest credit quality - R-5: very highly speculative]

(IV) The Intrinsic Assessment (IA) constitutes an opinion on the intrinsic financial strength of the Bank in the absence of external support. The Bank fundamentals are assessed in five areas: the branch network, profitability, liquidity and funding, risk profile and capitalisation

(V) Assessment of external support (group to which it belongs or which controls it) in the event of default [SA1: internal support from the group to which it belongs; SA2: external support (government); SA3: no external support – SA4: potential support for the group to which it belongs]

* On 10th March 2016, after the approval of the present document by the Supervisory Board of UBI Banca, DBRS upgraded the rating on Covered Bond –

Commercial Mortgage Programme from A (low) to A.

FITCH RATINGS

Short-term Issuer Default Rating (1) F3

Long-term Issuer Default Rating (2) BBB

Viability Rating (3) bbb

Support Rating (4) 5

Support Rating Floor (5) NF

Outlook (Long-term Issuer Default Rating) Stable*

RATINGS ON ISSUES

Senior unsecured debt BBB

DBRS

Issuer rating (I) BBB (high)

Senior Long-term Debt and Deposit rating (II) BBB (high)

Short-term Debt and Deposit rating (III) R-1 (low)

Intrinsic Assessment (IA) (IV) BBB (high)

Support Assessment (V) SA3

Long-Term Critical Obligations rating A

Short-Term Critical Obligations rating R-1 (low)

Outlook (all ratings) Stable

RATINGS ON ISSUES

Senior unsecured BBB (high)

Euro Commercial Paper Programme R-1 (low)

French Certificats de Dépôt Programme R-1 (low)

Covered Bond (First Programme – residential mortgages) AA (low)

Covered Bond (According to programme – commercial mortgages) A (low)*

15

Notice of call2

An ordinary General Meeting of the Shareholders of Unione di Banche Italiane S.p.A. is convened for the day

Saturday 2nd April 2016 at 9:30 a.m. in a single call at the New Bergamo Trade Fair in via Lunga to discuss and resolve on the following Agenda

1. Proposal for the allocation of profits for the year relating to the financial statements for the year ended 31st December 2015 and the distribution of a dividend, following the presentation of the separate and consolidated financial statements as at and for the year ended 31st December 2015.

2. Appointment of the members of the Supervisory Board, the Chairman and the Senior Deputy Chairman for the years 2016-2017-2018.

3. Determination of the remuneration of the members of the Supervisory Board in accordance with Art. 13, paragraph 2, letter a) of the Articles of Association.

4. Report on remuneration: resolution in accordance with Art. 123-ter, paragraph 6 of Legislative Decree No. 58/1998.

5. Proposal for setting remuneration and incentive policies for members of the Supervisory Board and members of the Management Board in accordance with the regulations and legislation in force.

6. Remuneration schemes based on financial instruments: - proposal to set a portion of the variable remuneration of “Key Personnel” by assigning

ordinary shares of the Parent, UBI Banca, and a proposal to purchase own shares to service the incentive scheme;

- proposal to set amounts for the 2016 Incentive Scheme for Employees – excluding Key Personnel – by assigning ordinary shares and a proposal to purchase own shares to service the incentive scheme;

- proposal to set amounts for the 2015 and 2016 productivity bonus (the “Company Bonus”) by assigning ordinary shares of the Parent, UBI Banca, and a proposal to purchase own shares to service the Company Bonus.

7. Proposal regarding the criteria and limits for determining remuneration to be agreed in the event of the early termination of an employment relationship or early retirement from corporate office.

8. Proposal to increase the ratio of the variable to the fixed components of remuneration up to a limit of 2:1.

In compliance with article 15 of the Articles of Association, arrangements have been made to employ remote connection systems at the premises at PalaBREBanca in Via Viglione Cuneo, which will be equipped with the necessary controls needed to ensure (i) identification of those with a legitimate right to participate, (ii) the possibility for them to take part in proceedings of the meetings and to vote on resolutions and also (iii) to ensure the security of the communications. In accordance with the provisions of the aforementioned Articles of Association, these connections will allow Shareholders who do not intend to travel to the place in which the meeting is convened at the New Bergamo Trade Fair in Via Lunga Bergamo – and who therefore do not intend to speak and participate in the discussions – to nevertheless follow the proceedings of the shareholders’ meeting and to cast their vote at the appropriate time during the course of the meeting.

2 On 19th February 2016 an abstract of this Notice to Convene an Ordinary Shareholders’ Meeting was published not only in the daily newspapers Il Sole 24Ore and MF, but also in other major national and some local newspapers.

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* * *

INFORMATION ON THE SHARE CAPITAL AS OF TODAY The subscribed and paid-up share capital of UBI Banca S.p.A. (hereafter also the “Bank” or the “Company”) amounts to Euro €2,254,371,430.00, consisting of 901,748,572 shares. At the date of this notice UBI Banca possesses 1,431,829 treasury shares. PARTICIPATION IN THE SHAREHOLDERS’ MEETING Those persons with the right to vote for whom a communication certifying their legitimate right has been received by the Bank within the legal time limits may take part in the Shareholders’ Meeting; according to the provisions of Art. 83-sexies of Legislative Decree No. 58/1998 (the “Consolidated Finance Act”), that communication is made to the Bank by an authorised intermediary on the basis of the records relating to the end of the accounting day of the seventh trading day prior to the date of the Shareholders’ Meeting (22nd March 2016 – “record date”). Those who only became owners of shares of the Bank subsequent to that date shall have no right to take part and vote in the Shareholders’ Meeting. The communication from the intermediary must be received by the Bank by the end of the third trading day prior to the date set for the Shareholders’ Meeting, which is 30th March 2016. The legitimate right to attend and vote nevertheless remains, should the communications be received by the Bank later than the aforementioned time limit, provided they are received before the commencement of the proceedings of the Shareholders’ Meeting. It is underlined that each ordinary share gives the right to one vote. Furthermore, until 26th March 2017 no party with the right to vote may exercise it, for any reason, with a quantity of shares greater than 5% of the share capital with voting rights. For this purpose, votes are considered that are cast in relation to shares possessed directly and indirectly, through subsidiary companies, trust companies or nominees and those cast in any other case in which the right to vote is attributed, for any reason, to a party other than the owner of the shares; shares held by Italian or foreign collective investment undertakings are never counted for the purposes of this limit. Control exists in those cases specified by article 23 of Legislative Decree No. 385/1993 and subsequent amendments. Shares for which the right to vote cannot be exercised are not counted for the purposes of the proper convening of meetings. Voting by mail is not permitted. PARTICIPATION AND VOTING BY PROXY Those with the right to vote may have themselves represented in Shareholders’ Meetings in compliance with the relative provisions of the law by means of a proxy, with the option of using the facsimile proxy form available on the corporate website “www.ubibanca.it – Shareholders Section – Shareholders’ Meetings – April 2016 Shareholders’ Meeting”. The proxies may be conferred by means of an electronic document with an advanced electronic signature, qualified or digital in accordance with Art. 21, paragraph 2 of Legislative Decree No. 82/2005. Proxies may be notified by means of email, at the address “notifica.delega@ubibanca.it”. If a proxy holder transmits or delivers a copy of the proxy to the Company, that person must certify under their own responsibility, when being accredited for access to the proceedings of the Shareholders’ Meeting, that it is a true copy of the original proxy and to the identity of the principal. PROXY HOLDER DESIGNATED BY THE BANK A proxy may be granted, free of charge, with voting instructions on all or some of the items on the agenda, to Computershare S.p.A. as the “Designated Proxy Holder” in accordance with Art. 135-undecies of the Consolidated Finance Act by the end of the second trading day prior to the date of the Shareholders’ Meeting (and therefore by 31st March 2016). The proxy is valid solely for proposals in relation to which voting instructions have been given. The proxy and the voting instructions may always be revoked at any time within the time limit indicated above. A special form must be made to confer a proxy on the Designated Proxy Holder which will be made available on the corporate website “www.ubibanca.it – Shareholders Section – Shareholders’ Meetings – April 2016 Shareholders’ Meeting”. If necessary, the proxy form will be transmitted in hardcopy form to those who request this either of Computershare S.p.A. on the Tel. No. 011.0923200, or of the Relations with Shareholders Service of the Bank. The proxy must arrive with the voting instructions conferred on the Designated Proxy Holder by the aforementioned time limit of 31st March 2016 following one of the procedures indicated on the proxy form itself. ADDITIONS TO THE AGENDA AND THE SUBMISSION OF NEW PROPOSALS FOR RESOLUTIONS On the basis of Art. 126-bis of the Consolidated Finance Act, Shareholders who, either alone or jointly, represent at least one fortieth of the share capital may ask, with a written application, within at least ten days of the publication of this notice (i.e. by 29th February 2016) for items to be added to the agenda, indicating the additional matters proposed, or submitting proposals for resolutions regarding matters already on the agenda. The written application must be submitted according to one of the following procedures:

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- at the “Relations with Shareholders Service” of the Bank at 8 Piazza Vittorio Veneto Bergamo by 5.00 p.m. on 29th February 2016;

- by sending them by certified electronic mail to the following address “soci.comunicazioni@pecgruppoubi.it”, attaching the documents in pdf format with a digital signature, by 29th February 2016.

The applications must be accompanied by a report which gives the reasons for the proposals for resolutions on new matters which it is proposed should be addressed or the reason for the additional proposals for resolutions submitted on matters already on the agenda. The applicants must send communications to the Company through their intermediaries certifying to the ownership of shares. If they have requested their intermediary to issue that communication, it is sufficient to provide references to that communication in the request or at least the name of the intermediary. Any additions to the agenda or the submission of proposals for resolutions regarding matters already on the agenda will be disclosed at least fifteen days before the date set for the Shareholders’ Meeting (i.e. by 18th March 2016) following the same procedures as those laid down for the publication of this notice. At the same time, the reports prepared by applicants for additions and/or further proposals for resolutions submitted, accompanied by any assessments that may be presented by the Governing Bodies, shall be disclosed to the public according to the same procedures applying to documentation relating to the Shareholders’ Meeting. It is underlined that additions are not permitted for matters on which the shareholders vote in accordance with the law on proposals submitted by the Management Board or the Supervisory Board or on the basis of a draft document or a report prepared by them, other than those indicated in article 125-ter, paragraph 1 of the Consolidated Finance Act. THE RIGHT TO SUBMIT QUESTIONS ON MATTERS ON THE AGENDA In accordance with Art. 127-ter of the Consolidated Finance Act, those holding the right to vote may submit questions on the items on the agenda even before the Shareholders’ Meeting, ensuring that they are received by the end of the third day prior to the date of the Shareholders’ Meeting, which is by 30th March 2016. The questions can be sent by delivering them to the Relations with Shareholders Service at 8, Piazza Vittorio Veneto, Bergamo or by email to the address domande.assemblea@ubibanca.it or by fax on the No. 035/3922704. The applicants must send communications to the Company through their intermediaries certifying that they may legitimately exercise this right. If they have requested their intermediary to issue that communication to participate in the Shareholders’ Meeting, it is sufficient to provide references to that communication in the request or at least the name of the intermediary. Questions received before the Shareholders’ Meeting and which are found to be relevant to the items on the agenda will be given answers in accordance with the law not later than during the Shareholders’ Meeting. The bank may provide a single answer to questions with the same content. APPOINTMENT OF MEMBERS OF THE SUPERVISORY BOARD AND OF THE CHAIRMAN AND SENIOR DEPUTY CHAIRMAN FOR THE THREE-YEAR PERIOD 2016-2017-2018. As concerns the item on the agenda regarding the election of the members of the Supervisory Board, the Shareholders’ Meeting shall proceed, in accordance with the law and the Articles of Association, on the basis of lists submitted by shareholders by the twenty fifth day prior to the Shareholders’ Meeting (i.e. 8th March 2016) according to the following procedures. The legitimate right to submit lists, time limits and submission procedures On the basis of Art. 37, paragraph 6 of the Articles of Association, shareholders who, either alone or jointly, represent at least 1% of the share capital have the right to submit lists. Ownership of the number of shares which, according to Art. 144-sexies of Consob Regulation No. 11971/1999 (the “Issuers’ Regulations”), are necessary for the submission of lists is certified by the relative special communication. This communication may even be produced subsequent to the filing of lists, provided this occurs at these twenty one days prior to the date of the Shareholders’ Meeting (i.e. by 12th March 2016). Each shareholder, Shareholders belonging to the same group and shareholders who participate in shareholders’ pacts concerning the shares of UBI Banca may neither submit nor vote for more than one list, even if it is by proxy or a trust company. In the event of failure to observe this rule, the signature and/or vote are not counted for any list at all. The lists submitted must contain a number of candidates ranging from 2 (two) to 15 (fifteen). If they are composed of at least 3 (three) candidates, the list must comply with the gender quota rules established by Law No. 120/2011 and also the additional proportion pursuant to Art. 36, paragraph 8 of the Articles of Association. Each candidate may be included in one list only on penalty of ineligibility. In compliance with Art. 37, paragraph 2 of the Articles of Association, the lists of candidates, as previously indicated, must be deposited at the registered offices of the Bank by the twenty fifth day prior to the Shareholders’ Meeting (i.e. by 8th March 2016). If, on the expiration date of the time limit for the deposit of lists, the possibility described in Art. 144-sexies, paragraph 5 of the Issuers’ Regulations should occur, then the Bank will promptly report this in a special communication sent to at least two

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press agencies. In this case lists may be submitted up to the third day subsequent to the aforementioned expiration date (i.e. by 11th March 2016) by shareholders who either alone or jointly with others represent 0.50% of the share capital, without prejudice to other conditions and procedures and submission procedures. Lists presented that fail to observe the procedures reported above are considered as not presented. Documentation to accompany lists The lists must be accompanied by the following documentation: - information concerning the identity of the shareholders who have presented them, with indications of

the number of shares and therefore the total percentage of the shares held by the shareholders submitting them;

- a declaration by shareholders other than those who hold, including jointly, a controlling interest or relative majority, attesting to the absence of any forms of connection with the latter pursuant to Art. 144-quinquies del Issuers’ Regulations, with account also taken of the circumstances indicated in Consob Communication No. DEM/9017893 of 26th February 2009. In this respect the shareholders may visit the “Investor Relations” and “Shareholders” sections of the website www.ubibanca.it in addition to the Consob website (www.consob.it) to verify which shareholders hold the largest number of ordinary shares in the Bank;

- information on the personal and professional characteristics of candidates; - a declaration by the candidates themselves certifying that they are in possession of the requirements

specified by the law and by regulatory and Articles of Association provisions and also that they accept their candidature. The foregoing must be accompanied by a commitment to also specify, in accordance with Art. 2400, paragraph 4 of the Italian Civil Code, a list of management and supervision positions occupied in other companies on the date of the Shareholders’ Meeting.

In relation to the above and also in accordance with Bank of Italy recommendations on the organisation and corporate governance of banks an invitation is made to take account of the Supervisory Board document on its qualitative and quantitative composition in which it identifies and gives reasons for the theoretical profile, inclusive of characteristics of professionalism and independence, considered advisable for the purposes of effectively filling the role and carrying out the duties assigned to that body. The document is available on the corporate website “www.ubibanca.it – Shareholders Section – Shareholders’ Meetings – April 2016 Shareholders’ Meeting”. Procedure for the election of the Supervisory Board The election of the Supervisory Board is performed as follows: a) if one or more lists are submitted, the first two which received the greatest number of votes cast by

the Shareholders and which are not connected within the meaning of the regulations in force are considered;

b.1) if the list which received the second greatest number of votes received less than 15% of votes cast in the Shareholders’ Meeting, then 14 members of the Supervisory Board are taken from the list that obtained the majority of the votes and one member of the Supervisory Board is taken from the list which received the second greatest number of votes;

b.2) if the list which received the second greatest number of votes, received at least 15% and less than 30% of the votes cast in the Shareholders’ Meeting, then thirteen members of the Supervisory Board shall be taken from the list which received the majority of the votes and two members of the Supervisory Board shall be taken from the list which received the second greatest number of votes;

b.3) if the list which received the second greatest number of votes, received at least 30% of the votes cast in the Shareholders’ Meeting, then twelve members of the Supervisory Board shall be taken from the list which received the majority of the votes and three members of the Supervisory Board shall be taken from the list which received the second greatest number of votes.

If, after identifying the candidates to be taken from the two lists which received the majority of the votes on the basis of the order in which they are indicated on the lists to which they belong, the gender proportions required under Law No. 120 of 12th July 2011 or the additional proportion specified in paragraph 8 of Article 36 of the Articles of Association (“Furthermore, the composition of the Supervisory Board must ensure, in compliance with the provisions of Law No. 120 of 12th July 2011, that a balance is maintained between genders for the period provided for by that law and at least the majority of the members of the Supervisory Board must not have occupied the position of member of the Supervisory Board and/or member of the Management Board of the Bank continuously for the three previous terms of office”) are not complied with, then those members of the Supervisory Board taken last from the aforementioned lists whose appointment would violate the said legislation and regulations are considered not elected. In this event the number of those Board Members indicated on the same list to which they belong shall be appointed which allows compliance with the composition requirements for the Supervisory Board in accordance with Law No. 120 of 12th July 2011 and with the Articles of Association, again proceeding in the order in which those persons are indicated on the list to which they belong. In particular, in this circumstance, the candidates to be appointed belonging to the gender that is less represented on the basis of the results of the vote or which allow compliance with the additional proportion specified in paragraph 8 of article 36 of the Articles of Association shall be taken from each list in proportion to the total number of candidates elected on each list according to the results of the

19

voting. In this event, if the minority list has not complied with the gender proportions established by Law No. 120 of 12th July 2011, or do not allow compliance with the additional proportion specified in paragraph 8 of Article 36 of the Articles of Association the candidates to be appointed shall be taken from the list that obtained the greatest number of votes only. If only one list is validly proposed and this obtained the majority required for an ordinary Shareholders' Meeting, then all 15 members of the Supervisory Board shall be taken from that list. The Shareholders’ Meeting shall proceed by a relative majority vote to appoint those members of the Supervisory Board, who for any reason whatsoever could not be elected by means of the procedures described above or if no list at all is submitted, again in compliance with the requirements for the composition of the Supervisory Board pursuant to Law No. 120 of 12th July 2011 and to the Articles of Association; in the event of a tied vote the candidate more senior by age is elected. If two or more lists obtain an equal number of votes, those lists must be voted on again until they no longer receive an equal number of votes. The positions of Chairman and Senior Deputy Chairman of the Supervisory Board are reserved to the first and second members respectively on the list that obtains a majority of votes, or on the only list presented or to the members appointed as such by the Shareholders’ Meeting if no list is presented at all. Deposit of lists The lists of candidates, together with the accompanying documentation, must be deposited according to one of the following procedures: - at the “Relations with Shareholders Service” of the Bank at 8 Piazza Vittorio Veneto Bergamo by, and

not later than, 5.00 p.m. on 8th March 2016; - by sending them by certified electronic mail to the following address

“soci.comunicazioni@pecgruppoubi.it”, by the absolute deadline of 8th March 2016 and by attaching the documents in pdf format with a digital signature.

The lists received by the ”Relations with Shareholders Service” will be progressively registered and numbered on the basis of the day and time of receipt. When lists are deposited, a receipt will be issued by the Bank for the delivery of the list and of the attached documentation. In compliance with the regulations in force, the lists submitted shall be made available to the public at least twenty one days before the Shareholders' Meeting on a storage facility named “1info” (www.1info.it) and they will also be published on the corporate website of UBI Banca “www.ubibanca.it – Shareholders Section – Shareholders’ Meetings – April 2016 Shareholders’ Meeting”. In order to facilitate procedures for the submission of lists of candidates to the Supervisory Board, the following may be downloaded from the UBI Banca website “www.ubibanca.it – Shareholders Section – Shareholders’ Meetings – April 2016 Shareholders’ Meeting” as examples to follow: - format of the letter accompanying the lists containing the list of documentation that must accompany

them; - a template for the declaration by candidates containing their acceptance of their candidature and

certifying that they are in possession of the requirements for taking up the position required by the law and regulations, with regard also to the requirements set by Art. 36 of the Articles of Association;

- a facsimile of the declaration pursuant to Art. 144-sexies paragraph 4, letter b) of the Issuers' Regulations.

DOCUMENTATION FOR THE SHAREHOLDERS’ MEETING The documentation relating to the items on the agenda is deposited and made available to the public at the registered address of UBI Banca, on the website of the Bank (www.ubibanca.it,– Shareholders’ Section) and is filed on the storage facility named “1info” (www.1info.it) within the time limits and according to the procedures of the Law and regulations. Shareholders may view and obtain copies of the aforementioned documentation in accordance with the law by applying in advance to the “Relations with Shareholders Service”. This notice to convene is published in accordance with Art. 125-bis of the Consolidated Finance Act and with Art. 15 of the Articles of Association on the corporate website of UBI Banca “www.ubibanca.it – Shareholders Section – Shareholders’ Meetings – April 2016 Shareholders’ Meeting” and an abstract of it is published in daily newspapers(Il Sole 24 Ore and MF). It is also communicated on the storage facility named “1info” (www.1info.it) in accordance with provisions of the law and regulations currently in force. In accordance with Legislative Decree No. 196/2003, UBI Banca S.p.A. is the personal data controller. Full information on personal data processing is provided on the corporate website www.ubibanca.it. Bergamo, 16th February 2016

The Chairman of the Management Board

Franco Polotti

20

Consolidated Financial Statements of the UBI Banca Group

as at and for the year ended 31st December 2015

22

CONSOLIDATED MANAGEMENT REPORT

24

The macroeconomic scenario1

In 2015 the international scenario was increasingly conditioned by a series of geopolitical and other factors, which slowed the pace of economic recovery and accentuated volatility on the financial markets:

Unfolding of the Greek crisis At the end of June the government called a halt to negotiations in progress to prolong financial support, deciding to submit the proposal presented by creditor institutions and countries to a referendum on 5th July. That proposal subjected the extension to compliance with stringent budgetary targets for the period 2015-2018 and the approval of important reforms, including on pensions. Despite the fact that the No vote won the referendum, the difficult liquidity situation facing the Greek banks meant that on 13th July the heads of state and of government in the euro area reached an agreement to open negotiations for a third financial support programme, according to which the European Stability Mechanism (ESM) will lend Greece a maximum of €86 billion over a three-year period. Delivery of the aid is fully dependent on approval by the Greek parliament of a reform programme designed to guarantee the sustainability of public finances, ensure financial stability and strengthen the economy’s potential for growth and competitiveness. A programme of privatisations is also planned, from which proceeds of €50 billion are expected. The first tranche of aid amounting to €13 billion was paid on 20th August, and at the same time the ESM allocated a sum of €10 billion for intervention to assist the Greek banking system. The ability to carry out reforms also appears to be supported by the results of general elections held on 20th September, which saw the victory of Prime Minister Tsipras.

Signs of a slowdown in the Chinese economy Doubts over the real pace of expansion in China, gradually heightened by the publication of a series of poorer than expected macroeconomic data and by the repeated devaluation of the yuan renminbi in August, were at the origin of the turmoil in the country’s financial market over the summer and again in early 2016, which had a knock-on effect on the other major international markets. Between the middle of June and the end of August, Chinese share prices adjusted after the exceptional rise in the first half, and recorded a prolonged fall, losing approximately 40%. There were more falls in share prices in the first ten days of 2016. Government authorities adopted a variety of support measures, both of a fiscal and a monetary nature, reaffirming their determination to support the economy. This situation helped weaken international commodity prices, with negative repercussions on major exporters, and on Brazil in particular2.

Geopolitical factors Despite the fact that a nuclear deal was reached between the United States and Iran in July, resulting in the lifting of economic sanctions3 against the country, tensions in the Middle East remain high, also as a result of the break in diplomatic relations between Iran and Saudi Arabia. There have been a series of terrorist attacks by Islamic groups around the world, and North Korea declared that it has tested a hydrogen bomb.

The European Union4. The wave of migrants heading for continental Europe remains a matter for concern. The European Union is struggling to reach a shared strategy for tackling the problem that does not involve an albeit partial revocation of the Schengen Agreement seen by some countries as the only solution. The political stalemate following elections in Portugal and Spain, victory of the nationalist, conservative right in Poland and prospect of a referendum in the United Kingdom on remaining in the European Union, together with the attacks in Paris last November, are further elements of uncertainty about the future of the Europea project, increasingly at risk of the dominance of national interests.

In 2015 the peripheral country government bond spread continued to fall, thanks also to the launch of public sector securities purchasing programmes by the ECB. As the graph shows, the spread between 10-year BTP and German Bund yields – which peaked in early July after

1 Prepared on the basis of data available as at 28th January 2016.

2 In September Standard & Poor’s downgraded the country's foreign currency debt to speculative level, (BB+ with negative outlook), followed in December by Fitch, which downgraded all the country's debt to BB+ with negative outlook.

3 After the preliminary agreement reached in July, in January 2016, the nuclear deal was signed in Vienna by Iran, the US and the EU, after the International Atomic Energy Agency (IAEA) verified Iran's commitment to reducing its nuclear activity and to abandoning its objective of building a nuclear bomb.

4 The European Union (EU) is a economic and political alliance of 28 European countries, of which: Nineteen countries have adopted the euro as their official currency and are known as the euro area (Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain and, from 1 January 2015, Lithuania); seven countries have not yet met the economic and legal criteria for joining the monetary union (Bulgaria, Croatia, Poland, Czech Republic, Romania, Sweden and Hungary) and two countries (Denmark and the United Kingdom) have negotiated an exemption allowing them not to adopt the euro.

25

the Greek referendum – then fell sharply back to below 120 basis points once an agreement of the Greek debt crisis had been found. Since the beginning of October, based on expectations of an extension to the Quantitative Easing plan, which was decided in December, the spread has remained at a record low, ending the year at 97 basis points (134 at the end of 2014).

In view of the fragility of the recovery and the imbalances existing at world level, the major central banks continued to pursue accommodative monetary policies during 2015, even if a divergence between policies in the United States and Europe began to emerge and take hold at the end of December.

As concerns the European Central Bank: In order to achieve adequate expansion of the Eurosystem’s balance sheet, and counter risks associated

with an excessively long period of low growth in prices, on 22nd January 2015 the ECB decided to extend its programme to purchase securities for monetary policy purposes, which previously included asset-backed securities and covered bonds only, to securities issued by member countries and by some public sector agencies in the area (which included those of the Cassa Deposito e Prestiti (a state controlled fund and deposit institution), as well as by some European institutions. The Public Sector Purchase Programme on the secondary market was launched on 9th March and amounts to a total of €60 billion per month. At the beginning of September the Governing Council of the ECB increased the maximum limit that may be purchased for a single issue of public sector securities to 33% (from the 25% initially agreed). Following increased uncertainty in the macroeconomic scenario, on 3rd December the Council decided to take action on the Quantitative Easing programme, adding regional and local securities issued in the euro area to the public sector securities that can be purchased, with reinvestment of the repayments on maturity of the securities purchased, and extending the programme expiry date from the end of September 2016 to the end of March 2017, and at least until inflation in the euro area comes in line with the monetary policy target (around 2%)5;

effective for three months, four other operations aiming at longer-term financing (TLTRO) were concluded, in addition to the two concluded in September and December 20146. Participants in the sixth tender on 16th December numbered 55 intermediaries in the euro area, who obtained funds of €18.3 billion (a total of €418 billion in the first six tenders). The Bank of Italy allotted €2.7 billion to its counterparties (€118 billion since the beginning of the programme);

5 As at 8th January 2016, €500 billion of government securities, €144 billion of covered bonds and €15 billion of ABS had been purchased.

6 From March 2015 to June 2016 the banks can make quarterly borrowings of up to three times the amount of their net lending to the euro area non-financial private sector (excluding residential mortgages to households), again with maturity in September 2018. Should they not reach their targets by 30th April 2016 (borrower growth no higher than the assigned benchmark) they will be required to pay back in full all the funds obtained by 30th September 2016. At the meeting on 22nd January 2015 the ECB decided to apply the same interest rate to the remaining TLTRO as to the principal refinancing operations (0.05%), eliminating the additional spread of 10 basis points applied to the first two operations carried out in 2014.

0

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G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D

Ten-year BTP-Bund spread

2010 2011

BasisPoints

20132012

Source: Thomson Financial Reuters

2014 2015

26

the rate on the principal refinancing operations has been kept at the record low of 0.05%, while in December the rate on bank deposits with the ECB was reduced by 10 basis points, and currently stands at -0.30% (from -0.20%)7.

The recent developments on the macroeconomic front, in the financial markets and in commodity prices have increased the risks of downward growth and, above all, of falling inflation in the euro area. At the meeting on 21st January 2016, a proposal was made for the March steering committee to consider introducing new expansionary measures, which could involve both a further cut to deposit facility interest and the extension/expansion of the securities purchasing programme. Across the Atlantic, as expected, the last annual meeting of the Federal Reserve confirmed the start of monetary tightening, with the first rise in interest rates for nine years. In view of the substantial improvement in the labour market and inflation, aiming to achieve the medium-target of 2%, in December the Fed Funds reference rate range was increased by 25 basis points, marking a departure from the policy of zero interest rates in place since December 2008. The Federal Reserve confirmed that subsequent rises will be gradual and will be monitored on the basis of the effective developments in inflation and the macroeconomic framework, in order to avoid the possibility of excessive imbalances between the major world economies in the medium term.

In December the Bank of Japan reaffirmed its objective for its monetary base by resuming its programme to purchase 80 thousand billion yen per year in securities, at the same time announcing that it has expanded the range of securities that can be purchased8.

The People’s Bank of China gradually reduced both its compulsory reserve requirement ratio by a total of 250 basis points (now at 17.5%) and its one-year interest rate on bank loans (down to 4.35%) by a total of 125 basis points. After modifying its regime for pegging exchange rates at the beginning of August9, the Chinese central bank launched a massive campaign to support the market with strong injections of liquidity to encourage purchases of equities and with the sale of currency reserves to curb the depreciation of the Chinese currency.

Except for Brazil, the central banks of the other principal emerging countries progressively loosened their monetary policies 10.

On the forex market, 2015 saw the euro become weaker against all the main international currencies, especially the dollar. This trend came to a halt mid-year following uncertainties about when the US would start monetary tightening, and picked up again in the last quarter when the expectations of contrasting

monetary policies on the part of the central banks became a reality in their respective economies. From August the yuan was devalued against the dollar on several occasions, once again sparking concerns over the real magnitude of the slowdown in progress in the world's

7 At the meeting on 3rd December, the ECB also decided to retain the principal refinancing operations and the quarterly operations, using the fixed-rate full allotment tender mechanism, at least until the end of 2017.

8 In the last week of the year, it was decided to increase the duration of Japanese government bonds that can be purchased (from 10 to 12 years) and to allocate 300 billion yen to purchasing ETFs on shares of companies committed to increasing investment and salaries.

9 The Chinese authorities have decided to change their procedures for pegging daily exchange rates for the renminbi to the dollar, linking it to trading on the previous day. This decision, designed to give more weight to market forces in the determination of exchange rates, translated into a sudden, although small, depreciation in the renminbi. The International Monetary Fund welcomed the government's initiative, and at the end of November decided to make the yuan a reserve currency, including it in the basket of currencies with Special Drawing Rights (together with the dollar, euro, yen and pound). Despite this recognition, also intended to avoid competitive devaluations of the currency in response to the slowdown in the economy, in December the Chinese authorities reduced the fluctuation range of the yuan against the dollar to the lowest level since 2011, as a stress test for the currency prior to the expected rise in rates on the part of the Fed. In January the publication of macroeconomic data that were less favourable than expected once again led to strong tensions on the Chinese market, resulting in yet more intervention by the government to avoid excessive volatility on the financial markets.

10 In India the central bank made four reductions (in January, Match, June and September), bringing the repo rate gradually down to 6.75%. The Russian central bank also sought to try and bring interest rates down, cutting the official rate, now at 11%, (200 basis points in January, 100 in March, 150 in April, 100 in June and 50 in July). Conversely, the central bank of Brazil tightened monetary policy further by raising the reference rate five times (in January, March, April, June and July) to its current 14.25%, in order to bring inflation within the target range.

Dec-15A

Sep-15B

Jun-15C

Mar-15D

Dec-14E

% change A/E

Euro/Dollar 1.0860 1.1176 1.1135 1.0730 1.2097 -10.2%

Euro/Yen 130.65 133.93 136.39 128.89 144.78 -9.8%

Euro/Yuan 7.0504 7.103 6.9037 6.6515 7.5057 -6.1%

Euro/Franc CH 1.0880 1.0871 1.0415 1.0435 1.2026 -9.5%

Euro/Sterling 0.7368 0.7386 0.7086 0.7240 0.7766 -5.1%

Dollar/Yen 120.30 119.84 122.49 120.12 119.68 0.5%

Dollar/Yuan 6.4921 6.3556 6.2000 6.1990 6.2046 4.6%

Futures - Brent (in $) 37.28 48.37 63.59 55.11 57.33 -35.0%

CRB Index (commodities) 176.14 193.76 227.17 211.86 229.96 -23.4%

Source: Thomson Financial Reuters

The main exchange rates and oil (Brent) and commodities prices

27

second largest economy, and making the yen more attractive as it strengthened against other major currencies.

The macroeconomic framework

In 2015 world economy growth was slightly down from the previous year and unevenly distributed, reflecting China's loss of momentum and a slowdown in other emerging countries, including Russia and Brazil. This was partially offset by growth in India and in advanced economies, especially the United States, while Japan and the euro area saw weak improvements11. The short-term outlook has continued to see especially low inflation rates in all the main industrialised countries, and inflation remains high in just a few of the emerging economies. The price trend is mainly due to the collapse in oil prices, as well as the generalised continuing downturn in the price of other commodities, due also to the loss of momentum in China, the world's leading consumer of commodities.

11 According to the most recent estimates of the International Monetary Fund (January 2016), world GDP grew by 3.1% in 2015 (+3.4% in 2014), again driven by emerging countries, albeit at a slower pace (+4%; +4.6% in 2014), while the contribution from the advanced economies remained small (+1.9%; +1.8% in 2014). The FMI revised 2016 world economic growth forecasts downwards (+3.4%), underlining the risks arising from the weak Chinese economy, as well as from the fall in oil prices and the monetary tightening implemented by the Federal Reserve.

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G F M A MG L A S O N D G F M A MG L A S O N D G F M A MG L A S O N D G F M A MG L A S O N D G F M A MG L A S O N D G F M A MG L A S O N D G F M A MG L A S O N D

Euro-dollar and dollar-yen exchange rates (2009-2015)

€/$ $/Yen (right)

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Brent oil prices (2009-2015)

2009 2010 2011 2012 2013 2014 2015

28

After stabilising at around 65 dollars a barrel between April and June, the price of Brent oil continued to fall in the second half, losing over 40% and ending the year at 37 dollars a barrel, the lowest since February 2009. The reason for this dramatic fall, as shown in the graph, is first and foremost overproduction by the OPEC countries, due to the decision to abandon the strategy first put in place in 1992 of setting an agreed production target, but also to expectations of a rise in supply from Iran after the lifting of international sanctions, in the face of extremely weak demand. In the first few weeks of the new year, the breaking off of diplomatic relations between Iran and Saudi Arabia increased the volatility of crude oil prices, which reached new lows.

In the third quarter, growth of the US economy was more moderate. Short-term GDP rose by an annualised 2% (+3.9% in the second quarter and +0.6% in the first quarter) thanks to consumption, which remained high, and to fixed investments, although these were down on the previous quarter. Meanwhile the contribution of inventories was extremely negative, and net exports fell, penalised by the stronger dollar. After six consecutive rises in GDP, the initial data for the fourth quarter seems to indicate continuing growth, albeit at a slower pace. On the labour market conditions gradually improved during the year, with the unemployment rate down to 5% since October, in line with levels in April 2008 (5.6% at the end of 2014). As a result, average unemployment in 2015 (5.3%) was also lower than the previous year (6.2%). Inflation remained more or less at zero for much of the year, rising to 0.7% in December, not far off the level at the end of 2014 (0.8%). The core index (net of food and energy products) also saw a slight acceleration in the last few months, ending at 2.1% in December (1.6% at the end of 2014). The average figure for 2015 was 0.1% (1.6% in 2014). Between January and November, the balance of trade deficit rose to 488 billion dollars (up 5.5% year on year), despite the significant improvement in the balance of trade with OPEC countries (which became a surplus), as a result of a higher deficit with China, the euro area and other emerging economies in Asia. In 2015 China, the world's second largest economy, saw another slowdown, with GDP up 6.9% year on year (the year-on-year increases for the four quarters were +6.8%; +6.9%; +7% and +7% ), compared with +7.3% in 2014, reflecting the continuing weakness in investments in the real estate sector and its supply chain, together with a reduction in trade12. The main indicators of domestic demand continue to show significant year-on-year growth, although there has been a gradual slowdown compared with previous years: fixed investments

12 In 2016 China could be recognised as a market economy according to the rules of the World Trade Organisation (WTO). In 2001, after China joined the WTO, it was decided that after 15 years the European Union would assess whether to award China market economy status with the resulting elimination of the anti-dumping tariffs that prevent the sale of products abroad at a price below a fair production cost. Any such proposal will have to be presented by the European Commission during 2016, and any resulting legislative document will have to be approved by the European Parliament and Council by a majority of the twenty-eight European Member-States, which at the moment do not seem to hold a unanimous view.

Actual and forecast data: industrialised countries

Percentages2014 2015(2) 2016(2) 2014 2015(1) 2016(2) 2014 2015(1) 2016(2) 2014 2015(2) 2016(2) Dec-14 Dec-15

United States 2.4 2.5 2.6 1.6 0.1 1.1 6.2 5.3 4.9 4.9 4.0 3.5 0-0,25 0,25-0,50

Japan 0.0 0.6 1.0 2.8 0.7 0.4 3.6 3.5 3.5 7.5 6.6 5.7 0-0,10 0-0,10

Euro Area 0.9 1.5 1.7 0.4 0.0 1.0 11.6 11.0 10.5 2.6 2.0 1.8 0.05 0.05

Italy -0.4 0.8 1.3 0.2 0.1 0.7 12.7 12.2 11.9 3.0 2.6 2.4 - -

Germany 1.6 1.5 1.7 0.8 0.1 1.2 5.0 4.7 4.7 -0.3 -0.9 -0.5 - -

France 0.2 1.1 1.3 0.6 0.1 1.0 10.3 10.2 9.9 3.9 3.8 3.4 - -

Portugal 0.9 1.6 1.5 -0.2 0.5 1.3 14.1 12.3 11.3 7.2 3.0 2.9 - -

Ireland 5.2 4.8 3.8 0.3 0.0 1.5 11.3 9.6 8.5 3.9 2.2 1.5 - -

Greece 0.8 -2.3 -1.3 -1.4 -1.1 0.0 26.5 26.8 27.1 3.6 4.6 3.6 - -

Spain 1.4 3.2 2.7 -0.2 -0.6 0.9 24.5 21.8 19.9 5.9 4.7 3.6 - -

United Kingdom 2.9 2.2 2.2 1.5 0.1 1.5 6.2 5.6 5.5 5.7 4.4 3.0 0.50 0.50

(1) Official statistics or, if unavailable, forecasts Sources: IMF, European Economic Forecasts and Official Statistics

(2) Forecasts

Gross domestic productConsumer prices

(average annual rate)Unemployment

(average annual rate)Deficit (+) Surplus (-)

Public sector (% of GDP)Reference interest

rates

29

+10%, real estate investment +1% (+10.5% in 2014), retail consumer sales +10.7% and industrial output +6.1% (manufacturing +7%). With regard to the balance of trade, year-on-year trends for exports (-2.8%) and imports (-14.1%) in the 12 months resulted in a surplus of $594.5 billion, which helped support currency reserves which stood at $3.330 billion at the end of December, the lowest since November 2012, around one third of which are stably invested in United States government securities. After a sharp fall in January, inflation has remained close to the levels at the end of 2014 (1.5%) peaking to 2% once in August, and ending the year at 1.6%, driven by the food component and the tobacco/alcoholic beverage segment.

In Japan the economy has continued to fluctuate, with GDP rising by 0.3% quarter-on-quarter in the third quarter (-0.1% in the second quarter and +1.1% in the first quarter), as a result of the positive, if modest contribution of consumption, investments and net exports (the latter being particularly exposed to the Asian and emerging markets), while inventories saw a slight slowdown. The initial figures for the fourth quarter seem to indicate signs of a moderate recovery. The confidence level measured by the Tankan quarterly survey appears to have improved only for small to medium-sized non-manufacturing companies, while the industrial production index showed conflicting signals, with a year-on-year increase of 1.7% in November after three consecutive falls, but a month-on-month decrease of 0.9%. In December the unemployment rate, which has been fairly stable since March, stood at 3.3% (3.4% in December 2014). Inflation was 0.2% (2.4% in December 2014), also due to the absence since April of the statistical impact of the increase in consumer tax in April 2014. In the euro area growth continued, but remained fragile. In the third quarter GDP rose 0.3% quarter-on-quarter (+0.4% and +0.5% respectively in the second and first quarters), supported by an improvement in inventories and a sustained, if modest, contribution from consumption compared with a negative balance of trade and zero contribution from investments for the second consecutive quarter. The initial evidence for the fourth quarter seems to confirm the recovery at a similar pace to the previous quarter, with performance more more less uniform in the principal countries. The €-coin indicator calculated by the Bank of Italy – which provides an estimate of the underlying dynamic of European GDP – has been improving since November, and in December reached its highest level since July 2011, driven by household consumption, the labour market trend and the recovery in industrial production. So far the recent attacks in Paris seem to have had a modest impact on the household and business confidence in the area overall. In France there have however been concerns about the possible repercussions on the services sector, especially on tourism. Figures for industrial output continued to fluctuate in the short-term (-0.7% in November; +0.8% in October), reflecting the performance of the major economies (-0.5% in Germany; -0.9% in Spain; -0.5% in Italy). Conversely, the long-term figure showed consecutive increases since the beginning of the year, although not at a constant rate (+1.1% in November). In November the unemployment rate fell to 10.5%, the lowest since October 2011 (11.4% at the end of 2014), due to the critical situations in Greece (24.6% in September), Spain (21.4%) and Portugal (12.4%).

Actual and forecast data: the principal emerging countries

Percentages 2014 2015(2) 2016(2) 2014 2015(1 ) 2016(2) 2014 2015(1) 2016(2) Dec-14 Dec-15

China 7.3 6.9 6.3 2.0 1.4 1.8 4.1 4.1 4.1 5.60 4.35

India 7.0 7.3 7.5 6.7 5.4 5.5 n.a n.a n.a 8.00 6.75

Brazil 0.1 -3.8 -3.5 6.3 9.0 6.3 4.8 6.6 8.6 11.75 14.25

Russia 0.5 -3.7 -1.0 7.8 15.8 8.6 5.1 6.0 6.5 17.00 11.00

(1) Off icial statistics or, if unavailable, forecasts Sources: IMF, European Economic Forecasts and Off icial Statistics

(2) Forecasts.

Gross domestic productConsumer prices (average

annual rate)Unemployment (average

annual rate)Reference interest

rates

30

Inflation in the euro area remained extremely low, ending the year at 0.2% (-0.2% at the end of 2014). Core inflation, net of foodstuffs and energy products, was instead 0.9%, basically unchanged year on year (0.7%). Average annual inflation was zero (0.4% in 2014). Growth prospects in the euro area are under the threat posed by continuing uncertainties about demand in important potential sales markets, especially in emerging countries. In addition, increased geopolitical tensions, especially in the Middle East, could have a negative impact on confidence levels and contribute to holding back the recovery in consumption and business activities on a global level. The third quarter saw the Italian economy come out of recession, although growth remains fairly moderate. Over the summer months, the short-term change in GDP was +0.2%, slightly down on the two previous quarters (+0.3% and +0.4% respectively in the second and first quarters), due to the positive contribution of consumption13 and inventories, offsetting the negative contribution of net exports and gross fixed investments. Based on the information available, the recovery seems to have continued at similar rates also in the fourth quarter, supported by the services industry, and more favourable signals from the real estate market. After the appreciable progress recorded in October (+3%), industrial output figures adjusted for seasonal effects recorded a smaller month-on-month increase of +0.9% in November, the aggregate result of opposing performances in different sectors. The largest increases were in the “manufacture of means of transport” sector (+13.6%), the “manufacture of coke and oil products” sector (+10.5%) and the “manufacture of chemical products” sector (+5.2%), while the main decreases were seen in the “textiles" sector (-5.1%), the "manufacture of computers, electronic and optical products” (-4.9%) and the “food” sector (-3,6%). Encouraging signals came from the labour market with the unemployment rate, which remained essentially stable in the first part of the year, progressively down to 11.3% in November from 12.4% in June (12.4% also in December 2014). Measures to reduce social security contributions for new recruits introduced by the 2015 Legge di stabilità (“Stability Law” – annual finance law) and the innovations contained in the Jobs Act 14 caused a significant change in the composition of new recruits in favour of stable forms of employment contract, also favouring growth in the demand for labour. After peaking in June (42.2%), the unemployment rate for 15-24 year-olds settled at 38.1% in November, the lowest level since the beginning of the year, although still amongst the highest levels in the euro area (41.2% at the end of 2014)15. The overall figure continues to be mitigated by state income benefits, which saw a significant reduction in state lay-off and redundancy benefits between January and November: 634.8 million hours authorised compared with the 963.1 million of the same period of 2014 (-34.1%), due to a general reduction of the various components (-26.1% ordinary hours; -29.4% overtime; -55.4% redundancy funds). After a slight recovery in the summer months, inflation, as measured by the harmonised consumer price index, was only slightly up in December (0.1%; -0.1% at the end of 2014). Average inflation for the year was 0.1%, slowing for the third consecutive year (0.2% in 2014), with particularly significant slowdowns in the “Transport” and “Communications” sectors. The surplus on the balance of trade improved to €39.2 billion in the first eleven months (€36.2 billion in the same period of 2014) due to a substantial surplus on non-energy products, two thirds of which is stably attributable to plant and equipment, which more than offsets the energy deficit (-€31 billion). The overall surplus was driven by higher volumes of trade, with exports up by 3.8% year-on-year – albeit held back by the fall in demand from non-European countries – and imports up by 3.3%.

13 The recovery in consumption reflects an increase in income which is benefiting, amongst other things, from budgetary policies already in place with further prospects for improvement in view of intervention programmed for 2016.

14 The last four decrees to implement the Jobs Act came into force on 24th September (Legislative Decrees No. 148, No. 149, No. 150 and No. 151 of 14th September 2015), in addition to the four issued in the first half of the year (Legislative Decrees No. 22 and No. 23 of 4th March 2015; Legislative Decrees No. 80 and No. 81 of 15th June 2015).

15 This figure gives young people unemployed as a percentage of total young people in employment and in the process of being employed.

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On the question of public finances, according to official forecasts, which take into account the 2016 Stability Law approved by Parliament in December, in 2016 the deficit-to-GDP ratio is expected to fall to 2.4% from its 2015 level of 2.6% (3% in 2014), while the debt-to-GDP ratio should decrease to 131.4% from its 2015 level of 132.8% (132.3% in 2014). When drawing up its budget for 2016 and the following years, the Italian government asked the EU Council to apply the flexibility margins under the clause for investments, structural reforms and the immigration emergency16.

Based on the latest available data, as at 11th August 2015 funding of €44.6 billion had been made available to debtor administrations, of which €38.6 billion had already been paid to creditors.

Financial markets

In 2015 the stock market trend was favourable for the European exchanges, with the sole exception of London, and for Japan, despite the considerable fluctuations during the year. As the table shows, the positive start of the first three months was followed by significant losses from April to September, with a partial recovery in the latter part of the year. The markets were first of all conditioned by the continued uncertainty about the launch of the exit strategy by the Fed, in addition to the adoption and subsequent expansion of quantitative easing measures by the ECB. The Greek crisis, Volkswagen scandal, Chinese financial upheaval and greater-than-expected fall in oil prices all contributed to causing an overall adjustment of stock prices. Having risen in the first half, the MSCI index – an indicator of performance by emerging markets – recorded a fall of over 18% in the second half, as a result of the sharp drop in Chinese stock prices.

In the first few weeks of the new year, fresh fears about the strength of the Chinese economy, high terrorism risks and geopolitical tensions kept volatility levels high. The Milan Stock Exchange was also affected by unjustified fears about the solidity of the Italian banking system.

The stock markets managed by Borsa Italiana – which delivered the best performance in Europe – were penalised in the middle part of the year, but ended 2015 with gains of more than 12%. This result was accompanied by an increase in volumes, in terms of both assets managed (71.1 million; +6.9%) and to an even greater extent in volumes (€805.6 billion; +11.3%). Borsa Italiana confirmed its position as European leader in the volume of contracts exchanged on the electronic systems, including both ETF Plus and MOT. In particular, ETF Plus achieved a record number of contracts exchanged in August. The volumes of assets managed reached €47.7 billion (+29.3% year-on-year), while trading volumes rose to €104.3 billion (+41,6%) over the twelve months. Conversely, trading volumes on the fixed income markets (MOT and ExtraMOT) during the year fell to €281.1 billion (down 14.6%) with a smaller fall in the assets managed (4.7 million, -4.4%).

16 The main measures provided for by the Stability Law concern cancelling for 2016 the safeguard clauses introduced by the Stability Laws for 2014 and 2015 (which would have mainly led to increases in consumer taxes), the abolition of taxation on main residence ownership and the extension of employment incentives. In the course of its passage through Parliament, the Stability Law also incorporated Decree Law No. 183 of 22 November 2015 (on the rescue plan for four banks) and a packet of measures to help the cultural sector and strengthen national security due to the high risk of terrorist attacks in the wake of recent events.

The principal share indices in local currency

Dec-15A

Sep-15B

Jun-15C

Mar-15D

Dec-14E

% change A/E

Ftse Mib (Milan) 21,418 21,295 22,461 23,157 19,012 12.7%

FTSE Italia All Share (Milan) 23,236 22,845 23,985 24,734 20,138 15.4%

Xetra Dax (Frankfurt) 10,743 9,660 10,945 11,966 9,806 9.6%

Cac 40 (Paris) 4,637 4,455 4,790 5,034 4,273 8.5%

Ftse 100 (London) 6,242 6,062 6,521 6,773 6,566 -4.9%

S&P 500 (New York) 2,044 1,920 2,063 2,068 2,059 -0.7%

DJ Industrial (New York) 17,425 16,285 17,620 17,776 17,823 -2.2%

Nasdaq Composite (New York) 5,007 4,620 4,987 4,901 4,736 5.7%

Nikkei 225 (Tokyo) 18,451 17,388 20,236 19,207 17,451 5.7%

Topix (Tokyo) 1,510 1,411 1,630 1,543 1,408 7.2%

MSCI emerging markets 794 776 972 975 956 -16.9%

Source: Thomson Financial Reuters

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At the end of the year 356 companies were listed at Borsa Italiana, up from 342 at the end of 2014, with 3217 new admissions, the best result since 2007. Capitalisation reached €573.6 billion, up from €482.4 billion at the end of 2014, equivalent to 35.3% of Italian GDP (29.8% the previous year). Turnover velocity18 fell from 150% in 2014 to 140% in 2015, reflecting the different growth dynamics of trading volumes and capitalisation.

In the light of the continuing unusually low interest rates and maturity yields of government bonds, 2015 was another extremely favourable year for the asset management industry (€141 billion in net funding), albeit driven by mutual investment funds. Net inflows for the sector continued to slow, but reached a total of €94.3 billion, the best result since 1999, two thirds of which came from funds managed under foreign law (+68 billion) and the remainder from funds managed under Italian law (+26.3 billion). In terms of the type of fund, good performance was recorded, although to differing extents, by all the main categories: by flexible funds (+€51.5 billion), bond funds (+€14.9 billion), balanced funds (+€12.4 billion), equity funds (+€9.5 billion) and monetary products (+€6.6 billion), with hedge funds basically stable (-€0.6 billion). At the end of December assets under management had reached €842.6 billion compared with €683.3 billion at the end of 2014 (+23.3%), the aggregate result of a change in the composition in percentage terms into flexible funds (up from 22% to 24.2%), into equity funds (up from 20.7% to 21.7%), into balanced funds (up from 6.4% to 8%), into monetary funds (up from 3.9% to 4.1%) and out of bond products (down from 46.1% to 41.4%).

The banking system

The fragility of the background environment continues to affect the Banking sector, in which the trend for funding remains negative, due among other things to the continuing weakness of lending, which was weaker during the year, compared with a slight improvement in credit quality.

17 The 32 new admissions include 27 companies that were listed on the Borsa italiana markets through an Initial Public Offering (IPO) and collected more than €5.7 billion at the placement stage. Note also that the Poste Italiane IPO, which collected more than €3 billion in capital, is the biggest IPO in the last ten years (since 2006).

18 An indicator which, as the ratio of the volumes of shares traded to capitalisation, gives a measure of the turnover of shares traded.

0.00

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G FM AMG L A S O N D G FM AMG L A S O N D G FM AMG L A S O N D G FM AMG L A S O N D G FM AMG L A S O N D G FM AMG L A S O N D

Principal long-term interest rates (2010-2015)

US 10-year Treasury 10-year BTP 10-year Bund

2010 2011 2012 2013 2014 2015

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On the basis of the first estimates published by the Italian Banking Association (ABI)19, at the end of December the year-on-year rate of change in direct funding (deposits by residents and bonds) was slightly down at -0.6% (-1.2% in December 2014). A clear gap remains between funding from bonds (-13% compared with -13.6% at the end of 201420) and other forms of funding (+3.7% compared with +4% in December21). As shown by detailed Bank of Italy data for November22, the latter item is benefiting both from an increase in current account deposits (+6.3%) and from a recovery in repurchase agreements (+8.8%) that occurred in 2015, notwithstanding the reduction in term deposits with maturities of up to two years (-14.7%). Again according to Italian Banking Association (ABI) reports, the annual change in loans to private sector residents was slightly positive (+0.1%; -2% in December 2014). In terms of borrowers, information for November published by the Bank of Italy23 – which takes account of loans not recognised in the balance sheets of banks because they are securitised and are net of changes in amounts not connected with transactions (e.g. changes due to fluctuations in foreign exchange rates, to impairment or to reclassifications) – shows a continuation of the positive trend that started in June for households after a fall lasting two and a half years, and a return to growth for businesses for the first time since 2012, thanks also to increasingly attractive terms and conditions. The trend for the former (+0.8%; -0.6% in December 2014) is affected by the favourable performance of new grants for the purchase of residential properties and consumer credit, while the performance for non-financial companies, while still improving (+0.2%; -2.3% at the end of December 2014), is still conditioned by a lack of demand, especially with regard to investments, even though new grants are recovering. From the viewpoint of risk, while signs of improvement exist, they still seem modest. In November bad loans (previously termed "non-performing loans") to the private sector gross of impairment losses 24 increased to €200.6 billion, progressively slowing year-on-year (+11% down from +17.8% in 2014). The total outstanding consisted of €54 billion to households (+9.4% compared with November 2014; +8.1% in 2014) and of €143.3 billion to businesses (+10.3%; +20.7% in 2014). Net bad loans of €88.8 billion increased by 4.7% over the twelve months (+5.6% in 2014). As a result of the combined effect of the performances of the relative totals, the ratio of gross private sector bad loans to private sector loans rose to 12.09% (11.11% December 2014), while the ratio of net bad loans to total loans rose to 4.89% (4.64% at the end of 2014). Securities issued by residents in Italy held in the portfolios of Italian banks stood at €746.8 billion in November, down €69.7 billion year-on-year (-8.5%). The trend almost fully reflects that for “other certificates” (€340 billion), which fell sharply compared with the year before (-€64.8 billion), due mainly to bonds issued by banks (-€52.8 billion), accounting for an even lower percentage of the total at 63.3%. Investments in Italian government bonds (€406.8 billion) essentially remained stable (-€4.9 billion; -1.2%), also in terms of the breakdown into short-term and medium to long-term securities. The average interest rate on bank funding from customers calculated by the Italian Banking Association (ABI)25 (which includes the yield on deposits, bonds and repurchase agreements for households and non-financial companies) was down at 1.19% (1.5% at the end of 2014). The average weighted interest rate on loans in euro to households and non-financial companies fell to a record low of 3.26% (3.62% in December).

19 ABI Monthly Outlook, Economia e Mercati Finanziari-Creditizi, January 2016. 20 The changes were calculated by excluding the portion included within securities portfolio investments from bond funding. The

trend for the item was affected by the significant volumes of maturing securities as well as by the abundant and competitive liquidity injected into the banking system by the ECB and short-term lines of financing.

21 The changes were calculated by excluding amounts relating to disposals of loans and transactions with central counterparties from deposits.

22 Supplement to the Statistics Bulletin Moneta e Banche, 13th January 2016. 23 Press release: “The main items on banks’ balance sheets”, 13th January 2016. 24 Supplement to the Statistics Bulletin Moneta e Banche, 13th January 2016. 25 ABI Monthly Outlook, Economia e Mercati Finanziari-Creditizi, January 2016.

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* * * As regards the regulatory issue of implementing the banking union – referred to in the next chapter “The European Banking Union” – 2015 was the first full year in which the Single Supervisory Mechanism was in place. Important progress was also made in the introduction of the Single Resolution Mechanism, which became fully operative in 2016. European Directive 2014/49/EU (Deposit Guarantee Scheme Directive – DGSD) is still in the process of being transposed in some countries, including Itally and it will form the third pillar of the Union. The domestic regulatory plan saw the important reform of the "banche popolari" (cooperative-type people's banks), which required banks with assets in excess of €8 billion euro to convert into "societa' per azioni" (joint-stock companies) within 18 months of the implementing measures of the Bank of Italy coming into effect (i.e. by the end of 2016). In addition to this, there have been ongoing changes to the regulatory framework for Italian banks, requiring substantial alignment efforts26, especially of a fiscal nature. Among the many new measures introduced to fiscal regulation – for which reference should be made to the specific paragraph in the “Other information” – Law No. 95 of 18 June 2015, which transposed the Common Reporting Standard (CRS) and the Directive on Administrative Cooperation (DAC 2) (amending the existing directive DAC), introduced the automatic exchange of information between tax administrations in the EU Member-States on the basis of CRS requirements. Both the CRS and DAC 2, in effect since 1st January 2016, aim to promote cooperation between Member-States for the purpose of combating tax evasion linked to offshore investments and effectively constitute a multilateralisation of the FATCA (Foreign Account Tax Compliance Act), which became law on 1st July 2014.

To resolve the problem of a lack of access to credit for companies, Decree Law (D.L. No. 83/2015) was published in the Official Gazette on 27th June and converted into Law No. 132/2015 in August. It contains urgent measures concerning bankruptcy, civil law and proceedings and the organisation and functioning of judicial administration. As well as making credit impairment and losses immediately deductible for tax purposes, the measures include regulations to make bankruptcy and executive proceedings quicker and more efficient, in order to take direct action on some of the causes of the huge stock of bad loans. An agreement which Italy finally managed to reach with the EU (for its compatibility with the law on state aid) should, it is hoped, provide an incentive to the creation of a secondary market for non-performing assets (previously termed "deteriorated assets") . The agreement involves securitising bad loans and providing a government guarantee for the senior tranches, to be managed by special vehicles set up for the purpose by the individual banks. The total reform of bankruptcy law should also take place during 2016. Already in early January, a bill has been presented to the government for the "systematic reform of the regulations governing businesses in crisis and insolvency".

Finally, as already reported, Directive 2013/50/EU amended Directive 2004/109/EC (the “Transparency directive”) in order to simplify and reduce the administrative costs for listed companies and ensure greater transparency about the ownership of companies issuing securities admitted to trading on a regulated market. The public consultation convened by the Ministry of Economy and Finance regarding the amendments to the provisions of Legislative Decree No. 58 of 24 February 1998 (the Consolidated Banking Act) necessary for transposing the aforementioned directive, based on the delegation contained in Law No. 114 of 9th July 2015, ended on 27th October 201527. The draft legislative decree is currently being examined by Parliament. The amendments contained in the aforementioned consultation document affect various provisions of the Consolidated Banking Act and, once they have been made, will require a further amendment to CONSOB regulations, in order to implement the reform.

26 See the section “Significant events in 2015” for further information. 27 The 2014 European Delegated Act requires the Government to comply with the following directive criteria when transposing the

directive in question: 1) to raise, where necessary, the minimum threshold of share capital held for communications regarding significant shareholdings; 2) to grant CONSOB the power to introduce publication requirements for periodical reporting more frequently than the annual and half-yearly financial statements in its rules, subject to an appropriate impact assessment; 3) to make the necessary amendments to the existing legislation in order to ensure adequate transparency is applicable to the information provided by issuers, in order to guarantee an appropriate level of protection for investors and to safeguard financial stability as broadly as possible, ensuring the most appropriate information and accuracy requirements are in place.

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European banking union

European Banking Union is a necessary complement to Economic and Monetary Union (EMU), as it unifies responsibility for supervision, crisis resolution and financing, harmonising regulations for euro-zone banks. European Banking Union is built on three pillars. While the Single Supervisory Mechanism can now be said to be fully up and running having completed its first full year, during 2015 important progress was made towards implementation of the Single Resolution Mechanism (SRM), introduced with European Directive 2014/59/EU (the Bank Recovery and Resolution Directive – BRRD), which came into full effect this year. The aim of this mechanism is to guarantee that the burden of every resolution is first and foremost shouldered by the affected bank and its shareholders – and if necessary by the bank’s creditors – with the Single Resolution Fund only intervening to provide aid if the contributions from shareholders and creditors prove to be inadequate. With effect from 1st January 2015, each national resolution fund will have to work towards reaching a target capacity equal to at least 1% of the total amount of covered deposits, a target that must be reached by 31st December 2024. As of 1st January 2016 these national funds are set to merge into the Single Resolution Fund managed by the new Single Resolution Board, which will have an 8 year period (from 1st January 2016 to 31st December 2023) to gather resources equivalent to at least 1% of total covered deposits in the euro zone (around €55 billion). In 2015 banks in the member states participating in Banking Union (which include Italy) deposited their contributions with their respective national funds. In 2016 these contributions will be transferred to the Single Resolution Fund. European Directive 2014/49/EU (the Deposit Guarantee Scheme Directive – DGSD), which came into force in June 2014, is still in the transposition phase in some countries, including Italy. The Directive created a common deposit guarantee scheme, stipulating that each member state institute a deposit guarantee scheme (DGS) to reimburse holders of protected financial instruments if the deposit-holding bank is declared bankrupt and the deposited funds become unavailable. All banks must participate in one of these systems, and as of the second half of 2015, provide annual funding contributions (ex-ante) based on their respective risk profiles, among other factors. These funding contributions must make up at least 70% of the overall funding of the DGS, while the remaining 30% will be able to be generated from payment commitments (guaranteed by low risk assets). By 3rd July 2014 the target level for these funds should amount to at least 0.8% of the covered deposits in each member state. For information on the accounting impact of contributions to the two Funds, refer to the Notes to the Consolidated Financial Statements, Part A.1, Section 5 “Other Aspects”.

Italian approval of “bail-in” rules for banks (transposition of BRRD)

European Directive 2014/59/EU – BRRD – harmonised recovery and resolution regulations for banks and investment firms. Law No. 114 of 9th July 2015 (the “2014 European Delegation Law”) indicated the mandated criteria for the transposition of BRRD into national legislation. On 10th September 2015 the Italian Cabinet granted preliminary approval for 2 legislative Decrees governing the transposition of the Directive. Specifically, Legislative Decree implementing Directive 2014/59/EU of the European Parliament and the Council of 15th May 2014 contains rules for drawing up resolution measures, managing crises at international groups, the powers and functions of the national resolution authority and guidelines for the national resolution fund. Related activities are the responsibility of the resolution authority, a function assigned to the Bank of Italy in accordance with the specific criterion within the law.

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As allowed by the Directive and provided for within the Delegation Law, application of the bail-in mechanism will commence on 1st January 2016 (for more information see the dedicated section later in this chapter). The Legislative Decree amending Legislative Decree No. 385 of 1st September 1993 (the Consolidated Banking Act) and Legislative Decree No. 58 of 24th February 1998 (the Consolidated Finance Act) implementing Directive 2014/59/EU of the European Parliament and the Council of 15th May 2014 amends the Consolidated Banking Act with the introduction of rules on recovery and resolution plans, intra group financial support and early intervention measures, while bringing procedures for the special administration of banks into line with European regulations. It also amends the rules for compulsory administrative liquidation so that they comply with the regulatory scenario introduced with the Directive, and introduces some innovations in light of current practice. On 6th November the Italian Cabinet approved two legislative decrees amending the original legislation in order to transpose the postponement of “extended depositor preference”1 to 1st January 2019, acknowledging the indications received from the Senate Finance Committee when it issued its positive view. Following approval by the Chamber of Deputies’ EU Policy Committee, the Cabinet definitively issued two decrees at its 13th November 2015 meeting – Legislative Decree No. 180/2015 and Legislative Decree No. 181/2015 – both of which came into force on 16th November 2015, the day of their publication in the Official Journal. With a provision dated 18th November 2015, the Bank of Italy formed the national resolution fund stipulated in the Directive, in accordance with article 78 of Legislative Decree 180/2015. The bail-in The bail-in is an instrument that, when the conditions for the resolution of a credit institution arise, allows the resolution authority to reduce the value of shares and some debt or convert debt into equity to absorb losses and adequately recapitalise the bank to levels that will ensure the market’s confidence is retained. The following are completely excluded from the scope of application, and therefore cannot be impaired or converted into capital: i) deposits (current accounts, savings accounts and certificates of deposit) protected by the deposit

guarantee system, i.e. with a value up to €100,000; ii) guaranteed liabilities, including covered bonds and other guaranteed instruments; iii) liabilities deriving from the holding of customer assets or in virtue of a fiduciary relationship, such as

the contents of safety deposit boxes or securities held in an appropriate account; iv) interbank liabilities (excluding intra-group items) with an original duration of fewer than 7 days; v) liabilities deriving from participation in payment systems with a residual duration of fewer than 7 days; vi) payables towards employees, commercial and fiscal payables, provided they are assigned preferential

status by bankruptcy regulations. Any liabilities that are not explicitly excluded can therefore be included in the bail-in. Nevertheless, in exceptional circumstances, such as when inclusion in the bail-in mechanism could jeopardise financial stability or compromise the continuity of essential functions, the authorities can, at their discretion, exclude other liabilities. Any such exclusions are subject to specific limits and conditions, and must be approved by the European Commission. Losses not absorbed by creditors that are excluded on a discretionary basis may be transferred to the resolution fund, which can intervene for up to a maximum of 5% of total liabilities, provided that the bail-in mechanism contributes a minimum of 8% of total liabilities. The priority ranking for the bail-in is as follows: i) shareholders; ii) holders of other equity instruments, iii) other subordinated creditors; iv) unsecured creditors (holders of bonds and other eligible liabilities); v) private individuals and small companies with deposits in excess of €100,000; vi) the deposit guarantee fund, which contributes to the bail-in on behalf of protected depositors. For some time now, as part of its commitment to maintaining fair and transparent relations with its customers, the UBI Banca Group has undertaken to inform them of the new

1 The draft transposition initially stipulated that depositor preference be extended to all categories of deposits, not just those held by private investors and small companies as indicated in the Directive. The Italian Banking Association (ABI) proposed a postponement of this extension to 2019 to avoid holders of senior bonds issued by banks having financial instruments in their portfolios that had a different risk profile to what was advised at the time of issue.

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regulations for the resolution of banking crises, and in particular of the use of the bail-in mechanism. This information has been provided along with periodical account statements sent to customers as well as in compliance with existing regulations regarding contractual information. With regard to liabilities that would potentially be subject to a bail-in, UBI Banca confirms that it intends to maintain the level of its own funds and subordinated liabilities comfortably above 8% of total liabilities, in order to guarantee the Group’s solidity and protect its customers’ interests.

The resolution and rescue of four Italian banks

Decree Law No. 183 was issued on 22nd November 2015 and came into force the following day. The Decree Law contained urgent measures for the banking sector, and resolved the crisis situation at four Italian banks operating under special administration: Banca delle Marche, Banca Popolare dell’Etruria e del Lazio, Cassa di Risparmio di Chieti e Cassa di Risparmio di Ferrara. On the same date, the Ministry for the Economy and Finance approved a provision that initiated the resolution of the four banks. The resolution plan, which was compliant with European regulations on State Aid, involved: • the separation of deteriorated assets from performing loans; • the foundation of a “bad bank”, without a banking licence, to which the entire residual

stock of non-performing loans was transferred once the losses had been covered with shares and subordinated bonds, with the resolution fund providing the additional capital required to address the shortfall. These non-performing loans will be sold to credit recovery specialists or managed directly in order to recover as much of the value as possible;

• the foundation of four new joint stock companies (in accordance with article 1 of the above-mentioned Decree Law), each of which would be named after one of the four existing banks with the inclusion of the adjective “Nuova” (“New”). These new banks are to operate as bridge institutions in accordance with article 42 of Decree Law 180/2015, with the aim of ensuring continuity of the essential functions previously carried out, and when market conditions allow, selling the equity participations or rights, assets or liabilities acquired. These banks are temporarily managed by special administrators appointed directly by the Bank of Italy’s Resolution Unit2. The share capital of the four newly-formed banks was entirely underwritten by the National Resolution Fund. In order to allow the Fund to gather the liquidity required to make a timely intervention, the following measures were agreed:

the payment, by Unicredit, Intesa Sanpaolo and UBI Banca, of: - €2,350 million of financing (783 million euro from each bank) to be reimbursed at the

end of 2015 from contributions deposited with the Italian banking system fund; - €1,650 million of financing3 (of which €516.7 million pertaining to UBI Banca) with

maturity of 18 months less one day, to be repaid with the proceeds of the disposal of the bridge institutions. Cassa Depositi e Prestiti undertook to make up any shortfall if the Fund is unable to do so when the financing expires;

The payment, over and above the ordinary contribution for 2015, of an extraordinary contribution totalling up to three times the amount of the ordinary contribution, in accordance with article 83 of Decree Law 180/2015. For UBI Banca the total cost, booked under “Other administrative expenses” was €87.3 million, comprising a €22 million ordinary contribution (vs. the estimated €22.8 million booked in the interim accounts) and a €65.3 million extraordinary contribution booked in the fourth quarter (a non-recurring item).

Despite the best efforts of the special administrators, a market solution could not be found for the four banks in question, which between them have a market share of around 1% in terms of deposits. Nor were the banks able to avail themselves of the Interbank Deposit Protection Fund, which had already indicated

2 On 30th December the Bank of Italy began the process for the disposal of the four bridge institutions, with the appointment of financial, strategic and legal consultants.

3 Of which €100 million as a commitment to disburse funds (UBI Banca’s quota amounts to €33.,3 million).

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that it was ready to intervene but was prevented from doing so by European Commission officials, who consider such an intervention as equivalent to state aid even though this fund acquires its financing from the private sector. Given the rapid deterioration of the companies in question, the Bank of Italy’s Resolution Unit exercised the powers afforded to it under new European crisis management regulations (introduced in Italy by Legislative Decrees 180/2015 and 181/2015 that came into force on 16th November 2015, as described in more detail above). This avoided the activation of the bail-in mechanism, which came into force on 1st January 2016 and would have had extensive repercussions for savings held at the banks in the form of deposits, current accounts and ordinary bonds. According to the extremely prudent assessment criteria employed by the Bank of Italy, the losses accumulated by these banks over time were initially absorbed by the riskiest investment instruments: shares and subordinated bonds, with the features of the latter exposing them to corporate risk. Resorting to shares and subordinated bonds to cover losses is an explicit precondition for the orderly resolution of banking crises, according to European regulations (article 27 of Legislative Decree No. 180/2015). For its part, the Government subsequently approved measures to assist savers caught up in these banking crises. The publication of the Official Journal on 30th December brought the “Stability Law” (annual finance law) into force (Law No. 208 of 28th December 2015). Among other things, this law introduced reimbursement procedures for the holders of subordinated bonds issued by the banks in question: - the formation of a “solidarity fund” for up to a maximum of €100 million, initially funded by the

Interbank Deposit Protection Fund which will also be responsible for its management. The solidarity fund will act on behalf of individual savers and businessmen who, at the time that Decree Law 183/2015 came into force, owned subordinated financial instruments issued by the four banks. By 30th March the Ministry for the Economy and Finance must issue legislation establishing how the solidarity fund will operate, including conditions for access, quantification criteria and the procedures to be followed;

- the foundation of a dedicated fund from CONSOB’s budget (“Fund for Extrajudicial Protection of Savers and Investors) with the aim of facilitating access for savers and investors that are not investment professionals to the greater protection offered as part of out of court settlements of disputes, potentially including free access.

Transposition of DGSD in Italy

The Deposit Guarantee Schemes Directive (2014/49/EU) aims to enhance the protection granted to all depositors and to harmonise regulations across the EU, compelling all member states to adopt an ex-ante financing system. Law No. 114 of 9th July 2015 converted into law the Draft Bill that granted the Government a mandate to transpose the European Directive and implement other European Union legislation (the “2014 European Delegation Law”). On 14th November Government Bill No. 241 was presented, containing a draft of the legislative decree that would transpose the DGS Directive. The new rules govern the financing capacity of guarantee systems, their scope and mode of operation, cooperation with EU guarantee systems and supervisory powers, which have been assigned to the Bank of Italy. The draft decree was sent to the 6th Permanent (Finance and Treasury) Committee for consultation on 15th November 2015, and on 21st December 2015 the Committee expressed a favourable view subject to a series of conditions. While awaiting completion of the transposition process, the Interbank Depositor Protection Fund (Fondo Interbancario Tutela dei Depositi - FITD), in its role as the national deposit guarantee system, adjusted its articles of association with the aim of bringing some of the Directive’s provisions into effect. Specifically, the changes refer to: - the early introduction of the new ex-ante financing mechanism, aimed at funding the FITD

as stipulated by European Directive 2014/49/EU on deposit guarantee systems; - a voluntary intervention scheme to support banks in special administration, entering

bankruptcy or at risk of bankruptcy.

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Specific capital requirements demanded by ECB

Following the Supervisory Authority’s completion of the first Supervisory Review and Evaluation Process (SREP), which involved an in-depth assessment of the balance sheets of the leading banks in the euro zone, on 25th February 2015 UBI Banca received a communication indicating the consolidated capital requirements for the bank in 2015: a Common Equity Tier 1 capital ratio of 9.5% and a Total Capital Ratio of 11%. On 27th November the ECB, with reference to the 2015 SREP exercise, announced its decision on the capital requirements to be met as of 1st January 2016, which lowered the Common Equity Tier 1 capital ratio requirement to 9.25% from the previous 9.50%. On 6th January the ECB’s Supervision department published its 2016 priorities for euro zone banks of significant dimensions, identifying the following five areas that it will scrutinise in more depth: business model and profitability risk; credit risk; capital adequacy; risk management and data quality; liquidity.

EBA transparency exercise, 2015

On 24th February 2015 the EBA’s Board of Supervisors announced its decision to carry out a Transparency Exercise in 2015, with a view to increasing compliance and improving transparency within the European banking sector. The following April the Board defined the methodology and scope of the transparency exercise, and in May to July 2015, in cooperation with participating banks, it agreed details of the process and the statistics that would be compiled and subsequently published. As far as possible, data collection was based on information already supplied to the EBA as part of periodical supervisory reports (namely FINREP and COREP) and the majority of the statistics were compiled centrally by the EBA and subsequently forwarded to banks and supervisory authorities for verification. The only exception to this process involved statistics relating to the exposure to sovereign risk and leverage ratios, which were compiled directly by the banks. On 24th November 2015 the EBA published the results of the Transparency Exercise, reporting data on capital positions, risk exposure and asset quality broken down for each individual bank. Data was reported for 105 banks – including Gruppo UBI Banca – from 21 European countries: this extensive scope meant that the exercise covered around 70% of European banking assets as at 31st December 2014 and 30th June 2015. The figures highlight the increased resilience of the banking sector: specifically, European banks demonstrated that they have continued to strengthen their capital positions, a fundamental requirement for increasing the support provided to the real economy. Asset quality and profitability levels also improved, although some critical situations persisted. According to the data reported, problem loans made up around 6% of total loans, but with major differences between different countries and individual banks. During 2015 some progress was made on profitability, although margins remained weak both in a historical context and in relation to the estimated cost of capital. In terms of the exposure to sovereign risk, the exercise highlighted that in June 2015 investments in Italian government bonds remained substantial, but were gradually falling: indeed, banks indicated a rising exposure to non-domestic government securities.

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Significant events in 2015

The transformation of UBI Banca from a joint stock co-operative company into an ordinary joint stock company

The transformation of UBI Banca into a joint stock companies took effect on 12th October 2015 when the resolution of the Extraordinary General Meeting of the Shareholders held on 10th October was filed with the Company Registrar of Bergamo.

The process of reforming the “popular” co-operative banks in Italy began on 20th January 2015 with approval, by the Council of Ministers, of the Decree Law establishing entitled “Urgent Measures for the Banking System and Investment” (Decree Law No. 3 of 24th January 2015). Article 1 of the Decree, which went into effect the following 25th January following publication in the Official Journal, amended Article 29 of the Consolidated Finance Act by introducing a new paragraph 2-bis, which sets a cap of €8 billion on the assets of “popular” co-operative banks and establishes the obligation to call a general meeting of shareholders, in the event of exceeding this limit, concerning transformation of the bank into a joint-stock company. On 25th March, Law No. 33 of 24th March 2015, which converted the Decree Law, was published in the Official Journal. The final text confirmed the threshold of €8 billion assets for the transformation of “popular” co-operative banks into joint-stock companies, with the possibility of inserting a ceiling on voting rights in shareholders meetings in the articles of association, provided it was not less than 5% of the share capital with the right to vote, for a maximum period of 24 months from the entry into force of the law (i.e. 26th March, the day following publication in the Official Journal). Once the consultation procedures were concluded, on 9th June the Bank of Italy issued secondary legislation to implement the law, which came into force on 27th June 2015, thereby allowing the corporate operations needed to comply with the new legislative framework (to be completed within 18 months as established by the law) to begin. In compliance with the provisions for the initial application of the regime, the Supervisory Board of UBI Banca, which met on 16th June 2015, verified that the consolidated assets of the Group exceeded the limit of €8 billion, and it therefore resolved to commence procedures to transform UBI Banca into a joint stock company, with the definition of a new text, on the basis of a proposal from the Management Board, for the articles of association to submit for approval by the shareholders. The Supervisory Board had also identified amendments to the Articles of Association, again on the basis of a proposal from the Management Board, to be made before that transformation in compliance with regulatory provisions concerning co-operative companies as follows: - the increase to ten of the maximum number of proxies that may be granted to a registered shareholder

for participation in Shareholders’ Meetings; - the decision-making powers of the Supervisory Board concerning the limitation or the postponement,

in full or in part, of the redemption of shares subject to withdrawal from the company1; - the repeal of the provision concerning the status of registered shareholder for eligibility for filling

positions as company officers. The key steps in the transformation process were completed during the third quarter of the year:

1 With reference to the redemption of the shares subject to withdrawal, as part of the provisions of Law No. 33 of 24th March 2015, paragraph 2-ter was introduced to article 28 of the Consolidated Banking Act and it states “the right to the redemption of shares in the event of withdrawal, even following transformation, death or exclusion of the registered shareholders, is limited according to the provisions made by the Bank of Italy, even as an exception to the provisions of the law, where that is necessary to ensure the inclusion of the shares in the Common Equity Tier 1 regulatory capital of the bank”. The Bank of Italy issued the relative implementation regulations, stating that the articles of association of the bank shall grant the body responsible for strategic supervision (based on proposals from the body with the management function and having received an opinion from the control functions) with the power to limit or postpone, wholly or in part and with no limit on the time, the redemption of shares and other capital instruments of registered shareholders withdrawing from the company. On the question of the limit to the redemption of shares subject to withdrawal, the necessary authorisation from the Bank of Italy to reduce the own funds of the bank remains unchanged, according to the provisions of article 77 of Regulation (EU) No. 575/2013 and the Commission Delegated Regulation No. 241/2014.

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• on 8th September 2015 the Bank of Italy issued the following authorisations in relation to: - amendments to the articles of association of the co-operative company in compliance

with regulatory provisions, approved by the Supervisory Board on 4th September with a resolution that was notarised and filed with the Bergamo Company Registrar on 11th September;

- the new text of the articles of association of the joint stock company drawn up by the Supervisory Board in a meeting on 16th June;

• A notice to convene a Shareholders’ Meeting was published on 9th September (convened in first call on 9th October and in second call on 10th October) to resolve, in the extraordinary session, on the proposal to transform into a joint stock company and the consequent adoption of new articles of association and, in the ordinary session, on amendments to the Regulations for Shareholders’ Meetings to comply with the aforementioned provisions of the articles of association as a consequence of the change in the legal form of the Bank. In consideration of the fact that in accordance with article 2437, paragraph 1 of the Italian Civil Code, the transformation involved the right of withdrawal from the company for registered shareholders who did not approve the resolution (as well as for other shareholders), on that same date the amount of the payment for the UBI Banca shares which may be subject to withdrawal was announced. That amount – set at €7.2880 per share – was calculated in compliance with article 2437-ter, paragraph 3 of the Italian Civil Code, by making exclusive reference to the arithmetic average of the closing prices of the UBI Banca share in the six months prior to the publication of the notice to convene. At the same time the Bank disclosed the criterion it intended to follow in its decisions on possible withdrawal communications, in line with recommendations on the matter made by the Supervisory Authority. As defined by the Supervisory Board based on the proposal of the Management Board and the opinion of the Internal Control Committee, this criterion consists in observing a threshold (11.74% at the time it was defined2) on the Common Equity Tier 1 ratio (the “CET1 ratio”) once fully phased in. This ratio which is the ratio of the Common Equity Tier 1 capital to risk-weighted assets is the primary indicator of capital strength monitored by the ECB;

• with a view to continuing the traditional dialogue with the shareholder base, which has accompanied the important phases in the life of the bank, in the second-half of September the senior management of the Bank illustrated the transformation operation to registered shareholders in a series of meetings entitled “UBI Banca: tradition and innovation”. These meetings were held in towns and cities with a large presence of registered shareholders: Bergamo, Brescia, Cuneo and Milan, linked up by video connections with Darfo-Boario Terme and Varese. The initiative met with substantial appreciation, with the various stages of the roadshow attended by over two thousand participants.

• In a press release of 8th October 2015, UBI Banca took note of the decisions taken by the Regional Administrative Court of Latium the day before, confirming the proper conduction of the shareholders’ meeting on the scheduled dates. On 7th October the Regional Administrative Court of Latium had in fact ruled on three applications to suspend provisions adopted by the Bank of Italy in implementation of the reform of “popular” co-operative banks. They had been filed with the court by two consumer associations and by some shareholders of banks. The court set the date for the trial hearings on 10th February 2016 for the two applications which contested the constitutional legitimacy of the reform, the applicants having withdrawn the suspension application. With regard to the third application, which regarded the regulations to implement the law to reform “popular” co-operative banks adopted by the Bank of Italy and, in particular, the ban on the formation of a holding company, controlled by shareholders in the form of a co-operative, which holds the majority stake in a joint stock company, the Regional Administrative Court rejected the application to suspend the provisions made by the applicants because it did not find that the condition of “grave and irreparable” damage had been met. The trial hearings were therefore also adjourned for this application to the above-mentioned hearing of 10th February 2016;

2 The threshold of 11.74%, fully phased in, was calculated as the arithmetic average of the CET1 ratio of 9.50%, required of UBI Banca by the ECB in a note dated 25th February 2015 (the “SREP decision” ratio), plus 150 b.p. and the average capitalisation as at 31st December 2014 of banks subject to single European supervision, equal to 12.48%.

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• the Shareholders’ Meeting therefore met in second call on 10th October and in the extraordinary session it approved the proposal to transform UBI Banca into a joint stock company and consequently adopt new articles of association. The resolution was approved in the presence of 5.032 Registered Shareholders (approximately 2.500 attended in person), representing 20.91% of the share capital. Votes in favour were 4.975 equivalent to 20.88% of the share capital and 98.87% of the votes cast, while the votes against were 26 with 31 abstentions. Subsequently an ordinary session of the shareholders’ meeting approved related amendments to the Regulations for Shareholders’ Meetings;

• on 12th October the resolution for the transformation into a joint stock company, with the consequent adoption of new articles of association was filed with the Company Registrar of Bergamo. Registered shareholders of UBI Banca who did not approve the resolution and other holders of UBI Banca shares were able to exercise their right of withdrawal within the time limits and according to the procedures laid down by article 2437 bis of the Italian Civil Code and therefore before and not later than 27th October 2015 (fifteen calendar days following the date of the filing of the shareholders’ resolution with the Bergamo Company Registrar). The procedures for the exercise of the right of withdrawal were published, amongst other things, in the newspapers “Il Sole 24 Ore” and “MF” on 13th October. At the end of the period set, the right of withdrawal was found to have been validly exercised on 35,409,477 shares, representing 3.927% of the paid-up and subscribed share capital of UBI Banca. The total value, calculated on the basis of the payment amount of €7.2880 per share was €258,064,268.38.

• in accordance with article 2437-quater of the Italian Civil Code, on 11th November 2015, the option offer (with the ratio of one share for every 24.4259 rights held) on the shares subject to withdrawal, with pre-emptive rights on any options not exercised, was filed with the Bergamo Company Registrar. The option offer began the following day and ended on 12th January 2016;

• on 26th January 2016, UBI Banca reported that, upon completion of the option offer period and pre-emptive rights on the shares withdrawn, requests to purchase 58,322 shares in UBI Banca were received (at the aforementioned price of €7.2880 per share). The 35,351,155 shares withdrawn for which options were not exercised were put on the Italian screen-based stock market, Mercato Telematico Azionario (MTA), for the day of 28th January 2016 by way of Banca Akros SpA. As none of these shares were purchased, on 3rd February 2016 settlement of the sale and purchase of the 58,322 UBI Banca shares subject to the exercise of option and pre-emption rights took place (distributed among the withdrawing shareholders in proportion to the number of shares subject to withdrawal). The payment of the amount for the shares purchased as well as the assignment of the shares in favour of those holding those rights took place through Monte Titoli and the respective intermediaries;

• with regard to the 35,351,155 shares that were not purchased following the option offer and pre-emptive rights and subsequent placement on the MTA, the Management Board, at its meeting of 10th February 2016, took note of the fact that, based on the criterion specified in the report to the shareholders published on 9th September 2015 (see above) and following the SREP decision of November 2015, the new CET1 threshold, now fully phased in, is 11.62%3, whereas the actual CET1 ratio calculated as at 31st December 2015 is 11.64%. Therefore, the Supervisory Board has been presented with a proposal to redeem 1,807,217 shares (rounded up to 1,807,220 shares in order to ensure equal treatment of the withdrawing shareholders with the same number of withdrawn shares), and a decision is expected to be reached in their meeting of 18th February 2016 after hearing the opinion of the Internal Control Committee. Based on the settlement price of €7.288 per share, the total value of the 1,807,220 shares to be redeemed is €13,171,019.36. Once the Supervisory Board has approved the proposal to redeem the 1,807,220 shares in UBI Banca, payment to the withdrawing shareholders may be made once the required authorisation for the reduction of own funds is obtained from the competent supervisory authority in accordance with the provisions contained in articles 77 and 78 of Regulation

3 Following the SREP decision of 27th November 2015, which reduced the CET ratio required by the ECB to 9.25%, the threshold was as follows: [(9.25% + 1.50%) + 12.48%]/2 = 11.62%

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(EU) No. 575/2013 and also Section 2 of the Commission Delegated Regulation (EU) No. 241/2014. It is expected that the relative investigation procedures carried out by the competent supervisory authority should be completed by the end of next March.

The new Articles Of Association of UBI Banca Spa In 2015 UBI Banca made a series of amendments, as did its subsidiary banks, to its articles of association designed to implement provisions issued by the Bank of Italy (updates No. 1 and No. 7 of Circular No. 285 of 17th December 2013) in order to implement the provisions of the CRD IV Directive4 in national legislation. This was then followed by those mentioned above as required of the co-operative company in light of the transformation authorised by the Bank of Italy on 8th September. The new text submitted to the Shareholders’ Meeting of 10th October 2015 was therefore drawn up following an approach that focuses specifically on the provisions no longer compatible with the new status of a joint stock company and on other changes that are in any case related to, connected with and a consequence of the amendments mentioned. The main questions subject to amendment concerned the following:

• acceptance as a registered shareholder: all the provisions relating to acceptance as a registered shareholder were repealed because not compatible with the form of a joint stock company, where the figure of the registered shareholder is precisely the same as that of any other shareholder. In a joint stock company the mere ownership of shares normally automatically grants the bearer both financial rights and corporate management rights;

• the provision of a limit on voting rights: as is permitted in the transition period by Law No. 33 of 24th March 2015, a limit is inserted on voting rights equal to 5% of the share capital for 24 months from the date of entry into force of the aforementioned law (until 26th March 2017);

• the convening of a shareholders’ meeting: in accordance with article 2369 of the Italian Civil Code, unless the articles of association make other provision, the shareholders meetings of companies that are not co-operative companies, which make recourse to the market for risk capital are held in one single session; in this respect the Management Board may issue a single notice to convene in one session, but being able as an alternative to convene a second session and, limited to extraordinary shareholders’ meetings, a third session;

• proxy to participate in shareholders meetings: because of the change in the form of company, the status of registered shareholder as a requirement to be held by persons holding proxies to participate in shareholders meetings no longer exists, nor does the limit on the number of proxies that may be conferred on the same person exist any more. Consequently, the new articles of association no longer contain the relative provisions;

• the composition of the Management Board and the Supervisory Board: in compliance with and in observance of the provisions of the Bank of Italy on the question of corporate governance, the number of members of the Management Board is set at 7 and the number of members of the Supervisory Board at 15 (supervisory regulations state that the total number of members of the Management Board and the Supervisory Board must not be greater than 22);

• the secret ballot for shareholders’ resolutions to appoint company officers: this was repealed because it constitutes a specific feature of co-operative companies, where a secret ballot, if it is provided for by the articles of association, is considered legitimate in virtue of the particular features of the company and the interests of worker-members and customer-members to a cast a vote that is free from potential conditioning;

4 At its meeting of 11th March 2015, the Supervisory Board, having consulted with the Management Board, approved changes to a number of the articles of the co-operative company’s articles of association. These changes concerned the following articles: 22 (Title V – Shareholders’ Meetings, revised in order to broaden the powers of the shareholders in relation to remuneration and incentive policies and practice), 46 and 49 (Title VIII – Supervisory Board, revised in relation to measures of corporate governance in order to extend the activities of the Supervisory Board to include new, specific responsibilities and to envisage the creation of Risks Committee). The shareholders, in an extraordinary session on 25th April, then approved changes to articles 22, 28 (Title V – Shareholders’ Meetings), 44 and 45 (Title VIII – Supervisory Board). As concerns the first two articles, the shareholders were granted approval powers over setting the ratio of fixed to variable remuneration for key personnel, and the related voting quorums were set. With regard to the latter two articles, the requirement of independence for members of the Supervisory Board and the criteria for establishing said board were defined. The decisions of both the Supervisory Board and the shareholders were authorised by the Bank of Italy on 7th May 2015 and filed with the Bergamo Company Registrar on the following 14th May.

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• the quorums for shareholders resolutions: because in accordance with articles 2368 and 2369 of the Italian Civil Code, the extraordinary shareholders’ meetings of joint-stock companies which make recourse to risk capital markets vote on resolutions in first session with the presence of at least one half of the share capital (if the articles of association do not provide for a higher majority) and with a vote in favour of at least two thirds of the share capital represented in the shareholders meetings and in second session with the participation of over one third of the share capital and with the vote in favour of at least two thirds of the share capital present, the increased forums for resolutions previously provided for by article 28, paragraphs 3 and 4 of the articles of association were repealed;

• simul stabunt simul cadent: a “simul stabunt simul cadent” (together they stand, together they fall) clause was introduced also for the Supervisory Board (already present for the Management Board) stating that if the positions of more than half of the members of the Supervisory Board originally elected are vacated then the entire board is retired;

• the criterion for the appointment of the Supervisory Board: the percentage of the share capital needed to submit a list for the election of the Supervisory Board has been set at 1%. This threshold takes account of the provisions of article 144-quater of Consob Resolution No. 11971/1999 (Issuers’ Regulations) (applicable also to the Supervisory Board in accordance with the combined provisions of articles 144-ter, paragraph 2 and 144-sexies, paragraph 2 of the Issuers’ Regulations), on the basis of the capitalisation of UBI Banca, standardising the different thresholds previously in force. •The articles of association of the co-operative company provided that this could be submitted either directly by at least 500 registered shareholders representing at least 0.5% of the share capital, or by UCITSs who together were holders of at least 1% of the share capital, or by the Supervisory Board with the support of 500 registered shareholders. •The possibility of the Supervisory Board submitting a list was eliminated. •The current criterion by which board members are drawn from lists, was maintained adapting it to percentages of the share capital (only two lists, those with a majority vote; assignment to the minority list of the number of board members determined on the basis of the percentage in favour obtained in Shareholders’ Meetings; elimination of the provision relating to a share capital “premium”, because it is no longer consistent in the context of a joint stock company). Therefore, continuing with the same guiding criteria provided by the previous Articles of Association, the new text of the articles provides for the assignment to the list that obtained the second highest numbers of votes of a number of Supervisory Board members varying from 1 to 3 on the basis of the percentage of votes received in the Shareholders Meeting;

• internal committees of the Supervisory Board: the provisions of the Articles of Association on the subject of internal committees of the Supervisory Board were standardised;

• the composition of the Appointments Committee: the number of members of the Appointments Committee (currently six) was reduced, providing for a minimum of three and a maximum of five members, in line with Bank of Italy provisions on corporate governance;

• transition measures: two transition regulations were introduced designed to maintain the composition of the Management Board and the Appointments Committee until the next renewal of company officers; furthermore, for all the remaining transition regulations, the reference to the date of the shareholders meeting was updated, replacing the date of 10th May 2014 with that of the date of 10th October 2015.

The formation of a risk committee In implementation of supervisory regulations concerning the corporate governance of banks and in compliance with the provisions of the Articles of Association, in a meeting of 15th September 2015, the Supervisory Board of UBI Banca formed an internal Risk Committee, composed of four members, and drew up regulations for its proceedings. The duty of the committee is to provide support to the Supervisory Board in carrying out its responsibilities in its capacity as the body responsible for strategic supervision on matters concerning risks and internal controls. It is composed of the following members of the Supervisory Board: - Lorenzo Renato Guerini – Chairman of the Committee; - Dorino Mario Agliardi; - Marina Brogi; - Federico Manzoni.

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The Supervisory Board also passed resolutions revising the Regulations for the Internal Control committee and eliminating the Accounts Committee, whose activities are now carried out by the new Risk Committee and the Internal Control Committee. See the Report on Corporate Governance and Ownership Structure of UBI Banca SpA included below for more information on the Committee’s duties.

Group optimisation

Corporate rationalisation operations The progressive discontinuation by the Group of activities that are not strictly core, such as the fiduciary business segment, led to the conclusion of the following transactions during the year: the sale, on 12th January 2015, to Corporate Family Office (CFO) SIM – a major

independent Italian brokerage focused on “family office” – of 100% of the share capital of UBI Gestioni Fiduciarie SIM Spa, a “dynamic” fiduciary company, a leader in its business segment, indirectly controlled by UBI Banca through UBI Fiduciaria Spa. Under the sale, the UBI Banca Group maintained all its commercial agreements in the “fiduciary asset management” sector;

the conclusion on 30th April of the transfer to Unione Fiduciaria Spa of the UBI Fiduciaria Spa (a company 100% controlled by UBI Banca) line of business dedicated to the management of fiduciary services for Group customers. The transaction involved maintaining commercial arrangements with the acquirer for the provision of these services through the Group’s distribution networks. •Discussions with trade unions had commenced on 4th March 2015 in order to reach an understanding designed to save jobs, maintain salary levels and more generally to focus maximum attention on possible hardship resulting from the transfer of the headquarters to Milan. Despite the hard work and great efforts made it was not possible to agree on a solution and the negotiations were therefore ended on 24th March 2015 with no agreement.

On 25th May 2015 the merger of IW Bank (the Group’s internet bank) into UBI Banca Private Investment (the network of financial advisors) took effect. Full details of the underlying reasons and implementation procedures for this merger were given in the Consolidated Management Report in the 2014 Annual Report. The banking entity that resulted from the operation took the name of IW Bank, thereby conserving a well-known and appreciated brand on the market, with registered offices located in Milan. The new bank is aimed at acquiring affluent customers in the wealth management sector and at consolidating its online trading position. Its commercial and service model is based on creating strong synergies between the online channel and the investment advisory services provided by financial advisors and wealth bankers, through the provision of a range of products consistent with the Bank’s strategic position and growth objectives. The migration of the former IW Bank’s IT platform from its previous platform onto the Group target platform, with the trading environment developed appropriately in order to ensure continuity in the provision of customer services, took place on 25th May 2015 the same date on which the merger took legal effect. This continuity was guaranteed in line with the normal time needed to get the platform up and running. In organisational terms, the model already in place within UBI Banca Private Investment was adopted, thereby confirming that the functions of governance (i.e. planning, tax and financial matters, and management control), control (i.e. risk management, anti-money laundering, and compliance), and auditing were centralised at the Parent. In the same way, mortgage lending to individuals has been transferred to UBI Banca, with the stock of existing loans now being managed as a service, whereas proprietary-portfolio management, clearing, and treasury functions have been entrusted to the Parent’s Finance unit. Management of areas of business (i.e. Trading & Markets, the Commercial Area, the network of Financial Advisors, and Wealth Banking), operational (Lending & Operations) and organisational (Human Resources &

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Organisation) support have been kept as they were under the model previously in place within both companies. On 4th February 2015, an agreement was signed which regulates the repercussions of the operation on staff. This agreement safeguards the careers of the employees concerned, setting principles for the reallocation of human resources, mobility, training and retraining, and it also lays down rules for supplementary pensions and additional health cover. On 9th June 2015 the Management Board approved the proposed merger of SOLIMM Srl into S.B.I.M. Spa. The company objects of both companies, 100% controlled by UBI Banca and both with headquarters in Brescia, are to carry out property transactions, necessary for the operations of the Group itself. More specifically, SOLIMM was formed in 1996 with the aim of the acquiring properties, for the purposes of subsequent disposal, destined to settle the lending positions of Group banks. The company has no longer been required to carry out credit recovery action since 1999, at the time of the formation of the former Banca Lombarda. Therefore, its activities focused on the disposal of properties acquired previously, and this activity was completed in March 2015. As a consequence it was considered appropriate to wind up this company and the most convenient and consistent solution to achieve this was to merge it into S.B.I.M., an owned company responsible for managing the property which houses the operating quarters of UBI Banca in Brescia. The merger went into effect on 23rd October 2015 with effect for tax and accounting purposes from 1st January 2015. The operation followed the simplified procedures allowed by article 2505 of the Italian civil code.

With regard to the preliminary sales agreement signed on 19th June 2015 between Mercury Italy Srl and the member banks of the Istituto Centrale delle Banche Popolari Spa (ICBPI)5, UBI Banca agreed to sell 4.04% of the share capital held in ICBPI. After obtaining authorisation from the competent supervisory authorities, the transaction was completed on 18th December 2015. The total price was determined based on a value of 100% of the capital of ICBPI of €2,150 million. The proportionate allocation of this price among the selling banks resulted in UBI Banca receiving €82.2 million for a capital gain in the fourth quarter, net of tax and related expenses, of €75.3 million. The positive impact on the CET1 ratio as at 31st December 2015 was roughly 10 basis points. UBI Banca has maintained a 1% stake in the share capital of ICBPI. The agreement also involves an additional price component in the form of an earn-out linked to future earnings paid to CartaSi SpA by Visa Inc. on the sale of the equity investment held in Visa Europe. Trade-union agreements aimed at controlling staff costs Given the rapidly changing legislative and regulatory landscape, which remains critical in terms of its financial impact and, above all, its effect on future earnings, and in line with actions being taken since 2012, the UBI Banca Group has deemed it necessary to continue pursuing gains in efficiency and profitability with a view to improving our positioning in a market that we hope is in recovery.

To this end – and so as to provide solutions aimed at promoting greater work-life balance – two important agreements were signed with the trade unions in the fourth quarter: on 21st November 2015, a memorandum of intent was signed that, in line with the

framework agreement of 26th November 2014 and taking advantage of the provisions of article 57 of the national trade union agreement concerning the use of flexible forms of employment, confirmed the intention of UBI Banca, as compatible with the technical, organisational and operational needs of each Group company, to grant employees attractive forms of leave (including down to a single day). For 2016, over 7 thousand requests for extraordinary leave were submitted throughout the Group for a total of roughly 137 thousand days of leave granted – compared to 120 thousand days of leave granted in 2015. These requests are currently being evaluated for approval.

5 Specifically: Credito Valtellinese, Banco Popolare, Banca Popolare di Vicenza, Veneto Banca, Banca Popolare dell’Emilia Romagna, Iccrea Holding, Banca Popolare di Cividale, Banca Popolare di Milano, Banca Sella Holding, Banca Carige, and UBI Banca; the transaction concerned the 85.29% stake held by these banks in ICBPI.

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In the same way as with the previous memorandum of 2014, the current memorandum also promotes the conversion of full-time employment to part-time, including the extension of relationships that began in 2015 and the acceptance of additional requests. A total of 130 requests have been received and most of them were accepted. With regard to maternity/paternity leave, it has also been agreed that employees taking advantage of optional leave in 2016 will be granted an additional 20% of their wages on top of those guaranteed by prevailing legislation (i.e. 30% of gross daily wages). Requests may be submitted throughout the year;

an agreement was signed on 23rd December 2015 involving voluntary redundancies for nearly 410 staff at Group level, with access to the sector “Income Support Fund”. More specifically: - 339 employees 6 were selected from among those who had made applications for

redundancy under the 2014 Framework Agreement and whose applications had then been rejected because they were surplus to the goals set (500 redundancies). Of these, only 334 confirmed the previous request for redundancy (and 317 employment relationships were actually terminated on 31st January 2016);

- an additional 70 employees (at most) may adhere to the scheme on a voluntary basis (with priority given to staff in serious conditions of health) by taking advantage of the same incentives of the aforementioned 2014 Framework Agreement, with employment to end by 31st March 2016. The exact number of such requests was not known as of the date of approval of this report.

Against those staff leaving under the Agreement, in order to support generation turnover and youth employment policies, in the two-year period 2016-2017, the Group will employ 130 new staff (plus a maximum of 30 staff in proportion to the additional 70 redundancies) both by means of new appointments and by the conversion of employment contracts already existing in the Group to permanent contracts, with account also taken of the expiry dates for existing contracts, also with resort to the use of intra-Group mobility. The actions agreed are of a strong social-sustainability nature; the acceptance of the approximately 410 redundancy applications will also give savings, when fully phased in, of around €31 million gross annually, which will help to keep staff costs down. Changes to the Group’s organisational model After the many actions taken over the years – the latest of which, as mentioned in conjunction with 2014 financial reporting given that it dates back to early 2015, affected the Group’s branch network – the need for new solutions aimed at the simplification and rationalisation of operating processes in order to promote further efficiency gains and reduce costs has led to a new move to optimise the Group’s organisational model. As such, on 25th January, the trade unions were informed of the need to begin talks. The operation, which will concern UBI Banca, UBI Sistemi e Servizi, all network banks, IWBank and Prestitalia, calls for a multitude of actions in the following areas:

- centralisation within the Parent of management of disputes and appeals to the Financial Banking Arbitrator, which is currently done by the network banks;

- changes in the medium-term segment of UBI.S, centralising a number of processes being managed by the network banks in order to create a single, specialised unit;

- further rationalisation of the branch network, including the closure of 24 branches and 25 mini branches together with the transformation of eight branches into mini-branches and four mini-branches into branches. For IWBank, the opening of four branches and nine advice centres is also planned;

- strengthening of delinquent loan management in the network banks by strengthening the presence of loan-quality experts, which will be accompanied by a strengthening of centralised management within UBI under the Chief Lending Officer;

- optimisation of the customer service units at UBI.S;

6 This is a difference of 13 compared to the figure published in the 2014 Annual Report (852 applications received and 500 approved, for a remainder of 352) due to terminations of employment occurring in the meantime.

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- rationalisation of operations and administration related to the management of outstanding UBI Banca loans (formerly B@nca 24-7 loans);

- optimisation of the organisational structure of Prestitalia, taking account of the effects of the migration to the new IT system (see below).

•On the whole, this operation will not result in redundancies, but it may require the adoption of mobility measures and career retraining. The staff that will become available once the above actions have been taken may be allocated to support commercial activities or to cover various needs within the areas of the Group affected. In accordance with the prevailing national trade union agreement, the process is to be completed by mid-March.

Developments in the regulatory context

In addition to the developments in the complex regulatory framework regarding European supervision, in 2015 the Group was compelled to commence and/or continue monitoring and compliance activities following developments which similarly are affecting the remaining regulatory framework as follows: • with regard to banking services, on 15th July 2015 the Bank of Italy published new provisions on the

subject of transparency which modify the regulations introduced in 2009 in terms of updating and simplifying them. This will require a complete review of the disclosures for all the products in the Group’s product catalogue, which is to say products still in the use by customers. For the products concerned, these disclosures must be further updated in conjunction with the expected issuance of legislative and regulatory provisions regarding the operating mechanisms of the Deposit Guarantee Fund within the scope of transposition of the Bank Recovery and Resolution Directive. •Furthermore, implementation which should be implemented by March 2016 by the Directive on residential property mortgages for retail customers, which will involve a profound revision of established practices;

• as concerns regulation of the financial markets, beginning next year, EU Member States are to adopt the measures contained in MiFID 2, along with the related implementing measures and guidelines issued by the various supervisory authorities, which establish stricter obligations in the overall provision of the various investment services to further strengthen and broaden the scope of application of the principles of customer protection (as already partially transposed and implemented CONSOB, such as in the reporting of customers’ propensity for risk and as concerns complex products) and also controls over operational integrity.

•The legal and regulatory measures governing application of the new European Market Abuse Directive (MAD 2) are to be transposed into national legislation by 1st July 2016 and are to be accompanied by complementary efforts to update the 231 Model adopted by the UBI Banca Group.

•In implementation of the measures resulting from transposition of the Bank Recovery and Resolution Directive (BRRD) and in line with the principles adopted in terms of transparency and integrity in market disclosures and the provision of investment services, the Group has also updated the prospectuses for our bond issues and has begun adapting operating procedures aimed at better safeguarding our customers and investors;

• Law No. 69 of 27th May 2015, which came into force on 14th June 2015, reformulated the crime of fraudulent accounting applicable both to listed and unlisted companies as part of the general introduction of more severe penalties for crimes against government and crimes involving the Mafia. It also established co-ordination of this with legislation governing the administrative liability of entities resulting from crimes pursuant to Legislative Decree No 231/2001. The Group has implemented a review of its 231 (administrative liability) model in order to take account of the impacts of the new regulations on certain internal processes;

• a decree of the Ministry of the Economy and Finance published on 21st April 2015 implemented EU Regulation 1210/2010 which assigns the duty to “handlers of cash” (e.g. banks, foreign exchange dealers, etc.) to verify the authenticity and state of conservation of coins in order to identify false coins and coins no longer suitable for circulation, to be sent to the competent authority. These handlers are also assigned statistical reporting tasks. Having integrated the preventive measures required by the 231 Model, the Group has begun adapting internal procedures concerning the handling of cash;

• on 15th June 2015 the Council of the European Union approved a proposal for a General Regulation on Data Protection, concerning protection for natural persons with regard to the treatment of their personal data and the free circulation of that data. When this comes into force it will repeal the

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previous European Directive on privacy (95/46/EC) and as a consequence large part of Italian law on privacy (Legislative Decree No. 196/2003);

• the amendments to the Consolidated Banking Act (article 52-bis) and to the Consolidated Finance Act (article 8-bis) by way of Legislative Decree 72/2015 introduced the obligation for Italian banks, authorised parties, and related parent companies to establish internal systems of reporting by employees (i.e. “whistleblowing”) of events or facts that could represent a violation of laws and regulations governing the banking activity concerned. This issue was also the subject of the update to the Code of Corporate Governance of Borsa Italiana SpA (July 2015), which the UBI Banca Group has adopted, and of specific supervisory measures. The Parent has implemented the procedures envisaged by the deadline of 31st December 2015 in line with the obligation to safeguard the whistleblower as required by law.7

Prestitalia Business Plan

During the year, this company, which specialises in salary- and pension-backed loans, moved forward with activity to implement its Business Plan drawn up at the end of 2014. In particular, confirmation of the Plan’s guidelines and verification of observance of legal and regulatory requirements have enabled Prestitalia to file, by way of the Parent, a request for authorisation for listing with the single register of financial intermediaries pursuant to article 106 of the Consolidated Banking Act in compliance with the new supervisory provisions for financial intermediaries established by way of the Bank of Italy Circular no. 288 published in May 2015.7 The main focus is on commercial expansion to be implemented by developing a distribution model and operating structure based on the use of agents and the creation of synergies with bank branches. In detail: an increase has been planned in numbers of traditional agents (operating mainly on non-

captive customers) to cover almost the entire country in order to reach provinces which today are less well served. In 2015, seven new conventional agents were recruited, bringing the total of such agents to 27 at year end;

UBI Banca Group bank branches will be supported by new consumer-credit specialists with a specific network of mainly tied agents (and to a lesser extent by selected bank employees), who will focus mainly on captive customers, each of whom will provide support to a given number of branches in the local areas assigned to them. During the year under review, 32 such specialists were hired (16 agents and 16 employees of Group branches).

Plan implementation has been entrusted to an executive unit consisting of the leading members of the company’s management, backed by a number of new managers from other areas of the Group. In particular, a new General Manager was appointed effective as of 25th May 2015. This manager has been with the UBI Banca Group since 2004 and has significant experience in the creation and management of branch networks. During the year, and line with the Plan, the project aimed at further developing the company’s information was completed with the support of the Parent and of UBI.S as the outsourcer of IT services for Prestitalia. Migration to the new information system, which is equipped with architecture centred on the software application OCS and interfaces with Group target software, was completed on 25th July. At the same time, work began on the re-engineering of the company’s operating processes aimed at realising the full potential of the new information system.

During the year, other important organisational changes were made, which has made it possible to control the growing number of complaints that characterise the salary-backed lending segment, particularly as concern operating methods that have been out of use for some time.

7 See also the section entitled “The Internal Control System”.

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Commercial activity The principal objectives of the UBI Banca Group's commercial activities in the year 2015 were the growth of the customer base through a series of recruitment initiatives, in particular for the "youth" segment, together with the development of both financial wealth for the "individual" segment and of lending to businesses. These objectives were supported by the constant attention to the improvement of the satisfaction levels as perceived by customers in their experiences during dealings with the Bank, with the proposal of solutions and products that increasingly respond to customer needs, while at the same favouring cross-selling and customer loyalty.

The development of a distinctive position with regard to the "youth" segment continued, with the adoption of a strategy to reinforce the visibility of UBI Banca with specific target by the use, both in terms of the products offered and in terms of communications methods, of an innovative approach that is open to new trends based on the potentials offered by new social media channels.

At the same time, the role of the customer service centres of each network bank were confirmed, thanks also to the addition of new staff specialised in making telephone contact, with the objective of: - monitoring satisfaction levels of customers who exhibit signs of "attrition", in order to prevent eventual sources of

dissatisfaction that might result in the customer leaving the Bank;

- consolidating existing customer relations, and thus increasing cross-selling opportunities;

- assisting the network in the development of new customers, increasing customer loyalty;

- promoting the lending segment through the creation of a group of lending specialists whose task it is to facilitate the lending process by assisting with the choice of the loan best adapted to the borrower's socio-economic profile.

Given the importance of the acquisition of new customers, the Group continues to reserve particular attention to this activity, including through the development of the traditional commercial network, thanks to the progressive insertion of staff dedicated exclusively to the group's development activities.

With regard to deposits, aggregate development initiatives continued, in accordance with the need to maintain a proper structural balance. To that end, the campaign to develop new deposits, having now become one of the Group's regular pro-active activities, was proposed once again, entitled, for the year 2015, "Percorsi premiati" ("Paths to Rewards"). Additionally, further improvements were made to the FPA (Financial planning and advice - Pianificazione e Consulenza Finanziaria) - platform in order to enhance the "financial optimization engine" and to provide solutions, in the form of financial consultancy, that better correspond to customer needs. With an approach that is increasingly oriented toward consulting services, the Group implemented the "Pro Active Wealth Advisory", dedicated to large estates, the "Corporate Advisory", directed at businesses and designed to identify future business needs, and the "Family Business Advisory", which provides insurance planning and policy advice.

In accordance with the Bank's role as a local community institution and leveraging the worldwide importance of EXPO 2015, during the course of the year the Group continued a number of initiatives designed to support small to medium-size businesses, focusing on those sectors representing Italian entrepreneurial excellence, focusing on the agricultural and food category, commerce, and the tourism and restaurant sectors. The offer was not limited to traditional operative and financial support, but also proposed consulting services, taking advantage, for example, of UBI World network's specialised knowledge of foreign markets. Thanks to the Group's associate company, SF Consulting, interested SME customers continued to receive assistance in obtaining public subsidies, with significant returns in terms of customer loyalty. In the year 2015 the Group followed through with its initiatives in favour of SMEs, taking action to implement the new "2015 Credit Agreement" ("Accordo per il Credito 2015) with the renewal, as part of the Group's Business Recovery (Imprese in Ripresa) initiative, of the measures providing deferred repayment and term extension established by the previous "moratoria". UBI Banca additionally introduced two new initiatives providing specific lines of credit, "Business Development" (Imprese in Sviluppo) and "Businesses and Public Aministration" (Imprese e P.A.). Two specific initiatives providing support for the creation and development of SMEs (“Sviluppo PMI- SME Development” and “Start-up") were extended for the entire year.

Attention to new digital services focused on developments necessary for the activation, scheduled for the first part of 2016, of two new services for the app UBIMoney, Plan & Save and Ready to Invest. Also intensified was the sale of the new app UBI PAY, launched in November 2014, which, at the end of 2015, had been activated by approximately 134 thousand customers. Also emphasised was the improvement of the site www.ubibanca.com; the year saw the creation of specific sections to support specialised commercial activities designed to improved the user experience for both current and potential customers, including the availability of online loan simulators. A number of national initiatives were launched to further develop the youth category, including "Enjoy the Music", targeted to users of UBI Banca credit and prepaid cards, allowing the purchase of tickets for important Italian summer musical events, and "Enjoy Your Gift", to support the activation of the Ubi Community EnjoyCard, and Happy Birthday (Buon Compleanno), featuring additional customer care for high value customers, and, finally, "Ride the Wave of Your Savings - Sali sull'onda dei tuoi risparmi" (a contest for young investors featuring the possibility of winning a Peugeot scooter).

As regards, finally, the non-profit sector and UBI Community, the service model known specifically created for this category, in 2015 commercial activities were directed as increasing the customer base and cross-selling, defining and augmenting a number of important agreements and partnerships with leading NPOs, amongst which are the Associazione Italiana per la Ricerca sul Cancro - Italian Association for Cancer Research (AIRC), with which UBI

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Banca has been an in institutional partner since 2013 for the yearly "Research Days - I giorni della Ricerca" fundraising campaign, as a distinct positioning strategy within the sector.

The Retail Market1 As a whole, the Group's retail market includes 3.5 million customers, consisting of 3.2 million private individuals and families, 220 thousand businesses (small economic operators and SMEs) and approximately 29 thousand authorities and associations. The retail network consists of 1,550 Group branches, employing more than 9,000 individuals, working in close coordination with the other distribution channels, represented by Customer Services (telephone-based commercial support) and internet banking services (Qui UBI). Retail branches additionally feature specialists dedicated to supporting particular customer segments (Affluent and Small Business), focused on the growth of the customer portfolio (developers) or specific service areas (banc assurance and the multichannel platform). Private individual and family customers In 2015, the Group's commercial activities were focused on the acquisition of new customers, the growth in volumes of funding (including the "welcome edition" bond offering) and lending (in particular in the "home mortgages" category), on the improvement of average cross-selling and on the increase of satisfaction levels periodically surveyed and expressed throughout the entire commercial network. QUBI’ With the intention of renewing and simplifying the offer, 19th October 2015 saw the launch of the Group's new QUBÌ, the modular account featuring one obligatory module, Semplicità (Simplicity), which includes principal base services, and three additional elective modules, Comodità (Convenience), Libertà (Freedom) and Protezione (Protection); the customer can elect to purchase only those modules that best satisfy his her or needs, "mixing and matching" to find the right combination of services. The release of the new QUBI' platform allows the Group to achieve a number of important objectives: • the pricing of the Simplicity module was reduced; • the structure of the offer was simplified, in particular for the "payment card" category: the Convenience module

now corresponds to a card "type" and not to a "card package". The customer may freely purchase one or more cards of the desired "type";

• the Freedom module has been enhanced and now features three versions: "on line" which includes all commissions for operations performed via the Qui UBI platform, "withdrawal" which allows the customer to make four ATM withdrawals from banks outside the UBI Banca Group without the application of any fees, and "all inclusive", alternative to the first two, which includes fees for all operations performed via the Qui UBI platform and four ATM withdrawals from non-Group banks;

• finally, a move was made away from a percentage discount based on the number of modules acquired in favour of a reimbursement in absolute terms, applied the month following that in which the fee is charged to the customer's account, in the presence of determined "rewarded" behaviours: direct deposits of salary or pension to QUBI current account and payments on mortgages or loans made from the QUBI current account.

QUBI’ under 30 #Viaggiointesta (#Travelonmymind) In December 2015 a new campaign targeted at young people highlighting UBI Bank's dedication to providing its younger customers with all the tools they require to give shape to their ideas: a complete array of products ranging from current accounts to loans to finance school or first business objectives, to mortgages. The starting point is the set of services offered by QUBI, with its cost-free current account and Qui UBI internet banking, with the Simplicity module, which includes an ATM card, provided free of charge to all young customers until they turn thirty. By opening a QUBÌ account and activating the Under 30 promotion, either at branch offices or online, the customer automatically participates in the prize competition "QUBÌ IN VIAGGIO - QUBI TRAVEL", and receives a voucher offering 2x1 travel possibilities that may be accessed via a dedicated portal: www.qubiinviaggio.it. Customers can also use "QUBÌ TRAVEL" to access exclusive offers for free time activities as well. Finally, to make the advertising campaign even more memorable and attractive for young people, a special initiative called "Viaggio in testa - Travel on my mind" is provided, which has as its centre point the dedicated website www.viaggiointesta.it and the hashtag #viagiointesta. Beginning on 27th November, young people under thirty are

1 The retail market includes the following customers: Mass Market customers (individuals with financial wealth – direct and indirect funding – of less than €50 thousand); Affluent customers (private individuals with financial wealth – direct and indirect funding - of between €50 thousand and €500 thousand) and Small Businesses (smaller economic operators with turnover of less than €300 thousand, and businesses with turnover between €300 thousand and €15 million).

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invited to access the site and to share their dreams for travel and how they envision their futures. This allows them to participate in the prize competition "Travel on my mind". Loans for younger customers. With the aim of meeting the needs of younger customers (18-30 age group) who desire to invest in their professional futures or cultivate new projects, in July 2015 two new personal loans at extremely favourable conditions were launched. • The "Piccole Spese - Spending Money" Loan: financing for up to €5,000 for small expenses, such as for the

purchase of a motorcycle or payment of university tuition and text books. During the year 2015, 98 loans were concluded, amounting to €487,556;

• "Grandi Progetti - Great Projects" Loan: financing for up to €30,000 for larger projects, from paying the tuition for graduate studies and professional specialization courses to financing important purchases such as a first car. During the year, 107 loans were concluded, for a total amount of approximately €1.2 million.

Moreover, in order to permit all young couples to purchase and/or renovate their own homes, the "Young Couples' Mortgage", targeted to couples under 40 who do not have permanent employment contracts continued (during the year 314 loans were concluded amounting to approximately €35.7 million), as did the "flexible series" mortgages, which allow the borrower to better face certain life events, such as the birth of a child or the loss of a job, by requesting the deferment of repayment for a period of up to 18 months, or by reducing the payment amounts by extending the repayment schedule (in 2015, 1,191 loans of this type were concluded, for a total amount of approximately €129 million. Advertising campaign - Risparmi Premiati (rewarded savings) Among those actions dedicated to developing new deposits was a specific advertising campaign entitled Risparmi Premiati (rewarded savings) The campaign, now an established item in the context of the Group's advertising programme, represented an important opportunity for dialogue and a check-up for customers on their savings by account managers. It is an occasion to highlight new features in terms of UBI Banca’s financial planning and advice products and its service model relating to financial planning and advice. The campaign also included a prize drawing featuring the possibility of winning a car for participating customers meeting certain requirements. Financial Planning and Advice (FPA) The need for constant improvement in the area of the Group's consulting activities requires the continued development of its financial planning and advice platform; to that end, during the course of the year 2015 modifications were made to integrate information from customer portfolios with the investment recommendation platform. The FPA 2.0 platform was thus enhanced, with the addition of new functions in order to provide better speed and greater depth of information for users. The continuing innovation, together with training initiatives, resulted in the optimisation of over 50% of all recommendations made throughout the course of the entire year. Controls implemented to increase customer protection monitor the trading activities of complex products of non-professional customers. In particular, the UBI Banca Group has taken the decision to prevent its retail customers from purchasing products which are so complex as to render them unsuitable for this customer category. In light of the new bail-in regulations, a new method of calculating the insolvency risk of bond issuers (credit risk) was introduced in order to allow better monitoring of the concentration of products issued by the same company in customer portfolios. The control establishes the assignment of differentiated risk budgets with progressive logics based on the risk propensity of each customer. Beginning January 2016 a revision of the profile questionnaires will be performed, based on the indications provided by the Supervisory Authority and with the aim of updating previously acquired information with the aim of providing improved service. Clubino and I WANT TUBì The year saw the continued success of the "CLUBINO" programme, which features a convenient and low-cost savings books targeted at children in the 0-12 age group and is available at all the Group's banks; to date more than 132 thousand accounts have been opened, 16,855 of which in 2015. The related loyalty programme, Più CLUBINO più premi - More Clubino, more prizes allows holders of Clubino saving books to automatically accumulate points each time the account's balance is increased; the points accrued may then be used for prizes from a specially-created catalogue. The principal channel available to customers for the management of "Più CLUBINO più premi" is the dedicated website www.clubino.ubibanca.com, where, after logging in, account holders may sign up for prize contests, manage their profiles, check their total points, and request prizes from the catalogue. The catalogue, which is constantly updated, includes more than 50 prizes, divided by age and category: "free time and travel", "teaching and learning", "dream house", "playing together", "building games" and "lets help the children". As regards products and services, with the opening of over 20 thousand accounts - 6,200 of which in 2015 - the year saw the confirmation of the success of I WANT TUBÌ, the innovative programme offering products and services for young people between the ages of 13 and 18, featuring a dedicated, innovative website geared to young users. The brand I WANT TUBÌ was chosen to represent the world of teenagers facing the stimulating and complex challenges of becoming themselves, winning their own independence and establishing their own personalities in all aspects of life. The account is completely free of charge and includes a “Bancomat” debit card, for secure cash withdrawals and purchases in Italy, online and while on vacation abroad. The debit card features an ON/OFF function which allows the card to be activated and deactivated at any moment, as needed. The Qui UBI Internet Banking information service is also provided, so that customers can monitor spending. New customers gain access to a mix of true and genuine opportunities, the result of co-operation agreements with partners and brands of interest to the target customers, featuring prize contests and the possibility of being selected to receive a scholarship. "UBI Rent" long-term automobile rental programme

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Among the numerous initiatives created to complete the array of mobile services offered to Retail customers was the commercial collaboration agreement reached with ALD Automotive Italia, allowing our customers to access, from their local bank offices, long-term rental plans for cars, motorcycles, and vans. Long-term rental is a convenient, innovative formula that provides an alternative to ownership, providing for the rental of one or more vehicles, selected by the customer, at a fixed monthly fee. The contract makes available to the customer the chosen vehicles and is customised based on his or her requirements, for a fixed period and distance. The vehicles come with a series of services, such as registration and insurance coverage. Customers thus enjoy the advantages of long-term rental, including: - definite, predictable costs, which include insurance and services for daily mobility; - no tying up of capital, because the monthly fees include all costs related to the financing of the vehicle; - reduced bank exposure (the monthly lease amount does not reduce the credit available to the customer); - no impact to the balance sheet (no assets or amortisation to record); - elimination of the financial and operational risks connected to re-selling the vehicle; - insurance costs and coverage independent from residence and "seniority" of the driver's licence; - consultancy on all operating, fleet and mobility optimisation processes and costs; - no time or resources necessary for vehicle management and administration matters; - no time or trouble in selling the vehicle at the end of the rental period, thanks to ALD Trade-in.

The offer, initially launched in 120 branches, was extended to include all Group branches in November 2015 and, although targeted principally to the Small Business sector, may also be extended to individual customers. In 2015, 72 vehicle rental contracts were concluded for a total value of over €1.4 million. Small Business Again in 2015, the Group was dedicated to assisting small to medium-size businesses, focusing on companies which, during this initial stage of economic recovery characterised by improvement that is not yet completely consolidated, demonstrate potential for development by implementing processes for product innovation, updating production and distribution organisation and searching out new markets. Particular attention was given to companies seeking to open in international markets or to consolidate and develop in this direction. With the aim of supporting further internationalisation, the Group concentrated on the support services offered by its network of specialised centres and on consultancy provided by its subsidiary Go ToWorld Consortium. In the short-term lending category, the commercial choices are focused on support for working capital for both companies operating in the domestic market and for those operating abroad. The growth in medium to long term loans issued denotes the desire to support those realities which, despite an as yet uncertain economic outlook, have elected to adapt their productivity structures, based on feasible development projects. Financial advice 2015 again saw close co-operation between the Group's associate company, SF Consulting, fully controlled by the Group Finservice, which provided the Group's corporate customers with specialised financial advice in order to assess eligibility for public subsidies. In this context, SF Consulting assists the Group's corporate customers in the preparation of investment projects, providing general assistance in presenting and processing applications for subsidised loans to the granting authorities. SF Consulting's commercial activities, coordinated by the network banks, resulted in the activation of over 1,289 new potential applications with visits with 3,702 businesses from the SME and Corporate categories. Of particular note is the convention between UBI Banca, SF Consulting and Finservice, in effect since February 2011, for support and consulting in the procurement of guarantees pursuant to Law 662/1996 (SME Guarantee Fund). A special IT platform, created by SF Consulting and implemented by the Group, allows the Group's network banks to interact with SF Consulting during the Guarantee Fund application process. Publicly subsidised loans With the objective of ensuring complete assistance to SMEs in both short and medium to long term financial needs, the Group has continued to issue loans subsidised by public funds, adhering to numerous initiatives promoted by public authorities including those drawn from European Community funds, thus contributing to their full use, in order to avoid the risk of de-commitment. In 2015 the following operations were activated: • In the Piedmont Region, interventions pursuant to the PAR-FSC (Regional Implementation Programme for the

Development and Cohesion Fund) for the internationalisation, promotion and territorial marketing - foreign offices underwritten by the Framework Convention for the Management of Guarantee Funds and the granting of Guarantees; measures in support of self-employment and start-ups pursuant to Regional Law 34/2008 - Art. 42, underwritten by the Framework Agreement for the Management of Loans Subsidised by Rotation Funds;

• In the Apulia Region, subsidies - pursuant to the Regional Operational Programme (ROP) 2014-2020 - targeted to all small to medium-size businesses (Title II Paragraph III) and specifically to those in the tourism-hospitality sector (Title II Paragraph VI);

• in Lombardy, the 2015 Bando Agevolacredito (Competition for Credit Easing), promoted by the Chamber of Commerce of Milan, grants non-refundable interest subsidies for companies in all sectors.

In 2015, the UBI Banca Group also commenced operations for the nation-wide Smart&Start initiative, for the support for start-ups and the development of innovative start-ups through interest free loans issued directly by Invitalia Spa, the managing entity on behalf of the Ministry of Economic Development, as established by the Decree of 24th September 2014.

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Interested companies must open a "bound" or "dedicated" current account to which the subsidised loan is issued in order to make payment to suppliers of the goods covered by the subsidies in a timely fashion. The activation of these current accounts is regulated by the agreement entered into on 28th April 2015 between the Italian Banking Association, the Ministry of Economic Development and Invitalia Spa. Commercial initiatives in the farm and food sector Again in 2015 the food and agricultural sector, which contributes substantially to Italy's domestic GNP, due, amongst other things, to the ever growing interest worldwide in Italian products, demonstrating strong "anti-cyclical" strengths with the propensity to export showing continued growth. Concerns operating in this segment are in fact particularly active in foreign markets: food and agricultural exports reached the record figure of nearly € 36 billion and continue to expand. The DOP (Denominazione di Origine Protetta - Protected Designation of Origin) category appears to be quite lively, particularly with regard to the wine sector; this even in the presence of objective difficulties, such as the embargo against Russia and the slowing of developing economies. As part of the "Farm&Food" initiative, launched by the Group specifically for this sector in 2013, penetration in the category was increased, creating positive commercial results, due, amongst other things, to the consolidation of co-operation agreements reached with important organisations (agricultural consortia and food industries) for the purposes of providing support to the agro-industrial supply chains, beginning with the farms at the bottom. During the year, an important agreement was reached with Creditagri Italia, a guarantee body operating throughout Italy under Coldiretti (Italy's principal farmers' union), to work together to advance the direct payments to farms under the Common Agricultural Policy 2014-2020, which significantly revised the methods by which subsidies are assigned and calculated from 2015 onward. Another relevant national-level agreement was successfully concluded during the year with Confagricoltura, another leading Italian farmers' organisation, as part of the Agricheck project, launched by this important trade association to analyse the economic and financial situations of farms and related businesses. On the basis of this agreement, the Group undertook to utilise the data collected from local Confagricoltura offices to prepare requests for financing from the farms taking part in the Agricheck project, granting them certain benefits. Revival of the commerce sector With the aim of providing continued support to the recovery in consumption and consequently the revival of the commerce sector, the commercial co-operation agreement with Assofranchising - the Italian Franchising Association - was renewed for the year 2015. The agreement provides both new (start-up) and established franchisees with a wide range of products and services targeted especially to them, including a dedicated line of credit to better meet investment needs, services to manage operating costs (current account, business credit card) and POS terminals at favourable conditions. The structure of this programme, based additionally on co-operation with the leading guarantee bodies in the commerce sector, has facilitated access to credit for this category. The Group also made itself available to provide support for franchisors in their investments aiming to innovate processes and products and viable financial operations. Businesses intending to operate in foreign markets Given the continued weakness of internal consumption, 2015 saw a growth in interest among Italian businesses in foreign markets; hence the decision to further promote the array of products and services targeted to export activities: as a result, the UBI World project, launched in 2013, was renewed, with the objective of fully developing all the potentials of businesses working or intending to work with foreign markets, ensuring that they have all necessary financial assistance. The activity, in partnership with its associate Go ToWorld Consortia, ensured a structured, concrete approach for the support of SMEs in their international projects, providing assistance from the initial phases of the selection of potential target markets to the final implementation phases of the operational plan. Start Up and SME Development Based on the significant commercial interest generated by these initiatives, launched in 2013, operations of both programmes - in an effort to ensure their continued effectiveness - were renewed, under the specific initiatives to support small to medium-size businesses in launching and consolidating commercial activities, and in particular:

• the Start-up loan, for a maximum of €50 thousand, to promote the start-up of new economic concerns, financing start-up costs, investments in production and recruitment of personnel. The loans, unsecured with a maximum term of 60 months, are reserved for firms operating in all sectors, freelance professionals, associations and government bodies (legal entities) that are newly established or are soon to be established; From the beginning of activities until the end of 2015, over 110 loans were granted, amounting to €2.7 million, while at year's end loans in place amounted to a residual debt of €11.1 million;

• the Sviluppo PMI (SME Development) loan programme, aiming to promote development and entrepreneurship for SMEs wishing to reach international markets in order to secure opportunities available in new markets. This initiative, too, offers 60-month maximum, unsecured loans, reserved to companies from all sectors, freelance professionals, associations and government bodies (legal entities) to be used for costs related to the hiring of staff, research and development, internationalization, investments in production. From the beginning of activities until the end of 2015, over 96 Start-up loans were granted, amounting to €3 million, while at year's end loans in place amounted to a residual debt of €14.6 million.

Capital Goods Loan Pool (known as the “Nuova Sabatini”) These are loans for small to medium-size businesses as part of the Capital Goods Loan Pool (known as the “Nuova Sabatini”) made available by the state-controlled fund and deposit institution, Cassa Depositi e Prestiti Spa (CDP), for a total amount of €2.5 billion as established by Law 98/2013, as converted to Legislative Decree 69/2013. Loans are accompanied by an interest subsidy, provided by the Italian Ministry of Economic Development, paid in annual instalments within the sixth year from the date of the finalisation of the investment. Recipients are SMEs from any business segment, including the agricultural and fishing sectors.

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The subsidised tool, launched by the UBI Banca Group in April 2014, may be used for the purchase of machines, plants, company capital goods and new factory production equipment in addition to hardware, software and digital technology indicated in company balance sheets as assets and purchased for existing or future productive structures located within Italy. These unsecured loans for SMEs have the following characteristics: - amount: from a minimum of €20,000 to a maximum of €2,000,000; - maximum duration: 5 years, including an initial 6/12 month grace period; - interest rate: indexed to the six-month Euribor plus a spread set in the contract; - guarantees: it is possible to obtain guarantees from the SME Guarantee Fund (Law 662/1996) and from Confidi

guarantee bodies; - interest subsidy contribution from the Ministry of Economic Development: equal to the normal interest for a five-

year repayment schedule calculated at a rate of 2.75%. The Group has also made an additional pre-financing tool available to interested SMEs for the purposes of making payments for the capital goods for which the investment has been obtained. From the beginning of activities to the end of 2015, 170 loans were concluded, amounting to €55.2 million; At year's end there were 313 loans in place, with a residual debt of €87.5 million. Memorandum of intent for the development and growth of prevalently female-owned businesses and female professionals. During the year 2015, activity under the €300 million loan pool made available by the memorandum of intent concluded, on 4th June 2014, between the Italian Banking Association, the Department of Equal Opportunity of the Prime Minister's Council, the Ministry of Economic Opportunity and Italy's leading employers' trade associations, with the aim of supporting access to credit by female owned businesses and female professionals. Funds form the loan pool may disbursed up to 31st December 2015 (unless extended) in the context of the following lines of action :

• "Investiamo nelle donne" (Investing in Women): new investments in tangible and intangible assets for development; • "Donne in start-up" (Female start-ups): to encourage the creation of new businesses and professional activities; • “Donne in ripresa” (Recovery for women-owned businesses):to encourage the recovery of SMEs and female

professionals experiencing difficulty due to the current economic crisis. By prevalently female-owned businesses, the following is intended: sole proprietorships in which the owner is a woman; partnerships in which the numerical majority of the female partners is not less than 60% of the partners; joint stock companies in which at least two-thirds of the shares of ownership are owned by women and at least two-thirds of the management positions are held by women; co-operatives in which the numerical majority of women is not less than 60% of the members. Loans feature the possibility of suspending repayment of the principal for business owners or self-employed women for a period of up to twelve months (once only during the life of the loan) in the event one of the following: maternity, serious illness (also of a spouse or partner or children, including adoptive children); serious illness resulting in the invalidity of a parent or family member (up to third-degree relatives) living with the female business owner or professional. The Group's activity with this fund began in late 2014. From that moment, up to the end 2015, 26 loans were concluded, amounting to €1.1 million; "BluImpresa Infortuni" Insurance Policy On 5th November 2015 the UBI Banca Group began distribution of the new CARGEAS Insurance policy “BluImpresa Infortuni”. The new policy, together with the policy "BluFamily XL" targeted at individual customers, completes the array of accident insurance reserved for the Group's customers. The new personal injury policy is targeted to companies of all kinds, including individual companies and partnerships, and offers significant economic coverage, both while performing business activities and during free time as well, for events that could permanently limit ability to produce income, or in the case of events that only temporarily limit ability to produce income. "BluImpresa Infortuni" establishes the following obligatory coverage, which is "always active": "Permanent invalidity caused by injury", "Reimbursement for medical expenses", "Legal advice and assistance". To this coverage may be added additional elective coverage plans, which also may be added individually: "Accidental death", "Temporary inability and daily recovery allowance", "Bone fracture/plastering". The policy additionally provides for the possibility of insuring differentiated limits; the policy's premiums are in fact calibrated based on the limits chosen by the policyholder and differentiated in function of the policyholder's type of activity. Authorities, associations and the third sector In 2015, actions aiming to develop relations with current and potential customers from this category, particularly those from the third sector, were launched. In addition to these activities, further products and services were introduced, in order to both augment the available product range and to respond more effectively to the particular needs and requirements of this customer segment. Associations and Guarantee Bodies The year saw the continued co-operation with trade associations and with their related guarantee bodies, an important activity for the Bank both from the point of view of credit ratings and of the preparation of loan requests.

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After the operations finalised in 2015 - amounting to 16,595, for a total of €1.4 billion - the overall outstanding loans backed by guarantee bodies and public guarantee funds, such as the SME Guarantee Fund (ex Law 662/1996) and the ISMEA guarantee funds managed by the SGFA (Società Gestione Fondi per l'Agroalimentare - Fund Management Company for the agricultural and food sectors) totalled at year's end approximately €3.5 billion. During the year the products and services in support of the guarantee bodies were modified in order to better reflect changing market conditions, while at the same time the necessary activity of revising existing conventions continued as well. The guarantee bodies segment is, in fact, characterised by significant company re-organisations and mergers; this is a period, moreover, in there are frequent changes to operations aiming, among other things, to overcome "guarantee subsidies" in favour of "first demand" guarantees, in many cases backed by an SME Guarantee Fund counter-guarantee (ex Law 662/1996). The third sector Given Group's mission as a community banking institution, UBI Banca's relationship with non-profit organisations (NPOs) is strategic not only in terms of reputation and connection with the local territory, but also in consideration of the significant development that this category has shown in the last two decades, and additionally due to the increasing awareness of the important role that the civil economy can play in the country's economic and social development. With the creation in 2011 of a dedicated commercial division, known as UBI Community, the UBI Banca Group made a clear strategic choice, recognizing in the non-profit sector not only a commercial segment with unique characteristics, diverse from both the individual and corporate segments, but also reinforcing its desire to become an essential partner for NPOs, ready to support them by supplying real answers to the needs of local communities. During the year, commercial activities and initiatives undertaken were essentially directed at:

• acquiring new customers, with specific initiatives that include ecclesiastic and religious authorities, under the care of a specialised business unit at the Parent Bank which coordinates commercial initiatives and provides specialist support to the network banks, with particular reference to local managers;

• finalising or strengthening a number of important agreements and partnerships, some of many years, with leading non-profit organisations, as a strategy to improve the Group's competitive positioning in the sector. As part of this last objective, of particular note is the strategic partnership with the Associazione Italiana per la Ricerca sul Cancro - the Italian Association for Cancer Research (AIRC) for the period 2013-2015, which establishes that UBI Banca will lend its support to the AIRC as a corporate partner for the November fund-raising campaign for cancer research known as "I giorni della Ricerca” - “Research Days”, and will contribute through a number of initiatives (such as, for example, in 2015, the issue of a dedicated social bond, fund-raising in branch offices and via the Group's internet banking platform, payroll giving, the AIRC customised Ubi Community EnjoyCard and new functions for sending funds on the UBI PAY app that allow customers to make donations from their smartphones and the Jiffy network targeted at both the Group's current and prospective customers and its staff. The 2015 campaign, which drew great attention on both national and local media, allowed the AIRC to collect approximately €6.4 million, approximately €650 thousand of which was attributable to the various initiatives activated by the Group, thus bringing the total contribution from UBI Banca in support of cancer research over the three year period to over €2 million. During the year 2016, the strategic partnership with the AIRC will be renewed for an additional three-year period, and further strengthened with additional initiatives and programmes. Also of note are the joint programmes with the Dynamo Camp, the Italian Multiple Sclerosis Association (AISM), the Arca Project Foundation, and UNICEF, which saw the Group support the respective campaigns “Project Outreach”, “Mambretti Welcome Centre”, “Rehabilitation for Individuals with Multiple Sclerosis" “Youth & Innovation Lebanon” by making available numerous fund-raising instruments and channels and the increased awareness of the Group's customers and staff;

• updating and augmenting the products and services targeted to both non-profit organisations and NPO stakeholders (employees, consultants, volunteers, users, etc). In this context, the following are of particular note: - the launch, by the Group's asset management company UBI Pramerica, in synergy with UBI Community, of

new asset management tools (Euro Corporate Ethical Bond Fund (Fondo Obbligazionario Euro Corporate Etico) - March 2015 - and the new "Social 4 Future Sicav" - December 2015), aiming to highlight the growing propensity and need for investors, including those from the individual segment, to combine both traditional objectives of financial returns with ethical and social principles when making their investment choices. These tools, part of the Group's array of social responsibility investments, are also characterised by their support for projects having significant social value, in the context of UBI Community, promoted by leading client NPOs through charitable donations of part of the commissions received by UBI Banca and/or the managing companies;

- the creation - by the Project and Real Estate Finance team of the Unity Market in collaboration with UBI Community - of a Finance and Social Impact Team". This tool grants medium-term loans in the form of project financing and features the channelling back, in the form of charitable donations to social programmes promoted by the operation's sponsor, of a portion of the operation's structuring commissions and the bank's spread, based on the achievement of pre-established social objectives. The first operation, amounting to approximately €8 million, was structured in the second half of the year with a leading Piedmont social co-operative, for an investment in the health and welfare sector;

- the initiative "VolontarioCard", a CSV (Centri dei Servizi per il Volontariato - Volunteer Services Centres) pilot project, in collaboration with UBI Banca, aims to support the sense of belonging of volunteers to their organisations and the volunteer world in general, while at the same time recognising the social value of these activities through advantages for volunteers and the associations to which they belong. VolontarioCard is at the same time a payment tool (pre-paid card from the Enjoy line) and an association membership card, and may also be used to obtain discounts and advantages with participating businesses and entities and to use funds received through donations which may be made by the network banks, of a portion of the proceeds deriving from the active cards issued and relative POS terminal transactions. The pilot project will involve, during the first stage, both CSV Milan (over 2,000 volunteer organisations with more than 40,000 volunteers) and CSV Naples (over 1,300 organisations with 32,000 volunteers);

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- the competition "Coltiva l'idea giusta - Grow the right idea" - launched by UBI Banca in collaboration with Make a Change, with the sponsorship of the Ministry for Agricultural, Food and Forestry Policies, Confcooperative (the Confederation of Italian Co-operatives), the Italian Touring Club, AcliTerra (an Italian farmers' association), ManagerItalia (national federation of Italian executives) and CGM (a network of Italian social enterprises) - targeted toward agro-food start-ups and projects with significant social and environmental impact. The competition, which has generated significant interest, already has nearly 180 project entries. The digital advertising programme involves external sites that are particularly attractive for the programme's target, in addition to the commercial site www.ubibanca.com and the UBI Banca Facebook page.

The Group additionally continued the issue of the "UBI Comunità Social Bonds" which maintained their significant level of success with investors and are, moreover, extremely unique. These are bonds where, in addition to providing remuneration at a market interest rate, the investment made by subscribers allows the issuing bank to allocate a portion of the funding acquired (e.g. 0.50%) to support projects of high social value undertaken by non-profit organisations, or to pay these funds into a loan pool for the disbursement of financing to third sector initiatives. Again in 2015, UBI Banca was the confirmed sector leader, in terms of both volumes and impact generated, placing 14 new bonds, four of which were issued by the Parent, amounting to a total of €131 million, which resulted in donations totalling €531.5 thousand. From 2012 (the year in which it was created) to the end of 2015, the Group has placed 72 issuances, collecting approximately €746.3 million, and resulting in charitable donations of €3.6 million and in over €20 million in available loan pools or loans granted. A further noteworthy element is the introduction, as part of the structuring process for the Social Bonds issued by the Parent, of SROI (Social Return on Investment), as an instrument for measuring the social impact of projects supported by UBI Banca. This tool, which is an innovation for the entire Italian banking system, is highly valuable in terms of accountability toward investors and toward stakeholders in general, and will at the same time allow the Group to direct its interventions toward those initiatives that most lead to real change. Authorities with payment and collection/treasury management services The “authorities” segment comprises public authorities and those institutions for which the banks in the Group provide treasury management and payment and collection services (1,831 services of this type were managed at the end of December). During the year, the Group continued its activities to foster the adoption of the Ordinativo Informatico (IT Ordinance), which lead to an increase of 11% in the number of active or soon-to-be active authorities, growing from 628 in 2014 to the current 695, optimising and rendering the authority/treasury bank relationship increasingly efficient.

In 2015 the integrated platform for the management of activities regarding payment, reporting and reconciliation of tax and capital revenues for public authorities was extended to all network banks; this platform permits the public authority to make available to its users/debtors a variety of channels/payment tools, as set out by the Codice dell’Amministrazione Digitale (CAD - digital administration code). The availability of the platform - in addition to representing a fundamental tool for permitting participation in public authority tenders for the assignment of services that require compliance, by the Treasurer, with the provisions of Art. 5 of the Digital Administration Code (CAD) facilitates payments by participating authorities, thereby improving the overall management and efficiency of the services performed. This is made possible by the automatic revenue reconciliation and reporting activities performed by the "treasury" network bank on behalf of the authority.

Again as part of the digitalisation process begun by the public administration, during the first portion of the year the network banks joined, as a Payment Services Provider (PSP), "pagoPA", an electronic service for payments to the public administration and public services managers, created by the Agency for Digital Italy (AGID). Participation in the system will allow network banks to take advantage of the business opportunities connected to the specific context of payments to the public administration.

The full roll-out of the integrated platform and participation in "pagoPA" have permitted the Group to develop the skills and technological infrastructures necessary to support authorities in adhering to the payment system, made obligatory by the Agency for Digital Italy by 31st December 2015. To that end, in the month of December, the network banks sent to all public authorities for which they perform treasury management services a reminder highlighting the possibility of obtaining assistance for compliance with the above requirement, and indicating the range of solutions for integration with the diverse payment and connection modalities offered for public authorities. Financial education 2015 saw the continuation of the Group's commitment to financial education as an indispensable feature of active citizenship, with particular attention to young people. The commitment, originally begun with the Italian Banking Association's PattiChiari Consortium, during the year 2014 was renewed with the Foundation for Financial and Savings Education (Feduf), created by the Italian Banking Association (ABI) and in which the network banks have participated since its creation. The Foundation, with the mission of promoting financial and savings education, performs the role of "sector vehicle" for the issues cited above, with a banking leadership and an original brand that is at the same open to the participation of non-banking subjects (for example, the Italian Consumers' Association)2. During in the 2014-2015 scholastic year the network banks, in particular, performed teaching activities, especially with students, reaching out to approximately 100 schools and to over 6,700 students. The Group's contribution represents a significant portion (over 30%) of all Feduf activities performed by the Italian banking system as a whole. At the same time, the co-operation with private and/or institutional entities acting as driving forces in the dissemination of educational initiatives for various target groups in the population continues to grow. The commitment highlights the UBI Banca Group's awareness of and attention for socially useful initiatives within Italy, in line with the desire to provide tangible responses to the increasing demands for financial education, in light

2 "The Foundation seeks to accomplish socially useful deeds, promoting financial education in the context of civic and economic education, in order to develop and disseminate knowledge related to economic and financial issues (Art. 2, paragraph 1 of the Statute). As of December 2015, 77 banks, representing 49% of the total branches and four associations, had joined the Foundation.

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not only of the guidelines defined by the Italian Banking Association, but also with those of the government, as set out in the 2015 "Buona Scuola" education reform (Law 107/2015), which introduced principals of economic education. “Anti Crisis” measures to support small to medium-sized enterprises3 and families As part of their role as local community institutions, again in 2015 the banks in the Group participated in a series of measures to help families and businesses in their respective markets, both locally and nationally, co-operating with public institutions (chambers of commerce, regional and provincial governments) and guarantee bodies. Already in 2009, as part of the initiatives promoted by the Italian Banking Association, moreover, the UBI Banca Group was taking steps to support small to medium-sized businesses and families, with the implementation of interventions undertaken by the “Avviso Comune” (Joint Announcement) of 3rd August 20094, by the “Accordo per il Credito alle PMI” (Agreement on Loans to SMEs)5 of 16th February 2011, by the “Nuove Misure per il Credito alle PMI (New Measures for Loans to SMEs)”6 Agreement of 28th February 2012 and by the “Accordo per il Credito 2013” (Agreement on Loans 2013) of 1st July 20137, extended until 30th June 2015 by the new "Agreement on Loans 2015" described below, in addition to supporting families with such measures as the "Mortgage Solidarity Fund for First Homes" instituted by initiative of the Italian Ministry of Economy and Finance, in effect as of 27th April 2013. Agreement on Loans 2015 On 31st March 2015, the Italian Banking Association and Italy's leading business associations entered into a new agreement, valid until 31st December 2017, for SMEs, updating previously implemented measures to comply with the current legislative context. The new agreement is based on signs of improvement evident from the Italian productive sector, and aims to support and encourage further growth, in part through measures facilitating SME access to credit. In order to achieve the objectives of the 2015 Agreement on Credit, the following initiatives were introduced: A. The Business Recovery - Imprese in Ripresa initiative (ex Agreement on Loans 2013) establishing deferred

repayment and term extension for loans; B. Business Development - Imprese in Sviluppo (ex “Italy Investment Projects - Progetti Investimenti Italia” loan pool)

providing funding for business investment projects and to strengthen business capital structure; C. Businesses and Public Administration - Imprese e P.A. (ex "Public Administration Receivables - Crediti PA" loan

pool) designed to support SMEs who find themselves in temporary difficulty due to delays in the payment of receivables from public administrations.

3 According to the definition in EU regulations, small-to-medium size enterprises are considered entities which carry on a business and regardless of their legal status employ fewer than 250 individuals, with an annual turnover of not more than €50 million or with total assets of less than €43 million.

4 The agreement, which became operational on 28th September 2009 is for SMEs that were in temporary difficulty but which reported good operating prospects and were going concerns. It enabled them to benefit from four measures: i) the deferral for twelve months of principal repayments on mortgages; ii) the deferral for twelve or six months of the principal repayment portion of property or equipment leasing instalments respectively; iii) an extension to 270 days for the repayment of bank advances on short-term receivables; iv) special loans designed to strengthen capital.

5 This agreement, which became operational on 2st March 2011, involved the following: i) the extension until 31st July 2011 of the time limit for the presentation of applications to defer loans to banks in accordance with the Joint Announcement (Avviso Comune); ii) the extension of the repayment schedules for medium to long-term loans which had benefited from the deferment under the Joint Announcement by up to a maximum of two years (three years for secured loans). The deadline that had been set for the presentation of applications for extensions by businesses was 31st December 2011. The Group agreed to maintain the existing contractually agreed interest rate for all extensions that were backed by the Cassa Deposito e Prestiti (CDP – state controlled fund and deposit institution) on the basis of a special agreement signed on 31st May 2011, which involved the assignment of a budget of up to a maximum of €54,529,000.

