30 JUNE 2017 - Banca IMI [PDF]

INTERIM FINANCIAL REPORT

30 JUNE 2017

Interim report on operations

June 2017

Banca IMI S.p.A. Largo Raffaele Mattioli 3 - 20121 Milan (Italy) Share Capital Euro 962,464,000 ABI Code 3249.0 – Member of the Intesa Sanpaolo banking group Member of the Interbank Deposit Protection Fund Registered with the Milan Company Register Registration number and tax ID 04377700150 GIIN (Global Intermediary Identification Number) Head office (Italy) D9I1IN.00011.ME.380 London branch (UK) D9I1IN.00011.BR.826 E-mail: [email protected] - www.bancaimi.com Telephone +39 02.72611 Banca IMI is a member of the Group

This is an English translation of the Italian language original “Relazione finanziaria semestrale GIUGNO 2017” that has been prepared solely for the convenience of the reader. The Italian language original “Relazione finanziaria semestrale GIUGNO 2017” was approved by the Board of Directors of Banca IMI on 1 August, 2017 and is available on the above-mentioned website.

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Contents Officers and boards

5

Financial highlights and alternative performance ratios Banca IMI Group Banca IMI S.p.A.

6 7

Executive summary

8

Interim report on operations • The macroeconomic outlook and capital markets • Results by business segment • Financial performance • Equity and financial aggregates • Subsidiaries and equity investments • Capital adequacy and prudential supervision • Transactions involving shares of Intesa Sanpaolo • Outlook for 2017

10 13 21 31 48 50 53 54

Condensed interim consolidated financial statements of Banca IMI Group • • • • •

56 58 59 60 61

Statement of financial position Income statement Statement of comprehensive income Statement of changes in equity Statement of cash flows

Notes to the condensed interim consolidated financial statements • Part A – Accounting policies • Part B – Information on the consolidated statement of financial position • Part C – Information on the consolidated income statement • Part E – Information on risks and related hedging policies • Part F – Equity • Part H – Related party transactions • Part L – Segment reporting

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63 73 81 91 107 113 119

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Attachments Interim financial statements of Banca IMI S.p.A. • Statement of financial position • Income statement • Statement of comprehensive income • Statement of changes in equity • Statement of cash flows

122 124 125 126 128

Statement of reconciliation between the equity and profit of Banca IMI S.p.A. and the corresponding aggregates in the condensed interim consolidated financial statements

130

Proposed allocation of the profit for the period of Banca IMI S.p.A.

131

Details of bond issues as at 30 June 2017

132

Statement of the manager in charge of financial reporting

137

Independent Auditors’ report

141

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Officers and boards Board of Directors

(in office for the three-year period 2016-2018)

Chairman

Gaetano Miccichè

Deputy Chairmen

Giuliano Asperti Fabio Alberto Roversi Monaco

Managing Director

Mauro Micillo

Directors

Giuseppe Attanà Aureliano Benedetti Fabio Buttignon Vincenzo De Stasio Paolo Maria Vittorio Grandi Massimo Mattera Gerardo Pisanu

Board of Statutory Auditors and Surveillance Body pursuant to Legislative Decree 231/2001 (in office for the three-year period 2016-2018)

Chairman

Gianluca Ponzellini

Standing Statutory Auditors

Giulio Stefano Lubatti Stefania Mancino

Substitute Statutory Auditors

Carlo Maria Augusto Bertola Alessandro Cotto

General Manager

Mauro Micillo

Manager in charge of financial reporting

Angelo Bonfatti

Independent auditors

KPMG S.p.A.

(in office for the nine-year period 2012-2020)

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Consolidated BANCA IMI - Financial highlights and alternative performance ratios (in millions of euro)

Changes 1H 2017

1H 2016

amount

%

Income statement Core business profit Non-recurring income (expense) Total income Net operating costs of which: - personnel expenses Operating profit Impairment losses, provisions, other operating expenses Income tax expense Profit for the period

757.1 909.0 7.3 21.7 764.4 930.7 (225.8) (222.2) (74.6) (73.4) 538.6 708.5 (114.8) (49.8) (133.4) (218.1) 290.4 440.6 30 June 31 December 2016 2017

(151.9) (14.4) (166.3) (3.6) (1.2) (169.9) (65.0) 84.7 (150.2) amount

-16.7% -17.9% 1.6% 1.6% -24.0% -38.8% -34.1% %

Statement of financial position Owned securities (HFT, AFS and L&R) Repurchase agreements and Securities lending Structured finance assets Total assets Bond issues Guarantees given and commitments to lend Notional amount of financial derivatives Notional amount of credit derivatives Equity(1)

27,534.9 24,762.7 7,073.4 161,721.7 9,965.9 6,440.8 3,197,504.7 99,216.7 4,550.5 1H 2017

27,192.6 18,325.4 5,666.4 150,406.8 11,282.6 6,197.1 2,968,600.9 106,906.7 4,755.0 1H 2016

342.3 6,437.3 1,407.0 11,314.9 (1,316.7) 243.7 228,903.8 (7,690.0) (204.5)

1.3% 35.1% 24.8% 7.5% -11.7% 3.9% 7.7% -7.2% -4.3%

amount

%

amount

%

Profitability and risk ratios Cost / Income ratio(2) Profit/Average equity (ROE)(3) Profit/Total assets (ROA) Basic earnings per share (basic EPS) - euros (4)

29.5% 12.6% 0.4% 0.302 30 June 2017

23.9% 24.1% 0.5% 0.458 31 December 2016

Operating structure Total dedicated resources

(5)

883

886

(3)

1) It includes equity instruments and profit for the period/year, net of any interim dividends 2) Operating costs in relation to Total income 3) Profit for the period in relation to the weighted average equity 4) Excluding those effects which impact the comprehensive income of the period 5) It includes seconded resources proportionately

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BANCA IMI S.p.A.- Financial highlights and alternative performance ratios (in millions of euro)

Changes 1H 2017

1H 2016

amount

%

Income statement 887.5 747.1 24.1 10.8 757.9 911.6 (214.5) (211.8) (68.7) (67.1) 543.4 699.8 (92.6) (49.9) (134.0) (214.0) 435.9 316.8 30 June 31 December 2016 2017

Core business profit Non-recurring income (expense) Total income Net operating costs of which: - personnel expenses Operating profit Impairment losses, provisions, other operating expenses Income tax expense Profit for the period

(140.4) (13.3) (153.7) (2.7) (1.6) (156.4) (42.7) 80.0 (119.1) amount

-15.8% -16.9% 1.3% 2.4% -22.3% -37.4% -27.3% %

Statement of financial position Owned securities (HFT, AFS and L&R) Repurchase agreements and Securities lending Structured finance assets Total assets Net interbank position Bond issues Guarantees given and commitments to lend Notional amount of financial derivatives Notional amount of credit derivatives Equity(1)

27,473.5 24,762.7 7,073.4 161,360.3 (8,179.5) 9,965.9 6,440.8 3,197,504.7 99,216.7 4,449.0 1H 2017

27,126.1 18,325.4 5,666.4 150,249.6 603.4 11,282.6 6,197.1 2,968,600.9 106,906.7 4,618.0 1H 2016

347.4 6,437.3 1,407.0 11,110.7 8,782.9 (1,316.7) 243.7 228,903.8 (7,690.0) (169.0) amount

1.3% 35.1% 24.8% 7.4% -11.7% 3.9% 7.7% -7.2% -3.7% %

Profitability and risk ratios Cost / Income ratio(2) Average VaR for the period of the AFS and HFT portfolio Non-performing loans/Total credit exposures Net impairment on loans/Performing loans Profit/Average equity (ROE)(3) Profit/Total assets (ROA) Profit/Capital absorbed(4) Basic earnings per share (basic EPS) - euros (5) ® (5)

EVA

28.3% 66.1 8.7% 1.0% 14.1% 0.4% 27.5% 0.329

23.2% 87.7 13.4% 1.3% 24.7% 0.5% 41.5% 0.453

101.3

266.6

30 June 2017

31 December 2016

-21.6

-24.6%

-165.3

-62.0%

amount

%

Capital ratios CET 1 ratio Total Tier Capital Leverage ratio

10.52% 14.85% 5.53%

9.59% 12.85% 4.95%

836

835

Operating structure Total dedicated resources

(6)

1

Ratings Moody's Fitch Standard & Poors

Baa1 BBB+ BBB-

1) It includes equity instruments and profit for the period/year, net of any interim dividends 2) Operating costs in relation to Total income 3) Profit for the period in relation to the weighted average equity 4) Profit for the period in relation to the weighted average quarterly equity requirements 5) Excluding those effects which impact the comprehensive income of the period 6) It includes seconded resources proportionately

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Executive summary In the first half of 2017, Banca IMI recorded a consolidated profit of 290 million euro. The result was down by 34% compared to the 441 million euro recorded as at June 2016, caused by revenue dynamics and higher levels of provisions and adjustments, but this purely numerical analysis tends to distract from the Bank’s proven competitiveness and capital strength.

Against a good level of proceeds from clients - confirmed by growth of around 8% in net fees and commissions - and the gradual increase in net interest which was broadly in line with the first half of 2016, the reduction is concentrated in the profits from financial transactions, as a result of the fewer opportunities offered by the markets in the first few months of the year. Seen as part of the series of quarters since 2015, the 30 June 2017 results make respectable reading - with revenue from securities, currencies and derivatives at 293 million euro - compared with a half year which was buoyed by profitable Brexit factors and by the introduction of the Funding Value Adjustment which changed the OTC derivative valuation metrics, leading to one-off gains of around 75 million euro. In 1H17, total income was 764 million euro, down 18% compared to the corresponding period of 2016. Net of the gains relating to the introduction of the FVA, the reduction would have been around 11%, which represents a performance in line with recent half year reports published by global investment banks. Consolidated revenue was attributable to the Global Markets area, in the amount of 573 million euro and the Corporate & Strategic Finance area, with 191 million euro, thanks to 134 million euro from Structured Finance and 57 million euro from Investment Banking.

The operating profit, at 539 million euro (-24% compared to the 709 million euro of the first half of 2016), recorded a slight growth of operating costs (226 million euro, +1.6%) relating to services provided by the Group, legal costs and business consulting services; the increase in personnel expenses is technical, reflecting different accrual of the incentive scheme between the periods. The cost/income ratio rose to 29.5% compared with 23.9% for the previous period; this development does not reflect underlying structural changes.

Impairment losses, provisions and other operating expenses accounted for 115 million, compared to the lower amount of 50 million euro in the first half of the previous year. The amount includes 37 million euro for ordinary contributions to the Single Resolution Fund (+3 million euro compared to the amount required for the prior period) and a supplement of USD 24 million to the provisions for risks and charges of the subsidiary IMI Securities, which to a large extent related to the inspections by the SEC on securities lending operations; this amount adds to the comparable provisions of USD 16 million as at 31 December 2016. The review of statement of financial position and commitments to lend loans led to new specific impairment losses of 30 million euro relating to doubtful loans and unlikely-to-pay exposures in addition to 26 million euro on the performing loan portfolio; the latter amount is directly related to the expansion of structured finance assets. The figure as at 30 June 2017 compares to the 2016 period, which recorded significant reversals of impairment losses on non-performing loans which had returned to performing status, together with the expected effects of the sale to the Pillarstone platform.

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The consolidated profit for the period of 290 million euro was net of income taxes of 133 million euro. ®

The ability to generate value for the shareholder yielded an EVA for Banca IMI of 101 million euro and a return on group capital of 12.6%. The latter reflects lower absolute levels of profit, but also higher equity following the issue of 1.2 billion euro of AT1 capital instruments.

Total assets rose to 162 billion euro, up from 150 billion euro on 31 December 2016, as a result of higher reverse repurchase agreements (6 billion euro) and interbank deposits with the Ultimate Parent (10 billion euro) as part of the strategy of matching different asset and liability maturities. The fair value of the OTC derivatives fell in absolute value terms as a consequence of the movements in the interest rate curves used for valuation. Of the other assets, the securities (HFT, AFS and L&R) returned to the levels shown at the beginning of the period, at 27 billion euro, whilst structured finance balances grew (+1.4 billion over the six-month period) following the deleveraging which had characterised previous periods.

At 4.55 billion euro, the carrying amount of equity included the most recent AT1 instrument issued on 29 June, for a total of 200 million euro.

The Bank’s own funds amounted to 4.1 billion euro, showing an increase of 420 million euro compared with the previous quarter. The change reflects the AT1 issuance mentioned above, as well as the positive effects on other aggregates included in regulatory capital in accordance with Basel 3: improvement in the AFS reserves; prudent valuation adjustments in the HFT portfolio; prudential filter of the DVA effects on trading liabilities. These factors were followed by a reduction in the shortfalls on the loan portfolio - leading to positive effects of around 90 million euro. These were caused by the recent revision of the internal models used by the Intesa Sanpaolo Group for the Large Corporate segment; in return, the intention is that loans classified as “in default” will henceforward be used to calculate risk weighted assets.

Risk Weighted Assets fell to 27.4 billion euro from 29.2 billion euro at 31 March 2017 and 28.4 billion euro at 4Q2016; the reduction was mainly driven by lower requirements for market risk as determined by the internal models. The Total Capital Ratio rose to 14.9% from the previous 12.5%. The ratio reflects the increase in own funds and the performance of the RWAs without taking account of the result of the period.

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The macroeconomic outlook and capital markets In the first half of 2017, world economic growth strengthened its pace and expanded to a greater number of countries. The growth in international trade has intensified, price inflation has accelerated and income statement data have often exceeded expectations.

the impact on trade flows of a devalued Sterling. Strong confidence over economic growth has also fully reached Italy. GDP in the first quarter grew by 0.4% year on year. Trend surveys and industrial output figures suggest an acceleration in the second quarter, driven by growth in exports and a higher propensity to invest in businesses, as well as by consumption growth. As a result, consensus forecasts of GDP growth have been reviewed upwards. Employment growth slowed due to the phasing out of extraordinary measures which buoyed growth through 2016, though it remained sufficient to drive the unemployment rate down to 11.3% in May. Higher energy prices and growth in demand began to impact inflation, which rose temporarily to 2% in April, but then fell again. In terms of public finances, the primary budget surplus was insufficient to lower the debt-to-GDP ratio in any significant way, which the Italian government estimates will remain unchanged this year.

To an extent, the United States are an exception in this context. The change in federal administration had generated expectations of an expansive turnaround in fiscal policy, but these expectations have not yet come to fruition. Overall, macroeconomic figures have been below expectations, although consistent with the country’s expansive economic cycle and the achievement of full employment. Faced with the risk of the economy overheating, the Federal Reserve tightened its monetary policy stance. Official interest rates have been raised twice since the start of the year by a total of 50 bps, with a further rise by the end of the year signalled to markets. In addition, the Fed announced a gradual reduction in reinvestments of principal payments at portfolio maturity.

The European Central Bank began to adapt its monetary policy stance to improvements in economic conditions and the balance of risks. After announcing an initial reduction in its securities purchase programme from 80 to 60 billion euro as of April, in June the ECB dropped any reference to the likelihood of further interest rate cuts. Various ECB spokespeople also began to mention the need to adjust monetary policy further. Nevertheless, the ECB continued to forecast a rise in official rates only once the purchase programme is wound up completely, which will not be before December 2017.

The Eurozone witnessed stunning growth in the first half of the year, posting rates far above the standards of recent years. Recoveries in exports and fixed investments more than offset the slight slowdown in consumption. Optimism has been fuelled not only by confidence surveys, but also by real data. Industrial output grew by 4% yoy in May, while GDP growth in the second quarter kept up the strong pace posted in the first quarter (0.6% quarter on quarter). Growth in economic activity across all countries drove employment figures up and the unemployment rate down to 9.3%.

The ECB’s monetary policy stance led to a strengthening of the exchange rate and a rise in medium/long-term interest rates. The ten-year Bund yield, which was negative at the end of 2016, rose to 0.47% at the end of the first half, while the ten-year BTP yielded 2.15% at the end of the second quarter, up from 1.83% at the end of 2016. The spread with German bonds remained essentially stable, although pressures were felt during the French general election campaign. The euro/dollar exchange rate rose at largely constant rate between January and June,

Improved confidence figures were favoured by various factors, including general election outcomes in the Netherlands and France, which dispelled the risk of a victory by Eurosceptic parties. Instead, the outcome of the French general election has raised expectations of fresh stimulus to the Eurozone reform process. The start of negotiations for the United Kingdom’s exit from the European Union did not have any major repercussions, with the exception of

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gaining an overall 8.7% to close the quarter at $1.14.

Alongside healthier fundamentals, growth was driven by new Individual Savings Plans (which invest a major part of their funding in stocks not included in the FTSE MIB benchmark).

The trend in international stock markets was positive overall in the first half of 2017, as risk aversion in investors gradually fell and stock prices showed lower volatility. There were several factors supporting this. One is the consolidation of world economic growth, in both emerging countries and major advanced economies. The flow of positive economic figures led to the upward review of growth forecasts, especially for the Eurozone and Japan. Furthermore, the political risk inherent in the old continent’s various elections did not materialise, and this has contributed to the reduction in risk premium on stocks.

European corporate bond markets closed the first half of 2017 on a positive note, with high-yield (HY) securities outperforming investment-grade ones (IGs). As seen in 2016, central bank monetary policies were the main drivers of market growth, through the injection of essential “technical” support for stocks. Markets also benefited from positive macroeconomic fundamentals, with moderate growth coupled with only marginal inflationary pressures. In terms of performance, HY securities saw their spreads drop by around 25% over the first half of 2017, as investors shifted their interest onto higher-risk securities in search of better returns. IG securities also posted a drop of around 10% in their spreads, reducing what was already a very low differential.

After dropping to a relative low in February, stock markets in the Eurozone progressively rose, driven by growth in company earnings. In particular, corporate results delivered the most positive surprises, accompanied by confirmation or improvement in guidance for yearly results.

New issue volumes remained very steady, driven on the one hand by investors seeking out returns and on the other by the willingness of issuers to take advantage of favourable funding conditions. In this context, a major contribution came from eurodenominated issues made by US companies.

The Euro Stoxx index closed the half up by 6.5%; the CAC 40 rose by 5.3% at the end of the period; the Dax 30 performed well, rising by 7.4%, while the IBEX 35 index outperformed all the main Eurozone benchmarks, posting a rise of 11.7%. Outside the Eurozone, the Swiss market index SMI appreciated by 8.4%, while the United Kingdom's FTSE 100 index closed the quarter marginally up (+2.4%).

