2015_04_11 - Shareholders Meeting of Banco Popolare

N E W S R E L E A S E

Novara 11 April 2015

Shareholders' Meeting of Banco Popolare:

• Replacement of two members of the Board of Directors

• 2014 Annual Report approved

• Remuneration policy report approved

• Supplementary fee to audit firm

• Bylaw amendment proposals approved

• Reduction of the revaluation reserves pursuant to Law no. 413/1991 and Law no.

72/1983 and of the reserve under art. 7, paragraph 3, Law no. 218/1990 approved

The Registered Shareholders gathered in the Ordinary and Extraordinary General Meeting of Banco Popolare, which saw a participation of approx. 33 thousand registered shareholders (approx. 8 thousand physically attending), have approved all the items on the agenda by a very large majority.

ORDINARY GENERAL MEETING

REPLACEMENT OF TWO MEMBERS OF THE BOARD OF DIRECTORS

The Registered Shareholders gathered in the General Meeting have elected Mr. Luigi Corsi and Mr. Cesare Zonca as members of the Board of Directors. The newly-elected directors, who had already been co-opted in Banco's Board, will remain in office until the approval of the annual report as at 31 December
2016, like the other directors.
With respect to the independence requirements, Mr. Corsi declared that he fulfills both the requirements under Borsa Italiana's Corporate Governance Code, as well as those under art. 148, paragraph three, of Lgs. D. no. 58 of 24 February 1998. As to Mr. Zonca, he declared that he fulfills the requirements under art. 148, paragraph three, of Lgs. D. no. 58 of 24 February 1998, but not those under Borsa Italiana's Corporate Governance Code.
In compliance with art. IA.2.6.7, paragraph 3, of the Instructions to the Regulation of markets organized and managed by Borsa Italiana S.p.A., we herewith report the number of Banco Popolare shares held to date by the two directors: Luigi Corsi no. 4,593 shares; Cesare Zonca no. 48,916 shares.
The documentation regarding the two directors, including their CVs, are available to the public at Banco's
Head Office, at Borsa Italiana S.p.A., on Banco Popolare's website, in the Corporate Governance section
- Shareholders' Meetings - Ordinary and Extraordinary General Meeting held on 11 April 2015 (www.bancopopolare.it), as well as on the website of the authorized central storage mechanism www.1info.it.
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APPROVAL OF THE 2014 ANNUAL REPORT