6 The agreement to which the Group adhered on 29th March 2012 established i) deferments of up to twelve months on the capital repayments on medium to long-term mortgages and unsecured loans (ordinary and subsidised) and up to twelve or six months for the repayment of the capital portion implicit in property and non-property lease instalments, respectively; ii) extension of the terms of medium to long-term mortgages and unsecured loans (ordinary and subsidised) for a maximum period of two years for unsecured loans and three years for mortgages; iii) extension of the maturities of short-term loans to 270 days to support cash flow requirements, for advances on amounts that are certain, liquid and payable in cash (excluding import finance and advances on contracts); iv) extensions for a maximum of 120 days of the terms for agricultural working capital credit pursuant to Art. 43 of Legislative Decree No. 385/93 granted with or without bills of exchange. By signing that agreement, the Group committed to maintaining the contractually agreed interest rate if, amongst the other conditions, the deferment or extension benefited from backing from the Guarantee Fund for SMEs or the ISMEA (agricultural food market services institute) fund.

7 The agreement, to which the Group adhered on 11th September 2013, established i) deferments of up to twelve months on the capital repayments on medium to long-term mortgages and unsecured loans (ordinary and subsidised) and up to twelve or six months for the repayment of the capital portion implicit in property and non-property lease instalments, respectively; ii) extension of the terms of medium to long-term mortgages and unsecured loans (ordinary and subsidised) for a maximum period of three years for unsecured loans and four years for mortgages; iii) extension of the maturities of short-term loans to 270 days to support cash flow requirements, for advances on amounts that are certain, liquid and payable in cash (excluding import finance and advances on contracts); iv) extensions for a maximum of 120 days of the terms for agricultural working capital credit pursuant to Art. 43 of Legislative Decree No. 385/93 granted with or without bills of exchange. Deferrals, extensions of the repayment schedules for short-term and agricultural working capital loans are granted at the same interest rates established by the original contract. Extensions for the repayment schedule of loans and mortgages were made at the same interest rates established by the original contract, provided the company requesting the extension had initiated the process of effectively strengthening its capital base, or had initiated any aggregation process, with aim of strengthening its financial profile.

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The UBI Banca Group has also adhered to this new initiative, which provides continuity for the dispositions of previous initiatives, and allows companies wishing to participate8 to apply by December 31st 2017. In joining the Agreement, the Bank undertook to provide an answer generally within thirty working days of the date of application or the date upon which any supplementary information subsequently requested from the applicant is provided, and to ensure, as in the past, careful monitoring of the initiative.

A. Business Recovery - Imprese in Ripresa (ex Agreement on Loans 2013) The initiative renews the measures established by the 2013 Agreement on Loans, except for some variations due to legislative changes, and includes the following measures:

Loan deferments: - deferments for twelve months for capital repayments on mid-to-long-term mortgages, even when subsidised or backed by the

issue of bills of exchange, including agricultural bills of exchange; - deferments for twelve or six months for the repayment the capital implicit in “property” or “equipment” lease instalments,

respectively;

The Bank has undertaken to maintain unchanged the interest rate indicated in original contract, without requiring additional guarantees, provided there is no evidence that the recipient SME will have difficulty in repaying the loan, or, in the event of such difficulty, on condition that the loan for which deferred repayment is requested is backed by the SME Guarantee Fund (or another equivalent guarantee), even in the form of a counter-guarantee, or, alternatively, a new guarantee may be provided for the loan in consideration. In other cases, the Bank will evaluate interest variation, solely for the deferment period; in any case, the variation cannot be superior to any increases in capital charge - deriving from the application of regulations governing "forbearance" - resulting from the deferment and in any event not superior to 75 bps. Mortgage repayment extensions: The maximum deferment period is 100% of the period remaining of the repayment schedule, and in any case may not be superior to three years for unsecured loans and four years for mortgages. The Bank may assess a possible variation of the interest rate to a degree that is, in the event of an increase, not, in any case, greater than the increase in the bank's cost of funding as compared to that at the time the loan was initially issued. The increase in the interest rate may not, as a rule, be greater than 100 bps. The need for additional guarantees for the loan will be evaluated by the bank with the aim of minimising or avoiding possible interest rate increases, on the basis of the extent and quality of the guarantee and the credit-worthiness of the firm. Extensions are granted at the same interest rates established by the original contract when the business applicant, within twelve months of having obtained the extension, commences either: i) processes to effectively increase capital, through stakeholder or third-party contributions, including capital increases subject to concessions under the ACE (Aiuto alla Crescita Economica - Aid to Economic Growth) programme; ii) any form of aggregation, with the aim of strengthening the business's financial profile. In the event the company fails to commence, within the term established, at least one of above processes, the bank reserves the right to modify the interest rate relative to the deferment, according to the dispositions of the contract.

Loan extensions: - Extension of the maturities of short-term loans to 270 days. - extensions for a maximum of 120 days of the terms for agricultural working capital loans pursuant to Art. 43 of the

Consolidated Banking Act, granted with or without bills of exchange. At the end of 2015, approximately 940 deferments and extensions on loans had been processed by the UBI Banca Group - mainly on medium to long-term loans – for a total of €300 million, in addition to 74 lease positions amounting to €45 million. Nearly all applications meeting eligibility requirements were accepted.

B. Business Development - Imprese in Sviluppo (ex “Italy Investment Projects”) Similarly to the "Italy Investment Projects"9 loan pool, this new initiative also called for participating banks to create individual loan pools in which to place resources remaining from the previously created pools; the Group has renewed the allocation of funds, amounting in 2015 to €600 million. The loan pool may be used for loans taking various technical, including leasing, to finance any investment, whether made by single firms or networks of firms, in material or immaterial goods that are instrumental for company activities, diverse from those produced or marketed through the company's activities, including investments initiated up to six months preceding the application. Increases of working capital for the implementation of existing or planned investments may also be financed. Also envisioned are loans for business development to companies set up as joint-stock companies (including co-operatives), in amounts that are proportional to the increase in capital raised by the company itself. The interest rate applicable to these loans is determined on the basis of the costs of funding for the bank, plus a spread based on the quality of both the firm and the investment project. The costs of funding are determined on the basis of the costs of access to BCE funds as part of the Targeted Longer Term Refinancing Operation. During the year, 395 loans were granted, for a total of €17,176,383, with a residual debt at the end of 2015 amounting to approximately €133.4 million, under both the present and the previous initiatives.

C. Businesses and Public Administration - Imprese e P.A. (ex Public Administration Receivables) Similarly to the "Public Administration Receivables - Crediti PA"10 loan pool, this new initiative also called for participating banks to create individual loan pools in which to place resources remaining from the previously created pools; the Group reconfirmed the allocation of €600 million to this pool.

8 SMEs (as defined by EC regulations), operating in Italy and belonging to all sectors, without a debt position that has been classified by the bank as "non-performing", "probable default" or having positions past due and/or in arrears over 90 days (i.e. the company is "performing") on the date the application is filed.

9 As part of the “New measures for Credit to Small and Medium-Size Enterprises” Agreement of 28th February 2012, the UBI Banca Group had allocated €600 million to the Italy Investment Projects loan pool, which had as its objective the support of investment projects for capital goods for business activities. This loan pool may be used until 30th June 2015.

10 As part of the 2012 Credit Agreement, the UBI Banca Group had allocated funds to the "Public Administration Receivables" loan pool - designed to support SMEs in temporary difficulty due to delays in the payment of receivables from public administrations by paying advances on those receivables, with a total allocation to the pool of €600 million. This loan pool may be used until 30th June 2015.

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Under this initiative, aiming, similarly to the previous edition, at providing advances on SME receivables 11 from public administrations, advances may be granted to SMEs in an amount not less than 70% of the receivables held - "certified" by the public entity 12 to be certain, liquid and payable in cash - for a duration that is consistent with the date of payment of the certified receivables in question and, in any case, not longer than twelve months. The Group has established the technical form of the advances with recourse of the receivables with the assignment of the same. The interest rate applicable to these advances is determined on the basis of the costs of funding for the bank (generally not superior to the costs of access to BCE funds as part of the Targeted Longer Term Refinancing Operation) plus a spread based on the quality of the firm, the guarantor and the structure/type of operation. During the year seven advances were granted, for a total of €534,500, under both the present and the previous initiatives.

Loans to SMEs drawn from Cassa Deposito e Prestiti funds The granting of loans to small to medium-size businesses to support investments or working capital continued until 30th June 2015, which marked the end of availability of the funds used by the Group under the fourth (and last) agreement, again by drawing from Cassa Deposito e Prestiti (CDP - Italy's state controlled fund and deposit institution) funds resulting from post office savings, as established by the various agreements entered into with the Italian Banking Association. The Group used the CDP funding available from the “investment pool” for unsecured loans with a term of between 13 months (19 months if backed by the Guarantee Fund for SMEs pursuant to Law 662/1996) and 60 months, for planned or existing investments and to increase working capital. Under the above-mentioned fourth convention in 2015 336 loans were concluded, amounting to over €12.4 million. Guarantee fund for SMEs ex Law 662/1996 With a view to facilitating access to credit by SMEs, use of public sector tools, such as the Guarantee Fund for SMEs pursuant to Law 662/1996 to mitigate credit risk, also continued. The Guarantee Fund provides its own guarantee on behalf of businesses receiving financing of any type linked to the operating activities of the firm. The guarantees protect the lending banks in variable percentages - depending upon the nature of eligible operations, the type of beneficiaries and their location - based on the fund regulations currently in force, which are immediately implemented by UBI Banca Group. Outstanding loans from the Group backed by this guarantee amounted to €1,178.6 million, while disbursements in 2015 totalled €574.5 million. Initiatives for populations affected by the earthquake in the Emilia Romagna, Lombardy and Veneto regions Decree Law 74/2012 made available subsidised loans for the repair, return to working order and/or rebuilding of commercial and residential properties damaged by the 2012 earthquake. These are unsecured loans, issued on the basis of the specific Italian Banking Association- Cassa Deposito e Prestiti (CDP) convention "2012 Earthquake Reconstruction Loan Pool" of 17 December 2012 and subsequent addenda, with a life of 15-25 years, based on the amount of the loan. The sole source of repayment of these loans are the tax credits which mature in favour of the loan beneficiaries in amounts equal to the repayment instalments due and to the sums required by the lending bank to meet expenses strictly necessary for management of the loans. The above tax credit is then used by the lending bank on the basis of the compensation procedures pursuant to Art. 17 of Legislative Decree No. 241/1997. In 2015, the network banks involved (Banco di Brescia and Banca Popolare Commercio e Industria) finalised 66 loans amounting to € 5,367,254 million (of which 13, amounting to €1,002,429, went to businesses), for a residual debt at year's end of approximately €7.9 million (of which approximately €1.6 million was for businesses), continuing with the activity of concluding the operations found to be eligible for subsidies by the ordinances issued by the competent authorities. Initiatives to assist populations affected by natural calamities Again in 2015, in light of the grave socio-economic hardship resulting from the exceptionally adverse weather events that struck certain areas in Italy, the Italian government made it possible for borrowers holding mortgages on properties that were destroyed or rendered uninhabitable by the above adverse events to request the deferment of payment on the instalments of those loans, selecting between the suspension of the entire instalment or solely the suspension of the principal repayment. Legislative action affecting the Group's banks involve the following areas: - Emergency measures for the populations in the provinces of Florence, Arezzo, Lucca, Massa Carrara, Prato and Pistoia in order to

cope with damage resulting from the exceptionally adverse weather conditions of 5th March 2015; - Preliminary emergency civil protection measures as a consequence of the exceptional weather events of 8th July 2015 in the

municipalities of Dolo, Pianiga and Mira in the province of Venice and in Cortina d’Ampezzo in the Belluno province; - Emergency measures for the populations of the province of Siena after the exceptionally adverse weather conditions of 24th and

25th August 2015; - Emergency measures for the populations of the province of the Campania Region after the exceptionally adverse weather conditions

between 14th and 20th October 2015; - Emergency measures for the populations of the province of Genoa after the exceptionally adverse weather conditions of 13th and

14th September 2015;

11 For companies having "positions past due/in arrears" over 90 days (and up to a maximum of 180 days), the bank may elect to evaluate the operation in consideration of the impacts and regulatory constraints, in the event the delay of payment by the company can be considered to be attributable to its inability to collect on the public administration receivables for which the company is requesting access to the loan pool created by the Agreement.

12 Pursuant to Law Decree 185/2008 and subsequent modifications, according to the procedure set out by the implementing decrees.

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Initiatives designed to support families suffering from the economic crisis In view of the continued difficulty in gaining access to credit and meeting the relative costs, the Group continued with the various institutional initiatives launched in previous years to assist families hit by the economic crisis, such as the loan programme Give them a future - Diamogli Futuro13 (in 2015, 98 loans were issued for total amount of €487,556). The Group has also adhered to the “solidarity fund for mortgages or the purchase of a principal dwelling”14, which was created as a result of an initiative by the Ministry of the Economy and Finance and became operational from 27th April 2013. The initiative combines the two prior initiatives (“2010 Solidarity Fund” and “Families Plan – Italian Banking Association Moratorium”), rendering them simpler and more effective operationally. Given the serious economic and employment crisis which has hit the country, after adhering, in 2009, to the National Convention with Confindustria (confederation of industry) and Confederation of trade union organisations and trade associations on the question of advances on Cassa Integrazione Guadagni Straordinaria - the extraordinary state redundancy/lay-off benefits - scheme (extended through 31st December 2015), Group banks signed specific agreements, some in their major local markets as well (Lombardy Region). For example, the Protocol of accession to the Convention with Finlombarda on the on the question of advances on Cassa Integrazione Guadagni Straordinaria - the extraordinary state redundancy/lay-off benefits scheme - signed in September 2014 designed to provide relief for employees of businesses operating the Lombardy Region (with the exception of the Province of Milan, already covered by a similar initiative with the Ambrosiano Welfare Foundation) through advances on benefits from Cassa Integrazione Guadagni in deroga – the exceptional state redundancy/lay-off scheme, Cassa Integrazione Guadagni Straordinaria anche in deroga - the extraordinary state redundancy/lay-off scheme, including benefits paid on an exceptional basis, and solidarity contracts, which are guaranteed by a special fund. During the year 2015, 143 advances were granted under the Finlombarda Convention, amounting to approximately €187 thousand.

Digital Innovation During the year, UBI Banca Group followed through with its Digital Innovation project, commenced in 2014, updating and launch of a number of highly innovative services, including:

• a new version of the Qui UBI internet banking platform for private and small business customers (available for PC, with "responsive" navigation and graphics, and as an app for smartphones and tablets) which permits access to online services at the same operational and quality standards, regardless of the type of device used for the connection;

• the CBILL service, for online payment of bills from institutions and businesses adhering to this payment method, in addition to the personal financial management service UBI Money, providing not only a convenient platform to keep track of and understand family income and spending, but also access to simulators, also available on the public internet site, to facilitate the choice of the mortgage best adapted to the customer's requirements.

• an enhanced version of the Qui UBI internet application (with both updates to both graphics and navigation), featuring functions such as payment of automobile registration and bills by using a smartphone camera;

• The release of the new Qui UBI Trading application for customers operating on financial markets;

• the activation, in the final months of the year, of the online AES (advanced electronic signature), which permits a state-of-the-art customer experience in terms of simplicity and transparency in the purchase of products via the internet banking platform. This method of signing contracts is already in place for the new QUBÍ and QUBÍ under 30 accounts, and within the first months of 2016 will be extended to the entire online catalogue;

• the extension of the sale of prepaid carts to non-resident individuals in possession of an Italian tax code (codice fiscale).

• the update of the UBI PAY15 application to include non-profit entities. As a result of this innovation, customers may now make donations with a text message, thanks to the application's "send money" function, by simply selecting the name of the receiving entity from the device's contact list.

13 This is an initiative promoted by the Italian Banking Association and the Presidency of the Council of Ministers (Department of Youth), to which the Group adhered in September 2011. The measure provides for unsecured loans from €3,000 to €25,000, issued in annual portions (for a maximum of 60 months), with no transaction fees. Borrowers are not required to provide guarantees (in order to maintain the bank risk within 70%, the public Guarantee Fund managed by "CONSAP - Concessionaire for Public Insurance Services - Concessionaria Servizi Assicurativi Pubblici Spa” intervenes) and the loans, with a maximum life of 120 months, are granted at a subsidised fixed rate, equal to the "IRS 10 year" parameter plus 1.50 p.p. These loans offer the possibility of deferring payment for a maximum of twelve months in the event of the loss of employment, death or the loss of self-sufficiency of the borrower or a member of the household.

14 For mortgage contracts for the purchase of the borrower's primary dwelling, the fund establishes the possibility for a customer, if certain conditions are met, to apply for the deferment of repayments not more than twice for a maximum period of not longer than 18 months in the life of the mortgage.

15 UBI PAY consists of a simple app, available for the three major mobile operating systems (Android, iOS and Windows Phone), and allows users to: send funds to anyone on their telephone contact list over the Jiffy circuit, with an extremely simple user interface, comparable to sending an SMS; make online purchases with eCommerce Merchants using MasterPass, rendering the check-out process both simple and quick (one-click pay);make payments directly from NFC smartphones, simply by placing the phone next to the merchant's contactless POS. In order to use UBI PAY, customers must first register for the services at their local branch, have a Qui UBI internet banking account for which at least one of the three available services is activated, and have either a pre-paid Enjoy card or be a current account holder with one of the UBI Banca Group' banks.

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• online sales of additional products, including UBI PAY and the above-mentioned QUBÍ and QUBÍ under 30;

• the creation of the Instagram and Linkedin channel with the objective of acquiring new customers from the "youth" target group, further consolidating the Group's social network presence.

Among the projects developed and launched in 2015, of note is the "Online Mortgage Specialist", which represents a new way to offer mortgages to customers, in particular to those who enter into contact with the Bank through its website www.ubibanca.com to use the simulators, or request information by telephone, online chat and email. The "Specialist" is a professional with expertise in providing the Group's customers with advice in selecting the mortgage best suited to their specific requirements. Beginning in the month of May, the initiative was extended to customers of the new IW Bank Spa, establishing, in this case, the complete online management of the relationship, with the remote activation of the preparatory and approval stages. ALSO begun was the sale of the new range of IW Bank Spa payment cards (credit, debit, and prepaid) and an important partnership with FISI (Federazione Italiana Sport Invernali - the Italian Winter Sports Federation) providing additional features to the Enjoy SKI prepaid card. A number of significant digital advertising initiatives served to support the Group's principal activities. In particular, the diffusion of the UBI PAY app was backed by a multi-channel and multi-format advertising campaign: television commercials; advertisements on leading national radio stations; a digital media programme; pages and banners added to the www.ubibanca.com website; video tutorials16 . From the launch of the advertising campaign, begun in November 2014, to the end of 2015, the UBI PAY service gained 134,000 subscriptions. For the "youth" target, the "Enjoy the Music" programme was launched, allowing credit and prepaid card holders to purchase tickets at discounted prices and providing priority admission to events17. Again targeted to the "youth" category, at the end of 2015 the "So many great ideas?" ("Hai tante idee in testa?") campaign was launched. The campaign, based on relevant YouTube, digital PR and social network content, features a unique prize contest and offers target customers a complete range of products at favourable prices. For business customers, the Group launched the "Passionate about business - La passione di fare impresa", a series of interviews giving voice to entrepreneurs who successfully completed important projects thanks to their passion, using values such as creativity, tenacity and courage to reach their business goals. The digital media plan designed to support the series employs not only external websites, in addition to the Group's website, but also its own YouTube channel and UBI Banca's Facebook page. Concurrently, the "Multi-Channel Promoter" initiative continued as well, featuring a team of specially trained employees, equipped with dedicated IT work stations, with the task of increasing the use of the multi-channel and electronic payment card services among customers belonging to a set of branches selected from among the Group’s network banks: during the year, 81 promoters sold over 40,000 products, including internet banking services, cards and POS terminals. In addition to the new digital services launched, the year also saw the development of new operational tools for the network banks providing improved service, resulting from a multi-channel approach to contract management, to both current and potential customers. The new developments will continue in 2016, with: - new features for the internet banking platform Qui UBI for the individual and small business segments;

- enhancements to UBI Money services;

- an update for the Qui UBI Corporate Banking Interbank platform;

- new online simulators, and online sales of additional products;

- the introduction of mobile tokens and touch ID for UBI iPhone and iPad applications;

- a new prepaid card created for minors;

- further updates for the UBI PAY application, with a simplified "version" for customers who do not have further dealings with the Group, in addition to a range of transaction services for e-Commerce merchants.

Moreover, during the course of 2016, numerous updates will be made to the www.ubibanca.com website which, together with modifications made for IW Bank, aim to enhance and improve user accessibility, optimising it for search motors. The objective of the

16 Additionally, an "instant win" advertising initiative was developed, featuring the possibility of winning one Microsoft Lumia 535 smartphone per day for all those who downloaded the app.

17 The advertising programme employs digital media - such as, for example, a landing page on TicketOne for the sale of discounted tickets, mobile videos, banners on leading music and social media sites - in addition to update to the site and the Group's Facebook page, announcements regarding numerous events, and radio advertisements.

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updates will be to render more effective the online promotion of the Group's products and services, including increased monitoring of the results achieved, which over time will allow maximum use of available tools and channels. The continued development and technological improvement of direct channels, is not only a strategic tool for the acquisition of new customers and for the management of the Group's relationship with the same, results in reduced operating expenses and the correct management of product and process innovation, but is also particularly appreciated by the Group's customers, who more and more frequently make use of remote channels for their banking transactions. As at 31st December 2015, the Group's multi-channel customers had grown by 24.5%, totalling over 1.690.000 (multi-channel users totalled 1,350,000 at the end of 2014). This growth was driven by encouraging trends for the Qui UBI internet banking platform (up by 27.6% to 1,430,000 users, compared to 1,120,000 at the end of 2014) and for QUI UBI Business, with users reaching 179 thousand at the end of December 2015, up from 157 thousand in December 2014 (+14.3%). Also noteworthy are the approximately 81,500 users of the Qui UBI Imprese business services platform (+0,8% over the previous year's figure). Customer interest is also confirmed by the following usage data18: • +23.2% year-on-year for credit transfers, payments and reloads; • 37% of security trades on regulated markets were performed via internet (33.8% at the end

of 2014)19; • over one-fourth of payments into accounts in cash and cheques were performed using

evolved ATM machines.

Credit cards and electronic payment methods20 Despite the continuing difficulties in the economic context, the Group continues to be extremely active in the electronic payment and credit card business, both in terms of seeking out increasingly innovative technological solutions and through effective advertising initiatives to support the products and services offered. The range of credit cards and payment tools currently proposed by the Group satisfies the needs of every sort of user, from both individual and business segments; at the same time, the range of tools for card-based payment (POS) is substantial, and responds to the highest technological standards. In particular: "individual" customers may select between debit cards, flexible credit cards (which allow both full

repayment and instalment repayment of the balance due each month) and revolving credit cards cards, in addition to prepaid cards (some of which feature an associated IBAN);

"business" customers are offered business and corporate cards, with varying credit ceilings and services, in addition to a complete range of technologically advanced payment processing systems (including both physical and virtual POS terminals).

As a whole, as at end December 2015, the number of credit cards (Libra and Kalìa) and CartaSi cards issued by UBI Banca was over 726 thousand, an increase over the approximately 700 thousand issued in 2014. In terms of use, the data updated to November 2015 appears to be substantially unchanged when compared to the same period of the previous year, despite an increase of over 6% in the use of Libra cards. The increase in the overall stock of prepaid cards continued, rising to 486 thousand (+15.5% over 2014 figures), driven by both currently available products: Enjoy Card - the prepaid card with an associated IBAN, and, above all, the Like prepaid card, available since October 2013,

18 As of 25th May 2015, the merger of IW Bank Spa with UBI Banca Private Investment, with a change of name to IW Bank Spa, became effective. The data presented does not include IW Bank Spa as at 31st December 2015 and UBI Banca Private Investment as at 31st December 2014.

19 As compared to previous reports, this item incorporates the various partial results relative to the same purchase order. 20 Data regarding the total number of credit and payment cards as at 31st December 2015 refer to the aggregate network banks plus

new IW Bank (network banks + UBI Banca Private Investment as at 31st December 2014) while the usage data relative to the period January-November 2015 do not include IW Bank.

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featuring numerous additional innovative services and well-suited to those who do not require the additional functionality of a card with an IBAN21 (over 170 thousand cards). For the Enjoy card, in particular (over 300 thousand cards issued; +15.7 year-on-year), the Group continued activities in collaboration with Italy's leading universities, which lead to an interesting increase in issuance. The success of prepaid cards is also reflected in their use, which grew in the eleven months of the year by 19.4%, as compared to the same period of the previous year. The debit cards (Libramat) issued by the Group as at end December 2015 numbered at approximately 1.73 million, an increase of 10.3% over 2014. Overall card use dynamics were positive as well, showing an increase of 4% in the eleven months of the year, with a +7% increase in payments over the PagoBancomat network. The rise in card use confirms new consumer tendencies that are increasingly oriented toward using payment cards for sales transactions, even for smaller amounts. As regards payment processing systems, the Group has installed over 68 thousand POS terminals in retail outlets, an increase of 7.2% as compared to 2014. This growth was driven both by recent legislation requiring merchants to accept payment cards for transactions of €30 or greater, and additionally by European Regulation 2015/75122, which placed a limit on interbank commissions for credit and debit card payments and established new transparency rules. During the second semester, the UBI Banca Group made the modifications necessary to comply with the above regulation, with the aim of improving the security, efficiency and the competitivity of electronic payments and to render their use advantageous for both consumers and merchants. Due to the beginnings of an economic recovery, and to the initiatives carried out during the year, the volume of POS transactions until November 2015 increased by 6.7% as compared to the same period of the previous year. In 2015, the Group implemented numerous activities aiming to develop the acquiring category(all activities relative to managing the acceptance of payment cards and payment card transactions). In particular, from May to October the Group was involved in the Bergamo Cashless City project, with the participation of Banca Popolare di Bergamo (local banking institution in the project territory). Cashless City is an initiative created in collaboration with CartaSi, the municipality of Bergamo and the leading payment networks in Italy (PagoBancomat, Visa and MasterCard), with the aim of augmenting credit card payment processing networks through a series of innovative operations, with particular attention to the public administration sector, in order to encourage the use of electronic payment tools, even for smaller purchases. The Cashless City 2015 project was a success for all parties involved: the municipality of Bergamo, upon reaching a determined volume of operations, was "rewarded" by stakeholders with the implementation of projects for the city's inhabitants; consumers and merchants participated in a drawing for gift certificates by using and accepting payment cards . The initiative was not only qualitatively successful, but also quantitatively successful, with use of electronic payment tools increasing by 10% as compared to the same period of the previous year. Additionally, on 1st November 2015, the "Use a POS Terminal" prize contest was launched. The new initiative, targeted at both current and potential customers, provides for the possibility of participating in a drawing for a Fiat 500 customised with the the merchant's business logo, or 100 weekends for two people, by reaching a determined number of transactions/operations or by entering into a new POS terminal contract.

21 The card is equipped with IBAN technology, which allows the receipt of credit transfers only for the purpose of reloads. 22 On 8th June 2015 EU Regulation 2015/751 of the European Parliament and of the Council came into effect, governing interbank

commissions on credit card transactions, and published in the Official Journal of the European Union May 19th, 2015. The regulation has the objective of increasing the level of competition and integration for payment cards in the European market. To that end, effective 9th December 2015, a limit was established on interbank commissions in the amount of 0.3% of the value of the individual transaction for credit cards and 0.2% for debit and prepaid cards. Certain options were additionally established for debit and prepaid cards, which may be activated at a national level and allow for compliance with the above-mentioned 0.2% limit at the level of each payment card network rather than for individual transactions.

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The “Private & Corporate Unity” Market23 Private & Corporate Unity proposes an integrated service model for both private banking and corporate clients, with approximately 86 thousand customers and with managed assets amounting to approximately €66 billion. The highest level of service are ensured by approximately 300 Private and Wealth Bankers and an equal number of Corporate Bankers, present throughout Italy in 48 integrated operational units, and in specialist centres abroad as well. The model is based on a solid organisational structure and sound teamwork; Private Bankers, Wealth Bankers and Corporate Bankers are able to deal with client issues regarding family, business or synergies between personal and corporate assets. Through careful strategic and financial planning, "Personal & Corporate Unity" bankers create an integrated consultancy service that takes into consideration every aspect of the diverse private and professional moments of the client's life cycle. In addition to the wide catalogue of products available at the branches of UBI Banca Group banks, clients also have access to a wide range of innovative tools: investment solutions that are advanced, transparent and easily monitored over time, including through investment

consulting offered by Pro AWA (Pro Active Wealth Advisory), for the management of the largest estates. This investment consultancy service features skilled, specialised professionals and a full technological platform. The combination of these two elements allows an accurate assessment of the characteristics and needs of customers and their families, in order to analyse estates and propose the best investment solutions available on international financial markets. As part of the Pro AWA investment consultancy service, the Institutional Pro AWA team's activities are dedicated exclusively to institutional investors (foundations, funds, Onlus non-profit organisations) and companies. In particular, and in keeping with the objectives of the "Unity" Project, during 2015 consultancy for those businesses, especially for family concerns having surplus liquidity after covering operational costs and seek professional consultancy for their medium to long-term financial investments. Furthermore, the "Portfolio Advisory" project was completed, with the implementation of a consultancy model for assets under custody portfolios, in addition to the range of consultancy services to be offered to those customers with less propensity for delegation and having elevated equity and bond portfolios;

products and services specifically designed for businesses (Corporate Advisory), with an orientation that seeks to bring the Bank closer to the business by sharing scenarios for future growth and by presenting a structured services offer. Corporate Advisory features an innovative approach to business management and development, based on the historical analysis of both a business' strong points and areas requiring improvement, with a view to future growth built upon multi-year forecasts, and business development plans that take into account agreed stress-tests. During the year, four macro-sectors (fashion system, food, mechanical and chemical-rubber-plastics) were identified, on which to focus activities in order to provide customers with a critical analysis of strategic scenario for sector growth; a structured approach was therefore created in order to identify and present feasible solutions (both ordinary and extraordinary) that the Bank is in the position to provide in order to best face the competitive contexts in which companies operate; this "industry practice" approach will continue in 2016;

customised solutions for companies seeking access to structured debt and/or to capital markets in order to invest, grow and innovate while keeping abreast of the fast pace set by international competition;

solutions designed for the owners and top management of companies, that will provide support at strategic moments, assisting to provide the best financial conditions for periods of company continuity and discontinuity alike;

planning and insurance packages designed to optimise equity and income flows over time, additionally guaranteed by far-reaching consultancy activities (Family Business Advisory) with regard to the management of the personal, business and real estate assets of the entire family. The Family Business Advisory provides customised solutions for specific requirements relating to equity protection: capital reorganization and protection, family and corporate governance, succession planning.

During the past twelve months, the asset management services and products were further expanded through a number of new arrangements with third party providers. With the aim of providing a complete and integrated service according to the principles of a Multi Family Office, Private & Corporate Unity augmented its range of products and services to include Corporate Lending and Structured Finance (Project and Real Estate Financing,

23 The “Private-Corporate Banking Market” comprises clients with financial wealth (direct and indirect funding) of greater than €500,000 and firms with turnover of greater than €15 million. More specifically, clients with financial wealth of greater than €2 million are defined as “high net worth” and firms with turnover of over €250 million are defined as “large corporate”.

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Acquisition Financing, syndicated and club loans, subsidised loans) and in the Investment Banking area (M&A /Advisory, Equity Capital Market, Derivatives). Initiatives in collaboration with the European Investment Bank (EIB) During the last year, the UBI Banca Group continued to offer its corporate clients medium to long-term financing, at advantageous conditions, of up to twelve years, thanks to the positive long-term collaboration with the EIB. In particular, in 2015 a total of 783 loans were granted for a total €357 million, from the following loan pools. a loan pool of €150 million for the purpose of financing Mid Cap corporate customer investments

("Mid Cap II"), subscribed on 27th June 2014; a loan pool of €200 million for the purpose of financing SME corporate customer investments (SME

Loans II), subscribed on 18th December 2014; a loan pool of €50 million for the purpose of financing SME and Mid Cap business investments

providing employment to young people ("Jobs for Young People"), subscribed on 30th January 2014. In light of the progressive reduction of the above loan pools, on 18th December 2015 a new loan pool agreement was subscribed, creating a pool of €250 million for the purpose of financing SME corporate investments (SME Loans IV). Also of note is the creation of a loan pool of €50 million, signed on 28th May 2015, for the purpose of financing medium to long term Mid Cap and SME corporate investments for companies operating in the agricultural, agri-food and related sectors, such as forestry, fishing, and food production ("Loan for Agriculture"). The positive co-operation with the EIB is scheduled to continue in 2016 as well, with new loan pools planned for both SME and Mid Cap customer investments.

Customer Satisfaction For the eighth consecutive year, Group Customer Satisfaction was surveyed, on the basis of which each organisation unit is was assigned a satisfaction score relative to the quality of services performed, as perceived by the unit's customers. 2015 saw an overall rise in levels of satisfaction, especially during the first part of the year. Scores rose as compared to the previous year in all markets; in particular, the "Unity" market - the sum of the Corporate and Private markets - recorded an increase of eight points, and Retail market satisfaction levels increased by four points.24 For the first time since the customer satisfaction surveys began, individual and corporate customer satisfaction levels - reaching UBIndex values of 68 and 66 points, respectively - exceeded that of the retail segment, which nonetheless also rose, to 64 points. The progress shown emphasises customer satisfaction as compared to the benchmarks in all three markets (the levels of which are already superior to those of respective competitors in the region). +8 point advantage for the Retail segment (still the highest), +5 for the individual segment and +3 for Corporate sector.

24 Survey performed using CATI (Competitor-Assisted Telephone Interviewing) and CAWI (Computer-Assisted Web Interviewing) technologies with over 103 thousand private and corporate customers and 11 thousand competitor customers.

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In 2015 CAWI methodology, to supplement the traditional CATI method, was used to survey customer satisfaction, in order to provide a "recording" of the Group's customers that is in line with new operational and behavioural guidelines.

As in previous years, particular attention was paid to the process of the management of any complaints that emerged during the interviews: the issues reported, corresponding to less than 10% of the interviews conducted, were immediately referred to the network banks in order to expedite the rapid resolution of each problem.

Over the course of the year, UBI Banca proceeded with the release of the a new and updated version of its online banking platform QuiUBI: an opinion survey conducted on the perception of improvement of the services offered revealed that the approximately 80% of regular users consider the platform to have improved, and over 80% indicate satisfaction in terms of having their needs met, functionality, ease of navigation and intuitiveness. As regards product companies, the survey of UBI Leasing services satisfaction levels revealed score of 62, a 3-point increase over the 2014 figure: customers confirmed that they were very satisfied with both the signing phase (94%) - which occurs almost exclusively at branch offices - and with the post-sale stage (92%). The survey of UBI Pramerica SGR customer satisfaction reveals that 95% of those interviewed expressed satisfaction with mutual funds and/or portfolio management and related services. Customer satisfaction levels for non-life insurance products were also above average. Among the leading motivations for having purchased products were: product advantages, trust in the intermediary and/or the company. The customer satisfaction survey was augmented with "ad hoc" surveys aiming to analyse specific aspects of customer relations with the Group. Specifically, with regard to corporate customers, a specialised in-depth survey of Italian companies gauged perceived quality of services received and value-added services offered in strategic sectors. The survey underscored the increasing importance of professionalism and the quality of the customer relationship: a framework in which UBI Banca has a wide window of opportunity and in which the Unity model is demonstrated to be highly successful. Following on from past surveys, customer satisfaction among companies operating abroad was analysed: the customers (corporate and SME) utilising UBI Banca services and products were revealed overall to have higher satisfaction levels (UBIndex 75) compared to regular customers,

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with a higher score than in 2014; Foreign Banking centre (specialised units located throughout the country) customers expressed even higher satisfaction levels (UBIndex 84). The diffusion of the culture of quality and of customer satisfaction brings fundamental importance to training as well; thus, specific sections on this issue were inserted in professional training initiatives, such as, for example, training provided for future branch manages, or as a part of specific human resource development projects. Training events were also organised to discuss the results of the customer satisfaction surveys. Internal Customer Satisfaction and the Mystery Client Programme Internal Customer Satisfaction (CSI) surveys are conducted by interviewing "internal customers", first and foremost in the distribution network who were asked to provide their opinions on different products, applications and software provided by the Parent, UBI Sistemi e Servizi and the product companies. In 2015, in particular, research focused on satisfaction levels regarding the use of the apps and management processes for: • receivables (principally to support mid to long-term loans); • investments (financial advice platform, and products and services offered by UBI Pramerica SGR); • payment card payments (traditional and virtual POS terminals); • relations with mid-corporate business customers (companies having annual turnover of €15-100 million). Over 10,000 surveys were sent, with an average redemption rate (active participation in the survey) of approximately 60%: the highest scores - as was found throughout the surveys - were for process efficiency and application utility. The Mystery Client survey permits the monitoring of the quality of bank services performed during the principal stages of the purchase of products and services by customers (customer journey), with particular reference to the customer experience. During the year, the Mystery Client programme was implemented, with visits to a sample of both the Group's network bank branch offices and to competitor bank branches. Overall, over 800 visits were made during the principal stages of the customer journey (welcome, consulting/profiling, proposal, cross-selling and follow-up), for the following products and services: current account and related services, financial advice on investments and home mortgages. All evaluations conducted resulted in positive results, but the highest results were recorded during the welcome and client needs analysis stages. Quality Project 2015 saw the development of a strategic project aiming to measure the quality expectations of UBI Banca customers. The research, which involved two thousand Retail segment customers, lead to the identification of a number of fundamental quality values. Specifically, during the first stage of research, approximately thirty quality requirements that customers associate with the ideal bank were identified. In the remaining portion of the project, participants were asked to chose, among the items identified, those they considered to be most essential: simplicity and transparency, relationships and personal acquaintance, attention to the customer (customer caring). To respond promptly to the expectations that were revealed and to act upon the priorities that emerged, the following initiatives were launched:

- "We are simple and transparent": simplify pre-contract and contractual documentation and communications, be transparent with regard to costs and adopt more immediate customer relations, based additionally on simple, non-bureaucratic language. As part of this initiative, the information sheets and summary documents for banking products, were revised and simplified in conformity with the new dispositions of the Bank of Italy regarding transparency and accuracy, and, at the same time, the revision of customer communication was

69

initiated, both in terms of streamlining graphic layout and of standardizing and simplifying language and content. This initiative will conclude in 2016;

- "We know you": assist customers in identifying the staff member to contact for diverse requirements and ensure the continuity of the relationship with the bank, even in the event of a change of the account manager, thereby ensuring that the customer's history and needs are known. More specifically, rules for the transition from one account manager to another were defined, and a number of initiatives aiming to help customers to get to know key staff members of their local branches were initiated;

- "Quality consultancy": communicate the value of consultancy services and foster awareness of investment products.

Evidence collected during the project on quality expectations lead to the identification of the principal stages of the product and services purchase process on the part of customers (customer journey) and to the modification of commercial behaviour, also based on the various types of products offered. These "distinguishing" behaviours, modified on the basis of precise quality expectations and therefore strategic for improving customer experience, were codified in a special quality behaviour catalogue and subsequently sent to the network banks.

Complaint management Complaint management is a fundamental element for the UBI Banca Group, both from a commercial point of view, inherent to the customer relations, but also from a strategic point of view, as a means of ensuring the continued development of products, services and company processes. Complaints are one of the sources of information for defining areas of further improvement, especially because for every client who expresses dissatisfaction, there are likely to be others who, despite having encountered problems, do not take concrete steps to report the issue. For that reason, during the year 2015 the Group continued to consolidate a constructive and pro-active approach to complaint management, including the Parent's constant commitment to the prevention of controversies and its supervision and co-ordination of the activities of the network banks and product companies. It is, in fact, extremely important to ensure the uniformity of the strategies and joint actions employed throughout the Group, in accordance with the competencies and responsibilities of each sector. From a purely operational point of view, of note is the use of a software application to support the central units of the Parent, network banks and subsidiary product companies (UBI Leasing, UBI Factor, UBI Pramerica SGR and Prestitalia), permitting the annotation of all issues reported in a "Complaints Register", in addition to the immediate sharing of all information regarding complaint received, and which serves additionally as a tool for infra-group coordination to support the recording and analysis of results. Initial complaints received by the Group in 2015 are as follows:

Total UBI Banca Group 19,520 - of which network banks 6,944 - of which product companies 7,223 - of which UBI Banca 5,353

During the year, after having been implemented by the Bank of Italy, the "Guidelines for complaints-handling for the securities and banking sectors", published on 13th June 2014 by the Joint Committee of the European Supervisory Authorities and promoted by the EBA (European Banking Authority) and the ESMA (European Securities and Markets Authority) went into effect. Following this regulatory development, and also in order to comply with revisions published on the topic of transparency, the Group acted swiftly to carry out the necessary verifications for the implementation of the changes. In line with the directives on transparency and with the guidelines adopted by the Group, customers may use all possible means of communication.

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Thus it has emerged that remote communications channels (for example, email and dedicated pages on the Group's company websites) represent, with approximately 86%, the most utilised method for formally reporting complaints, while the paper channel represents 14%. Claims and complaint management in the network banks In 2015, the network banks (including the new IW Bank Spa25) received 6,944 first instance complaints, up approximately by 23% when compared with the previous year, attributable to the inclusion (beginning at the end of 2014) of complaints regarding CartaSì debit and prepaid cards. The percentage of solutions in favour of customers was 47% (+37 compared with 2014), with an increase of 5% in the overall amounts paid out compared with the twelve previous months. On average, complaints were resolved in 28 days, in full conformity with legally established deadlines. In terms of complaints received per branch, 14% of the local branches did not receive any complaint made against them at all during the entire twelve-month period. Overall, the number of complaints received by network banks as compared to the entire customer base totals 1.94 complaints per 1,000 customers.

25 Following the merger operation that lead to the creation of the new IW Bank Spa, the composition of the aggregates of network banks (where the new company was inserted) and product companies (among which are currently included UBI Leasing, UBI Factor, Prestitalia and UBI Pramerica SGR) was modified. This modification also made necessary an adjustment, for the sake of coherence, to the 2014 data base; therefore, the comparative data presented below (and in the following paragraph) vary from those published in the 2014 Annual Accounts.

Remote Channels 85.9%

Hardcopy14.0%

Verbal/Telephone 0.1%

Distribution of complaints by channel of receipt in 2015

Branches with no complaints14%

Branches with 1 complaint

16%

Branches with 2 complaints

15%

Branches with >2 complaints

55%

Distribution of branches on the basis of complaints received

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Analysis by product and/or service confirms, as mentioned above, the significant relevance of the new segment credit and debit cards, with 39% of all complaints (17% in 2014), while other significant categories, although all showed decreases, were current accounts and savings deposits (falling from 37% to 27%) and loans and mortgages (from 22% to 12%). As a percentage of the total, on the other hand, complaints regarding securities and investment services and collection and payment services remained stable. An analysis of the reasons given for the complaints received demonstrates a decided increase in the contestations connected to fraud and lost cards (debit cards) which, at 29% of the overall, have become the leading segment, followed by the transactions performance stage (rising from 19% to 25% and conditions/application of conditions (which fell from 21% to 12%). The data, moreover, demonstrate a reduction of complaints connected to the compounding of interest (from 11% in 2014 to 7%) and to customer communication and information (from 11% to 8%).

Repetitions of initial complaints were as follows: - 1,004 repetitions, a small increase from the 954 of 2014; - 206 appeals to alternative mediation bodies (Financial Banking Arbitrator, Banking

Ombudsman, the Italian Personal Data Protection Authority, Consob – the Italian securities market authority) compared to 172 in 2014.

Overall, 1,246 repetitions were filed (1,130 in 2014); in addition to direct repeat complaints to the network banks, there were 262 complaints filed with various Supervisory Authorities, a decrease from the 348 of the previous year.

39.2%

26.8%

12.3%

7.6%

7.6%

1.5%

1.1%

3.9%

17.0%

37.1%

22.1%

7.4%

8.1%

1.9%

1.3%

5.1%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Credit and debit cards

Current and deposit accounts

Loans and mortgages

Collection and payment services

Securities and investment services

General aspects

Insurance products

Other

Complaints by Product or Service

2015

2014

28.6%

24.5%

9.1%

7.8%

7.1%

6.9%

5.2%

2.8%

2.7%

2.5%

1.6%

1.2%

14.1%

19.3%

13.6%

10.5%

15.2%

10.9%

6.1%

1.7%

2.8%

2.4%

1.9%

1.5%

0.0% 10.0% 20.0% 30.0% 40.0%

Frauds and losses

Execution of transactions

Other

Communication and information to customer

Conditions

Compounding of interest

Application of conditions

Organisational aspects

Reports to the centrale rischi (central credit bureau)

Creditworthiness or similar

Personnel

Equipment malfunctions

Complaints by grounds

2015

2014

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During the year there were 1,166 mediation procedures, compared with 1,517 of the previous year: of these, 1,142 (98%) were almost totally concluded during the course of the year. Mediation procedures resulting in a positive outcome with a payment to the customer were limited to 43.

Complaint and controversy management in the product companies In the course of the year, the product companies received 7,223 initial complaints, 1,347 repeat complaints, 1,601 appeals to alternative mediation bodies (Financial Banking Arbitrator, Banking Ombudsman, the Italian Personal Data Protection Authority, the Consob – Italian securities market authority) and 112 complaints filed with various Supervisory Authorities. The companies were also invited to participate in 376 mediation processes. The majority of complaints received by product companies related to Prestitalia (97%), an increase of 112% over 2014, attributable to requests (increasingly frequent throughout the system) for the "compensation" for loan commissions and insurance costs related to salary and pension backed loans repaid ahead of schedule during the last ten years and based on contracts which are by now out-of-date. These specific complaints involved a number of significant law suits, brought by "specialised" law firms.

In 2015 the product companies processed 8,416 complaints, 1,439 repeat complaints, 1,948 appeals (Financial Banking Arbitrator and the Banking Ombudsman), 111 complaints filed with various supervisory authorities, and 374 mediation processes. In particular, 54% of first instance complaints were resolved in favour of the customer, up from 41% in 2014. Overall, during the year 3,386 repeat complaints were resolved (535 in 2014). In addition to direct repetitions, there were 112 complaints filed with Supervisory Authorities, compared with 71 the previous year, while of the 374 total mediation procedures, only eleven cases resulted in payment to the customer.

Claims and controversy management at the Parent For information concerning the Parent please see the contents of the UBI Banca Spa consolidated management report.

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The distribution network and market positioning

The Group’s branch network

The distribution network of the UBI Group as at 31st December 2015 consisted of 1,560 branches (unchanged as at the time of publication of the present report), of which 1,554 in Italy; this was a decrease of 114 branches compared with the end of 2014.

The year-to-year change is attributable almost entirely to a process of rationalising the branch network’s geographical coverage, which took effect on 19th January 2015 and led to the closure of 52 branches and 58 mini-branches 1 , along with the transformation of 57 branches into mini-branches and two mini-branches into branches. (

1)

Th

e figures do not include nine units dedicated exclusively to pawn credit. (2) The figures include three foreign branches. (3) Effective 25 May 2015, IW Bank merged into UBI Banca Private Investment, and the latter was renamed IW Bank SpA. The figures shown do not

include two supporting branches not open to the public that had been counted in the total number reported in the 2014 Financial Statements. (4) Includes the financial advisors belonging to the Wealth Management division of the new IW Bank Spa.

1 Here is a detailed list of the locations of branch closures effective 19 January 2015: - BANCA POPOLARE DI BERGAMO: in Bergamo: Via Gleno; elsewhere in Bergamo province: Scanzorosciate (Via Collina Alta Frazione

Tribulina); in Como province: Mariano Comense (Viale Lombardia). - BANCO DI BRESCIA: in Brescia: Via Trento, Via San Giovanni Bosco, Via della Chiesa, Via Prima Frazione Villaggio Badia, Piazzale

Nava Frazione Mompiano, and Via Vittorio Emanuele II; elsewhere in Brescia province: Botticino (Via Don Milani), Montichiari (Via Cavallotti), Palazzolo sull’Oglio (Via Brescia), Roncadelle (Via Marconi c/o Auchan); in Bergamo: Via Don Luigi Palazzolo; elsewhere in Bergamo province: Medolago; in Cremona province: Castelleone; in Mantua: Viale Divisione Acqui; elsewhere in Mantua province: Asola and Magnacavallo; in Pordenone province: Prata di Pordenone; in Latina: Via della Stazione; in Viterbo: Via Venezia Giulia; elsewhere in Viterbo province: Bassano in Teverina; in Padua province: Noventa Padovana; in Verona: Via Murari; elsewhere in Verona province: Isola della Scala, San Bonifacio, San Martino Buon Albergo and Sona Frazione Lugagnano; in Vicenza province: Montecchio Maggiore; in Treviso province: Oderzo;

- BANCA POPOLARE COMMERCIO E INDUSTRIA: in Milan: Viale Piave, Via Panizzi and Via Ampére; elsewhere in Milan province: Canegrate, Cinisello Balsamo (Viale Umbria), Peschiera Borromeo and Pregnano Milanese; in Pavia: Viale Matteotti c/o Istituzioni Assistenziali Riunite; elsewhere in Pavia province: Borgarello, Casei Gerola, Casorate Primo, Portalbera, Robbio, Vigevano (Via Sacchetti) and Vistarino; in Reggio Emilia province: Correggio;

- BANCA REGIONALE EUROPEA: in Cuneo: Via Luigi Gallo, Corso Nizza and Piazzale Repubblica (Frazione Castagnaretta); in Alba: Corso Langhe (Frazione Borgo Moretta); elsewhere in Cuneo province: Bastia Mondovì, Bernezzo Frazione San Rocco, Borgo San Dalmazzo (Via Po), Bra (Via Don Orione, Frazione Bandito), Dronero (Viale della Stazione), Gaiola, Monastero Vasco, Mondovì (Corso Europa), Robilante, Rossana, Torre San Giorgio; in Alessandria province: Brignano-Frascata and Silvano d’Orba; in Asti: Corso Savona; in Novara: Corso della Vittoria; elsewhere in Novara province: Romentino; in Turin: Piazza Adriano and Corso Sebastopoli; elsewhere in Turin province: Alpignana; Genoa: Via Fieschi; elsewhere in Genoa province: Recco; Imperia: Via Puccini; La Spezia: Via di Monale and Piazza d’Armi c/o comprensorio Maridipart; elsewhere in La Spezia province: Portovenere; in Savona province: Alassio, Celle Ligure and Finale Ligure;

- BANCA POPOLARE DI ANCONA: in Macerata province: Monte San Martino; in Caserta province: Marcianise Frazione Oromare and Pignataro Maggiore; in Naples province: Casamicciola Terme; in Rome province: Guidonia Montecelio (Piazza Colleverde);

- BANCA CARIME: in Cosenza province: Corigliano Calabro, San Lucido and Spezzano della Sila (Via Roma); in Lamezia Terme: Via del Mare; in Catanzaro province: Tiriolo; in Reggio Calabria province: Marina di Gioiosa Ionica; in Vibo Valentia: Via Emilia Frazione Vibo Marina; elswherhe in Vibo Valentia province: Mileto; in Matera province: Ferrandina, Montescaglioso and Tursi; in Potenza: Via Dante; elsewhere in Potenza province: Brienza, Palazzo San Gervasio, Sant’Arcangelo and Venosa; in Salerno: Viale Kennedy; elsewhere in Salerno province: Amalfi and Vallo di Lucania; in Bari: Via Pescara; elsewhere in Bari province: Bitritto and Conversano; in Andria: Via Barletta; in Barletta: Largo delle Palme; San Ferdinando di Puglia (Barletta Andria Trani province); in Taranto province: Sava.

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

number of branches31.12.2015 31.12.2014 Change

UBI Banca Spa 4 4 -

Banca Popolare di Bergamo Spa 349 354 -5

Banco di Brescia Spa 288 316 -28

Banca Popolare Commercio e Industria Spa (1) 196 212 -16

Banca Regionale Europea Spa (2) 210 243 -33

Banca Popolare di Ancona Spa 208 213 -5

Banca Carime Spa 216 242 -26

Banca di Valle Camonica Spa 65 66 -1

IW Bank Spa (3) 21 21 -

UBI Banca International Sa - Luxembourg 3 3 -

TOTAL 1,560 1,674 -114

Total Branches in Italy 1,554 1,668 -114

Financial advisors (4) 824 713 111

ATMs 2,326 2,268 58

POS TERMINALS 68,082 63,491 4,591

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In addition to the changes cited above, we report that: a BPB mini-branch located within the Novartis Italia offices in Saronno (Varese province) was closed in June; mini-branches of Banca di Valle Camonica and BRE, with respective locations in Villa di Tirano (Sondrio province) and Corso Vittorio Veneto, Savona, ended operations in July; and a BPB operating point in Cuvio (Varese province) was closed in November. A full list of all Group branches in Italy and abroad is given in the last pages of this publication. The Italian branch network is completed by the UBI Banca Private & Corporate Unity division, which at the end of the year had 125 centres (48 PCUs and 77 “corners”) operational throughout Italy. This is three fewer than on 31st December 2014, after the closure of the BRE Cuneo Nord PCU (in January) and the termination of operations at both a BPCI “corner” in Reggio Emilia (in September) and a BPA corner in Pescara (in December). Coverage of the market continues to be provided by a network of 824 financial advisors who report to the new IW Bank SpA, up from the 713 under UBI Banca Private Investment at the end of December 2014, mainly as a consequence of an external growth strategy.

Changes to branches made in 2015

branches mini-branches

Banca Popolare di Bergamo Spa - - 5 2 -

Banco di Brescia Spa - 14 14 9 -

Banca Popolare Commercio e Industria Spa - 7 9 4 1

Banca Regionale Europea Spa - 13 20 30 -

Banca Popolare di Ancona Spa - - 5 8 -

Banca Carime Spa - 18 8 4 1

Banca di Valle Camonica Spa - - 1 - -

IW Bank Spa - 2 - - -

IW Bank Spa (former UBI BPI) 2 - - - -

TOTAL 2 54 62 57 2

Closures/mergers of: Transformation of branches into mini-branches

Transformation of mini-branches into branches

Merged branches

Private & Corporate Banking Units

31.12.2015 31.12.2014

Private & Corporate Banking Units 125 128Private & Corporate Banking "Unity" Units (PCU) (*) 48 49

Banca Popolare di Bergamo 12 12

Banco di Brescia 9 9

Banca Popolare Commercio e Industria 7 7

Banca Regionale Europea 6 7

Banca Carime 5 5

Banca Popolare di Ancona 7 7

Banca di Valle Camonica 2 2

"Corners" 77 79

Banca Popolare di Bergamo 24 24

Banco di Brescia 12 12

Banca Popolare Commercio e Industria 8 9

Banca Regionale Europea 4 4

Banca Carime 6 6

Banca Popolare di Ancona 21 22

Banca di Valle Camonica 2 2

(*) The figures does not include three UBI Banca units operational

since 6th May 2013 and dedicated to corporate customers only.

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International presence

At the date of this report the international presence of the UBI Banca Group was composed as follows:

one foreign bank, UBI Banca International SA (with registered office in Luxembourg and branches in Munich and Madrid);

three foreign branches of Banca Regionale Europea in France (in Nice, Menton and Antibes);

representative offices in Sao Paulo in Brazil, Mumbai, Shanghai, Hong Kong2, Moscow, Dubai3 and New York4;

investments (prevalently controlling interests) in three foreign companies: UBI Trustee SA, UBI Management Co. SA and Zhong Ou Asset Management Co. Ltd;

a branch of UBI Factor SpA in Krakow, Poland; 34 commercial co-operation agreements with foreign banks (covering over 50 countries),

plus three trade facilitation agreements – with the European Bank for Reconstruction and Development (EBRD), with the International Financial Corporation (IFC) and with the Asian Development Bank (ADB)5 – as well as a “product partnership” in the Middle East and in Asia to provide effective assistance to corporate customers in all the principal markets in those areas.

The agreement with ADB, signed in the first half of the year, foresees the Parent and the network banks subscribing as Confirming Banks, with the chief aim of acquiring new trade finance operations with Asian countries and with Asian banks where the risk is mitigated, if not eliminated, by ADB guarantees. Again in 2015, the UBI Banca Group sponsored events of national and international importance in order to increase the visibility of its brand in Italy and abroad and to consolidate its close relationships with customers operating on international markets.

2 As from 30th November 2015, following the publication of two ministerial decrees in the Official Journal on 18th November 2015, Hong Kong is no longer on Italy’s “black list” for financial transactions. Since that date, all expenses and charges associated with transactions executed with operators located in Hong Kong have been tax deductible according to ordinary business income rules, and equity interests in Hong Kong resident companies are no longer subject to Controlled Foreign Companies (CFC) regulations. Financial intermediaries that act as withholding agents in collecting the dividends distributed by such companies will now apply, for Italian beneficiaries, the standard withholdings on foreign dividends

3 Having obtained the necessary authorisation and licence from local authorities on 28th May, the procedure to open a representative office in Dubai was completed on 3rd August 2015.

4 Having received the necessary authorisation and licence from the US Federal Reserve and the New York State Department of Financial Services on 19th January 2016, the Group’s new representative office in New York was opened on 20th January. In addition, we report that after acquiring Casablanca Finance City status in January, the Group received authorisation from the Moroccan Central Bank on 8th February 2016 to open a representative office in Casablanca.

5 ADB is a multilateral development bank headquartered in Manila, Philippines. Founded in 1966, it now has 67 member states, 48 of which are Asian.

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The positioning of the Group

The table summarises the positioning of the UBI Group in terms of branches, both with respect to the national and to the regional and provincial markets where the banks operating in the Group have a more significant presence. The information is based on the most recent data made available by Bank of Italy: 30th September 2015. The updated figures show a decrease in some provinces since the end of 2014, attributable in part to the effects of the rationalisation carried out in January 2015. The Group’s national market share therefore decreased to 5.1%, but was over 10% in 13 Italian provinces and substantial in both Milan (9%) and Rome (over 4%).

UBI Banca Group: market shares(*)

30.9.2015 31.12.2014

Branches Branches

North Italy 6.0% 6.3%

Lombardy 12.9% 13.2% Prov. of Bergamo 22.6% 22.7% Prov. of Brescia 22.0% 22.7% Prov. of Como 6.3% 6.5% Prov. of Lecco 6.3% 6.3% Prov. of Mantua 4.6% 5.5% Prov. of Milan 9.0% 9.1% Prov. of Monza Brianza 8.6% 8.5% Prov. of Pavia 13.1% 15.0% Prov. of Sondrio 7.4% 8.2% Prov. of Varese 24.2% 24.3%

Piedmont 6.9% 7.7% prov. of Turin 2.8% 3.0% Prov. of Alessandria 10.8% 11.5% Prov. of Cuneo 20.4% 22.7% Prov. of Novara 2.5% 3.5%

Liguria 4.4% 5.5% Prov. of Genoa 4.0% 4.3% Prov. of Imperia 4.7% 5.7% Prov. of La Spezia 6.5% 8.7% Prov. of Savona 3.8% 6.1%

Central Italy 3.3% 3.3%

Marches 7.4% 7.4% Prov. of Ancona 9.8% 9.6% Prov. of Fermo 10.6% 10.7% Prov. of Macerata 7.7% 8.1% Prov. of Pesaro and Urbino 5.0% 4.9%

Latium 4.1% 4.3% Prov. of Rome 4.1% 4.1% Prov. of Viterbo 13.4% 14.1%

South Italy 7.1% 7.7%

Campania 5.3% 5.6% Prov. of Naples 4.9% 4.9% Prov. of Caserta 8.6% 9.3% Prov. of Salerno 6.2% 6.9%

Calabria 18.5% 19.8% Prov. of Catanzaro 10.6% 12.2% Prov. of Cosenza 22.3% 23.1% Prov. of Crotone 14.3% 14.7% Prov. of Reggio Calabria 20.2% 20.9% Prov. of Vibo Valentia 19.4% 24.3%

Basilicata 8.6% 11.8% Prov. of Potenza 8.6% 11.5% Prov. of Matera 8.6% 12.5%

Apulia 7.3% 7.8% Prov. of Bari 9.3% 9.8% Prov. of Brindisi 9.7% 9.6% Prov. of Barletta Andria Trani 5.4% 7.8% Prov. of Taranto 8.4% 9.0%

Total Italy 5.1% 5.4%

(*) Source Bank o f Italy: Statistics Bulletin

77

Human resources

The composition of Group staff and changes in 2015

* In data 25 maggio 2015 è divenuta efficace l’operazione di fusione per incorporazione di IW Bank in UBI Banca Private Investment. La nuova Società ha

assunto la denominazione di IW Bank Spa.

** In data 30 aprile 2015 è stato perfezionato il trasferimento di un ramo d’azienda di UBI Fiduciaria Spa a favore di Unione Fiduciaria Spa che spiega il decremento del numero di dipendenti effettivi e a libro paga rispetto al dicembre 2014.

*** Al 31 dicembre 2015 erano operative presso la Società 2 risorse parzialmente distaccate da altre Società del Gruppo e pertanto non computate tra i dipendenti effettivi in servizio.

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) within the Group as at 31st December 2015, adjusted to take account of secondments to and from other entities within or external to the Group (column A) compared with the position at the end of 2014 (column B) restated on a consistent basis. Column C, on the other hand, gives details for each company of the number of employees on the payroll as at 31st December 2015 compared with the end of 2014 restated on a consistent basis (column D). The figures provided in the 2014 Financial Statements have been adjusted as follows: - UBI Gestioni Fiduciarie Sim Spa has been removed from the Group’s consolidation base as a consequence of the sale of that Company

on 12th January 2015. Because the company’s three employees thus went on secondment to a company outside of the Group, the number of staff “on secondment outside the Group – out” has been increased accordingly as at 31st December 2014;

- Coralis Rent Srl – in liquidation has been removed from the Group’s consolidation base, following the completion of that Company’s liquidation proceedings on 31st December 2015.

Group staff

31.12.2015 31.12.2014 Changes 31.12.2015 31.12.2014 Changes

Number A B A-B C D C-D

Banca Popolare di Bergamo Spa 3,588 3,614 -26 3,648 3,666 -18

Banco di Brescia Spa 2,368 2,434 -66 2,379 2,442 -63

Banca Carime Spa 1,827 1,935 -108 1,975 2,093 -118

UBI Banca Spa 1,730 1,675 55 2,486 2,487 -1

Banca Regionale Europea Spa 1,653 1,765 -112 1,794 1,857 -63

Banca Popolare Commercio e Industria Spa 1,559 1,607 -48 1,734 1,786 -52

Banca Popolare di Ancona Spa 1,545 1,588 -43 1,628 1,676 -48

Banca di Valle Camonica Spa 349 353 -4 330 338 -8

IW Bank Spa* 298 348 -50 297 321 -24

UBI Banca International Sa 88 101 -13 84 95 -11

TOTAL FOR BANKS 15,005 15,420 -415 16,355 16,761 -406

UBI Sistemi e Servizi SCpA 2,002 1,983 19 834 822 12

UBI Leasing Spa 212 224 -12 208 212 -4

Prestitalia Spa 177 152 25 82 71 11

UBI Pramerica SGR Spa 151 151 - 117 118 -1

UBI Factor Spa 137 136 1 124 128 -4

UBI Academy SCRL 15 15 - - - -

UBI Trustee Sa 6 5 1 5 4 1

BPB Immobiliare Srl 4 8 -4 4 4 -

UBI Fiduciaria Spa** 4 22 -18 2 17 -15

UBI Management Company Sa 4 4 - 3 3 -

S.B.I.M. Spa 1 1 - - - -

Centrobanca Sviluppo Impresa SGR Spa*** - 1 -1 - - -

TOTAL 17,718 18,122 -404 17,734 18,140 -406

Workers on staff leasing contracts - - - - - -

TOTAL STAFF 17,718 18,122 -404

TOTAL STAFF FTE 17,177.9 17,661.9 -484.0

On secondment outside the Group

- out 23 22 1

- in 7 7 -

TOTAL WORKFORCE 17,741 18,144 -403 17,741 18,147 -406

Employees actually in service Employees on the payroll

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At the end of 2015, the total workforce of the UBI Banca Group numbered 17,718 people, 404 fewer than the 18,122 (restated on a consistent basis) in December 2014. In terms of full-time equivalents (FTE), that is, taking into account the effect of part-time employees, the group’s workforce decreased by 484 units, from 17,661.9 to 17,177.9. This significant decrease in the workforce was concentrated in the first quarter of the year, when 86% of the 500 voluntary redundancies foreseen under the Framework Agreement of 26 November 2014 were completed. In order to promote generational turnover and youth employment policies, this staff efficiency action was accompanied by the gradual hiring of 340 new employees (282 of which to their first job, while the other 58 had prior experience), as well as the conversion of 223 temporary job contracts into permanent contracts, consistent with the provisions of trade union agreements and memoranda of understanding signed over the past few years. With regard to the aforementioned redundancies, the total workforce was consequently reduced in all of the Group’s main companies, with the following notable exceptions: • UBI Banca, as a result of both the centralisation of some IW Bank activities outsourced to it

(most notably, tax and administrative affairs, loans, anti-money-laundering, legal affairs and compliance) and the reinforcement of some specialised “multichannel” retail banking activities and “banking service compliance”;

• UBI Sistemi e Servizi, related to the development of customer assistance services, contact centres, digital and mobile banking services, support units and help desk services;

• Prestitalia, related to the reinforcement of complaints/ risk control units and distribution network management.

The trend by contract type of staff on permanent employment contracts included in the table shows an overall reduction in the payroll of 406 staff over the twelve months, mainly due to the decrease in the number of permanent contracts. In detail, this decrease is the result of the following:

- 807 departures, of which 691 were permanent contracts (thanks in part to the use of the sector fund), two apprenticeships and 114 temporary contracts;

- 401 new hires, of whom 162 on permanent contracts and 239 on temporary contracts.

Contributing to the change in the number of staff on flexible contracts shown in the table were the 233 ‘stabilisations’ (i.e. transformations of temporary contracts into permanent ones) that occurred in 2015 in accordance with the provisions of the aforementioned trade union agreements.

Both appointments and departures due to the end of flexible contracts include movements of 43 seasonal employees in the workforce at BPB Immobiliare during the summer. of reduced and/or suspended working hours requested

With regard to the provisions of the 26th November 2014 Framework Agreement regarding extraordinary leave, the approximately 120 thousand days granted for 2015 were taken compatibly with the workload and organisational requirements of individual Group units and companies (compared with about 121 thousand days granted in 2014). No significant changes in the composition of Bank staff by rank occurred compared with the previous year. As at 31st December 2015 the average age of Group employees was 46 years and five months, only four months higher than the figure recorded at the end of 2014 (46 years, one month) due to the impact of generation turnover related to departures by reason of adherence to redundancy plans. The average length of service following similar dynamics was 19 years and nine months, compared with 19 years and five months in 2014.

Employees on the payroll

Number 31.12.2015 31.12.2014 Change

Total employees 17,734 18,140 -406

of which: permanent 17,647 17,943 -296

on temporary contracts 84 153 -69

apprentices 3 44 -41

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The percentage of ordinary employees on part-time contracts was 12% at the end of last year, up from 9.3% the previous year. In fact, the Framework Agreement of November 2014 facilitates requests for changes from a full-time to a part-time work contract, it whichever form it may be, with particular attention to those staff members facing difficult family or personal circumstances. Another possible reason for the increase in part-time employment is the increase in the percentage of female staff to 38.5% of the total (from 37.8% at the end of 2014). Further details on the composition of and changes in Group staff numbers are given in the appropriate sections of the 2015 Social Report to be published shortly.

* * * Compared with the 17,745 staff members employed as at 30th September 2015, in the fourth quarter there was a net reduction in the workforce of 27 employees, as a result of 83 contract terminations, 3 employees placed on secondment outside of the Group, and 59 new hires (most of whom on permanent contracts).

Remuneration and incentive policies

The remuneration and incentives policies are found in the remuneration report in another part of this publicationnnn and it may also be consulted on the corporate website at www.ubibanca.it as part of “Shareholders’ Meetings” in the Shareholders Section – Shareholders’ Meeting of 2nd April 2016. The report was prepared in accordance with articles 123 ter of the Consolidated Banking Act and 84 quater of the Issuers' Regulations and with the supervisory regulations on “Remuneration and incentive policies and practices” of banks and banking groups issued on 18th November 2014 implementing the provisions contained in European Union Directive CRD IV (2013/36/EU) and the policies developed internationally. Reference is also made to public disclosure requirements under Pillar III as regulated by EU Regulation No. 575/2013 (known as the CRR). Further information is given on the matter in the UBI Banca report on corporate governance, again in an attachment to this document.

Composition of staff in Group Banks by rank

Number 31.12.2015 % 31.12.2014 %

Senior managers 295 1.8% 315 1.9%

Middle managers 3rd and 4th level 2,925 17.9% 3,017 18.0%

Middle managers 1st and 2nd level 4,042 24.7% 3,976 23.7%

3rd Professional Area (office staff) 8,921 54.5% 9,266 55.3%

1st and 2nd Professional Area (other staff) 172 1.1% 187 1.1%

TOTAL FOR BANKS 16,355 100.0% 16,761 100.0%

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Trade union relations

In 2015 relations with trade unions focused on reaching agreements to both protect and transfer personnel involved in the Group’s corporate structure optimisation programmes, as well as on the progressive monitoring of the implementation of the measures contained in previous agreements. Furthermore, bearing in mind that the market environment has remained critical in general, the Group has continued to pursue the goal of recapturing operational efficiency and profitability. Once again for 2016, the Group will adopt methods of work flexibility and staff departure incentives. The main areas on which discussions were held with union representatives are reported below; for more details, please see the section entitled “Significant Events of 2015”.

• On 4th February 2015, a Statement of Agreement was signed to regulate the consequences for personnel deriving from the merger of IW Bank into UBI Private Investment, which led to the creation of the new IW Bank.

• From 10th to 23rd March 2015, the two sides discussed the consequences of the disposal of a business line of UBI Fiduciaria (that manages fiduciary services for customers of the Group) to Unione Fiduciaria SpA; this procedure was concluded on 24th March 2015.

• From 23rd June to 28th September 2015, with regard to the branch network, parent UBI Banca, UBI Sistemi e Servizi, and the Group’s product companies, procedures to be used to determine annual bonuses for the 2014 financial year were agreed and put into effect; for each company, these procedures took into account financial trends for the period, the overall economic situation, and the specific situation in the banking sector. In agreements signed for all banks and companies of the Group involved, it was also established, as in previous years, that it would be best to employ different and innovative instruments in addition to a cash payment, including a “welfare plan option” allowing staff to use the bonus compensation due to them to pay for services of a social nature (e.g. educational expenses, or an additional contribution to the company pension fund).

• On 21st November 2015, a Memorandum of Intent was signed in regard to adopting methods of work flexibility within the Group in 2016;

• On 23rd December 2015, for the entire Group, an agreement was reached that establishes how the voluntary redundancy plan will be implemented, as already determined during the previous year.

* * *

Periodic meetings were also held as required under the various labour contract procedures, as were meetings to provide reciprocal updates and verification of prior agreements, plus meetings for other occasions, such as equal partnership committees and bilateral oversight committees on corporate social responsibility, the corporate climate, training and equal opportunities matters.

* * * At national level, on 31st March 2015, the Italian Banking Association (ABI) and various trade unions agreed to extend the national labour contract (CCNL) pertaining to credit institutions. This agreement was ratified by the parties involved on 8th July, after its contents were approved at the trade unions’ general meetings. Also, on 13th July 2015, an agreement was signed to renew the national labour contract for managerial staff.

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Training Over 87,000 days of training activities were delivered in 2015, above the goal of 80,000 days, with an average of over five training days per person. In terms of substance, training was provided in the following areas:

• steady enhancement of the skills of distribution network personnel and support to develop the customer service model and to spread a "culture of quality" through targeted sessions for key salespersons on the Retail and Unity networks, as well as dedicated specialised training for the best performers on the Unity market;

• qualification courses for potential future Branch Managers; • introduction of a new methodology, on an experimental and voluntary basis, to verify

professional knowledge, in addition to the usual post-training tests, for staff in retail asset management roles (Small Business and Affluent segments);

• activities to improve abilities and behaviour through a new edition of the University Master’s programme in Banking Company Management for young talents, in partnership with the Milan Polytechnic School of Management (MIP); furthermore, continuation of the Talents Project with mentoring and business case seminars, as well as attendance at the I.S.E.O. Summer School and programmes on inclusion;

• facilitation of active learning about new regulations, such as: new default classification definitions (forbearance), updated anti-money-laundering regulations and Form 231, and regulations on transparency;

• support pertaining to the merger of IW Bank and UBI Banca Private Investment, by means of plenary training sessions and side-by-side ‘internships’ to foster the integration of the two companies’ information and commercial systems;

• managerial training, focusing on: effective communications, team leadership, propensity for change, specific managerial skills and behaviour via outdoor team-building sessions and high emotional impact methods;

• teacher training school, for the continuing qualification and training of over 500 employee-instructors;

• completion of the first year of a new two-year IVASS (insurance authority) regulations refresher course, using methods consistent with the directives of Regulation no. 6/2014, aiming to facilitate the use of appropriate sales propositions to customers for insurance products;

• English language skills improvement for about 1,400 employees of the Group, via a new online platform with a leading language school.

As shown in the table, about 38% of the total training activity (vs. 32% in 2014) was dedicated to enhancing the technical and professional skills (operational, commercial, credit and financial) of branch network staff. The subject of insurance accounted for 32% of the training delivered during the year, while the remaining 30% was split nearly evenly between refresher courses on regulations and managerial/behavioural training.

Training activities by subject area in 2015

Subject areaClassroom

Remote training

InternshipTotal person/days of training

%Total person/days

of training%

Insurance 5,709 18,837 3,457 28,003 32.2% 27,280 33.7%

Commercial and Finance 10,760 1,883 6,205 18,848 21.7% 16,439 20.2%

Credit 6,244 1,409 1,233 8,886 10.2% 4,137 5.1%

Managerial-Behavioural 8,304 4,605 672 13,581 15.6% 14,009 17.2%

Regulatory 3,877 8,538 167 12,582 14.5% 14,149 17.4%

Operational and other subjects 752 1,726 2,607 5,085 5.8% 5,217 6.4%

TOTAL 35,646 36,998 14,341 86,985 100.0% 81,231 100.0%

2015 2014

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* * *

For 2016, the overall training programme foresees investing in about 80,000 days (50% in traditional classroom settings, 35% remote and 15% using other methods such as internships and on-the-job training).

The main goal of this plan is to foster the constant improvement of each individual’s productivity, in concert with an improvement in the quality of customer relations, with particular attention to: • reinforcing skills and specialisation in each individual role by extending the “position skills

survey” to all sales positions, in order to design customised training courses; • continuation of activities in support of improving abilities and behaviour, by means of training

courses aiming to cultivate the Group’s managerial culture, including the development of a ‘self-training’ platform;

• continuation of partnerships with leading local universities through special Master’s degree programmes for young talented individuals and programmes on inclusion;

• developing a culture of certification for the various positions, something currently used only for Branch Managers, by gradually introducing qualification for the position of Instructor;

• constant support for active learning of regulations and how they are evolving, by means of interaction between instructors and learners enabling the latter to concretely apply their knowledge in their jobs, particularly for credit loan quality monitoring, anti-money-laundering, Form 231, transparency regulations, the ESMA/MiFID Directive, whistleblowing procedures, the bail-in mechanism, cyber-security awareness, business continuity and security management.

Internal communications Over the course of 2015, internal communications evolved towards a Company Multichannel Experience. The aim is to realise the full potential of all available internal communications channels, first and foremost by taking advantage of current technology and ongoing digital transformations so as to strengthen the sense of belonging, participation and motivation among the staff. Most communications are made through the UBILife Corporate Portal, by publishing videos, news and articles on the home page, and by enhancing each section, especially the company’s online magazine YOUBI with daily updates of key activities and events for each branch on the network, including daily blog posts. One new initiative is an online newsletter signed by the individual managing directors of the network banks, sketched out for each respective audience. The first edition of this newsletter was published early in the year and discussed the 2014 financial statements as well as prospects and strategies for 2015. The second edition was published on the occasion of interim results. Also, in November, edition zero of UBI News was published: this newsletter will be released every four months and is addressed to the members of the Boards of Directors of the banks and companies within the Group. Along with the announcements of annual and interim figures, videos were produced featuring an interview of the Chief Executive Officer with his comments on the Group’s results. With regard to customary publications and multimedia events, we report: publication of the hardcopy magazine Almanacco YOUBI, in April, distributed not only to

employees but also to registered shareholders who took part in the UBI Banca shareholders’ meeting on 25th April. The week after the general meeting, a special shareholders’ meeting e-book was published with news and material about the main topics covered, along with interviews of the Chief Executive, the Chairman of the Supervisory Board and the Chairman of the Management Board;

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UBIPods, corporate radio broadcasts that can be listened to on the UBILife portal, with periodic interviews on pertinent company topics involving professional figures of varying levels;

social collaboration activities and Professional Communities; The annual convention of the BPB-CV and BPCI retired personnel associations, held in

the month of April in the town of Salsomaggiore, during which updates were provided to the Group’s strategies and its consolidated 2014 results. All members of those two associations were subsequently sent a hard copy of the YOUBI New Time magazine, which contained an account of the event and other related articles;

the “Donate a Day” volunteer initiative, to which all Group staff were invited and 1,350 participated, featuring numerous volunteer projects on behalf of non-profit organisations throughout Italy;

the Group’s “With Our Own Hands” Conference, where key trends and projects being carried out by the Group during the year were examined, with a view towards prospects for 2016. This event took place on 10th December at the Bergamo trade fair centre. Keynote speakers included the Chief Executive Officer, the Chairman of the Supervisory Board and the Chairman of the Management Board, and top and middle managers of the Group’s banks and other companies were in attendance.

Among the major internal communications projects, we report: completion of a 2015-2016 Internal Communications Plan that identifies and the key

messages that need to be disseminated, with integrated programming of all major internal communications events and activities between the top executives of the Parent and of other Companies of the Group;

the “Io Ci Tengo” [“That’s important to me”] communications campaign, which aims to promote best professional practices and behaviour within the Group in a unique and light manner, using video quizzes to encourage direct participation by the staff;

presentation of the 2016 Commercial Plan in December, as well as specific formats for subsequent On Boarding meetings for each of the network banks of the Group.

In 2016, in addition to ensuring incremental attention to existing tools, the Group will work towards increasing corporate digitisation, especially through the following projects:

- redesign some of the perceived features and navigational aspects of the Group’s intranet, and make its content more user-friendly, such that the site will have an informative architecture that: establishes a single corporate network; enables the sharing of experience and professional know-how; encourages appropriate professional behaviour; supports training activities; connects people and information; enables the spread of company notifications and memos via innovative instruments; and facilitates cooperation;

- enriching the services that can be accessed on the companies’ intranet; - develop apps so that certain services can be enjoyed via mobile; - integrating a sharing platform, categorised by job title, into the new intranet.

The work environment and welfare The section “Principal risks and uncertainties to which UBI Banca Group is exposed” may be consulted for information on matters regulated by Legislative Decree No. 81 of 9th April 2008 on health and safety at the workplace while information on environmental responsibility is given as part of the information on corporate social and environmental responsibility contained in the “Other Information” section. The main initiatives carried forward in the field of welfare are described in the Social Report which may be consulted.

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The scope of the consolidation

The companies that formed part of the consolidation as at 31st December 2015 are listed below, divided into subsidiaries (fully consolidated) 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 is also indicated 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: € 2,254,371,430

2. Banca Popolare di Bergamo Spa (100% controlled) registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €1,350,514,252

3. Banco di Brescia San Paolo CAB Spa (100% controlled) Registered address: Brescia, Corso Martiri della Libertà, 13 – share capital: €615,632,230.88

4. Banca Popolare Commercio e Industria Spa (83.7631% controlled) registered address: Milan, Via Monte di Pietà, 7 – share capital: €934,150,467.60

5. Banca Regionale Europea Spa (74.7766% controlled)1 registered address: Cuneo, Via Roma, 13 – share capital: €587,892,824.35

6. Banca Popolare di Ancona Spa (99.5782% controlled) registered address: Jesi (Ancona), Via Don A. Battistoni, 4 – share capital: €147,301,670.32

7. Banca Carime Spa (99.9886% controlled) registered address: Cosenza, Viale Crati snc – share capital: €1,468,208,505.92

8. Banca di Valle Camonica Spa (89.7917% controlled and BBS holds 8.8387%) registered address: Breno (Brescia), Piazza Repubblica, 2 – share capital: €3,176,883

9. UBI Banca International Sa (91.1959% controlled and 5.4825% held by BBS, 3.1598% held by BPB and 0.1618% by BRE) registered address: 37/A, Avenue J.F. Kennedy, L - Luxembourg – share capital: €70,613,580

10. UBI Trustee Sa (100% controlled by UBI Banca International) registered address: 37/A, Avenue J.F. Kennedy, L - Luxembourg – share capital: €250,000

11. Prestitalia Spa (100% controlled) registered address: Bergamo, Via A. Stoppani, 15 – share capital: €205,722,715

12. IW Bank Spa (former UBI Banca Private Investment and former IW Bank - 100% controlled) registered address: Milan, Piazzale F.lli Zavattari, 12 – share capital: €67,950,000

13. Centrobanca Sviluppo Impresa SGR Spa (100% controlled) registered address: Milan, Corso Europa, 16 – share capital: €2,000,000

14. UBI Pramerica SGR Spa (65% controlled) operating headquarters: Milan, Via Monte di Pietà, 5 – share capital: €19,955,465

15. UBI Management Company Sa (100% controlled by UBI Pramerica SGR) registered address: 37/A, Avenue J.F. Kennedy, L - Luxembourg – share capital: €125,000

16. UBI Leasing Spa (99.6207% controlled) registered address: Brescia, Via Cefalonia, 74 – share capital: €641,557,806

17. Unione di Banche Italiane per il Factoring Spa - UBI Factor Spa (100% controlled)

1 The percentage of control relates to the total share capital held.

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registered address: Milan, Via F.lli Gabba, 1 – share capital: €36,115,820

18. BPB Immobiliare Srl (100% controlled) registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €185,680,000

19. Società Bresciana Immobiliare Mobiliare - S.B.I.M. Spa (100% controlled) registered address: Brescia, Via A. Moro, 13 – share capital: €35,000,000

20. UBI Fiduciaria Spa (100% controlled) registered address: Brescia, Via Cefalonia, 74 – share capital: €1,898,000

21. UBI Sistemi e Servizi SCpA2 – Consortium Stock Company (71.8696% controlled and 4.3154% held by BRE; 4.3142% held by IW Bank; 2.8769% held by: BPB, BBS, BPCI, BPA and Banca Carime; and 1.4385% held by: Banca di Valle Camonica and UBI Pramerica SGR; 0.7192% held by UBI Factor; 0.0719% held by Prestitalia and 0.0097% held by UBI Academy) registered address: Brescia, Via Cefalonia, 62 – share capital: €36,149,948.64

22. UBI Academy SCRL – Limited Consortium Company (68.5% controlled and 3% held by: BPB, BBS, BPCI, BPA, Banca Carime, BRE, IW Bank and UBI.S; 1.5% held by: Banca di Valle Camonica, UBI Pramerica SGR, UBI Leasing, UBI Factor and Prestitalia) registered address: Bergamo, Via F.lli Calvi, 9 – share capital: €100,000

23. UBI Finance Srl3 (60% controlled) registered address: Milan, Foro Bonaparte, 70 – share capital: €10,000

24. UBI Finance CB 2 Srl4 (60% controlled) Registered address: Milan, Foro Bonaparte, 70 – share capital: €10,000

25. 24-7 Finance Srl5

26. UBI Lease Finance 5 Srl6

27. UBI Finance 2 Srl7 - in liquidation 28. UBI Finance 3 Srl8

29. UBI SPV BBS 2012 Srl9 30. UBI SPV BPCI 2012 Srl9 31. UBI SPV BPA 2012 Srl9 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 Scarsellini, 14 – share capital: €155,000,000

2. Aviva Assicurazioni Vita Spa (formerly UBI Assicurazioni Vita Spa, 20% interest held) registered address: Milan, Via Scarsellini, 14 – share capital: €49,721,776

2 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 (formerly UBI Assicurazioni Spa).

3 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 Act, was formed on 18th March 2008 to allow UBI Banca to implement the first programme to issue Covered Bonds backed by residential mortgages.

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 act, was formed on 20th December 2011 to allow the UBI Banca to implement a second programme to issue Covered Bonds backed mainly by commercial non-residential mortgages.

5 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.

6 A special purpose entity formed in accordance with Law No. 130/1999 for the securitisation of performing loans by UBI Leasing in November 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 performing loans of the Banco di Brescia 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.

8 A special purpose entity used in accordance with Law No. 130/1999 for the securitisation of a portfolio of performing loans performed by Banca Popolare di Bergamo at the end of 2010. 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 the performing loans to SMEs of some 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 consolidated because they are in reality controlled, since their assets and liabilities were originated by Group member companies. UBI Banca holds a 10% stake in each of them.

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3. Lombarda Vita Spa (40% interest held) registered address: Brescia, Corso Martiri della Libertà, 13 – share capital: €185,300,000

4. Polis Fondi SGRpA (19.6% interest held) registered address: Milan, Via Solferino, 7 – share capital: €5,200,000

5. Zhong Ou Asset Management Co. Ltd (già Lombarda China Fund Management - 35% interest held) registered address: 8f Bank of East Asia Finance Tower, 66 Hua Yuan Shi Qiao Road, Pudong New Area, 200120 Shanghai (China) – share capital: 188,000,000 yuan/renminbi

6. SF Consulting Srl (35% interest held) operating headquarters: Mantua, Via P.F. Calvi, 40 – share capital: €93,600

7. UFI Servizi Srl (23.1667% interest held by Prestitalia) registered address: Roma, Via G. Severano, 24 – share capital: €150,000

Changes in the scope of consolidation

There have been no changes to the scope of consolidation compared with 31st December 2014 except for those reported below, relating to marginal changes in the percentages of the control of banks and to operations to rationalise the ownership structure with a view to increasing the focus on the Group’s conventional domestic banking business:

• Banca Regionale Europea Spa: during the year the Parent acquired 151,287 ordinary shares from non-controlling shareholders to bring its controlling interest in the ordinary share capital up to 79.8951% (from 79.8760% at the end of December). Total percentage control of the share capital (consisting of ordinary, privileged and savings shares) rose to 74.7766% from 74.7598%; before;

• Banca Popolare di Ancona Spa: Banca Popolare di Ancona Spa: in the twelve months 10,842 shares were purchased from small shareholders, with an effect on the percentage control held by UBI Banca which rose to 99.5782% from 99.5339% at the end of 2014;

• Banca Carime Spa: in the same period 25,404 shares were sold to the Parent which resulted in a further increase in the controlling interest, which rose from 99.9868% at the end of 2014 to 99.9886% as at 31st December 2015;

• Banca di Valle Camonica Spa: in the second half UBI Banca purchased a total of 460,632 shares from the Banca di Valle Camonica (including stakes sold by Finanziaria di Valle Camonica and by Cattolica Assicurazioni on 5th and 6th August 2015 respectively). The capital percentage held by the Parent thus rose to 89.7917%, with no change in the other shareholdeings, while in the twelve months the Group's control rose from 84.1309% to its current 98.6304%;

• UBI Gestioni Fiduciarie Sim Spa: this company was sold on 12th January to Corporate Family Office SIM, Milan;

• UBI Finance 2 Srl – in liquidation: the Annual General Meeting that took place on 26th February 2015 voted for the early voluntary liquidation of the Company following closure of the securitisation in May 2014 and the decision not to use the vehicle for further operations;

• Lombarda Lease Finance 4 Srl – in liquidation: the Annual General Meeting that took place on 26th February 2015 voted for the early voluntary liquidation of the Company following closure of the securitisation in July 2014 and the decision not to use the vehicle for further operations. On 22nd September 2015 the Company was liquidated and cancelled from both the Company Register and the scope of consolidation;

Coralis Rent Srl – in liquidation: on 20th March 2015, the voluntary liquidation of the company was recorded with the Company Registrar, as a consequence of the process to rationalise subsidiaries currently in progress, and its commercial activity was transferred directly to the Parent. On 31st December 2015 the liquidation was completed, and the Company was cancelled from both the Company Register and the scope of consolidation;

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UBI Fiduciaria Spa: on 30th April the transfer took place, with effect from 1st May 2015 of UBI Fiduciaria Spa’s “static” fiduciary operations to Unione Fiduciaria Spa, a company which operates in accordance with Law No. 1966 of 23rd November 1939 and subsequent additions;

IW Bank Spa: on 25th May the merger of IW Bank into UBI Banca Private Investment took effect (effective for accounting and tax purposes from 1st January 2015), with the change of its name at the same time to IW Bank Spa and the transfer of the registered address to Milan at 12, Piazzale Zavattari. The share capital of the new bank is €67,950,000. The merger of the two companies, fully controlled by the Parent, is also reflected in the shareholder structure of the consortium companies, which changed as follows from 25th May 2015: - UBI Sistemi e Servizi SCpA: the new IW Bank Spa holds a 4.3142% stake in the share

capital of the services company, the aggregate result of the stakes previously held by the former UBI Banca Private Investment (1.4385%) and the former IW Bank (2.8757%);

- UBI Academy SCRL: the new IW Bank Spa holds a 3% stake in the share capital of the training company, the aggregate result of the 1.5% stakes previously held by the former UBI Banca Private Investment and the former IW Bank;

Società Lombarda Immobiliare Srl – SOLIMM: on 9th June 2015 the Management Board of UBI Banca approved the merger of SOLIMM into S.B.I.M. Spa (Società Bresciana Immobiliare Mobiliare). The merger became effective on 23rd October, while it is effective for accounting and tax purposes from 1st January 2015. SOLIMM was therefore removed from the Company Register and from the scope of the consolidation on the date on which the merger took affect;

Zhong Ou Asset Management Co. Ltd – China: in June UBI Banca reclassified one third of the stake held in this Chinese registered fund management company (accounting for approximately 11.7% of the total share capital) within non-current assets held for sale according to IFRS 5. UBI Banca has a 35% interest in the Company, which ended the year by confirming an extremely good performance in both the increase in the volume of assets managed and the result for the year. On the basis of agreements between the shareholders and management of the company, UBI Banca is obliged to transfer part of the shares it holds to management when determined quantitative objectives are achieved. Consequently, the transfer will be completed in the first few months of 2016 once the necessary formalities have been completed;

• UBI Finance 3 Srl: following the resolution adopted by the UBI Management Board on 7th August 2015, which approved the early closing of the securitisation programme originated by Banca Popolare di Bergamo in 2010, with underlying loans to SMEs, the relative legal and documentary processes were completed on 15th December 2015. At the same time, the repurchase of the residual loan portfolio by BPB (approx. €1.3 billion) was completed on 16th December, while repayment of the securities (senior and junior tranches) took place on the 17th.

See the section “Significant events in 2015” contained in this consolidated management report for further details of corporate rationalisation operations (discontinuation of fiduciary operations, merger of the internet bank into the company that manages the financial advisor network and merger of property companies located in Brescia).

88

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

Reclassified consolidated balance sheet

ASSETS

10. Cash and cash equivalents 530,098 598,062 -67,964 -11.4%

20. Financial assets held for trading 994,478 1,420,506 -426,028 -30.0%

30. Financial assets designated at fair value 196,034 193,167 2,867 1.5%

40. Available-for-sale financial assets 15,554,282 18,554,956 -3,000,674 -16.2%

50. Held-to-maturity investments 3,494,547 3,576,951 -82,404 -2.3%

60. Loans and advances to banks 3,429,937 3,340,415 89,522 2.7%

70. Loans and advances to customers 84,586,200 85,644,223 -1,058,023 -1.2%

80. Hedging derivatives 594,685 649,250 -54,565 -8.4%

90. Fair value change in hedged financial assets (+/-) 59,994 64,124 -4,130 -6.4%

100. Equity investments 260,812 246,250 14,562 5.9%

120. Property, plant and equipment 1,744,463 1,729,107 15,356 0.9%

130. Intangible assets 1,757,468 1,776,925 -19,457 -1.1%

of which: goodwill 1,465,260 1,465,260 - -

140. Tax assets 2,814,933 2,991,600 -176,667 -5.9%

150. Non-current assets and disposal groups held for sale 11,148 69,893 -58,745 -84.0%

160. Other assets 1,171,686 931,275 240,411 25.8%

Total assets 117,200,765 121,786,704 -4,585,939 -3.8%

LIABILITIES AND EQUITY

10. Due to banks 10,454,303 13,292,723 -2,838,420 -21.4%

20. Due to customers 55,264,471 51,616,920 3,647,551 7.1%

30. Debt securities issued 36,247,928 41,590,349 -5,342,421 -12.8%

40. Financial liabilities held for trading 531,812 617,762 -85,950 -13.9%

60. Hedging derivatives 749,725 1,009,092 -259,367 -25.7%

80. Tax liabilities 472,564 630,223 -157,659 -25.0%

100. Other liabilities 2,354,617 1,994,340 360,277 18.1%

110. Post-employment benefits 340,954 391,199 -50,245 -12.8%

120. Provisions for risks and charges: 266,628 285,029 -18,401 -6.5%

a) pension and similar obligations 70,237 80,529 -10,292 -12.8%

b) other provisions 196,391 204,500 -8,109 -4.0% 140.+

170.+180.+190.+ 200.

Share capital, share premiums, reserves, valuation reserves and treasury shares 9,865,097 10,529,815 -664,718 -6.3%

210. Non-controlling interests 535,901 555,019 -19,118 -3.4%

220. Profit (loss) for the year 116,765 -725,767 842,532 n.s.

Total liabilities and equity 117,200,765 121,786,704 -4,585,939 -3.8%

Figures in thousands of euro

31.12.2015 31.12.2014 Changes%

changes

89

Reclassified consolidated quarterly balance sheets

ASSETS

10. Cash and cash equivalents 530,098 506,505 484,055 466,288 598,062 497,623 486,807 492,398

20. Financial assets held for trading 994,478 653,418 1,338,170 1,527,401 1,420,506 1,014,902 2,168,661 3,900,044

30. Financial assets designated at fair value 196,034 195,490 197,223 198,365 193,167 193,637 192,408 193,692

40. Available-for-sale financial assets 15,554,282 15,259,697 16,799,280 17,904,652 18,554,956 18,331,820 16,742,576 16,030,885

50. Held-to-maturity investments 3,494,547 3,486,873 3,535,692 3,528,010 3,576,951 3,076,556 3,049,841 3,113,263

60. Loans and advances to banks 3,429,937 3,632,477 3,191,584 3,331,195 3,340,415 3,329,046 4,078,892 4,009,183

70. Loans and advances to customers 84,586,200 83,834,141 85,340,026 84,634,175 85,644,223 84,946,817 87,119,396 87,094,749

80. Hedging derivatives 594,685 613,696 545,576 689,227 649,250 615,897 458,998 323,782

90. Fair value change in hedged financial assets (+/-) 59,994 61,305 59,108 66,716 64,124 53,668 47,680 36,493

100. Equity investments 260,812 250,902 247,779 254,129 246,250 314,143 295,970 427,438

120. Property, plant and equipment 1,744,463 1,743,948 1,755,974 1,711,351 1,729,107 1,741,474 1,764,564 1,780,575

130. Intangible assets 1,757,468 1,751,943 1,760,006 1,767,675 1,776,925 2,883,252 2,896,274 2,903,371

of which: goodwill 1,465,260 1,465,260 1,465,260 1,465,260 1,465,260 2,511,679 2,511,679 2,511,679

140. Tax assets 2,814,933 2,727,227 2,753,059 2,927,911 2,991,600 2,566,942 2,566,975 2,824,368

150. Non-current assets and disposal groups held for sale 11,148 11,163 11,286 68,798 69,893 195,469 188,358 79,769

160. Other assets 1,171,686 960,349 1,434,917 847,697 931,275 777,806 1,168,828 773,252

Total assets 117,200,765 115,689,134 119,453,735 119,923,590 121,786,704 120,539,052 123,226,228 123,983,262

LIABILITIES AND EQUITY

10. Due to banks 10,454,303 10,871,905 9,049,928 12,360,302 13,292,723 15,588,229 15,964,805 15,397,770

20. Due to customers 55,264,471 50,759,665 55,331,195 50,817,925 51,616,920 45,581,825 47,126,528 46,366,664

30. Debt securities issued 36,247,928 38,262,102 38,996,157 40,324,315 41,590,349 42,271,880 43,049,073 44,477,537

40. Financial liabilities held for trading 531,812 526,212 647,508 740,247 617,762 586,243 496,946 1,409,672

60. Hedging derivatives 749,725 871,163 788,565 1,217,816 1,009,092 806,325 623,610 528,059

80. Tax liabilities 472,564 510,707 440,745 735,132 630,223 732,156 620,062 908,372

100. Other liabilities 2,354,617 2,649,872 3,132,513 2,435,841 1,994,340 2,673,720 3,130,877 2,704,318

110. Post-employment benefits 340,954 336,309 339,894 368,186 391,199 383,871 378,320 387,412

120. Provisions for risks and charges: 266,628 296,309 291,748 289,799 285,029 282,886 303,897 320,253

a) pension and similar obligations 70,237 70,230 71,515 79,457 80,529 80,000 81,134 76,251

b) other provisions 196,391 226,079 220,233 210,342 204,500 202,886 222,763 244,002140.+

170.+180.+190.+ 200.

Share capital, share premiums, reserves, valuation reserves and treasury shares 9,865,097 9,911,021 9,762,383 10,018,158 10,529,815 10,650,908 10,603,241 10,609,347

210. Non-controlling interests 535,901 531,876 548,656 539,941 555,019 831,177 822,677 815,723

220. Profit (loss) for the period 116,765 161,993 124,443 75,928 -725,767 149,832 106,192 58,135

Total liabilities and equity 117,200,765 115,689,134 119,453,735 119,923,590 121,786,704 120,539,052 123,226,228 123,983,262

31.12.2014 30.9.2014 30.6.2014 31.3.2014Figures in thousands of euro

31.12.2015 30.9.2015 30.6.2015 31.3.2015

90

Reclassified consolidated income statement

4th Quarter 2015

4th Quarter 2014

C D

10.-20. Net interest income 1,631,055 1,818,387 (187,332) (10.3%) 385,240 442,074 (56,834) (12.9%) of which: effects of the purchase price allocation (27,149) (28,540) (1,391) (4.9%) (6,901) (7,312) (411) (5.6%) Net interest income excluding the effects of the PPA 1,658,204 1,846,927 (188,723) (10.2%) 392,141 449,386 (57,245) (12.7%)

70. Dividends and similar income 10,349 10,044 305 3.0% 1,578 800 778 97.3%

Profits (losses) of equity-accounted investees 35,260 37,015 (1,755) (4.7%) 12,104 8,198 3,906 47.6%

40.-50. Net fee and commission income 1,300,119 1,226,587 73,532 6.0% 330,574 318,392 12,182 3.8% of which performance fees 35,182 16,951 18,231 107.6% 22,496 10,710 11,786 110.0%

80.+90.+100.+110. Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 290,633 199,658 90,975 45.6% 151,705 49,156 102,549 208.6%

220. Other net operating income/expense 103,448 117,939 (14,491) (12.3%) 22,611 33,418 (10,807) (32.3%)

Operating income 3,370,864 3,409,630 (38,766) (1.1%) 903,812 852,038 51,774 6.1% Operating income excluding the effects of the PPA 3,398,013 3,438,170 (40,157) (1.2%) 910,713 859,350 51,363 6.0%

180.a Staff costs (1,295,090) (1,301,779) (6,689) (0.5%) (322,360) (325,142) (2,782) (0.9%)

180.b Other administrative expenses (727,067) (635,034) 92,033 14.5% (272,472) (176,742) 95,730 54.2%

200.+210. Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (153,024) (171,409) (18,385) (10.7%) (38,294) (43,716) (5,422) (12.4%) of which: effects of the purchase price allocation (13,158) (21,416) (8,258) (38.6%) (3,283) (6,648) (3,365) (50.6%) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets excluding the effects of the PPA (139,866) (149,993) (10,127) (6.8%) (35,011) (37,068) (2,057) (5.5%)

Operating expenses (2,175,181) (2,108,222) 66,959 3.2% (633,126) (545,600) 87,526 16.0% Operating expenses excluding the effects of the PPA (2,162,023) (2,086,806) 75,217 3.6% (629,843) (538,952) 90,891 16.9%

Net operating income 1,195,683 1,301,408 (105,725) (8.1%) 270,686 306,438 (35,752) (11.7%)

Net operating income excluding the effects of the PPA 1,235,990 1,351,364 (115,374) (8.5%) 280,870 320,398 (39,528) (12.3%)

130.a Net impairment losses on loans (802,646) (928,617) (125,971) (13.6%) (245,013) (302,466) (57,453) (19.0%)

130. b+c+d Net impairment losses on other financial assets and liabilities (16,866) (8,650) 8,216 95.0% (10,464) (6,382) 4,082 64.0%

190. Net provisions for risks and charges (2,975) (9,074) (6,099) (67.2%) 44,794 (5,123) 49,917 n.s.

240.+270. Profits from the disposal of equity investments 464 94,007 (93,543) (99.5%) 81 94,356 (94,275) (99.9%)

Pre-tax profit from continuing operations 373,660 449,074 (75,414) (16.8%) 60,084 86,823 (26,739) (30.8%)

Pre-tax profit from continuing operations excluding the effects of the PPA 413,967 499,030 (85,063) (17.0%) 70,268 100,783 (30,515) (30.3%)

290. Taxes on income for the period/year from continuing operations (161,121) (186,926) (25,805) (13.8%) (33,342) 557 (33,899) n.s. of which: effects of the purchase price allocation 13,362 16,523 (3,161) (19.1%) 3,376 4,781 (1,405) (29.4%)

330. Profit for the period/year attributable to non-controlling interests (29,765) (28,918) 847 2.9% (7,151) (3,982) 3,169 79.6% of which: effects of the purchase price allocation 2,115 2,754 (639) (23.2%) 529 599 (70) (11.7%)

Profit for the year/period attributable to the shareholders of the Parent before redundancies and impairment excluding the effects of the PPA 207,604 263,909 (56,305) (21.3%) 25,870 91,978 (66,108) (71.9%)

Profit for the period/year attributable to the shareholders of the Parent before redundancies and impairment 182,774 233,230 (50,456) (21.6%) 19,591 83,398 (63,807) (76.5%)

180.a Redundancy expenses net of taxes and non-controlling interests (62,705) (76,311) (13,606) (17.8%) (61,515) (76,311) (14,796) (19.4%)

200.+210.+260.

Impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment net of taxes and non-controlling interests (3,304) (882,686) (879,382) (99.6%) (3,304) (882,686) (879,382) (99.6%)

340. Profit (loss) for the period/year attributable to the shareholders of the Parent 116,765 (725,767) 842,532 n.s. (45,228) (875,599) (830,371) (94.8%)

Total impact of the purchase price allocation on the income statement (24,830) (30,679) (5,849) (19.1%) (6,279) (8,580) (2,301) (26.8%)

Changes

C-D

% changes

C/DFigures in thousands of euro

2015

A

2014

B

Changes

A-B

% changes

A/B

91

Reclassified consolidated quarterly income statements

4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

10.-20. Net interest income 385,240 398,667 416,543 430,605 442,074 467,785 454,056 454,472 of which: effects of the purchase price allocation (6,901) (6,630) (7,115) (6,503) (7,312) (6,990) (7,782) (6,456) Net interest income excluding the effects of the PPA 392,141 405,297 423,658 437,108 449,386 474,775 461,838 460,928

70. Dividends and similar income 1,578 3,452 4,786 533 800 376 8,081 787 Profits of equity-accounted investees 12,104 3,583 13,405 6,168 8,198 8,155 9,763 10,899

40.-50. Net fee and commission income 330,574 300,467 327,886 341,192 318,392 298,502 309,583 300,110 of which performance fees 22,496 878 4,934 6,874 10,710 2,766 2,824 651

80.+90.+100.+110.

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 151,705 27,830 53,074 58,024 49,156 13,860 74,031 62,611

220. Other net operating income/expense 22,611 24,162 27,186 29,489 33,418 33,025 26,950 24,546

Operating income 903,812 758,161 842,880 866,011 852,038 821,703 882,464 853,425

Operating income excluding the effects of the PPA 910,713 764,791 849,995 872,514 859,350 828,693 890,246 859,881

180.a Staff costs (322,360) (317,957) (319,843) (334,930) (325,142) (328,694) (321,849) (326,094)

180.b Other administrative expenses (272,472) (141,642) (165,021) (147,932) (176,742) (147,078) (158,598) (152,616)

200.+210. assets (38,294) (36,952) (39,280) (38,498) (43,716) (42,497) (42,663) (42,533) of which: effects of the purchase price allocation (3,283) (3,285) (3,316) (3,274) (6,648) (4,969) (4,888) (4,911) assets excluding the effects of the PPA (35,011) (33,667) (35,964) (35,224) (37,068) (37,528) (37,775) (37,622)

Operating expenses (633,126) (496,551) (524,144) (521,360) (545,600) (518,269) (523,110) (521,243)

Operating expenses excluding the effects of the PPA (629,843) (493,266) (520,828) (518,086) (538,952) (513,300) (518,222) (516,332)

Net operating income 270,686 261,610 318,736 344,651 306,438 303,434 359,354 332,182

Net operating income excluding the effects of the PPA 280,870 271,525 329,167 354,428 320,398 315,393 372,024 343,549 130.a Net impairment losses on loans (245,013) (168,534) (198,907) (190,192) (302,466) (197,050) (230,475) (198,626) 130.

b+c+d Net impairment losses on other financial assets and liabilities (10,464) (3,054) (2,382) (966) (6,382) (267) (3,674) 1,673

190. Net provisions for risks and charges 44,794 (18,634) (24,816) (4,319) (5,123) (1,249) 7,361 (10,063)

240.+270. Profits (losses) from the disposal of equity investments 81 300 392 (309) 94,356 81 230 (660)

Pre-tax profit from continuing operations 60,084 71,688 93,023 148,865 86,823 104,949 132,796 124,506

Pre-tax profit from continuing operations excluding the effects of the PPA 70,268 81,603 103,454 158,642 100,783 116,908 145,466 135,873 290. Taxes on income for the period from continuing operations (33,342) (28,632) (37,149) (61,998) 557 (52,115) (76,666) (58,702)

of which: effects of the purchase price allocation 3,376 3,287 3,458 3,241 4,781 2,059 5,930 3,753

330. Profit for the period attributable to non-controlling interests (7,151) (5,506) (7,359) (9,749) (3,982) (9,194) (8,073) (7,669) of which: effects of the purchase price allocation 529 423 604 559 599 867 565 723

Profit for the period attributable to the shareholders of the Parent before redundancies and impairment excluding the effects of the PPA 25,870 43,755 54,884 83,095 91,978 52,673 54,232 65,026 Profit for the period attributable to the shareholders of the Parent before redundancies and impairment 19,591 37,550 48,515 77,118 83,398 43,640 48,057 58,135

180.a Redundancy expenses net of taxes and non-controlling interests (61,515) - - (1,190) (76,311) - - -

200.+210.+260.

Impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment net of taxes and non-controlling interests (3,304) - - - (882,686) - - -

340. Profit (loss) for the period attributable to the shareholders of the Parent (45,228) 37,550 48,515 75,928 (875,599) 43,640 48,057 58,135

Total impact of the purchase price allocation on the income statement (6,279) (6,205) (6,369) (5,977) (8,580) (9,033) (6,175) (6,891)

Figures in thousands of euro

2015 2014

92

Figures in thousands of euro

Net interest income (including the effects of the PPA) 1,631,055 1,818,387 (187,332) (10.3%)

Dividends and similar income 10,349 10,044 305 3.0%

Profits of equity-accounted investees 35,260 37,015 (1,755) (4.7%)

Net fee and commission income 1,300,119 1,226,587 73,532 6.0%

of which performance fees 35,182 16,951 18,231 107.6%

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 208,437 188,924 19,513 10.3%

Other net operating income/expense 103,448 117,939 (14,491) (12.3%)

Operating income (including the effects of the PPA) 3,288,668 3,398,896 (110,228) (3.2%)

Staff costs (1,295,090) (1,301,779) (6,689) (0.5%)

Other administrative expenses (653,880) (633,494) 20,386 3.2%

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (including the effects of PPA) (153,024) (169,140) (16,116) (9.5%)

Operating expenses (including the effects of the PPA) (2,101,994) (2,104,413) (2,419) (0.1%)

Net operating income (including the effects of the PPA) 1,186,674 1,294,483 (107,809) (8.3%)

Net impairment losses on loans (802,646) (928,617) (125,971) (13.6%)

Net impairment losses on other financial assets and liabilities 1,424 (3,192) 4,616 n.s.

Net provisions for risks and charges (2,975) (7,527) (4,552) (60.5%)

Profits (losses) from the disposal of equity investments 927 (89) 1,016 n.s.

Pre-tax profit from continuing operations (including the effects of the PPA) 383,404 355,058 28,346 8.0%

Taxes on income for the year from continuing operations (157,096) (178,693) (21,597) (12.1%)

Profit for the year attributable to non-controlling interests (31,176) (29,828) 1,348 4.5%

Profit for the year attributable to the shareholders of the Parent 195,132 146,537 48,595 33.2%

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

Changes%

changes

2015net of non-

recurring items

2014net of non-

recurring items

93

Figures in thousands of euro

Net interest income (including the effects of the PPA) 1,631,055 1,631,055

Dividends and similar income 10,349 10,349

Profits of equity-accounted investees 35,260 35,260

Net fee and commission income 1,300,119 1,300,119

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 290,633 (82,196) 208,437

Other net operating income/expense 103,448 103,448

Operating income (including the effects of the PPA) 3,370,864 (82,196) - - - - - - 3,288,668

Staff costs (1,295,090) (1,295,090)

Other administrative expenses (727,067) 7,868 65,319 (653,880) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (including the effects of PPA) (153,024) (153,024)

Operating expenses (including the effects of the PPA) (2,175,181) - - 7,868 - 65,319 - - (2,101,994)

Net operating income (including the effects of the PPA) 1,195,683 (82,196) - 7,868 - 65,319 - - 1,186,674

Net impairment losses on loans (802,646) (802,646)

Net impairment losses on other financial assets and liabilities (16,866) 18,290 1,424

Net provisions for risks and charges (2,975) (2,975)

Profits from the disposal of equity investments 464 463 927

Pre-tax profit from continuing operations (including the effects of the PPA) 373,660 (81,733) 18,290 7,868 - 65,319 - - 383,404

Taxes on income for the year from continuing operations (161,121) 6,411 (4,175) (2,602) (21,237) 25,628 (157,096)

Profit for the year attributable to non-controlling interests (29,765) (94) (161) (1,156) (31,176)

Profit for the year attributable to the shareholders of the Parent before redundancies and impairment 182,774 (75,322) 14,021 5,105 - 42,926 - 25,628 195,132

Redundancy expenses net of taxes and non-controlling interests (62,705) 62,705 -

Impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment net of taxes and non-controlling interests (3,304) 3,304 -

Profit for the year attributable to the shareholders of the Parent 116,765 (75,322) 14,021 5,105 62,705 42,926 3,304 25,628 195,132

ROE (Profit / (Equity + profit for the year)) 1.2% 2.0%

Cost:income ratio (including the effects of PPA) 64.5% 63.9%

Cost:income ratio (excluding the effects of PPA) 63.6% 63.0%

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

Extraordinary contribution to the Resolution Fund

Impairment losses on

property, plant and

equipment (owned

properties)

2015net of non-

recurring itemsConclusion of tax litigation

non-recurring items

2015Disposal of equity

investments

Impairment losses on equity

instruments, bonds and units of UCITS (AFS)

IW Bank and UBI Banca Private

Investment integration costs

Redundancy expenses

(pursuant to trade union

agreements of 4th February

2015 and 23rd December

2015)

94

continued

Figures in thousands of euro

Net interest income (including the effects of the PPA) 1,818,387 1,818,387

Dividends and similar income 10,044 10,044

Profits of equity-accounted investees 37,015 37,015

Net fee and commission income 1,226,587 1,226,587

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 199,658 (10,734) 188,924

Other net operating income/expense 117,939 117,939

Operating income (including the effects of the PPA) 3,409,630 - - (10,734) - - - - - - 3,398,896

Staff costs (1,301,779) (1,301,779)

Other administrative expenses (635,034) 1,540 (633,494) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (including the effects of PPA) (171,409) 2,269 (169,140)

Operating expenses (including the effects of the PPA) (2,108,222) - - - - - - 2,269 1,540 - (2,104,413)

Net operating income (including the effects of the PPA) 1,301,408 - - (10,734) - - - 2,269 1,540 - 1,294,483

Net impairment losses on loans (928,617) (928,617)

Net impairment losses on other financial assets and liabilities (8,650) 4,821 637 (3,192)

Net provisions for risks and charges (9,074) 1,547 (7,527)

Profits (losses) from the disposal of equity investments 94,007 (84,384) (9,712) (89)

Pre-tax profit from continuing operations (including the effects of the PPA) 449,074 - - (95,118) (9,712) - 4,821 3,816 1,540 637 355,058

Taxes on income for the year from continuing operations (186,926) 2,590 3,184 4,482 (169) (1,169) (510) (175) (178,693)

Profit for the year attributable to non-controlling interests (28,918) 20 (705) (204) (21) (29,828)

Profit for the year attributable to the shareholders of the Parent before redundancies and impairment 233,230 - - (92,528) (6,508) 3,777 4,448 2,647 1,030 441 146,537

Redundancy expenses net of taxes and non-controlling interests (76,311) 76,311 - Impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment net of taxes and non-controlling interests (882,686) 882,686 -

Profit (loss) for the year attributable to the shareholders of the Parent (725,767) 882,686 76,311 (92,528) (6,508) 3,777 4,448 2,647 1,030 441 146,537

ROE (Profit before redundancy expenses and impairment /(Equity + loss for the year)) 2.4% 1.5%

Cost:income ratio (including the effects of PPA) 61.8% 61.9%

Cost:income ratio (excluding the effects of PPA) 60.7% 60.8%

2014

non-recurring items

2014net of non-recurring

items

Impairment of goodwill, intangible

assets and property, plant

and equipment

Redundancy expenses (purs. to

Framework Agreement

26th November

2014)

Disposal of equity investments

Profit on the disposal of

property investments

Change in the substitute tax on the new

profit sharing stakes in the Bank of Italy

Impairment of AFS

securities

Write off of IT systems

Integration costs of

merger of UBI Banca

Private Investment

and IW Bank

Interbank Deposit

Protection Fund action

to assist Banca Tercas

95

Reconciliation schedule for the year ended 31st December 2015

RECLASSIFIED INCOME STATEMENT 2015 2015

Figures in thousands of euro

Mandatory consolidated

financial statements

Tax recoveries

Profit of equity-accounted investees

Depreciation for

improvements to leased

assets

Redundancy expenses

Net impairment losses on

goodwill and property, plant and equipment

Reclassified consolidated

financial statements

10.-20. Net interest income 1,631,055 1,631,055

70. Dividends and similar income 10,349 10,349

Profits of equity-accounted investees 35,260 35,260

40.-50. Net fee and commission income 1,300,119 1,300,119

80.+90.+100.+110.

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 290,633 290,633

220. Other net operating income/expense 321,441 (221,448) 3,455 103,448

Operating income 3,553,597 (221,448) 35,260 3,455 - - 3,370,864

180.a Staff costs (1,391,732) 96,642 (1,295,090)

180.b Other administrative expenses (948,515) 221,448 (727,067)

200.+210.

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (154,619) (3,455) 5,050 (153,024)

Operating expenses (2,494,866) 221,448 - (3,455) 96,642 5,050 (2,175,181)

Net operating income 1,058,731 - 35,260 - 96,642 5,050 1,195,683

130.a Net impairment losses on loans (802,646) (802,646)

130.b+c+d Net impairment losses on other financial assets and liabilities (16,866) (16,866)

190. Net provisions for risks and charges (2,975) (2,975)

240.+270. Profits from the disposal of equity investments 35,724 (35,260) 464

Pre-tax profit from continuing operations 271,968 - - - 96,642 5,050 373,660

290. Taxes on income for the year from continuing operations (127,502) (31,960) (1,659) (161,121)

330. Profit for the year attributable to non-controlling interests (27,701) (1,977) (87) (29,765)

Profit for the year attributable to the shareholders of the Parent before redundancy expenses and impairment 116,765 - - - 62,705 3,304 182,774

180.a Redundancy expenses net of taxes and non-controlling interests - (62,705) (62,705)

200.+210.+260.

Net impairment losses on goodwill and property, plant and equipment net of taxes and non-controlling interests - (3,304) (3,304)

340.

Profit for the year attributable to the shareholders of the Parent 116,765 - - - - - 116,765

Ite ms

Reclassifications

Reconciliation schedule for the year ended 31st December 2014

RECLASSIFIED INCOME STATEMENT 2014 2014

Figures in thousands of euro

Mandatory consolidated financial statements

Tax recoveries

Profit of equity-accounted investees

Depreciation for

improvements to leased

assets

Redundancy expenses

Impairment losses on goodw ill, f inite

useful life intangible assets and

property, plant and equipment

Reclassified consolidated

financial statements

10.-20. Net interest income 1,818,387 1,818,387

70. Dividends and similar income 10,044 10,044

Profits of equity-accounted investees 37,015 37,015

40.-50. Net fee and commission income 1,226,587 1,226,587

80.+90.+100.+110.

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 199,658 199,658

220. Other net operating income/expense 336,366 (224,797) 6,370 117,939

Operating income 3,591,042 (224,797) 37,015 6,370 - - 3,409,630

180.a Staff costs (1,413,312) 111,533 (1,301,779)

180.b Other administrative expenses (859,831) 224,797 (635,034)

200.+210.

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (232,065) (6,370) 67,026 (171,409)

Operating expenses (2,505,208) 224,797 - (6,370) 111,533 67,026 (2,108,222)

Net operating income 1,085,834 - 37,015 - 111,533 67,026 1,301,408

130.a Net impairment losses on loans (928,617) (928,617)

130. b+c+d Net impairment losses on other financial assets and liabilities (8,650) (8,650)

190. Net provisions for risks and charges (9,074) (9,074)

240.+270. Profits (losses) from the disposal of equity investments (915,397) (37,015) 1,046,419 94,007

Pre-tax profit (loss) from continuing operations (775,904) - - - 111,533 1,113,445 449,074

290. Taxes on income for the year from continuing operations 72,314 (30,671) (228,569) (186,926)

330. Profit for the year attributable to non-controlling interests (22,177) (4,551) (2,190) (28,918)

Profit (loss) for the year attributable to the shareholders of the Parent before redundancy expenses and impairment (725,767) 76,311 882,686 233,230

180.a Redundancy expenses net of taxes and non-controlling interests - (76,311) (76,311)

200.+210.+260.

Impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment net of taxes and non-controlling interests - (882,686) (882,686)

340. Loss for the year attributable to the shareholders of the Parent (725,767) - - - - - (725,767)

Ite ms

Reclassifications

96

Notes to the reclassified consolidated financial statements The mandatory financial statements have been prepared on the basis of Bank of Italy Circular No. 262 of 22nd December 2005 and subsequent updates. Therefore, as with the 2014 Annual Report, for the purposes of the preparation of these financial statements, the provisions of the fourth update of that document issued on 15th December 2015 have been observed. The following rules are applied to the reclassified financial statements to allow a vision that is more consistent with a management accounting style:

- the item profits (losses) of equity-accounted investees includes the profits (losses) of equity-accounted investees included within item 240 in the mandatory financial statements;

- the item other net operating income/expense includes item 220, net of the reclassifications mentioned under other points;

- the tax recoveries recognised within item 220 of the mandatory financial statements (other net operating income/expenses) were reclassified as a reduction in indirect taxes included within other administrative expenses;

- the item net impairment losses on property plant and equipment and intangible assets includes items 200 and 210 in the mandatory financial statements and also the instalments relating to the depreciation of leasehold improvements classified within item 220;

- the item profits (losses) from the disposal of equity investments includes the item 240, net of profits (losses) of equity-accounted investees and also item 270 in the mandatory financial statements;

- net impairment losses on goodwill, on finite useful life intangible assets and property, plant and equipment (net of taxation and non-controlling interests) partially include items 200 and 210 as well as item 260 in the mandatory financial statements;

- redundancy expenses (net of taxation and non-controlling interests) partially include item 180a in the mandatory financial statements.

The reconciliation of the items in the reclassified financial statements with the figures in the mandatory financial statements has been facilitated, on the one hand, with the insertion in the margin against each item of the corresponding number of the item in the mandatory financial statements with which it is reconciled 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 of the reclassified financial statements for the comparative periods, and the tables providing details included in the subsequent sections of this 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 2006, two special schedules have been included, the first a brief summary (which provides a comparison of the normalised results for the period) and the second 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:

Full year 2015:

- disposal of equity investments (Istituto Centrale delle Banche Popolari Italiane, partially and UBI Gestioni Fiduciarie Sim, totally);

- impairment losses on AFS securities; - integration costs for the merger of IW Bank into UBI Banca Private Investment; - redundancy expenses charged in relation to trade union agreements of 4th February 2015 and 23rd December

2015 - extraordinary contribution to the Resolution Fund; - impairment losses on property, plant and equipment (owned properties); - conclusion of tax litigation.

Full year 2014:

- impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment; - redundancy expenses pursuant to the Framework Agreement of 26th November 2014; - disposal of equity investments (Aviva Vita, Aviva Assicurazioni Vita, UBI Assicurazioni and SIA Spa); - profit on the disposal of property investments; - change in the substitute tax on the new profit sharing stakes held in the Bank of Italy; - impairment of AFS securities; - write off of IT systems; - integration costs for the merger of IW Bank into UBI Banca Private Investment; - adjustment to the sales price of Banque de Dépôts et de Gestion Sa (Switzerland) and of Sofipo Sa

(Switzerland); - intervention by the Interbank Deposit Protection Fund to support Banca Tercas.

97

The consolidated income statement

The income statement figures commented on are based on the reclassified consolidated financial statements (the income statement, the quarterly income statements and the income statement net of the most significant non-recurring items, condensed and complete) contained in another section of this report and the tables furnishing details presented below are also based on those statements. The notes that follow those reclassified financial statements may be consulted as may the reconciliation schedules for a description of the reclassification. Furthermore, the commentary examines changes that occurred in both 2015 compared to 2014 and also those occurring in the fourth quarter of 2015 compared to the previous three months (in the latter case the comments are highlighted with a slightly different background colour).

The recovery continued gradually throughout the year, driven in part by economic policies (the Eurosystem's programme to purchase securities and the measures taken by the Italian government) and by improving credit conditions. Consequently, the current situation suggests that business cycle will continue to recover in the next two years, as long as the confidence of households, businesses and financial operators can be maintained, despite the significant risks associated with the international environment (the slowdown of emerging economies, with possible severe repercussions on financial and currency markets, in addition to further declines in commodities prices).

In this scenario, the Group's income statement, weighed down by the extraordinary contributions paid into the Resolution Fund, the ordinary expenses required by the gradual entry into force of European regulations, and the new redundancy scheme, showed a profit of €116.8 million, compared to a loss of €725.8 million in 2014. That loss was due to the significant impairment, identified in periodic testing, of goodwill, finite useful life intangible assets and property, plant and equipment, amounting to €883 million, net of taxation and non-controlling interests, on the book values at which those assets had been stated. Although there were still no signs of recovery at the level of revenue, due to the constant focus on costs - which remained stable despite the ordinary contributions to the Resolution Fund and Deposit Guarantee Scheme - along with the decrease in impairment losses on loans, in normalised terms (i.e. excluding the numerous non-recurring components for the year1), profit was €195.1 million in 2015, an improvement of 33% on the €146.5 million of 2014. At the quarterly level, the net loss was €45.2 million, affected by the aforementioned extraordinary contribution, the settlement of litigation proceedings with the tax authorities and redundancy expenses, despite the recovery of operating income both year-on-year and on a quarterly basis. This net loss is to be compared with the +€37.6 million earned in the three previous months (July-September 2015), which were affected by the traditional summer decline in business, but also benefited from the decrease in quarterly operating expenses throughout the two-year period 2014-2015. In the corresponding quarter of 2014, the Group had recorded a loss of €875.6 million due to the recognition of the aforementioned impairment losses and redundancy expenses (the profit before impairment and expenses was €83.4 million, also benefiting from the capital gains realised on the partial or total disposal of investments in insurance companies). Over the full year, ordinary operations generated operating income of €3,370.9 million, essentially unchanged compared to 2014 (-1.1%), the aggregate result of the performance reported below. Net interest income, inclusive of the effects of the purchase price allocation of €27.1 million, was €1,631.1 million (-€187.3 million), affected by both the performance of lending/funding volumes and the change in the interest rate structure in the two years2.

1 Non-recurring components (considered net of taxes and non-controlling interests) came to a negative €78.4 million in 2015 (due to the combination of impairment losses on securities and property, plant and equipment, the extraordinary contribution to the Resolution Fund, redundancy schemes, and the settlement of a tax dispute, only partially offset by the disposal of the investment in ICBPI), compared to a negative €872.3 million in 2014 (primarily due to impairment and redundancy expenses, partially offset by the disposal of investments and properties).

Both periods included costs resulting from the purchase price allocation amounting to €24.8 million in 2015 and €30.7 million in 2014.

2 It should be considered that the one-month Euribor rate has been negative since March 2015, therefore the average over the twelve months of 2015 was -0.071%, compared with +0.135% in 2014.

98

In detail3:

• business with customers generated net interest income of €1,351.1 million (-€83.1 million on the comparative period), which continued to be affected by the slowness of the recovery. More specifically, on the one hand the performance of net interest income from customers incorporated a reduction in volumes of assets (average assets were down €2 billion year-on-year) and, in more significant terms, the impact of interest rates on short-term loans, while on the other hand it benefited from a combination of the downward trend for medium to long-term funding and a reduction in the relative cost. The customer spread remained more or less unchanged (-6 bps compared to 2014), due partly to constant effort to optimise the liability structure. The balance also includes the differentials received mainly on hedges on bonds (€168.6 million compared with €153.5 million before);

• the securities portfolio generated net interest income of approximately €292 million (-€129.2 million), in the presence of investments in debt securities which reduced by €3.4 billion. The contribution provided by the AFS portfolio (down to €373.2 million from €419 million before) was accompanied by reductions in the contribution from both the held-to-maturity portfolio (€45.8 million compared with €97.7 million before, in relation to lower returns on the reinvestments made at the end of 2014) and on the trading portfolio (€2.7 million compared with €22.4 million, after the progressive disposals carried out throughout the year). This business was also affected by the costs of uncovered short positions (although these decreased from €16 million to €2.2 million) and of partial hedges on fixed-rate bonds (the differentials paid were up from €101.9 million to €127.5 million);

• business on the interbank market recorded expense of €12.2 million, sharply down compared with expense of €37.2 million in 2014. The improvement is due to both a fall, on an annual basis, in funding from central banks (down €2.2 billion due to the repayment of ECB funding, net of new subscriptions) – against modest changes in volumes of business with other banks – and to the drastic decrease in the rate applied to principal refinancing operations, down from 0.25% at the beginning of 2014 to the current 0.05%. Net of transactions with the ECB, the contribution from net business with banks was approximately -€5.1 million, compared with -€17.4 million in 2014.

3 The calculation of net balances was performed by allocating interest income and expense on hedging derivatives and interest expense on financial liabilities held for trading within the different areas of business (with customers, financial, with banks).

Interest and similar income: composition

Figures in thousands of euro

Debt instruments

FinancingOther

transactions2015 2014

1. Financial assets held for trading 2,654 - - 2,654 22,377

2. Financial assets designated at fair value - - - - -

3. Available-for-sale financial assets 373,243 - - 373,243 418,985

3. Held-to-maturity investments 45,809 - - 45,809 97,731

5. Loans and advances to banks - 6,169 - 6,169 6,007

6. Loans and advances to customers 41 2,039,100 901 2,040,042 2,418,176

7. Hedging derivatives X X 41,048 41,048 51,593

8. Other assets X X 236 236 189

Total 421,747 2,045,269 42,185 2,509,201 3,015,058

Interest and similar expense: composition

Figures in thousands of euroBorrowings Securities

Other transactions

2015 2014

1. Due to central banks (7,111) X - (7,111) (19,847)

2. Due to banks (11,307) X - (11,307) (23,379)

3. Due to customers (83,047) X (124) (83,171) (181,263)

4. Debt securities issued X (774,342) - (774,342) (956,223)

5. Financial liabilities held for trading (2,199) - - (2,199) (15,959)

6. Financial liabilities designated at fair value - - - - -

7. Other liabilities and provisions X X (16) (16) -

8. Hedging derivatives X X - - -

Total (103,664) (774,342) (140) (878,146) (1,196,671)

1,631,055 1,818,387 Net interest income

99

Dividends of €10.3 million were received during the year: of this total, €8.9 million related to the UBI Banca portfolios (in further detail, €5.8 million of AFS securities and €3.1 million of FVO and held-for-trading instruments) and a total of €1.4 million related to BRE and Carime as remuneration on stakes held in the Bank of Italy. In 2014 €10 million was collected, of which €3.2 million was paid by SIA S.p.A., disposed of in the fourth quarter of 2014, and €1.8 million by the BRE and Carmine portfolios (€1.6 million on the 1,259 stakes of the Bank of Italy and €0.15 million on SIA). Profits of equity-accounted investees4 totalled €35.3 million (€37 million in 2014), the most significant components of which were: Zhong Ou (€17.9 million, compared to €3.1 million before), Lombarda Vita (€11.9 million, compared to €7.7 million), Aviva Vita (€3.1 million compared to €17.1 million) and Aviva Assicurazioni Vita (€2.1 million compared to -€0.15 million). Account should be taken of the following in the comparison with 2014: - on 22nd December 2014 UBI Banca reduced its stakes held in both Aviva Vita Spa and Aviva Assicurazioni Vita

Spa from 50% to 20%; - on 30th December 2014 the stake held in UBI Assicurazioni Spa (49.99%) was disposed of entirely, which had

contributed to the relative earnings in the year with €9.1 million. Net fee and commission income, which includes €35.2 million of performance fees attributable to UBI Pramerica SGR, increased to €1,300.1 million (+€73.5 million compared to 2014). It was the aggregate result of good performance by the investment services business (+€74.9 million) and the slight decline in general banking services (-€1.4 million).

In detail:

• management, trading and advisory services contributed €698.8 million to the result5, driven by portfolio management (+€63.9 million in relation to the higher average volumes of assets under management), by the placement of securities (+€22.8 million, of which €3.1 million from the subscription of UBI Pramerica Sicav’s and funds) and by the distribution of third party services (+€7.6 million, primarily because of the average volumes of life policies sold, but also due to improved profitability). The items relating to trading, the receipt of orders, and custody and administration decreased on aggregate (-€5.8 million, partly attributed to

4 The item consists of the 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.

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

Figures in thousands of euro2015 2014

Figures in thousands of euro2015 2014

a) guarantees granted 47,030 51,128 a) guarantees received (1,755) (20,683)

c) management, trading and advisory services 799,193 713,279 c) management and trading services: (93,373) (82,918)

1. trading in financial instruments 19,611 22,111 1. trading in financial instruments (10,360) (10,433)

2. foreign exchange trading 6,979 6,456 2. foreign exchange trading (1) (5)

3. portfolio management 341,735 279,941 3. portfolio management (11,114) (13,177)

3.1. individual 73,742 67,619 3.1. own - -

3.2. collective 267,993 212,322 3.2. on behalf of third parties (11,114) (13,177)

4. custody and administration of securities 8,488 9,154 4. custody and administration of securities (5,479) (7,592)

5. depository banking - - 5. placement of financial instruments (6,133) (4,917)

6. placement of securities 194,364 170,381

7. receipt and transmission of orders 43,084 49,002 (60,286) (46,794)

8. advisory activities 5,454 4,358 d) collection and payment services (48,728) (37,303)

8.1 on investments 5,454 4,358 e) other services (44,878) (35,815)

9. distribution of third party services 179,478 171,876 Total (188,734) (176,719)

9.1. portfolio management 29 32

9.1.1. individual 29 32

9.2. insurance products 149,607 133,063

9.3. other products 29,842 38,781

d) collection and payment services 160,099 163,087

f) services for factoring transactions 15,749 18,703

i) current account administration 194,782 203,960

j) other services 272,000 253,149

Total 1,488,853 1,403,306 Net fee and commission income 1,300,119 1,226,587

6. financial instruments, products and services distributed through indirect networks

100

the combined effect of lower flows of AUC associated with lower returns), affected by the volatility that characterised the markets starting in the summer months. Fee and commission expense for financial instruments, products and services distributed through indirect networks climbed by €13.5 million, partly in relation to the increased numbers of financial advisors;

• ordinary banking business6 - which continued to be affected by weak demand for credit – generated €601.3 million, benefiting on the expenses front from the disappearance of the cost of the guarantee on government backed bonds, redeemed on 7th March and on 7th August 2014, with savings of €18.4 million compared with 2014. Other items included the following: falls in collection and payment services (-€14.4 million, mainly due to the lower returns on tax payment authorisations received), factoring business (-€3 million) and current account administration (-€9.2 million, due to lower average unit profitability on both conventional current accounts and on package/modular accounts), which was partially offset by increases in other services (+€9.8 million, primarily from new medium to long-term loan application processing fees; however, commitment fees, contributing €139.8 million to the item, decreased by €9.9 million in relation to the reduced volumes of short-term lending).

The net result for financial activity rose to €290.6 million, an increase of €91 million compared with 2014, the result, amongst other things, of a non-recurring item, a profit (€82.2 million) on the partial disposal of the investment held in Istituto Centrale delle Banche Popolari Italiane (see the previous section “Significant events that occurred in 2015”). The composition of contributions by portfolios and type of business is as follows:

• +€63.9 million (+€63.2 million in 2014) was generated by trading, of which +€10.4 million by debt instruments (almost entirely profit-taking on trading), +€2.7 million by equity instruments and above all by the closure of the related derivative contracts (nearly all listed on regulated markets with equity indices as the underlying), +€40.3 million by foreign exchange business7 (as a result large fluctuations in exchange rates that primarily affected the assets/liabilities hedged on behalf of network bank customers and resulted in an increase in such business), and +€11 million by derivatives on debt instruments and interest rates (profits, gains and accruals). The latter are to be attributed to the differentials accrued and the valuation of the derivatives themselves. On the aggregate, -€9.4 million may be attributed to the unwinding phenomenon, which accelerated at the end of the year;

• +€11 million (-€11.2 million in 20148) from hedging, – consisting of changes in the fair value of the derivatives and the relative items hedged – relating to the impacts of fair value changes in derivatives on AFS securities (as the long-term swap rate curve rose in the second quarter) and also due to fair value movements in bonds, which benefited from the fall in the swap curve on shorter maturities in the fourth quarter;

• +€211.4 million (+€144.6 million in 2014 9 ) from the disposal/repurchase of financial assets/liabilities, of which: +€82.2 million from the (partial) sale of the investment in ICBPI (non-recurring); +€173.1 million from debt instruments, primarily Italian government securities (of which €2.8 million refers to bonds, primarily issued by banks): +€6.9 million from the sale of units in UCITS (ETFs that aimed to replicate the performance of the EURO STOXX® 50 Index), all almost entirely attributable to the Parent; -€34.5 million from the disposal of bad loans (previously termed "non-performing loans") of the network banks (massive disposals, chiefly in November and December), of small former ex B@nca 24-7 loans and of a more substantial amount relating to the former Centrobanca; and -€16.3

6 All the changes were calculated by subtracting fee and commission expense from the respective fee and commission income. 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, 4.1 and 3) 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), transactions on behalf of customers balanced operationally by UBI Banca on the market and domestic currency swaps, opened on the two components, always balanced, and certificates of deposit (item 1.5) and the related derivatives (item 4.1).

8 The amount originated in fair value movements in derivatives on AFS securities and to a marginal extent in derivatives on mortgages and other loans.

9 The aggregate consisted of debt securities of +€138 million (of which, €128.9 million of Italian government securities disposed of by the Parent); units in UCITS (ETFs) of +€19.7 million; equity instruments of +€10.6 million (of which the non-recurring sum of €10.7 million from the sale of SIA S.p.A. by the Parent and Banca Carime); -€15.3 million from the disposal of several packages of bad loans (the most significant of which took place in December) of the network banks, the former B@nca 24-7 and the former Centrobanca; and -€8.3 million from the repurchase of outstanding securities as part of normal direct business with customers.

101

million from the repurchase of outstanding securities as part of normal direct business with customers in an environment of bond prices above par;

• €4.3 million (compared with €3.1 million before) from fair value movements in investments in Tages Funds and in the private equity investments of the former Centrobanca. The performance of the item also incorporated the exchange rate effect from a residual position in hedge funds, while the fair value of these had a modest negative impact (-€0.2 million).

Net trading income

GainsProfits from

tradingLosses

Losses from trading

Net income 2015

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

1. Financial assets held for trading 943 51,207 (4,041) (29,126) 18,983 68,253

1.1 Debt instruments 450 13,706 (1,298) (2,429) 10,429 29,673

1.2 Equity instruments 98 247 (998) (128) (781) 337

1.3 Units in UCITS 8 12 (53) (4) (37) 19

1.4 Financing - - - - - -

1.5 Other 387 37,242 (1,692) (26,565) 9,372 38,224

2. Financial liabilities held for trading - 1,473 - (1,543) (70) 9,657

2.1 Debt instruments 1,473 - (1,543) (70) 9,657

2.2 Payables - - - - - -

2.3 Other - - - - - -

3. Financial assets and liabilities: exchange rate differences X X X X 794 2,909

4. Derivative instruments 215,157 322,489 (227,515) (296,108) 44,212 (17,653)

4.1 Financial derivatives 215,157 322,489 (227,515) (296,108) 44,212 (17,653)

- on debt instruments and interest rates 205,164 297,548 (218,168) (273,493) 11,051 (4,876)

- on equity instruments and share indices 432 3,849 (4) (741) 3,536 (1,094)

- on currencies and gold X X X X 30,189 (11,370)

- other 9,561 21,092 (9,343) (21,874) (564) (313)

4.2 Credit derivatives - - - - - -

Total 216,100 375,169 (231,556) (326,777) 63,919 63,166

Net hedging income (loss)

Figures in thousands of euro 2015 2014

Net hedging income (loss) 10,968 (11,217)

Profit (loss) from disposal or repurchase

Figures in thousands of euro

Financial assets

1. Loans and advances to banks - - - -

2. Loans and advances to customers 10,901 (45,428) (34,527) (15,348)

3. Available-for-sale financial assets 263,000 (749) 262,251 168,304

3.1 Debt instruments 173,876 (725) 173,151 137,980

3.2 Equity instruments 82,239 (7) 82,232 10,648

3.3 Units in UCITS 6,885 (17) 6,868 19,676

3.4 Financing - - - -

4. Held-to-maturity investments - - - -

Total assets 273,901 (46,177) 227,724 152,956

Financial liabilities

1. Due to banks - - - -

2. Due to customers - - - -

3. Debt securities issued 792 (17,126) (16,334) (8,320)

Total liabilities 792 (17,126) (16,334) (8,320)

Total 274,693 (63,303) 211,390 144,636

Net profit on financial assets and liabilities designated at fair value

Figures in thousands of euro 2015 2014

Net profit on financial assets and liabilities designated at fair value 4,356 3,073

290,633 199,658

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value

2014

Profits LossesNet profit

20152014

102

Other net operating income/expense came to €103.4 million, down €14.5 million, the result of the following: firstly a contraction in operating income (-€16.6 million), attributable primarily to prior year income, which included fast credit processing fees, down by €14.4 million, as a result of monitoring activity and also a downward trend for loans to customers. At the same time, expenses also decreased (-€2.1 million), and in particular prior year expenses (-€2.7 million). In 2014 reimbursements to Prestitalia customers had been recognised amounting to €12.7 million, relating to the company’s operations prior to its acquisition by the UBI Banca Group. From a quarter-on-quarter viewpoint operating income for the quarter (€903.8 million compared with €852 million in the same period in 2014) increased by €145.6 million, compared with €758.2 million in the previous three months. The improvement was driven by both the capital gain on the disposal of the investment in Istituto Centrale delle Banche Popolari Italiane and the stronger result of ordinary financial activities, in addition to the greater contribution by fees and commissions, despite the continuing weakness of net interest income. In detail:

• net interest income fell to €385.2 million (-€13.4 million compared with the third quarter), largely the result of the trend for interest rates 10 and the impact on business with customers and on the debt securities portfolio. Business with customers (-€6.2 million), which also benefited from the performance of medium-/long-term funding, was penalised by the further narrowing, albeit to a modest degree, of the spread (-2 bps, primarily correlated to the change in short-term interest rates). Debt securities also provided a smaller contribution (-€5.4 million), despite the new investments during the period, whereas the interbank balance was affected by the lower average lending volumes, and thus yielded a larger negative contribution (approximately €2 million);

• the dividends collected amounted to €1.6 million and refer almost entirely to a private-

equity investment by UBI Banca; during the comparative period, the €3.4 million collected derived from funds included in the Parent Company's AFS portfolio (of which €3.2 million was attributable to a Luxembourg UCITS);

• profits of equity-accounted investees improved from €3.6 million to €12.1 million as a result of the strong results recorded by Zhong Ou and Lombarda Vita;

• net fee and commission income improved to €330.6 million (+€30.1 million) and included €22.5 million of performance fees, attributable exclusively to UBI Pramerica SGR, the “against the benchmark” component of which was recognised entirely in the fourth quarter

10 On average, the one month Euribor rate fell from -0.088% in the third quarter to -0.148% in the fourth quarter of 2015.

Quarterly net interest income

Figures in thousands of euro 4th Quarter 3rd Quarter2nd Quarter1st Quarter 4th Quarter 3rd Quarter2nd Quarter1st Quarter

Banking business with customers 324,587 330,838 343,794 351,910 347,971 367,739 357,667 360,853

Financial activities 64,147 69,571 75,623 82,614 99,551 108,334 107,536 105,766

Interbank business (3,690) (1,748) (2,924) (3,887) (5,867) (8,207) (11,089) (12,056)

Other items 196 6 50 (32) 419 (81) (58) (91)

Net interest income 385,240 398,667 416,543 430,605 442,074 467,785 454,056 454,472

2015 2014

Other net operating income

Figures in thousands of euro2015 2014

Other operating income 159,097 175,717

Recovery of expenses and other income on current accounts 22,104 23,568

Recovery of insurance premiums 21,413 23,672

Recoveries of taxes 221,448 224,797

Rents and other income for property management 4,610 4,868

Recovery of expenses on finance lease contracts 14,039 13,892

Other income and prior year income 96,931 109,717

Reclassification of "tax recoveries" (221,448) (224,797)

Other operating expenses (55,649) (57,778)

Depreciation of leasehold improvements (3,455) (6,370)

Costs relating to finance lease contracts (9,581) (8,669)

Expenses for public authority treasury contracts (4,396) (4,780)

Other expenses and prior year expense (41,672) (44,329)

Reclassification of depreciation of leasehold improvements 3,455 6,370

Total 103,448 117,939

103

of the year (€0.9 million in the third quarter)11. Excluding those components, the aggregate nonetheless grew (+€8.5 million), driven by the improvement in management, trading and advisory services (a total of €158 million, +€9.4 million), and in particular by the distribution of third party services, whereas banking services remained essentially unchanged compared to the previous three months (-€0.9 million), due to the increases in collection and payment services (larger number of transactions and bills presented; the revenues in question are partially tied to the seasonal nature of business) and current account administration (due in part to charges to traditional current accounts of transactions subject to single payments undertaken during the year), offset by the decrease in "other services" (including the commitment fee and commissions received for CPI policies on the early repayment of loans of €3.5 million);

• financial activity generated profits of €151.7 million (€27.8 million in the previous three months), of which €82.2 million consisted of the capital gain on the partial disposal of ICBPI (non-recurring), and the remainder of the disposal of government securities of €90.7 million (primarily attributable to UBI Banca). In the fourth quarter, trading also contributed €6.7 million (driven by €10.1 million of foreign exchange business with customers, in light of the significant fluctuations during the period); a gain on hedging of €3.7 million (primarily deriving from own issue liabilities); and fair value movements in assets designated at fair value of €0.5 million; these positive contributions were offset by the loss on the repurchase of own financial liabilities (in an environment of prices above par), but above all by the disposal of non-performing loans (previously termed “deteriorated loans”), essentially bad loans (€26.7 million), in relation to the massive disposals in November and December involving both UBI Banca and the network banks;

11 Overall, performance commissions (approximately €35.2 million) accounted for 2.7% of net fee and commission income for the year, compared with 1.4% in 2014, when performance commissions amounted to approximately €17 million.

Quarterly net fee and commission income

Figures in thousands of euro 4th Quarter 3rd Quarter2nd Quarter1st Quarter 4th Quarter 3rd Quarter2nd Quarter1st Quarter

Management, trading and advisory services (net of the corresponding expense items): 180,538 149,496 177,202 191,606 155,563 149,003 161,022 158,322

trading in financial instruments 1,856 1,058 2,845 3,492 2,904 2,554 2,456 3,764

portfolio management 98,494 74,992 79,849 77,286 75,665 67,435 64,093 59,571

custody and administration of securities 881 1,004 934 190 639 358 239 326

placement of securities 32,520 34,834 53,370 67,507 31,239 40,601 46,511 47,113

receipt and transmission of orders 9,491 9,424 10,673 13,496 10,749 9,379 14,392 14,482

advisory activities 900 1,350 1,753 1,451 992 1,142 920 1,304

distribution of third party services 49,070 38,954 45,483 45,971 45,022 39,817 43,924 43,113 financial instruments, products and services distributed through indirect networks (12,674) (12,120) (17,705) (17,787) (11,647) (12,283) (11,513) (11,351)

Banking services (net of the corresponding expense items): 150,036 150,971 150,684 149,586 162,829 149,499 148,561 141,788

guarantees 10,055 10,257 11,074 13,889 11,009 8,454 6,663 4,319

foreign exchange trading 1,784 1,579 1,814 1,801 1,678 1,607 1,884 1,282

collection and payment services 29,148 26,651 28,660 26,912 38,685 27,615 30,302 29,182

services for factoring transactions 3,679 3,744 4,063 4,263 4,239 4,408 4,869 5,187

current account administration 51,296 49,358 47,972 46,156 54,311 51,521 50,562 47,566

other services 54,074 59,382 57,101 56,565 52,907 55,894 54,281 54,252

Net fee and commission income 330,574 300,467 327,886 341,192 318,392 298,502 309,583 300,110

2015 2014

Quarterly performance by financial activities

Figures in thousands of euro 4th Quarter 3rd Quarter 2nd Quarter1st Quarter 4th Quarter 3rd Quarter2nd Quarter1st Quarter

Net trading income 6,663 11,873 17,952 27,431 6,719 5,853 16,509 34,085

Net hedging income (loss) 3,695 543 9,746 (3,016) (2,126) (1,696) (3,207) (4,188)

Total assets 146,097 20,128 28,682 32,817 45,928 10,049 63,594 33,385

Total liabilities (5,295) (2,981) (3,608) (4,450) (3,246) (1,810) (1,994) (1,270)

Profit from disposal or repurchase 140,802 17,147 25,074 28,367 42,682 8,239 61,600 32,115

Net income (loss) on financial assets and liabilities designated at fair value 545 (1,733) 302 5,242 1,881 1,464 (871) 599

Net income 151,705 27,830 53,074 58,024 49,156 13,860 74,031 62,611

2015 2014

104

• Other net operating income/expenses declined from €24.2 million to €22.6 million, the

result of the difference in the rate of growth of income (+€4 million, of which +€3.2 million for recoveries on current accounts) and expenses (+€5.5 million in relation to prior year expenses). This phenomenon was concentrated on the network banks during the quarter, which saw the resolution of claims of varying amounts brought by a large number of counterparties. It must be considered that because the underlying items of prior year income and expense items are of a varied and non-structural nature, they often fluctuate greatly from one period to another.