With regard to the Italian banking system, bank rates showed mixed trends. While rates stabilized around the historic lows previously reached, interest rates on new loans increased. The downward trend in the overall cost of funding bottomed out in the second quarter, thanks to the stabilization of the average deposit rate and the average rate of the stock of bonds.

In the United States, the S&P 500 closed the period with a rise of 8.2%, while the Nasdaq Composite Index of technology stocks rose by 14.1%. The overall performance of the main Asian stock markets was marginally positive: the Chinese SSE A-Share benchmark index ended the half up by 2.9%, while the Nikkei 225 index posted a rise of +4.8% at the end of the half.

Bank loans to the private sector continued their recovery, growing at a rate of around 1%. The recovery was led by loans to consumer households, which gradually speeded up to a pace of 2.5% yoy in May. Lending to households was driven by residential mortgages. The trend in mortgage loans to households is consistent with the recovery in the residential real estate market, which continued to grow in the first quarter of 2017. Consumer credit also grew, driven by purchases of durable goods. Loans to nonfinancial companies continued to stagnate, with the growth in medium-term loans

The overall performance of the Italian stock market was satisfactory, driven by the recovery in the banking sector (which represents 26% of the FTSE MIB Index) and the progressive improvement in economic growth and company earnings. The FTSE MIB closed the period up by 7%, while the FTSE Italia All Share Index rose by 8.6%. Mid-cap stocks posted the strongest performance, with the FTSE Italia STAR Index jumping by 24.3% over the half year. 11

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continuing to offset the downtrend in shortterm financing, against a backdrop where the vast majority of businesses deemed liquidity to be sufficient, or more than sufficient. Looking at borrower size, loans to medium and large businesses continued to grow slightly, while loans to small businesses continued to decline.

falling significantly in 2016. In the first quarter, the ratio of non-performing loans to performing loans fell to its lowest level since 2008. Funding in the first half of 2017 confirmed the trends observed previously, with growth in deposits driven by the significant increase in overnight deposits. At the same time, the double-digit decline in time deposits continued. Growth in deposits held by residents continued to be offset by the reduction in the stock of bank bonds, the trend of which was affected by customer portfolio reallocation processes. When considering refinancing under the Eurosystem, which accelerated in the first half of the year, total bank funding returned to moderate growth levels as of March.

Credit quality indices continued to show signs of improvement, thanks to more favourable economic conditions and the transfer and securitisation of loans by banks. The net stock of doubtful loans fell by about 10 billion over the first part of the year compared to the end of 2016 representing a half point fall in the ratio to total loans, at 4.4%. The formation rate for new nonperforming loans remained stable, after

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Results by business segment Google) drove the Nasdaq up by more than 15%; conversely, US corporate buybacks slowed down compared to the average of previous years. European equity indices continued to recover from the end of 2016, with the Euro Stoxx 50 up by about 8% and the Italian FTSE Mib index up by about 10%. Implicit volatilities remained at historical lows, at about 15% for the Euro Stoxx index and around 10% for the S&P500 index.

Global Markets

Trading

The context of market interest rates has kept bid-offer spreads tight; despite the improved economic situation in Europe, there was no inflationary pressure, also as a result of the negative trend in commodity prices. Euro swap rates remained at levels close to those recorded at the end of 2016. In the United States, where the macroeconomic situation has been very positive, the Fed confirmed expectations by raising rates in March and June, and continues to provide signals pointing towards tightening policy over the coming months.

The period was also strongly characterised by a further fall in credit spreads, which reached the levels of before the 2008/2009 crisis. The main factor was the high levels of liquidity in the system. Not only did the Corporate sector continue to benefit from the ECB's purchasing programme, but the Financial sector also did because of the sharp drop in credit spread volatility. Securitised product activities benefited from the revival in the primary market; this was particularly significant for issuers launching government guaranteed bond issuance programmes, with trading activities concentrating significantly on this type of asset.

Market-making activity on swaps was in line with 2016 volumes, against a backdrop of yields which continue to be at a low level, and increasing derivatives market regulation. On the European government bond market, the first half of the year was characterised by broad stability in core country rates, whereas intergovernmental spreads recorded some volatility, in particular during the French elections. Customer flows were initially driven by the fear of a right-wing government and, after the final outcome of the election result, by the unwinding of short positions; Italian securities were also affected by French price action. The trends in investment choices by final customers have shown a fall in interest for longer-duration securities; however, this factor has not slowed the flow of issuance of longer maturities, thereby leading to a marked steepening of the curves.

Making the strategic choice to focus on this type of product generated significant returns not only in strictly economic terms but also in terms of market share. For credit derivatives, business dynamics were less lively than in the previous year. Credit indices recorded low volatility throughout the period, with the exception of a few, sporadic spikes around the main political-economic events of the period. However, there was a growth trend in credit option volumes traded.

Despite the growth expectations of most operators, the commodities market generally saw falling prices, with few exceptions. In the energy sector, oil rapidly shrugged off the effects of the agreement to cut production, which several countries coordinated by OPEC reached at the end of 2016. To date, the renewal of the agreement for a further 18 months (expiring March 2018) has had little effect, also as a result of the growth rate in shale oil production in the USA. Oil closed

Equity indices performed positively over the first half of 2017, driven by the wake of the US indices (the S&P500 index appreciated by about 9%) and the technology sector in particular, where securities with the highest market capitalisation (the FAAMG, Facebook, Apple, Amazon, Microsoft and 13

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the semester with a YTD correction of over 20% (Gasoline and Natural Gas performed even worse: -25%). In general, metals were counter-cyclical: the best performer was aluminium, which was up 11%, followed by copper (+6%). In the precious metals sector, gold and silver benefited from higher geopolitical tensions, closing up 7% and 5% respectively.

Principal Investment continued its due diligence and investment analysis on assets belonging to different asset classes, with the completion of new investments in Private Equity and Private Debt closed-end funds.

Investment Strategy & Portfolio Analysis has maintained a significant exposure to European credit risk to leverage the falling trend in credit spreads resulting from the European Central Bank purchase programme (CSPP). The management of the overall impact of DVA volatility on the income statement was carried out dynamically using balanced credit and equity exposures, with a particular focus on extreme scenarios.

There was renewed volatility on the currency markets. This had several causes: the reduction of QE and debate about tapering, which drove the EUR/USD rate up to a modest recovery (YTD + 7%).

Finance & Investments Sales & Distribution Fixed Income & Macro Portfolio Management maintained a position based on long-dated exposures to core securities in the deflationary context, combined with exposure to peripheral bonds as well as emerging market asset swaps. Positions in semi-core European securities were increased on a more tactical basis at the French presidential elections. AFS portfolio diversification was constantly kept at high levels, with exposure to Italian Sovereign Risk below the threshold of a third of the total.

First-half results confirm once again the quality and importance of customergenerated business as a major component of revenue.

For investment products on Italian third-party networks, the focus was on the distribution of dollar-denominated Bonds issued by supranational entities (EIB and World Bank), given expectations of further strengthening, and on the demand for the distribution of certificates with conditional capital protection. Interest in distributing funds and insurance products was confirmed, and as a result, business activities were focused on asset management companies and structuring solutions within Structured Asset Management.

With regard to cross-sectional and operational risks, the Market Treasury desk ensured that the liquidity position was managed with a focus on improving the interest margin in keeping with the rules of the Liquidity Policy. As of December 2016, the desk started to manage the CIB Division's derivative portfolio funding value adjustment (FVA), while the Credit Treasury desk oversaw the counterparty risk pricing activities supporting OTC derivatives distribution, and commenced trading synthetic risk transfer tools.

The Ultimate Parent's Banca dei Territori Division carried out sales of certificates amounting to 1.3 billion euro, up 29% from the corresponding period of the previous year. Thanks to the improvement in the stock prices, secondary activity was also good. The placement of Intesa Sanpaolo Life's unit-linked policies with protection provided by Banca IMI is proceeding successfully, and assets under management reached more than 7 billion euro at the end of June. Further new managed asset product marketing initiatives have covered Eurizon, Epsilon and Intesa Sanpaolo Vita products: of special note are the Eurizon Difesa 100 funds and

The Secured Financing & Strategic Transactions loan portfolio increased by approximately 1.8 billion euro; in this context, the activity of optimising collateralised netting sets continued to minimise capital and liquidity absorption.

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the multi-class InFondi Stabilità Policy which has been marketed since the beginning of June, with a placement rate of over 100 million euro per week.

European and South African companies and aimed to synthetically convert US dollar debt to fixed rate euro.

Over the first half of the year, the Italian stock market, driven by interventions in the banking sector and by the introduction of individual savings plans (PIR), meant that equity products reached their highest levels for the last two years. For corporate customers, the national and international context has been conducive to exiting equity investments (utilities first and foremost) and lightening the bond portfolio. Portfolio hedging of OTC derivatives continued at constant rates and was accompanied by new equity swap transactions.

Customers in the Retail Companies and Businesses Segment within BdT have shown renewed interest in currency transactions as a result of the higher levels of volatility in the standout major currency, the US Dollar. Indeed, the Euro dollar rate was the key driver in the last part of the second quarter with a rate which fluctuated between a minimum of 1.0591 and a maximum of 1.1441. This was a benefit both for exchange-rate derivative operations (+15% in volume terms compared to the first half of 2016, with traded volumes of about one billion euro), and spot and forward foreign exchange trading (+9% increase in volume for a total of 2.7 billion euro).

For commodities, the second quarter was marked by a return to risk aversion, with financial markets adopting a risk-off stance due to the recent deterioration of the fundamentals for oil, the political context in Europe, the United States and Brazil and the intensifying geopolitical risks in the Middle East. The precious metals segment showed positive returns, driven by rising gold, strong demand for housing, and palladium, in the expectation of an expanding deficit. The worst sector was the energy sector, negatively influenced by fears that the growth of non-OPEC supply could more than compensate for the cuts by OPEC and the persistently high levels of world stock.

Conversely, interest rate trading contracted slightly, at total traded volumes of around 1.9 billion euro. The reason for this was a gradual reduction in floating rate loans together with a shortening of the average maturity of the loans granted; the current market environment, which has not yet priced in expectations of an increase in Euribor rates in the immediate future, implies a low perception of the interest rate risk on debt with a residual maturity of less than five years.

Unlike what happened in 2016, these developments drove the main energy consumers and the shipping and airline sectors towards wait and see or short-term hedging policies. The constant on-boarding of customers in the physical gas sector should also be noted, together with its resulting increase in volumes.

In the commodities sector, hedging through OTC derivatives (+141% compared to the first half of the previous year) continue to grow, whereas activities in gold lending slowed slightly.

Over the first six months of the year, the Corporate sector showed more interest in adopting a more active approach to interest rate risks, especially with regard to hedges with a maturity of more than 5 years, and these were also favoured by a slightly more marked level of market volatility. The most significant transactions on the Solutions desk were in respect of extraordinary transactions in M&A and Project Finance, both in Italy and abroad, but coverage of customers’ flow business also remained important. On the international front, a number of Cross Currency Swap deals were of particular importance. These were with leading

The Private sector saw a sharp fall in the distribution of certificates, as the distribution network has been targeting managed and insurance savings products. Equity-Linked Certificates for Family Offices and Private Banks are growing, and these are purchased directly on the secondary market. The positive funding trend deriving from direct listings using “Obbligazioni Collezione” Bonds is ongoing, with a total of 430 million euro of new fixed- and mixed-rate coupon issues in Euro, USD, Rubles, NZD 15

Board of Directors of 1 August 2017

Interim report on operations

June 2017

and Turkish Lira. Customer interest in dollar and euro issues has been confirmed. 57 new direct listing certificates on European and American single stocks are of especial note.

staged a recovery in activities following the political events of the second quarter, recording growth rates of over 70%.

The EBA's focus on a number of Italian banks has polarised the institutional sales activity in the first months of the year, with refinancing transactions in state-guaranteed securities, and with the work of analysing and organising the disposal and potential financing of NPL portfolios. In Cash Equity, despite a generalised fall in secondary market volumes, the launch of PIR products by some Asset Managers has led to an increase in the volumes and performance of all PIR-eligible securities. This trend is expected to continue, given that many other asset managers are yet to launch comparable products.

Structuring

The Securitisation and Risk Transfer Solutions desks redoubled their focus on the structuring and active management of credit risk in order to offer its customers solutions geared towards the need to optimise economic and regulatory capital, de-consolidate non-core and non-performing assets and improve the net financial position. Via its sales force, the team has assisted the specialist investors involved in structured credit transactions and activities designed to improve the distribution of underlying risks on the capital markets.

In foreign currency transactions, there was a significant increase in volumes with banking customers, both from Italy and abroad, thanks to the adoption of a new platform that has allowed the channelling of volumes more than the previous half years. Banca IMI’s derivative capabilities have also made it a reference counterparty for both Major currencies and Emerging Markets.

The Carige Group saw the re-opening of the Lanterna Consumer securitisation, which led to the transaction being increased by 147 million euro, equally split between the conduit of Intesa Sanpaolo Group and that of another bank. Alba Leasing completed a new securitisation of lease receivables (Alba 9), comprising the issue of senior securities totalling 700 million euro, which have been partly financed by the conduit pending subsequent placement on the market by the end of the current year.

After a pressured 2016, demand has picked up on the Milan stock exchange. Market Hub performance was excellent during the period analysed, with an average 27% increase in traded exchange rates and a 5% average growth in executed transactions. The Fixed Income EuroTLX segment recorded a 14% average decline in volumes traded; however, the MOT market was better (with around 1% lower volumes compared to the same period in 2016) thanks to the placement in May of the 11th BTP Italia issue. IMI outperformed the market here too, with average EuroTLX trading volume slightly down (-1.19%) but with transactions increasing by 16%.

Banca IMI acted for FCA Bank in the capacity of arranger of a new auto financing securitisation (ABEST 15) for approximately 1 billion euro, and in the placement of ABEST 12 (about 700 million euro) on the market. A securitisation of consumer loans was carried out for Banca Progetto (Diaz SPV) for a total of around 150 million euro. It assisted Intesa Sanpaolo as arranger, dealer and JLM as part of the issue of 1 billion euro of bank bonds, which were guaranteed in the context of the ISP CB Ipotecario programme.

The Listed Derivatives (ETD) component closed the first half of 2017 with approximately 19 million traded lots, essentially in line with the same period of the previous year. Despite a slight slowdown in the top two direct membership markets (IDEM -3% and Eurex -2.5%), interest in the American markets grew and Euronext Paris

Risk Transfer Solutions completed the fifth transaction in the multi-originator nonperforming loans disposal programme, which Banca IMI has been carrying out since 2013 together with the Central Banking Fund. This mainly involves cooperative credit banks (about 30) and the nominal amount of 16

Board of Directors of 1 August 2017

Interim report on operations

June 2017

receivables sold totals more than 300 million euro. Another important milestone was the involvement in the structuring and delivery of the credit refinancing that the Bridge Entities (the banks born out of the resolution of Banca Marche, Banca Popolare Etruria and Lazio, Cassa di Risparmio di Chieti and Cassa di Risparmio in Ferrara) carried out with REV (the vehicle that was created to acquire the doubtful loans of the four preresolution banks), as part of the divestment of the doubtful loans. The transaction was guaranteed, among other things, using the paper secured on the doubtful debts purchased by REV. The Ultimate Parent was also assisted in refinancing exposure to the National Resolution Fund, and in the sale of a portfolio of approximately 2 billion euro of non-performing loans to a specialised fund.

At European level, DCM is ranked 22nd in the overall league table and 5th in the Southern Europe league table.

Among the major transactions executed since the beginning of the year as a bookrunner, the Nuovo Trasporto Viaggiatori (NTV) issue stands out. NTV is a private operator in the high speed rail segment, and it successfully placed a 550-million-euro bond issue, with demand four times higher than the initial offer, allowing the book to be closed significantly ahead of schedule. Other issues in the corporate Italy segment were carried out for Leonardo, Ansaldo Energia, CNH Industrial, Italgas, 2i Rete Gas, Snam and Enel. Foreign bond placements were carried out for APRR, Merlin Properties, Repsol, General Motors, Vinci, Gas Natural, FCE Bank, Engie, Air Liquide, RCI Bank, Iberdrola, UnibailRodamco, Auchan and PSA Banque.

In the last part of the half year, Banca Carige (together with two other companies in the Group) sold a portfolio of around 940 million euro of non-performing loans to a securitisation vehicle. The next phase of the transaction, in July, involves issuing three classes of ABS, assigning an IG rating to the senior notes and the subsequent sale of mezzanine and junior notes to institutional investors. An analogous transaction of 1.5 billion euro was structured for another Italian bank, and this will be completed in the third quarter.

The Financial Institutions segment included the senior, subordinate and covered bond transactions carried out by the Ultimate Parent as well as an especially significant Green Bond. Intesa Sanpaolo was the first Italian bank to issue in this area, demonstrating its commitment to the growth of sustainable finance in Italy. IMI also acted as a bookrunner in the State-secured issues by Veneto Banca and Banca Popolare di Vicenza and in the senior, covered and subordinated issues by Azimut, LBBW, SocGen, CFF, DVB, Deutsche Bank, Bank of America, Goldman Sachs, BNP Paribas, JP Morgan and Santander. Lastly, IMI also acted in the Italian Republic’s 15-year BTP and BTP Italia issues, and in the issue by Cassa Depositi e Prestiti.

Corporate & Strategic Finance Debt Markets

Equity Capital Markets During the first half of the year, Banca IMI maintained its usual market position, ranking second in Italy and adding a further good result to its historic series of almost a decade among the top three bookrunners. This leadership was further strengthened thanks to its top ranking in Italy in the Corporate Investment Grade and High Yield segment and the Financial Institutions segment for 2009-2017 (source: aggregate league tables, Thomson Reuters).

In the wake of positive secondary markets performance, primary market activity in the Emea region recorded a 61% increase in volume compared to the same period of 2016, focusing mainly on ABB (41%) and capital increases (27%). In this context, IMI has maintained its usual presence on the Italian market, acting as a global coordinator of the IPO of SPAC 17

Board of Directors of 1 August 2017

Interim report on operations

June 2017

• in the Infrastructure sector, to companies belonging to Dr Enrico Marchi (Marchi Giovanni & C. S.r.l. and Aprile S.r.l.), of the purchase of Dr. Andrea De Vido’s shares in Finanziaria Internazionale. Banca IMI also advised a consortium (Finanziaria Internazionale and two international infrastructural funds) on the acquisition of a controlling stake in SAVE, followed by the launch of a mandatory Public Takeover Offer. Both these transactions should be completed during the second half of the year.