The Registered Shareholders have approved the 2014 Annual Report of the Parent company Banco Popolare, which closed with a net loss of Euro 2,073,652,506, and resolved to cover the loss with unencumbered reserves.
The consolidated annual report of Banco Popolare Group closed with a net loss of 1,945.9 million Euro. The main contributor to this negative result was the amount of net loan loss provisions. To this respect, the greatest influencing factor have been the changes in credit classification and assessment policies and processes following the analysis of the Asset Quality Review (AQR) detailed results required by the ECB, which had identified prudential adjustments totaling 1,603 million (gross of tax effect), almost totally related to the coverage of customer loans (1,561 million).
In keeping with the Regulator's wishes, the introduced changes were aimed at eliminating as much as possible the misalignments between valuations for reporting purposes and "ECB thresholds1". The changes introduced upon preparing the financial statements, coupled with the usual update of loan loss estimates, led in Q4 to the recognition of net loan loss provisions of 2.5 billion, that - combined with the
recognition of the impairment of goodwill and other intangibles (amounting to 239 million Euro), generated a net loss for the period of 1.8 billion, and hence a net loss for the year of 1.9 billion.
The adopted conservative valuation choices had a marginal effect on Common Equity Tier 1 (CET1) Capital and its "fully-loaded"2 ratio. In Q4, the "fully-loaded" CET1 capital declined by 362 million, and the CET1 ratio fell by 35 bps at 11.3% from 11.7% at 30 September 2014. This is due to the fact that credit exposures, based on prudential metrics, were already measured at a lower level compared with their
stated value using the different rules set forth by reference accounting standards, giving rise to what is known as a "shortfall"3 The decision to raise the stated loan coverage despite its negative effect on net income for the year was significantly compensated for by the erasure of the shortfall (which at 30
September 2014 was 1.3 billion).
The financial year benefitted from the positive contributions from equity investments in associates (here are the main ones: Agos Ducato, +39.7 million; Popolare Vita, +36.9 million; Avipop Assicurazioni, +12.1 million), and from the stable fee and commission stream. Moreover, the stringent cost monitoring and the cost containment actions kept operating costs almost unchanged compared to 2013 (+0.7%), in spite of the fact that the expenses charged to income for the year include the estimated charge generated by the agreement met with Trade Unions for the exit of 578 employees (138.2 million).
Key balance sheet items show that direct funding on 31 December 2014 came in at 86.5 billion, down by
3.9% from 90.0 billion on 31 December 2013. The year-on-year decline, linked to the similar decline in assets volume, is attributable to the decline in bond-based funding (mainly retail), affected by the partial replacement with other cheaper funding sources and by the redemption plan aimed at reducing the overall cost of funding. The reduction in direct funding was partly offset by the increase in core funding sources, namely checking accounts and deposits (+9.1%), as well as repos and securities lending, and to a great extent by the stable liquidity flow generated by the stock of certificates, which at 31 December
2014 had a nominal value of 3.8 billion (1.6 billion at 31 December 2013).
Indirect funding went up 4.1% to 66.5 billion, compared with 63.8 billion at year-start. The annual increase was driven exclusively by assets under management (+13.2% year-to-date). The growth in AuM was mainly driven by the marked development of the Mutual Funds and Sicav compartment (+20.8% compared with year-end 2013) and by insurance policies (+10.0%).
At 31 December 2014, gross loans amounted to 87.7 billion, down by 2,5% compared with 89.9 billion at
30 September 2014 and by 4.3% compared with 91.6 billion at 31 December 2013. The reduction driven by the expiry of outstanding loans could not be offset by new loans yet, which in any case are reporting a

1 Parameter estimates used for prudential purposes by the ECB in the Asset Quality Review exercise .

2 The term "fully-loaded" indicates that prudential regulatory capital data is measured based on currently effective rules, without considering the "phase-in" arrangements that gradually spread the effects of the changeover from Basel II to Basel III regulations

over time.

3 The term "shortfall" indicates the difference between the expected credit loss measured based on prudential regulations and the carrying amount of the expected credit loss based on IAS 39, that requires to refer to incurred losses. The shortfall (expected

loss>incurred loss) based on fully-loaded Basel III regulations must be completely and immediately deducted from the CET1

Capital.

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good growth over 2013 across all three core segments (1.1 billion inflows, +8% yoy, for retail; 1.7 billion inflows, +26% yoy, for small business; 2.6 billion inflows, +89% yoy, for mid corporate).
Also, the coverage ratio of performing loans reported a marked increase from 0.40% at 31 December
2013 to the current 0.64%. Net of repo and securities lending exposures and exposures with related parties, that are practically risk-free, the coverage ratio hits 0.73% compared with 0.46% on 31 December
2013.
As to group capital ratios, applying the phase-in arrangements effective at the end of December 2014 and taking into account the entire loss reported for the year, the Common Equity Tier 1 ratio (CET1 ratio) is
11.9% (13.7% on 30 September 2014); the Tier 1 ratio is 12.3% (13.7% on 30 September 2014); the Total capital ratio is 14.6% (16.5% on 30 September 2014). The fully loaded CET1 ratio (based on the rules adopted at the end of the transition period) is estimated at 11.3% (11.7% at 30 September 2014). Considering also the effect expected from the merger of the subsidiary Banca Italease, the pro-forma fully loaded CET1 ratio is 11.5%.
The Leverage ratio based on the phase-in arrangements is 5.0%. On a fully-loaded basis the estimated ratio comes in at 4.7%.
At 31 December 2014 Banco Popolare confirms its excellent liquidity profile. At 31 December 2014 the
ECB exposure totaled 12.0 billion. On the same date the Group had assets eligible for refinancing with the ECB - still unencumbered to date - valued, net of haircuts, at 14.1 billion (17.3 billion at 30 September
2014), represented exclusively by an unencumbered portfolio of Italian Government bonds.
The LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio) ratios are in line with Basel III
targets. More specifically, LCR and NSFR exceed 100%.
For more detailed information on 2014 results, including the detailed description of the accounting effects of the Comprehensive Assessment exercise and of the changes in the credit assessment policies, procedures and parameters used to prepare the financial statements as at 31/12/2014, please refer to the news release published on 11 February 2015.