Operating expenses rose to €2,175.2 million (+3.2% compared to the previous year), albeit including the extraordinary contribution to the Resolution Fund (€65.3 million, non-recurring), but also the ordinary contributions to the Resolution Fund and the Deposit Guarantee Scheme - DGS (respectively, €22 million and €11.4 million). Net of those items, operating expenses amounted to €2,076.5 million (-1.5%). In detail these consisted of:

• staff costs (which do not include redundancy expenses under the trade union agreements of 4th February 2015 and 23rd December 2015) fell to €1,295.1 million (-€6.7 million). The change was concentrated at the level of staff costs for employees (directors' remuneration decreased by €0.5 million) and was primarily due to the downsizing of the workforce and new forms of flexible and part-time labour (-706 average resources, for a total savings of €37.4 million), the variable components of remuneration and the containment of other forms of compensation. However, the above decreases were partially offset by the impact of the loss of the contribution from the Ordinary Solidarity Fund for days of reduced or suspended working hours (since 2015 fully funded by the Group), the stagnation of remuneration (inclusive of the effects of the renewal of the national trade union agreement, with the resumption of length of service rises and the inclusion of the separate component of wages, the value of which had been increased from 1st June 2014, in base pay with effect from 1st January 2015) and the release of provisions in 2014;

• other administrative expenses, considered net of non-recurring items (extraordinary contribution to the Resolution Fund of €65.3 million and integration costs of €7.9 million relating to the merger between IW Bank and UBI Banca Private Investment, the latter of which amounted to €1.5 million in 2014) totalled €653.9 million, up by €20.4 million on a normalised basis. However, it should be considered that membership fees also include the

Staff costs: composition

Figures in thousands of euro2015 2014

1) Employees (1,279,998) (1,286,123)

a) Wages and salaries (900,762) (903,570)

b) Social security charges (241,994) (243,519)

c) Post-employment benefits (49,724) (49,452)

d) Pension expense - -

e) Provision for post-employment benefits (2,888) (3,659)

f) Pensions and similar obligations: (828) (1,921)

- defined contribution - -

- defined benefit (828) (1,921)

g) Payments to external supplementary pension funds: (39,983) (38,795)

- defined contribution (39,983) (38,266)

- defined benefit (529)

h) Expenses resulting from share based payments - -

i) Other employee benefits (43,819) (45,207)

2) Other staff in service (1,547) (1,609)

- Expenses for agency staff on staff leasing contracts (686) (54)

- Other expenses (861) (1,555)

3) Directors and statutory auditors (13,545) (14,047)

4) Expenses for retired staff - -

Total (1,295,090) (1,301,779)

Other administrative expenses: composition

Figures in thousands of euro2015 2014

A. Other administrative expenses (679,229) (583,738)

Rent payable (52,069) (57,245)

Professional and advisory services (91,945) (80,223)

Rentals hardware, software and other assets (34,393) (37,487)

Maintenance of hardware, software and other assets (43,752) (38,681)

Tenancy of premises (46,364) (50,645)

Property maintenance (26,426) (27,712)

Counting, transport and management of valuables (12,220) (12,893)

Membership fees (111,371) (9,637)

Information services and land registry searches (9,707) (10,465)

Books and periodicals (1,207) (1,180)

Postal (12,914) (17,902)

Insurance premiums (33,364) (35,087)

Advertising (25,080) (18,933)

Entertainment expenses (1,841) (1,676)

Telephone and data transmission expenses (44,621) (43,635)

Services in outsourcing (48,750) (48,630)

Travel expenses (14,815) (16,307)

Credit recovery expenses (42,265) (48,719)

Forms, stationery and consumables (6,116) (6,922)

Transport and removals (6,243) (6,699)

Security (7,608) (8,167)

Other expenses (6,158) (4,893)

B. Indirect taxes (47,838) (51,296)

Indirect taxes and duties (22,622) (25,474)

Stamp duty (206,280) (211,917)

Municipal property tax (19,923) (19,226)

Other taxes (20,461) (19,476)

Reclassification of "tax recoveries" 221,448 224,797

Total (727,067) (635,034)

105

ordinary contributions to the Resolution Fund (€22 million) and to the Deposit Guarantee Scheme - DGS (€11.4 million), both of which were paid for the first time in 2015; excluding these items and indirect taxation (-€3.4 million), current general spending decreased by €9.5 million to €572.7 million, continuing to reflect the strict monitoring measures. In particular, there were decreases in: rent payable and tenancy and maintenance of premises (-€10.7 million as a result of massive branch closures carried out in April 2014 and January 2015,

further renegotiations of contracts and energy savings); credit recovery expenses (-€6.4 million); postal expenses (-€5 million due to fewer hardcopy communications and the start of a contract with a new supplier in

2015); hardware and software leasing instalments (-€3.1 million, essentially due to the stipulation of a

new contract); insurance premiums (-€1.7 million, as a function of the transactions undertaken); and travel expenses (-€1.5 million). These savings were only partially offset by higher expenses incurred for the following: professional and advisory services (which net of the above-mentioned merger costs, mainly allocated here and resulting from IT services and corporate and legal affairs advisory service, grew by €5.4 million, in relation to new projects to be developed in support of the business); hardware and software maintenance (+€5.1

million, mainly in relation to upgrading systems for digital innovation); advertising (+€6.1 million, for the new

IW Bank advertising campaign and the other promotional initiatives for the brand); membership fees (+€3.1 million, excluding the contributions to the Resolution Fund and the Deposit Guarantee Scheme, due to Consob - the Italian securities market authority - as a result of increased rates in 2015, as well as to the ECB for the new supervisory contribution); and also telephone and data transmission expenses (+€1 million), where lower telephone costs made it possible to curb growth in expenses for infoproviders in relation not only to volumes but also to licence fees. From the management accounting standpoint, it should be noted that while expenses on ordinary operations were contained (-2.7%), initiatives relating to development projects (primarily digital innovation and commercial activity) continued in 2015, resulting in an increase in the related project expenses of 7%;

• depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets, amounting to €153 million, continued to decline, falling by €18.4 million, of which -€8.3 million due to less amortisation on the purchase price allocation, after the impairment recognised at the end of 2014. The ordinary reduction in the item (-€10.1 million) is a result of lower depreciation of real estate assets (-€5.8 million, partly due to branch closures), lower amortisation of intangible assets (-€2.9 million, mainly on software and communication equipment, as part of the natural life cycle) and of the presence in the comparative period of a non-recurring item (-€2.3 million, in relation to the write-off of several components of the Prestitalia and IW Bank IT platform).

As a result of the recognition of the aforementioned contributions to the Resolution Fund and Deposit Guarantee Scheme (€98.7 million), at the quarterly level operating expenses increased by €136.6 million, from €496.6 million to €633.1 million (€545.6 million in the fourth quarter of 2014). In detail, compared to the third quarter:

• staff costs increased by €4.4 million to €322.4 million. The increase was the result of the savings due to the downsizing of the workforce, offset by the increase in the variable components of remuneration;

• other administrative expenses of €272.5 million were up by €130.8 million, of which €98.7 million was attributable to the aforementioned contributions in accordance with European regulations, expensed in November12 , and €0.2 million to the adjustment of expenses relating to the merger of the subsidiaries IW Bank and UBI Banca Private Investment (non-recurring, also included in the third quarter at €0.4 million). The remaining change in current spending (€32.5 million, driven by the highly seasonal nature of several expense items) was due to credit recovery, higher project expenses in the three months, property maintenance work, the advertising campaign for the new IW Bank, the Extraordinary Shareholders' Meeting held in October, and the member dues paid, in particular to the ECB;

• depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets increased by €1.3 million to €38.3 million, due to the higher depreciation of peripheral hardware (workstations) and software.

12 The estimated amount of the expenses concerned had been recognised in the second quarter (for the annual contributions to the Resolution Fund) and in the third quarter (for the half-yearly contributions to the Guarantee Deposit Scheme) within provisions for risks and charges, pending a final decision by the two bodies, which was made in November.

106

As a summary of overall performance, net operating income reached approximately €1,195.7 million, compared with €1,301.4 million in the previous year. On a quarterly basis, net operating income was €270.7 million (€306.4 million in the same quarter of 2014), compared with the €261.6 million achieved between July and September 2015. Net impairment losses on loans reduced by 13.6% (-€126 million) compared with 2014 to total €802.6 million, consisting of €600.6 million (€674.8 million) relating to the network banks and approximately €200 million (€235.9 million) to the product companies (which include UBI Banca and IW Bank). 13 The aggregate was driven by specific net impairment losses on non-performing loans of €823 million, down by €79.2 million due to the general decline affecting the network banks (-€53.4 million), product companies (-€10.4 million, albeit to varying degrees) and UBI Banca International (-€15.4 million), as a result of the absence of further impairment losses on Pescanova (the final instalment of which was recognised in the first quarter of 2014). Overall, specific write-downs benefited from reversals (net of present value discounts) of €258.9 million (€166.5 million in the previous twelve months).

The Group recorded net reversals on the portfolio of performing loans of €20.3 million (in 2014 the portfolio of performing loans had recorded impairment losses of €26.5 million). The item reflects the significant reversals by product companies (€49.6 million) as a function of the reduction of volumes, which was most significant in the cases of UBI Banca, Presitalia and UBI Leasing, offset by impairment losses of €29.2 million for the network banks, as a result of the continuing uneven performance of lending volumes, but also of increased needs for impairment losses due to the updating of historical data series, typically done in the fourth quarter. The loan loss rate (calculated as total net impairment losses as a percentage of net loans to customers) decreased to 0.95% from 1.08% for 2014. Quarterly net impairment losses stood at €245 million, an appreciable improvement year-on-year compared with €302.5 million in the same quarter of 2014, but up compared with €168.5 million in the third quarter, reflecting the typical year-end trend. Compared to the July-September period, the increase in total impairment losses (+€76.5 million) is attributable to higher specific impairment losses of €47 million14 (of which €37 million attributable to the network banks), and also to higher impairment losses on performing loans of €29.5 million (in view of reversals of €16 million recognised in the third quarter of 2015). The net collective impairment losses are to be attributed to the network banks, as a

13 In 2015, the impairment losses recognised by UBI Banca International fell to €2.2 million from €17.9 million in 2014. 14 The amount benefited from reversals (other than for present value discounts) of €66.2 million.

Net impairment losses on loans: composition

Specific Portfolio Specific PortfolioFigures in thousands of euro

Loans and advances to banks - 13 13 - (1) (1)

Loans and advances to customers (822,954) 20,295 (802,659) (231,544) (13,468) (245,012)

Total (822,954) 20,308 (802,646) (231,544) (13,469) (245,013)

Figures in thousands of euro

A. Loans and advances to banks - - - - - -

B. Loans and advances to customers (902,161) (26,456) (928,617) (242,443) (60,023) (302,466)

Total (902,161) (26,456) (928,617) (242,443) (60,023) (302,466)

Impairment losses/reversals of impairment losses, net 2015

Impairment losses/reversals of impairment losses, net 4th Quarter

2015

Impairment losses/reversals of impairment losses, net

2014

Impairment losses/reversals of impairment losses, net 4th Quarter

2014Specific Portfolio Specific Portfolio

107

result of the aforementioned update of the historical data series15 used in internal valuation models, whereas the other Companies continued to record reversals of €19.7 million.

The loan loss rate for the quarter therefore amounted to 1.16% compared to 0.80% in the preceding three months and 1.41% in the fourth quarter of 2014 (annualised data). The following was also recognised in the income statement in the first half:

• €16.9 million as net impairment losses on other financial assets/liabilities16 consisting of: -€18.3 million, entirely non-recurring, from item 130b, relating to impairment losses on instruments held in the portfolios of the network banks (€2.7 million, primarily relating to instruments of an investment nature) and the Parent (€15.5 million, of which €13.6 million related to the write-off of two subordinated securities issued by Banca Marche and Banca Popolare dell'Etruria, subscribed for, respectively, in 2005 and 2006, €1.5 million of units in UCITS and €0.4 million of shares); and the remaining +€1.4 million from the item 130d as reversals on guarantees;

• €3 million of net provisions for risks and charges 17 ; the item, which includes the amounts set aside on a prudential basis to account for various claims brought by different types of counterparties (in particular in the line "other provisions") includes, in particular: the increase in the risk on a position subject to revocation (clawback) attributable to a network bank; but also the release of a provision of the former Centrobanca (of approximately €10 million), recognised to cover a long dispute that was resolved in the interim by a judgment of the Court of Cassation, which ruled in favour of the UBI Banca Group's actions;

• €0.5 million of profits on the disposal of equity investments18, which among the main amounts includes a loss of €0.5 million (non-recurring) relating to the disposal at the

15 In the fourth quarter risk parameters are updated, resulting in the expansion of historical data series, as part of the ordinary annual process, with the exclusion of the least recent year and the inclusion of the most recent.

16 In 2014 net impairment losses were €8.7 million, consisting of: €4.8 million of non-recurring impairment losses on AFS securities (€3 million of securities and funds of the Parent and €1.8 million of network banks, of which €0.7 million for the impairment of the investment held by BRE in G.E.C. S.p.A.; €0.6 million (non-recurring) of the additional contribution requested by the Interbank Deposit Protection Fund for Tercas; and slightly more than €3.2 million from item 130d, relating to impairment losses on guarantees.

17 In 2014 €9.1 million of provisions were made, the result of provisions for revocation (clawback) actions and legal action taken by different types of counterparty (of which €2 million attributable to the Parent for tax litigation, €1.2 million to UBI Factor following the determination of the amount of a risk on litigation proceedings and €1.5 million, non-recurring, provisioned by UBI.S in relation to a penalty for the early termination of a service contract) and the release of €2.4 million from a provision formed in previous years, following the conclusion of the dispute in question.

18 In 2014 profit on disposal was €94 million, almost entirely non-recurring, on the disposals carried out in December of stakes held in insurance companies (+€59.7 million for 30% of Aviva Vita, -€1.5 million for 30% of Aviva Assicurazioni Vita and +€27.1 million for the full disposal the 49.99% stake held in UBI Assicurazioni; amounts given net of consolidation adjustments); from the adjustment to the price paid on the sale of the former Swiss subsidiary BDG (-€0.9 million); and from the disposal of real estate investments, mainly held by BPA and Banco di Brescia (+€9.7 million).

Net impairment losses/reversals of impairment losses on loans: quarterly performance

2015 (199,326) 9,134 (190,192) (207,544) 8,637 (198,907) (184,540) 16,006 (168,534) (231,544) (13,469) (245,013)

2014 (212,210) 13,584 (198,626) (237,289) 6,814 (230,475) (210,219) 13,169 (197,050) (242,443) (60,023) (302,466)

2013 (155,657) (2,085) (157,742) (212,689) (13,461) (226,150) (192,435) (314) (192,749) (347,302) (19,035) (366,337)

2012 (122,221) (8,949) (131,170) (225,562) 22,381 (203,181) (161,535) 1,207 (160,328) (373,308) 20,773 (352,535)

2011 (96,010) (9,364) (105,374) (142,877) (15,271) (158,148) (110,779) (24,364) (135,143) (195,114) (13,299) (208,413)

2010 (105,366) (26,493) (131,859) (184,080) (5,765) (189,845) (124,200) (9,811) (134,011) (217,327) (33,890) (251,217)

2009 (122,845) (36,728) (159,573) (176,919) (58,703) (235,622) (178,354) (18,995) (197,349) (281,668) 9,001 (272,667)

2008 (64,552) 4,895 (59,657) (85,136) (8,163) (93,299) (77,484) (25,384) (102,868) (219,512) (90,887) (310,399)

Portfolio3rd

Quarter

Figures in thousands of euro

Portfolio PortfolioSpecific1st

Quarter2nd

QuarterSpecific

4th Quarter

Specific Portfolio Specific

Net provisions for risks and charges

Figures in thousands of euro2015 2014

Net provisions for revocation clawback risks (1,614) (287)

Net provisions for staff costs (55) (66)

Net provision for bonds in default 154 120

Net provisions for litigation 6,557 (8,689)

Other net provisions for risks and charges (8,017) (152)

Total (2,975) (9,074)

108

beginning of the year of a stake held indirectly by the Parent; the adjustment (+€0.3 million) to the sales price of the former UBI Assicurazioni (now Cargeas Assicurazioni); a gain (+€0.2 million) realised by BRE on the sale of a property located at Cuneo; and other minor amounts deriving from the disposal of assets by the network banks.

In particular, in the fourth quarter of 2015 the following were recognised in the income statement:

€10.5 million of net impairment losses on other financial assets/liabilities consisting of +€4.5 million of impairment losses on unsecured guarantees and -€6 million of impairment losses on AFS securities (of which €5.6 million relating to subordinated bonds issued by Banca Marche and Banca Popolare dell'Etruria in the Parent's portfolio);

€44.8 million of net releases of provisions for risks and charges due to the classification to "Other administrative expenses" of the estimated provisions recognised in the third quarter (€11.3 million to the Deposit Guarantee Scheme - DGS) and second quarter (€22.8 million to the Resolution Fund). In addition to the customary prudential provisions, the item also includes the release of the provision for the aforementioned claim brought against the former Centrobanca, which was favourably concluded (approximately €10 million) and the reversal of the provision covering the risk resulting from the commissions received for CPI polices on the early repayment of loans (€3.4 million);

€0.1 million of profits on the disposal of equity investments. As a result of the performance described above, during the year profit on continuing operations before tax fell to €373.7 million from the €449.1 million earned in 2014. On a quarterly basis, profit on continuing operations came to €60.1 million (€86.8 million in the same period of 2014), compared with €71.7 million in the third quarter of 2015. Taxes on income for the period from continuing operations amounted to €161.1 million (compared with €186.9 million19 in the comparative period) and they include a non-recurring negative component amounting to €25.6 million. As part of activities to contain risks connected with contingent liabilities, including those of a tax nature, UBI Banca reached a settlement agreement with the tax authorities on two lines of litigation: the “preference shares” matter (the Group’s greatest contingent tax risk) and the “branch switching” operations. The settlement agreement, stipulated on 4th February 2016, involved the conclusion of all the litigation for all years already assessed and currently being assessed, by means of the payment of taxes in an amount recalculated by the tax authorities and of the related interest. The impact on the consolidated income statement was calculated, after the deduction of provisions made from time to time in the accounts to cover the tax risk. The tax rate was therefore 43.12% (compared to the previous 41.62%), with an impact by IRAP (regional production tax) of 6.89%, positively affected by the n impact of this deduction on taxation for the year came to €32.6 million, of which €4.9 million relating to the Parent. Compared with the theoretical rate (33.07%), the effective tax rate levied was mainly conditioned by the combined effect of IRES (corporate income tax) and IRAP (regional production tax), due to:

- the aforementioned non-recurring charges relating to the settlement of the Group's tax litigation with the revenue authority (6.9 percentage points);

- the partial non deductibility of interest expense (4%), introduced by Law No. 133 of 6th August 2008 (3.7 percentage points);

- the higher taxation on dividends eliminated in the consolidation (1.8 percentage points);

- non tax deductible expenses, costs and provisions accounting (2.2 percentage points);

- the total non-deductibility for IRAP purposes of provisions for risks and charges and impairment losses on AFS securities and the partial non-deductibility of staff costs (staff employed on temporary contracts), other administrative expenses and depreciation and amortisation (1 percentage point).

These impacts were only partially cushioned by the following: the valuation of equity investments according to the equity method not significant for tax purposes (3.1 percentage points); the Aiuto alla crescita economica (ACE – “aid to

19 The item included a non-recurring negative component of €4.5 million relating to the change in substitute tax on the new stakes held in the Bank of Italy. In the 2013 financial statements, the Group recognised a capital gain of €29.2 million on the stakes held by BRE and Carime, per Decree Law No. 133/2013, converted, with amendments, by Law No. 5/2014, subsequently amended per the provisions of Decree Law No. 66/2014, converted into Law No. 89/2014, with an increase to 26% of the substitute tax rate, previously 12%.

109

economic growth”) concessions (2.2 percentage points); the deduction for IRES purposes of an amount equal to the IRAP corresponding to the taxable portion of employee and similar personnel expenses and the flat rate 10% deduction (0.3 percentage points). As a result of the performance reported and also of the profits earned by Group banks and companies, profit for the year attributable to non-controlling interests (inclusive of the effects of consolidation entries) improved to €29.8 million from €28.9 million in 2014. The quarterly performance recorded a profit attributable to non-controlling interests that rose to €7.2 million from the €4 million in the fourth quarter of 2014 and from the €5.5 million in the period July-September 2015. Finally, the following have been stated under separate items, net of taxes and non-controlling interests:

redundancy expenses (€62.7 million) expensed in the first quarter following the signing of the trade union agreement of 4th February 2015, relating to the merger of IW Bank into UBI Banca Private Investment of €1.2 million (€1.6 million gross of taxes) and in the fourth quarter following the signing of the union agreement of 23rd December 2015 of €61.5 million (€95 million gross of €31.5 million of taxes and €2 million of non-controlling interests) referring to 405 staff;

impairment losses on property, plant and equipment of €3.3 million (€5.1 million gross of €1.7 million of taxes and €0.1 million of non-controlling interests) refer to the results of the periodic impairment tests of the value of owned properties. Of this amount, €1.4 million is attributable to the Parent, approximately €2 million to the network banks and €1.7 million to BPB Immobiliare (gross amounts).

In 2014, the following non-recurring expenses for the fourth quarter were stated under separate items, shown net of taxes and non-controlling interests:

€76.3 million of redundancy expenses (net of €30.7 million of taxes and €4.5 million of non-controlling interests), charged to the income statement in the fourth quarter, in relation to the trade union agreement of 26th November 2014;

€882.7 million (€1,113.4 million gross) of net impairment losses on goodwill, finite useful life intangible assets and property, plant and equipment, consisting of: • €838.7 million (net of €207.6 million of taxes and non-controlling interests of €58 thousand) to the goodwill of

the network banks (BBS, BRE, Carime and BPA) and of UBI Factor, as the result of the annual impairment test;

• €42.6 million to finite useful life intangibles (net of €20.1 million of taxes and non-controlling interests of €2 million), subject to impairment testing pursuant to IAS 38 (PPA). The procedure gave rise to the complete write-down of core deposits, due to continuing very low interest rate conditions and poor income prospects, and to a partial write-down of the brand, due to the importance of that the Group's brand has taken on compared to those of the individual network banks;

• €1.4 million (net of taxes of €0.8 million and non-controlling interests of €0.15 million) to property, plant and equipment, specifically properties, attributable to Banco di Brescia and BRE.

110

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 individual banks and Group member companies.

General banking business with customers: funding

Total funding In 2015 there was a gradual, although still modest, improvement in the credit market, fostered by the cyclical recovery - which remained weak in Italy - and by the measures adopted by the Eurosystem. While more positive than in the previous year, the situation still does not present either the characteristics or numbers to support an increase in the Group's total lending. Consequently, during the year it was not necessary to increase direct funding volumes, and customers focused on, and were steered towards, indirect funding instruments, resulting in a shift in the composition of total funding. Furthermore, financial market fluctuations and the developing regulatory situation relating to the protection of savings created an environment of uncertainty and fear that translated into stability of current accounts, where customers often chose to hold their assets. Against a market backdrop of negative interbank interest rates and returns on short to medium-term government securities close to zero or negative, the Group observed a decrease in bond funding due to very low yields on the newly issued securities subscribed for by ordinary customers and the choice to procure funding on the institutional market, to a moderate extent and with limited frequency, in view of the partial replacement of matured and soon-to-mature securities. Short-term funding, previously characterised by high yields (forms of term deposit), was gradually discontinued and institutional funding (repurchase agreements with the Cassa di Compensazione e Garanzia - a central counterparty clearing house) was used to meet contingent liquidity needs, in accordance with the evolution of the Group's financial portfolio and exposures to the European Central Bank. The asset management products offered were aimed at meeting the needs of investors in search of greater diversification for their investments and returns eventually higher than those offered by corporate bonds, even if lower on average than in previous years. The therefore Group continued with successful placement of products in the Sicavs and mutual investment funds segment, and indirect funding showed a trend toward a gradual increase.

Total Group funding, consisting of total amounts administered on behalf of customers, amounted to €171.1 billion as at 31st December 2015, an increase of approximately €2 billion year-on-year. As may be seen from the details provided in the table, growth was due to the performance of the indirect component (+€3.7 billion), and in particular asset management (+€5.2 billion). On the other hand, direct funding declined (-€1.7 billion), despite the recovery in the fourth quarter, due to the year-on-year reduction in medium to long-term funding for the reasons indicated in the introduction. Excluding operations of an institutional nature, total funding

Total funding from customers

amount %

Direct funding 91,512,399 53.5% 89,021,767 52.9% 94,327,352 54.4% 91,142,240 52.8% 93,207,269 55.1% -1,694,870 -1.8%

Indirect funding 79,547,957 46.5% 79,161,790 47.1% 79,070,259 45.6% 81,401,680 47.2% 75,892,408 44.9% 3,655,549 4.8%of which: assets under management 48,567,539 28.4% 47,230,549 28.1% 47,773,645 27.6% 47,491,074 27.5% 43,353,237 25.6% 5,214,302 12.0%

Total funding from customers 171,060,356 100.0% 168,183,557 100.0% 173,397,611 100.0% 172,543,920 100.0% 169,099,677 100.0% 1,960,679 1.2%

Total funding net of CCG and institutional funding 152,077,747 150,068,922 150,802,126 154,102,009 149,847,822 2,229,925 1.5%

30.9.2015 B

%Changes A/E

Figures in thousands o f euro

31.12.2014 E

%30.6.2015

C %

31.3.2015 D

%31.12.2015

A%

111

from customers increased by €2.2 billion to €152.1 billion (+€2 billion compared to September) thanks to the performance of the indirect component.

Direct funding At the end of 2015, the direct funding of the UBI Banca Group amounted to €91.5 billion, down €1.7 billion in comparison with the previous year, but up €2.5 billion in the fourth quarter. An analysis of the components indicates a difference in the performances of short-term funding, subject to a certain degree of quarterly fluctuation during the year, and medium to long-term funding, which progressively declined. In detail, amounts due to customers came to €55.3 billion, primarily consisting of: current accounts and free deposits of €47.7 billion, up €3.4 billion year-on-year. The item,

which remained stable at around €44 billion at the end of the interim periods, increased by €3.6 billion in the October-December period due to the liquidity generated by bond maturities (€2.7 billion in the fourth quarter, offset by new bond issuance of approximately €1.1 billion) and to deposits, primarily of a temporary nature, by corporate customers;

€6.1 billion of repurchase agreements with the Cassa di Compensazione e Garanzia (a central counterparty clearing house), up from €5.5 billion in the previous year. This form of funding, used as a flexible source of short-term funds, registered a volatile performance in the twelve months, due to the Group's evolving liquidity needs in consideration of both the volumes of the securities portfolio, down during the year, and the level of debt with the ECB (€8.1 billion in December, €6.1 billion in June and €10.3 billion at the end of 2014)1;

financing – other, amounting to €540.4 million (€489.8 million in the comparative period), including the funds made available by the Cassa Depositi e Prestiti (CDP – a state controlled fund and deposit institution) as part of anti-crisis initiatives to support small to medium-sized businesses.

Debt securities issued declined gradually over twelve months to €36.2 billion from €41.6 billion in the comparative period.

1 Funding from repo business with customers remained wholly marginal (€65 million at the end of 2015 compared with €164 million in December 2014).

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q4Q 1Q 2Q 3Q 4Q

Direct funding Indirect funding

Direct and indirect funding(end of quarter totals in millions of euro)

2008 2009 20142013201220112010 2015

112

Within the item, bonds, which accounted for 98.1% of the total, amounted to €35.6 billion, from the previous €40 billion, down gradually over twelve months, essentially due to the decrease in bonds subscribed by ordinary customers (-€3.9 billion, including the bonds of the former Centrobanca), primarily affected by the maturities of the bonds previously issued by the network banks and former Centrobanca, in addition to a general slowdown of placement due to very low yield levels. The aggregate also includes subordinated securities of €2.9 billion (€3.6 billion as at 31st December 2014), a decline of €0.7 billion during the year, attributable to the recognition of amortisation instalments on some securities accounting for €0.6 billion (eight of the twelve subordinated bonds outstanding are redeemed by means of amortisation on a straight-line basis) and to the maturity in the last quarter of the year accounting for €0.1 billion.

Certificates of deposit, amounting to €0.6 billion (€1.4 billion in the comparative period), showed a constant decline in the component subscribed for by ordinary customers (-€0.5 billion at the annual level), whereas the component relating to the institutional programme, which increased in the first half of the year, decreased in the second half of the year, partly affected by intermediate maturities, which were reflected in the period-end figure.

In addition, other securities, consisting solely of the Euro Commercial Paper institutional programme, amounted to €80 million (€152 million at the end of 2014).

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

Euro Medium Term Notes (EMTNs) amounting to €2.5 billion, listed in Dublin and issued as part of a programme with an issuance ceiling of €15 billion. The changes were concentrated in the fourth quarter: private placements of €388 million were undertaken, against maturities of a nominal amount of €965 million and repurchases of a nominal amount of approximately €5 million (in this latter case, spread over the quarters); the residual changes were due to accounting adjustments;

(*) Within the item, subordinated securities, represented by Lower Tier 2 notes, amounted to €2,852 million nominal as at 31st December 2015 and to €3,584 million nominal as at 31st December 2014.

(**) The corresponding nominal amounts were €2,464 million as at 31st December 2015 and €3,046 million as at 31st December 2014.

Direct funding from customers

Figures in thousands of euro amount %

Current accounts and deposits 47,702,548 52.2% 44,317,163 47.6% 3,385,385 7.6%

Term deposits 183,042 0.2% 429,347 0.5% -246,305 -57.4%

Financing 6,712,891 7.3% 6,185,217 6.6% 527,674 8.5%

- repurchase agreements 6,172,495 6.7% 5,695,380 6.1% 477,115 8.4%

of which: repos with the CCG 6,107,667 6.7% 5,531,586 5.9% 576,081 10.4%

- other 540,396 0.6% 489,837 0.5% 50,559 10.3%

Other payables 665,990 0.7% 685,193 0.7% -19,203 -2.8%

Total amounts due to customers (item 20 liabilities) 55,264,471 60.4% 51,616,920 55.4% 3,647,551 7.1%

Bonds 35,557,943 38.8% 40,037,379 43.0% -4,479,436 -11.2%

Certificates of deposit (a)+(c) 609,989 0.7% 1,401,428 1.5% -791,439 -56.5%

Other certificates (b) 79,996 0.1% 151,542 0.1% -71,546 -47.2%

Total debt securities issued (*) (item 30 Liabilities) 36,247,928 39.6% 41,590,349 44.6% -5,342,421 -12.8%

of which:

securities subscribed by institutional customers: 12,874,942 14.1% 13,720,269 14.7% -845,327 -6.2%

The EMTN programme (**) 2,539,326 2.8% 3,123,932 3.4% -584,606 -18.7%

French certificates of deposit programme (a) 349,978 0.4% 599,943 0.6% -249,965 -41.7%

The euro commercial paper programme (b) 79,996 0.1% 151,542 0.2% -71,546 -47.2%

The covered bond programme 9,905,642 10.8% 9,844,852 10.5% 60,790 0.6%

securities subscribed by ordinary customers: 23,254,511 25.4% 27,700,833 29.7% -4,446,322 -16.1%

of the Group:

- Certificates of deposit (c) 260,011 0.3% 801,485 0.9% -541,474 -67.6%

- Bonds: 20,223,298 22.1% 23,610,145 25.3% -3,386,847 -14.3%

issued by UBI Banca 18,080,279 19.8% 17,930,309 19.2% 149,970 0.8%

issued by the network banks 2,143,019 2.3% 5,679,836 6.1% -3,536,817 -62.3%

external distribution networks:

- Bonds issued by the former Centrobanca 2,771,202 3.0% 3,289,203 3.5% -518,001 -15.7%

Total direct funding 91,512,399 100.0% 93,207,269 100.0% -1,694,870 -1.8%

Due to customers net of the CCG 49,156,804 46,085,334 3,071,470 6.7%

Total direct funding net of the CCG and institutional funding 72,529,790 73,955,414 -1,425,624 -1.9%

Changes31.12.2014 %31.12.2015 %

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Covered bonds of €9.9 billion, stable year-on-year due to the issue of €750 million nominal in October 2015, offset by the maturity in October of a bond of €500 million nominal and other marginal decreases (€50.6 million nominal over twelve months, of which €25.3 million in the fourth quarter) tied to amortisation instalments of two "amortising" bonds. The residual discrepancy between the comparative periods that emerges from the table is to be attributed solely to the effects of accounting adjustments.

UBI Banca had eleven covered bonds in issue as at 31st December under the first “multioriginator” programme backed by residential mortgages with a €15 billion ceiling for a nominal amount of €9.3 billion (net of amortisation totalling €185.7 million)2. The securities are traded in Dublin. As at 31st December 2015 the residential mortgage asset pool formed at UBI Finance to back the issuances totalled €14.5 billion, of which 23.8% originated by Banca Popolare di Bergamo, 18.4% by Banco di Brescia, 14.2% by Banca Popolare Commercio e Industria, 12.9% by UBI Banca, 11.5% by Banca Regionale Europea, 9% by Banca Popolare di Ancona, 6.8% by Banca Carime, 1.8% by Banca di Valle Camonica and 1.6% by IW Bank (the former UBI Banca Private Investment). The portfolio continued to show a high degree of fragmentation, including over 186 thousand mortgages with average residual debt of €77.9 thousand, distributed with approximately 65.9% in North Italy and in Lombardy especially (45.8% of the total). In 2015 two transfers of mortgages were finalised: the first, with value date of 30th April and effect from 1st May, was undertaken by Banca Carime, Banco di Brescia, Banca Popolare Commercio e Industria e Banca Regionale Europea for total residual debt of €757 million, whereas the second, with effect from 1st November, for total residual debt of €738 million, involved Banca Popolare di Bergamo, Banca Popolare di Ancona, UBI Banca, Banca di Valle Camonica and IW Bank.

In addition, a second “multioriginator” programme is also operational; it has a ceiling of €5 billion and is backed by commercial and residential mortgages not used in the first programme. So far this programme, listed on the Dublin stock exchange, has only been used for self retained issuances3. At the end of the year, the commercial and residential mortgage asset pool formed at UBI Finance CB 2 to back the issuances totalled €3.2 billion, originated as follows: 21.2% by Banca Popolare di Bergamo; 20.9% by Banco di Brescia; 17.5% by Banca Regionale Europea; 16.4% by Banca Popolare di Ancona; 9.5% by Banca Popolare Commercio e Industria; 9.4% by Banca Carime, 3.9% by Banca di Valle Camonica and the remaining 1.2% by UBI Banca and IW Bank. The portfolio included over 27 thousand mortgages with average remaining debt of €117.4 thousand, distributed, as for the first programme, with a high concentration in North Italy (67.9%) and in Lombardy especially (44.9% of the total). Two transfers of mortgages were undertaken during the year: the first, with value date of 1st June, involved Banco di Brescia, Banca Popolare Commercio e Industria, Banca Popolare di Ancona and Banca Regionale Europea for total residual debt of €313 million, and the second, with effect from 1st December, resulted in the transfer of mortgages with residual debt of €157 million, by Banca Popolare di Bergamo, Banca Carime, IW Bank, UBI Banca and Banca di Valle Camonica.

French certificates of deposit of €350 million and Euro Commercial Paper amounting to €80 million, issued by UBI Banca International as part of programmes for €5 billion and €6 billion respectively, all listed in Luxembourg. For this form of short-term funding, the development of quarterly balances reflects maturities, which often coincide with the end of the month. The average annual balance of funding in French CDs was €642.2 million, with a use of €920 million as at 1st February 2016.

Funding in ECP, which declined significantly in the first half of 2015 due to the loss of the eligibility requirement, subsequently re-attained with the rating upgrade by Moody's, was also affected by the short-term nature of the investments. Average annual funding in ECP amounted to €196.7 million, with the use of €405 million as at 1st February 2016.

FUNDING IN SECURITIES FROM ORDINARY CUSTOMERS – consisting almost entirely of bonds – declined to €23.3 billion (-€4.4 billion). In detail these consisted of:

2 A list is given in Part E, Section 1 of the Notes to the Financial Statements. Two self-retained issuances for €1.2 billion nominal also existed under that same programme at the end of the period, an issuance for €0.7 billion nominal carried out in March 2014 and second for €0.5 billion in December 2015. Two issues totalling €1.7 billion nominal were cancelled during the year. Because these were repurchased by UBI Banca, these liabilities have not been recognised, in accordance with IFRS.

3 Two issuances in 2012 for a total of €1.4 billion nominal (net of the amortisation instalments falling due in the meantime), a €0.2 billion issuance in March 2014 and a fourth for €0.65 billion completed in July 2015. Because these were repurchased by UBI Banca, these liabilities have not been recognised, in accordance with IFRS.

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- the securities attributable to UBI Banca increased slightly (+150 million), driven by issuance of €4 billion nominal (of which €1.1 billion in the fourth quarter), almost entirely offset by maturities of €3.4 billion nominal (of which €1.6 billion in the fourth quarter) and repurchases of €462 million nominal (of which €233 million in the fourth quarter);

- the securities issued by the network banks, involving an entirely marginal issuance of social bonds (€39 million nominal in 2015), declined by €3.5 billion, due to maturities of approximately €3.5 billion nominal over twelve months (of which €705 million in the fourth quarter) and, to a marginal extent, to repurchases of €79 million nominal (of which €28 million in the fourth quarter);

- residual funding from non-captive customers, previously obtained by the former Centrobanca, and thus subject solely to reduction to the gradual maturity of the securities in issue, amounted to €2.8 billion, reflecting maturities of €501 million nominal (€422 million of which was concentrated in the fourth quarter) and repurchases of €4 million nominal during the year.

The table below summarises maturities for Group bonds in issue at the end of 2015.

Finally, the table “Geographical distribution of direct funding from customers by region of location of the branch” gives the geographical distribution of traditional funding (consisting of current accounts, savings deposits and certificates of deposit) in Italy. The values confirm the Group's concentration in the regions of North-Western Italy (70.3% from 69.9% at the end of 2014) and in particular in Lombardy (60.39% from the previous 60.10%). Overall, the table shows a modest shift in the composition of funding from Southern Italy to the regions of Northern Italy. The change in regional composition was also affected by the measure aimed at optimising the operational structure undertaken in January 2015 (in this regard, see the section "The distribution network and market positioning").

Maturities of bonds outstanding as at 31st December 2015

Nominal amounts in millions of euro1st quarter

20162nd Quarter

20163rd Quarter

20164th Quarter

20162017 2018 2019

Subsequent years

Total

UBI BANCA 4,022 1,859 2,198 2,245 5,566 4,427 6,296 5,834 32,447

Bonds ordinary customers 3,172 1,834 1,198 2,070 3,477 4,225 4,245 448 20,669

Bonds institutional customers 850 25 1,000 175 2,089 202 2,051 5,386 11,778

of which: EMTNs 100 - - 150 1,038 151 1,000 25 2,464

Covered bonds 750 25 1,000 25 1,051 51 1,051 5,361 9,314

Network banks 492 262 187 243 536 339 33 19 2,111

Other banks in the Group - - - - - 2 - - 2

Total 4,514 2,121 2,385 2,488 6,102 4,768 6,329 5,853 34,560

Percentage of total 31.12.2015 31.12.2014

Lombardy 60.39% 60.10%

Latium 7.99% 7.99%

Piedmont 7.94% 7.71%

Apulia 4.50% 4.75%

Calabria 4.37% 4.63%

Campania 3.95% 3.89%

Marches 3.90% 3.89%

Liguria 1.97% 2.07%

Emilia Romagna 1.38% 1.34%

Veneto 1.00% 1.03%

Basilicata 0.95% 0.99%

Umbria 0.49% 0.49%

Abruzzo 0.47% 0.46%

Friuli Venezia Giulia 0.27% 0.26%

Tuscany 0.20% 0.20%

Molise 0.18% 0.17%

Trentino Alto Adige 0.02% 0.02%

Valle d'Aosta 0.03% 0.01%

Total 100.00% 100.00%

North 73.0% 72.5%

- North West 70.3% 69.9%

- North East 2.7% 2.6%

Central 12.6% 12.6%

South 14.4% 14.9%

(*) The aggregates relate to banks only.

Geographical distribution of direct funding from customers by region of location of the branch(excluding repurchase agreements and bonds)(*)

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Listed securities

Bonds listed on the MOT (electronic bond market)

ISIN number 31.12.2015 31.12.2014

IT0001197083 Centrobanca zero coupon 1998-2018 L. 800 billion € 166,203,078 € 164,847,770

IT0001267381 Centrobanca 1998/2018 reverse f loater capped L. 320 billion € 125,316,647 € 128,707,931

IT0001300992 Centrobanca 1999/2019 step dow n indicizzato al tasso sw ap euro 10 anni € 170,000,000 € 111,845,679 € 112,449,171

IT0001312708 Centrobanca 1999/2019 step dow n eurostability bond € 60,000,000 € 67,684,774 € 65,655,294

IT0004457070 UBI subordinato low er tier 2 f ix to f loat con rimborso anticipato 13.3.2009-2019 € 370,000,000 € 368,888,723 € 368,104,933

IT0004457187 UBI subordinato low er tier 2 a tasso variabile con ammortamento 13.3.2009-2016 € 211,992,000 € 42,379,466 € 84,556,646

IT0004497050 UBI subordinato low er tier 2 f ix to f loat con rimborso anticipato 30.6.2009-2019 € 365,000,000 € 361,575,612 € 360,645,955

IT0004497068 UBI subordinato low er tier 2 a tasso variabile con ammortamento 30.6.2009-2016 € 156,837,000 € 31,288,581 € 62,422,372

IT0004572860 UBI subordinato low er tier 2 a tasso variabile con ammortamento 23.2.2010-2017 € 152,587,000 € 60,939,415 € 91,271,787

IT0004572878 UBI subordinato low er tier 2 a tasso fisso 3,10% con ammortamento 23.2.2010-2017 € 300,000,000 € 122,640,023 € 185,488,925

IT0004645963 UBI subordinato low er tier 2 a tasso fisso 4,30% con ammortamento 5.11.2010-2017 € 400,000,000 € 162,639,114 € 244,825,197

IT0004718489 UBI subordinato low er tier 2 tasso f isso 5,50% con ammortamento 16.6.2011-2018 Welcome Edition € 400,000,000 € 246,505,425 € 331,286,405

IT0004723489 UBI subordinato low er tier 2 tasso f isso 5,40% con ammortamento 30.6.2011-2018 € 400,000,000 € 246,369,698 € 331,196,658

IT0004767742 UBI subordinato low er tier 2 tasso misto 18.11.2011-2018 Welcome Edition € 222,339,000 € 220,039,976 € 219,227,855

IT0004815715 Unione di Banche Italiane Scpa tasso f isso 3,80% 15.6.2012-15.6.2016 € 20,224,000 € 20,267,163 € 20,290,203

IT0004841778 UBI subordinato low er tier 2 tasso misto 8.10.2012-8.10.2019 Welcome Edition € 200,000,000 € 201,053,156 € 200,831,075

IT0004842370 UBI subordinato low er tier 2 tasso f isso 6% con ammortamento 8.10.2012-8.10.2019 € 970,457,000 € 787,519,220 € 984,597,162

IT0004851710

Unione di Banche Italiane Scpa tasso variabile 23.11.2012-23.11.2016 Welcome Edition "UBI Comunità per l'imprenditoria sociale del sistema CGM" € 17,552,000 € 17,602,437 € 17,604,396

IT0004851728

Unione di Banche Italiane Scpa tasso f isso step up 4,00% 19.10.2012-19.10.2016 Welcome Edition "UBI Comunità per la Comunità di Sant'Egidio" € 20,000,000 € 20,401,166 € 20,467,451

IT0004874985 Unione di Banche Italiane Scpa tasso f isso step up 3,00% 31.1.2013-31.1.2017 € 157,532,000 € 162,892,536 € 163,571,882

IT0004895352 Unione di Banche Italiane Scpa step up 5.4.2013-5.4.2016 Welcome Edition C Cesvi € 20,000,000 € 20,322,792 € 20,627,712

IT0004908478 Unione di Banche Italiane Scpa tasso misto 24.5.2013-24.5.2016 Welcome Edition T2 Confapi € 20,000,000 € 20,017,535 € 20,095,027

Covered bonds listed on the Dublin stock exchange

ISIN number 31.12.2015 31.12.2014

IT0004533896 UBI Covered Bonds due 23 September 2016 3,625% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,027,075,109 € 1,050,594,067

IT0004558794 UBI Covered Bonds due 16 December 2019 4% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,112,515,954 € 1,131,481,213

IT0004599491 UBI Covered Bonds due 30 April 2022 floating rate amortising guaranteed by UBI Finance Srl € 250,000,000 € 147,645,650 € 170,572,286

IT0004619109 UBI Covered Bonds due 15 September 2017 3,375% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,035,222,178 € 1,049,765,120

IT0004682305 UBI Covered Bonds due 28 January 2021 5,25% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,185,813,635 € 1,205,023,987

IT0004692346 UBI Covered Bonds due 22 February 2016 4,5% guaranteed by UBI Finance Srl € 750,000,000 € 781,378,520 € 798,888,169

IT0004777444 UBI Covered Bonds due 18 November 2021 floating rate amortising guaranteed by UBI Finance Srl € 250,000,000 € 166,605,907 € 194,361,284

IT0004966195 UBI Covered Bonds due 14 October 2020 3,125% guaranteed by UBI Finance Srl € 1,500,000,000 € 1,605,549,654 € 1,615,100,303

IT0004992878 UBI Covered Bonds due 5 February 2024 3,125% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,116,741,839 € 1,131,352,483

IT0005067076 UBI Covered Bonds due 7 February 2025 1,25% guaranteed by UBI Finance Srl € 1,000,000,000 € 987,741,523 € 988,774,119

IT0005140030 UBI Covered Bonds due 27 January 2023 1,00% guaranteed by UBI Finance Srl € 750,000,000 € 739,351,902 -

Nominal amount of issue

Book value as at

Nominal amount of issue

Book value as at

116

Indirect funding and assets under management

At year-end, the UBI Banca Group's indirect funding amounted to €79.5 billion, up €3.6 billion over twelve months, of which €3.2 billion is attributable to the first half of the year. The extraordinarily low levels reached by interest rates and yields to maturity on government securities, favoured a growing allocation of household investments to asset management and insurance products which also benefited, especially until May, from the good performance of prices on financial markets. The increase in volatility over the summer months (following the worsening of the Greek crisis, tensions on Chinese markets and the decline in the price of oil) and the consequent appreciable reduction in the gains realised in previous months had their effect on the performance of this item, without putting an end to the uptrend. As shown in the chart, in 2015 the performance of indirect funding was driven mainly by assets under management, which grew significantly between July 2014 and March 2015, returning to pre-crisis levels. In particular, the results achieved in the fourth quarter (+€1.3 billion) more than offset the decline in the third quarter, following the impact of market instability on valuations. At year-end, assets under management amounted to €48.5 billion, equivalent to 61.1% of the total aggregate (+€5.2 billion on an annual basis). The general increase was driven primarily by mutual investment funds and Sicav’s, which rose to €27.1 billion (+€3.2 billion over twelve months) partly the result of placements of UBI Pramerica and UBI Sicav “upfront” funds made over the year (a total of approximately €1.6 billion of mutual funds4 and €1.9 billion of Sicav’s5). Two new Sicav's (UBI Sicav Global Stars e UBI Sicav Social 4 Future) have also been placed since 9th December 2015 for a total of over €1 billion which is not included in the totals for the end of December because it was settled with a value date of 1st February 2016.

The growth of assets under management was also consistently driven by insurance policies and pension funds, which gradually increased over twelve months to €14.4 billion (+€1.8 billion), buoyed by the positive trend in the insurance business. On the other hand, customer portfolio management, amounting to €7 billion, was affected by opposing trends starting at the beginning of the year, due to the effects of market valuations, with a modest increase compared to twelve months before (+€0.2 billion). The performance by assets under custody – €31 billion at the end of December (-€1.6 billion year-on-year) – continued to fluctuate in the individual periods (-€1 billion; +€0.6 billion; -€2.6 billion; and +€1.4 billion in the fourth, third, second and first quarters, respectively) affected at times by prices and at times by changes in the composition of portfolios by customers as they moved into asset management instruments6.

4UBI Pramerica Obbligazionario obiettivo valore and UBI Pramerica Go@l – Growth Oriented Allocation. 5 UBI Sicav Global Multiasset 30 Class A and UBI Sicav Income Opportunities. 6 The trend for the third quarter of 2015 also incorporated a reclassification of positions relating to ordinary customers already

existing at the end of March but which as at 30th June had been temporarily classified under funding from institutional customers.

Indirect funding from ordinary customers

Figures in thousands of euro amount %

Assets under custody 30,980,418 38.9% 32,539,171 42.9% -1,558,753 -4.8%

Assets under management 48,567,539 61.1% 43,353,237 57.1% 5,214,302 12.0%

Customer portfolio management 7,009,081 8.8% 6,790,285 8.9% 218,796 3.2%

of which: fund based instruments 1,851,916 2.3% 1,695,533 2.2% 156,383 9.2%

Mutual investment funds and Sicav’s 27,117,979 34.1% 23,948,103 31.6% 3,169,876 13.2%

Insurance policies and pension funds 14,440,479 18.2% 12,614,849 16.6% 1,825,630 14.5%

of which: Insurance policies 14,175,719 17.8% 12,345,893 16.3% 1,829,826 14.8%

Total 79,547,957 100.0% 75,892,408 100.0% 3,655,549 4.8%

31.12.2014Changes

31.12.2015 % %

117

* * * At year-end, Assogestioni7 data relating to the UBI Banca Group asset management company for mutual funds and Sicav’s, was as follows for ASSETS UNDER MANAGEMENT ORIGINATED8: positive net inflows of €3 billion, amounting to 14.7% of assets under management

originated at the end of 2014 (net inflows for the sector nationally on the other hand were €94.3 billion, the best result since 1999, amounting to 13.8% of assets managed at the end of the previous year);

an increase in assets over twelve months (+€3.2 billion; +15.5%) in line with the positive performance by the banking sample (+€159.3 billion; +23.3%);

assets of €24 billion, which puts the Group in ninth place with market share of 2.85% (3.04% in December 2014).

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 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 31st December 2015 was 5.42% – down on 5.50% one year earlier – placing UBI Banca stably in fifth position among Italian operators in the sector. The summary figures given in the table below confirm the prudential approach of Group customers: a percentage of lower risk funds (monetary funds and bonds) that is always higher than the figure

for the sector, but which has progressively and more sharply decreased over twelve months (down from 57.5% to 51.4%) compared with the Assogestioni sample (down from 50% to 45.5%);

at the same time a greater percentage of balanced funds, up year-on-year from 25.1% to 26.5% compared with an average figure for the sector nationally up from 6.4% to 8%;

7 “Monthly map of assets under management”, December 2015. For companies not included in the “Quarterly map of assets under management”, September 2015.

8 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, the management mandates granted to Pramerica Financial – the brand name used by Prudential Financial Inc. (USA) – a UBI Banca partner through UBI Pramerica SGR (€5.7 billion of mutual funds and Sicav’s as at 31st December 2015, of which €1.7 billion in equities and €4 billion in bonds). This presentation provides a more consistent account of the actual assets under management of the UBI Banca Group.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1Q2Q3Q4Q 1Q2Q3Q4Q 1Q2Q3Q4Q 1Q2Q3Q4Q 1Q2Q3Q4Q 1Q2Q3Q4Q 1Q2Q3Q4Q 1Q2Q3Q4Q

Assets under management Assets under custody

Indirect funding(end of quarter totals in millions of euro)

2008 2009 2010 2011 2012 2013 2014 2015

118

a percentage of equity funds down slightly and constantly lower than the benchmark sample (11.9% compared with 21.7%);

a progressive increase in the proportion of flexible funds starting in March – in relation, amongst other things, to some new products (funds and Sicav’s) placed in recent quarters – compared with a decidedly stronger trend for the sector;

no investment in hedge funds (0.6% of the Assogestioni sample).

* * * As concerns assets under management net of Group funds (which includes collective instruments and customer portfolio management), at year-end the UBI Banca Group ranked in eighth place in the sector (in sixth place among Italian banking groups), with assets amounting to €42.7 billion and market share of 2.51%, up compared with December 2014 (2.40%). If the analysis is limited to banks only, the Group’s market share in December 2015 was 5.86%, up on 5.54% at the end of 2014, placing the UBI Banca stably in fourth position among operators in the sector.

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

UBI Banca Group

Figures in millions of euro amount %

Equities 2,845 11.9% 2,650 12.7% 195 7.4%

Balanced 6,353 26.5% 5,202 25.1% 1,151 22.1%

Bond 11,371 47.4% 10,564 50.9% 807 7.6%

Monetary funds 969 4.0% 1,368 6.6% -399 -29.2%

Flexible 2,438 10.2% 977 4.7% 1,461 149.5%

Total (a) 23,976 100.0% 20,761 100.0% 3,215 15.5%

Sector

Figures in millions of euro amount %

Equities 183,153 21.7% 141,612 20.7% 41,541 29.3%

Balanced 67,079 8.0% 43,636 6.4% 23,443 53.7%

Bond 348,646 41.4% 314,558 46.1% 34,088 10.8%

Monetary funds 34,757 4.1% 26,703 3.9% 8,054 30.2%

Flexible 203,610 24.2% 150,243 22.0% 53,367 35.5%

Hedge funds 5,340 0.6% 5,621 0.8% -281 -5.0%

Unclassified - - 918 0.1% -918 -100.0%

TOTAL (B) 842,585 100.0% 683,291 100.0% 159,294 23.3%

Market share of the UBI Banca Group (a)/(b) 2.85% 3.04%

Market share of the UBI Banca Group limited to banking companies only 5.42% 5.50%

Changes

Changes

31.12.2014%

31.12.2014%

31.12.2015%

31.12.2015%

119

General banking business with customers: lending

Performance of the loan portfolio

The performance of the Group loan portfolio continues to be conditioned by that of the Italian economy which, although improving progressively, is recording growth that is still only modest, as shown by the levels of output and investment. While the “core” perimeter of the network banks is confirming signs of recovery (+€0.7 billion compared to December 2014; +1.2%), the overall trend for lending remained slightly negative (even in the comparison with average data for the sector), affected by still weak demand from businesses and also by the impact of loans from the non-captive customers of the product companies, part of which is linked to previous business from discontinued external distribution networks, which will not be replaced. As at 31st December 2015, outstanding loans amounted to €84.6 billion, an annual change of -€1.1 billion (-1.2%), entirely attributable to non-captive business, of which -€0.4 billion attributable to the former B@nca 24-7 and -€0.2 billion to UBI Leasing. The Parent's business with the Cassa di Compensazione e Garanzia (CCG – a central counterparty clearing house), subject to a certain degree of variability during the year, saw an overall increase of €0.2 billion over twelve months in the form of reverse repos. The performance of the loan portfolio fluctuated during the year: the downtrend initially halted in the second quarter, but then resumed in the following three months. In the fourth quarter, loans increased by €0.8 billion (+0.9%), compared to +0.5% for the sector nationally. While medium to long-term lending declined, short-term loans increased in the October-December period, due to a recovery of factoring (+€0.3 billion), but also to business of the Parent with CCG (+€0.6 billion) and the disbursement of financing to the Resolution Fund for the rescue of the four Italian banks in extraordinary administration1. The "core" loan portfolio (relating to the business of the network banks and captive customers of the product companies) shows signs of stabilisation due to the gradual consolidation of the uptrend in the medium to long-term component, and in particular "mortgage loans and other

1 See in this respect the sub-section “The resolution and rescue of four Italian banks” in the section entitled “The European Banking Union”.

Composition of loans to customers

Figures in thousands of euro amount %

Current account overdrafts 9,052,335 10.7% 1,476,281 10,082,582 11.8% 1,558,164 -1,030,247 -10.2%

Reverse repurchase agreements 770,503 0.9% - 540,882 0.6% - 229,621 42.5% Mortgage loans and other medium to long-term financing 52,455,850 62.0% 5,360,803 51,860,841 60.6% 4,885,165 595,009 1.1% Credit cards, personal loans and salary-backed loans 3,015,405 3.6% 284,904 3,586,723 4.2% 388,444 -571,318 -15.9%

Finance leases 6,304,587 7.4% 1,239,777 6,905,789 8.1% 1,408,470 -601,202 -8.7%

Factoring 2,260,470 2.7% 300,867 2,085,756 2.4% 306,944 174,714 8.4%

Other transactions 10,719,690 12.7% 1,025,917 10,573,954 12.3% 960,918 145,736 1.4%

Debt instruments: 7,360 0.0% - 7,696 0.0% - -336 -4.4%

- structured instruments 3 0.0% - 3 0.0% - - -

- other debt instruments 7,357 0.0% - 7,693 0.0% - -336 -4.4%

Total 84,586,200 100.0% 9,688,549 85,644,223 100.0% 9,508,105 -1,058,023 -1.2%

(*) previously termed "deteriorated"

of which non-performing (*)

Changes31.12.2015 %

of which non-performing (*)

31.12.2014 %

120

medium to long-term financing", including the effects of the TLTRO financing (see the special focus below in this respect). At the network banks, the increase in new grants in the twelve months more than offset repayments, with an improvement of the ratio of disbursements to repayments of approximately 115% (slightly above 100% in 2014). While it is still below 100%, the ratio of disbursements to repayments also appears to be recovering for the product companies. As concerns customer market segmentation, 48.6% of the consolidated portfolio at the end of December consisted of loans to the retail market (49.6% in December 2014), 33.4% to the corporate market (31.8%) and 1.1% to the private banking market (0.9%), while the remaining 16.9% consisted of types of lending not included in the commercial banking portfolio such as leasing, factoring and UBI Banca loans other than those of the former merged product companies (17.7%)2. From the viewpoint of type of lending: mortgage loans and other medium to long-term loans, amounting to €52.5 billion, despite a

decline of €0.2 billion in the fourth quarter, were up €0.6 billion on an annual basis, remaining the main form of lending, accounting for 62% of the total. However, it must be remembered that the performance of this item continues to reflect the normal decline in the residual outstanding mortgage loans of the former B@nca 24-7, currently managed by the Parent (-€0.3 billion over twelve months and -€0.1 billion compared to September). According to management accounting figures, in December residential mortgage loans, net of impairment losses, totalled €24.4 billion, of which €22.3 billion granted to consumer households and €2.1 billion to businesses, essentially stable compared to the end of 2014 (€24.5 billion in December 2014, of which €22.3 billion to households and €2.2 billion to businesses);

repurchase agreements, up €0.2 billion over twelve months (+€0.8 billion compared to September), reflect the course of specific UBI Banca business with the CCG (reverse repurchase agreements with Italian government securities as the underlying entered into as an investment of liquidity);

finance lease lending, almost entirely attributable to UBI Leasing, came to €6.3 billion, marking an annual decline of €0.6 billion, largely attributable to the first half of the year (-€78.5 million compared to September). In addition to the economic scenario, the performance of the aggregate continued to show the effects of the discontinuation of indirect distribution networks and the consequent action taken to refocus business on the captive market in recent years (-€0.2 billion over twelve months for non-captive loans);

factoring loans, granted mainly by UBI Factor, after remaining essentially stable in the first half of the year, rose to €2.3 billion at the end of 2015, marking an annual increase of +€0.2 billion, primarily attributable to the fourth quarter (+€0.3 billion), as a reflection of the first signs of recovery of business with customers;

the different forms of consumer credit, which totalled €3 billion, are being affected more than other items by the discontinuation of distribution networks and the rationalisation of non-captive business. They fell by €0.6 billion over twelve months due to decreases both in the salary backed lending business transferred to Prestitalia and in the remaining business of the former B@nca 24-7 contributed to UBI Banca (personal, special purpose loans, credit cards, current account overdrafts and other types of lending). This compares with the positive performance of network bank business. The trend seems to have slowed in part in the fourth quarter (-€83 million overall);

other short-term forms of lending, which totalled €19.8 billion, declined by €0.9 billion compared to one year prior, but as the effect of the uneven performances of the item's components: a decline in current account overdrafts (-€1 billion), almost entirely attributable to the second half of the year, was marginally offset by the fluctuating performance of "other transactions" (loans for advances, portfolio, import/export transactions, very short terming lending, etc.), which increased by €0.1 billion. The fourth quarter saw persistent substantial weakness of demand for working capital financing by Group customers. Volumes were essentially stable compared to September (+€17.4 million) due to the partial shift in internal composition from current account overdrafts to other

2 Any marginal differences there may be compared with the percentages published previously are the result of partial changes in the composition of customer portfolios made in the last quarter.

121

transactions, the latter of which were also affected by the Parent's business with the CCG (-€0.2 billion) and the aforementioned financing for the Resolution Fund.

From the standpoint of maturities, at year-end the portfolio was composed of medium to long-term loans of €61.8 billion (-€0.6 billion compared to one year earlier) - equivalent to 73% of the total - and short-term loans of €22.8 billion (-€0.5 billion), accounting for 27% of the total. Given the trends of the two aggregates, the ratio of loans to deposits reached 92.4%, compared to 91.9% at the end of 2014.

The table gives, in management accounting figures, the distribution of lending by economic sector and NACE code (economic sector - Bank of Italy classification) of consolidated loans gross of impairment losses as at 31st December 2015. As may be observed, manufacturing companies and households accounted for 92% of outstanding loans, up from 90.6% at the end of 2014, confirming a recovery of lending, above all in the manufacturing sector, but also the Group's traditional focus on supporting the communities in which it operates. A summary of the geographical distribution of lending in Italy is given in the table “geographical distribution of loans to customers by region of location of the branch”.

Totalof w hich bad

loans (**)Total

of w hich Bad loans (**)

Manufacturing and service companies (non-financial companies and producer households) 56.6% 12.0% 6.9% 54.6% 11.2% 6.1%

of which: manufacturing activities: 15.0% 2.5% 1.7% 14.0% 2.5% 1.6% - Metallurgy, fabrication of metal products and processing of non-metallic minerals 4.3% 0.8% 0.5% 4.1% 0.8% 0.5%

- Foodstuff, beverage and tobacco industries 1.9% 0.2% 0.2% 1.6% 0.2% 0.2%

- Fabrication of machinery 1.8% 0.2% 0.1% 1.6% 0.2% 0.1% - Textile industries, tailoring of articles in leather and fur, fabrication of articles in leather and similar 1.5% 0.4% 0.3% 1.4% 0.4% 0.3%

- Fabrication of oil refinery, chemical and pharmaceutical products 1.2% 0.1% 0.0% 1.0% 0.1% 0.0% - Fabrication of electronic products, electrical and non-electrical equipment 1.0% 0.2% 0.1% 1.0% 0.2% 0.1%

- Fabrication of articles in rubber and plastic 0.9% 0.1% 0.1% 0.9% 0.1% 0.1%

- Timber industry and fabrication of furniture 0.8% 0.2% 0.2% 0.8% 0.2% 0.1% - Fabrication of paper and paper products, printing and reproduction of recorded media 0.6% 0.1% 0.1% 0.6% 0.1% 0.1% - Fabrication of motor vehicles, trailers, semitrailers and other means of transport 0.5% 0.1% 0.1% 0.5% 0.1% 0.1%

- Other manufacturing industries 0.5% 0.1% 0.0% 0.5% 0.1% 0.0%

Real estate activities 9.4% 2.2% 1.0% 9.0% 1.9% 0.8%

Wholesale and retail commerce, repair of motor vehicles and motorcycles 8.8% 1.4% 1.1% 8.7% 1.4% 1.0%

Constructions 8.6% 3.5% 2.0% 8.8% 3.1% 1.7%

Professional, scientific and technical activities 2.6% 0.4% 0.1% 2.2% 0.3% 0.1%

Supply of electricity, gas, steam and air conditioning 2.5% 0.2% 0.0% 2.4% 0.3% 0.0%

Transport and warehousing 1.9% 0.4% 0.2% 1.7% 0.4% 0.2%

Accommodation and catering services 1.9% 0.4% 0.2% 1.9% 0.4% 0.2%

Agriculture, forestry and fishing 1.9% 0.3% 0.2% 1.8% 0.3% 0.2%

Information and communication services 1.2% 0.1% 0.1% 1.2% 0.1% 0.1%

Hire, travel agency, business support services 0.9% 0.3% 0.2% 1.0% 0.2% 0.1%

Water supply; sewerage, waste management and cleanup activities 0.5% 0.0% 0.0% 0.4% 0.0% 0.0%

Financial and insurance activities 0.3% 0.0% 0.0% 0.4% 0.1% 0.0%

Extraction of minerals from quarries and mines 0.1% 0.1% 0.0% 0.1% 0.0% 0.0%

Residual activities 1.0% 0.2% 0.1% 1.0% 0.2% 0.1%

Consumer households 35.4% 3.6% 1.9% 36.0% 3.5% 1.8%

Financial companies 4.0% 0.2% 0.1% 3.6% 0.1% 0.1%

Public administrations 1.1% 0.1% 0.0% 1.3% 0.0% 0.0%

Other (not-for-profit institutions and the rest of the world) 2.9% 0.4% 0.2% 4.5% 0.9% 0.6%

Total 100.0% 100.0%

(*) previously termed "deteriorated"

(**) previously termed "non-performing loans" Source: management accounting database (ICAAP). Total gross lending inclusive of partial w rite-offs of bad loans (€89.4 billion as at 31st December 2015; €90.5 billion as at 31st December 2014)

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

31.12.2014

of w hich non-performing (*)

31.12.2015

of w hich non-performing (*)

122

At year-end, the total share of loans to northern regions amounted to 81% of the total, (of which 76.3% to the North-West), down compared to December 2014, while that granted to central regions rose slightly to 10.8%. The remaining 8.2% was to southern regions. As concerns Lombardy in particular, the year-on-year decrease also reflects the trend in progress for Parent loans (due to both the natural reduction of the remaining former B@nca 24-7 loans, the decrease in former Centrobanca business and a reduction in loans to Group companies).

This tendency is being marginally offset by an increase in lending business in Latium and Emilia Romagna. As concerns “large exposures”, the December 2015 supervisory report prepared on the basis of the provisions of the new Basel 3 rules, in force since 1st January 20143, shows four positions for an amount equal to or greater than 10% of the qualifying capital, for a total of €30.9 billion. In detail these consisted of: • €19.64 billion relate to the Ministry of the

Treasury, mainly for investments in government securities by the Parent;

• €7.43 billion to the CCG in relation to business by the Parent;

• €2.81 billion to the Ministry of the Economy and Finance4;

• €1.01 billion to a major large corporate counterparty; the amount reflects the credit facilities granted as at the date (against actual drawings of €0.2 billion, chiefly relating to unsecured guarantees).

In consideration, amongst other things, of the application of a zero weighting factor for transactions with the government, after weightings the Group's actual risk position amounts to just €0.4 billion. The percentage of the qualifying capital is well below the limit of 25% set for banking groups for each of the exposures reported. In terms of concentration, the end of December figure shows a marginal increase compared with all the comparative periods although still at very low levels, which confirms the constant commitment made by the Group to this aspect. At year-end, the guarantees granted by the Group totalled €5.45 billion, down €269.5 million from €5.72 billion at the end of 2014 (-4.7%). In detail, more than two-thirds of the change was due to guarantees of a financial nature, which declined to €1.71 billion (-€190.1 million), whereas guarantees of a commercial nature of €3.74 billion declined only marginally.

3 Bank of Italy Circulars No. 285 and No. 286 of 17th December 2013 and subsequent updates. 4 Exposure to the Ministry of the Economy and Finance relates to current and deferred tax assets.

Percentage of total 31.12.2015 31.12.2014

Lombardy 67.32% 67.95%

Piedmont 6.17% 6.34%

Latium 5.70% 5.15%

Marches 4.14% 4.11%

Liguria 2.73% 2.81%

Campania 2.69% 2.62%

Emilia Romagna 2.59% 2.35%

Apulia 2.34% 2.33%

Calabria 1.80% 1.98%

Veneto 1.78% 1.70%

Umbria 0.71% 0.71%

Abruzzo 0.70% 0.66%

Basilicata 0.42% 0.43%

Friuli Venezia Giulia 0.34% 0.30%

Molise 0.27% 0.26%

Tuscany 0.24% 0.25%

Valle d'Aosta 0.05% 0.04%

Trentino Alto Adige 0.01% 0.01%

Total 100.00% 100.00%

North 81.0% 81.5% - North West 76.3% 77.2%

- North East 4.7% 4.3%

Central 10.8% 10.2%

South 8.2% 8.3%

(*) The aggregates relate to banks only.

Geographical distribution of loans to customers by region of location of the branch (*)

31.12.2015 30.9.2015 30.6.2015 31.3.2015 31.12.2014

Largest 10 3.2% 2.9% 2.8% 2.6% 2.7%

Largest 20 5.3% 4.8% 4.7% 4.5% 4.6%

Largest 30 7.0% 6.1% 6.1% 5.7% 6.0%

Largest 40 8.1% 7.2% 7.2% 6.7% 7.0%

Largest 50 9.0% 8.1% 8.0% 7.6% 7.9%

Customers or Groups

Concentration of risk (largest customers or groups as a percentage of total loans and guarantees)

123

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

As concerns targeted longer-term refinancing operations (TLTROs) carried out by the ECB with a view to improving the monetary policy transmission mechanism, after taking part in the second operation that took place in December 2014 (TLTRO 2) for €3.2 billion and the third operation in March 2015 (TLTRO 3) for €2.9 billion, the UBI Banca Group also took part in the fifth operation in September 2015 (TLTRO 5) to obtain a further €2 billion. The total amount of €8.1 billion allotted to the Group was therefore used to form specific loan pools by UBI Banca and the network banks - without any restrictions in terms of eligible projects and the amounts available - for customers belonging to the “Private & Corporate Unity” (private and corporate banking) market and to the retail market. The final maturity of all financing received, regardless of the date of allotment, has been set as 26th September 2018.

As at 31st January 2016, financing totalling approximately €8.1 billion had been applied for by customers, of which €5.5 billion had already been granted and €1.3 billion approved. In detail these consisted of:

€6.7 billion by private banking and corporate customers (€4.4 billion already granted and €1.2 billion approved);

€1.4 billion by retail customers (€1.1 billion already granted and €0.1 billion approved)5.

Risk

Against a background of modest growth in the Italian economy, credit risk grew further at sector level although at a slower pace, without, however, showing signs of a clear reversal of the trend. At the end of December, total gross non-performing loans (previously termed "deteriorated loans") of the Group had reached €13.4 billion, an increase of €385.4 million on an annual basis (+3%). As shown in the chart, while in line with 2014, the increase was significantly lower than in previous years, which confirms the signs that the stabilisation of credit quality in progress since the beginning of 2014 is continuing. In the fourth quarter, the item declined (-€217 million; -1.6%), due to

the transfers of bad loans (previously termed “non-performing loans”) during the period and to the conversion into equity instruments of a portion of the loans relating to Nuova Sorgenia Holding. This trend was accompanied by a further fall in new inflows from performing status (-7.5% over twelve months; -15% in the fourth quarter) down to the lowest levels in recent years. The overall increase in gross non-performing (previously termed “deteriorated”) exposures over twelve months, over 70% of which was attributable to the third quarter, was due to an increase in bad loans (+€436.1 million) and unlikely to pay loans (+€236.4 million), only partly

5 As at 31st December 2015, financing totalling €8 billion had been applied for by customers, of which €5.2 billion already granted and €1.3 billion approved. In detail these consisted of: €6.6 billion from private banking and corporate customers (€4.2 billion of financing already granted and €1.2 billion approved); €1.4 billion from retail customers (€1 billion already granted and approximately €0.1 billion approved).

0

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2008 2009 2010 2011 2012 2013 2014 2015

Annual increase in gross non-performing exposures(in millions of euro)

124

offset by a significant decline in exposures past due and/or in arrears, which were more than halved during the period (-€287.1 million; -51.9%).

The signs of improvement on the risk front are also result of the following: on the one hand, a more favourable risk profile in the performing portfolio, which over twelve months

saw a further increase in the lowest risk classes from 71% to 73.6% of the total and a reduction in the highest risk classes from 5.5% to 4.5%6;

on the other hand, the numerous initiatives taken by the Group in recent years in terms of internal reorganisation and operating processes to improve credit risk management, as well as a decision taken to focus lending on the captive channel.

Net non-performing loans totalled €9.7 billion at year-end, up €180.4 million compared to twelve months earlier (+1.9%), but down €183 million in the fourth quarter, which more than halved the increase in the previous quarters. In terms of types of loan, the table “composition of loans to customers”, shows that growth in net non-performing loans is again concentrated prevalently in the item “mortgage loans and other medium to long-term loans”, backed moreover by collateral, which results automatically in a lower level of coverage. Total coverage improved over twelve months from 27.13% to 27.88%, partly due to increased provisioning, notwithstanding the high percentage of positions backed by collateral - written down less also in relation to the precautionary loan to value (LTV) ratio employed for loans granted by the Group - and transactions to dispose of non-performing loans concluded during the year, which involved a series of positions with high levels of provisioning. If loan write-offs are included (relating to creditor legal action in progress), coverage increased on an annual basis to 37.38% (37.14% at the end of 2014). For performing loans, which resumed growth in the fourth quarter, at the end of December coverage was 0.55%, stable on September, but progressively down slightly from 0.63% at the end of 2014. This trend was affected both by an improved risk profile for the performing portfolio, as described above, and also by recoveries in value recognised by the product companies as a consequence of the reduction in volumes of lending. Forborne exposures gross of impairment losses totalled €5.4 billion in December, up €1 billion (+23.5%) compared to the end of 2014 (€4.4 billion). The change – attributable entirely to non-performing exposures (which rose from 44.19% to 56.21% of the total) – also reflects the introduction of forbearance regulations7 starting in September 2014. 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 lose its forborne classification and therefore no longer appear in relative reports.

6 The management accounting figures relate to the internal rating perimeter (the network banks and UBI Banca). 7 See the glossary attached to this report for a definition of forbearance.

Figures in thousands of euro

Bad loans (**) 67,703 90,922 101,554 175,956 -24,157 225,254 335,287 130,195

Unlikely to pay loans -144,085 174,421 107,800 98,263 107,182 83,458 -210,088 8,456

Exposures past due and/or in arrears -140,624 18,098 -68,867 -95,716 -123,460 -7,552 4,309 -153,887

Gross non-performing loans (*) -217,006 283,441 140,487 178,503 -40,435 301,160 129,508 -15,236

transfers from performing exposures 532,763 627,823 625,082 649,925 708,389 663,234 637,065 623,163

transfers into performing exposures -98,398 -44,578 -147,623 -212,358 -140,876 -99,302 -171,812 -356,074

(*) previously termed "deteriorated"

(**) previously termed "non-performing loans"

Gross non-performing exposures (*): quarterly changes

2Q 1Q4Q

2014

3Q1Q4Q

2015

2Q3Q

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BAD LOANS Gross bad loans (previously termed "non-performing loans") rose over twelve months from €6.6 billion to €7 billion, an increase of €436.1 million euro (+6.7%). As may be observed from the quarterly changes table, in the fourth quarter the increase in loans was smaller than in all of the other quarters, due in part to the effect of transfers of significant overall amounts. It should be recalled that various transfers of bad loans, primarily unsecured loans, were undertaken during the year, with a gross book value of €297.3 million (of which €166.3 million in the final three months of the year), subject to average impairment losses of 70% and attributable to the Parent, network banks and UBI Leasing. The annual change in outstanding gross loans was primarily due to the network banks, although with different performances by the individual banks, and to UBI Leasing, against marginal decreases for UBI Banca and UBI Factor. Net bad loans rose over the year from €4 billion to €4.3 billion, up €262.9 million (+6.5%), of which only €43.6 million relating to the fourth quarter.

Loans and advances to customers as at 31st December 2015

Figures in thousands of euroImpairment

lossesCoverage (*)

Non-performing exposures (**) (15.14%) 13,434,287 3,745,738 (11.45%) 9,688,549 27.88% - Bad loans (***) (7.87%) 6,987,763 2,699,834 (5.07%) 4,287,929 38.64%

- “Unlikely to pay” loans (6.96%) 6,179,999 1,032,900 (6.09%) 5,147,099 16.71%

- Past due loans (0.31%) 266,525 13,004 (0.29%) 253,521 4.88%

Performing loans (84.86%) 75,314,190 416,539 (88.55%) 74,897,651 0.55%

Total 88,748,477 4,162,277 84,586,200 4.69% The item as a percentage of the total is given in brackets.

Loans and advances to customers as at 31st December 2014

Figures in thousands of euroImpairment

lossesCoverage (*)

Non-performing exposures (**) (14.55%) 13,048,862 3,540,757 (11.10%) 9,508,105 27.13% - Bad loans (***) (7.31%) 6,551,628 2,526,549 (4.70%) 4,025,079 38.56%

- “Unlikely to pay” loans (****) (6.63%) 5,943,600 989,889 (5.78%) 4,953,711 16.65%

- Past due loans (0.61%) 553,634 24,319 (0.62%) 529,315 4.39%

Performing loans (85.45%) 76,617,912 481,794 (88.90%) 76,136,118 0.63%

Total 89,666,774 4,022,551 85,644,223 4.49%

The item as a percentage of the total is given in brackets.

Gross exposure Carrying amount

(*) The coverage is calculated as the ratio of impairment losses to gross exposure. For bad loans (previously termed “non-performing loans”) only, impairment losses andgross exposures are given net of write-offs of positions subject to bankruptcy proceedings.

(****) On the basis of the new classification rules and internal regulations, exposures previously classified as “impaired” or “restructured” have been included in this class which did not satisfy the requirements for being classified as “non-performing” and “exposures past due and/or in arrears”.

(**) Previously termed "deteriorated loans"

(***) Previously termed "non-performing loans"

Gross exposure Carrying amount

Forborne exposures as at 31st December 2015

Figures in thousands of euroImpairment

lossesCoverage (*)

Non-performing exposures (**) (56.21%) 3,021,055 478,244 (52.34%) 2,542,811 15.83% - Bad loans (***) (6.12%) 328,787 91,078 (4.89%) 237,709 27.70%

- Unlikely to pay loans *** (49.26%) 2,647,466 384,691 (46.58%) 2,262,775 14.53%

- Past due loans (0.83%) 44,802 2,475 (0.87%) 42,327 5.52%

Performing loans (43.79%) 2,353,732 38,485 (47.66%) 2,315,247 1.64%

Total 5,374,787 516,729 4,858,058 9.61%

The item as a percentage of the total is given in brackets.

Forborne exposures as at 31st December 2014

Figures in thousands of euroImpairment

lossesCoverage (*)

Non-performing exposures (**) (44.19%) 1,922,814 269,707 (40.86%) 1,653,107 14.03%

Performing loans (55.81%) 2,428,813 35,722 (59.14%) 2,393,091 1.47%

Total 4,351,627 305,429 4,046,198 7.02%

The item as a percentage of the total is given in brackets.

(*) Coverage is calculated as the ratio of impairment losses to gross exposure.

(***) previously termed "non-performing loans"

Gross exposure Carrying amount

Gross exposure Carrying amount

(**) previously termed "deteriorated loans"

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Net bad loans backed by collateral rose to nearly €3 billion (+€0.3 billion), increasing as a percentage of the total to 69.3% (67.5% in December 2014), due in part to the primarily unsecured nature of the positions transferred. At year-end, net bad loans with no backing in terms of either collateral or personal guarantees stood at 11.63% of the total, up slightly from 11.52% at the end of 2014. An analysis of migrations in 2015 shows the following:

- a reduction in total new inflows (-16.3%), relating to transfers from other categories of non-performing loans, above all from unlikely to pay loans, but also from performing loans, although the latter remained marginal;

- a substantial reduction to nil of outflows to performing status; - a decrease in write-offs; - an increase in profits on disposals, relating mainly to the fourth quarter, at the same time as an

increase in receipts. Over twelve months, the ratio of bad loans to loans increased from 7.31% to 7.87% in gross terms, remaining essentially stable compared to September, due in part to the quarter-on-quarter increase in the loan portfolio. In net terms, the ratio increased from 4.70% to 5.07% (5.06% in September 2015). Coverage was 38.64%, a marginal improvement compared to the end of 2014 (38.56%), but essentially stable compared to the last two periods, reflecting the inflow of several positions with high provisioning and the effects of the transfer of unsecured positions, characterised by a higher level of coverage8. If cases written-off to the income statement relating to creditor actions still in progress are also considered, coverage would in reality have been 52.5%9 (53.36% in December 2014). At year-end coverage for non-performing loans not backed by collateral considered gross of those write-offs was 67.84% (69.40% in December 2014). “UNLIKELY TO PAY” LOANS Gross unlikely to pay loans (which include positions previously classified as impaired and restructured loans) stood at €6.2 billion, up over twelve months +€236.4 million (+4%). The annual change is the result of opposing performances by the various Group companies: the increases for the network banks (although with differences between the individual companies), UBI Leasing and UBI Factor was offset by reductions for Prestitalia, UBI Banca (former Centrobanca and former B@nca 24-7 portfolios) and, to a more modest degree, UBI Banca International. An analysis of migrations in 2015 shows the following: - the essential stability of total inflows which reflects an increase in transfers from performing

status – partly in relation to the appearance of substantial new positions – offset by a reduction in transfers from exposures past due and/or in arrears;

- a reduction in outflows to performing status; - an increase in write-offs and receipts; - a fall in transfers to other non-performing categories and mainly to bad loans. Net unlikely to pay loans of €5.2 billion consequently increased compared to one year earlier (+€193.4 million; +3.9%). Net unlikely to pay loans backed by collateral, considering only the former impaired loans classified as such for management purposes, amounted to €3.2 billion, stable compared with September, but up over twelve months (+€0.3 billion), accounting for 73.3% of total net former impaired, unlikely to pay exposures (69% in December 2014).

8 In the absence of the aforementioned transfers of bad loans, the coverage ratio would have been 39.9%. 9 In the absence of the aforementioned transfers of bad loans, the coverage ratio would have been 54.2%.

127

Coverage of 16.71% was essentially line with December 2014 (16.65%), but down on September (17.13%). Although the first nine months showed a more than proportional increase in impairment losses, the final part of the year was influenced by the conversion into securities of the loans relating to Nuova Sorgenia Holding Spa for €72 million, characterised by high coverage levels. SORGENIA The agreement pursuant to article 182 bis of the Bankruptcy Law signed by Sorgenia Spa on 14th November 2014 and registered by the Court of Milan on 25th February 2015 took final effect on 16th March 2015. On the following 27th of March contract documents were signed with the banking sector for the final implementation of the agreement which involved the following with regard to the most important accounting aspects: • the subscription by UBI Banca of a 16.67%10 stake in Nuova Sorgenia Holding Spa, the parent of

Sorgenia Spa, for approximately €8 thousand, recognised within item 40 “available-for-sale financial assets”. For the purposes of classifying this shareholding an investigation was carried out to see if situations existed which might indicate the presence of control or joint control (e.g. shareholder agreements);

• the sale without recourse by the UBI Banca Group to Nuova Sorgenia Holding Spa of a portion of the receivables owed by the Sorgenia Group, for valuable consideration of €72 million (i.e. the face value of the receivables);

• the subscription by the UBI Banca Group, at the time of the sale of the receivables mentioned in the previous point, of “profit-sharing equity instruments” in Nuova Sorgenia Holding Spa, designed to endow the company with the necessary initial liquidity, for a total of €220 thousand (approximately 13.4%). The instruments in question were recognised within item 40 “available-for-sale financial assets”;

• the derecognition, since the conditions pursuant to IAS 39 are met, of additional receivables due from Sorgenia Spa, subject to their transformation into convertible bonds (with compulsory conversion) subscribed by the creditor banks. As a result of subscribing the convertible bonds, the UBI Banca Group recognised a new financial, asset with different characteristics to the receivables derecognised, amounting to €25.2 million within item 40 “available-for-sale financial assets”.

As a result, amongst other things, of the conclusion of the disposal of its renewable energy business, in April Sorgenia was able to repay the creditor banks a sum of €70 million, as provided for by the plan, €11.4 million of which to the UBI Banca Group. The UBI Banca Group exposure to the Sorgenia Group as at 31st December 2015 recognised within “unlikely to pay” loans amounted to €38.9 million (of which unsecured guarantees of €6.3 million) drawn on authorised credit lines totalling €110.1 million (of which unsecured guarantees of €20.3 million), which include €71 million of new credit lines granted as part of the restructuring plan. In the case of Nuova Sorgenia Holding Spa, in December 2015 the transformation of most of the receivables claimed by the banks from Nuova Sorgenia Holding Spa into "profit-sharing equity investments" was finalised in accordance with the restructuring agreement. Of the total receivables of €396.7 million, receivables of €378.4 million were transformed into profit-sharing equity investments, of which €72 million was attributable to the UBI Banca Group. The aim of the transaction was to enhance the financial position of the sub-holding that controls Sorgenia Spa, in light of market dynamics and the ongoing concentration process in the industry. EXPOSURES PAST DUE AND/OR IN ARREARS Gross exposures past due and/or in arrears more than halved over twelve months, falling from €553.6 million to €266.5 million, a decrease of -€287.1 million, approximately 50% of which was attributable to the fourth quarter of 2015 (-€140.6 million), in part as a consequence of the transfer of two significant positions of UBI Factor to performing status. This change reflects the essentially universal decline for all Group companies, with reductions concentrated in the first half of the year for UBI Leasing, UBI Factor and UBI Banca. Signs of a progressive normalisation seem also to be emerging from an analysis of migrations in 2015, which shows the following compared with the same period in 2014:

10 The UBI Banca Group is represented on the Board of Directors of Nuova Sorgenia Holding Spa, composed of ten directors and two executive directors.

128

- a fall of approximately €500 million in new inflows from performing loan status, which confirms the underlying trend in progress since the beginning of 2013;

- a natural reduction at the same time in transfers to other categories of non-performing loans, mainly to unlikely to pay the loans (-€347 million);

- a decrease in outflows to performing status (-€118 million) in relation to the progressive reduction in the volumes of inflows.

Coverage, amounting to 4.88% at the end of 2015, was up compared to twelve months before (4.39%) in accordance with the Group's credit policy.

Loans to customers: changes in non-performing (*) gross exposures in 2015

Figures in thousands of euro

Initial gross exposure as at 1st january 2015 6,551,628 5,943,600 553,634 13,048,862

Increases 1,544,824 2,520,953 913,968 4,979,745

transfers from performing exposures 121,807 1,415,371 898,415 2,435,593

transfers from other classes of non-performing exposures (*) 1,344,070 759,871 915 2,104,856

other increases 78,947 345,711 14,638 439,296

Decreases -1,108,689 -2,284,554 -1,201,077 -4,594,320

transfers into performing exposures -2,973 -199,519 -300,465 -502,957

write-offs -587,942 -100,746 -26 -688,714

payments received -375,377 -596,060 -63,055 -1,034,492

disposals -118,973 - - -118,973

transfers to other classes of non-performing (*) exposure -9,976 -1,267,393 -827,487 -2,104,856

other decreases -13,448 -120,836 -10,044 -144,328

Final gross exposure as at 31st December 2015 6,987,763 6,179,999 266,525 13,434,287

Loans to customers: changes in non-performing (*) gross exposures in 2014

Figures in thousands of euro

Initial gross exposure as at 1st January 2014 5,885,049 5,954,592 834,224 12,673,865

Increases 1,853,254 2,429,561 1,431,878 5,714,693

transfers from performing exposures 138,721 1,095,165 1,397,965 2,631,851

transfers from other classes of non-performing exposures (*) 1,613,226 1,059,187 5,472 2,677,885

other increases 101,307 275,209 28,441 404,957

Decreases -1,186,675 -2,440,553 -1,712,468 -5,339,696

transfers into performing exposures -12,814 -337,274 -417,976 -768,064

write-offs -734,151 -18,673 -61 -752,885

payments received -306,652 -576,575 -90,030 -973,257

disposals -67,359 -919 - -68,278

transfers to other classes of non-performing (*) exposure -26,652 -1,476,381 -1,174,852 -2,677,885

other decreases -39,047 -30,731 -29,549 -99,327

Final gross exposure as at 31st December 2014 6,551,628 5,943,600 553,634 13,048,862

(*) previously termed "deteriorated"

(**) previously termed "non-performing loans"

Bad loans (**)Past-due

exposuresTotal

Bad loans (**)Past-due

exposuresTotal

Unlikely to pay loans

Unlikely to pay loans

129

The interbank market and the liquidity position

At the end of the year, the net interbank position of the UBI Banca Group was a debtor position of €7 billion, an improvement compared to approximately -€10 billion at the end of December 2014. The negative balance, which was seen in all interim periods of the year, albeit at various levels, is closely related to debt with the central bank for refinancing operations (a total of €8.1 billion of TLTROs). Net of all relationships with central banks, the net interbank position was one of funding of €0.7 billion, up from -€231 million as at 31st December 2014 (partly in relation to a fall in volumes of lending). The Group also continues to very safely maintain a positive position in terms of liquidity reserves, demonstrated, amongst other things, by specific short-term (liquidity coverage ratio) and structural (net stable funding ratio) Basel 3 indicators, both greater than 100%1. It must also be stated that these indicators would be greater than one even in the presence of an ordinary funding structure not based on TLTRO support.

Details of performance on the interbank market during the year are given below. Loans and advances to banks of €3.4 billion were up slightly (+€89 million) compared to December 2014, the result of opposite tendencies:

-€189 million due to the decrease in liquidity held with central banks in the central compulsory reserve account (which amounted to €0.4 billion at the end of the year). In reality, the changes in end of period figures are operational and depend on balance management strategies, with account taken of average deposit requirements to be complied with in the reporting period. The Group normally maintains average deposits in line with the requirement;

1 The agreement reached by the Basel Committee on 6th January 2013 established the introduction of the LCR indicator with effect from 2015, with an initially required minimum level of 60%, and then of 70% from 1st January 2016.

Net interbank position

Figures in thousands of euro

Loans and advances to banks 3,429,937 3,632,477 3,191,584 3,331,195 3,340,415

of which: loans to central banks 395,449 580,810 295,626 312,770 584,353

Due to banks 10,454,303 10,871,905 9,049,928 12,360,302 13,292,723

of which: due to central banks 8,106,441 8,104,588 6,103,196 9,101,548 10,305,964

Net interbank position -7,024,366 -7,239,428 -5,858,344 -9,029,107 -9,952,308

Loans and advances excluding central banks 3,034,488 3,051,667 2,895,958 3,018,425 2,756,062

Due to banks excluding central banks 2,347,862 2,767,317 2,946,732 3,258,754 2,986,759

Net interbank position net of central banks 686,626 284,350 -50,774 -240,329 -230,697

Figures in thousands of euro

Loans and advances to banks 3,340,415 3,329,046 4,078,892 4,009,183 4,129,756

of which: loans to central banks 584,353 602,076 649,941 309,971 860,080

Due to banks 13,292,723 15,588,229 15,964,805 15,397,770 15,017,266

of which: due to central banks 10,305,964 12,184,683 12,180,750 12,173,833 12,166,333

Net interbank position -9,952,308 -12,259,183 -11,885,913 -11,388,587 -10,887,510

Loans net of central banks 2,756,062 2,726,970 3,428,951 3,699,212 3,269,676

Amounts due net of central banks 2,986,759 3,403,546 3,784,055 3,223,937 2,850,933

Net interbank position net of central banks -230,697 -676,576 -355,104 475,275 418,743

31.12.2015

31.12.2014

31.12.2014

31.12.2013

30.9.2015

30.9.2014

30.6.2015

30.6.2014

31.3.2015

31.3.2014

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+€278 million due to loans to other banks, which rose to €3 billion. Within the item, current accounts decreased (-€120 million, in the context of ordinary operations on the interbank market), offset by an increase in "Other financing - other" (+€391 million), primarily due to the credit activity of network banks in relation to customers (for example, lending to bank borrowers controlled by industrial and/or financial groups). In the comparison with 2014, the item was also affected by the reclassification of a loan to a financial company (previously included amongst loans to customers) that received authorisation to conduct banking business in the second half of 2015.

Interbank funding amounted to approximately €10.5 billion at year-end, down €2.8 billion compared to December 2014. In particular, as at 31st December 2015 the Group had €8.1 billion 2 of outstanding unconventional refinancing operations with the ECB, consisting entirely of TLTROs (targeted refinancing operations aimed at increasing lending to companies and families), subscribed as follows:

- on 17th December 2014, through participation in the second auction (after not participating in the first auction held in September 2014) and the allotment of €3.2 billion (four-year funds maturing on 26th September 2018);

- on 25th March 2015, through participation in the third auction, obtaining €2.9 billion (these funds mature on 26th September 2018). The Group did not take part in the fourth auction held in June 2015;

- on 24th September 2015, through participation in the fifth auction, in which €2 billion was allotted (these funds mature on 26th September 2018).

The change in “Debt to central banks”, -€2.2 billion2 compared to December 2014, reflects the following repayments, in addition to the subscriptions indicated above:

- on 29th January 2015, the natural maturity date of the first LTRO, UBI Banca repaid the last €2 billion of the financing subscribed on 21st December 2011 for €6 billion of which €4 billion had already been repaid in October and November 2014;

- on 26th February 2015, the natural maturity date of the second LTRO, UBI Banca repaid the last €5 billion outstanding (after an initial repayment of €1 billion on 17th December 2014) of the second three-year financing that the Group had been allotted on 29th February 2012.

Excluding such funding from central banks, amounts due to banks were €2.4 billion, down slightly (-€0.6 billion on an annual basis), due to similar decreases in current accounts (-€339 million, in the context of ordinary market operations), repurchase agreements (-€198 million, due in part to the maturity in the second quarter of a securities operation by the Parent that was not renewed) and financing - other (-€101 million). The latter item includes repayments of EIB loans, i.e. the medium- to long-term funding transactions with the European Investment Bank to support SMEs, which as at 31st

2 The carrying amount includes interest expense accruing.

Loans to banks: composition

Figures in thousands of euro amount %

Loans to central banks 395,449 11.5% 584,353 17.5% -188,904 -32.3%

Compulsory reserve requirements 394,226 11.5% 582,171 17.4% -187,945 -32.3%

Other 1,223 0.0% 2,182 0.1% -959 -44.0%

Loans and advances to banks 3,034,488 88.5% 2,756,062 82.5% 278,426 10.1%

Current accounts and deposits 1,733,046 50.5% 1,853,551 55.5% -120,505 -6.5%

Term deposits 32,368 0.9% 24,572 0.7% 7,796 31.7%

Other financing: 1,269,074 37.1% 877,939 26.3% 391,135 44.6%

- reverse repurchase agreements - - 4 0.0% -4 -100.0%

- other 1,269,074 37.1% 877,935 26.3% 391,139 44.6%

Debt instruments - - - - - -

Total 3,429,937 100.0% 3,340,415 100.0% 89,522 2.7%

31.12.2015 % 31.12.2014 %Changes

131

December totalled €1.34 billion. That funding may be drawn on directly not only by the Parent, for a total of €570 million, but also by the network banks. Finally, other payables consisted largely of funds relating to credit card settlement arrangements with Istituto Centrale delle Banche Popolari Italiane (totalling €21 million, down over €16 million on an annual basis).

* * * As at 31st December 2015, the portfolio of assets eligible for refinancing with the central bank, totalled €21.2 billion net of haircuts (consisting of €13.2 billion in the ECB pool and of €8 billion of non-pool government securities), down compared with €24.2 billion recorded twelve months earlier. The reduction of €3 billion (in terms of eligible amount, net of haircuts) was primarily due to the following:

- a decrease in government securities (-€2.9 billion), as a result of a gradual decline in the AFS portfolio, at the same time as and consistent with the share committed to ECB auctions (-€2.3 billion compared to December 20143). The change related to the pool of assets securing ECB financing (-€1.8 billion) and eligible assets not included in the pool (-€1.5 billion), against a marginal greater use of refinancing with Cassa di Compensazione e Garanzia (a central counterparty clearing house). The strategy of streamlining the portfolios nonetheless aims to retain an amount of domestic government securities sufficient to ensure optimal management of the Group's liquidity profile, through the eligibility of such assets;

- a decrease (-€1 billion) in the self-retained covered bonds issued under the first programme, due to the cancellation of two securities (in April and October 2015, with a total nominal amount of €1.7 billion), partially offset by a new issuance with a nominal value of €500 million in December 2015;

- an increase (+€0.4 billion) in the self-retained covered bonds issued under the second programme, due to a new issuance (the fourth under the programme) with a nominal value of €650 million in July, partially offset by amortisation (half-yearly payments for a single security, being made since 2013);

- a decrease (-€1.2 billion) in securitisation, due to normal repayments during the period, but also to the withdrawal in November of the securities (€0.4 billion) issued by UBI Finance 3 due to the early winding-up of the transaction;

- an increase in ABACO loans (€1.8 billion) and in other securities held (in residual terms), as part of the portfolio diversification strategy, which is reducing the weight of Italian government securities in favour of corporate and financial securities.

3 See also the above summary of repayments/new subscriptions of loans from the ECB.

Due to banks: composition

Figures in thousands of euro amount %

Due to central banks 8,106,441 77.5% 10,305,964 77.5% -2,199,523 -21.3%

Due to banks 2,347,862 22.5% 2,986,759 22.5% -638,897 -21.4%

Current accounts and deposits 720,487 6.9% 1,059,939 8.0% -339,452 -32.0%

Term deposits 60,844 0.6% 46,590 0.3% 14,254 30.6%

Financing: 1,530,870 14.7% 1,830,471 13.8% -299,601 -16.4%

- repurchase agreements 186,635 1.8% 384,897 2.9% -198,262 -51.5%

- other 1,344,235 12.9% 1,445,574 10.9% -101,339 -7.0%

Other payables 35,661 0.3% 49,759 0.4% -14,098 -28.3%

Total 10,454,303 100.0% 13,292,723 100.0% -2,838,420 -21.4%

31.12.2015 % 31.12.2014 %Changes

132

(*) These include government securities not committed with the ECB which potentially can be refinanced with the Cassa di Compensazione e Garanzia for the following amounts:

- 31st December 2015: €12.2 billion (net of haircuts), of which €4.2 billion contributed to the pool and €8 billion available, non-pool;

- 30th September 2015: €12.4 billion (net of haircuts), of which €4.5 billion contributed to the pool and €7.9 billion available, non-pool;

- 30th June 2015: €10.5 billion (net of haircuts), of which €3.3 billion contributed to the pool and €7.2 billion available, non-pool;

- 31st March 2015: €15.2 billion (net of haircuts), of which €4.1 billion contributed to the pool and €11.1 billion available, non-pool;

- 31st December 2014: €13.8 billion (net of haircuts), of which €4.2 billion contributed to the pool and €9.6 billion available, non-pool.

(**) 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.

If government securities subject to refinancing operations with the Cassa di Compensazione e Garanzia (CCG – a central counterparty clearing house) of €5.2 billion at year-end (+€0.4 billion) are added to the portfolio of eligible assets, then total eligible assets of the Group stand at €26.4 billion (€29 billion as at 31st December 2014). As at 31st December 2015, given the portion already pledged of €8.1 billion (€10.4 billion at the end of 2014), the margin of liquidity still available amounted to €13.1 billion (€13.8 billion at the end of the previous year), of which €12.2 billion of Italian government securities eligible for the purposes of the LCR indicator.

Eligible assets

Figures in billions of euro

nominal amount

amount eligible (net of haircuts)

nominal amount

amount eligible (net of haircuts)

nominal amount

amount eligible (net of haircuts)

nominal amount

amount eligible (net of haircuts)

nominal amount

amount eligible (net of haircuts)

Securities owned (AFS, HTM and L&R) (*) 11.40 12.81 11.34 12.74 10.05 10.81 13.87 15.90 14.43 15.87

Covered bonds ("self-retained" issues) 3.45 3.08 3.83 3.10 3.18 2.63 4.36 3.67 4.36 3.64

Securitisation of residential mortgages of the former B@nca 24-7 0.93 0.76 0.97 0.78 1.01 0.82 1.04 0.85 1.07 0.88

UBI Leasing leased assets securitisation 0.47 0.40 0.55 0.47 0.64 0.55 0.74 0.63 0.84 0.72

Banco di Brescia securitisation of performing loans to SMEs 0.24 0.20 0.28 0.23 0.31 0.27 0.35 0.30 0.39 0.29

Banca Popolare di Bergamo securitisation of performing loans to SMEs - - 0.20 0.17 0.27 0.23 0.35 0.30 0.43 0.37

Banca Popolare Commercio e Industria securitisation of performing loans to SMEs 0.16 0.13 0.19 0.16 0.22 0.19 0.26 0.22 0.29 0.25

Banca Popolare di Ancona securitisation of performing loans to SMEs 0.34 0.29 0.39 0.33 0.44 0.37 0.49 0.42 0.54 0.46

Loans eligible resulting from participation in ABACO (**) 6.40 3.54 5.73 3.08 4.56 2.27 4.09 2.01 3.79 1.70

Total 23.39 21.21 23.48 21.06 20.68 18.14 25.55 24.30 26.14 24.18

31.12.2015 30.9.2015 30.6.2015 31.3.2015 31.12.2014

Available liquidity reserve

Management accounting f igures in millions of euro - net of haircuts31.12.2015 % 31.12.2014 %

ECB pool 13,209 50.0% 14,610 50.3% -1,401 -9.6%

of which government securities (A) 4,185 15.8% 5,937 20.5% -1,752 -29.5%

Securities eligible not included in the ECB pool 8,011 30.3% 9,555 32.9% -1,544 -16.2%

of which government securities (B) 8,011 30.3% 9,552 32.9% -1,541 -16.1%

Total assets eligible 21,220 80.3% 24,165 83.2% -2,945 -12.2%

Government securities refinanced with the CCG (C) 5,218 19.7% 4,861 16.7% 357 7.3%

Total assets eligible 26,438 29,026 -2,588 -8.9%

of which government securities (A+B+C) 17,414 65.9% 20,350 70.1% -2,936 -14.4%

ECB auctions (portion pledged) -8,106 -30.7% -10,405 -35.8% -2,299 -22.1%

Government securities refinanced with the CCG -5,218 -19.7% -4,861 -16.7% 357 7.3%

Available liquidity reserve 13,114 49.6% 13,760 47.4% -646 -4.7%

of which unpledged government securities (eligible for the purposes of the LCR) 12,196 46.1% 13,757 47.4% -1,561 -11.3%

Changes amount %

133

Financial activities

The financial assets of the Group as at 31st December 2015 totalled €20.2 billion, down compared with €23.7 billion at the end of 2014. If financial liabilities are considered, consisting solely of financial derivatives, then net assets came to €19.7 billion (€23.1 billion).

As shown in the table, total government securities held reduced during the year (down to €18.3 billion from €21.9 billion) following profit-taking which affected the AFS and HFT portfolios. An operation commenced in the fourth quarter to change the portfolio mix by purchasing corporate bonds in the AFS class and US Treasury securities in the trading class. The operation forms part of a policy to reduce Italian government securities held (while maintaining a sufficient amount to ensure both optimum management of Group liquidity, by means of the eligibility of these securities for refinancing, and also a contribution, although falling, to net interest income) and to diversify investments which will continue to a more substantial extent in 2016.

The financial assets held for trading portfolio (€994,478 thousand) was smaller than the same portfolio held by the Parent (€1,088,262 thousand) due to the presence of financial derivatives contracts entered into by UBI Banca with the Group network banks and product companies. These instruments, in addition to being subject to intragroup elimination in the consolidation, were classified by the Parent as held for trading because the relative assets hedged were recognised in the balance sheets of the Group network banks and product companies. When the consolidation was prepared, those same instruments, entered into to hedge the underlying assets, were recognised within hedging derivatives. Financial derivatives classified as held for trading held by the Parent at the end of 2015 amounted to €617,226 thousand while the figure for the Group was €522,429 thousand.

Management accounting figures1 as at 31st December 2015, show the following: - in terms of type of financial instrument, the securities portfolio of the Group was composed as follows:

94.6% (95.8% at the end of 2014) of government securities; 4.4% (3.1%) of corporate securities (of which 45% issued by major Italian and international banks and financial institutions; 91% of these investments in corporate securities also carry an investment grade rating); 0.6% (0.5%) of hedge funds; and the remaining 0.4% (0.6%) consisted of funds and equities;

- from a financial viewpoint, floating rate securities accounted for 65% (59.1%) of the portfolio2 and fixed rate securities for 32.2% (36.9%), while the remainder was composed of structured instruments (held mainly in the AFS portfolio), equities, funds and convertible securities;

- as regards the currency of denomination, 99.5% (99.7%) of the securities were denominated in euro and 0.4% (0.2%) in dollars with currency hedges, while in terms of geographical distribution, 98.5% (99.9%) of the investments (excluding hedge funds) were issued from countries in the euro area;

- finally, an analysis by rating (for the bond portfolio only) shows that 99.5% (99.4%) of the portfolio consisted of “investment grade” securities with an average rating of Baa2 (unchanged).

1 The management accounting analysis relates to a smaller portfolio than that stated in the consolidated financial statements, because they exclude equity investments, some smaller portfolios and also financial derivatives contracts held for trading.

2 Fixed rate securities purchased as part of asset swaps are also considered as floating rate (99% of the floating rate securities). The partial change in the mix affecting floating rate and fixed-rate securities is attributable to the sale of fixed-rate government securities classified in the HFT portfolio that took place in the third quarter.

Financial assets/liabilities

Figures in thousands of euro

Carrying amount

(A)%

Carrying amount

(B)%

Carrying amount

(C)%

Carrying amount (D)

%Carrying

amount (E)% amount %

Financial assets held for trading 994,478 4.8% 653,418 3.3% 1,338,170 6.1% 1,527,401 6.6% 1,420,506 6.0% -426,028 -30.0%

of which: financial derivatives contracts 522,429 2.6% 544,925 2.8% 512,176 2.3% 671,128 2.9% 618,454 2.6% -96,025 -15.5%

Financial assets designated at fair value 196,034 1.0% 195,490 1.0% 197,223 0.9% 198,365 0.9% 193,167 0.8% 2,867 1.5%

Available-for-sale financial assets 15,554,282 76.9% 15,259,697 77.9% 16,799,280 76.8% 17,904,652 77.3% 18,554,956 78.1% -3,000,674 -16.2%

Held-to-maturity investments 3,494,547 17.3% 3,486,873 17.8% 3,535,692 16.2% 3,528,010 15.2% 3,576,951 15.1% -82,404 -2.3%

Financial assets (a) 20,239,341 100.0% 19,595,478 100.0% 21,870,365 100.0% 23,158,428 100.0% 23,745,580 100.0% -3,506,239 -14.8%

of which:

- debt instruments 19,244,392 95.1% 18,542,692 94.6% 20,851,133 95.3% 22,046,039 95.2% 22,619,761 95.3% -3,375,369 -14.9%

- of which: Italian government securities 18,336,961 90.6% 18,176,438 92.8% 20,472,426 93.6% 21,603,439 93.3% 21,904,867 92.2% -3,567,906 -16.3%

- equity instruments 288,177 1.4% 331,873 1.7% 326,956 1.5% 260,819 1.1% 255,809 1.1% 32,368 12.7%

- Units in UCITS. 184,343 0.9% 175,988 0.9% 180,100 0.8% 180,442 0.8% 251,556 1.1% -67,213 -26.7%

Financial liabilities held for trading (b) 531,812 100.0% 526,212 100.0% 647,508 100.0% 740,247 100.0% 617,762 100.0% -85,950 -13.9%

of which: financial derivatives contracts 531,812 100.0% 526,212 100.0% 528,362 81.6% 740,247 100.0% 617,762 100.0% -85,950 -13.9%

Net financial assets (a-b) 19,707,529 19,069,266 21,222,857 22,418,181 23,127,818 -3,420,289 -14.8%

31.12.2015 31.3.201530.9.2015 30.6.2015 Changes (A) / (E)31.12.2014

134

Available-for-sale financial assets “Available-for-sale financial assets” (AFS), asset item 40, are measured at fair value with the recognition of changes in a separate fair value reserve in equity, except for losses due to reductions in value that are considered significant or prolonged. In this case the reduction in value that occurred in the period is recognised through profit or loss, the amount being transferred from the negative or positive reserve that may have been recognised in equity previously. Following the recognition of impairment losses, recoveries in value continue to be recognised in the separate fair value reserve in equity if they relate to equity instruments and through profit and loss if they relate to debt instruments. Any decreases below the level of the previous impairment losses are recognised through profit and loss. Definitions relating to the fair value hierarchy (levels one, two and three) are given in Section A.4 of Part A – Accounting Policies in the Notes to the Consolidated Financial Statements.

Available-for-sale financial assets stood at €15.6 billion as at 31st December 2015 (-€3 billion year-on-year) and were held almost entirely in UBI Banca’s AFS portfolio amounting to €15.4 billion (€18.1 billion in December 2014). The remaining €0.2 billion, approximately half of which consisting of CCTs, were divided among the network banks and product companies. In the fourth quarter, IW Bank’s portfolio, which at the end of 2014 had amounted to €313 million, was almost reduced to zero (€5.4 million remained) following sales and maturities of CCT and Republic of Italy securities.

Debt securities, which account for 98% of the portfolio, fell to €15.3 billion3, while €14.4 billion of these consist of Italian government securities. In addition to the disposals already mentioned by IW Bank, the investment in government securities was also affected by the following transactions performed by the Parent: sales of BTPs for €825 million nominal in the first quarter; the disposal of a Republic of Italy security for €250 million nominal and the maturity of a

CTZ for €50 million nominal in the second quarter; disposals of BTPs for €1.75 billion nominal in the third quarter; purchases of BTPs for €610 million nominal, partially offset by the sale of BTPs for €350 million

nominal and a Republic of Italy security for €50 million nominal in the fourth quarter. - In June and October-November, UBI Banca also carried out two switching operations which together involved BTPs for a nominal amount of €2.75 billion. These transactions lengthened the maturities of the investments slightly. - Other debt instruments grew to €0.9 billion from €0.7 billion before. Redemptions and sales of corporate bonds occurring mainly in the first quarter (€0.3 billion) and regarding securities issued by Italian European banks classified mainly in fair value level two held in UBI Banca’s portfolio, were followed in the fourth quarter by purchases amounting to €0.5 billion of corporate bonds, again in the Parent’s portfolio, classified mainly in fair value level one. - The operation carried out in the fourth quarter regarded a basket of securities differentiated by sector and by rating which forms part of a policy to diversify investments and change the mix of portfolios mentioned in the introduction to this section.

3 As at 31st December 2015, as before at the end of 2014, these did not include direct investments in ABS instruments.

Available-for-sale financial assets: composition

Figures in thousands of euro L 1 L 2 L 3Carrying amount

L 1 L 2 L 3Carrying amount

amount %

Debt instruments 14,943,588 313,310 26,370 15,283,268 17,336,688 908,890 1,013 18,246,591 -2,963,323 -16.2%

of which: Italian government securities 14,269,042 154,582 - 14,423,624 17,063,694 469,455 - 17,533,149 -3,109,525 -17.7%

Equity instruments 3,261 - 208,748 212,009 2,495 94 177,101 179,690 32,319 18.0%

Units in UCITS 12,405 46,600 - 59,005 83,882 44,793 - 128,675 -69,670 -54.1%

Financing - - - - - - - - - -

Total 14,959,254 359,910 235,118 15,554,282 17,423,065 953,777 178,114 18,554,956 -3,000,674 -16.2%

31.12.2015 31.12.2014 Changes

135

Finally we report that €25.2 million was recognised in fair value level three for the convertible bond issued by Sorgenia Spa, as part of the agreement pursuant under article 182 bis of the Bankruptcy Law4. - - Equity instruments 5 recorded growth compared with December (up €212 million from €179.7 million before). - This item was affected over the twelve month period by the following movements in fair value level three: - the partial sale, concluded in December 2015 of the interest held in ICBPI (572,566 shares,

accounting for 4.04% of the share capital of this institute): the fair value fell year-on-year by €10.9 million, but the investment had been revalued in the second and third quarter for a total of €75.8 million, consistent with the valuations involved when a preliminary contract was stipulated for the sale of this investment, with the receipt of gross consideration amounting to €82.2 million6;

- the recognition, again in December, of €36 million for “profit-sharing equity instruments” (“SFP Patrimonializzazione”) issued by Nuova Sorgenia Holding in conversion of original debt to the UBI Banca Group4;

- the revaluation by €8.4 million of Visa Europe Limited shares following a communication received from Visa Inc. stating its intention to purchase 100% of the share capital of that company at a pre-agreed price by the end of the first half of 2016.

Finally units in UCITS – relating almost entirely to UBI Banca – fell to €59 million from €128.7 million following the sale at the beginning year of an ETF fund with a carrying amount of €73.8 million in December 2014 (classified in fair value level one). Property funds held in the UCITS portfolio totalled €17.8 million (€15.6 million at the end of 2014): €12.4 million was recognised in fair value level one (€10.1 million in 2014) relating to the Polis Fund, affected by a partial early redemption amounting to €2.2 million during the year.

Held-to-maturity investments “Held-to-maturity investments”, asset item 50, are comprised of financial instruments that an entity intends and is able to hold to maturity. These assets are measured at amortised cost with the recognition of impairment losses, or recoveries in value when the reason for the impairment no longer exists, through profit or loss.

Held-to-maturity investments, consisting of BTP’s with maturities between 2020 and 2022 and totalling €3.05 billion nominal, recorded a book value of €3.5 billion at the end of December 2015, with changes resulting solely from the effects of accounting valuations.

4 For further details see the section “General banking business with customers: Lending”. 5 Shareholdings that are not classified as companies subject to control, joint control or significant influence are recognised here. 6 For further details see the section “Significant events in 2015”.

Held-to-maturity investments: composition

Figures in tho us ands o f euro L 1 L 2 L 3 Total L 1 L 2 L 3 Total amount %

Debt instruments 3,494,547 3,599,957 - - 3,599,957 3,576,951 3,607,673 - - 3,607,673 -82,404 -2.3%

of which: Italian government securities 3,494,547 3,599,957 - - 3,599,957 3,576,951 3,607,673 - - 3,607,673 -82,404 -2.3%

Financing - - - - - - - - - - - -

Total 3,494,547 3,599,957 - - 3,599,957 3,576,951 3,607,673 - - 3,607,673 -82,404 -2.3%

Carrying amount

31.12.2015

Fair Value

ChangesCarrying amount

31.12.2014

Fair Value

136

Financial instruments held for trading Financial assets held for trading Asset item 20, “Financial assets held for trading” (HFT), comprises financial trading instruments “used to generate a profit from short-term fluctuations in price”. They are recognised at fair value through profit or loss – FVPL. Definitions relating to the fair value hierarchy (levels one, two and three) are given in Section A.4 of Part A – Accounting Policies in the Notes to the Consolidated Financial Statements.

At the end of 2015 financial assets held for trading amounted to €994 million, consisting of on-balance sheet assets of €472 million and financial derivatives of €522 million, for which the performance and amount must be interpreted in strict relation to the corresponding item recognised within financial liabilities held for trading. Within the on-balance sheet assets, Italian government securities, which account for almost the whole amount, fell to €418.8 million from approximately €795 million a year earlier as a consequence of the following sales and purchases made by the Parent: purchases in the first quarter of €850 million nominal against sales of €800 million

nominal; purchases in the second quarter of €775 million nominal against sales of €790 million

nominal; disposals in the third quarter for €725 million nominal; purchases in the fourth quarter for €300 million. - - Other debt instruments included in the portfolio amounted to €47.8 million (€1.5 million in December 2014) of which €45 million relating to a US Treasury security with a nominal value of €50 million, purchased in the fourth quarter as part of the risk diversification policy mentioned in the introduction. - The remaining categories were again of negligible amount, composed as follows:

- equity instruments amounting to €4.6 million, largely unchanged during the year, and consisting entirely of shares classified within fair value level one;

- units in UCITS amounting to €856 thousand (down from €842 thousand before), of which €581 thousand relating to residual investments in hedge funds made before 30th June 2007.

Financial assets held for trading: composition

Figures in thousands of euro L 1 L 2 L 3Carrying amount

L 1 L 2 L 3Carrying amount

amount %

On-balance sheet assets

Debt instruments 466,320 157 100 466,577 795,206 759 254 796,219 -329,642 -41.4%of which: Italian government securities 418,790 - - 418,790 794,767 - - 794,767 -375,977 -47.3%

Equity instruments 4,614 - 2 4,616 4,544 - 447 4,991 -375 -7.5%

Units in UCITS 275 - 581 856 241 1 600 842 14 1.7%

Financing - - - - - - - - - -

Total (a) 471,209 157 683 472,049 799,991 760 1,301 802,052 -330,003 -41.1%

Derivative instruments

Financial derivatives 803 504,871 16,755 522,429 890 605,577 11,987 618,454 -96,025 -15.5%

Credit derivatives - - - - - - - - - -

Total (b) 803 504,871 16,755 522,429 890 605,577 11,987 618,454 -96,025 -15.5%

Total (a+b) 472,012 505,028 17,438 994,478 800,881 606,337 13,288 1,420,506 -426,028 -30.0%

31.12.2015 31.12.2014 Changes

137

Financial liabilities held for trading

Financial liabilities held for trading, amounted to €531.8 million and consisted solely of financial derivatives, the performance of which should be interpreted in relation to the trend recorded by derivative instruments recognised within financial assets. As in the comparative year, no on-balance sheet liability positions existed, although UBI Banca had taken limited uncovered short positions on Italian government securities during the year.

Financial assets designated at fair value The item “financial assets designated at fair value” is comprised of financial instruments classified as such in application of the fair value option (FVO). These financial assets are recognised at fair value through profit or loss. Definitions relating to the fair value hierarchy (levels one, two and three) are given in Section A.4 of Part A – Accounting Policies in the Notes to the Consolidated Financial Statements.

Financial assets designated at fair value, relating totally to the Parent, were composed as follows: - equity instruments, held as part of merchant banking and private equity business,

amounting to €71.5 million (€71.1 million in the comparative period);

- €124.5 million of units in UCITS which included the listed Tages funds in level one amounting to €119.1 million (€116.8 million recognised at the end of the previous year) and investments in hedge funds in fair value level three amounting to €5.4 million (€5.2 million

Financial liabilities held for trading: composition

Figures in thousands o f euro L 1 L 2 L 3Carrying amount

L 1 L 2 L 3Carrying amount

amount %

On-balance sheet liabilities

Due to banks - - - - - - - - - -

Due to customers - - - - - - - - - -

Debt instruments - - - - - - - - - -

Total (a) - - - - - - - - - -

Derivative instruments

Financial derivatives 7 531,773 32 531,812 300 617,452 10 617,762 -85,950 -13.9%

Credit derivatives - - - - - - - - - -

Total (b) 7 531,773 32 531,812 300 617,452 10 617,762 -85,950 -13.9%

Total (a+b) 7 531,773 32 531,812 300 617,452 10 617,762 -85,950 -13.9%

31.12.2015 31.12.2014 Changes

Financial assets designated at fair value: composition

Figures in thousands of euro L 1 L 2 L 3Carrying amount

L 1 L 2 L 3Carrying amount

amount %

Debt instruments - - - - - - - - - -

Equity instruments 1,700 3,000 66,852 71,552 3,224 3,000 64,904 71,128 424 0.6%

Units in UCITS 119,082 - 5,400 124,482 116,802 - 5,237 122,039 2,443 2.0%

Financing - - - - - - - - - -

Total 120,782 3,000 72,252 196,034 120,026 3,000 70,141 193,167 2,867 1.5%

31.12.2015 Changes31.12.2014

138

at the end of 2014). The remaining hedge funds are also present, amounting to €581 thousand, recognised within financial assets held for trading.

* * *

There are no developments to report with regard to the Madoff affair: UBI Banca is monitoring the class actions brought in the USA and the liquidation proceedings in progress in the British Virgin Islands in order to protect its creditor rights in relation to the three funds involved in the affair which are Fairfield Sigma Ltd, Kingate Euro Ltd and Kingate Global Ltd. As already reported, an official claim has been submitted for compensation to the Madoff Victim Fund with regard to all the UBI Banca positions in Madoff funds. This fund was created by the U.S. Attorney’s Office for the Southern District of New York and the Department of Justice. Its purpose is to compensate the “victims” of the investments in funds involved in the Madoff affair by distributing the sums so far recovered through various criminal, civil and confiscation actions initiated against the various parties involved in the fraud. On the other hand, recovery activities are still in progress with regard to the Dynamic Decisions Growth Premium 2X fund, in liquidation. An agreement had been signed with the receivers which gives UBI Banca preference in the redemption of sums recovered in the liquidation, in return for financing paid to the receivers.

Exposure to sovereign debt risk

Details of the UBI Banca 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 instruments issued by central and local governments and by government entities and also as loans granted to them.

* The carrying amount is different from that reported in the line “Italian government securities” in the tables relating to “Available-for-sale financial assets” due to the presence in this table of Cassa Deposito e Prestiti (a state controlled fund and deposit institution) bonds (a government issuer) amounting to €12.6 million as at 31st December 2015 and to €5.4 million as at 31st December 2014.

** The figures as at 31st December 2014 are different from those reported in the last financial report due to a more accurate statement of the existing exposure, which excludes an interest rate derivative entered into on Argentinian securities held in portfolio.

UBI Banca Group: exposures to sovereign debt risk

Country / portfolio of classification

Figures in thousands of euroNominal amount

Carrying amount

Fair valueNominal amount

Carrying amount

Fair value

- Italy 16,414,709 18,955,442 19,060,853 19,999,977 22,730,431 22,761,148

financial assets and liabilities held for trading (net exposure) 400,000 418,790 418,790 800,374 794,767 794,767

available-for-sale financial assets* 12,358,255 14,436,231 14,436,231 15,327,035 17,538,510 17,538,505

held-to-maturity investments 3,050,000 3,494,547 3,599,957 3,050,000 3,576,951 3,607,673

loans and receivables 606,454 605,874 605,875 822,568 820,203 820,203

- Spain - - - 8 8 8

loans and receivables - - - 8 8 8

- France - - - 364 364 364

loans and receivables - - - 364 364 364

- Holland 10 10 10 10 10 10

loans and receivables 10 10 10 10 10 10

- Argentina** 805 830 830 813 659 659

financial assets and liabilities held for trading (net exposure) 805 830 830 813 659 659

- United States 50,000 44,990 44,990 - - -

financial assets and liabilities held for trading (net exposure) 50,000 44,990 44,990 - - -

Total on-balance sheet exposure 16,465,524 19,001,272 19,106,683 20,001,172 22,731,472 22,762,189

31.12.201431.12.2015

139

The sovereign risk exposures of the UBI Banca Group as at 31st December 2015 were again concentrated in Italy, with a total book value of approximately €19 billion, down compared with the end of 2014 (€22.7 billion) due to reductions made in the amounts held in the AFS and HFT portfolios. Loans to Italian public administrations fell slightly to €606 million from €820 million before. The table also shows the following: the reduction to zero of lending exposures to France and Spain, while that with Holland

remained negligible and unchanged; Argentinean securities increased due to changes in market fair values; an exposure to the United States, relating to a Treasury security purchased in the fourth

quarter as part of trading activity. The following table shows the distribution by maturity of Italian government securities held in portfolio.

The average life of the AFS portfolio was 6.2 years (6 years in December 2014), that of the HTM portfolio is 4.8 years (5.8 years), while that of government securities classified within the held for trading portfolio was 4.1 years (1.4 years). Changes in the middle ranges emerge from a comparison with the previous year as follows: increases in the “one to three years” and “five to ten years” ranges attributable to the AFS

class: in the first case this is due to the presence of securities maturing in 2018 (which in the comparative year fell within a different time range) that more than offset disposals made in the second part of the year; in the second case it relates not only to switching operations carried out during the year, which lengthened the maturities (notwithstanding the movement of over 60% of the HTM portfolio into the shortest range), but also to investments made in the trading portfolio in the fourth quarter;

a reduction in the middle range “three to five years” as a result of the above-mentioned sales made as part of the switching operations.

* * * 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 summarising total debt instruments other than sovereign debt recognised among the assets of the UBI Banca Group balance sheet as at 31st December 2015 (available-for-sale financial assets, financial assets held for trading, loans and advances to banks and loans and advances to customers).

Maturities of Italian government securities

Figures in thousands o f euro

Financial assets held for trading

Available-for-sale f inancial

assets

Held-to-maturity

investments

Carrying amount

%Financial

assets held for trading

Available-for-sale f inancial

assets

Held-to-maturity

investments

Carrying amount

%

Up to 6 months 100,029 - - 100,029 0.5% 372 50,062 - 50,434 0.2%

Six months to one year - 156,271 - 156,271 0.9% 199,612 99,212 - 298,824 1.4%

One year to three years 50,226 4,877,932 - 4,928,158 26.9% 594,780 3,743,926 - 4,338,706 19.8%

Three years to five years - 1,405,203 2,336,591 3,741,794 20.4% - 7,851,586 - 7,851,586 35.8%

Five years to ten years 268,535 6,187,391 1,157,956 7,613,882 41.5% 1 3,395,529 3,576,951 6,972,481 31.8%

Over ten years - 1,796,827 - 1,796,827 9.8% 2 2,392,834 - 2,392,836 11.0%

Total 418,790 14,423,624 3,494,547 18,336,961 100.0% 794,767 17,533,149 3,576,951 21,904,867 100.0%

31.12.2015 31.12.2014

140

The book value of these investments totalled €850.3 million, up compared with €710 million a year before, the aggregate result of an increase in exposures to both ordinary corporate and banking issuers (relating almost totally to the Parent and attributable to the operation to diversify the AFS portfolio carried out in the fourth quarter for €500 million nominal, after the partial disposals carried out during the year) and, on the other hand, of the reductions recorded for Italian banking exposures, relating to the maturity in the first quarter of the year of a bond issued by major Italian bank. To complete the disclosures required by the ESMA, at the end of 2015 (as also in December 2014) the Group held no credit default products, nor did the Group carry out any transactions in those instruments during the year, either to increase its exposure or to acquire protection.

Issuer NationalityCarrying amount

Fair valueNominal amount

Carrying amount

Fair valueNominal amount

Corporate Italy 103,722 103,722 111,700 90,598 90,598 88,473

Corporate Holland 112,908 112,908 106,776 28,079 28,079 26,200

Corporate United States 77,262 77,262 72,872 11,034 11,034 10,185

Corporate Luxembourg 9 9 1,827 28,895 28,895 25,240

Corporate United Kingdom 76,663 76,663 74,037 10,111 10,111 8,987

Corporate Spain 41,522 41,522 37,900 22,640 22,640 20,271

Corporate Hungary - - - 10,226 10,226 10,000

Corporate Norway 9,626 9,626 9,000 - - -

Corporate France 70,787 70,787 66,000 43,967 43,967 40,000

Corporate Brazil - - 62 - - -

Corporate Ireland 20,297 20,297 20,100 - - -

Corporate Argentina 119 119 126 - - -

Corporate Australia 15,725 15,725 14,500 - - -

Corporate Denmark 8,075 8,075 7,500 - - -

Corporate Finland 2,033 2,033 2,000 - - -

Corporate Mexico 8,325 8,325 7,500 - - -

Corporate Germany 26,690 26,690 25,500 - - -

Total Corporate 573,763 573,763 557,400 245,550 245,550 229,356 Banking Italy 172,723 172,723 178,800 432,565 432,565 418,000

Banking Germany 5,760 5,760 5,003 2 2 3

Banking Luxembourg - - - 21,552 21,552 18,000

Banking United Kingdom 27,738 27,738 27,000 10,381 10,381 10,000

Banking Cyprus 64 64 9,500 66 66 9,500

Banking Holland 7,565 7,565 7,515 - - -

Banking Australia 15,228 15,228 14,500 - - -

Banking Finland 7,012 7,012 6,500 - - -

Banking France 8,083 8,083 8,000 - - -

Banking Ireland 5,088 5,088 5,000 - - -

Banking Spain 19,111 19,111 19,000 - - -

Banking Sweden 8,118 8,118 7,500 - - -

Total Banking 276,490 276,490 288,318 464,566 464,566 455,503 E.I.B. Luxembourg - - - 3 3 2

Total Supranational - - - 3 3 2

Total debt instruments 850,253 850,253 845,718 710,119 710,119 684,861

Debt instruments other than government securities recognised within consolidated assets

figures in thousands of euro31.12.2015 31.12.2014

141

Derivative financial instruments TRADING ACTIVITIES

As shown in table “A.1 Supervisory trading portfolio: notional, end of period and average figures” contained in the Notes to the Consolidated Financial Statements, Part E, the notional value of the derivatives recognised in the trading portfolio existing at the end of 2015 was €26.1 billion (€23.6 billion at the end of 2014). Moreover, the fair value movements again confirmed a break-even result between contracts entered into with customers and those traded on own account: a total of €522.4 million recognised within financial assets held for trading and €531.8 million within financial liabilities held for trading. HEDGING ACTIVITIES

As detailed in table “A.2.1 Banking portfolio: notional end of period and average amounts – For hedging” contained in the Notes to the Consolidated Financial Statements, Part E, the notional value of hedging derivatives held in December 2015 was €36.7 billion (€38.2 billion at the end of 2014). These mainly consisted of instruments to hedge interest rate risk relating to debt securities and in particular to fixed-rate bonds and securities classified as available-for-sale. For a proper understanding of overall trading in these instruments, their measurement at fair value must be considered in combination with the fair value of the corresponding hedged assets/liabilities. More precisely: the overall positive fair value of hedging derivatives at €594.7 million must be considered in

combination with the fair value delta relating to interest rate risk on bonds issued (€456.8 million);

the overall negative fair value shown at €749.7 million must be attributed to the fair value delta relating to the interest rate risk of loans to customers and available-for-sale securities (€702.7 million).

MANAGEMENT ACTIONS

Group management of interest rate risk hinges primarily on a natural hedging model which tends to pursue natural offsetting of risks generated by assets and liabilities. Recourse to the use of derivative instruments is therefore only made when commercial volumes do not naturally produce that offsetting or when the Group intends to reposition itself on determined levels of risk. The ALM policy pursued maintained new commercial business unhedged, offsetting interest rate risk generated by ECB refinancing drawings (TLTROs) by means of fixed-rate financial assets held in the HTM portfolio. While the macroeconomic environment sent out more positive than negative signals, in the last quarter of 2015 an assessment was made of the risk that the weak recovery seen during the year could slow down with a consequent further fall in interest rates in the shorter part of the yield curve. In consideration of the asymmetry of the possibility of transferring changes in market interest rates to interest rates (income and expense) applied to Group customers and considering that, at least for the moment, the application of negative interest rates on deposits is not feasible, the impact on net interest income of a further decrease in yields would have an extremely large effect. In view of this consideration, hedges were taken out on liability items with a maturity of between seven and ten years for a total of €1.75 billion.

142

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 Group in special purpose entities (SPEs7) concerns the following types: 1. conventional securitisation transactions 8 performed by Group member companies in

accordance with Law No. 130 of 30th April 1999; 2. the issue of covered bonds, in accordance with Art. 7-bis of Law No,130/1999.

1. The list of special purpose entities (SPEs) used for the securitisations in which the Group is involved is as follows:

UBI Lease Finance 5 Srl, 24-7 Finance Srl, UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl, UBI SPV BBS 2012 Srl. As already reported, the UBI Finance 3 Srl securitisation relating to performing loans to small to medium-size enterprises granted by Banca Popolare di Bergamo was permanently closed down in December 2015. The securitisations concerning 24-7 Finance Srl, UBI Lease Finance 5 Srl, UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BBS 2012 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. The securitisations were of the following: performing residential mortgages of the former B@nca 24-7 (24-7 Finance Srl); UBI Leasing lease contracts (UBI Lease Finance 5 Srl); performing loans to small to medium-sized enterprises of Banca Popolare di Ancona (UBI SPV BPA 2012 Srl), Banca Popolare Commercio e Industria (UBI SPV BPCI 2012 Srl) and Banco di Brescia (UBI SPV BBS 2012 Srl). 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. In October 2015 asset repurchase transactions were carried out totalling €68.5 million which involved the following SPEs: UBI SPV BPA 2012 Srl (€34.5 million), UBI SPV BPCI 2012 Srl (€12.9 million) and UBI SPV BBS 2012 Srl (€21.1 million).

2. 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 Parent9. The issue of covered bonds is designed to diversify the sources of funding and also to contain its cost.

- Transfers were made in the first half of 2015 to the SPEs UBI Finance Srl and UBI Finance CB 2 Srl involving assets of €757 million (with effect for accounting purposes from May 2015) €313 million (with effect for accounting purposes from June 2015) respectively, held by Banca Regionale Europea, Banca Popolare di Ancona, Banca Popolare Commercio e Industria, Banca Carime and Banco di Brescia.

7 Special Purpose Entities (SPEs) are special companies formed to achieve a determined objective. 8 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. With a synthetic securitisation, on the other hand, 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 such as CDSs (credit default swaps) and CLNs (credit-linked notes) or by means of personal guarantees.

9 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.

143

- Transfers were made in the second half of 2015 to the SPEs UBI Finance Srl and UBI Finance CB 2 Srl involving assets of €738 million (with effect for accounting purposes from November 2015) and €157 million (with effect for accounting purposes from December 2015) respectively, held by Banca Popolare di Bergamo, Banca Popolare di Ancona, Banca di Valle Camonica, IW Bank, Banca Carime and UBI Banca.

At the date of this report, UBI Banca has issued covered bonds totalling €10.5 billion nominal (of which €1.2 billion relating to two retained issuances) under the “first programme” (residential mortgages) for a maximum issuance of €15 billion and for a total of €2.3 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 31st December 2015 these loans amounted to €14.5 billion for UBI Finance Srl (€15.6 billion in December 2014) and to €3.2 billion for UBI Finance CB 2 Srl (unchanged compared with December 2014).

Exposures are present in the Group which relate solely to the SPEs formed for the securitisations mentioned and they all fall within the scope of the consolidation. Ordinary lines of liquidity existed at the end of the year granted by the Parent to the SPE 24-7 Finance Srl for a total of €97.6 million, entirely drawn on (€97.6 million entirely drawn on also at the end of 2014). Subordinated loans were disbursed for the three transactions completed in 2012 as a further form of guarantee when the securities were issued, which in December 2015, amounted to: €29.4 million for UBI SPV BBS 2012 Srl, €46.7 million for UBI SPV BPA 2012 Srl and €31.2 million for UBI SPV BPCI 2012 Srl. The securitisations (except for the three structured in 2012) were backed by swap contracts where the main objective is to normalise the flow of interest generated by the transferred or securitised portfolio, providing de facto immunisation to the SPE against interest rate risk. As a consequence of the downgrading of UBI Banca’s rating, which occurred starting in 2011, it became necessary to provide margin deposits for the swap contracts entered into between the Parent or other Group companies and the SPEs for the securitisations. Margin accounts were opened with an eligible institution which was the London Branch of Bank of New York Mellon (ratings: Moody’s Aa1 stab/S&P AA- stab/Fitch AA stab). The margin deposits mentioned were paid starting on 26th October 2011 for an initial total amount of a little more than €1,015 million, of which €717 million for the covered bond programme and €298 million for the securitisations. The total balance in December 2015 was €594 million, of which €495 million for the covered bond programme and €99 million for the internal securitisation transactions. With a view to diversifying the risks, on 10th December 2014, the margin account for the swaps relating to the first covered bond programme was transferred from Bank of New York Mellon to BNP Paribas Securities Services (ratings: Moody’s A1 stab/S&P A+ neg/Fitch A+ stab). 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 €23 billion (€25.5 billion at the end of 2014). The table below reports details by asset class:

144

Exposures in ABS, CDO, CMBS and other structured credit products As at 31st December 2015 the Group held no direct investments in ABS instruments. Own securitisations, eliminated when consolidating the accounts, totalled €3.7 billion in notional terms: €2.1 billion of senior notes used as collateral for advances from the ECB (see the previous section “The interbank market and the liquidity situation”) and €1.6 billion of junior notes. In addition to the direct exposures, hedge funds or funds of hedge funds were identified among the assets present in Group portfolios with exposures to CDO and CMBS structured credit products. At the end of 2015 indirect exposure to CDOs and CMBSs was €1 million (approximately €2 million in December 2014) compared with a total investment in these funds of €125 million (net of impairment losses/reversals). Other subprime, Alt-A and monoline insurer exposures Again in December 2015 indirect exposures to subprime and Alt-A mortgages and to monoline insurers existed that were contained in hedge funds or funds of hedge funds held by the Parent. The percentages of exposure to subprime and Alt-A mortgages were again low (no fund had a percentage exposure of greater than 0.5%), with total exposure to subprime and Alt-A mortgages and to monoline insurers of approximately €0.8 million (€1.5 million at the end of 2014). Leveraged Finance The term leveraged finance is used in the UBI Banca Group to refer to finance provided for a company or an initiative which has debt that is considered higher than normal on the market and is therefore considered a higher risk. Usually this finance is used for specific acquisition purposes (e.g. the acquisition of a company by other companies – either directly or through vehicles/funds – owned by internal [buy-in] or external [buy-out] management teams). They are characterised by “non investment grade” credit ratings (less than BBB-) and/or by remuneration that is higher than normal market levels. This definition coincides essentially with acquisition finance (AF) business. An acquisition involves a substantial change in the economic, financial and capital profile of the debtor. The main source of funds for the repayment of the debt contracted for the acquisition finance itself is from the future cash flows generated by the entity (a single company or a Group) after the acquisition. The three requirements necessary for the identification and consequent classification of a customer as an acquisition finance client, consistent with the definition used in the validated internal models, are as follows:

SPE underlying assets

Figures in millions of euro

Measurement Net of Gross of Net of

Entity Total assets Class of underlying asset Accounting criteria impairment impairment impairment

Classification adopted losses losses losses

24-7 Finance 1,330.7 Mortgages L&R AC 1,131.2 1,128.7 1,287.6 1,280.0 UBI Lease Finance 5 2,272.7 Leasing L&R AC 1,852.0 1,839.0 2,176.5 2,176.5

UBI Finance 14,736.3 Mortgages L&R AC 14,246.3 14,227.3 14,556.7 14,531.5 UBI Finance CB 2 3,196.5 Mortgages L&R AC 2,970.1 2,957.6 3,011.5 2,999.0

UBI Finance 3 Loans to businesses L&R AC - - 1,264.0 1,257.4 UBI SPV BBS 2012 440.7 Loans to SMEs L&R AC 410.4 408.2 547.4 544.1 UBI SPV BPA 2012 596.8 Loans to SMEs L&R AC 555.2 551.6 744.4 739.0 UBI SPV BPCI 2012 410.9 Loans to SMEs L&R AC 389.0 387.3 512.3 509.9

Total impaired assets, mortgages and loans 1,263.1 1,051.1 1,225.3 1,030.6 Total impaired assets, leasing 527.3 433.7 513.3 432.6

TOTAL 22,984.6 23,344.6 22,997.5 25,839.0 25,500.6

Classification of underlying assets of the securitisation 31.12.201431.12.2015

Gross of impairment

losses

145

Europe:2% (3%)

Italy 93% (97%)

Other: 5% (0%)

Manufacturing sector:

73% (75%)

Commerce and services:

27% (25%)

credit lines are granted to finance the acquisition of control of one or more third party companies and/or activities held by third parties and/or the refinancing of prior exposures relating to the same companies/activities subject to the acquisition (purpose requirement);

the effect of the acquisition consists of an increase in the turnover of the “enlarged” group of companies, i.e. the sum of the turnover of the acquiring group and the turnover of the target group is 40% greater than that of the acquiring group alone (size requirement)10;

no more than four years have passed since the date of the first grant of credit lines to finance the acquisition (“vintage” requirement)11. Once that time has passed the transactions are considered “conventional corporate” transactions and therefore in the presentation that follows, only transactions classified as “acquisition finance” as at the dates indicated have been considered.

The table summarises on- and off-balance sheet exposure for leveraged finance by the UBI Banca at the end of December. These loans (on-balance sheet) accounted for approximately 0.5%. of total UBI Banca Group loans. The amounts shown (on- and off-balance sheet) relate to 58 positions (counterparties) for a total average net exposure per position of €8.4 million. Six positions existed with exposures of greater than €20 million, all relating to on-balance sheet loans and receivables, and they account for around 40% of the total. The graphs show the distribution of leveraged exposures by geographical area and sector.

Distribution of UBI Banca leveraged exposures as at 31st December 2015

(the figures as at 31st December 2014 are given in brackets)

EXPOSURE BY GEOGRAPHICAL AREA EXPOSURE BY SECTOR

Residual exposures also existed within the Group amounting to €30.8 million, relating to transactions performed by the network banks for a total of 22 positions with average exposure per transaction of €1.4 million.

10 The threshold has been set at 40% because on the basis of experience it is considered that this percentage of change in “dimension” involves a significant discontinuity for the Group after the operation compared with before it and therefore the official operating and financial documentation (consolidated/separate financial statements of the acquirer) will not be representative of the new reality. This threshold was also set along the same lines as the requirements for the “special procedure” set for other counterparties assessed using the corporate rating model. Where an acquisition is concluded by using a specially formed vehicle, a newco (and therefore usually irrelevant from the viewpoint of dimension), this second requirement is deemed always satisfied.

11 This is considered sufficient time to absorb the impacts of the discontinuity determined by the acquisition, described in footnote 10.

used impairment used impairment

491.0 -22.4 20.7 -1.5

401.4 -22.6 15.5 -1.5

31 December 2015

31 December 2014

UBI Banca leveraged finance business (Acquisition Finance)

figures in millio ns o f euroOn-balance sheet exposure Unsecured guarantees

gross exposure to customers gross exposure to customers

146

The distribution of the loans disbursed was as follows: Banca Popolare di Ancona €13.6 million, Banca Popolare di Bergamo €9.1 million, Banco di Brescia €6.4 million and Banca Popolare Commercio e Industria €1.7 million. 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 update as at 31st December 2015 showed the following:

- the notional amount for existing contracts, totalling €5.876 billion, was attributable to interest rate derivatives amounting to €5.345 billion and currency derivatives amounting to €0.493 billion plus a marginal notional amount for commodities contracts (€38 million);

- transactions in hedging derivatives accounted for 99.9% of the notional amount traded and 97.4% 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 -€350 million. Those contracts with a negative mark-to-market for customers were valued at -€366 million.

- the total negative mark-to-market for customers stood at 6.2% of the notional amount of the contracts, compared with 8.2% at the end of 201412.

The rules governing trading in OTC derivatives with customers are contained in the “Policy for the trading, sale and subscription of financial products” and in the relative documents to implement it, updated in 2015, 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;

• 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.

12 The figure at the end of 2014 incorporated the impacts of the progressive reduction in interest rates, which have fallen to extremely low levels. At the end of 2015 short-term swap rates had fallen further against a rise in the same medium to long-term rates, which caused an improvement in the mark-to-market prices for longer maturity products.

147

OTC interest rate derivatives: details of instrument types and classes of customer Data as at 31st December 2015

Type of instrument Customer classificationNumber of transaction Notional MtM of which negative MtM

Purchase of caps Qualified 13 35,441,232.54 25,435.92 -

3: Professional 49 100,863,873.46 216,405.12 -

2: Non private individual retail 706 251,629,311.28 616,615.24 -

1: Private individual retail 644 71,390,051.23 175,594.22 -

Purchase of caps Total 1,412 459,324,468.51 1,034,050.50 -

Purchase of floors 3: Professional 2 25,573,233.44 420,528.77 - Purchase of floors Total 2 25,573,233.44 420,528.77 -

Capped swaps Qualified 15 13,580,071.13 -240,723.02 -240,723.02

3: Professional 57 211,403,473.05 -7,179,847.35 -7,179,847.35

2: Non private individual retail 904 527,673,078.71 -11,920,329.81 -11,920,329.81

1: Private individual retail 1,519 162,555,227.97 -2,861,603.71 -2,861,603.71

Capped swaps Total 2,495 915,211,850.86 -22,202,503.89 -22,202,503.89

IRS Plain Vanilla Qualified 29 112,050,606.04 -7,739,793.26 -7,739,793.26

3: Professional 345 1,668,892,314.90 -105,654,822.22 -106,511,924.65

2: Non private individual retail 1,294 1,701,537,446.56 -142,237,253.74 -142,600,431.33

1: Private individual retail 345 66,545,463.65 -2,841,120.75 -2,911,327.12

Plain Vanilla IRS Total 2,013 3,549,025,831.15 -258,472,989.97 -259,763,476.36

IRS Step up 3: Professional 24 243,302,726.74 -57,379,394.09 -57,379,394.09

2: Non private individual retail 32 60,513,725.31 -15,947,907.41 -15,947,907.41

1: Private individual retail 2 1,020,553.25 -176,130.29 -176,130.29

IRS Step up Total 58 304,837,005.30 -73,503,431.79 -73,503,431.79

Floored Swaps 3: Professional 6 34,413,793.11 -258,002.03 -258,002.03

2: Non private individual retail 4 2,066,070.05 -23,458.00 -23,458.00

1: Private individual retail 3 458,508.78 -10,751.06 -10,751.06

Floored Swaps 13 36,938,371.94 -292,211.09 -292,211.09

Purchase of collars Qualified 1 4,957,288.67 -395,521.41 -395,521.41

3: Professional 1 7,500,000.00 -36,629.29 -36,629.29

2: Non private individual retail 3 3,862,754.42 -105,658.19 -106,584.57

Purchase of collars Total 5 16,320,043.09 -537,808.89 -538,735.27

Total Class 1: hedging derivatives 5,998 5,307,230,804.29 -353,554,366.36 -356,300,358.40 Class 1: % of Group total 99.8% 99.3% 99.4% 99.4%

Purchase of caps with KI/KO 3: Professional 1 13,297,872.42 -171,962.41 -171,962.41 2: Non private individual retail 3 1,911,348.92 -9,184.04 -9,184.04

Purchase of caps with KI/KO Total 4 15,209,221.34 -181,146.45 -181,146.45

Purchase of collars with KI/KO2: Non private individual retail 1 2,924,800.00 -828,998.17 -828,998.17

Purchase of collars with KI/KO Total 1 2,924,800.00 -828,998.17 -828,998.17

IRS Convertible Qualified 1 8,192,835.73 -116,008.59 -116,008.59 3: Professional 1 2,916,666.67 -39,490.52 -39,490.52 2: Non private individual retail 4 4,430,652.56 -717,148.94 -717,148.94

IRS Convertible Total 6 15,540,154.96 -872,648.05 -872,648.05

Total Class 2: hedging derivatives with possible exposure 11 33,674,176.30 -1,882,792.67 -1,882,792.67 to contained financial risks

Class 2: % of Group total 0.2% 0.6% 0.5% 0.5%

3a

IRS Range 2: Non private individual retail 1 2,000,000.00 -140,502.75 -140,502.75

IRS Range Total 1 2,000,000.00 -140,502.75 -140,502.75

Total Class 3a: partial hedging derivatives and 1 2,000,000.00 -140,502.75 -140,502.75 maximum pre-established loss

3b

Gap floater swaps 2: Non private individual retail 1 1,710,627.00 -244,815.39 -244,815.39

Gap floater swaps Total 1 1,710,627.00 -244,815.39 -244,815.39

Total Class 3b: speculative derivatives and maximum loss 1 1,710,627.00 -244,815.39 -244,815.39 unquantifiable

Total Class 3: derivatives not for hedging 2 3,710,627.00 -385,318.14 -385,318.14

Class 3: % of Group total 0.0% 0.1% 0.1% 0.1%

Total UBI Banca Group 6,011 5,344,615,607.59 -355,822,477.17 -358,568,469.21

Product class

1

2

148

OTC currency derivatives: details of instrument types and classes of customer

Data as at 31st December 2015

Product class

Type of instrument Customer classificationNumber of

transactionsNotional MtM

of which negative MtM

Forward synthetic Qualified 3 1,536,580.27 63,680.54 -1,609.25 3: Professional 99 55,653,740.38 149,550.96 -656,662.77 2: Non private individual retail 56 13,603,590.72 157,995.65 -52,205.41

Forward synthetic Total 158 70,793,911.37 371,227.15 -710,477.43

Plafond Qualified 10 7,924,807.79 -106,762.19 -125,756.40 3: Professional 190 211,566,093.21 2,154,951.52 -2,590,324.54 2: Non private individual retail 348 115,787,124.90 118,154.38 -1,624,192.78

Plafond Total 548 335,278,025.90 2,166,343.71 -4,340,273.72

Currency collars 3: Professional 3 738,167.60 -41,950.40 -41,950.40 2: Non private individual retail 1 675,675.68 -253.48 -253.48

Currency collars Total 4 1,413,843.28 -42,203.88 -42,203.88

Vanilla currency options purchased Qualified 1 2,290,076.34 457,893.76 - 3: Professional 10 2,487,127.88 47,437.87 - 2: Non private individual retail 1 892,857.14 33,282.14 -

Vanilla currency options purchased 12 5,670,061.36 538,613.77 -

Total Class 1: hedging derivatives 722 413,155,841.91 3,033,980.75 -5,092,955.03

Class 1: % of Group total 79.1% 83.8% - 93.0%

2Knock in collars 3: Professional 29 9,853,690.09 -76,364.37 -117,793.12

2: Non private individual retail 1 1,785,714.29 54,470.96 - Knock in collars Total 30 11,639,404.38 -21,893.41 -117,793.12

Knock in forwards 3: Professional 73 46,752,430.15 2,874,544.08 -110,391.30 2: Non private individual retail 12 4,588,247.50 38,839.24 -4,995.93

Knock in forwards Total 85 51,340,677.65 2,913,383.32 -115,387.23

New collars 3: Professional 5 3,291,034.99 -13,034.35 -13,452.78 2: Non private individual retail 1 913,182.79 11,863.66 -

New collars Total 6 4,204,217.78 -1,170.69 -13,452.78

Total Class 2: hedging derivatives with possible exposure 121 67,184,299.81 2,890,319.22 -246,633.13 to contained financial risks

Class 2: % of Group total 13.2% 13.6% - 4.5%

Knock out knock in forwards 3: Professional 60 7,093,719.82 7,032.52 -38,285.23 Knock out knock in forwards Total 60 7,093,719.82 7,032.52 -38,285.23

Vanilla currency options sold by the customer 3: Professional 10 5,722,087.31 -97,890.64 -97,890.64 Vanilla currency options sold by the customer Total 10 5,722,087.31 -97,890.64 -97,890.64

Total Class 3: derivatives not for hedging 70 12,815,807.13 -90,858.12 -136,175.87

Class 3: % of Group total 7.7% 2.6% - 2.5%

Total UBI Banca Group 913 493,155,948.85 5,833,441.85 -5,475,764.03

1

3b

149

OTC commodities derivatives: details of instrument types and classes of customer

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

Data as at 31st December 2015

Type of instrument Customer classificationNumber of transactio

Notional MtMof which negative

MtM

Commodity swaps Qualified 1 2,483,246.12 1,710,104.65 -3: Professional 56 21,260,592.22 -740,971.63 -1,456,210.632: Non private individual retail 8 1,205,403.65 -26,612.00 -27,832.00

Commodity swaps Total 65 24,949,241.99 942,521.02 -1,484,042.63

Forward synthetic commodities Qualified 1 217,650.00 -1,650.00 -1,650.003: Professional 40 9,667,395.52 -700,855.98 -757,464.982: Non private individual retail 8 2,592,105.00 -1,695.00 -47,687.00

Forward synthetic commodities Total 49 12,477,150.52 -704,200.98 -806,801.98

Total Class 2: hedging derivatives with possible exposure 114 37,426,392.51 238,320.04 -2,290,844.61 to contained financial risks

Class 2: % of Group total 99.1% 99.0% - 99.4%

Vanilla options on commodities purchased 3: Professional 1 394,748.92 -13,855.69 -13,855.69Vanilla options on commodities purchased 1 394,748.92 -13,855.69 -13,855.69

Total Class 3: derivatives not for hedging 1 394,748.92 -13,855.69 -13,855.69

Class 3: % of Group total 0.9% 1.0% - 0.6%

Total UBI Banca Group 115 37,821,141.44 224,464.36 -2,304,700.30

TOTAL UBI BANCA GROUP 7,039 5,875,592,697.88 -349,764,570.96 -366,348,933.54

Product class

2

3

Data as at 31st December 2015

Bank Classification MtM of which negative MtM

UBI Banca 3: Professional -54,070,974 -54,070,974 3: Professional -27,014,195 -27,014,195 3: Professional -8,705,765 -8,705,765 3: Professional -7,476,494 -7,476,494 3: Professional -5,607,717 -5,607,717

Banca Popolare Commercio e Industria 2: Non private individual retail -6,654,080 -6,654,080 Qualified -3,676,080 -3,676,080 3: Professional -2,631,241 -2,631,241 2: Non private individual retail -1,989,363 -1,989,363 2: Non private individual retail -1,571,506 -1,571,506

Banca Popolare di Ancona 3: Professional -1,840,370 -1,840,370 2: Non private individual retail -1,669,266 -1,669,266 3: Professional -1,295,180 -1,295,180 2: Non private individual retail -1,227,130 -1,227,130 2: Non private individual retail -1,174,578 -1,174,578

Banco di Brescia 3: Professional -3,794,332 -3,794,332 Qualified -2,526,998 -2,526,998 2: Non private individual retail -2,137,876 -2,137,876 2: Non private individual retail -1,866,080 -1,866,080 3: Professional -1,147,563 -1,147,563

Banca Popolare di Bergamo 3: Professional -3,177,821 -3,177,821 2: Non private individual retail -2,050,480 -2,050,480 2: Non private individual retail -1,063,266 -1,063,266 2: Non private individual retail -801,971 -801,971 2: Non private individual retail -713,890 -713,890

Banca Regionale Europea 2: Non private individual retail -842,952 -842,952 3: Professional -694,998 -702,843 3: Professional -579,955 -579,955 3: Professional -551,818 -551,818 2: Non private individual retail -401,149 -401,149

Banca Carime 2: Non private individual retail -432,392 -432,392 3: Professional -170,221 -170,221 2: Non private individual retail -77,760 -77,760 2: Non private individual retail -29,831 -29,831 2: Non private individual retail -29,513 -29,513

Banca di Valle Camonica 2: Non private individual retail -215,956 -215,956 2: Non private individual retail -197,715 -197,715 3: Professional -197,085 -197,085 2: Non private individual retail -140,503 -140,503 3: Professional -107,725 -107,725

150

Equity and capital adequacy

Changes in consolidated shareholders’ equity

The equity attributable to the shareholders of the Parent, UBI Banca, as at 31st December 2015 inclusive of profit for the year, was €9,982 million, an increase compared with €9,804 million at the end of 2014. As shown in the table “Changes in the consolidated equity of the Group in 2015”, the increase of approximately €178 million is the result of the following:

the allocation of €75.6 million for dividends (UBI Banca) and other uses (other Group banks) drawn from the extraordinary reserve1;

a further improvement of €147 million in the positive balance on valuation reserves, generated entirely by the impact of comprehensive income as follows: €133.6

1 Due to the loss incurred by the Parent recognised in 2014, amounting to €725.8 million (-€703.6 million inclusive also of non-controlling interests), the share premium reserve was reduced by €918.4 million and over €192.6 million was allocated to reserves of profits.