Crescita (with a value of 130 million euro) and Indel B (37 million euro), joint bookrunner in the UniCredit capital increase (for a total of 13 billion euro) and cobookrunner in the UBI Banca capital increase (400 million euro). The Bank also acted as sole bookrunner of the ABB for the sale of 1% of the share capital of Iren by the City of Turin and of 0.7% of the share capital of IMA by Banca Popolare di Vicenza. The Bank also assisted a group of key Moncler managers in the sale of shares deriving from the stock option plan approved in the IPO and recently implemented.

At international level, IMI acted in the role of joint bookrunner in the capital increase of Deutsche Bank (8 billion euro) and Credit Suisse (CHF 4 billion), was co-bookrunner of the EDF capital increase (4 billion euro), comanager of the Lonza capital increase (CHF 2.3 billion) and co-manager of the STMicroelectronics convertible bond issue (USD 1.5 billion).

Structured Finance

The first half of the year saw a slight decline in syndicated loan volumes in the EMEA area (-8% vs 1H16, source Global Loans Review First Half 2017, Dealogic) but Banca IMI nevertheless achieved a top 25 ranking amongst Bookrunners and Mandated Lead Arrangers, thanks to its participation in some of the top syndicated loans. Structured Finance made a strong contribution to revenue, thanks to continuous focus on transactions offering appropriate profitability, cross-selling and synergy profiles within the CIB Division.

In the field of public bids, the bank acted as the broker responsible for coordinating and collecting acceptances of the Italmobiliare voluntary public purchase offer for 4,000,000 of its own shares. Over the half, Banca IMI also acted as Specialist or Corporate Broker to approximately 50 companies listed on the Italian exchange, confirming its leadership in this segment of the market.

The international operations were intense, especially in Acquisition Financing, involving the participation in several important leveraged deals: the acquisition of a biopharmaceutical company by a Swiss pharmaceutical multinational, the acquisition of shares of Stillwater Mining by Sibayne, the acquisition of Omantel by Oman Investment Fund, of Harris CapRock by Speedcast, of Travelopia by KKR and of CR Bard by Becton Dickinson. Worthy of note were also several project financing transactions in the shipping sector (Brightoil Petroleum and Yinson Holdings), the oil & gas sector (SPI Exploration & Production Corp), the energy sector (Transitgas and FluxSwiss, Fern Trading, Star Energy, Tierra Mojada) and the infrastructure sector (university hospital in Spain and Aeropuertos Dominicanos Siglo XXI) as well as real estate transactions in New York (Extell and Red Hook 160).

M&A Advisory

Banca IMI provided its services: • in the TMT sector, to the L'Espresso Group, in respect of the transfer of 100% of Italiana Editrice (Itedi) to GELE; and to Abertis, through its subsidiary Serenissima Partecipazioni, on the sale of 94.12% of Infracom to the F2i and Marguerite funds; • in the Industrial sector, to IMR Industries on the acquisition of Industriale Sud, in order to create a leading automotive component group; • in the agricultural and food sector, to Bonifiche Ferraresi by issuing a fairness opinion regarding BF Holding’s Public Offering and Exchange Offer;

The Energy & Industry Specialized Lending desk completed financing operations valued at over 16 billion euro 18

Board of Directors of 1 August 2017

Interim report on operations

June 2017

during the first half of the year; some of the most important of these include: • 14.7 billion euro (Intesa Sanpaolo’s share was 1.8 billion) backing the public purchase offer by Atlantia - a company listed on the Milan Stock Exchange and a global player in motorway infrastructure - for Abertis Infraestructuras S.A. - a listed company on the Madrid Stock Exchange and leading motorway operator. Banca IMI acted as Debt Advisor of Atlantia and will act as Joint Lead Manager and Bookrunner on the bond issues aimed at refinancing part of the loan. Intesa Sanpaolo is the lending bank and will act as Hedging Bank; • CHF 478 million for Transitgas and FluxSwiss, in order to refinance existing debt and pay transaction costs, as well as the mark-to-market exercise on closing the Transitgas and FluxSwiss hedging contracts. Transitgas is the company that owns the gas pipeline that supplies gas to all of Switzerland and serves as a transit route for the supply of gas from Norway and the Netherlands to Italy; • 360 million euro for Ortigia Power 21. This vehicle will be held by Renam (60%) and the Tages Helios Fund, following the reorganisation of the Group. The disbursement will be used to refinance the outstanding debt on the Sun Reserve photovoltaic portfolio of approximately 101 MW. Banca IMI acted as Mandated Lead Arranger and Lender; • 250 million euro for 2i Aeroporti, an SPV owned by F2i and Ardian, which manages a diversified portfolio of holdings in airport management companies, and Gesac, which manages Naples airport. This disbursement will be used to refinance existing debt and acquire stakes in airport management companies; • 160 million euro for Nuovo Trasporto Viaggiatori, the second-largest operator of Italian rail transport on high-speed lines, in order to refinance existing indebtedness. The transaction also provides for the issue of a variable rate High Yield Bond for a total of 550 million euro.

In the Leveraged & Acquisition Finance segment of the Italian market, Banca IMI has maintained a selective approach in pursuit of new business opportunities and structuring of new financing transactions from a financial and legal point of view. Financing transactions totalling around 6 billion euro were completed. Of this around 2 billion euro was subscribed by Banca IMI. Highlights included: • 4.2 billion euro for Pirelli & C. to refinance existing indebtedness; • 1.25 billion euro for Marco Polo International Italy, to finance a capital increase in its wholly-owned subsidiary Pirelli & C., to reduce its debt; • GBP 175 million to back the acquisition of Travelopia, the AngloAmerican tour operator, by the private equity fund KKR; • 160 million euro to support the acquisition of the Golden Goose group, a luxury footwear producer, by the Carlyle private equity fund;

With reference to Public & Social Infrastructure, activities continued in supporting projects in several infrastructural sectors, including highways, airports, healthcare and water systems in Italy. On the international market, the Bank continues to invest in scouting investment opportunities in the EMEA area.

These included, MLT transactions to refinance existing debt at AlfaSigma, Assiteca, Cementir, Coop Alleanza 3.0, Datalogic, Esprinet, Monrif Group and AFV Beltrame; pooled MLT funding to support the ordinary financial needs of Bonfiglioli, Edison, RAI, Valentino and Vimpelcom, Aspesi, Fater, Fincantieri, Luxottica and LiuJo; the negotiation of an amend and

Work also continued on origination together with the responsible front desks of the Corporate & Investment Banking Division and the Banca dei Territori Division, as evidenced by a pipeline of transactions which are expected to be executed over the rest of the year. The Real Estate desk maintained intensive origination activity with an asset-light and geographical diversification approach to delivering credit facilities for investment in the sector, offering a full range of dedicated financial products and providing specialist advisory services to the industry both in Italy and abroad. Over 700 million euro of new credit facilities were structured. The Corporate Loan Structuring desk structured and organised term and revolving loans of more than 20 billion euro for Group customers across various economic sectors, both in Italy and abroad, acting as Mandated Lead Arranger, Bookrunner, and Global Coordinator.

19

Board of Directors of 1 August 2017

Interim report on operations

June 2017

extend relating to a syndication loan of Fiat Chrysler Automobiles; pool funding to finance the acquisition of Therabel Gienne Pharma by Neopharmed Gentili (Mediolanum Farmaceutici Group) and to finance the acquisition of Industriale Sud by IMR Automotive.

New mandates were signed with the leading customers of the Intesa Sanpaolo Group. Some of the key names in the portfolio include: Farnese Vini, Caffita System, Gruppo Forall, Solenergy, Spazio Industriale, Viscolube, HFV Cellini, Palladio, Lavazza, Marcegaglia, Prelios, Italgas Storage, Saipem, Oviesse Gruppo Coin, Saras, Granarolo, Intercos, Towergate, Alitalia, Autostrada Pedemontana, De Agostini, Feltrinelli, Idea Fimit, Savio, Autogrill (WDFG), RCS Mediagroup, Fassa, Farpower, Arexpo, Comifar, Edison, Salini, Tangenziale Esterna and Torre SGR Refund.

The Loan Agency confirmed its ability to compete on the domestic market with the major international players in performing super partes representative duties, safeguarding the various participants in deals in compliance with internal, Bank of Italy and ECB regulations, in both Italian and cross-border transactions.

20

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Financial performance The Banca IMI Group’s consolidated results as at 30 June 2017 show a profit of 290 million euro. The fact that the result was down 34.1% from the 441 million euro of 30 June 2016 is primarily due to a fall in total income, which was down 166 million euro compared to the corresponding period of the previous year. Against a good level of proceeds from customers - confirmed by an 8.2% growth in net fees and commissions - and the gradual increase in net interest, the reduction is concentrated in the profits from financial transactions, as a result of the fewer opportunities offered by the markets in the first few months of the year. In addition, there were higher impairment losses on the loan portfolio (+40 million euro) and higher accruals to the provisions for risks and charges (+22 million euro), mainly attributed to IMI Securities. At the same date, the separate financial statements of Banca IMI S.p.A. show a profit of 317 million euro (a more moderate decrease of 119 million euro). This is higher than the consolidated figure, which is affected by the provisions for risks and charges mentioned above. In order to provide a more complete analysis of income performances, the following reclassified income statement has been prepared. Reclassified Income Statement (in millions of euro)

Banca IMI Group 1H 2017 1H 2016

Banca IMI S.p.A. 1H 2017

1H 2016

Changes

Changes

Banca IMI Group

Banca IMI

amount

%

amount

%

Net interest income

263.1

269.6

262.7

269.6

(6.5)

-2.4%

(6.9)

-2.6%

Net fee and commission income Profits from financial transactions

201.1 292.9

185.8 453.6

191.7 292.7

164.7 453.2

15.3 (160.7)

8.2% -35.4%

27.0 (160.5)

16.4% -35.4%

Core business profit

757.1

909.0

747.1

887.5

(151.9)

-16.7%

(140.4)

-15.8%

7.3

21.7

10.8

24.1

(14.4)

Net non-recurring income (expense) Total income Net administrative expenses: of which: - personnel expenses - other administrative expenses Amortisation and depreciation Operating costs

(13.3)

764.4

930.7

757.9

911.6

(166.3)

-17.9%

(153.7)

-16.9%

(225.6)

(221.9)

(214.4)

(211.7)

(3.7)

1.7%

(2.7)

1.3%

(74.6) (151.0)

(73.4) (148.5)

(68.7) (145.7)

(67.1) (144.6)

(1.2) (2.5)

1.6% 1.7%

(1.6) (1.1)

2.4% 0.8%

(0.2)

(0.3)

(0.1)

(0.1)

0.1

(225.8)

(222.2)

(214.5)

(211.8)

(3.6)

1.6%

(2.7)

1.3%

(169.9)

-24.0%

(156.4)

-22.3%

-

Operating profit Impairment losses, provisions, other operating income (expenses)

538.6

708.5

543.4

699.8

(114.8)

(49.8)

(92.6)

(49.9)

(65.0)

Profit from continuing operations

423.8

658.7

450.8

649.9

(234.9)

-35.7%

(199.1)

(133.4)

(218.1)

(134.0)

(214.0)

84.7

-38.8%

80.0

-37.4%

290.4

440.6

316.8

435.9

(150.2)

-34.1%

(119.1)

-27.3%

Income tax expense Profit for the period

(42.7) -30.6%

This format allows for a better understanding and representation of the main items relating to core business profit, revenue and costs of a non-recurring nature, cost items associated with the management and development of infrastructure and the establishment of provisions and credit coverage. Since Banca IMI plays a major role in the group, the levels of aggregates mainly reflect the operating performance of the parent.

21

Board of Directors of 1 August 2017

Interim report on operations

June 2017

In particular: • dividends and manufactured dividends received from shares held for trading, commissions for the placement of financial instruments in the HFT portfolio and storage and injection costs relating to stocks of physical gas are shown among the profits from financial transactions; • revenue and costs associated with strategic operations or of a non-recurring nature are presented on a separate line within total income as net non-recurring income (expense); • personnel expenses reflect the results of the transfer to beneficiaries of Intesa Sanpaolo shares supporting the Banca IMI and Group incentive system; • other administrative expenses are shown net of the storage and injection costs relating to stocks of physical gas, cost recoveries and expenses arising from ex-ante and ex-post contributions to the Single and National Resolution Funds; • these are shown under the heading "Impairment losses, provisions, other operating income (expense)".

Total income of 764 million euro on a consolidated basis, is down 17.9% on the corresponding period of the previous year. Contributing to consolidated total income were both the Global Markets area, at 573 million euro, and, within the Corporate & Strategic Finance area, Structured Finance at 134 million euro and Investment Banking at 57 million euro. Total income Banca IMI Group 1H 2017

Amount

Share

1H 2016

Amount

Share

Global Markets

573.4

75.0%

721.7

77.5%

Corporate & Strategic Finance Investment banking Structured Finance

57.0 134.0

7.5% 17.5%

63.0 146.0

6.8% 15.7%

Total income

764.4

930.7

Within total income, net profits from financial transactions contributed 38% of total revenue (from 49%): driven by profit from proprietary trading in securities, derivatives and currencies; gains and losses on the sale and reimbursement of securities included in the AFS portfolio; and the cost of the buy-back of Banca IMI bonds on the secondary market. In absolute terms, the aggregate difference amounted to 293 million euro, compared to 1H2016 - a period which had offered significant opportunities connected with the Brexit referendum, both in investment management and brokerage with customers. In 1H2016, the Funding Value Adjustment (FVA) was implemented for OTC derivative valuation metrics, leading to positive oneoffs of approximately 75 million euro. Conversely, the period just closed has been less favourable for market activities, particularly in the first months of the year; the management of credit dynamics, and the CVA and DVA components affecting the pricing and fair value of financial instruments were also less profitable.

22

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Profits from financial transactions

Banca IMI Group

BANCA IMI S.p.A.

(in millions of euro)

1H 2017

Changes

1H 2016

amount

HFT Securities and derivatives

178.1

350.4 (172.3)

AFS Investments

118.8

110.9

6.7

Issues Total

Currencies

Changes

1H 2016

1H 2017

%

amount

%

-49.2

177.9

350.0 (172.1)

-49.2

7.9

7.1

118.8

110.9

7.9

7.1

6.1

0.6

9.8

6.7

6.1

0.6

9.8

(10.7)

(13.8)

3.1

-22.5

(10.7)

(13.8)

3.1

-22.5

292.9

453.6 (160.7)

-35.4

292.7

453.2 (160.5)

-35.4

The AFS portfolio continued to support the results with sale proceeds of 119 million euro (up from the previous 111 million euro). The mark-to-market valuation of the investments at period-end yielded gross capital losses of 204 million euro, recognised among equity reserves. The derecognition of the Banca IMI bonds following their repurchase on the secondary market, in the context of ordinary market-maker and liquidity-provider activities, also had a more moderate effect in absolute terms. Those charges, recognised immediately upon repurchase, will be followed in the medium and long term by the benefits to net interest income due to the transformation which has now been implemented, replacing fixed-maturity funding with new bank funding, and issuance at the best current market conditions.

The good level of revenue from customers was, as anticipated, confirmed by revenue from services, which rose by 15 million euro, driven by Corporate & Strategic Finance. There was a continuation of the positive trend, which was already highlighted in previous quarters and which came to prominence in 4Q16 with significant transactions originated by Banca IMI.

Net fee and commission income

Banca IMI Group

BANCA IMI S.p.A.

(in millions of euro)

1H 2017

1H 2016

Changes amount

Dealing and consultancy . Dealing and acceptance of trading instructions . Currency dealing . Placement of equity and debt . Structured finance . Advisory & specialist . Other

Management and services . Custody and administration of securities . Collection and payment services . Other services

Total

1H 2017

1H 2016

Changes amount

%

%

22.8 11.2 51.0 79.0 29.5 2.8 196.3

13.0 17.9 46.7 59.6 16.5 14.5 168.2

9.8 (6.7) 4.3 19.4 13.0 (11.7) 28.1

75.4 -37.4 9.2 32.6

(3.9) 0.1 0.3 (3.5)

(0.8) (0.3) (1.1)

20.5

28.2

(4.7) 0.1 0.0 (4.6)

8.2

191.7

164.7

27.0

16.4

27.1 11.6 52.3 79.0 33.3 2.8 206.1

24.9 21.0 50.1 59.6 18.3 15.8 189.7

2.2 (9.4) 2.2 19.4 15.0 (13.0) 16.4

8.8 -44.8 4.4 32.6

(5.0) 0.1 (0.1) (5.0)

(4.3) 0.1 0.3 (3.9)

(0.7) (0.4) (1.1)

16.3

201.1

185.8

15.3

8.6

16.7

31.4

The Global Markets segment benefited from traded volumes in the ETD segment holding up, but was especially affected by the increase in volume and value of the transactions carried out on the Market Hub, which were reflected positively in the revenue from dealing and acceptance of trading instructions. Conversely, currency dealing was affected by the lesser demand for currency risk hedging from Corporate customers. 23

Board of Directors of 1 August 2017

Interim report on operations

June 2017

On the primary equity markets, the wider recovery gave rise to an expansion of activities: IMI participated in the Unicredit, Deutsche Bank and EDF capital increases. Debt Capital Markets continued to provide strong coverage of the domestic market, which was highlighted by its role as bookrunner in connection with the issue by Nuovo Trasporto Viaggiatori, of the first bonds issued by the high speed rail operator, which generated demand four times higher than the number of bonds offered. The contribution from Structured Finance, as highlighted in the chart below, continues to be significant thanks to the intense origination of credit facilities in various economic and geographical areas, where IMI has acted in a number of capacities, including as lead lender. Highlights included Atlantia/Abertis and Pirelli/Marco Polo, both in support of capital market transactions.

Net interest income, at 263 million euro, was essentially in line with the figure at 30 June 2016, confirming the positive progress during the period. The main drivers in the lending component were: the reduction in the profitability of the securities portfolio, which replicated the trend shown by the interest rate curve and the compression of market spreads; and the fall (approximately 21 million euro) in the contribution from structured finance, as a consequence of the tactic of loan deleveraging carried out during the second part of 2016 in order to benefit from a more servicebased approach. This trend began to be reversed on 31 March 2017, and has not yet recovered the income gap. Net interest income

Banca IMI Group

BANCA IMI S.p.A.