RESOLUTION ON REMUNERATION POLICIES

The Registered Shareholders have approved the Remuneration Report covering: i) the proposal for the
2015 remuneration policies and the implementation of the 2014 policies; ii) the criteria to define the compensation of key executives in case of early termination of employment or office. In compliance with the terms and procedures under the law, Banco Popolare made the Remuneration Report - prepared in accordance with art. 123-ter TUF and art. 84-quater of Consob Resolutions 11971/99 and following amendments and additions ("Issuers Regulation") and with the Bank of Italy Regulatory Requirements, Circular 285 of 17 December 2013 and following amendments and additions - available to Registered Shareholders, in order to provide them with a clear and comprehensive explanation of this matter.

SUPPLEMENTARY FEE TO AUDIT FIRM RECONTA ERNST & YOUNG

The Registered Shareholders have approved the proposal put forward and explained by the Board of Statutory Auditors to top up the fee for the Audit firm Reconta Ernst & Young, hired to audit Banco's accounts between 2007 and 2015. This adjustment to the compensation characteristics governing the activities of the auditing company in financial years 2014 - 2015 is due to the mergers of Credito Bergamasco S.p.A. and Banca Italease S.p.A into Banco Popolare in 2014 and 2015.
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EXTRAORDINARY GENERAL MEETING

BYLAW AMENDMENTS

The Registered Shareholders have approved the proposed amendments to articles 7, 12, 20, 25, 28,
29.1, 29.2, 29.4, 29.7, 33.1, 33.2, 33.4, 38.1, 39.4, 47 and 56 of the Articles of Association and the addition of a new article 29.2bis. The approved amendments are mainly aimed at transposing the provisions of a number of regulations, namely:
• the "Supervisory regulations for banks" under Bank of Italy Circular no. 285 of 17 December 2013
- Part One, Title IV, Chapter 1 "Corporate Governance" and Chapter 2 "Compensation and incentive scheme policies and procedures" - issued, among other things, to transpose the
innovations introduced by the EU Directive 2013/36/EU (Capital Requirements Directive or CRD
IV);
• the "New regulations for the prudential supervision of banks" under Bank of Italy Circular no. 263 of 27 December 2006, updated in July 2013 - Part one, Title V, Chapter 7 "Internal control rules".

REDUCTION OF THE REVALUATION RESERVES PURSUANT TO LAW NO. 413/1991 AND LAW NO. 72/1983 AND OF THE RESERVES UNDER ART. 7, PARAGRAPH 3, LAW NO. 218/1990

Finally, Registered Shareholders have approved the formal reduction of the revaluation reserves and of the reserves under art. 7, paragraph 3, of Law no. 218/1990, up to the amount used to cover the loss reported on 31 December 2014. More specifically:
- Revaluation reserve under L. no. 413/1991 by Euro 9,127,725.08;
- Revaluation reserve under L. no. 72/1983 by Euro 16,125,760.61;
- Reserve under art. 7 paragraph 3 L. no. 218/1990 by Euro 7,969,991.24.
Based on the resolution passed today by Registered Shareholders, the obligation to replenish the above reserves with future net earnings is cancelled.
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