Figures in thousands of euro Equityof which: Net profit for

the year

Equity and profit for the year as in the financial statements of the Parent 8,758,946 123,423

Effect of the consolidation of subsidiaries including joint ventures 639,166 176,483

Effect of measuring other significant equity investments using the equity method 39,896 35,260

Dividends received during the year - -240,646

Other consolidation adjustments (including the effects of the PPA) 543,854 22,245

Equity and profit for the year as in the consolidated financial statements 9,981,862 116,765

Reconciliation between equity and profit for the year of the Parent with consolidated equity as at 31st December 2015 and profit for the year then ended

Changes in consolidated equity of the Group in 2015

31.12.2015

Figures in thousands of euro

Share capital: 2,254,371 - - - - - - 2,254,371

a) ordinary shares 2,254,371 - - - - - - 2,254,371

b) other shares - - - - - - - -

Share premiums 4,716,866 -918,436 - - - - - 3,798,430

Reserves 3,450,082 192,669 -75,630 -10,518 - - - 3,556,603

Valuation reserves 113,836 - - - - 147,012 260,848

Treasury shares -5,340 - - 185 - - - -5,155

Result for the year -725,767 725,767 - - - - 116,765 116,765

Equity attributable to the shareholders of the Parent 9,804,048 - -75,630 -10,333 - - 263,777 9,981,862

Equity attributable to

the shareholders of

the Parent

Balances as at

31.12.2014

Allocation of prior year profit

2015 Changes

Changes in reserves

Equity transactions Consolidated

comprehensive incomeReserves Stock options

Dividends and other

uses

New share issues

Valuation reserves attributable to the Group: composition

Figures in thousands of euro 31.12.2015 31.12.2014

Available-for-sale financial assets 288,538 154,926

Cash flow hedges -285 -851

Currency translation differences -243 -243

Actuarial gains/losses for defined benefit pension plans -86,177 -99,011

Special revaluation laws 59,015 59,015

Total 260,848 113,836

151

million for available for sale financial assets; €12.8 million for actuarial gains/losses relating to defined benefit pension plans; €0.6 million for cash flow hedges;

a decrease of €10.5 million in other reserves;

an increase of €0.2 million following the grant of shares to the “Key Personnel” of the Group in relation to incentive schemes;

recognition of the profit for the year amounting to €116.8 million.

As shown in the table, the increase mentioned above of €133.6 million in the “fair value reserve for available-for-sale financial assets” is entirely attributable to debt instruments held in portfolio (for which the positive balance improved to €217.1 million net of tax and non-controlling interests) and to Italian government securities in particular. The relative reserve, which was positive by €212.4 million, recorded a recovery of €129.3 million compared with December 2014, attributable entirely to the Parent’s portfolio. Over twelve months, the reserve for debt instruments recorded increases in fair value of €269 million, of which €217.9 million relating to the Parent (almost entirely on Italian government securities), and €51.1 million to Lombarda Vita (primarily on its Italian government securities portfolio). The table also shows “transfers to income statement of negative reserves” amounting to €27.7 million: €27.3 million for disposals, relating mostly to UBI Banca for the sale of government securities and to a minor extent to Lombarda Vita, and €0.4 million for impairment, of which €0.3 million due to the write-down of a bond held by the Parent. Decreases include the following: reductions in fair value amounting to €65.9 million, of which: €51.5 million relating to

Lombarda Vita; €13.7 million to UBI Banca (over 90% of which on government securities); €0.7 million to the network banks (relating to the Italian government securities portfolio);

“transfers to the income statement from positive reserves from disposals” amounting to €96.7 million, of which: €90.3 million by UBI Banca due primarily to the disposal of Italian government securities; €3 million relating to Lombarda Vita and €3.4 million to IW Bank;

impairment losses of €0.5 million attributable entirely to Lombarda Vita.

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

1. Debt instruments 236,554 -19,484 217,070 263,655 -180,211 83,444

2. Equity instruments 59,421 -257 59,164 63,449 -1,306 62,143

3. Units in UCITS 12,314 -10 12,304 11,600 -2,261 9,339

4. Financing - - - - - -

Total 308,289 -19,751 288,538 338,704 -183,778 154,926

31.12.2014

Fair value reserves of available-for-sale financial assets attributable to the Group: composition

31.12.2015

Fair value reserves of available-for-sale financial assets attributable to the Group: annual changes

Figures in thousands of euro Debt instrumentsEquity

instrumentsUCITS units Financing Total

1. Opening balances as at 1st January 2015 83,444 62,143 9,339 - 154,926

2. Positive changes 296,695 25,226 15,333 - 337,254

2.1 Increases in fair value 268,969 24,108 12,294 305,371

2.2 Transfer to income statement of negative reserves 27,698 1,118 3,039 - 31,855

- following impairment losses 361 370 1,309 2,040

- from disposal 27,337 748 1,730 29,815

2.3 Other changes 28 - - 28

3. Negative changes -163,069 -28,205 -12,368 - -203,642

3.1 Reductions in fair value -65,866 -7,736 -11,007 -84,609

3.2 Impairment losses -501 - -524 -1,025

3.3 Transfer to income statement of positive reserves: from disposal -96,682 -20,469 -837 -117,988

3.4 Other changes -20 - - -20

4. Closing balances as at 31st December 2015 217,070 59,164 12,304 - 288,538

152

Equity instruments held in portfolio benefited from increases in fair value of €24.1 million of which €14 million relating to the stake held by the Parent in Istituto Centrale delle Banche Popolari Italiane2 and €7 million (of which €2 million relating to UBI Banca and €5 million to IW Bank) to the revaluation in December of Visa Europe Limited shares3 and €2.5 million to Lombarda Vita. We also report “transfers to the income statement of negative reserves” amounting to €1.1 million (attributable almost entirely to Lombarda Vita), and reductions in fair value of €7.7 million (€2.3 million for UBI Banca concerning S.A.C.B.O., €2.9 million for Lombarda Vita and €2.5 million for Banca Popolare di Bergamo) and “transfers to the income statement from positive reserves from disposals” amounting to €20.5 million relating primarily to the disposal of the interest held by the Parent in ICBPI and to a minor extent to Lombarda Vita (€0.7 million). Units in UCITS recorded increases in fair value amounting to €12.3 million, of which €8.1 million relating to Lombarda Vita and €4.2 million to UBI Banca, in addition to “transfers of negative reserves to the income statement” of €3 million, which included €1.7 million from disposal (€1.3 million relating to Lombarda Vita and €0.4 million to UBI Banca) and €1.3 million due to impairment (€1 million relating to Lombarda Vita and €0.3 million to the Parent for the write-down of an ETF fund). Reductions included decreases in fair value of €11 million (€9.6 million for Lombarda Vita; €1.4 million for UBI Banca), “transfers to the income statement of positive reserves from disposals” of €0.8 million (Lombarda Vita) and impairment losses of €0.5 million relating to the write-down of two UBI Banca funds in the third quarter.

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. The CRR came directly into force in member states, while the regulations contained in CRD IV were implemented in national legislation with Legislative Decree No. 72 of 12th May 2015, which came into force on 27th June 2015. On conclusion of a public consultation process started in November 2013, on 17th December the Bank of Italy published Circular No. 285 “Regulations for the prudential supervision of banks”, which updated, 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” (a set of regulations that was updated several times in 2014 and 2015). As already reported, the introduction of Basel 3 rules is subject to a transitional regime during which, in most cases, the new rules will be applied to an increasing degree until 2019, when they will reach full application. At the same time, capital instruments that no longer qualify will be gradually excluded from total capital for regulatory purposes by 2021. The minimum capital requirements requested by regulations for 2015 given as a percentage of risk weighted assets (RWA) are as follows: - the Common Equity Tier 1 capital must be equal to at least 4.5% of total RWA; - the Tier 1 capital must be equal to at least 5.5% of total RWA; - own funds (the sum of Tier 1 and Tier 2 capital) must be equal to at least 8% of total RWA. Additionally, banks are obliged to hold a capital conservation buffer equal to 2.5%. Therefore, the minimum capital ratios requested inclusive of the capital conservation buffer are 7% for the Common Equity Tier 1 ratio, 8% for the Tier 1 ratio and 10.5% for the total own funds ratio.

As already reported, on the basis of the SREP decision communicated on 25th February 2015, for 2015 the UBI Banca Group was required to comply with a CET1 ratio of 9.5% and a Total Capital Ratio of 11%. The SREP decision communicated on 27th November 2015 reduced the CET1 ratio required for 2016 to 9.25%. The capital ratios commented on below incorporate the hypothesis of the redemption of shares subject to withdrawal up to a maximum of €13.2 million4, equivalent to 2 basis points of the capital.

2 Due to the change in the fair value of the investment that occurred consistent with the valuations performed when a preliminary contract for the sale of part of the stake held was signed.

3 The revaluation was carried out in December following the receipt of a communication from Visa Inc. stating its intention to purchase 100% of the share capital of the company at a pre-agreed price.

4 See the section “Significant events that occurred during the year” for further information.

153

On the basis of the transition criteria applied for 2015, as at 31st December 2015, the UBI Banca Group had a Common Equity Tier 1 (CET1) Ratio and a Tier 1 Ratio of 12.08%5 (12.33% in December 2014), 283 basis points higher than the new SREP requirement of 9.25%. The pro forma CET1 ratio as at 31st December 2015, calculated on the basis of the rules that will be in force at the end of the transitional period (known as the fully phased-in CET1 ratio) is estimated at 11.62%. The ratios reported were affected primarily by a reduction recorded in the level of the CET1 capital (from €7,615 million to €7,409 million, a decrease of €206 million). In addition to the €13 million already mentioned concerning the right of withdrawal, the CET1 capital was affected mainly by the following: -€178 million attributable to an increase in the shortfall of provisions to expected losses; -€81 million due to a decrease in eligible non-controlling interests as a result both of

transitional provisions which require a gradual exclusion of non-controlling interests as not eligible (40% in 2015 compared with 20% in 2014) and the purchase of stakes by non-controlling interests in Banca di Valle Camonica;

+€33 million from an increase in the net AFS reserves of unrealised profits on equity instruments and debt instruments that are not EU government securities, as a result of the 60% sterilisation impact in 2015 compared with 100% in 2014.

The total capital ratio (TCR) stood at 13.93% (15.29% in December 2014), the result of two opposing impacts: a reduction in total own funds (down to €8.5 billion from €9.4 billion before) as a result of

the decrease in the CET1 capital mentioned above and a reduction in the Tier 2 capital (down to €1.1 billion from €1.8 billion at the end of 2014), due to the progressive amortisation of the eligible subordinated securities;

a slight reduction in risk weighted assets down from €61.8 billion to €61.3 billion. The regulatory requirements, which are the basis for the calculation of risk weighted assets, resulted in a slight fall in the absorption of capital for credit risk. This was the aggregate result on the one hand of the impact of the annual update of the risk parameters (the historical data series for credit parameters) and the exposure to the Resolution Fund for the rescue of the four Italian banks (see the section “the European Banking Union”) and on the other hand of the fall in lending by the product companies which still employ the standardised approach and the migrations to default status that affected the AIRB portfolios. A decrease was also recorded in the capital requirements for operational risk (following updates and modifications to the databases, e.g. updating historical data depth, the merger of IW Bank into UBI Banca Private Investment) offset by a greater requirement for market risk in relation to the increased diversification of investments towards corporate bonds in the AFS portfolio.

The CET1 ratio fell by 92 basis points (from 13%) compared with 30th September 2015, affected by the increase in capital requirements for credit risk (+€246 million) attributable primarily to the update of the historical data series (in order to include trends observed up to the end of 2014 with a historical depth of eight years for the corporate segment and five years for the retail segment) but also to a recovery in lending which included the loan to the Resolution Fund. Recent changes in the ratio were also affected by the impact of the extraordinary contribution to that fund on the CET1 capital. Finally with regard to Basel 3 requirements, the leverage ratio stood at 6% (5.95% in December 2014)6, while the fully loaded ratio is 5.81%.

5 Inclusive of profit for 2015 net of the deduction for the proposed dividends. 6 Under Basel 3, leverage is calculated as the ratio of Tier 1 capital to total on- and off-balance sheet assets, with a minimum

requirement of 3%. The ratio was calculated according to the provisions of the CRR, as amended by Commission Delegated Act (EU) No. 62/2015: for consistency, the comparison figure as at 31st December 2014 was recalculated and therefore differs from that published in the 2014 annual report.

154

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.

* In compliance with transition measures concerning own funds contained in Part II, Chapter 14 of Bank of Italy Circular No.

285 of 17th December 2013 and subsequent amendments (“Regulations for the supervision of banks”), advantage was taken in the calculation of the regulatory capital of the UBI Banca Group of the option to not include unrealised gains or losses relating to exposures to central governments classified within “available-for-sale financial assets” in any element of own funds. That option was exercised within the time limit set of 31st January 2014 and was applied at separate company and at consolidated level. This item, which was negative, therefore relates to the sterilisation from the CET1 capital of AFS reserves on Italian government securities, which increased during the year.

Capital ratios (Basel 3)

Figures in thousands of euro 31.12.2015 31.12.2014

Common Equity Tier 1 capital before filters and transitional provisions 8,182,013 8,029,856

Effects of transitional provisions provided for by the regulations (minority interests) 176,599 258,088

Effects of transitional provisions provided for by the regulations (AFS reserves) -59,068 -92,457

Adjustments to Common Equity Tier 1 capital due to prudential filters provided for by the regulations -3,136 -1,896

Government securities sterilisation effect* -190,983 -59,989

Common Equity Tier 1 capital net of prudential filters 8,105,425 8,133,602

Deductions from Common Equity Tier 1 capital in relation to negative items for shortfall of provisions to expected losses, inclusive of the application of transitional provisions

-696,531 -518,337

Common Equity Tier 1 capital 7,408,894 7,615,265

Additional Tier 1 capital before deductions 38,891 37,627

Deductions from Additional Tier 1 capital in relation to negative items for shortfall of provisions to expected losses, inclusive of the application of transitional measures

-38,891 -37,627

Additional Tier 1 capital - -

Tier 1 capital (Common Equity Tier 1 + Additional Tier 1) 7,408,894 7,615,265

Tier 2 capital before transitional provisions 1,443,464 2,187,759

Effects of grandfathering provisions on Tier 2 instruments - -

Tier 2 capital after transitional provisions 1,443,464 2,187,759

Deductions from Tier 2 capital -307,341 -361,426

of which: negative items due to shortfall of provisions to expected losses, inclusive of the application of transitional provisions -315,181 -370,643

Tier 2 capital after specific deductions 1,136,123 1,826,333

Total own funds 8,545,017 9,441,598

Credit risk 4,536,654 4,572,697

Credit valuation adjustment risk 15,519 14,721

Market risk 78,762 56,539

Operational risk 276,654 297,050

Total prudential requirements 4,907,589 4,941,007

Risk weighted assets 61,344,866 61,762,588

Common Equity Tier 1 ratioCommon Equity Tier 1 capital after f ilters and deductions / Risk w eighted assets) 12.08% 12.33%

Tier 1 ratio (Tier 1 capital after f ilters and deductions / Risk w eighted assets) 12.08% 12.33%

Total capital ratio (Total ow n funds / Risk w eighted assets) 13.93% 15.29%

155

Research & Development

Given that the Group offers chiefly financial and banking services, its research and development activities prevalently seek to study the possible applications of new technology developments in customer relations, to improve and/or augment the range of products and services offered by the Group and its internal corporate processes, with the aim of simplifying and streamlining them. These activities are performed centrally by UBI Sistemi e Servizi. In 2015 the company continued the work begun the previous year to develop the technological platform for its “Digital Innovation” project. In the first quarter, focus was on delivering this project, with significant improvements made to the performance and reliability of the www.ubibanca.com website and related mobile applications. Attention subsequently shifted to the integration of IW Bank’s systems and applications with the Group’s IT system, enabling communication between the two platforms ahead of the merger of IW Bank into UBI Banca Private Investment, which took place on 25th May. This was the first phase of a wider project, to be rolled out in full during 2016, involving the convergence of legacy IT systems into a single platform, generating synergies in terms of both cost and know-how. In the second half of the year efforts turned to further development of the “Digital Innovation” project, such as: the integration of advanced electronic signatures (Firma Elettronica Avanzata – FEA) with the new Internet banking offer, and the development of PCF1 instruments and new authentication infrastructure, which will allow customers to access online instruments more securely. The introduction of FEA for the new internet banking offer and for mobile applications allows signature methodology to be harmonised with the in-branch situation, removing the risk inherent in the previous system of legal complications relating to the possibility of the same contracts being signed using different tools (FEA vs. Remote Digital Signature). This solution, which is in the process of being implemented, will reduce recurring signature authentication costs as it will introduce a single contract that can be signed with a simple electronic signature, and that brings together the different signature methods offered through the bank’s various channels. Thanks to the commitment to FEA, which was introduced in November, customers will be able to sign remotely for financial instruments proposed by the new PCF financial advice system, which is due to be launched this year. Within branch operations, on the other hand, a series of activities have been launched that will lead to the introduction during 2016 of advanced solutions enabling the graphometric signature of contracts, thus extending the range of documents that can be signed using a tablet. Further research has also been carried out into adjusting systems to accommodate the new cheque format stipulated by the Bank of Italy, which is expected to be adopted this year. The new format adds a further layer of security thanks to some cutting edge technological mechanisms (DataMatrix, micro printing, etc.), enabling fully automated processing. As well as being used in developing applications for customers, technological innovation has also had an impact on the Group’s internal instruments: Following positive results from the research carried out in 2014, work has begun on full

implementation of Cloud Social Enterprise, with the activation of a new messaging and corporate collaboration system to be integrated with the current IT system;

1 PCF – Financial advice planning: an online tool for remote financial advice, through which customers can receive recommendations on and potentially subscribe to financial instruments

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The platform for reporting problems and requesting assistance has been replaced with a new market-leading solution, providing all Group employees with an effective tool for requesting support for the resolution of problems relating to processes, applications and technology.

Finally, 2015 witnessed the foundation of a new operating division of UBI Sistemi e Servizi, which will be dedicated to topics related to Big Data, in particular the use of technological instruments for the storage and treatment of large volumes of data, as well as statistical analysis of the information contained therein. The objective will be to extract useful information from the data that can support the business in identifying and understanding trends emerging both within and outside the company.

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The internal controls system

For a description of the internal controls system in terms of its architecture, rules and structure, please see the document “Report on the corporate governance and ownership structure of UBI Banca Spa” included in these reports, which also includes the specific information required by Art. 123 bis, paragraph 2b) of the Consolidated Finance Act (Legislative Decree No. 58/1998) concerning the risk management and internal control systems that govern the financial reporting process.

Compliance with supervisory regulations on internal controls

As already reported in previous financial reports, on 2nd July 2013 the Bank of Italy issued new provisions on the “System of internal controls, the IT system and operational continuity” (Prudential supervision of banks – Circular No. 263 of 27th December 2006 – 15th update) with progressive effect from 1st July 2014. These provisions, which were subsequently incorporated in Circular No. 285 of 17th December 2013 by means of the 11th update of 21st July 2015, introduced important changes to the regulatory framework in order to furnish banks with a complete, adequate, functional and reliable system of internal controls, by regulating, amongst other things, the following: the role of corporate bodies within the internal control system; the role of corporate control functions, the outsourcing of corporate functions, the IT system and operational continuity. With effect from 1st January 2016, the 11th update also introduced enabling legislation covering internal reporting of violations (whistleblowing). The Parent therefore introduced specific internal rules providing employees of subsidiary companies with processes to follow for reporting actions and facts that may constitute regulatory violations, in order to contribute to the identification and prevention of risks and situations detrimental to the specific company, thus acting in the interests of the whole of the UBI Banca Group and all of its stakeholders. It is worth noting that in 2014 – ahead of the first set deadline (1st July 2014) – initial regulatory compliance actions were carried out, relating specifically to the internal control system, the outsourcing of corporate functions, the Risk Appetite Framework (RAF), the coordination of control functions and business continuity. Subsequent activities guaranteed operational implementation of these actions. Subsequently, the Group completed the required changes to its internal regulations regarding the IT system, with effect from 1st February 2015, with particular reference to: the IT function: formalisation of decision-making and authorisation processes designed to

ensure strategic and operational control of the IT system; IT compliance: specification of roles, process responsibilities and lines of reporting to

ensure compliance with IT regulations relating to the governance and organisation of the IT system;

IT risk: identification of the methodological, organisational and procedural framework to employ for the analysis and management of IT risk and the definition of the relative levels of risk appetite;

Logical security: update of the principles, the organisational model and the security requirements and measures needed to protect the Group’s tangible and intellectual assets and the security of its information and its IT resources;

Data governance: formalisation of the principles, the components and the logical functioning of the data processing system with the identification of the roles and responsibilities and functions involved in the use and processing of data for operational and management purposes;

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Change and incident management: identification of users responsible for IT resources and formalisation of procedures designed to guarantee control over changes, replacements or technological upgrades. Detailed procedures for identifying and responding promptly and effectively to IT incidents or malfunctions.

Following these regulatory changes the specific action plans were launched for the relative operational implementation.

* * *

Referring specifically to the Compliance function, on 25th July 2015 the Bank of Italy updated its clarification note relating to methods for complying with the new supervisory provisions on internal controls, providing further indications on the general organisational principles that must be respected in this area, stressing: - the mandatory requirement for IT compliance to come under the remit of the Compliance

function; - that the possibility of compliance responsibilities being split between a number of different

functions remains an exception to the general principle, and can only be used by banks in the areas explicitly indicated in the regulations (health and safety, data protection and fiscal compliance).

This therefore necessitated a review of the Group’s compliance risk management model, which will be completed during the first few months of 2016.

* * *

On 12th May the Bank of Italy published Circular No. 288 "Supervisory provisions for financial intermediaries”, which came into force on 11th July 2015. The circular regulates procedures for the registration of financial intermediaries on a single register pursuant to Art. 106 of the consolidated banking act and it confirms a supervisory regime for them equivalent to that of banks. It also defines a uniform set of rules for all intermediaries based on the principle of proportionality with the same obligations and requirements commensurate to the complexity of the entities concerned. Following the issue of these provisions a specific initiative was launched, in which not only the Parent but also the Group companies concerned (UBI Leasing, UBI Factor and Prestitalia) participated, in order to draw up an application for authorisation for registration in the single register of financial intermediaries and to draw up a general plan of action for compliance with the aforementioned provisions. This initiative concluded with requests for the registration of UBI Leasing, UBI Factor and Prestitalia in the single register of financial intermediaries being sent to the Bank of Italy before the prescribed deadline (11th October 2015).

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Transactions with related parties and with connected parties

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. Pursuant to article 2391 of the Civil Code and the Consob Regulations governing related parties, UBI Banca has adopted specific “Regulations for UBI Banca related-party transactions” which govern rules relating to the identification, approval and implementation of related-party transactions performed by UBI Banca, either directly or through its subsidiaries, in order to ensure their substantive and procedural fairness. 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 Management Board, the Supervisory Board, in response to a proposal of the Management Board, or even an 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. Transactions of greater importance In accordance with article 5, paragraph 8 of Consob Resolution No. 17221/12 March 2010, “Public disclosures on related-party transactions”, the following related-party transactions concluded in 2015 were excluded from the scope of application of the regulations for related-party transactions with UBI Banca, because they were concluded with subsidiaries:

resolution for two transactions for the transfer of eligible assets by Banca Popolare di Bergamo to UBI Finance for a maximum of €900 million, of which €700 million under the first covered bond programme (residential mortgages) and €200 million under the second covered bond programme (commercial mortgages and residential mortgages not used in the first programme);

resolution for two transactions for the transfer of eligible assets by Banco di Brescia to UBI Finance for a total of €650 million, of which €400 million under the first covered bond programme (residential mortgages) and €250 million under the second covered bond programme (commercial mortgages and residential mortgages not used in the first programme);

resolution for two transactions for the transfer of eligible assets by Banca Popolare Commercio e Industria to UBI Finance for a maximum of €470 million, of which €400 million under the first covered bond programme (residential mortgages) and €70 million under the second covered bond programme (commercial mortgages and residential mortgages not used in the first programme);

160

one “repurchase agreement” transaction by UBI Banca, with Banca Popolare di Ancona as the counterparty, for €458,017,179 (on 5th January 2015);

ten “repurchase agreement” transactions by UBI Banca, with UBI Leasing as the counterparty, for the following amounts: €713,260,427 (29th January 2015), €630,619,567 (25th February 2015), €630,949,855 (25th March 2015), €631,142,440 (28th April 2015), €548,200,221 (27th May 2015), €547,811,321 (25th June 2015), €547,431,259 (28th July 2015), €467,550,188 (27th August 2015), €468,254,278 (28th September 2015) and €468,596,100 (28th October 2015);

resolution for two new “very short term” credit line transaction for UBI Leasing on 12th March 2015 for €600 million and on 1st July 2015 for €650 million;

resolution for 1 new “very short term” credit line transaction and seven short-term loans to UBI Leasing on 29th May 2015 for a total of €3.5 billion;

Payout by UBI Banca on 23rd November 2015, of two subordinate loans to UBI Finance, respectively for €900,000,000 and €968,864,158, relating to the sale on 1st November 2015 of asset portfolios, as part of the first covered bond issue programme.

We also report that: - on 9th June 2015 the Management Board, and on 11th June the Supervisory Board,

passed resolutions, within the scope of their respective responsibilities, regarding the merger of SOLIMM Srl into SBIM Spa, companies which carry out property transactions necessary for Group operations and 100% controlled by UBI Banca;

- on 9th June 2015 the Management Board, and on 16th June the Supervisory Board, passed resolutions, within the scope of their respective responsibilities, regarding a commitment to sell a stake held by UBI Banca in ICBPI - Istituto Centrale delle Banche Popolari Italiane Spa, amounting to 4.04% of the share capital of that company in such a manner as to maintain a post-closing stake of 1%. The sale was completed on 18th December 2015.

As already reported, the merger of IW Bank into UBI Banca Private Investment took legal effect on 25th May 2015, having been approved by the Management Board on 11th November 2014 on the basis of strategic guidelines issued by the Supervisory Board on 24th July 2014, while for accounting and tax purposes it took effect from 1st January 2015. Finally, we also report that:

- no transactions were performed in the reporting period with other related parties which influenced the capital position or the results of the Parent, UBI Banca, to a significant extent;

- there have been no modifications and/or developments of transactions with related parties, which may have been reported in previous financial reports, that could have a significant effect on the capital position or the results of the Parent, UBI Banca.

In compliance with IAS 24, Part H of the Notes to the Consolidated Financial Statements and Part H of the Notes to the Separate Financial Statements provide information on balance sheet and income state transactions between related parties of UBI Banca and Group member companies and also on balance sheet and income statement transactions between UBI Banca and its own related parties, as well as those items as a percentage of the total for each item in the consolidated financial statements and in the separate financial statements.

161

Connected parties

In implementation of article 53, paragraphs 4 et seq. of the Consolidated Banking Act 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 prudential supervisory provisions for banks” (published in the Official Journal of 16th January 2012) regarding risk asset exposures and conflicts of interest concerning parties connected to banks or banking Groups, where connected parties are defined as a related party and all the parties 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 asset exposures (of the Bank and/or the Group) lent to connected parties. 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, UBI Banca has adopted specific “Regulations for transactions with Connected Parties of the UBI Group” containing measures concerning “risk asset exposures and conflicts of interest with regard to connected parties”, which governs procedures designed to preserve the integrity of decision-making processes concerning transactions with connected parties 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 regulations of the country in which these are registered. The regulations also require 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, each of those bodies shall update, on at least a quarterly basis, a list of all the transactions concluded in the previous quarter, inclusive of those not subject to a prior opinion from the committee in accordance with the regulations. It shall specify the connected party, the type of transaction and its value and, if the transaction has not been subjected 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 asset exposures, the Supervisory Board oversees compliance of the Regulations 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 Act. To achieve this bodies of other Group companies with responsibility for strategic supervision submit lists quarterly to the Supervisory Board, through the Management Board, of all transactions with connected parties concluded in the previous quarter. Finally we report that: - on 13th May 2015 the Supervisory Board (in accordance with article 38 of the UBI Banca

Articles of Association) approved the overall agreements with the Cassa di Risparmio di Cuneo Foundation relating to the stake held in Banca Regionale Europea, as resolved by the Management Board on 12th May 2015 and it also acknowledged the favourable opinion given by the Related and Connected Parties Committee of UBI Banca in a meeting of 13th May 2015 regarding renewal of the agreements in question, which positively assessed the existence of an interest in concluding the operation and the substantially proper nature of the relative conditions;

162

- on 7th August 2015 the Supervisory Board (in accordance with article 38 of the Articles of Association) approved the overall agreements with the Banca del Monte di Lombardia relating to the stake held in Banca Popolare Commercio e Industria, as resolved by the Management Board on 7th August 2015 and it also acknowledged the favourable opinion given by the Related and Connected Parties Committee of UBI Banca in the meeting of 7th August 2015 regarding the renewal of the agreements in question, which positively assessed the existence of an interest in concluding the operation and the substantially proper nature of the relative conditions.

The UBI Banca Group has always been within the limits laid down by supervisory regulations in all the consolidated quarterly reports to the Supervisory Authority made from 31st March 2015 until 31st December 2015.

* * * Further information is given on the Related and Connected Parties Committee of UBI Banca in the “Report on corporate governance and the ownership structure of UBI Banca Spa” contained in another part of this publication in which information is also given on internal policies on controls for risk asset exposures and conflicts of interest relating to connected parties.

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Consolidated companies: the principal figures

(*) The result shown is from the financial statements prepared for the consolidation according to the accounting policies followed by the

Parent.

(1) The figure for 2014 includes impairment losses of €1,251.9 million (net of tax) on Group equity investments.

(2) The figure for 2014 includes the effects of the recognition of impairment losses of €443.1 million on goodwill (net of tax).

(3) On 25th May 2015 the merger of IW Bank into UBI Banca Private Investment took effect. The new company took the name IW Bank Spa. The figures for 2014 have therefore been restated by summing the balances to take account of the operation.

(4) On 23rd October 2015 with effect for accounting and tax purposes from 1st January 2015, the merger of SOLIMM Srl into S.B.I.M. Spa (Società Bresciana Immobiliare Mobiliare) became effective.

(5) Since this is a consortium company with mutual, not-for-profit objects, UBI Sistemi e Servizi ends the year with a break-even result.

(6) On 30th April 2015 the transfer of the line of business dedicated to the management of fiduciary services to Unione Fiduciaria Spa was completed.

(7) On 30th December 2014 the sale of the entire stake held by UBI Banca (50%-1 share) to the Ageas Group and BNP Paribas Cardif was concluded.

(8) On 22nd December 2014 the sale of 30% of the two joint insurance ventures to the Aviva Group was concluded which reduced UBI Banca’s stake in both companies to 20%. Therefore the comparative figures are not fully comparable.

Profit/loss for the year

Figures in thousands of euro 2015 2014 Change % change

Unione di Banche Italiane Spa (1) 123,423 (918,437) 1,041,860 n.s.

Banca Popolare di Bergamo Spa 127,264 143,569 (16,305) (11.4%)

Banco di Brescia Spa (11,155) 9,046 (20,201) n.s.

Banca Popolare Commercio e Industria Spa 34,677 35,843 (1,166) (3.3%)

Banca Regionale Europea Spa 960 950 10 1.1%

Banca Popolare di Ancona Spa 15,952 7,817 8,135 104.1%

Banca Carime Spa (2) (20,849) (466,881) (446,032) (95.5%)

Banca di Valle Camonica Spa 3,376 1,902 1,474 77.5%

Centrobanca Sviluppo Impresa SGR Spa (184) (244) (60) (24.5%)

IW Bank Spa (3) (4,336) 7,215 (11,551) n.s.

UBI Banca International Sa (*) (356) (13,124) (12,768) (97.3%)

UBI Pramerica SGR Spa 63,542 43,400 20,142 46.4%

UBI Leasing Spa (3,928) (38,887) (34,959) (89.9%)

UBI Factor Spa 2,486 8,174 (5,688) (69.6%)

Prestitalia Spa (2,278) (7,175) (4,897) (68.3%)

BPB Immobiliare Srl (2,569) 274 (2,843) n.s.

Società Bresciana Immobiliare Mobiliare - S.B.I.M. Spa (4) 2,330 1,974 356 18.0%

UBI Sistemi e Servizi SCpA (5) - - - -

UBI Fiduciaria Spa (6) (537) (530) 7 1.3%

Cargeas Assicurazioni Spa (già UBI Assicurazioni Spa) (7) - 9,145 (9,145) (100.0%)

Aviva Assicurazioni Vita Spa (20%) (8) 2,080 (150) 2,230 n.s.

Aviva Vita Spa (20%) (8) 3,100 17,050 (13,950) n.s.

Lombarda Vita Spa (40%) 11,941 7,735 4,206 54.4%

UBI Management Co. Sa 1,429 492 937 190.5%

UBI Trustee Sa 88 116 (28) (23.8%)

CONSOLIDATED 116,765 (725,767) 842,532 n.s.

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* On 25th May 2015 the merger of IW Bank into UBI Banca Private Investment took effect. The new company took the name IW Bank

Spa. The figures as at 31st December 2014 have therefore been restated by summing the balances to take account of the operation.

Net loans and advances to customers

Figures in thousands of euro 31.12.2015 31.12.2014 Change % change

Unione di Banche Italiane Spa 21,901,390 23,330,321 -1,428,931 -6.1%

Banca Popolare di Bergamo Spa 18,736,138 18,679,641 56,497 0.3%

Banco di Brescia Spa 12,295,453 12,615,509 -320,056 -2.5%

Banca Popolare Commercio e Industria Spa 8,957,102 8,419,620 537,482 6.4%

Banca Regionale Europea Spa 8,162,878 8,456,552 -293,674 -3.5%

Banca Popolare di Ancona Spa 7,794,538 7,701,242 93,296 1.2%

Banca Carime Spa 4,091,660 4,366,169 -274,509 -6.3%

Banca di Valle Camonica Spa 1,740,753 1,779,208 -38,455 -2.2%

Prestitalia Spa 1,433,272 1,916,577 -483,305 -25.2%

UBI Banca International Sa 426,539 551,103 -124,564 -22.6%

IW Bank Spa* 757,087 851,017 -93,930 -11.0%

UBI Factor Spa 2,237,554 2,016,103 221,451 11.0%

UBI Leasing Spa 6,619,022 6,941,652 -322,630 -4.6%

CONSOLIDATED 84,586,200 85,644,223 -1,058,023 -1.2%

Risk indicatorsNet bad loans

(previously termed "non-performing

loans") / Net loans

Total net non-performing loans (previously termed

"deteriorated

loans") /Net loans

Percentages 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Unione di Banche Italiane Spa 1.46% 1.36% 5.55% 5.49%

Banca Popolare di Bergamo Spa 4.49% 4.33% 8.21% 7.93%

Banco di Brescia Spa 3.73% 3.26% 12.16% 11.92%

Banca Popolare Commercio e Industria Spa 3.74% 4.42% 8.52% 8.72%

Banca Regionale Europea Spa 6.00% 4.70% 12.05% 9.71%

Banca Popolare di Ancona Spa 6.50% 6.20% 13.76% 12.88%

Banca Carime Spa 6.63% 5.20% 12.02% 11.26%

Banca di Valle Camonica Spa 4.70% 4.65% 10.85% 9.73%

Prestitalia Spa 0.95% 0.91% 11.57% 13.50%

UBI Banca International Sa 3.40% 2.45% 14.47% 9.67%

IW Bank Spa* 1.77% 1.72% 3.43% 3.03%

UBI Factor Spa 9.78% 11.03% 13.90% 14.08%

UBI Leasing Spa 10.93% 9.54% 20.78% 20.29%

CONSOLIDATED 5.07% 4.70% 11.45% 11.10%

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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.

Direct funding for the following banks was therefore adjusted as follows:

* On 25th May 2015 the merger of IW Bank into UBI Banca Private Investment took effect. The new company took the name IW Bank

Spa. The figures as at 31st December 2014 have therefore been restated by summing the balances to take account of the operation.

Direct funding from customers

Figures in thousands of euro 31.12.2015 31.12.2014 Change % change

Unione di Banche Italiane Spa 40,669,221 41,284,254 -615,033 -1.5%

Banca Popolare di Bergamo Spa 15,612,014 15,941,728 -329,714 -2.1%

Banco di Brescia Spa 8,041,806 8,634,427 -592,621 -6.9%

Banca Popolare Commercio e Industria Spa 6,242,340 5,975,615 266,725 4.5%

Banca Regionale Europea Spa 4,925,895 5,135,369 -209,474 -4.1%

Banca Popolare di Ancona Spa 4,947,113 5,279,096 -331,983 -6.3%

Banca Carime Spa 5,489,156 5,761,011 -271,855 -4.7%

Banca di Valle Camonica Spa 985,427 1,136,942 -151,515 -13.3%

UBI Banca International Sa 1,540,519 960,802 579,717 60.3%

IW Bank Spa* 2,848,627 3,063,545 -214,918 -7.0%

CONSOLIDATED 91,512,399 93,207,269 -1,694,870 -1.8%

Figures in millions of euro 31.12.2015 31.12.2014

Bonds

Unione di Banche Italiane Spa 2,953.6 2,326.7

Banca Popolare di Bergamo Spa 1,007.5 1,015.7

Banco di Brescia Spa 2,155.2 1,920.6

Banca Popolare Commercio e Industria Spa 297.6 297.7

Banca Regionale Europea Spa 1,272.8 1,240.9

Banca Popolare di Ancona Spa 1,155.0 819.0

Banca di Valle Camonica Spa 404.1 429.2

IW Bank Spa* 10.0 10.0

Euro Commercial Paper and French certificates of deposit

UBI Banca International Sa 766.7 2,104.8

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The totals for the network banks also include indirect funding consisting of bonds issued by UBI Banca.

(1) The figure shown on this line is for total assets managed by the Company. However, the calculation of consolidated funding is based solely on the portion placed by companies in the UBI Banca Group.

* On 25th May 2015 the merger of IW Bank into UBI Banca Private Investment took effect. The new company took the name IW Bank

Spa. The figures as at 31st December 2014 have therefore been restated by summing the balances to take account of the operation.

Indirect funding from ordinary customers (at market prices)

Figures in thousands of euro 31.12.2015 31.12.2014 Change % change

Unione di Banche Italiane Spa 5 5 - -

Banca Popolare di Bergamo Spa 32,385,044 30,465,728 1,919,316 6.3%

Banco di Brescia Spa 17,062,911 16,791,303 271,608 1.6%

Banca Popolare Commercio e Industria Spa 11,073,614 10,879,880 193,734 1.8%

Banca Regionale Europea Spa 10,527,572 10,028,791 498,781 5.0%

Banca Popolare di Ancona Spa 5,261,708 4,953,822 307,886 6.2%

Banca Carime Spa 6,760,003 6,917,646 -157,643 -2.3%

Banca di Valle Camonica Spa 1,512,689 1,423,090 89,599 6.3%

UBI Pramerica SGR Spa 27,705,037 24,745,067 2,959,970 12.0%

UBI Banca International Sa 3,107,370 2,700,517 406,853 15.1%

IW Bank Spa* 9,065,992 8,974,638 91,354 1.0%

Lombarda Vita Spa (1) 5,684,570 5,142,780 541,790 10.5%

Aviva Vita Spa (1) 6,621,442 5,209,134 1,412,308 27.1%

Aviva Assicurazioni Vita Spa (1) 2,255,064 2,146,357 108,707 5.1%

CONSOLIDATED 79,547,957 75,892,408 3,655,549 4.8%

Assets under management (at market prices)

Figures in thousands of euro 31.12.2015 31.12.2014 Change % change

Unione di Banche Italiane Spa - - - -

Banca Popolare di Bergamo Spa 16,411,767 14,372,201 2,039,566 14.2%

Banco di Brescia Spa 7,932,526 7,093,297 839,229 11.8%

Banca Popolare Commercio e Industria Spa 5,790,122 5,113,427 676,695 13.2%

Banca Regionale Europea Spa 5,145,208 4,653,814 491,394 10.6%

Banca Popolare di Ancona Spa 2,325,665 1,983,715 341,950 17.2%

Banca Carime Spa 3,847,889 3,372,817 475,072 14.1%

Banca di Valle Camonica Spa 630,993 556,341 74,652 13.4%

UBI Pramerica SGR Spa 27,705,037 24,745,067 2,959,970 12.0%

UBI Banca International Sa 102,962 131,663 -28,701 -21.8%

IW Bank Spa* 5,865,415 5,509,682 355,733 6.5%

Lombarda Vita Spa (1) 5,684,570 5,142,780 541,790 10.5%

Aviva Vita Spa (1) 6,621,442 5,209,134 1,412,308 27.1%

Aviva Assicurazioni Vita Spa (1) 2,255,064 2,146,357 108,707 5.1%

CONSOLIDATED 48,567,539 43,353,237 5,214,302 12.0%

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Information on the network banks

Summary financial statements containing the main income statement and balance sheet figures for the individual network banks are given in order to provide a disaggregated view of the performance of general banking business analysed at consolidated level.

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €1,007.5 million (€1,015.7 million as at 31st

December 2014). (**) The item includes redundancy expenses of €25.8 million in 2015 and €15.4 million in 2014. (***) The figure for 2015 includes €3.3 million for the contribution to the Deposit Guarantee Scheme (DGS) and €12.6 million for the

contribution to the Resolution Fund, of which €9.4 million as an extraordinary non-recurring contribution. (****) The item for 2015 includes provisions for compounding of interest, investment services and banking contract claims amounting to

approximately €2.4 million and the positive impact of the release of provisions amounting to approximately €4.7 million as a consequence of the settlement of litigation with no payouts and of settlements for amounts lower than the provisions that had been made.

(*****) The figure for 2014 included the impact of impairment losses of €1 million on the stake held in UBI Banca International. (******) The item as at 31st December 2015 includes the positive impact of the tax credits amounting to €1.3 million (65% of the €2 million

donation made by the bank to the Donizetti Theatre of Bergamo Foundation), in accordance with Art. 1 of Decree Law No. 83 of 31st May 2014 “Tax credit for charitable donations to support Art-Bonus Culture”.

The share capital of Banca Popolare di Bergamo as at 31st December 2015 was wholly owned by UBI Banca.

BANCA POPOLARE DI BERGAMO SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 18,736,138 18,679,641 56,497 0.3%

of which: deteriorated loans 1,539,043 1,481,689 57,354 3.9%

Direct funding (*) 16,619,485 16,957,402 -337,917 -2.0%

Net interbank debt 76,584 327,811 -251,227 -76.6%

Financial assets held for trading 43,253 54,883 -11,630 -21.2%

Available-for-sale financial assets 27,274 31,031 -3,757 -12.1%

Equity (excluding profit for the year) 2,196,469 2,188,458 8,011 0.4%

Total assets 21,861,066 21,379,427 481,639 2.3% Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 32,385,044 30,465,728 1,919,316 6.3%

of which: assets under management 16,411,767 14,372,201 2,039,566 14.2%

Income statement

Net interest income 402,800 436,068 (33,268) (7.6%)

Net fee and commission income 357,100 366,324 (9,224) (2.5%)

Net income from trading, hedging and disposal/repurchase activities 4,912 7,901 (2,989) (37.8%)

Other net operating income/(expense) 22,885 27,809 (4,924) (17.7%)

Operating income 787,697 838,102 (50,405) (6.0%)

Staff costs (**) (290,737) (277,960) 12,777 4.6%

Other administrative expenses (***) (183,522) (172,882) 10,640 6.2% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (6,007) (6,951) (944) (13.6%)

Operating expenses (480,266) (457,793) 22,473 4.9%

Net operating income 307,431 380,309 (72,878) (19.2%)

Net impairment losses on loans (122,739) (147,368) (24,629) (16.7%)

Net impairment losses on other assets/liabilities 216 (1,765) 1,981 n.s.

Net provisions for risks and charges (****) 2,268 (1,105) 3,373 n.s.

Profit (loss) on the disposal of equity investments (*****) 160 (915) 1,075 n.s.

Pre-tax profit from continuing operations 187,336 229,156 (41,820) (18.2%)

Taxes on income for the year from continuing operations (******) (60,072) (85,587) (25,515) (29.8%)

Profit for the year 127,264 143,569 (16,305) (11.4%)

Other information

Number of branches 349 354 -5

Total work force (actual employees+staff on leasing contracts) 3,588 3,614 -26

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] 5.79% 6.56%

Cost:income ratio (operating expenses/operating income) 60.97% 54.62%

Net bad loans (previously termed "non-performing loans")/net loans to customers 4.49% 4.33% Total net non-performing (previously termed "deteriorated") loans/net loans to customers 8.21% 7.93%

Capital ratio

Common Equity Tier 1 ratio 18.19% 17.53%

Tier 1 ratio 18.19% 17.53%

Total capital ratio 18.19% 17.53%

% change31.12.201431.12.2015 Change

168

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €2,155.2 million (€1,920.6 million as at 31st

December 2014). (**) The item includes redundancy expenses of €16.9 million in 2015 and €12.5 million in 2014. (***) The figure for 2015 includes €1.8 million for the contribution to the Deposit Guarantee Scheme (DGS) and €11.1 million for the

contribution to the Resolution Fund, of which €8.3 million as an extraordinary non-recurring contribution. (****) The item for 2014 included €5.4 million from the sale of a property and the impact of impairment losses of €0.8 million on the stake held

in UBI Banca International.

The share capital of Banco di Brescia as at 31st December 2015 was wholly owned by UBI Banca.

BANCO DI BRESCIA SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 12,295,453 12,615,509 -320,056 -2.5%

of which: non-performing (previously termed "deteriorated") loans 1,494,883 1,504,072 -9,189 -0.6%

Direct funding (*) 10,197,052 10,555,021 -357,969 -3.4%

Net interbank debt -1,152,081 -1,174,110 -22,029 -1.9%

Financial assets held for trading 34,812 46,827 -12,015 -25.7%

Available-for-sale financial assets 49,909 30,361 19,548 64.4%

Equity (excluding profit/including loss for the year) 1,387,644 1,396,881 -9,237 -0.7%

Total assets 13,545,318 13,991,526 -446,208 -3.2%

Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 17,062,911 16,791,303 271,608 1.6%

of which: assets under management 7,932,526 7,093,297 839,229 11.8%

Income statement

Net interest income 247,131 262,372 (15,241) (5.8%)

Dividends and similar income 28 30 (2) (6.7%)

Net fee and commission income 192,303 212,360 (20,057) (9.4%)

Net income (loss) from trading, hedging and disposal/repurchase activities 3,050 4,509 (1,459) (32.4%)

Other net operating income/(expense) 8,237 16,205 (7,968) (49.2%)

Operating income 450,749 495,476 (44,727) (9.0%)

Staff costs (**) (172,038) (167,135) 4,903 2.9%

Other administrative expenses (***) (121,837) (113,277) 8,560 7.6%Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (7,059) (8,727) (1,668) (19.1%)

Operating expenses (300,934) (289,139) 11,795 4.1%

Net operating income 149,815 206,337 (56,522) (27.4%)

Net impairment losses on loans (163,491) (183,519) (20,028) (10.9%)

Net impairment losses on other assets/liabilities (1,557) (847) 710 83.8%

Net provisions for risks and charges (1,016) (1,153) (137) (11.9%)

Profit on the disposal of equity investments (****) 60 4,498 (4,438) (98.7%)

Pre-tax profit from continuing operations (16,189) 25,316 (41,505) n.s.

Taxes on income for the year from continuing operations 5,034 (16,270) 21,304 n.s.

Profit (loss) for the year (11,155) 9,046 (20,201) n.s.

Other informationNumber of branches 288 316 -28

Total work force (actual employees+staff on leasing contracts) 2,368 2,434 -66

Financial ratiosROE [profit for the year/equity (excluding profit for the year)] n.s. 0.65%

Cost:income ratio (operating expenses/operating income) 66.76% 58.36%

Net bad loans (previously termed "non-performing loans")/net loans to customers 3.73% 3.26% Total net non-performing (previously termed "deteriorated") loans/net loans to customers 12.16% 11.92%

Capital ratio

Common Equity Tier 1 ratio 14.30% 13.57%

Tier 1 ratio 14.30% 13.57%

Total capital ratio 14.30% 13.57%

% change31.12.2015 31.12.2014 Change

169

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €297.6 million (€297.7 million as at 31st

December 2014). (**) The item includes redundancy expenses of €5.8 million in 2015 and €11.8 million in 2014. (***) The figure for 2015 includes €1.3 million for the contribution to the Deposit Guarantee Scheme (DGS) and €5.3 million for the contribution

to the Resolution Fund, of which €4 million as an extraordinary non-recurring contribution. (****) In 2015 the item includes depreciation of real estate property amounting to €1.8 million recognised in June 2015, because the sale of the

property owned on the site in via Moscova (previously classified as an asset held for sale) was reclassified into the item real estate property with the relative impact on the income statement of the depreciation accruing in the meantime.

As at 31st December 2015, UBI Banca held 83.763% of the share capital of Banca Popolare Commercio e Industria and the Banca del Monte di Lombardia Foundation held 16.237%.

BANCA POPOLARE COMMERCIO E INDUSTRIA SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 8,957,102 8,419,620 537,482 6.4%

of which: deteriorated loans 763,217 733,997 29,220 4.0%

Direct funding (*) 6,539,963 6,273,269 266,694 4.3%

Net interbank debt -1,518,369 -1,372,530 145,839 10.6%

Financial assets held for trading 37,992 48,961 -10,969 -22.4%

Available-for-sale financial assets 16,112 16,625 -513 -3.1%

Equity (excluding profit for the year) 1,171,620 1,168,737 2,883 0.2%

Total assets 9,707,228 9,314,244 392,984 4.2% Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 11,073,614 10,879,880 193,734 1.8%

of which: assets under management 5,790,122 5,113,427 676,695 13.2%

Income statement

Net interest income 168,408 180,897 (12,489) (6.9%)

Dividends and similar income 1 - 1 n.s.

Net fee and commission income 154,305 159,766 (5,461) (3.4%)

Net income from trading, hedging and disposal/repurchase activities 1,168 2,700 (1,532) (56.7%)

Other net operating income/(expense) 10,562 9,719 843 8.7%

Operating income 334,444 353,082 (18,638) (5.3%)

Staff costs (**) (121,614) (130,233) (8,619) (6.6%)

Other administrative expenses (***) (96,613) (95,995) 618 0.6% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (****) (6,505) (4,551) 1,954 42.9%

Operating expenses (224,732) (230,779) (6,047) (2.6%)

Net operating income 109,712 122,303 (12,591) (10.3%)

Net impairment losses on loans (58,436) (60,262) (1,826) (3.0%)

Net impairment losses on other assets/liabilities (539) (18) 521 n.s.

Net provisions for risks and charges (612) (1,450) (838) (57.8%)

Profit on the disposal of equity investments 94 101 (7) (6.9%)

Pre-tax profit from continuing operations 50,219 60,674 (10,455) (17.2%)

Taxes on income for the year from continuing operations (15,542) (24,831) (9,289) (37.4%)

Profit for the year 34,677 35,843 (1,166) (3.3%)

Other informationNumber of branches 196 212 -16

Total work force (actual employees+staff on leasing contracts) 1,559 1,607 -48

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] 2.96% 3.07%

Cost:income ratio (operating expenses/operating income) 67.20% 65.36%

Net bad loans (previously termed "non-performing loans")/net loans to customers 3.74% 4.42%

Total net non-performing (previously termed "deteriorated") loans/net loans to customers 8.52% 8.72%

Capital ratio

Common Equity Tier 1 ratio 17.73% 19.11%

Tier 1 ratio 17.73% 19.11%

Total capital ratio 17.73% 19.11%

% change31.12.2015 31.12.2014 Change

170

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €1,272.8 million (€1,240.9 million as at 31st

December 2014). (**) The item includes redundancy expenses of €6.9 million in 2015 and €15 million in 2014. (***) The figure for 2015 includes €1.2 million for the contribution to the Deposit Guarantee Scheme (DGS) and €5.5 million for the contribution

to the Resolution Fund, of which €4.1 million as an extraordinary non-recurring contribution. (****) The item for 2014 included €0.7 million of impairment on the investment in G.E.C. Spa. (*****) The figure for 2015 includes a gain of €0.2 million on the disposal of a real estate property in June.

As at 31st December 2015, UBI Banca held 74.777% of the share capital of Banca Regionale Europea, the Cassa di Risparmio di Cuneo Foundation held 24.904% and the remaining 0.319% was held by individual shareholders.

BANCA REGIONALE EUROPEA SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 8,162,878 8,456,552 -293,674 -3.5%

of which: deteriorated loans 983,351 821,278 162,073 19.7%

Direct funding (*) 6,198,736 6,376,298 -177,562 -2.8%

Net interbank debt -1,068,968 -1,351,148 -282,180 -20.9%

Financial assets held for trading 10,529 20,624 -10,095 -48.9%

Available-for-sale financial assets 33,760 33,422 338 1.0%

Equity (excluding profit for the year) 1,284,301 1,294,593 -10,292 -0.8%

Total assets 9,235,430 9,448,281 -212,851 -2.3%

Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 10,527,572 10,028,791 498,781 5.0%

of which: assets under management 5,145,208 4,653,814 491,394 10.6%

Income statement

Net interest income 154,517 175,094 (20,577) (11.8%)

Dividends and similar income 860 967 (107) (11.1%)

Net fee and commission income 122,470 135,988 (13,518) (9.9%)

Net income from trading, hedging and disposal/repurchase activities 849 1,323 (474) (35.8%)

Other net operating income/(expense) 12,887 16,748 (3,861) (23.1%)

Operating income 291,583 330,120 (38,537) (11.7%)

Staff costs (**) (118,958) (136,853) (17,895) (13.1%)

Other administrative expenses (***) (86,244) (86,788) (544) (0.6%) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (7,855) (9,027) (1,172) (13.0%)

Operating expenses (213,057) (232,668) (19,611) (8.4%)

Net operating income 78,526 97,452 (18,926) (19.4%)

Net impairment losses on loans (74,686) (82,702) (8,016) (9.7%)

Net impairment losses on other assets/liabilities (****) 956 (1,654) 2,610 n.s.

Net provisions for risks and charges (1,207) (568) 639 112.5%

Profit (loss) on the disposal of equity investments (*****) 279 (51) 330 n.s.

Pre-tax profit from continuing operations 3,868 12,477 (8,609) (69.0%)

Taxes on income for the year from continuing operations (2,908) (11,527) (8,619) (74.8%)

Profit for the year 960 950 10 1.1%

Other informationNumber of branches 210 243 -33

Total work force (actual employees+staff on leasing contracts) 1,653 1,765 -112

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] 0.07% 0.07%

Cost:income ratio (operating expenses/operating income) 73.07% 70.48%

Net bad loans (previously termed "non-performing loans")/net loans to customers 6.00% 4.70% Total net non-performing (previously termed "deteriorated") loans/net loans to customers 12.05% 9.71%

Capital ratio

Common Equity Tier 1 ratio 18.58% 18.80%

Tier 1 ratio 18.58% 18.80%

Total capital ratio 18.58% 18.80%

% change31.12.2015 31.12.2014 Change

171

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €1,155 million (€819 million as at 31st

December 2014). (**) The item includes redundancy expenses of €5.2 million in 2015 and €10.7 million in 2014. (***) The figure for 2015 includes €1.1 million for the contribution to the Deposit Guarantee Scheme (DGS) and €6.3 million for the contribution

to the Resolution Fund, of which €4.7 million as an extraordinary non-recurring contribution. (****) The figure for 2014 included €5.5 million from the sale of a property.

As at 31st December 2015, UBI Banca held 99.578% of the share capital of the Banca Popolare di Ancona and the remaining 0.422% was held by non-controlling shareholders.

BANCA POPOLARE DI ANCONA SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 7,794,538 7,701,242 93,296 1.2%

of which: deteriorated loans 1,072,486 991,536 80,950 8.2%

Direct funding (*) 6,102,142 6,098,054 4,088 0.1%

Net interbank debt -1,158,801 -1,156,483 2,318 0.2%

Financial assets held for trading 41,224 59,303 -18,079 -30.5%

Available-for-sale financial assets 18,513 18,636 -123 -0.7%

Equity (excluding profit for the year) 868,857 867,741 1,116 0.1%

Total assets 8,555,944 8,604,200 -48,256 -0.6% Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 5,261,708 4,953,822 307,886 6.2%

of which: assets under management 2,325,665 1,983,715 341,950 17.2%

Income statement

Net interest income 195,836 186,053 9,783 5.3%

Net fee and commission income 120,111 126,964 (6,853) (5.4%)

Net income (loss) from trading, hedging and disposal/repurchase activities 1,826 2,311 (485) (21.0%)

Other net operating income/(expense) 13,832 16,425 (2,593) (15.8%)

Operating income 331,605 331,753 (148) (0.0%)

Staff costs (**) (115,769) (124,842) (9,073) (7.3%)

Other administrative expenses (***) (85,718) (80,647) 5,071 6.3%Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (8,698) (9,575) (877) (9.2%)

Operating expenses (210,185) (215,064) (4,879) (2.3%)

Net operating income 121,420 116,689 4,731 4.1%

Net impairment losses on loans (96,170) (100,833) (4,663) (4.6%)

Net impairment losses on other assets/liabilities (896) 45 (851) n.s.

Net provisions for risks and charges (1,167) (1,662) (495) (29.8%)

Profit on the disposal of equity investments (****) 41 5,492 (5,451) (99.3%)

Pre-tax profit from continuing operations 23,228 19,731 3,497 17.7%

Taxes on income for the year from continuing operations (7,276) (11,914) (4,638) (38.9%)

Profit for the year 15,952 7,817 8,135 104.1%

Other information

Number of branches 208 213 -5

Total work force (actual employees+staff on leasing contracts) 1,545 1,588 -43

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] 1.84% 0.90%

Cost:income ratio (operating expenses/operating income) 63.38% 64.83%

Net bad loans (previously termed "non-performing loans")/net loans to customers 6.50% 6.20%

Total net non-performing (previously termed "deteriorated") loans/net loans to customers 13.76% 12.88%

Capital ratio

Common Equity Tier 1 ratio 13.93% 14.67%

Tier 1 ratio 13.93% 14.67%

Total capital ratio 13.93% 14.67%

% change31.12.2015 31.12.2014 Change

172

(*) The figure for 2014 included a gain of €0.8 million on the sale of the interest held in SIA Spa. (**) The item includes redundancy expenses of €14.3 million in 2015 and €21.3 million in 2014. (***) The figure includes €1.5 million for the contribution to the Deposit Guarantee Scheme (DGS) and €2.8 million for the contribution to the

Resolution Fund, of which €2.1 million as an extraordinary non-recurring contribution. (****) The item for 2014 included the effects of the recognition of impairment losses on goodwill of €650.8 million (€443.1 million net of tax).

As at 31st December 2015 UBI Banca held 99.989% of the share capital of the Banca Carime and the remaining 0.011% was held by minority shareholders.

BANCA CARIME SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 4,091,660 4,366,169 -274,509 -6.3%

of which: non-performing (previously termed "deteriorated") loans 491,816 491,557 259 0.1%

Direct funding 5,489,156 5,761,011 -271,855 -4.7%

Net interbank debt 2,254,231 2,129,804 124,427 5.8%

Financial assets held for trading 1,026 1,696 -670 -39.5%

Available-for-sale financial assets 31,767 32,022 -255 -0.8%

Equity (including loss for the year) 1,054,676 1,074,134 -19,458 -1.8%

Total assets 7,154,337 7,269,863 -115,526 -1.6% Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 6,760,003 6,917,646 -157,643 -2.3%

of which: assets under management 3,847,889 3,372,817 475,072 14.1%

Income statement

Net interest income 149,055 173,688 (24,633) (14.2%)

Dividends and similar income 571 831 (260) (31.3%)

Net fee and commission income 108,379 117,207 (8,828) (7.5%)

Net income/expenses from trading, hedging and disposal/repurchase activities (*) (3,349) (129) (3,220) n.s.

Other net operating income/(expense) 12,443 15,396 (2,953) (19.2%)

Operating income 267,099 306,993 (39,894) (13.0%)

Staff costs (**) (131,882) (145,711) (13,829) (9.5%)

Other administrative expenses (***) (85,536) (87,358) (1,822) (2.1%) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (12,101) (12,797) (696) (5.4%)

Operating expenses (229,519) (245,866) (16,347) (6.6%)

Net operating income 37,580 61,127 (23,547) (38.5%)

Net impairment losses on loans (68,842) (83,352) (14,510) (17.4%)

Net impairment losses on other assets/liabilities (802) 64 (866) n.s.

Net provisions for risks and charges 1,940 (1,255) 3,195 n.s.

Profit (loss) on the disposal of equity investments and impairment of goodwill (****) 42 (650,800) (650,842) n.s.

Loss on continuing operations before tax (30,082) (674,216) (644,134) (95.5%)

Taxes on income for the year from continuing operations 9,233 207,335 (198,102) (95.5%)

Loss for the year (20,849) (466,881) (446,032) (95.5%)

Other information

Number of branches 216 242 -26

Total work force (actual employees+staff on leasing contracts) 1,827 1,935 -108

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] n.s. n.s.

Cost:income ratio (operating expenses/operating income) 85.93% 80.09%

Net bad loans (previously termed "non-performing loans")/net loans to customers 6.63% 5.20%

Total net non-performing (previously termed "deteriorated") loans/net loans to customers 12.02% 11.26%

Capital ratio

Common Equity Tier 1 ratio 41.24% 38.20%

Tier 1 ratio 41.24% 38.20%

Total capital ratio 41.24% 38.20%

% change31.12.2015 31.12.2014 Change

173

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €404.1 million (€429.2 million as at 31st

December 2014). (**) The item includes redundancy expenses of €1.4 million in 2015 and €2.3 million in 2014. (***) The figure includes €0.3 million for the contribution to the Deposit Guarantee Scheme (DGS) and €1.6 million for the contribution to the

Resolution Fund, of which €1.2 million as an extraordinary non-recurring contribution.

As at 31st December 2015, UBI Banca held 89.792% of the share capital of the Banca di Valle Camonica, 8.839% was held by the Banco di Brescia and the remaining 1.369% was held by non-controlling shareholders.

BANCA DI VALLE CAMONICA SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 1,740,753 1,779,208 -38,455 -2.2%

of which: non-performing (previously termed "deteriorated") loans 188,810 173,029 15,781 9.1%

Direct funding (*) 1,389,538 1,566,172 -176,634 -11.3%

Net interbank debt -247,714 -116,175 131,539 113.2%

Financial assets held for trading 2,763 3,774 -1,011 -26.8%

Available-for-sale financial assets 1,534 1,524 10 0.7%

Equity (excluding profit for the year) 145,496 143,523 1,973 1.4%

Total assets 1,867,987 1,911,456 -43,469 -2.3% Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 1,512,689 1,423,090 89,599 6.3%

of which: assets under management 630,993 556,341 74,652 13.4%

Income statement

Net interest income 38,507 36,792 1,715 4.7%

Net fee and commission income 24,148 26,216 (2,068) (7.9%)

Loss from trading, hedging and disposal/repurchase activities (1,675) (208) 1,467 n.s.

Other net operating income/(expense) 2,624 2,791 (167) (6.0%)

Operating income 63,604 65,591 (1,987) (3.0%)

Staff costs (**) (23,698) (24,459) (761) (3.1%)

Other administrative expenses (***) (18,873) (17,480) 1,393 8.0% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (1,573) (1,652) (79) (4.8%)

Operating expenses (44,144) (43,591) 553 1.3%

Net operating income 19,460 22,000 (2,540) (11.5%)

Net impairment losses on loans (16,194) (16,757) (563) (3.4%)

Net impairment losses on other assets/liabilities (41) (253) (212) (83.8%)

Net provisions for risks and charges (469) (182) 287 157.7%

Profit (loss) on the disposal of equity investments - - - -

Pre-tax profit from continuing operations 2,756 4,808 (2,052) (42.7%)

Taxes on income for the year from continuing operations 620 (2,906) 3,526 n.s.

Profit for the year 3,376 1,902 1,474 77.5%

Other information

Number of branches 65 66 -1

Total work force (actual employees+staff on leasing contracts) 349 353 -4

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] 2.32% 1.33%

Cost:income ratio (operating expenses/operating income) 69.40% 66.46%

Net bad loans (previously termed "non-performing loans")/net loans to customers 4.70% 4.65%

Total net non-performing (previously termed "deteriorated") loans/net loans to customers 10.85% 9.73%

Capital ratio

Common Equity Tier 1 ratio 11.55% 11.61%

Tier 1 ratio 11.55% 11.61%

Total capital ratio 13.23% 13.22%

31.12.2015 31.12.2014 Change % change

174

Information on the main product companies

On 25th May 2015 the merger of IW Bank into UBI Banca Private Investment took effect, and it was effective for accounting and tax purposes from 1st January 2015. The new company took the name IW Bank Spa. The figures as at and for the year ended 31st December 2014 have therefore been restated by summing the balances to take account of the operation.

(*) The figure as at 31st December 2015 includes bonds subscribed by the Parent amounting to €10 million (€10 million as at 31st December

2014). (**) The figure for 2015 includes €5.3 million of profits from the disposal of government securities (of which €5.1 million relating to sales of

CCTs). The item for 2014 included €0.8 million of profits on the disposal two CCTs, carried out in the fourth quarter. (***) The figure for 2015 includes €10.8 million of expenses (€9.8 million charged by UBISS and the remainder by other suppliers) resulting

from the integration of BPI and IW Bank, considered a non-recurring event. It also includes €0.8 million for a contribution to the Deposit Guarantee Scheme (DGS) and €0.1 million for a contribution to the Resolution Fund. In 2014 it included €1.5 million of expenses in relation to the write-off of IT systems.

The share capital of IW Bank as at 31st December 2015 was wholly owned by UBI Banca.

IW BANK SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 757,087 851,017 -93,930 -11.0%

of which: non-performing (previously termed "deteriorated") loans 25,947 25,766 181 0.7%

Direct funding (*) 2,858,634 3,073,547 -214,913 -7.0%

Net interbank debt 2,162,209 1,979,274 182,935 9.2%

Financial assets held for trading 1 405 -404 -99.8%

Available-for-sale financial assets 5,387 312,692 -307,305 -98.3%

Equity (excluding profit / including loss for the year) 156,052 156,911 -859 -0.5%

Total assets 3,293,995 3,975,732 -681,737 -17.1% Indirect funding from customers (inclusive of insurance investment and UBI Banca bonds) 9,065,992 8,974,638 91,354 1.0%

of which: assets under management 5,865,415 5,509,682 355,733 6.5%

Income statement

Net interest income 36,097 43,286 (7,189) (16.6%)

Net fee and commission income 60,732 59,752 980 1.6%

Net income from trading, hedging and disposal/repurchase activities (**) 5,646 2,340 3,306 141.3%

Other net operating income/(expense) (1,365) 2,905 (4,270) (147.0%)

Operating income 101,110 108,283 (7,173) (6.6%)

Staff costs (22,737) (25,497) (2,760) (10.8%)

Other administrative expenses (***) (74,831) (63,421) 11,410 18.0% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (993) (1,759) (766) (43.5%)

Operating expenses (98,561) (90,677) 7,884 8.7%

Net operating income 2,549 17,606 (15,057) (85.5%)

Net impairment losses on loans (3,303) (1,550) 1,753 113.1%

Net impairment losses on other assets/liabilities (57) (105) (48) (45.7%)

Net provisions for risks and charges (2,946) (1,772) 1,174 66.3%

Profit (loss) on the disposal of equity investments (22) - (22) n.s.

Pre-tax profit (loss) from continuing operations (3,779) 14,179 (17,958) n.s.

Taxes on income for the year from continuing operations (557) (6,964) (6,407) (92.0%)

Profit (loss) for the year (4,336) 7,215 (11,551) n.s.

Other information

Number of branches 21 21 -

Total work force (actual employees+staff on leasing contracts) 298 348 -50

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] n.s. 4.60%

Cost:income ratio (operating expenses/operating income) 97.48% 83.74%

Net bad loans (previously termed "non-performing loans")/net loans to customers 1.77% 1.72%

Total net non-performing (previously termed "deteriorated") loans/net loans to customers 3.43% 3.03%

Capital ratio

Common Equity Tier 1 ratio 19.40% n.a.

Tier 1 ratio 19.40% n.a.

Total capital ratio 21.37% n.a.

% change31.12.2014 Change31.12.2015

175

(*) In 2014 the item included prior year income of approximately €1 million, resulting from the repayment of sums advanced by the company in

relation to a VAT dispute.

As at 31st December 2015, UBI Banca held 65% of the share capital of UBI Pramerica SGR and the remaining 35% was held by Prudential International Investments Corporation.

UBI PRAMERICA SGR SPA

Figures in thousands of euro

OWN "RETAIL CUSTOMERS" 6,906,119 6,606,676 299,443 4.5%

Of which: customer portfolio management 5,054,203 4,911,143 143,060 2.9%

FUND BASED INSTRUMENTS 1,851,916 1,695,533 156,383 9.2%

FUNDS 15,309,241 13,799,113 1,510,128 10.9%

of which: Pramerica funds included in fund based instruments 661,464 686,695 -25,231 -3.7%

Other duplications 90,985 102,868 -11,883 -11.6%

SICAV’s and other (net of duplications) 6,242,126 5,128,841 1,113,285 21.7%

TOTAL ASSETS UNDER MANAGEMENT 27,705,037 24,745,067 2,959,970 12.0%

Income statement

Net interest income 160 967 (807) (83.5%)

Dividends and similar income - 22 (22) (100.0%)

Net fee and commission income 95,732 77,562 18,170 23.4%

Performance fees 33,590 16,556 17,034 102.9%

Net income from trading, hedging and disposal/repurchase activity 7 9 (2) (22.2%)

Other net operating income/(expense) (*) (35) 963 (998) n.s.

Operating income 129,454 96,079 33,375 34.7%

Staff costs (18,016) (15,948) 2,068 13.0%

Other administrative expenses (15,425) (14,454) 971 6.7% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (98) (95) 3 3.2%

Operating expenses (33,539) (30,497) 3,042 10.0%

Net operating income 95,915 65,582 30,333 46.3%

Net provisions for risks and charges (88) 61 (149) n.s.

Pre-tax profit from continuing operations 95,827 65,643 30,184 46.0%

Taxes on income for the year from continuing operations (32,285) (22,243) 10,042 45.1%

Profit for the year 63,542 43,400 20,142 46.4%

Other informationTotal work force (actual employees+staff on leasing contracts) 151 151 -

31.12.2015 % change31.12.2014 Change

176

(*) The item includes redundancy expenses of €0.7 million in 2015 and €0.5 million in 2014.

As at 31st December 2015 UBI Banca held 99.621% of the share capital of UBI Leasing and the remaining 0.379% was held by Banca Cooperativa Valsabbina Scpa.

UBI LEASING SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 6,619,022 6,941,652 -322,630 -4.6%

of which: non-performing (previously termed "deteriorated") exposures 1,375,589 1,408,470 -32,881 -2.3%

Due to customers 228,322 112,127 116,195 103.6%

Net interbank debt -5,996,771 -6,440,481 -443,710 -6.9%

Financial assets available-for trading - - - -

Available-for-sale financial assets 10,909 9 10,900 n.s.

Equity (including loss for the year) 518,869 522,672 -3,803 -0.7%

Total assets 6,920,820 7,250,040 -329,220 -4.5%

Income statement

Net interest income 87,387 56,817 30,570 53.8%

Net fee and commission income (expense) (94) 83 (177) n.s.

Net loss from trading, hedging and disposal/repurchase activities (54) (15) 39 260.0%

Other net operating income/(expense) 8,607 10,307 (1,700) (16.5%)

Operating income 95,846 67,192 28,654 42.6%

Staff costs (*) (16,439) (16,502) (63) (0.4%)

Other administrative expenses (23,366) (22,566) 800 3.5% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (1,695) (1,665) 30 1.8%

Operating expenses (41,500) (40,733) 767 1.9%

Net operating income 54,346 26,459 27,887 105.4%

Net impairment losses on loans (68,536) (87,644) (19,108) (21.8%)

Net impairment losses on other assets/liabilities (538) (66) 472 n.s.

Net provisions for risks and charges 693 (1,096) 1,789 n.s.

Profit on the disposal of equity investments 17 1 16 n.s.

Loss on continuing operations before tax (14,018) (62,346) (48,328) (77.5%)

Taxes on income for the year from continuing operations 10,090 23,459 (13,369) (57.0%)

Loss for the year (3,928) (38,887) (34,959) (89.9%)

Other information

Total work force (actual employees+personnel on leasing contracts) 212 224 -12

Financial ratios

Cost:income ratio (operating expenses/operating income) 43.30% 60.62%

Net bad loans (previously termed "non-performing loans")/net loans to customers 10.93% 9.54% Net non-performing exposures (previously termed "deteriorated exposures")/net loans to customers 20.78% 20.29%

Capital ratio

Common Equity Tier 1 ratio 11.12% 10.64%

Tier 1 ratio 11.12% 10.64%

Total capital ratio 12.96% 12.63%

31.12.2015 31.12.2014 % changeChange

Performance by business sector

Figures in thousands of euro number amount number amount number amount

Auto 1,740 66,910 1,740 72,199 - -7.3%of which: - motor vehicles 871 27,926 924 30,014 -5.7% -7.0%

- commercial vehicles 586 14,908 528 15,157 11.0% -1.6%- industrial vehicles 283 24,076 288 27,028 -1.7% -10.9%

Machinery and equipment 1,440 181,036 1,624 235,122 -11.3% -23.0%Aeronautical 9 52,139 8 2,847 12.5% n.s. Property 248 325,245 216 188,233 14.8% 72.8%Energy 2 3,017 3 3,932 -33.3% -23.3%

Total 3,439 628,347 3,591 502,333 -4.2% 25.1%

2014 % change2015

177

The share capital of UBI Factor as at 31st December 2015 was wholly owned by UBI Banca.

UBI FACTOR SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 2,237,554 2,016,103 221,451 11.0%

of which: non-performing (previously termed "deteriorated") exposures 310,973 283,796 27,177 9.6%

Due to customers 6,530 4,433 2,097 47.3%

Net interbank debt -2,089,856 -1,864,489 225,367 12.1%

Equity (excluding profit for the year) 137,463 134,905 2,558 1.9%

Total assets 2,291,161 2,088,131 203,030 9.7%

Income statement

Net interest income 26,178 31,703 (5,525) (17.4%)

Net fee and commission income 4,227 5,720 (1,493) (26.1%)

Other net operating income/(expense) 1,040 2,152 (1,112) (51.7%)

Operating income 31,445 39,575 (8,130) (20.5%)

Staff costs (10,547) (10,766) (219) (2.0%)

Other administrative expenses (9,796) (9,926) (130) (1.3%) Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (63) (159) (96) (60.4%)

Operating expenses (20,406) (20,851) (445) (2.1%)

Net operating income 11,039 18,724 (7,685) (41.0%)

Net impairment losses on loans (7,473) (5,287) 2,186 41.3%

Net impairment losses on other assets/liabilities (130) - (130) n.s.

Net provisions for risks and charges 140 (1,193) 1,333 n.s.

Pre-tax profit from continuing operations 3,576 12,244 (8,668) (70.8%)

Taxes on income for the year from continuing operations (1,090) (4,070) (2,980) (73.2%)

Profit for the year 2,486 8,174 (5,688) (69.6%)

Other information

Total work force (actual employees+staff on leasing contracts) 137 136 1

Financial ratios

ROE [profit for the year/equity (excluding profit for the year)] 1.81% 6.06%

Cost:income ratio (operating expenses/operating income) 64.89% 52.69%

Net bad loans (previously termed "non-performing loans")/net loans to customers 9.78% 11.03% Net non-performing exposures (previously termed "deteriorated exposures")/net loans to customers 13.90% 14.08%

Capital ratio

Common Equity Tier 1 ratio 9.87% 10.38%

Tier 1 ratio 9.87% 10.38%

Total capital ratio 9.84% 10.34%

31.12.2015 % change31.12.2014 Change

178

(*) In 2014 the item included expenses of €10.3 million relating to reimbursements to customers for early repayments of debt. (**) In 2014 the figure included €1.5 million of expenses in relation to the write-off of IT systems. (***) In 2015 the item benefited from €1.6 million resulting from a revision of guarantees and commitments towards non-Group financial

companies. (****) In 2015 the figure included €2.7 million of provisions for claims on salary backed loans. In 2014 it included the release of provisions

amounting to €3 million, recognised to meet the final quantification of risks on claims made at the time of the IT migration.

The share capital of Prestitalia as at 31st December 2015 was wholly owned by UBI Banca.

PRESTITALIA SPA

Figures in thousands of euro

Balance sheet

Loans and advances to customers 1,433,272 1,916,577 -483,305 -25.2%

of which: non-performing (previously termed "deteriorated") loans 165,881 258,785 -92,904 -35.9%

Due to customers 780 907 -127 -14.0%

Net interbank debt -1,217,571 -1,672,845 -455,274 -27.2%

Equity (including loss for the year) 228,066 230,333 -2,267 -1.0%

Total assets 1,770,603 2,682,988 -912,385 -34.0%

Income statement

Net interest income 51,160 57,191 (6,031) (10.5%)

Net fee and commission income (6,145) (6,111) 34 0.6%

Net loss from trading, hedging and disposal/repurchase activity - (620) (620) (100.0%)

Other net operating income/(expense) (*) 1,183 (12,434) 13,617 n.s.

Operating income 46,198 38,026 8,172 21.5%

Staff costs (9,697) (9,328) 369 4.0%

Other administrative expenses (20,894) (18,479) 2,415 13.1% Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (**) (809) (2,894) (2,085) (72.0%)

Operating expenses (31,400) (30,701) 699 2.3%

Net operating income 14,798 7,325 7,473 102.0%

Net impairment losses on loans (16,407) (24,700) (8,293) (33.6%)

Net impairment losses on other assets/liabilities (***) 2,342 888 1,454 163.7%

Net provisions per risks and charges (****) (7,300) 3,803 (11,103) n.s.

Loss on continuing operations before tax (6,567) (12,684) (6,117) (48.2%) Taxes on income for the year from continuing operations 4,289 5,509 (1,220) (22.1%)

Loss for the year (2,278) (7,175) (4,897) (68.3%)

Other information

Total work force (actual employees+staff on leasing contracts) 177 152 25

Financial ratios

Cost:income ratio (operating expenses/operating income) 67.97% 80.74%

Net bad loans (previously termed "non-performing loans")/net loans to customers 0.95% 0.91% Net non-performing exposures (previously termed "deteriorated exposures")/net loans to customers 11.57% 13.50%

Capital ratio

Common Equity Tier 1 ratio 20.64% 16.00%

Tier 1 ratio 20.64% 16.00%

Total capital ratio 20.64% 16.00%

31.12.2015 31.12.2014 Change % change

179

Other information

Treasury shares

The companies included in the consolidation did not hold any of their own shares in portfolio, nor those of the Parent during the course of 2015.

Litigation

Full information is reported on tax and other Group litigation as well as on anti-money laundering affairs in the Notes to the Consolidated Financial Statements, Part B – Section 12 of Liabilities.

Inspections

As already reported in last year’s Financial Statements, as part of a systemwide inquiry, on 3rd October 2014 the Bank of Italy began a regulatory assessment of the REMUNERATION AND

INCENTIVE POLICIES AND PRACTICES in force within the UBI Banca Group. At the beginning of December the inspection team already present at UBI Banca to study these matters was temporarily added to in order to verify the APPROPRIATENESS OF PROCEDURES USED TO MANAGE AND

TRANSMIT INFORMATION ON LOANS LODGED AS COLLATERAL for Eurosystem credit operations (ABACO). The inspections were concluded on 19th December 2014. With regard to the inspections into remuneration and incentive policies and practices, on 11th March 2015 the Bank of Italy delivered its findings, which were positive, and at the same time it reported possible areas for improvement. A letter of 10th April 2015 addressed to the supervisory authority contained details of specific initiatives programmed to implement the refinements desired. On the question of controls on procedures used to manage bank loans lodged as collateral for Eurosystem credit operations, in a communication of 17th March 2015 the Bank of Italy expressed a positive opinion, but here too underlined some areas requiring attention. The subjects brought up by the supervisory authority on this matter were studied and analysed and the activities programmed and the related plan to implement them were communicated in a letter dated 27th April 2015. Subsequently the Bank of Italy added to the inspections, proceeding from 21st to 23rd April 2015 to carry out a brief inspection designed to verify the ADEQUACY OF PROCEDURES AND

PROCESSES IN PLACE TO ACQUIRE INFORMATION ON DEBTORS POTENTIALLY SUITABLE FOR MONETARY

POLICY REFINANCING, in terms of monitoring the performance of IRB systems. At present, no indications regarding this verification have been received from the Bank of Italy. In the second quarter the UBI Banca Group also received an on-site inspection visit conducted by a team of senior managers from the Bank of Italy and the ECB into the question of IT RISK. The inspections commenced on 30th March and were concluded on 19th June 2015. On 18th November 2015, a report was received that features an abundantly satisfactory opinion of the Group’s overall IT risk management. At the same time, the supervisory authorities underlined some areas that can be refined and improved, such as in operational continuity and in preventing cyber-attacks and computer fraud. Before the end of the year, the Bank provided its preliminary considerations regarding the suggestions received, while a more

180

detailed response is being drafted that will illustrate an implementation plan for the measures requested, with related timescales. Following procedures already tried and tested with other national competitors as part of a "THEMATIC REVIEW OF RISK GOVERNANCE AND RISK APPETITE", in the period from 15th to 19th June 2015 senior managers from the ECB and the Bank of Italy Joint Supervisory Team visited UBI Banca to attend a meeting of the Supervisory Board and to meet senior managers of the Bank, members of the governing bodies and managers of organisational units. Further information for assessment was gathered by the authorities in meetings with the Bank’s senior managers on 25th and 26th November 2015. On 13th January 2016, the ECB sent the bank specific notification regarding this “Thematic review of risk governance and risk appetite”, pointing out several areas for improvement, which are currently being evaluated in depth. Finally, it should be noted that in a statement issued on 4th September 2015, the Bank of Italy began auditing the UBI Banca Group in order to assess its COMPLIANCE WITH REGULATIONS

ON TRANSACTION TRANSPARENCY, ON APPROPRIATE CONDUCT IN CUSTOMER RELATIONSHIPS, AND ON ANTI-MONEY LAUNDERING PRACTICES. The inspection team’s review, conducted partly at single bank branches within the Group, ended on 23rd December 2015138. In the meantime, the Group began an internal audit procedure of its own to assess certain matters including fees on credit lines and overdrafts, as well as revolving credit card policies. Following appropriate in-depth assessments, some recalculations were made for potential reimbursements, although for a minor amount.

* * * With a letter of 30th April 2014, the Consob (Italian securities market authority) launched proceedings in accordance with article 195 of the Consolidated Finance Act relating to Members of the Supervisory Board – in office from 2009 until 30th April 2014, but excluding othe Members Agliardi, Cividini, Gallarati, Resti and Zucchi – concerning a possible violation of article 149 of the Consolidated Finance Act in relation to aspects concerning information disclosed in the Corporate Governance Report. The relative defence documents, to which all the Supervisory Board members in receipt of the notification adhered, were submitted to the Consob within the time limits set. In 2015 the Consob Administrative Penalties Office then delivered its report containing a reasoned proposal for penalties (the “Report”) to the senior officers of the Bank involved in the penalty procedure and to the bank, as jointly and severally liable. On conclusion of the procedure, in October 2015 the Consob decided to impose administrative fines – in an amount equal to or close in percentage terms to the minimum penalty allowed – for those members of the Supervisory Board only who were in office in the year 2009 or who were appointed to the Supervisory Board in subsequent years, but were members of the Management Board again in the year 2009. UBI Banca – as jointly liable – and those concerned lodged an appeal against the Consob ruling. We report at the same time that when the Consob made this ruling it approved an application for non-publication (article 195, paragraph 3 of the Consolidated Finance Act) because it considered the relative conditions were satisfied (grave risks for financial markets/damage out of proportion for the parties concerned). Regarding investigations initiated by the Public Prosecutors’ Office of Bergamo in 2014, please refer to the information provided in the 2014 Consolidated Financial Statements, as no new information has arisen since. These relate in particular to activities initiated and still in progress as a result of different reports made at the time (2012 and 2013 respectively) relating

138 With regard to TRANSPARENCY AND APPROPRIATE CONRIGHT DUCT IN CUSTOMER RELATIONSHIPS (Title VI of the Consolidated Banking Act), we once again report that, following supervisory authority requests that some Group banks (Banca Popolare di Ancona and Banca Carime) undertake initiatives to solve problems found during inspections carried out previously at individual branches of those banks (without however commencing penalty procedures), both banks sent the supervisory authority a detailed plan of initiatives identified and programmed to overcome the problems.

181

to alleged matters concerning UBI Leasing and UBI Factor and a supposed failure to communicate shareholder agreements to the competent authorities and presumed influence exerted on the proceedings of shareholders’ meetings. The Group had already provided answers and clarifications at the time to the competent supervisory authorities on the matters contained in the reports and no new events have occurred to report, nor is there any additional news. Therefore, the deadlines for the end of the investigations covering the matters mentioned above have been extended until 28th January 2016 and 23rd March 2016 respectively. In consideration of their nature, it is considered that the procedures initiated by the Consob and the Public Prosecutor’s Office of Bergamo can have no repercussions on Group assets.

* * * With regard to ANTI MONEY-LAUNDERING, on 24th December 2014 a statement was received from the Bank of Italy addressed to the subsidiary IW Bank and to the Parent, UBI Banca, concerning the results of inspections carried out by the “Financial Intelligence Unit” (FIU) from 6th November 2013 to 10th March 2014. Together with the relative units at the Parent and at UBI.S, action was taken and a reply was written – on 20th February 2015 – with the formulation of an action plan to address some shortcomings that had been found. IW Bank subsequently sent a statement to the Bank of Italy to report on the implementation status of the aforementioned plan as at 30th June 2015. On 31st March 2015, the FIU concluded inspections it had begun on 17th November 2014 at Banca Popolare di Bergamo pursuant to articles 47 and 53, paragraph 4 of Legislative Decree No. 231/2007 (anti money-laundering legislation). No findings of non-compliance have, at present, been signalled. With regard to the PROVISION OF INVESTMENT SERVICES, on 29th January 2015, Consob informed Banca Popolare di Bergamo of areas requiring attention arising from the follow-up inspection carried out from 4th February to 7th August 2014, requesting in particular a programme of organisational and IT intervention designed to solve the problems identified. More specifically, the matters underlined by the authority regard sales policies and the personal incentive scheme, procedures for providing advisory services and the procedures for assessing the adequacy of investments. At the beginning of April that bank submitted its report illustrating the assessments and the initiatives taken and/or programmed. With a subsequent communication dated 4th August 2015 the Consob requested clarifications and updates on the measures and initiatives undertaken. The bank replied to that request on 15th October 2015. On 13 November 2015, Borsa Italiana initiated an examination of UBI Banca’s activities as Nominated Adviser (Nomad) for a company that floated on AIM Italia (the alternative investment sub-market of the Italian Stock Exchange) in April 2015. This examination came to a conclusion on 14th December 2015, when Borsa Italiana representatives visited UBI Banca’s offices in Corso Europa in Milan. The Nomad plays a central role on the AIM Italia market. Listed on a specific register kept by Borsa Italiana, the Nomad must assess whether it would be appropriate for the company to be admitted for trading on the stock market, and then support the company in maintaining adequate transparency in providing information to investors, as well as promote compliance with the rules associated with being listed on AIM Italia and the multilateral trading facility (MTF) run by Borsa Italiana for SMEs.

More specifically, the examination related to compliance with the following duties and responsibilities of the Nomad under AIM Italia regulations: - legal and tax due diligence; - financial due diligence; - transactions with related parties and the management control system; - placement activities.

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Regarding the outcome of this inspection, Borsa Italiana drafted a report, which did not have a critical tone, containing suggestions to refine some details of operational procedures in this activity; the departments involved have already begun adopting those suggestions. In a subsequent letter dated 22nd January 2016, Borsa Italiana officially stated that it did not find any problematic issues with respect to compliance with Nomad regulations in the activities conducted in relation to the listing process in question.

* * * On 3rd December 2015, some IW Bank representatives/managers and employees received notification of a search and seizure warrant, also informing them they are suspects in investigations, pursuant to articles 366 and 369 of the Italian Penal Code, under the Milan Public Prosecutor. The alleged offences are: criminal conspiracy, money laundering, conspiracy to launder money, self-money laundering, conspiracy to commit self-money laundering, as well as the criminal tax code offence of “fraudulent concealment of assets in relation to the payment of taxes” (as per article 11 of Legislative Decree no. 74/2000), and finally, criminal violation of customer due diligence obligations (as per ex-article 55 of Legislative Decree no. 231/2007). Finally, in a statement dated 22nd December 2015, Consob summoned the Managing Director, the Chairman of the Board of Statutory Auditors and the Head of Compliance of IW Bank to its headquarters, pursuant to Article 7, paragraph 1 of the Consolidated Finance Law (Legislative Decree no. 58/1998). The purpose of this meeting, held in late January 2016, was for the company to illustrate its business model and foreseen organisational and procedural steps – following the incorporation of the former IW Bank into UBI Banca Private Investment, which was then renamed IW Bank – in terms of investment services for which the bank is certified to provide. Consob reserved the right to request further information regarding the issues discussed during the meeting.

Compounding of interest

The UBI Banca Group has always paid the greatest attention to the well-known issue of compounding of interest in its banking relationships, both to the arguments which historically have legitimated that practice in the past and to the implementation of new rules each time that Parliament has amended the legislative framework. More specifically, the revision made by the 2014 Legge di stabilità (“stability law” – annual finance law) contains undoubtedly complex aspects, addressed in the courts with differing outcomes. The Parent is monitoring developments in the regulatory framework directly with a view to implementing the new regulations now about to be issued. As already reported – even after the amendment to the 2014 Legge di stabilità just mentioned – for the provision of detailed regulations, Art. 120 of the consolidated banking act continues to make reference to an implementation regulation of the interministerial committee for credit and saving (ICCS), which at the date of this report has not yet been issued. On 25th August 2015 the Bank of Italy put a proposed ICCS resolution out for public consultation, highlighting the difficulties of construal arising from the literal content of the provisions of the amended law and the need for interpretation in order to fully bring out the purpose aimed at by the reform, avoiding potential negative impacts for customers. The proposed resolution – which if confirmed, would introduce completely new rules for the calculation and payment of interest (allowing under certain conditions even the possibility of payment by means of debiting an account, or by using funds destined to a current account) – hypothesises the first application of interest accruing starting on the 1st January 2016. Even though the consultation period closed on 23rd October 2015, the final resolution has not yet been issued, probably due to the complexity of the problems that have emerged.

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The UBI Banca Group will in any event promptly implement the resolution once the final version is published, with the hope that some of the doubts over interpretation and application brought up in the public consultation will be resolved in the meantime (e.g. with regard to co-ordination with the rules on usury). In this regulatory framework not yet fully defined, some courts – with rulings made mainly before the public consultation on the proposed CRIC resolution was opened – have issued injunctions in proceedings brought by consumer associations against some banks including Banca Regionale Europea and IW Bank, claiming that the ban on compounding of interest is applicable immediately notwithstanding the aforementioned absence of provisions to implement it provided for by the law. Other courts, on the other hand, have thrown out action taken by the association, ruling in favour of other banks. The Group banks involved are considering taking further action to obtain a new ruling which takes account, amongst other things, of the ICCS resolution, the timing of its enforcement and the difficulties in immediate application confirmed by the accompanying documents.

Tax aspects

In 2015, Italy began a process of reforming its taxation system, implementing measures contained in Law 23/2014, which will be examined in detail below. Over the course of the year, further tax measures were introduced that specifically concern credit institutions. These measures relate, most notably, to taxation on loans to customers and to financial institutions’ obligations as withholding agents in financial transactions, whether proprietary or for their customers. Law No. 23 of 11th March 2014 (Law to revise the tax system)

Law 23/2014 gave the Italian Government a mandate to enact significant reforms of the taxation system based on certain criteria contained in the law. As a result, the following government decrees have since been approved: Decree on “Electronic invoices” (Legislative Decree No. 127 of 5th August 2015); Decree on “Certainty of Right” (Legislative Decree No. 128 of 5th August 2015); Decree on the “Internationalisation of Businesses” (Legislative Decree No. 147 of 14th

September 2015); Decree on measures for the revision of regulations governing “private letters”/“tax

clearance” and tax legislation (Legislative Decree No. 156 of 24th September 2015); Decree on measures for the revision of regulations governing the organisation of tax

authority departments (Legislative Decree No. 157 of 24th September 2015); Decree to revise the penalty system (Legislative Decree No. 158 of 24th September 2015); Decree on measures for the simplification and rationalisation of legislation on tax collection

(Legislative Decree No. 159 of 24th September 2015); Decree to estimate and monitor tax evasion and reorganisation of tax erosion regulations

(Legislative Decree No. 160 of 24th September 2015); Decree on “tax simplifications” (Legislative Decree No. 175 of 21st November 2014); Decree for the taxation of tobacco (Legislative Decree No. 188 of 15th December 2014); Decree on the composition of cadastral commissions (Legislative Decree No. 198 of 17th

December 2014).

Not all of the measures foreseen in the delegated law have been implemented. In particular, one of the matters not covered concretely in any of the subsequent government decrees is a revision of the indirect taxation system and an introduction of the so-called “Group VAT” method. The latter consists in attributing a single VAT identification number to any group of companies, a measure that, if applied, would have a substantial bearing on the UBI Banca Group.

The Italian tax authorities are currently working on guidelines for applying and interpreting the various measures cited above. To this end, Circular no. 38/E issued on 29th December 2015 illustrates the contents of Legislative Decree No. 156 of 24th September 2015 with specific regard to tax litigation.

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Of the numerous areas covered in the measures, the noteworthy points as far as the UBI Banca Group is concerned are as follows:

• the principle of abuse of rights is to be applied whenever an otherwise legal transaction is found to have no economic substance and a tax position gained is both in contrast with the purpose of related tax laws and is effectively the essential aspect of the transaction. However, a transaction designed to improve the functioning of an enterprise is considered a legitimate tax saving (e.g. as part of company reorganisation);

• doubling the time limits for tax assessment, which is now only admissible if the charge brought by the judicial authority is materially carried out before the expiry of the ordinary time limits for assessment. This new measure cannot be applied to proceedings already in progress. This regulation was also further amended in the 2016 “Stability Law”;

• co-operative tax compliance by putting organised corporate systems in place to manage and monitor taxation in large size companies. The purpose of this provision is for the tax authorities to take on a new role in relations with taxpayers, one purpose of which is to prevent tax litigation;

• the general introduction of electronic invoices;

• modifications to tax collection laws to give taxpayers an incentive to pay of their own accord, including more extensive payment instalment formats and lighter penalties for minor infractions;

• changes to criminal penalties, setting new criteria for defining tax fraud and the minimum amounts punishable as a criminal offence. Also, the law on criminal penalties for filing a tax return “in bad faith” has been significantly changed, as (i) the minimum amounts for which this violation can be considered a crime have been raised, and (ii) new measures have been introduced to exclude criminal penalties in the event of improper classification or valuation of balance sheet items. A further point concerns the “dutiful acknowledgement of unpaid taxes”, which makes some tax crimes no longer punishable in cases in which spontaneous payment of tax debts is carried out before the taxpayer learns of assessment activity already commenced by the tax authorities. As for civil law administrative penalties, they are now (as from 2016) proportional to the amount of unpaid taxes and also a function of whether the taxpayer’s intent is considered insidious (as per the 2016 “Stability Law”); in light of the principle of favor rei, the new calculations can be extended to penalties relating to past years;

• tax litigation, where out-of-court “deflationary” instruments are introduced with regard to all litigation independently of the tax levying institution and at all instances of judgement. Similarly, precautionary protection for taxpayers is introduced at all stages of tax litigation – suspension of orders, effects of rulings, etc. – as is the immediate enforcement of the rulings, while the effectiveness of a ruling in favour of the taxpayer may be made subject to the provision of appropriate guarantees by the judge;

• changes to tax law regarding the conversion of credit into equity (previously established under art. 113 of Presidential Decree No. 917 of 22nd December 1986). Credit institutions are no longer required to have purchased equity interests in the context of credit recovery actions or in a conversion of debt into newly issued shares for companies in temporary financial difficulty, in order to submit a request to the tax authorities for an opinion vis-à-vis not applying the typical exemption from capital gains tax on the equity interests acquired;

• “private letter”/“tax clearance” procedures are broadened and streamlined. The principle of the general application of “silent consent” is introduced for interpretation proposals made by taxpayers where the period set for reply, in some cases reduced from 120 to 90 days, has expired. Furthermore, there are now fewer cases in which it is mandatory to submit an advance request for an opinion to the tax authorities.

Decree Law No. 83 of 27th June 2015 (Urgent measures concerning bankruptcy, civil law and the functioning of judicial administration).

This decree, converted into a full law (No. 132 of 6th August 2015), contains significant changes to the rules on the tax deductibility of losses and impairments taken on loans to customers by credit institutions. According to the tax rules already in force until the end of 2012, write-downs were deductible up to 0.30% of total outstanding loans at the end of the

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year. The remaining part of the deductible amount was spread over the following 9 or 18 years, depending on the year in which they occurred. With Law No. 147 of 27th December 2013, the 2014 Legge di Stabilità (“Stability Law” – annual finance act), that regime was changed with effect from 2013 with the spread of losses (other than those arising from the sale of loans and receivables) and write-downs over five years. The deductibility of these costs was introduced on a similar basis for IRAP (regional production tax) purposes. Effective from the 2015 fiscal year onward, losses and impairments on loans to customers become immediately tax deductible, thus aligning taxation on the Italian banking system with the criteria in place in the other major EU member states in this respect. In this way, a factor that had been distorting competition, and at the same time discouraging lending, has been eliminated. That same decree contains measures to simplify and speed up legal proceedings taken by creditors against debtors that will thereby allow banks to manage problem loans more effectively and rapidly from a legal and taxation viewpoint. For the 2015 fiscal year only, for the evident purpose of sustaining tax receipts, the items described above will be 75% tax deductible, while the remaining 25% will be added to impairments and losses pertaining to previous years that as at 31st December 2014 had not yet been recovered in terms of taxes. The total amount not deducted arising in this manner will be recovered from a tax viewpoint over a period of 10 years – from 2016 to 2025 – on the basis of annual percentages specified in the legislation and these will replace the recovery percentages and the schedules originally recorded for companies. In practice, the government has reprogrammed the tax deductions for the costs in question on the basis of estimates of expected tax revenues over the next decade. One consequence of the above, is the expected no change in the tax rules for the purposes of calculating the amount of corporate income tax (IRES) to be paid on account for the three-year period 2015-2017, or in other words the version of the provisions contained in article 106, paragraph 3 of Presidential Decree No. 917 22nd December 1986 in force prior to the amendments made by the Decree will be maintained. The amendment described above is also applicable for the purpose of the regional production tax (IRAP). With account taken of the Consob/Bank of Italy/Isvap (insurance authority) Document No. 5 of 15th May 2012, the different timing for the tax recoveries of the annual excesses will have no impact on the amount of the DTAs recognised in balance sheets for IRES and IRAP purposes. This same decree law also introduces a rule that is unfavourable to the banking sector, whereby for extraordinary transactions executed as from 2015, DTAs recognised in balance sheets in order to realign the values of intangible assets (e.g. goodwill and trademarks) in statutory accounts with those in tax accounts can no longer be converted into actual tax credits pursuant to Decree Law No. 225 of 29th December 2010 (converted, with amendments, into Law No. 10 of 26th February 2011). The new measure does not affect the conversion into tax credits of DTAs already present on the balance sheet that are associated with previous years. Law No. 186 of 15th December 2014 (voluntary co-operation)

This law – which enabled taxpayers (chiefly natural persons) with undeclared assets held abroad to regularise their tax position with regard to prior fiscal years – generated only limited effects on income and assets, owing to the complexity of the procedure, to repeated legislative postponements, as well as to these taxpayers’ choices. Related transactions have had a significant bearing on anti-money laundering procedures and, strictly in terms of tax matters, on the identification of various financial instruments already held abroad. FATCA Regulations and automatic exchange of tax information at international level

FATCA – on 7th July 2015 the law was published in the Official Journal that ratifies the agreement between the Italian government and the United States government designed to apply the FATCA legislation and implement the automatic exchange of the information resulting also from agreements with other foreign countries (Law No. 95 of 18th June 2015). This law, in force from 8th July 2015, has retroactive effect from the 1st July 2014. The original purpose of FATCA was to provide the United States of America with certain financial information about natural and legal persons, so as to verify the presence of United States persons. The regulations stipulated that individual agreements were to be signed between US tax authorities and financial intermediaries and other institutions located outside

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of the USA. FATCA was then changed to allow agreements to be reached between sovereign governments, so as to regulate application of the procedures in various countries around the world and overcome the impediments associated with needing separate agreements with each individual financial institution. The need to endorse FATCA stems from the possibility of receiving tax treatment that is not penalising with regard to income flows from the USA belonging to both financial institutions themselves and their customers. In this context, the Italian government, along with other countries, signed an intergovernmental agreement (an “IGA model 1”) according to which, under the FATCA procedures and on the basis of reciprocity between countries, in return for information transmitted by Italy to the United States, similar information will be transmitted by the United States to Italy. Thanks to this intergovernmental agreement, information is now exchanged between the two countries’ tax authorities and no longer through individual financial intermediaries and other institutions required to collect information relevant for FATCA purposes. The Italian law to ratify this agreement, an implementation/supplement ministerial decree issued on 6th August 2015, as well as instructions issued on 7th August 2015 by the Director of Agenzia delle Entrate on how the information should be submitted, together aim to provide financial institutions with the information they need to activate this exchange of information by implementing appropriate procedures in terms of both customer due diligence and subsequent submissions of information to the tax authorities. The first transmission of information on United States financial accounts or in other words relating to financial institutions that do not adhere to FATCA was made by intermediaries to the tax authorities by 31st August 2015, while the transmission by the latter to the United States tax authorities took place with a deadline of 30th September 2015. The FACTA legislation affects the main companies in the Group (classified as financial institutions required to make FATCA reports), with the exception of UBI Leasing, UBI Factor, Prestitalia, BPB Immobiliare, S.B.I.M., UBI Sistemi e Servizi and UBI Academy. The UBI Banca Group rendered its processes and procedures compliant with the FATCA regulations from the date on which they took effect retroactively (1st July 2014).

INFORMATION SHARING – On 29th October 2014, over 50 countries, including Italy, agreed to the automatic multilateral exchange of information on financial accounts held by non-resident customers with financial institutions according to a Common Reporting Standard (CRS) broadly based on FATCA regulations. Furthermore, on 1st December 2014 the European Council amended the directive on administrative and tax co-operation (Dir. 2011/16/EU – known as "DAC") by means of a further directive (Dir. 2014/107/UE – “DAC 2”), providing for the automatic exchange of information based on the CRS standard between EU member countries. In Italy, both the CRS and the DAC 2, which had both been partially implemented under Law no. 95/2015, came into force on 1st January 2016. An implementation/supplement ministerial decree for the two directives, signed on 28th December 2015, was published in the Official Journal on 31st December 2015. Under these regulations, financial intermediaries must fulfil significant compliance duties. Notably, intermediaries must notify Agenzia delle Entrate (the Italian tax authorities) of all financial accounts held by residents of 53 specific countries by 30th April 2017, and all accounts held by residents of a further 23 countries by 30th April 2018, as listed in an appendix to the decree. The UBI Banca Group is currently updating its CRS and DAC 2 processes and protocols even though Agenzia delle Entrate has yet to provide instructions on how the information should be submitted. Under this emergent framework, financial institutions are required to set up an up-to-date computer system to identify customers, their tax residence and, if residents outside of Italy, their foreign tax identification numbers wherever applicable, so as to transmit this information to Agenzia delle Entrate, which will then forward it to the tax authorities in the customer’s country of residence. The onerous nature of procedures of this kind is very clear and it accompanies similar obligations, not entirely replicable, ordinarily provided for by domestic tax regulations. Law No. 190 of 23rd December 2014 (Patent Box Law)

The Patent Box is a tax incentive whereby a portion of a company’s income attributable to the use of inventions, industrial patents, trademarks, or legally protected innovative processes or

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formulas may be exempted from taxation. It is applicable for the purposes of both IRES (corporate income tax) and IRAP (regional production tax) and is valid for five years. Companies wishing to benefit from this incentive must file an application in advance to the Italian tax authorities containing basic information about the intangible assets that could generate income eligible for the tax exemption; they must subsequently submit a request for the tax authorities’ estimate of the effect this income exemption will have. The UBI Banca Group filed such an application during the 2015 financial year with regard to its trademarks and copyright-protected software. Law No. 208 of 28th December 2015 – Legge di Stabilità 2016 (the “Stability Law”, i.e. annual financial law for 2016)

Of the many and varied tax measures contained in Italy’s 2016 financial law, those pertinent to the banking sector are as follows: - as from 2017, the IRES rate will be reduced from 27.5% to 24%; - as from the same year, a supplemental IRES of 3.5% will be levied on lenders and other

financial institutions. This supplemental tax will be applied to each individual company, regardless of whether that company belongs to a group that has opted for tax consolidation;

- as from 2017, repeal of the non-deductibility, for the purposes of IRES and IRAP, of 4% of interest expense for banks and other financial institutions; as such, all interest expense will henceforward be tax-deductible;

- a 40% premium is to be applied to the cost of new capital goods purchased between 15th October 2015 and 31st December 2016 for the purpose of depreciation calculations. This premium is applicable even if the purchase is made through a leasing contract;

- the amortisation period will be reduced from ten years to five for intangible assets (e.g. goodwill and trademarks) booked in accounts as from 1st January 2016 if they are related to company mergers or acquisitions effective on or after that date and fiscally realigned pursuant to Article 15, paragraph 10 of Law Decree No. 185 of 29th November 2008;

- the new penalty system set out in Decree Law No. 158 of 24th September 2015 (as cited earlier) became effective on 1st January 2016. These new measures are also applicable to measures that have been announced but not yet established in detail;

- as from 2016, changes will be made to regulations concerning “blacklisted” countries, particularly with regard to the method of determining expenses and income pertaining to residents of those countries. The main criterion foreseen to determine a resident company’s specific tax obligations is a nominal foreign income tax rate 50% below the rate that would be applied in Italy;

- permanent extension of a tax credit of 65% of the amount spent as donations to cultural projects and artistic heritage restoration projects (the so-called “Art Bonus”);

- changes to limits on the use of cash as a payment method (raised from €1,000 to €3,000) and more general changes to payment method regulations;

- changes to the statute of limitations for tax audits on IRES, IRAP and VAT: notifications may be submitted up to the fifth year after tax returns are filed or the seventh year after the fact in the event of failure to file a tax return. The clause whereby the statute of limitations is doubled if criminal violations are involved has been abrogated. These new limits will be applied as from tax returns on 2016 income and notifications that have already been made remain valid;

- cancellation of a previous law that would have raised VAT as from 2016, although VAT increases from the current rates of 10% and 22% are still foreseen in 2017 and 2018;

- changes to the legislation on corrections to VAT due, originally established in Article 26 of Presidential Decree No. 633/1972.

The law also contains more general measures pertaining to all businesses:

- “corporate welfare”, whereby companies are not taxed on labour for social services or social works projects;

- a one-year extension on the option to revaluate the company assets and investments declared in 2014 financial statements.

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With regard to interpretations we report that interpretation practices issued by the tax authorities mainly involved provisions introduced by Law No. 190 of 23rd December 2014 (the Legge di stabilità, “stability law” or 2015 annual finance law), such as the “split payments” or “reverse charge” and IRAP. The following circulars worthy of mention issued in the 2015 are as follows:

• Circular No. 36/E/2015: Patent Box – the tax authorities provided instructions and deadlines for submitting applications for the tax exemption procedure, with clarifications regarding how the Patent Box option can be exercised and its effects;

• Circular No. 22/E/2015: providing recommendations on the IRAP (regional production tax) expense regime for employees with permanent contracts, the tax authorities clarified the operational details for cases of personnel on secondment;

• Circular No. 21/E/2015: the tax authorities provided recommendations on interpretation and application regarding the increase in the Aiuto alla Crescita Economica (ACE – aid to economic growth) subsidy and the transformation of excess IRES tax into an IRAP tax credits. The clarifications do not have a direct impact on tax for the UBI Banca Group, although it confirms the correctness of the Group’s practices with regard to the calculation of intragroup loans;

• Circular No. 9/E/2015: on the subject of credit for foreign taxes in relation to receipt of income produced abroad by a taxpayer who is a natural person or company, the circular confirms the correctness of the tax treatment practised in the various tax periods by the UBI Banca Group.

Investor and Media Relations activities

Relations with international markets and the media are managed on a centralised basis by a specialist area at UBI Banca which reports directly to the Chief Executive Officer. This area is also responsible for programming and organising institutional events and Parent sponsorships as well as supporting the communication activities of Group companies. The integration of the above activities enables synergies to be created in the production and distribution of content directed mainly outside the Group, but also internal to it and to thereby improve co-ordination (in terms of synchronising timing, the use of a variety of channels, including digital channels, and the details of messages) in communications with the principal stakeholders. Investor Relations: relations with analysts and institutional investors The year 2015 saw the growth of interest in the Group on the part of financial markets, in search of solid realities in a context that is, in certain regards, still somewhat difficult and uncertain. The investor relations unit therefore paid particular attention not only to maintaining existing relationships but also to gaining access to new investors both in the “equity” (investors in shares) and in the “debt” (investors in Group debt instruments) markets. Opportunities for interaction with the financial community multiplied both through the use of the well-established tools of press releases, conference calls and presentations mainly addressed to the general public at large and through a greater frequency of meetings with investors and international investors in particular.

As concerns analysts, the UBI Banca Group is currently followed by 23 brokerage houses (the “sell side”) of which 18 are international and the remainder Italian and by a very large number of analysts (the “buy side”) belonging to investment houses.

As concerns activities with investors, over the twelve months of 2015 senior management and/or the investor relations team met over 500 institutional investors (equity and debt). These investors are generally seen several times during the year.

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As a result of this intense activity, according to the results of the most recent survey of shareholders relating to August 2015, institutional investors identified by name held around 40% of the share capital of UBI Banca. Media Relations The objective of media relations activity is to favour transparency, by promoting constant, prompt, impersonal and organised access to the bank and to all important information for the media. The public agenda for media in 2015 was marked by the principal topics currently affecting the development of the Italian and European banking systems: single supervision in Europe and the change in status for many of Italy's leading banks to joint stock companies were the matters that received most coverage by national newspapers and radio and television news programmes. Additionally, the apparently irreversible trend, toward the ever-growing use of digital media for all issues related to products and customer services continued. In this context, the Group's strategy is oriented toward the consolidation of the interaction between Media and Investor Relations in order to ensure homogeneous and detailed information on financial and regulatory topics that affect the bank and the sector. At the same time the Group sought to increase its proactive support, in order to better reflect: The Group's relevance to the growth process of the Italian banking system and its ability to

respond to new regulations, confirming its values of solidity and dependability; the quality of its commercial actions, through products, services and behaviour consistent

with the principle of "fare banca per bene" (being a good banker); the ability to innovate for private customers, also in light of the massive on-going trend

toward digitalisation, for companies increasingly facing significant development and internationalisation processes and for the third sector, by now affirmed to be a fundamental feature of the functioning of the market economy.

In order to pursue these objectives, the activities of the Media Relations office were directed at both traditional and digital media, thanks to the work of the Digital Press Office, active since 2013. As regards the activities of the network banks and product companies, of particular note are the activities carried out in connection with the merger of IW Bank and UBI Banca Private Investment and with the new Prestitalia business plan. At the same time, this area continued to coordinate the media activities of the Group's subsidiary companies with regard to principal company events (nominations, results, extraordinary operations, etc.). The results: Traditional media In 2015 UBI Banca was cited in 7,503 articles, 62.1% of which were relevant in that they featured the description of the Group, the network banks, their activities and the economic and commercial results achieved. Readership (an estimate of the number of times in which articles on UBI Banca were read, as determined by Audiopress surveys) reached 1.42 billion units, an increase of over 50 million compared with 2014. Based on the yearly analysis, carried out on behalf of UBI Banca by an independent auditor, the number of relevant articles increased by approximately 10% compared with 2014. Sentiment for the Bank is prevalently favourable: 11.5% of the articles were favourable, 83.9% were neutral and only 4.6% were negative. The over 538 positive articles were dedicated in 65.5% of the cases exclusively to UBI Banca: a result providing excellent visibility, achieved primarily through the positive attitudes of the media toward the change in status to joint stock company, the Group's solidity indicators and its support of the third sector through its UBI Community initiatives . Local newspapers published on Group markets again generated the largest number of articles due to their large numbers, followed by national daily newspapers and specialist periodicals in

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the economic and financial spheres and finally by non-specialist publications. The Group was also featured in numerous articles in the international press. The results: the Digital Press Office The activities of this office, thanks to the development of language and tools specific to internet sites, smartphones and social media, provided a clear indication of the growing presence of UBI Banca on digital media. During the year 2015 there were 24,356 articles, an increase of 88% compared to the 12,957 in 2014 and 136% when compared to 2013: in two years articles featuring the Group published on digital media sites more than doubled. Sharing on online social media of those same pieces totalled 780,328, bringing the “virality index” (the number indicating the average times each article is shared on social media) to 32.0 on an annual basis (18.7 in 2014). The online articles shared by users increased by +486% in two years. Against the growing interest in digital articles, social media posts are falling: 7,469 compared to the 12,596 in 2014, although social media shares of posts mentioning the Group grew: 90,670 in 2015 compared to 71,813 in 2014. UBI Banca events and sponsorships The most significant events of 2015 are summarised below:

- Roadshow Soci (Shareholder Road Show): the Presidents and top management held two sets of meetings with shareholders, in April and in September. The April meetings were devoted to illustrating the results achieved during the course of the previous year and the guidelines for future development, while the special September meetings explained to shareholders the laws and the Bank of Italy regulations related to the change of status to joint stock company of eight of Italy's leading "popular" banks. Returning to the now traditional formula which sees meetings in the cities with the greatest Group presence, the road shows were held in Bergamo, Brescia, Milan, Cuneo, with video links with Varese and Darfo Boario Terme;

- International Banking Forum: the seventh edition of this biennial event took place during two days in the Conference Hall of the UBI Banca Brescia headquarters; attending were representatives from the Group's primary Correspondent Banks, in addition to economists and experts on the Italian and international banking systems. Promoted and organised by the Group, many of the most important economic and financial topics facing the sector were discussed; this edition, given the concurrence of the 2015 Milan Expo, was dedicated to exploring the connections between finance and the agri-food production system;

- “A discussion on the internationalization of Italian Companies”: held at the Italian Consulate in New York City, in view of the future opening of a UBI Banca representative office, this event featured a discussion of the growth prospects for Italian businesses in the current economic environment. Participating were the Group's top management, in addition to representatives from international banks, New York branches of Italian banks and the primary Italian economic institutions present in the city.

Generally with regard to sponsorships and cultural activities, while the economic environment required attention to costs and therefore a certain rationalisation of events, the Group decided to maintain long-standing relationships such as its partnership with the Einaudi Centre for the Report on the global economy and Italy (in 2015 fifteen meetings were organised in towns and cities which included Milan, Bergamo, Brescia, Turin, Cuneo, Varese, Como, Genoa and Jesi, to end the series in Rome) and the partnership with the Accademia Teatro alla Scala (La Scala Theatre Academy) with the organisation of events for Group customers and financial support to train students at the Academy. Again in 2015 UBI Banca was the primary sponsor of "Supernova", the Italian festival organised by Talent Garden to bring together innovation and creativity, held in Turin on 26th and 27th September and in Brescia from the 2nd to the 4th of October. Overall, the event welcomed over 80,000 visitors, involving institutions, businesses and civil society with the aim of raising awareness among all citizens of their fundamental role in defining future changes.

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UBI Banca supported this initiative because it believes very strongly that one of the main resources the country can use to drive economic growth again is the strength of ideas and plans, especially those generated by young people. Finally, among the many initiatives carried out in the social sector, of note is the partnership finalised between UBI Banca, Banco di Brescia and Banca di Valle Camonica with the non-profit Associazione Time to Love Onlus for the project “Nulla può accadere senza un incontro (Nothing can happen without a meeting)” which, through support for the Buni Sehat Foundation of Bali (Indonesia), helps hundreds of women each year to give birth, even in cases of extreme urgency and difficulty.

In addition to those activities organised by the Parent, the network banks continue to support and organise local initiatives some of which are based on very long-standing partnerships, with a view to supporting and being close to the local communities in which they operate.

The “Italian Responsible Payments Code”

The UBI Banca Group has adhered to the “Italian Responsible Payments Code” organised by Assolombarda (Lombard employers’ association) since 15th October 2014. As a consequence, the Group is committed to rigourously complying with the terms and conditions of payment agreed in each purchase contract. At present UBI Banca Group suppliers have signed contracts which involve payment terms ranging from a minimum of on receipt of invoice up to a maximum of 120 days from the date of invoice (a very marginal proportion accounting for 0.039% of the total). The average supplier payment time in 2015 was approximately 33 days.

Social and environmental responsibility

The UBI Banca Group pursues policies oriented towards the creation of sustainable value, in compliance with the values and principles set out in its Charter of Values and Code of Ethics and with the ethical, social and environmental expectations of its stakeholders. It does this through a strong and distinctive corporate identity, the pursuit of a climate of trust with its staff, its shareholder base and markets and through its robust control of risks, including reputational risks. The year 2015 saw the conclusion of the project, begun the previous year, for the transition to the new GRI-G4 version of the guidelines for reporting to stakeholders proposed by the Global Reporting Initiative. The project, in addition to redefining the framework and the contents of the Social Report, which from the present edition takes the new name of Sustainability Report, directly involved top management for the identification of the most relevant sustainability topics for the Bank and its stakeholders and in the subsequent planning of objectives and initiatives. The principal governing tool of the Group's social and environmental responsibility is its Code of Ethics, currently being updated to reflect not only UBI Banca's new status as a joint stock company, but also the new stakeholder map, affirming the universal principals of the United Nation's Global Compact, to which the Group has adhered and which it has undertaken to promote and respect. The Sustainability Report also includes a Communication on Progress section, providing information for stakeholders on the implementation of the principles set out by the Global Compact. In 2015 there were four reports of alleged violations of the Code of Ethics (two in 2014, four in 2013 and nine in 2012). At year's end two reports were still being evaluated by the auditors responsible, while the investigations carried out into the remaining two reports did not result in the confirmation of any violation.

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Referring for all further details to the Sustainability Report - the publication of which is forthcoming - subject to independent auditing by the independent auditors Deloitte & Touche Spa, the present section provides the principal results achieved during the year in the three aspects of sustainability: economic, social, and environmental. Economic value generated and distributed to stakeholders

In 2015 the Group generated economic value of €2.7 billion, essentially unvaried (-0.6%) compared to the previous year.

The economic value distributed to stakeholders was €2.6 billion (+1.0% compared with 2014), composed as follows: 53.0% to employees for salaries, training and company benefits; 21.8% to suppliers for the purchase of goods and services; 19.9% to the public administration for taxes and contributions to the Bank Resolution

Fund and to the Deposit Guarantee Scheme (DGS European Directive), contributions in the context of treasury management services;

4.9% to shareholders in the form of dividends and to third-party subsidiary shareholders; 0.4% to the community in the form of donations to institutions and non-profit

organisations for social activities. Social responsibility

The attention to its staff is a distinguishing feature of UBI Banca's social responsibility and is concretely implemented through its on-going training programmes (approximately 87 thousand hours of training provided in 2015), in the promotion of workplace health and safety (€1.5 million spent for prevention and support activities), and in its dedication to equal opportunity. Also particularly relevant are the Group's company benefit initiatives, with attention to the balance between work and family (work flexibility, leaves), supplementary health and pension plans (€51.8 million), study awards and other grants to families (€4.8 million), discounts on banking products and services, support of company recreational clubs (€483 thousand), and services such as shuttle buses, children's nurseries and summer camps (€1.2 million).

In the commercial sector, action continued during the year to assist families and businesses affected by the economic crisis, in addition to partnerships with local non-profit organisations, as described in the section on commercial activities, which may be consulted for further details. Environmental responsibility

In addition to full and substantial compliance with the relative regulations and legislation in force, the Group contributes, within its own sphere of responsibility, to sustainable economic development according to the lines of action identified by the environmental policy approved in December 2008.

In co-operation with the CSR Manager, the Group Energy Manager and Mobility Manager are the main protagonists assigned the duty of developing initiatives designed to reduce direct impacts, such as the rational and responsible management of resources, the reduction and proper management of waste, the reduction of emissions of harmful substances into the atmosphere and the diffusion of virtuous behaviour by staff.

2015 confirmed the trend towards the reduction of energy consumption, achieved, among other fashions, thanks to initiatives seeking to modernise and to render the Group's offices and equipment more energy efficient. In compliance with Legislative Decree 102/2014 "Implementation of EU Directive 2012/27 on energy efficiency", in 2015 eleven energy audits were performed, which lead to a series of activities aiming to reduce energy consumption. Electrical power-related CO2 emissions have been drastically reduced through the purchase of “guarantee of origin” (GO) certificates for electricity produced from renewable sources, for over 99% of the electrical power supplied to the Group.

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In order to promote the rational and respectful use of paper and energy, in 2015 the Group launched a series of awareness and training initiatives for its employees, such as the online course “Risparmio Energetico - L’energia consapevole (Energy Awareness - Energy Saving)” taken by over 12,400 employees.

As concerns indirect impacts, the Group has been active for some time in its commercial activities with “green” products, and that is credit lines (ordinary and project finance) provided for investments in energy savings and in the diversification of energy sources, above all from renewable sources or those with a low environmental impact, by both individuals and businesses. Social intervention

The Group's social responsibility is also expressed through the allocation of a portion of the economic value generated by its activities for the support and improvement of the extensive network of local non-profit organisations operating in the sectors of volunteer work, recreation and sports, assistance and solidarity, instruction and training, culture, university and research, the conservation of artistic heritage and environmental protection.

The network banks and the product companies operate independently in response to the demands they encounter in local communities and consider consistent with their own values and social responsibility objectives. They co-ordinate with the Parent on the larger projects. The Foundations are all separate from the Group: they are not subject to the Parent's policy and supervision functions and operate exclusively in conformity with their own institutional guidelines.

While greater detail is provided in the Sustainability Report, in which the activities conducted during the year are reported in accordance with the international standards recommended by the London Benchmarking Group, here we report the overall amount of contributions made: €14.9 million, of which €11.4 million in donations (including donations made in connection with the issue of UBI Community social bonds for €531.5 thousand and contributions made in the context of treasury management and payment and collection services to specific destinations totalling €2.3 million) and €3.5 million for social sponsorships.

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Principal risks and uncertainties to which the UBI Banca Group is exposed

Risks

The UBI Banca Group attributes primary importance to the measurement, management and monitoring of risk, as activities necessary to the sustainable creation of value over time and to the consolidation of its reputation on its markets. In compliance with the regulations in force for the prudential supervision of banks (Bank of Italy Circular No. 285/2013), the Group has put a process in place to calculate its capital adequacy requirement – for the present and the future – to meet all significant risks to which the Group is or might be exposed (ICAAP - Internal Capital Adequacy Assessment Process). In this respect very careful identification is performed on a continuous basis of the risks subject to measurement. Risk identification activity is designed to verify the magnitude of Group 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 the measurement of the risks identified and the calculation of the “Available Financial Resources” (AFR)1 required to meet them (capital adequacy), both at present and in the future. Use is also made of specific (by assessing impacts on a single risk) and global (by assessing impacts on all risks at the same time) stress tests to perform a better assessment of exposure to risk and of systems for mitigating and monitoring it and calculating capital requirements. The UBI Banca Group 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). In consideration of its mission, its operations and also the market context in which it operates, the risks to be subjected to measurement in the ICAAP assessment process have been identified and divided into the categories: First Pillar and Other Pillar risks. First pillar risks – already managed under the requirements of supervisory regulations – are as follows: • credit risk (including counterparty risk): the risk of incurring losses resulting from the default of a

counterparty with whom a position of credit exposure exists. This also comprises counterparty risk in the definition, which constitutes a particular type of credit risk. It is the risk that a counterparty to a transaction defaults before final settlement of the cash flows on the transaction;2

• market risk: risk of changes in the market value of financial instruments held, due to unexpected changes in market conditions and in the credit rating of the issuer;

1 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.

2 Exposure to country risk (risk of losses caused by events occurring in a country other than Italy) and transfer risk (the risk that a bank, exposed to a counterparty which is financed in a currency that is different from that in which it receives its main sources of income, incurs losses due to the difficulties of a debtor in converting its currency into the currency in which the exposure is denominated) are also monitored as part of credit risk.

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• operational risk: the risk of incurring losses resulting from the inadequacy or malfunction of procedures, human resources and internal events or from exogenous events. This includes losses resulting from fraud, human error, business disruption, system failure, non-performance of contracts and natural disasters and it comprises legal risk3.

In addition to first pillar risks, other risks were identified, consisting of the following: - measurable risks, for which established quantitative methods have been identified, which lead to the

determination of internal capital and which, combined with qualitative measurements, allow allocation and monitoring processes to be defined;

- risks subject to quantitative limits, for which operational limits can be defined consistent with risk appetite (of a quantitative nature and on which there is a broad consensus including in the literature, or subject to regulatory requirements) for their measurement and monitoring and mitigation;

- non-measurable risks, (or risks subject to assessment) for which policies and measures for control, reduction or mitigation are considered more appropriate because no established approaches exist for the measurement of internal capital that are useful for allocation purposes.

The Other Risks subject to analysis are as follows:

MEASURABLE RISKS • concentration risk: risk resulting from (i) exposures to counterparties, including central

counterparties, groups of connected counterparties and counterparties in the same economic sector, in the same geographical region or who carry on the same activity or deal in the same goods and (ii) the application of credit risk mitigation techniques including, in particular, risks resulting from indirect exposures such as for example with regard to single suppliers of guarantees;

• interest rate risk arising from activities other than trading: the current or future risk of a change in net interest income and in the economic value of the Group following unexpected changes in interest rates which have an impact on the banking book;

• business risk: the risk of adverse and unexpected changes in commission margins with respect to forecasts, connected with volatility in volumes of business due to competitive pressures and market conditions;

• equity risk: the risk of losses incurred in equity investments that are not fully consolidated on a line-by-line basis;

• fixed asset risk: the risk of changes in the value of the tangible fixed assets of the Group.

RISKS SUBJECT TO QUANTITATIVE LIMITS • liquidity risk: the risk of the failure to meet payment obligations which can be caused either by an

inability to raise funds or by raising them at higher than market costs (funding liquidity risk), or by the presence of restrictions on the ability to sell assets (market liquidity risk) with losses incurred on capital account4;

• excessive leverage risk: the risk that too high a level of debt with respect to its own funds would make a bank vulnerable thereby making the adoption of corrective action to its business plan necessary, inclusive of the sale of assets with the realisation of losses, which could result in the recognition of impairment losses on the remaining assets.

NON-MEASURABLE RISKS, (OR RISKS SUBJECT TO ASSESSMENT) • compliance risk: the risk of incurring legal or administrative penalties, substantial financial losses or

damage to reputation resulting from violations of laws and mandatory external regulations or internal regulations (by-laws, codes of conduct and voluntary codes);

• reputational risk: the present or future risk of incurring loss of profits or capital resulting from a negative perception of the image of a bank by customers, counterparties, shareholders of the bank, investors or supervisory authorities;

• residual risk: the risk that established methods of mitigating credit risk used by a bank are less effective than expected;

• strategic risk: the current or future risk of a fall in profits or in capital resulting from changes in the operating context, errors in corporate decision-making, inadequate implementation of decisions, failure to react to change in a competitive environment;

• risks resulting from securitisations: the risk that the underlying economic substance of a securitisation is not fully reflected in decisions made to measure and manage risk.

3 IT risk is also considered in this class, defined as the risk of incurring economic loss and loss of reputation and market share in relation to the use of information and communication technology (ICT).

4 Liquidity risk as defined above also comprises consideration of medium to long term (structural) equity risk resulting from a mismatch between the sources of funding and lending.

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Details are given below of risks which have 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 around 90% of the regulatory risk capital. The Group has always considered the quality of its loan portfolio and efficient management of non-performing (previously termed “deteriorated”) loans to be one of its top strategic priorities. In this sense, activity continued again in 2015 to optimise credit processes with the following aims: - to maintain the percentage of the high risk lending portfolio within performing loans

extremely low; - to manage forborne positions effectively; - to reduce flows of performing loans to non-performing (previously termed “deteriorated”)

status; - to manage the gradual reduction of the non-performing loan portfolio by means, amongst

other things, of carefully targeted disposals outside the Group; - to optimise the process for the management of guarantees to back loans, by, amongst other

things, acquiring increasingly more accurate and complete information. In 2016 the UBI Group intends to refine its processes and its integrated IT platform for the management of default loans by means of specific action designed to further strengthen credit risk management and processes for the approval of credit authorisations through automated integration of monitoring processes managed using PEF (Pratica Elettronica di Fido) software. Also, with regard to the risk of incurring losses resulting from the depreciation of the value of assets lodged as collateral to guarantee loans which, in the current economic context, could reduce in value thereby diminishing the intrinsic level of protection, as a consequence of its lending policies the UBI Banca Group has lower loan to value ratios than the average for the sector nationally. Business risk The current scenario of slow and weak economic recovery is continuing to have a negative impact on operating conditions in the banking system. This was accompanied by a strongly expansionary monetary policy in a scenario of continuously falling interest rates, now at minimum levels. In this context, there is particularly strong 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 - TLTROs). The macroeconomic environment, the extreme volatility on markets and the pressure of aggressive competition resulting from the substantial liquidity flooding credit markets has compressed margins and the profitability of operators. In this context the UBI Banca Group has taken 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 The Group’s sovereign risk exposure continues to be concentrated in Italy consisting of national government securities5. With regard to that risk for the banking book, the UBI Banca Group is taking appropriate steps to increase the diversification of the portfolio and to gradually reduce that concentration in compliance with strategic guidelines.

Detailed information on financial risk management objectives and policies and also on the exposure of the Group to price risk, credit risk, liquidity risk and the risk of changes in cash flows – pursuant to article 2428 of the Italian Civil Code – is given in Part E of the notes to the consolidated financial statements, which may be consulted.

5 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.

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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 that is expected to improve, but which is nevertheless overshadowed by certain risks, potentially negative for growth, connected with various sources of tension. These factors of uncertainty could manifest with impacts attributable primarily to credit, but without affecting the capital strength of the UBI Banca Group. In detail, the main uncertainties identified for 2016 are linked to the following aspects:

- developments in the macroeconomic situation. As found in 2015, the world economy should continue to expand in 2016 although moderately, accompanied by low inflation and characterised by consolidation of the recovery for developed countries and a slowdown in the pace of growth in emerging countries. As concerns the euro zone more specifically, signs of the recovery consolidating in a context of low levels of inflation are emerging in view of stronger exports driven by a weaker euro on currency markets, by a fall in commodity prices (primarily oil), by an increase in household wealth, a consequence of rallies on financial markets in recent years and by the accommodative monetary policy pursued by the European Central Bank which should ensure abundant liquidity and low interest rates at least in the medium term. The macroeconomic scenario in Italy is again one of slow improvement with a decidedly moderate pace of expansion. The improvement in the environment in the eurozone has in fact had a positive impact on Italy, although with growth rates penalised by continuing and significant structural problems. These prospects of economic recovery, although at an extremely slow pace, appear to be vulnerable to considerable downside risks in consideration of the negative impacts resulting from potential external shocks. These regard the following: a possible deterioration on the geopolitical scene (the outbreak of “large-scale” military conflicts and/or the possible spread of terrorist attacks); a potentially greater than expected slowdown in Chinese growth and that of emerging countries connected with energy resources and commodities; and looking at the medium to long term future, the growing gaps between the monetary policies of the major central banks, which today are all still pursuing strongly expansionary policies;

- developments in the regulatory context. 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. The UBI Banca Group continuously studies action to soften the impacts of measures, which includes constant and attentive monitoring of operating costs and a constant search for greater efficiency in internal processes. With regard to aspects of immediate and future importance, we report the new IFRS 9 financial reporting standard and proposals to amend supervisory regulations with potential impacts on loan write-downs and capital adequacy. Significant proposals include those regarding the process for the classification and management of past due loans, a proposal to revise the regulatory approach to the management, regulatory treatment and supervision of interest rate risk and, with the aim of standardising the calculation of regulatory requirements, a proposal to bring greater alignment at European level to some regulatory areas by reducing national discretion and through changes to be made to internal rating models for credit risk by the supervisory authorities 6 . Operational and reputational difficulties and the costs of implementation could also be determined by the coming adoption of the new Payment Services Directive (PSD2), by the Interchange Fee Regulation

6 Cfr. Draft Regulatory Technical Standards “On the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirements to use the IRB Approach in accordance with Articles 144(2), 173(3) and 180(3)(b) of Regulation (EU) No 575/2013, e “Public consultation on a draft of the regulation of the European Central Bank on the exercise of options and discretions available in Union law”, novembre 2015.

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(IFR) on multilateral interchange fees and by new regulations governing the compounding of interest and transparency in banking;

- Supervisory Review and Evaluation Process (SREP). The adoption of EBA guidelines on the supervisory review and evaluation process carried out by the European Central Bank could lead to the introduction of new supervisory practices, different from those previously employed by national authorities. Further requirements in addition to the regulations currently in force could arise, requiring specific action including that of an organisational nature.

* * * 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.

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Risks relating to health and safety at the workplace (Legislative Decree No. 81 of 9th April 2008)

The multidisciplinary aspects of health and safety at workplace are constantly addressed and managed by a special unit at the Parent (on the staff of the Chief Operating Officer who fills the role for the bank of “Prevention Employer”) which has the following duties: (i) to oversee the proper implementation of regulations concerning health and safety at the workplace; (ii) to officially fill the role of the Prevention and Protection Service for Group companies for which a specific service provision contract is in place; (iii) as a consequence to process and maintain risk assessment documents; and (iv) in implementation, amongst other things, of Bank of Italy provisions (Circular No. 285, 11th update of 21st July 2015 and “Clarification note” of 22nd July 2015) to fill the role of “compliance oversight specialist” in order to ensure risk oversight on the specific question of safety at work of compliance risk based on general policies in the UBI Banca Group. In 2015 ordinary activities to update measurement of conventional risk prevention were carried out by means of periodic on-site inspections conducted at the sites where staff in Group companies work with the consequent preparation of reports and recommendations to the competent units to draw up operational plans to eliminate and/or mitigate these risks. This was accompanied by constant monitoring of the proper implementation of the health and safety training programme, which is of primary importance in the prevention process. In addition to these activities a particular focus was placed during the year on the following aspects:

• development of the occupational health and safety management system (HSMS) based on UNI-INAIL guidelines, updating of the regulations establishing the health and safety policies approved by the Supervisory Board and of the rule book governing related corporate processes, and extension of the HSMS to the Group’s product companies;

• completion of the related assessment of stress in the workplace, including the processing of the subjective data gathered from all employees by way of the questionnaire designed by the departments of Occupational Psychology and Medicine of a leading university;

• verification of the effective implementation of new criteria for the management over time of the compliance levels with an approach that is increasingly integrated in company risk management processes;

• analysis of criminal phenomena (robberies) which have a direct impact on the mental and physical well-being of personnel.

The adoption of a health and safety management system The adoption of a health and safety at the workplace management system (HSMS) based on UNI-INAIl guidelines constitutes the concrete implementation of the recommendations already contained in the “231” Model of Management and Organisation. It must be considered that the adoption of an HSMS is not only designed to ensure that the “231” Model of Management and Organisation results in greater release from administrative liability with respect to the commission of crimes on the question of prevention (Legislative Decree No. 231/2001), but it also disseminates a shared and participatory culture of safety partly through formulation of specific rules and procedures therefore ensuring that the “231” model possesses the fundamental principle of efficacy in the specific area of the application of prevention rules. One further aspect not to be overlooked is the overall reduction in safety costs that can be achieved by reducing errors, accidents and near accidents resulting from greater awareness by staff due to the lower insurance premiums that INAIl (national insurance institute for accidents at the workplace) charges companies that can demonstrate that they have adopted virtuous practices. Extension of the health and safety management system to the product companies was achievable in 2015 when said companies adopted the system of accident prevention authorisations previously adopted by the Parent, by UBI.S, and by the network banks, which is closely connected with the Group’s organisation model and which calls for all core activities to be centralised within the consortium company, including those activities that have a significant impact on meeting obligations that concern the assurance of health and safety in the workplace.

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Work-related stress assessment On a par with risk assessment traditionally considered in a prevention context, the assessment of work-related stress is a continuous and detailed process conducted in several connected and sequential stages. The UBI Banca Group has always approached this legal obligation not merely with the goal of formal compliance, but rather seeing this legislation, based on European regulations, as an opportunity to lay the groundwork for achieving a high degree of organisational wellbeing, as is key to achieving high levels of performance. As concerns the “preventive” phase (which involves the collection, processing, and analysis of the numerically significant objective data, such as “alarm bell” events and indicators relating to the working context and content), we gathered and analysed the data for each year from 2009 onward, progressively fine-tuning the level of analysis by implementing the various elements considered. The analysis of this objective data pointed to no particularly critical issues, which is in line with results found at the sector level and confirms the working conditions and the efficacy of the risk-mitigation measures previously adopted within the scope of human resources management policies. By applying the principle of banking fairly and banking well to matters of health and safety in the workplace, it was deemed essential to assess the level of awareness of organisational wellbeing within the various companies of the Group and to involve all employees through a questionnaire designed to understand individual views on the potential sources of work-related stress. This questionnaire was specifically designed by a team of experts from the departments of Occupational Psychology and Occupational Medicine of the University of Padua based on the characteristics of the banking industry. The initiative forms part of safety policies adopted by the Group for the voluntary and constructive pursuit of the maximum protection for individual and collective health – a subject of particular interest and attention for trade unions and workers’ health representatives – consistent with the Code of Ethics and the principles set forth in the Sustainability Report. In 2015, after an initial phase of testing based on a sampling of heads of organisational units, the questionnaire was issued online to all employees – to be completed on a voluntary basis and absolutely anonymously – and the responses were analysed solely by the experts from the University of Padua. The questionnaire was properly completed by 51% of the Group’s workforce, reaching over 63% participation within some companies; therefore, the data gathered is statistically significant and is suited to providing in-depth knowledge of the perceived sources of stress, of individual and organisational resources and strategies implemented, and of the effects of the interaction of these factors on (physical, psychological, and behavioural) wellbeing, work satisfaction and engagement, and consequent performance. The results of the survey were presented to senior management, to the trade unions, and to the worker safety representatives in specifically organised meetings. At the Group level, what we have seen is an organisation in which there is essential equilibrium between the factors of stress and the individual and systemic resources. Particularly encouraging were the level of work engagement, the relationships between employees and supervisors, the perceived prestige towards the outside world, trust and sense of belonging, ethics, satisfaction in one’s role, and the level of work-life balance. Areas for improvement concerned organisational support, change and communication, whereas workloads are generally offset by worker autonomy and social relations, by the system of intrinsic and extrinsic rewards, and individual capacity for psycho-physical recover. Risk assessment, improvement programme and accident phenomena The constant commitment to achieve a medium level of compliance and the absence of serious risks to health has produced appreciable results. Again in 2015 no significant accidents occurred connected with accident prevention shortcomings and the inspections carried out by the public authorities responsible for monitoring compliance with prevention regulations (mainly the local health authority and the fire brigade) resulted in no fines. In this regard, it should be noted that the model for assessing work-related stress as described above has been analysed on multiple occasions by a number of hospitals within the scope of a nation-wide plan to monitor the degree of implementation of applicable laws and regulations and has always received favourable comments. Maintenance of safety at the workplace was possible as a result both of continuous activity to promptly eliminate those few “technical” risks with a high magnitude (16 and 12) and of a virtuous process designed to identify and, where possible, eliminate even at source those factors in the design, construction and maintenance of workplace environments considered likely to create risk situations which, on the basis of accident phenomena actually detected in Group companies, from the viewpoint of frequency and seriousness, were found to be statistically significant. The phenomenon of accidents travelling to and from work continue to account for over 70% of the total accidents in which employees are involved. While the Group has limited power to reduce these, partly due to the degree to which the banking sector is spread geographically and to the lack of an integrated public transport network to cover the entire country, travel policies pursued to reduce the risk of road accidents at source again proved effective as they give priority to the use of public transport for work travel and make collective means of transport available where significant geographical mobility has taken

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place. At the same time, the experimental smart-working project launched by the UBI Banca Group in collaboration with the Region of Lombardy and a group of companies and involving a limited number of units and employees of the Parent and of UBI Sistemi e Servizi has produced positive results. In the near future, and with a view to reducing social costs (e.g. reducing pollution, achieving greater work-life balance, etc.), this project is to be extended to the other companies of the Group, given the positive changes in national legislation (i.e. “Lavoro agile”) that are expected to be implemented in the near future. Analyses of robbery risk and violence to staff The number of robberies occurring at Group banks in 2015 was greater than in 2014 (45 vs. 36). This 25% increase is essentially attributable to the significant level of crime against banks in Milan, a city in which the Group has numerous branches. There was also an increase in the percentage of robberies that involved temporarily holding bank employees hostage, which ranks such events as “severe” in terms of the psychological impact on the employees involved. The forms of primary deterrence adopted to apply Group security policies have an impact on the attractiveness of branches for criminals working alone, but they do not prevent the risk of robberies carried out by organised gangs who attempt to steal large quantities of money, by obliging employees to wait for long periods until time mechanisms open. Psychological assistance accompanied by full-day classroom training provided by a team of psychologists has been in place for many years now for those personnel involved in criminal events. The combination of these forms of prevention and protection reduces the risk that, if not adequately treated by specialist psychologists and supported by the ability of individuals to adapt, the acute stress generated by the event may lead to chronic effects (i.e. post-traumatic stress syndrome). Despite this increase in crime with hostage taking, there has not been a correlated increase in requests for psychological assistance by the employees involved. After an analysis of the phenomenon by a team of psychologists, it was found that the extensive classroom training gave employees a heightened capacity to cope and manage stress is these situations. There has also been a significant increase in ATM theft, although this does not have an impact on the employees’ psychological or physical wellbeing, given that such events generally occur at night when the branches are closed. Although there were no cases of violence against employees by customers dealing with extreme financial hardship, there remains the possibility for targeted psychological assistance in the event of need.

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Subsequent events and consolidated business outlook

For a discussion of subsequent events, see Part A, Section 4, of the notes to the financial statements.

* * * With regard to the business outlook for operations, we report the forecasts given below on the basis of information currently available. The quarterly performance of net interest income in 2016 is forecast to grow compared with the minimum recorded in the last quarter of 2015. Net fee and commission income is forecast to benefit again in 2016 from the re-composition process of total funding in favour of assets under management and from the gradual recovery in lending to customers. In the context of a start to the year characterised by greater volatility on markets, profit-taking on positive fair value reserves relating to the securities portfolio should make it possible to offset the forecast lower contribution from trading and hedging activity compared with 2015. The continuous optimisation of other administrative expenses and the recent trade union agreement should make it possible to maintain operating expenses in line with those for 2015, notwithstanding the increase in costs relating to the contribution to the European Resolution Fund and the Deposit Guarantee Scheme. The particularly prudent approach to the performing portfolio and the reduction in progress of new inflows to non performing status should make it possible to reduce loan losses in the coming year, net of any extraordinary components resulting from a possible acceleration of the process to dispose of bad loans (“sofferenze”, previously termed “non performing loans”). Bergamo, 10th February 2016

THE MANAGEMENT BOARD

Statement of the Chief Executive Officer and of the Senior Officer Responsible for preparing the corporate accounting documents

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Certification of the separate financial statements pursuant to Art. 81-ter of the Consob Regulation 14th May 1999, No. 11971 and subsequent modifications and integrations 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:

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 consolidated financial statements during the course of 2015.

2. The model employed

The assessment of the adequacy of the administrative and accounting procedures for the preparation of the consolidated financial statements as at and for the year ended 31st December 2015 was based on an internal model defined by UBI Banca Spa and 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. Furthermore, it is certified that:

3.1 the consolidated financial statements:

a) were prepared in compliance with the applicable international financial reporting 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) correspond to the records contained in the accounting books; c) give a true and fair view of the capital, operating and financial position of the issuer

and of the group of companies included in the consolidation. 3.2 the management report comprises a reliable analysis of the performance, operating results and position of the issuer, together with a description of the main risks and uncertainties to which it is exposed. Bergamo, 10th February 2016 Victor Massiah Elisabetta Stegher (signed on the original) (signed on the original) Chief Executive Officer Senior Officer Responsible for

preparing the company accounting

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Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

PURSUANT TO ART. 14 AND 16 OF

LEGISLATIVE DECREE No. 39 OF JANUARY 27, 2010

To the Shareholders of

UNIONE DI BANCHE ITALIANE S.p.A.

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Unione di Banche Italiane

S.p.A. and its subsidiaries (the Unione di Banche Italiane Group), which comprise the balance sheet as

at December 31, 2015, and the income statement, statement of comprehensive income, statement of

changes in equity and cash flow statement for the year then ended, and the related explanatory notes.

Management Board’s Responsibility for the Consolidated Financial Statements

The parent’s Management Board is responsible for the preparation of these consolidated financial

statements that give a true and fair view in accordance with International Financial Reporting Standards

as adopted by the European Union and the requirements of national regulations issued pursuant to art. 9

of Italian Legislative Decree n° 38/2005.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our

audit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia)

issued pursuant to art. 11, n° 3, of Italian Legislative Decree 39/10. Those standards require that we

comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about

whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in

the consolidated financial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entity’s preparation that give a true and fair view of consolidated financial statements in

order to design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by the Management Board, as well as evaluating the overall presentation of the

consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our audit opinion.

2

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position

of the Unione di Banche Italiane Group as at December 31, 2015, and of its financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union and the requirements of national regulations issued pursuant to art. 9 of

Italian Legislative Decree n° 38/2005.

Report on Other Legal and Regulatory Requirements

Opinion on the consistency of the management report and of certain information included in the report

on corporate governance with the consolidated financial statements

We have performed the procedures indicated in the Auditing Standard (SA Italia) n° 720B in order to

express, as required by law, an opinion on the consistency of the management report and of certain

information included in the report on corporate governance required by art. 123-bis, n° 4, of Italian

Legislative Decree n° 58/98, which are the responsibility of the Management Board of Unione di

Banche Italiane S.p.A., with the consolidated financial statements of the Unione di Banche Italiane

Group as at December 31, 2015. In our opinion the report on operations and the information included in

the report on corporate governance referred to above are consistent with the consolidated financial

statements of the Unione di Banche Italiane Group as at December 31, 2015.

DELOITTE & TOUCHE S.p.A.

Signed by

Marco Miccoli

Partner

Milan, Italy,

March 2, 2016

This report has been translated into the English language solely for the convenience of international

readers.

Consolidated Financial

Statements

Notes to the consolidated accounts 212

Consolidated Balance Sheet

ASSET ITEMS (f igures in thousand euro) 31.12.2015 31.12.2014

10. Cash and cash equivalents 530,098 598,062 20. Financial assets held for trading 994,478 1,420,506 30. Financial assets designated at fair value 196,034 193,167 40. Available-for-sale financial assets 15,554,282 18,554,956 50. Held-to-maturity investments 3,494,547 3,576,951 60. Loans and advances to banks 3,429,937 3,340,415 70. Loans and advances to customers 84,586,200 85,644,223 80. Hedging derivatives 594,685 649,250 90. Fair value change in hedged financial assets (+/-) 59,994 64,124 100. Equity investments 260,812 246,250

120. Property, plant and equipment 1,744,463 1,729,107

130. Intangible assets 1,757,468 1,776,925 of which:

- goodwill 1,465,260 1,465,260 140. Tax assets: 2,814,933 2,991,600

a) current 605,770 547,704 b) deferred 2,209,163 2,443,896

- of which pursuant to Law No. 214/2011 1,966,054 2,078,403 150. Non current assets and disposal groups held for sale 11,148 69,893 160. Other assets 1,171,686 931,275

Total assets 117,200,765 121,786,704

Table 1: 100O|1 - NOTA1 ai “Criteri di redazione” .

LIABILITIES AND EQUITY (f igures in thousand euro) 31.12.2015 31.12.2014

10. Due to banks 10,454,303 13,292,723 20. Due to customers 55,264,471 51,616,920 30. Debt securities issued 36,247,928 41,590,349 40. Financial liabilities held for trading 531,812 617,762 60. Hedging derivatives 749,725 1,009,092 80. Tax liabilities: 472,564 630,223

a) current 171,620 303,740 b) deferred 300,944 326,483

100. Other liabilities 2,354,617 1,994,340 110. Post employment benefits 340,954 391,199 120. Provisions for risks and charges: 266,628 285,029

a) pension and similar obligations 70,237 80,529 b) other provisions 196,391 204,500

140. Valuation reserves 260,848 113,836 170. Reserves 3,556,603 3,450,082 180. Share premiums 3,798,430 4,716,866 190. Share capital 2,254,371 2,254,371 200. Treasury shares (5,155) (5,340) 210. Non-controlling interests 535,901 555,019 220. Profit (loss) for the year 116,765 (725,767) Total liabilities and equity 117,200,765 121,786,704

ldi di confronto al 31 dicembre 2006 si riferiscono al solo ex Gruppo BPU Banca.ai “Criteri di redazione” .