(in millions of euro)

1H 2017 . Bonds and repos

Changes

1H 2016

amount

%

1H 2017

1H 2016

Changes amount

%

170.8

192.5

(21.7)

-11.3

170.5

192.5

(22.0)

-11.4

80.1

101.2

(21.1)

-20.8

80.1

101.2

(21.1)

-20.8

. Deposits, funding and interbank market

116.1

99.8

16.3

16.3

116.0

99.8

16.2

16.2

. Bonds issued

(89.1)

(108.6)

19.5

-18.0

(89.1)

(108.6)

19.5

-18.0

. Other

(14.8)

(15.3)

0.5

-3.3

(14.8)

(15.3)

0.5

-3.3

263.1

269.6

(6.5)

-2.4

262.7

269.6

(6.9)

-2.6

. Structured finance

Net interest income

The improvement in interest from treasury management has been driven by the restructuring of asset and liability maturities, and by a reduction in the cost of bonds issued, as a result of the redemptions of outstanding bonds, which were reduced to 10 billion euro from 14.3 billion euro on 30 June 2016.

24

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Global Markets' contribution to the net interest income was also confirmed, partly as a result of the active management of the sources of lending and funding designed to better position the Bank in relation to the most recent liquidity standards (net stable funding ratio).

Group non-recurring income (expense) included in Income on investments the share of income of companies carried at equity (Epsilon and EuroTLX). The separate financial statements of Banca IMI show the dividends received from the subsidiaries mentioned above. Unlike 1H2016, during the first half of this year, no gains on the disposal of equity investments or strategic investments were realised. Net non-recurring income (expense)

Banca IMI Group

BANCA IMI S.p.A.

(in millions of euro)

1H 2017

1H 2016

7.3

6.5

7.3

Income on investments Gains on disposals Net non-recurring income (expense)

Changes

Changes

1H 2017

1H 2016

0.8

10.8

8.9

1.9

15.2

(15.2)

-

15.2

(15.2)

21.7

(14.4)

10.8

24.1

(13.3)

amount

%

amount

%

Operating costs totalled 226 million euro, showing a slight increase - less than 4 million (+1.6%) equally distributed between personnel expenses and other administrative expenses. With reference to the former, the increase is not of a structural nature, and exclusively reflects a different quarterly distribution of the provisions relating to the incentive scheme, in line with the timing of the basic salary payment; the latter is a direct consequence of the substantially unchanged number of staff members (including seconded personnel). The composition of personnel of Banca IMI is summarised below.

Number of employees Registered employees

30 June 2017 31 December 2016 30 June 2016

Changes on Dec 2016 on Jun 2016

837

830

838

7

(1)

13

16

15

(3)

(2)

Seconded to other companies and expatriates

(14)

(11)

(15)

(3)

1

Total dedicated resources

836

835

838

1

(2)

of which: Italian subsidiaries

754

755

755

(1)

(1)

of which: Foreign branches

82

80

83

2

(1)

Seconded from other companies and expatriates

25

Board of Directors of 1 August 2017

Interim report on operations

June 2017

As at 30 June 2017, the employees on Banca IMI’s payroll came to 837 resources (830 as at 31 December 2016), of whom 69 were executives (71), 552 middle managers (unchanged), and 216 members of the remaining professional categories (207). In addition to these, there were 47 employees of IMI Securities.

The growth in "Other administrative expenses" was driven by cost items directly related to operations and legal costs; over the first half of 2017, the latter include amounts accounted for by the subsidiary IMI Securities in respect of the overall management of ongoing audits by the SEC. Other administrative expenses

Banca IMI Group

BANCA IMI S.p.A.

(in millions of euro)

1H 2017

Changes

1H 2016

amount

1H 2017

%

1H 2016

Changes amount

%

(95.0)

(94.4)

(0.6)

0.6

(94.5)

(93.8)

(0.7)

0.7

Compulsory compliance costs

(3.2)

(2.7)

(0.5)

18.5

(3.1)

(2.6)

(0.5)

19.2

Logistics and operating costs

(6.0)

(6.3)

0.3

-4.8

(4.8)

(5.2)

0.4

-7.7

(28.2)

(27.9)

(0.3)

1.1

(27.6)

(27.2)

(0.4)

1.5

(6.6)

(4.0)

(2.6)

65.0

(4.4)

(3.5)

(0.9)

25.7

(12.0)

(13.2)

1.2

-9.1

(11.3)

(12.3)

1.0

-8.1

(151.0)

(148.5)

(2.5)

1.7

(145.7)

(144.6)

(1.1)

0.8

Outsourcing costs

Databases and market information costs Legal and consulting expenses Other expenses Total Other administrative expenses

The constant attention paid to the absolute level and to the cost efficiency was confirmed by the savings made in other operating costs (logistics, travel, insurance premium renewal).

Total other administrative expenses continues to comprise predominantly outsourcing costs, costs in connection with the generation and development of revenue, in contrast to general operating and management costs. The stability over time of the latter items is demonstrated by the quarterly breakdown of 'Other administrative expenses'.

26

Board of Directors of 1 August 2017

Interim report on operations

June 2017

The cost/income ratio reached 29.5% compared to 23.9% in the corresponding period of 2016: the increase in the ratio is mainly attributable to the reduction in total income.

The operating profit, amounting to 539 million euro, gives rise to a consolidated profit of 290 million euro after impairment losses, net provisions and other operating expenses totalling 115 million euro, and income taxes of 133 million euro. Profit for the period

Banca IMI Group

BANCA IMI S.p.A.

(in millions of euro)

1H 2017

Changes

1H 2016

amount

Changes

1H 2016

1H 2017

%

amount

Operating profit

538.6

708.5

(169.9)

Net impairment losses

(55.1)

(15.3)

Provisions for risks and charges

(23.1)

(1.0)

Resolution Funds expenses

(36.5)

(33.6)

(2.9)

0.1

(0.1)

-

-

-

(0.1)

-

-

Other non-operating income Other non-operating expense

Profit from continuing operations Income tax expense

Profit for the period

(0.1)

543.4

699.8

(156.4)

(39.8)

(55.1)

(15.3)

(39.8)

(22.1)

(1.0)

(1.0)

0.0

(36.5)

(33.6)

(2.9)

-24.0

8.6

%

-22.3

8.6

-

423.8

658.7

(234.9)

-35.7

450.8

649.9

(199.1)

-30.6

(133.4)

(218.1)

84.7

-38.8

(134.0)

(214.0)

80.0

-37.4

290.4

440.6

(150.2)

-34.1

316.8

435.9

(119.1)

-27.3

In the first half of the year, 37 million euro (34 million at 30 June 2016) was booked for ex ante payments to the Single Resolution Mechanism pursuant to Directive 2014/59/EU - Bank Recovery and Resolution Directive (BRRD). In addition to this amount, there was an irrevocable commitment of 6.4 million euro in respect of potential requirements in the case of bank resolutions; cash collateral was posted against this commitment. Both amounts have been fully paid at the date of this report. The net impairment losses on the loan portfolio, both in respect of direct disbursements and for risks assumed synthetically, or for risks represented by derivatives, were included in the income statement at 55 million euro. However, the loan loss ratio in the first half of 2016, was at lower levels thanks to the reversals recorded following the positive developments on a number of impaired positions. At the end of the first half, the coverage ratio of portfolio adjustments to performing on-balance sheet loans and commitments to lend was over 1%. Banca IMI Securities accrued USD 24 million to the provisions for risks, to appropriately cover the ongoing Stock Exchange Commission (SEC) audit. Risk coverage was completed by net accruals of 1 million euro in respect of the possible economic effects resulting from the possible enforced cancellation of OTC derivative contracts. Risks of this latter nature related primarily to external events and by their nature are different from those already incorporated in the determination of fair value.

Income tax expense is calculated on the consolidated profit for the period using a tax rate of 31.5%, compared to 33.1% in the corresponding period of the previous year. The reduction is only marginally attributable to changes in the tax base for 2017 in terms of deductibility of interest expense. It is, to a greater extent, a function of more timely recognition of foreign tax credits and current tax liabilities.

For a further analysis of the income statement trends, the quarterly income statement and the statements of reconciliation between the separate income statement and reclassified income statement of the Group and Banca IMI are presented below.

27

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Banca IMI Group Quarterly reclassified Income Statement (in millions of euro)

2Q17

1Q17

4Q16

3Q16

2Q16

1Q16

Net interest income

150.8

112.3

118.8

142.5

144.8

Net fee and commission income

101.6

99.5

207.8

80.9

105.4

80.4

Profits from financial transactions

164.0

128.9

126.6

66.5

217.6

236.0

Core business profit

416.4

340.7

453.2

289.9

467.8

441.2

3.7

3.6

5.7

4.5

20.8

0.9

420.1

344.3

458.9

294.4

488.6

442.1

(112.6)

(113.0)

(123.2)

(104.7)

(113.0)

(108.9)

Net non-recurring income (expense) Total income Net administrative expenses: of which: - personnel expenses - other administrative expenses Amortisation and depreciation

(37.3) (75.3)

(37.3) (75.7)

(55.6) (67.6)

(35.7) (69.0)

(36.9) (76.1)

124.8

(36.5) (72.4)

0.0

(0.2)

(0.1)

(0.1)

(0.2)

(0.1)

Operating costs

(112.6)

(113.2)

(123.3)

(104.8)

(113.2)

(109.0)

Operating profit

307.5

231.1

335.6

189.6

375.4

333.1

Profit from continuing operations

(54.1) 253.4

(60.7) 170.4

(62.3) 273.3

(6.6) 183.0

(28.3) 347.1

(21.5) 311.6

Income tax expense

(91.5)

(41.9)

(97.7)

(57.5)

(112.5)

(105.6)

Profit for the period

161.9

128.5

175.6

125.5

234.6

206.0

Impairment losses, provisions, other operating income (expenses)

BANCA IMI S.p.A. Quarterly reclassified Income Statement (in millions of euro)

2Q17 Net interest income

1Q17

4Q16

3Q16

2Q16

1Q16

150.6

112.1

118.6

142.5

144.8

124.8

Net fee and commission income

97.5

94.2

202.9

71.5

98.6

66.1

Profits from financial transactions

163.9

128.8

127.1

66.7

217.5

235.7

335.1

448.6

280.7

460.9

426.6

1.6

24.1

Core business profit

412.0

Net non-recurring income (expense)

10.8

Total income

422.8

335.1

448.6

282.3

485.0

426.6

(107.4)

(107.0)

(117.6)

(99.6)

(107.7)

(104.0)

(34.4) (73.0)

(34.3) (72.7)

(52.5) (65.1)

(32.5) (67.1)

(33.7) (74.0)

(33.4) (70.6)

0.0

(0.1)

-

(0.1)

-

(0.1)

Operating costs

(107.4)

(107.1)

(117.6)

(99.7)

(107.7)

(104.1)

Operating profit

315.4

228.0

331.0

182.6

377.3

322.5

Profit from continuing operations

(41.4) 274.0

(51.2) 176.8

(47.8) 283.2

(6.5) 176.1

(28.3) 349.0

(21.6) 300.9

Income tax expense

(92.0)

(42.0)

(98.0)

(56.0)

(112.0)

(102.0)

Profit for the period

182.0

134.8

185.2

120.1

237.0

198.9

Net administrative expenses: of which: - personnel expenses - other administrative expenses Amortisation and depreciation

Impairment losses, provisions, other operating income (expenses)

-

28

-

-

Board of Directors of 1 August 2017

29 260.8

0.5

260.3

Net interest income

158.5

201.1 (42.6)

25.9

25.2 0.7

201.3

201.3

Net fee and Net trading commission Dividends income income

3.0

3.0

Net hedging income

111.1

0.3

108.0

2.8

Profits on disposal

(55.1)

(55.1)

(75.5)

(74.9) (0.6)

(0.2)

(0.2)

(23.1)

(23.1)

0.5

(0.1)

0.6

- ex-ante and ex-post contributions to the Resolution Funds are recognised under Other operating expenses.

- other administrative expenses are net of reimbursements and costs recoveries.

are recognised under profits from financial transactions;

- the dividends and manufactured dividends received on trading, commissions for the placement of HFT financial instruments, storage fees related to physical commodity trading

Specifically:

of some financial statements items with the economic trends of non-recurring items.

(190.0)

(36.5)

(151.0)

(2.5)

6.6

6.6

Accruals to Other Gains on Net impairOther Amortisation Personnel provisions operating sales of ment administrative and expenses for risks and income equity losses expenses depreciation charges (expense) investments

INCOME STATEMENT - CONSOLIDATED FINANCIAL STATEMENTS

The reclassified income statement aims to better represent management phenomena, highlighting the economic connection

TOTAL

Income taxes

Impairment losses, provisions, other operating income (expenses)

Amortisation and depreciation

Administrative expenses

Personnel expenses

Non-recurring income (expense)

Profits from financial transactions

Net fee and commission income

Net interest income

RECLASSIFIED INCOME STATEMENT

(in millions of euro)

(133.4)

(133.4)

Income taxes

Reconciliation between the reclassified income statement for the period ended 30 June 2017 and the income statement included in the consolidated financial statements

BANCA IMI Group

290.4

(114.8) (133.4)

(0.2)

(74.6) (151.0)

263.1 201.1 292.9 7.3

TOTAL

Interim report on operations June 2017

Board of Directors of 1 August 2017

30

260.3

0.4

259.9

Net interest income

149.1

191.7 (42.6)

Net fee and commission income

36.1

25.3 10.8

Dividends

201.1

201.1

3.0

3.0

Net trading Net hedging income income

111.1

0.3

108.0

2.8

Profits on disposal

(55.1)

(55.1)

Net impairment losses

(69.6)

(69.0) (0.6)

Personnel expenses

(184.7)

(36.5)

(145.7)

(2.5)

(0.1)

(0.1)

(1.0)

(1.0)

Accruals to Other Amortisation provisions administrative and for risks and expenses depreciation charges

INCOME STATEMENT - SEPARATE FINANCIAL STATEMENTS

0.6

0.6

Other operating income (expense)

(134.0)

(134.0)

Income taxes

- ex-ante and ex-post conytibutions to the Resolution Funds are recognised under Other operating expenses.

- other administrative expenses are net of reimbursements and cost recoveries.

- the dividends and manufactured dividends received on trading, commissions for the placement of HFT financial instruments, storage fees related to physical commodity trading are recognised under profits from financial transactions;

Specifically:

0.0

Gains on equity investments

The reclassified income statement aims to better represent management phenomena, highlighting the economic connection of some financial statements items with the economic trends of non-recurring items.

TOTAL

Income taxes

Amortisation and depreciation Impairment losses, provisions, other operating income (expenses)

Administrative expenses

Personnel expenses

Non-recurring income (expense)

Profits from financial transactions

Net fee and commission income

Net interest income

RECLASSIFIED INCOME STATEMENT

(in millions of euro)

Reconciliation between the reclassified income statement for the period ended 30 June 2017 and the income statement included in the separate financial statements

BANCA IMI

316.8

(92.6) (134.0)

262.7 191.7 292.7 10.8 (68.7) (145.7) (0.1)

TOTAL

Interim report on operations June 2017

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Equity and financial aggregates The following table shows a summary of the figures in the statement of financial position of the Group and Banca IMI as at 30 June 2017 and 31 December 2016, reclassified on the basis of the nature of the underlying relationship and intended use. Banca IMI Group Condensed reclassified statement of financial position (in millions of euro)

ASSETS

30 June 2017

31 December 2016

Changes amount

%

1. Due from banks and customers - Repurchase agreements - Securities lending - Fixed income securities - Collateral deposited - Structured finance assets - Interbank deposits - Checking accounts and other accounts

22,643.0 2,119.7 386.6 10,476.8 7,073.4 47,991.9 7,491.4

16,146.3 2,179.1 462.2 11,456.7 5,666.4 39,023.5 6,169.7

6,496.7 (59.4) (75.6) (979.9) 1,407.0 8,968.4 1,321.7

40.2 -2.7 -16.4 -8.6 24.8 23.0 21.4

12,655.5 811.9 35,160.6 125.0

11,186.8 983.5 41,307.3 154.4

1,468.7 (171.6) (6,146.7) (29.4)

13.1 -17.4 -14.9 -19.0

13,680.9 163.3

14,560.1 153.4

(879.2) 9.9

-6.0 6.5

0.9 940.8

1.2 956.2

(0.3) (15.4)

-25.0 -1.6

161,721.7

150,406.8

11,314.9

7.5

2. Financial assets held for trading - Fixed income securities - Shares, quotas and loans - Measurement of off-balance sheet trading transactions - Measurement of off-balance sheet hedging transactions 3. Investments - Fixed income AFS securities - Equity investments, AFS equities and UCI 4. Other assets - Property, equipment and intangible assets - Other assets

Total Assets (in millions of euro)

LIABILITIES

30 June 2017

31 December 2016

Changes amount

%

1. Due to banks and customers - Repurchase agreements - Securities lending - Collateral received - Loans and deposits - Checking accounts and other accounts

25,322.9 2,125.4 6,646.0 62,325.5 1,253.2

25,287.3 2,516.2 7,396.2 43,728.7 778.1

35.6 (390.8) (750.2) 18,596.8 475.1

0.1 -15.5 -10.1 42.5 61.1

42,785.2 5,842.5 140.5

50,051.2 3,500.4 196.6

(7,266.0) 2,342.1 (56.1)

-14.5 66.9 -28.5

9,965.9 59.9 704.2

11,282.6 39.6 874.9

(1,316.7) 20.3 (170.7)

-11.7 51.3 -19.5

3,060.1 1,200.0 290.4 161,721.7

3,013.3 1,000.0 741.7 150,406.8

46.8 200.0 (451.3) 11,314.9

1.6 20.0 -60.8 7.5

2. Financial liabilities held for trading - Measurement of off-balance sheet trading transactions - Short selling - Measurement of off-balance sheet hedging transactions 3. Issues - other 4. Provisions 5. Other liabilities 6. Equity - Share capital and reserves - Equity instruments - Profit for the period / year

Total Liabilities and equity (in millions of euro)

OFF-BALANCE SHEET TRANSACTIONS Guarantees given and commitments to lend Financial derivatives Credit derivatives

30 June 2017 6,440.8 3,197,504.7 99,216.7

31

31 December 2016 6,197.1 2,968,600.9 106,906.7

Changes amount

243.7 228,903.8 (7,690.0)

%

3.9 7.7 -7.2

Board of Directors of 1 August 2017

Interim report on operations

June 2017

BANCA IMI S.p.A. Condensed reclassified statement of financial position (in millions of euro)

ASSETS

30 June 2017

31 December 2016

Changes amount

%

1. Due from banks and customers - Repurchase agreements - Securities lending - Fixed income securities - Collateral deposited - Structured finance assets - Interbank deposits - Checking accounts and other accounts

22,643.0 2,119.7 386.6 10,476.8 7,073.4 47,991.9 7,410.5

16,146.3 2,179.1 462.2 11,456.7 5,666.4 39,023.5 6,086.7

6,496.7 (59.4) (75.6) (979.9) 1,407.0 8,968.4 1,323.8

40.2 -2.7 -16.4 -8.6 24.8 23.0 21.7

12,594.3 811.7 35,160.6 125.0

11,120.5 983.3 41,307.3 154.4

1,473.8 (171.6) (6,146.7) (29.4)

13.3 -17.5 -14.9 -19.0

13,680.9 177.2

14,560.1 163.7

(879.2) 13.5

-6.0 8.2

0.5 708.2

0.5 938.9

0.0 (230.7)

0.0 -24.6

161,360.3

150,249.6

11,110.7

7.4

2. Financial assets held for trading - Fixed income securities - Shares, quotas and loans - Measurement of off-balance sheet trading transactions - Measurement of off-balance sheet hedging transactions 3. Investments - Fixed income AFS securities - Equity investments, AFS equities and UCI 4. Other assets - Property, equipment and intangible assets - Other assets

Total Assets (in millions of euro)

LIABILITIES

30 June 2017

31 December 2016

Changes amount

%

1. Due to banks and customers - Repurchase agreements - Securities lending - Collateral received - Loans and deposits - Checking accounts and other accounts

25,322.9 2,125.4 6,646.0 62,325.5 1,256.4

25,287.3 2,516.2 7,396.2 43,728.7 778.1

35.6 (390.8) (750.2) 18,596.8 478.3

0.1 -15.5 -10.1 42.5 61.5

42,785.2 5,842.5 140.5

50,051.2 3,500.4 196.6

(7,266.0) 2,342.1 (56.1)

-14.5 66.9 -28.5

9,965.9 24.9 476.1

11,282.6 24.4 869.9

(1,316.7) 0.5 (393.8)

-11.7 2.0 -45.3

2,932.2 1,200.0 316.8 161,360.3

2,876.8 1,000.0 741.2 150,249.6

55.4 200.0 (424.4) 11,110.7

1.9 20.0 -57.3 7.4

2. Financial liabilities held for trading - Measurement of off-balance sheet trading transactions - Short selling - Measurement of off-balance sheet hedging transactions 3. Issues - other 4. Provisions 5. Other liabilities 6. Equity - Share capital and reserves - Equity instruments - Profit for the period / year

Total Liabilities and equity (in millions of euro)

OFF-BALANCE SHEET TRANSACTIONS Guarantees given and commitments to lend Financial derivatives Credit derivatives

30 June 2017

31 December 2016

6,440.8

6,197.1

3,197,504.7 99,216.7

2,968,600.9 106,906.7

32

Changes amount

243.7 228,903.8 (7,690.0)

%

3.9 7.7 -7.2

Board of Directors of 1 August 2017

Interim report on operations

June 2017

On-balance sheet loans

Investments in debt securities and equities are essentially attributable to the Global Markets area. The total gross amount of such investments was 27 billion euro at 30 June 2016, in line with the end of 2016, but less than the almost 30 billion euro figure at 31 March 2017. Capital market transactions also allow short positions to be taken in securities in the HFT portfolio. From an accounting standpoint, such positions are classified as “short selling”. On the liabilities side of the statement of financial position, such positions amounted to 5.8 billion euro (3.5 billion euro at 31 December 2016). The nature of the financial risks is common to both long and short positions in securities, which differ in the opposite direction of their responses to changes in prices and market parameters, allowing for the implementation of financial strategies and the management of “book” risk profiles. From an income statement perspective, the coupons accrued and paid on short positions are included in interest income. Similarly, realised and unrealised gains and losses are accounted for under item 80 of the mandatory income statement format, “Profits (losses) from financial transactions”. The underlying securities for short positions are delivered through SFT transactions (securities lending and repurchase agreements for investment purposes). These represent a share of the outstanding transactions respectively totalling 22.6 billion euro and 2.1 billion euro at 30 June 2017. The remaining securities financing transactions recognised as assets are undertaken for investment purposes or are part of the brokerage business. In the latter case, they are economically and functionally linked to part of the repurchase agreements for funding purposes and loans recognised as liabilities.

The assets in the HFT securities’ portfolio increased by 1.3 billion euro since the beginning of the year, attributable to government debt securities, which offset a small reduction in equities. Trading securities portfolio (in millions of euro)

30 June 2017

31 December 2016

30 June 2016

Changes on 31 Dec 2016 amount %

- Government and government agencies

5,881.7

4,456.2

6,531.2

- Bonds and other debt securities

6,773.8

6,730.6

7,433.3

43.2

0.6

811.9 685.0 126.9

983.5 884.4 99.1

801.8 769.3 32.5

(171.6) (199.4) 27.8

-17.4 -22.5 28.1

13,467.4

12,170.3

14,766.3

1,297.1

10.7

- Equities . Shares . Quotas of UCI Total

1,425.5

32.0

Notwithstanding the profit taking during the month of June, investments in debt securities in the AFS portfolio fell compared both to the initial balance of 2017 (-0.9 billion euro) and to the peak they reached at 31 March (-1.5 billion euro). The portfolio is leading the strategy of making bond investments with a medium to long-term holding period aimed at maximising the Bank’s strong capital position and proven fund-raising capacity in terms of profitability, while at the same time limiting the volatility on the income statement caused by price fluctuations in the short term. A part of these securities was hedged through interest-rate swap agreements to protect the portfolio from fluctuations in interest rates.

33

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Available-for-Sale securities portfolio (in millions of euro)

30 June 2017

31 December 2016

30 June 2016

Changes on 31 Dec 2016 amount %

- Italy Governments

4,464.3

5,457.7

5,014.1

(993.4)

-18.2

- EU/non EU Governments

7,369.7

7,136.2

7,629.6

233.5

3.3

733.4

554.3

573.3

179.1

32.3

42.3

281.3

323.8

(239.0)

-85.0

- ABS and securitisations

691.1

784.8

861.5

(93.7)

-11.9

- Other issuers

380.1

345.8

415.7

34.3

9.9

13,680.9

14,560.1

14,818.0

(879.2)

-6.0

- Bank issuers - Group ISP issuers

Total

Debt instruments eligible for this portfolio include Eurozone government bonds, government debt securities issued by the UK, USA, Canada, Australia, New Zealand, and Sweden, in addition to covered bonds. They also include securities from issuers in the Intesa Sanpaolo Group, and other bank issuers. In 2015 the scope of instruments authorised for the available-for-sale portfolio was further expanded to include a basket of government securities issued by selected emerging countries and denominated in hard currencies. A breakdown of the portfolio, which is shown in the graph below, shows that it comprises for 23% to USA government securities, 25% Eurozone government securities (excluding Italy) and 32% securities issued by the Italian Republic. Emerging market bonds amounted to approximately 700 million euro.

Breakdown by issue of the AFS bond portfolio as at 30 June 2017

Available-for-sale instruments also include interests in market companies, investments in real estate funds by the real-estate desk, and Intesa Sanpaolo shares for the staff incentive plan. Since 2016, with a view to diversifying the portfolio, proprietary investments have been extended to closed-end private equity and private debt funds. The objective is to make use of alternative investments with a medium-term profile which have improved risk/return characteristics compared with more traditional asset classes, as well as diversifying and decorrelating risks from the remaining portfolio of the Bank. Interests in market companies are the remaining component of the AFS financial asset portfolio. The SFPs – equity financial instruments – acquired in the context of the restructuring of credit 34

Board of Directors of 1 August 2017

Interim report on operations

June 2017

positions or participation in the Voluntary Scheme of the Interbank Deposit Protection Fund, initially recognised with a nil fair value, have also been allocated to the Corporate Centre. The longer term holdings of bonds recorded among loans and receivables had a carrying amount of less than 400 million euro. These include residual senior RMBS securities with high rating of 61 million euro reclassified in 2007 from the held for trading category - originally worth 721 million euro. Their fair value at the end of the period essentially coincides with their carrying amount. In recent years, this portion of the portfolio continued to show constant redemptions, as illustrated below. L&R Portfolio - reclassified debt securities: dynamics (in millions of euro)

1H2017

Initial Amount Reimbursements

2H2016

1H2016

2H2015

1H2015

97.7

99.4

113.8

141.7

166.7

(39.3)

(3.4)

(15.9)

(30.5)

(26.5)

Accruals and amortised cost

2.1

1.1

0.9

2.0

1.5

Collective impairment losses

0.7

0.6

0.6

0.6

0.0

Final Amount

61.2

97.7

99.4

113.8

141.7

Fair value

62.6

99.9

100.8

116.0

146.7

The loans portfolio (on balance sheet and commitments to lend) is mainly attributable to the Structured Finance segment and includes the Risk Participation Agreements benefiting the Ultimate Parent for loans provided by the latter. New business for the first half of 2017 relating to the share directly attributable to Banca IMI more than compensated for the repayments which took place. Loans to customers

30 June 2017

31 December 2016

(in milions of euro)

Gross exposure On-balance sheet exposure - performing loans - unlikely to pay - doubtful loans - past due Guarantees given - performing loans - unlikely to pay - doubtful loans Irrevocable commitments to lend Total

Impairment Net exposure Coverage losses

Gross exposure

Impairment Net exposure Coverage losses

6,359.4 1,078.4 99.1 8.8

(85.1) (316.7) (69.1) (1.4)

6,274.3 761.7 30.0 7.4

1.34% 29.37% 69.73% 15.91%

4,915.3 1,044.6 100.1 0.0

(82.7) (252.7) (58.2) 0.0

4,832.6 791.9 41.9

1.68% 24.19% 58.14%

414.4 65.6 6.0

(3.8) (21.3) (6.0)

410.6 44.3 0.0

0.92% 32.47% 100.00%

846.0 71.6

(10.0) (22.7)

836.0 48.9

1.18% 31.70%

2,157.1

(0.2)

2,156.9

0.01%

1,885.6

(0.5)

1,885.1

0.03%

10,188.8

(503.6)

9,685.2

8,863.2

(426.8)

8,436.4

Net non-performing exposures (doubtful loans and unlikely to pay) refer to all the segments of the Bank: they represent 8.7% of the total loan portfolio, which is significantly less than at the end of December 2016 (10.5%), and at 30 June 2016 (13.4%). Allowances for impairment include “collective” impairment losses of approximately 89 million euro, and IAS adjustments of around 42 million euro, relating to impairment losses due to the effect of the discounting of expected repayment flows of non-performing loans. These latter provisions will be gradually released to the income statement over time.

35

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Forms of funding and interbank business

Repurchase agreements on the liabilities’ side, typical money-market instruments, are the preferred method of financing the portfolio of debt securities, but can also be used to fund repurchase agreements for investment purposes. Accordingly, the net balance of repurchase agreements on the assets and liabilities’ side was structurally negative, with repurchase agreements of 25.3 billion euro at 30 June 2017 and a net negative balance of 2.7 billion euro. For medium-to-long-term maturities, interbank funding is obtained from the Ultimate Parent Intesa Sanpaolo. The Market Treasury function of Banca IMI also uses such funding to finance the securities portfolio, on the basis of management assessments aimed at optimising the costs of funding and liquidity positions. All of the above is governed by the provisions of the liquidity policy and is consistent with the internal indicators of the NSFR. Structural deposits are also placed with the Ultimate Parent using the proceeds of bond issues or other fixed-term instruments, in addition to structural deposits in which the Group temporarily invests its excess cash or funds resulting from measures aimed at calibrating the interbank position on the various maturities, in view of achieving the best prospective position for the Bank with regard to the liquidity standards and indicators mentioned above. Cash equivalents available on demand and overdrafts are used in the overall management described here, which also takes account of settlement flows from transactions in securities and derivatives and daily margining to and from central counterparty clearing houses or for collateral received and paid. The interbank position, defined as the net imbalance of maturing deposits and loans and the balance of cash accounts, returned to negative territory at 8.2 billion euro compared to a positive balance of 0.6 billion euro at 31 December 2016. The developments during the six months are the consequence of tactical decisions taken with respect to the LCR and NSFR, and do not reflect specific trends. Net interbank position (in millions of euro)

30 June 2017 Net interbank position on demand Net term interbank position: - time deposits - loans

Net interbank balance

31 December 2016

Changes on 31 Dec 2016 amount %

30 June 2016

6,154.1

5,308.6

2,368.6

845.5

15.9

47,991.9 (62,325.5)

39,023.5 (43,728.7)

43,997.4 (49,548.7)

8,968.4 (18,596.8)

23.0 42.5

(14,333.6)

(4,705.2)

(5,551.3)

(9,628.4)

(8,179.5)

603.4

(3,182.7)

(8,782.9)

Moving on to bond funding, new issues (0.6 billion euro) were carried out via the MOT (direct listings) and family office channels, mainly with fixed rate structures in euro and foreign currencies. Following redemptions of the issued portfolio, the overall trend showed a reduction in 2017 as well, in line with developments in the Italian banking system.

36

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Bond Issues (in millions of euro)

30 June 2017

31 December 2016

30 June 2016

Changes on 31 Dec 2016 amount

%

- Bond issues: rate indexed

6,370.0

7,388.3

10,329.2

- Bond issues: currency indexed

3,276.8

3,350.9

3,351.5

(74.1)

-2.2

319.1

543.4

588.3

(224.3)

-41.3

9,965.9

11,282.6

14,269.0

(1,316.7)

-11.7

- Bond issues: equity indexed

Total

(1,018.3)

-13.8

Derivatives

Derivative contracts are represented by the following: for OTC derivatives, by their positive and negative fair values at the individual reporting dates; for derivatives traded on regulated markets, by the debits and credits posted to bank accounts for change margins paid and collected. With reference to the first total above, developments in 1H17 are shown below. The table also shows the fair values of physical gas trading forwards, in which Banca IMI will enter into contracts for the delivery or withdrawal of physical gas at a future date. Contracts for delivery or withdrawal are settled through the specific platforms identified in the current countries of operation, Italy and Holland. Measurement of off-balance sheet trading transactions (in millions of euro)

Positive fair value of:

30 June 2017

Derivatives on debt securities and interest rates Derivatives on equities and indexes

31 December 2016

Changes amount

%

30,065.8

35,275.1

(5,209.3)

-14.8

735.2

872.9

(137.7)

-15.8 -20.2

Derivatives on currencies

2,680.8

3,360.0

(679.2)

Credit derivatives

1,350.5

1,309.1

41.4

3.2

300.5

407.7

(107.2)

-26.3

27.2

82.1

(54.9)

-66.9

0.6

0.4

0.2

50.0

(6,146.7)

-14.9

Derivatives on commodities Physical gas trading forwards Securitised derivatives and forwards Total

Negative fair value of:

35,160.6

30 June 2017

Derivatives on debt securities and interest rates

41,307.3

31 December 2016

Changes amount

%

29,640.4

34,774.4

(5,134.0)

Derivatives on equities and indexes

1,014.3

1,022.9

(8.6)

-0.8

Derivatives on currencies

3,231.9

3,927.2

(695.3)

-17.7

Credit derivatives

1,364.7

1,334.1

30.6

2.3

368.7

513.1

(144.4)

-28.1

Derivatives on commodities Physical gas trading forwards Securitised derivatives and forwards (*) Total

-14.8

24.9

84.9

(60.0)

-70.7

7,140.3

8,394.6

(1,254.3)

-14.9

(7,266.0)

-14.5

42,785.2

50,051.2

(*) Securitised derivatives include 4,546.8 million of certificates with total or partial redemption. In the Notes to the separate financial statements, these are included in structured trading liabilities.

37

Board of Directors of 1 August 2017

Interim report on operations

June 2017

The notional value of financial derivatives increased by 7.7% compared to 31 December 2016: with growth in both OTC (+193 billion euro) and quoted (+36 billion euro) instruments. Over 100 million euro of the increase in notional values was a result of client clearing services offered on the Swapclear platform in respect of interest rate derivatives for group customers and third parties. “Client clearing” relates to European Regulation No. 648/2012/EU European Market Infrastructure Regulation (“EMIR”), which introduces a series of obligations designed to reduce risk in the derivatives markets, and to improve transparency. The customer contracts to be cleared are held in accounts which are segregated from own account trading, and they provide mechanisms for daily margining through Banca IMI; the accounting segregation extends in particular to flows of money exchanged, and these are also treated separately from own account monies from a legal perspective. Furthermore, in order to keep track of individual transactions, for every derivative transferred to the Swapclear central counterparty, an OTC back-to-back contract with the same notional amount is shown in the suspense accounts. At 30 June 2017, intermediated contracts totalled approximately 397 billion euro (293 billion euro at 31 December 2016). In the table below, these contracts appear respectively in the "Swaps & FRA margined via Swapclear" category and in the "FRA" and "Swaps” categories.

As regards operations in credit derivatives, the traditional risk-off or risk-neutral stance was reversed in June 2016 in the context of banking, insurance and corporate issues, and by using strategies to hedge the implicit risk profiles of the bank’s trading books and certificates issued. Over the course of 1H17, the strategies used to manage cross-functional risks progressively closed the gap between purchases and sales of CDS, resulting in an overall short position of around 200 million euro. Credit derivatives (in millions of euro)

30 June 2017 Sector of the reference entity

Protection purchases

31 December 2016

Protection sales

Protection purchases

30 June 2016

Protection sales

Protection purchases

Protection sales

. Governments . Banking and Financials . Insurance companies . Corporates . Indices

2,616.0 3,894.0 659.9 1,532.8 41,014.6

2,493.8 4,330.6 827.4 3,802.5 38,045.1

4,212.3 4,254.3 879.8 1,908.8 41,363.6

3,867.0 5,042.6 1,128.8 3,913.4 40,336.1

4,662.3 5,280.1 884.8 3,359.2 41,898.5

4,416.5 6,537.2 1,409.3 4,640.4 40,888.2

Total

49,717.3

49,499.4

52,618.8

54,287.9

56,084.9

57,891.6

Total amounts at year-end were down by 7.2% on the end of December, due in part to more efficient management of positions, which saw voluntary repayments on the Trioptima circuit of approximately 11 billion euro. About 80% of the credit derivatives at 30 June 2017 consisted of index-linked products.