Notes to the consolidated accounts 213

Consolidated Income Statement

2015 2014

10. Interest and similar income 2,509,201 3,015,058

20. Interest expense and similar (878,146) (1,196,671)

30. Net interest income 1,631,055 1,818,387

40. Fee and commission income 1,488,853 1,403,306

50. Fee and commission expense (188,734) (176,719)

60. Net fee and commission income 1,300,119 1,226,587

70. Dividends and similar income 10,349 10,044 80. Net trading income 63,919 63,166

90. Net hedging income (loss) 10,968 (11,217)

100. Income from disposal or repurchase of: 211,390 144,636

a) loans and receivables (34,527) (15,348)

b) available-for-sale financial assets 262,251 168,304

d) financial liabilities (16,334) (8,320)

110. Net income on financial assets and liabilities designated at fair value 4,356 3,073

120. Gross income 3,232,156 3,254,676

130. Net impairment losses on: (819,512) (937,267)

a) loans and receivables (802,646) (928,617)

b) available-for-sale financial assets (18,290) (4,821)

d) other financial transactions 1,424 (3,829)

140. Net financial income 2,412,644 2,317,409

170. Net income from banking and insurance operations 2,412,644 2,317,409

180. Administrative expenses (2,340,247) (2,273,143)

a) staff costs (1,391,732) (1,413,312)

b) other administrative expenses (948,515) (859,831)

190. Net provisions for risks and charges (2,975) (9,074)

200. Net impairment losses on property, plant and equipment (88,096) (88,924)

210. Net impairment losses on intangible assets (66,523) (143,141)

220. Other net operating income/(expense) 321,441 336,366

230. Operating expenses (2,176,400) (2,177,916)

240. Profits of equity investments 35,516 122,293

260. Net impairment losses on goodwill - (1,046,419)

270. Profits on disposal of investments 208 8,729

280. Pre-tax profit (loss) from continuing operations 271,968 (775,904)

290. Taxes on income for the year from continuing operations (127,502) 72,314

300. Post-tax profit (loss) from continuing operations 144,466 (703,590)

320. Profit (loss) for the year 144,466 (703,590)

330. Profit attributable to non-controlling interests (27,701) (22,177)

340. Profit (loss) for the year attributable to the Parent 116,765 (725,767)

Items (figures in thousands of euro)

In considerazione dell’allineamento delle prassi contabili resesi necessarie a seguito della fusione tra gli ex Gruppi BPU e Bana Lombarda, nonché della variazione del principio contabile relativo ai piani a benefici definiti per i dipendenti, i rispetto a quelli già pubosito si rimanda a quanto I Iesposto nella sezione relativa ai “Criteri di redazione” . icembre 2006 si riferiscono a l solo ex Gruppo BPU Banca.

Notes to the consolidated accounts 214

Consolidated statement of comprehensive income

Figures in thousands of euro 2015 2014

10. PROFIT (LOSS) FOR THE YEAR 144,466 (703,590)

Other comprehensive income net of taxes without transfer to the income statement

40. Defined benefit plans 14,458 (26,375)

Other comprehensive income net of taxes with transfer to the income statement

90. Cash flow hedges 573 1,255

100. Available-for-sale financial assets 136,938 317,113

120. Share of valuation reserves of equity-accounted investees (3,372) (6,843)

130. Total other comprehensive income net of taxes 148,597 285,150

140. COMPREHENSIVE INCOME (item 10 + 130) 293,063 (418,440)

150. CONSOLIDATED COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS 29,286 22,798

160.CONSOLIDATED COMPREHENSIVE INCOME ATTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT 263,777 (441,238)

Notes to the consolidated accounts 215

Statement of changes in consolidated equity

to 31/12/2015

Res

erve

s

Div

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ds

and o

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use

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Share capital: 2,566,663 - 2,566,663 - - - - - - - - - (727) - 2,254,371 311,565 2,565,936

- ordinary shares 2,521,556 - 2,521,556 - - - - - - - - - (727) - 2,254,371 266,458 2,520,829

- other shares 45,107 - 45,107 - - - - - - - - - - - - 45,107 45,107

Share premiums 4,744,986 - 4,744,986 (918,436) - - - - - - - (8,526) - 3,798,430 19,594 3,818,024

Reserves 3,646,157 - 3,646,157 214,846 (101,596) (1,216) - - - - - - (20,692) - 3,556,603 180,896 3,737,499

- of profits 1,692,842 1,692,842 214,846 (101,596) - - - - - - - - - 1,729,957 76,135 1,806,092

- other 1,953,315 1,953,315 - - (1,216) - - - - - - (20,692) - 1,826,646 104,761 1,931,407

Valuation reserves 110,191 - 110,191 - - - - - - - - - (1,795) 148,597 260,848 (3,855) 256,993

Equity instruments - - - - - - - - - - - - - - - - -

Treasury shares (5,340) - (5,340) - - 185 - - - - - - - - (5,155) - (5,155)

Profit (loss) for the year (703,590) - (703,590) 703,590 - - - - - - - - 144,466 116,765 27,701 144,466

Equity: 10,359,067 - 10,359,067 - (101,596) (1,031) - - - - - - (31,740) 293,063 9,981,862 535,901 10,517,763 - attributable to shareholders of the Parent 9,804,048 - 9,804,048 - (75,630) (1,031) - - - - - - (9,302) 263,777 X X 9,981,862 - attributable to non-controlling interests 555,019 - 555,019 - (25,966) - - - - - - - (22,438) 29,286 X X 535,901

31/12/14 31/12/14 31/12/15 31/12/15

Shareholders of the Parent

Non-controlling

interestsShareholders of the

Parent

Non-controlling

interests

154,926 221 288,538 175

-851 -7 -285 0

-243 0 -243 0

-99,011 -6,342 -86,177 -4,718

59,015 2,483 59,015 688

113,836 -3,645 260,848 -3,855

Equ

ity

attr

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table

to

non

-con

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lin

g in

tere

sts

as

at

31/12/2015

Tot

al eq

uit

y as

at

31/12/2015

Con

solidat

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hen

sive

inco

me

Details of valuation reserves:

Bala

nce

s as

at

31/12/2014

Res

tate

men

t of

open

ing

bal

ance

s

Bala

nce

s as

at

01/01/2015

Allocation of prior year profit

Changes during the year

Equ

ity

attr

ibu

table

to

the

shar

ehol

der

s of

the

Pare

nt

as

at

31/12/2015

c) foreign currency differences

d) actuarial gains/losses

e) special revaluation laws

Ch

ange

s in

res

erve

s

Equity transactions

a) available-for-sale

b) cash flow hedge

The figures presented in this statement of changes in equity correspond to those reported in Table B.1 (Consolidated equity by type of company) contained in Part F of the Notes to the Financial Statements.

(figures in thousands of euro)

Notes to the consolidated accounts 216

to 31/12/2014

Res

erve

s

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sh

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Share capital: 2,762,447 - 2,762,447 - - - - - - - - - (195,784) - 2,254,371 312,292 2,566,663

- ordinary shares 2,717,340 - 2,717,340 - - - - - - - - - (195,784) - 2,254,371 267,185 2,521,556

- other shares 45,107 - 45,107 - - - - - - - - - - - - 45,107 45,107

Share premiums 4,772,267 - 4,772,267 - - - - - - - - (27,281) - 4,716,866 28,120 4,744,986

Reserves 3,553,596 - 3,553,596 274,137 (92,113) (778) - - - - - - (88,685) - 3,450,082 196,075 3,646,157

- of profits 1,508,859 1,508,859 274,137 (92,113) - - - - - - - 1,959 - 1,612,912 79,930 1,692,842

- other 2,044,737 2,044,737 - - (778) - - - - - - (90,644) - 1,837,170 116,145 1,953,315

Valuation reserves (174,959) - (174,959) - - - - - - - - - - 285,150 113,836 (3,645) 110,191

Equity instruments - - - - - - - - - - - - - - - - -

Treasury shares (6,121) - (6,121) - - 781 - - - - - - - - (5,340) - (5,340)

Profit (loss) for the year 274,137 - 274,137 (274,137) - - - - - - - - (703,590) (725,767) 22,177 (703,590) Equity: 11,181,367 - 11,181,367 - (92,113) 3 - - - - - - (311,750) (418,440) 9,804,048 555,019 10,359,067 - attributable to shareholders of the Parent 10,339,392 - 10,339,392 - (58,591) 24 - - - - - - (35,539) (441,238) X X 9,804,048 - attributable to non-controlling interests 841,975 - 841,975 - (33,522) (21) - - - - - - (276,211) 22,798 X X 555,019

The figures presented in this statement of changes in equity correspond to those reported in Table B.1 (Consolidated equity by type of company) contained in Part F of the Notes to the Financial Statements.

31/12/13 31/12/13 31/12/14 31/12/14

Shareholders of the Parent

Non-controlling

interestsShareholders of the Parent

Non-controlling

interests

-155,515 392 154,926 221

-2,037 -76 -851 -7

-243 0 -243 0

-71,914 -7,064 -99,011 -6,342

58,741 2,757 59,015 2,483

-170,968 -3,991 113,836 -3,645

(figures in thousands of euro)

Bal

ance

s as

at

31/12/2013

Res

tate

men

t of

open

ing

bal

ance

s

Bal

ance

s as

at

01/01/2014

Allocation of prior year profit

Changes during the year

Equ

ity

attr

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table

to

the

shar

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s of

th

e Par

ent

as a

t 31/12/2014

Equ

ity

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tere

sts

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t 31/12/2014

Tot

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31/12/2014

Ch

ange

s in

res

erve

s

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Con

solidat

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ompre

hen

sive

in

com

e

Details of valuation reserves:

a) available-for-sale

b) cash flow hedge

c) foreign currency differences

d) actuarial gains/losses

e) special revaluation laws

217 Notes to the consolidated accounts

Consolidated Statement of Cash Flows (indirect method)

Figures in thousands of euro 2015 2014

A. OPERATING ACTIVITIES

1. Ordinary activities 1,031,870 884,665

- p rofit (loss) for the year (+/-) 144 ,466 ( 703 ,590 )

- gains/ losses on financial a ssets held for trading and on financial a ssets/liabilities at fair value (-/+) (68 ,275) (66 ,239 )

- gains/ losses on hedging activities (-/+) (10 ,968) 11 ,217

- net impa irment losses on loans (+/-) 819 ,512 937 ,267

- net impa irment losses on property, pl ant and equipment and intangible assets (+ /-) 154 ,619 1,278 ,484

- net provi sions f or risks and char ges and other expense/income (+/-) 2 ,975 9 ,074

- net premiums not received (-) - -

- other insura nce income/expense not received (+/-) - -

- outstand ing taxes, duties and tax cred its (+/ -) 19 ,008 ( 284 ,548 )

- net impa irment losses on disposal gr oups held for sale af ter tax (+/ -) - -

- other a djustments (+/ -) (29 ,467) ( 297 ,000 )

2. Net ca sh flows from/used by financial assets 3,776,506 1,159,285

- f inancial assets held for tra ding 441 ,555 2,598 ,494

- f inancial assets designated at fa ir value 836 14 ,970

- availab le-for-sale financial assets 3,306 ,539 (4,010 ,857 )

- loans to banks: repayable on demand - -

- loans to banks: other loans (89 ,522) 789 ,341

- loans to customers 255 ,377 1,848 ,627

- other a ssets (138 ,279) (81 ,290 )

3. Net ca sh flows from/used by financial liabil it ies (4,700,463) (1,515,771)

- amounts due to banks r epayab le on demand - -

- amounts due to banks: other payables (2,838 ,420) (1,724 ,543 )

- due to customers 3,647 ,551 914 ,763

- deb t securities issued (5,342 ,421) ( 311 ,430 )

- f inancial liabil ities held for trading (85 ,950) ( 778 ,588 )

- f inancial liabil ities designated at fair value - -

- other li abilities (81 ,223) 384 ,027

Net cash flows from/used in operating activities 107,913 528,179

B. INVESTING ACTIVITIES

1. Cash flows ge nerated by 13,534 3,197,063

- d isposals of equity investments 1 ,632 182 ,158

- d ividends received on equity investments 10 ,349 10 ,044

- d isposals of held-to-maturity investments - 3,000 ,000

- d isposals of property, equipment and investment property 718 4 ,861

- d isposals of intangibl e a ssets 835 -

- d isposals of subsidiaries and lines of business - -

2. Cash flows used in (87,815) (3,624,772)

- purchases of equity investments - -

- purchases of held -to-maturity investments - (3,543 ,159 )

- purchases of property, plant and equipment (39 ,829) (32 ,083 )

- purchases of inta ngible assets (47 ,986) (49 ,530 )

- purchases of subsid iaries and lines of business - -

Net cash flows from/used in investing activities (74,281) (427,709)

C. FINANCING ACTIVITIES - -

- issues/repur chases of treasury shar es - -

- issues/purchases of equity instr uments - -

- d istribution of dividends and other uses (101 ,596) (92 ,113 )

Net cash flows from/used in financ ing act ivities (101,596) (92,113)

CASH FLOWS GENERATED/USED DURING THE YEAR (67,964) 8,357

Key: (+) generated (-) absorbed

218 Notes to the consolidated accounts

Reconciliation

Carrying amounts Figures in thousands of euro

2015 2014

Cash and cash equivalents at beginning of year 598,062 589,705

Total net cash flows generated/used during the year (67,964) 8,357

Cash and cash equivalents at end of year 530,098 598,062

219 Notes to the consolidated accounts

PART A – Accounting policies

A.1 – General Part A.2 – The main items in the financial statements A.3 – Information on transfers between portfolios of financial assets A.4 – Information on fair value A.5 – Information on “Day One Profit/Loss”

PART B – Notes to the consolidated balance sheet

Assets Liabilities Other information

PART C – Notes to the consolidated income statement PART D – Consolidated statement of comprehensive income PART E – Information on risks and the relative hedging policies PART F – Information on consolidated equity PART G – Business combination transactions concerning companies or lines of business PART H – Transactions with related parties PART I – Share-based payments PART L – Segment Reporting

Notes to the Consolidated

Financial Statements

220 Notes to the consolidated accounts

Part A – Accounting policies A.1 – GENERAL PART Section 1 Statement of compliance with IFRS This consolidated annual report of Unione di Banche Italiane has been prepared in compliance with the international financial reporting standards (IFRS)1 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 as at 31st December 2015, implemented in Italian law by Legislative Decree No. 38/2005, which exercised the option under EC Regulation 1606/2002 concerning international accounting standards. No exceptions have been made in the application of IFRS international accounting standards. The consolidated financial statements, consisting of the balance sheet, income statement, statement of comprehensive income, statement of cash flows, statement of changes in equity and the notes to the financial statements, accompanied by the consolidated management report, include the Parent UBI Banca S.p.A. and its subsidiaries included in the scope of consolidation. They have been prepared on the basis of the positions of the single companies included in the consolidation, corresponding to the relative individual company 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 consolidated management report on operations and the notes to the financial statements furnish information required by international reporting standards, by law, by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (Consob – National Commission for Companies and the Stock Exchange), in addition to other information which is not compulsory, but is considered equally necessary for the purposes of a true and accurate presentation of the accounts of the Group. The proposed consolidated annual financial statements approved by the Management Board on 10th February 2016 and submitted to the Supervisory Board for approval on 8th March 2016, 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 audit by the independent auditors Deloitte & Touche Spa. Section 2 Basis of preparation These financial statements have been prepared in accordance with measurement criteria, adopted on the basis of a going concern assumption and in compliance with accrual accounting principles, the relevance of the information and the predominance of substance over form. The financial statements have been clearly stated and give a true and fair view of the capital and financial position, the result for the year, the changes in equity and the cash flows. Unless otherwise indicated, the information contained in this annual report is expressed in as the accounting currency and the financial information, the balance sheet and income statement, the notes and comments and the explanatory tables are presented in thousands of

1 Those standards and the relative interpretations 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.See the “List of IAS/IFRS standards endorsed by the European Commission” for full details.

221 Notes to the consolidated accounts

euro. The relative rounding of the figures has been performed on the basis of Bank of Italy instructions.

The mandatory financial statements used in this annual report comply with those defined in Bank of Italy Circular No. 262/2005 and subsequent amendments and additions. Therefore, for the purposes of the presentation of these financial statements, the provisions pursuant to the fourth update of the aforementioned circular issued on 15th December 2015 by the Bank of Italy2 have been observed. In addition to information on the accounts as at and for the period ended 31st December 2015, these financial statements also provide the same comparative information as at and for the year ended 31st December 2014 (which did not require adjustments with respect to the figures published in those financial statements) and they do not include items for which there was no data for the current and the previous year.

To complete the information, account was also taken of the following documents in the preparation of this separate annual report: the ESMA3 document of 27th October 2015, “European common enforcement priorities

for 2015 financial statements”, designed to promote uniform application of IFRS to ensure transparency and the proper functioning of financial markets by identifying certain issues considered particularly significant for the 2015 financial statements of listed European companies, in consideration, amongst other things, of current market conditions4;

the ESMA document of 27th October 2015, “Improving the quality of disclosures in the financial statements” designed to underline the importance of providing information in financial reports that takes account of both relevant and material aspects;

Consob Communication No. 0007780/16 of 28th January 2016 entitled “Communication concerning issues of greater relevance to 2015 financial reports”, designed to call the attention of the authors of financial reports to aspects underlined in the above-mentioned ESMA public statement document, in relation to the disclosures that listed companies must make in their financial reports as at and for the period ended 31st December 2015 and in future reports.

Accounting policies The accounting policies contained in Part A.2 concerning the classification, measurement and derecognition stages are essentially the same as those adopted for the preparation of the 2014 separate financial statements. Where it is impossible to measure items in the financial statements with precision, the application of those policies 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: measurement of loans and receivables; measurement of financial assets not listed on active markets; measurement of indefinite useful life intangible assets and equity investments;

2 More specifically, we report that with that update the information supplied in the notes to the financial statements on the “quality of credit” now complies with the new definitions of non-performing financial assets (termed “deteriorated” assets in previous financial reports) (solely as an example “unlikely to pay loans and “forborne exposures”), in line with the concepts of non-performing exposures and forborne exposures established by the European Commission on the basis of a proposal from the EBA. Furthermore: in Part E Information on risks and hedging policies, the tables relating to pledged assets provided in Section 3 “Liquidity risk” are

no longer presented. in the Part B Notes to the balance sheet and in Part E Information on risks and hedging policies of the notes to the financial

statements, changes have been made to rationalise the notes designed to make them easier to use and understand and also to shorten the time required to prepare them.

3 European Securities and Markets Authority. 4 The priorities in terms of disclosures recommended by the ESMA for the 2015 financial statements are as follows: impact of the financial markets conditions on the financial statements; statement of cash flows and related disclosures; fair value measurement and related disclosures; possible impacts from the application of accounting standards soon to come into force.

222 Notes to the consolidated accounts

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 the provision for post-employment benefits.

An adjustment may be made to an estimate following a change in the circumstances on which it was based or if new information is acquired or yet again on the basis of greater experience. A change in an estimate is applied prospectively and it therefore generates an impact on the income statement in the year in which it is made and, if it is the case, also in future years. No changes were made in 2015 to the criteria previously employed for estimates in the financial statements as at and for the year ended 31st December 2014.

******* The following is reported with regard to changes in IFRS accounting standards. International accounting standards in force from 2015 As already reported in the interim financial report, for the preparation of the 2015 Annual Report some provisions relating to regulations issued by the European Union have come into force for the first time. A brief report on the most relevant aspects is given:

No. 634/2014 which made the introduction of the interpretation IFRIC 21 “Levies” compulsory as of the 2015 financial statements. The document in question addresses the accounting treatment for a liability relating to a levy that is not a tax on income and therefore does not fall within the scope of application of IAS 12. The accounting treatment of the liability must comply with the provisions of IAS 37 “Provisions, contingent liabilities and contingent assets”. IFRIC 21 gives clear details of: i) the obligating event which gives rise to a liability to pay a levy; ii) when a liability to pay a levy must be recognised; iii) the effects of that interpretation on interim financial reports (former IAS 34)5.

No. 1361/2014 which made amendments to accounting standards in accordance with “Annual Improvements to IFRS: 2011-2013 Cycle” as part of the normal annual process to improve them developed in the context of ordinary activities of rationalisation and clarification of international accounting standards. The purpose of annual improvements is to address the necessary issues concerning inconsistencies found in international reporting standards or to clarify terms which are not of an urgent nature.

The amendments regard the following accounting standards:

� IFRS 3 Business combinations This amendment makes it clear that the formation of all types of joint arrangement, as defined by IFRS 11, are excluded from the application of IFRS 3;

� IFRS 13 Fair Value Measurement This amendment makes clear that the exception contained in paragraph 48 of IFRS 13 concerning the possibility of measuring the fair value of a net position (in cases where financial assets and liabilities exist with positions which offset market or credit risks) applies to all contracts included within the scope of application of IAS 39 (and in future of IFRS 9) regardless of whether it satisfies the definition of financial assets and liabilities provided in IAS 32;

� IAS 40 Investment Property This amendment makes it clear that IFRS 3 and IAS 40 are not mutually exclusive and that reference must be made to the specific instructions contained in the respective standards to determine whether the purchase of a property falls within the scope of application of IFRS 3 or IAS 40. An assessment must in fact be made to determine

5 The interpretation in question constitutes an important source of interpretation for defining the accounting treatment to be applied to contributions to the Single Resolution Fund (SRF) and to the Deposit Guarantee Schemes (DGS), under Directives 2014/59/EU and 2014/49/EU respectively, details of which are given in the following Section 5 “Other aspects”.

223 Notes to the consolidated accounts

whether the acquisition of a property investment constitutes the acquisition of an asset, a group of assets or even a business combination in accordance with IFRS 3.

The adoption of the above-mentioned provisions has no appreciable impacts on the financial statements of the UBI Group.

International accounting standards with application subsequent to 2015 The provisions of some EU regulations come into force in 2016. The most relevant aspects are given below. On 17th December 2014 the European Commission endorsed the following regulations: No. 28/2015 which introduces the 2010-2012 annual cycle of improvements to

international accounting standards developed in the context of ordinary activities to rationalise and clarify international accounting standards. The main changes regard the following: - IFRS 2 “Share-based payments”

Changes were made in the standard to the definitions of “vesting conditions” and “market conditions” and further definitions of “performance conditions” and “service conditions” were added previously included in the definition of “vesting conditions”;

- IFRS 3 “Business combinations” The amendment makes clear that a “contingent consideration” pursuant to IFRS 3 recognised as a financial asset or liability (in accordance with IAS 39/IFRS 9) must be subject to subsequent measurement at fair value at each reporting date and the changes in fair value are recognised through profit or loss or through other comprehensive income on the basis of the requirements of IAS 39 (or IFRS 9);

- IFRS 8 “Operating segments” The amendments require an entity to disclose judgements made by management in applying the criteria for the aggregation of operating segments, including a description of the aggregated segments and the economic indicators considered in determining whether the operating segments share “similar economic characteristics”. Furthermore, it is specified that the reconciliation between the total of the segment assets subject to disclosure and the assets of the entity must be reported if the segment assets are reported periodically to the chief operating decision-maker;

- IAS 16 “Property, plant and equipment” and IAS “38 Intangible assets” The amendments have eliminated the inconsistencies in the calculation of accumulated depreciation when an item of property, plant and equipment, or an intangible asset is revalued (i.e. when the option to value at cost is discarded in favour of the alternative option to measure at fair value). The new requirements clarify that the gross carrying amount must be adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that the accumulated depreciation must therefore be equal to the difference between the gross carrying amount and the carrying amount net of the impairment recognised;

- IAS 24 " Related party disclosures" The new provisions clarify that where an entity provides key management personnel services to a reporting entity, that entity is deemed a related party.

No. 29/2015 which amends IAS 19 “Employee benefits”.

The amendments are designed to regulate the recognition of employee (or third party) contributions where defined benefit plans require them to contribute to the cost of the plan. In fact in some countries pension plans require employees (or third parties) to contribute to a pension plan. The amendment makes it possible to only deduct contributions from personnel expenses that are connected with the service provided in the period in which the service is provided6. Contributions that are connected with the service, but vary on the basis of the duration of

6 In the current version of the standard, contributions are deducted from personnel expense in the accounting period in which they are paid.

224 Notes to the consolidated accounts

the service provided, must be allocated to the period of service using the same method of allocation applied to the benefits.

On 23rd November 2015 the European Commission endorsed Regulation (EU) No. 2113/2015 which endorses the amendments published by the IASB on 30th June 2014, to the accounting standards IAS 16 “Property, plant and equipment” and IAS 41 “Agriculture”. While this amendment is of extremely little importance to a company in the banking sector, we report that the amendment made consists of putting the accounting treatment for plants that are used for the cultivation of farming products over a number of years, known as produce bearing plants, on the same basis as that reserved for tangible assets dealt with in IAS 16 “Property, plant and equipment”. On 24th November 2015 the European Commission endorsed Regulation (EU) No. 2173/2015 which endorsed the amendments, published by the IASB on 6th May 2014, to the accounting standard IFRS 11 “Joint arrangements”. This amendment provides new guidelines on the accounting treatment for acquisitions of interests in joint operations which constitute a business. In other words, the standard as amended requires the application of the provisions of IFRS 3 in terms of the purchase method for recognising the purchase of a joint operation, commensurate naturally to the percentage interest acquired. On the basis of the “purchase method”, the identifiable assets acquired (inclusive of any intangible assets previously not recognised by the enterprise acquired) and the identifiable liabilities assumed (inclusive of the contingent liabilities) must be recognised at their respective fair value on the acquisition date. On 2nd November 2015 the European Commission endorsed Regulation (EU) No. 2231/2015 which endorsed the amendments published by the IASB on 12th May 2014 to accounting standards IAS 16 “Property, plant and equipment” and IAS 38 “Intangible assets”. The amendment in question clarifies when it might be appropriate to use depreciation methods based on revenue or on the basis of a schedule that depreciates tangible and intangible assets on the basis of revenue generated by the use of those assets. On 15th December 2015 the European Commission endorsed Regulations (EU) No. 2343/2015 which introduces the 2012-2014 annual cycle of improvements to international accounting standards. The main changes made regard the following:

- IFRS 5 Non-current assets held-for-sale and discontinued operations The amendment introduces specific guidance on IFRS 5 for cases where an entity reclassifies an asset out of the held-for-sale class into the held-for-distribution class (or vice versa), or when the requirements for the classification of an asset held-for-distribution are no longer met. The amendments state that: these reclassifications do not constitute a change to a plan (to sell or to distribute)

and therefore the classification and measurement criteria remain valid; the assets that no longer meet the criteria for classification as held-for-distribution

should be treated in the same way as an asset that ceases to be classified as held-for-sale.

- IFRS 7 Financial instruments: disclosures The amendment regulates the introduction of further guidance to clarify whether a servicing contract constitutes a remaining involvement in a transferred asset for the purposes of the disclosures required in relation to transferred assets. It further clarifies that disclosures on offsetting financial assets and liabilities are not explicitly required for all interim financial statements, but that nevertheless those disclosures could be necessary to comply with the requirements of IAS 34 in cases where the information is significant.

- IAS 19 Employee benefits The document clarifies that in order to determine the discount rate for post-employee benefits reference must be made to high quality corporate bonds denominated in the same currency used for the payment of the benefits and that the depth of the relative market should therefore be assessed at currency level.

- IAS 34 Interim financial reporting

225 Notes to the consolidated accounts

The document introduces amendments in order to clarify that some information requested must be included in interim financial statements or at least in other parts of the documents such as the interim financial report but with the proviso that cross-references to that other section must be given in the interim financial statement. In this last case the report must be made available to readers of the financial statements in the same way and at the same time as for the interim financial report, otherwise the latter is to be considered incomplete.

On 18th December 2015 the European Commission endorsed the following regulations: No. 2406/2015 endorses the amendment published by the IASB on 18th December 2014

to accounting standard IAS 1 “Presentation of Financial Statements”. As part of the broader process to improve financial reporting disclosures, the amendment in question makes limited changes to IAS 1 designed to provide clarification on matters which might be perceived as an impediment to the clear and intelligible preparation of financial reports;

No. 2441/2015 which endorses the amendment published by the IASB on 12th August 2014 to accounting standard IAS 27 “Consolidated and separate financial statements” The amendment in question introduces the possibility in the separate financial statements of the investor to measure investments in subsidiaries, joint ventures or companies subject to significant influence using the equity method.

The adoption of the above-mentioned provisions will have no appreciable impacts on the financial statements of the UBI Group7.

International accounting standards not endorsed as at 31st December 2015

The standards listed above are not applicable for the purposes of the preparation of the 2015 consolidated annual report because their application is subject to endorsement by the European commission through the issue of specific EU Regulations. To provide full information we report that after 31st December 2015 the IASB issued the following:

on 13th January 2016, the accounting standard IFRS 16 “Leases” destined to replace IAS 17 “Leases” from the financial year 2019;

on 19th January 2016, an amendment to IAS 12 “Recognition of deferred tax assets for unrealised losses”;

on 29th January 2016, an amendment to IAS 7 “Disclosure initiative”.

*** Amendments to IAS 39 As already reported in the 2014 Consolidated Annual Report, which may be consulted for full information, on 24th July 2014 the IASB issued the accounting standard IFRS 9 “Financial Instruments”, which therefore brought to conclusion the process of the full revision of IAS 39 “Financial Instruments: Recognition and Measurement”, divided into three stages:

7 With specific reference to the option introduced with regulation EU No. 2442/2015, by the amendment to IAS 27, the UBI Group will consider whether to take this up during the current year.

226 Notes to the consolidated accounts

“Classification and Measurement”; “Impairment”; and “General Hedge Accounting”8.

The standard in question, adoption of which will be compulsory from 1st January 2018 is still going through the endorsement process by the European Commission as part of which the European Financial Reporting Advisory Group (EFRAG)9 issued a favourable opinion on 4th May 2015. Endorsement of the accounting standard is scheduled for the first half of 2016 and only after that will it become applicable in the member states of the European Union. The main provisions of the new standard are summarised below. Recognition and derecognition With IFRS9 the criteria for the initial recognition and the derecognition of financial assets and liabilities are substantially the same as for IAS39. Classification and measurement IFRS 9 lays down the following criteria for the classification of financial assets10:

a) the business model of the company to manage financial assets; and b) the characteristics of the contractual cash flows from the financial assets,

and on this basis it establishes the following three categories for the classification and measurement of financial assets:

“Amortised Cost” (AC); “Fair value through other comprehensive income (FVOCI)"; “Fair value through profit or loss (FVPL)”.

The “Amortised Cost” category Financial assets held to collect their contractual cash flows are classified and measured according to this criteria. The occurrence of a sale is not necessarily inconsistent with the definition of a business model required for measurement using “amortised cost”. For example infrequent sales of modest amount may take place as part of that business model. Furthermore, disposals carried out due to increases in credit risk11 in financial assets subject to disposal are not important.

The “Fair value through other comprehensive income (FVOCI)" category This category is for the classification of financial assets: for which the contractual cash flows consist exclusively of the payment of principal and

interest; held to collect the contractual cash flows and also cash flows from the sales of the assets.

This business model may involve greater sales activity than that of the business model associated with the “Amortised cost” category.

The interest income, gains and losses from exchange rate losses and the recognition of impairment losses on financial instruments classified in the FVOCI category together with reversals of impairment losses are recognised through profit or loss, while other changes in fair value are recognised through other comprehensive income (OCI).

8 For full information we report that in April 2014 the IASB published the discussion paper “Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging” which, in line with the dynamic procedures for the management of interest rate risk adopted by banks, sets out a possible accounting approach (a “portfolio revaluation approach”) designed to better reflect the dynamic management of risk by management in the financial statements of an entity. Following the observations received during the consultation stage, in July 2015 the IASB decided to assign the “macrohedging” project to the relative research programme and it postponed publication of the Exposure Draft until after a further discussion paper had been prepared. 9 Body responsible for assessing the adoption of IFRS in Europe. 10 Financial assets are classified in their entirety, and therefore those that contain embedded derivatives are not subject to bifurcation rules. 11 Nevertheless, if the sales carried out by a company are not infrequent and of insignificant amount, it must be considered within which limits that sales activity is consistent with a business model that consists mainly of collecting contractual cash flows.

227 Notes to the consolidated accounts

At the time of sale (or possible reclassification into other categories due to a change of business model), accumulated profits or losses recognised in OCI are reclassified through profit or loss.

The“fair value through profit or loss” category Financial assets are classified and measured according to this criteria, that are not managed on the basis of the two business models specified for the “amortised cost” and “fair value through other comprehensive income” categories. For equity instruments only, an irrevocable option may be exercised on initial recognition for the classification and measurement of the financial assets at FVOCI. Exercise of this option involves recognising all changes in fair value within other comprehensive income (OCI) without the possibility of reclassifying them through profit or loss (neither for impairment loss nor for subsequent disposal). Dividends are recognised through profit and loss. As concerns financial liabilities, the provisions of IAS 39 have been reproduced almost entirely in IFRS 9. As provided for by IAS 39, this standard allows financial liabilities to be measured on the basis of the “fair value through profit or loss” criterion (i.e. the “fair value option”) in the presence of determined conditions, but nevertheless providing for changes in the fair value of financial liabilities due to changes in the credit rating of the issuer to be recognised through other comprehensive income and no longer through profit or loss.

Impairment The IFRS 9 impairment model, which has a forward-looking vision, requires immediate recognition of credit losses even if they are only forecast as opposed to IAS 39, according to which the measurement of credit losses is based solely on those resulting from past events and current conditions. The IFRS 9 impairment model requires an estimate of credit losses to be made on the basis of supportable information, that is available without unreasonable cost or effort and that includes historical, current and forecast information12. As opposed to IAS 39, IFRS 9 has a single impairment model to be applied to different financial instruments such as financial assets measured at amortised cost and those measured at fair value through other comprehensive income. More specifically, for financial assets that are not impaired when purchased (or originated) the recognition of impairment for expected credit losses must be calculated by one of the following methods: basing it on the amount of the expected credit losses in the following twelve months

(expected losses resulting from default events on financial assets considered possible within twelve months from the date of the end of the financial year). That method must be applied when the credit risk at the balance sheet date is low or has not increased significantly since initial recognition; or,

basing it on the amount of the expected credit losses over the full lifetime of the instrument (expected losses resulting from default events on financial assets considered possible over the full lifetime of the financial asset). This method must be applied when the credit risk has increased significantly since initial recognition.

The standard involves the division of financial assets into three stages on the basis of the credit risk specific to each relationship: stage one: performing financial assets for which no significant increase in the credit risk

has been found. Calculation of the expected loss is carried out over a time horizon of twelve months;

stage two: performing financial assets for which a significant increase in the credit risk has been found. Calculation of the expected loss is carried out over the full lifetime of the instrument;

12 The standard defines expected credit losses as the “weighted average of credit losses with the respective risks of a default occurring as the weights”. Expected losses must be estimated by considering possible scenarios and therefore by considering the best available information on past events, current conditions and supportable forecasts of future events, known as a “forward looking approach”.

228 Notes to the consolidated accounts

stage three: non-performing financial assets. Hedge accounting

IFRS 9 contains provisions relating to what is termed the “general hedge accounting model” designed to better reflect risk management policies adopted by management in the financial reporting. To give examples, but not limited to these, the standard therefore broadens the range of risks for which hedge accounting may be applied to non-financial items. It eliminates the compulsory quantitative effectiveness test, it no longer requires retroactive assessment of the effectiveness of a hedge and it no longer allows hedge accounting to be voluntarily revoked once it has been designated. While more flexibility is introduced, the new standard requires even more detailed disclosure on risk management activities by management. To complete the information we report that the current text of the standard does not include details of the accounting model provided for relationships for the collective hedging of loan portfolios. In this respect, in April 2014 the IASB published the discussion paper “Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging” which, in line with the dynamic procedures for the management of interest rate risk adopted by banks, sets out a possible accounting approach (a “portfolio revaluation approach”) designed to better reflect the dynamic management of risk by management in the financial statements of an entity. Following the observations received during the consultation stage, in July 2015 the IASB decided to assign the “macrohedging” project to the relative research programme and it postponed publication of the Exposure Draft until after a further discussion paper had been prepared. The IFRS9 Project in the UBI Banca Group The importance of the future changes introduced by the new accounting standard appear quite clear from the above, especially with regard to the expected loss model applicable to estimates of the value of financial instruments. For this reason, and in consideration of the consequent complexity of the implementation of the standard in question, the UBI Banca Group has taken part from the outset in a project run by the Italian Banking Association and in the second half of 2015 it launched its own transition project (moving on from preliminary assessment activity), the main details of which are given below. The architecture of the project runs along three lines of activity:

1. preliminary assessment: the aim is to assess the potential impacts of the new standard with respect to regulatory aspects, risk models, administration, organisation, IT software and business;

2. design: aimed in particular at defining detailed specifications in IT and organisational terms;

3. implementation: aimed at the implementation and execution of the actions identified and defined in the previous stages of the project.

Assessment activity is currently in progress at present. It will probably come to a close by the end of the first quarter of 2016 and the main preliminary results can be summarised as follows: identification of regulatory and accounting modifications and the consequent preliminary

definition of accounting guidelines for the necessary aspects; identification of the preliminary impacts in terms of business, risk models, organisation

and IT systems;

229 Notes to the consolidated accounts

definition of criteria for the recognition and transfer of financial instruments and for loans in particular, among the three stages laid down by IFRS 9 on the basis of credit quality, with consequent different estimates of the value of the instrument (twelve month expected credit loss vs. lifetime expected credit loss).

The studies conducted so far with the project confirm the significance of the changes introduced by the new standard in relation in particular to the impairment model applicable to all financial assets (except for those recognised at FVPL). This lends weight as a consequence to the expectation held by the whole national and international banking industry that the degree of write-downs will increase compared with those estimated with the model currently in use, especially with regard to financial assets that have not defaulted13, or in other words those located in stages one and two as defined in the standard. On the other hand there are no significant expectations of asset reclassifications on the basis of the provisions for the classification of financial assets contained in IFRS 9. As already stated, the project will continue with design activity in the second half and subsequently with implementation. Future interim financial reports will provide information on this. IFRS 15 “Revenue from Contracts with Customers”

On 28th May 2014 the IASB published the standard IFRS 15 which from 1st January 2018 will replace14 the standards IAS 18 “Revenue” and IAS 11 “Construction contracts”, as well as the interpretations IFRIC 13 “Customer loyalty programmes”, IFRIC 15 “Agreements for the construction of real estate”, IFRIC 18 “Transfers of assets from customers” and SIC 31 “Revenue – Barter transactions involving advertising services”.

The standard establishes new procedures for the recognition of revenue, which will apply to all contracts entered into with customers except for those that fall within the scope of application of other IFRS standards such as leases, insurance contracts and financial instruments.

The fundamental steps in the accounting treatment of revenues according to the new standard are as follows: the identification of a contract with the customer; the identification of the performance obligations of the contract; determination of the price; allocation of the price to the performance obligations of the contract; the criteria for the recognition of revenue when an entity satisfies each performance

obligation. The main components of the Group’s revenues do not fall within the scope of application of IFRS 15, because they are regulated by the provisions of IAS 39 (and IFRS 9). As concerns those components of revenues of a fee and commission nature that do not fall within the scope of application of IAS 39 or IFRS 9, assessments must be carried out on first time adoption of IFRS 15 to determine the following: the prices of the relative transactions including the variable components, which must be

allocated to one or more performance obligations; and whether the performance obligations are satisfied “over time” or at a “point in time”. Furthermore, the presentation of revenue on a gross or net basis will depend on an analysis of the “principal” or “agent” role played by the entity in the transaction. At present, while waiting to start a detailed analysis of contracts with customers, it is not possible to provide a reasonable estimate of the impacts resulting from the application of the standard, which the Group expects will not be significant.

13 It is reasonable to consider that, within the meaning of IFRS 9, defaulted financial instruments will be placed in stage three. Application of the lifetime expected credit loss model is conceptually similar to the model currently in use for measuring write-downs on a case-by-case basis. 14 While early application is allowed, it is underlined that as can be seen from the table which lists accounting standards issued but not yet endorsed as at 31st December 2015, the standard has not yet been endorsed by the European Commission. At present endorsement is expected for the second half of 2016.

230 Notes to the consolidated accounts

SECTION 3 Consolidation scope and methods The consolidated financial statements include the financial and operating results of UBI Banca Spa and the companies either directly or indirectly controlled by it, including within the scope of consolidation companies which operate in sectors different from that to which the Parent belongs and the special purpose entities, when the conditions of effective control exist, even in the absence of an equity stake, but in relation to what is termed “business”. Compared with 31st December 2014, no changes have occurred in the scope of consolidation except for a series of transactions to purchase shares in companies already controlled, which resulted solely in a change in the percentage shareholdings held in some Group companies. These transactions did not determine changes in the consolidation methods. Therefore no sales of shares in subsidiaries took place during the year which resulted in the loss of control. Further information on the changes described above is given in the section “The scope of consolidation” contained in the Management Report, which may be consulted. With regard to the consolidation methods used, companies subject to control are consolidated using the full line-by-line method, while those interests over which the Group exercises significant influence are measured using the equity method. Changes in the consolidation scope The following transactions occurred in 2015 which changed the scope of consolidation of the Group:

- UBI Fiduciaria Spa: on 30th April the transfer took place, with effect from 1st May 2015, of UBI Fiduciaria Spa’s “static” fiduciary operations to Unione Fiduciaria Spa, a company which operated in accordance with Law No. 1966 of 23rd November 1939 and subsequent additions;

- IW Bank Spa: on 25th May the merger of IW Bank into UBI Banca Private Investment took effect, with the change of its name at the same time to IW Bank Spa and the transfer of the registered address to Milan at 12, Piazzale Zavattari. The share capital of the new bank is €67,950,000. The merger of the two companies, fully controlled by the Parent, is also reflected in the shareholder structure of the consortium companies, which changed as follows from 25th May 2015: - UBI Sistemi e Servizi spa: the new IW Bank Spa holds a 4.3142% stake in the share

capital of the services company, the aggregate result of the stakes previously held by the former UBI Banca Private Investment (1.4385%) and the former IW Bank (2.8757%);

- UBI Academy SCRL: the new IW Bank Spa holds a 3% stake in the share capital of the training company, the aggregate result of the 1.5% stakes previously held by the former UBI Banca Private Investment and the former IW Bank;

- Società Lombarda Immobiliare Srl – SOLIMM: on 9th June 2015 the Management Board of UBI Banca approved the merger of SOLIMM into S.B.I.M. Spa (Società Bresciana Immobiliare Mobiliare). The operation was completed on 20th October 2015;

- Banca di Valle Camonica Spa: during the year, UBI Banca purchased a total of 460,632 shares from other shareholders (including stakes sold by Finanziaria di Valle Camonica and by Cattolica Assicurazioni on 5th and 6th August 2015 respectively) for consideration of €31.3 million. The control exercised by the Group therefore rose from 84.131% as at 31st December 2014 to 98.63% as at 31st December 2015;

- Zhong Ou Asset Management Co. Ltd – China: in June UBI Banca reclassified one third of the stake held in this Chinese registered fund management company (accounting for approximately 11.7% of the total share capital) within non-current assets held for sale according to IFRS 5. This company, in which UBI Banca holds a 35% stake, achieved significant results in 2015, both in terms of capital inflows and in terms of operating performance. On the basis of agreements between the shareholders and management of the company, UBI Banca is obliged to transfer part of the shares it holds to management when

231 Notes to the consolidated accounts

determined quantitative objectives are achieved. Consequently UBI Banca has reclassified that portion of the shares which presumably will be transferred in the first months of 2016;

- Coralis Rent Srl: the liquidation of the company was completed on 31st December 2015 and it was removed from the Company Registry.

Further details relating to transactions which modified the ownership structure of the Group in 2015 are given in the section “The consolidation scope” of the consolidated management report.

232 Notes to the consolidated accounts

1. Equity investments in companies subject to exclusive control

Inv e s t ing c o m pa ny % he ld

1. Unio ne di Banche Ita liane Spa - UBI Banca Bergamo2. 24-7 F inance Srl Bres c ia Bres c ia 4 UBI Banca Spa 10.000% 10.000%3. Banca Carime Spa Co s enza Co s enza 1 UBI Banca Spa 99.989% 99.989%4. Banca di Valle Camo nica Spa Breno (BS) Breno (BS) 1 UBI Banca Spa 89.792% 98.630%

Banco di Bres c ia Spa 8.838%5. Banca P o po lare Co mmerc io e Indus tria Spa Milan Milan 1 UBI Banca Spa 83.763% 83.763%6. Banca P o po lare di Anco na Spa J es i ( AN) J es i ( AN) 1 UBI Banca Spa 99.578% 99.578%7. Banca P o po lare di Bergamo Spa Bergamo Bergamo 1 UBI Banca Spa 100.000% 100.000%8. Banca Regio na le Euro pea Spa (*) Cuneo Cuneo 1 UBI Banca Spa 74.777% 79.895%9. Banco di Bres c ia Spa Bres c ia Bres c ia 1 UBI Banca Spa 100.000% 100.000%10. BP B Immo bilia re Srl Bergamo Bergamo 1 UBI Banca Spa 100.000% 100.000%11. Centro banca Sviluppo Impres a SGR Spa Milan Milan 1 UBI Banca Spa 100.000% 100.000%12. IW Bank Spa (ex UBI Banca P riva te Inves tment) Milan Milan 1 UBI Banca Spa 100.000% 100.000%13. P res tita lia Spa Bergamo Bergamo 1 UBI Banca Spa 100.000% 100.000%14. So c ie tà Bres c iana Immo bilia re - Mo bilia re SBIM Spa Bres c ia Bres c ia 1 UBI Banca Spa 100.000% 100.000%15. UBI Banca Inte rna tio na l Sa Luxembo urg Luxembo urg 1 UBI Banca Spa 91.196% 100.000%

Banco di Bres c ia Spa 5.483%Banca Regio na le Euro pea Spa 0.161%Banca P o po lare di Bergamo Spa 3.160%

16. UBI Fac to r Spa Milan Milan 1 UBI Banca Spa 100.000% 100.000%17. UBI F iduc iaria Spa Bres c ia Bres c ia 1 UBI Banca Spa 100.000% 100.000%18. UBI F inance Srl Milan Milan 1 UBI Banca Spa 60.000% 60.000%19. UBI F inance 2 Srl Bres c ia Bres c ia 4 UBI Banca Spa 10.000% 10.000%20. UBI F inance 3 Srl Bres c ia Bres c ia 4 UBI Banca Spa 10.000% 10.000%21. UBI Leas e F inance 5 Srl Bres c ia Bres c ia 4 UBI Banca Spa 10.000% 10.000%22. UBI Leas ing Spa Bres c ia Bres c ia 1 UBI Banca Spa 99.621% 99.621%23. UBI Management Co mpany Sa Luxembo urg Luxembo urg 1 UBI P ramerica SGR Spa 100.000% 100.000%24. UBI P ramerica SGR Spa Milan Milan 1 UBI Banca Spa 65.000% 65.000%25. UBI S is temi e Servizi Scpa Bres c ia Bres c ia 1 UBI Banca Spa 71.870% 98.561%

Banca Carime Spa 2.877%Banca P o po lare Co mmerc io e Indus tria Spa 2.877%Banca P o po lare di Anco na Spa 2.877%Banca P o po lare di Bergamo Spa 2.877%Banca Regio na le Euro pea Spa 4.315%Banco di Bres c ia Spa 2.877%Banca di Valle Camo nica Spa 1.439%IW Bank 4.314%UBI P ramerica SGR Spa 1.439%UBI Fac to r Spa 0.719%UBI Academy 0.010%P res tita lia Spa 0.072%

P ARENT

N a m eType o f

o wne rs hip (1)

D e ta ils o f inv e s tm e nt

% o f v o te s (2 )R e g is te re d a ddre s s Ope ra t ing he a dqua rte rs

233 Notes to the consolidated accounts

26. UBI Trus tee Sa Luxembo urg Luxembo urg 1 UBI Banca Interna tio na l Sa 100.000% 100.000%27. UBI Finance CB 2 Srl Milan Milan 4 UBI Banca Spa 60.000% 60.000%28. UBI SP V BBS 2012 Srl Milan Milan 4 UBI Banca Spa 10.000% 10.000%29. UBI SP V BP CI 2012 Srl Milan Milan 4 UBI Banca Spa 10.000% 10.000%30. UBI SP V BP A 2012 Srl Milan Milan 4 UBI Banca Spa 10.000% 10.000%31. UBI Academy Scrl Bergamo Bergamo 1 UBI Banca Spa 68.500% 100.000%

Banca P o po la re di Bergamo SpA 3.000%Banco di Bres c ia SpA 3.000%IW Bank S .p.A. 3.000%UBI Facto r SpA 1.500%UBI P ramerica SGR S.p.A. 1.500%Banca Valle Camo nica SpA 1.500%Banca P o po la re Co mmercio & Indus tria S .p.A. 3.000%Banca Regio nale Euro pea SpA 3.000%Banca Carime SpA 3.000%Banca P o po la re di Anco na SpA 3.000%UBI Sis temi e Servizi SpA 3.000%UBI Leas ing SpA 1.500%P res tita lia Spa 1.500%

(*) The percentage of voting rights shown relates to ordinary shareholders’ meetings. Key (1) Type of ownership:

1 = majority of voting rights in ordinary general meetings 2 = dominating influence over ordinary general meetings 3 = agreements with other shareholders 4 = other forms of control 5 = “unitary management” control under Art. 26, paragraph 1, of “Legislative Decree No. 87/92” 6 = “unitary management” control under Art. 26, paragraph 2, of “Legislative Decree No. 87/92 7 = joint control

(2) (Votes available at ordinary shareholders’ meetings, distinguishing between actual and potential)

234 Notes to the consolidated accounts

2. Assessments and significant assumptions to determine scope of consolidation The full line-by-line consolidation method Subsidiaries subject to control are consolidated using the full line-by-line method. In compliance with IFRS 10, the concept of control goes beyond a majority percentage interest in the share capital of an investee and it arises when an entity is exposed to variable returns or holds rights on those returns resulting from its relationship with the subsidiary and at the same time it has the ability to influence those returns by exercising its power over that entity. The line-by-line consolidation method involves summing the items of the income statements and balance sheets of subsidiaries on a line-by-line basis The following adjustments are made for this purpose: (a) the carrying amounts of the subsidiaries held by the Parent and the corresponding part of the

equity are eliminated; (b) the proportion of equity and of profit or loss for the year attributable to other shareholders is

stated under a separate item If the results of the above adjustments are positive, then they are recognised (after first allocating them if possible to the assets or liabilities of the subsidiary) as goodwill within item 130 “Intangible assets” on the date of the first consolidation, if the necessary conditions apply. If the resulting differences are negative they are normally charged to the income statement. Intragroup balances and transactions, including revenues, costs and dividends are completely eliminated. The operating results of a subsidiary that is acquired during the year are included in the consolidated balance sheet starting from the date on which it is acquired. Similarly, the operating results of a subsidiary that is disposed of are included in the consolidated balance sheet until the date on which control over the company is released. The accounts used in the preparation of consolidated financial statements are stated as of the same date. The consolidated financial statements have been prepared using uniform accounting policies for like transactions and events. If a subsidiary uses different accounting policies from those employed in the consolidated financial statements for like transactions and other events in similar circumstances, adjustments are made to its accounts for the purposes of the consolidation. The equity method Equity investments over which the Group exercises significant influence or has joint control, as defined in IAS 28 and IFRS 11, are measured using the equity method. Under this method an equity investment is initially recorded at cost and the carrying amount is increased or decreased to reflect the investor's share of the profit or loss of the associate after the acquisition date. The proportion of the profit or loss for the year made by the investee attributable to the investor is stated in the income statement of the latter. Dividends received from an investee reduce the carrying value of the investment; adjustments to the carrying amount may also be required arising from a change in the portion of the investee's equity attributable to the investor that have not been recognised in the income statement. These changes include changes arising from the revaluation of property, plant and equipment from exchange rate differences on items in foreign currency. The portion of those changes attributable to the investor are recorded directly in its equity. Where potential voting rights exist, the investor's share of profit or loss of the investee and of changes in the investee's equity is determined on the basis of present ownership interests and does not reflect the possible exercise or conversion of potential voting rights. Where the investee incurs continued losses, if these exceed the carrying value of the investee, then this is written off and further losses are only recognised if the investor has contracted legal or implicit obligations or has made payments on behalf of the investee. If the investee

235 Notes to the consolidated accounts

subsequently realises a profit, the investor resumes recognition of its share of the profits only after reaching the share of the profit which was previously not recognised. For the purposes of consolidating investments in associates and/or companies subject to joint control, the figures from the financial statements prepared and approved by the boards of directors of the individual companies are used. Where accounts prepared according to international standards are not available those prepared according to national accounting standards are used after first verifying that there are no significant differences. The consolidating entity ceases use of the equity method from the date on which it ceases to exercise significant influence or joint control over the investee and it is recognised within either “financial assets held for trading” or “available-for-sale financial assets”, in accordance with the treatment mentioned previously, starting from that date on condition that the associate or company subject to joint control does not become a subsidiary. 3. Equity investments in companies subject to exclusive control with significant non-controlling interests For the purposes of preparing the tables that follow, an interest was considered significant when:

the non-controlling interest is greater than or equal to 10% of the share capital of the investee and

the accounting data of the investee are significant for a reader of the consolidated financial statements.

3.1 Non-controlling interests, availability of non-controlling interest votes and dividends distributed to non-controlling interests

Name of companies

Percentage of non-controlling

interests

Percentage of non-controlling

interest votes (1)

Dividends distributed to

non-controlling interests

1. Banca Regionale Europea SpA 25.223% 20.105% 5,197

2. Banca Popolare Commercio e Industria SpA 16.237% 16.237% 5,470

3. UBI Pramerica SGR SpA 35.000% 35.000% 15,184

(1) Voting rights relate to ordinary Shareholders’ Meeting.

3.2 Equity investments with significant non-controlling interests: accounting figures

Name Total assetsCash and

cash equivalents

Financial assets

Property, plant and

equipment and

intangible assets

Financial l iabil ities

EquityNet interest

incomeGross income

Operating expenses

Profit (loss) on

continuing operations before tax

Post tax profit (loss)

from continuing operations

Post-tax profit (loss)

from discontinued

operations

Profit (loss) for the year

(1)

Other comprehensi

ve income net of taxes

(2)

Comprehensive income (3)

= (1) + (2)

1. Banca Regionale Europea 9,235,430 44,780 8,569,745 360,098 7,639,515 1,285,261 154,517 278,695 -201,375 3,869 960 0 960 4,627 5,587

2. Banca Popolare Commercio e Industria 9,707,228 43,667 9,182,166 124,212 8,268,665 1,206,297 168,407 323,881 -214,781 50,219 34,677 0 34,677 1,011 35,688

3. UBI Pramerica 261,601 1 219,917 173 70,460 141,926 160 129,489 -33,662 95,827 63,542 0 63,542 10 63,552

236 Notes to the consolidated accounts

4. Significant restrictions As concerns regulatory requirements we report that the UBI Group is a banking Group subject to the regulations contained in Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV) and in Regulations (EU) No. 575/2013 relating to “Prudential requirements for credit institutions and investment firms” (CRR) and that it controls financial institutions subject to the same regulations. The ability of the subsidiary banks to distribute capital or dividends must therefore comply with those regulations both in terms of the amount of minimum own funds they may hold and in terms of the maximum amount of the profits they may distribute. Furthermore, some Group banks have commitments contained in their articles of Association which require them to allocate part of their profits to specific initiatives. As concerns liquidity within the Group no restrictions exist of a company ownership or legal nature to its transfer. Information on liquidity risk is given in Part E - Information on risks and hedging policies, Section 3 - Liquidity risk. 5. Other information Companies in which no equity investment is held, but for which shares have been received as pledges are excluded from the scope of the consolidation, in consideration of the purpose of possession, which is to secure the loan granted and not to exercise control and determine financial and operating policies in order to obtain the economic benefits deriving from them. The balance sheet, income statement and statement of cash flows of consolidated companies which operate with a reference currency other than the euro are translated at the exchange rate ruling at the end of the year. All the exchange rate differences resulting from the translation are recognised in a separate reserve in equity. If an investment is disposed of, this reserve is eliminated with a simultaneous profit or loss in the income statement at the time of disposal. International financial reporting standards require the recognition in the financial statements of corporate events in a manner which reflects the underlying economic substance of them. No equity investments held directly or indirectly by the Parent with an interest of less than 20%, or for which voting rights below that threshold were held, over which it is considered it exerted significant influence existed as at the balance sheet. Furthermore, with the exception of equity investments held for merchant banking activities classified within item 30 “Assets designated at fair value”, no equity investments held directly or indirectly by the Parent with an interest of more than 20% are held over which it is considered it did not exert significant influence. No significant restrictions existed as at the balance sheet date on the capacity of associate companies to transfer funds to the investing company in payment of dividends or repayment of loans or advances. The balance sheet dates of the companies measured according to the equity method were the same as that of the Parent. SECTION 4 Subsequent events With regard to the provisions of IAS 10, subsequent to 31st December 2015, the reporting date, and until 10th February 2016, the date on which the proposed consolidated Annual Report was authorised by the Management Board for submission to the Supervisory Board, no events occurred to make adjustments to the figures presented in the report necessary. For information purposes, the following events are mentioned:

on 19th January 2016 UBI Banca received authorisation and a licence from the Federal Reserve and from New York State Department of Financial Services to open a representative office in New York. The official opening took place on 20th January 2016;

237 Notes to the consolidated accounts

on 25th January 2016, with the presentation of the necessary information to trade unions, UBI Banca commenced negotiation procedures regarding the refinement and optimisation of the Group’s organisational structure. Further details are given in the section “Significant events occurring in 2015” in the Consolidated Management Report;

on 26th January 2016 UBI Banca communicated the results of the option and pre-emption offering at a price of €7.2880 each on the 35,409,477 shares of the Bank subject to withdrawal following the transformation into a joint stock company (the offering closed on 12th January). Requests were received to purchase 58,322 of these shares and the remaining 35,351,155 shares on which options had not been taken up were offered on the Mercato Telematico Azionario (“MTA” – electronic stock exchange) for one day on 28th January 2016, but no shares were purchased. As a consequence, on 3rd February 2016 settlement of the trades of the 58,322 UBI Banca shares subject to the exercise of option and pre-emption rights took place. The payment of the consideration for the shares purchased as well as the assignment of the shares in favour of those holding those rights took place through Monte Titoli and the respective intermediaries;

on 27th January 2016 a shareholders’ pact was stipulated entitled Patto dei Mille (“Pact of the Thousand”) for the purpose of governing prior consultation between the holders of syndicated shares, the exercise of voting rights attaching to the syndicated shares and some limits on the circulation of these shares. The Patto dei Mille is open in nature and was formed with a view to safeguarding the underlying principles which have characterised the activities of Banca Popolare di Bergamo in enhancing the resources of the community in which it is based. On 1st February 2016, 65 shareholders adhered to the pact, who as a whole pledged 20,500,412 ordinary shares to it, accounting for 2.273% of the total voting rights representing the share capital of UBI Banca.

on 8th February 2016, after obtaining Casablanca Finance City status, UBI Banca received authorisation from the Moroccan Central Bank to open a representative office in Casablanca.

SECTION 5 Other aspects BRRD Directive (Bank Recovery and Resolution Directive – 2014/59/EU) and DGS Directive (Deposit Guarantee Schemes – 2014/49/EU) As already fully reported in the half year financial report for 2015 and making reference to the section “European banking union” in the “Consolidated management report”, we report that with regard to compliance with national and regulatory EU regulations the following EU directives are of importance for the 2015 annual report:

The BRRD Directive (Bank Recovery and Resolution Directive – 2014/59/EU) which defines the new resolution rules applicable to all banks in the European Union from 1st January 2015. The measures will be financed by the National Resolution Fund that has been paid into the Single Resolution Fund (SRF) since 1st January 2016 and will be managed by the Single Resolution Board (SRB).

The DGS Directive (Deposit Guarantee Schemes – 2014/49/EU) is designed to strengthen depositor protection and harmonise the regulatory framework at EU level and it requires all member states to adopt ex-ante financing procedures.

In its 2015 financial statements, the UBI Banca Group has recognised the following costs in the income statement under the item “Other administrative expenses”15, in application of the interpretation IFRIC 21 “Levies”, according to which the liability relating to the payment of a levy, which the contributions in question can be classified as, arises at the time when the “obligating event” occurs:

15 In this respect, the national supervisory authority made an announcement in a communication dated 19th January 2015 with specific regard to BRRD costs, stating that these expenses related to forms of contribution considered on a par with levies from an accounting viewpoint.

238 Notes to the consolidated accounts

€87.3 million in relation to the annual quota due to the National Resolution Fund. More specifically, €22 million of this amount is attributable to the annual “ordinary contribution” to the fund mentioned and €65.3 million relates to the “extraordinary contribution” requested by the fund in the maximum amount allowed under Art. 83 of Legislative Decree No. 180/2015, which is three times the average annual amount of the ordinary contributions. The latter contribution was due to the measures taken by the fund for the resolution of the crises of the following banks: Banca Marche, Banca Popolare dell’Etruria e del Lazio, Cassa di Risparmio di Ferrara and CariChieti all in extraordinary administration.

€11.4 million, in relation to the quota for the year 2015, accruing for the first half only in accordance with the DGS Directive. Since the procedures for the national implementation of the directive had not been completed, these contributions were requested by the Interbank Deposit Protection Fund (IDPF), after first making amendments to its constitution which basically introduced the new financing mechanism in advance. The aforementioned amendments also introduced a voluntary provision (“voluntary scheme”) in addition to that regulated by Directive 49, designed to support banks in extraordinary administration or conditions of great difficulty where concrete turnaround prospects are found and measures adopted by the Bank of Italy have been taken designed to reduce and/or convert capital instruments into Common Equity Tier 1 capital. Adherence on a voluntary basis to the scheme involves signing up to a two-year maximum industry-wide commitment of €300 million. The request to make that commitment is taken on the basis of decisions made by the governance of the scheme in a manner totally independent and separate from the obligatory scheme and is at the moment made only with regard to intervention made by the sector nationally in the years 2013 and 2014 to assist Banca Tercas, for a total of €295 million, if the European commission should consider the operation as “state aid”. In this respect we report that the intervention will not involve any further costs for the UBI Group, over and above those already incurred in the aforementioned years totalling €17.7 million, because the funds raised by means of the voluntary scheme would essentially replace those already paid by the Interbank Deposit Protection Fund and returned in the meantime by Banca Tercas.

Finally to complete this information we report that the 2016 Legge di stabilità (“stability law” – annual finance law) created a solidarity fund designed to reimburse investors holding subordinated financial instruments issued by the four banks subject to resolution procedures. While at present the relative ministerial decrees that will define and regulate the contribution are still in the pipeline, we report that in future the fund in question, which will amount to up to €100 million, will receive its financing from the Interbank Deposit Protection Fund. Leaving incentives – Company reorganisation The programme of rationalisation initiatives, connected, amongst other things, with containing operating costs is fully described in the section “Significant events that occurred during the year” in the Management Report, which may be consulted. With particular regard to the redundancy scheme, as concerns the more strictly accounting aspects of the operation, procedures relating to trade union negotiations were concluded on 23rd December 2015, with an agreement containing provisions for the voluntary early retirement of around 410 staff. In relation to the aforementioned programme, an expense of €95 million was recognised in the income statement for 2015 under the item “staff costs” net of discounting to present values amounting to €0.1 million and subject to normalisation given the non-recurring nature of the item. These expenses were composed as follows: €78 million against the item “other liabilities” on the basis of the final nature of the amount

because it relates to staff who had already applied to participate in the November 2014 redundancy scheme and were surplus to it;

239 Notes to the consolidated accounts

€17 million against the item “Provisions for risks and charges”, because it related to staff whose application approval will be finalised in February 2016.

The national consolidated tax option The Testo Unico delle Imposte sui Redditi (Consolidated Income Tax Act) grants the option for companies belonging to the same Group to calculate a single total income corresponding, generally speaking, to the algebraic sum of the taxable income of the different companies (the Parent and companies directly and/or indirectly controlled by more than 50% according to certain requirements) and as a consequence to calculate a single tax on the income of the companies in the Group (known as a “national tax consolidation”, regulated by articles 117-129 of the Consolidated Income Tax Act). In view of this option, the Italian companies in the Group adhered to the national tax consolidation of the Parent, UBI Banca, and calculated the tax expense relating to them by transferring the corresponding taxable income to the Parent.

*******

List of the main IFRS standards endorsed by the European Commission IAS/IFRS ACCOUNTING POLICIES ENDORSEMENT

IAS 1 Presentation of financial statements Reg. 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

IAS 2 Inventories Reg. 1126/08, 1255/12

IAS 7 Statement of cash flows Reg. 1126/08, 1274/08, 70/09, 494/09, 243/10, 1254/12, 1174/13

IAS 8 Accounting policies, changes in accounting estimates and errors Reg. 1126/08, 1274/08, 70/09, 1255/12

IAS 10 Events after the reporting date Reg. 1126/08, 1274/08, 70/09, 1142/09, 1255/12

IAS 11 Construction contracts Reg. 1126/08, 1274/08

IAS 12 Income taxes Reg. 1126/08, 1274/08, 495/09, 475/12, 1254/12, 1255/12, 1174/13

IAS 16 Property, plant and equipment Reg. 1126/08, 1274/08, 70/09, 495/09, 1255/12, 301/13, 28/15, 2113/15, 2231/15

IAS 17 Leases Reg. 1126/08, 243/10, 1255/12, 2113/15

IAS 18 Revenue Reg. 1126/08, 69/09, 1254/12, 1255/12

IAS 19 Employee benefits Reg. 1126/08, 1274/08, 70/09, 475/12, 1255/12, 29/15, 2343/15

IAS 20 Accounting for government grants and disclosure of government assistance

Reg. 1126/08, 1274/08, 70/09, 475/12, 1255/12

IAS 21 The effects of changes in foreign exchange rates Reg. 1126/08, 1274/08, 69/09, 494/09, 149/11, 475/12, 1254/12, 1255/12

IAS 23 Borrowing costs Reg. 1260/08, 70/09, 2113/15

IAS 24 Related party disclosures Reg. 632/10, 475/12, 1254/12, 1174/13, 28/15

IAS 26 Retirement benefit plans Reg. 1126/08

IAS 27 Consolidated and separate financial statements Reg. 1254/12, 1174/13, 2441/15

IAS 28 Investments in associates Reg. 1254/12, 2441/15

IAS 29 Financial reporting in hyperinflationary economies Reg. 1126/08, 1274/08, 70/09

240 Notes to the consolidated accounts

IAS 32 Financial instruments: presentation Reg. 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

IAS 33 Earnings per share Reg. 1126/08, 1274/08, 495/09, 475/12, 1254/12, 1255/12

IAS 34 Interim financial reporting Reg. 1126/08, 1274/08, 70/09, 495/09, 149/11, 475/12, 1255/12, 301/13, 1174/13, 2343/15, 2406/15

IAS 36 Impairment of assets Reg. 1126/08, 1274/08, 69/09, 70/09, 495/09, 243/10, 1254/12, 1255/12, 1374/13, 2113/15

IAS 37 Provisions, contingent liabilities and contingent assets Reg. 1126/08, 1274/08, 495/09, 28/15

IAS 38 Intangible assets Reg. 1126/08, 1274/08, 70/09, 495/09, 243/10, 1254/12, 1255/12, 28/15, 2231/15

IAS 39 Financial instruments: recognition and measurement Reg. 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

IAS 40 Investment property Reg. 1126/08, Reg. 1274/08, Reg. 70/09, 1255/12, 1361/14, 2113/15

IAS 41 Agriculture Reg. 1126/08, 1274/08, 70/09, 1255/12, 2113/15

IFRS 1 First-time adoption of international financial reporting standards Reg. 1126/09, 1164/09, 550/10, 574/10, 662/10, 149/11, 475/12, 1254/12, 1255/12, 183/2013, 301/13, 313/13, 1174/13, 2343/15, 2441/15

IFRS 2 Share-based payment Reg. 1126/08, 1261/08, 495/09, 243/10, 244/10, 1254/12, 1255/12, 28/15

IFRS 3 Business combinations Reg. 495/09, 149/11, 1254/12, 1255/12, 1174/13, 1361/14, 28/15

IFRS 4 Insurance contracts Reg. 1126/08, 1274/08, 1165/09, 1255/12

IFRS 5 Non-current assets held for sale and discontinued operations Reg. 1126/08, 1274/08, 70/09, 494/09, 1142/09, 243/10, 475/12, 1254/12, 1255/12, 2343/15

IFRS 6 Exploration for and evaluation of mineral resources Reg. 1126/08

IFRS 7 Financial instruments: disclosures Reg. 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

IFRS 8 Operating segments Reg. 1126/08, 1274/08, 243/10, 632/10, 475/12, 28/15

IFRS 10 Consolidated financial statements Reg. 1254/12, 313/13, 1174/13

IFRS 11 Joint arrangements Reg. 1254/12, 313/13, 2173/15

IFRS 12 Disclosure of interests in other entities Reg. 1254/12, 313/13, 1174/13

IFRS 13 Fair value measurement Reg. 1255/12, 1361/14

SIC/IFRIC INTERPRETATION DOCUMENTS ENDORSEMENT

IFRIC 1 Changes in existing decommissioning, restoration and similar liabilities Reg. 1126/08, 1274/08

IFRIC 2 Members' shares in co-operative entities and similar instruments Reg. 1126/08, 53/09, 1255/12, 301/13

IFRIC 4 Determining whether an arrangement contains a lease Reg. 1126/08, 70/09, 1255/12

IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds

Reg. 1126/08, 1254/12

IFRIC 6 Liabilities arising from participating in a specific market - waste electrical and electronic equipment

Reg. 1126/08

IFRIC 7 Applying the restatement approach under IAS 29 “Financial reporting in hyperinflationary economies”

Reg. 1126/08, 1274/08

241 Notes to the consolidated accounts

IFRIC 9 Reassessment of embedded derivatives Reg. 1126/08, 495/09, 1171/09, 243/10, 1254/12

IFRIC 10 Interim financial reporting and impairment Reg. 1126/08, 1274/08

IFRIC 12 Service concession arrangements Reg. 254/09

IFRIC 13 Customer loyalty programmes Reg. 1262/08, 149/11, 1255/12

IFRIC 14 Prepayments of a minimum funding requirement Reg. 1263/08, Reg. 1274/08, 633/10, 475/12

IFRIC 15 Agreements for the construction of real estate Reg. 636/09

IFRIC 16 Hedges of a net investment in a foreign operation Reg. 460/09, Reg. 243/10, 1254/12

IFRIC 17 Distributions of non-cash assets to owners Reg. 1142/09, 1254/12, 1255/12

IFRIC 18 Transfers of assets from customers Reg. 1164/09

IFRIC 19 Extinguishing financial liabilities with equity instruments Reg. 662/10, 1255/12

IFRIC 20 Stripping costs in the production phase of a surface mine Reg. 1255/12

IFRIC 21 Levies Reg. 634/14

SIC 7 Introduction of the euro Reg. 1126/08, 1274/08, 494/09

SIC 10 Government assistance – no specific relation to operating activities Reg. 1126/08, 1274/08

SIC 15 Operating leases – Incentives Reg. 1126/08, 1274/08

SIC 25 Income taxes – Changes in the tax status of an enterprise or its shareholders

Reg. 1126/08, 1274/08

SIC 27 Evaluating the substance of transactions in the legal form of a lease Reg. 1126/08

SIC 29 Service concession arrangements: disclosures Reg. 1126/08, 1274/08, 70/09

SIC 31 Revenue – Barter transactions involving advertising services Reg. 1126/08

SIC 32 Intangible assets – Website costs Reg. 1126/08, 1274/08

A.2 – THE MAIN ITEMS IN THE FINANCIAL STATEMENTS 1. Financial assets and liabilities held for trading and financial

assets and liabilities designated at fair value This category includes: 1.1. Definition of financial assets and liabilities held for trading A financial asset or liability is classified as held for trading (at fair value through profit or loss – FVPL) and is stated within either item 20 “Financial assets held for trading” or item 40 “Financial liabilities held for trading”, if it is:

acquired or incurred for sale or repurchase in the short term; part of a portfolio of identified financial instruments which are managed together and for

which there is evidence of a recent and effective strategy of short term profit taking; a derivative (except for derivatives designated and effective as a hedging instrument – see the

relative section below).

242 Notes to the consolidated accounts

1.1.1. Derivative financial instruments

A “derivative” is defined as a financial instrument or other contract with the following characteristics:

its value changes in response to the change in an interest rate, in the price of a financial instrument, in a commodity price, in a foreign currency exchange rate, in a price, interest rate or credit rating index, or credit worthiness index or other specific variable;

it requires no initial investment, or a net initial investment that is smaller than would be required for other types of contract from which a similar response to changes in market factors would be expected;

it is settled at a future date. The UBI Group holds derivative financial instruments for both trading and for hedging purposes (see the relative section below for information on the latter). 1.1.2. Embedded derivative financial instruments

An "embedded derivative financial instrument" is defined as a component of a hybrid (combined) instrument which also includes a “host” non derivative contract such that some of the cash flows of the combined instrument behave in a way similarly to the derivative as a stand-alone instrument. The embedded derivative is separated from the host contract and treated in the accounts as a stand-alone derivative if and only if: the economic risks and characteristics of the embedded derivative are not closely related to

the economic risks and characteristics of the host contract; a separate instrument with the same conditions as the embedded derivative would satisfy the

definition of a derivative; the hybrid (combined) instrument is not recognised within financial assets or liabilities held

for trading.

1.2. Definition of financial assets and liabilities designated at fair value Financial assets and liabilities may be designated on initial recognition under “financial assets and liabilities at fair value” and recorded under items 30 “Financial assets at fair value” and 50 “Financial liabilities at fair value”. A financial asset/liability is designated at fair value through profit or loss on initial recognition only when: a) it is a hybrid contract containing one or more embedded derivatives and the embedded derivative significantly alters the cash flows that would otherwise be generated by the contract; b) the designation at fair value through profit or loss allows better information to be provided because:

it eliminates or considerably reduces an asymmetry in the measurement or in the recognition, which would otherwise result from the valuation of assets or liabilities or from recognition of the relative profits and losses on a different basis; or

a group of financial assets, financial liabilities or of both is managed and its performance is measured on the basis of its fair value according to a documented risk management procedure or investment strategy and the information on the group is provided internally on that basis to senior managers with strategic responsibilities.

243 Notes to the consolidated accounts

1.3. Recognition criteria The financial instruments “Financial assets and liabilities held for trading and financial assets and liabilities designated at fair value” are recognised either:

at the time of settlement if they are debt or equity instruments; or, on the trade date if they are derivative contracts.

Measurement on initial recognition is at cost considered to be the fair value of the instrument without considering any transaction costs or income directly attributable to the instruments themselves. 1.4. Measurement criteria Subsequent to initial recognition, the financial instruments in question are measured at fair value with changes recognised in the income statement within item 80 “Net trading income (loss)”, for assets/liabilities held for trading and within item 110 “Net income/expense on financial assets and liabilities designated at fair value” for financial assets/liabilities designated at fair value”. The measurement of the fair value of the assets and liabilities in question is based on prices quoted on active markets or on internal valuation models which are generally used in financial practice as described in greater detail in Part A.4 “Information on fair value” of the Notes to the financial statements. 1.5. Derecognition criteria

“Financial assets and liabilities held for trading and financial assets and liabilities designated at fair value” are derecognised in the accounts when the rights to the cash flows from the financial assets or liabilities expire or when the financial assets or liabilities are transferred with the substantial transfer of all the risks and rewards deriving from ownership of them. The result of the transfer of financial assets or liabilities held for trading is recognised in the income statement within item 80 “Trading income (loss)”, while the result of the transfer of financial assets or liabilities designated at fair value is recognised within item 110 “Net income/expense on financial assets and liabilities designated at fair value.

2. Available-for-sale financial assets 2.1 Definition Available-for-sale financial assets (AFS) are defined as non-derivative financial assets designated on initial recognition as such or that are not classified as:

(1) loans and receivables (see section below); (2) financial investments held until maturity (see section below); (3) financial assets held for trading and measured at fair value recognised through profit or loss

(see section below).

These financial assets are recognised within item 40 “Available-for-sale financial assets”.

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2.2 Recognition criteria Available-for-sale financial assets are recognised initially when, and only when, the company becomes a party in the contract clauses of the instrument and that is on the date of settlement, at fair value which generally coincides with the cost of them. This value includes costs or income directly connected with the instruments themselves. The recognition of available-for-sale financial assets may result also from the reclassification out of “held-to-maturity investments” or, but only and only in rare circumstances and in any case only if the asset is no longer held for sale or repurchase in the short term, out of “financial assets held for trading”; in this case the recognition value is the same as the fair value at the moment of reclassification. 2.3 Measurement criteria Subsequent to initial recognition, available-for-sale financial assets continue to be recognised at fair value with interest (resulting from application of the amortised cost) recognised through profit or loss and changes in fair value recognised in equity within item 140 “Valuation reserves”, except for losses due to impairment, until the financial asset is derecognised, at which time the profit or loss previously recognised in equity must be recognised through profit or loss. Equity instruments for which the fair value cannot be reliably measured are recognised at cost. The measurement of the fair value of available-for-sale financial assets is based on the prices quoted on active markets or on internal measurement models which are generally used in financial practice as described in greater detail in Part A.4 “Information on fair value” of the Notes to the financial statements. At the end of each financial year or interim reporting period, objective evidence of impairment is assessed, which in the case of equity instruments is also held to be significant or prolonged. As concerns the significance of the impairment, significant indications of impairment exist where the market value of an equity instrument is less than 35% of its historical cost of acquisition. In this case impairment is recognised through profit or loss without further analysis. If the impairment is less then it is recognised only if the measurement of the instrument performed on the basis of its fundamentals does not confirm the soundness of the company, which is to say its earning prospects. As concerns the permanence of the impairment, it is defined as prolonged when the fair value remains below its historical cost of purchase for a period of longer than 18 months. In this case the impairment is recognised through profit or loss without further analysis. If the fair value continues to remain below its historical purchase cost for periods shorter than 18 months, then the impairment to be recognised through profit or loss is determined by considering, amongst other things, whether the impairment is attributable to general negative performance by stock markets rather than to the specific performance of the individual counterparty. If there is permanent impairment, the cumulative change, including that previously recognised in equity under the aforementioned item, is recognised directly in the income statement within item 130 “Net impairment losses on b) available-for-sale financial assets”. Permanent impairment loss is recognised when the acquisition cost (net of any repayments of principal and amortisation) of an available-for-sale financial asset exceeds its recoverable amount. Any recoveries of value, which are only possible when the causes of the original permanent impairment no longer exist are treated as follows:

if they relate to investments in equity instruments, then with a balancing entry directly in the equity reserve;

if they relate to investments in debt instruments, they are recognised in the income statement within item 130 “Net impairment losses on b) available-for-sale financial assets”.

245 Notes to the consolidated accounts

The amount of the reversal of the impairment loss may not in any case exceed the amortised cost which, in the absence of previous impairment losses, the instrument would have had at that time. Because the UBI Group applies IAS 34 “Interim financial reporting” to its half year interim reports with consequent identification of a half year “interim period”, any impairment incurring is recognised historically at the end of the half year. 2.4 Derecognition criteria Available-for-sale financial assets are derecognised in the accounts when the contractual rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and benefits deriving from ownership of them. The result of the disposal of available-for-sale financial assets is recognised in the income statement within item 100 “Income/expense from the disposal or repurchase of b) available-for-sale financial assets”. Upon derecognition, any corresponding amount of what was previously recognised in equity under item 140 “Valuation reserves” is written off against the income statement”.

3. Held-to-maturity investments

3.1 Definition Held-to-maturity investments (HTM) are defined as non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity intends and is able to hold to maturity. Exception is made for those:

(a) held for trading and those designated upon initial recognition at fair value through profit or loss (see previous section);

(b) designated as available for sale (see previous section); (c) which satisfy the definition of loans and receivables (see section below). When annual and interim reports are prepared the intention and ability to hold financial assets until maturity is assessed. The assets in question are recognised under item 50 “Held-to-maturity investments”. 3.2 3.3 Recognition criteria Held-to-maturity investments are recognised initially when, and only when, the company becomes a party in the contract clauses of the instrument and that is on the date of settlement, measured at cost inclusive of any costs and income directly attributable to it. If the recognition of assets in this category is the result of the reclassification out of “available-for-sale financial assets” or, but only and only in rare circumstances if the asset is no longer held for sale or repurchase in the short-term, out of the “financial assets held for trading”, the fair value of the assets as measured at the time of the reclassification is taken as the new measure of the amortised cost of the assets.

246 Notes to the consolidated accounts

3.4 Measurement criteria Held-to-maturity investments are valued at amortised cost using the criteria of the effective interest rate (see the section below “loans and receivables” for a definition). The result of the application of this method is recognised in the income statement within item 10 “Interest and similar income”. When annual financial statements or interim reports are prepared, objective evidence of the existence of an impairment of the value of the assets is assessed. If there is permanent impairment, the difference between the recognised value and the present value of expected future cash flows discounted at the original effective interest rate is included in the income statement under the item 130 “Net impairment losses on c) held-to-maturity investments”. Any recoveries of value recorded, should the cause that gave rise to the previous recognition of impairment loss no longer exist, are recognised under the same item in the income statement. The fair value of held-to-maturity investments is measured for disclosure purposes or where effective currency or credit risk hedges exist (in relation to the risk hedged) and it is estimated as described in greater detail in Part A.4 “Information on fair value” of the Notes to the financial statements. 3.5 Derecognition criteria

Held-to-maturity investments are derecognised when the rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and rewards deriving from ownership of them. The result of the disposal of held-to-maturity financial assets is recognised in the income statement under the item 100 “Income/expense from disposal or repurchase of c) held-to-maturity investments”. 4. Loans and receivables

4.1 Definition Loans and receivables (L&R) are defined as non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The following are exceptions:

(a) those which it is intended to sell immediately or in the short-term, that are classified as held for trading and those that may have been designated on initial recognition as at fair value through profit or loss;

(b) those designated upon initial recognition as available for sale; (c) those for which the holder may not recover substantially all of its initial investment, other

than because of credit deterioration; in this case they are classified as available-for-sale. Loans and receivables are recognised under the items 60 “Loans and advances to banks” and 70 “Loans and advances to customers”.

247 Notes to the consolidated accounts

4.2 Recognition criteria Loans and receivables are initially recognised in the accounts when the company becomes part of a loan contract, which is to say when the creditor acquires the right to the payment of the sums agreed in the contract. That moment corresponds to the date on which the loan is granted. Recognition in this category may result also from the reclassification out of “available-for-sale financial assets” or, but only and only in rare circumstances if the asset is no longer held for sale or repurchase in the short term, out of “financial assets held for trading”. The amount initially recognised is that of the fair value of the financial instrument which is the same as the amount granted inclusive of costs or income directly attributable to it and determinable from the outset, independently of when they are paid. The amount of the initial recognition does not include all those expenses that are reimbursed by the debtor counterparty or that are attributable to internal expenses of an administrative character. If the recognition is the result of reclassification, the fair value of the asset recognised at the time of the reclassification is taken as the new measure of the amortised cost of the assets. For loans not granted under market conditions, the initial fair value is calculated by using special measurement techniques described below; in these circumstances the difference between the fair value that is calculated and the amount granted is included directly in the income statement within the item interest. Contango and repo agreements with the obligation or right to repurchase or resell at term are recognised in the accounts as funding or lending transactions. For transactions with a spot sale and forward repurchase, the spot cash received is recognised in the accounts as borrowings, while the spot purchase transactions with forward resale are recognised as lending for the spot amount paid. 4.3 Measurement criteria Loans and receivables are measured at amortised cost using the criteria of effective interest. The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability was measured upon initial recognition net of principal repayments, plus or minus the cumulative amortisation using the effective interest criterion on any difference between that initial amount and the maturity amount, minus any reduction (arising from an impairment or uncollectibility). The effective interest criterion is a method of calculating amortised cost of an asset or liability (or group of assets and liabilities) and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument. To determine the effective interest rate, the cash flows must be estimated considering all the contractual terms of the financial instrument (e.g. prepayment, call and similar options), but future credit losses shall not be considered. The calculation includes all fees and basis points paid or received between parties to the contract that are an integral part of the effective interest rate, the transaction costs and all other premiums or discounts. At each reporting date or when interim reports are prepared, any objective evidence that a financial asset or group of financial assets has suffered impairment loss is assessed. This circumstance occurs when it is probable that a company may not be able to collect amounts due on the basis of the original contracted conditions or, for example, in the presence of:

(a) significant financial difficulties of the issuer or obligor; (b) a breach of contract such as a default or delinquency in interest or principal payments; (c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty,

granting to the borrower a concession that the lender would not otherwise consider; (d) the probability of the beneficiary declaring procedures for loan restructuring; (e) the disappearance of an active market for that financial asset due to financial difficulties;

248 Notes to the consolidated accounts

(f) observable data indicating an appreciable decrease in estimated future cash flows from a similar group of financial assets since the time of the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets of the group.

The measurement of non-performing loans (termed “deteriorated loans” in previous financial reports) (in accordance with the definitions contained in current Bank of Italy supervisory regulations divided into: bad-loans (termed “non-performing” previously), unlikely to pay, past due) is performed on a case-by-case basis. The method for calculating the impairment losses recognised on non-performing loans is based on discounting expected future cash flows for principal and interest, taking account of any guarantees attached to positions and of any advances received. The basic elements for determining the present value of cash flows are the identification of the estimated receipts, the relative maturity dates and the discount rate to apply. The amount of the loss is equal to the difference between the recognised value of the asset and the present value of expected future cash flows, discounted at the original effective interest rate. The remaining loans are measured using, collective, statistical methods which group uniform classes of risk together. If a loan is subject to individual measurement and shows no objective impairment loss, it is placed in a class of financial assets with similar credit risk characteristics and subjected to collective measurement. Permanent impairment that is found is immediately recognised in the income statement under the item 130 “Net impairment losses on a) loans” as are reversals of part or all of the impairment losses previously recognised. Reversals of impairment losses are recognised where there is an improvement in credit quality sufficient to provide reasonable certainty of prompt collection of the principal and the interest according to the original conditions of the original loan contract, or in the presence of a progressive reversal of the present value calculated at the time of recognising the impairment loss. Where loans are measured on a collective basis, any upward value adjustments or reversals of impairment losses are recalculated on a differential basis in relation to each performing loan at the measurement date. The methods used to determine the fair value of loans and receivables are described in Part A.4 “Information on fair value” of the Notes to the financial statements. The fair value is measured for all loans for information purposes only. For loans and receivables subject to effective hedging, the fair value is calculated in relation to the risk that is hedged for measurement purposes.

4.4 Derecognition criteria

Loans are derecognised from the balance sheet when the rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and rewards deriving from ownership of them and also when events to extinguish the debt occur, in accordance with the definition provided in the supervisory regulations in force. Otherwise loans continue to be recognised on the balance sheet for an amount equal to the remaining involvement, even if legal title has been transferred to a third party. The assets in question are derecognised in the balance sheet even when the Bank maintains the contractual right to receive cash flows from them, but when at the same time it has a contractual obligation to pay those cash flows to a third party. If it results from disposals, the profit or loss from the derecognition of loans and receivables is recognised in the income statement within item 100 “Income (loss) from the disposal or

249 Notes to the consolidated accounts

repurchase of a) loans”, or if it results from the aforementioned events to extinguish debt, within item 130 “Net impairment losses on a) loans and receivables”. In the latter case the events to extinguish debt consist of either official actions taken by the competent bodies of the Bank from which the total or partial non-recoverability of the financial asset results or the waiver of recovery activities for reasons of financial expediency.

5. Hedging derivatives

5.1 Definition Hedging transactions are designed to neutralise potential losses on a specific item (or group of items) attributable to a determined risk, by means of the gains realised on another instrument or group of instruments if that particular risk should actually result in losses. The UBI Group uses the following type of hedging transactions, appropriately represented in the accounts and described below:

a fair value hedge: the objective is to offset adverse changes in the fair value of the asset or liability hedged;

a cash flow hedge: the objective is to hedge against the exposure to variability in expected cash flows with respect to the initial expectations.

Derivative contracts stipulated with external counterparties are designated as hedging instruments. 5.2 Recognition criteria As with all derivatives, derivative financial instruments used for hedging are initially recognised and subsequently measured at fair value and are classified in the balance sheet under assets within item 80 “Hedging derivatives” and under liabilities within item 60 “Hedging derivatives”. A relationship qualifies as a hedge and is appropriately represented in the accounts if, and only if, all the following conditions are satisfied:

at the start of the hedging transaction the relationship is formally designated and documented, including the company’s risk management objective and strategy for undertaking the hedge. This documentation includes identification of the hedging instrument, the item or transaction hedged, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness in offsetting the exposures to changes in the fair value of the item hedged or in the cash flows attributable to the risk hedged;

the hedging is expected to be highly effective; the planned transaction hedged, for hedging cash flows, is highly probable and presents an

exposure to changes in cash flows that could have effects on the income statement; the effectiveness of the hedging can be reliably measured; the hedging is measured on an ongoing basis and is considered highly effective for all the

financial years in which it was designated. 5.2.1 Methods for testing effectiveness

A hedge relationship is judged effective, and as such is appropriately represented in the accounts, if at its inception and during its life the changes in the fair value or cash flows of the hedged item attributable to the hedged risk are expected and have almost always been completely offset by the changes in the fair value or cash flows of the hedging instrument. This conclusion is reached when the actual result falls within a range of between 80% and 125%.

250 Notes to the consolidated accounts

The effectiveness of a hedge is tested at inception and at each reporting date by means of a prospective test designed to demonstrate the expected effectiveness of the hedge during its life. Further retrospective tests are conducted monthly on a cumulative basis where the objective is to measure the degree of effectiveness of the hedge in the reporting period and therefore to verify whether the hedge has actually been effective in the period. Derivative financial instruments that are considered hedges from a profit and loss viewpoint but which do not satisfy the requirements to be considered effective instruments for hedging are recognised under item 20 “Financial assets held for trading” or under item 40 “Financial liabilities held for trading” and the profits and losses under the corresponding item 80 “Trading income (loss)”. If the above tests do not confirm the effectiveness of the hedge, then if it is not derecognised, the derivative contract is reclassified within derivatives held for trading and the instrument hedged is again measured according to the criterion applied for its balance sheet classification. 5.3 Measurement criteria 5.3.1 Fair value hedging

Fair value hedging is treated as follows:

the profit or loss resulting from measuring a hedging instrument at fair value is included in the income statement under item 90 “Net hedging income (loss)”;

the profit or loss on the item hedged attributable to the hedged risk adjusts the value in the accounts of the hedged item and is recognised immediately, regardless of the type of asset or liability hedged, in the income statement within the aforementioned item.

Hedge accounting is discontinued prospectively in the following cases:

1. the hedging instrument expires or is sold, terminated, or exercised; 2. the hedge no longer meets the hedge accounting criteria described above; 3. the entity revokes the designation. If the asset or liability hedged is measured at amortised cost, the higher or lower value resulting from measuring them at fair value as a result of the hedge becoming ineffective is recognised through profit or loss, according to the effective interest rate method or at constant rates in the event of a hedge on a portfolio of assets and liabilities where that method is not feasible, or in a single amount if the hedge has been derecognised. The methods used for measurement of the fair value of the risk hedged in the assets or liabilities subject to hedging are described in Part A.4 “Information on fair value” of the Notes to the financial statements. 5.3.2 Cash flow hedging

When a derivative is designated as a hedge of exposure to changes in expected cash flows from an asset or liability in the balance sheet or a future transaction considered highly probable, the accounting treatment of the hedge is as follows:

the profits or losses (from the valuation of the hedging derivative) attributable to the effective portion of the hedge are recognised in a special reserve in equity termed 140 “Valuation reserves”;

the profits or losses (from measurement of the hedging derivative) attributable to the ineffective portion of the hedge are recognised directly in the income statement under item 90 “Net hedging income (loss)”;

the asset or liability hedged is measured according to the class of asset or liability to which it belongs.

251 Notes to the consolidated accounts

If a future transaction occurs which involves recognising non financial assets and liabilities, the corresponding profits or losses initially recognised under item 140 “Valuation reserves” are then transferred from that reserve and included as an initial cost of the asset or liability that is recognised. If the future hedged transaction subsequently involves recognition of a financial asset or liability, the associated profits or losses that were originally recognised under the item 140 “Valuation reserves” are reclassified to the income statement in the same reporting period or periods during which the assets acquired or liabilities incurred have an effect on the income statement. If a portion of the profits or losses recognised in the aforementioned reserve are not considered recoverable, it is reclassified into the income statement within item 80 “Net trading income (loss)”. In all cases other than those already described, the profits or losses initially recognised under the item 140 “Valuation reserves” are transferred to the income statement to reflect the time and manner in which the future transaction is recognised in the income statement. An entity must discontinue hedge accounting prospectively in each of the following circumstances:

(a) the hedging instrument expires or is sold, terminated, or exercised (for this purpose the replacement or exchange of one hedging instrument with another hedging instrument is not a conclusion or termination if that replacement or exchange forms part of an entity’s documented hedging strategy). In this case the total profit (or loss) on the hedging instrument continues to be recognised directly in equity until the reporting period in which the hedge became effective and it continues to be recognised separately until the programmed hedging transaction occurs;

(b) the hedge no longer satisfies the criteria for hedge accounting. In this case the total profit or loss on the hedging instrument continues to be recognised directly in equity starting from the reporting period in which the hedge became effective and it continues to be recognised separately in equity until the programmed hedging transaction occurs;

(c) it is no longer considered that the future transaction should occur, in which case any related total profit or loss on the hedging instrument recognised directly in equity starting from the reporting period in which the hedge became effective must be recognised through profit or loss;

(d) the entity revokes the designation. For hedges of a programmed transaction, total profits or losses on the hedging instrument recognised directly in equity starting from the reporting period in which the hedge became effective continues to be recognised separately in equity until the programmed transaction occurs or it is expected that it will no longer occur.

If it is expected that the transaction will no longer occur the total profit (or loss) that had been recognised directly in equity is transferred to the income statement. 5.3.3 Hedging portfolios of assets and liabilities

Hedging of portfolios of assets and liabilities (“macrohedging”) and appropriate accounting treatment is possible after first:

- identifying the portfolio to be hedged and dividing it by maturity dates; - designating the risk to be hedged; - identifying the interest rate risk to be hedged; - designating the hedging instruments; - determining the effectiveness. The portfolio for which the interest rate risk is hedged may contain both assets and liabilities. This portfolio is divided on the basis of expected maturity or repricing dates of interest rates after first analysing the structure of the cash flows.

252 Notes to the consolidated accounts

Changes in the fair value of the hedged instrument are recognised in the income statement under item 90 “Net hedging income (loss)” and in the balance sheet under item 90 “Fair value change in hedged financial assets” or under item 70 “Fair value change in hedged financial liabilities”. Changes occurring in the fair value of the hedging instrument are recognised in the income statement within item 90 “Net hedging income (loss)” and under assets in the balance sheet within item 80 “Hedging derivatives” or under liabilities side within item 60 “Hedging derivatives”.

6. Equity investments

6.1 Definition 6.1.1 Subsidiaries A “subsidiary” is defined as a company over which the Parent exercises control. Such a condition occurs when the latter is exposed to variable returns or holds rights on those returns resulting from its relationship with the subsidiary and at the same time it has the ability to influence those returns by exercising its power over that entity. The existence of control is also determined by considering the presence of potential voting rights and contractual rights which empower the owner to significantly influence the returns of the subsidiary. 6.1.2 Companies subject to joint control

A “company subject to joint control” is defined as a company governed by a contractual arrangement whereby the parties to it that hold joint control enjoy rights over the net assets of the arrangement. Joint control assumes that control over the arrangement is shared contractually and that it only exists when the unanimous consent of all the parties that share the control is required for decisions that regard important activities. 6.1.3 Associates An “associate” is defined as a company in which the investor exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the company invested in but not to control or have joint control of it. 6.2 Recognition criteria Equity investments in associates or joint ventures are recognised at cost of purchase plus any accessory costs. 6.3 Measurement criteria

In the consolidated financial statements equity investments in subsidiaries are fully consolidated line-by-line. Investments in associates and companies subject to joint control are measured by adopting the equity method. Any objective evidence that an equity investment has been subject to impairment is assessed as at each annual or interim reporting date. The recoverable amount is then calculated, considering

253 Notes to the consolidated accounts

the present value of the future cash flows which may be generated by the investment, including the final disposal value. If the recoverable amount calculated in this way is less than the carrying value, the difference is recognised in the income statement under 240 “Profits (losses) of equity investments (valued at equity)”. Any future reversals of impairment are also included in the item where the reasons for the original impairment no longer apply.

6.4 Derecognition criteria

Equity investments are derecognised in the balance sheet when the contractual rights to the cash flows from the financial assets expire or when the financial assets are sold with the substantial transfer of all the risks and rewards deriving from ownership of them. The result of the disposal on investments valued using the equity method recognised in the income statement under item 240 “Profits (losses) of equity investments (valued at equity)”; the result of the disposal of equity investments other than those valued using the equity method is recognised in the income statement under item 270 “Profits (losses) on the disposal of investments 7. Property, plant and equipment 7.1 Definition of assets for functional use “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. 7.2 Definition of investment property “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. Finance lease contracts are also included within tangible assets (for functional use and held for investment) even if the legal title to the assets remains with the leasing company. 7.3 Recognition criteria Tangible assets, functional and other, are initially recognised at cost (item 120 “Property, plant and equipment”), inclusive of all costs directly connected with bringing it to working condition for the use of the assets and of 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 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 asset. Improvements and expenses incurred to increase the value of leased assets from which future benefits are expected are recognised:

– under the most appropriate category of item 120, “Property, plant and equipment” if they are independent and can be separately identified, whether they are leased

254 Notes to the consolidated accounts

assets the property of others or whether they are held under a financial leasing contract;

– under item 120 “Property, plant and equipment” if they are not independent and cannot be separately identified as an increase to the type of assets concerned if held by means of a financial lease contract or under item 160 “Other assets” if they are held under an ordinary lease contract.

The cost of property, plant and equipment is recognised as an asset if, and only if:

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. 7.4 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:

the period of time over which it is expected that the 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 leasing contract, over the shorter of the period in which the improvements and expenses can be used and that of the remaining life of the contract taking account of any individual renewals, or if the assets are held under a finance lease contract, over the expected useful life of the assets concerned.

The depreciation of improvements and expenses to increase the value of leased assets recognised under item 160 “Other assets” is recognised under item 220 “Other operating income (expense)”. 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 tangible asset with the lower recoverable amount. The latter is the greater of the fair value, net of any sales costs, and the relative use value intended as the present value of future cash flows generated by the asset. The loss is immediately recognised in the income statement under item 200 “Net impairment losses on property, equipment and

255 Notes to the consolidated accounts

investment property”; the item also includes any future recovery in value if the causes of the original write down no longer exist. 7.4.1 Definition and measurement of fair value

7.4.1.1 Properties

The methods used to determine the fair value of properties are described in Part A.4 “Information on fair value” of the Notes to the financial statements. 7.4.1.2 Determination of the value of land

The methods used to determine the fair value of land are described in Part A.4 “Information on fair value” of the Notes to the financial statements. 7.5 Property, plant and equipment acquired through finance leases

A finance lease is a contract that substantially transfers all the risks and rewards incident to ownership of an asset. Legal title may or may not be transferred at the end of the lease term. The beginning of the lease term is the date on which the lessee is authorised to exercise his right to use the asset leased and therefore corresponds to the date on which the lease is initially recognised. When the contract commences, the lessee recognises the financial lease transactions as assets and liabilities in its balance sheet at the fair value of the asset leased or, if lower, at the present value of the minimum payments due. To determine the present value of the minimum payments due, the discount rate used is the contractual interest rate implicit in the lease, if practicable, or else the lessee’s incremental borrowing rate is used. Any initial direct costs incurred by the lessee are added to the amount recognised for the asset. The minimum payments due are apportioned between the finance charges and the reduction of the residual liability. The former are allocated over the lease term so as to produce a constant rate of interest on the residual liability. The finance lease contract involves recognition of the depreciation charge for the asset leased and of the finance charges for each financial year. The depreciation policy used for assets acquired under finance leases is consistent with that adopted for owned assets. See the relative paragraph for a more detailed description.

7.6 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 property, equipment and investment property, calculated as the difference between the net consideration on the sale and the carrying amount of the asset are recognised in the income statement under item 270 “Profit (loss) on the disposal of investments”.

256 Notes to the consolidated accounts

8. Intangible assets

8.1 Definition An intangible asset is defined as an identifiable non-monetary asset without physical substance that is used in carrying on a company’s business. The asset is identifiable when:

it is separable, which is to say capable of being separated and sold, transferred, licensed, rented, or exchanged;

it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from other rights and obligations.

An asset possesses the characteristic of being controlled by the enterprise as a result of past events and the assumption that its use will cause economic benefits to flow to the enterprise. An entity has control over an asset if it has the power to obtain future economic benefits arising from the resource in question and may also limit access by others to those benefits. Future economic benefits arising from an intangible asset might include receipts from the sale of products or services, savings on costs or other benefits resulting from the use of the asset by an enterprise. An intangible asset is recognised if, and only if: (a) it is probable that the expected future economic benefits attributable to the asset will flow to

the entity; (b) the cost of the asset can be measured reliably. The probability of future economic benefits occurring is assessed on the basis of reasonable and supportable assumptions that represent the best estimate of the economic conditions that will exist over the useful life of the asset. The degree of probability attaching to the flow of economic benefits attributable to the use of the asset is assessed on the basis of the sources of information available at the time of initial recognition, giving greater weight to external sources of information. In addition to goodwill and software used over several years, brands, assets under management and assets under management recognised following the merger of the former BPU Banca and the former Banca Lombarda e Piemontese are also considered as intangible assets.

8.1.1 Intangible assets with a finite useful life

A finite useful life is defined for an asset where it is possible to estimate a limit to the period over which the related economic benefits are expected to be produced. Intangible assets considered as having a finite useful life include software, assets under management and brands.

8.1.2 Intangible assets with an indefinite useful life

An indefinite useful life is defined for an asset where it is not possible to estimate a predictable limit to the period over which the asset is expected to generate economic benefits for the Bank. The attribution of an indefinite useful life to an asset does not arise from having already programmed future expenses which restore the standard level of performance of the asset over time and prolong its useful life. Intangible assets considered as having an indefinite useful life include goodwill.

257 Notes to the consolidated accounts

8.2 Recognition criteria An indefinite useful life is defined for an asset where it is not possible to estimate a predictable limit to the period over which the asset is expected to generate economic benefits for the Bank. The attribution of an indefinite useful life to an asset does not arise from having already programmed future expenses which restore the standard level of performance of the asset over time and prolong its useful life. Intangible assets considered as having an indefinite useful life include goodwill. 8.3 Measurement criteria Subsequent to initial recognition intangible assets with a finite useful life are recognised at cost net of total amortisation and any losses in value that may have occurred. Amortisation is calculated on a systematic basis over the estimated useful life of the asset (see definition included in the section “Property, equipment and investment property”) using the straight line method for all intangible assets with the exception of intangible assets relating to customer accounts recognised following the purchase price allocation resulting from the merger of the former BPU Banca and the former Banca Lombarda e Piemontese. In this case the amortisation is calculated using percentage rates of amortisation which represent the probability of the customer accounts ending over time. Amortisation begins when the asset is available for use and ceases on the date on which the asset is eliminated from the accounts. Intangible assets with an indefinite useful life (see, goodwill, as defined in the section below if positive) are recognised at cost net of any impairment loss resulting from periodic reviews when tests are performed to verify the appropriateness of the carrying amount of the assets (see section below). As a consequence amortisation of these assets is not calculated. No intangible assets arising from research (or from the research phase of an internal project) are recognised. Research expenses (or the research phase of an internal project) are recognised as expenses at the time at which they are incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if the following can be demonstrated:

(a) the technical feasibility of completing the intangible asset so that it becomes available for sale or use;

(b) the intention of the company to complete the intangible asset to use it or sell it; (c) the capacity of the company to use or sell the intangible asset. At the end of each annual or interim reporting period the existence of potential impairment of the value of intangible assets is assessed. The impairment is given by the difference between the carrying value of the assets and the recoverable amount and is recognised, as are any recoveries of value, under the item 210 “Net impairment losses on intangible assets”, with the exception of impairment losses on goodwill which are recognised under item 260 “Net impairment losses on goodwill”. 8.4 Goodwill

Goodwill is defined as the difference between the purchase cost and the fair value of assets and liabilities acquired as part of a business combination which consists of the union of separate enterprises or businesses in a single entity required to prepare financial statements. The result of almost all business combinations consists in the fact that a sole entity, an acquirer, obtains

258 Notes to the consolidated accounts

control over one or more separate businesses of the acquiree. When an entity acquires a group of activities or net assets that do not constitute a business it allocates the cost of the group to individual assets and liabilities identified on the basis of their relative fair value at the date of acquisition. A business combination may give rise to a holding relationship between a parent company and a subsidiary in which the acquirer is the parent company and the acquiree is the subsidiary. All business combinations are accounted for using the purchase method of accounting. The purchase method involves the following steps:

(a) identification of the acquirer (the acquirer is the combining enterprise that obtains control of the other combining enterprises or businesses);

(b) determination of the acquisition date; (c) determination of the cost of the business combination, intended as the consideration

transferred by the purchaser to the shareholders of the acquiree; (d) the allocation, as at the acquisition date, of the cost of the business combination by means of

the recognition, classification and measurement of the identifiable assets acquired and the identifiable liabilities assumed;

(e) recognition of any existing goodwill. Business combinations performed with subsidiary undertakings or with companies belonging to the same group are recognised on the basis of the significant economic substance of the transactions. In application of that principle, the goodwill arising from those transactions in the separate financial statements is recognised: (a) within asset item 120 of the balance sheet if significant economic substance is found; (b) as a deduction from equity if it is not found. These transactions are eliminated from the consolidated financial statements and are therefore recognised solely as the relative costs incurred in relation to parties external to the Group. The goodwill recognised in the consolidated financial statements of the Group (“goodwill arising on consolidation” resulting from the elimination of the equity investments in subsidiaries) is the result of all the goodwill and positive consolidation differences relating to some of the companies controlled by the Parent. Any changes in the share of ownership which do not result in the loss or acquisition of control are to be considered, in compliance with IFRS 10, as transactions between shareholders and as a consequence the relative effects must be recognised as either an increase or a decrease in equity.

8.4.1. Allocation of the cost of a business combination to assets and liabilities and contingent liabilities

The acquirer:

(a) recognises the goodwill acquired in a business combination as assets;

(b) measures that goodwill at its cost to the extent that it is the excess of the cost of the business combination over the acquirer's share of interest in the net fair values of the acquiree's identifiable assets, liabilities and contingent liabilities.

Goodwill acquired in a business combination represents a payment made by the acquirer in the expectation of receiving economic future benefits from the asset which cannot be identified individually and recognised separately. After initial recognition, the acquirer values the goodwill acquired in a business combination at the relative cost net of cumulative impairment. The goodwill acquired in a business combination must not be amortised. The acquirer tests the asset for impairment annually or more frequently if specific events or changed circumstances

259 Notes to the consolidated accounts

indicate that it may have suffered a reduction in value, according to the relative accounting standard. The standard states that an asset (including goodwill) has suffered an impairment loss when the amount recognised in the accounts exceeds the recoverable amount understood as the greater of the fair value, net of any sales expenses and its value in use, defined by section 6 of IAS 36. In order to test for impairment, goodwill must be allocated to cash generating units or to groups of cash generating units, in observance of the maximum aggregation limit which cannot exceed the operating segment identified in accordance with IFRS 8. 8.4.2. Negative goodwill

If the acquirer’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination the acquirer:

(a) reviews the identification and measurement of the identifiable assets, liabilities and contingent liabilities of the acquiree and the determination of the cost of the business combination;

(b) immediately recognises any excess existing after the new measurement in the income statement.

8.5 Derecognition criteria

Intangible assets are derecognised in the balance sheet following disposal or when no economic future benefit is expected from its use or disposal.

9. Liabilities, debt securities issued (and subordinated liabilities) The various forms of interbank and customer funding are recognised within the balance sheet items 10 “Due to banks”, 20 “Due to customers” and 30 “Debt securities issued”. These items also include liabilities recognised by a lessee in financial leasing operations. 9.1 Recognition criteria The liabilities in question are recognised in the balance sheet at the time when the funding is received or when the debt securities are issued. The amount initially recognised is the fair value, which is normally the same as either the consideration received or the issue price, inclusive of any additional expenses or income that are directly attributable to the transaction and determinable from the outset, regardless of when they are paid. The amount of the initial recognition does not include all those costs that are reimbursed by the creditor counterparty or that are attributable to internal costs of an administrative character.

9.2 Measurement criteria After initial recognition medium to long-term financial liabilities are measured at amortised cost using the effective interest method as defined in previous paragraphs.

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Short-term liabilities, for which the time factor is insignificant, are measured at cost. The methods used to determine the fair value of liabilities and debt securities issued, performed for information purposes only, are described in Part A.4 “Information on fair value” of the Notes to the financial statements. 9.3 Derecognition criteria Financial liabilities are derecognised in the balance sheet when they mature or are extinguished. The repurchase of own securities issued results in derecognition of the securities with the consequent redefinition of the liability for debt instruments issued. Any difference between the repurchase value of the own securities and the corresponding carrying value of the liabilities is recognised in the income statement under the item 100 “Income from the disposal or repurchase of d) financial liabilities”. Any subsequent re-issue of the securities previously subject to derecognition in the accounts constitutes a new issue for accounting purposes with the consequent recognition at the new issue price without any effect in the income statement.

10. Tax assets and liabilities Tax assets and liabilities are stated in the balance sheet under the items 140 “Tax assets” and 80 “Tax liabilities”.

10.1. Current tax assets and liabilities

Current tax for the current and prior periods is recognised as a liability to the extent that it has not yet been settled; any excess compared to the amount due is recognised as an asset. Current tax liabilities (assets) for the current and prior years, are measured at the amount expected to be paid to/recovered from taxation authorities, using the tax rates and tax laws in force. Current tax assets and liabilities are derecognised in the accounts in the year in which the assets are realised or the liabilities are extinguished.

10.2. Deferred tax assets and liabilities

Deferred tax liabilities are recognised for all taxable temporary differences unless the deferred tax liability arises from:

goodwill for which amortisation is not deductible for tax purposes or the initial recognition of an asset or a liability in a transaction which:

is not a business combination and at the time of the transaction, affects neither the accounting nor the taxable profit.

Deferred tax assets are not calculated for higher values of assets for which the tax regime has been suspended relating to equity investments and to reserves for which the tax regime has been suspended because it is considered there are no reasonable grounds to assume they will be taxed in future. Deferred tax liabilities are recognised within the balance sheet item 80 “Tax liabilities b) deferred”.

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A deferred tax asset is recognised for all deductible temporary differences if it is probable that a taxable income will be used against which it will be possible to use the deductible temporary difference, unless the deferred tax asset arises from:

negative goodwill which is treated as deferred income; the initial recognition of an asset or liability in a transaction which:

is not a business combination and affects neither the accounting profit nor the taxable profit at the time of the transaction.

Assets for prepaid taxes are recognised under the balance sheet item 140 “Tax assets b) deferred”. Deferred tax assets and deferred tax liabilities are subject to constant monitoring and are measured using the tax rates that it is expected will apply in the period in which the tax asset will be realised or the tax liability will be extinguished on the basis of the tax regulations established by laws currently in force. Deferred tax assets and deferred tax liabilities are derecognised in the accounts in the year in which:

the temporary difference which gave rise to them becomes payable with regard to deferred tax liabilities or deductible with regard to deferred tax assets;

the temporary difference which gave rise to them is no longer valid for tax purposes. Deferred tax assets and deferred tax liabilities must not normally be discounted to present values nor offset one against the other.

11. Non-current assets and disposal groups held for sale – Liabilities associated with disposal groups held for sale

Non-current assets and liabilities and groups of non-current assets and liabilities for which it is presumed that the carrying value will recovered by selling them rather than by continued use are classified respectively under items 150 “Non-current assets and disposal groups held for sale” and 90 “Liabilities associated with disposal groups held for sale”. In order to be classified within these items the assets or liabilities (or disposal groups) must be immediately available for sale and there must be active, concrete programmes to sell the assets or liabilities in the short term. These assets or liabilities are measured at the lower of the carrying amount and their fair value net of disposal costs. Profits and losses attributable to groups of assets or liabilities held for sale are recognised in the income statement under item 310 “Pre-tax profit from discontinued operations”. Profits and losses attributable to individual assets held for disposal are recognised in the income statement under the most appropriate item.

12. Provisions for risks and charges

12.1. Definition

A provision is defined as a liability of uncertain timing or amount. A contingent liability, however, is defined as: a possible obligation, the result of past events, the existence of which will only be confirmed

by the occurrence or (non-occurrence) of future events that are not totally under the control of the enterprise;

262 Notes to the consolidated accounts

a present obligation that is the result of past events, but which is not recognised in the accounts because:

it is improbable that financial resources will be needed to settle the obligation; the amount of the obligation cannot be measured with sufficient reliability.

Contingent liabilities are not recognised in the accounts, but are only reported, unless they are considered a remote possibility.

12.2. Recognition criteria and measurement

A provision is recognised if and only if:

there is a present obligation (legal or implicit) that is the result of a past event and it is probable that the use of resources suitable for producing economic benefits will be

required to fulfil the obligation; and a reliable estimate can be made of the amount arising from fulfilment of the obligation. The amount recognised as a provision represents the best estimate of the expenditure required to settle the present obligation at the reporting date and reflects the risks and uncertainties that inevitably characterise a number of facts and circumstances. The amount of a provision is measured by the present value of the expenditure that it is assumed will be necessary to settle the obligation where the effect of the present value is a substantial aspect. Future events that might affect the amount required to settle the obligation are only taken into consideration if there is sufficient objective evidence that they will occur. Provisions made for risks and charges include those for the risk attaching to any existing tax litigation.

12.3. Derecognition criteria

The provision is reversed when it becomes improbable that the use of resources suitable for producing economic benefits will be required to settle the obligation.

13. Foreign currency transactions

13.1. Definition

A foreign currency is a currency other than the functional currency of the entity, which is the currency of the primary economic environment in which an entity operates.

13.2. Recognition criteria

A foreign currency transaction is recorded at the time of initial recognition in the functional currency applying the spot exchange rate between the functional currency and the foreign currency ruling on the date of the transaction.

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13.3. Measurement criteria

At each reporting date:

(a) foreign currency monetary amounts16 are translated using the closing rate; (b) non-monetary items17 measured at historical cost in foreign currency are translated using the

exchange rate at the date of the transaction; (c) non-monetary items carried at fair value in a foreign currency are translated using the

exchange rates that existed on the dates when the fair values were determined. Exchange rate differences arising from the settlement of monetary items, or from the translation of monetary items at rates different from those at which they were translated when initially recognised during the year or in previous financial statements, are recognised in the income statement for the period except for exchange rate differences arising on monetary items that form part of a net investment in a foreign operation. Exchange rate differences arising from a monetary item that forms part of a net investment in a foreign operation of an entity that prepares financial statements are recognised in the income statement of the individual company financial statements of the entity that prepares the financial statements or the individual company financial statements of the foreign operation. These exchange rate differences in the financial statements that include the foreign operation (e.g. in the consolidated accounts when the foreign operation is a subsidiary) are initially recognised as a separate component in equity and are recognised in the income statement at the time of the disposal of the net investment. When a profit or loss on a non-monetary item is recognised directly in equity, each change in that profit or loss is also recognised directly in equity. However, when a profit or loss on a non-monetary item is recognised in the income statement each change in that profit or loss is recognised in the income statement. The financial statements of foreign subsidiaries and associates which employ an accounting currency that is different from that of the Parent are translated using the exchange rates ruling at the reporting date

14. Other information 14.1 Treasury shares Treasury shares present in the UBI Group portfolio are deducted from equity. No profit or loss arising from the purchase, sale, issue or cancellation of treasury shares is recognised in the income statement. The differences between the purchase and sale price arising from these transactions are recorded in equity reserves.

16 “Monetary” items are defined as relating to determined sums in foreign currency, which is to say to assets and liabilities which must be received or paid for a determined amount in foreign currency. The defining characteristic of a monetary item is therefore the right to receive or an obligation to pay a set or calculable number of foreign currency units. 17 See the note on “monetary” items for the contrary.

264 Notes to the consolidated accounts

14.2 Provisions for guarantees granted and commitments Provisions made on a cases by case and collective basis to estimate possible payments to be made connected with the assumption of credit risks attaching to guarantees granted and commitments assumed are calculated by applying the same criteria as that reported for loans. These provisions are recognised within the item 100 “Other liabilities” against the item in the income statement 130d “Net impairment losses on: other financial transactions”. 14.3 Employee benefits 14.3.1 Definition Employee benefits are defined as all forms of consideration given by an enterprise in exchange for services rendered by employees. Employee benefits can be classified as follows:

short-term benefits (not including benefits due to employees for end of contract) which it is planned to pay entirely within twelve months from the end of the year in which the employees provided their services;

post-employment benefits at the end of an unemployment contract due after the contract of employment has terminated;

benefits due to employees for the ending of an employment contract;

other long-term benefits, other than the previous, which it is not planned to pay entirely within the twelve months from end of the financial year in which employee rendered the relative employment service.

14.3.2 Post employment benefits and defined benefit plans 14.3.2.1 Recognition criteria

Following the reform of supplementary pensions pursuant to Legislative Decree No. 252/2005, portions of post-employment benefit funds maturing from 1st January 2007 constitute a “defined benefit plan”. The liability relating to those portions is measured on the basis of the contributions due without the application of any actuarial methods. However, post-employment benefits maturing up until 31st December 2006 continue to constitute a “post-employment benefit” belonging to the “defined benefit plan” series and as such require the amount of the obligation to be determined on an actuarial basis and to be discounted to present values because the debt may be extinguished a long time after the employees have rendered the relative service. The amount is accounted for as a liability amounting to:

(a) the present value of the defined benefit obligation as at the reporting date; (b) plus any actuarial gains (less any actuarial losses) recognised in a separate reserve in equity; (c) less the fair value at the reporting date of any assets at the service of the plan. 14.3.2.2 Measurement criteria

“Actuarial gains/losses”, recognised in a special valuation reserve in equity, comprise the effects of adjustments arising from the reformulation of previous actuarial assumptions as a result of actual experience or from changes in the actuarial assumptions themselves.

265 Notes to the consolidated accounts

The “Projected Unit Credit Method” is used to calculate the present value. This considers each single period of service as giving rise to an additional unit of severance payment and therefore measures each unit separately to arrive at the final obligation. This additional unit is obtained by dividing the total expected service by the number of years that have passed from the time service commenced until the expected payment date. Application of the method involves making projections of future payments based on historical analysis of statistics and of the demographic curve and discounting these flows on the basis of market interest rates. The rate used for present value discounting purposes is determined by making reference to market yields observed as at the reporting date for “high quality corporate bonds” or to yields on securities with a low credit risk.

14.3.2.3 Stock Options/Stock Grants

Stock option and stock grant plans are defined as personnel remuneration schemes where the service rendered by an employee (or a third party) is remunerated by using equity instruments (including options on shares). The cost of these transactions is measured at the fair value of equity instruments granted and is recognised in the income statement under item 180 “Administrative expenses a) personnel expense” on a straight line basis over the vesting period of the plan. The fair value determined relates to the equity instruments granted at the time of grant and takes account of market prices, if available, and the terms and conditions upon which the instruments were granted. 14.4 Segment reporting Segment reporting is defined as the manner in which financial information on an enterprise is reported by operating segment. An operating segment is intended as a component of an entity:

that engages in business activities that generate revenues and expenses; whose operating results are reviewed regularly by the entity’s chief operating decision

maker, to make decisions about the resources to be allocated to the segment and assess its performance; and

for which discrete financial information is available. Segment reporting is based on elements that senior management uses to make operating decisions (a “management approach”) and consequently the identification of operating segments is performed on the basis of the current system of reporting to management which is based primarily on management analysis of legally recognised entities. Segment reporting is completed by information on the geographical areas in which revenues are produced and assets are held. 14.5 Revenue

14.5.1 Definition

Revenues are the gross inflow of economic benefits resulting from business arising from the ordinary operating activities of an enterprise when these inflows create an increase in equity other than an increase resulting from payments made by shareholders.

266 Notes to the consolidated accounts

14.5.2 Recognition criteria Revenues are measured at the fair value of the consideration received or due and are recognised in the accounts when they can be reliably estimated. The result of the rendering of services can be reliably estimated when the following conditions are met:

the amount of revenue can be measured reliably; it is probable that the economic benefits arising from the transaction will flow to the company; the stage of completion of the operation as at the reporting date can be measured reliably; the costs incurred, or to be incurred, to complete the transaction can be measured reliably. Revenue received in return for services rendered is recognised by reference to the stage of completion of the transaction. Revenue is only recognised when it is probable that the economic benefits arising from the transaction will be enjoyed by the company. Nevertheless when the recoverability of an amount already included within revenues is uncertain, the amount not recoverable, or the amount for which recovery is no longer probable is recognised as a cost instead of adjusting the revenue originally recognised. Revenue arising from the use by third parties of the company’s assets which generate interest or dividends are recognised when:

it is probable that the economic benefits arising from the transaction will be received by the enterprise;

the amount of the revenue can be reliably measured. Interest is recognised on an accruals basis that takes into account the effective yield of the asset. In detail:

interest income includes the amortisation of any discounts, premiums or other differences between the initial carrying amount of a security and its value at maturity. Negative components of income accruing on financial instruments are recognised within the item “Interest and similar expense”, while positive components accruing on financial liabilities are recognised within the item “Interest and similar income”;

arrears of interest that are considered recoverable are recognised within the item 10 “Interest and similar income”, but only the part considered recoverable.

Dividends are recognised when shareholders acquire the right to receive payment. Expenses or revenues resulting from the sale or purchase of financial instruments, determined by the difference between the amount paid or received for the transaction and the fair value of the instrument are recognised in the income statement on initial recognition of the financial instrument when the fair value is determined: by making reference to current and observable market transactions in the same instrument; by using measurement techniques which use, as variables, only data from observable markets. 14.6 Expenses Expenses are recognised in the accounts at the time at which they are incurred while following the criteria of matching expenses to revenues that result directly and jointly from the same transactions or events. Expenses that cannot be associated with revenues are recognised immediately in the income statement. Expenses directly attributable to financial instruments measured at amortised cost and determinable from the outset, regardless of the time at which they are settled, flow to the income

267 Notes to the consolidated accounts

statement by applying the effective interest rate, a definition of which is given in the section “Loans and receivables”. Impairment losses are recognised through profit and loss in the year in which they are measured. A.3 – INFORMATION ON TRANSFERS BETWEEN PORTFOLIOS OF FINANCIAL ASSETS

A.3.1 Reclassified financial assets: carrying amount, fair value and effects on comprehensive income

No reclassifications have been performed either in the current year, or in the previous year in financial asset portfolios from asset classes recognised at fair value into classes recognised at amortised cost with regard to the possibilities introduced by EC Regulation No. 1004/2008 of the European Commission.

A.3.2 Reclassified financial assets: effects on comprehensive income before the transfer

No items of this type exist. A.3.3 Transfer of financial assets held for trading

No items of this type exist.

A.3.4 Effective interest rate and expected cash flows from reclassified assets

No items of this type exist.

A.4 INFORMATION ON FAIR VALUE Qualitative information IFRS 13 – “Fair Value Measurement” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This value is therefore what is known as an “exit price” which reflects the properties of the asset or liability subject to measurement from the perspective of a third party market participant. A fair value measurement relates to an ordinary transaction carried out or which could be carried out between market participants, where, the market is defined as:

the principal market, which is the market with the highest volume and level of transactions for the asset or liability in question to which the Bank has access;

or, in the absence of a principal market, the most advantageous market, which is that in which it is possible to obtain the highest price for the sale of an asset or the lowest purchase price for a liability with account taken of transaction and transport costs.

To increase consistency and comparability in fair value measurements and related disclosures, IFRS 13 establishes a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value. The objective of this classification is to establish a hierarchy in terms of the objectivity of the fair value as a function of the degree of discretion adopted, by giving priority to observable market

268 Notes to the consolidated accounts

inputs which reflect the assumptions that market participants would use in the measurement of assets and liabilities. The fair value hierarchy is defined on the basis of the data inputs (with reference to their origin, type and quality) using the models for determining fair value and not on the basis of the measurement models themselves. In this perspective the highest priority is given to input level one.

Fair value determined on the basis of level one inputs:

Fair value is determined on the basis of observable inputs, i.e. quoted prices in active markets for the financial instrument, that the entity can access at the measurement date of the instrument. The existence of quoted prices in an active market is the most reliable evidence of fair value and therefore these quoted prices shall be given priority as the input to be used in the valuation process. According to IFRS 13, a market is defined as active when transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

More specifically, equities and bonds quoted on a regulated market (e.g. MOT/MTS – electronic corporate/government bond markets) and those not quoted on regulated markets for which prices are available on a continuous basis from the main information platforms which represent actual and orderly market transactions. The fair value of listed securities on regulated markets is normally given by the reference price published on the last trading day of the reporting period on the respective markets on which they are quoted. For securities not quoted on regulated markets, the fair value is given by the price on the last transaction date considered representative on the basis of internal policies. As concerns other financial instruments with a level one input such as, for example, derivatives, exchange traded funds and listed property funds, the fair value is given by the closing price on the respective listed markets on the measurement date or in the case of listed UCITS, mutual funds, Sicav’s and hedge funds, it is given by the official NAV (net asset value), if this is considered representative according to internal policies. Fair value determined on the basis of level two inputs

Where no prices are available on active markets, the fair value is measured by using prices observable on inactive markets or by using measurement models which make use of market inputs. The valuation is performed by using inputs that are either directly or indirectly observable, such as for example:

prices listed on active markets for identical assets or liabilities; observable inputs such as interest rates or yield curves, implicit volatilities, early

repayment risk, default rates and illiquidity factors.

On the basis of the above, the valuation resulting from the technique adopted involves marginal use of unobservable inputs because the most important inputs used in the valuation are taken from the market and the results of the calculation methods used replicate quotations on active markets. The following are included in level two:

269 Notes to the consolidated accounts

OTC derivatives; equity instruments; bonds; shares of private equity funds

Assets and liabilities measured at cost or at amortised cost, for which the fair value is given in the notes to the financial statements purely for information purposes, are classified in level two only if the unobservable inputs do not have a significant impact on the result of the valuation. Otherwise they are classified in level three. Fair value determined on the basis of level three inputs

The valuation is determined by the use of significant inputs not taken from the market, which therefore involve the adoption of estimates and internal assumptions. The following are included in level three of the fair value hierarchy:

OTC derivatives equity instruments measured:

a. with the use of significant unobservable inputs; b. using methods based on an analysis of the fundamentals of the investee; c. at cost.

hedge funds, for which consideration is given not only to the official NAVs, but also to liquidity and/or counterparty risk;

options on financial equity investments; bonds resulting from the conversion of loans and receivables.

Finally, fair value is classified in level three as a result of the use of market inputs that have been adjusted significantly to reflect valuation aspects inherent to the instrument measured. A.4.1 Fair value levels two and three

This sub-section provides information on the measurement techniques and inputs used to determine the fair value of assets and liabilities subject to measurement in the balance sheet and those for which the fair value is given purely for information purposes.

Assets and liabilities subject to fair value measurement

OTC derivatives The method adopted to calculate the fair value of OTC derivatives involves the use of closed formula models. In detail, the main pricing models used for OTC derivatives are: Black Yield, Black Fwd, Black Swap Yield, Cox Fwd, Trinomial, Lnormal, Normal and CMS Convexity Analytical. Derivative instruments that are not managed in the target software applications, relating to instruments used to hedge some types of embedded options in structured bonds issued, are measured using internal models (stochastic models with MonteCarlo simulations). The pricing models implemented for derivatives are used on an ongoing basis and are subject to periodic verification designed to assess their reliability over time. The market data used to calculate the fair values of derivatives is classified, according to its availability, as follows:

the prices of quoted instruments: all products quoted on major international exchanges or on the main data provider platforms;

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market inputs available on info provider platforms: all instruments which, although not quoted on an official market, are readily available on info provider networks by means of guaranteed ongoing contributions from brokers and market makers.

The inputs used to calculate the fair value of OTC derivatives include yield curves and Cap&Floor volatilities for major currencies (euro, US dollar, GBP, yen, CHF), the main exchange rates and the relative volatilities and the FX swap points. As explained later in greater detail, the fair value of some types of OTC derivatives takes counterparty risk into account. The calculation of this component is carried out by using default probabilities and the percentage of credit recovery from counterparties. As concerns credit risk, market practice is to adopt two measures capable of identifying the impacts of possible changes in counterparty credit rating and incorporating this in the fair value: credit value adjustment (counterparty non-performance risk) and debt value adjustment (own non-performance risk). The approach adopted by the Group to calculate these measurements, termed the “spread curve” method, involves the use of credit spread curves to calculate the two components. More specifically it involves the following steps:

an estimate of the future cash flows of the OTC derivative using risk free curves. The resulting net cash flow calculated is then discounted using counterparty credit curves (for positive cash flows) or UBI Banca’s credit curve (negative cash flows) described in the points below;

the creation of an “adjusted” curve for the counterparty, obtained by applying the relative spread to the risk-free discount curve, for each maturity;

the creation of an “adjusted” curve for UBI Banca, obtained by applying the relative spread to the risk-free discount curve, for each maturity.

The method implemented by the group is applied to OTC derivatives in the Group’s portfolio, entered into with external counterparties for which CSA agreements exist with complete daily or weekly margin accounts.

Given the predominant use of unobservable inputs, the fair value of OTC derivatives is classified in level two of the hierarchy, except for those derivatives where the CVA (estimated internally) is important for determination of the fair value. The fair value of these instruments is classified in fair level three of the hierarchy. The UBI Banca Group’s policy for options on equities is to measure the fair value by taking account of the probability of exercise given the specific nature of the options in question. The fair value calculated in this way is classified in level three of the hierarchy.

Equity instruments As concerns the methods used to measure the fair value of equity instruments not quoted on an active market, the UBI Banca Group has identified the following hierarchy of valuation techniques:

1) the direct transactions method; 2) the comparable transactions method; 3) the stock market multiples method 4) financial and earnings methods; 5) balance sheet methods.

Equity instruments are measured by considering the applicability of the methods in the order given above. In the final instance, where it is impossible to use the above techniques, these instruments are measured at cost. The characteristics of the valuation techniques used as at 31st December 2015 are given below. The direct transactions method;

271 Notes to the consolidated accounts

Application of the direct transactions method involves applying the implicit value resulting from the most recent significant transaction recorded on the shares of the investee. By using observable inputs, the fair value thereby obtained is classified in level two of the hierarchy.

If the transaction that occurred on the market involved a controlling stake or one which gave significant influence over the investee by the acquirer, then it is possible that the price paid incorporated a premium for control. This aspect is considered by a possible adjustment to the value of the investment. Therefore the pro rata value of the economic capital of the company is reduced by between 25% and 35%. That adjustment, resulting from the use of unobservable and significant inputs results in classification of the fair value in level three of the hierarchy.

The comparable transactions method

Application of the comparable transactions method involves analysis of transactions to purchase shares in companies with operating and capital characteristics of the same type as those of the investee and the subsequent calculation of an implicit multiple given by the transaction price. By using observable inputs, the fair value thereby obtained is classified in level two of the hierarchy.

If the transaction that occurred on the market involved a controlling stake or one which gave significant influence over the investee by the acquirer, then it is possible that the price paid incorporated a premium for control. This aspect is considered by a possible adjustment to the value of the investment. Therefore the pro rata value of the economic capital of the company is reduced by between 25% and 35% to reflect the lack of powers within the investee. That adjustment, resulting from the use of unobservable and significant inputs results in classification of the fair value in level three of the hierarchy.

The stock market multiples method

This method allows a company to be valued on the basis of data derived from quotations of comparable companies (in terms of sales turnover, equity, leverage) observed on the relative stock market in a period within the last 30 days and last year prior to the measurement date. It is performed by processing the most significant multipliers (stock market multiples) resulting from the ratio between the value that the stock market attributes to these companies and those of their operating and capital performance indicators that are considered most significant. By using observable inputs, the fair value thereby obtained is classified in level two of the hierarchy. The need to adjust the valuations obtained, which is not infrequent, when applying the stock market multiple methods in order to take account of possible differences in the compatibility of the companies used and the liquidity of the instruments measured, the pro rata value of the economic capital of the company is reduced by between 10% and 40% to reflect the limited liquidity of the investment and/or significant differences in size between the investee and the companies in the sample. This adjustment, resulting from the use of unobservable and significant inputs results in the classification of the fair value in level three of the hierarchy.

Balance sheet methods

Balance sheet methods provide a calculation of the fair value of an investee based on balance sheet figures, adjusted in the light of gains and losses implicit in the assets and liabilities of the investee and the possible valuation of intangible components. The fair value determined by using these methods, based on unobservable inputs, is classified in level three of the hierarchy. Bonds

The procedure for estimating the fair value adopted by the UBI Banca Group for bonds involves the use of a specific valuation model, the discounted cash flow model. The valuation process in question can be summarised in the following steps:

272 Notes to the consolidated accounts

an estimate of the cash flows paid by the instrument both in terms of interest and repayment of capital;

an estimate of the spread which represents the credit rating of the issue of the instrument; an estimate of a spread which represents the illiquidity of the instrument in order to take

account of the low liquidity which characterises the pricing of a “non-contributed” instrument (not officially quoted).

Given the predominant use of unobservable inputs, the fair value thereby calculated is classified in level two of the hierarchy, except for those instruments where the component of the spread that represents the illiquidity is important for determining the fair value and for some bonds resulting from the conversion of loans and receivables, which are classified in level three of the hierarchy. The following are comprised within the inputs used to calculate the fair value of bonds: interest rate curves of major currencies (Euro, USD, GBP, YEN, CHF), the credit spreads of the issuers of the bond subject to measurement (taken from instruments quoted on markets considered active) and a spread representative of the illiquidity of the instrument measured, calculated on the basis of the credit spread of the issuer. Shares of private equity funds

The fair value of shares in private equity funds is calculated on the basis of the last NAV available and considering the various communications received from the fund (e.g. redemptions, dividend distributions) from the date of the last available NAV until the measurement date. The NAV is then adjusted if necessary to take into consideration situations of particular risk and non-performance associated with the investment.

Shares of hedge funds The fair value of shares of hedge funds is classified in level three of the hierarchy and is calculated on the basis of the official NAV adjusted by a percentage of at least 20% to take account of liquidity and/or counterparty risks.

Assets and liabilities, the fair value of which is given in the notes to the financial statements

Loans and receivables

Determination of the fair value of loans and advances to customers, calculated for disclosure in the notes to the financial statements, is carried out by using valuation techniques, except for those loans and receivables for which the book value is considered an adequate representation of the fair value, such as for example defaulted loans, transactions with no repayment schedules (current account overdrafts and unsecured guarantees) and loans due in less than one year which for that reason are classified in level three of the hierarchy.

The method adopted by the UBI Banca Group to estimate the fair value of loans and receivables involves discounting cash flows, defined as the sum of the principal and interest resulting from the different due dates of the repayment schedule, reduced by the amount of the expected loss and discounted at a rate which incorporates the risk-free component and a spread representing the cost of capital and funding. More specifically, the following inputs are used:

273 Notes to the consolidated accounts

a base discount rate, based on the Euribor yield curve; default risk and risk of potential loss, expected and unexpected, measured on the specific

loan during its entire life. These values are represented by internal credit risk measurement parameters such as the rating, the PD and LGD, differentiated by customer segment. The PD associated with each rating is measured on a multi-year basis. Finally, the unexpected loss component takes account of the Group’s cost of equity;

the UBI Banca Group’s funding components. These components are based on the average cost of financing incurred by the Group in the wholesale, retail and covered bond markets with a ten-year cap.

In order to identify the correct level in the fair value hierarchy obtained using the above valuation technique, the level of significance of the unobservable inputs must be properly assessed. In this respect, the fair value resulting from the application of the method described above is compared with a benchmark that is calculated which employs a discount curve composed from observable market data. If the comparison shows that the fair value is significantly different from that calculated using the aforementioned benchmark, the fair value is classified in level three. Otherwise it is classified in fair value level two.

The fair value of loans and advances to banks is normally calculated for the purposes of disclosure in the notes to the financial statements for on-balance sheet transactions with a time horizon of longer than one year. The method adopted involves calculating the net present value of the cash flows from these instruments on the basis of the current market interest rate for transactions of the same duration, inclusive of the risk factors implicit in the transaction. Because this method is based on observable inputs, it results in classification of the fair value in level two of the hierarchy. For transactions with no repayment schedules (current account overdrafts and unsecured guarantees), for defaulted loans and for transactions with a maturity of shorter than one year, the book value is considered an adequate approximation of the fair value, which as a consequence results in classification in level three of the hierarchy.

Tangible assets held for investment

Reference is made for the determination of the fair value of investment properties to the market value, determined mainly by means of outside appraisers, defined as the highest price at which the sale of a property might reasonably be expected to have been concluded unconditionally for cash consideration on the measurement date between independent counterparties. The procedures adopted for determining the market value are based on the following methods:

the direct comparative or market method, based on a comparison between the asset in question and other similar assets subject to sale or currently on sale on the same market or competing markets;

the income method based on the present value of potential market incomes for a similar property, obtained by capitalising the income at a market interest rate.

The above methods are carried out individually and the values obtained are appropriately averaged. The method used for identifying the percentage of the market value attributable to land is based on an analysis of the location of the property, taking account of the type of construction, the state of conservation and the cost of rebuilding the entire building. The fair value determined in this manner is classified in level three of the hierarchy due to the absence in the Italian market of reference indicators which might confirm the reliability of the valuation. As a consequence, the inputs used cannot be classified in level two.

274 Notes to the consolidated accounts

Borrowings and payables

The fair value of amounts due to banks and customers is normally calculated for the purposes of disclosure in the notes to the financial statements for liabilities due after one year. The valuation is carried out by discounting future cash flows using an interest rate that incorporates the component relating to its own credit risk. Since it is based on observable inputs from the relative market, this method results in the classification of the fair value in level two of the hierarchy. For liabilities due within one year or with an indeterminate due date, the book value recognised can be considered an adequate approximation of the fair value, which as a consequence results in classification in level three of the hierarchy. This classification is also adopted for amounts due to the European Central Bank. Securities issued

As these are liabilities issued, held as assets by third parties, the valuation techniques used have been developed from the perspective of a market participant who holds the debt securities as assets. In this specific case the components considered are as follows:

the time value of the money, measured by the risk-free yield curve; the risk of failing to satisfy own obligations, measured by own credit spread.

The inputs used to measure the fair value include the yield curves of major currencies (Euro, USD, GBP, YEN, CHF) and UBI Banca’s issue spreads, measured from the funding conditions existing as at the reporting date, classified by type of counterparty for whom the security issued is destined. The inputs used are observable and result in classification in level two of the hierarchy, except for bonds issued by the Bank linked to loans granted to customers. In these cases the fair value of the security is determined using the loan inputs themselves and both instruments are classified in level three of the hierarchy. A.4.2 Valuation processes and sensitivities The UBI Banca Group has set a special policy for the determination of fair values officially set out in special regulations approved by the members of governing bodies. The purpose of these policies is to ensure proper and consistent application of the provisions of IFRS 13. An analysis is given below of the sensitivity of equity instruments for which the fair value measurement is classified in level three of the hierarchy as a result of the use of unobservable significant inputs. This analysis was conducted by formulating a stress test for the inputs in question, which takes account of the minimum and maximum value that these inputs can take, reported for each valuation technique used in the previous sub-section A.4.1 “Fair value levels two and three”. For equity instruments classified within the AFS portfolio for which sensitivity analysis is possible, on the basis of the valuation model used, if the maximum impairment value for the unobservable inputs is used, the gross valuation reserve would be €6.7 million lower than the book value recognised if no further impairment was detected. Otherwise, if the minimum impairment value is used, the gross valuation reserve would be €13.3 million higher than the book value recognised. For equity instruments classified within the FVO portfolio for which sensitivity analysis is possible, on the basis of the valuation model used, if the minimum impairment value for the unobservable inputs is used, the amounts recognised in the income statement item 110 ”Net

275 Notes to the consolidated accounts

income of financial assets and liabilities designated at fair value” would be €1.8 million higher than that recognised in the accounts. The use of the highest impairment value would, on the contrary, have no impact. As concerns other financial instruments subject to fair value measurement and classified within level three of the fair value hierarchy (OTC derivatives, hedge funds, bonds resulting from the conversion of loans and options on equity investments), no sensitivity analysis is conducted either because the methods of quantifying the fair value do not allow alternative hypotheses to be made concerning the unobservable inputs used for the purposes of valuation, or because the effects of changing those inputs are not considered important. A.4.3 Fair value hierarchy With regard to assets and liabilities subject to fair value measurement on a recurring basis, classification in the right level of the fair value hierarchy is carried out by making reference to rules and methods contained in Bank regulations. Possible transfers to a different level of the hierarchy are identified on a monthly basis. Examples might be transfers resulting from the “disappearance” of an active market on which they are quoted or the use of a different method of measurement not previously applicable. A.4.4 Other information No situations exist in the UBI Banca Group in which the maximum or best use of a non-financial asset is different from its current use. Furthermore, no situations exist in which financial assets and liabilities managed on a net basis in relation to market or credit risk are subject to fair value measurement on the basis of the price that would be received from the sale of a net long position or from the transfer of a net short position. Quantitative information A.4.5 Fair value hierarchy A.4.5.1 Assets and liabilities measured at fair value on a recurring basis

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

1. Financial assets held for trading 472,012 505,028 17,438 800,881 606,337 13,288

2. Financial assets designated at fair value 120,782 3,000 72,252 120,026 3,000 70,141

3. Available-for-sale financial assets 14,959,254 359,910 235,118 17,423,065 953,777 178,114

4. Hedging derivatives - 594,322 363 - 649,250 -

5. P roperty, plant and equipment - - - - - -

6. Intangible assets - - - - - -

Total 15,552,048 1,462,260 325,171 18,343,972 2,212,364 261,543 1. Financial l iabilities held for trading 7 531,773 32 300 617,452 10

2. Financial l iabilities designated at fair value - - - - - -

3. Hedging derivatives 749,725 - 1,009,092 -

Total 7 1,281,498 32 300 1,626,544 10

31.12.2015 31.12.2014 Assets/l iabi l i ties measured at fai r value

The impact of CVA and DVA on the determination of the fair value derivative financial instruments at consolidated level came to €13,374 thousand and €227 thousand respectively.

276 Notes to the consolidated accounts

No transfers were made between level one and two in the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis. A.4.5.2 Annual changes in assets measured at fair value (level three)

1. Opening balances 13,288 70,141 178,114 - - -

2. Increases 11,020 3,539 170,112 363 - -

2.1. Purchases 62 - 5,338 - - -

2.2. Profits recognised in:

2.2.1. Income statement 148 2,895 61,223 363 - -

- of which gains 138 2,846 31 363 - -

2.2.2. Equity X X 24,148 - - -

2.3. Transfers from other levels 10,742 644 13,240 - - -

2.4. Other increases 68 - 66,163 - - -

3. Decreases (6,870) (1,428) (113,108) - - -

3.1.Sales (118) - (87,241) - - -

3.2. Redemptions - (84) (9) - - -

3.3. Losses recognised in:

3.3.1. Income statement (3,633) (1,121) (16,354) - - -

- of which losses (2,313) (1,121) (16,354) - - -

3.3.2. Equity X X (6,248) - - -

3.4. Transfers to other levels (3,119) - - - -

3.5. Other decreases - (223) (3,256) - - -

4. Closing balances 17,438 72,252 235,118 363 - -

Intangible assets

Financial assets held for trading

Financial assets designated at fair

value

Available-for-sale financial assets

Hedging derivatives

Property, plant and

equipment

- Financial assets held for trading The increases in “financial assets held for trading” are due mainly to transfers from other levels. Approximately €10.7 million of these are the consequence of the impact of credit value adjustments (CVAs) on the fair value of derivatives (reclassified to level three if the CVA affects the fair value by an amount exceeding 10%, a limit set by UBI policy). The decreases were due mainly to transfers to other levels. Approximately €3.1 million of these relate to derivatives reclassified into level three in December 2014, for which the CVA is now below that limit). Losses recognised through profit or loss are the result of fair value movements on financial derivatives classified within fair value level three.

- Financial assets designated at fair value Increases in “financial assets designated at fair value” relate mainly to profits recognised through profit or loss as a consequence of gains on shareholdings in Immobiliare Mirasole Spa amounting to €1.3 million (ordinary shares) and to €0.1 million (privileged shares); and in E.C.A.S. Spa (€0.6 million) and in hedge funds (€0.8 million). Transfers from other levels included the currency translation effect on hedge funds amounting to €0.4 million and side pocket position switches amounting to €0.2 million. Decreases were mainly the result of losses recognised through profit or loss on hedge funds (approximately €0.9 million) and other decreases regarded the balancing entry for the already mentioned side pocket position switches amounting to €0.2 million.

- Available-for-sale financial assets Inreases of “available-for-sale financial assets” included, among purchases, those relating to CAPITAL FOR PROG. Spa shares amounting to €4.9 million. Increases in equity regarded the company VISA EUROPE Ltd ORD. amounting to €8 million and ICBPI Spa amounting to €15.2 million. Transfers to other levels regarded the subordinated bonds BCA MARCHE 05/15 TV amounting to €3.6 million and BCA POP. ETRURIA 06/16 amounting to €9.5 million. Those same positions resulted in decreases because they were completely written off.

277 Notes to the consolidated accounts

Profits recognised through profit and loss related to a gain on the partial disposal (4.04%) of an investment in ICBP Spa amounting to €61.2 million. Other increases relate to the restructuring of the Sorgenia Spa One Coupon conv. Cat. A and the Nuova Sorgenia Holding Spa SFP positions for €25.2 million and €36 million respectively. Decreases of “available-for-sale financial assets” include sales relating to the partial disposal of the investment in ICBP Spa amounting to €87.2 million. Losses recognised through profit and loss related to BANCA MARCHE 05/15 TV and BCA POP. ETRURIA 06/16. Losses recognised in equity related to the company SACBO Spa amounting to €2.5 million and to Carlo Tassara SFP amounting to €3.7 million.

- Derivatives The amount of €363 thousand relates to the fair value component of a CCS derivative to hedge a loan denominated in AED. The classification in level three is due to the degree of liquidity of the currency.

A.4.5.3 Annual changes in financial liabilities measured at fair value (level three)

1. Ope ning ba la nc e s 10 - -

2 . Inc re a s e s 3 2 - -

2.1. Is s ues - - -

2.2. Lo s s es reco gnis ed in:

2.2.1. Inco me s ta tement 32 - -

- o f which lo s s es 32 - -

2.2.2. Equity X X -

2.3. Trans fe rs fro m o ther leve ls - - -

2.4. Othe r increas es - - -

3 . D e c re a s e s (10 ) - -

3.1.Redemptio ns - - -

3.2. Repurchas es - - -

3.3. P ro fits reco gnis ed in:

3.3.1. Inco me s ta tement - - -

- o f which ga ins - - -

3.3.2. Equity X X -

3.4. Trans fe rs to o the r leve ls (10) - -

3.5. Othe r decreas es - - -

4 . C lo s ing ba la nc e s 3 2 - -

F ina nc ia l lia b ilit ie s he ld fo r tra ding

F ina nc ia l lia b ilit ie s de s ig na te d a t fa ir

v a lueHe dg ing de riv a t iv e s

A.4.5.4 Assets and liabilities not measured at fair value or measured at fair value on a non-recurring basis: distribution by fair value level

BV Level 1 Level 2 Level 3 BV Level 1 Level 2 Level 3

1. Held-to-maturity investments 3,494,547 3,599,957 - - 3,576,951 3,607,673 - -

2. Loans and advances to banks 3,429,937 - 1,222,089 2,209,598 3,340,415 - 1,205,027 2,127,419

3. Loans and advances to customers 84,586,200 - 37,690,187 48,588,797 85,644,223 - 37,525,374 50,556,959

4. Tangible assets held for investment 171,270 - - 223,835 186,226 - - 242,320

5. Non-current assets and disposal groups held for sale 11,148 - - - 69,893 - - -

Total 91,693,102 3,599,957 38,912,276 51,022,230 92,817,708 3,607,673 38,730,401 52,926,698

1. Due to banks 10,454,303 - 24,123 10,377,626 13,292,723 - 13,945 13,838,738

2. Due to customers 55,264,471 - 1,565,999 53,698,673 51,616,920 - 965,765 50,667,896

3. Debt securities issued 36,247,928 15,426,790 21,295,682 78,172 41,590,349 16,277,423 26,050,714 153,675

4. Liabilities associated with assets held for sale - - - - - - - -

Total 101,966,702 15,426,790 22,885,804 64,154,471 106,499,992 16,277,423 27,030,424 64,660,309

Assets/liabil ities measured at fair value 31.12.201431.12.2015

278 Notes to the consolidated accounts

A.5 – INFORMATION ON “DAY ONE PROFIT/LOSS” The information relates to paragraph 28 of the IFRS which concerns 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 and loss on the basis of paragraph AG76 of IAS 39. Where this type of event occurs, indication must be given of the accounting policies adopted by the bank for recognition through profit or loss of the differences that arise in this manner subsequent to initial recognition of the instrument. The 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.

279 Notes to the consolidated accounts

PART B – Notes to the consolidated balance sheet ASSETS

SECTION 1 Cash and cash equivalents – Item 10 1.1 Cash and cash equivalents: composition

31.12.2015 31.12.2014

a) Cash in hand 530,098 598,062 b) Deposits with central banks - - Total 530,098 598,062

SECTION 2 Financial assets held for trading – Item 20 2.1 Financial assets held for trading: composition by type

Ite m s / A m o unts 3 1.12 .2 0 15 3 1.12 .2 0 14

L 1 L 2 L 3 L 1 L 2 L 3

A . On-ba la nc e s he e t a s s e ts

1. Debt ins truments 466,320 157 100 466,577 795,206 759 254 796,219

1.1 S truc tured ins truments 1,714 24 100 1,838 1 419 254 674

1.2 Othe r debt ins truments 464,606 133 - 464,739 795,205 340 - 795,545

2. Equity ins truments 4,614 - 2 4,616 4,544 - 447 4,991

3. Units in UCITS 275 - 581 856 241 1 600 842

4. Financ ing - - - - - - - -

4.1 Revers e repurchas e agreements - - - - - - - -

4.2 Othe r - - - - - - - -

Total A 4 7 1,2 0 9 15 7 6 8 3 4 7 2 ,0 4 9 7 9 9 ,9 9 1 7 6 0 1,3 0 1 8 0 2 ,0 5 2

B . D e riv a t iv e ins trum e nts

1. Financ ia l de riva tives 803 504,871 16,755 522,429 890 605,577 11,987 618,454

1.1 fo r trading 803 504,871 16,755 522,429 890 605,577 11,987 618,454

1.2 co nnec ted with fa ir va lue o ptio ns - - - - - - - -

1.3 o ther - - - - - - - -

2. Credit de riva tives - - - - - - - -

2.1 fo r trading - - - - - - - -

2.2 co nnected with fa ir va lue o ptio ns - - - - - - - -

2.3 o the r - - - - - - - -

Total B 8 0 3 5 0 4 ,8 7 1 16 ,7 5 5 5 2 2 ,4 2 9 8 9 0 6 0 5 ,5 7 7 11,9 8 7 6 18 ,4 5 4

Total (A+B) 4 7 2 ,0 12 5 0 5 ,0 2 8 17 ,4 3 8 9 9 4 ,4 7 8 8 0 0 ,8 8 1 6 0 6 ,3 3 7 13 ,2 8 8 1,4 2 0 ,5 0 6

3 1.12 .2 0 15 3 1.12 .2 0 14

The contraction in debt instruments (level 1), compared with the previous year is attributable mainly to sales of Italian government securities by the Parent. Item 3 “UCITS units” relates mainly to remaining investments in units of hedge funds. The financial derivatives (level two) relate mainly to OTC transactions connected with trading activity and were composed mainly of interest rate swaps.