38

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Almost all OTC derivative contracts were subject to netting arrangements. Such arrangements are often accompanied by CSAs involving the mutual payment of cash collateral to mitigate the residual risk associated with the net exposure. The positive fair values not subject to netting arrangements total 0.8 billion euro (vs approximately 1.1 billion euro of negative fair values). The aforementioned physical gas trading forwards are subject to either the specialised EFET rules or the ISDA framework for strictly financial derivatives.

OTC Derivatives - netting arrangements (in millions of euro)

Positive fair value of:

30 June 2017

Derivatives on debt securities and interest rates Derivatives on equities and indexes

no netting

30,065.8

248.9

netting

29,816.9

735.2

579.9

155.3

Derivatives on currencies

2,680.8

1.1

2,679.7

Credit derivatives

1,350.5

0.0

1,350.5

300.5

7.1

Derivatives on commodities Physical gas trading forwards

x

(*)

0.6

x

x

Securitised derivatives and forwards Total

Negative fair value of:

35,160.6

30 June 2017

Derivatives on debt securities and interest rates Derivatives on equities and indexes

293.4

27.2

837.0

no netting

34,295.8

netting

29,640.4

66.7

29,573.7

1,014.3

907.3

107.0

Derivatives on currencies

3,231.9

48.4

3,183.5

Credit derivatives

1,364.7

36.0

1,328.7

Derivatives on commodities

368.7

Physical gas trading forwards Securitised derivatives and forwards Total

9.3

359.4

24.9

x

(*)

7,140.3

x

x

42,785.2

1,067.7

34,552.3

(*) Transactions included in the EFET framework

39

Board of Directors of 1 August 2017

40 83,587.5

2.6

12.7

178.1

42,945.0

6,207.8

9,403.6

540.1

1,732.3

17,883.8

23,317.2

1,551.1

-

22.0

170.9

-

25,061.2

SHARES AND INDICES

30 June 2017

8,362.9

215.4

195.1

560.6

1,397.2

2,368.3

1,485.3

1,265.1

-

2,204.4

-

1,039.8

5,994.6

OTHER

3,180,051.6

46,571.4

48,690.4

115,525.3

67,302.4

278,089.5

90,019.9

68,723.4

1,895,022.1

834,284.8

5,802.9

8,109.0

2,901,962.1

TOTAL

2,820,935.9

11,507.0

14,531.0

129,417.7

64,348.8

219,804.5

57,626.2

59,552.5

1,780,948.5

701,681.4

1,322.8

-

2,601,131.4

INTEREST RATES

77,589.1

18.6

41.8

206.5

6.8

273.7

13,187.6

11,734.7

-

45,930.6

84.9

6,377.6

77,315.4

EXCHANGE RATES

41,688.3

10,083.5

7,440.8

320.7

1,179.9

19,024.9

20,552.7

1,894.5

-

31.5

184.7

-

22,663.4

SHARES AND INDICES

31 December 2016

(*) Commitments for currencies to receive and to deliver are shown at the contractual exchange rate; regular way contracts are excluded The amount "Other" includes physical gas forwards

3,045,156.2

40,145.6

Total

39,079.0

Options sold

114,246.5

Options purchased

Futures sold

14.8

208.2

64,158.1

257,629.2

Futures purchased

- Listed

14,332.3

50,885.1

Options sold

13,137.5

52,769.7

-

45,899.7

2,940.6

7,069.2

83,379.3

EXCHANGE RATES

Options purchased

1,895,022.1

786,158.7

Swaps

Swaps and FRAs - Swapclear margins

2,691.4

-

FRAs

2,787,527.0

- Unlisted

INTEREST RATES

Forwards (*)

CONTRACTS

(in millions of euro)

Breakdown by risk category of outstanding derivatives at the end of the period - trading book

10,316.3

203.4

181.6

870.0

1,952.4

3,207.4

1,610.2

1,357.1

-

3,165.1

-

976.5

7,108.9

OTHER

2,950,529.6

21,812.5

22,195.2

130,814.9

67,487.9

242,310.5

92,976.7

74,538.8

1,780,948.5

750,808.6

1,592.4

7,354.1

2,708,219.1

TOTAL

Interim report on operations June 2017

Board of Directors of 1 August 2017

41 -

Options purchased

Options sold 16,634.0

-

Futures sold

Total

-

819.1

-

-

-

-

-

-

- Listed

Futures purchased

-

-

819.1

-

819.1

-

90.1

11,329.8

5,214.1

-

TOTAL

INTEREST RATES

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

17,453.1

-

-

-

-

-

-

90.1

11,329.8

6,033.2

-

-

17,453.1

17,134.7

-

-

-

-

-

-

113.1

10,460.7

6,560.9

-

-

17,134.7

936.6

-

-

-

-

-

-

-

-

936.6

-

936.6

EXCHANGE RATES

-

-

-

-

-

-

-

-

-

-

-

-

-

OTHER

SHARES AND INDICES

OTHER

SHARES AND INDICES

EXCHANGE RATES

31 December 2016

30 June 2017

-

Options sold

Options purchased

Swaps and FRAs - Swapclear margins

Swaps

-

FRAs

16,634.0 -

- Unlisted

INTEREST RATES

Forwards

CONTRACTS

(in millions of euro)

Breakdown by risk category of outstanding derivatives at the end of the period - banking book

-

-

-

-

-

-

-

-

-

-

-

-

-

18,071.3

-

-

-

-

-

-

113.1

10,460.7

7,497.5

-

-

18,071.3

TOTAL

Interim report on operations June 2017

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Lastly, in the interest of providing an overview of the trends during the two periods compared, the following tables contain the quarterly schedules of the main aggregates in the statement of financial position and the statements of reconciliation between the reclassified statement of financial position and the corresponding statutory schemes of Group and Banca IMI.

Banca IMI Group Quarterly reclassified statement of financial position (in millions of euro)

ASSETS

30/06/2017

31/03/2017

31/12/2016

30/09/2016

30/06/2016

31/03/2016

1.Due from banks and customers - Repurchase agreements - Securities lending - Fixed income securities - Collateral deposited - Structured finance assets - Interbank and other accounts

22,643.0 2,119.7 386.6 10,476.8 7,073.4 55,483.3

21,210.9 2,034.7 385.3 10,717.1 5,797.9 61,927.2

16,146.3 2,179.1 462.2 11,456.7 5,666.4 45,193.2

16,299.8 2,382.6 475.0 14,370.7 6,578.5 51,656.5

15,070.2 2,570.4 483.5 13,609.9 7,157.6 47,828.7

14,617.7 2,855.6 679.1 12,474.2 7,143.1 51,360.7

12,655.5 811.9 35,285.6

13,413.1 874.5 38,204.8

11,186.8 983.5 41,461.7

13,442.1 934.3 48,905.5

13,964.5 801.8 49,895.9

15,276.3 908.4 46,703.9

13,680.9 163.3

15,227.3 156.1

14,560.1 153.4

12,530.0 140.9

14,818.0 124.8

14,916.4 179.2

0.9 940.8

1.0 867.7

1.2 956.2

1.0 1,035.9

1.0 1,073.4

1.0 1,060.8

168,752.8

167,399.7

168,176.4

2. Financial assets held for trading - Fixed income securities - Shares, quotas and loans - Measurement of off-balance sheet transactions 3. Investments - Fixed income AFS securities - Equity investments, AFS equities and UCI 4. Other assets - Property, equipment and intangible assets - Other assets

Total Assets

LIABILITIES

161,721.7

30/06/2017

170,817.6

31/03/2017

150,406.8

31/12/2016

30/09/2016

30/06/2016

31/03/2016

1. Due to banks and customers

25,322.9 2,125.4 6,646.0 62,325.5 1,253.2

27,892.3 2,264.2 7,055.5 64,423.8 893.5

25,287.3 2,516.2 7,396.2 43,728.7 778.1

24,899.0 2,788.2 9,046.2 51,026.4 1,236.4

23,420.1 2,870.2 8,682.1 49,548.7 1,429.9

24,447.2 3,074.8 7,615.7 52,771.8 866.2

42,925.7 5,842.5

46,316.6 5,856.6

50,247.8 3,500.4

57,763.8 3,257.7

58,492.7 4,001.1

54,732.2 5,091.6

9,965.9 59.9 704.2

10,491.8 48.4 799.5

11,282.6 39.6 874.9

13,457.6 32.7 590.3

14,269.0 32.8 622.0

14,599.2 31.5 1,130.4

- Profit for the period / year

3,060.1 1,200.0 290.4

3,646.9 1,000.0 128.5

3,013.3 1,000.0 741.7

3,088.4 1,000.0 566.1

3,090.5 500.0 440.6

3,109.8 500.0 206.0

Total Liabilities and equity

161,721.7

170,817.6

150,406.8

168,752.8

167,399.7

168,176.4

- Repurchase agreements - Securities lending - Collateral received - Loans and deposits - Checking accounts and other accounts 2. Financial liabilities held for trading - Measurement of off-balance sheet transactions - Short selling 3. Issues - other 4. Provisions 5. Other liabilities 6. Equity - Share capital and reserves - Equity instruments

OFF-BALANCE SHEET TRANSACTIONS Financial derivatives Credit derivatives Guarantees given and commitments to lend

30/06/2016 3,197,504.7 99,216.7 6,440.8

31/03/2016 3,044,218.7 104,516.2 6,328.1

42

31/12/2015 2,968,600.9 106,906.7 6,197.1

30/09/2015 3,036,855.2 119,623.7 6,932.8

30/06/2015 2,940,485.4 113,976.5 7,705.0

31/03/2015 2,675,999.9 110,286.4 9,181.5

Board of Directors of 1 August 2017

Interim report on operations

June 2017

BANCA IMI S.p.A. Quarterly reclassified statement of financial position (in millions of euro)

ASSETS

30/06/2017

31/03/2017

31/12/2016

30/09/2016

30/06/2016

31/03/2016

1.Due from banks and customers - Repurchase agreements - Securities lending - Fixed income securities - Collateral deposited - Structured finance assets - Interbank and other accounts

22,643.0 2,119.7 386.6 10,476.8 7,073.4 55,402.4

21,210.9 2,034.7 385.3 10,717.1 5,797.9 61,844.6

16,146.3 2,179.1 462.2 11,456.7 5,666.4 45,110.2

16,299.8 2,382.5 475.0 14,370.7 6,578.5 51,579.6

15,070.2 2,437.8 483.5 13,609.9 7,157.6 47,799.8

14,617.7 2,739.5 679.1 12,474.2 7,143.1 51,323.5

12,594.3 811.7 35,285.6

13,347.6 874.4 38,204.8

11,120.5 983.3 41,461.7

13,379.2 934.1 48,905.5

13,910.2 801.6 49,895.9

15,227.8 908.2 46,703.9

13,680.9 177.2

15,227.3 162.9

14,560.1 163.7

12,530.0 157.0

14,818.0 143.8

14,916.4 194.9

0.5 708.2

0.5 850.1

0.5 938.9

0.5 1,012.0

0.5 1,043.2

0.5 1,038.2

168,604.4

167,172.0

167,967.0

2. Financial assets held for trading - Fixed income securities - Shares, quotas and loans - Measurement of off-balance sheet transactions 3. Investments - Fixed income AFS securities - Equity investments, AFS equities and UCI 4. Other assets - Property, equipment and intangible assets - Other assets

Total Assets

LIABILITIES

161,360.3

30/06/2017

170,658.1

31/03/2017

150,249.6

31/12/2016

30/09/2016

30/06/2016

31/03/2016

1. Due to banks and customers

25,322.9 2,125.4 6,646.0 62,325.5 1,256.4

27,892.3 2,264.2 7,055.5 64,423.8 896.5

25,287.3 2,516.2 7,396.2 43,728.7 778.1

24,899.0 2,788.1 9,046.2 51,026.4 1,240.9

23,420.1 2,784.7 8,682.1 49,548.7 1,433.8

24,447.2 3,001.2 7,615.7 52,771.8 877.7

42,925.7 5,842.5

46,316.6 5,856.6

50,247.8 3,500.4

57,763.8 3,257.7

58,492.7 4,001.1

54,732.2 5,091.6

9,965.9 24.9 476.1

10,491.8 24.1 790.2

11,282.6 24.4 869.9

13,457.6 32.7 576.7

14,269.0 32.8 610.3

14,599.2 31.5 1,116.5

- Profit for the period / year

2,932.2 1,200.0 316.8

3,511.7 1,000.0 134.8

2,876.8 1,000.0 741.2

2,959.3 1,000.0 556.0

2,960.8 500.0 435.9

2,983.5 500.0 198.9

Total Liabilities and equity

161,360.3

170,658.1

150,249.6

168,604.4

167,172.0

167,967.0

- Repurchase agreements - Securities lending - Collateral received - Loans and deposits - Checking accounts and other accounts 2. Financial liabilities held for trading - Measurement of off-balance sheet transactions - Short selling 3. Issues - other 4. Provisions 5. Other liabilities 6. Equity - Share capital and reserves - Equity instruments

OFF-BALANCE SHEET TRANSACTIONS Financial derivatives Credit derivatives Guarantees given and commitments to lend

30/06/2017 3,197,504.7 99,216.7 6,440.8

31/03/2017 3,044,218.7 104,516.2 6,328.1

43

31/12/2016 2,968,600.9 106,906.7 6,197.1

30/09/2016 3,036,855.2 119,623.7 6,932.8

30/06/2016 2,940,485.4 113,976.5 7,705.0

31/03/2016 2,675,999.9 110,286.4 9,181.5

Board of Directors of 1 August 2017

Fi n an c he ial a ld for ss ets tra d in g

44 13,680.9

69,378.3

28,804.5

125.0

16.0

16.0

331.4

13,828.2

125.0

Total Assets

147.3

434.1

2,449.5

7,067.6

5,192.5

386.6

96.8

331.4

48,628.0

1.8

35,158.8

811.9

7,057.3

45,542.4

5.8

5,284.3

Lo a c u ns to sto me rs 13,177.4

Eq uit i n v est y me nts

4. Other assets

- Equity investments, AFS equities and UCI

- Fixed income AFS securities

3. Investments

- Positive fair value of CCP and listed derivatives

- Positive fair value of OTC derivatives

- Shares, quotas and loans

- Fixed income securities

2. Financial assets

- Checking accounts and other accounts

- Deposits

- Structured finance assets

- Collateral deposited

- Fixed income securities

9,465.6 2,022.9

- Repurchase agreements

12,655.5

Av ail a fin b le-f an o c ial r- sal e as se ts

- Securities lending

1. Loans

ASSETS

(in millions of euro)

He d de ging riv ati ve s

Reconciliation between the condensed reclassified statement of financial positions as at 30 June 2017 and the statement of financial position included in the consolidated financial statements - Assets

ba nks ef ro m Du

ss e ts Ta xa

609.4

609.4

ts Ot he ra s se

Banca IMI Group

St fin a tem an c i e nt A al p of s s e osit ts i - O on th e r

0.9

0.9

161,721.7

13,680.9 163.3 941.7

12,655.5 811.9 35,283.8 1.8

22,643.0 2,119.7 386.6 10,476.8 7,073.4 47,991.9 7,491.4

Condensed reclassified statement of financial positions - Assets -

Interim report on operations June 2017

Board of Directors of 1 August 2017

5,898.1

- Collateral received

45

Total Liabilities

- Profit for the period

- Equity instruments

- Share capital, share premium and reserves

4. Equity

48,627.7

5,842.5

3. Other liabilities and provisions

7,176.2

31,655.6

- Short selling

9,965.9

9,965.9

- Certificates and warrants

17,890.3

520.0

109.0

747.9

152.3

3,953.4

79,782.7

733.2

Du c u e to sto me rs 16,361.1

Fi n lia an ci b i l itie al for s he tr a ld din g

- Negative fair value of CCP and listed derivatives

- Negative fair value of OTC derivatives

2. Financial liabilities

- Checking accounts and other accounts

- Bonds issued and subordinated loans

62,216.5

1,973.1

- Securities lending

- Loans and deposits

8,961.8

- Repurchase agreements

1. Payables

LIABILITIES

to ba nk s

Du e

(in millions of euro)

e c u rit iss ie s ue d S

H e d de ging riv ati ve s

140.5

7.8

132.7

185.2

185.2

it ie s iab il Ta xl

P em ostp loy be ment ne fits

9.0

9.0

50.9

50.9

519.0

519.0

ies ab ilit Ot he r li

Reconciliation between the condensed reclassified statement of financial positions as at 30 June 2017 and the statement of financial position included in the consolidated financial statements - Liabilities

rov isio ris n s k s a fo r c h nd arg es P

Va l re s uatio n e Ot r ves he r r and ese rve s

1,516.4

1,516.4

Sh ar e an c ap pr d S ital h e m ium a re r es e rv e

2,743.7

1,200.0

1,543.7

290.4

290.4

ro f i t fo pe r th e rio d P

Banca IMI Group

3,060.1 1,200.0 290.4 161,721.7

31,788.3 3,961.2 7,176.2 5,842.5 764.1

25,322.9 2,125.4 6,646.0 62,325.5 9,965.9 1,253.2

Condensed reclassified statement of financial positions - Liabilities -

Interim report on operations June 2017

Board of Directors of 1 August 2017

Fi n an c he ial a ld for ss ets tra d in g

46 13,680.9

69,297.4

28,804.5

125.0

125.0

29.9

29.9

330.1

13,828.2

434.1

2,449.5

Total Assets

147.3

6,976.4

7,067.6

5,192.5

386.6

96.8

330.1

48,566.6

1.8

35,158.8

811.7

5.8 45,542.4

Lo a c u ns to sto me rs 13,177.4

Eq inv uity est me nts

4. Other assets

- Equity investments, AFS equities and UCI

- Fixed income AFS securities

3. Investments

- Positive fair value of CCP and listed derivatives

- Positive fair value of OTC derivatives

- Shares, quotas and loans

- Fixed income securities

2. Financial assets

- Checking accounts and other accounts

- Interbank deposits

- Structured finance assets

- Collateral deposited

5,284.3

2,022.9

- Fixed income securities

9,465.6

- Securities lending

12,594.3

Av ail a fin b le-f a n c ia or- sa la ss le ets

- Repurchase agreements

1. Loans

ASSETS

(in millions of euro)

He d de ging riv ati ve s

Reconciliation between the condensed reclassified statement of financial positions as at 30 June 2017 and the statement of financial position included in the separate financial statements - Assets

ba nks ef ro m Du

ss e ts Ta xa

378.1

378.1

ts Ot he ra s se

BANCA IMI S.p.A.