280 Notes to the consolidated accounts

2.2 Financial assets held for trading: composition by debtors/issuers

31.12.2015 31.12.2014

A. ASSETS

1. Debt instruments 466,577 796,219

a) Governments and central banks 464,610 795,437

b) Other public authorities 1 1

c) Banks 4 7

d) Other issuers 1,962 774

2. Equity instruments 4,616 4,991

a) Banks 1 1

b) Other issuers: 4,615 4,990

- insurance companies - 2

- financial companies 609 596

- non financial companies 4,006 4,392

- other - -

3. Units in UCITS 856 842

4. Financing - -

a) Governments and central banks - -

b) Other public authorities - -

c) Banks - -

d) Other - -

Total A 472,049 802,052

B. DERIVATIVE INSTRUMENTS

a) Banks 150,590 165,778

- fair value 150,590 165,778

b) Customers 371,839 452,676

- fair value 371,839 452,676

Total B 522,429 618,454

Total (A+B) 994,478 1,420,506

SECTION 3 Financial assets designated at fair value – item 30 3.1 Financial assets designated at fair value: composition by type

Items/Amounts Total Total

L 1 L 2 L 3 L 1 L 2 L 3

1. Debt instruments - - - - - - - -

1.1 Structured instruments - - - - - - - -

1.2 Other debt instruments - - - - - - - -

2. Equity instruments 1,700 3,000 66,852 71,552 3,224 3,000 64,904 71,128

3. Units in UCITS 119,082 - 5,400 124,482 116,802 - 5,237 122,039

4. Financing - - - - - - - -

4.1 Structured - - - - - - - -

4.2 Other - - - - - - - -

Total 120,782 3,000 72,252 196,034 120,026 3,000 70,141 193,167

Cost 117,088 2,481 83,907 203,476 120,026 3,000 70,141 193,167

31.12.2015 31.12.2014

: 103000O|1 – NOTA Level one investments in units of UCITS consisted of shares in hedge funds managed by the company Tages Capital SGR. The amount stated within level three relates to the remaining value of further investments in hedge funds.

281 Notes to the consolidated accounts

3.2 Financial assets designated at fair value: composition by debtors/issuers

Items/Amounts 31.12.2015 31.12.2014

1. Debt instruments - -

a) Governments and central banks - -

b) Other public authorities - -

c) Banks - -

d) Other issuers - -

2. Equity instruments 71,552 71,128

a) Banks - -

b) Other issuers: 71,552 71,128

- insurance companies - -

- financial companies 23,982 24,049

- non financial companies 47,570 47,079

- other - -

3. Units in UCITS 124,482 122,039

4. Financing - -

a) Governments and central banks - -

b) Other public authorities - -

c) Banks - -

d) Other - -

Total 196,034 193,167

SECTION 4 Available-for-sale financial assets – Item 40 4.1 Available-for-sale financial assets: composition by type

Items/Amounts Total Total

L 1 L 2 L 3 L 1 L 2 L 3

1. Debt instruments 14,943,588 313,310 26,370 15,283,268 17,336,688 908,890 1,013 18,246,591

1.1 Structured instruments 168,669 313,310 26,356 508,335 75,316 641,276 1,000 717,592

1.2 Other debt instruments 14,774,919 - 14 14,774,933 17,261,372 267,614 13 17,528,999

2. Equity instruments 3,260 - 208,748 212,008 2,495 94 177,101 179,690

2.1 At fair value 3,260 - 165,442 168,702 2,495 94 103,472 106,061

2.2 At cost - - 43,306 43,306 - - 73,629 73,629

3. Units in UCITS 12,406 46,600 - 59,006 83,882 44,793 - 128,675

4. Financing - - - - - - - -

Total 14,959,254 359,910 235,118 15,554,282 17,423,065 953,777 178,114 18,554,956

31.12.2015 31.12.2014

“Structured debt instruments” (level one) include investments in bonds issued by major national and international banks, financial institutions and other companies. Level 2 contains investments in Italian banks and government securities amounting to €158.7 million and in Italian government securities amounting to €154.6 million. Level three contains bonds issued by Sorgenia Spa. “Other debt instruments” (level one) mainly include investments in bonds issued by the major national and international banks, financial institutions and other companies amounting to €505.9 million and Italian government securities amounting to €14.2 billion.

282 Notes to the consolidated accounts

4.2 Available-for-sale financial assets: composition by debtors/issuers Items/Amounts 31.12.2015 31.12.2014

1. Debt instruments 15,283,268 18,246,591

a) Governments and central banks 14,423,625 17,538,513

b) Other public authorities - -

c) Banks 262,488 464,564

d) Other issuers 597,155 243,514

2. Equity instruments 212,008 179,690

a) Banks 54,717 65,617

b) Other issuers: 157,291 114,073

- insurance companies 2,825 2,825

- financial companies 24,762 11,582

- non financial companies 129,139 99,101

- other 565 565

3. Units in UCITS 59,006 128,675

4. Financing - -

a) Governments and central banks - -

b) Other public authorities - -

c) Banks - -

d) Other - -

Total 15,554,282 18,554,956

|1 - NOTA 4.3 Available-for-sale financial assets: subject to specific hedging

Items/Components 31.12.2015 31.12.2014

1. Financial assets subject to fair value specific hedge 12,530,669 13,083,168

a) interest rate risk 12,530,669 13,083,168

b) price risk - -

c) currency risk - -

d) credit risk - -

e) multiple risks - - 2. Financial assets subject to cash flow specific hedge

a) interest rate risk - -

b) currency risk - -

c) other - -

Total 12,530,669 13,083,168

The assets subject to specific fair value hedges on interest rate risk consisted of debt instruments issued by the Italian government and by major Italian banks. Fair value changes in the instruments in question and the relative hedging contracts are recognised within item 90 of the income statement – “net hedging income”. SECTION 5 Held-to-maturity investments – Item 50 5.1 Held-to-maturity investments: composition by type

L 1 L 2 L 3 L 1 L 2 L 3

1. Debt instruments 3,494,547 3,599,957 - - 3,576,951 3,607,673 - -

1.1 Structured - - - - - - - -

1.2 Other debt instruments 3,494,547 3,599,957 3,576,951 3,607,673

2. Financing - - - - - - - -

Type of transaction / Group items

31.12.2015

Carrying AmountFair value

31.12.2014

Carrying Amount

Fair value

This item is composed of government securities acquired with a view to supporting net interest income.

283 Notes to the consolidated accounts

5.2. Held-to-maturity investments: debtors/issuers

Type of transaction/Amounts 31.12.2015 31.12.2014

1. Debt instruments 3,494,547 3,576,951

a) Governments and central banks 3,494,547 3,576,951

b) Other public authorities - -

c) Banks - -

d) Other issuers - -

2. Financing - -

a) Governments and central banks - -

b) Other public authorities - -

c) Banks - -

d) Other - -

Total 3,494,547 3,576,951

Total fair value 3,599,957 3,607,673

5.3 Held-to-maturity investments: subject to specific hedging No items of this type exist in the UBI Group. 5030O|1 - NOTA SECTION 6 Loans and advances to banks – Item 60 6.1 Loans and advances to banks: composition by type

Le v e l 1 Le v e l 2 Le v e l 3 Le v e l 1 Le v e l 2 Le v e l 3

A . Lo a ns to c e ntra l ba nks 3 9 5 ,4 4 9 - - 3 9 5 ,4 4 9 5 8 4 ,3 5 3 - - 5 8 2 ,17 1

1. Term depo s its - X X X - X X X

2. Co mpuls o ry res e rve requirement 394,226 X X X 582,171 X X X

3. Revers e repurchas e agreements - X X X - X X X

4. Other 1,223 X X X 2,182 X X X

B . Lo a ns to ba nks 3 ,0 3 4 ,4 8 8 - 1,2 2 2 ,0 8 9 1,8 14 ,14 9 2 ,7 5 6 ,0 6 2 - 1,2 0 5 ,0 2 7 1,5 4 5 ,2 4 8

1 Lo ans 3 ,0 3 4 ,4 8 8 - 1,2 2 2 ,0 8 9 1,8 14 ,14 9 2 ,7 5 6 ,0 6 2 - 1,2 0 5 ,0 2 7 1,5 4 5 ,2 4 8

1.1 Current acco unts and depo s its 1,733,046 X X X 1,853,551 X X X

1.2. Term depo s its 32,368 X X X 24,572 X X X

1.3. Other financ ing 1,269,074 X X X 877,939 X X X

- Revers e repurchas e agreements - X X X 4 X X X

- F inance leas es - X X X - X X X

- o ther 1,269,074 X X X 877,935 X X X

2. Debt ins truments - - - - - - - -

2.1 S truc tured s ecurities - X X X - X X X

2.2 Other debt ins truments - X X X - X X X

To ta l 3 ,4 2 9 ,9 3 7 1,2 2 2 ,0 8 9 2 ,2 0 9 ,5 9 8 3 ,3 4 0 ,4 15 1,2 0 5 ,0 2 7 2 ,12 7 ,4 19

Type o f tra ns a c t io n/ A m o unts

3 1.12 .2 0 14

B VF A IR VA LUE

3 1.12 .2 0 15

F A IR VA LUEB V

6.2 Loans and advances to banks: subject to specific hedging No items of this type exist in the UBI Group. 6.3 Finance leases No items of this type exist in the UBI Group.

284 Notes to the consolidated accounts

SECTION 7 Loans and advances to customers – Item 70 7.1 Loans and advances to customers: composition by type

Purchased Other Purchased Other

Financing 74,890,291 - 9,688,549 37,690,187 48,581,737 76,128,422 - 9,508,105 37,525,374 50,549,625

1. Current account overdrafts 7,576,054 - 1,476,281 X X X 8,524,418 - 1,558,164 X X X

2. Reverse repurchase agreements 770,503 - - X X X 540,882 - - X X X

3. Mortgages 47,095,047 - 5,360,803 X X X 46,975,676 - 4,885,165 X X X

4. Credit cards, personal loans and salary-backed loans 2,730,501 - 284,904 X X X 3,198,279 - 388,444 X X X

5. Finance leases 5,064,810 - 1,239,777 X X X 5,497,319 - 1,408,470 X X X

6. Factoring 1,959,603 - 300,867 X X X 1,778,812 - 306,944 X X X

7. Other financing 9,693,773 - 1,025,917 X X X 9,613,036 - 960,918 X X X

Debt instruments 7,360 - - 7,060 7,696 - - 7,334

8. Structured securities 3 - - X X X 3 - - X X X

9. Other debt instruments 7,357 - - X X X 7,693 - - X X X

Total 74,897,651 - 9,688,549 - 37,690,187 48,588,797 76,136,118 - 9,508,105 - 37,525,374 50,556,959

31.12.2014

Fair valueFair value

L1

Type of transaction/Amounts

31.12.2015

Non-performing (previously termed "deteriorated")Performing

Carrying amount

L1L3

Non-performing (previously termed "deteriorated")

Carrying amount

L2 L3PerformingL2

Reverse repurchase agreements were performed with Cassa di Compensazione e Garanzia Spa (a central counterparty clearing house) as part of liquidity management. Other financing included guarantee transactions with the Cassa di Compensazione e Garanzia Spa (€463.8 million) and financing to the National Resolution Guarantee Fund (€470 million). 7.2 Loans and advances to customers: composition by debtors/issuers

Purchased Other Purchased Other

1. Debt instruments 7,360 - - 7,696 - -

a) Governments - - - - - -

b) Other public authorities 6,104 - - 6,433 - -

c) Other issuers 1,256 - - 1,263 - -

- non financial companies 1,256 - - 1,263 - -

- f inancial companies - - - - - -

- insurance companies - - - - - -

- other - - - - - -

2. Financing to 74,890,291 - 9,688,549 76,128,422 - 9,508,105

a) Governments 135,447 - - 184,100 - -

b) Other public authorities 499,417 - 38,068 659,765 - 43,986

c) Other 74,255,427 - 9,650,481 75,284,557 - 9,464,119

- non financial companies 40,400,284 - 6,985,268 41,059,573 - 7,048,034

- f inancial companies 4,471,195 - 143,693 3,693,710 - 132,230

- insurance companies 131,930 - 82 131,424 - 225

- other 29,252,018 - 2,521,438 30,399,850 - 2,283,630

Total 74,897,651 - 9,688,549 76,136,118 - 9,508,105

31.12.2015 31.12.2014

Type of transaction/AmountsPerforming

Non-performing (previously termed "deteriorated") Performing

Non-performing (previously termed "deteriorated")

7.3 Loans and advances to customers: assets subject to specific hedging

Type of transaction/Amounts 31.12.2015 31.12.2014

1. Loans subject to fair value specif ic hedge:

a) interest rate risk 28,264 75,965

c) currency risk - -

d) credit risk - -

e) multiple risks - -

2. Loans subject to cash flow specifi c hedge:

a) interest rate risk - -

b) currency risk - -

c) other - -

Total 28,264 75,965

285 Notes to the consolidated accounts

7.4 Finance leases

of which secured

remaining amount

of which unsecured remaining

amounton demand 44,274 77,073 18,326 - 77,229 -

up to 3 months 172,389 109,809 7,012 32,454 143,695 -

between 3 months and 1 year 598,321 440,130 34,486 136,090 581,648 -

between 1 year and 5 years 378,602 1,800,528 96,996 537,478 2,361,205 -

more than 5 years 40,518 2,633,501 663,144 424,704 3,088,937 -

indeterminate maturity 5,673 3,769 - - 3,769 -

total 1,239,777 5,064,810 819,964 1,130,726 6,256,483 -

1,239,777 5,064,810

- -

Duration

non-performing exposures

(prev io us ly te rm ed "de te rio rated expo s ures ")

minimum paymentsgross investment

capital portion

interest portion

Net loans to customers for finance leases, net of intercompany eliminations, totalled €6,304,587 thousand of which €1,239,777 thousand were non-performing (previously termed “deteriorated”) assets.

The lending portfolio for the finance leases of UBI leasing consisted of 35,454 contracts, composed, by remaining debt, as follows: - 79% property sector; - 9% machinery and equipment sector; - 8% energy sector; - 2% auto sector; - 2 % nautical sector. The ten most significant exposures had a total remaining value of €278,247 thousand.

A negative balance for potential lease instalments (relating to the index value of the instalments) was recognised during the year amounting to €89,858 thousand.

SECTION 8 Hedging derivatives – Item 80 8.1 Hedging derivatives: composition by type of hedge and hierarchical level

L 1 L 2 L 3 L 1 L 2 L 3

A) Financial derivatives - 594,322 363 20,265,752 - 649,250 - 23,580,071

1) Fair value - 593,014 - 20,166,974 - 649,127 - 23,560,341

2) Cash flow - 1,308 363 98,778 - 123 - 19,730

3) Foreign investments - - - - - - - -

B) Credit derivatives - - - - - - - -

1) Fair value - - - - - - - -

2) Cash flow - - - - - - - -

Total - 594,322 363 20,265,752 - 649,250 - 23,580,071

FV 31.12.2015NA

FAIR VALUE 31.12.2014NA

Key FV = fair value NA = notional amount Financial derivatives consist exclusively of interest rate hedges of the interest rate swap type on the bonds issued. The fair value movement is recognised in item 90 of the income statement – Net profit hedging income (loss).

286 Notes to the consolidated accounts

8.2 Hedging Derivatives: composition by portfolios hedged and type of hedge

Fair Value

Specific Macro-hedge Specific Macro-hedge

Interest rate risk

Currency risk

Credit risk Price riskMultiple

risks

1. Available-for-sale financial assets

7,572 - - - - X - X X

2. Loans - - - X - X 363 X X

3. Held-to-maturity investments

X - - X - X - X X

4. Portfolio X X X X X - X - X

5. Other transactions - - - - - X - X -

Total assets 7,572 - - - - - 363 - -

1. Financial liabilities 585,442 - - X - X 1,308 X X

2. Portfolio X X X X X - X - X

Total liabilities 585,442 - - - - - 1,308 - -

1. Expected transactions X X X X X X - X X

2. Portfolio of financial assets and liabilities

X X X X X - X - -

Transactions /Type of hedging

Cash flow

Foreign investments

SECTION 9 Fair value change in hedged financial assets – Item 90 9.1 Fair value change in hedged assets: composition by portfolios hedged

Fair value change in hedged assets/Group components 31.12.2015 31.12.2014

1. Positive changes

1.1 of specific portfolios: 59,994 64,124

a) loans and receivables 59,994 64,124

b) available-for-sale f inancial assets - -

1.2 general - -

2. Negative changes

2.1 of specific portfolios - -

a) loans and receivables - -

b) available-for-sale f inancial assets - -

2.2 general - -

Total 59,994 64,124

09000O|1 - NOTA 9.2 Assets subject to interest rate risk macro hedge

Hedged assets 31.12.2015 31.12.2014

1. Loans 1,527,454 1,692,322

2. Available-for-sale assets - -

3. Portfolio - -

Total 1,527,454 1,692,322

Total assets subject to fair value macro hedges on interest rate risk consisted of loans, the change in value of which together with that of the relative hedging contracts, is recognised within item 90 of the income statement – “net hedging income”.

287 Notes to the consolidated accounts

SECTION 10 Equity investments – Item 100 10.1 Equity investments: information on investments

Investing company

% held

1. Lombarda Vita Spa Brescia Verona significant influence UBI Banca Spa 40.000% 40.000%

2. Aviva Vita Spa Milan Milan significant influence UBI Banca Spa 20.000% 20.000%

3. Aviva Assicurazioni Vita Spa Milan Milan significant influence UBI Banca Spa 20.000% 20.000%

4. Zhong Ou Fund Management Co. Shenzen (China) Shenzen (China) significant influence UBI Banca Spa 35.000% 35.000%

5. Polis Fondi SGR Spa Milan Milan significant influence UBI Banca Spa 19.600% 19.600%

6. SF Consulting Srl Bergamo Mantua significant influence UBI Banca Spa 35.000% 35.000%

7. UFI Servizi Srl Rome Rome significant influence Prestitalia Spa 23.167% 23.167%

% of votes

B. Companies subject to considerable influence

Name Registered address Operating headquarters Type of ownership

Details of investment

As at 31st December 2015 the item equity investments included solely investments recognised using the equity method.

10.2 Significant investments: book value, fair value and dividends received

Name Carrying amount Fair value (*)Dividends received

B. Companies subject to considerable influence

1. Lombarda Vita Spa 154,997 8,598

2. Aviva Vita Spa 55,897 -

3. Aviva Assicurazioni Vita Spa 23,942 1,960

TOTAL 234,836 - 10,558 (*) The fair value of the equity investments is not given in the table because they are companies that are not listed.

The larger equity investments, for which the carrying amount includes goodwill arising on consolidation, were tested for impairment, using the average of the multiples of a sample of comparable companies.

The market value for the insurance companies Aviva Assicurazioni Vita Spa, Aviva Vita Spa and Lombarda Vita Spa was calculated on the basis of a sample of companies quoted on active European stock markets considering the price/book value (P/BV) multiple adjusted for non-controlling interests and for intangible assets. The source for the amounts used was Bloomberg. The value (pro rata) was compared with the carrying amount of the equity investments in the consolidated financial statements.

- Aviva Vita Assicurazioni Spa: the equity attributable to the Shareholders’ of the Parent, amounting to €23.9 million, inclusive of profit for 2015 and also of a positive consolidation difference amounting to €1.04 million;

- Aviva Vita Spa: the equity attributable to the Shareholders’ of the Parent, amounting to €55.9 million, inclusive of profit for 2015;

- Lombarda Vita Spa: the equity attributable to the Shareholders’ of the Parent, amounting to €155.0 million, inclusive of the result for 2015 and also of a positive consolidation difference amounting to €29.4 million.

Testing of the amounts recognised for the equity investments in the consolidated financial statements against the “pro rata” fair value found no evidence of impairment losses as at 31st December 2015.

For further details “Part A. Accounting policies – Section 3 – Consolidation scope and methods” of this report may be consulted.

288 Notes to the consolidated accounts

10.3 Significant investments: accounting information

Name

Cas

h a

nd c

ash e

quiv

alents

Fin

anci

al a

ssets

Non-fin

anci

al a

ssets

Fin

anci

al lia

bilitie

s

Non-fin

anci

al lia

bilitie

s

Tota

l re

ven

ues

Net

inte

rest

inco

me

Impai

rmen

t lo

sses

and

rever

sals

on p

ropert

y, pla

nt

and e

quip

men

t and

inta

ngi

ble

ass

ets

Pro

fit (L

oss

) on c

ontinuin

g

oper

atio

ns

befo

re tax

Post

tax p

rofit (loss

) fr

om

continuin

g opera

tions

Post

-tax

pro

fit (loss

) fr

om

dis

conti

nued

oper

ations

Profit (loss) for the year

(1)

Other comprehens-ive income net of taxes

(2)

Comprehens-ive income (3)

= (1) + (2)

B. Companies subject to considerable influence

1. Lombarda Vita Spa (*) X 6,465,045 348,547 6,277,475 222,039 1,604,077 X X 45,158 29,854 - 29,854 (8,429) 21,425

2. Aviva Vita Spa (*) X 7,056,200 176,800 6,618,700 335,500 1,659,200 X X 30,800 15,500 - 15,500 - 15,500

3. Aviva Assicurazioni Vita Spa (*) X 2,652,900 84,500 2,309,000 313,900 435,200 X X 14,700 10,400 - 10,400 - 10,400

(*) Profit (loss) for the year as in the reporting package prepared by the companies invested in for the preparation of the consolidated financial statements and subject to audit

289 Notes to the consolidated accounts

10.4 Non-significant investments: accounting information

Name

Carrying amount of the

equity investments

Total assets

Total liabilities

Total revenues

Post tax profit (loss) from continuing

operations

Post-tax profit (loss)

from discontinued operations

Profit (loss) for the year

(1)

Other comprehens-ive income net of taxes

(2)

Comprehens-ive income (3)

= (1) + (2)

Companies subject to joint control - - - - - - - - -

Companies subject to considerable influence 25,976 285,681 172,712 268,488 64,794 - 64,794 - 64,794

The accounting information relates to the following investments:

Zhong Ou Fund Management Co.; Polis Fondi Sgrpa; UFI Servizi Srl; SF Consulting Srl.

10.5 Annual changes in equity investments

A Opening balances 246,250 411,886

B Increases 35,773 40,615 B.1 Purchases - -

B.2 Reversals of impairment losses - -

B.3 Revaluations - -

B.4 Other changes 35,773 40,615

C Decreases (21,211) (206,251) C.1 Sales - (173,429)

C.2 Impairment losses - -

C.3 Other changes (21,211) (32,822)

D Final balances 260,812 246,250

E Total revaluations - -

F Total impairment losses - -

31.12.2015 31.12.2014

The amount recognised on line B.4 “Other changes” consists mainly of the following:

- an amount of €1,147 thousand due to exchange rate differences;

- profits for the year totalling €34,605 thousand. In detail these included: Zhong Ou Fund Management Co. €17,265 thousand Lombarda Vita S.p.A. €11,941 thousand Aviva Vita S.p.A. €3,100 thousand Aviva Assicurazioni Vita S.p.A. €2,080 thousand

The amount recognised on line C.3 “Other changes” consists mainly of the following:

- dividends of €8,598 thousand received from Lombarda Vita Spa and of €1,960 thousand from Aviva Vita Assicurazioni Spa;

- changes in reserves due mainly to Lombarda Vita amounting to €3,372 thousand and to Zhong Ou Fund Management Co. amounting to €7,133 thousand.

Further details are given in section “The consolidation scope” of the consolidated management report.

290 Notes to the consolidated accounts

10.6 Significant assessments and assumptions to establish the existence of joint control or significant influence Part A, Section 6 of these notes to the financial statements may be consulted for further information. 10.7 Commitments relating to equity investments in companies subject to joint control

Commitments relating to the possible exercise of options

Nothing to report.

Commitments connected with the possible payment of further tranches of a price

Nothing to report.

10.8 Commitments relating to equity investments in companies subject to significant influence Commitments relating to the possible exercise of options

Lombarda Vita Spa: as part of the renewal of life banc assurance agreements with the Cattolica Assicurazioni Group concluded on 30th September 2010, the options on the respective investments in the Lombarda Vita joint venture were reformulated with purchase options only, exercisable on the basis of the occurrence of predetermined conditions. Aviva Vita Spa and Aviva Assicurazioni Vita Spa: as part of the definition of the new partnership agreements between the Aviva Group and the UBI in the life insurance distribution sector concluded on 22nd December 2014, purchase options were agreed on the respective stakes held in the two life insurance companies, exercisable on the basis of the occurrence of predetermined conditions. Zhong Ou Asset Management Company (formerly Lombarda China Fund Management Company): a partnership agreement entered into as part of asset management business focused on the Chinese market signed between UBI Banca and the current shareholders, which involves a series of call options which can be exercised if determined trigger events occur concerning the respective investment held in Zhong Ou Fund Asset Management Company. In June UBI Banca reclassified one third of the stake held in this Chinese registered fund management company (accounting for approximately 11.7% of the total share capital) within non-current assets held for sale according to IFRS 5, on the basis of agreements entered into between the shareholders and the management of the company.

Recapitalisation commitments Nothing to report.

10.9 Significant restrictions Nothing to report. 10.10 Other information Nothing to report.

291 Notes to the consolidated accounts

SECTION 11 Technical reserves of reinsurers – Item 110 No items of this type exist. SECTION 12 Property, plant and equipment – Item 120 12.1 Property, plant and equipment for functional use: composition of assets valued

at cost

Assets/amounts 31.12.2015 31.12.2014

1. Ow ned assets 1,542,441 1,511,513 a) land 835,289 784,772 b) buildings 609,227 620,639 c) furnishings 27,459 29,207 d) electronic equipment 31,851 34,431 e) other 38,615 42,464

2. Assets acquired through finance leases 30,752 31,368 a) land 16,546 16,559 b) buildings 14,206 14,809

c) furnishings - -

d) electronic equipment - -

e) other - -

Total 1,573,193 1,542,881

12.2 Tangible assets held for investment: composition of assets valued at cost

Assets/amounts

L1 L2 L3 L1 L2 L31. Ow ned assets 171,070 - - 223,635 185,930 - - 241,895

- land 110,546 - - 128,435 113,771 - - 135,042 - buildings 60,524 - - 95,200 72,159 - - 106,853

2. Assets acquired through finance leases 200 - - 200 296 - - 425 a) land 33 - - 30 47 - - 56 b) buildings 167 - - 170 249 - - 369

Total 171,270 223,835 186,226 242,320

31.12.2015

Carrying amount

Fair Value

31.12.2014

Carrying amount

Fair Value

12.3 Property, plant and equipment for functional use: composition of assets revalued No property, plant and equipment for functional use revalued are held. 12.4 Tangible assets held for investment: composition of assets measured at fair

value No tangible assets held for investment recognised at fair value are held.

292 Notes to the consolidated accounts

12.5 Property, plant and equipment for functional use: annual changes

Land Buildings FurnishingsElectronic equipment

Other Total

A. Gross opening balances 830,678 1,245,653 183,688 397,064 349,127 3,006,210 A.1 Total net reductions in value (29,347) (610,205) (154,481) (362,633) (306,663) (1,463,329)

A.2 Net opening balances 801,331 635,448 29,207 34,431 42,464 1,542,881 B. Increases 85,913 62,279 3,722 13,132 15,626 180,672 B.1 Purchases 3,286 4,538 3,547 13,087 13,351 37,809 B.2 Capitalised improvement expenses - 1,600 - - - 1,600 B.3 Reversal of impairment losses - - - - - - B.4 Positive changes in fair value recognised in: - - - - - -

a) equity - - - - - - b) income statement - - - - - -

B.5 Positive exchange rate differences - - - - - -

B.6 Transfers from properties held for investment 2,398 7,519 - - - 9,917 B.7 Other changes 80,229 48,622 175 45 2,275 131,346

C. Decreases (35,409) (74,294) (5,470) (15,712) (19,475) (150,360) C.1 Sales (246) (264) (1) (31) (83) (625) C.2 Depreciation - (40,765) (5,249) (15,597) (17,070) (78,681) C.3 Impairment losses recognised in: - - - - - -

a) equity - - - - - - b) income statement - - - - - -

C.4 Negative changes in fair value recognised in: (1,321) (2,679) - - - (4,000) a) equity - - - - - - b) income statement (1,321) (2,679) - - - (4,000)

C.5 Negative exchange rate differences - - - - - - C.6 Transfers to: (549) (373) - - (148) (1,070)

a) tangible assets held for investment (62) (145) - - - (207) b) assets held for sale (487) (228) - - (148) (863)

C.7 Other changes (33,293) (30,213) (220) (84) (2,174) (65,984)

D. Final net balances 851,835 623,433 27,459 31,851 38,615 1,573,193 D.1 Total net reductions in value (29,221) (679,991) (158,309) (430,502) (320,881) (1,618,904)

D.2 Final gross balances 881,056 1,303,424 185,768 462,353 359,496 3,192,097 E. Value at cost - - - - - -

12.6 Tangible assets held for investment: annual changes

Total

Land Buildings A. Opening balances 113,818 72,408 B. Increases 172 603 B.1 Purchases 8 53 B.2 Capitalised improvement expenses - 366 B.3 Positive changes in fair value - - B.4 Reversals of impairment losses - - B.5 Positive exchange rate differences - - B.6 Transfers from properties used in operations 62 145 B.7 Other changes 102 39 C. Decreases (3,411) (12,320) C.1 Sales (322) (93 ) C.2 Depreciation - (4,366) C.3 Negative changes in fair value - - C.4 Impairment losses (681) (317) C.5 Negative exchange rate differences - - C.6 Transfers to other asset portfolios (2,398) (7,519) a) properties for functional use (2,398) (7,519) b) non-current assets held for disposal - - C.7 Other changes (10) (25 ) D. Final balances 110,579 60,691 E. Fair value 128,465 95,370

Since land and buildings are recognised at cost, the Group arranged for expert external appraisers to estimate the fair value of all property assets for the purposes of the annual impairment test on the carrying amounts. The estimate was based on generally accepted valuation principles, by applying the following measurement criteria: the direct comparative or market method, based on a comparison between the asset in

question and other similar assets subject to sale or currently on sale on the same market or competing markets;

293 Notes to the consolidated accounts

the income method, based on the present value of potential market incomes for a property, obtained by capitalising the income at a market rate.

The above methods were performed individually and the values obtained or each one were appropriately averaged. The results of the appraisal method described resulted in a write-down of property positions amounting to approximately €3.3 million. 12.7 Commitments for the purchase of property, plant and equipment

Assets/amounts 31.12.2015 31.12.2014

A. Assets for functional use

1.1 owned 5,656 4,632

- land - -

- buildings - -

- furnishings - 143

- electronic equipment 5,656 4,489

- other - -

1.2 Finance lease - -

- land - -

- buildings - -

- furnishings - -

- electronic equipment - -

- other - -

Total A 5,656 4,632 B. Assets held for investment

2.1 owned - -

- land - -

- buildings - -

2.2 Finance lease - -

- land - -

- buildings - -

Total B - -

Total (A+B) 5,656 4,632

294 Notes to the consolidated accounts

SECTION 13 Intangble assets – Item 130 13.1 Intangible assets: composition by type of asset

Assets/amounts 31.12.2015 31.12.2014

Fin

ite

use

ful

life

Indef

inite

use

ful

life

Fin

ite

use

ful

life

Indef

inite

use

ful

life

A.1 Goodw ill X 1,465,260 X 1,465,260

A.2 Other intangible assets 292,171 37 311,628 37 A.2.1 Assets measured at cost: 292,171 37 311,628 37

a) Internally generated intangible assets - - 47 -

b) Other assets 292,171 37 311,581 37

A.2.2 Assets at fair value: - - - -

a) Internally generated intangible assets - - - -

b) Other assets - - - -

Total 292,171 1,465,297 311,628 1,465,297

Details of the item “Goodwill” are given below.

Figures in thousands of euro 31.12.2015 31.12.2014 changes

Banco di Brescia Spa 570,392 570,392 -

Banca Popolare di Ancona Spa 166,364 166,364 -

Banca Popolare Commercio e Industria Spa 209,258 209,258 -

Banca Regionale Europea Spa 106,557 106,557 -

UBI Pramerica SGR Spa 170,284 170,284 -

Banca Popolare di Bergamo Spa 100,045 100,045 -

IW Bank Spa (*) 88,754 88,754 -

Banca di Valle Camonica Spa 43,224 43,224 -

UBI Factor Spa 8,260 8,260 -

UBI Sistemi e Servizi SCpA 2,122 2,122 -

TOTAL 1,465,260 1,465,260 -

(*) This bank was formed from the merger of IW Bank into UBI Banca Private Investment SpA

The goodwill recognised in the consolidated financial statements of the UBI Banca Group (“goodwill arising on consolidation” resulting from the elimination of the equity investments in subsidiaries) is the result of all the goodwill items relating to some of the companies controlled by UBI Banca. The Group performed no purchase and/or sales transactions of shareholdings during the year which led to a change in the scope of consolidation for subsidiaries. IFRS 10 states that any changes in stakes held subsequent to the acquisition of control which do not determine loss of control are considered transactions between owners and as a consequence the relative impacts must be recognised as an increase or decrease in equity. In this respect, only changes in the consolidation scope which have resulted in the acquisition or loss of control determine the appearance or disappearance of goodwill. In compliance with IAS 36, an impairment test is performed at the end of each year (or more frequently if an analysis of internal or external circumstances should give rise to doubts that the value of the assets can be recovered).

295 Notes to the consolidated accounts

The result of the impairment test as at 31st December 2015 did not find any need to proceed to recognition of impairment losses on the item goodwill. “Other finite useful life intangible assets” amounting to €292,171 thousand were comprised mainly of the following: “brands” totalling €65,368 thousand. This amount relates to the value of the brands of

the banks in the former Banca Lombarda Group subject to amortisation since 2010 (residual life of 19 years). The amortisation for the year amounted to €5,028 thousand down on the previous year following the recognition of amortisation of €7,414 thousand.

“asset management business” consisting both of the actual management and the relative distribution activities totalled €46,211 thousand. These assets are amortised over the useful remaining life of the customer relationships. Amortisation for the year came to €3,821 thousand (€4,135 thousand for the year ended 31st December 2014).

“assets under custody” business totalled €37,146 thousand with total amortisation of €2,542 thousand (€2,933 thousand as at 31st December 2014).

the remaining balance consists almost exclusively of software, allocated mainly to UBISS spa, the UBI Group service company.

All the specific intangible assets of the UBI Banca Group (brands, core deposits, intangible assets connected with assets under management and under custody) have a finite useful life. Therefore in accordance with IAS 38 there is no obligation to subject those assets to impairment tests on an annual basis, but only each time evidence appears of impairment that is greater than the amortisation. Intangible assets associated with assets under management and assets under custody were not tested for impairment because no changes were recorded in the relative assets which determine the value of the intangible assets associated with them (within the perimeter of the PPA) by an amount greater than the annual amortisation rate and no changes occurred in terms of the profitability of those assets. With regard to the brand name, in the absence of any significant change in the overall value of the UBI brand name provided by independent experts, and on which the previous measurements used for impairment testing of the brand were based, it is considered that no grounds exist to trigger an impairment test.

296 Notes to the consolidated accounts

13.2 Annual changes in intangible assets

Other intangible assets: internally generated

Other intangible assets: otherBalances as at

Goodwill Finite useful lifeIndefinite useful

lifeFinite useful life

Indefinite useful life

31.12.2015

A Opening gross balances 2,780,406 47 - 1,432,082 37 4,212,572A.1 Total net reductions in value ( 1,315,146) - ( 1,120,501) ( 2,435,647)

A.2 Net opening balances 1,465,260 47 - 311,581 37 1,776,925B. Increases - - - 47,986 - 47,986B.1 Purchases - - - 47,986 - 47,986

B.2 Increases in intangible internal assets X - - - - -

B.3 Reversal of impairment losses X - - - - -B.4 Positive changes in fair value - - - - -

- in equity X - - - - -

- in the income statement X - - - - -B.5 Positive exchange rate differences - - - - - -

B.6 Other changes - - - - - -

C. Decreases - ( 47) - ( 67,396) - ( 67,443)C.1 Sales - - - ( 835) - ( 835)

C.2 Impairment losses - ( 47) - ( 66,476) - ( 66,523)- Amortisation and depreciation X ( 47) - ( 66,476) - ( 66,523)

- Impairment losses - - - - - -

+ equity X - - - - -+ income statement - - - - - -

C.3 Negative changes in fair value - - - - -

- in equity X - - - - -- in the income statement X - - - -

C.4 Transfers to non-current assets held for sale. - - - - - -

C.5 Negative exchange rate differences - - - - - -C.6 Other changes - - - ( 85) - ( 85)

D. Final net balances 1,465,260 - - 292,171 37 1,757,468D.1 Total net impairment losses ( 1,315,146) - ( 1,161,741) ( 2,476,887)

E. Final gross balances 2,780,406 - - 1,453,912 37 4,234,355F. Value at cost - - - - - -

13.3 Other information Software

The useful life of software considered for the purposes of amortisation is five years. The figure for contracted commitments to purchase intangible assets amounted to €19,360 thousand for the acquisition of software. Impairment tests on goodwill The goodwill recognised in the consolidated balance sheet of UBI Banca is the result of all the goodwill items and all the positive consolidation differences relating to some of the subsidiaries controlled by UBI Banca, net of prior year impairment losses. In order to test goodwill for impairment, the criterion followed in allocating it considers the minimum level at which it is monitored for the purposes of internal management control, which coincides with the legal entities of the Group. As concerns the goodwill that arose from the merger between the BPU and Banca Lombarda e Piemontese groups, the allocation for the purposes of impairment testing followed the same logic as that employed for the purchase price allocation. In detail, the goodwill attributable to synergies from which the companies in the former acquiring group (BPU Group) benefit was allocated to the individual units of the acquiring group, while the goodwill arising from the difference between the fair value of the former equity investments of the Banca Lombarda e Piemontese and their equity adjusted for the fair value of loans, properties and bonds was allocated to the single cash generating units (CGUs). The goodwill of all the CGUs was tested for impairment along the same lines as in previous years. For CGUs that are not wholly owned, for impairment purposes goodwill was restated on a notional basis including the goodwill attributable to non-controlling interests (not recognised in the consolidated financial statements) by means of “grossing up” (i.e. goodwill attributable to the Parent/percentage ownership attributable to the Parent) in consideration, amongst other things, of example seven in IAS 36. The value measurement used to calculate the recoverable amount of the business units to which goodwill was allocated was that of their value in use. The fair value less cost to sell was not estimated for all the CGUs except for IW Bank, UBI Pramerica and UBI International, because there were

297 Notes to the consolidated accounts

no transactions for comparable companies in the latest period. In the case of IW Bank and UBI Pramerica, the fair value less costs to sell was obtained from multiples of comparable companies. In the case of UBI International, on the basis of a prudent appraisal of the value of the assets it holds. The value in use was estimated on the basis of the financial criterion and the book value of the CGUs was determined on the basis of the criterion used to estimate the recoverable amount. The notional carrying amount of each CGU to which goodwill was allocated corresponded to the sum of the following: 1) the equity plus the profit of the legal entity, inclusive of goodwill, net of i) dividends currently being paid, calculated on the profit earned in 2015 and ii) the carrying amounts of the equity investments; 2) adjustments to the purchase price allocation (PPA), inclusive of the revaluation of properties, loans and receivables and obligations and intangible assets identified in the PPA; 3) any consolidation differences there may be, “grossed up” on a notional basis. The objective of the impairment test was to verify that the carrying amount was not greater than the higher of the value in use and the fair value after sales costs (where calculated). The impairment test, for which the procedure was defined prior to the approval of the financial statements, was carried out with methodological support from an external appraiser of high standing and with account taken of the following factors: (i) reasonable and consistent assumptions, which represent the best estimate that can be made by management of the possible economic conditions that may manifest over the useful life of the asset in question; (ii) the cash flows for the various CGUs used for the purpose of the measurements were based on the 2016 budget and on 2017 – 2020 projections based in turn on best management estimates and they are grounded on the current market context. The budget and the projections were drawn up with account taken of differences between preliminary and budgeted 2015 figures and the causes of those differences. With regard to the network banks, to which more than 82% of the total goodwill is allocated, we report the following:

a) the estimate of short-term interbank interest rates (one-month Euribor rate) is consistent with the forward market interest rates. More specifically the one-month Euribor remains below 5 basis points until 2018 when it then reaches higher levels, but still below 100 basis points in 2020. The magnitude of the rise in rates will ensure a progressive return to normality for markups and markdowns, although still below historical levels observed before the crisis;

b) projections for lending show a scenario of moderate growth (an average annual growth rate for the period 2015 – 2020 of 2.7%) partly in relation to recent action taken by the supervisory authority. The projections for growth in direct funding are flat (+1.3%). The assumptions made lead to growth in net operating income at an average compound rate of 3.7%, as a result of a forecast rise in interest rates and fee and commission income;

c) the trend for operating expenses incorporates recent corporate ownership action designed to contain them. Expenses will rise in the explicit forecast period in line with the future inflation rate (below 1%, at 0.6%);

d) the cost of risk (net impairment losses on loans/loans to customers) is forecast to fall by 2020 compared with the figures for 2015, although it will still be higher than the levels observed historically before the crisis.

(iii) for the purposes of estimating the value in use, the “equity approach” version of the discounted cash flow (DCF) criterion was used, which calculates the value of each CGU on the basis of the sum of 1) the present value of the cash flows forecast for the period covered by the projections (2016 – 2020) calculated at a rate related to the risk of those cash flows (the opportunity cost of capital) and 2) the present value of the cash flows that can be generated beyond the explicit forecast period (which defines the terminal value), obtained by capitalising the cash flows that can be generated beyond the explicit forecast period (from 2020) at a rate equal to the difference between the opportunity cost of capital and the growth in the expected growth rate for the cash flows in the long-term. For the network banks the cash flows that can be generated beyond the explicit forecast period are based on

298 Notes to the consolidated accounts

the cash flows for the last year (2020) adjusted: (a) upwards to take account of a complete change in the composition of the loan portfolio at remunerative conditions in line with those forecast for the explicit forecast period; (b) downwards to consider the lost income in the years following 2020 until loans subject to interest rates lower than current market rates are fully repaid. Cash flows were calculated on the basis of minimum regulatory capital (Common Equity Tier 1) in line with the requirement at Group regulatory level in terms of the Common Equity Tier 1 capital ratio following the “Supervisory Review and Evaluation Process” (SREP; the UBI Group disclosed the minimum requirement to financial markets on 27th November 2015). The ratio of 9.25% was down compared with the requirement set by the regulator last year of 9.50% (used for the purposes of impairment tests as at 31.12.2014). The discounted cash flow criterion was applied after:

a) verifying the nature of the differences between the 2015 budget figures and the preliminary figures;

b) verifying the projections by comparing them with inputs from external sources (consensus macroeconomic forecasts, consensus forecasts made by equity analysts), with emphasis placed on inputs from external sources referred to for impairment testing purposes in IAS 36 (section 33 letter a);

c) verifying the consistency between the implied risk in discount rates and the implementation risk of the plan;

d) growth rate assumptions for all CGUs considered, up to 1.3%.

iv) the discount rates, defined as the opportunity cost of capital (cost of equity – COE), were estimated in compliance with the provisions of IAS 36 and the “Guidelines for impairment tests on goodwill in contexts of financial and real crisis” issued by the Organismo Italiano di Valutazione (OIV – Italian Valuation Body) on the basis of a capital asset pricing model, according to the following formula:

cost of equity = Risk Free + Beta x Equity Risk Premium

The opportunity cost of capital is therefore equal to the sum of the risk free rate and a risk premium corresponding to the product of the beta of the share and the overall market risk premium (equity risk premium).

a) the specific yield to maturity of the interbank rate for each year of the forecast was assumed as the risk free rate, in accordance with paragraph A21 of IAS 36, plus a spread between the corresponding yield to maturity of the benchmarks on Italian government securities and the same interbank interest rate. The risk free rate used to estimate the cost of equity is consistent with future interest rates forecast by management and assumed for the estimate of future cash flows used in the measurement. The risk free rate assumed in the terminal value is 1.53% (i.e. the sum of an interbank rate of 0.94% and a spread of 0.53% corresponding to the average spread observed in December between the FacteSet source ten-year benchmark on Italian government securities and the corresponding ten-year benchmark on interbank interest rates) which is prudentially higher than the estimated risk free rates assumed by management for the purposes of long-term forecasts of net interest income;

b) an equity risk premium of 5.5% was considered in line with the consensus reported by equity analysts and consistent with the risk-free rate of 1.53% assumed. This equity risk premium of 5.5% compares with a figure of 5% used a year earlier and has therefore increased. The increase is to be interpreted in terms of the reduction in the risk free rate that occurred between 31.12.2014 and 31.12.2015, down from 2.0% last year to 1.53%.

c) for the network banks and for the Group as a whole (second level impairment test), the beta was estimated at 1.34x and is based on historical returns on the share over five years and the FTSE Italia All Share market index. The beta estimate based on historical returns on the share over five years is:

299 Notes to the consolidated accounts

- lower than that calculated on the basis of more recent volatilities implicit in options taken out on the UBI share and on the Ftse MIB Italia index at 1.13x; - lower than the beta estimate calculated on daily one-year historical returns on the share and the market index, adjusted for the effects of auto cross-correlation between the share and the market index (one year beta estimate = 1.24x); - in line with the beta estimate calculated on daily two-year historical returns on the share and the market index of 1.35x;

d) for the other companies, the beta was estimated using the same method as that used in the previous year, on the basis of the returns for comparable European companies.

On the basis of the above parameters, the opportunity cost of own equity for the network banks and the UBI Group is 8.90%, compared with 9.03% last year. A growth rate for long-term income of 1.30% was assumed for the network banks, down compared to that of 1.40% used the year before due to lower long-term consensus estimates of the inflation scenario. The growth rate for companies that do not carry out conventional banking activities was assumed to be 0%. Therefore the rate of capitalisation (COE – g) as at 31.12.2015 for the network banks was 7.60% down by (8.90% - 1.30%) and was in line (-0.03%) with the value assumed for the purposes of the 2014 impairment test (7.63% = 9.03% - 1.40%). The table below shows estimates of the opportunity cost of capital and of growth for the different CGUs to which goodwill was allocated. The same measures assumed for the impairment test as at 31.12.2014. are given in brackets and in italics. Consistent with the procedures employed for previous impairment tests, the fundamental estimate of the opportunity cost of capital for the network banks and the UBI Group, based on market parameters, is reconciled with the consensus estimate made by the equity analysts who follow the UBI Banca share (8.90% vs analysts’ average = 8.96%; analysts’ median = 9%).

CGU Initial discount rate net of taxes

Final discount rate net of taxes

Nominal growth rate in income for the calculation of the terminal value

Rate of capitalisation of income for the calculation of the terminal value

Banche Rete, UBI International 7.20% 8.90% 1.30% 7.60%

(7.21%) (9.04%) (1.40%) (7.63%)

IW Bank 6.11% 7.81% 0.00% 7.81%

(5.87%) (7.69%) (0.00%) (7.69%)

UBI Factor, Leasing, Prestitalia 6.21% 7.91% 0.00% 7.91%

(6.19%) (8.02%) (0.00%) (8.02%)

UBI Pramerica 5.77% 7.47% 0.00% 7.47%

(5.57%) (7.39%) (0.00%) (7.39%)

As a consequence of the above, the impairment tests performed on the single CGUs resulted in no need to recognise impairment losses on goodwill. The second level impairment test showed recoverable amounts greater than equity. The value in use of the Parent is greater than the stock market capitalisation. Considering that the impairment test uses expected cash flows for profit and discount rates consistent with the consensus reported by analysts, the difference between the value in use and the stock market capitalisation can be explained by the fact that in the current context, the stock market prices-in the expected short-term results of listed banks rather than future longer-term results (also consensus based) on which, however, the value in use estimate is based.

300 Notes to the consolidated accounts

Finally, a sensitivity analysis was performed in compliance with IAS 36 to identify the variation in key variables (cost of equity, cost of risk, income growth rate in the terminal value, cost:income ratio) that would render the recoverable amount of the different CGUs equal to their carrying amounts in the consolidated financial statements. For the network bank CGUs that analysis shows lower margins of tolerance for the Banco di Brescia and the Banca Regionale Europea CGUs for which the following would bring the recoverable amount into line with the carrying amount: an increase of 0.23% in the cost of risk (0.04% for Banca Regionale Europea), a rise in the cost of the equity of 1.09% (0.20% for Banca Regionale Europea), a fall in the income growth rate in the terminal value of -0.56% (0.95% for Banca Regionale Europea) and finally a rise of 4.58% in the:income ratio (operating expenses divided by operating income; 0.75% for Banca Regionale Europea). For the other companies, the analysis shows that for UBI Factor an increase of 0.04% in the cost of risk, a rise in the cost of equity of 0.41%, a fall in the income growth rate in the terminal value of -0.78% and finally a rise of 1.88% in the cost:income ratio would bring the recoverable amount into line with the carrying amount.

Network banks

A) Rise in the cost of risk required to obtain: value in use = carrying amount

B) Rise in the cost:income ratio required to obtain: value in use = carrying amount

C) Growth rate needed to obtain: value in use = carrying amount

D) Rise in the cost of equity required to obtain: value in use = carrying amount

Banca Popolare di Bergamo 1.18% 21.73% -31.57% 9.59%

Banco di Brescia 0.23% 4.58% -0.56% 1.09%

Banca Pop. Comm. & Industria 0.33% 6.70% -2.64% 2.10%

Banca Regionale Europea 0.04% 0.75% 0.95% 0.20%

Banca Popolare di Ancona 0.38% 7.13% -2.82% 2.30%

Banca di Valle Camonica 0.32% 6.36% -2.48% 1.99% Other companies

UBI Factor 0.04% 1.88% -0.78% 0.41%

IW Bank 4.85% 17.91% -26.01% 13.70%

UBI Pramerica n.s. 44.19% -31.23% 12.67%

301 Notes to the consolidated accounts

SECTION 14 Tax assets and tax liabilities – Asset item 140 and Liability item 80 14.1 Deferred tax assets: composition

31.12.2015 31.12.2014

Balancing entry in the income statement 2,190,154 2,336,533 Balancing entry in equity 19,009 107,363

Total 2,209,163 2,443,896 for the following reasons:

- impairment losses on loans to customers not deducted 903,404 930,733 - impairment losses on loans to banks and unsecured guarantees not deducted 16,822 19,497 - losses - - - post employment benefits 13,074 18,037 - maintenance expenses - 1,539 - application of IFRS (amortised cost in particular) 83,423 107,294 - advance depreciation and amortisation 4,239 5,885 - property, plant and equipment 40,903 38,617 - staff costs 26,098 24,386 - entertainment expenses - - - provisions for risks and charges not deducted 36,212 41,881 - sales price adjustments, long term costs and non-recurring transactions 241 1,501 - intangible assets and goodwill 1,072,486 1,163,062 - fair value change in securities and equity investments 4,434 86,517 - impairment losses on properties - - - purchase price allocation of bonds - - - revaluation of hedged subordinated liabilities - - - non-recurring expenses not deducted - - - cash flow hedges 90 424 - other 7,737 4,523

14.2 Deferred tax liabilities: composition

31.12.2015 31.12.2014

Balancing entry in the income statement 100,884 99,232 Balancing entry in equity 200,060 227,251

Total 300,944 326,483

O|1 - NOTA 14.3 Changes in deferred tax assets (balancing entry in the income statement)

31.12.2015 31.12.2014

1. Importo iniziale 2,336,533 2,140,150

2. Aumenti 116,419 409,616 2.1 Imposte anticipate rilevate nell'esercizio 116,337 409,589

a) relative a precedenti esercizi 337 3,126

b) dovute al mutamento dei criteri contabili - -

c) riprese di valore - -

d) altre 116,000 406,463

2.2 Nuove imposte o incrementi di aliquote fiscali - -

2.3 Altri aumenti 82 27

3. Diminuzioni (262,798) (213,233) 3.1 Imposte anticipate annullate nell'esercizio (86,133) (193,324)

a) rigiri (84,665) (185,714)

b) svalutazioni per sopravvenuta irrecuperabilità - -

c) mutamento dei criteri contabili - -

d) altre (1,468) (7,610)

3.2 Riduzioni di aliquote fiscali - -

3.3 Altre riduzioni (176,665) (19,909)

a) trasformazione in crediti d'imposta di cui alla L. 214/2011 (175,390) (15,395)

b) altre variazioni (1,275) (4,514)

Importo finale 2,190,154 2,336,533

302 Notes to the consolidated accounts

Tax assets are measured on the basis of the tax rates that it is expected will apply in the year in which the tax asset will be realised and therefore at a rate of 27.5% for the purposes of corporate income tax and at a rate of 5.57% the purposes IRAP (regional production tax) . In this respect, as already reported, Law No. 208 of 28th December 2015 (2016 Legge di stabilità – “stability law” – annual finance law) established a reduction in the tax rate for IRES from 27.5% to 24% in effect from 2017. Nevertheless, for banks and financial companies only the reduction in the IRES rate was neutralised by the introduction of a surtax of 3.5%, again applicable from 2017 (“IRES surtax”). As a result of the introduction of the surtax on IRES, the rate for IRES on the income of banks and financial companies remains substantially unchanged at 27.5% also for future years. Deferred tax assets are recognised on the basis of the probability of there being sufficient future taxable income and also taking into account the consolidated tax regime adopted in accordance with articles 117 et seq of Presidential Decree No. 917/86. They also depend on the ability, under determined conditions, to convert deferred tax assets into tax credits, that were recognised in the balance sheet relating to write-downs and losses on loans to customers and also to realign the value of goodwill and other intangible assets. See Section 14.7 “Probability test and deferred taxes” for further details on the conversion into tax credits of deferred tax assets (IRES and IRAP) recognised in the balance sheet against the deferred deduction of temporary differences relating to impairment losses on loans to customers and on goodwill already mentioned (Art. 2, paragraph 56-bis et seq, Decree Law No. 225 of 29th December 2010, introduced by Art. 9, Decree Law No. 201 of 6th December 2011, converted by Law No. 214/2011). As concerns movements in 2015, the amount of €175,390 thousand shown in “other decreases” relates to the transformation of deferred tax assets into tax credits as a result of the loss recognised for the year 2014 by UBI Banca, Banca Carime, UBI Leasing, Prestitalia Spa and UBI Fiduciaria Spa, in accordance with Law No. 214/2011. 14.3.1 Changes in deferred tax assets pursuant to Law No. 214/2011 (balancing entry in the income statement)

31.12.2015 31.12.2014

1. Opening balance 2,078,403 1,864,579

2. Increases 68,017 343,178

3. Decreases (180,366) (129,354)

3.1 Reversals of temporary differences (4,976) (101,482)

3.2 Transformation in tax credits (175,390) (15,395)

a) resulting from losses for the year (175,390) (15,395)

b) resulting from tax losses - -

3.3 Other decreases - (12,477)

4. Final balance 1,966,054 2,078,403

303 Notes to the consolidated accounts

14.4 Changes in deferred tax liabilities (balancing entry in the income statement)

31.12.2015 31.12.2014

1. Opening balance 99,232 190,636

2. Increases 12,634 29,557 2.1 Deferred tax liabilities arising during the year 12,634 29,251

a) relating to previous years - -

b) due to changes in accounting policies - -

c) other 12,634 29,251

2.2 New taxes or increases in tax rates - -

2.3 Other increases - 306

3. Decreases (10,982) (120,961) 3.1 Deferred tax liabilities derecognised during the year (10,982) (120,952)

a) reversals of temporary differences (10,700) (120,933)

b) due to changes in accounting policies - -

c) other (282) (19)

3.2 Reductions in tax rates - -

3.3 Other decreases - (9)

4. Final balance 100,884 99,232 14

040O|1 - NOTA Deferred taxes are recognised on the basis of temporary differences between the financial accounting value of an asset or liability and its value for tax purposes. That recognition was made on the basis of the tax legislation in force. 14.5 Changes in deferred tax assets (balancing entry in equity)

31.12.2015 31.12.2014

1. Opening balance 107,363 140,999

2. Increases 421 34,127 2.1 Deferred tax assets arising during the year 421 34,127

a) relating to previous years - 6

b) due to changes in accounting policies - -

c) other 421 34,121

2.2 New taxes or increases in tax rates - -

2.3 Other increases - -

3. Decreases (88,775) (67,763) 3.1 Deferred tax assets derecognised during the year (87,909) (66,977)

a) reversals of temporary differences (87,909) (66,977)

b) impairment losses on non-recoverable items - -

c) due to changes in accounting principles - -

d) other - -

3.2 Reductions in tax rates - -

3.3 Other decreases (866) (786)

4. Final balance 19,009 107,363

304 Notes to the consolidated accounts

14.6 Changes in deferred tax liabilities (with balancing entry in equity)

1. Opening balance 227,251 161,477

2. Increases 42,985 122,536 2.1 Deferred tax liabilities arising during the year 42,985 120,872

a) relating to previous years - -

b) due to changes in accounting policies - -

c) other 42,985 120,872

2.2 New taxes or increases in tax rates - -

2.3 Other increases - 1,664

3. Decreases (70,176) (56,762) 3.1 Deferred tax liabilities derecognised during the year (70,176) (56,762)

a) reversals of temporary differences (70,068) (56,717)

b) due to changes in accounting policies - -

c) other (108) (45)

3.2 Reductions in tax rates - -

3.3 Other decreases - -

4. Final balance 200,060 227,251

31.12.2014 31.12.2015

14.7 Other information The tables above contain the aggregate figures giving all the information on the single companies and banks fully consolidated line-by-line. The tables 14.3 “Changes in deferred tax assets (balancing entry in income statement)” and 14.4 “Changes in deferred tax liabilities (balancing entry in income statement)” record movements due to the consolidation entries which determined changes in the consolidated profit. Finally, taxes of €8,780 thousand in respect of dividends that will be paid by subsidiaries in 2016 (€9,584 thousand for 2014) have been recognised within deferred tax liabilities with the balancing entry in the income statement. Probability test on deferred taxes As reported in Part A – Accounting Policies in these notes to the financial statements – the recognition of deferred tax liabilities and assets is performed in compliance with the criteria set out in IAS 12, as follows:

with account taken of all taxable temporary differences, for deferred tax liabilities, except in some specific cases;

for deferred tax assets, with regard to all the deductible temporary differences if reasonable certainty exists that there will be future taxable amounts at the time when the relative tax deduction arises. The effects, amongst other things, of article 117 et seq of the Consolidated Income Tax Act (Tax Consolidation) are taken into consideration in the calculation of taxable income.

Deferrred tax assets (“DTAs”) are measured on the basis of the tax rates that it is expected will apply in the year in which the tax asset will be realised. As already described in the section “Tax Aspects” of the Management Report, Law No. 208 of 28th December 2015 ( 2016 Legge di stabilità – “stability law” – annual finance law) established a reduction in the tax rate for IRES from 27.5% to 24% in effect from 2017. Nevertheless, for banks and financial companies only the reduction in the IRES rate was neutralised by the introduction of a surtax of 3.5%, again applicable from 2017 (“IRES surtax”).

305 Notes to the consolidated accounts

As a result of the introduction of the surtax on IRES, the rate for IRES on the income of banks and financial companies remains substantially unchanged at 27.5% also for future years. More specifically, on the basis of IAS 12, section 46, the reduction in the rate for IRES would have resulted in an obligation to adjust the value of the credit for deferred tax assets in line with the reduction in the rate. The 3.5% surtax on IRES for the banking and financial sector restored the overall level of taxation to 27.5% and consequently it was not necessary to reduce the value of the deferred tax assets previously recognised in the accounts. Furthermore, for the purposes of calculating deferred tax assets and the respective recoverability, the surtax on IRES is considered fully equivalent to the ordinary rate on IRES, because in both cases the calculation of the taxable income follows the rules laid down by the Consolidated Income Tax Act. Consequently, the portion of the tax losses attributable to temporary differences which generate “qualified” deferred tax assets, and that is those relating to impairment losses on loans to customers and on goodwill, are considered fully convertible into tax credits in accordance with the rules currently in force for ordinary IRES. In this respect we report that since the tax year ended 31st December 2011, it has in fact been possible to convert into tax credits deferred tax assets (IRES – corporate income tax) recognised in the balance sheet against tax losses resulting from the deferred deduction of temporary differences relating to impairment losses on loans to customers and on goodwill (Art. 2, paragraph 56-bis, Decree Law No. 225 of 29th December 2010, introduced by Art. 9, Decree Law No. 201 of 6th December 2011). A similar conversion has been allowed with effect from the tax year 2013, if an IRAP (regional production tax) return declares a net negative value for production, relating to the deferred tax assets for IRAP which relate to the aforementioned temporary differences that led to the determination of a net negative value for production (Art. 2, paragraph 56-bis 1, Decree Law No. 225 of 29th December 2010, introduced by Law No. 147/21013). These conversion hypotheses – which are in addition to that already provided where an individual balance sheet records a loss for the year (Art. 2, paragraphs 55 and 56, Decree Law No. 225/2010, as last amended by Law No. 147/2013) – have introduced an additional and supplementary procedure for recovery designed to ensure the recovery of the deferred tax assets in question in all situations, independently of the future profits of a company. The convertibility of deferred tax assets on IRES tax losses and on a net negative value of production for IRAP purposes which are determined by qualified temporary differences therefore amount to a sufficient condition for the recognition of the aforementioned deferred tax assets in the balance sheet which makes the relative probability test obsolete. This approach is also confirmed in a joint document No. 5 issued by the Bank of Italy, the Consob (securities market authority) and Isvap (insurance authority) on 15th May 2012 (issued in respect of a co-ordination committee on the application of the IFRS) relating to the tax accounting treatment for tax assets resulting from law No. 214/2011 and in the subsequent IAS Italian Banking Association document No. 112 of 31st May 2012 (“Tax credit resulting from the transformation of deferred tax assets: Bank of Italy, Consob and ISVAP clarifications on the application of IFRS”). As at 31st December 2015, deferred tax assets recognised within the item “140 Tax assets b) deferred” totalled €2,209.1 million and were generated by the following:

- excess recognition of impairment losses on loans pursuant to article 106 paragraph 3 of the Consolidated Income Tax Act: €893.5 million;

- goodwill and other intangible assets, subject, amongst other things, to tax relief in accordance with the law, for which the amortisation is deductible in subsequent years: €1,072.5 million, with regard to the amounts reported in both the separate and the consolidated financial statements (article 15 paragraph 10 bis of Decree Law No. 185/2008 introduced by Decree Law No. 98/2011 converted by Law No. 111/2011);

306 Notes to the consolidated accounts

- impairment losses on the AFS securities portfolio and provisions and expenses not deductible for accrual reasons in accordance with Consolidated Income Tax Act: €243.1 million.

For the purposes of carrying out the probability test on deferred tax assets recognised in the balance sheet as at 31st December 2015, those resulting from deductible temporary differences relating to write-downs and losses on loans, goodwill and other indefinite useful life intangible assets (known as “qualified deferred tax assets”) were considered separately and total €1,966 million, recovery of which is always assured. The UBI Group has therefore carried out the following tests:

- identification of deferred tax assets, other than those relating to write-downs and losses on loans, goodwill and other indefinite useful life intangible assets (“non-qualified deferred tax assets”) recognised in the balance sheet;

- analysis of those non-qualified deferred tax assets and deferred tax liabilities recognised in the balance sheet distinguishing them by type for probable timing for use;

- forecasts of future income designed to verify its capacity to realise deferred tax assets.

The calculations carried out resulted in a tax base able to reabsorb taxes recognised as at 31st December 2015.

307 Notes to the consolidated accounts

SECTION 15 Non-current assets and liabilities and groups of assets and the associated liabilities held for disposal – Asset item 150 and Liability item 90 15.1 Non-current assets and disposal groups held for sale: composition by type of

asset

31/12/2015 31/12/2014

Carrying amount Carrying amount

A. Single assets

A.1 Financial assets - -

A.2 Equity investments 4,673 -

A.3 Property, plant and equipment 6,475 68,863

A.4 Intangible assets - -

A.5 Other non-current assets - -

Total A 11,148 68,863

of which measured at cost 11,148 68,863

of which measured at fair value level 1

of which measured at fair value level 2

of which measured at fair value level 3 - -

B. Groups of assets (discontinued operating units)

B.1 Financial assets held for trading - -

B.2 Financial assets designated at fair value - -

B.3 Available-for-sale financial assets - -

B.4 Held-to-maturity investments - -

B.5 Loans and advances to banks - -

B.6 Loans and advances to customers - 507

B.7 Equity investments - -

B.8 Property, plant and equipment - -

B.9 Intangible assets - 523

B.10 Other assets - -

Total B - 1,030

of which measured at cost - 1,030

of which measured at fair value level 1

of which measured at fair value level 2

of which measured at fair value level 3

C. Liabilities associated with single assets held for sale

C.1 Borrowings - -

C.2 Securities - -

C.3 Other liabilities - -

Total C - -

of which measured at cost

of which measured at fair value level 1 - -

of which measured at fair value level 2 - -

of which measured at fair value level 3 - -

D. Liabilities associated with groups of assets held for sale

D.1 Due to banks - -

D.2 Due to customers - -

D.3 Debt securities issued - -

D.4 Financial liabilities held for trading - -

D.5 Financial liabilities designated at fair value - -

D.6 Provisions - -

D.7 Other liabilities - -

Total D - -

of which measured at cost

of which measured at fair value level 1 - -

of which measured at fair value level 2 - -

of which measured at fair value level 3 - -

Item A.2 refers to the reclassification of the portion that UBI Banca will transfer to the shareholders of Zhong Ou Asset Management Co. Ltd. – China presumably in the first few

308 Notes to the consolidated accounts

months of 2016 (see Part A – Section 3 – Changes in the consolidation scope of these notes to the financial statements for further details).

Item A.3 relates to properties and land attributable to the Banca Carime.

15.2 Other information Nothing to report. 15.3 Information on equity investments in companies subject to significant

influence not accounted for using the equity method No items of this type exist in the UBI Group. SECTION 16 Other assets - Item 160 16.1 Other assets: composition

Description/Amounts 31.12.2015 31.12.2014

VAT tax credits and payments on account 4,096 7,369

Payments on account for stamp duty on banking documents and deeds 310,266 236,412

Tax credits for personal income tax and post-employment benefits on account 1 187

Tax credits on withholding tax 8,383 7,420

Items in transit 209,519 139,861

Debtor items in transit not yet posted to destination accounts 351,337 221,569

Bills, securities, coupons and fees to be debited to customers and correspondents 76,037 80,633

Cheques drawn on the bank 4,592 2,287

Improvements to third party leased assets 26,913 28,284

Accrued income not attributed to specific items 12,926 11,398

Prepaid expenses not attributed to specific items 38,935 38,278

Sundry debtor items 128,681 157,577

Total 1,171,686 931,275

309 Notes to the consolidated accounts

LIABILITIES SECTION 1 Due to banks – Item 10 1.1 Amounts due to banks: composition by type

Type of transaction/Values 31.12.2015 31.12.2014

1. Due to central banks 8,106,441 10,305,964 2. Due to banks 2,347,862 2,986,759

2.1. Current accounts and deposits 720,487 1,059,939

2.2 Term deposits 60,844 46,590

2.3 Financing 1,530,870 1,830,471

2.3.1 Repurchase agreements 186,635 384,897

2.3.2 Other 1,344,235 1,445,574

2.4 Amounts due for commitments to repurchase own equity instruments - -

2.5 Other payables 35,661 49,759

Total 10,454,303 13,292,723 Fair value - level 1Fair value - level 2 24,123 13,945 Fair value - level 3 10,377,626 13,838,738 Total fair value 10,401,749 13,852,683

Item 1 “Due to central banks” reports the carrying amount of the remaining financing received from the ECB. The item “2.3.2 Financing Other” income €1,339 thousands relates principally to outstanding transactions with the EIB. 1.2 Details of item 10 “Due to banks”: subordinated liabilities No subordinated liabilities due to banks have been recognised. 1.3 Details of item “Due to banks”: structured debts No structured debts due to banks have been recognised. 1.4 Amounts due to banks subject to specific hedge No amounts due to banks subject to specific hedge have been recognised. 1.5 Amounts due for finance leases No amounts due to banks for finance leases have been recognised.

310 Notes to the consolidated accounts

SECTION 2 Due to customers – Item 20 2.1 Amounts due to customers: composition by type

Type of transaction/Values 31.12.2015 31.12.2014

1. Current accounts and deposits 47,702,548 44,317,163

2. T erm deposits 183,042 429,347

3. Financing 6,712,891 6,185,217

3.1 repurchase agreements 6,172,495 5,695,380

3.2 other 540,396 489,837

4. Amounts due for commitments to repurchase ow n equity instruments - -

5. Other payables 665,990 685,193

Total 55,264,471 51,616,920 Fair value - l evel 1Fair value - l evel 2 1,565,999 965,765 Fair value - l evel 3 53,698,673 50,667,896 Total fai r value 55,264,672 51,633,661

Financial liabilities for repurchase agreements include a transaction with the Cassa di Compensazione e Garanzia (central counterparty clearing) amounting to €6.1 billion. Other financial liabilities include €361.7 million with the Cassa Deposito e Prestiti (CDP – state controlled fund and deposit institution). 2.2 Details of item 20 “Due to customers”: subordinated liabilities No subordinated liabilities due to customers have been recognised. 2.3 Details of item 20 “Due to customers”: structured debts No structured debts due to customers have been recognised. 2.4 Amounts due to customers subject to specific hedge No amounts due to customers subject to specific hedge have been recognised. 2.5 Amounts due for finance leases No amounts due to customers for finance leases have been recognised.

311 Notes to the consolidated accounts

SECTION 3 Debt securities issued – Item 30 3.1 Debt securities issued: composition by type

F a ir V a lu e F a ir V a lu e

Le v e l 1 Le v e l 2 Le v e l 3 Le v e l 1 Le v e l 2 Le v e l 3

A . S e c u rit ie s

1. bo nds 35,557,943 15,426,790 20,634,404 49,465 40,037,379 16,277,423 24,559,741 91,679

1.1 s truc ture d 3,545,499 950,107 2,516,739 47,463 3,625 ,140 978,676 2,540,865 86,578

1.2 o the r 32,012,444 14,476,683 18,117,665 2,002 36,412,239 15,298,747 22,018,876 5 ,101

2. o the r s e c uritie s 689,985 - 661,278 28,707 1,552,970 - 1,490,973 61,996

2.1 s truc ture d - - - - - - - -

2 .2 o the r 689,985 - 661,278 28,707 1,552,970 - 1,490,973 61,996

T o t a l 3 6 ,2 4 7 ,9 2 8 15 ,4 2 6 ,7 9 0 2 1,2 9 5 ,6 8 2 7 8 ,17 2 4 1,5 9 0 ,3 4 9 16 ,2 7 7 ,4 2 3 2 6 ,0 5 0 ,7 14 15 3 ,6 7 5

3 1.12 .2 0 15 3 1.12 .2 0 14

C a rryin g A m o u n t

C a rryin g A m o u n t

T yp e o f s e c u rit ie s / A m o u n t s

As at 31st December 2015, bonds issued as part of covered bond operations amounted to €9.3 billion nominal (the carrying amount inclusive of the amortised cost and the delta fair value of the hedge was €9.9 billion). Bond issues consisting of issues on the EMTN market totalled €2.5 billion. 3.2 Details of item 30 “Debt securities issued”: subordinated securities

Description/Amount 31.12.2015 31.12.2014

Subordinated securities issued 2,851,838 3,583,881

A list of the individual bond issues is given in the table on the following page.

312 Notes to the consolidated accounts

IAS AMOUNT31.12.2015 31.12.2014 31.12.2015

32008/2015 - floating rate ISIN IT0004424435 - Currency euro Listed on MOT (electronic bond market)

Quarterly Euribor 3M + 0.85%. 28-11-2015

Redemption by f ixed rate annual amortisation schedule from 28-11-

2011

0 119,880 0

42009/2016 - floating rate ISIN IT0004457187 - Currency euro Listed on MOT (electronic bond market)

Quarterly Euribor 3M + 1.25%. 13-3-2016

Redemption by f ixed rate annual amortisation

schedule from 13-3-2012

42,398 84,797 42,379

52009/2019 - mixed rate ISIN IT0004457070 Currency euro - Listed on MOT (electronic bond market)

Half year fixed rate 4.15% until 2014; subsequently floating rate Euribor 6M + 1.85%.

13-3-2019 From 13-3-2014 370,000 370,000 368,889

62009/2016 - floating rate ISIN IT0004497068 - Currency euro Listed on MOT (electronic bond market)

Quarterly Euribor 3M + 1.25%. 30-6-2016

Redemption by f ixed rate annual amortisation

schedule from 30-6-2012

31,367 62,735 31,289

72009/2019 - mixed rate ISIN IT0004497050 Currency euro - Listed on MOT (electronic bond market)

Half year fixed rate 4% until 2014; subsequently floating Euribor 6M + 1.85%.

30-6-2019 From 30-6-2014 365,000 365,000 361,576

82010/2017 - fixed rate ISIN IT0004572878 Currency euro - Listed on MOT (electronic bond market)

Half year fixed rate 3.10%. 23-2-2017

Redemption by f ixed rate annual amortisation

schedule from 23-2-2013

120,000 180,000 122,640

92010/2017 - floating rate ISIN IT0004572860 - Currency euro Listed on MOT (electronic bond market)

Half year floating rate Euribor 6M + 0.40% 23-2-2017

Redemption by f ixed rate annual amortisation

schedule from 23-2-2013

61,035 91,552 60,939

102011/2018 - fixed rate ISIN IT0004718489 Currency euro - Listed on MOT (electronic bond market)

Half year fixed rate 5.50%. 16.6.2018

Redemption by f ixed rate annual amortisation

schedule from 16-6-2014

240,000 320,000 246,505

112011/2018 - fixed rate ISIN IT0004723489 Currency euro - Listed on MOT (electronic bond market)

Half year fixed rate 5.40% 30-6-2018

Redemption by f ixed rate annual amortisation

schedule from 30-6-2014

240,000 320,000 246,370

3,546,760

222,339

240,000

970,457

2,828,505 2,851,838

162,639

220,040

776,366 787,519

200,000 201,053200,000

122012/2019 - fixed rate ISIN NUMBER IT0004842370 - Currency euro - Listed on MOT (electronic bond market) (*)

132012/2019 - mixed rate ISIN IT0004841778 - Currency euro - Listed on MOT (electronic bond market)

Quarterly fixed rate 7.25% until 2014 and subsequently floating Euribor 3M + 5%

08-10-2019

08-10-2019

NOMINAL AMOUNT

Half year fixed rate 4.30%.

ISSUER COUPONMATURITY

DATE

UNIONE DI BANCHE ITALIANE

18-11-2018

22010/2017 - fixed rate ISIN IT0004645963 -Currency euro Listed on MOT (electronic bond market)

Redemption by f ixed rate annual amortisation schedule from 08-10-

2015

222,339

5-11-2017

Redemption by repayment schedule at constant annual rates

from 5-11-2013

160,000

EARLY REDEMPTION CLAUSE

12011/2018 - mixed rate ISIN IT0004767742 - Currency euro Listed on MOT (electronic bond market)

Quarterly fixed rate 6.25% until 2014 and subsequently floating Euribor 3M +1%.

Half yearly fixed rate 6%

313 Notes to the consolidated accounts

3.3 Debt securities issued subject to specific hedge

31.12.2015 31.12.2014

1. Securities subject to speci fic fair value hedge: 19,627,820 20,554,169 a) interest rate risk 19,627,820 20,552,716

b) currency risk - -

c) multiple risks - 1,453

2. Securities subject to speci fic cash flow hedge: 99,875 333,680

a) interest rate risk - -

b) currency risk 99,875 333,680

c) other - -

A

314 Notes to the consolidated accounts

SECTION 4 Financial liabilities held for trading – Item 40 4.1 Financial liabilities held for trading: composition by type

L1 L2 L3 L1 L2 L3

A . On-ba la nc e s he e t lia bilit ie s1. Due to banks - - - - - - - - - - 2. Due to cus to mers - - - - - - - - - - 3. Debt ins truments - - - - - - - - - -

3.1 Bo nds - - - - - - - - - - 3.1.1 S truc tured - - - - X - - - - X3.1.2 Other bo nds - - - - X - - - - X

3.2 Other s ecurities - - - - - - - - - - 3.2.1 S truc tured - - - - X - - - - X3.2.2 Other - - - - X - - - - X

To ta l A - - - - - - - - - - B . D e riv a t iv e ins trum e nts

1. F inancia l deriva tives 7 531,773 32 531,812 300 617,452 10 617,762 1.1 Fo r trading X 7 531,773 32 X X 300 617,439 10 X1.2 Co nnec ted with fa ir va lue o ptio ns X - - - X X - - - X1.3 Other X - - - X X - 13 - X

2. Credit deriva tives - - - - - - - 2.1 Fo r trading X - - - X X - - - X2.2 Co nnec ted with fa ir va lue o ptio ns X - - - X X - - - X2.3 o ther X - - - X X - - - X

To ta l B X 7 5 3 1,7 7 3 3 2 X X 3 0 0 6 17 ,4 5 2 10 XTo ta l (A +B ) X 7 5 3 1,7 7 3 3 2 X X 3 0 0 6 17 ,4 5 2 10 X

Type o f tra ns a c t io n / Gro up ite m s

3 1.12 .2 0 15

F VF V

3 1.12 .2 0 14

F V*N A F V* N A

Legend FV = fair value FV* = Fair value calculated excluding changes in value resulting from a change in the credit rating of the issuer since the date of issue NA = nominal or notional amount The financial derivatives (level two) relate mainly to OTC transactions connected with trading activity and were composed mainly of interest rate swaps. The changes should be interpreted in relation to the corresponding item recognised within financial assets held for trading.

315 Notes to the consolidated accounts

4.2 Details of item 40 “Financial liabilities held for trading”: subordinated liabilities

No subordinated financial liabilities held for trading have been recognised. 4.3 Details of item 40 “Financial liabilities held for trading”: structured debt No structured debt financial liabilities held for trading have been recognised. SECTION 5 Financial liabilities designated at fair value – Item 50 The UBI Group has not applied the option under IFRS to designate financial liabilities at fair value (fair value option). SECTION 6 Hedging derivatives – Item 60 6.1 Hedging derivatives: composition by type of hedge and by level

L1 L2 L3 L1 L2 L3

A . F in a n c ia l d e riv a t iv e s - 7 4 9 ,7 2 5 - 15 ,0 4 7 ,5 19 - 1,0 0 9 ,0 9 2 - 13 ,15 5 ,9 0 8

1) F a ir va lue - 749,122 - 15 ,016,146 - 989,794 - 12,839,013

2) C a s h flo w - 603 - 31,373 - 19,298 - 316,895

3) F o re ign inve s tm e nts - - - - - - - -

B . C re d it d e riv a t iv e s - - - - - - - -

1) F a ir va lue - - - - - - - -

2) C a s h flo w - - - - - - - -

T o t a l - 7 4 9 ,7 2 5 - 15 ,0 4 7 ,5 19 - 1,0 0 9 ,0 9 2 - 13 ,15 5 ,9 0 8

N o m in a l a m o u n t

T yp e o f d e riv a t iv e / Un d e rlyin g a s s e t s

F a ir Va lu e 3 1.12 .2 0 15 F a ir Va lu e 3 1.12 .2 0 14N o m in a l a m o u n t

Financial derivatives consist exclusively of interest rate hedges of the interest rate swap type. 6.2 Hedging derivatives: composition by portfolios hedged and type of hedge

Int e re s t ra t e ri s k

C u rre n c y ri s k

C re d i t ri s k

P ri c e r i s k M ul t ip l e r i s ks

1. Availab le-fo r-s a le financia l as s et s 6 6 9 ,76 7 - - - - X - X X

2 . Lo ans 6 ,3 74 - - X - X - X X

3 . Held -t o -maturit y inves t ment s X - - X - X - X X

4 . Po rt fo lio X X X X X 53 ,70 2 X - X

5. Ot her t rans act io ns - - - - - X - X -

T o t a l a s s e t s 6 7 6 , 14 1 - - - - 5 3 , 7 0 2 - - -

1. F inancial liab ilit ies 19 ,2 79 - - X - X 6 0 3 X X

2 . Po rt fo lio X X X X X X - X

T o t a l l i a b i l i t i e s 19 , 2 7 9 - - - - 6 0 3 - -

1. Exp ect ed t rans act io ns X X X X X X - X X

2 . Po rt fo lio o f financia l as s e t s and liab ilit ies X X X X X - X - -

T ra ns a c t io ns / T y p e o f he d g e

F a i r V a lu e C a s h f l o w

F o re ig n i nv e s t me nt s

S p e c i f i cM a c ro -he d g e S p e c i f i c

M a c ro -he d g e

With regard to specific hedges, the amount for hedging derivatives on available-for-sale financial assets relates primarily to positions on debt instruments issued by the Italian government.

316 Notes to the consolidated accounts

SECTION 7 Fair value change in macro-hedged financial liabilities – Item 70 No items of this type exist. SECTION 8 Tax liabilities – Item 80 Details of tax liabilities are reported in assets section 14.

SECTION 9 Liabilities associated with assets held for disposal – Item 90 See assets section 15 for details SECTION 10 Other liabilities – Item 100 10.1 Other liabilities: composition

Description/Amounts 31.12.2015 31.12.2014

Balance of il liquid portfolio items 542,406 531,541

Credit items in transit in departments or branches pending posting to accounts 589,733 269,074

Sums available to customers and banks for transactions in the course of payment 33,390 29,283

Items payable to tax authorities on behalf of th ird parties 38,597 47,821

Items in transit 75,109 120,432

T ax w ithheld on income paid to th ird parties 240,772 118,037

Indirect taxes payable 26,006 33,604

Social security contributions for th ird parties in the course of payment 1,954 1,669

Dividends and sums due to shareholders 26 86

Amounts due to staff pension funds, inclusive of accessory costs 14,971 15,756

Accrued expenses not attributed to specific items 7,597 7,611

Deferred income not attributed to specific items 38,405 37,162

P ayables for educational, cultural, charitable and social purposes 10,791 13,552

Debt for post-employment benefit/w elfare schemes 1,541 2,260

Doubtful overall outcomes on guarantees granted and commitments 51,796 55,602

Due to personnel 210,611 213,796

Residual creditor items 470,912 497,054

Total 2,354,617 1,994,340

210000O|1 - NOTA SECTION 11 Post-employment benefits – Item 110 11.1 Annual changes in post-employment benefits

31.12.2015 31.12.2014

A. Opening bal ances 391,199 382,262

B. Increases 1,008 33,606

B.1 Allocation for the year 500 655

B.2 Other changes 508 32,951

C. Decreases (51,253) (24,669)

C.1 P ayments made (34,452) (20,238)

C.2 Other changes (16,801) (4,431)

D. Final balances 340,954 391,199

317 Notes to the consolidated accounts

The demographic data that forms the basis for calculating the annual probabilities of an unemployment relationship ending remain unchanged compared with 2014 and relate to the historical data for the Group in the period 01.01.2011 – 31.10.2014. “Part A – Accounting policies - Section 14.3.2” gives further details on the accounting policies pursued. 11.2 Other information The demographic and actuarial hypotheses adopted to value the post-employment benefit provision as at 31/12/2015 Mortality rate 2013 SIM (Italian male statistics) and SIF (Italian female statistics) tables (Italian

National Office of Statistics data) were used . Post-employment benefit advances

The probability of advance payments, calculated on the basis of historical data for the Group, is 2% while the average amount requested is between 45% and 100% of the available provision.

Inflation rates Long term forecasts of the scenario for inflation led to the use of a rate of 1.5%. Discount rates A discount rate of 1.6968%, was used, calculated as the weighted average of the

EUR Composite AA curve as at 31.12.2015, using, as weights, the ratios between the amount paid and advanced for each maturity date and the total amount to be paid and advanced until the extinction of the population considered. This was performed because IAS 19 states that reference should be made to the market yields of “high quality corporate bonds”, or to yields on securities with a low credit risk. By making reference to the definition of “investment grade” securities, where a security qualifies for that classification if its rating is equal to or higher than BBB for S&P or Baa2 for Moodys, it was decided to consider only securities issued by corporate issuers with a class “AA” rating with the assumption that this class identifies an average level for “investment grade” securities and thereby excludes higher risk securities. Since IAS 19 makes no explicit reference to a specific market sector for the bonds, it was decided to opt for a “composite” market curve which therefore summarises the prevailing market conditions on the valuation date for securities issued by companies belonging to different sectors, including utilities, telephone, financial, banking and industrial sectors. The euro area was used for the geographical area.

The demographic and actuarial hypotheses adopted to value the post-employment benefit provision as at 31/12/2014 Mortality rate 2012 SIM (Italian male statistics) and SIF (Italian female statistics) tables (Italian

National Office of Statistics data) tables were used appropriately modified on the basis of historical data for the Group.

Post-employment benefit advances

The probability of advance payments, calculated on the basis of historical data for the Group, is 2% while the average amount requested is between 45% and 100% of the available provision.

Inflation rates Long-term forecasts of the scenario for inflation led to the use of a rate of 2%. Discount rates A discount rate of 1.07660%, was used, calculated as the weighted average of the

EUR Composite AA curve as at 31.12.2014, using, as weights, the ratios between the amount paid and advanced for each maturity date and the total amount to be paid and advanced until the extinction of the population considered. This was performed because IAS 19 states that reference should be made to the market yields of “high quality corporate bonds”, or to yields on securities with a low credit risk. By making reference to the definition of “investment grade” securities, where a security qualifies for that classification if its rating is equal to or higher than BBB for S&P or Baa2 for Moodys, it was decided to consider only securities issued by corporate issuers with a class “AA” rating with the assumption that this class identifies an average level for “investment grade” securities and thereby excludes higher risk securities. Since IAS 19 makes no explicit reference to a specific market sector for the bonds, it was decided to opt for a “composite” market curve which therefore summarises the prevailing market conditions on the valuation date for securities issued by companies belonging to different sectors, including utilities, telephone, financial, banking and industrial sectors. The euro area was used for the geographical area.

318 Notes to the consolidated accounts

SECTION 12 Provisions for risks and charges – Item 120 12.1 Provisions for risks and charges: composition

Items/Components 31.12.2015 31.12.2014

1. Company pension funds 70,237 80,529

2. Other provisions for risks and charges 196,391 204,500

2.1 litigation 84,712 103,752

2.2 costs for staff 60,256 45,972

2.3 other 51,423 54,776

Total 266,628 285,029

Provisions for staff costs consisted of provisions for the company bonus and trade union agreements. 12.2 Provisions for risks and charges: annual changes

Pension funds Other p rovisions

A. Opening balances 80,529 204,500

B. Increases 855 100,301 B.1 Allocation for the year 511 98,602

B.2 Changes due to passage of time 344 140

B.3 Changes due to changes in discount rate - 120

B.4 Other changes - 1,439

C. Decreases (11,147) (108,410) C.1 Use for the year (6,608) (57,382)

C.2 Changes due to changes in discount rate - (10)

C.3 Other changes (4,539) (51,018)

D. Final bal ances 70,237 196,391

Items/ComponentsTotal

12.3 Defined benefit company pension funds The balance in the financial statements for defined benefit company pension funds was composed of Banca Carime Spa funds amounting to €47,313 thousand, Banca Regionale Europea Spa funds amounting to €21,890 thousand and former Centrobanca Spa funds amounting to €1,035 thousand. 12.3.1 Description of the funds BANCA CARIME SPA Banca Carime SpA recognised liabilities relating to internal pension funds set aside to cover supplementary INPS (national insurance institute) pension obligations within liability item 120a “provisions for risks and charges: pension and similar obligations”. The liabilities in question constitute a defined benefit plan and are subject to periodic actuarial measurement in compliance with IAS 19 “Employee benefits”. As at 31.12,2015 there were three defined benefit company pension funds as follows: 1. the fund to supplement INPS (national insurance institute) benefits for compulsory invalidity, old age and survivors insurance for retired staff of the former Cassa di Risparmio di Calabria e Lucania (Registration No. 9059 in the Pension Fund Register); 2. the fund to supplement INPS (national insurance institute) benefits for compulsory invalidity, old age and survivors insurance for retired staff of the former Cassa di Risparmio di Puglia (Reg. No. 9124 in the Pension Fund Register);

319 Notes to the consolidated accounts

3. The fund to supplement INPS (national insurance institute) benefits for compulsory invalidity, old age and survivors insurance for retired staff of the former Cassa di Risparmio Salernitana (Reg. No. 9053 in the Pension Fund Register). The funds pay the following welfare benefits as a direct pension for: • old age, when the participants have reached 60 years of age if men and 55 years of age if women, provided that they have participated in the fund for at least 15 years; • length of service, at any age when the participants have participated in the fund for 35 years if men and 30 years if women; • invalidity at any age when permanently and completely unable to work through disability and participating in the fund (in addition, for the fund of the former Cassa di Risparmio di Puglia, the invalidity must be caused by work and for the fund of the former Cassa di Risparmio Salernitana, participation for at least five years is required). Furthermore, survivors of participants receive an ‘indirect pension’ if a participant dies while in service and a surviving dependent’s pension if a participant dies, provided a direct pension has been paid. Description of the main actuarial assumptions The defined benefit plan funds were subjected to actuarial valuation which in the technical audit at 31.12.2015 resulted in an amount for the mathematical reserve which on average, in the actuarial sense, will allow the pensions granted to pensioners and their surviving dependents to be paid. The valuations were performed in compliance with accounting standard IAS 19, with the legislation governing the relative pensions schemes and with company regulations. More specifically, the criterion used to calculate the liability is consistent with the projected unit credit method required under IAS 19. The following demographic assumptions were assumed: • for the probability of death of pensioners and their spouses the SI 2013 tables were used, appropriately modified to take account of the link with the progressive life expectation; • for the probability of leaving a family, those adopted in the INPS (national insurance institute) model for projections to 2010, separately by gender. The economic and financial assumptions used in the actuarial valuation were as follows: a) present value discount rate = 1.44% b) pension revaluation rate = 1.20% c) inflation rate = 1.50% Actuarial valuations The table below gives the results from the actuarial valuations performed as at 31st December 2015 in relation to the different groups:

320 Notes to the consolidated accounts

Changes in liabilities in 2015 for IAS 19 purposes

Former Carical

pension fund

Former Caripuglia

pension fund

Former Carisal

pension fundTotal

A. Opening balances 40,232 10,945 667 51,844

B. Increases (3,353) (1,111) (68) (4,532) B.1 Interest expense balancing entry in the income statement

"staff costs"341 93 5 439

B.2 Actuarial losses balancing entry in "valuation reserves" 35 - 6 41

B.3 Provisions - (930) (79) (1,009)

B.4 Other changes (3,729) (274) - (4,003)

C. Decreases - - - - C.1 Pension benefits paid - - - -

C.2 Actuarial gains balancing entry in "valuation reserves" - - - -

C.3 Other changes - - - -

D. Final balances 36,879 9,834 599 47,312

The average present value of pensions currently being paid (immediate costs) was identified as constituting the economic commitments of the fund as at 31st December 2015, A sufficiently prudent system of financial capitalisation was adopted that is able to guarantee the full cover of the benefits to be paid to the group of pensioners existing as at 31st December 2015 with the accumulated reserves at any moment. FORMER CENTROBANCA This is a supplementary pension fund in which there are now nine remaining pensioners from Centrobanca participating. No changes in the population of the participants has occurred since the previous year. The contribution for the year 2015, as specified by the “Fund Regulations”, was calculated on the basis of the weighted average rate used in the valuation performed 1.63%). Against that contribution the Bank benefited from the returns on using the assets of the fund. The sums in the fund are not invested in specific assets. Except for the amount recognised within liability item 120 a), no other liabilities and/or assets were recognised in the financial statements of the bank. The main actuarial hypotheses on which the valuation of the fund as at 31.12.2015 was based are as follows: - for the probability of death of pensioners and their spouses the SI 2013 tables were

used, appropriately modified to take account of the link with the progressive life expectation;

- for the probability of leaving a family, those adopted in the INPS (national insurance institute) model for projections to 2010, separately by gender;

- a discount rate calculated as the weighted average of the EUR Composite AA interest rate curve as at 31.12.2015, using, as weights, the ratios between the amount paid for each maturity date and the total amount to be paid until the extinction of the population considered.

The present value of the fund, calculated on the basis of those assumptions, resulted in an “actuarial profit” of €53 thousand (item C.3). Changes in liabilities in 2015 for IAS 19 purposes

A. Opening balances 1,144

B. Increases 12 B.1 Interest expense balancing entry in the income statement "staff costs" 12

B.2 Actuarial losses balancing entry in "valuation reserves" -

B.3 Provisions -

B.4 Other changes -

C. Decreases (121) C.1 Pension benefits paid (68)

C.2 Actuarial gains balancing entry in "valuation reserves" (53)

C.3 Other changes -

D. Final balances 1,035

CENTROBANCA PENSION FUND

321 Notes to the consolidated accounts

BANCA REGIONALE EUROPEA SPA As at 31.12.2015 there was a fund to supplement compulsory invalidity, old age and survivors insurance for the staff of Banca Regionale Europea originally from the former Banca del Monte di Lombardia and from the former Cassa di Risparmio di Cuneo. The fund pays the following welfare benefits as a direct pension for: • old age, when the participants have reached the age limits set in the contracts in force at the time, provided that they have participated in the fund for at least 15 years; • length of service, when the participants have reached the minimum age limits set in the contracts in force at the time; • invalidity when, having obtained acknowledgement of the condition of invalidity and whatever the age, a length of service of at least five years has been served, or whatever the length of service, if the invalidity is permanent and caused by work. Furthermore, survivors of participants receive an ‘indirect pension’ if a participant dies while in service after one year of participation in the fund or after any period if death was caused by work and a surviving dependent’s pension if a participant dies, provided a direct pension has been paid. Description of the main actuarial assumptions The defined benefit plan fund was subjected to actuarial valuation which in the technical audit as at 31.12.2015 resulted in an amount for the mathematical reserve which on average, in the actuarial sense, will allow the pensions granted to pensioners and their surviving dependents to be paid. The valuations were performed in compliance with accounting standard IAS 19, with the legislation governing the relative pensions schemes and with company regulations. More specifically, the criterion used to calculate the liability is consistent with the projected unit credit method required under IAS 19. The following demographic assumptions were assumed: - for the annual probabilities of elimination by death of staff in-service, the SI2013 table

was used, with classification by gender appropriately modified on the basis of the experience of companies operating in the banking sector;

- for the annual probabilities of elimination by death of pensioners and their survivors the SI 2013 tables were used, appropriately modified to take account of the link with the progressive life expectation;

- for the probability of leaving a family, those adopted in the INPS (national insurance institute) model for projections to 2010, separately by gender.

The economic and financial assumptions used in the actuarial valuation were as follows: • discount rate 1.89% • expected rate of pension revaluation of 1.20% • annual inflation rate of 1.50%. Actuarial valuations The table below gives the results from the actuarial valuations performed as at 31st December 2015 in relation to the different groups:

322 Notes to the consolidated accounts

Changes in liabilities in 2015 for IAS 19 purposes

Former B.M.L. pension fund

Former C.R.C. pension fund

Total

A. Opening balances 12,741 14,800 27,542

B. Increases 225 177 402 B.1 Interest expense balancing entry in the income statement "staff costs" 155 177 332

B.2 Actuarial losses balancing entry in "valuation reserves" - - -

B.3 Provisions 70 - 70

B.4 Other changes - - -

C. Decreases (3,183) (2,871) (6,054) C.1 Pension benefits paid (644) (1,157) (1,801)

C.2 Actuarial gains balancing entry in "valuation reserves" (2,539) (1,714) (4,253)

C.3 Other changes - - -

D. Final balances 9,783 12,106 21,890 The average present value of pensions currently being paid (immediate costs) was identified as constituting the economic commitments of the fund as at 31st December 2015, A sufficiently prudent system of financial capitalisation was adopted that is able to guarantee the full cover of the benefits to be paid to the group of pensioners existing as at 31st December 2015 with the accumulated reserves at any moment. 12.4 Provisions for risks and charges – other provisions

31.12.2015 31.12.2014

1. P rovision for revocation (claw back) risks 12,317 11,189

2. P rovision for bonds and default 2,328 4,846

3. Other provisions for risks and charges 36,778 38,741

Total 51,423 54,776

12.5 Contingent liabilities

31.12.2015 31.12.2014

for personnel litigation 115 155

for revocation risks 8,427 8,756

for bonds in default - -

for compounding of interest - -

for claim risks - -

for tax litigation 146,633 267,299

for other litigation 567,190 498,766

Total 722,365 774,976

See the changes described in the commentary below for details of changes in contingent liabilities for tax litigation. The liabilities regulated by IAS 37, characterised by the absence of certainty over the timing or the amount of future expense required to settle presumed liabilities, can be classified as being of the following types:

probable liabilities; contingent liabilities (possible or remote).

The correct identification of the nature of liabilities is of fundamental importance because it determines whether or not the risk deriving from an obligation must be recognised in the financial statements. The recognition of a provision for risks and charges in the financial statements represents a probable liability of uncertain timing or amount1 and the amount recognised in the 1 Details of the criteria for recognising provisions are given in Part A.2 of the notes to the financial statements “The main items in the financial statements”, sub-section 12 “Provisions for risks and charges”, which may be consulted.

323 Notes to the consolidated accounts

accounts represents the best estimate of the expenditure required to settle the obligation existing as at the reporting date and reflects the risks and uncertainties that inevitably characterise a number of different facts and circumstances. The amount of a provision is measured by the present value of the expenditure that it is assumed will be necessary to settle the obligation where the effect of the present value is significant. Future events that might affect the amount required to settle the obligation are only taken into consideration if there is sufficient objective evidence that they will occur. The measurement of provisions is periodically reviewed to verify that they are reasonable. The general and theoretical legal parameters which govern the process of determining the present value of provisions, which is performed for each single case of litigation and for the relative residual life, are given below: • type/nature of the litigation, to be assessed in the light of the legal claims formulated by the counterparty. Various “macro-families” are identifiable in this respect such as corporate litigation, labour law cases, financial intermediation litigation, litigation generically definable as compensation for damages (resulting from non-performance of contract obligations, illegal actions, violation of regulations) etc.; • degree of “innovation” in the litigation, to be assessed by considering whether the issues turn on matters already known and “weighed” by the Bank or on completely new matters which therefore require study (e.g. resulting from a change in the legislation or in legal orientations); • degree of “strategic importance” of the litigation to the bank: for commercial reasons the Bank might for example decide to end a case very rapidly even if it had grounds of defence that would allow it to resist in court for a long time; • average length of litigation, to be weighted taking account of geographical factors, which is to say the location of the jurisdiction in which the case is tried and the state of progress of the trial. In this respect a decision must be taken on the source of the statistics from which data is obtained and assistance can be obtained from the lawyers who represent the Bank in litigation and who have direct knowledge of the jurisdictions concerned for each case; • the “nature” of the counterparty (e.g. a private individual or a legal entity, a professional operator or not, a consumer or not, etc.). A contingent liability is defined as: a possible obligation, the result of past events, the existence of which will only be

confirmed by the occurrence or (non-occurrence) of future events that are not totally under the control of the enterprise;

a present obligation that is the result of past events, but which is not recognised in the accounts because:

it is improbable that financial resources will be needed to settle the obligation; the amount of the obligation cannot be measured with sufficient reliability.

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. Contingent liabilities are not recognised in the accounts, but if they are considered “possible”, they are reported only. On the other hand, in compliance with IAS 37, contingent liabilities that are considered remote require no disclosure.

324 Notes to the consolidated accounts

As occurs for amounts relating to provisions (for probable liabilities), the amounts for contingent liabilities are also subject to periodic verification because it is possible that events may occur which make them remote or probable with the possible need, in the latter case, to make a provision for them in the financial statements.

Litigation Ordinary litigation Significant litigation (claims of greater than or equal to €5 million) for which the probable risk has been estimated by Group banks and companies are as follows: 1. “revocation” bankruptcy clawback actions against Banca Popolare di Ancona, brought by

Napoli Calcio Spa; 2. a “revocation” bankruptcy clawback action against Banca Popolare Commercio e

Industria, brought by FDG Spa; 3. a “revocation” bankruptcy clawback action against Banca Carime brought by Società

Cooperativa Costruire Srl; 4. two actions against UBI Banca for:

- a claim for damages for contractual liability, resulting from withdrawal from a contract concerning software;

- an employment action brought against the former Centrobanca, won in the court of first instance and then appealed against UBI Banca;

5. a summons for compounding of interest served on Banca Carime; 6. two actions brought against Banca Popolare di Bergamo, as follows:

- the purchase of covered warrants and Olivetti warrants (the latter via internet banking). The counterparty, not only alleges failure to receive proper information on the risks attaching to covered trades, but also disowned the signatures on the contract documents, required by regulations governing financial instruments and on the capital in question. Investigations performed by the internal audit function into the affair found no evidence of liability of the Bank in the transactions in question. Later the counterparty accepted that the signatures were his, but claimed that he had signed blank forms which had then been filled in abusively by the bank. A ruling by the court of first instance has been given in favour of the Bank;

- a claim brought by heirs in which both pre-contractual and contractual liability of the bank is claimed for investment transactions carried out by the counterparty. The first hearing was held on 20th April 2015 and the parties were granted a period in which to file documents. The judge did not set a date for a possible hearing at which evidence may be produced following the filing of the aforementioned documents;

7. an action brought against Banca Popolare di Ancona disputing various matters concerning loan transactions and damages for contractual and non-contractual liability.

Significant litigation (claims of greater than or equal to €5 million) for which a possible risk (or contingent liability) has been estimated by Group banks and companies are as follows:

UBI Banca

three legal actions have been initiated against the former Centrobanca and therefore against UBI Banca, as the survivor of the merger, from the bankruptcies of the Burani Group, all before the Court of Milan:

1) on 11th October 2011, Centrobanca was served with a writ of summons from the Burani Designers Holding NV (“BDH”) Receivership with which it claimed the bank was liable for “abusive grant of credit” in relation to a public tender offer to purchase launched by Mariella Burani Family Holding Spa in 2008 (“MBFH”) on the shares of Marella Burani Fashion Group Spa (“MBFG”);

2) on 1st March 2012, a similar writ of summons was served by the MBFH Receivership, based on arguments of fact and law similar to those already made in the summons

325 Notes to the consolidated accounts

served by the BDH Receivership. In both cases the claims for damages amounted to approximately €134 million and no provision was made for them because the bank, supported by reputable legal advisors, considered that the claims were without grounds and that if anything the bank itself (officially accepted as a creditor in all the creditor proceedings concerning the companies in the Burani Group) had incurred damages and certainly was not jointly responsible for the conduct of the Directors of the Burani Group. Furthermore, because the evidence used by the Receiverships to support their demands applied in part also to Mediobanca Spa and to Equita Sim Spa, the Bank decided to extend the proceedings to include these two companies;

3) finally on 26th March 2013, a writ of summons was served by the MBFH Receivership applying to revoke (clawback action) a payment made the year before to the bankrupt company relating to a repayment of €4 million that was due on 30th June 2009. According to the claimant, this payment was made irregularly, and that is by withholding the proceeds from the sale of securities which had been given in pledge.

A proposal for an arrangement with creditors has been filed for both bankruptcy cases (MBFH and BDH). In the case of MBFH, the arrangement with creditors proposal was definitively approved, while in the case of BDH, it is currently undergoing examination by the creditors. The matters pending with the Bank could also be settled on the conclusion of those proceedings. The total gross exposure of the UBI Banca Group to the Burani Group at the end of 2015 amounted to €59.9 million, which has been written down by 98.79%;

a compensation action, at the appeal stage following a ruling in favour of the Bank at the court of first instance, originating from the former Centrobanca for claimed damages brought by the official receiver of a company concerning the content of declarations made by the former Centrobanca to third parties regarding the availability of securities held on deposit at that bank. With a ruling of 4th December 2015, the Court of Appeal confirmed the ruling of the court of first instance in favour of the Bank. This ruling may be further appealed in the Supreme Court of Cassation.

three actions brought by parties beneficiaries of public contributions for various reasons in relation to which UBI Banca Spa (which took the place of Centrobanca Spa in arrangements the latter had entered into with authorities that subsidised loans to manage formalities connected with processing subsidy applications) has been summoned jointly and severally with those authorities in its capacity as the “concessionary bank” appointed by those same authorities. In detail:

1. a case pending before the T.A.R. (regional administrative tribunal) of Sicily in which the other party has applied for the annulment of a ministerial provision revoking subsidies granted temporarily amounting to €6.4 million following the seizure by the criminal courts of the production unit to which the subsidies had been granted;

2. a case pending before the T.A.R. (regional administrative tribunal) of Latium in which the other party has applied for the annulment of a ministerial provision revoking subsidies granted temporarily amounting to €11.6 million following the results of criminal investigations launched following inspections by the Guardia di Finanza (finance police) who it is alleged found serious irregularities in the management of the company. We report that the formalities for the subsidy application contested here were processed by Banca Italease, a member of a “Temporary Grouping of Businesses” led by UBI Banca which should hold the Bank free from any resulting expense and risk;

3. a case pending before the Civil Court of Rome in which the other party has applied for the annulment of a ministerial provision revoking subsidies granted (due to persistent arrears in the repayment of the loan granted by the Ministry of Economic Development, in compliance with the clearly stated regulations governing the matter) and the consequent commencement of the enforced recovery of the subsidies amounting to €4.3 million in addition to a claim for consequent damages, quantified at €24 million caused by revocation of the presumed credit lines granted by banks to the company. The formalities for the subsidy application contested here were processed by Banca Popolare dell’Emilia Romagna, a member of a “Temporary Grouping of Businesses” led by UBI Banca which should hold the Bank free from any resulting expense and risk.

326 Notes to the consolidated accounts

Banca Popolare di Bergamo

- claim for compensation for damages incurred due to alleged failure to comply with contractual obligations undertaken in relation to lending operations;

Banco di Brescia

- a summons served by a company with a bankruptcy case which began in 1999 and is still in progress, which in the person of the receiver has requested the return of amounts drawn/used in the period September 1997-June 1998 by the sole director who ceased to be a director in September 1997 without the Bank being informed. In December 2012 the Judge accepted the objections raised by the bank and dismissed the case. The counterparty resumed the case within the relative time limits. The next hearing, during which pleadings will be filed by the parties, has been set for 20th April 2017;

- a summons served on 30th June 2014 by the receivership of a corporate counterparty which went bankrupt in 2010, with which a claim for damages against banks (including Banco di Brescia) is proposed for alleged improper credit support which it is claimed delayed the winding up of the company with consequent damages to creditor claims and the assets of the company. The bank has already undertaken its defence and from an initial examination considers the claim to be completely without grounds both in terms of its legitimacy and merit.

Banca Popolare di Ancona

- two claims for damages relating to alleged irregularities in the credit granting process.

Banca Popolare Commercio e Industria

- claims relating to trading in securities by a corporate counterparty. The case was won by the Bank in the court of first instance in 2011. Following an appeal brought by the counterparty, on 2nd April 2015, the Court of Appeal rejected the application made by the claimant.

UBI Leasing

- a claim for damages brought by two counterparties for claimed failure to meet obligations under finance lease contracts relating to properties under construction;

- litigation relating to ownership of finance leased assets.

UBI Factor

The liabilities relate to risks connected with receivables collected following a legal injunction made temporarily executive in 2001 and then appealed against by the debtor, the Rome H Health Authority. The injunction was confirmed by the Court of Velletri with a ruling in 2005. In 2011, the Rome Court of Appeal issued a ruling partially overturning the decision of the court of first instance and allowing continuation, for the redefinition of the receivables by a court-appointed expert on the basis of applying regional rates instead of ministerial rates (for a higher amount) applied by the seller when the invoices sold to UBI Factor were issued. UBI Factor and the seller (originally Hospital Appia Srl, which was then merged into San Raffaele Spa, part of the Tosinvest/Angelucci Group) undertook the following initiatives against the partial ruling: a) appeal to the Supreme Court, identifying as many as 13 grounds for objection; b) an action before the Court of Appeal for a revocation judgement regarding the erroneous

nature of the ruling in the Court of first instance. With a ruling of 10th January 2014, the Rome Court of Appeal rejected the application for revocation considering that the case could be appealed in the Supreme Court;

c) an appeal before the Supreme Court against the ruling of the Court of Appeal in the revocation judgement.

In consideration of the ruling of the Supreme Court (point “a” above), which in fact also absorbs the others mentioned above, the company, with support from its legal advisors, considered that the risk of losing was very unlikely. For full information, we also report that in the event of a final judgement against the company, the Health Authority could claim from UBI Factor the part over and above the amount of the redefinition of the receivables, which in the appeal judgement that concluded with a partial ruling in 2011 had been quantified by the court-appointed expert at

327 Notes to the consolidated accounts

approximately €60 million, which was then reduced to €46.8 million (the amount calculated by the court-appointed expert in the draft appraisal sent to the parties in May 2015). In this case, UBI Factor could claim against the seller, the Tosinvest/Angelucci Group, on the basis of the contract agreements in force. Compared with the notes to the Consolidated Financial Statements in the consolidated 2014 Annual Report, the following disputes have been concluded: action seeking compensation for damages, due to contractual liability, relating to the withdrawal from an ex Silf Spa agency contract, against UBI Banca; an action originating from the former Centrobanca with a government counterparty concerning an application for the restitution of a payment collected following the enforcement of a guarantee granted; action against Banco di Brescia by a company subject to an arrangement with creditors, relative to the availability of funds relative to portfolio advances suspended in application of Art. 169-bis of the Bankruptcy Law; action against the Banca Popolare di Bergamo relative to opposition to a court order, compounded interest and compensation for damages deriving from erroneously protested cheques, following the final judgement of the court of first instance in favour of the bank. Shareholder meeting annulment

On the 18th of July 2013, summons were served on UBI Banca by Giorgio Jannone and other registered shareholders which, to summarise, applied for the following declarations (i) that the only list valid for nominating members of the Supervisory Board of the Bank by the ordinary shareholders assembly held on 20th April 2013 was that submitted, among others, by the registered shareholder, the same Jannone and others, following the ascertainment of the irregularities in the other two lists, which had obtained a greater number of votes during that meeting; or alternatively (ii) the invalidity of the shareholders’ resolution concerning the appointment to company offices; or as a second alternative (iii) the invalidity of some of the votes cast during a particular period of time in the proceedings of the shareholders’ meeting (when the voting commenced). The Bank considers that the procedures preliminary to the shareholders meeting to check the lists presented were carried out correctly and that the proceedings of the shareholders’ meeting were also carried out properly. It therefore judges the claims made in that summons to be without foundation. In a hearing of 19th June 2014, the Investigating Magistrate, having considered the preliminary questions raised by UBI Banca concerning the legitimacy of the parties to be relevant, ordered a court-appointed expert to verify whether the necessary quorum to challenge the shareholders’ resolution mentioned above had existed. On 27th May 2015 the Investigating Magistrate accepted the applications formulated by UBI Banca and referred the case back to the panel for a decision on the initial question of merit raised by UBI Banca, setting the date of the hearing for the specification of pleadings for 29th October 2015. During the hearing of 29th October 2015 the parties filed their respective pleadings. The court then adjourned the case allowing the parties until 28th January 2015 to make final pleadings and a further period until 17th January 2016 for the defence to make its reply. Anti money-laundering notifications In 2015 the Guardia di Finanza (Finance Police) served two “Written notifications of findings” on the UBI Banca Group for failure to report suspect transactions in accordance with “Anti Money-Laundering” law. • the first notification was in relation to transactions performed by a customer at a branch of the Banca Popolare di Bergamo. The total value of the suspect transactions in this case amounts to €1.46 million, which could result in potential fines ranging from a minimum of €15 thousand to a maximum of €584 thousand; • the second notification involved transactions performed by a customer of the Banca Popolare di Ancona. The total value of the transactions in question amounted to €360

328 Notes to the consolidated accounts

thousand, which would mean potential fines of a minimum of €3 thousand and a maximum of €144 thousand. The defence documents against the claims were filed with the Ministry of the Economy and Finance (MEF) within the set time limits. In relation to notifications currently being processed, in the year the MEF imposed administrative fines totalling €467 thousand on three managers of Banca Popolare di Ancona branches in relation to four charges of failure to make reports notified by the Finance Police in 2010, the last pending for that year. For two of those fines, imposed on one single manager, relating to transactions totalling €6 million and with potential minimum fines of €301 thousand and a maximum fine of €3 million, UBI Banca was held jointly and severally liable; for one of these positions (in which a fine of €163 thousand was imposed) the Court of Rome in September suspended the enforceability of the penalty. For two of the fines Banca Popolare di Ancona is jointly and severally liable. They relate to transactions totalling €3.4 million, which entailed potential fines ranging from a minimum of €171 thousand to a maximum of €1.7 million. An appeal was filed against the fines before the court of Rome by the prescribed deadline2. At the beginning of June the Ancona Court of Appeal rejected appeals brought by the MEF against the annulment in the court of first instance by the Court of Macerata of fines totalling €426 thousand imposed on managers of Banca Popolare di Ancona branches in relation to two charges of failing to make reports notified by the Finance Police in 2007, with joint and several liability for the bank. The fines related to transactions totalling €4.2 million, which entailed potential fines ranging from a minimum of €212 thousand to a maximum of €2.1 million. The MEF was ordered to refund the costs of the parties against whom the appeal was brought. At the end of June the Court of Rome rejected an appeal against a fine of €120 thousand imposed in April 2013 for a charge made in 2008 against the manager of a Banca Carime branch with the bank jointly and severally liable for €70 thousand. an appeal was lodged against the first instance sentence. In November the court of first instance confirmed the €204 thousand fine imposed on a Banca Popolare di Ancona branch manager in relation to a charge of failing to report a suspect transaction notified in 2010 by Italy's Financial Intelligence Unit (UIF) relating to transactions totalling €2.12 million, which entailed a fine ranging from a minimum of €79 thousand to a maximum of €993 thousand; the first instance sentence was appealed. At the end of December, the Court of Rome issued a judgement in relation to the petition to suspend the enforceability of a fine imposed on a branch manager of the Banca Popolare di Ancona for which the Bank is jointly and severally liable, suspending the enforceability solely against the Banca Popolare di Ancona. Civil proceedings are currently underway at the court of first instance for this case. Finally, on 25th November the MEF dismissed two charges of failure to report, brought in 2011 by the Finance Police against Banco di Brescia and Banca Popolare Commercio & Industria branch managers, which would have resulted in maximum fines of, respectively, €497 thousand and €96 thousand. Tax litigation Tax inspections and other investigative activities

Investigation activity by the Guardia di Finanza (Finance Police), with the notification of the relative tax assessment report, into the Luxembourg subsidiary UBI Management Company whose company objects are the collective management of portfolios, was concluded in the period. In that report the investigators considered that the company was only formally resident in Luxembourg, while from a tax viewpoint it was considered resident. Fully convinced of its proper conduct, the company filed a reasoned defence with the office of the tax authorities (Provincial Department I of Milan) responsible for the issue of a formal tax assessment and the imposition of fines. The tax inspection into UBI SICAV, a Luxembourg collective investment undertaking managed by UBI Management Company, is still in progress.

2 The appeal was lodged in accordance with the combined provisions of Art. 22 of Law No. 689/1981 and subsequent additions and

amendments, Art. 6 of Legislative Decree No. 150/2011 and Art. 60, paragraph 2-bis of Legislative Decree No. 231/2007.

329 Notes to the consolidated accounts

On 16th September 2015 the tax inspection into the Banco di Brescia for the year 2010, begun on began on 28th January 2015 and carried out by the Lombardy Regional Department the tax authorities, came to a close, resulting in a tax assessment report containing only two findings. The first concerned the recalculation for corporate income tax (IRES) purposes of the value of the contribution of the Luxembourg branch of that bank to UBI Banca International, qualified as higher taxable income (for IRES purposes) of approximately €1.1 million and as a result greater IRES of approximately €0.3 million (plus interest and fines). Given that the violation relating to the value of the branch was based essentially on estimates and forecasts and not on fiscal regulation, the Banco di Brescia deemed it opportune to close the matter by means of a voluntary disclosure, paying on 22nd October 2015 the sum of €0.4 million (of which €0.3 million in IRES and the rest in interest and reduced fines). The second finding concerned the VAT regime for fees and commissions received by the Banco di Brescia for the management and receipt of loans transferred to securitisation entities pursuant to law No. 130/1999. The report was followed by a notice of tax assessment, about which more later. On 4th September 2015 a short inspection into Banca Carime by the Regional Tax Department of Calabria was concluded. It regarded fees and commissions received by Banca Carime in 2010 for the management and receipt of loans transferred to securitisation entities pursuant to law No. 130/1999. The inspection was followed by a notice of tax assessment, about which more later. On 29th September 2015 the tax inspection into Banca Popolare di Ancona commenced on 22nd July 2015 by the Regional Tax Department for the Marches Region for the tax years 2010, 2011 and 2012 concerning IRES, IRAP (regional production tax) and VAT was concluded. The tax assessment report drawn up by the inspectors contained one single finding relating to the VAT regime for fees and commissions received by the bank for the management and receipt of loans transferred to securitisation entities pursuant to law No. 130/1999. The tax assessment report was followed by a notice of tax assessment, about which more later. On 10th December 2015 the tax inspection into UBI Leasing begun on 29th October 2015 by the Brescia tax unit of the Guardia of Finanza (finance police) for the year 2010 came to a close. The tax assessment report indicates as being objectively non-existent the purchase of industrial equipment which was the object of a leasing contract, and therefore the VAT deduction for said purchase is contested (approximately €0.4 million) and the same report also cites a violation related to the alleged failure to file a correct VAT return for that year. Fully convinced of its proper conduct, the company is finalising its reasoned defence, which will be presented to the Brescia Provincial Department of the tax authorities, the competent authority responsible for issuing any eventual tax assessment and fine in this matter, and will evaluate further initiatives as they become necessary. On 30th December 2015 the Calabria Regional Department of the tax authorities, as part of a general investigation of the year 2011, begun on 9th December 2015, delivered a tax assessment report to the Banca Carime, contesting the deduction for corporate income tax (IRES) purposes of certain losses on loans, citing the lack of the "certainty and precision" required by tax regulations, quantifying a taxable amount corresponding to an increased IRES due of approximately €0.3 million. The observations to be used by Banca Carime to contest the tax authority's findings, based on documented evidence concerning the "certainty and precision" requirements established by applicable fiscal regulations, are currently being drafted. Assessment notices medium to long-term loans - substitute tax pursuant to presidential decree no. 601/1973

The dispute concerns the alleged failure to pay a substitute tax on loan contracts stipulated abroad.

With regard to the appeals lodged against payment demands notified to the Parent and to the subsidiaries Banca Popolare di Bergamo, Banco di Brescia and Banca Popolare Commercio e Industria, the following events occurred in the period:

Banca Popolare di Bergamo: two payment demands notified and appealed against in the courts in prior years were annulled (one on which final judgement was passed by the court and the other annulled under “internal review” procedures by the tax authorities);

330 Notes to the consolidated accounts

Banco di Brescia: two payment demands notified and appealed against in the courts in prior years were annulled under “internal review”;

Banca Popolare Commercio e Industria: three of the four tax payment demand notices served and appealed in court in previous years were annulled under “internal review” procedures by the tax authorities, while for the fourth, on 29th February 2016, a hearing in the matter is scheduled at the Milan Provincial Tax Commission;

UBI Banca (ex Centrobanca): of the four tax demand notices served and appealed, one was the subject of a favourable ruling, now definitive, by the Provincial Commission, another was annulled under “internal review” procedures by the tax authorities, with the consequent dismissal of the claim, while dates have yet to be set for hearings for remaining two.

Thus, overall, of the twelve notices appealed, nine were concluded by the authority's internal review procedures or with a favourable decision, while the remaining three appeals are currently in the hearing stages. The successful results for the UBI Banca Group are in line with similar proceedings initiated by other banks and the tax authorities themselves are generally inclined to issue “internal review” provisions except in cases where documents are found which fully replicate the content, including the signature, of a contract subsequently signed abroad. PREFERENCE SHARES – UBI BANCA AND BANCO DI BRESCIA – AND REGISTRATION DUTIES

BRANCH TRANSFER TRANSACTIONS – UBI BANCA, BANCA POPOLARE DI BERGAMO, BANCO

DI BRESCIA, BANCA POPOLARE COMMERCIO E INDUSTRIA, BANCA REGIONALE EUROPEA As part of the activities aiming to mitigate the risk connected to contingent liabilities, including those relating to tax matters, it was deemed opportune to reach a settlement with the tax authority on a series of cases involving two diverse matters, the Preference Shares issue and the branch switch question, involving for the Group a potential tax risk, including taxes due, interest and fines, of €256 million. The settlement agreement stipulated on 4th February 2016 involves the conclusion of all the litigation connected with the two areas in question for all years already assessed and currently being assessed, by means of the payment of taxes in an amount recalculated by the tax authorities and of the related interest. The impact on the consolidated income statement for 2015, subject to normalisation, came to €25.6 million, after the deduction of provisions made from time to time in the accounts to cover the tax risk. UBI BANCA: IRPEG (ITALIAN CORPORATE INCOME TAX) In November 2011 UBI Banca (formerly BPU Banca) was served with a notice of assessment in relation to its tax treatment for IRPEG (former corporate income tax) purposes of the contribution of a bank made on 1st July 2003 to the then newly formed Popolare di Bergamo Spa and Banca Popolare Commercio e Industria Spa. In particular, the full deduction (i.e. tax recovery) by the transferor BPU Banca of the taxed provisions for risks and charges set aside in previous years was disputed. In 2015 the Milan Provincial Tax Commission upheld the UBI Banca appeal, acknowledging that the notice of tax assessment had been served outside the ordinary legal time-limits and without meeting the legal conditions for supplementary assessments. As a result of that ruling the tax authorities issued a provision agreeing to withdraw the payment demand for €8.3 million notified in 2014 to UBI Banca, which had already been suspended by the Tax Commission. The tax authorities lodged an appeal on 19th October 2015 to the Regional Tax Commission of Milan against which the bank promptly filed its defence.

331 Notes to the consolidated accounts

UBI BANCA FORMER CENTROBANCA: IRES (CORPORATE INCOME TAX) LOSSES ON

LOANS In 2009 the Regional Department for Lombardy of the tax authorities served a notice of assessment on Centrobanca for the tax year 2006, demanding an extra €2.7 million of IRES, fines of €3.8 million and interest. More specifically, the tax authorities mainly disputed a deduction for losses on loans due to the absence of the requirements of “certainty and precision” required by the tax rules. Centrobanca lodged an appeal with the Tax Commission of the Province of Milan. In February 2015, UBI Banca (as the survivor of the merger with Centrobanca) and the tax authorities signed a reconciliation agreement which quantified the increased tax due at €0.1 million (compared with an original demand for €2.7 million) and the fines and interest at €0.1 million (compared with an original demand for €3.8 million in fines alone). That reconciliation was acknowledged in a hearing of 2nd March 2015 by the Tax Commission of the Province of Milan which declared the matter finally closed. VAT - MANAGEMENT AND RECEIVABLES COLLECTION COMMISSIONS: NETWORK BANKS

AND UBI FINANCE

In 2014 the tax authorities served Banca Regionale Europea and Banco di Brescia with a notice of assessment for the tax year 2009 for failure to pay VAT on fees and commissions paid to securitisation companies for the management and collection of loans, which Group banks had on the other hand considered exempt from VAT. The extra taxation demanded of Banca Regionale Europea amounted to €61 thousand, plus interest and fines, while the extra taxation demanded of Banco di Brescia amounted to €143 thousand, plus interest and fines. The two banks have appealed against the notices of tax assessment before the competent tax commissions. The hearing on the matter involving the Banca Regionale Europea was held on 11th January 2016 and the commission reserved pronouncement of its decision. A date for the hearing in the Banco di Brescia case has yet to be set. In June 2015 similar tax assessments were served to IW Bank (ex UBI Banca Private Investment) for the years 2011, 2012 and 2013, for extra taxation amounting to €42 thousand, plus interest and fines. IW Bank filed an appeal against the tax assessments within the terms established by law. In November and December 2015 similar tax assessments for the year 2010 were served to Banca Popolare Commercio e Industria (extra taxation amounting to €18 thousand), Banca Popolare di Bergamo (extra taxation amounting to €136 thousand), Banca di Val Camonica (extra taxation amounting to €3 thousand), Banco di Brescia (extra taxation amounting to €140 thousand), Banca Carime (extra taxation amounting to €9 thousand), Banca Popolare di Ancona (extra taxation amounting to €30 thousand) e Banca Regionale Europea (ex Banco di San Giorgio – extra taxation amounting to €15 thousand). The banks filed appeals against the tax assessments within the terms established by law. Overall, the above tax assessments quantified extra VAT due amounting to €0.6 million, in addition to interest and fines.

Finally, to complete the information provided here, we report that on 30th October 2014 the tax authority levied fines against UBI Finance Srl - as a counterparty for the purposes of VAT in the above transactions - for the year 2009; the defence in the matter was filed the following December. On 15th December 2015, the tax authority rejected said defence, serving a notice of fines totalling €0.2 million. The company will file an appeal with the competent Provincial Tax Commission. On 15th December 2015 the tax authority levied a fine against UBI Finance Srl, for the year 2010, totalling €0.4 million. UBI Finance will file its defence within the time limits.

BANCA REGIONALE EUROPEA: FAILURE TO PAY 2003 IRPEG ADVANCE TAX

In 2007 Equitalia Cuneo, on behalf of the Cuneo Offices of the tax authority, sent a demand for payment totalling €1.3 million (of which €1.25 million in fines, in addition to late-payment interest and collection fees) for alleged partial failure to pay the first IRPEG advance tax payment due for the year 2003.

332 Notes to the consolidated accounts

The question stems from a clerical error committed by the Banca Regionale Europea, which during the drafting of the 2003 IRPEG tax return indicated an advance tax paid of €8.4 million instead of the correct figure, effectively paid, of approximately €15.4 million. Following notice by fax in December 2006 from the Cuneo office of the tax authority, the Banca Regionale Europea acted to rectify the error, presenting a supplementary declaration indicating the correct amount, paid as advance tax (though the application of existing IRPEG credit as compensation), of €15.4 million. Despite the fact that the supplementary declaration was issued at the specific request of the Cuneo office of the tax authority, the same imposed a fine on the Banca Regionale Europea for failure to pay the advance tax. The bank filed an appeal against the demand for payment. Overturning the Provincial Tax Commission's negative decision, the Regional Tax Commission of Turin ruled in favour of the bank, accepting its appeal and annulling the demand for payment on the basis of the bank's good faith in committing a mere clerical error, with the consequent inapplicability of the fine pursuant to the provisions of the Taxpayers' Statute. In December 2009 the tax authority, through the Italian Attorney General's Office, appealed Turin commission’s decision to the Court of Cassation. The bank filed a defensive in February 2010 claiming both the inadmissibility and the unfoundedness of the tax authority's appeal. With a decision issued on 15 January 2016, following a hearing held on 26 November 2015, the Court of Cassation upheld the authority's appeal, considering, in particular, the erroneous indication of the 2003 IRPEG advance tax in a lower amount than that actually due to be violation of substance rather than purely of form, without taking into any account whatsoever the bank's good faith, despite the fact that such good faith had been acknowledged by the Regional Commission, on the basis of indications provided by the same authority. Thus in all likelihood a demand for payment of fines (approximately €1.25 million), in addition to interest and collection fees, already returned to the bank in 2012 after the favourable decision handed down by the Regional Tax Commission. UBI BANCA, BPB IMMOBILIARE E BANCA CARIME: CONTRIBUTIONS OF IMMOBILIARE

SERICO

The companies of the UBI Banca Group initiated legal proceedings to contest notices of tax assessment with which the financial authorities had re-qualified the 2003 contribution of Immobiliare Serico as sales of real property - while the Group's companies had considered the same to be a contribution of company operations - with the consequent demands of additional IRPEG, VAT and related penalties totalling €82.8 million. The companies won at first instance and on appeal. However, the State Attorney’s Office appealed to the Supreme Court against the judgements in favour of the Group's companies. The companies duly entered an appearance in the proceedings; a date for the hearings has yet to bet set. With regard to the litigation in question, in the light, amongst other things, of expert opinions given to the Company, the risk of losing is considered unlikely, bearing in mind also the victories at first instance and on appeal. In the meantime no demand for actual payment of the taxes has been made.

UBI LEASING: IRES - VAT

In July 2014 this company was served a notice of assessment (€37 thousand of increased IRES, plus fines and interest) for alleged failure to recognise income on the final purchase of properties subject to property leasing contracts where the purchaser had in the meantime set a higher value on the asset for the purposes of mortgage and land registry taxes. The arguments put forward by the tax authorities are in contrast with the very nature of the contracts, with the tax authorities own practices (Resolution No. 12/E/2007) and with procedures for recognising revenue according to established accounting standards and consequently an application for annulment with grounds was made under “internal review” procedures. In February 2015 the tax authorities accepted that application and completely annulled the notice of assessment.

333 Notes to the consolidated accounts

In February 2015 the company resolved a dispute with the tax authority principally concerning boat leases featuring extremely large rental fees and allegedly non-existent transactions: a settlement agreement was reached, providing for a total payout (VAT, interest, and reduced fines) of €0.7 million, against an original demand of €7.3 million (of which €1.4 million in VAT and €5.9 million in fees) plus interest, for the year 2006. In September 2015 this company settled two cases of litigation with the Regional Tax Department of the Marches, for the tax years 2003 and 2004 in relation to alleged non-existent transactions. The relative conciliation agreements involved a total payout (VAT and reduced fines, plus interest) of €84 thousand compared with an original claim of €155 thousand. SECTION 13 Technical reserves – Item 130 No amounts were recognised within item 130 “Technical reserves”, neither as at 31/12/2015 nor as at 31/12/2014. SECTION 14 Redeemable shares – Item 150 14.1 Redeemable shares: composition No shares have been issued with redemption clauses. SECTION 15 Equity attributable to the Parent – Items 140, 160, 170, 180, 190, 200 and 220 15.1 “Share capital” and “Treasury shares”: composition

31.12.2015 31.12.2014

Number of ordinary shares 901,748,572 901,748,572

Number of treasury shares 1,431,829 1,483,192

- NOTA The share capital of UBI Banca Spa as at 31st December 2015 amounted to €2,254,371,430 divided into 901,748,572 shares with no nominal value and it has not changed compared with 31st December 2014.

334 Notes to the consolidated accounts

15.2 Share capital – Number of shares of the Parent: annual changes

Items /type Ordinary Other

A. Shares existing at the beginning of the year 901,748,572 -

- fully paid up 901,748,572 -

- not fully paid up -

A.1 T reasury shares (-) (1,483,192) -

A.2 Outstanding shares: initial number 900,265,380 -

B. Increases 51,363 -

B.1 New issues - -

- by payment: - -

- business combinations -

- conversion of bonds -

- exercise of w arrants

- other

- free of charge: - -

- in favour of employees - -

- in favour of directors - -

- other - -

B.2 Sale of treasury shares

B.3 Other changes 51,363

C. Decreases - -

C.1 Cancellation - -

C.2 P urchase of treasury shares - -

C.3 Company disposal operations - -

C. 4 Other changes - -

D. Outstanding shares: closing balances 900,316,743 -

D.1 T reasury shares (+) 1,431,829 -

D.2 Shares outstanding at the end of the year 901,748,572 -

- fully paid up 901,748,572

- not fully paid up

15.3 Share capital: other information A total of 51,363 treasury shares were granted during the year, as part of “UBI Banca Group 2015” remuneration and incentive policies”. For further details see “Part I – Share-based payments”. 15.4 Reserves of profits: other information The reserves of profits in the consolidated financial statements increased by €117,045 thousand due primarily to the capitalisation of 2014 profit net of the dividend distribution and charitable donations. 15.5 Other information Nothing to report.

335 Notes to the consolidated accounts

SECTION 16 Non-controlling interests – Item 210 16.1 Details of the item 210 “non-controlling interests”

Name of companies 31/12/2015 31/12/2014Equity investments in consolidated companies w ith significant non-controll ing

1. Banca Regionale Europea 265,954 269,913 2. Banca Popolare Commercio e Industria 197,087 196,859 3. UBI Pramerica 63,720 57,028 4. Banca Valle Camonica (2) n.s. 24,345 5. CARIME (1) n.s. n.s. 6. Banca Popolare Ancona (1) n.s. n.s.

Other equity investments 9,140 6,874

Total 535,901 555,019

(1) Non-controlling interests for Banca Popolare di Ancona and Banca Carime are not considered significant in 2014 because sufficient

shares were purchased from non-controlling interests during the year to bring the stake held in the two banks close to 100%.

(2) Non-controlling interests for Banca Valle Camonica are not considered significant in 2015 because during that year sufficient shares

were purchased from non-controlling interests to bring the stake held in the bank close to 100%.

16.2 Capital instruments: composition and annual changes Nothing to report.

336 Notes to the consolidated accounts

OTHER INFORMATION 1. Guarantees granted and commitments

Transactions 31.12.2015 31.12.2014

1) Guarantees granted of a financial nature 1,897,702 2,131,951

a) Banks 190,170 234,287

b) Customers 1,707,532 1,897,664

2) Guarantees granted of a commercial nature 3,918,539 4,039,363

a) Banks 174,393 215,854

b) Customers 3,744,146 3,823,509

3) Irrevocable commitments to pay funds 4,073,950 4,194,701

a) Banks 65,435 390,929

i) of certain use 65,435 390,929

ii ) of uncertain use - -

b) Customers 4,008,515 3,803,772

i) of certain use 184,765 189,822

ii ) of uncertain use 3,823,750 3,613,950

4) Commitments underlying credit derivatives: protection sales - -

5) Assets pledged to guarantee obligations to th ird parties - -

6) Other commitments 12,437 646,070

Total 9,902,628 11,012,085

bella 1: 301000O|1 – NOTA 2. Assets pledged to secure own liabilities and commitments

Portfol ios 31.12.2015 31.12.2014

1. Financial assets held for trading 419,262 415,950

2. Financial assets designated at fair value - -

3. Available-for-sale financial assets 8,053,685 10,568,849

4. Held-to-maturity investments 2,644,891 1,850,111

5. Loans and advances to banks - -

6. Loans and advances to customers 21,651,323 21,732,955

7. P roperty, plant and equipment - -

The table summarises assets recognised in the balance sheet pledged by the UBI Group to secure its liabilities. The amount shown in line item 6 “Loans and advances to customers" includes €17,655,267 thousand relating to the mortgages transferred to the special purpose entities UBI Finance Srl and UBI Finance CB2 Srl as part of the programme to issue covered bonds. It also includes loans and receivables amounting to €1,980,714 thousand relating to the issue of covered bonds by the Parent, UBI Banca Spa. The above is summarised as follows: - UBI Banca Spa 1,980,714 1,980,950 - UBI Finance Srl 14,459,326 14,530,115 - UBI Finance CB2 Srl 3,195,941 3,154,611

- Total 19,635,981 19,665,676

337 Notes to the consolidated accounts

The financial assets contained in the table relate to securities owned, pledged to guarantee liabilities and commitments of the Group as follows:

Portfolios

Financial assets held for trading

Repurchase agreements 419,262

419,262

Available-for-sale financial assets

Bank of Italy Advances 3,984,726

Repurchase agreements 3,934,201

Credit Card Issuance -

EIB Financing 70,076

Other transactions 64,682

8,053,685

Held-to-maturity investments Repurchase agreements 1,691,268 Bank of Italy Advances 953,623

2,644,891

Loans and advances to banks Repurchase agreements

-

Loans to customers Bank of Italy Advances 780,924

EIB Financing 1,234,418

Mortgages to back covered bonds 19,635,981

21,651,323

Guarantees of l iabilities or commitments

In addition to the assets reported above, securities were also pledged as guarantees as follows:

To guarantee L iabi l i ties and Commitments

Bank of Italy Advances 2,145,268

Nominal amount of securi ties i ssued by third parties

The securities issued by Group companies are notes – senior tranches – issued by the special purpose entities for securitisations of the following originators:

UBI Leasing: €468.7 million nominal; Banca Popolare di Ancona: €344.2 million nominal; Banco di Brescia: €239.9 million nominal; Banca Popolare Commercio e Industria: €157.5 million nominal; UBI Banca (former Banca 24-7): €934.9 million nominal.

The instruments issued by the Bank consisted of covered bonds issued at a floating rate for €3,450 million nominal.

338 Notes to the consolidated accounts

3. Information on operating leases No items of this type exist. 4. Composition of investments for unit-linked and index-linked policies No items of this type exist. 5. Management and intermediation on behalf of third parties

Type of services Amounts

1. Execution of orders on behalf of customers 106,142,749

a) Purchases 52,363,402

1. Settled 52,354,547

2. Not settled 8,855

b) Sales 53,779,347

1. Settled 53,770,817

2. Not settled 8,530

2. Portfolio managements 43,071,800

a) Individual 21,587,044

b) Collective 21,484,756

3. Custody and administration of securities 96,431,877

a) Securities of third parties held on deposit: connected with depository bank activity (not including portfolio management)

1. Securities issued by companies included in the consolidation

2. Other securities

b) Securities of third parties held on deposit (not including portfolio management): other 69,013,948

1. Securities issued by companies included in the consolidation 31,693,518

2. Other securities 37,320,430

c) Securities belonging to third parties, deposited with third parties 67,101,630

d) Own securities deposited with third parties 27,417,929

4. Other transactions 301,596,506

6. Financial assets subject to offsetting in the financial statements, or subject to

master netting arrangements or similar agreements.

Strumenti f inanziari (d)

Depositi di contante

ricevuti in garanzia (e)

1. Derivatives 758,603 - 758,603 431,427 324,356 2,820 4,445

2. Repurchase agreements 770,335 - 770,335 769,577 - 758 1,652

3. Stock lending - - - - - - -

4. Other transactions - - - - - - -

Total 31.12.2015 1,528,938 - 1,528,938 1,201,004 324,356 3,578 X

Total 31.12.2014 1,355,397 - 1,355,397 1,043,730 305,570 X 6,097

Type of instrument

Gross amount of the

financial assets (a)

Amount of the financial l iabi l i ties

offset in the accounts (b)

Net amount of the financial

assets reported in the accounts

(c=a-b)

Net amount 31.12.2015

(f=c-d-e)

Net amount 31.12.2014

Related amounts not offset in the accounts

339 Notes to the consolidated accounts

7. Financial liabilities subject to offsetting in the financial statements, or subject to

master netting arrangements or similar agreements.

Financial instruments

(d)

Cash deposits lodged as

col l ateral (e)

1. Derivatives 1,232,207 - 1,232,207 431,427 797,631 3,149 24,528

2. Repurchase agreements 6,107,667 - 6,107,667 6,099,880 7,787 - -

3. Stock lending - - - - - - -

4. Other transactions - - - - - - -

Total 31.12.2015 7,339,874 - 7,339,874 6,531,307 805,418 3,149 X

Total 31.12.2014 7,373,978 - 7,373,978 6,299,200 1,050,250 X 24,528

Net amount 31.12.2014

Type of instrument

Gross amount of the

financial l iabi l i ties (a)

Amount of financial

assets offset in the

accounts (b)

Net amount of the financial

l iabi l ities reported in the accounts (c=a-b)

Related amounts not offset in the accounts

Net amount 31.12.2015

(f=c-d-e)

With regard to derivatives, no offsetting has been carried out in the accounts between the same counterparties, because not all of the criteria laid down by IAS 32 are present. The following has been reported in the columns for related amounts not subject to offsetting: the value of the related derivative by single counterparty up to the full amount under financial instruments, while the margin deposits are given up to the full amount, again for single related counterparty under the column for deposits received or made. As a consequence, given the related items for derivatives assets and liabilities and the amount of the respective margin deposits received or made, the column for the net amount (table 6) represents the residual exposure solely of the Parent by counterparty of €1.6 million, while the residual exposure of third parties (table 7) is €14.1 million. The conditions were also not met for offsetting asset and liability repo positions with the same counterparties in the financial statements because not all of the criteria laid down by IAS 32 are present. In table 6, the following has been reported in the columns for related amounts not subject to offsetting: the fair value of the underlying security by single counterparty up to the full amount under financial instruments, while the margin deposits are given similarly up to the full amount, also by single related counterparty under the column for deposits received, with a positive balance of €758 thousand. 8. Stock lending transactions The UBI Banca Group offers a stock lending service through the company IW Bank Spa for both institutional and retail counterparties. For retail counterparties this service allows customers to both borrow securities (against payment of commission) and to lend securities (in return for consideration paid by IW Bank). As concerns institutional counterparties, on the other hand, IW Bank lends securities to counterparties in return for a commission. 9. Information on joint arrangements Nothing to report.

340 Notes to the consolidated accounts

Part C – Notes to the consolidated income statement SECTION 1 Interest – Items 10 and 20 1.1 Interest income and similar: composition

Items/TypeDebt

instrumentsFinancing

Other transactions

2015 2014

1. Financial assets held for trading 2,654 - - 2,654 22,377

2. Financial assets designated at fair value - - - - -

3. Available-for-sale financial assets 373,243 - - 373,243 418,985

4. Held-to-maturity investments 45,809 - - 45,809 97,731

5. Loans and advances to banks - 6,169 - 6,169 6,007

6. Loans and advances to customers 41 2,039,100 901 2,040,042 2,418,176

7. Hedging derivatives X X 41,048 41,048 51,593

8. Other assets X X 236 236 189

Total 421,747 2,045,269 42,185 2,509,201 3,015,058

Interest on impaired assets relates almost entirely to loans to customers and totalled €235,138 thousand. 1.2 Interest income and similar: hedging differentials

Items 2015 2014

A. P ositive differentials on hedging transactions 263,211 334,890

B. Negative differentials on hedging transactions (222,163) (283,297)

C. Bal ance (A-B) 41,048 51,593

1.3 Interest and similar income: other information 1.3.1 Interest income on financial assets held in foreign currency 1.3.2 Interest income on finance lease transactions

Items/Amounts 2015 2014

Interest income on financial assets held in foreign currency 37,349 34,642

Interest income on finance lease transactions 138,058 158,693

e 2: 501030O|1 - NOTA

341 Notes to the consolidated accounts

1.4 Interest expense and similar: composition

Items/Type Borrow ings SecuritiesOther

transactions2015 2014

1. Due to central banks (7,111) X - (7,111) (19,847)

2. Due to banks (11,307) X - (11,307) (23,379)

3. Due to customers (83,047) X (124) (83,171) (181,263)

4. Debt securities issued X (774,342) - (774,342) (956,223)

5. Financial l iabilities held for trading (2,199) - - (2,199) (15,959)

6. Financial l iabilities designated at fair value - - - - -

7. Other liabilities and provisions X X (16) (16) -

8. Hedging derivatives X X - - -

Total (103,664) (774,342) (140) (878,146) (1,196,671)

The item interest expense payable to central banks consists mainly of interest accruing during the year on financing obtained from the ECB. The following refinancing operations existed under the ECB TLTRO issuance programme as at 31st December 2015: - €2.9 billion nominal, maturity 26.09.2018 rate 0.05% (TLTRO loan) - €2 billion nominal, maturity 26.09.2018 rate 0.05% (TLTRO loan) - €3.2 billion nominal, maturity 26.09.2018 rate 0.15%. (TLTRO loan) e502000O|1 - NOTA3_ALTRE 1.5 Interest expense and similar: hedging differentials The interest balance for margins on hedging differentials to 31st December 2015, was positive. Details are given in Table 1.2 earlier in this section. 1.6 Interest expense and similar: other information 1.6.1 Interest expense on liabilities held in foreign currency 1.6.2 Interest expense on liabilities for finance lease transactions

Items/Amounts 2015 2014

Interest expense on liabilities held in foreign currency (13,016) (15,815)

Interest expense on finance lease transactions (355) (411)

Table 3: 502020O|1 - NOTA

342 Notes to the consolidated accounts

SECTION 2 Commissions – Items 40 and 50 2.1 Fee and commission income: composition

Type of services/Segments 2015 2014

a) guarantees granted 47,030 51,128

b) credit derivatives - -

c) management, trading and advisory services: 799,193 713,279

1. trading in financial instruments 19,611 22,111

2. foreign exchange trading 6,979 6,456

3. portfolio management 341,735 279,941

3.1. individual 73,742 67,619

3.2. collective 267,993 212,322

4. custody and administration of securities 8,488 9,154

5. depository banking - -

6. placement of securities 194,364 170,381

7. receipt and transmission of orders 43,084 49,002

8. advisory activities 5,454 4,358

8.1 on investments 5,454 4,358

8.2 on financial structure - -

9. distribution of th ird party services 179,478 171,876

9.1. portfolio management 29 32

9.1.1. individual 29 32

9.1.2. collective - -

9.2. insurance products 149,607 133,063

9.3. other products 29,842 38,781

d) collection and payment services 160,099 163,087

e) servicer activities for securitisation transactions - -

f) services for factoring transactions 15,749 18,703

g) tax collection and payment services - -

h ) management of multilateral trading systems - -

i) current account administration 194,782 203,960

j) other services 272,000 253,149

Total 1,488,853 1,403,306

The item j) “Other services” for 2015 includes “Other commission income” consisting of:

- customer finance €190,845 thousand - foreign transactions €11,778 thousand

Commissions for the placement of securities include the amount relating to the subscription of new UBI Pramerica Sicav’s which increased by €5.2 million year-on-year.

343 Notes to the consolidated accounts

2.2 Fee and commission expense: composition

Services/Segments 2015 2014

a) guarantees received (1,755) (20,683)

b) credit derivatives - -

c) management and trading services: (93,373) (82,918)

1. trading in financial instruments (10,360) (10,433)

2. foreign exchange trading (1) (5)

3. portfolio management (11,114) (13,177)

3.1. ow n - -

3.2. on behalf of th ird parties (11,114) (13,177)

4. custody and administration of securities (5,479) (7,592)

5. placement of financial instruments (6,133) (4,917)

6. financial instruments, products and services distributed through indirect netw orks (60,286) (46,794)

d) collection and payment services (48,728) (37,303)

e) other services (44,878) (35,815)

Total (188,734) (176,719)

ble 4: 505000O|1 - NOTA1_BANCHE Fee and commission expense for guarantees received by the Parent for the issue of guarantees by the government on debt issued and used for refinancing operations with the European Central Bank were down by approximately €19 million year-on-year. Table 5: 505000O|1 - NOTA3_ALTRE SECTION 3 Dividends and similar income – Item 70 3.1 Dividends and similar income: composition

DividendsIncome from UCITS units

DividendsIncome from UCITS units

A. Financial assets held for trading 39 2 34 -

B. Available-for-sale financial assets 3,162 4,133 6,664 1,177

C. Financial assets at fair value 3,013 - 2,169 -

D. Equity investments - X - X

Total 6,214 4,135 8,867 1,177

2015 2014

Items/Income

Dividends recognised within “Available-for-sale financial assets” included those received on the investment in Istituto Centrale Banche Popolari amounting to €0.9 million, those on Sacbo shares amounting to approximately €0.8 million and those on stakes held in the Bank of Italy which amounted to approximately €1.4 million. Dividends received on “financial assets designated at fair value” related to investments made by the Parent.

344 Notes to the consolidated accounts

SECTION 4 Net trading income (loss) – Item 80 4.1 Net trading income (loss): composition

Transactions/Components of incomeGains

(A)

Income from trading

(B)

Losses (C)

Losses from trading

(D)

Net income [(A+B) - (C+D)]

1. Financial assets held for trading 943 51,207 (4,041) (29,126) 18,983 1.1 Debt instruments 450 13,706 (1,298) (2,429) 10,429

1.2 Equity instruments 98 247 (998) (128) (781)

1.3 Units in UCIT S 8 12 (53) (4) (37)

1.4 Financing - - - - -

1.5 Other 387 37,242 (1,692) (26,565) 9,372

2. Financial l iabi l i ties held for trading - 1,473 - (1,543) (70) 2.1 Debt instruments - 1,473 - (1,543) (70)

2.2 P ayables - - - - -

2.3 Other - - - - -

3. Other f inancial assets and l iabi l i ties: exchange rate X X X X 794

4. Derivative instruments 215,157 322,489 (227,515) (296,108) 44,212 4.1 Financial derivatives 215,157 322,489 (227,515) (296,108) 44,212

- on debt instruments and interest rates 205,164 297,548 (218,168) (273,493) 11,051

- on equity instruments and share indices 432 3,849 (4) (741) 3,536

- on currencies and gold X X X X 30,189

- other 9,561 21,092 (9,343) (21,874) (564)

4.2 Credit derivatives - - - - -

Total 216,100 375,169 (231,556) (326,777) 63,919

The amount shown in item 1.5 “Other” relates principally to the exchange rate differences for certificates of deposit denominated in yen and it is linked to the amount shown in item 4.1 “Financial derivatives on currencies and gold”. SECTION 5 Net hedging income (loss) – Item 90 5.1 Net hedging income (loss): composition

Income components/Amounts 2015 2014

A. Rel ative incomeA.1 Fair value hedge derivatives 272,562 470,119

A.2 Hedged financial assets (fair value) 116,225 652,482

A.3 Hedged financial liabilities (fair value) 112,314 58,665

A.4 Cash flow hedge financial derivatives - -

A.5 Assets and liabil ities in foreign currency - -

Total income from hedging activity (A) 501,101 1,181,266 B. Rel ative expense

B.1 Fair value hedge derivatives (227,666) (728,051)

B.2 Hedged financial assets (fair value) (252,898) (14,409)

B.3 Hedged financial liabilities (fair value) (9,569) (450,023)

B.4 Cash flow hedge financial derivatives - -

B.5 Assets and liabil ities in foreign currency - -

Total expense from hedging activity (B) (490,133) (1,192,483) C. Net hedging income (l oss) (A-B) 10,968 (11,217)

345 Notes to the consolidated accounts

SECTION 6 Income (loss) from disposals/repurchases – Item 100 6.1 Income (loss) from disposals/repurchases: composition

Profits LossesNet

incomeProfits Losses

Net income

Financial assets1. Loans and advances to banks - - - - - -

2. Loans and advances to customers 10,901 (45,428) (34,527) 8,090 (23,438) (15,348)

3. Available-for-sale financial assets 263,000 (749) 262,251 169,524 (1,220) 168,304

3.1 Debt instruments 173,876 (725) 173,151 139,058 (1,078) 137,980

3.2 Equity instruments 82,239 (7) 82,232 10,744 (96) 10,648

3.3 Units in UCIT S 6,885 (17) 6,868 19,722 (46) 19,676

3.4 Financing - - - - - -

4. Held-to-maturity investments - - - - - -

Total assets 273,901 (46,177) 227,724 177,614 (24,658) 152,956 Financial l iabi l i ties1. Due to banks - - - - - -

2. Due to customers - - - - - -

3. Debt securities issued 792 (17,126) (16,334) 1,494 (9,814) (8,320)

Total l iabi l i ties 792 (17,126) (16,334) 1,494 (9,814) (8,320)

Items/Income components

2015 2014

The profits on the financial assets “Debt instruments” were mainly attributable to disposals of Italian government securities. As concerns equity instruments, the amount recognised relates principally to the partial sale of the shares held in Istituto Centrale delle Banche Popolari Italiane , which generated a profit of €82.2 million. The item 3.3 “UCITS units” includes €6.9 million of profits from the disposal of ISHARES EURO STOXX 5 by the Parent. SECTION 7 Net income (loss) on financial assets and liabilities designated at fair value – Item 110 7.1 Net change in financial assets/liabilities designated at fair value: composition

Transactions/Components of incomeGains

(A)Profi t on sal e

(B)Losses

(C)Losses on sal e

(D)Net income

[(A+B) - (C+D)]

1. Financial assets 5,126 230 (1,422) (20) 3,914 1.1 Debt instruments - - - - -

1.2 Equity instruments 2,014 182 (367) - 1,829

1.3 Units in UCIT S 3,112 48 (1,055) (20) 2,085

1.4 Financing - - - - -

2. Financial l iabi l ities held for trading - - - - - 2.1 Debt instruments - - - - -

2.2 Due to banks - - - - -

2.3 Due to customers - - - - -

3. Other f inancial assets and l iabi l i ties: exchange rate X X X X 442

4. Credit and financial derivatives - - - - -

Total 5,126 230 (1,422) (20) 4,356

The following table gives the changes that occurred in the hedge fund portfolio in 2015:

Tages Funds 116,802 - - 2,280 - 119,082

Other hedge funds 5,237 (84) 28 (223) 442 5,400

To ta l 12 2 ,0 3 9 (8 4 ) 2 8 2 ,0 5 7 4 4 2 12 4 ,4 8 2

e xc ha ng e ra te e f fe c ts

c lo s ing ba la nc e

de s c ript io n o pe ning ba la nc e s

s a le s / re de m pt io n

s

pro f its / lo s s e s

g a ins / lo s s es

346 Notes to the consolidated accounts

SECTION 8 Net impairment losses on loans – Item 130 8.1 Net impairment losses on loans: composition

Im pa irm e nt lo s s e s R e v e rs a ls

S pe c if ic

A . Lo a ns a nd a dv a nc e s to ba nks - - - - - - 13 13 -

- Financ ing - - - - - - 13 13 -

- Debt ins truments - - - - - - - - -

B . Lo a ns a nd a dv a nc e s to c us to m e rs (2 4 8 ,4 4 3 ) (9 16 ,5 17 ) (3 0 ,2 2 1) 8 3 ,10 7 2 5 8 ,8 9 9 - 5 0 ,5 16 (8 0 2 ,6 5 9 ) (9 2 8 ,6 17 ) No n-perfo rm ing (prev io us ly term ed de terio rated) lo ans purchas ed - - - - - - 20

- Financ ing - - X - - X X - 20

- Debt ins truments - - X - - X X - -

Other lo ans and rece ivables (248,443) (916,517) (30,221) 83,107 258,899 - 50,516 (802,659) (928,637)

- Financ ing (248,443) (916,517) (30,221) 83,107 258,899 - 50,516 (802,659) (928,637)

- Debt ins truments - - - - - - - - -

C . To ta l (2 4 8 ,4 4 3 ) (9 16 ,5 17 ) (3 0 ,2 2 1) 8 3 ,10 7 2 5 8 ,8 9 9 - 5 0 ,5 2 9 (8 0 2 ,6 4 6 ) (9 2 8 ,6 17 )

Of inte re s t Othe r re v e rs a ls

Of inte re s t Othe r re v e rs a ls

Tra ns a c t io ns / C o m po ne nts o f inc o m e 3 1.12 .2 0 15 3 1.12 .2 0 14

P o rtfo lio

S pe c if ic P o rt fo lio

Write -o f f s Othe r

Table 6: 514000O|1 - NOTA1_BANCHE Table 7: 514000O|1 - NOTA3_ALTRE

347 Notes to the consolidated accounts

8.2 Net impairment losses on available-for-sale financial assets: composition

Writ e - o f f s O t h e r o f in t e re s t o t h e r re v e rs a ls

A. De bt ins trum e nts (13 ,645) (1,000) - - (14 ,645) 898

B . Equity ins trum e nts - (1,903) X X (1,903) (4 ,205)

C . Units in UC ITS - (1,742) X - (1,742) (1,514)

D . Lo a ns to ba nks - - - - - -

E . Lo a ns to c us to m e rs - - - - - -

T o t a l ( 13 ,6 4 5 ) ( 4 ,6 4 5 ) - - ( 18 ,2 9 0 ) ( 4 ,8 2 1)

R e v e rs a ls

2 0 15 2 0 14T ra n s a c t io n s / C o m p o n e n t s o f in c o m e

Im p a irm e n t lo s s e s

S p e c if ic S p e c if ic

In the 2015 financial statements, the fair value measurement of available-for-sale securities resulted in the recognition of impairment losses through profit and loss of approximately €18.3 million of which €15.6 million relating to UBI Banca.

These impairment losses20 were attributable to the following: €14.6 million to four debt instruments, of which three issued by a banking counterparty

and one acquired from the conversion of loans; €1.9 million to equity instruments of an “investment” nature;

€1.7 million to equity instruments resulting from investments in UCITS (held almost entirely by the Parent), the fair value of which is obtained on the basis of the NAV reported periodically by the management companies.

With particular regard to impairment losses recognised on debt instruments, we report that €13.6 million of this was attributable to the write-down of two Lower Tier 2 subordinated securities issued by Banca Popolare dell’Etruria e del Lazio and Banca delle Marche. We report in this regard that the solution to the crisis of the four banks in extraordinary administration (Banca Marche, Banca Popolare dell’Etruria e del Lazio, Cassa di Risparmio di Ferrara and CariChieti) that the government and the Bank of Italy found in order to turn them around and ensure that their business operations continued allowed the full protection of savings held in the form of deposits, current accounts and ordinary bonds and the losses accumulated by the aforementioned banks to be absorbed in the first instance by the highest risk financial instruments such as shares and subordinated bonds. In this respect the Bank of Italy communication dated 22nd November 2015 stated that “Recourse to shares and subordinated bonds to cover losses is expressly required as a precondition for the solution of banking crises by European regulations (‘Bank Recovery and Resolution Directive – BRRD’) implemented in Italian law on 16th November 2015 with Legislative Decree No. 180/2015”. On the basis of the above, from an accounting viewpoint the carrying amount of the subordinated bonds in question was written off in the fourth quarter as summarised below.

name nominal amount

maturity date

total loss recognised

through profit and loss

of which in the 2015

of which in prior years

carrying amount as at 31/12/2015

B.ca Popolare Etruria 06/16 TV 10.0 14/07/2016 10.0 10.00 0.00 0.00

B.ca delle Marche 05/15 TV 5.0 22/12/2015 5.0 3.63 1.37 0.00

20 Any recovery in value, objectively attributable to an event occurring subsequent to the recognition of the impairment and strictly connected with the original cause of the impairment shall be recognised through profit or loss if it relates to a debt instrument, or in a special reserve in equity if it relates to an equity instrument.

348 Notes to the consolidated accounts

8.3 Net impairment losses on held-to-maturity investments: composition This type of item is not present for the UBI Group. 8.4 Net impairment losses on other financial transactions: composition

Writ e - o f f s O t h e r o f in t e re s t o t h e r re v e rs a ls o f in t e re s t o t h e r re v e rs a ls

A. Gua ra nte e s gra nte d - (3 ,845) (2 ,440) - 8 ,260 - 1,822 3 ,797 (3,660)

B . C re dit de riva tive s - - - - - - - - -

C . C o m m itm e nts to pa y funds - - (3 ,119) - - - 717 (2 ,402) 103

D . O the r tra ns a c tio ns - (73) - - 59 - 43 29 (272)

T o t a l - ( 3 ,9 18 ) ( 5 ,5 5 9 ) - 8 ,3 19 - 2 ,5 8 2 1,4 2 4 ( 3 ,8 2 9 )

T ra n s a c t io n s / C o m p o n e n t s o f in c o m e S p e c if ic 2 0 15 2 0 14

Im p a irm e n t lo s s e s

p o rt f o lio

R e v e rs a ls

p o rt f o lioS p e c if ic

349 Notes to the consolidated accounts

SECTION 9 Net premiums – Item 150 9.1 Net premiums: composition This item does not exist in the UBI Banca Group. SECTION 10 Other income/expense of insurance operations – Item 160 10.1 Balance of other income/expense of insurance operations: composition This item does not exist in the UBI Banca Group. 10.2 Composition of the sub-item “Net change in technical reserves” This item does not exist in the UBI Banca Group. 10.3 Composition of the sub-item “Claims paid during the year” This item does not exist in the UBI Banca Group. SECTION 11 Administrative expenses – Item 180 11.1 Staff costs: composition

Type of expense/Sectors 2015 2014

1) Employees (1,376,640) (1,397,656) a) Wages and salaries (900,762) (903,570)

b) Social security charges (241,994) (243,519)

c) P ost-employment benefits (49,724) (49,452)

d) P ension expense - -

e) P rovision for post-employment benefits (2,888) (3,659)

f) P rovision for pension and similar: (828) (1,921)

- defined contribution - -

- defined benefit (828) (1,921)

g) P ayments to external supplementary pension plans: (39,983) (38,795)

- defined contribution (39,983) (38,266)

- defined benefit - (529)

h ) Expenses resulting from share based payments - -

i) Other employee benefits (140,461) (156,740)

2) Other staff in service (1,547) (1,609) 3) Di rectors and statutory auditors (13,545) (14,047) 4) Expenses for retired staff - - Total (1,391,732) (1,413,312)

A discussion is given of the item "i) Other employee benefits" in the section of the Management Report entitled “Reorganisation of the Group’s branch network” which may be consulted.

350 Notes to the consolidated accounts

11.2 Average number of employees by category

2015 2014

EM PLOYEES 16,751 17,455 a) senior managers 341 360

b) middle managers 7,190 7,305

c) remaining employees 9,220 9,790

OTHER PERSONNEL 195 194

“Other personnel” also includes the directors and statutory auditors of Group member companies. 11.3 Defined benefit company pension funds: expenses and income See section 12.3 “Defined benefit company pension funds” in the balance sheet liabilities section. 11.4 Other benefits for employees The item “other employee benefits” consists mainly of expenses relating to the redundancy scheme amounting to €96.6 million (€111.5 million in 31.12,2014), expenses for luncheon vouchers amounting to €18.1 million and insurance expenses of €16.6 million. Details of redundancy schemes are given in the “Management Report” in the section “Human resources”, which may be consulted. 11.5 Other administrative expenses: composition

2015 2014

A. Other administrative expenses (679,229) (583,738) Rent payable (52,069) (57,245)

P rofessional and advisory services (91,945) (80,223)

Rentals hardw are, softw are and other assets (34,393) (37,487)

Maintenance of hardw are, softw are and other assets (43,752) (38,681)

T enancy of premises (46,364) (50,645)

P roperty maintenance (26,426) (27,712)

Counting, transport and management of valuables (12,220) (12,893)

Membership fees (111,371) (9,637)

In formation services and land registry searches (9,707) (10,465)

Books and periodicals (1,207) (1,180)

P ostal (12,914) (17,902)

Insurance premiums (33,364) (35,087)

Advertising (25,080) (18,933)

Entertainment expenses (1,841) (1,676)

T elephone and data transmission expenses (44,621) (43,635)

Services in outsourcing (48,750) (48,630)

T ravel expenses (14,815) (16,307)

Credit recovery expenses (42,265) (48,719)

Forms, stationery and consumables (6,116) (6,922)

T ransport and removals (6,243) (6,699)

Security (7,608) (8,167)

UBI Group merger expenses - -

Other expenses (6,158) (4,893)

B. Indirect taxes (269,286) (276,093) Indirect taxes and duties (22,622) (25,474)

Stamp duty (206,280) (211,917)

Municipal property tax (19,923) (19,226)

Other taxes (20,461) (19,476)

Total (948,515) (859,831)

Table 8: 519000bO|1 - NOTA

351 Notes to the consolidated accounts

The item ‘Membership fees’ includes the ordinary contribution to the National Resolution Fund for 2015 (€21.9 million) and to the DGS (€11.4 million), as required by the respective EU directives recently issued. It also includes the extraordinary contribution to the National Resolution Fund amounting to €65.3 million, required under Art. 83 of Legislative Decree No. 180/2015 and required by the Bank of Italy in November 2015 for the rescue of four banks in extraordinary administration. Further information is given in a special section of the Management Report. SECTION 12 Net provisions for risks and charges – Item 190 12.1 Net provisions for risks and charges: composition

Provisions ReleasesNet provisions

in 2015Net provisions

in 2014

Additions to and uses of revocation claw back

provisions(2,491) 877 (1,614) (287)

Additions to and uses of staff cost provisions (62) 7 (55) (66)

Additions to and uses of provisions for bonds in

default(5) 159 154 120

Additions to and uses of litigation provisions (19,151) 25,708 6,557 (8,689)

Other additions to and uses of provisions for risks

and charges(13,367) 5,350 (8,017) (152)

Total (35,076) 32,101 (2,975) (9,074)

Table 9: 520000O|1 - NOTA The item net provisions for 2015 include a provision made for an increase in the risk on a position relating to a network bank subject to revocation (clawback) action and also the release of a former Centrobanca provision (approximately €10 million) made to meet risks resulting from long drawn-out litigation which has now been settled with a ruling by the Court of Cassation in favour of the UBI Banca Group. SECTION 13 Net impairment losses on property, plant and equipment – Item 200 13.1 Net impairment losses on property, plant and equipment: composition

Assets/Components of incomeDepreciation

(a)

Impairment l osses

(b)

Reversal s of impairment

losses (c)

Net resul t (a+b-c)

A. P roperty, plant and equipment

A.1 Ow ned (82,460) (4,924) - (87,384)

- for functional use (62,266) (1,516) - (63,782)

- for investment (20,194) (3,408) - (23,602)

A.2 Acquired through finance lease (586) (126) - (712)

- for functional use (84) (36) - (120)

- for investment (502) (90) - (592)

Total (83,046) (5,050) - (88,096)

: 521000O|1 - NOTA3_ALT The column “net impairment losses” relates to the results of impairment tests on property, plant and equipment. See section 12.6 of Part B of these notes to the consolidated financial statements for further information.

352 Notes to the consolidated accounts

SECTION 14 Net impairment losses on intangible assets – Item 210 14.1 Net impairment losses on intangible assets: composition

Assets/Components of incomeDepreciation

(a)

Impairment l osses

(b)

Reversal s of impairment

losses (c)

Net resul t (a+b-c)

A. Intangible assets

A.1 Ow ned (66,523) - - (66,523)

- Internally generated by the company (47) - - (47)

- other (66,476) - - (66,476)

A.2 Acquired through finance lease - - - -

Total (66,523) - - (66,523)

Further details are given in the section “Impairment tests on goodwill” in Section B of the assets part of these notes to the consolidated financial statements.

SECTION 15 Other net operating income/expense – Item 220 15.1 Other operating expense: composition

2015 2014

Other operating expenses (59,104) (64,148)

Fines and charges for late tax payments (13) (48)

Depreciation of improvements to th ird party leased assets (3,455) (6,370)

Ordinary maintenance of investment properties - -

Other expenses and prior year expense (55,636) (57,730)

- of which costs relating to finance lease contracts (9,581) (8,669)

Table 10: 523000O|1 - NOTA1 15.2 Other operating income: composition

2015 2014

Other operating income 380,545 400,514 Charges to th ird parties for expenses on deposit and current accounts 22,104 23,568

Recovery of insurance premiums 21,413 23,672

Other income for property management 233 327

Recovery of taxes 221,448 224,797

Rent income 4,377 4,541

Other income, expense recoveries and prior year income 110,970 123,609

- of which recoveries on lease contracts 14,039 13,892

Table 11: 523000O|1 - NOTA2 Recoveries of other expenses include “fast credit processing fees”, which came to €55.3 million (€69.7 million in 31.12.2014).

353 Notes to the consolidated accounts

SECTION 16 Profits (losses) of equity investments – Item 240 16.1 Profits (losses) of equity investments: composition

Income components/sectors 2015 2014

1) Jointly control l ed entitiesA. Income - -

1. Revaluations - -

2. P rofits on sale - -

3. Reversals of impairment losses - -

4. Other income - -

B. Expense - -

1. Write-dow ns - -

2. Impairment losses - -

3. Losses on sale - -

4. Other expense - -

Net income - - 2) Companies subject to signi ficant influence

A. Income 37,976 123,973

1. Revaluations - -

2. P rofits on sale 256 86,801

3. Reversals of impairment losses - -

4. Other income 37,720 37,172

B. Expense (2,460) (1,680)

1. Write-dow ns - -

2. Impairment losses due to deterioration - -

3. Losses on sale (2,460) (1,523)

4. Other expense - (157)

Net income 35,516 122,293 Total 35,516 122,293

Table 12: 525000O|1 - NOTA The amount in item A.4 “other income” of section 2 represents the profits of equity-accounted investees. Details of the contribution to profits of the main companies consolidated using the equity method are given in the note at the foot of Table 10.5 entitled “Equity investments: annual changes” in the balance sheet section. As already reported, in 2014 the amount recognised in item A.2 “profits on sale” of section 2 relates to the disposal of 30% of Aviva Vita SpA and 49.99% of UBI Assicurazioni Danni, while the amount in item B.3 “losses on sale” of that same section related to the disposal of 30% of Aviva Assicurazioni Vita SpA.

354 Notes to the consolidated accounts

SECTION 17 Net result of changes in the fair value of property, plant and equipment and intangible assets – Item 250 17.1 Net result of fair value measurement (or revaluation) of plant, property and

equipment and intangible assets: composition No “Net result of changes in the fair value of property, plant and equipment and intangible assets” was recognised SECTION 18 Net impairment losses on goodwill – item 260 18.1 Net impairment losses on goodwill: composition No net impairment losses on goodwill were recognised in 2015. Last year impairment losses were recognised totalling €1,046 million. SECTION 19 Profits (losses) on disposal of investments – Item 270 19.1 Profits (losses) on disposal of investments: composition

Income components/sectors 2015 2014

A. P roperties 568 9,752

- P rofits on sale 568 11,726

- Losses on sale - (1,974)

B. Other assets (360) (1,023)

- P rofit on sale 257 38

- Losses on sale (617) (1,061)

Net income 208 8,729

355 Notes to the consolidated accounts

SECTION 20 Taxes on profit for the year from continuing operations – Item 290 20.1 Taxes on profit for the year from continuing operations: composition

Income components/sectors 31.12.2015 31.12.2014

1. Current taxes (-) (137,188) (260,415)

2. Change in current taxes of prior years (+/-) (27,585) 17,664

3. Reduction in current taxes for the year (+) 9,912 11,781

3.a Reduction in current taxes for the year for tax credits pursuant to Law 214/2011 (+) 175,390 15,395

4. Change in deferred tax assets (+/-) (146,379) 196,504

5. Change in deferred tax liabilities (+/-) (1,652) 91,385

6. Taxation for the year (-) (-1+/-2+3+3a+/-4+/-5) (127,502) 72,314

In 2015 the reduction in current taxes of €175,390 thousand is reported to show the transformation of deferred tax assets into tax credits of deferred tax assets as a result of the losses for 2014 recognised by UBI Banca Spa, Carime Spa, UBI Leasing Spa and Prestitalia Spa. 20.2 Reconciliation between theoretical taxation and actual taxation recorded in the accounts

Theoretical IRES payable 373,660 (102,757) 27.50%

Permanent increases

- Non-deductible interest expense 39,474 (10,855) 2.91%

- Taxes on dividends of UBI subsidiaries (6,876) 1.84%

- Impairment of AFS equity investments, losses and other prior year expense 1,877 (516) 0.14%

- Non-deductible expenses (Municipal property tax - auto - interest in arrears) 8,620 (2,371) 0.63%

- Other deductible provisions 19,791 (5,442) 1.46%

- Settlement of tax litigation (25,628) 6.86%

Permanent decreases

- Valuation of equity-accounted investees (35,260) 9,697 -2.60%

- One-off deduction of 10% of IRAP (Regional Production Tax) expense from IRES (4,331) 1,191 -0.32%

- ACE (economic growth law) (29,715) 8,172 -2.19%

Effective IRES payable 374,116 (135,385) 36.23%

Theoretical IRAP payable 373,660 (20,813) 5.57%Permanent increases

- staff costs non deductible for IRAP purposes 49,495 (2,757) 0.74%

- Administrative expenses not deductible for IRAP purposes 72,707 (4,050) 1.08%

- Impairment of tangible and intangible assets not deductible for IRAP purposes 15,302 (852) 0.23%

- Impairment losses on AFS securities not deductible for IRAP purposes 16,866 (939) 0.25%

- Non-deductible interest expense 48,027 (2,675) 0.72%

- Provisions for risks and charges not deductible for IRAP purposes 2,975 (166) 0.04%

- Other non deductible costs 20,377 (1,135) 0.30%

Permanent decreases

- Dividends (5,175) 288 -0.08%

- Untaxed other operating income (96,932) 5,399 -1.44%

- Valuation of equity-accounted investees (35,260) 1,964 -0.53%

Effective IRAP payable 462,042 (25,736) 6.89%

Total effective IRES and IRAP tax expense 373,660 (161,121) 43.12%

IRAP (REGIONAL PRODUCTION TAX) taxable income IRAP %

IRES (CORPORATE INCOME TAX) Taxable income IRES %

The figures given in the table are taken from the reclassified financial statements presented in the Management Report.

356 Notes to the consolidated accounts

SECTION 21 Profit (loss) after tax from discontinued operations – Item 310 21.1 Profit (loss) after tax from discontinued operations: composition No “profit (loss) after tax from discontinued operations” was recognised. 21.2 Details of taxes on income in relation to discontinued operations No “taxes on income in relation to discontinued operations” was recognised. SECTION 22 Profit (loss) for the year attributable to non-controlling interests – Item 330 22.1 Details of the item 330 “Profit for the year attributable to non-controlling

interests” Profit attributable to minority interests, inclusive of the effects of consolidation entries, totalled €27,701 thousand and was composed as follows:

Name of companies 2015 2014

Consolidated equity investments with significant non-controlling interests

1. UBI Pramerica 21,858 14,744

2. Banca Popolare Commercio e Industria Spa 5,580 9,709

3. Banca Carime Spa (2) (714)

4. Banca Popolare di Ancona Spa 70 1,199

5. Banca Regionale Europea Spa (896) (2,463)

6. Banca Valle Camonica Spa 614 (306)

Other equity investments 477 8

Total 27,701 22,177

SECTION 23 Other information No situations exist which require further information. SECTION 24 Earnings per share Introduction With the adoption of international accounting standards, all listed companies, or companies for which listing is in progress, which are required to prepare separate company and/or consolidated financial statements in compliance with IFRS (Legislative Decree No. 38/2005), must report the calculation of their earnings per share (EPS) in their financial statements in accordance with IAS 33. More specifically that standard requires both basic earnings per share and diluted earnings per share to be reported:

(i) basic EPS has been calculated by dividing the profit attributable to the ordinary equity holders of the Parent (numerator) by the weighted average number of ordinary outstanding shares (denominator) during the year;

(ii) diluted EPS has been calculated by taking into account the dilutive effect of potential ordinary shares, i.e. financial instruments and/or contracts which assign rights to the holders to acquire ordinary shares.

357 Notes to the consolidated accounts

Earnings per share in 2015 Calculation of basic EPS On the basis of what has been stated above, the numerator for calculating basic EPS amounts to €112,665 thousand. With regard to the denominator of this indicator, the weighted average number of outstanding ordinary shares as at 31st December 2015 was 900,287,051. In this respect:

(i) as at 1st January 2015 the outstanding ordinary shares of UBI Banca numbered 900,265,380;

(ii) as at 31st December 2015 UBI Banca held 1,431,829 treasury shares in portfolio, having made grants of 51,363 shares in 2015;

(iii) as a result of the above changes, the ordinary shares outstanding of UBI Banca numbered 900,316,743 as at 31st December 2015.

Calculation of diluted EPS For the purposes of calculating diluted EPS, as already stated, account must be taken of the dilutive effect on the ordinary shares of the Parent resulting from the presence of “potential” ordinary shares that are outstanding, such as for example:

(i) instruments representing debt or equity, including preference shares, that are convertible into ordinary shares;

(ii) options and warrants; (iii) shares to be issued if the conditions defined in contractual agreements are met.

To summarise:

EPS 2015 2014

Consolidated profit attributable to the Parent (thousands of euro) 112,665 (726,428)

Weighted average number of ordinary shares outstanding 900,287,051 900,157,867

Basic earnings per share (in euro) 0.1251 (0.8070) Dilu ted earnings per share (in euro) 0.1251 (0.8070)

The table that follows contains: (i) a reconciliation of consolidated profit attributable to the Parent and profit attributable to ordinary equity holders and also (ii) the dilutive effect on the average number of outstanding ordinary shares.

EPS 2015 2014

EPS with recognised profits

Consolidated net profit attributable to the Parent (thousands of euro) 116,765 (725,767) Profit not attributable to owners of ordinary equity instruments (thousands of euro) 4,100 661

Consolidated profit attributable to the Parent (thousands of euro) 112,665 (726,428)

N umber of shares in issue at the beginning of the year 900,265,380 900,048,572

N umber of shares issued during the year 51,363 216,808

N umber of shares in issue at the end of the year 900,316,743 900,265,380

Weighted average number of ordinary shares outstanding 900,287,051 900,157,867

Weighted average number of ordinary shares for diluted capital 900,287,051 900,157,867

Basic earnings per share (in euro) 0.1251 (0.8070) Dilu ted earnings per share (in euro) 0.1251 (0.8070)

358 Notes to the consolidated account

PART D – Consolidated statement of comprehensive income Detailed statement of consolidated comprehensive income

2015

Gross amount Tax on income Net amount

10. Profit (loss) for the year X X 144,466

Other comprehensive income without transfer to the income statement: 9,111 5,347

20. Property, plant and equipment - - -

30. Intangible assets - - -

40. Defined benefit plans 9,111 5,347 14,458

50. Non-current assets held for sale. - - -

60. Share of valuation reserves of equity-accounted investees - - -

Other comprehensive income with transfer to the income statement:

70. Foreign investment hedges: - - -

a) changes in fair value - - -

b) transfer to the income statement - - -

c) other changes - - -

80. Currency translation differences: - - -

a) changes in value - - -

b) transfer to the income statement - - -

c) other changes - - -

90. Cash flow hedges: 857 (284) 573

a) changes in fair value 857 (284) 573

b) transfer to the income statement - - -

c) other changes - - -

100. Available-for-sale financial assets: 205,307 (68,369) 136,938

a) changes in fair value 327,149 (104,123) 223,026

b) transfer to the income statement (120,413) 34,338 (86,075)

- impairment losses 252 (51) 201

- profits and losses from sale (120,665) 34,389 (86,276)

c) other changes (1,429) 1,416 (13)

110. Non-current assets held for sale: - - -

a) changes in fair value - - -

b) transfer to the income statement - - -

c) other changes - - -

120. Share of valuation reserves attributable to equity-accounted investees: (4,997) 1,625 (3,372)

a) changes in fair value (3,268) 963 (2,305)

b) transfer to the income statement (1,760) 672 (1,088)

- impairment losses 1,100 (287) 813

- profits and losses from sale (2,860) 959 (1,901)

c) other changes 31 (10) 21

130. Total other comprehensive income items 210,278 (61,681) 148,597

140. Comprehensive income (item 10+130) 210,278 (61,681) 293,063

150. Consolidated comprehensive income attributable to non-controlling interests - - 29,286

160. Consolidated comprehensive income attributable to the shareholders of the parent - - 263,777

Items

359 Notes to the consolidated accounts

Part E - Information on risks and the relative hedging policies

SECTION 1 - Banking Group Risks In compliance with current regulations, the UBI Group has adopted a risk control system which disciplines and integrates the organisational, regulatory and methodological guidelines of the system of internal controls with which all Group member companies must comply in order to allow the Parent to perform its activities of strategic, management and operational control in an effective and economical manner. Group member companies co-operate pro-actively in identifying risks to which they are subject and at defining the relative criteria for measuring, managing and monitoring them. The key principles on which Group risk analysis and management are based for the pursuit of an increasingly more knowledgeable and efficient allocation of economic and regulatory capital 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 appetite for risk helps to define the strategic positioning of the Group and it is defined in compliance with its mission and its strategy and its business and value creation objectives.

The definition of the UBI Group’s appetite for risk includes quantitative and qualitative factors:

from a quantitative viewpoint, the risk appetite is given by the amount of capital that the Bank is willing to put at risk and it helps to define the strategic positioning of the Group;

from a qualitative viewpoint, risk appetite relates to the Group’s desire to strengthen its management and monitoring systems and the efficiency and effectiveness of its system of internal controls.

Risk objectives and governance and risk-taking policies are set by the Supervisory Board, with support from specific committees (which have policy-formulation, consultative and fact-finding functions) and from the Chief Risk Officer (CRO), who reports directly to the Chief Executive Officer. The Management Board is responsible for implementing the risk management process. More specifically, it is the duty of the CRO to formally identify the relative framework of reference in order to determine the Group’s “risk appetite framework”. He is responsible for implementing governance and risk management system policies and for the measurement and monitoring of the Group’s exposure to different types of risk. He also helps develop and foster a control culture within the Group and oversees the detection and monitoring of potential failure to comply with legislation and regulations. Management of the risks to which the Group is exposed is carried out by means of a set of policies and the relative regulations to implement them which the Group has developed. The policies that govern different types of risk must comply with the definition of the target measures for measurable risk, while measures of an organisational nature must be specified for non-measurable risks.

360 Notes to the consolidated accounts

The regulations to implement the management of each type of risk defined in the policies contain details of the risk-taking model, the characteristics of the measurement and monitoring system, the roles and responsibilities of personnel and the operational limits and rules used to determine them. With Provisions No. 689988 of 19th July 2013 and No. 423940 of 16th May 2012, the Bank of Italy authorised the UBI Banca Group to use the advanced internal rating based (AIRB) approach to calculate capital requirements to meet credit risk for the sub-classes of the retail regulatory segment “exposures backed by residential real estate” and “other exposures (SME-retail)” and for the corporate regulatory segment. The authorisation allows the use of internal estimates for probability of default (PD) and loss given default (LGD) parameters for the RRE (Residential Real Estate - Individuals and Retail Businesses), the Retail Other (Retail Businesses) and the Corporate portfolios. As at the reporting date, the scope of application, in terms of companies, for the approaches authorised is as follows: AIRB: Banca Popolare di Bergamo, Banco di Brescia, Banca Popolare Commercio e Industria,

Banca Popolare di Ancona, Banca Regionale Europea, Banca Carime, Banca Valle Camonica (the “Network Banks”), IW Bank21 and UBI Banca;

the remaining legal entities in the Group will continue to use the standardised approach until the date of the respective roll-out.

The application for validation, which was approved by the Bank of Italy involves a roll-out plan for the portfolios subject to the AIRB approach which, for each legal entity, contains set deadlines for each supervisory customer segment (“corporate”, “retail – RRE” and “retail – other”) and for different risk indicators (PD, LGD, exposure at default - EAD, maturity - M). The roll-out plan covers the period 2012-2017, while permanent exemption from the application of AIRB was requested for the Group’s foreign banks and branches and also for the following exposures: exposures to central governments and central banks; exposures to supervised intermediaries; exposures to nonprofit institutions; exposures to members of the banking Group; exposures to equity instruments; exposures secured by collateral and counter-guarantees issued by the government, recognised in

accordance with the legislation and regulations on credit risk mitigation; exposures backed by credit protection provided by the parties listed above (central governments,

central banks and supervised intermediaries); generic types of exposure to economic counterparties not directly attributable to single

debtor/creditor counterparties, but mainly to special purpose entities formed for covered bond operations and self-securitisations.

In April 2016 the ICAAP Report and the ILAAP Report as at 31st December 2015 on the capital adequacy self-assessment process and on liquidity respectively are to be sent to the supervisory authority. When this document is published, the Pillar Three Disclosures will be published at the same time on the corporate website of UBI Banca (www.ubibanca.it – Investor Relations Section). The regulations22

21 In 2015 the company IW Bank Spa was merged into UBI Banca Private Investment Spa and the new company was subsequently renamed IW Bank Spa.

361 Notes to the consolidated accounts

have introduced obligations to publish information on capital adequacy, exposure to risks and the general characteristics of the systems designed to identify, measure and manage them. The information to be provided favours greater transparency in the ways in which banks manage risk. The Bank of Italy has made special tables available in this respect in which the quantitative and qualitative information which banks must publish is classified, thereby making the data comparable. This part – sections 1 to 423 - provides information on the risk profiles listed below, on the relative management and hedging policies pursued by the Group and its activities relating to financial derivative instruments:

a) credit risk; b) market risks:

- interest rates; - price; - currency;

c) liquidity risk; d) operational risks.

Sections 5 and 6 also provide information on the risks of other companies in the consolidation. A report on the general framework of the risks and uncertainties to which the UBI Group is exposed is given in a special section of the Management Report, prepared in compliance with Legislative Decree No. 32 of 2nd February 2007, which implements EC Directive No. 2003/51/EC. 1. CREDIT RISK Qualitative information 1.1 General aspects 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 assuming risks that are consistent with the risk appetite defined by senior management and, more generally, with the mission of the UBI Group. The priorities in the orientation of the Group's credit management policies are to support local economies, families, businessmen, professionals and small to medium-sized enterprises. The particular attention paid to maintaining relationships established with customers and to developing them over the years is one of the strong points of the Group and it helps to eliminate information asymmetries and offers continuity in customer relationships with a view to long term support. Even in the continuing and difficult current economic situation, the Bank is ensuring that the economy has adequate access to credit by participating, amongst other things, in “Agreements” stipulated between the Italian Banking Association, the Ministry of Finance and trade associations,

22 Pillar 3 Disclosures are regulated by Part Eight and Part Ten (Title I, Chapter 3) of Regulation EU 575/2013 (the "CRR") and by regulatory and implementation provisions issued by the European Commission. 23 Sections 1 to 4 provide information for the banking group only, except in cases where explicit reference is made to all the companies in the consolidation.

362 Notes to the consolidated accounts

while preserving the quality of its assets and by employing an extremely selective approach to “non-core” exposures. With regard to “business” customers in particular, lending rules have been formulated and are being followed for the grant and management of loans, which in operational terms translate into action which ranges from the development to the containment of exposures. These rules are based on a number of drivers as follows:

internal counterparty rating (average weighted rating for Groups of companies), linked to the degree of protection provided by any accessory guarantees there may be;

degree of engagement of the UBI Group with the counterparty or Group of companies; the economic sector to which the counterparty or Group of companies belongs with a view to:

the level of sector risk; the overall level of concentration of the UBI Group in the individual economic sector (with verification also of the concentration at individual bank or company level).

Finally, particular attention is paid to the definition of guidelines for the treatment of new products, with adequate reporting to senior management concerning observance of risk-yield objectives, the calculation of minimum interest rates for granting loans, the quality of borrowers, guarantees received and expected rates of recovery in cases of insolvency.

1.2 Policies for the management of credit risk 1.2.1 Organisational aspects In the performance of its traditional banking business, the Group is exposed to the risk that the loans it grants will not be repaid by borrowers when they are due and that partial or full impairment losses must be recognised on them. More specifically the risk profile for lending is sensitive to the performance of the economy as a whole, to the deterioration in the financial position of counterparties (shortage of liquidity, insolvency, etc.), or to changes in their competitiveness, to structural or technological changes in corporate debtors and to other external factors (e.g. changes in legislation, deterioration in the value of financial guarantees and mortgages connected with market performance). A further risk factor to which the Group pays particular attention is the degree of diversification in the lending portfolio among different borrowers and among the different sectors in which they operate. The organisational model on which the units which manage lending activity is based is as follows:

Parent units for centralised monitoring and co-ordination; the General Managements of banks and Group companies, to which the following report:

- Credit Departments; - Local Credit Centres; - Branches; - Private & Corporate Unity

In view of the merger of B@nca 24-7 and Centrobanca, specific units have been created at the Parent that report directly to the Chief Lending Officer to manage loans from that company’s operations.

363 Notes to the consolidated accounts

As a whole the characteristics of the organisational model ensure strong standardisation between the units of the Parent and the corresponding units in the network banks, with consequent linearity in the processes and the optimisation of information flows. Loan granting activity is also differentiated, at local level, by customer segment (retail/private banking/corporate and institutional) and specialised by the status of the loan: “performing” (managed by retail, private banking and corporate lending units) and “default” (managed by problem loan units). Moreover, with regard to banks, the introduction of decentralised Local Credit Units to support retail branches and corporate banking and private banking units, ensures effective co-ordination and liaison between units operating on their respective markets. The Parent oversees policy management, overall portfolio monitoring, the refinement of assessment systems, problem loan management and compliance with regulations through the units that report to the Chief Lending Officer, Credit Risk Management, Strategic Development and Planning and the Audit Function of the Parent and the Group. For all those entities (individual companies or groups) with authorised credit from banks and companies in the Group (including risk activities involving issuer and related risks), which totals more than €50 million (€35 million for single entities or groups of companies classified as “high-risk”), the Parent must set an operational limit which is the maximum credit that may be authorised for the counterparty at UBI Group level. The Management Board of the Parent is responsible for granting, changing and renewing operational limits on the basis of proposals from the UBI Credit Area after first consulting the UBI Credit Committee. The banks and companies of the Group must also request a prior, consultative, non-binding opinion from the Parent for combinations of a) amounts of authorised credit and b) determined internal rating classes. It is the Parent’s duty to assess whether it is consistent with the credit policies of the Group, according to the criteria and parameters laid down in the credit authorisation regulations of the Group. A prior opinion is not required for credit authorisations for single counterparties or groups of companies which fall within the operational limits that have been set. In consideration of the specific federal organisation of the UBI Group, the Parent decided to adopt a “focused” model for the management of corporate customers common to more than one network bank on the basis of which, briefly: - decisions relating to credit risk management, pricing and the formulation of commercial policies for customers common to two or more banks are centred on a lead bank, termed the pivot bank, thereby avoiding the generation of a decrease in the overall profitability on the counterparty; - non-pivot banks abstain from opening new accounts and/or from granting new credit facilities. A Pivot Bank may be defined as the bank which has the best chances, with its own business units, of arranging new business and/or intensifying existing business with the shared customer, in order to draw the greatest possible benefit for the whole Banking Group. It therefore directs the other banks involved with regard to the most appropriate conduct to follow to improve business with the customer as a whole. The various organisational units in banks and product companies are responsible for credit and commercial activities and they also hold responsibility for monitoring both the activity they perform directly and that performed by those units which report to them. More specifically, responsibility for managing and monitoring performing loans lies in the first instance with the account managers who handle daily relationships with customers and who have an immediate perception of any deterioration in credit quality. Nevertheless, all employees of Group member companies are required to promptly report all information that might allow difficulties to be identified at an early stage or which might recommend different ways of managing accounts, by concretely participating in the monitoring process.

364 Notes to the consolidated accounts

In the second instance, the organisational unit responsible for monitoring credit risk is the Credit Quality Management and Monitoring Unit, which carries out monitoring, supervision and analysis of performing positions on both a case by case and a collective basis, where the intensity and degree of detail of the analysis is a function of the risk class attributed to the counterparties and the seriousness of the performance problems. It is assisted by Local Credit Units. This unit, not involved in loan approval procedures, either on its own initiative or on submission of a proposal, may assess a position and decide (or propose to a superior decision-making unit when the decision does not lie within its powers), to change the classification of performing counterparties to a more serious status. In those cases where it is required by Credit Authorisation Regulations it asks the Parent, through its Credit Department, to issue a prior non binding opinion. The Credit Policies and Quality Service in the unit that reports to the Chief Lending Officer is responsible for co-ordinating and defining guidelines for monitoring the lending portfolio, overseeing the development of monitoring tools, monitoring credit policies and the preparation of management reports. Furthermore an “arrears management” system is operational, designed to preserve and protect customer relationships through the prompt resolution of lending irregularities (late repayments/unauthorised overdrafts) detected on performing private individual and “small economic operator” customers by providing centralised support contact with customers to normalise problem loan positions.

Management of the “bad loan” (previously termed “non-performing”) positions of the network banks, UBI Banca and Prestitalia is entrusted to the Problem Loan and Credit Recovery Area of UBI Banca, within the unit that reports to the Chief Lending Officer.

This unit has undergone substantial organisational change in recent years, as part of the implementation of the new model for the management of bad loans (previously termed “non-performing loans”), designed to improve credit recovery processes, by means of the following:

– the introduction of segmentation approaches and division into portfolios of bad loans, on the basis of the size and complexity of the loan;

– the specialisation of recovery processes and the units responsible for it, consistent with the segments and portfolios identified;

– monitoring of processes for the management of positions; – the assignment of recovery objectives to managers and assessment of results; – the introduction of strategies designed to optimise recovery on specific portfolios, such as for

example, recourse to property operators to value the properties which back mortgage loans.

As part of that initiative, three specialist services on specific segments have been created within the above mentioned areas:

– Small Sum Recovery Service, to manage bad unsecured loans to private individuals for amounts of less than €25,000;

– Large Loan Recovery Service, specialising in the management of non-performing loans to both private individuals and businesses for amounts of over €1 million, or with a net book value of over €500,000. Particularly complex types of position are also managed by this service (e.g. pool financing, etc.);

– Private Individual and Corporate Recovery Service, for the management of other types of loan which are not included within the scope of the two services just mentioned. This unit is organised into six specialist functions according to geographical criteria.

365 Notes to the consolidated accounts

Furthermore, the management of counterparties being restructured or classified as “unlikely to pay” restructured loans of the network banks, UBI Banca and UBI Leasing Spa was centralised in the Problem Loans and Credit Recovery Area of the Parent in 2014. The organisational area headed by the Chief Risk Officer contains the following areas: Capital & Liquidity Risk Management and Credit Risk Management which, through the specific functions that report to them and each within their own areas of responsibility, perform the following:

– define criteria and methodologies for the development of internal rating models – probability of default (PD), loss given default (LGD) and exposure at default (EAD) – in line with regulatory requirements and best practices;

– define corporate methods for assigning counterparty ratings; – produce periodic analyses which illustrate the risk profile of the total loan portfolio and the

commercial sub-portfolios at Group level and at the level of individual legal entities, in terms of distribution by rating class, LGD and Expected Loss, rates of loan deterioration and concentration in the largest customers;

– develop methods, in co-operation with the unit that reports to the Chief Financial Officer, for calculating collective provisions to be recognised in the financial statements on the basis of internal credit ratings for the network banks and UBI Banca and loan impairment rates for the other banks and product companies;

– calculate default rates for the Group and define the relative calculation methods for individual legal entities;

– provide input parameters (PD and LGD) for product pricing activities. As part of the units that report to the Chief Risk officer, the Group has formed a unit designed to carry out second level controls required by supervisory regulations (15th update of Bank of Italy Circular No. 263/2006 followed by Circular No. 285/2013 of the supervisory authority) on credit monitoring, classification, write-down and recovery processes. Control methodologies and processes were defined in 2014 and came into effect in 2015, relating to data as at 31.12.2014. The first year of complete analysis is scheduled for 2016. Furthermore, the units headed by the Chief Risk Officer play a key role within the Basel 2 project:

– they formulate guidelines on credit risk matters generally and also with regard to periodic reporting to the Supervisory Authority;

– they draw up roll-out plans for models implemented at the Parent; – they monitors the extent to which regulatory provisions are covered by internal rating models; – they co-ordinate activities for the development and maintenance of internal rating processes

and systems. They set credit risk taking and management policies. More specifically, the Credit Risk Management Area formulates the operational details of policies by preparing regulations to implement them and also detailed documents, both for the Parent and for single banks and companies, which illustrate aspects relating to the definition, use, monitoring and reporting of risk in relation to compliance with the guidelines and the indicators that are set. These documents are implemented by the Group banks and companies, which must have a knowledge of the risk profile and the risk management policies defined by the senior management of the Parent and which must contribute, each within the scope of their responsibilities, to the implementation, consistent with the reality of their companies, of the risk management strategies and policies decided by the senior management of the Parent.

Finally, the Area also provides specialist support for the operational implementation of the policies and regulations for them, concerning the assumption and management of credit risk and it

366 Notes to the consolidated accounts

periodically monitors their consistency with Group operations, and proposes corrective action if necessary. Lastly, the units that report to the Chief Risk Officer then define in detail, and undertake, active credit portfolio management action in order to take initiatives to mitigate, monitor and transfer credit risk, assessing its impact on economic capital and on regulatory capital requirements. 1.2.2 Management, measurement and control systems The Credit Risk Management Area is responsible for Group reporting on credit risk in order to monitor changes in the risk attached to lending for individual banks and regulatory portfolios. The reports of single Group companies are submitted quarterly to Boards of Directors. For the network banks, UBI Banca and the main companies those reports describe the distributions by regulatory portfolio of internal rating classes and risk parameters. For the network banks, they also show changes in average risk connected with the Corporate Market (Core and Large portfolio), the Retail Market (Business and Individuals portfolio) the Private Banking Market, and Other markets, while for the product companies the reports describe risks attaching to the various types of exposure and products marketed.

Special reports on specific matters are also prepared on the main components of credit risk. The set of models which constitute the Group’s internal rating system is managed by the area that reports to the Risk Management Officer with the support of the Credit Area. The system at present involves the use of automatic models for medium to large-size businesses, private individuals and small-sized businesses.

Ratings are calculated using a counterparty approach and they are normally reviewed and updated once a year. For the “exposures to corporates” supervisory portfolio, the PD models developed by the UBI Group provide an overall assessment of counterparty risk through a combination of a quantitative and a qualitative component. The quantitative component is developed and processed statistically: the technique selected is that of logistic regression, normally used to assess cases where the dependent variable (target) is dichotomous, either default or performing. The qualitative component of the rating model is based on information acquired by the account manager or a central unit24 of UBI Banca for large corporate positions and it meets the need to incorporate qualitative factors and information on the client in ratings which accompanies and completes the quantitative analyses, in order to detect trends and assess creditworthiness more accurately.

The same considerations described above apply to retail exposure classes (for retail businesses and private individuals) except that the qualitative component is not considered. The quantitative component for monitoring and granting loans assesses the credit rating for small-size companies, by integrating it with geo-sectoral, economic and financial, and internal and external performance type assessments. The quantitative component for monitoring mortgages to private individuals assesses the credit rating by integrating it with information on personal details and external and internal performance. The quantitative component for granting mortgages to private individuals assesses counterparty risk by integrating it with information on personal details and on the product.

24 This solution was adopted in order to ensure centralised management by specialists in the assessment of large corporate positions in conformity with internal Group assessments.

367 Notes to the consolidated accounts

The output of the models consists of nine rating classes that correspond to the relative PDs, updated comprising default positions up to December 2014. The determining parameters for LGD are as follows: 1) Bad Loan (previously termed “non-performing”) LGD 2) Downturn LGD 3) Danger Rate. 1) Bad Loan (previously termed “non-performing”) LGD is calculated as the hundreds complement

of the ratio of the net recoveries observed during the life of a bad loan position and exposure when the classification as bad loan occurs inclusive of the principal reclassified and the interest that has been capitalised. In accordance with the definition of economic LGD given in supervisory regulations, credit recoveries are discounted to present values at a risk-adjusted rate, which reflects the time value of money and a risk premium calculated on the basis of the volatility of credit recoveries observed compared to a preset market benchmark. The historical depth of the data observations for the estimate of Network Bank and UBI Banca Non-performing LGD always guarantees at least eight years of closed non-performing loans. The date on which the last bad loan (previously termed “non-performing”) position was closed is 31/12/2014.

2) The approach adopted for the Downturn LGD was designed to take account of adverse economic conditions for recovery expectations, based on the identification of a period of recession on the basis of the current economic scenario and incorporating historical and prospective macroeconomic trends.

3) The Danger Rate parameter is used to correct the LGD estimated on bad loans only, by considering the following factors: 1) the composition of defaulted loans, because not all new expected defaults are bad loan positions that come directly from the performing category; 2) migration between default categories, because not all defaults that are not in the bad loan category arrive at the most serious and loss-incurring bad loan status; 3) change in the exposure because the exposure may change over time for defaulted positions which migrate to the bad loan category. The historical depth of the data observed for estimating the Danger Rate corresponds to the period January 2007 – December 2014 for the corporate segment and January 2009 – December 2014 for the retail regulatory segment.

Credit processes within the network banks work with information channelled from the rating system as described in detail below. The operational units involved in the loan grant and renewal process use internal credit ratings, which constitute necessary and essential evaluation factors for credit authorisations when these are assessed and revised. Powers to authorise loans are based on the risk profiles of the customers or the transactions given by the credit rating and by the expected loss, while they are managed using Pratica Elettronica di Fido (electronic credit authorisation) software. The credit ratings are used, amongst other things, to monitor loans both by the management reporting system and in the information made available to units in banks involved in the lending process. The assignment to rating classes that are different from those calculated by the internal rating system on the basis of the models adopted is made by proposing an override on the rating for which the methods of presentation, examination and validation are different for cases of:

higher rating override; lower rating override.

These changes are made on the basis of information not already considered by the rating model, not adequately weighted by the model or where it is intended to anticipate the future influence of the information.

368 Notes to the consolidated accounts

In addition to the process for the disbursement, renewal and monitoring of credit and to the departmental reporting process just described, the processes directly affected by internal ratings or in which internal estimates of PD and LGD are described below. The calculation of collective impairment losses on performing loans Different calculation methodologies are used for the calculation of collective impairment on performing loans in the Network Banks, at UBI Banca and the main Product Companies of the Group.

More specifically a method is employed for loans (and guarantees) to customers in network banks and a portion of those at UBI Banca (those relating to the former Centrobanca positions acquired operationally since May 2013 due to its merger into the Parent) based on internal estimates of PD (probability of default) associated with internal ratings and estimates of LGD (loss given default). The latter uses operational corrective factors with respect to the parameters used for regulatory purposes. It should be noted that the percentages of impairment resulting from the application of the PD and LGD are also used for “irrevocable commitments of uncertain use” to which the supervisory credit conversion coefficient is also applied.

An approach based on impairment rates for loans calculated internally and on non-regulatory internal estimates of LGD is used for those Product Companies most subject to credit risk and for a portion of UBI Banca positions relating to personal loans of the former B@nca 24-7. More specifically with regard to LGD, different internal estimates are used at UBI Leasing for different types of product and sales channel, while values are applied for UBI Banca (former B@nca 24-7), estimated on former B@nca 24-7’s own data where significant and in other cases values are borrowed from similar products sold by the network banks. Calculation of minimum theoretical price levels for loans to customers The minimum theoretical price is the break-even price which ensures remuneration of lending risk such as expected loss and unexpected loss, or in other words the cost of the capital absorbed in accordance with prudential supervisory regulations. Consistent with value creation approaches, the minimum theoretical price corresponds to a level of profit adjusted for risk, which will ensure the creation of value. Value creation, capital allocation and incentive schemes As part of its capital allocation processes, the UBI Group applies methodologies to assess risk adjusted performance that are designed to measure and summarise the effects of economic, asset, risk (recognition of impairment) and capital (risk weighted assets and expected loss net of impairment losses recognised) variables that impact the creation of wealth for shareholders. The creation of value is fully incorporated in incentive schemes as a determining factor in triggering incentives.

Stress tests Stress tests for credit risk are performed in relation to the ICAAP Report, as support in the preparation of business plans or budgets and in response to specific requests by the Bank of Italy or other supervisory authorities. More specifically, stress tests are performed on those exposure classes that can present greater variability in the ratio between risk weighted assets (RWA) and the corresponding amount of the exposure. The scenarios analysed involve an increase in the average ratio between the amount of the exposure

369 Notes to the consolidated accounts

of differing dimensions, estimating the impact on capital ratios. Stresses are created by acting on PD (probability of default) and LGD (loss given default) parameters, hypothesising scenarios of differing levels of seriousness for both risk parameters and estimating the impacts in terms of capital ratios. Activity also continues constantly to revise, update and adopt policies and regulations for credit risk management. Existing policies are listed below together with the principal contents.

Credit risk management policy

“UBI Group credit risk management policies” exist within the Group, inclusive of the relative regulations to implement them and documents to set limits both for the Group and for single banks and companies. This regulation allows a common approach to be followed for the assumption of risk and procedures to manage it across the entire Group and it standardises risk indicators, while taking account of the specifics of each class of risk.

The policy gives details of limits and it defines the procedures for assuming risk for the following types of risk:

- credit risk (including counterparty risk): the risk of incurring losses resulting from the default of a counterparty with whom a position of credit exposure exists. Credit risk can be divided into the following two types:

credit risk relating to business with ordinary customers, with a specific focus on credit risk for structured finance operations;

credit risk relating to business with institutional customers and with ordinary customers resident in high risk countries;

- concentration risk: risk resulting from the existence of large exposures to single counterparties or groups of companies.

Ordinary customers Standards, principles and limits to manage credit risk are set for ordinary customers both at consolidated level and for individual legal entities, on the basis of the availability of risk drivers generated by the internal rating model (rating class, probability of default and loss given default). The definition of the limits is based on a series of indicators expressed in terms of: capital allocation, values for maximum risk (i.e. target and maximum expected loss and as credit loss), limits on the assumption of risks in terms of the distribution of exposures by credit rating class and the management of credit quality.

The Credit Risk Management Area prepares quarterly reports on compliance with the indicators set for all the areas concerned and for the governing bodies of the Parent and the individual banks and companies in the Group.

Structured Finance

A specific focus has been placed on structured finance business.

The term structured finance operations refers to non-standard finance operations, formulated on the basis of the specific requirements of customers, usually performed for industrial or infrastructure investments, or for the acquisition of listed and unlisted companies that may be organised by institutional investors.

370 Notes to the consolidated accounts

Specific limits are set for this business which combine the achievement of budget targets in terms of volumes disbursed and profitability with appropriate management in terms of distribution by rating and transaction classes, concentration for single exposures and maximum duration.

The Credit Quality Management and Monitoring Service introduced a target process for monitoring limits, with the relative monthly reporting.

Institutional counterparties and country risk For institutional and ordinary customers resident in high risk countries, the risk management policy, the relative regulations to implement it and the documents containing the limits set standards, principles and limits designed to ensure proper management of the entire process of the assumption, management and monitoring of credit risk in this area. Limits are set for maximum exposure to credit risk as follows:

maximum exposure limits: maximum limits on total authorised credit for the different risk classes of the exposures (combinations of counterparty ratings and country ratings) at Group and individual company level;

single name concentration limits: maximum limits on total authorised credit for each borrower for the different risk classes (combinations of counterparty ratings and country of residence ratings) defined at group level;

country concentration limits: maximum limits on total authorised credit for each country defined at Group and individual company level.

Concentration risk

Concentration risk is dealt with as part of second pillar risks. The policy sets a specific capital requirement to take account of the higher sensitivity of a more concentrated portfolio.

Single name concentration risk is addressed by setting maximum exposure limits for single counterparties in order to limit risks of instability that would arise from high rates of concentration for loans to major borrowers if one of these should default. The limits set are based on counterparty ratings and the type of transaction. The contents of the policy are set out in regulations and in a document which gives details of limits, the latter approved by the Management Board.

Policy for the distribution of mortgages through brokers

This policy regulates the procedures for the use of external distribution networks for granting mortgages to non-captive customers in order to mitigate potential credit, operational and reputational risks.

The policy defines the following:

minimum capitalisation limits for the brokerage companies and a prohibition on direct agreements with mortgage brokers and real estate agents;

371 Notes to the consolidated accounts

minimum contents for agreements between distribution networks and banks or companies in the UBI Group including, for example, the specification of a minimum list of risk indicators to be monitored for which there must be a provision in the agreement that requires the network to remain within certain limits. Once those limits are exceeded penalties are applied (if maximum risk limits are exceeded) or bonuses are paid (if particularly low levels of risk are achieved) to the distribution network;

an obligation by banks entering into agreements to put a process in place to monitor changes in the risk indicators just mentioned, with support from the Parent.

Policy on the portability, renegotiation, substitution and early repayment of mortgages

The policy furnishes UBI Group guidelines for portability (in both directions), the renegotiation (including the rescheduling of instalments as regulated by the agreement between the Ministry of the Economy and Finance and the Italian Banking Association), the substitution and early repayment (partial or total) of mortgages. It is designed (by setting minimum standards of service amongst other things) to minimise processing times, conditions and related costs and also to equip the Group with appropriate processes and instruments to manage the relative risks (credit, operational and reputation).

The policy also defines objectives for the maximum time limits for responding to customers for which a specific monitoring process has been launched.

Policy on the portability, renegotiation, substitution and early repayment of mortgages granted through brokers

As was defined for the mortgages of direct customers of the network banks, the “Policy on the portability, renegotiation, substitution and early repayment of brokered mortgages” sets, for this specific type of business, maximum time limits for responding to customers for which the necessary monitoring process must be put in place.

Policy on risks resulting from securitisations

The policy sets guidelines for the Group to manage risks relating to securitisations defined as “the risk that the underlying economic substance of a securitisation is not fully reflected in decisions made to measure and manage risk”. This risk relates to both conventional and synthetic securitisations originated by the Group which involve the transfer, at least partial, of the risk attaching to the securitised assets.

The process of implementing a securitisation must involve stating the objective of the transaction and the role played by the UBI Banca Group in it and verification that it is fully compliant with the requirements contained in supervisory regulations.

The UBI Group will make sole use of agencies recognised by the Bank of Italy (ECAI – External Credit Assessment Institution) when assigning ratings to bonds and/or the tranches issued.

372 Notes to the consolidated accounts

Policy on residual risk

The policy sets strategic guidelines relating to the management of “residual risk”, defined as the risk of incurring losses resulting from the unforeseen ineffectiveness of established methods of mitigating credit risk used by the UBI Group.

The policy contains a definition of the process of control over the acquisition and use of techniques to reduce credit risk in order to mitigate that risk.

That process is centred on the definition of appropriate risk management processes designed firstly to ensure the verification of compliance with supervisory regulations, distinguishing between:

“general requirements”, such as legal certainty, the speed of implementation and organisational requirements;

“specific requirements”, with particular attention to revaluation and monitoring of collateral and guarantees and verification of the absence of substantial correlation between the ability of the debtor to repay and the collateral.

Policy on internal controls to manage risk assets and conflicts of interest with regard to connected parties.

The policy implements Bank of Italy recommendations on “risk assets and conflicts of interest with regard to connected parties”. Connected counterparty risk arises from the fact that “the closeness of persons to the decision-making centres of a bank might compromise the objectivity and impartiality of decisions concerning the grant of loans to, and other transactions with, those persons, which may result in possible distortions in the resource allocation process, the exposure of the bank to inadequately measured or monitored risks, and potential harm to depositors and shareholders”.

The policy defines guidelines and criteria for the adoption by the Group as a whole and by individual Group banks and companies of appropriate organisational structures, internal control systems and specific internal policies to manage that risk within two areas defined by the regulations: prudential limits and approval procedures.

Finally, in order to take account of potential risks of conflicts of interest caused by counterparties that do not, strictly speaking, fall under the definition of connected parties but whose work could in any case have a significant impact on the bank’s risk profile (e.g. “Material Risk Takers” or “Key Personnel”) the UBI Group has adopted (in line with provisions on connected counterparties) appropriate processes to manage transactions in which such parties could have a direct or indirect interest, personally or otherwise.

Policy to manage equity risk

The policy completes the adoption of policies to manage the various risks to which the UBI Group is exposed in terms of its operating and organisational characteristics and it incorporates provisions issued by the Bank of Italy on the subject of “Equity investments that may be held”.

Equity risk is defined as “Exposures to equity instruments” assumed by the Group in relation to the following:

373 Notes to the consolidated accounts

- equity investments held directly, indirectly and synthetically within financial and non-financial companies (equities, UCITS with equity shares as the underlying instruments, hedge funds, options and derivatives on equity instruments, etc.);

- private equity activities;

- debt instruments that constitute subordinated liabilities in financial companies;

- other equity instruments, and that is debt and non-debt exposures that confer a residual subordinated credit.

With the adoption of this policy the Group has put appropriate controls in place designed to:

- contain the risk of locking up too much liquidity as a result of making equity investments in financial and non-financial companies;

- with specific reference to non-financial companies, promote risk and conflicting interest management that complies with the criterion of sound and prudent management.

Finally, a specific focus was placed on private equity business which consists of acquiring stakes in a target company either by purchasing existing shares from third parties or by subscribing new share issues to bring new capital to the target company. More specifically the mission and relative strategies are specified, distinguishing between the acquisition of direct interests and the subscription of units in private equity funds formed by entities within the Group or outside it. 1.2.3 Techniques for mitigating credit risk The Group employs standard risk mitigation techniques used in the banking sector by acquiring collateral such as properties and financial instruments as well as personal guarantees from counterparties for some types of loan. Determination of the total amount of credit that can be granted to a given customer and/or group of companies to which the customer belongs takes account of special criteria for assigning weightings to the different categories of risk and to guarantees. Prudent "haircuts" are applied to the estimated value of collateral depending on the type of security. The main types of security accepted by the Group are as follows:

- real estate mortgage; - pledge.

In the case of mortgage collateral, a distinction is made between specially regulated “land” mortgage loans and ordinary mortgage loans with regard to the amount of the loan, which in the former case must comply with limits set in relation to the value or the cost of the assets used as collateral. Pledges represent the second general class of collateral used and different possible types of pledge exist within the Group depending on the instrument which is used as the collateral. They are as follows:

- pledges on dematerialised financial instruments such as for example government securities, bonds and shares in listed companies, customer portfolio managements, bonds of the Group, etc.;

- pledges of material securities, e.g. valuables and/or sums deposited on current accounts or bearer or named savings accounts, certificates of deposit, units in mutual funds, shares and bonds issued by unlisted companies;

- pledges on insurance policies; - pledges of quotas held in limited liability companies, which by law must be formed by a

notarial deed and are subject to registration.

374 Notes to the consolidated accounts

A pledge on the value of financial instruments is performed using defined measurement criteria and special “haircuts” which reflect the variability in the value of the security pledged. In the case of financial instruments denominated in foreign currency, the “haircut” applied for the volatility of the exchange rate must be added to that for the volatility of the security. As concerns pledges on rights arising from insurance policies, these may only be constituted on life insurance policies for which the regulations expressly allow the possibility of a pledge in favour of the Bank and only if determined conditions are met (e.g. once the time limit for exercising redemption rights has expired, policies which pay only in “case of death” must be excluded, and so forth). Special measurement criteria and “haircuts” are also defined for insurance policies. In order to ensure that general and specific requirements are met for recognition of collateral, as part of its credit risk mitigation techniques (CRM) in accordance with supervisory regulations, for prudent purposes the UBI Group has performed the following:

- redefined credit processes relating to the acquisition and management of collateral. With particular regard to mortgages, in network banks it is compulsory to enter all data on a property needed to render collateral eligible in account manager software systems. Particular attention was paid to the compulsory nature of expert appraisals and to the prompt recovery of the relative information, including notarial information (details of registrations), essential for guarantees to be accepted;

- acquired, for existing mortgages, all the information required to ensure that they are admissible, in line with the provisions of Basel 2 in terms of specific requirements.

1.2.4 Non-performing (previously termed “deteriorated”) financial assets The classification of the problem loan portfolio complies with official regulations and can be summarised as follows:

loans past due and/or continuously in arrears; “unlikely to pay” loans; bad loans (previously termed “non-performing loans”).

This classification was revised at the beginning of 2015 in line with supervisory provisions. In addition to those classes, there remains a type of problem loan in respect of “country risk” for unsecured exposures to institutional and ordinary customers belonging to countries considered as “at risk” as defined by the supervisory authority. Exposures previously classified as “impaired” and “restructured” are now comprised within the “unlikely to pay” class. These subdivisions nevertheless remain for management purposes. With regard to unlikely to pay exposures (formerly “impaired”), in order to optimise management and solely for operational purposes, these are divided into positions for which it is considered that the temporary situation of objective difficulty can be overcome in a very short period of time and the remaining positions, for which it is felt best to disengage from the account with credit recovery out of court over a longer period of time. Additionally, loans past due and/or continuously in arrears are subject to controls to decide, within a maximum operational period of 180 days, whether to reclassify them as either “performing” or into another non-performing loan class. The management of problem loans is performed on the basis of the level of risk. It is performed by the organisational units responsible for the management of problem loans of individual banks and product companies. The management of the bad loan (previously termed “non-performing”) positions

375 Notes to the consolidated accounts

of the network banks, UBI Banca and Prestitalia is by the Parent. As already mentioned in the preceding pages, this unit recently underwent substantial organisational change designed to make credit recovery processes more effective through the specialisation of both credit recovery processes and units. Furthermore, the management of counterparties being restructured or classified as “unlikely to pay” restructured loans of the network banks, UBI Banca and UBI Leasing Spa was also centralised in the Problem Loans and Credit Recovery Area of the Parent. Assessment of the appropriateness of impairment losses recognised is performed on a case by case basis for individual positions to ensure adequate levels of cover for expected losses. The analysis of non-performing (previously termed “deteriorated”) exposures is performed continuously by the single operational units which manage risks and by the Parent. The resolution of difficulties by counterparties is a determining factor for the return of positions to “performing” status. This event occurs principally and above all for accounts which are past due and/or continuously in arrears and for “unlikely to pay” accounts.

376 Notes to the consolidated accounts

Quantitative information A. Credit Quality A.1 Deteriorated and performing credit exposures: amounts, impairment losses, changes, economic and geographical distribution A.1.1 Distribution of financial assets by portfolio and according to credit quality

P o rtfo lio / qua lity

B a d lo a ns (prev io us ly

term ed "no n-perfo rm ing")

Unlike ly to pa y lo a ns

N o n-pe rfo rm ing

(prev io us ly term ed

"de terio rated") pa s t -due

e xpo s ure s

P e rfo rm ing pa s t -due

e xpo s ure s

P e rfo rm ing a s s e ts

To ta l

1. Available -fo r-s a le financ ia l as s e ts - 26,292 - - 15,256,976 15 ,2 8 3 ,2 6 8

2. Held-to -maturity inves tments - - - - 3,494,547 3 ,4 9 4 ,5 4 7

3. Lo ans and advances to banks - - - 4,352 3,425,585 3 ,4 2 9 ,9 3 7

4. Lo ans and advances to cus to mers 4,287,929 5,147,099 253,521 4,482,110 70,415,541 8 4 ,5 8 6 ,2 0 0

5. F inanc ia l as s e ts des igna ted a t fa ir value - - - - - -

6. F inanc ia l as s e ts he ld fo r s a le - - - - - -

3 1.12 .2 0 15 4 ,2 8 7 ,9 2 9 5 ,17 3 ,3 9 1 2 5 3 ,5 2 1 4 ,4 8 6 ,4 6 2 9 2 ,5 9 2 ,6 4 9 10 6 ,7 9 3 ,9 5 2

3 1.12 .2 0 14 4 ,0 2 5 ,5 8 5 4 ,9 5 4 ,9 14 5 2 9 ,3 15 5 ,3 7 0 ,3 0 6 9 5 ,9 2 8 ,5 6 7 110 ,8 0 8 ,6 8 7

The figures as at 31.12.2014 are given solely with regard to the items requested by the fourth update of Bank of Italy Circular No. 262. As at 31st December 2015, forborne exposures amounted to €4.9 billion net (of which €2.6 billion non-performing – previously termed “deteriorated” – and €2.3 billion performing) and they related to “Loans and advances to customers” and “available-for-sale financial assets”. See table A.1.6 for further details. The following table shows the composition by maturity of past due performing exposures:

P a s t d u e u n d e r 3 m o n t h s

P a s t d u e f r o m 3

m o n t h s t o 6 m o n t h s

P a s t d u e f r o m 6

m o n t h s t o 1 y e a r

P a s t d u e o v e r 1 y e a r

To t a l 3 1. 12 . 2 0 15 4 , 14 8 , 9 6 3 2 2 9 , 4 15 8 2 , 6 4 1 2 1, 0 9 1 4 , 4 8 2 , 110

P o r t f o l i o s / C r e d i t q u a l i t y

P e r f o r m i n g p a s t d u e e x p o s u r e t o c u s t o m e r s

To t a l ( n e t

e x p o s u r e )

377 Notes to the consolidated accounts

A.1.2 Distribution of credit exposures by portfolio and by credit quality (gross and net amounts)

Gro s s e xpo s ure S pe c if ic im pa irm e nt lo s s e s N e t e xpo s ure Gro s s e xpo s ure

P o rt fo lio im pa irm e nt

lo s s e sN e t e xpo s ure

1. Available-fo r-s a le financia l as s ets 28,361 (2,069) 26,292 15,256,976 - 15,256,976 15 ,2 8 3 ,2 6 8

2. He ld-to -maturity inves tments - - - 3,494,547 - 3,494,547 3 ,4 9 4 ,5 4 7

3. Lo ans and advances to banks - - - 3,429,960 (23) 3,429,937 3 ,4 2 9 ,9 3 7

4. Lo ans and advances to cus to mers 13,434,287 (3,745,738) 9,688,549 75,314,190 (416,539) 74,897,651 8 4 ,5 8 6 ,2 0 0

5. Financia l as s ets des igna ted a t fa ir va lue - - - - - - -

6. Financia l as s ets he ld fo r s a le - - - - - - -

3 1/ 12 / 2 0 15 13 ,4 6 2 ,6 4 8 (3 ,7 4 7 ,8 0 7 ) 9 ,7 14 ,8 4 1 9 7 ,4 9 5 ,6 7 3 (4 16 ,5 6 2 ) 9 7 ,0 7 9 ,111 10 6 ,7 9 3 ,9 5 2

3 1/ 12 / 2 0 14 13 ,0 7 5 ,7 3 0 (3 ,5 6 5 ,9 16 ) 9 ,5 0 9 ,8 14 10 1,7 8 0 ,6 7 6 (4 8 1,8 0 3 ) 10 1,2 9 8 ,8 7 3 110 ,8 0 8 ,6 8 7

P o rtfo lio s / qua lity To ta l (ne t e xpo s ure )

N o n-pe rfo rm ing (pre v io us ly te rm e d "de te rio ra te d") a s s e t s P e rfo rm ing a s s e ts

Othe r a s s e ts

A c c um ula te d lo s s e s

N e t e xpo s ure N e t e xpo s ure

1. F inanc ia l a s s e ts ava ilable -fo r trading 2,567 12,432 976,574

2. Hedging deriva tives - - 594,685

3 1/ 12 / 2 0 15 2 ,5 6 7 12 ,4 3 2 1,5 7 1,2 5 9

P o rt fo lio s / qua lity

A s s e ts with m a rke dly po o r c re dit qua lity

The figures as at 31.12.2014 are given solely with regard to the items requested by the fourth update of Bank of Italy Circular No. 262. Details of write-offs performed during the year on the various portfolios of non-performing (previously termed “deteriorated”) and financial assets are given in table A.1.7. A.1.3 Banking Group - On- and off-balance sheet credit exposures to banks: gross and net amounts

Up to 3 m o nths 3 m o nths to 6 m o nths

6 m o nths to 1 ye a r

M o re tha n 1 ye a r

A . On-ba la nc e s he e t e xpo s ure

a) Bad lo ans (previo us ly te rmed "no n-perfo rming") X X -

- o f which: fo rbo rne expo s ures X X -

b) Unlikely to pay lo ans : X X -

- o f which: fo rbo rne expo s ures X X -

c) Expo s ure pas t due no n-perfo rming (previo us ly te rmed "de te rio rated") X X -

- o f which: fo rbo rne expo s ures X X -

d) P erfo rming pas t due expo s ures X X X X 4,352 X 4,352

- o f which: fo rbo rne expo s ures X X X X X

e) Other pe rfo rming expo s ures X X X X 3,688,101 X (23) 3,688,078

- o f which: fo rbo rne expo s ures X X X X X -

To ta l A - - - - 3 ,6 9 2 ,4 5 3 - 2 3- 3 ,6 9 2 ,4 3 0

B . Of f -ba la nc e s he e t e xpo s ure s

a) No n-perfo rming (previo us ly te rmed "de terio ra ted") 3,873 X (1,933) X 1,940

b) P erfo rming X X X X 555,705 X (169) 555,536

To ta l B 3 ,8 7 3 - - - 5 5 5 ,7 0 5 (1,9 3 3 ) (16 9 ) 5 5 7 ,4 7 6

To ta l A +B 3 ,8 7 3 - - - 4 ,2 4 8 ,15 8 (1,9 3 3 ) (19 2 ) 4 ,2 4 9 ,9 0 6

S pe c if ic im pa irm e nt

lo s s e s

P o rt fo lio im pa irm e nt

lo s s e sN e t e xpo s ure

N o n-pe rfo rm ing (pre v io us ly te rm e d "de te rio ra te d") a s s e t s

Gro s s e xpo s ure

Type o f e xpo s ure / a m o unts P e rfo rm ing a s s e ts

378 Notes to the consolidated accounts

A.1.4 Banking Group - On-balance sheet credit exposures to banks: changes in gross non-performing (previously termed “deteriorated”) exposures

D e s c ript io n/ c a te g o rie s

B a d lo a ns (prev io us ly

term ed "no n-perfo rm ing")

Unlike ly to pa y lo a ns

N o n-pe rfo rm ing

(prev io us ly term ed

"de terio rated") pa s t -due

e xpo s ure sA . Init ia l g ro s s e xpo s ure - - -

- o f which: expo s ures trans fe rred no t dereco gnis ed - - -

B . Inc re a s e s 15 ,0 15 - -

B.1 trans fe rs fro m perfo rming expo s ures 15,015 - -

B.2 trans fe rs fro m o ther ca tego ries o f no n-perfo rming expo s ures - - -

B.3 o ther increas es - - -

C . D e c re a s e s (15 ,0 15 ) - -

C.1 trans fers to perfo rming expo s ures - - -

C.2 write -o ffs (15,015) - -

C.3 payments received - - -

C.4 fro m dis po s a ls - - -

C.5 lo s s es o n the dis po s a l - - -

C.6 trans fe rs to o ther c las s es o f no n-perfo rming expo s ure - - -

C.7 o ther decreas es - - -

D . F ina l g ro s s e xpo s ure - - -

- o f which: expo s ures trans fe rred no t dereco gnis ed - - - A.1.4.bis Banking Group - On-balance sheet credit exposures to banks: changes in gross forborne exposures by credit quality No items of this type exist in the UBI Banca Group. A.1.5 Banking Group - On-balance sheet non-performing (previously termed “deteriorated”) credit exposures to banks: changes in total impairment losses

D e s c ript io n/ c a te g o rie s

To ta lOf whic h: fo rbo rne

e xpo s ure sTo ta l

Of whic h: fo rbo rne

e xpo s ure sTo ta l

Of whic h: fo rbo rne e xpo s ure s

A . To ta l in it ia l ne t im pa irm e nt - - - - - -

- o f which: expo s ures trans ferred no t dereco gnis ed - - - - - -

B . Inc re a s e s (15 ,0 15 ) - - - - -

B.1 impairment lo s s es (15,015) - - - - -

B .2 lo s s es o n the dis po s a l - - - - - - B .3 trans fers fro m o the r c las s es o f no n-perfo rming (previo us ly te rmed "de te rio ra ted") expo s ure - - - - - -

B .4 o the r increas es - - - - - -

C . D e c re a s e s 15 ,0 15 - - - - -

C.1 unrea lis ed revers a ls o f impairment lo s s es - - - - - -

C .2 rea lis ed revers a ls o f impairment lo s s es - - - - - -

C .3 pro fits o n the dis po s a l - - - - - -

C .4 write -o ffs 15,015 - - - - -

C .5 trans fers to o ther ca tego ries o f impaired expo s ures - - - - - -

C .6 o the r decreas es - - - - - -

D . To ta l c lo s ing ne t im pa irm e nt - - - - - -

- o f which: expo s ures trans ferred no t dereco gnis ed - - - - - -

B a d lo a ns (pre v io us ly te rm e d "no n-pe rfo rm ing ")

Unlike ly to pa y lo a nsN o n-pe rfo rm ing (pre v io us ly te rm e d "de te rio ra te d") pa s t -due e xpo s ure s

379 Notes to the consolidated accounts

A.1.6 Banking Group - On- and off-balance sheet exposures to customers: gross and net amounts, by time past due

Up to 3 m o nths

3 m o nths to 6 m o nths

6 m o nths to 1 ye a r

M o re tha n 1 ye a r

P e rfo rm ing a s s e ts

A . On-ba la nc e s he e t e xpo s ure

a) Bad lo ans (previo us ly te rmed "no n-pe rfo rming") 222,869 3,856 35,268 6,725,770 X (2,699,834) X 4,287,929

- o f which: fo rbo rne expo s ures 435 829 16,784 310,739 X (91,078) X 237,709

b) Unlike ly to pay lo ans : 1,757,455 342,374 740,390 3,368,141 X (1,034,969) X 5,173,391

- o f which: fo rbo rne expo s ures 1,162,546 216,520 315,923 980,839 X (386,760) X 2,289,068 c ) Expo s ure pas t due no n-perfo rming (previo us ly te rmed "deterio ra ted") 33,329 95,931 122,267 14,998 X (13,004) X 253,521

- o f which: fo rbo rne expo s ures 2,244 7,852 33,933 773 X (2,475) X 42,327

d) P erfo rming pas t due expo s ures X X X X 4,534,998 X (52,528) 4,482,470

- o f which: fo rbo rne expo s ures X X X X 533,837 X (9,906) 523,931

e) Other perfo rming expo s ures X X X X 89,734,795 X (364,011) 89,370,784

- o f which: fo rbo rne expo s ures X X X X 1,819,894 X (28,578) 1,791,316

To ta l A 2 ,0 13 ,6 5 3 4 4 2 ,16 1 8 9 7 ,9 2 5 10 ,10 8 ,9 0 9 9 4 ,2 6 9 ,7 9 3 (3 ,7 4 7 ,8 0 7 ) (4 16 ,5 3 9 ) 10 3 ,5 6 8 ,0 9 5

B . Of f-ba la nc e s he e t e xpo s ure s

a) No n-perfo rming (previo us ly te rmed "dete rio ra ted") 253,505 - - 14,786 X (11,927) X 256,364

b) P erfo rming X X X X 9,833,356 X (26,682) 9,806,674

To ta l B 2 5 3 ,5 0 5 - - 14 ,7 8 6 9 ,8 3 3 ,3 5 6 (11,9 2 7 ) (2 6 ,6 8 2 ) 10 ,0 6 3 ,0 3 8

To ta l A +B 2 ,2 6 7 ,15 8 4 4 2 ,16 1 8 9 7 ,9 2 5 10 ,12 3 ,6 9 5 10 4 ,10 3 ,14 9 (3 ,7 5 9 ,7 3 4 ) (4 4 3 ,2 2 1) 113 ,6 3 1,13 3

Type o f e xpo s ure / a m o unts

Gro s s e xpo s ure

S pe c if ic im pa irm e nt lo s s e s

P o rtfo lio im pa irm e nt lo s s e s

N e t e xpo s ureN o n-pe rfo rm ing (pre v io us ly te rm e d "de te rio ra te d") a s s e ts

The past due range “up to 3 months” contains forborne non-performing (previously termed “deteriorated”) positions which contain the past due positions in the “cure period” but not past due in that period amounting to €876.2 million gross (net exposure of €747.1 million). A.1.7 Banking Group - On-balance sheet credit exposures to customers: changes in gross non-performing (previously termed “deteriorated”) exposures

D e s c ript io n/ c a te g o rie s

B a d lo a ns (prev io us ly

term ed "no n-perfo rm ing")

Unlike ly to pa y lo a ns

N o n-pe rfo rm ing

(prev io us ly term ed

"de terio rated") pa s t -due

e xpo s ure s

A . Init ia l g ro s s e xpo s ure 6 ,5 7 7 ,7 7 3 5 ,9 4 4 ,8 0 2 5 5 3 ,6 3 4

- o f which: expo s ures trans fe rred no t dereco gnis ed - - -

B . Inc re a s e s 1,5 4 4 ,9 4 6 2 ,5 4 9 ,3 2 8 9 13 ,7 4 0

B.1 fro m perfo rming lo ans 121,912 1,415,371 898,415

B.2 trans fe rs fro m o ther ca tego ries o f de te rio ra ted expo s ures 1,344,070 759,871 687

B.3 o ther increas es 78,964 374,086 14,638

C . D e c re a s e s (1,13 4 ,9 5 6 ) (2 ,2 8 5 ,7 7 0 ) (1,2 0 0 ,8 4 9 )

C.1 trans fe rred to perfo rming lo ans (3,097) (199,519) (300,465)

C.2 write -o ffs (613,864) (100,782) (26)

C.3 payments received (375,598) (597,240) (63,055)

C.4 fro m dis po s a ls (73,754) - -

C.5 lo s s es o n the dis po s a l (45,219) - - C.6 trans fe rs to o ther c las s es o f no n-perfo rming (previo us ly te rmed "de te rio ra ted")d expo s ure (9,976) (1,267,393) (827,259)

C.7 o ther decreas es (13,448) (120,836) (10,044)

D . F ina l g ro s s e xpo s ure 6 ,9 8 7 ,7 6 3 6 ,2 0 8 ,3 6 0 2 6 6 ,5 2 5

- o f which: expo s ures trans fe rred no t dereco gnis ed - - -

380 Notes to the consolidated accounts

A.1.7.bis Banking Group - On-balance sheet credit exposures to customers: changes in gross forborne exposures by credit quality The regulatory changes contained in Circular No. 22 – fourth update are effective from the 2015 financial statements, except for the notes to the financial statements on forborne exposures for which compilation is compulsory with effect from the 2016 financial statements. Publication of table A.1.7.a “On-balance sheet credit exposures to customers: changes in gross forborne exposures by credit quality” has therefore been omitted. A.1.8 Banking Group - On-balance sheet credit exposures to customers: changes in total net impairment losses

D e s c ript io n / c a te g o rie s

B a d lo a ns (prev io us ly

term ed "no n-perfo rm ing")

N o n-pe rfo rm ing

(prev io us ly term ed

"de terio rated") pa s t -due e xpo s ure s

Unlike ly to pa y lo a ns

A . To ta l in it ia l ne t im pa irm e nt (2 ,5 5 1,7 0 9 ) (9 8 9 ,8 8 9 ) (2 4 ,3 19 )

- o f which: expo s ures trans ferred no t dereco gnis ed

B . Inc re a s e s (9 5 5 ,2 5 8 ) (4 8 9 ,7 5 7 ) (13 ,6 2 5 )

B.1 impairment lo s s es (677,896) (441,355) (9,365)

B .2 lo s s es o n the dis po s a l (45,219) - - B .3 trans fers fro m o ther c las s es o f no n-perfo rming (previo us ly te rmed "de te rio ra ted") expo s ure (202,461) (15,296) (453)

B .4 o ther increas es (29,682) (33,106) (3,807)

C . D e c re a s e s 8 0 7 ,13 3 4 4 4 ,6 7 7 2 4 ,9 4 0

C.1 unrea lis ed revers a ls o f impairment lo s s es 91,504 59,157 2,298

C .2 rea lis ed revers a ls o f impairment lo s s es 44,719 84,926 2,870

C .3 pro fits o n the dis po s a l 10,374 - -

C .4 write -o ffs 613,864 100,782 26

C .5 trans fers to o ther ca tego ries o f impaired expo s ure s 1,185 197,360 19,665

C .6 o ther decreas es 45,487 2,452 81

D . To ta l c lo s ing ne t im pa irm e nt (2 ,6 9 9 ,8 3 4 ) (1,0 3 4 ,9 6 9 ) (13 ,0 0 4 )

- o f which: expo s ures trans ferred no t dereco gnis ed - - -

The regulatory changes contained in Circular No. 262 – fourth update are effective from the 2015 financial statements, except for the notes to the financial statements on forborne exposures for which the compilation is compulsory with effect from the 2016 financial statements.

381 Notes to the consolidated accounts

A.2 Classification of exposures on the basis of external and internal ratings A.2.1 Banking Group - Distribution of on- and off-balance sheet exposures by class of external rating

Exposures External rating classes Unrated Total

Class 1 Class 2 Class 3 Class 4 Class 5 Class 6

A. On-balance sheet exposure 123,617 1,861,659 20,018,918 1,512,374 121,663 81,096 83,725,541 107,444,868 B. Derivatives 25,155 250 469 1,705 - - 494,850 522,429

B.1 Financial derivatives 25,155 250 469 1,705 - - 494,850 522,429

B.2 Credit derivatives - - - - - - - -

C. Guarantees granted 2,747 193,796 425,008 14 235 - 5,194,441 5,816,241

D. Commitments to grant funds - 27,799 489,549 10,271 235 - 3,546,096 4,073,950

E. Other - - - - - - - -

Total 151,519 2,083,504 20,933,944 1,524,364 122,133 81,096 92,960,928 117,857,488

The following table gives the relationship between external rating classes reported in the table and the classes of Moody’s the agency concerned.

Class Moody's Ratings

1 Aaa,Aa,Aa1,Aa2,Aa3

2 A,A1,A2,A3

3 Baa,Baa1,Baa2,Baa3

4 Ba,Ba1,Ba2,Ba3

5 B,B1,B2,B3

6

Caa,Caa1,Caa2,Caa3,Ca,C,DDD,DD,D

382 Notes to the consolidated accounts

A.2.2 Banking Group - Distribution of on- and off-balance sheet exposures by class of internal rating

Exposures unrated TOTALRating 1 Rating 2 Rating 3 Rating 4 Rating 5 Rating 6 Rating 7 Rating 8 Rating 9 Rating 10 Rating 11 Rating 12 Rating 13 Rating 14

A. On-balance sheet exposure 1,907,874 8,458,224 9,902,276 5,286,646 13,168,886 1,425,596 6,147,073 6,190,210 2,139,881 3,875,020 1,699,913 504,844 658,444 407,564 33,879,607 95,652,058 B. Derivatives 1,930 37,835 4,542 15,790 55,065 9,866 131,576 24,238 8,716 21,734 2,255 295 347 3,863 380,290 698,342

B.1 Financial derivatives 1,930 37,835 4,542 15,790 55,065 9,866 131,576 24,238 8,716 21,734 2,255 295 347 3,863 380,290 698,342

B.2 Credit derivatives - - - - - - - - - - - - - - - -

C. Guarantees granted 196,793 1,362,694 95,576 914,914 1,029,163 49,057 651,840 590,973 35,560 126,995 12,767 2,737 4,030 1,299 683,972 5,758,370 D. Commitments to grant funds 38,540 322,735 68,568 1,092,606 351,856 40,939 292,790 141,818 16,313 53,438 16,445 703 1,619 2,409 1,366,219 3,806,998 E. Other - - - - - - - - - - - - - - 19,940 19,940

Total 2,145,137 10,181,488 10,070,962 7,309,956 14,604,970 1,525,458 7,223,279 6,947,239 2,200,470 4,077,187 1,731,380 508,579 664,440 415,135 36,330,028 105,935,708

Internal rating classes

The classes on the “Master Scale” consist of probability of default (PD) intervals within which PDs corresponding to the single classes of the different internal rating models are mapped. The rating classes are presented in decreasing order of creditworthiness: the best creditworthiness in rating class 1; the worst creditworthiness in rating class 14. The distribution shows the aggregates of exposures, (i.e. net of intercompany eliminations) to the ordinary customers of UBI Banca and the network banks of the Group (Banca Popolare di Ancona Spa, Banca Carime Spa, Banca Popolare di Bergamo Spa, Banca Popolare Commercio e Industria Spa, Banca di Valle Camonica Spa, IW Bank Spa, Banca Regionale Europea Spa, Banco di Brescia Spa) to which internal credit ratings have been assigned. The management report may be consulted for information on the organic extension of standard and uniform rating systems to other companies in the UBI Group

383 Notes to the consolidated accounts

A.3 Distribution of guaranteed/secured credit exposures by type of guarantee A.3.1 Banking Group – Guaranteed/secured credit exposures to banks

Personal guarantees (2)

Gov

ernm

ents

and c

entr

al

Oth

er p

ublic

auth

oritie

s

Ban

ks

Oth

er

1. On-balance sheet secured/guaranteed credit exposures:

1.1. fully guaranteed/secured 65,233 15,304 - - - - - - - - - - 49,929 - 65,233

- of which non-performing (previously termed

"deteriorated") - - - - - - - - - - - - - - -

1.2. partially guaranteed/secured 50,014 - - - - - - - - - - - 15,093 - 15,093

- of which non-performing (previously termed

"deteriorated") - - - - -

2. Off-balance sheet guaranteed/secured credit exposures: -

2.1. fully guaranteed/secured 109,258 - - - 109,258 - - - - - - - - - 109,258

- of which non-performing (previously termed

"deteriorated") - - - - - - - - - - - - - - -

2.2. partially guaranteed/secured 33,306 - - - 32,320 - - - - - - - - - 32,320

- of which non-performing (previously termed

"deteriorated") - - - - - - - - - - - - - - -

Gov

ernm

ents

and

centr

al b

anks

Oth

er p

ublic

auth

oritie

s

Ban

ks

Oth

er

Sec

uri

ties Total (1)+(2)

Other derivatives

Unsecured guarantees

Am

ount

of n

et e

xpos

ure

CLN

S

Secured (1)

Pro

per

ties

-

mor

tgag

es

Pro

per

ties

- f

inan

ce

leas

es

Oth

er c

olla

tera

l

Credit derivatives

384 Notes to the consolidated accounts

A.3.2 Banking Group – Guaranteed/secured credit exposures to customers

Personal guarantees (2)

Gov

ernm

ents

and c

entr

al

Oth

er p

ublic

auth

oritie

s

Ban

ks

Oth

er

1. on-balance sheet secured/guaranteed credit exposures:

1.1 fully guaranteed secured 61,663,363 41,397,807 4,908,327 3,282,483 1,485,045 - - - - - 663,418 145,745 248,174 7,995,262 60,126,261

- of which non-performing (previously

termed "deteriorated") 7,779,776 5,136,265 1,046,042 24,673 177,459 - - - - - 39,318 33,146 2,518 1,184,718 7,644,139

1.2 partially guaranteed/secured 2,814,565 45,815 - 291,661 34,612 - - - - - 322,939 41,051 152,964 672,036 1,561,078

- of which non-performing (previously terme 359,168 31,880 - 15,579 367 - - - - - 9,516 7,463 17,842 134,805 217,452

2. Off-balance sheet guaranteed/secured credit exposures:

2.1 fully guaranteed secured 2,224,084 465,798 - 210,966 208,779 - - - - - 71,772 942 77,890 1,066,217 2,102,364

- of which non-performing (previously

termed "deteriorated") 88,679 47,201 - 3,298 1,264 - - - - - - 459 90 26,937 79,249

2.2 partially guaranteed/secured 200,190 1,566 - 34,169 17,620 - - - - - 1,301 49 14,491 16,550 85,746

- of which non-performing (previously

termed "deteriorated") 1,575 - - 69 139 - - - - - - - 398 113 719

Ban

ks

Oth

er

Pro

per

ties

- f

inan

ce

leas

es

Am

ount

of n

et e

xpos

ure Secured (1)

Total (1)+(2)

Credit derivatives Unsecured guarantees

Pro

per

ties

-

mor

tgag

es

Sec

uri

ties

Oth

er c

olla

tera

l

CLN

S

Other derivatives

Gov

ernm

ents

and

centr

al b

anks

Oth

er p

ublic

auth

oritie

s

The fourth update of Circular No. 262 states that total guarantees cannot be greater than the carrying amount. Consequently the amounts are not comparable with those reported in the tables as at 31st December 2014.

385 Notes to the consolidated accounts

B. Distribution and concentration of credit exposures B.1 Banking group - Distribution by sector of on- and off-balance sheet exposures to customers (carrying amount)

Exposures/Counterparties

Net

exp

osu

re

Spec

ific

im

pai

rmen

t lo

sses

Por

tfol

io im

pai

rmen

t lo

sses

Net

exp

osu

re

Spec

ific

im

pai

rmen

t lo

sses

Por

tfol

io im

pai

rmen

t lo

sses

Net

exp

osu

re

Spec

ific

im

pai

rmen

t lo

sses

Por

tfol

io im

pai

rmen

t lo

sses

Net

exp

osu

re

Spec

ific

im

pai

rmen

t lo

sses

Por

tfol

io im

pai

rmen

t lo

sses

Net

exp

osu

re

Spec

ific

im

pai

rmen

t lo

sses

Por

tfol

io im

pai

rmen

t lo

sses

Net

exp

osu

re

Spec

ific

im

pai

rmen

t lo

sses

Por

tfol

io im

pai

rmen

t lo

sses

A. On-balance sheet exposure

A.1 Bad loans (previously termed "non-performing" loans) - - X 7,225 (3,222) X 50,186 (66,406) X 82 (15) X 3,063,106 (1,771,246) X 1,167,330 (858,945) X

- of which: forborne exposures - X - - X 169 (138) X - - X 179,611 (67,831) X 57,929 (23,109) X

A.2 Unlikely to pay loans - - X 58 (60) X 92,847 (22,588) X - (4) X 3,778,306 (735,823) X 1,302,180 (276,494) X

- of which: forborne exposures - X - - X 48,919 (11,212) X - - X 1,806,209 (326,334) X 433,940 (49,214) X

A.3 Non-performing (previously termed "deteriorated") past-due

exposures - - X

30,785 (449) X

661 (43) X

- - X

170,147 (9,805) X

51,928 (2,707) X

- of which: forborne exposures - X - - X - - X - - X 29,422 (1,746) X 12,905 (729) X

A.4 Performing loans 18,518,229 X (1) 505,521 X (2,696) 4,644,038 X (14,357) 157,819 X (1) 40,804,607 - (307,582) 29,223,040 X (91,902)

- of which: forborne exposures X - - X - 14,779 X (330) - X - 1,334,643 (27,999) 965,825 X (10,155)

TOTAL A 18,518,229 - (1) 543,589 (3,731) (2,696) 4,787,732 (89,037) (14,357) 157,901 (19) (1) 47,816,166 (2,516,874) (307,582) 31,744,478 (1,138,146) (91,902)

B. Off-balance sheet exposures

B.1 Bad loans (previously termed "non-performing" loans) - - X - - X 658 (67) X - - X 14,398 (2,993) X 300 (17) X

B.2 Unlikely to pay loans - - X - - X 2,515 (17) X - - X 229,479 (7,851) X 7,313 (957) X

B.3 Other non-performing (previously termed "deteriorated")

assets - - X 197 (3) X 5 - X - - X 1,438 (21) X 61 (1) X

B.4 Performing loans 75,412 X - 1,183,465 X (876) 979,003 X (2,571) 30,393 X (67) 6,769,228 X (16,135) 767,362 X (7,033)

TOTAL B 75,412 - - 1,183,662 (3) (876) 982,181 (84) (2,571) 30,393 - (67) 7,014,543 (10,865) (16,135) 775,036 (975) (7,033) 31.12.2015 18,593,641 - (1) 1,727,251 (3,734) (3,572) 5,769,913 (89,121) (16,928) 188,294 (19) (68) 54,830,709 (2,527,739) (323,717) 32,519,514 (1,139,121) (98,935) 31.12.2014 22,519,334 - (61) 1,819,753 (3,805) (4,045) 4,627,967 (81,908) (17,553) 185,139 (150) (117) 55,537,766 (2,390,018) (361,215) 33,792,569 (1,107,056) (126,242)

OtherGovernments Other public authorities Financial companies Insurance companies Non-financial companies

386 Notes to the consolidated accounts

B.2 Banking group – Geographical distribution of on- and off-balance sheet credit exposures to customers (carrying amount)

ITALYOTHER EUROPEAN

COUNTRIESAMERICA ASIA REST OF THE WORLD

Net

exp

osu

re

Tot

al

impai

rmen

t

loss

es

Net

exp

osu

re

Tot

al

impai

rmen

t

loss

es

Net

exp

osu

re

Tot

al

impai

rmen

t

loss

es

Net

exp

osu

re

Tot

al

impai

rmen

t

loss

es

Net

exp

osu

re

Tot

al

impai

rmen

t

loss

es

A. On-balance sheet exposureA.1 Bad loans (previously termed

"non-performing" loans) 4,265,111 (2,660,499) 22,779 (39,160) 38 (161) - - 1 (14) A.2 Unlikely to pay exposures 5,100,335 (994,635) 73,054 (40,333) 1 - - - 1 (1)

A.3 Non-performing (previously

termed "deteriorated") past-due

exposures 247,790 (12,911) 5,718 (91) 13 (2) - - - - A.4 P erforming loans 91,998,277 (410,848) 1,550,294 (5,303) 196,103 (187) 78,412 (165) 30,168 (36)

TOTAL 101,611,513 (4,078,893) 1,651,845 (84,887) 196,155 (350) 78,412 (165) 30,170 (51) B. Off-balance sheet exposures

B.1 Bad loans (previously termed

"non-performing" loans) 15,356 (3,077) - - - - - - - - B.2 Unlikely to pay exposures 237,793 (8,825) 1,514 - - - - - - -

B.3 Other non-performing

(previously termed "deteriorated")

assets 1,701 (25) - - - - - - - - B.4 P erforming loans 9,445,780 (26,605) 309,767 (65) 46,655 (10) 1,110 (1) 1,551 (1)

TOTAL 9,700,630 (38,532) 311,281 (65) 46,655 (10) 1,110 (1) 1,551 (1) 31.12.2015 111,312,143 (4,117,425) 1,963,126 (84,952) 242,810 (360) 79,522 (166) 31,721 (52) 31.12.2014 116,527,023 (3,998,358) 1,730,684 (61,060) 89,631 (21,277) 128,370 (631) 6,820 (10,844)

Exposures/Geographical areas

387 Notes to the consolidated accounts

B.3 Banking group – Geographical distribution of on- and off-balance sheet credit exposures to banks (carrying amount)

ITALYOTHER EUROPEAN

COUNTRIESAMERICA ASIA REST OF THE WORLD

Net

exp

osu

re

Tot

al

imp

airm

ent

loss

es

Net

exp

osu

re

Tot

al

imp

airm

ent

loss

es

Net

exp

osu

re

Tot

al

imp

airm

ent

loss

es

Net

exp

osu

re

Tot

al

imp

airm

ent

loss

es

Net

exp

osu

re

Tot

al

imp

airm

ent

loss

es

A. On-balance sheet exposureA.1 Bad loans (previously termed "non-

performing" loans) - - - - - - - - - - A.2 Unlikely to pay exposures - - - - - - - - - -

A.3 Non-performing (previously termed

"deteriorated") past-due exposures - - - - - - - - - - A.4 P erforming loans 2,049,081 - 1,062,302 (14) 512,800 (3) 57,643 (5) 10,604 (1)

TOTAL 2,049,081 - 1,062,302 (14) 512,800 (3) 57,643 (5) 10,604 (1) B. Off-balance sheet exposures

B.1 Bad loans (previously termed "non-

performing" loans) - - - - - - - - - - B.2 Unlikely to pay exposures - - - - - - - - - -

B.3 Other non-performing (previously

termed "deteriorated") assets 1,940 (1,933) - - - - - - - - B.4 P erforming loans 80,228 (57) 339,864 (32) 5,353 (3) 59,849 (38) 51,690 (39)

TOTAL 82,168 (1,990) 339,864 (32) 5,353 (3) 59,849 (38) 51,690 (39) 31.12.2015 2,131,249 (1,990) 1,402,166 (46) 518,153 (6) 117,492 (43) 62,294 (40) 31.12.2014 2,393,122 (1,806) 2,301,505 (366) 478,846 (9) 123,423 (211) 39,031 (102)

Exposures/Geographical areas

388 Notes to the consolidated accounts

B.4 Large exposures On the basis of updates to Bank of Italy Circular No. 263 of 27th December 2006 and subsequent regulatory clarifications issued by the supervisory authority, the number of large risks presented in the table was determined by making reference to the non-weighted “exposures”, including those towards Group counterparties, with a nominal value equal to or greater than 10% of the regulatory capital, where “exposures” are defined as the sum of on-balance sheet risk assets and off-balance sheet commitments (excluding those deducted from regulatory capital) to a customer of group of connected customers, without the application of weighting factors. These exposure criteria result also in the inclusion in the balance sheet table of large risk positions which – although they have a weighting factor of 0% - have a non-weighted exposure of greater than 10% of the capital valid for the purposes of large risks.

31.12.2015Number of positions 4 Exposure 30,890,038 Risk position 399,350

“Large exposures” consisted of the following:

€19,640 million to the Ministry of the Treasury (€0 million considering weighting factors);

€7,426 million to the Cassa di Compensazione e Garanzia (a central counterparty clearing house) (€0 million considering weighting factors);

€2,815 million to the Ministry of the Economy and Finance (€0 million considering weighting factors);

€1,009 million to a major large corporate Group (€399 million considering weighting factors).

The percentage of consolidated regulatory capital is well below the limit of 25% set for banking groups for each of the exposures reported.

389 Notes to the consolidated accounts

C. Securitisations and the transfer of assets

C.1 Securitisation transactions Qualitative information Underlying objectives strategies and processes of securitisations Third party securitisation transactions As at 31st December 2015 the UBI Group held no positions in the instruments related to third-party securitisations (ABS and other structured credit products). Own securitisations The “own” securitisations of the UBI Group as at the reporting date of this report consisted of securitisations of assets belonging to Group companies and they have been performed to generate assets eligible for refinancing operations with the European Central Bank (own-securitisations), in order to strengthen the liquidity position of the Group in compliance with internal policies and to thereby maintain a high level of counterbalancing capacity. Law No. 130/99 “Measures on the securitisation of loans” did in fact introduce the possibility into national legislation of performing securitisation transactions using specially formed Italian registered companies (termed special purpose entities), which allow an entity to acquire funding by securitising part of the assets which it owns. This operation involves the transfer of assets (usually loans and receivables) recognised in the balance sheet of an entity (termed the “originator”) to a special purpose entity which in order to fund the purchase issues bonds which it then sells on the market and pays the proceeds back to the transferor. The redemption and return on the notes issued depend on the cash flows generated by the assets transferred. On the other hand, with “self-retained securitisation” transactions it is the originator itself (banks or companies in the UBI Group) which fully subscribes the various tranches of notes issued by the special purpose entity to fund the purchase of the loans. The senior notes assigned a rating are listed and can be used for refinancing operations with the ECB. As allowed by regulations for “self-retained securitisations”, the relative sections of the notes to the financial statements have therefore not been compiled. For full information the main characteristics of the transactions existing at the time of preparing these notes to the financial statements have nevertheless been reported. The following companies in the UBI Group have taken advantage of Law No. 130 for securitisations: UBI Finance 2 Srl in liquidation, UBI Finance 3 Srl, UBI Lease Finance 5 Srl, 24-7 Finance Srl, UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl, UBI SPV BBS 2012 Srl. The securitisations UBI Finance 2 in liquidation and UBI Finance 3 were closed down in advance in consideration of the small remaining value of the underlying portfolios: UBI Finance 2 closed down and redeemed its notes in 2014 and the special purpose entity was put into liquidation in the first quarter of 2015; as concerns UBI Finance 3, the securitisation was closed down in the fourth quarter of 2015, following the procedures described below in a special sub-section.

390 Notes to the consolidated accounts

Securitisations: entities and roles The schedule that follows reports the companies in the UBI Banca Group and the external parties involved in the securitisation transactions existing as at 31st December 2015 and their respective roles played in each securitisation: UBI Lease Finance 5 Srl Originator UBI Leasing Spa Issuer UBI Lease Finance 5 Srl Servicer UBI Banca Spa Sub-Servicer UBI Leasing Spa English Account Bank The Bank of New York Mellon London Branch Italian Account Bank The Bank of New York (Luxembourg) S.A.Italian Branch Cash Manager The Bank of New York Mellon London Branch Paying Agent The Bank of New York (Luxembourg) S.A.Italian Branch Calculation Agent The Bank of New York Mellon London Branch Swap Counterparty UBI Banca Spa Representative of the Noteholders BNY Corporate Trustee Services Limited 24-7 Finance Srl Originator UBI Banca Spa Issuer 24-7 Finance Srl Servicer UBI Banca Spa English Account Bank The Bank of New York Mellon London Branch Italian Account Bank The Bank of New York (Luxembourg) S.A.Italian Branch Cash Manager The Bank of New York Mellon London Branch Paying Agent The Bank of New York (Luxembourg) S.A.Italian Branch Calculation Agent The Bank of New York Mellon London Branch Swap Counterparty JPMorgan Chase Bank, National Association Representative of the Noteholders BNY Corporate Trustee Services Limited UBI SPV BPA 2012 Srl Originator Banca Popolare di Ancona Spa Issuer UBI SPV BPA 2012 Srl Servicer UBI Banca Spa Sub-Servicer Banca Popolare di Ancona Spa English Account Bank The Bank of New York Mellon London Branch Italian Account Bank UBI Banca Spa Cash Manager The Bank of New York Mellon London Branch Paying Agent The Bank of New York (Luxembourg) S.A.Italian Branch Calculation Agent UBI Banca Spa Representative of the Noteholders BNY Corporate Trustee Services Limited UBI SPV BPCI 2012 Srl Originator Banca Popolare Commercio e Industria Spa Issuer UBI SPV BPCI 2012 Srl Servicer UBI Banca Spa Sub-Servicer Banca Popolare Commercio e Industria Spa English Account Bank The Bank of New York Mellon London Branch Italian Account Bank UBI Banca Spa Cash Manager The Bank of New York Mellon London Branch Paying Agent The Bank of New York (Luxembourg) S.A.Italian Branch Calculation Agent UBI Banca Spa Representative of the Noteholders BNY Corporate Trustee Services Limited

UBI SPV BBS 2012 Srl Originator Banco di Brescia Spa Issuer UBI SPV BBS 2012 Srl Servicer UBI Banca Spa

391 Notes to the consolidated accounts

Sub-Servicer Banco di Brescia Spa English Account Bank The Bank of New York Mellon London Branch Italian Account Bank UBI Banca Spa Cash Manager The Bank of New York Mellon London Branch Paying Agent The Bank of New York (Luxembourg) S.A.Italian Branch Calculation Agent UBI Banca Spa Representative of the Noteholders BNY Corporate Trustee Services Limited Securitisations: details of the individual transactions UBI Finance 3 Srl (transaction closed down as at 31/12/2015) In 2011 a securitisation transaction was performed by transferring mainly loans to small to medium-sized enterprises, classified as performing and held by the subsidiary Banca Popolare di Bergamo Spa, to a special purpose entity UBI Finance 3 Srl. The transaction was performed in two stages:

- the transfer of the loans by the originator Banca Popolare di Bergamo to the special purpose entity UBI Finance 3 Srl on 6th December 2010, for an amount of approximately €2.8 billion;

- the issuance of notes by UBI Finance 3 (performed in July 2011). The notes issued were the repurchased entirely by the originator Banca Popolare di Bergamo, which subsequently made the senior notes available to the Parent, UBI Banca, – by means of repurchase agreements – for use in refinancing operations with central banks.

The main characteristics of the UBI Finance 3 notes issued in 2011 are as follows: • class A notes (senior tranches): original nominal amount €1,863,600,000 at floating rate with maturity in 2050. The class A notes were initially assigned a maximum rating by Fitch and Moody’s, progressively downgraded to A+ by Fitch and to A2 by Moody’s as a result of the progressive downgrading of the rating for Italy and for Parent UBI Banca by the two agencies in 2011 and in 2012. The ratings assigned from time to time to the above securities were always compatible with the eligibility requirements for refinancing operations with the Central Bank; • class B notes (junior tranches): €897,300,000 nominal, unrated and with a yield equal to the additional return on the transaction. As already mentioned, the transaction was closed down in 2015 according to the following procedures: on 12th November 2015 the securities were withdrawn from the collateral pool held with the Bank of Italy, while on the following 26th November, the documentation necessary to proceed to the repurchase of the portfolio by the originator Banca Popolare di Bergamo, the closure of the swap contracts and the redemption of the securitised notes was signed by the various counterparties in the following December. Consequently, on the extraordinary payment date of 17th December, in compliance with the provisions of the contract for the transaction, UBI Finance 3 carried out the following: - the full redemption of the senior notes; - settlement of amounts to close the swap contracts; - repayment to Banca Popolare di Bergamo and UBI Banca of the sums lent in their capacities as Subordinated Lender and Liquidity Facility Provider respectively; - payment of the excess spread and for redemption of the junior notes. The table below reports the amounts redeemed for the two classes of notes:

392 Notes to the consolidated accounts

UBI FINANCE 3 – SECURITISED NOTES ISIN Number

Nominal amount when issued

Amount redeemed as at 31.12.2015

Remaining nominal value as at 31.12.2015 % of amortisation

Class A IT0004675861 1,863,600,000 1,863,600,000 - 100.00%

Class B IT0004675879 897,300,000 897,300,000 - 100.00%

Total 2,760,900,000 2,760,900,000 - 100.00%

With regard to this securitisation, UBI Banca, as the Parent, filled the roles of Italian account bank, calculation agent and servicer, while the originator, Banca Popolare di Bergamo, in its capacity as sub-servicer, carried out the collection of payments and the management of relations with customers (except for those positions reclassified as bad loans (previously termed “non-performing”), handled by the Problem Loan and Credit Recovery area of the Parent). Payments received in 2015 amounted to €250 million. Fees for the above activities for 2015 until the closure of the operation amounted to €407 thousand for Banca Popolare di Bergamo and €323 thousand for UBI Banca. UBI Lease Finance 5 Srl The UBI Lease Finance 5 securitisation was performed as follows: - on 13.11.2008 a contract was signed for the transfer without recourse by UBI Leasing Spa

to the special purpose entity (SPE) UBI Lease Finance 5 Srl (“UBILF5”) of the principal of implicit performing receivables recognised in the accounts as at 31.10.2008 relating to lease contracts, against payment of the nominal amount of the receivables transferred by the SPE (UBILF5). The receivables transferred amounted to €4,024,060,000. Management of those receivables was entrusted to the originator on specific mandate of the transferee to UBI Leasing in its capacity as servicer of the transaction;

- on 28.11.2009 ULF5 issued “Senior and Junior”, Class A-B, notes with differing redemption characteristics, which were fully subscribed by the originator, UBI Leasing.

The characteristics of the notes issued are as follows: - class A notes (senior tranches): €3,440,500,000 nominal at floating rate, maturity in 2031,

assigned ratings by Fitch and Moody’s; - class B notes (junior tranches): €583,560,000 nominal, maturity 2031, unrated and with a

yield related to the additional return on the transaction. In subsequent years some changes were made to the structure of the transaction, a summary of which is given below. - on 26th July 2010 an agreement was signed to amend the servicing contract between the

special purpose entity and UBI Leasing in which, in order to achieve more flexible and effective management of contractual debtor-in-difficulty positions, UBI leasing was granted the right to repurchase those loans and receivables. In this context loans and receivables of €100,662 million were repurchased in July 2010, €40,686 million in April 2011 and €27,702 million in April 2012;

- on 19th October 2010, documents were signed to halt the start of amortisation scheduled for 30th October 2010, postponing it until 30th April 2011. Then on the following 25th February 2011 the securitisation was restructured in order to insert the following: a) a revolving mechanism which made it possible to transfer to the SPE new portfolios of receivables on the new date (excluded) for the start of the amortisation of the notes scheduled for 30th April 2013; b) the assignment of a second rating to the senior notes by Fitch Ratings, in addition to that already assigned by Moody's, in order to satisfy eligibility requirements; c) a cash reserve (“debt reserve amount”) of approximately €900 million funded in the form of a deferred consideration for the first new portfolio transferred in March 2011 as part of the first revolving transfer.

As a result of the introduction of the revolving mechanism, UBI Leasing made further transfers of performing receivables amounting to €1,603 million in February 2011, €566 million in October 2011 and €135 million in April 2012. - On 25th October 2011 amendments were made to the documents relating to the definition of

“eligible investments” in order to allow UBI Lease Finance 5 to reinvest its liquidity in short-term instruments issued by the Group.

393 Notes to the consolidated accounts

- On 21st February 2012, further changes were made to the operation, the main objective of which was to eliminate the “credit link” between the rating assigned to UBI Banca and that assigned to the notes of the securitisation. To achieve this the following was performed: a) an extraordinary payment date of 24th February 2012 was set and the debt reserve amount” was used to redeem the senior notes in the amount of €900 million for the principal and €24 million in interest; b) maintenance of a debt reserve amount of €152.9 million; c) changes were made to the definition of “minimum rating” and the payment of a sum as a “commingling amount25” was made in order to allow UBI Banca to fill the role of depository bank for the amounts received from the securitised portfolios transferred by the servicer; d) changes were made to the frequency of the payment date for the securitisation from half yearly to quarterly in order to reduce the liquidity present within the structure of the securitisation; e) a mechanism was introduced by which, on each quarterly payment date, all the sums available within the structure of the securitisation which were not being used for subsequent transfers in respect of the revolving part, were to be used for early redemption of the principal of the senior notes.

- Finally, as part of the process to centralise the administrative and control activities carried out by the units under the UBI Banca CRO and CFO, in compliance with the procedures adopted for other Group operations, on 30th October 2015 the role of servicer was officially transferred from UBI Leasing to UBI Banca with the appointment of UBI Leasing as sub-servicer of the securitisation at the same time.

The class A notes are now at an advanced stage of amortisation and the table below reports the amount redeemed and the remaining amount of the notes as at 31st December 2015.

UBI LEASE Finance 5 - SECURITISED NOTES ISIN Number

Nominal amount when issued

Amount redeemed as at 31.12.2015

Remaining nominal value as at 31.12.2015

% of amortisation

Class A IT0004433253 3,440,500,000 2,971,825,801 468,674,199 86.4%

Class B IT0004433279 583,560,000 - 583,560,000 0.0%

Total 4,024,060,000 2,971,825,801 1,052,234,199 73.9%

As at 31st December 2015, the ratings assigned to the class A notes issued by UBI Lease Finance 5 were “Aa2” (Moody’s) and “A+” (Fitch). The tables below give the distribution of the securitised portfolio by the quality of the receivables as at 31st December 2015 on the basis of the classification in the balance sheet of the originator (in terms of the net book amount) and the reporting classification of the transaction (in terms of the remaining principal debt):

25 See the subsequent section, “Securitisations: financial support from the UBI Banca Group”.

394 Notes to the consolidated accounts

TYPE OF LOAN (Balance sheet classification)

Carrying amount as at 31.12.2015

(thousands of euro)

TYPE OF LOAN (Classification for the

purposes of the transaction)

Remaining principal debt as at 31.12.2015

(thousands of euro)

Performing loans 1,839,013 Performing Loans 1,741,494

Non-performing (previously termed “deteriorated”) past-due exposures

16,405 Loans in arrears 104,552

Unlikely to pay loans 210,108 COLLATERAL PORTFOLIO

1,846,046

Bad loans (previously termed “non-performing”) 207,157

Defaulted Loans 512,685

TOTAL assets transferred from UBI Banca to UBI Lease Finance 5

2,272,683 TOTAL UBI LEASE FINANCE 5 PORTFOLIO

2,358,731

24-7 Finance Srl The 24-7 Finance securitisation was performed in 2008 on three different loan portfolios originated by B@nca 24-7: 1) performing loans resulting from mortgages granted to private individuals resident in Italy, secured by prime grade mortgages on residential properties located in Italy all fully built; 2) performing loans resulting from salary backed loans to private individuals resident in Italy, secured by a “deducted for non-payment” clause and by a loss of employment insurance policy; 3) performing loans resulting from personal loans and dedicated loans to private individuals resident in Italy. The securitisation was completed according to the following procedures and structure: - the transfer without recourse of the loans to the special purpose entity 24/7 Finance Srl in

which UBI Banca Spa holds a 10% interest; - funding of the transaction by the issue of notes divided according to each individual category

of the underlying assets as follows: 1) mortgages:

class A notes (senior notes): floating rate bond equal to the Euribor three months + 0.02 % for an original amount of €2,279,250,000. These securities were initially assigned a rating of Aaa by Moody’s. The current rating by Moody’s is Aa3, while the second rating assigned by DBRS in 2011, in order to comply with eligibility requirements, is A (high);

class B notes (junior notes): bonds with a yield equal to the “additional return”, for an amount of €225,416,196.

2) salary backed loans: class A notes (senior notes): floating rate bonds equal to the Euribor three months for

an original amount of €722,450,000; class B notes (junior securities): bonds with a yield equal to the “additional return”, for

an amount of €113,728,307. 3) consumer loans:

class A notes (senior notes): floating rate bonds equal to the Euribor six months +0.35% for an original amount of €2,128,250,000;

class B notes (junior securities): bonds with a yield equal to the “additional return”, for an amount of €435,940,122.

On 20th December 2011, the entire salary backed loan securitisation was closed down in advance with the consequent repurchase of the loans by Banca 24/7. Consequently, on receipt of the sales price the special purpose entity redeemed all the securities issued. Finally, on 21st May 2012 the consumer loan securitisation was closed down, again with the full repurchase of the loans by the originator and the subsequent redemption of the notes issued by the special purpose entity. Therefore only the mortgages transaction was still in existence as at 31st December 2015 for which the portfolio amounted on that date to €1,320 billion.

395 Notes to the consolidated accounts

The class A notes, amortised since February 2010, were worth €934,849,750 nominal as at 31st December 2015, while the class B notes have not been amortised, because of the subordination clause. A summary of this data is given in the table as follows:

24/7 FINANCE SRL – SECURITISED NOTES ISIN Number

Nominal amount when issued

Amount redeemed as at 31.12.2015

Remaining nominal value as at 31.12.2015 % of amortisation

Class A IT0004376437 2,279,250,000 1,344,400,250 934,849,750 59.0%

Class B IT0004376445 225,416,196 - 225,416,196 0.0%

Total 2,504,666,196 1,344,400,250 1,160,265,946 53.7%

The tables below give the distribution of the securitised portfolio by the quality of the loans as at 31.12.2015 on the basis of the classification in the balance sheet of the originator (in terms of the net book amount) and the reporting classification of the transaction (in terms of the remaining principal debt “customer view”):

TYPE OF LOAN (Balance sheet classification)

Carrying amount as at 31.12.2015

(thousands of euro)

TYPE OF LOAN (Classification for the purposes of the transaction)

Remaining principal debt as at 31.12.2015

(thousands of euro)

Performing loans 1,082,824 Performing Loans 1,063,496

Performing past-due exposures 45,894 Loans in arrears 45,597

Non-performing (previously termed “deteriorated”) past-due exposures

3,901 COLLATERAL PORTFOLIO 1,109,093

Unlikely to pay loans 117,114 Defaulted loans 211,238

Bad loans (previously termed “non-performing”)

80,925 TOTAL 24-7 FINANCE PORTFOLIO 1,320,331

TOTAL assets transferred from UBI Banca to 24-7 Finance

1,330,658

The servicer role for the securitised portfolios was filled by B@nca 24-7 as the originator. Following the subsequent merger of B@nca 24-7 into UBI Banca in the second half of 2012, the servicer function for the securitisation is now carried out by the Parent. The fee due to UBI Banca for servicing activities carried out in 2015 totalled €447 thousand, while total payments received as part of servicing activity amounted to €153 million for the year 2015. UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BBS 2012 Srl The structuring of three new securitisations was completed simultaneously in 2012, with the transfer to three new special purpose entities, named UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BBS 2012 Srl, of loans to small to medium-sized enterprises classified as performing, held by Banca Popolare di Ancona, Banca Popolare Commercio and Industria and Banco di Brescia respectively. These new securitisations were also structured with the objective of creating collateral for the Group eligible for refinancing with central banks, according to the model described above. As a consequence on this occasion too, the originator banks fully subscribed the entire amount of the securitised notes when they were issued and then made only the class A notes available to UBI Banca, by means of repurchase agreements.

396 Notes to the consolidated accounts

The characteristics of the notes issued at the same time for all three securitisations on 30th October 2012 are as follows:

1) UBI SPV BPA 2012 Srl Securitisation class A notes (senior tranches): €709,800,000 nominal, floating rate, maturity in 2057,

assigned ratings A- by Standard & Poor’s and A (low) by DBRS; class B notes (Junior Tranches): €307,800,000 nominal, maturity 2057, unrated and

with a yield equal to the additional return on the transaction.

2) UBI SPV BPCI 2012 Srl Securitisation

class A notes (senior tranches): €575,600,000 nominal, floating rate, maturity in 2057, assigned ratings A- by Standard & Poor’s and A (low) by DBRS;

class B notes (Junior Tranches): €277,100,000 nominal, maturity 2057, unrated and with a yield equal to the additional return on the transaction.

3) UBI SPV BBS 2012 Srl Securitisation

class A notes (senior tranches): €644,600,000 nominal, floating rate, maturity in 2057, assigned ratings A- by Standard & Poor’s and A (low) by DBRS;

class B notes (Junior Tranches): €244,400,000 nominal, maturity 2057, unrated and with a yield equal to the additional return on the transaction.

Here too, the new ratings assigned to the above securities – which also remained valid as at 31st December 2015 – are compatible with the eligibility requirements for refinancing operations with the central bank. The amortisation of the notes began on the payment date of 7th July 2014. The class A notes were partially redeemed from that date. The table below reports the amounts redeemed and the remaining amount of the notes as at the reporting date for each transaction.

UBI SPV BPA 2012 Srl – SECURITISED NOTES

ISIN Number Nominal

amount when issued

Amount redeemed as at 31.12.2015

Remaining nominal value as at 31.12.2015

% redeemed

Class A IT0004841141 709,800,000 365,584,506 344,215,494 51.5%

Class B IT0004841158 307,800,000 - 307,800,000 0.0%

Total 1,017,600,000 365,584,506 652,015,494 35.9%

UBI SPV BPCI 2012 Srl – SECURITISED NOTES ISIN Number

Nominal amount when issued

Amount redeemed as at 31.12.2015

Remaining nominal value as at 31.12.2015

% redeemed

Class A IT0004840994 575,600,000 418,069,723 157,530,277 72.6%

Class B IT0004841000 277,100,000 - 277,100,000 0.0%

Total 852,700,000 418,069,723 434,630,277 49.0%

UBI SPV BBS 2012 Srl – SECURITISED NOTES

ISIN Number Nominal amount

when issued Amount redeemed

as at 31.12.2015 Remaining nominal

value as at 31.12.2015 % redeemed

Class A IT0004841125 644,600,000 404,601,316 239,998,684 62.8%

Class B IT0004841133 244,400,000 - 244,400,000 0.0%

Total

889,000,000 404,601,316 484,398,684 45.5%

For full information, we report that on 7th January 2016 the next amortisation date, further redemptions on the class A notes were made of €68.2 million for UBI SPV BPA 2012 Srl, €41.2 million for UBI SPV BPCI 2012 Srl and €48.9 million for UBI SPV BBS 2012 Srl. In view of the subordination clauses no redemption has been paid on the class B notes for each operation.

397 Notes to the consolidated accounts

As concerns the portfolio originally transferred, this totalled €2.76 billion, divided among the three originator banks as follows: Banca Popolare di Ancona €1.017 billion; Banca Popolare Commercio e Industria €852 million; and Banco di Brescia €889 million. The transactions in question are “revolving” operations and therefore it was possible for further transfers of mortgages within 18 months of issue by the originator banks, to be financed by the special purpose entities with the receipts generated by each securitised portfolio. Consistent with that provision, in the first quarter of 2014 a further transfer of assets was completed for a total of €647 million divided between the three securitisations as follows (in terms of remaining principal debt):

- Banca Popolare di Ancona / UBI SPV BPA 2012 Srl: €317 million; - Banca Popolare Commercio e Industria / UBI SPV BPCI 2012 Srl: €137 million; - Banco di Brescia / UBI SPV BBS 2012 Srl: €193 million.

In order to further improve the overall quality of the portfolio, in the first quarter of 2014 each originator bank concluded a voluntary repurchase of high-risk performing loans for a total of €136 million of loans from the portfolios initially transferred. The loans repurchased for each originator/SPE are as follows (in terms of the remaining principal debt):

- Banca Popolare di Ancona/UBI SPV BPA 2012 Srl: €42 million; - Banca Popolare Commerce e Industria/UBI SPV BPCI 2012 Srl: €27 million; - Banco di Brescia/UBI SPV BBS 2012 Srl: €67 million.

A new loan repurchase operation was carried out in the third quarter of 2015: in this case the three originator banks repurchased non-performing loans (previously termed “deteriorated”) totalling €69 million of the remaining principal debt. The operation was concluded on 30th October. The loans repurchased for each originator/SPE, again in terms of remaining principal debt, were as follows:

- Banca Popolare di Ancona UBI SPV BPA 2012 Srl: €35 million; - Banca Popolare Commerce e Industria/UBI SPV BPCI 2012 Srl: €13 million; - Banco di Brescia/UBI SPV BBS 2012 Srl: €21 million.

With account taken of the two transactions described above and the natural amortisation of the loans, the total portfolio transferred by the three originator banks – here too still recognised in the balance sheets of the originators – amounted to €1.455 billion of remaining principal debt as at the 31st December 2015. The tables below give the distribution of the securitised portfolio for each transferring bank by the quality of the loans as at 31.12.2015 on the basis of the classification in the balance sheet of the originator (in terms of the net book amount) and the reporting classification of the transaction (in terms of the remaining principal debt):

398 Notes to the consolidated accounts

1) UBI SPV BPA 2012 Srl Securitisation

TYPE OF LOAN (Balance sheet classification)

Carrying amount (thousands of euro)

TYPE OF LOAN (Classification for the purposes of the transaction)

Remaining principal debt (thousands of

euro)

Performing loans 531,807 Performing loans 543,615

Performing past-due exposures 19,800 Loans in arrears 5,631

Non-performing (previously termed deteriorated”) past-due exposures

2,284 COLLATERAL PORTFOLIO 549,246

Unlikely to pay loans 38,590 Defaulted loans 50,792

Bad loans (previously termed “non-erforming”)

4,326 TOTAL UBI SPV BPA 2012 PORTFOLIO 600,038

TOTAL assets transferred from Banca Popolare di Ancona to UBI SPV BPA 2012

596,807

2) UBI SPV BPCI 2012 Srl Securitisation

TYPE OF LOAN (Balance sheet classification)

Carrying amount (thousands of euro)

TYPE OF LOAN (Classification for the purposes of the transaction)

Remaining principal debt (thousands of euro)

Performing loans 371,646 Performing loans 383,303

Performing past-due exposures 15,658 Loans in arrears 3,398

Non-performing (previously termed “deteriorated”) past-due exposures

4,820 COLLATERAL PORTFOLIO 386,701

Unlikely to pay loans 16,787 Defaulted loans 25,721

Bad loans (previously termed “non-performing”)

2,023 TOTAL UBI SPV BPCI 2012 PORTFOLIO

412,422

TOTAL assets transferred from Banca Pop. Comm. Industria to UBISPV BPCI 2012

410,934

3) UBI SPV BBS 2012 Srl Securitisation

TYPE OF LOAN (Balance sheet classification)

Carrying amount (thousands of euro)

TYPE OF LOAN (Classification for the purposes of the transaction)

Remaining principal debt (thousands of euro)

Performing loans 393,163 Performing loans 405,554

Performing past-due exposures 15,074 Loans in arrears 3,099

Non-performing (previously termed “deteriorated”) past-due exposures

2,902 COLLATERAL PORTFOLIO 408,653

Unlikely to pay loans 23,284 Defaulted loans 34,196

Bad loans (previously termed “non-performing”)

6,242 TOTAL UBI SPV BBS 2012 PORTFOLIO

442,849

TOTAL assets transferred from Banco di Brescia to UBI SPV BBS 2012

440,665

399 Notes to the consolidated accounts

The structure of the transaction, which also conformed to the model adopted for the other transactions, consisted of UBI Banca as the Parent in the role of servicer, while the collection of payments and managing relations with customers for the securitised assets were delegated to the three originator banks as the sub-servicers (here too, except for those positions reclassified as non-performing, which will be handled by the Problem Loans and Credit Recovery Area of the Parent). The payments received in 2015 are shown for each originator bank in the table as follows:

PAYMENTS RECEIVED (Figures in thousands of euro)

TOTAL SPV 2012 BPA -

BANCA POP.ANCONA

SPV 2012 BPCI - BANCA

POP.COMMERCIO ED INDUSTRIA

SPV 2012 BBS - BANCO DI BRESCIA

Payments received in 2015 447,635 187,059 121,404 139,172

The payments to UBI Banca for 2015 for the servicing activities reported above totalled €442 thousand, while the payments for the three sub-servicers were as follows: €268 thousand for Banca Popolare di Ancona; €185 thousand for Banca Popolare Commercio ed Industria and €199 thousand for Banco di Brescia. Securitisations: financial support from the UBI Banca Group In addition to the roles reported above, in order to ensure that the management of securitisations functions properly, the companies in the UBI Banca Group also have the duty to provide further financial support to securitisations in order to cover certain specific or generic risks. A report is given below of the quantification of the financial support given as at 31st December 2015 by UBI Banca or by subsidiaries on the basis of existing contractual agreements and divided on the basis of the risk underlying each financing:

400 Notes to the consolidated accounts

Financing bank

Entity financed

Total as at 31/12/2015

Item in balance sheet of financing

bank

Purpose of financing

Purchase of loans

To cover liquidity

risks

To cover set-off risk

To cover commingling

risk

Derivative margin

deposits

Banc@ 24-7 (then merged

into UBI Banca)

24-7 Finance Srl

(1) 24,422,348

BS asset item 150

(recognised net of CB

operations )

24,422,348

UBI BANCA 24-7

Finance Srl (1)

73,132,224

BS asset item 150

(recognised net of CB

operations )

73,132,224

UBI BANCA UBI

FINANCE 3 Srl (3)

- BS asset item 70 -

UBI BANCA UBI

FINANCE 3 Srl (2) (3)

- BS asset item 70 -

UBI BANCA UBI

FINANCE 3 Srl (3)

- BS asset item 70 -

UBI BANCA UBI LEASE FINANCE 5

Srl 98,930,006 BS asset item

70 98,930,006

BPB UBI

FINANCE 3 (3)

- BS asset item 70 -

BBS UBI SPV BBS 2012 29,370,000 BS asset item

70 29,370,000

BPA UBI SPV BPA 2012 46,650,000 BS asset item

70 46,650,000

BPCI UBI SPV BPCI 2012 31,190,000 BS asset item

70 31,190,000

UBI LEASING UBI LEASE FINANCE 5

Srl (4) 768,600,635

BS asset item 140 (Other

assets) 768,600,635

UBI LEASING UBI LEASE FINANCE 5

Srl 113,274,494

BS asset item 140 (Other

assets) 113,274,494

TOTAL SECURITISATIONS 1,185,569,707 768,600,635 204,764,572 - 113,274,494 98,930,006

Notes: (1) The currently outstanding loan granted by UBI Banca to 24-7 Finance Srl was disbursed in two tranches: an initial tranche paid when the notes were issued by the originator B@nca 24-7 (which was then merged into UBI Banca) and a second tranche paid by UBI Banca following the merger of B@nca 24-7 into UBI Banca. (2) A loan to cover UBI Finance 3 commingling risk: the sums to cover that risk were deposited by UBI Banca on the Payment Account of SPV UBI Finance 3 opened with Bank of New York. When the UBI Finance 3 operation was closed down on 17/12/2015 the loan was fully repaid to UBI Banca. (3) The UBI Finance 3 operation was closed down on 17/12/2015 and the loans were fully repaid to UBI Banca. (4) UBI Lease Finance 5 - Loan for the purchase of loans: the amount represents the price component with payment deferred with respect to the transfer of the loans. That loan will be repaid when the operation closes down.

401 Notes to the consolidated accounts

The underlying reasons for the financing reported in the table are given below. a) To cover liquidity risk:

With regard to the 24-7 Finance securitisation, the originator B@nca 24-7 also filled the role of subordinated loan provider, having granted a subordinated loan designed to create a debt reserve amount to meet possible shortages of liquidity for the operation. At the time of the merger into UBI Banca in 2012, a subordinated loan of approximately €24.4 million was outstanding, which was subsequently increased in 2013 by a further €73 million. The financial support provided by UBI Banca to the securitisation, given that no repayments of the loan had been made since 2012, amounted to €97.6 million.

Also for the UBI SPV BBS 2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BPA 2012 Srl securitisations, each originator also fills the role of subordinated loan provider. Here too in order to create a debt reserve amount to cover possible shortages of liquidity, when the securitisations were structured in 2012 each originator bank disbursed subordinated loans for the following amounts: - €26.6 million by Banca Popolare di Ancona; - €26.3 million by Banca Popolare Commercio e Industria; - €23 million by Banco di Brescia. These loans were then increased by the originators at the time of each subsequent “revolving” transfer: - an €8.8 million increase by Banca Popolare di Ancona in 2013 and a further €11.3 million increase in 2014; - a €4.9 million increase by Banca Popolare Commercio e Industria for the “revolving” transfer in 2014; - an increase of €2.8 million by Banco di Brescia in 2013 and a further €3.6 million increase in 2014. The financial support provided by Group banks to the securitisations in question therefore amounted as at 31st December 2015 to a total of €107.2 million. We also report, to complete the information, that the structuring of the UBI Finance 3 securitisation, which as already mentioned was closed down in the fourth quarter of 2015, required UBI Banca, in its capacity as the liquidity facility provider to make a liquidity facility of €28 million available, to be used by the special purpose entity should it have insufficient funds on the payment dates to make the payments for the coupons on the notes issued. Following the downgrade in 2011, UBI Banca paid the full amount of the liquidity facility into the accounts of the SPE (even though it had sufficient liquidity within the operation) to cover the risk of possible temporary shortages of liquidity. That sum, which was never used by the SPE, was fully repaid to UBI Banca when the operation was closed down, at same time as the notes issued were redeemed. b) To cover “set-off” risk: Set-off risk is the risk that in the event of the default of the originator, the debtors of the SPE transferred might attempt to set-off amounts owed to it by the originator against repayment of the loans transferred at the time of the transfer of the respective loans. To cover that specific risk for the UBI Finance 3 Srl securitisation, an obligation existed for the originator to disburse a subordinated loan should determined events occur, such as for example the downgrade of UBI Banca below determined levels. On that basis, following the downgrade of UBI Banca at the end of 2011, the originator, Banca Popolare di Bergamo, made the aforementioned loan which totalled €122.6 million. Here too, the loan was fully repaid to Banca Popolare di Bergamo when the securitisation was closed down in December 2015. c) To cover commingling risk: The risk of commingling relates to the account bank role performed by the Parent or by other Group companies and represents the risk that if a downgrade which resulted in the transfer of the SPEs current accounts from the UBI Group to a third-party company, the immediate transfer to the accounts of sums received by the servicer might not occur. Coverage of that risk by means of a supporting loan is currently only required for the UBI Lease Finance 5

402 Notes to the consolidated accounts

securitisation for which UBI Leasing deposited a sum of €113 million on the payment account of the SPE. A similar requirement had existed for the UBI Finance 3 securitisation for which the Parent, UBI Banca, had deposited the necessary cash on the accounts of the SPE. That guarantee deposit, amounting to €27.6 million on the date of the close down of the securitisation, was repaid to UBI Banca at the same time as the securitised notes were redeemed. d) Derivative contract margin deposits: Again following the downgrade of UBI Banca in 2011, the derivative contracts present in some securitisations, entered into for the purpose of normalising the cash flows of the SPEs (in view of paying the coupons on the notes issued) and in which UBI Banca was a direct counterparty, were subjected to a margin deposit requirement. As at 31st December 2015 margin deposits only existed for the UBI Lease Finance 5 securitisation, as reported in the table (in addition to those existing for the Covered Bond UBI Finance securitisation details of which are given in the relevant section of the notes). Internal risk measurement and monitoring systems connected with securitisation transactions including measurement, for those transactions originated by the Group, where risks were transferred to third parties. Illustration of the organisational structure for managing securitisation transactions including systems for reporting to senior management or to a similar body. To complete the information given in the preceding pages on the management of the securitised portfolios and the parties internal to and external to the Group who fill the various roles, we report the following with regard to the corporate servicing activities of the SPEs: - it was decided to outsource these activities to TMF Management Italy Srl for UBI Finance 3, UBI Lease Finance 5, UBI SPV BPA 2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BBS 2012 Srl; - corporate servicing activities were carried out by Zenith Service Spa for the 24-7 Finance securitisation. Furthermore, taking a prudential approach in order to comply with the eligibility requirements even under market stress scenario conditions, a backup service facilitator was appointed on 26th February 2015 for the following securitisations: UBI SPV BPA 2012 Srl; UBI SPV BPCI 2012 Srl; and UBI SPV BBS 2012 Srl. That role is filled by Zenith Service Spa for all three securitisations. On the other hand, it was decided not to outsource IT and accounting operations related to servicer activities. The management of cash collection activities for the portfolios continues to be performed by the originators, in their capacities as servicers or sub-servicers, who may make use, amongst other things, of the main Group accounting platform. This was also useful for reconstructing movements in the accounts of the securitisation companies and therefore for providing them with the information needed by the corporate servicers for preparing financial statements. In order to ensure continuity and effectiveness in the performance of their servicer functions, the servicers have created appropriate technical and organisational units to monitor the various phases of the securitisation process. Accounting and reporting systems in particular have been put in place with account taken of the need to be able to reconstruct all transactions at any moment. At the level of the Parent, UBI Banca, the main organisational units responsible for managing the securitisations were the Finance Area and the units under the Chief Financial Officer and the Chief Risk Officer. The roles and tasks relating to the performance of the various operational phases of servicing and also those relating to monitoring performance data and, where required, those of the calculation agent, were defined in those units. More specifically, a special set of quarterly reports are prepared to monitor each individual securitisation transaction.

403 Notes to the consolidated accounts

Description of the hedging policies adopted to mitigate risks connected with securitisations, including the strategies and processes adopted to continuously monitor the effectiveness of these policies. All the securitisations carried out until the end of 2011 are hedged by swap derivative contracts where the main objective is to stabilise the flow of interest generated by the securitised portfolio and to protect the special purpose entity from interest rate risk. In the case of the 24-7 Finance securitisation, the swap contracts were concluded between the company and the respective swap counterparties who then signed contracts identical in form but opposite in their effects with UBI Banca (which following the merger of B@nca 24-7 in 2012 also filled the role of originator of the securitisation). The procedure was different for the UBI Lease Finance 5 and UBI Finance 3 securitisations where the special purpose entity entered into swap contracts directly with UBI Banca, which then in turn renegotiated mirror swaps with the originators UBI Leasing and Banca Popolare di Bergamo in order to “close the risk” with the respective originators. The last three securitisations, UBI SPV, BBS 2012, UBI SPV BPA 2012 and UBI SPV BPCI 2012, on the other hand, have been structured without the use of swaps. This method of structuring the securitisations was possible because of the lower ratings assigned at the time of issue (A- by S&P and A low by DBRS), compared with the AAA ratings required in the past for eligibility with the European Central Bank – the central bank having lowered the eligibility criteria. Finally for full information we report that in 2009 the UBI Group set a specific policy for the management of securitisation risk in compliance with supervisory regulations (Circular No. 263/06). Sub-section 1 of Section 1, “Credit Risk”, in these Notes to the financial statements may be consulted for further information. Further information on Group activities concerning securitisation transactions is given in the Management Report which may be consulted. Quantitative information C.1 Banking Group - Exposures resulting from the principal “own” securitisation transactions

by type of securitised assets and by type of exposure No exposures resulting from “own” securitisation transactions to report. C.2 Banking Group - Exposures resulting from the principal “third party” securitisation

transactions by type of securitised assets and by type of exposure No exposures resulting from “third party” securitisation transactions to report. C.3 Banking Group - Interests held in securitisation special purpose entities No interests held in securitisation special purpose entities to report. C.4 Banking Group - Securitisation special purpose entities not included in the consolidation No items of this type exist for the UBI Group. C.5 Banking Group - Servicer activity – only own securitisations: payments received on

securitised loans and redemptions of securities issued by the special purpose entity No exposures resulting from securitisation transactions to report.

404 Notes to the consolidated accounts

C.6 Banking Group - Consolidated securitisation special purpose entities No items of this type exist for the UBI Group. D. Information on structured entities not included in the consolidated accounts (other than securitisation special purpose entities) No items of this type exist for the UBI Group.

405 Notes to the consolidated accounts

E. Transfers

A. Financial assets transferred and not fully derecognised

Quantitative information E.1 Banking Group - Financial assets transferred not derecognised: carrying amount and full value

Type of asset / Portfolio Financial assets held for tradingFinancial assets

designated at fair valueAvailable-for-sale financial assets Held-to-maturity investments Loans to banks Loans to customers Total

fully recognised (carrying amount)

partially recognised (carrying amount)

partially recognised (full amount )

fully recognised (carrying amount)

partially recognised (carrying amount)

partially recognised (full amount )

fully recognised (carrying amount)

partially recognised (carrying amount)

partially recognised (full amount )

fully recognised (carrying amount)

partially recognised (carrying amount)

partially recognised (full amount )

fully recognised (carrying amount)

partially recognised (carrying amount)

partially recognised (full amount )

fully recognised (carrying amount)

partially recognised (carrying amount)

partially recognised (full amount )

31.12.2015 31.12.2014

A. On-balance sheet assets 370,076 - - - - - 3,882,628 - - 1,691,268 - - - - - - - - 5,943,972 5,752,196 1. Debt instruments 370,076 - - - - - 3,882,628 - - 1,691,268 - - - - - - - - 5,943,972 5,752,196

2. Equity instruments - - - - - - - - - X X X X X X X X X - -

3. UCITS - - - - - - - - - X X X X X X X X X - -

4. Financing - - - - - - - - - - - - - - - - - - - -

B. Derivative instruments - - - X X X X X X X X X X X X X X X - -

31.12.2015 370,076 - - - - - 3,882,628 - - 1,691,268 - - - - - - - - 5,943,972 Xof which non-performing

(previously termed

"deteriorated")

- - - - - - - - - - - - - - - - - - - X

31.12.2014 415,950 - - - - - 3,486,135 - - 1,850,111 - - - - - - - - X - of which non-performing

(previously termed

"deteriorated")

- - - - - - - - - - - - - - - - - - X -

406 Notes to the consolidated accounts

E.2 Banking Group - Financial liabilities resulting from financial assets transferred not derecognised: carrying amount

Total

31.12.2015

1. Due to customers 324,896 - 3,889,717 1,743,109 - - 5,957,722 a) against fully recognised assets 324,896 - 3,889,717 1,743,109 - - 5,957,722

b) against partially recognised assets - - - - - - -

2. Due to banks 45,249 - - - - - 45,249 a) against fully recognised assets 45,249 - - - - - 45,249

b) against partially recognised assets - - - - - - -

3. Debt securities issued - - - - - - - a) against fully recognised assets - - - - - - -

b) against partially recognised assets - - - - - - -

31.12.2015 370,145 - 3,889,717 1,743,109 - - 6,002,971

31.12.2014 415,669 - 3,402,742 1,856,404 - - 5,674,815

Loans to

customersLiabilities / Portfolio activities

Financial assets

held for trading

Financial

assets

designated at

fair value

Available-for-sale

financial assets

Held-to-

maturity

investments

Loans to banks

E.3 Banking Group - Transfers with liabilities backed exclusively by the assets transferred: fair value

Financial assets held for

trading

Financial assets

designated at fair value

Available-for-sale

financial assets

Held-to-maturity

investments (fair value)

Loans to banks (fair

value)

Loans to customers (fair

value)Total

fully

recognised

partially

recognised

fully

recognised

partially

recognised

fully

recognised

partially

recognised

fully

recognised

(FV)

partially

recognised

(FV)

fully

recognised

(FV)

partially

recognised

(FV)

fully

recognised

(FV)

partially

recognised

(FV) 31.12.2015 31.12.2014

A. On-balance sheet assets 370,076 - - - 3,882,628 - 1,742,187 - - - - - 5,994,891 5,752,196 1. Debt instruments 370,076 - - - 3,882,628 - 1,742,187 5,994,891 5,752,196

2. Equity instruments - - - - - - X X X X X X - -

3. UCITS - - - - - - X X X X X X - -

4. Financing - - - - - - - - - - - - - -

B. Derivative instruments - - X X X X X X X X X X - -

Total assets 370,076 - - - 3,882,628 - 1,742,187 - - - - - 5,994,891 5,752,196

C. Associated liabilities 370,145 - - - 3,889,717 - 1,743,109 - - - - - X X1. Due to customers 324,896 - - - 3,889,717 - 1,743,109 - - - - - X X2. Due to banks 45,249 - - - - - - - - - - - X X3. Debt securities issued - - - - - - - - - - - - X X

Total l iabil ities 370,145 - - - 3,889,717 - 1,743,109 - - - - - 6,002,971 5,674,815

Net value 31.12.2015 (69) - - - (7,089) - (922) - - - - - (8,080) X

Net value 31.12.2014 281 - - - 83,393 - (6,293) - - - - - X 77,381

Type of asset / Portfolio

407 Notes to the consolidated accounts

B. Financial assets transferred and fully derecognised with recognition of the continuous involvement

There are no financial assets transferred and fully derecognised with recognition of the continuous involvement to report.

E.4 Banking Group – Covered bond operations Objectives In 2008 the Management Board of UBI Banca passed a resolution to proceed to implement a structured programme for the issuance of covered bonds designed to produce benefits in terms of funding while containing the cost at the same time. In detail, the Management Board performed the following:

it identified the objectives of the programme; it identified the basic structure of an operation to issue covered bonds in the light of the

legislation and explained and examined the main elements, including the portfolio of loans, the criteria for selecting them, the structure of the financial transaction and the relative tests;

it assessed and approved the impacts and the organisational, IT and accounting changes that would be required. These changes were performed to ensure proper risk management by the Parent and also by the single banks participating. Account was also taken, in drawing up the procedures, of the requirements set by regulations issued by the Bank of Italy;

assessed the risks connected with the operation to issue covered bonds; it assessed the organisational and operating structure of the special purpose entity

concerned in order to ensure that the contracts involved in the operation contained clauses that would guarantee the proper and efficient performance of the functions of the special purpose entity itself;

it assessed the legal aspects through an in-depth examination of the parties and contract documents used, with particular attention paid to the nature of the guarantees given by the special purpose entity and the relations between the issuing bank, the originator banks and the special purpose entity.

More specifically the objectives of the programme are as follows: - the acquisition of long-term institutional funding at more competitive costs than funding acquired using alternative instruments such as the EMTN programmes or securitisation transactions; - access through the issuance of covered bonds to specialist investors who currently do not invest in the funding instruments used and which may be used by the UBI Banca Group. The structure The basic structure of the operation to issue covered bonds involved the performance of the following activities:

one bank (the originator) transfers a set of assets with determined characteristics to a special purpose entity to form a separate set of assets termed a “cover pool”. However, in compliance with international accounting standards in force, those assets are not derecognised from the financial statements of the originator bank;

408 Notes to the consolidated accounts

the originator bank (acting here as a financing bank) grants a subordinated loan to the special purpose entity designed to fund the purchase of the assets by the entity;

the bank (the issuing bank) issues covered bonds backed by a primary, unconditional and irrevocable guarantee given by the special purpose entity to the sole benefit of the holders of the covered bonds and the hedging counterparties involved in the transaction. The guarantee is backed by all the assets transferred to the special purpose entity and which form part of the cover pool.

As part of the structure described above, the UBI Banca Group has launched a programme for issues of ten billion euro of covered bonds, an amount that was raised in 2014 to fifteen billion euro. The structure that was adopted also allows the transfer of the portfolios which constitute the segregated assets of the special purpose entity from more than one originator bank. To achieve this, a special purpose entity, UBI Finance Srl was formed, which as the guarantor of the issue performed by UBI Banca acquired a portfolio of residential mortgages transferred to it from network banks of the Group, which participated in the programme both as originator banks and as financing banks. These were added to in 2013 with UBI Banca as an originator and financing bank, which as the Parent, also fills the role of master servicer, calculation agent and cash manager for the operation. UBI Banca then delegated responsibility for servicing activity, consisting of collecting payments and managing relations with customers for the portfolio transferred by each originator (except for positions reclassified as bad loans (previously termed “non-performing”), handled by the Problem Loans and Credit Recovery Area of the Parent), to the originator banks as sub-servicers. The role of account bank and paying agent is filled by The Bank of New York Mellon (Luxembourg) S.A., while the representative of the bondholders is BNY Corporate Trustee Services Limited. The role of Asset Monitor, explicitly required by regulations for this type of transaction, is carried out by BDO Italia S.p.A.. This €15 billion programme is also assigned ratings by two agencies: Moody’s, used since the first issuance under the programme, and DBRS, which replaced Fitch in the last quarter of 2015. A summary of the main features of the structure of UBI Banca’s covered bond programme is given below.

409 Notes to the consolidated accounts

A). Covered Bonds: UBI Banca Spa issues covered bonds under the programme; B). Bond loan. In order to allow the funding acquired on institutional markets from the issue of covered bonds to flow back to the originator banks, these banks may issue bonds and the right to require subscription of them by UBI Banca, within the limits of their quota of participation in the programme. These bonds shall have the same maturity as the covered bonds and a yield established on the basis of the Bank’s funding policies; C). Subordinated loan: In order to fund the purchase of mortgages by the special purpose entity, the originator banks grant subordinated loans to it. The yield on these loans is calculated as a “premium” or “extra spread” equal to the amount of the interest received, which remains in the accounts of the special purpose entities once priority amounts in the chain of payments have been deducted, relating to items such as the expenses incurred by the entity, payments to swap counterparties and allocations to the “reserve account”; D). Swaps to hedge interest rate risks: If the covered bonds are issued at a fixed rate, UBI Banca may hedge the interest rate risk by entering into swap contracts with market counterparties, thereby transforming the exposure to a variable rate. These swaps lie outside the perimeter of the covered bond programme and the decision to use them is made with a view to interest rate risk management as part of the Parent’s ALM; E). Liability swaps: a liability swap contract is also entered into between UBI Banca and UBI Finance for each covered bond fixed rate issue. These are designed to protect against interest rate risk, which might affect the cash flows received from the special purpose entity and the amounts due from the special purpose entity to investors (fixed rate coupons on the covered bonds) in the event of default by UBI Banca and the need by the special purpose entity to intervene to pay the coupons to the investors. The notional amount of the liability swaps must be sufficient to hedge the interest rate risk related to the floating interest rate return portion of the underlying segregated assets of UBI Finance, since the fixed-rate portion of the mortgage portfolio constitutes a partial natural hedge in itself with respect to fixed-rate covered bonds. The percentage of hedging required by the rating agencies using liability swaps is 70% of the covered bonds (at fixed rate) issued. The structure of the liability swaps only requires the exchange of cash flows between UBI Banca and the special purpose entity in the event of default by UBI Banca or when UBI Banca assigns a swap contract to another eligible counterparty. For full information we report that the liability swap involves margin account obligations for UBI Banca. In order to diversify the counterparty risk BNP Paribas Securities Services was selected for the role of account bank for those margin deposits; F). Current accounts: The programme involves a complex system of current accounts to pay and receive the cash flows involved in the operation. A series of accounts were opened in the name of the special purpose entity for each originator bank as follows:

- collection account at UBI Banca S.p.a. linked to each originator bank into which sums received are paid consisting of interest and principal on the portfolios of each originator, and, where applicable, other assets transferred to the special purpose entity under the programme (e.g. eligible assets and top-up assets);

- interest account with Bank of New York Mellon, London Branch linked to each originator bank

into which all interest paid into the collection accounts is paid on a daily basis and also all amounts paid to the special purpose entity by the counterparties of the swap contracts;

- principal account with The Bank of New York Mellon, London Branch linked to each originator

bank into which all the principal repayment amounts paid into the collection account will be paid on a daily basis;

410 Notes to the consolidated accounts

- reserve fund account, with Bank of New York Mellon, London Branch into which interest

accruing on the covered bonds is paid monthly in order to guarantee the payment of current coupons;

- expense account, into which the amounts required to meet the expenses of the special

purposes entity are paid, drawn from interest accounts, in proportion to the quota of participation in the programme of each originator bank.