St fin a tem an c i e nt As al p o of s s e ts ition -O th e r

0.5

0.5

161,360.3

13,680.9 177.2 708.7

12,594.3 811.7 35,283.8 1.8

22,643.0 2,119.7 386.6 10,476.8 7,073.4 47,991.9 7,410.5

Condensed reclassified statement of financial positions - Assets -

Interim report on operations June 2017

Board of Directors of 1 August 2017

5,898.1

- Collateral received

47

Total Liabilities

- Profit for the period

- Equity instruments

- Share capital, share premium and reserves

4. Equity

48,627.7

5,842.5

3. Other liabilities and provisions

7,176.2

31,655.6

- Short selling

9,965.9

9,965.9

- Certificates and warrants

17,893.5

523.2

109.0

747.9

152.3

3,953.4

79,782.7

733.2

Du c u e to sto me rs 16,361.1

Fi n lia an ci b i l itie al for s he tr a ld din g

- Negative fair value of CCP and listed derivatives

- Negative fair value of OTC derivatives

2. Financial liabilities

- Checking accounts and other accounts

- Bonds issued and subordinated loans

62,216.5

1,973.1

- Securities lending

- Loans and deposits

8,961.8

- Repurchase agreements

1. Payables

LIABILITIES

to ba nk s

Du e

(in millions of euro)

e c u rit iss ie s ue d S

H e d de ging riv ati ve s

140.5

7.8

132.7

185.1

185.1

it ie s iab il Ta xl

Reconciliation between the condensed reclassified statement of financial positions as at 30 June 2017 and the statement of financial position included in the separate financial statements - Liabilities

P em ostp loy be ment ne fits

9.0

9.0

15.9

15.9

rov isio ris n s k s a fo r c h nd arg es P

291.0

291.0

ies ab ilit Ot he r li

BANCA IMI S.p.A.

Va l re s uatio n e Ot r ves h e r r and es e rv es

1,388.5

1,388.5

Sh ar e an c ap pr d S ital h e m ium a re r es e rv e

2,743.7

1,200.0

1,543.7 316.8

Pr o f it f o pe r th e rio d

316.8

2,932.2 1,200.0 316.8 161,360.3

31,788.3 3,961.2 7,176.2 5,842.5 501.0

25,322.9 2,125.4 6,646.0 62,325.5 9,965.9 1,256.4

Condensed reclassified statement of financial positions - Liabilities -

Interim report on operations June 2017

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Subsidiaries and equity investments The work done by the operations departments and product desks based at the Milan office are supported by the international units: the London branch, which engages primarily in Structured Finance and commercial distribution on behalf of non-Italian institutional clients, and the subsidiaries based in the Grand Duchy of Luxembourg and the United States. BANCA IMI Italy

100% IMI Investments Luxembourg

100% IMI Capital USA

49%

Epsilon Italy

15%

EuroTLX Sim Italy

100% IMI Finance Luxembourg

15.8% Schuttrange Nucleus Italy

100% IMI Securities USA

Line-by-line scope of consolidation Equity method scope of consolidation Acquired as part of loan restructuring

The overview of the financial performance of the Banca IMI Group once again saw the Parent account for the overwhelming majority of profits. BANCA IMI and subsidiaries / associates 1H 2017

1H 2016

(in millions of euro) Company

Currency

BANCA IMI (**) IMI Investments (**) IMI Finance IMI Capital IMI Securities Epsilon SGR EuroTLX SIM (***)

Eur Eur Eur Usd Usd

Profit / (loss)

306.6 0.0 (0.1) 0.0 (24.7)

Exchange Profit/(loss) rate (*) Eur

1.0878 1.0878

Total

306.6 0.0 (0.1) 0.0 (22.7) 6.4 0.2

Share

105.58% 0.00% -0.03% 0.00% -7.82% 2.20% 0.07%

290.4

Profit/(loss) Eur 430.6 0.0 (0.1) 0.0 7.2 2.7 0.2

Share

97.73% 0.00% -0.02% 0.00% 1.63% 0.61% 0.05%

440.6

(*) Financial statements in foreign currency are translated using the average exchange rate for the period. (**) Profit has been adjusted for the dividends received from subsidiaries. (***) Equity ratio 15% from the third quarter of 2013

48

Board of Directors of 1 August 2017

Interim report on operations

June 2017

IMI Investments S.A. The holding company recorded a small loss for the period ended 30 June 2017 due to operating costs and the absence of dividends from its subsidiary IMI Finance. IMI Finance Luxembourg The finance and investment company also recorded a small loss for the period ended 30 June 2017, with its operating costs exceeding its revenues on services rendered. Banca IMI Securities Corp. - IMI Capital Markets USA The U.S. conglomerate recorded a loss of USD 24.7 million at 30 June 2017, due to provisions for risks and charges; this amount was only partly relevant for the purposes of U.S. taxation. Net of this amount, the operating margin showed a modest loss due to the cost increase on the one hand, up by 8% (+1 million USD) essentially for legal advice, and lower revenues (-12.9 million USD compared to the corresponding period of 2016) in Sales and Solutions.

EuroTLX SIM, a company that manages the regulated market of the same name as well as the MTF, has been 15%-owned since September 2013. It remains within the consolidation scope as a result of the governance agreements which confirm the continued existence of significant influence. During the period, the investee generated a profit of 1.5 million euro, contributing 0.2 million euro to the consolidated income statement.

The 49% interest in Epsilon SGR derives from the partnership with Eurizon Capital for the development of new investment products, through the pooling of both partners’ capital markets and wealth management expertise. At the end of June, the investment management company generated a profit of 13 million euro (previously 5.6 million euro) and a 13% increase in assets under management. The contribution to the Banca IMI consolidated results was 6.4 million euro.

Equity investments also include the interest in Schuttrange Nucleus ScA, carried at 1 euro, its fair value upon initial recognition, acquired following the restructuring of a credit position. Schuttrange Nucleus ScA, in which there is a 15.8% investment, is subject to significant influence by virtue of governance agreements in place.

The remaining interests in consortium companies set up by the Intesa Sanpaolo Group are of strategic importance and allow Banca IMI access to IT, post-trading, and tax and corporate advisory services.

49

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Capital adequacy and prudential supervision At the end of the period, Banca IMI and the Group had equity of 4.4 billion euro and 4.6 billion euro, respectively, including profit for the period in both cases. These amounts include a total of 1.2 billion euro of AT1 equity instruments issued as part of the Bank’s capital enhancement strategy of convergence with the Basel 3 “fully loaded” requirement.

The AT1 equity instruments consisted of perpetual securities with an early redemption option for the issuer in the fifth year and were fully subscribed by the Ultimate Parent, Intesa Sanpaolo. The first issuance took place on 31 March 2016, with an option to redeem on 31 March 2021. Interest at the rate of 8.315% (payable on a half-yearly basis) may be compounded, at the issuer’s discretion. The second issuance, on 28 September 2016, carries an option to redeem on 28 September 2021 and bears interest at a rate of 8.294% (payable on a half-yearly basis), which may also be compounded at the issuer’s discretion. The third and last issue took place on 29 June 2017, is redeemable on 29 June 2022, and pays interest of 5.879% (on a half-yearly basis) which can be rolled-up at the discretion of the issuer. From a financial reporting and accounting standpoint, in accordance with international financial reporting standards, such instruments are included amongst equity items given the risk taken by the investor and the discretion in servicing the debt. The coupons paid are accounted for on a cash basis at the time of payment, as in the case of the payment of dividends. They are recognised with a balancing entry in equity reserves equal to the amount paid, net of the associated tax effect, as an alternative to recognition in the income statement. During the first half of the year, coupons of 41.5 million euro were paid - gross of tax effects; in the second half, planned AT1 servicing payments amount to 47.4 million euro, also gross of tax effects.

The reserves and profits to be allocated include the effects of the recognition of the incentive plan for employees of the Intesa Sanpaolo Group (LECOIP) launched at the end of 2014 and adjusted to the duration of the 2014- 2017 Business Plan. The LECOIP may be classified as equity-settled and is recognised in accordance with IFRS 2, based on the recognition of the costs of services rendered by employees on a pro-rata basis amongst personnel expenses through an equity reserve. The rationale for this treatment lies in the fact that the Ultimate Parent contributes capital for the benefit of Banca IMI by bearing the cost of remunerating the latter’s employees. The corresponding IFRS 2 reserve, which amounted to 10 million euro at 31 December 2016, grew by 2.2 million euro over the period, on the basis of the costs accrued during the period.

The “Fair value reserves” – which showed a negative value of 134 million euro on the reporting date – are the result of the valuation of securities in the AFS portfolio and are included net of the related fiscal effect; the change from the beginning of the year, which is shown in the statement of comprehensive income, was a negative amount of approximately 4 million euro. The absence of impairment within the portfolio was confirmed.

50

Board of Directors of 1 August 2017

51 (130.0)

(80.6)

(49.4)

(1.1)

(0.4)

(0.7)

0.0

308.0

(308.0)

Interim dividends

(533.7)

533.7

Profit

1,651.0

(133.5)

(1.1)

1,200.0

200.0

0.0

290.4

581.3

0.0

Equity as at 30 June 2017

962.4

(3.5)

(741.7)

290.4

(30.1)

(9.0)

2.2

87.2

4,550.5

290.4

169.9

(9.0)

0.0

(3.5)

2.2

(654.5)

4,755.0

741.7

984.7

4.1

(0.4)

(80.6)

5.0

(192.5)

3,293.0

Total equity

(in millions of euro)

Profit for the period

Equity instruments

Translation of foreign currency financial statements and other changes

Attuarial gains (losses) on defined benefit plans

Fair value adjustment of AFS investments

IFRS 2 Reserve adjustment

Allocation of profit

1,000.0

1,000.0

0.0

Equity instruments

741.7

1,600.7

(15.3)

4.1

5.0

33.2

1,573.7

Other valuation reserves

Equity as at 31 December 2016

581.3

581.3

Share premium

Fair value reserves

741.7 962.4

962.4

Share capital

Reserves and profits to be allocated

Profit for the year

Equity instruments

Translation of foreign currency financial statements and other changes

Attuarial gains (losses) on defined benefit plans

Fair value adjustment of AFS investments

IFRS 2 Reserve adjustment

Allocation of profit

Equity as at 31 December 2015

Changes in equity

Banca IMI Group

Interim report on operations June 2017

The following table shows changes in the Group's equity.

Board of Directors of 1 August 2017

Interim report on operations

June 2017

Regulatory capital amounted to 4.1 billion euro at 30 June 2017, up from 3.6 billion euro at 31 December 2016. In addition to the AT1 issuance mentioned above, the change reflects the positive effects on prudential filters and the deductions included in regulatory capital in accordance with Basel 3: improvement in the AFS reserves; prudent valuation adjustments to the HFT portfolio and the prudential filter of the DVA effects on trading liabilities. These factors were followed by a reduction in the shortfalls on the loan portfolio - leading to positive effects of around 90 million euro. These were caused by the recent revision of the internal models introduced by the Intesa Sanpaolo Group for the Large Corporate segment; in return, the intention is that loans classified as “in default” will henceforward be used to calculate risk weighted assets.

BANCA IMI S.p.A. Own funds and capital requirements (in millions of euro) 30 June 2017

31 December 30 September 2016 2016

30 June 2016

31 March 2016

Own funds Common Equity Tier 1 (CET1)

2.886,0

2.688,0

2.719,2

2.874,3

2.738,5

Additional Tier 1 (AT1)

1.187,6

968,1

927,3

954,5

407,1

0,0

0,0

0,0

0,0

0,0

4.073,6

3.656,1

3.646,5

3.828,8

3.145,6

Tier 2 (T2) Total capital Capital requirements Credit and securitisation risks (*)

784,5

777,2

764,0

841,8

842,5

Counterparty risk: internal model OTC derivatives

48,6

62,7

84,9

104,3

115,1

Counterparty risk: SFT (**)

78,6

72,5

56,5

61,4

70,2

CVA charge OTC derivatives

42,2

41,3

52,1

53,5

52,2

Market risks: securitisation risk

41,8

37,6

37,5

92,0

87,0

Market risks: concentration risk

0,0

0,0

0,0

0,0

0,0

28,8

21,0

1,4

1,7

3,4

Market risks: internal model VaR

156,3

196,1

221,4

192,3

221,2

Market risks: stressed VaR

584,9

632,9

574,4

570,2

425,6

Market risks: Incremental Risk Charge

270,5

337,0

324,4

310,7

294,1

40,4

38,5

32,0

84,9

78,9

117,7

120,9

120,9

111,4

111,4

2.194,3

2.337,7

2.269,5

2.424,2

2.301,6

27.428,8

29.221,3

28.368,8

30.302,5

28.770,0

Market risks: UCI position risk (***)

Market risks: other Operating risks Total capital requirements Risk weighted assets CET1 ratio

10,52%

9,20%

9,59%

9,49%

9,52%

Total capital ratio

14,85%

12,51%

12,85%

12,64%

10,93%

(*) It includes only banking securitisation requirement (**) Internal model as of 31 December 2016 (***) Residual standard requirement

52

Board of Directors of 1 August 2017

Interim report on operations

June 2017

1

The Bank's capitalisation resulted in a total capital ratio of 14.85%, above the 12.85% figure at the end of 2016, and above the requirement for 2017 (9.25%) as well as above the fully loaded Basel 3 minimum (10.5%). The 2% increase in the ratio over the first half of the year was mainly due to the developments in own funds: the reduction in Risk Weighted Assets - down 27.4 billion euro from the 28.4 billion euro at the start of the period - accounted for around 0.5%. The reductions in the requirements were primarily in the area of market risks determined by internal models: VaR, sVaR and Incremental Risk Charge. Of the total prudential requisites of 2,194 million euro as at 30 June 2017, 44% were credit-related risk, 51% market risk and 5% operational risk.

Transactions involving shares of Intesa Sanpaolo “Reserves and profits to be allocated” included 30 million euro covering the trading of Intesa Sanpaolo shares. That amount was confirmed by the Shareholders' Meeting of 1 August 2016, which set purchasing limits at 12 million shares, with a validity of a further 18 months. The goal of the Buy-back Programme is to satisfy financial risk hedging needs arising from the Bank’s usual operations and to meet any operational needs of a technical nature that require the use of the proprietary account in the presence of limited or zero risk positions. The above amount also includes the share of reserves covering investments in Intesa Sanpaolo shares in support of the Group incentive system based on financial instruments. In particular: • On 22 May 2012, Banca IMI’s Shareholders’ Meeting authorised the purchase of ordinary Intesa Sanpaolo shares up to a maximum of 1.4 million euro. The purchase, which was settled on 29 June 2012, involved 1,380,140 shares at a price of 0.97862 euro for a value of approximately 1,350,000 euro. • On 31 July 2013, Banca IMI’s Shareholders’ Meeting authorised the purchase of additional ordinary Intesa Sanpaolo shares. The purchase, which was settled on 7 October 2013, involved 2,081,111 shares at an average price of 1.72788 euro each, for a total value of approximately 3,596,000 euro. • On 15 May 2014, Banca IMI's Shareholders' Meeting authorised the purchase of an additional 2,248,185 ordinary Intesa Sanpaolo shares. These shares were purchased in October at an average price of 2.22887 euro, for a total of approximately 5,011,000 euro. On 1 December, 2,134,807 shares were assigned to employees, in accordance with the provisions of the Group's share plan LECOIP). • On 24 April 2015, Banca IMI’s Shareholders’ Meeting authorised the purchase of ordinary shares of the Ultimate Parent, up to the maximum limit of ordinary shares determined by dividing the all-inclusive amount of 2,200,000 euro by the official price recorded by the Intesa Sanpaolo share on 27 April 2015 (3.11 euro per share); on 9 October 2015, the purchase of 677,481 shares was carried out at the average price of 3.1942051 euro for a total value of 2,164,013 euro. • On 5 April 2016, Banca IMI’s Shareholders’ Meeting authorised the purchase of an additional 2,435,164 shares, reflecting the ratio between 6,000,000 euro and the official price of the shares during the market session of 27 April 2016. Banca IMI concluded the purchase of 1,959,292 shares on 16 November, at an average price of 2.1488 euro, which entailed payment of 4.2 million euro. • On 15 June 2017, Banca IMI’s Shareholders’ Meeting authorised the purchase of a maximum of 1,739,839 shares, reflecting the ratio between 4,700,000 euro and the official price of the shares during the market session of 27 April 2017. At the date of preparation of this report, this purchase has not yet been carried out.

1

As members of the Intesa Sanpaolo Banking Group, Banca IMI and its subsidiaries are not subject to statistical or prudential supervision on a consolidated basis. Intesa Sanpaolo discharges such obligations at the level of Intesa Sanpaolo Banking Group. 53

Board of Directors of 1 August 2017

Interim report on operations

June 2017

All the shares are in the AFS portfolio. The fair value gain amounts to 2.4 million euro at the end of the period, gross of tax effects. The following table presents changes in all IAS portfolios during the year: Intesa Sanpaolo shares' dynamics PURCHASES

INITIAL

Securities

Amount (no. shares)

Value (in euros)

Amount (no. shares)

Ordinary shares - HFT

814,704

1,976,472

Ordinary shares - AFS

4,281,391

10,386,655

Savings shares - HFT

-

-

1,289,221

SALES

Value (in euros)

Amount (no. shares)

3,111,272

-

-

-

-

VALUATION

Value (in euros)

FINAL

Value (in euros)

Amount (no. shares)

Value (in euros)

1,290,288

3,120,994

194,178

813,637

2,258,656

633,750

1,633,364

2,394,526

3,647,641

10,125,851

-

-

-

-

-

Outlook for 2017 The growth phase of the global economy will extend to the rest of the year, encouraging the central banks to further reduce their monetary stimulus measures and pushing the rate curves to rise. Some economic uncertainties, such as those related to the financial excesses in China, in addition to the political uncertainties related also to the unpredictability of the USA administration, are still present.