Effectiveness tests Effectiveness tests are performed monthly on the whole cover pool and separately on the portfolios transferred by each originator, in order to determine the financial integrity of each bank’s portfolio. As required by the regulations, because it is a multioriginator programme, with cross-collateralisation of the originator banks’ portfolios, the only valid test for investors is that performed on the whole cover pool, while the tests performed on the individual portfolios are used to determine the integrity of each originator’s portfolio for the purposes of cross-collateralisation between the different originator banks. In detail: - the Nominal Value test verifies whether the nominal value of the loans in the transferred portfolio

is greater than the nominal value of the covered bonds issued. In order to ensure an adequate degree of overcollateralisation in the portfolio, while the covered bonds are considered at their nominal value, the loans in the portfolio are weighted on the basis of the relative collateral backing them and the total amount is further reduced by an asset percentage. The calculation of the nominal value test also takes account of potential additional risks, such as for example “set-off26” risk or “commingling risk27”;

- the Net Present Value test verifies whether the present value of the loans remaining in the portfolio is greater than the present value of the covered bonds issued;

- the Interest Cover Test verifies whether the interest received and held in accounts and the cash flows from interest to be received net of the entity’s expense is greater than the interest to be paid to the holders of the covered bonds;

- the Amortisation Test (similar to the nominal value test, but only performed if UBI Banca should experience a default event);

- the Top-Up Assets Test verifies whether, before UBI Banca defaults, the total amount of additional assets and liquidity is not 15% greater than the nominal value of the loans remaining in the portfolio transferred, in compliance with the Ministry of the Economy and Finance and Bank of Italy instructions.

The calculation of the first three tests is consistent with the requirements contained in Bank of Italy Circular No. 285 of 2013 on the question of the partial weighting of collateral positions which should exceed the loan to value ratio set (80% for residential mortgages and 60% for commercial mortgages). If all the tests are passed simultaneously then the special purpose entity may proceed to pay all the parties involved in the programme, including the originator banks as the lenders of the subordinated loan, in the order of priority indicated in the “payment chain”. However, if the results of the tests are negative, then the contract states that the UBI Banca Group must increase the collateral of the portfolio by transferring new mortgages to it and that is “top up” with extra assets. Failure to pass the tests, once the time limit allowed for the Group to add assets

26 This is the risk that in the event of the default of the originator the debtors transferred might attempt to set-off amounts owed to it by the originator at the time of the transfer of the respective loans against repayments to the SPE. 27 The risk of commingling relates to the account bank role and represents the risk that if a downgrade which resulted in the transfer of the SPE’s current accounts from the UBI Group to a third-party company, the immediate transfer to the accounts of sums received by the servicer might not occur.

411 Notes to the consolidated accounts

has passed, results in an “issuer event of default” with a consequent enforcement of the guarantee issued by UBI Finance. In this event the originator banks would only receive the repayments of the subordinated loans granted after the redemption of the covered bonds by the special purpose entity and within the limits of the remaining funds. In accordance with the relative regulations, on a quarterly basis the asset monitor checks the accuracy and precision of the calculations carried out by the calculation agent, UBI Banca, in order to carry out the effectiveness tests. Organisational action and control procedures Summary information is given below on the new organisational structure and operational processes for the covered bond programme approved in 2013. This information was prepared on the basis of that contained in the Programme Report submitted to the Management Board ratings held on 15.1.2013, 28.1.2014 and 24.2.2015 and also that given in Group Circular No. 415/2013 “Review of processes related to the first covered bond programme”. The organisational system currently adopted in the UBI Group for the structuring and management of covered bond programmes is the result of a general organisation revision carried out in 2013, following the development of management and issuance processes experimented with in the first years of the life of the programme. A distinction is made in that system between two areas of activity: 1) the first area concerns the activity needed to set up a programme, carried out once only in the period preparatory to the issuance of bonds, which can be described as follows: - proposals for the structuring of a new programme are assessed by the competent internal committees of UBI Banca and the underlying general policies are approved by the Supervisory Board. This is followed by the identification of external parties who must assist the Parent in the structuring and issuance of the programme (legal firms, arrangers, asset monitors, rating agencies). The assets which will form part of the portfolio are then defined together with the contracts relating to the operation for units internal and external to the Bank. Subsequently, the following is carried out:

- form the special purpose entity and carry out the activities needed to transfer assets to that entity and segregate the assets of the cover pool appropriately;

- assign a rating to the programme, inclusive of the site visit by the rating agency; - present a compliance report for the programme.

2) the second area, on the other hand, regards recurring activities for management, monitoring and control, which are organised in four macro processes described as follows:

A. Annual Planning: a plan for the issuance of covered bonds to be carried out during the year is drawn up by the competent units at UBI Banca as part of a more general definition of the procedures to cover liquidity requirements on the basis of strategic policies and in accordance with the growth and risk objectives set by the competent corporate bodies. The annual planning of issuances is followed by an annual analysis stage designed to set the amount of the collateral that the Group must be able to post in the future in order to back existing and planned future issuances. After internal committees have carried out verifications, the Management Board of the Parent is then called upon, annually, to decide on: - transfers of new mortgages by originator banks participating in the programme and

possible repurchases; - new covered bond issuances.

B. Periodic Transfers of assets to the Special Purpose Entity. Portfolios of assets to be transferred

are identified in detail on the basis of the guidelines defined in the previous point. With the support of legal firms and arrangers – where necessary – the competent units at the Parent

412 Notes to the consolidated accounts

prepare the contracts, carry out prior controls and proceed to comply with the technical requirements needed for the segregation and proper management of the portfolios by the servicers and sub-servicers. The originator banks also top up the subordinated financing as necessary in relation to the amount of the new portfolios transferred.

C. Issuance of New Covered Bonds: as part of the issuance planned in accordance with the

previous points, the competent units of UBI Banca decide on the characteristics of the issuance syndicated by the dealer banks participating in the issue. The issuance then commences with the acquisition of orders from institutional investors, which concludes with the official announcement of quantities and issue prices. This is followed by the preparation of the legal documentation with the support of legal advisors and arrangers and it will be signed by the parties involved before the value date of the issuance.

D. ongoing Management of the issuance Programme: this general process governs the activities needed for the daily management of the portfolios transferred to the SPE, the settlement of the cash flows, implementation of the controls required by regulations and the preparation of compulsory disclosures and other reports to markets. The main sub-processes, carried out by the competent units of the Parent (which acts as the master servicer and calculation agent for the programme) or of the network banks (as sub-servicers), are as follows: - daily settlement of cash flows from the cover pool; - monthly performance of effectiveness tests; - calculation of the sequence of monthly payments and liquidity management; - preparation of periodic reports to the various counterparties, investors and rating agencies

(in compliance with disclosure requirements requested by supervisory provisions for the prudential treatment of the CBPs);

- settlement of coupons on outstanding issues (on an annual or interim basis depending on the issue);

- determination (half yearly) of the controls set by regulations to monitor requirements to ensure the quality and integrity of the cover assets transferred and assessment of any need to repurchase assets no longer eligible.

Following the recent changes to Supervisory Regulations (Bank of Italy Circular No. 285 already mentioned), control duties were extended to include the issuer’s risk management unit and the asset monitor for controls and compliance with loan-to-value limits when transfers are made and when property values28 are updated periodically and for controls to ensure that the information made available to investors is complete, accurate and up-to-date. Internal Group rules and regulations specify the persons involved in the individual activities and the processes outlined above in detail.

28 See the information given below on property risk guarantees.

413 Notes to the consolidated accounts

The risks connected with the operation In 2012 and 2013 the Bank revised its analysis of the risks identified with the programme when it was approved in June 2008 and it prepared a new map of those risks. The risks identified, listed below, are derived from the current regulatory framework (EU and Italian) and they are based on the current methodologies used by rating agencies. The different types of risk are attributable to the following four general categories:

1. Risk of UBI Banca downgrade: which includes the risk relating to the swap contracts to which UBI Banca is a counterparty and the risk relating to the account bank activities performed by UBI Banca, because in both cases a downgrade could result in UBI Banca losing its status as an “eligible” counterparty in the roles just mentioned. More specifically, with regard to the account bank role, if a downgrade involved the transfer of the SPEs current accounts to a third-party company, the failure to immediately transfer sums received onto those accounts would represent a “commingling risk”, account of which is taken when calculations for regulatory tests are carried out;

2. Risk relating to the underlying mortgages (collateral):\ The issuance of covered bonds bases its rating on the credit enhancement provided by the portfolio of mortgages transferred to back the special purpose entity. The criteria used by the rating agencies require the amount of the mortgage portfolio that provides the guarantee to be maintained at levels higher than the value of the bonds issued (known as over-collateralisation). A decrease in the level of over-collateralisation would lead primarily to a downgrade of the operation and, in the most serious cases, to a default of the issuer, if the minimum level provided for in the contracts were not guaranteed and/or the regulatory tests were not passed. Various mechanisms are provided within the programme to address these risks. They include the following: a nominal value test and various degrees of over-collateralization, designed to ensure that the special purpose entity is able to fully guarantee the covered bonds issued even in the event of some defaults on the underlying assets; the ability to inject liquidity in order to guarantee the issues (within the limits of 15% of the total amount of the assets held by the special purpose entity); the ability to also insert assets with a higher rating in the cover pool and finally, with regard to redemption by the special purpose entity (or by UBI Banca in the event of its default) of the capital maturing, the maturity of the covered bonds may be extended by one year (termed a “soft bullet maturity”). In any event, the units responsible at UBI Banca periodically verify the adequate availability of mortgages among the assets of Group banks in order to ensure the necessary over-collateralization for covered bonds already issued and for those to be issued in the coming year.

3. Risks connected with continuous management of the programme: the programme involves various third parties (asset monitors, bank account providers, trustees, possible swaps providers), for each of which there is a risk of default. Counterparty replacement rules have been put in place to limit that risk if determined events occur. The programme also requires continuous management of matters which include servicing activities, investment activities, the management of possible swap contracts, the calculation of regulatory tests and the production of reports. The adoption of the organisational model reported in the preceding pages led to a further improvement in the management of processes and the related operating risks. This increased the oversight and control points as a result of a more detailed official assignment of responsibilities to the competent units of the Parent.

4. Legal risks: these include in particular the risk of cross-collateralisation due to the particular multi-originator structure of the UBI Banca programme. The participation of a number of originator banks in the programme means that all the transferor banks are subordinated creditors on an equal basis of the special purpose entity and above all, they assume the obligation to top up the portfolio to the levels specified by the tests if these are failed, even if the failure is not caused by the assets for which they are responsible. To mitigate that risk, the contract documents state that if the transferor bank required to top up assets does not

414 Notes to the consolidated accounts

meet that obligation, in the first instance the Parent will be required to top up the cover pool in its place until the required level of over-collateralization is reached, while the transferor banks will only be required to top up the cover pool if the Parent fails to do so.

In order to take account, amongst other things, of regulatory developments that had occurred, when the 2015 Programme Report was drawn up two further risk Categories were formally introduced as follows:

1. Tax risks, divided in turn into two sub-categories:

a) tax impacts on the transfer of assets: the law which introduced covered bonds (Law No. 130/1999, Art. 7 bis) stated that transfers of assets to special purpose entities are considered as not taking place from a tax viewpoint where, amongst other things, the purchase price and the last amount recognised for the transferred assets in the financial statements of the transferor bank are identical. Since transfers of assets generally take place at a time subsequent to the reporting date of the last approved financial statements of the transferor banks, the prevalent interpretation adopted was that in order to determine the transfer price, reference has to be made to the carrying amount, reduced by the capital repayments received in the meantime and increased by the interest accruing as at the date of transfer in order to take account of the natural financial changes in the assets transferred.

b) VAT on servicing fees: according to one recent interpretation put forward by the tax authorities on some occasions, fees for the management and receipt of repayments on loans not classified as bad loans (previously termed “non-performing loans”) paid by the special purpose entity to the transferor bank which acts as the servicer or sub-servicer for the covered bond programme should be subject to VAT at the ordinary rate instead of being VAT exempt. That interpretation is based on a Court of European Justice ruling according to which the management and receipt of repayments on loans should be generally classified as “credit recovery activity”, and as such subject to VAT, regardless of whether the loans managed are bad loans (previously termed “non-performing loans”) or not and this gave rise to demands being made to the UBI Group and also to other major banking groups who use the same instruments with similar structures. The UBI Group is fully convinced of the proper nature of its conduct and has appealed against the tax assessment notices received in relation to this matter.

2. Property Guarantee Risk: in accordance with legislation and regulations the bank updates the values of the properties that back the assets transferred on a half yearly basis. The risk in question lies in the possible decrease in the value of the guarantees which can lead to total or partial exclusion of the loan from the calculation of tests. The updated value of the guarantees is in fact used to calculate the current loan to value ratio (the remaining debt as a ratio of the current value of the guarantee) and if that indicator is greater than the 80% limit, then the part of the loan above that limit cannot be used in the calculation of the tests. Furthermore, if the ratio of the updated value of the guarantee to that of the most recent property appraisal is lower than 70%, the loan must be totally excluded from the calculation tests unless a new appraisal is carried out within three months. In this respect we also report that in addition to the periodic controls carried out in accordance with regulations by the asset monitor, Risk Control Units in the UBI Group check the loan to value ratios monthly and organisational processes result in prompt reporting of problem situations to the competent units for the necessary corrective action to be taken.

415 Notes to the consolidated accounts

The history of the UBI Banca’s residential mortgage covered bond programme In the context of the procedures described above, the UBI Banca Group launched a ten-billion euro programme for the issue of covered bonds in July 2008, with the first transfers of mortgages performed by two banks in the Group, Banco di Brescia and Banca Regionale Europea, for a total amount, as at that time, of approximately €2 billion. Subsequently, in the years 2008 – 2010, all the Group’s network banks joined the programme progressively transferring portions of their assets. Further transfers of assets were then concluded in each of the following years. More specifically, in 2015, two transfers of assets were carried out, the first on 1st May 2015, totalling €757.5 million and the second with effect from the 1st November 2015, for a total of €737.7 million. The distribution of assets transferred among the originator banks is as follows: ASSETS TRANSFERRED TO UBI FINANCE – YEAR 2015 (figures in thousands of euro)

TOTAL TRANS-FERS

Origin-ated by Banca

RegionaleEuropea

Origin-ated by

Banco di Brescia

Originated by Banca

Popolare di Bergamo

Origin-ated by Banca

Popolare di Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated by IW Bank

Transfer on 01.05.2015 757,456 147,162 255,737 - - - 250,238 104,319 - -

Transfer on 01.11.2015 737,722 - - 475,607 180,425 38,128 - - 25,250 18,312

Total transfers 2015 1,495,178 147,162 255,737 475,607 180,425 38,128 250,238 104,319 25,250 18,312

As at 31st December 2015 the cover pool of mortgages for the issues, which for accounting purposes is recognised within the assets of each originator bank, amounted to over €14.459 billion in terms of the remaining principal debt. The table below gives the distribution of the portfolio (remaining principal debt) for each originator bank and the total by class of credit quality as at 31st December 2015, according to the classification used in the documentation for the CBP:

TYPE OF LOAN (Remaining principal debt - in thousands

of euro)

TOTAL PORTFOLIO

Origin-ated by Banca Regionale Europea

Origin-ated by Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commerci

o e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated by

IW Bank

Performing loans 12,120,138 1,354,959 2,189,826 2,968,0911,089,24

21,562,68

31,736,909 821,578 201,980 194,870

Loans in arrears 1,776,603 223,913 363,342 353,968 179,933 235,714 246,390 110,102 39,696 23,545

Cover pool (1+2) 13,896,741 1,578,872 2,553,168 3,322,0591,269,17

51,798,39

71,983,299 931,680 241,676 218,415

Defaulted loans 562,585 78,573 110,244 113,068 38,674 71,086 75,653 49,374 14,874 11,039

Total UBI Finance cover pool

14,459,326 1,657,445 2,663,412 3,435,1271,307,84

91,869,48

32,058,952 981,054 256,550 229,454

416 Notes to the consolidated accounts

In 2015 this portfolio generated total payments received of approximately €1.9 billion, distributed as follows among the portfolios of the different originators: PAYMENTS RECEIVED (Figures in

thousands of euro)

TOTAL PORTFOLIO

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca

Popolare di Bergamo

Origin-ated by Banca

Popolare di Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e

Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated by IW Bank

Payments received in

2015 1,900,183 223,660 363,161 435,667 177,180 196,682 279,757 154,954 34,470 34,652

Within the ceiling on the issues set under the programme, which as already mentioned was recently raised from an initial €10 billion to €15 billion, UBI Banca has issued covered bonds for a total of €10.514 billion (bonds in issue as that 31st December 2015). The table below gives details of the individual issues:

Number in order (*)

ISIN Number Name Issue Date Maturity date Share capital (**) Market

1 IT0004533896 UBI BANCA 3.625% CB due 23/9/2016 23/09/2009 23/09/2016 1,000,000,000 Institutional

investors

2 IT0004558794 UBI BANCA 4.000% CB due 16/12/2019 16/12/2009 16/12/2019 1,000,000,000 Institutional

investors

3 IT0004599491 UBI BANCA TV CB due 30/04/2022 30/04/2010 30/04/2022 147,727,276 Private -

EIB

4 IT0004619109 UBI BANCA 3.375% CB due 15/09/2017 15/09/2010 15/09/2017 1,000,000,000 Institutional

investors

6 IT0004682305 UBI BANCA 5.250% CB due 28/01/2021 28/01/2011 28/01/2021 1,000,000,000 Institutional

investors

7 IT0004692346 UBI BANCA 4.500% CB due 22/02/2016 22/02/2011 22/02/2016 750,000,000 Institutional

investors

8 IT0004777444 UBI BANCA TV CB due 18/11/2021 18/11/2011 18/11/2021 166,600,000 Private -

EIB

12 IT0004966195 UBI BANCA 3.125% CB due 14/10/2020 14/10/2013 14/10/2020 1,500,000,000 Institutional

investors

14 IT0004992878 UBI BANCA 3.125% CB due 05/02/2024 05/02/2014 05/02/2024 1,000,000,000 Institutional

investors

15 IT0005002677 UBI BANCA TV CB due 05/03/2019 05/03/2014 05/03/2019 700,000,000 Retained

17 IT0005067076 UBI BANCA 1.25% CB due 07/02/2025 07/11/2014 07/02/2025 1,000,000,000 Institutional

investors

18 IT0005140030 UBI BANCA 1%CB due 27/01/2023 27/10/2015 27/01/2023 750,000,000 Institutional

investors

19 IT0005155673 UBI BANCA 22 TV CB due 14/12/2022 14/12/2015 14/12/2022 500,000,000 Retained

Total issues outstanding as at 31/12/2015 10,514,327,276

Notes: (*) Only issues outstanding at the reporting date are shown. For full information we report with regard to the series closed down that

issues numbers 9, 10 and 11 (retained) were closed down due to natural maturity in February 2014. Issues numbers 13 and 16 (both retained) were closed down early in 2015, while issue number 5 (public) matured naturally in October 2015.

(**) For bonds subject to amortisation, the remaining nominal value is given as at the reporting date.

As at 31st December 2015 all the bonds listed above had received an Aa2 rating from Moody’s and AA (low) from DBRS.

417 Notes to the consolidated accounts

Relations with the special purpose entity UBI Finance

Assets transferred – carrying amount

The table below shows the amount for the securitised portfolio transferred by the originator banks to the special purpose entity UBI Finance, according to the carrying amount shown under assets in the balance sheets of the originator banks. The classification follows the distribution of the transferred portfolio on the basis of the balance sheet classification of each originator.

TYPE OF LOAN – carrying amount as

at 31.12.2015 (thousands of euro)

TOTAL BANCA

REGIONALE EUROPEA

BANCO DI BRESCIA

BANCA POPOLARE

DI BERGAMO

BANCA POPOLARE

DI ANCONA

UBI BANCA

BANCA POPOLARE

COMMERCIO ED

INDUSTRIA

BANCA CARIME

BANCA DI VALLE

CAMONICA

IW BANK

Performing loans 13,456,296 1,489,117 2,395,214 3,247,272 1,237,452 1,836,839 1,929,942 892,502 219,973 207,986

Performing past-due exposures

770,953 117,443 205,115 116,879 65,037 70,522 103,145 51,541 24,662 16,609

Non-performing (previously termed “deteriorated”) past-due exposures

16,899 2,748 2,851 1,937 2,862 3,604 2,014 361 185 337

Unlikely to pay loans

328,461 45,394 68,696 50,125 27,261 68,708 37,618 18,267 7,534 4,858

Bad loans (previously termed “non-performing”)

163,701 24,300 28,708 46,496 6,232 1,042 26,561 21,581 4,789 3,992

Total assets transferred to UBI Finance

14,736,310 1,679,002 2,700,584 3,462,709 1,338,844 1,980,715 2,099,280 984,252 257,143 233,782

See the preceding sub-sections for the amount of the assets transferred during the year. Subordinated Loan

As already indicated earlier, at the time of each transfer of assets, each transferor bank, in its capacity as a financing bank, grants to the special purpose entity, a portion of the subordinated loan designed to finance the payment by the SPV itself of the purchase price of the assets transferred in its capacity as originator bank. The table below shows the amounts of the loans granted by the originator banks to UBI Finance against the transfers for the year 2015:

Subordinated loans granted in 2015 (in thousands of

euro)

TOTAL TRANSFERS

Origin-ated by Banca Regionale Europea

Origin-ated by Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated

by UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated by IW Bank

Loan granted for 01/05/2015 transfer

756,374 146,941 254,558 - - - 250,139 104,73

6 - -

Loan granted for 01/11/2015 transfer

739,419 - - 475,471 181,027 39,463 - - 25,134 18,324

Total granted in 2015 1,495,793 146,941 254,558 475,471 181,027 39,463 250,139 104,73

6 25,134 18,324

418 Notes to the consolidated accounts

for an amount of the subordinated loans outstanding granted as at 31st December 2015 by each originator to UBI Finance as follows (in terms of remaining principal debt):

Amount of subordinated loans as at 31/12/2015 (in

thousands of euro) TOTAL

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated by IW Bank

Remaining principal debt 14,631,836 1,668,986 2,685,557 3,457,462 1,315,640 1,945,464 2,078,706 986,039 258,621 235,361

The carrying amount of the subordinated loans as at 31st December 2015 represents the maximum exposure to loss resulting from participation by the banks (originators and financers) in the covered bond programme in the event that the guarantee given by the special purpose entity and the cash flows from the portfolios transferred as collateral were used to the reimburse investors and would not therefore be available, wholly or in part, to return the subordinated loans to the originators. The ability to repay that loan depends on the receipt of repayments on the loans in the segregated portfolio transferred to the special purpose entity by each bank. In consideration of the performance of repayments by the issuer UBI Banca, no risk in this respect currently exists. The interest for 2015 on those subordinated loans totalled €324 million for all the Group banks participating in the programme, while the amount of the loans repaid in the year drawn from the capital repayments available to the special purpose entity totalled €2.418 billion.

The following tables show the aforementioned sums by single originator bank:

Subordinated loans – interest paid and accruing in 2015

(in thousands of euro) TOTAL

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated by IW Bank

Total interest in 2015 324,323 35,953 58,014 67,780 31,454 46,807 44,400 30,120 4,685 5,110

Subordinated loans – sums repaid in 2015

(thousands of euro) TOTAL

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated by IW Bank

Total repayments in 2015 2,418,000 290,200 470,300 581,800 234,350 213,100 362,650 185,500 39,000 41,100

Servicing activities – Sub-servicing

The Parent received fees totalling €1.183 million from the special purpose entity UBI Finance for servicing activities performed in 2015 relating to the management of payments received and relations with customers with regard to the portfolio transferred and the management of accounts classified as bad loans (previously termed “non-performing”), while fees received in its capacity as master servicer and calculation agent amounted to €619 thousand. At the same time the network banks received fees totalling €4.860 million from the special purpose entity UBI Finance for sub-servicing activities performed in 2015 relating to the management of payments received and relations with customers with regard to the portfolios transferred.

419 Notes to the consolidated accounts

Five-billion euro covered bond programme – “Retained programme” In the first half of 2012, a new covered bond programme was structured for the issue of new bonds to be retained, and that is to be subscribed by UBI Banca itself, which will be used as collateral for posting with the European Central Bank in order to strengthen the pool of assets eligible for refinancing available to the Group. To achieve this, a specific new special purpose entity, named UBI Finance CB2 Srl was formed, in which UBI Banca also holds a 60% stake, to function as the guarantor of the issues of the new series of covered bonds. Mainly commercial mortgages and, in addition, residential mortgages eligible according to national legislation and regulations, but not covered by the rating agency methodologies for the first programme, are transferred by Group banks to UBI Finance CB2 Srl. In fact, as opposed to the residential programme, the retained programme was initially structured without assessment by the rating agencies and therefore it benefited only from the senior rating of the Parent UBI Banca. At the end of 2013 the agency Fitch also assigned a rating to the five-billion euro programme. The rating assigned was BBB+. In 2015 the agency Fitch was replaced by the agency DBRS, which assigned a rating of “A (low)”, which was unchanged at the reporting date. UBI Banca will be able to issue covered bonds under that programme for a total amount, from time to time, of not greater than €5 billion. Again, for this second programme, the Management Board has:

identified the objectives of the programme and of the first issuance; identified the basic structure of the operation, examining the initial loan portfolio and the

criteria used to select it as well as the financial structure of the transaction and the tests; assessed and approved the impacts and the organisational, IT and accounting changes

that would be required, considering that those actions had already been carried out to ensure proper risk management for the first programme;

assessed the risks connected with the operation to issue covered bonds; assessed the organisational and operating structure of the special purpose entity; assessed the legal aspects of the programme.

Reference is made to what has already been reported above concerning the residential programme for that which regards the structural, organisational and risk aspects of the operation29, while here we report only those points where the five-billion euro programme differs from that which has already been reported:

A. liability swaps: at present no fixed rate issuances have been made and therefore no liability swap contracts exist between the special purpose entity and third party counterparties;

B. current accounts: interest and principal collection accounts for the second programme were initially opened with UBI Banca International, but they were transferred in August 2015 to BNP Paribas Securities Services – London Branch.

C. the liquidity generated by the programme. In consideration of the type of operation performed by the Group with the retained programme, designed to increase the quantity of assets available for refinancing operations with the Eurosystem, no issuance of bonds has been put in place, in this case, to channel funds back to the originator banks. If, on the other hand, “public” issuances should be made, each originator bank will be given the right, within the limits of its share of participation in the programme, to issue bonds and the right to ask for them to be subscribed by UBI Banca in the same way as occurs for the fifteen-billion euro programme.

29 For full information we report that the loan to value ratio limit for the eligibility of the guarantees is 60% for commercial mortgages.

420 Notes to the consolidated accounts

History of the UBI Banca Retained Covered Bond Programme The initial cover pool to back the issues of the retained programme was transferred in two tranches in the first half of 2012 and it consisted of assets totalling €3 billion. The following banks transferred assets: Banca Regionale Europea, Banca Popolare di Ancona, Banca Popolare Commercio ed Industria, Banca di Valle Camonica Banca Popolare di Bergamo, Banco di Brescia, Banco di San Giorgio (which was then merged into Banca Regionale Europea) and Banca Carime, while UBI Banca and IW Bank made the first transfer of assets in December 2015. Two new transfers were concluded in 2015, the first on 1st June and the second on 1st December, and they involved loans totalling €469.3 million. The table below gives details of the amounts transferred in 2015 for each originator:

ASSETS TRANSFERRED TO UBI FINANCE CB2 –

YEAR 2015 (figures in thousands of euro)

TOTAL TRANSFERS

Origin-ated by Banca Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca

Popolare di Bergamo

Origin-ated by Banca

Popolare di Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated by IW Bank

Transfer on 01/06/2015 312,595 50,195 155,980 - 64.291 - 42,129 - - -

Transfer on 01/12/2015 156,716 - - 59,511 - 12,675 - 27,365 31,751 25,414

Total transfers 2015 469,311 50,195 155,980 59,511 64,291 12,675 42,129 27,365 31,751 25,414

As with the first programme, the portfolio transferred continued to be recognised as assets on the books of each originator bank and totalled €3.196 billion as at 31st December 2015. The table below gives the distribution of the portfolio (remaining principal debt) for each originator bank and the total by class of credit quality as at 31st December 2015.

TYPE OF LOAN – figures as at 31.12.2015

(Remaining principal debt - in thousands of euro)

TOTAL PORTFOLIO

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated

by IW Bank

Performing loans 2,507,999 446,248 519,263 573,876 344,683 11,421 252,853 237,168 98,355 24,132

Loans in arrears 424,001 73,093 98,224 69,810 115,750 1,057 29,134 23,017 12,898 1,018

Cover pool (1+2) 2,932,000 519,341 617,487 643,686 460,433 12,478 281,987 260,185 111,253 25,150

Defaulted loans 263,941 41,541 50,782 32,584 64,649 - 22,243 39,062 13,080 -

Total UBI Finance CB2 portfolio

3,195,941 560,882 668,269 676,270 525,082 12,478 304,230 299,247 124,333 25,150

Also for the portfolio transferred to UBI Finance CB2, the master servicer, UBI Banca, delegated responsibility for servicing activity to the originator banks as sub-servicers. This consisted of collecting payments and managing relations with customers for the portfolio transferred by each originator except for loans from UBI Banca’s own portfolio and positions reclassified as bad loans (previously termed “non-performing”), handled by the Problem Loans and Credit Recovery Area of the Parent. The total sums received in payments on the portfolio in 2015 are given below:

PAYMENTS RECEIVED (Figures in thousands of euro)

TOTAL PORTFOLIO

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca

Popolare di Bergamo

Origin-ated by Banca

Popolare di Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated

by IW Bank

Payments received in 2015

488,249 89,787 114,425 99,733 69,894 222 51,287 45,731 16,853 317

421 Notes to the consolidated accounts

Two covered bond issuances were made under the programme in 2012 and in 2014, which was added to by a new issuance in the second half of 2015. The total bonds issued amounted to €2.250 billion nominal remaining as at 31st December 2015. At the date of this report no public issuances have been made and therefore all outstanding issues to-date have been “retained” in the UBI Banca portfolio. Details are given below of the individual issues:

Number in order ISIN Number Name Issue Date Maturity

date Principal (*) Market

1 IT0004818701 UBI BANCA TV CB2 due 28/05/2018 28/05/2012 28/05/2018 900,000,000 Retained

2 IT0004864663 UBI BANCA TV CB2 due 29/10/2022 29/10/2012 29/10/2022 500,000,000 Retained

3 IT0005002842 UBI BANCA TV CB2 due 05/03/2019 05/03/2014 05/03/2019 200,000,000 Retained

4 IT0005122418 UBI BANCA TV CB2 due 14/07/2021 14/07/2015 14/07/2021 650,000,000 Retained

Total issues outstanding as at 31/12/2015 2,250,000,000

Note: (*) for bonds subject to amortisation, the remaining nominal value is given as at the reporting date.

Relations with the special purpose entity UBI Finance CB2

Assets transferred – carrying amount

The table below shows the amount for the securitised portfolio transferred by the originator banks to the special purpose entity UBI Finance CB2, according to the carrying amount shown under assets in the balance sheets of the originator banks. The classification follows the distribution of the transferred portfolio on the basis of the balance sheet classification of each originator. TYPE OF LOAN –

carrying amount as at 31.12.2015 (thousands of

euro)

TOTAL BANCA

REGIONALE EUROPEA

BANCO DI BRESCIA

BANCA POPOLARE

DI BERGAMO

BANCA POPOLARE DI ANCONA

UBI BANCA

BANCA POPOLARE

COMMERCIO E INDUSTRIA

BANCA CARIME

BANCA DI VALLE

CAMONICA

IW BANK

Performing loans 2,755,573 481,924 554,080 616,965 446,401 12,932 266,889 247,414 104,374 24,594

Performing past-due exposures

202,051 40,712 65,942 28,919 27,284 252 16,745 14,501 6,872 824

Non-performing (previously termed “deteriorated”) past-due exposures

8,703 1,952 2,736 466 1,865 - 551 1,093 40 -

Unlikely to pay loans 149,135 24,537 29,833 16,055 34,489 - 15,366 20,589 8,266 -

Bad loans (previously termed “non-performing”)

81,034 10,852 15,803 13,265 21,476-

5,157 11,808 2,673-

Total UBI Finance CB2 securitised portfolio

3,196,496 559,977 668,394 675,670 531,515 13,184 304,708 295,405 122,225 25,418

See above for the amount of the assets transferred during the year.

422 Notes to the consolidated accounts

Subordinated Loan The table below shows the amounts of the loans granted by the originator banks to UBI Finance CB2 against the transfers for the year 2015:

Subordinated loans granted in 2015 (in thousands of euro)

TOTAL TRANSFERS

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated by

IW Bank

Loan granted for 01/06/2015 transfer

314,027 50,287 156,608 - 65,109 - 42,023 - - -

Loan granted for 01/12/2015 transfer

157,662 - - 59,380 - 13,406-

27,535 31,609 25,732

Total granted in 2015 471,689 50,287 156,608 59,380 65,109 13,406 42,023 27,535 31,609 25,732

for an amount of the subordinated loans outstanding granted as at 31st December 2015 by each originator to UBI Finance CB2 as follows (in terms of remaining principal debt):

Amount of subordinated loans as at 31/12/2015 (in thousands

of euro) TOTAL

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca

Popolare di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di

Valle Camonica

Origin-ated by

IW Bank

Remaining principal debt 3,245,267 567,950 683,478 684,975 534,005 13,406 307,701 301,477 126,543 25,732

As for the €15 billion programme, the carrying amount of the subordinated loans as at 31st December 2015 represents the maximum exposure to loss resulting from participation by the banks (originators and financers) in the covered bond programme in the event that the guarantee given by the special purpose entity and the cash flows from the portfolios transferred as collateral were used to the reimburse investors and would not therefore be available, wholly or in part, to return the subordinated loans to the originators. The ability to repay that loan depends on the receipt of repayments on the loans in the segregated portfolio transferred to the special purpose entity by each bank. For the “retained” programme also, in consideration of the performance of repayments by the issuer UBI Banca, no risk in this respect currently exists.

The interest for 2015 on those subordinated loans totalled €58.4 million for all the Group banks participating in the programme, while the amount of the loans repaid in the year drawn from the capital repayments available to the special purpose entity totalled €440.5 million.

The following tables show the aforementioned sums by single originator bank:

Subordinated loans – interest paid and accruing in 2015 (in

thousands of euro) TOTAL

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated by

IW Bank

Total interest in 2015 58,414 10,933 12,128 11,289 10,498 24 4,700 7,000 1,803 39

423 Notes to the consolidated accounts

Subordinated loans – sums repaid in 2015 (thousands of

euro) TOTAL

Origin-ated by Banca

Regionale Europea

Origin-ated by

Banco di Brescia

Originated by Banca Popolare

di Bergamo

Origin-ated by Banca

Popolare di

Ancona

Origin-ated by

UBI Banca

Originated by Banca

Popolare di Commercio e Industria

Origin-ated by Banca Carime

Originated by Banca di Valle

Camonica

Origin-ated by

IW Bank

Total repayments in 2015 440,550 82,060 102,840 90,930 61,210 0 48,180 40,310 15,020 0

Servicing activities – Sub-servicing The Parent received fees totalling €304 thousand from the special purpose entity UBI Finance CB2 for servicing activities performed in 2015 relating to the management of payments received and relations with customers with regard to the portfolio transferred and the management of accounts classified as bad loans (previously termed “non-performing”), while fees received in its capacity as master servicer and calculation agent amounted to €322 thousand. At the same time the network banks received fees totalling €1.182 million from the special purpose entity UBI Finance CB2 for sub-servicing activities performed in 2015 relating to the management of payments received and relations with customers with regard to the portfolios transferred. D. Banking group - Models for the measurement of credit risk With regard to the measurement of credit risk, the Group has developed a portfolio credit risk model using the Algorithmics PCRE calculation engine. The model, which includes PD and LGD used for supervisory purposes among its input variables, considers the total risk for a loan portfolio by modelling and capturing the component resulting from the correlation of counterparty defaults, calculating credit losses and the capital at credit risk at portfolio level. This involves the use of a complex method for measuring the total risk of the entire portfolio, designed to capture mutually dependent phenomena in changes in counterparty creditworthiness and to determine the distribution of total losses for the whole portfolio as the basis for calculating risk.

Calculation of the correlation between defaults therefore makes it possible to establish the concentration of risk within a portfolio, which can be used as a basis both for managing and mitigating total risk by employing an appropriate diversification strategy and also for implementing efficient pricing policies.

The model proposed uses an approach similar to that of the Merton model (1974). Counterparty creditworthiness is given by an intermediate variable, the Credit Worthiness Index (affected by two components: a system and a specific component). The future level of this variable determines creditworthiness on the basis of specially calculated thresholds and therefore also any corresponding losses.

The analysis of changes in counterparty creditworthiness can be performed over a time period of longer than one year with intermediate steps.

424 Notes to the consolidated accounts

1.2. BANKING GROUP - MARKET RISK 1.2.1 Interest rate risk and price risk - supervisory trading book Qualitative information A. General aspects The considerations that follow relate exclusively to the “trading book”, as defined by supervisory regulations. Transactions designed to affect sensitivity at Group level and equity investments in other companies classified as for trading according to IAS are excluded. Management of Group financial risk is centralised in general at the Parent and is performed by the Finance Area. B. Processes for the management and methods of measurement of interest rate risk and price risk The guidelines for the assumption and monitoring of financial risk in the UBI Banca Group are defined in the Policy to Manage Financial Risks of the UBI Banca Group and in the relative documents to implement it (Regulations and document setting operational limits) with particular reference to market risk on the trading book and to interest rate, currency and liquidity risks on the banking book. More specifically the policy defines the capital allocated (maximum acceptable loss) to trading book activities, equal to 1% of the available first and second level financial resources (with an early warning threshold for amounts greater than 80% of the capital allocated), and it sets an early warning threshold on VaR, which must not exceed 20% of the capital allocated. Within the trading book, the monitoring of the consistency of the risk profiles of Group portfolios with respect to risk-return objectives is based on a system of limits which involves the combined use of various indicators. The following are defined for each portfolio of the Group:

mission; maximum acceptable loss limit; VaR limit; possible limits on the type of financial instruments permitted; possible limits on composition.

Consistent with the limits set by the Policy, the document setting operational limits defines operational limits for the trading book of the UBI Group in 2014, both at general level and for counterparties and single portfolios. The main operational limits for 2015 are as follows:

Maximum acceptable loss for the UBI Group trading book €100 million Early warning threshold on maximum acceptable loss (MAL) 70% MAL One day VaR limit for the UBI Group trading book €20 million Early warning threshold on VaR 80% VaR

Observance of the limits set for each portfolio is monitored daily.

425 Notes to the consolidated accounts

The summary measurement used to assess the exposure of the Bank to financial risks is value at risk (VaR). It is a statistical measurement used to estimate the loss that might occur following adverse changes in risk factors. The VaR of the UBI Banca Group is measured using a confidence interval of 99% and a holding period of one day. This value is defined in terms of limits consistent with the time horizon for the possible disinvestment of the portfolios. The VaR gives the “threshold” of the daily loss which, on the basis of probability hypotheses could only be exceeded in 1% of cases. The method used for calculating VaR is that of historical simulation. With this approach the portfolio is revalued by applying all the changes in risk factors recorded in the two previous years (500 observations). The values thus obtained are compared with the present value of the portfolio to give a hypothetical series of gains or losses. The VaR corresponds to the sixth worst result (confidence interval of 99%) of those obtained. The Group employs a stress testing programme to identify events or factors which could have a significant effect on positions to supplement the risk indicators obtained from the use of VaR. Stress tests are by nature both quantitative and qualitative and they consider not just market risks but also the effects on liquidity generated by market turbulence. They are based on both specially created theoretical shocks and market shocks actually observed in a predetermined historical period. The predictive power of the model adopted for risk measurement is currently monitored using daily backtesting analysis, which uses an actual P&L calculated by the front office systems of the Group. Retrospective tests consider changes in the value of the portfolio resulting from the front office systems of the Group, determined on day t with respect to positions present at t-1. The actual P&L is generated from all the transactions opposite in sign to the initial position for a total amount less than or equal to the total of the position t-1 without considering transactions of the same sign as the initial position that may have arisen during the day. The risk of losses caused by unfavourable changes in the price of traded financial instruments due to factors related to the issuer can be the result of daily trading activity (idiosyncratic risk) or of a sudden change in price with respect to general market trends (event risk, such as the risk of default by the issuer caused by a change in the market’s expectation that an issuer itself will default). The UBI model for monitoring specific risk for debt securities is capable of detecting the first of the two components (idiosyncratic risk) because it considers spread curves by economic sector and rating as risk factors. Total risk on equity instruments (and UCITS) is measured by considering single shares as risk factors and it includes both the generic risk component (i.e. the risk of losses caused by unfavourable trends in the prices of the financial instruments traded in general) and a specific component relating to the situation of the issuer.

426 Notes to the consolidated accounts

Quantitative information 1.1 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and

liabilities and financial derivatives. Denominated in: Euro

T ype/Residual maturity On demand Up to 3 months3 months to 6

months

6 months to 1

year1 year to 5 years

5 years to 10

yearsOver ten years

Indeterminate

maturity

1. On-balance sheet assets 232 50,005 50,025 3 51,911 268,306 588 - 1.1 Debt instruments 232 50,005 50,025 3 51,911 268,306 588 -

- w ith early redemption option - - - - 1,701 - - -

- other 232 50,005 50,025 3 50,210 268,306 588 -

1.2 Other assets - - - - - - - -

2. On-balance sheet l iabi l i ties - 324,896 - - - - - - 2.1 Repurchase agreements - 324,896 - - - - - -

2.2 Other liabilities - - - - - - - -

3 Financial derivatives (78,160) 172,856 (132,108) 477,723 (166,098) (271,422) 216,761 - 3.1 With underlying security - (5,456) (716) 256 (47,791) 53,699 - -

- Options - - - - - - - -

+ Long positions - - - - - - 155 -

+ Short positions - - - - - - 155 -

- Other - (5,456) (716) 256 (47,791) 53,699 - -

+ Long positions - 76,006 11,767 773 3,061 53,699 - -

+ Short positions - 81,462 12,483 517 50,852 - - -

3.2 Without underlying security (78,160) 178,312 (131,392) 477,467 (118,307) (325,121) 216,761 -

- Options 24 189,063 50,848 (1,804) (54,750) (166,830) (22,940) -

+ Long positions 212 357,409 215,411 187,910 53,614 8,340 1,426 -

+ Short positions 188 168,346 164,563 189,714 108,364 175,170 24,366 -

- Other (78,184) (10,751) (182,240) 479,271 (63,557) (158,291) 239,701 -

+ Long positions 70,666 9,006,529 2,537,259 946,320 3,288,698 1,621,505 922,068 -

+ Short positions 148,850 9,017,280 2,719,499 467,049 3,352,255 1,779,796 682,367 -

427 Notes to the consolidated accounts

1.2 Supervisory trading portfolio: distribution by residual maturity (repricing date) of on-balance sheet financial assets and

liabilities and financial derivatives. Denominated in: other currencies

T ype/Residual maturity On demand Up to 3 months3 months to 6

months

6 months to 1

year1 year to 5 years

5 years to 10

yearsOver ten years

Indeterminate

maturity

1. On-balance sheet assets - - - - 253 44,645 - - 1.1 Debt instruments - - - - 253 44,645 - -

- w ith early redemption option - - - - - - - -

- other - - - - 253 44,645 - -

1.2 Other assets - - - - - - - -

2. On-bal ance sheet l iabi l i ties 20 45,311 - - - - - - 2.1 Repurchase agreements 20 45,311 - - - - - -

2.2 Other liabilities - - - - - - - -

3 Financial derivatives - (158,165) (21,219) 9,574 367 (46,386) - - 3.1 With underlying security - - - - - - - -

- Options - - - - - - - -

+ Long positions - - - - - - - -

+ Short positions - - - - - - - -

- Other - - - - - - - -

+ Long positions - - - - - - - -

+ Short positions - - - - - - - -

3.2 Without underlying security - (158,165) (21,219) 9,574 367 (46,386) - -

- Options - - - 8,428 - - - -

+ Long positions - 102,043 285,506 295,965 46,045 - - -

+ Short positions - 102,043 285,506 287,537 46,045 - - -

- Other - (158,165) (21,219) 1,146 367 (46,386) - -

+ Long positions - 1,922,020 33,928 23,551 62,919 - - -

+ Short positions - 2,080,185 55,147 22,405 62,552 46,386 - -

428 Notes to the consolidated accounts

2. Supervisory trading portfolio: distribution of exposures in equities and share indices by the principal markets in which they are listed

Italy United States

of America Germany Other

A. Equity instruments 4,144,057.04 41.93 435,853.66 226.75

- long positions 4,144,057.04 41.93 435,853.66 226.75

- short positions

B. Trades in equity instruments not yet settled

15,751.93

- long positions 5,640.83

- short positions 10,111.10

C. Other derivatives on equity instruments

272,931.14 1,431.83

- long positions 272,931.14 1,431.83

- short positions

D. Derivatives on share indices 60,264,995.80

- long positions 35,070,810.00

- short positions 25,194,185.80

Type of operation/Where listed Listed

Unlisted

3. Trading portfolio: internal models and other methods of sensitivity analysis The graph below shows the changes in VaR that occurred in 2015 for the UBI Group trading portfolios.

Change in market risk: daily market VaR for UBI Group in 2015

VaR by risk factor calculated on the UBI Group trading book as at 31st December 2015 is given below.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

Evoluzione rischi di mercato: Market VAR giornaliero dei portafogli bancari di UBI Banca nel 2015

429 Notes to the consolidated accounts

Trading book of the UBI Banca Group 31.12.2015 Average Minimum Maximum

Currency risk 457,014 272,638 1,676 680,884

Interest rate risk 653,087 913,497 393,859 2,288,683

Equity risk 909,554 268,939 111,600 920,918

Credit risk 2,736,345 1,655,995 27,745 5,303,282

Volatility risk 169,886 240,051 15,081 638,694

Diversification effect(1) (1,298,483)

Total (2) 3,627,403 2,628,366 673,701 7,660,840

(1) The diversification effect is due to the imperfect correlation between the different risk factors present in the Group’s portfo lio .

(2) The maximum VaR was recorded on 13/02, the minimum on 24/09 Backtesting analyses Backtesting analysis is designed to test the predictive power of the VaR model adopted. It uses an actual profit and loss calculated on the basis of returns on positions in the portfolio on the previous day. The backtesting analysis for the UBI Group trading book in 2015 is given below. UBI Group Trading Book: Backtesting 2015

-10

-8

-6

-4

-2

0

2

4

6

2/1/15 2/2/15 2/3/15 2/4/15 2/5/15 2/6/15 2/7/15 2/8/15 2/9/15 2/10/15 2/11/15 2/12/15

Millions UBI Group Trading Book: Backtesting 2015

Profit & Loss VaR

Actual backtesting analysis of the supervisory portfolios of the UBI Group identified one day in 2013, when the P&L was worse than the VaR calculated by the risk management system.

430 Notes to the consolidated accounts

Theoretical stress tests The Group has a stress testing programme designed to analyse the reaction of portfolios to risk factor shocks with the objective of verifying the ability of the regulatory capital to absorb very large potential losses and to identify possible measures needed to reduce risks and conserve the capital itself. Stress tests based on theoretical shocks consist of specially created extreme shifts in interest rate (short, medium and long-term), credit spread, exchange rate, equity price and volatility curves. A brief description of the most significant stress tests is given below.

• Bull/Bear Steepening: a shock on the yield curve where the decrease/increase in short term interest rates is greater/smaller than that for long term rates.

• Bull/Bear Flattening: a shock on the yield curve where the decrease/increase in short term interest rates is smaller/greater than that for long term rates.

• Shock Credit Spread: a widening in the credit spread of 100 basis point for corporate and government securities with a rating of less than AAA.

• Flight to quality: this simulates a shift from investment in high risk to low risk assets. The shock applied is a decrease of 100bp in the interest rates for AAA government securities, an increase of 100bp in the credit spread on other government securities, an increase of 100 bp in the credit spread on corporate and banking securities and a depreciation in equity instruments of 10%.

The table below gives the results of the theoretical stress tests performed on the portfolios of the UBI Group.

431 Notes to the consolidated accounts

The effect of theoretical shocks on the trading book and banking book of the UBI Group

Risk Factor IR

Shock Shock +1bp 8,502 0.00% -569,025 0.00% -560,523 0.00%

Risk Factor IR

Shock Shock -1bp -8,176 0.00% 576,016 0.00% 567,840 0.00%

Risk Factor IR

Shock Bear Steepening -2,314,538 -0.47% -13,040,173 -0.09% -15,354,712 -0.10%

Risk Factor IR

Shock Bull steepening 1,254,601 0.26% 3,457,209 0.02% 4,711,810 0.03%

Risk Factor IR

Shock Bear Flattening -148,826 -0.03% 4,692,937 0.03% 4,544,111 0.03%

Risk Factor IR

Shock Bull Flattening 4,561,203 0.93% 14,284,399 0.10% 18,845,602 0.12%

Risk Factor Equity

Shock +10% 1,533,531 0.31% 2,208,288 0.02% 3,741,819 0.02%

Risk Factor Equity

Shock -10% -1,533,531 -0.31% -2,208,288 -0.02% -3,741,819 -0.02%

Risk Factor Volatility

Shock +20% -35,691 -0.01% 291,535 0.00% 255,843 0.00%

Risk Factor Volatility

Shock -20% -14,507 0.00% -238,528 0.00% -253,036 0.00%

Risk Factor Forex

Shock +15% 3,912,158 0.80% -521,404 0.00% 3,390,754 0.02%

Risk Factor Forex

Shock -15% -6,066,101 -1.24% 521,404 0.00% -5,544,697 -0.04%

Risk Factor Credit Spread

Shock -17,878,986 -3.64% -772,376,873 -5.29% -790,255,859 -5.24%

Flight to quality scenario -17,372,726 -3.54% -774,303,408 -5.30% -791,676,134 -5.25%

TOTAL UBI GROUP 31/12/15

Change in NAV Change in NAV Change in NAV

Data as at 31/12/2015UBI GROUP TRADING BOOK REG 31/12/15

UBI GROUP BANKING BOOK 31/12/15

The analysis shows a heightened sensitivity of the UBI Group portfolios to credit spread shocks (consistent with the presence of Italian government securities) and to interest rate shocks (consistent with the presence of bonds and interest rate derivatives in Group portfolios). The limits set for the trading book are also used for the portfolios in the banking book, which contain assets classified for IFRS purposes as available-for-sale (the UBI available-for-sale portfolio, the

432 Notes to the consolidated accounts

Centrobanca corporate portfolio and the IW Bank available-for-sale portfolio) and under the fair value option (UBI hedge funds portfolio). The main operational limits for the banking book of the UBI Group decided for 2015, including the reallocations and the new limits set in the second half of the year, are given below. maximum loss for UBI Banking Book portfolios €1,600 million one day VaR limit for UBI banking book portfolios €240 million

The graph below shows the changes in daily VaR that occurred in 2015 for the UBI Group banking book portfolios.

90,000,000

100,000,000

110,000,000

120,000,000

130,000,000

140,000,000

150,000,000

Change in market risk: daily market VaR for UBI Group in 2015

Market VaR does not include VaR on securities classified as held-to-maturity and the VaR on hedge funds. VaR by risk factor calculated on the UBI Group banking book as at 31st December 2015 is given below.

Banking book of the UBI Banca Group 31.12.2015 Average Minimum Maximum

Currency risk 45,701 54,151 44,498 60,295

Interest rate risk 5,802,830 8,363,270 5,293,623 14,578,856

Equity risk 525,237 697,699 382,987 2,364,463

Credit risk 108,796,479 108,899,153 90,032,365 136,274,934

Volatility risk 141,049 260,804 141,049 344,413

Diversification effect(1)

Total (2) 115,597,473 114,910,191 94,975,073 136,626,698

(1) The diversification effect is due to the imperfect correlation between the different risk factors present in the Group’s portfo lio .

(2) The maximum VaR was recorded on 26/01, the minimum VaR on 15/06

433 Notes to the consolidated accounts

1.2.2 Interest rate risk and price risk – Banking book Qualitative information A. General aspects, management processes and methods of measurement of interest rate risk and price risk

Interest rate risk consists of changes in interest rates which have the following effects:

• on net interest income and consequently on the profits of the bank (cash flow risk);

• on the net present value of assets and liabilities, which has an impact on the present value of future cash flows (fair value risk).

The control and management of structural interest rate risk - fair value and cash flow – is performed centrally by the Parent within the framework, defined annually, of the Policy to Manage Financial Risks of the UBI Banca Group, which identifies measurement methods and models and limits or early warning thresholds in relation to net interest income and the sensitivity of the economic value of the Group.

Measurement, monitoring and reporting of interest rate risk exposure is performed at consolidated and individual level by the Capital & Liquidity Risk Management Area of the Parent, which performs the following on a monthly basis:

• a sensitivity analysis designed to measure changes in the value of assets on the basis of parallel shocks on interest rate levels for all the time buckets of the curve;

• a simulation of the impact on net interest income for the current year by means of a static gap analysis (i.e. assuming that the positions remain constant during the period), considering the effect of elasticity on demand deposits;

On the basis of the periodic reports produced, the ALM service of the Parent Bank takes appropriate action to prevent the limits and early warning thresholds from being exceeded.

Exposure to interest rate risk is measured by using gap analysis and sensitivity analysis models on all those financial instruments, assets and liabilities, not included in the trading book, in accordance with supervisory regulations.

Sensitivity analysis of economic value includes an estimate of the impacts resulting from the early repayment of mortgages and long-term loans, regardless of whether early repayment options are contained in the contracts.

This is accompanied by an estimate of the change in net interest income. The analysis of the impact on net interest income is over a time horizon of twelve months, with account taken of both the variation in the profit on demand items (inclusive of viscosity phenomena) and that variation for items to held to maturity. This analysis also includes an estimate of the impact of reinvesting/refinancing maturing interest flows.

The 2015 Policy to Manage Financial Risks of the UBI Banca Group defines a system of early warning thresholds on exposure to interest rate risk based on indicators measured in a scenario of a +/-100 bp change in interest rates. More specifically, a sensitivity early warning threshold of €450 million is set (4.1% of estimated total available financial resources as at 31/12/2015) along with an early warning threshold of a change in consolidated net interest income of €220 million (equal to 2% of those resources). The Management Board has also set an early warning threshold on sensitivity of €425 million. At individual company level the 2015 Policy to Manage Financial Risks of the UBI Banca Group sets a target level for the sensitivity of term and on demand items represented by the behaviour model equal to 7.5% of individual company total own funds and an early warning threshold of 10%. Both at

434 Notes to the consolidated accounts

consolidated and individual level, the amount to compare with the early warning threshold is the absolute figure for the negative sensitivity resulting from the application of two different interest rate scenarios (parallel shock of +/-100 b.p. on the yield curve).

Compliance with individual limits is pursued by Group member companies by means of hedging derivative contracts entered into with the Parent. UBI Banca may then close the position with counterparties outside the Group, acting in accordance with strategic policies and within the consolidated limits set by the governing bodies.

B. Fair value hedging In order to reduce exposure to adverse changes in fair value (fair value hedges) due to interest rate risk, hedges had been taken out in the UBI Group as at 31st December 2015 using financial derivative instruments. In detail outstanding hedges were as follows:

specific hedges on fixed rate available-for-sale securities amounting to approximately €10.60 billion nominal ;

specific hedges on fixed rate loans amounting to approximately €70 million nominal; macro hedges on fixed rate loans amounting to approximately €24 million nominal; macro hedges on financing of the multimix/prefix type (financing that sets a cap on the rate

paid by the customer) amounting to approximately €1.44 billion nominal; specific hedges on bonds amounting to approximately €18.55 billion nominal.

The derivative contracts used are of the interest rate swap and cap type. Activity to test the effectiveness of hedges is performed by the Capital & Liquidity Risk Management Area of the Parent. Tests for effectiveness are performed, in compliance with international accounting standards, prospectively when a hedge is first implemented followed by monthly prospective and retrospective tests. C. Cash flow hedging

Details of cash flow hedges are reported in the financial statements of the UBI Group in relation to issues of certificates of deposit denominated in Japanese currency (JPY), which are hedged by domestic currency swaps (DCS).

435 Notes to the consolidated accounts

Quantitative information

1.1 Banking portfolio: distribution by residual life (repricing date) of the financial assets and liabilities. Denominated in: Euro

Type/Residual maturi ty On demand Up to 3 months3 months to 6

months

6 months to 1

year1 year to 5 years

5 years to 10

yearsOver ten years

Indeterminate

maturity

1. On-bal ance sheet assets 16,997,145 49,023,514 5,971,106 1,668,740 14,236,066 13,031,784 4,419,343 - 1.1 Debt instruments 150,585 34,811 442,313 196,264 8,663,378 7,466,624 1,778,588 -

- w ith early redemption option 1,296 8,650 2,835 10,245 27,114 31,453 - -

- other 149,289 26,161 439,478 186,019 8,636,264 7,435,171 1,778,588 -

1.2 Financing to banks 1,825,232 857,750 36,490 50,806 514,437 - - -

1.3 Customer finance 15,021,328 48,130,953 5,492,303 1,421,670 5,058,251 5,565,160 2,640,755 -

- current accounts 8,297,804 - - - - 740,517 - -

- other financing 6,723,524 48,130,953 5,492,303 1,421,670 5,058,251 4,824,643 2,640,755 -

- w ith early redemption option 1,113,818 35,687,310 2,447,293 1,098,302 4,662,209 1,906,028 2,380,739 -

- other 5,609,706 12,443,643 3,045,010 323,368 396,042 2,918,615 260,016 -

2. On-bal ance sheet l iabi l i ties 48,053,736 23,755,745 4,821,126 3,662,749 15,296,233 3,964,403 24,374 - 2.1 Due to customers 46,941,652 6,156,874 270,800 55,410 14,254 11,312 17,332 -

- current accounts 45,309,514 - - - - - - -

- other 1,632,138 6,156,874 270,800 55,410 14,254 11,312 17,332 -

- w ith early redemption option 52,583 46,234 88,847 1,465 8,570 1,550 1,283 -

- other 1,579,555 6,110,640 181,953 53,945 5,684 9,762 16,049 -

2.2 Due to banks 804,776 8,619,700 976,849 541 4,664 6,628 7,004 -

- current accounts 566,806 - - - - - - -

- other payables 237,970 8,619,700 976,849 541 4,664 6,628 7,004 -

2.3 Debt instruments 307,019 8,979,171 3,573,477 3,606,798 15,277,315 3,946,463 38 -

- w ith early redemption option 986 360,332 8,093 8,949 20,027 14,946 38 -

- other 306,033 8,618,839 3,565,384 3,597,849 15,257,288 3,931,517 - -

2.4 Other liabilities 289 - - - - - - -

- w ith early redemption option - - - - - - - -

- other 289 - - - - - - -

3 Financial derivatives 76,871 (10,235,406) 6,627,071 2,264,558 5,589,416 (2,187,728) (2,450,224) - 3.1 With underlying security - - (6) 1,779 136 (216,275) 100 -

- Options - - (6) 1,779 136 (216,275) 100 -

+ Long positions - - - 1,779 148 93,435 105 -

+ Short positions - - 6 - 12 309,710 5 -

- Other - - - - - - - -

+ Long positions - - - - - - - -

+ Short positions - - - - - - - -

3.2 Without underlying security 76,871 (10,235,406) 6,627,077 2,262,779 5,589,280 (1,971,453) (2,450,324) -

- Options (12,529) (248,187) (31,988) 1,010,592 (35,939) (40,737) (641,213) -

+ Long positions 10,072 751,992 571 1,212,537 205,245 27 304 -

+ Short positions 22,601 1,000,179 32,559 201,945 241,184 40,764 641,517 -

- Other 89,400 (9,987,219) 6,659,065 1,252,187 5,625,219 (1,930,716) (1,809,111) -

+ Long positions 92,780 9,121,314 6,728,291 1,349,273 9,898,191 3,859,003 - -

+ Short positions 3,380 19,108,533 69,226 97,086 4,272,972 5,789,719 1,809,111 -

4 Other off-bal ance sheet transactions (564,307) 91,329 7,413 1,629 356,773 62,985 44,177 - + Long positions 2,449,757 91,329 7,413 1,629 356,773 62,985 44,177 -

+ Short positions 3,014,064 - - - - - - -

436 Notes to the consolidated accounts

1.2 Banking portfolio: distribution by residual life (repricing date) of the financial assets and liabilities. Denominated in:

other currencies

Type/Residual maturity On demand Up to 3 months3 months to 6

months

6 months to 1

year1 year to 5 years

5 years to 10

yearsOver ten years

Indeterminate

maturity

1. On-bal ance sheet assets 325,530 944,840 81,776 8,762 60,376 8,751 9,774 - 1.1 Debt instruments 1,310 - 4,400 - 46,904 - - -

- w ith early redemption option 502 - - - 29,529 - - -

- other 808 - 4,400 - 17,375 - - -

1.2 Financing to banks 71,651 67,080 1,287 5,204 - - - -

1.3 Customer finance 252,569 877,760 76,089 3,558 13,472 8,751 9,774 -

- current accounts 14,014 - - - - - - -

- other financing 238,555 877,760 76,089 3,558 13,472 8,751 9,774 -

- w ith early redemption option 1,170 11,476 1,259 - - - - -

- other 237,385 866,284 74,830 3,558 13,472 8,751 9,774 -

2. On-balance sheet l iabi l i ties 1,171,433 145,945 35,651 14,203 12 42 - -

2.1 Due to customers 1,163,053 68,326 828 68 12 42 - -

- current accounts 1,152,370 - - 68 12 42 - -

- other 10,683 68,326 828 - - - - -

- w ith early redemption option - 28,326 - - - - - -

- other 10,683 40,000 828 - - - - -

2.2 Due to banks 8,015 25,907 219 - - - - -

- current accounts 4,925 - - - - - - -

- other payables 3,090 25,907 219 - - - - -

2.3 Debt instruments 365 51,712 34,604 14,135 - - - -

- w ith early redemption option - - - - - - - -

- other 365 51,712 34,604 14,135 - - - -

2.4 Other liabilities - - - - - - - -

- w ith early redemption option - - - - - - - -

- other - - - - - - - -

3 Financial derivatives 106 99,569 28,811 16,560 (103,342) - - -

3.1 With underlying security - - (5,424) - - - - -

- Options - - (5,424) - - - - -

+ Long positions - - - - - - - -

+ Short positions - - 5,424 - - - - -

- Other - - - - - - - -

+ Long positions - - - - - - - -

+ Short positions - - - - - - - -

3.2 Without underlying security 106 99,569 34,235 16,560 (103,342) - - -

- Options - - - - - - - -

+ Long positions - - - - - - - -

+ Short positions - - - - - - - -

- Other 106 99,569 34,235 16,560 (103,342) - - -

+ Long positions 106 99,569 34,235 16,560 - - - -

+ Short positions - - - - 103,342 - - -

4 Other off -bal ance sheet transactions 453 (479) 26 - - - - - + Long positions 2,756 65 26 - - - - -

+ Short positions 2,303 544 - - - - - -

437 Notes to the consolidated accounts

2. Banking portfolio: internal models and other methods of sensitivity analysis. As at 31st December 2015 positive sensitivity was found in both of the scenarios considered by Group financial risk policy: a downward (+100 bp) and an upward (+100 bp) shock on the yield curve. In detail: in the upward shift in the yield curve scenario (+100 bp), Group exposure to interest rate risk, in

terms of core sensitivity, net of the AFS portfolio for which specific limits exist, was €204.65 million;

in the downward shift in the yield curve scenario (-100 BP), on the other hand, core sensitivity of €243.33 million was found. This exposure is affected by the non-negative constraint imposed on interest rates and therefore by the application of a floor on the shift of the relative curve.

In compliance with the Financial Risks Policy, both levels presented include an estimate of the impact of early repayments and modelling of on-demand items on the basis of the internal model.

In the negative shock scenario, the sensitivity originated by the network banks was +€62.60 million and the sensitivity generated by the product companies was approximately +€43.25 million, while the Parent contributed a total of +€137.48 million.

Supervisory regulations also require all intermediaries to measure the impact of exposure to the risk of a change in interest rates of +/- 200 bp. If the economic value of a bank falls by over 20% of its own funds, then the European Central Bank and the Bank of Italy will examine the results with the bank and they may decide to take appropriate action. End of period measurements as at 31st December 2015, 30th September 2015, 30th June 2015, 31st March 2015 and 31st December 2014 and average measurements for the periods December 2015-December 2014, September 2015-September 2014, June 2015-June 2014, March 2015-March 2014 and the full year 2014 showed increases in economic value in both the scenarios considered. As already underlined, the exposure recorded is heavily impacted by the non-negative constraint on interest rates.

Sensitivity analysis of net interest income focuses on changes in profits resulting from a parallel shock on the yield curve, measured over a time period of twelve months. The overall determination of exposure contributes to the analysis of the viscosity of on-demand items. UBI Banca Group exposure to interest rate risk, estimated in terms of an impact on net interest income of an increase in reference interest rates of 100 bp was +€105.29 million for the period ended 31st December 2015. The exposure measured in a scenario of a decrease in reference interest rates of 100 bp, amounted to -€5.46 million for the period ended the 31st December 2015 . The impact on that income shows 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.

438 Notes to the consolidated accounts

1.2.3 Currency risk Qualitative information A. General aspects, management processes and methods of measuring currency risk Currency risk is calculated on the basis of mismatches existing between assets and liabilities in foreign currency (spot and forward), relating to each currency other than euro. The main sources of risk are as follows:

lending and funding in foreign currency with corporate and retail customers;

holding financial instruments denominated in foreign currency;

holding units in UCITS for which, even if they are denominated in euro, it is not possible to determine the composition in foreign currency of the underlying investments and/or for which the maximum limit on investment in foreign currency is not known and binding;

dealing in foreign bank notes.

Foreign currency risk in the UBI Group regards banking book exposures originated by the network banks and/or by the product companies – resulting from their commercial activities – and their positions relating to trading in foreign currency.

Trading on foreign exchange markets is performed by the Group treasury function which operates by using instruments such as forward trades, forex swaps, domestic currency swaps and currency options, thereby optimising risks resulting from Group positions in foreign currency.

Exposure to currency risk is calculated starting from the net foreign currency position using a method based on supervisory regulations. Equity investments and tangible assets are not included in the calculation of the net foreign currency position.

B. Currency risk hedging Foreign currency risk arising from exposures in the banking book is mitigated by systematically hedging them with funding and lending transactions in the same currency as the original transaction. This activity to contain risk is also performed by the product companies for their own banking book positions. The remaining exposures and trading portfolio exposures are fully and precisely hedged with spot forex positions.

For some network banks in the Group (Banca Popolare di Bergamo S.p.A. and Banca Popolare di Ancona S.p.A), issues of certificates of deposit in foreign Japanese currency (JPY) are hedged by simultaneously entering into DCS contracts with customers, as already mentioned in the sub-section on interest rate risk. The accounting treatment employed for these transactions is that for cash flow hedging.

439 Notes to the consolidated accounts

Quantitative information

1. Distribution of assets, liabilities and derivatives by foreign currency in which they are denominated

US Dollars UK sterling YenCanadian Dollars

Sw iss Francs Other currencies

A. Financial assets 620,322 47,194 3,899 7,411 659,949 153,420 A.1 Debt instruments 75,274 22,583 - - - -

A.2 Equity instruments 7,107 - - - - -

A.3 Financing to banks 102,130 21,271 986 7,219 4,451 8,845

A.4 Financing to customers 435,811 3,340 2,913 192 655,498 144,575

A.5 Other financial assets - - - - - -

B. Other assets 10,093 5,043 401 660 5,640 1,843 C. Financial l iabil ities 1,202,083 34,320 101,782 4,796 34,364 35,268 C.1 Due to banks 51,074 4 1,104 37 379 26,873

C.2 Due to customers 1,150,236 34,301 697 4,759 33,788 8,395

C.3 Debt instruments 773 15 99,981 - 189 -

C.4 Other financial liabilities - - - - 8 -

D. Other l iabil ities 435 158 - - 1 83 E. Financial Derivatives 566,410 (26,554) 104,525 (3,208) (635,335) (146,853) E.1 Options 35,746 - - - 127 (27,317)

E.1.1 Long positions 533,374 11,025 3,812 945 3,691 39,335

E.1.2 Short positions 497,628 11,025 3,812 945 3,564 66,652

E.2 Other derivatives 530,664 (26,554) 104,525 (3,208) (635,462) (119,536)

E.2.1 Long positions 1,583,814 81,692 238,986 5,198 3,308 25,383

E.2.2 Short positions 1,053,150 108,246 134,461 8,406 638,770 144,919

Total assets 2,747,603 144,954 247,098 14,214 672,588 219,981

Total l iabil ities 2,753,296 153,749 240,055 14,147 676,699 246,922

Balance (+/-) (5,693) (8,795) 7,043 67 (4,111) (26,941)

CurrenciesItems

2. Internal models and other methods of sensitivity analysis. Absorption of capital for currency risk as at 31st December 2015, calculated on the basis of supervisory regulations, amounted to approximately €17 million.

440 Notes to the consolidated accounts

1.2.4 Derivative instruments A. Financial derivatives A.1 Supervisory trading portfolio: end of period and average notional amounts

31.12.2015 31.12.2014

Over the counter Central counterparties Over the counter Central counterparties

1. Debt instruments and interest rates 19,949,897 111,385 18,919,879 270,158 a) Options 3,507,985 1,612 4,150,123 1,608 b) Sw aps 16,441,912 - 14,769,756 - c) Forw ards - - - - d) Futures - 109,773 - 268,550 e) Other - - -

2. Equity instruments and share indices 1 60,271 - 34,305 a) Options 1 6 - 126 b) Sw aps - - - - c) Forw ards - - - - d) Futures - 60,265 - 34,179 e) Other - - -

3. Currencies and gold 5,966,079 - 4,330,263 2,875 a) Options 2,231,840 - 2,078,357 - b) Sw aps - - - - c) Forw ards 3,734,239 - 2,236,716 - d) Futures - - - 2,875 e) Other - - 15,190 -

4. Commodities 45,494 - 36,906 - 5. Other underlying - - - -

Total 25,961,471 171,656 23,287,048 307,338

Underlying assets/type of derivative

441 Notes to the consolidated accounts

A.2 Banking portfolio: notional, end of period and average amounts A.2.1 For hedging

31.12.2015 31.12.2014

Over the counter Central counterparties Over the counter Central counterparties

1. Debt instruments and interest rates 36,564,544 - 37,858,813 - a) Options 5,467,699 - 5,550,935 - b) Sw aps 31,096,845 - 32,307,878 - c) Forw ards - - - - d) Futures - - - - e) Other - - - -

2. Equity instruments and share indices - - - - a) Options - - - - b) Sw aps - - - - c) Forw ards - - - - d) Futures - - - - e) Other - - - -

3. Currencies and gold 130,151 - 336,625 - a) Options - - - - b) Sw aps 130,151 - 336,625 - c) Forw ards - - - - d) Futures - - - - e) Other - - - -

4. Commodities - - - - 5. Other underlying - - - -

Total 36,694,695 - 38,195,438 -

Underlying assets/type of derivative

A.2.2 Other derivatives

31.12.2015 31.12.2014

Over the counter Central counterparties Over the counter Central counterparties

1. Debt instruments and interest rates - - 10,250 - a) Options - - - - b) Sw aps - - - - c) Forw ards - - - - d) Futures - - - - e) Other - - 10,250 -

2. Equity instruments and share indices 589,018 - 638,626 - a) Options 589,018 - 638,626 - b) Sw aps - - - - c) Forw ards - - - - d) Futures - - - - e) Other - - - -

3. Currencies and gold - - - - a) Options - - - - b) Sw aps - - c) Forw ards - - d) Futures - - e) Other - -

4. Commodities - - 5. Other underlying - -

Total 589,018 - 648,876 -

Underlying assets/type of derivative

442 Notes to the consolidated accounts

A.3 Financial derivatives: gross positive fair value – by type of product

31.12.2015 31.12.2014

Over the counter Central counterparties Over the counter Central counterparties

A. Supervisory trading portfol io 521,625 804 617,561 890 a) Options 28,847 611 39,380 192 b) Interest rate swaps 452,842 - 557,924 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards 35,059 - 16,576 - f) Futures - 193 - 698 g) Other 4,877 - 3,681 -

B. Banking portfolio - for hedging 594,685 - 649,249 - a) Options - - - - b) Interest rate swaps 593,014 - 649,126 - c) Cross currency swaps 363 - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Other 1,308 - 123 -

C. Banking portfolio - other derivatives - - 3 - a) Options - - 3 - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - e) Forwards - - - - f) Futures - - - - g) Other - - - -

Total 1,116,310 804 1,266,813 890

Portfolio/type of derivative

Positive fair value

443 Notes to the consolidated accounts

A.4 Financial derivatives: gross negative fair value – by type of product

31.12.2015 31.12.2014

Over the counter Central counterparties Over the counter Central counterparties

A. Supervisory trading portfolio 531,805 7 617,447 300 a) Options 23,549 - 37,031 - b) Interest rate swaps 469,221 - 560,421 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards 34,380 - 16,445 - f) Futures - 7 - 300 g) Other 4,655 - 3,550 -

B. Banking portfol io - for hedging 749,725 - 1,009,092 - a) Options - - - - b) Interest rate swaps 749,122 - 989,795 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Other 603 - 19,297 -

C. Banking portfol io - other derivatives - - 16 - a) Options - - 3 - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forwards - - - - f) Futures - - - - g) Other - - 13 -

Total 1,281,530 7 1,626,555 300

Portfolio/type of derivative

Negative fair value

444 Notes to the consolidated accounts

A.5 OTC financial derivatives: supervisory trading portfolio – notional amounts, gross positive and negative fair values by counterparty – contracts not covered by clearing agreements

1) Debt instruments and interest rates- notional amount - - 10,000 184,915 - 5,712,338 511,948 - positive fair value - - - 3,878 - 332,328 8,848 - negative fair value - - 81 291 - 2,181 258 - future exposure - - - 927 - 31,754 906

2) Equity instruments and share indices- notional amount - - - - - - 1 - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - -

3) Currencies and gold- notional amount - - 50,631 1,122,602 594 1,186,564 35,591 - positive fair value - - 146 765 - 7,855 104 - negative fair value - - 492 28,958 12 13,739 187 - future exposure - - 506 11,223 6 9,008 356

4) Other securities- notional amount - - - 156 - 22,642 - - positive fair value - - - 58 - 2,247 - - negative fair value - - - - - 2,529 - - future exposure - - - 16 - 2,313 -

Insu

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Non

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Oth

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445 Notes to the consolidated accounts

A.6 OTC financial derivatives: supervisory trading portfolio – notional amounts, gross positive and negative fair values by counterparty – contracts covered by clearing agreements

1) Debt instruments and interest rates- notional amount - - 12,246,016 1,284,680 - - - - positive fair value - - 109,918 5,676 - - - - negative fair value - - 437,702 32,794 - - -

2) Equity instruments and share indices - notional amount - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - -

3) Currencies and gold- notional amount - - 3,115,870 454,227 - - - - positive fair value - - 37,746 9,469 - - - - negative fair value - - 8,757 1,685 - - -

4) Other securities- notional amount - - 22,696 - - - - - positive fair value - - 2,587 - - - - - negative fair value - - 2,139 - - - -

Non

-fin

an

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com

pan

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Oth

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agreements

Gov

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446 Notes to the consolidated accounts

A.7 OTC financial derivatives: banking portfolio – notional amounts, gross positive and negative fair values by counterparty – contracts not covered by clearing agreements

1) Debt instruments and interest rates- notional amount - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - -

2) Equity instruments and share indices- notional amount - - 12,372 252,966 253,019 67,357 3,304 - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - 19,371 25,302 57 197

3) Currencies and gold- notional amount - - 27,674 - - 2,172 100,305 - positive fair value - - 363 - - 25 1,283 - negative fair value - - - - - 1 601 - future exposure - - 1,384 - - 22 1,010

4) Other securities- notional amount - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - -

Contracts not covered by clearing

agreements

Gov

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447 Notes to the consolidated accounts

A.8 OTC financial derivatives: banking portfolio – notional amounts, gross positive and negative fair values by counterparty – contracts covered by clearing agreements

1) Debt instruments and interest rates- notional amount - - 29,207,242 7,357,302 - - - - positive fair value - - 362,856 230,158 - - - - negative fair value - - 593,982 155,141 - - -

2) Equity instruments and share indices- notional amount - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - -

3) Currencies and gold- notional amount - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - -

4) Other securities- notional amount - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - -

Non

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448 Notes to the consolidated accounts

A.9 Residual maturity of OTC financial derivatives: notional amounts

Underlying asset/Residual maturity Up to 1 year 1 year to 5 years More than 5 years Total

A. Supervisory trading portfol io 10,185,276 8,688,453 7,087,742 25,961,471 A.1 Financial derivatives on debt instruments and interest rates 4,365,979 8,496,176 7,087,742 19,949,897 A.2 Financial derivatives on equity instruments and share indices 1 - - 1 A.3 Financial derivatives on exchange rates and gold 5,778,646 187,433 - 5,966,079 A.4 Financial derivatives on other securities 40,650 4,844 - 45,494

B. Banking portfol io 9,163,811 14,742,304 13,377,598 37,283,713 B.1 Financial derivatives on debt instruments and interest rates 9,045,667 14,714,220 12,804,657 36,564,544 B.2 Financial derivatives on equities and share indices 15,667 410 572,941 589,018 B.3 Financial derivatives on exchange rates and gold 102,477 27,674 - 130,151 B.4 Financial Derivatives on other securities - - - -

Total 31.12.2015 19,349,087 23,430,757 20,465,340 63,245,184 Total 31.12.2014 10,283,445 34,162,276 17,685,641 62,131,362

A.10 OTC financial derivatives: counterparty risk/financial risk – Internal models The UBI Banca Group does not use internal models to measure counterparty risk and financial risk for OTC financial derivatives.

449 Notes to the consolidated accounts

B. Credit derivatives B.1 Credit derivatives: end of period notional amounts No items of this type exist in the UBI Banca Group. B.2 OTC credit derivatives: gross positive fair value – by type of product No items of this type exist in the UBI Banca Group. B.3 OTC credit derivatives: gross negative fair value – by type of product No items of this type exist in the UBI Banca Group. B.4 OTC credit derivatives: gross fair value (positive and negative) by counterparty – contracts not covered by clearing agreements No items of this type exist in the UBI Banca Group. B.5 OTC credit derivatives: gross fair value (positive and negative) by counterparty – contracts covered by clearing agreements No items of this type exist in the UBI Banca Group. B.6 Residual maturity of credit derivatives: notional amounts No items of this type exist in the UBI Banca Group. B.7 Credit derivatives: counterparty risk/financial risk – internal models The UBI Banca Group does not use internal models to measure counterparty and financial risk for credit derivatives.

450 Notes to the consolidated accounts

C. Financial and credit derivatives C.1 OTC financial and credit derivatives: net fair value and future exposure by counterparty

1) Bilateral agreement financial derivatives- positive fair value - - 156,677 170,314 - - - - negative fair value - - 686,150 114,630 - - - - future exposure - - 169,597 52,508 - - - - net counterparty risk - - 163,153 51,682 - - -

2) Bilateral agreement credit derivatives- positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - - net counterparty risk - - - - - - -

3) "Cross product" agreements- positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - - net counterparty risk

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451 Notes to the consolidated accounts

3 BANKING GROUP - LIQUIDITY RISK Qualitative information A. General aspects, processes for the management and methods for the measurement of liquidity risk Liquidity risk is defined in the UBI Group as the risk of the failure to meet payment obligations, which can be caused either by an inability to raise funds, by raising them at higher than market costs (funding liquidity risk), or by the presence of restrictions on the ability to sell assets (market liquidity risk) with losses incurred on capital account. Structural liquidity risk is defined as the risk resulting from a mismatch between the sources of funding and lending. The primary objective of the liquidity risk management system is to enable the Group to meet its payment obligations and to raise additional funding at a minimum cost and without prejudice to potential future income. The general principles on which liquidity management within the Group is based are as follows: • the adoption of a centralised management system run by Group Treasury; • diversification of the sources of funding and limits on exposure to institutional counterparties; • protection of Group capital in liquidity crisis situations; • a proper financial balance between assets and liabilities; • a proper level of eligible and/or liquid assets, sufficient to meet liquidity requirements even under

stress conditions. The reference framework for the measurement, monitoring and management of exposure to liquidity risk is defined annually as part of the Policy to Manage Financial Risks of the UBI Banca Group and the relative regulations to implement it and the Document setting operational limits approved by the corporate governance bodies. Corporate risk policies are supplemented by a contingency funding plan (CFP), an emergency plan for liquidity management, the main aim of which is to protect the Bank’s assets in situations of liquidity drainage, by putting in place crisis management strategies and procedures to find sources of funding in cases of emergency. These documents set out rules for the pursuit and maintenance of an adequate degree of diversification in the sources of funding and a proper structural balance between the sources and uses of funds for the network banks and the product companies, through the pursuit of co-ordinated and efficient funding and lending policies. The following are responsible for liquidity risk management: • the units that report to the Chief Business Officer (first level management), which monitor liquidity

daily and manage risk on the basis of defined limits; • the Capital & Liquidity Risk Management Area (2nd level management), responsible for periodically

verifying that limits are observed. The system for the management of short-term liquidity risk defined by the Policy to Manage Financial Risks of the UBI Banca Group and supplemented by the Contingency Funding Plan is based on a system of early warning thresholds and limits consistent with the general principles on which liquidity management within the Group is based.

452 Notes to the consolidated accounts

More specifically, liquidity risk is managed by means of the measurement, monitoring and management of the expected liquidity requirement, 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 net liquidity balance is obtained from the daily liquidity ladder by comparing expected cash flow projections with counterbalancing capacity over a time horizon of up to three months. The cumulative sum of expected cash flows and of the counterbalancing capacity, for each time bucket, quantifies liquidity risk measured under different stress scenarios. The UBI Banca Group reports that indicator to the Bank of Italy on a weekly basis, following standard procedures set by that supervisory authority. The liquidity position reported to the Bank of Italy contains the following information: • the principal maturities, forecast over a time horizon of twelve months, both on the institutional

and the retail market, with details according to the type of funding instrument (e.g. bond issues, repurchase agreements, commercial paper);

• details of assets available for refinancing transactions with the central bank and of liquid assets; • the main providers of funds on the interbank market (largest ten counterparties); • details of securities eligible for refinancing with the ECB resulting from self-retained

securitisations, self-retained covered bonds and government-backed UBI securities. The objectives of stress tests are to measure the vulnerability of the Group to exceptional but plausible events and they provide a better assessment of exposure to liquidity risk, the systems for mitigating and monitoring them and the length of the survival period under hypotheses of adverse scenarios. The following risk factors that can alternatively affect the cumulative imbalance of cash inflows and outflows or the liquidity reserve are considered in the definition of stress scenarios, divided into base stress and internal scenarios: • wholesale funding risk: shortage of unsecured and secured funding on the institutional market; • retail funding risk: volatility of on-demand liabilities relating to ordinary customers and buybacks

of own securities; • off-balance sheet liquidity risk: use of margins available on irrevocable credit lines granted; • market liquidity risk: fall in the value of securities which constitute a liquidity reserve and an

increase in the margins requested for positions in financial derivative instruments. Monitoring the level of cover to meet expected liquidity requirements through an adequate reserve of liquidity is accompanied by daily monitoring of exposure on the interbank market. A “contingency funding plan” is triggered if the preceding limits and early warning thresholds are exceeded. In compliance with supervisory provisions, the system for the management of liquidity risk employed by the Group also involves monitoring sources of funding both at consolidated and individual company level, by using a system of indicators. In this respect specific thresholds are set both for the maximum level of funding from institutional markets, considered more volatile under stress conditions, and the minimum levels of cover for lending activity with funding from ordinary customers or with medium to long-term funding from institutional customers. Finally, the management of structural balance is performed by using models which measure the degree of stability of liabilities and the degree of liquidity of assets in order to mitigate risk associated with the transformation of maturities within a tolerance threshold considered acceptable by the Group. The model employed by the Group to monitor structural balance is designed to incorporate the general lines currently being defined in the process to revise supervisory regulations for liquidity risk with specific reference to medium to long-term indicators. Measurement of the degree of stability

453 Notes to the consolidated accounts

of liabilities and the degree of liquidity of assets is based principally on criteria of residual life and on the classification of the counterparties which contribute to the definition of the weightings of assets and liabilities. Further information on Group activities on the interbank market is given in the Management Report which may be consulted.

454 Notes to the consolidated accounts

Quantitative information 1.1 Distribution over time by residual contractual maturity of financial assets and liabilities – Denominated in euro

Items/maturities On demand 1 to 7 days 7 to 15 days15 days to 1

month

1 month to 3

months

3 months to 6

months

6 months to 1

year1 year to 5 years

More than 5

years

Indeterminate

maturity

On-balance sheet assets 14,540,805 1,067,355 1,342,455 2,459,745 4,719,065 4,057,628 6,776,288 33,588,605 35,801,357 402,027 A.1 Government securities 131 - 50,005 - 13,123 199,379 450,546 7,885,505 7,660,553 -

A.2 Other debt instruments 8,561 - - - 15,946 17,956 32,009 498,116 207,605 26,292

A.3 Units in UCITS 179,420 - - - - - - - - -

A.4 Financing 14,352,693 1,067,355 1,292,450 2,459,745 4,689,996 3,840,293 6,293,733 25,204,984 27,933,199 375,735

- Banks 1,840,776 4,233 4,545 189,543 73,035 44,954 76,766 676,609 - 375,735

- Customers 12,511,917 1,063,122 1,287,905 2,270,202 4,616,961 3,795,339 6,216,967 24,528,375 27,933,199 -

On-balance sheet l iabil ities 48,131,539 4,418,263 1,602,655 1,269,640 4,073,526 2,598,737 5,527,666 28,193,591 4,450,485 - B.1 Deposits and current accounts 47,253,557 9,660 10,370 33,620 50,152 26,132 47,247 4,647 - -

- Banks 717,325 4,000 10,000 - 1,512 20,008 - - - -

- Customers 46,536,232 5,660 370 33,620 48,640 6,124 47,247 4,647 - -

B.2 Debt instruments 189,182 150,705 218,707 685,023 3,980,308 2,228,659 5,243,327 19,059,662 4,095,053 -

B.3 Other liabilities 688,800 4,257,898 1,373,578 550,997 43,066 343,946 237,092 9,129,282 355,432 -

Off-balance sheet transactions (2,196,919) 299,645 (268,753) 52,093 466,428 140,214 191,465 1,544,178 35,851 8,733 C.1 Financial derivatives with

exchange of principal24 276,837 (415,962) (47,822) 387,433 20,185 (5,055) (47,746) (166,144) -

- Long positions 212 410,697 20,301 1,240,103 486,040 187,201 193,621 47,823 145,192 -

- Short positions 188 133,860 436,263 1,287,925 98,607 167,016 198,676 95,569 311,336 -

C.2 Financial derivatives without

exchange of principal(110,600) (513) (4,297) 5,343 30,469 (9,810) 13,413 - - -

- Long positions 407,459 418 1,337 10,998 63,397 41,862 115,413 - - -

- Short positions 518,059 931 5,634 5,655 32,928 51,672 102,000 - - -

C.3 Deposits and financing to be

received- - - - - - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

C.4 Irrevocable commitments to

disburse funds(2,372,602) 23,309 151,476 87,427 36,906 126,122 173,703 1,584,407 189,253 -

- Long positions 771,299 23,309 151,476 87,427 36,906 126,122 173,703 1,584,407 189,253 -

- Short positions 3,143,901 - - - - - - - - -

C.5 Financial guarantees issued 12,154 12 30 7,145 11,620 3,717 9,404 7,517 12,742 8,733

C.6 Financial guarantees received 274,105 - - - - - - - - -

C.7 Credit derivatives with exchange

of principal- - - - - - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

C.8 Credit derivatives without

exchange of principal- - - - - - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

455 Notes to the consolidated accounts

1.2 Distribution over time of the residual contractual life of financial assets and liabilities – Denominated in: other currencies

Items/maturities On demand 1 to 7 days 7 to 15 days15 days to 1

month

1 month to 3

months

3 months to 6

months

6 months to 1

year1 year to 5 years

More than 5

years

Indeterminate

maturity

On-balance sheet assets 134,935 87,362 57,753 79,366 155,929 65,278 55,143 314,064 548,898 - A.1 Government securities - - - - - 5 427 118 45,927 -

A.2 Other debt instruments 533 - - - 1,074 369 1,084 44,032 4,088 -

A.3 Units in UCITS 4,924 - - - - - - - - -

A.4 Financing 129,478 87,362 57,753 79,366 154,855 64,904 53,632 269,914 498,883 -

- Banks 88,167 15,236 622 2,093 8,691 1,294 10,767 18,387 - -

- Customers 41,311 72,126 57,131 77,273 146,164 63,610 42,865 251,527 498,883 -

On-balance sheet l iabil ities 1,163,172 62,896 81,350 15,643 39,610 35,696 14,213 12 42 - B.1 Deposits and current account 1,149,125 52,383 30,612 7,050 11,867 862 68 12 42 -

- Banks 4,925 23,534 1,847 - - - - - - -

- Customers 1,144,200 28,849 28,765 7,050 11,867 862 68 12 42 -

B.2 Debt instruments 352 10,485 5,333 8,437 27,461 34,615 14,145 - - -

B.3 Other liabilities 13,695 28 45,405 156 282 219 - - - -

Off-balance sheet transactions 6,819 (283,272) 418,322 48,334 (389,391) (25,749) 9,072 (26,284) - - C.1 Financial derivatives with

exchange of principal- (283,272) 418,866 48,334 (388,478) (26,818) 9,398 (27,307) - -

- Long positions - 88,504 439,289 1,261,004 94,124 157,786 300,009 46,368 - -

- Short positions - 371,776 20,423 1,212,670 482,602 184,604 290,611 73,675 - -

C.2 Financial derivatives

without exchange of principal474 - - - (978) (182) (552) - - -

- Long positions 11,106 - - - 12 76 154 - - -

- Short positions 10,632 - - - 990 258 706 - - -

C.3 Deposits and financing to

be received544 - (544) - - - - - - -

- Long positions 544 - - - - - - - - -

- Short positions - - 544 - - - - - - -

C.4 Irrevocable commitments to

disburse funds(91) - - - 65 26 - - - -

- Long positions 2,212 - - - 65 26 - - - -

- Short positions 2,303 - - - - - - - - -

C.5 Financial guarantees issued 1,553 - - - - 1,225 226 1,023 - -

C.6 Financial guarantees

received4,339 - - - - - - - - -

C.7 Credit derivatives with

exchange of principal- - - - - - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - -

C.8 Credit derivatives without

exchange of principal- - - - - - - - - -

- Long positions - - - - - - - - - -

- Short positions - - - - - - - - - - Details of the securitisations in which Group member companies (originators) subscribe the liabilities issued by special purpose entities, at the time of issue, are given in section 1, sub-section 1 – Credit risk, part C “Securitisations and the transfer of assets” in these notes and in the Management Report, which may be consulted.

456 Notes to the consolidated accounts

4 BANKING GROUP - OPERATIONAL RISKS Qualitative information A. General aspects, procedures for the management and methods for the measurement of operational risk

Operational risk is defined as the risk of incurring losses resulting from inadequate or failed processes, human resources and internal systems or from exogenous events. These risks include for example losses resulting from fraud30, human error, business disruption, system failure, non-performance of contracts and natural disasters. With regard to their financial manifestation this definition includes legal risk31, model risk32, operational risks that overlap with market risk33 and operational risks that overlap with credit risk34. The definition of operational risk does not include reputational risk35 and strategic risk36.

In order to guarantee a risk profile consistent with the risk appetite defined by the Strategic Supervisory Body, the Group has defined an organisational model based on the combination of various components identified according to the role filled and by the responsibility assigned in the organisation chart. The different components are identified centrally at the Parent and locally in the individual legal entities consistent with the Group’s federal model of organisation.

The model involves centralisation at the Parent of policy-setting functions and of second and third level internal controls. Various levels of responsibility have been identified in each legal entity, listed below, assigned on the basis of the operating area:

• Operational Risks Officer (ORO): this is the General Manager for the Parent. In other legal entities it is either the Managing Director or the General Manager, depending on their corporate regulations. The Operational Risk Officer is responsible, within his/her legal entity for implementing the entire operational risk management system as defined by Group policy;

• Local Operational Risk Support Officer (LORSO): this role is the figure responsible for the unit in charge of local risk control (or the equivalent person in the company according to its own internal regulations). Within his/her legal entity, this officer

30 At the stage where facts and responsibilities are investigated presumed frauds must be considered on a par with proven frauds. 31 Defined as the risk of incurring losses and/or additional costs as a result of violations of laws and regulations, legal proceedings or voluntary actions taken to prevent legal risk from arising (the definition of legal risk also includes losses arising from money laundering risks, misconduct events and compliance risks). 32 Defined as the risk of incurring losses and/or additional costs as a result of models used in decision-making processes (e.g. pricing models, models used to measure financial and/or hedging instruments, models use to monitor controls on risk limits, etc.). The definition of model risk does not include losses incurred due to underestimates of capital requirements calculated using internal models submitted to supervisory authorities for approval. 33 Defined as losses and/or additional costs connected with financial transactions including those relating to the management of market risk caused by inadequate and/or failures in processes, operational and or data entry errors, shortcomings in internal control systems, inadequacies of data quality processes, the unavailability of IT systems, unauthorised conduct and negligent and/or gross misconduct of persons and/or by other external events. 34 Defined as financial losses generated when a credit product is sold and/or as part of a credit process caused mainly by an operational risk. 35 Defined as the present or future risk of incurring loss of profits or capital resulting from a negative perception of the image of the Bank/Company by customers, counterparties, shareholders, investors or supervisory authorities. 36 Defined as the risk attaching to errors in decision-making concerning business strategies or bad timing in decisions relating to markets.

457 Notes to the consolidated accounts

supports the Operational Risks Officer in the implementation and co-ordination of the operational risk management system as defined by Group policy;

• Risk Champion (RC): this role is responsible for units which report directly to the Managing Director, General Management, to Department Managers (including Local Departments where present) and to the managers of units who are responsible for specialists activities including the following operations:

- logical security; - physical security; - disaster recovery and operational continuity; - prevention and protection at work as defined by the legislation 81/2008; - anti money-laundering and anti-terrorism activities; - accounting controls as defined by legislation 262/2005; - complaints; - securities brokering; - legal and tax matters. - They are assigned responsibility for operational supervision of the proper performance

of the operational risk management process in relation to the activity for which they are responsible and for co-ordinating the Risk Owners that report to them;

• Risk Owner (RO): this role is that of the managers of the units which report hierarchically to a Risk Champion. Their task is to recognise and report loss events, both actual and/or potential, attributable to operational risk factors which occur in the course of everyday operations;

• Accounting Assistant: this role is assigned to specific persons identified within the units responsible for operational accounting activities. Their task is to ensure full and accurate accounting of operational losses;

• Insurance Function: this role is assigned to specific persons identified within the units responsible for the management of claims for which insurance cover is provided. Their task is to ensure accurate and full records are kept of insurance compensation and all relative support information.

The measurement system

The measurement system takes account of internal and external operational loss data, operational context factors and the system of internal controls, in a manner whereby it detects the main determinants of risk (especially those which impact on the distribution tail) and incorporates changes that occur in the risk profile.

Further details on the functioning of the calculation model are given in the following section on the capital requirement which may be consulted.

The reporting system

Monitoring of operational risks is carried out by means of a standard reporting system organised on the basis of the same levels of responsibility present in the organisational model. Management reporting activities are carried out in-house by the operational risk control function of the Parent which periodically prepares the following:

458 Notes to the consolidated accounts

– an analysis of changes in operating losses detected by the loss data collection system and of the relative recoveries obtained;

– benchmark analyses with sector-wide data;

– a summary of assessments of exposure to potential risks;

– details of areas of vulnerability identified and the mitigation action undertaken.

As a consequence of the functions attributed by General Corporate Regulations, responsibility for monitoring the risk profile assumed by each company in the Group, its consistency with risk targets and compliance with operational limits lies with the Parent’s risk control units. On conclusion of risk profile monitoring, appropriate corrective action is identified which will form part of the annual projects programmed. As a further form of 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.

Legal risk

The companies in the Group are party to a number of legal proceedings arising from the ordinary performance of their business. In order to meet the claims received, the companies have made appropriate provisions on the basis of a reconstruction of the amounts potentially at risk, an assessment of the risk in terms of the degree of “probability” and/or “possibility”, as defined in the accounting standard IAS 37, and 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 UBI Banca Group.

Specific sections of this financial report may be consulted for information on litigation.

459 Notes to the consolidated accounts

Quantitative information

The charts below show that the main sources of operational risk for the Group in the period from January 2011 to December 2015 were “processes” (65% of frequencies and 72% of the total impacts detected) and “external causes” (31% of frequencies and 18% of the total impacts detected).

The “process” risk driver included unintentional errors and incorrect application of regulations. The “external causes” risk driver included, 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 from 1st January 2011 to 31st December 2015)

The types of event which recorded the greatest concentration of operational losses during the period examined were “execution, delivery and process management” (21% of frequencies and 38% of the total impacts detected), “customers, products and professional practices” (45% of frequencies and 34% of the total impacts detected) and “external fraud” (26% of frequencies and 16% of the total impacts detected).

Percentage of operational losses by type of event (detection from 1st January 2011 to 31st December 2015)

Impact on profits Number of events

Impact on profits Number of events

460 Notes to the consolidated accounts

Operational losses during the year were concentrated on the following risk factors: “processes” (91% of frequencies and 79% of the total impacts detected) and “external causes” (8% of frequencies and 15% of the total impacts detected).

Percentage of operational losses by risk driver (detection from 1st January 2015 to 31st December 2015)

Last year operational losses were concentrated mainly in the following types of event: “customers, products and professional practices” (84% of frequencies and 52% of the total impacts detected), “execution, delivery and process management” (7% of frequencies and 29% of the total impacts detected) and “external fraud” (5% of frequencies and 13% of the total impacts detected).

Percentage of operational losses by type of event (detection from 1st January 2015 to 31st December 2015)

Capital requirement

A provision issued by the Bank of Italy authorised the UBI Banca Group to use the advanced internal model (advanced measurement approach – AMA) in combined use with the standardised approach (TSA) and the basic indicator approach (BIA) from the supervisory report as at 30th June 2012:

AMA: approach employed for the activities of the Parent, the network banks and IW Bank. For these banks, the measurement of operational risk is performed using an extreme value theory (EVT) approach, based on operational losses measured internally (loss data collection – LDC), empirical data acquired from outside the Group (IDOL - “Italian database of operational losses”) and potential losses evaluated using self risk assessment (SRA) scenarios. The first two

Number of events Impact on profits

Impact on profits Number of events

461 Notes to the consolidated accounts

information sources represent the quantitative component of the measurement model and furnish a historical view of the internal risk profile and of the Italian banking sector. On the other hand, the scenario analyses constitute a qualitative and quantitative information component, because they are derived from risk assessments provided as part of the internal self-risk assessment process, where the purpose is to provide a forward looking view of the internal risk profile, operational context factors and the system of internal controls. The model developed follows the loss distribution approach and it involves estimating severity distributions for each class of risk on two distinct components: a generalised pareto distribution (GPD) for the tail and an empirical distribution for the body. The estimates of severity obtained on the tails are subsequently integrated with risk information evaluated by means of a self risk assessment (SRA) process. The probabilities of events occurring are described by using Poisson curves. The estimate of capital at risk is calculated to the 99.9th percentile of the annual loss curve resulting from a convolution between the curve of the probabilities of events occurring and the integrated severity curve. The consolidated capital requirement is calculated as the sum of the capital at risk estimated on each risk class. The robustness of the model and of the underlying assumptions is tested by employing a stress testing process, which provides an estimate of the impacts on measurements of expected loss and of VaR when particular stress conditions occur;

TSA: approach employed for the activities of the companies UBI Leasing, UBI Factor, UBI Pramerica, Prestitalia and UBI International. The capital requirement for the TSA component is calculated as the average over the last three years of the basic indicator, divided into supervisory lines of business, weighted with specific “beta” coefficients defined in the supervisory regulations;

BIA: approach employed for the activities of the other banking, financial and service companies belonging to the banking group and to the proportionately consolidated banking, financial and service companies. The capital requirement for this component is calculated as the average over the last three years of the significant indicator, weighted with an “alpha” coefficient (15%) defined in the supervisory regulations.

The risk capital calculated on a consolidated basis for each risk class is allocated to the various legal entities on the basis of a summary indicator determined by the historical and future risk measured and by the amount of the capital requirement calculated using the standardised methodology.

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 UBI Banca 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.

***

The capital requirement net of expected losses for which provisions for risks and charges had been made was €276.7 million (-8% compared with €300.6 million in the previous half-year). Compared with the previous half-year a reduction of €24 million was recorded in the capital requirement due to a fall in estimates caused by the AMA component of the model and by a contraction in the values for the significant indicator recorded by companies that use the TSA and BIA approaches. The main factors to determine the reduction in the advanced approach estimates were as follows:

462 Notes to the consolidated accounts

- the merger of IW Bank into UBI Private Investment which resulted in the grouping together of many activities carried out by central offices (compliance, anti money-laundering, human resources, etc.) which is reflected in a reduction of the potential risk measured as part of the self risk assessment process;

- a reduction in the annual number of expected events and/or repositioning of the probability of these events occurring into classes with a lower impact carried out as part of the self risk assessment process on the basis of figures for losses detected historically both by the internal LDC process and by the Italian banking sector nationally;

- exclusion from the dataset used to calculate VaR of accounting entries made outside the relative holding period;

- mitigation action taken during the year;

- a reduction in the losses detected historically by the internal loss data collection (LDC) process and by the Italian banking sector nationally (IDOL).

Section 2 - Risks for insurance companies The Group holds interests in the share capital of insurance companies as part of banc assurance agreements with major insurance groups37.

Section 3 - Risks for other companies No significant risks are reported for the remaining companies included in the consolidation that are not part of the banking Group and are not insurance companies.

37 The section “the scope of consolidation” in the consolidated management report may be consulted for details.

463 Notes to the consolidated accounts

PART F – Information on consolidated equity

Section 1 – Consolidated equity38 A. Qualitative information Equity is defined by international financial reporting standards in a residual manner as “what remains of an entity’s assets after all the liabilities have been deducted”. The aggregate (the amounts of which are given in the tables that follow) is used to manage all the risks to which the Group is exposed, as specified below. The policies and processes employed in the management of equity concern the decisions made designed to define the size and optimum combination of the different capital instruments to ensure that the Group’s equity is consistent with the targets set for the Group’s risk appetite, in compliance with supervisory requirements. The following analysis metrics are used from the viewpoint of capital management to cover risks:

own funds, defined as a measure of regulatory capital – specified in supervisory regulations – to be held to cover capital requirements (Pillar 1 risks);

total capital, or available financial resources (AFR), defined as the sum of capital elements that the Group considers can be used to cover internal capital and total internal capital requirements39 (other risks).

Capital adequacy management is designed to govern the current and future capital strength of the Group both by verifying compliance with the supervisory requirements of Pillar 1 and by continuously monitoring the adequacy of the total capital to meet “other risks”. This activity regards above all an analysis of capital requirements in relation to budget and business plan objectives and it is carried out at both consolidated and single legal entity level. As the Parent of the Group, UBI Banca performs supervision and co-ordination activities for the companies in the Group and, without prejudice to the independence of each of them in terms of their business and articles of association, lays down appropriate policies for them. The Parent assesses capitalisation requirements in both the strict sense and also through the issue of subordinated liabilities by subsidiaries. The Senior Management of the Parent submits proposals to its governing bodies which decide accordingly. The proposals, once approved by the governing bodies of the Parent, are then submitted to the competent bodies of the subsidiaries.

38 Further information on equity is given in the section “shareholders’ equity and capital adequacy” of the consolidated management report. 39 “Internal capital” is defined as risk capital, the capital requirement for a determined risk that the bank considers 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 bank, including possible internal capital requirements due to considerations of a strategic character.

464 Notes to the consolidated accounts

In compliance with regulatory constraints and internal objectives, the Parent analyses and co-ordinates capital requirements on the basis of the business plan, the budget and the related risk profiles and it acts as a privileged counterparty in gaining access to capital markets applying an integrated approach to optimising capital strength. 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 at the beginning of 2014. These transpose standards defined by the Basel Committee on Banking Supervision (known as the Basel 3 framework) into European Union regulations. The regulatory framework is completed with implementation measures contained in technical and implementation regulations (“Regulatory Technical Standard” – RTS and “Implementing Technical Standard” – ITS) adopted by the European Commission on the basis of a proposal by the European supervisory authorities. The CRR came into force directly in member countries while the provisions of CRD IV were implemented in national regulations by the Bank of Italy on 17th December 2013 with the publication of Circular No. 285 “Regulations for the prudential supervision of banks” (subsequently updated several times during 2014), which implemented 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”. That framework introduced various changes to the previous supervisory regulations as follows: a change in the composition of regulatory capital which privileges ordinary shares and retained earnings (common equity), in order to improve the quality; the adoption of more stringent criteria for the inclusion of other equity instruments in capital (the current innovative equity instruments and callable subordinated liabilities); greater standardisation of items to be deducted (with regard to some categories of deferred tax assets40 and to significant equity investments in banks and finance and insurance companies); the partial inclusion of non-controlling interests in common equity. The introduction of Basel 3 rules is subject to a transitional regime during which the new rules will be applied to an increasing degree until 2019, when they will reach full application. At the same time, capital instruments that no longer qualify will be gradually excluded from total capital for regulatory purposes by 2021.

40 Deferred tax assets that depend on future profitability and arise from temporary differences (except for those transformed or which may be transformed into tax credits).

465 Notes to the consolidated accounts

B. Quantitative information Please refer to the information given in Part B of these Notes to the financial statements in Liabilities Section 15 – Equity attributable to the Parent. B.1 Consolidated equity by type of company

Equity itemsBanking

group

Insurance

companies

Other

corporates

Consolidation

eliminations

and

adjustments

31.12.2015

1. Share capital 8,664,447 - 10 (6,098,521) 2,565,936 2. Share premiums 4,600,735 - - (782,711) 3,818,024 3. Reserves 4,812,463 - 160 (1,075,124) 3,737,499 4. Equity instruments - - - - - 5. (T reasury shares) (5,155) - - - (5,155)

a) parent (5,155) - - - (5,155) b) subsidiaries - - - - -

6. Valuation reserves: 276,946 (891) - (19,062) 256,993 - Available-for-sale financial assets 289,779 - - (175) 289,604 - P roperty, plant and equipment 19,845 - - 6,091 25,936 - In tangible assets - - - - - - Foreign investment hedges - - - - - - Cash flow hedges (285) - - - (285) - Foreign currency differences (243) - - - (243) - N on-curren t assets held for disposal - - - - -

- Actuarial gains (losses) on defined benefit

plans(91,730) - - 835 (90,895)

- Share of fair value reserves of equity

accounted investees- (891) - - (891)

- Special revaluation law s 59,580 - - (25,813) 33,767

7. P rofit (loss) for the year attributable to the

P arent and to non-controlling in terests329,331 17,121 (135) (201,851) 144,466

Total 18,678,767 16,230 35 (8,177,269) 10,517,763

For greater clarity and comprehension of the amounts relating to consolidated equity by type of company, we have included the following reconciliation between total equity and non-controlling interests and the equity attributable to the Parent.

Reconciliation scheduleAttributable

to the ParentNon-controll ing

interestsTotal

Share capital 2,254,371 311,565 2,565,936

Share premiums 3,798,430 19,594 3,818,024

Reserves 3,556,603 180,896 3,737,499

Equity instruments - - -

(Treasury shares) (5,155) - (5,155)

Valuation reserves 260,848 (3,855) 256,993

Profit (loss) for the year (+/-) attributable to the

Parent and to non-controlling interests116,765 27,701 144,466

Equity 9,981,862 535,901 10,517,763

466 Notes to the consolidated accounts

B.2 Fair value reserves for available-for-sale financial assets: composition

Assets/amounts

31.12.2015

Pos

itiv

e re

serv

e

Neg

ativ

e re

serv

e

Pos

itiv

e re

serv

e

Neg

ativ

e re

serv

e

Pos

itiv

e re

serv

e

Neg

ativ

e re

serv

e

Pos

itiv

e re

serv

e

Neg

ativ

e re

serv

e

Pos

itiv

e re

serv

e

Neg

ativ

e re

serv

e

1. Debt instruments 231,285 (13,000) 5,498 (6,484) - - (5,613) 6,484 231,170 (13,000) 2. Equity instruments 59,434 (309) 38 (45) - - 19 93 59,491 (261) 3. Units in UCIT S 12,373 (3) 108 (7) - - (274) 7 12,207 (3) 4. Financing - - - - - - - - - -

Total as at 31.12.2015 303,092 (13,312) 5,644 (6,536) - - (5,868) 6,584 302,868 (13,264) Total as at 31.12.2014 333,346 (180,458) 5,895 (3,415) - - (6,164) 3,463 333,077 (180,410)

Ban

kin

g gr

oup

Insu

rance

com

pan

ies

Oth

er c

orpor

ates

Con

solid

atio

n

elim

inat

ions

and

adju

stm

ents

B.3 Fair value reserves for available-for-sale financial assets: annual changes

Debt

instruments

Equity

instruments

Units in

UCITSFinancing

1. Opening balances 81,222 62,189 9,256 - 2. Positive changes 245,022 21,680 4,877 - 2.1 Increases in fair value 217,904 21,569 4,157 - 2.2 T ransfer to income statement of negative reserves 27,118 111 720 -

- following impairment losses 337 111 276 - - from disposal 26,781 - 444 -

2.3 Other changes - - - -

3. Negative changes (108,074) (24,639) (1,929) - 3.1 Decrease in fair value (14,375) (4,824) (1,405) - 3.2 Impairment losses - - (524) -

2.2 T ransfer to income statement of positive reserves:

from disposal(93,686) (19,815) - -

3.4 Other changes (13) - - -

4. Closing balances 218,170 59,230 12,204 -

B.4 Valuation reserves for defined benefit plans: annual changes

31.12.2015

1. Opening balances 01.01.2015 (105,353) 2. Positive changes 14,575

Other changes 14,575

3. Negative changes (118) Other changes (118)

4. Closing balances 31.12.2015 (90,896)

467 Notes to the consolidated accounts

Section 2 – Own funds and capital ratios for banks 2.1 Scope of application of the regulations The UBI Group in particular has adopted the regulations cited following the advanced approach. After receiving authorisation from the supervisory authority41, the Group now uses the internal models for the calculation of capital requirements to meet credit risk – the “credit exposures to businesses (corporate)” – and operational risk since the consolidated supervisory reports as at 30th June 2012. Following Bank of Italy authorisation Provision No. 689988 of the 19th July 2013, from the supervisory report as at 30th June 2013, the UBI Banca Group now uses internal models to calculate capital requirements also to meet credit risk relating to the retail regulatory segment (sub-classes “Other retail exposures - SME Retail” and “Exposures backed by residential properties”). For operational risks the Group uses an internal model, the advanced measurement approach (AMA) in combined use with the traditional standardised approach (TSA) and the basic indicator approach (BIA)42. The consolidation scope used for regulatory capital and capital ratio (the “Banking Group”) purposes differs from the statutory accounting scope of consolidation used to prepare the financial reports in accordance with IFRS. More specifically the consolidation scope for statutory accounting purposes includes non-banking, non-financial and service companies which are excluded from the banking supervisory consolidation scope. Furthermore, the latter employs proportionate consolidation of banking, financial and operating companies which are jointly controlled, while these are consolidated using the equity method in the statutory financial statements. There are no hindrances within the Group, either legal or substantial, which might prevent the rapid transfer of capital resources or funds. 2.2 Own funds for banks A. Qualitative information Own funds are calculated as the algebraic sum of a series of positive and negative items, which are considered eligible for inclusion – with or without limitations - in relation to the ‘quality’ of the capital. Positive components of own funds must be fully available to the Bank, so that they can be used without restrictions to cover risks to which the intermediary is exposed. In detail, own funds consist of the following aggregates:

1. Tier 1 (T1) capital, composed in turn of: a. Common Equity Tier 1 (CET1) capital; b. Additional Tier 1 capital (AT1);

2. Tier 2 capital (T2).

41 Bank of Italy provision No. 423940 of 16th May 2012. 42 Further information on the advanced methods is given in Part E of these Notes to financial statements.

468 Notes to the consolidated accounts

1. Common Equity Tier 1 (CET1) capital The Common Equity Tier 1 capital (CET1) consists mainly of the share capital (just the ordinary shares), share premiums, retained earnings, valuation reserves, non-controlling interests that are eligible and retained profit for the year, net of “prudential filters” and deductions. The prudential filters consist of regulatory adjustments to the amounts recognised for items (positive or negative) of Common Equity Tier 1 capital; the deductions represent negative components of Common Equity Tier 1 capital. The requirements for capital instruments to qualify for inclusion in CET1 include the following:

they must be classified as equity in accordance with the applicable accounting standards;

the nominal amount cannot be reduced except in the event of liquidation or buyback transactions carried out at the discretion of the issuer, subject to special prior authorisation by the supervisory authority;

they are perpetual; the provisions that govern the instruments do not require the issuer to make

compulsory distributions; no preferential treatment exists in the distributions; the annulment of distributions does not place any restrictions on the bank; they represent the most subordinate instruments in the event of insolvency or

liquidation of the bank; they are not subject to guarantees or provisions in contracts which increase their

seniority. “Prudential filters” consist of valuation reserves generated by cash flow hedges, by gains or losses resulting from changes in the credit rating (liabilities in fair value options and derivative liabilities) and by impairment losses to take account of uncertainties in the supplementary parameters in relation to exposures recognised in the balance sheet at fair value (“prudent valuation”). The main deductions made to CET1 consist of intangible assets and the difference between expected losses and provisions (or the shortfall of total net provisions to expected losses), the latter relating to regulatory portfolios for which the validation of internal models has been obtained to estimate the credit requirement (corporate and retail). The regulations require additional deductions from CET1 as follows: deferred tax assets which are based on future profits; non-significant investments in CET1 instruments issued by companies in the financial sector (the part in excess of the allowance granted by the regulations is deducted); deferred tax assets which depend on future income and which result from temporary differences (the part in excess of the allowance granted by the regulations is deducted); investments in CET1 instruments issued by companies in the financial sector (the part in excess of the allowance granted by the regulations is deducted); possible deductions in excess of the total allowed for Additional Tier 1 capital.

469 Notes to the consolidated accounts

2. Additional Tier 1 (AT1) capital Additional Tier 1 capital consists of Additional Tier 1 capital instruments and the relative share premiums, AT1 instruments that qualify in accordance with the previous supervisory regulations and that are subject to transitional (grandfathering) provisions and of negative items that are deductions (investments in own AT1 instruments, investments in the AT1 instruments of other banks, possible deductions in excess of the total allowed for Tier 2 capital). The main requirements for AT1 instruments to qualify are as follows:

they are issued and paid up; they are perpetual and the rules that govern them provide no redemption incentives; call options, if they exist, may only be exercised at the discretion of the issuer and in

any event not before five years unless authorised by the supervisory authority under particular circumstances;

the rules that govern the instruments grant the issuer full discretionary power to annul distributions related to those instruments, at any time, for an unlimited period and on a non-cumulative basis;

non-payment of the interest does not constitute default for the issuer; if a trigger event occurs the nominal amount is reduced either permanently or

temporarily, or the instruments are converted into Common Equity Tier 1 capital instruments.

3. Tier 2 capital (T2) Tier 2 capital consists of the following: subordinated loans; shortfalls of provisions to expected losses, limited to 0.60% of exposures weighted for credit risk; instruments that qualify as T2 capital in accordance with the previous supervisory regulations and that are subject to transitional (grandfathering) provisions; and negative items that are deductions (investments in own T2 instruments, investments in the T2 instruments of other banks). The main requirements for T2 instruments to qualify included the following:

original duration of at least five years; no early redemption incentive; call options, if they exist, can only be exercised at the discretion of the issuer and in

any event not before five years, unless authorised by the supervisory authority under particular circumstances;

amortisation of instruments for the purposes of qualification for T2 in the last five years, calculated on a daily basis.

B. Quantitative information In compliance with transitional provisions concerning own funds contained in Part II, Chapter 14 of Bank of Italy Circular No. 285 already mentioned, advantage was taken in the calculation of regulatory capital as at 31st December 2015 of the option to not include unrealised profits or losses relating to exposures to central governments classified within “available-for-sale financial assets” in any item of own funds43.

43 That option was exercised within the time limit set of 31st January 2014 and was applied at separate company and at consolidated level.

470 Notes to the consolidated accounts

The impact of exercising that option on own funds amounted to approximately +€191 million and it was fully sterilised. Consolidated own funds of UBI came to €8,545 million44 as at 31st December 2015 down by approximately €897 million compared with 31st December 2014 (€9,442 million). The Common Equity Tier 1 (CET1) Capital was also down by approximately €206 million. These changes were due mainly to the progressive greater deduction of the shortfall of provisions and the progressive decrease in the eligibility of minority interests, which were only partially offset by the positive contribution from AFS reserves relating to equities and debt instruments with the exception of EU member country government securities45. The Tier 2 capital decreased by approximately €690 million due mainly to redemptions and the progressive amortisation of subordinated securities (-€744 million), partially offset by a smaller deduction for the shortfall to provisions (+€55 million)46.

31.12.2015 31.12.2014

A. Common Equity Tier 1 capital (CET1) before the application of prudential filters 10,055,675 9,904,073

of which CET1 instruments subject to transitional provisions - -

B. CET1 prudential filters (+/-) (3,136) (1,896)

C. CET1 before items to be deducted and the impacts of the transitional regime (A +/- B)10,052,539 9,902,177

D. Items to be deducted from CET1 3,200,555 3,133,840

E. Transitional regime – Impact on CET1 (+/-) 556,910 846,928

F. Total Common Equity Tier 1 capital (CET1) (C – D +/-E)7,408,894 7,615,265

G. Additional Tier 1 capital (AT1) before items to be deducted and the impacts of the transitional regime - -

of which AT1 subject to transitional provisions - -

H. Items to be deducted from AT1 - -

I. Transitional regime – Impact on AT1 (+/-) - -

L. Total Additional Tier 1 capital (AT1) (G - H +/- I)- -

M. Tier 2 capital (T2) before items to be deducted and the impacts of the transitional regime 1,443,464 2,187,759

of which T2 instruments subject to transitional provisions - -

N. Items to be deducted from T2 38,539 38,550

O. Transitional regime - Impact on T2 (+/-) (268,802) (322,876)

P. Total Tier 2 capital (T2) (M - N +/- O) 1,136,123 1,826,333

Q. Total own funds (F + L + P) 8,545,017 9,441,598

44 A summary of capital management operations in 2015 is given in the section “Significant events that occurred during the year ” of the Consolidated Management Report, which may be consulted. 45 On the basis of the transitional rules applicable in 2015, 40% of net positive available-for-sale reserves are included compared with the ineligibility applied in 2014, while the exclusion of non-controlling interests was raised from 20% in 2014 to 40% in 2015. 46 On the basis of the transitional provisions applicable in 2015, 30% of the shortfall of provisions was deducted from the Tier 2 Capital compared with 40% in 2014.

471 Notes to the consolidated accounts

2.3 Capital adequacy requirement A. Qualitative information Capital adequacy is monitored constantly with a view to the present and the future to maximise its efficiency and at the same time to ensure that the Group achieves its capitalisation objectives and also constantly complies with minimum limits set by supervisory regulations. The main management tools employed to achieve this are the dividend policy, extraordinary operations (issuance of capital instruments, disposal of assets, etc.) and the optimisation of risk weighted assets (RWA). Compliance with capitalisation objectives is also monitored at both individual company and consolidated level and corrective action is immediately taken when objectives change in order to bring the various lines of business back into line with optimum risk/yield profiles. Further analysis is also carried out when the extraordinary operations occur (acquisitions, mergers, etc.), in order to verify capital adequacy in advance. B. Quantitative information The table below reports the amounts for risk-weighted assets and prudential requirements on the basis of the total capital adequacy requirement. Compliance with that requirement at the end of the year required capital of approximately €4,908 million (equal to total capital requirements for credit, counterparty, credit valuation adjustment, market and operational risk), against which the Group recorded actual regulatory capital amounting to €8,545 million. The table that follows also summarises compliance with requirements in terms of ratios. The following capital requirements must be satisfied for 2015, given as percentages of risk-weighted assets: - the Common Equity Tier 1 capital must be equal to at least 4.5% of total RWA; - the Tier 1 capital must be equal to at least 5.5% of total RWA; - own funds (the sum of Tier 1 and Tier 2 capital) must be equal to at least 8% of total RWA. Additionally, banks are obliged to hold a capital conservation buffer equal to 2.5% of risk weighted assets47. Therefore, the minimum capital ratios required of the UBI Group for 2015 are 7% of the Common Equity Tier 1 capital inclusive of the capital conservation buffer, 8% of the Tier 1 capital and 10.5% of total own funds. In a communication dated 27th November 2015, the UBI Group received a specific capital requirement request at consolidated level from the ECB following the Supervisory Review

47 As opposed to other national supervisory authorities, the Bank of Italy decided to apply the capital conservation buffer in full for all banks from 2014. Furthermore, we report that as notified in a communication of 30th December 2015, the Bank of Italy, as the designated national authority, has decided to set the countercyclical buffer rate at zero percent for the first three months of 2016. Article 136 of Directive EU/2013/36 (CRD4), implemented in Italy with Circular No. 285/2013, establishes the obligation from 1st January 2016 to introduce an operational framework for the definition of a countercyclical capital buffer, subject to quarterly review.

472 Notes to the consolidated accounts

and Evaluation Process (SREP). That requirement establishes a Common Equity Tier 1 Capital Ratio of 9.25%, down compared with 9.50% set in February 201548. As at 31/12/2015, the UBI Group had complied more than fully with the regulatory thresholds requested, with a CET1 Ratio of 12.08% (down from 12.33%), a Tier 1 Ratio of 12.08% (down from 12.33%) and a Total Capital Ratio of 13.93% (down from 15.29%).

Categories/Amounts

31/12/2015 31/12/2014 31/12/2015 31/12/2014

A. RISK ASSETS

A.1 Credit and counterparty risk 122,570,436 127,329,661 56,708,172 57,158,714

1. Standardised approach 52,764,337 57,174,346 24,649,085 25,074,084

2. Method based on internal ratings 69,806,099 70,155,315 32,059,087 32,084,630

2.1 Basic - -

2.2 Advanced 69,806,099 70,155,315 32,059,087 32,084,630

3. Securitisations - - - -

B. REGULATORY CAPITAL REQUIREMENTS

B.1 Credit and counterparty risk 4,536,654 4,572,697

B.2 Credit valuation adjustment risk 15,519 14,721

B.3 Settlement risk - -

B.4 Market risk 78,762 56,539

1. Standard approach 78,762 56,539

2.Internal models - -

3. Concentration risk - -

B.5 Operational risk 276,654 297,050

1. Basic indicator approach 3,833 4,558

2. Standardised approach 44,541 45,813

3. Advanced measurement approach 228,280 246,679

B.6 Other calculation elements - -

B.7 Total prudential requirements 4,907,589 4,941,007

C. RISK ASSETS AND SUPERVISORY RATIOS

C.1 Risk weighted assets 61,344,866 61,762,588

C.2 Common Equity Tier 1 capital/Risk weighted assets (CET1 capital ratio) 12.08% 12.33%

C.3 Tier 1 capital/Risk weighted assets (Tier 1 capital ratio) 12.08% 12.33%

C.4 Total own funds/Risk weighted assets (Total capital ratio) 13.93% 15.29%

Amounts not weighted Weighted amounts/requirements

Section 3 – Insurance capital and supervisory ratios No items of this type exist. Section 4 – Capital adequacy of financial conglomerates No items of this type exist.

48 See the press releases of 27th November and 27th February 2015 in the investor relations section of the corporate website http://www.ubibanca.it/.

473 Notes to the consolidated accounts

Part G – Business combination transactions concerning companies or lines of business SECTION 1 – BUSINESS COMBINATIONS PERFORMED DURING THE YEAR 1.1 Business combinations No business combinations were recorded in 2015 which led to the acquisition of control within the meaning of IFRS 3. “Under common control” transactions were performed to streamline the corporate ownership structure which had no impact on the consolidated financial statements. These transactions, which were outside the scope of application of IFRS 3 and carried out with no change in the carrying amounts, involved the following:

- the merger of IW Bank into UBI Banca Private Investment; - the merger of SOLIMM into S.B.I.M..

Further details are given in section “The consolidation scope” of the consolidated management report. SECTION 2 TRANSACTIONS PERFORMED AFTER THE END OF THE YEAR 2.1 Business combinations No business combinations were performed after the end of the year. SECTION 3 RETROSPECTIVE ADJUSTMENTS No retrospective adjustments to report for the UBI Banca Group.

474 Notes to the consolidated accounts

Part H – Transactions with related parties 1. Information on the remuneration of key management personnel Information is provided in the notes to the separate company financial statements of UBI Banca Spa in Part H – Related-Party Transactions. 2. Information on transactions with related parties 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).

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, the Parent and its subsidiary UBI Sistemi e Servizi Scpa provide Group member companies with a series of services, governed by intragroup contracts drawn up in accordance with the principles of consistency, transparency and uniformity in line with the organisational model of the Group. Under this model, strategic, and management activities are centralised at UBI Banca and technical and operational activities in UBI Sistemi e Servizi ScpA. 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. The main intragroup contracts existing at the end of the year included those which implement the centralisation of activities in the Governance and Business Areas of the Parent and they involved the Parent and the main banks in the Group (Banca Popolare di Bergamo Spa, Banca Popolare Commercio e Industria Spa, Banca Popolare di Ancona Spa, Banca Carime Spa, Banco di Brescia Spa, Banca Regionale Europea Spa, Banca di Valle Camonica Spa, IW Bank Spa) and also contracts to implement the “national tax

475 Notes to the consolidated accounts

consolidation” (in accordance with articles 117 to 129 of Presidential Decree No. 917/1986, the consolidated income tax act) concluded by the Parent. There were also all the intragroup contracts which implement the centralisation in UBI Sistemi e Servizi of support activities for the principal companies in the UBI Group. 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 information in the accounts, a conflict of interests, the security of the company’s assets and the rights of non-controlling shareholders. Further information is given in the “Report on corporate governance and the ownership structure of UBI Banca Spa” attached to these reports.

476 Notes to the consolidated accounts

Principal transactions with related parties in the balance sheet

Fig u re s in th o u s a n d s o f e u ro

Financial

assets held for

trading

Available-for-sale

financial assets

Financial

assets

designated at

fair value

Loans and

advances to

banks

Loans and

advances to

customers

Due to banksDue to

customers

Debt

securities

issued

Financial

liabil ities

held for

trading

Guarantees

granted

Associates - 12,406 - - 47,171 - 147,903 - 12 24,943

Senior managers (1) - - - - 2,668 - 9,663 105 - 21

Other related parties - - - - 77,996 - 27,835 300 - 1,390

Total - 12,406 - - 127,835 - 185,401 405 12 26,354

(1) A “senior manager” is intended as meaning “a manager w ith key management responsibilities of the entity or of its parent, w here a manager w ith key management responsibility is intended to mean those

w ho have pow er 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

Fig u re s in th o u s a n d s o f e u ro

Financial

assets held for

trading

Available-for-sale

financial assets

Financial

assets

designated at

fair value

Loans and

advances to

banks

Loans and

advances to

customers

Due to banksDue to

customers

Debt

securities

issued

Financial

liabilities

held for

trading

Guarantees

granted

With related-parties (a) - 12,406 - - 127,835 - 185,401 405 12 26,354

T otal (b) 994,478 15,554,282 196,034 3,429,937 84,586,200 10,454,303 55,264,471 36,247,928 531,812 5,816,242

P ercentage (a/b*100) 0.000% 0.080% 0.000% 0.000% 0.151% 0.000% 0.335% 0.001% 0.002% 0.453%

Principal transactions with related parties in the income statement

Figure s in thousa nds of e uro

Net interest

income

Dividends and

similar income

Net fee and

commission

income

Staff costsOperating

income/expenses

Other

administrative

expenses

Associates 35 - 116,228 (61) 1,174 (3,759)Senior managers (1) 40 - 223 (12,503) - (19)Other related parties 1,959 - 367 (117) 19 (93)

Total 2,034 - 116,818 (12,681) 1,193 (3,871)

(1) A “senior manager” is intended as meaning “a manager with key management responsibilities of the entity or of its parent, where a manager with key management responsibility is

intended to mean 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

Figure s in thousa nds of e uro

Net interest

income

Dividends and

similar income

Net fee and

commission

income

Staff costsOperating

income/expenses

Other

administrative

expenses

With related-parties (a) 2,034 - 116,818 (12,681) 1,193 (3,871)Total (b) 1,631,055 10,349 1,300,119 (1,391,732) 321,441 (948,515)Percentage (a/b*100) 0.125% 0.000% 8.985% 0.911% 0.371% 0.408%

477 Notes to the consolidated accounts

Principal balance sheet items with associate companies subject to significant influence

Figures in thousands of euro

Financial assets held for trading

Available-for-sale f inancial assets

Loans and advances to

customersDue to banks Due to customers

Debt securities issued

Financial liabilities held for trading

Guarantees granted

Aviva Assicurazioni Vita Spa - - 18,216 - 41,321 - 12 -

Aviva Vita Spa - - 14,513 - 96,917 - - -

Lombarda Vita Spa - - 12,492 - 8,482 - - 24,943

Polis Fondi SGRpA - 12,406 1,307 - 96 - - -

Prisma Srl - - - - - - - -

SF Consulting Srl - - 643 - 1,087 - - -

UFI Servizi srl - - - - - - - -

Total - 12,406 47,171 - 147,903 - 12 24,943 Principal income statement items with associate companies subject to significant influence

Figures in thousands of euro

Net interest income

Dividends and similar income

Net fee and commission

income Staff costs

Operating income/expenses

Other administrative

expenses

Aviva Assicurazioni Vita Spa 95 - 7,129 (9) 2 -

Aviva Vita Spa (59) - 68,160 - - -

Lombarda Vita Spa (1) - 40,676 (52) 1,172 (3,638)

Polis Fondi SGRpA - - 268 - - -

Prisma Srl - - - - - -

SF Consulting Srl - - (5) - - -

UFI Servizi Srl - - - - - (122)

Total 35 - 116,228 (61) 1,174 (3,760)

478 Notes to the consolidated accounts

Part I – Share-based payments A. Qualitative information

1. Description of payment agreements based on own balance sheet instruments In implementation of the “2015 UBI Banca Group remuneration and incentive policies” (the “Policy”), which was approved on 3rd February 2015 by the Supervisory Board, after prior consultation with the Remuneration Committee, on 25th April 2015 an ordinary shareholders meeting of UBI Banca approved the payment of the variable component of long and short-term bonuses for “key management personnel” to be paid by the use of shares.

The 2015 incentive schemes, described in last year’s Remuneration Report to the Shareholders’ Meeting, are subject to trigger conditions (“gates”) set at Group level to ensure compliance with capital stability and liquidity ratios defined in the “Risk appetite in the UBI Banca Group” policy and the “Policy to Manage Financial Risks of the UBI Banca Group”. More specifically the indicators identified (details are given in the relative implementation documents) are as follows: Common Equity Tier 1 (CET 1) Ratio; Net Stable Funding Ratio (NSFR); Liquidity Coverage Ratio (LCR); Leverage Ratio (LR).

The values of these indicators are verified at the end of the period, on 31/12 of each year for the short-term incentive scheme and on 31/12/2017 for the long-term scheme.

The incentive schemes are not, however, triggered if the financial statements show a loss on normalised amounts.

Short-term incentive scheme On the basis of the performance in relation to the budget approved each year by the Management and Supervisory Boards (calculated at Group level using RORAC and at the level of the individual legal entity using normalised net profit adjusted for the “delta cost” between allocated and absorbed capital49) the budgeted amount (“bonus pool”) at the service of incentives schemes may be increased, without prejudice to the correct remuneration of capital and liquidity, up to a predetermined maximum, or reduced as far as zero (“malus”), both at the overall level and at the level of each legal entity, in accordance with pre-established limits. If the available allocation is overrun, criteria have been set for the bonuses to be redistributed, down to the level of the budget allocated.

In line with the principles expressed in the legislation and regulations, from 2015 the structure of the bonus payout is differentiated for the key personnel categories (“Top”, “Core” and “Other Key personnel”).

Along the same lines as procedures followed for all “key personnel” in previous years, for positions within the “Top” and “Core” perimeters: 50% of the bonus is converted into ordinary shares of UBI Banca, subject to retention

clauses that align the incentives with the Bank's long-term interests; 40% of the bonus is deferred for three years (for the Chief Executive Officer of UBI Banca,

60% is deferred for five years, while in previous years it was deferred for only three years).

As a consequence of the above, the first portion of share-based bonuses should be assigned in the third year following the year of the scheme, while the second portion should be

49 For a limited number of companies with low capital absorption the indicator used is normalised net profit.

479 Notes to the consolidated accounts

assigned in the fifth year following the year of the scheme, except for the Chief Executive Officer for whom, from this year, the second portion will be paid in the seventh year following the year of the scheme..

For Other Key Personnel, taking into consideration the principle of proportionality and on the basis of the size of the variable amounts, the payment rules are less strict, providing for the deferral of 30% of the bonus for two years and excluding the use of financial instruments.

In order to ensure capital stability, liquidity and the capability to generate risk-adjusted profit over time, consistently with the long-term strategic objectives of the Bank or company, the deferred portion is paid on condition that adequate levels of capital stability (Common Equity Tier 1 Ratio), liquidity (Net Stable Funding Ratio) and risk-adjusted profit (RORAC) are maintained at Group level, as set out in the corporate implementation regulations approved by the Supervisory Board. The deferred portion of the bonus will not be paid if these conditions are not met (a malus).

From 2015, for the “Top” and “Core” perimeters, if the bonus earned is below €50,000 gross and if the bonus earned individually is less than 15% of fixed remuneration, the payment is made entirely upfront, 50% being paid in cash at the time when the conditions are met and the remaining 50% as ordinary shares of UBI Banca with a two-year retention period. In previous years the treatment just described was applied but did not consider the percentage of the remuneration. It only considered whether the bonus earned was lower than €50,000.

Long-term incentive schemes (2015 – 2017) A long-term incentive scheme on a three yearly basis has been introduced from 2015, intended to bring the interests of management increasingly into line with those of shareholders, in a perspective of creating value in the long-term as well as the short-term, in compliance with legislation and regulations in force and best market practices.

While the preliminary trigger conditions (“gates”) are not affected, value creation objectives have been set, taking into account the difficulties of the current context and evaluated on the basis of a performance matrix with two indicators: Group RORAC, calculated at the end of the three-year period and based on the average

return on three-year BTPs over the period in question; Total Shareholder Return (TSR), which measures the performance of the UBI Banca

share, compared in terms of quartile positioning with the listed banks in the reference peer group.

The structure of the bonus payout provides for the following payments: 60% is paid upfront in shares at the end of the three-year performance measurement

period (accrual) with a two-year retention period; 40% is paid in shares, deferred by two years and with a one-year retention period. With a

view to compliance with legislation and regulations in force, the portion is awarded before the end of the deferral period, but subject to a further year of retention to verify that the conditions for the payment effectively exist.

In order to ensure capital stability and liquidity over time, consistent with long-term strategic objectives, the deferred portion is paid on condition that adequate levels of capital stability (Common Equity Tier 1 Ratio) and liquidity (Net Stable Funding Ratio) are maintained at the end of the deferral period, as set out in the corporate implementation regulations. The deferred portion of the bonus will not be paid if these conditions are not met (a malus).

480 Notes to the consolidated accounts

The timetable for the grant of portions of bonuses to be paid in financial instruments For the above, the timetable for portions of bonus payments made in financial instruments is as follows:

● the first portion of shares for bonuses earned in 2012 was granted in 2015; ● in 2016 the first portion of the shares relating to the 2013 short-term incentive

scheme and the second portion of the shares relating to the 2011 short-term incentive scheme will be granted;

● in 2017 the second portion of the shares relating to the 2012 short-term incentive scheme and the first portion of the shares relating to the 2014 short-term incentive scheme will be granted;

● in 2018 the second portion of the shares relating to the 2013 short-term incentive scheme and the first portion of the shares relating to the 2015 short-term incentive scheme will be granted;

● in 2019 the second portion of the shares relating to the 2014 short-term incentive scheme will be granted;

● in 2020 the second portion of the shares relating to the 2015 short-term incentive scheme and the first portion of the shares relating to the 2015-2017 long-term incentive schemes will be granted;

● in 2021 the second portion of the shares relating to the 2015-2017 long-term incentive schemes will be granted;

● in 2022 the second portion of the shares relating to the 2015 short-term incentive scheme earned by the Chief Executive Officer will be granted.

2. Quantitative information According to IFRS 2 “share-based payments”, the scheme in question constitutes an “equity settled” operation where payment is based on shares and made using equity instruments. On this basis, because the objective of IFRS 2 is to recognise the impact on profit and loss of the remuneration paid by means of equity instruments in the income statement in the form of personnel expense, UBI Banca and the subsidiaries involved in the scheme recognised the cost for the year within the item “Administrative expenses: personnel expense” against an increase in equity made by posting the amount to a separate reserve in equity because the obligation of the company will be extinguished by the delivery of equity instruments and that obligation will be settled in any event by the Parent.

As concerns the quantification of the cost of the scheme, since it is impossible to measure the value of the services provided by employees with precision, in compliance with IFRS 2 it is calculated on the basis of the fair value of the UBI share on the grant date multiplied by the number of shares that it is estimated will be vested.

More specifically, the fair value of the equity instruments granted is calculated with account taken of the circumstance that they will be delivered, as planned, starting in 2014 and until 2022. Those estimates are based on the market price of the shares, less the present value of dividends distributable by the UBI Group in the period immediately prior to the grant of the shares, and, in general they adequately weight the terms and conditions governing the grant of the instruments.

The total estimated cost of the short-term incentive schemes for shares that will be granted from 2015 is €3,469 thousand, and is composed as follows:

● up-front portions as follows:

51,363 shares granted in the 2015, equivalent to €174 thousand; 77,359 shares to be granted in 2016, equivalent to €360 thousand; 162,852 shares to be granted in 2017, equivalent to €908 thousand; 93,906 shares to be granted in 2018, equivalent to €659 thousand.

● deferred portions (if the conditions to which the deferment is subject are met) as follows:

481 Notes to the consolidated accounts

131,277 shares to be granted in 2016, equivalent to €344 thousand; 34,242 shares to be granted in 2017, equivalent to €108 thousand; 22,153 shares to be granted in 2018, equivalent to €96 thousand. 96,856 shares to be granted in 2019, equivalent to €505 thousand; 29,913 shares to be granted in 2020, equivalent to €198 thousand; 18,400 shares to be granted in 2022, equivalent to €116 thousand.

In accordance with the vesting conditions hypothesised, the cost of the scheme is spread over the whole of its vesting period, with the portion for the year recognised in the income statement, which for the reporting year amounted to €818 thousand. Furthermore, any change in the cost will only occur if the vesting requirements are not met and the shares are not delivered as a consequence, either because the result conditions set by the plan are not satisfied or the person is no longer employed and not also as a result of changes in the fair value of UBI shares.

The total estimated cost of the long-term incentive scheme introduced in 2015 is €3,699 thousand and, as for the short-term scheme, it is distributed throughout the whole of the vesting period set for it with recognition in the income statement of the portion for the year, which for the current year amounts to €632 thousand, composed as follows:

● 338,405 shares to be granted in 2020, equivalent to €2,244 thousand;

● 225,603 shares to be granted in 2021, equivalent to €1,456 thousand.

482 Notes to the consolidated accounts

Part L – Segment Reporting The banking segment comprises the seven network banks of the Group and IW Bank Spa and UBI International Sa. The non-banking financial segment mainly comprises UBI Leasing Spa, UBI Factor Spa, UBI Pramerica SGR Spa, Prestitalia Spa and UBI Fiduciaria Spa. The “Corporate Centre” segment comprises UBI Banca Spa, UBI Sistemi e Servizi Scpa, all the property companies of the Group and UBI Academy Scrl. That segment also includes all the consolidation entries including all the intercompany eliminations with the exception of those relating to the purchase price allocations and those relating to goodwill made to the relative individual segments. The algebraic sum of the three segments identified in this manner represents the income statement and balance sheet of the UBI Banca Group as at and for the year ended 31st December 2015. Distribution by business segment: income statement

Figure s in thousa nds of e uro

item/business segment Banking

(Aggregate)

Non-banking

financial

(Aggregate)

Corporate Centre

(UBI, UBIS,

Property companies

and UBI Academy +

all intercompany

and consolidation

entries)

To ta l

Net interest income 1,382,005 159,388 89,662 1,631,055

Net fee and commission income 1,150,411 132,056 17,652 1,300,119

Other expense/income 13,789 -106 287,299 300,982

Gross income 2,546,205 291,338 394,613 3,232,156Net impairment losses on loans and financial assets -608,741 -90,743 -120,028 -819,512

Net financial income 1,937,464 200,595 274,585 2,412,644Net income from insurance operations - - - -

Net income from banking and insurance operations 1,937,464 200,595 274,585 2,412,644Administrative expenses -1,979,617 -131,746 -228,884 -2,340,247

Net provisions for risks and charges -3,352 -6,456 6,833 -2,975

Depreciation, amortisation and net impairment losses on property, plant and

equipment and intangible assets -60,086 -4,314 -90,219 -154,619

Other net operating income/expense 289,896 14,343 17,202 321,441

Operating expenses -1,753,159 -128,173 -295,068 -2,176,400Profits of equity investments - 329 35,187 35,516

Net impairment losses on goodwill - - - -

Profits (losses) on disposal of investments 566 17 -375 208

Pre-tax profit from continuing operations 184,871 72,768 14,329 271,968Taxes on income for the year from continuing operations -61,548 -16,947 -49,007 -127,502

Post-tax profit (loss) from discontinued operations - - - -

(Profit) loss for the period attributable to non-controlling interests -5,984 -22,725 1,008 -27,701

Profit/loss for the year 117,339 33,096 -33,670 116,765

483 Notes to the consolidated accounts

Distribution by business segment: balance sheet

Figure s in thousa nds of e uro

item/business segment Banking (Aggregate)

Non-banking

financial

(Aggregate)

Corporate Centre

(UBI, UBIS,

Property

companies and

UBI Academy + all

intercompany and

consolidation

entries)

To ta l

Loans and advances to banks 1,390,939 - 603,804 1,994,743

Due to banks - 9,019,109 - 9,019,109

Net financial assets 176,271 11,793 19,424,419 19,612,483

Loans and advances to customers 63,050,780 12,691,284 8,844,136 84,586,200

Due to customers 48,302,772 275,558 6,686,141 55,264,471

Debt securities issued 9,456,847 1,162,323 25,628,758 36,247,928

Equity-accounted investees - 35 260,777 260,812

Non-controlling interests 525,985 52,920 -43,004 535,901

The items "loans and advances to banks" and "due to banks" have been stated in the three segments on the basis of the prevailing balance. The item "non-controlling interests" in the "banking" and "non-banking financial" segments relates only to the portion of equity and of the profit for the year of the companies not wholly owned. It does not include non-controlling interests and the part of consolidated items attributable to non-controlling interests which have been attributed to the "corporate centre". Absolute amounts are reported for liability items.

484 Notes to the consolidated accounts

Disclosures concerning the fees of the independent auditors and services other than auditing in compliance with Art. 149 duodecies of Consob Issuers’ Regulations

Information pursuant to letters a), b) and c) of Attachment A to Part One, Title III, Chapter 2 of Bank of Italy Circular No. 285 of 17th December 2013

Attachments to the

Consolidated Financial

Statements

485 Notes to the consolidated accounts

Disclosures concerning the fees of the independent auditors and services other than auditing in compliance with Art. 149 duodecies of Consob Issuers’ Regulations

Disclosures concerning the fees of the independent auditors and services other than auditing in compliance with Art. 149 duodecies of Consob Issuers’ Regulations

In accordance with Art. 149 duodieces of Consob Issuers’ Regulations, information concerning payments made to the independent auditors Deloitte & Touche Spa and companies belonging to the same network for the following services is given in the table below.

1) Auditing services which include:

audit of the annual accounts for the purposes of expressing a professional opinion;

review of the interim accounts.

2) Certification services which include appointments where the auditor assesses a specific element, the determination of which is performed by another who is responsible for it, by employing appropriate criteria in order to furnish a conclusion which gives the recipient a measure of the reliability of that specific element.

3) Tax consultancy services.

4) Other services.

The fees presented in the table relating to the financial year 2015, are those contractually agreed, inclusive of any indexing (but not of out-of-pocket expenses, nor of supervisory authority contributions and VAT).

Pursuant to the regulations cited, payments made to possible secondary auditors or to firms belonging to the respective networks are not included.

486 Notes to the consolidated accounts

Type of service

figures in thousands of euro

Audit servicesDeloitte & Touche Spa,

Deloitte Audit Sarl(*)

2,608

Certification services Deloitte & Touche Spa (**)

911

Tax consultancy services-

Other services686

Methodological support with the Recovery & Resolution

Plan Directive

Deloitte Consulting Srl,

Deloitte Financial

Advisory Srl

UBI Banca Spa

500

Methodological support with remote rating for the

distribution networkDeloitte Consulting Srl IW Bank Spa

120

Assessment of the customer satisfaction survey service Deloitte Consulting Srl UBI Banca Spa61

Other services Deloitte ERS Srl UBI Banca Spa5

Total 4,205

Firm that provided the

service

Recipient of the

serviceFees

(*) UBI Banca Spa, Banca Popolare di Bergamo Spa, Banca Popolare di Ancona Spa, Banca Carime Spa, Banca Popolare Commercio e Industria Spa, UBI Sistemi e Servizi Scpa, BPB Immobiliare Srl, UBI Pramerica SGR Spa, Centrobanca Sviluppo Impresa SGR Spa, SBIM Spa, Solimm Spa, Coralis Rent Srl, UBI Academy, UBI Banca International Sa, UBI Management Company Sa, UBI Trustee Sa, UBI Finance Srl, UBI Finance 2 Srl (in liquidation), UBI Finance CB 2 Srl, 24-7 Finance Srl, UBI SPV BBS 2012 Srl, UBI SPV BPCI 2012 Srl, UBI SPV BPA 2012 Srl.

(**) UBI Banca Spa, Banca Popolare di Bergamo Spa, Banca Popolare di Ancona Spa, Banca Carime Spa, Banca Popolare Commercio e Industria Spa, IW Bank Spa, UBI Pramerica SGR Spa, UBI Academy Scrl, Coralis Rent Srl, SBIM Spa.

487 Notes to the consolidated accounts

Information pursuant to letters a), b) and c) of Attachment A to Part One, Title III, Chapter 2 of Bank of Italy Circular No. 285 of 17th December 2013. Situation as at 31st December 2015

Letter a) - Name of the companies formed and the type of business

Brief description of the main activities carried outItaly France Luxembourg Spain Germany Poland

Banks

UBI Banca (Parent) x

Banca Popolare di Bergamo Spa x

Banco di Brescia Spa x

Banca Regionale Europea Spa x x

Banca Popolare Commercio e Industria Spa x

Banca Popolare di Ancona Spa x

Banca Carime Spa x

Banca di Valle Camonica Spa x

IW Bank Spa x

UBI Banca International S.A. x x x

Financial companies

UBI Factor Spa x x

UBI Leasing Spa x

Prestitalia Spa x

UBI Finance Srl x

UBI Finance CB 2 Srl x

24/7 Finance Srl x

UBI Lease Finance 5 Srl x

UBI Finance 2 Srl (1) x

UBI Finance 3 Srl (1) x

UBI SPV BBS 2012 Srl x

UBI SPV BPA 2012 Srl x

UBI SPV BPCI 2012 Srl x

State in which they are located

Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.Deposit-taking and lending, trading on own account and on behalf of others, receipt and transmission of orders, placement of financial instruments, payments and settlements, custody and administration.

Factoring business

Leasing business

Salary-backed and deducted-from-salary lending

Covered bond collateral pursuant to Law No. 130/1999

Covered bond collateral pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

Securitisation of loans and receivables pursuant to Law No. 130/1999

488 Notes to the consolidated accounts

Asset management and trust companies

UBI Pramerica SGR Spa x

Centrobanca Sviluppo Impresa SGR Spa x

UBI Management Company Sa x

UBI Fiduciaria Spa x

UBI Trustee Sa x

Other companies

UBI Sistemi e Servizi S.c.p.a. x

Società Bresciana Mobiliare Immobiliare - SBIM Spa x

BPB Immobiliare Srl x

UBI Academy S.c.r.l. x

Management of open-ended mutual investment funds

Management of open-ended mutual investment funds

Asset management advisory service

Sale, purchase and management of the Group’s operating properties

Staff training services

Trust creation activities

Provision of the following: IT services, property management and purchasing, back office and logistics services to support the Group’s activitiesSale, purchase and management of the Group’s operating properties

(1) The securitisations had been closed down as at 31.12.2015.

Italy France Luxembourg Spain Germany Poland

Adjustments and eliminations T O T A L

Banks 3,106,268 2,938 14,792 2,994 4,371 3,131,363

Financial companies 160,267 2,294 162,561

Asset management and trust companies 131,314 2,892 134,206

Other companies 874 874

Adjustment and elimination entries -196,848 -196,848

T O T A L 3,398,723 2,938 17,684 2,994 4,371 2,294 -196,848 3,232,156

State in which they are located

489 Notes to the consolidated accounts

Italy France Luxembourg Spain Germany Poland T O T A L

Number of employees 17,085 17 71 14 9 4 17,200

Italy France Luxembourg Spain Germany Poland

Adjustments and eliminations T O T A L

Banks 362,385 491 -215 -1,069 1,995 363,587

Financial companies -19,068 1,998 -17,070

Asset management and trust companies 94,985 1,952 96,937

Other companies 3,870 3,870

Adjustment and elimination entries -175,356 -175,356

T O T A L 442,172 491 1,737 -1,069 1,995 1,998 -175,356 271,968

Italy France Luxembourg Spain Germany Poland

Adjustments and eliminations T O T A L

Banks -93,563 -651 129 -545 -94,630

Financial companies 13,839 -553 13,286

Asset management and trust companies -32,076 -523 -32,599

Other companies -4,186 -4,186

Adjustment and elimination entries -9,373 -9,373

T O T A L -115,986 - -1,174 129 -545 -553 -9,373 -127,502

Letter e) - Taxes on profit or loss

State in which they are located

State in which they are located

State in which they are located

Letter c) - Number of employees on a full-time equivalent basis

Letter d) - Pretax profit or loss

Letter f) – Government grants received The Group has received no government grants in 2015, nor in previous years. We also report that, in compliance with the instructions for compiling this disclosure, this does not include operations with central banks for financial stability purposes nor operations carried out with the objective of facilitating the transmission of monetary policy.