As regards the loans to businesses, a more robust recovery is expected in the second part of the year, though at still very modest rates, slowed down by a liquidity situation that will remain more than sufficient. With regard to funding, the growth of deposits will continue, while the overall trend will continue to be affected by the limited requirements for customer deposits by banks, considering the evolution of loans and the significant liquidity available. The net redemption of bonds on the retail segment will continue, while unattractive market yields and the significant liquidity available will continue to fuel the balances in current accounts.

In Europe, political risks are linked to the political elections that will take place over the next twelve months in several European countries, including Italy. The adaptation of the markets to the shift in monetary policy may lead to greater volatility in exchange and interest rates.

The above factors will continue to favour the reduction of customer deposit costs. In a context of very low market rates and favourable credit access conditions, borrowing rates are expected to remain very low for the rest of 2017.

Within the Italian banking system, there continue to be favourable conditions for access to credit, thanks to the still very expansionary monetary policy stance, the selective availability of supply and the increase in demand in some business segments, in a scenario characterised by the strengthening of economic growth.

Milan, 1 August 2017

The Board of Directors

54

Board of Directors of 1 August 2017

Condensed interim consolidated financial statements - tables

Condensed Interim Consolidated Financial Statements of Banca IMI Group

55

Condensed interim consolidated financial statements - tables

BANCA IMI Group

Consolidated statement of financial position Assets

30 June

31 December

2017

2016

(in thousands of euro) changes amount

% 33.3

10.

Cash and cash equivalents

4

3

1

20.

Financial assets held for trading

48,628,038

53,477,591

(4,849,553)

-9.1

40.

Available-for-sale financial assets

13,828,215

14,693,865

(865,650)

-5.9

60.

Due from banks

69,378,280

53,305,542

16,072,738

30.2

70.

Loans to customers

28,804,452

27,798,310

1,006,142

3.6

80.

Hedging derivatives

124,952

154,440

(29,488)

-19.1

100. Equity investments

16,006

19,560

(3,554)

-18.2

120. Property and equipment

702

848

(146)

-17.2

130. Intangible assets

265

285

(20)

-7.0

140. Tax assets

331,385

489,371

(157,986)

-32.3

a) current

107,872

251,068

(143,196)

-57.0

b) deferred

223,513

238,303

(14,790)

-6.2

108,549

115,541

(6,992)

-6.1

609,436

467,011

142,425

30.5

161,721,735

150,406,826

11,314,909

7.5

- of which as per Law no. 214/2011 160. Other assets

Total assets

56

Condensed interim consolidated financial statements - tables

BANCA IMI Group

Consolidated statement of financial position Liabilities and equity

30 June

31 December

2017

2016

(in thousands of euro) changes amount

% 31.4

10.

Due to banks

79,782,709

60,716,591

19,066,118

20.

Due to customers

17,890,292

18,989,914

(1,099,622)

-5.8

30.

Securities issued

9,965,935

11,282,639

(1,316,704)

-11.7

48,627,670

53,551,620

(4,923,950)

-9.2

140,500

196,639

(56,139)

-28.5

40.

Financial liabilities held for trading

60.

Hedging derivatives

80.

Tax liabilities

185,258

424,563

(239,305)

-56.4

a) current

172,573

410,436

(237,863)

-58.0

12,685

14,127

(1,442)

-10.2

518,958

450,312

68,646

15.2

b) deferred 100. Other liabilities 110. Post-employment benefits 120. Provisions for risks and charges a) pension and similar obligations

8,974

9,178

(204)

-2.2

50,926

30,387

20,539

67.6

13

12

1

50,913

30,375

20,538

140. Valuation reserves

(134,613)

(131,153)

(3,460)

2.6

160. Equity instruments

1,200,000

1,000,000

200,000

20.0

170. Reserves

1,650,989

1,600,694

50,295

3.1

-

-

-

180. Share premium reserve

581,260

581,260

-

190. Share capital

962,464

962,464

-

-

-

-

290,413

741,718

(451,305)

-60.8

161,721,735

150,406,826

11,314,909

7.5

b) other provisions

175. Interim dividends (-)

210. Equity attributable to non-controlling interests (+/-) 220. Profit for the period / year

Total liabilities and equity

57

67.6

Condensed interim consolidated financial statements - tables

BANCA IMI Group

Consolidated Income Statement 1H 2017 10. Interest and similar income

1H 2016

(in thousands of euro) changes amount

%

613,582

682,848

(69,266)

-10.1

(352,782)

(412,272)

59,490

-14.4

30. Net interest income

260,800

270,576

(9,776)

-3.6

40. Fee and commission income

240,721

274,839

(34,118)

-12.4

50. Fee and commission expense

(82,239)

(127,146)

44,907

-35.3

60. Net fee and commission income

158,482

147,693

10,789

7.3

25,907

26,009

(102)

-0.4

201,271

377,342

(176,071)

-46.7

2,968

(10,552)

13,520

111,097 2,793 119,050 (10,746)

98,564 1,384 111,019 (13,839)

12,533 1,409 8,031 3,093

-22.3

760,525

909,632

(149,107)

-16.4

(55,144) (57,054) (249) 2,159

(15,305) (17,914) (1,366) 3,975

(39,839) (39,140) 1,117 (1,816)

140. Net financial income

705,381

894,327

(188,946)

-21.1

170. Net banking and insurance income

705,381

894,327

(188,946)

-21.1

180. Administrative expenses: a) personnel expenses b) other administrative expenses

(265,495) (75,480) (190,015)

(257,163) (74,042) (183,121)

(8,332) (1,438) (6,894)

3.2 1.9 3.8

(23,063)

(1,000)

(22,063)

(161)

(183)

22

-12.0

210. Amortisation and net impairment losses on intangible assets

(49)

(38)

(11)

28.9

220. Other operating income (expenses)

579

1,568

(989)

(288,189)

(256,816)

(31,373)

6,611

21,164

(14,553)

20. Interest and similar expense

70. Dividends and similar income 80. Profits (Losses) on trading 90. Profits (Losses) on hedging 100. Profits (Losses) on disposal or repurchase of: a) loans and receivables b) available-for-sale financial assets c) held-to-maturity investments d) financial liabilities 120. Total income 130. Impairment losses / reversals of impairment losses on: a) loans and receivables b) available-for-sale financial assets c) held-to-maturity investments d) other financial assets

190. Net accruals to provision for risks and charges 200. Depreciation and net impairment losses on property and equipment

230. Operating expenses 240. Net gains on sales of equity investments 280. Pre-tax profit from continuing operations

12.7 7.2

12.2

423,803

658,675

(234,872)

-35.7

(133,390)

(218,116)

84,726

-38.8

300. Post-tax profit from continuing operations

290,413

440,559

(150,146)

-34.1

320. Profit for the period

290,413

440,559

(150,146)

-34.1

-

-

290,413

440,559

Basic Earnings per share (basic EPS) - euro

0.302

0.458

Diluted Earnings per share (diluted EPS) - euro

0.302

0.458

290. Income tax expense

330. Profit (loss) attributable to non-controlling interests 340. Profit attributable to the owners of the parent

58

(150,146)

-34.1

Condensed interim consolidated financial statements - tables

BANCA IMI Group

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

1H 2017

10. PROFIT FOR THE PERIOD

1H 2016

(in thousands of euro) Changes amount

% -34.1

290,413

440,559

(150,146)

20. 30. 40. 50. 60.

Other comprehensive income (expense), net of income taxes, that may not be reclassified to profit or loss Property and equipment Intangible assets Defined benefit plans Non-current assets held for sale Portion of valuation reserves of equity-accounted investees

83 -

(754) -

837 -

70. 80. 90. 100. 110. 120.

Other comprehensive income (expense), net of income taxes, that may be reclassified to profit or loss Hedges of investments in foreign operations Exchange rate gains (losses) Cash flows hedges Available-for-sale financial assets Non-current assets held for sale Portion of valuation reserves of equity-accounted investees

(10,017) (3,543) -

8,363 (8,937) -

(18,380) 5,394 -

130. Total other comprehensive income (expense), net of income taxes

(13,477)

(1,328)

(12,149)

140. COMPREHENSIVE INCOME (Caption 10 + 130)

276,936

439,231

(162,295)

-

-

276,936

439,231

150. Comprehensive income attributable to non-controlling interests 160. Comprehensive income attributable to the owners of the parent

59

(162,295)

-36.9

Condensed interim consolidated financial statements - tables

BANCA IMI Group Statement of changes in consolidated equity as at 30 June 2016 (in thousands of euro)

ordinary shares

Share premium reserve

income related

other

962,464

581,260

1,568,618

5,011

(49,349)

(727)

962,464

581,260

1,568,618

5,011

(49,349)

(727)

Share Capital

EQUITY AS AT 31.12.2015

Reserves

Fair value reserves AFS

Interim dividends

Profit for the year/ period

Equity

-

(307,988)

533,715

3,293,004

-

(307,988)

533,715

3,293,004

307,988

(500,481)

Fair value Changes in reserves Equity Post- instruments employment benefits

Changes in opening balances EQUITY AS AT 01.01.2016

-

ALLOCATION OF PREVIOUS YEAR PROFIT Reserves

33,234

(33,234)

Dividends and other allocations

(192,493)

CHANGES IN THE PERIOD Changes in reserves and exchange rate gains (losses)

(10,947)

2,290

(8,657)

Equity intruments

500,000 -

Interim dividends Comprehensive income for the period EQUITY AS AT 30.06.2016

500,000

8,363 962,464

581,260

1,599,268

7,301

(8,937)

(754)

(58,286)

(1,481)

500,000

-

-

440,559

439,231

440,559

4,031,085

BANCA IMI Group Statement of changes in consolidated equity as at 30 June 2017 (in thousands of euro)

ordinary shares

Share premium reserve

income related

other

962,464

581,260

1,590,687

10,007

(129,988)

(1,165)

962,464

581,260

1,590,687

10,007

(129,988)

(1,165)

Share Capital

EQUITY AS AT 31.12.2016

Reserves

Fair value reserves AFS

Fair value Changes in reserves Equity Post- instruments employment benefits

Interim dividends

Profit for the year/ period

Equity

1,000,000

-

741,718

4,754,983

1,000,000

-

741,718

4,754,983

Changes in opening balances EQUITY AS AT 01.01.2017

-

ALLOCATION OF PREVIOUS YEAR PROFIT Reserves

87,242

(87,242)

Dividends and other allocations

(654,476)

(654,476)

CHANGES IN THE PERIOD Changes in reserves and exchange rate gains (losses)

(29,112)

2,182

(26,930)

Equity intruments

200,000

Interim dividends Comprehensive income for the period EQUITY AS AT 30.06.2017

200,000 -

(10,017) 962,464

581,260

1,638,800

12,189

(3,543)

83

(133,531)

(1,082)

1,200,000

-

The consolidated equity refers entirely to Banca IMI. To date, there are no noncontrolling interests.

60

290,413

276,936

290,413

4,550,513

Condensed interim consolidated financial statements - tables

BANCA IMI Group CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of euro) 1H 2017

1H 2016

722,027 290,413

873,636 440,559

354,990 (2,968) 55,143

337,297 10,552 15,305

210 23,063 29,002 (27,826)

185 1,000 78,190 (9,452)

(11,751,590) 4,481,278 798,822 (1,887,630) (14,178,161) (1,052,574) 86,675

(13,772,615) (7,900,892) (2,786,706) 1,282,573 1,910,286 (5,671,304) (606,572)

11,484,084 466,140 18,616,760 (1,095,247) (1,286,029) (4,922,907) (294,633)

12,573,264 422,685 (1,800,972) 3,254,242 330,157 10,416,002 (48,850)

454,521

(325,715)

-

18,223 18,223 -

A. OPERATING ACTIVITIES 1. Cash flows from operations - Profit for the period (+/-) - Gains/Losses on financial assets held for trading and on assets/liabilities at fair value through profit or loss (-/+) - Gains/Losses on hedging activities (-/+) - Net impairment losses/reversals of impairment losses (+/-) - Net impairment losses/reversals of impairment losses on property, equipment and intangible assets (+/-) - Net accruals to provisions for risks and charges and other costs/revenue (+/-) - Taxes and duties to be settled (+) - Other adjustments (+/-) 2. Cash flows from / used by financial assets - Financial assets held for trading - Available-for-sale financial assets - Due from banks: repayable on demand - Due from banks: other - Loans to customers - Other assets 3. Cash flows from / used by financial liabilities - Due to banks: repayable on demand - Due to banks: other - Due to customers - Securities issued - Financial liabilities held for trading - Other liabilities Net cash flows from (used in) operating activities B. INVESTING ACTIVITIES 1. Cash flows generated by - Sales of equity investments - Dividends collected on equity investments - Sales/repayments of held-to-maturity investments - Sales of property and equipment - Sales of intangible assets - Sales of subsidiaries and business units 2. Cash flows used for - Purchases of equity investments - Purchases of held-to-maturity investments - Purchases of property and equipment - Purchases of intangible assets - Purchases of subsidiaries and business units

(44) (15) (29) -

(16) (16) -

(44)

18,207

200,000 (654,476)

500,000 (192,493)

(454,476)

307,507

1

(1)

Cash and cash equivalents at beginning of the period Net increase (decrease) in cash and cash equivalents Cash and cash equivalents: foreign exchange effect

3 1 -

4 (1) -

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD

4

3

Net cash flows from (used in) investing activities C. FINANCING ACTIVITIES - Issues / purchases of treasury shares - Issues / purchases of equity instruments - Dividend distributions and other Net cash flows from (used in) financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

RECONCILIATION

LEGEND: (+) cash flow from (–) cash flow used in

61

Condensed interim consolidated financial statements - tables

62

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

Notes to the condensed interim consolidated financial statements Part A – Accounting policies A.1 – GENERAL CRITERIA SECTION 1 – STATEMENT REPORTING STANDARDS

OF

COMPLIANCE

WITH

INTERNATIONAL

FINANCIAL

The condensed interim consolidated financial statements have been prepared in accordance with Legislative Decree No. 38 of 28 February 2005, according to IFRS issued by the International Accounting Standards Board (IASB), endorsed and in force at 30 June 2017, provisions issued in enactment of Art. 9 of the abovementioned Legislative Decree, Art. 43 of Legislative Decree 136/15, including the interpretations designated by the SIC and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as established in EC Regulation No. 1606 of 19 July 2002. These standards have been used for the preparation of the comparative data and the opening balances at 1 January 2017. The financial reporting instructions issued by the Bank of Italy in its Measure of 22 December 2005, the concurrent Circular No. 262/05, the update of 15 December 2015 and explanatory notes, along with the general regulations of the Italian Civil Code and other relevant rules and regulations have been applied when preparing the condensed interim consolidated financial statements. The condensed interim consolidated financial statements as at 30 June 2017 were prepared in a condensed format in accordance with IAS 34, as supplemented by the provisions of other applicable laws and regulations, with specific regard to financial reporting methods. The specific accounting standards adopted have been applied consistently with the financial statements for the year ended 31 December 2016. A review was performed on the condensed interim consolidated financial statements by KPMG S.p.A..

SECTION 2 – GENERAL BASIS OF PREPARATION The condensed interim consolidated financial statements comprise the Statement of financial position, the Income statement, the Statement of comprehensive income, the Statement of changes in equity, the Statement of cash flows and the Notes. They are also accompanied by an Report on operations on the results achieved and the financial position of Banca IMI and its subsidiaries and associates. The condensed interim consolidated financial statements were prepared in accordance with the general principles of the IFRS and present the figures for the period alongside the comparative figures from the previous year, for the statement of financial position, or the corresponding period of the previous year, for the income statement. In accordance with the provisions of Article 5 of Legislative Decree No. 38/2005, the condensed

63

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

interim financial statements have been drawn up using the Euro as the functional currency. The amounts in the condensed interim financial statements and the Notes are expressed in thousands of euro, unless otherwise indicated, whereas those stated in the Interim Report on operations are in millions of euro, unless otherwise indicated. The condensed interim consolidated financial statements have been prepared in accordance with the specific IFRS endorsed by the European Commission and illustrated in Part A.2 of these notes, as well as in compliance with the general assumptions set forth by the Framework for the Preparation and Presentation of Financial Statements issued by the IASB. The Interim Report on operations and the Notes provide all the information required by the IFRS, laws, European and Italian bank Supervisory Authorities and the National Commission for Companies and the Stock Exchange - Consob, in addition to further information that is not compulsory but is nonetheless deemed necessary for a true and fair presentation of the Group’s situation.

SECTION 3 - CONSOLIDATION SCOPE The condensed interim consolidated financial statements include Banca IMI and its direct or indirect subsidiaries and associates. For the definition of control, see the accounting policies outlined in the notes to the consolidated financial statements for the year ended 31 December 2016. The consolidation scope compared to the situation as at 31 December 2016 was unchanged. The following table shows investments in subsidiaries included in the line-by-line consolidation scope of the condensed interim consolidated financial statements as at and for the six months ended 30 June 2017. Equity investments in fully controlled companies Company

Registered

Relationship

office

Investment relationship Parent

Share %

Voting rights %

A. CONTROLLING EQUITY INVESTMENTS Parent Banca IMI S.p.A. Share capital 962,464,000 Euro distributed in shares without a nominal amount

Milan

A. 1 FULLY CONSOLIDATED COMPANIES IMI Investments S.A. Share capital Euro 21,660,000

Luxembourg

(1)

Banca IMI

100%

100%

IMI Finance S.A. Share capital Euro 100,000

Luxembourg

(1)

IMI Investments

100%

100%

IMI Capital Markets Share capital Usd 5,000

Delaware

(1)

IMI Investments

100%

100%

Banca IMI Securities Corp. Share capital Usd 44,500,000

New York

(1)

IMI Capital

100%

100%

(1) Majority of voting rights in ordinary shareholder meetings

The table on the following page shows the consolidation scope with the inclusion of equity-accounted investees. Investments arising from the conversion of credit exposures are represented in the dashed area.

64

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

BANCA IMI Italy

100% IMI Investments Luxembourg

100% IMI Capital USA

100% IMI Finance Luxembourg

49%

Epsilon Italy

15%

EuroTLX Sim Italy

15.8% Schuttrange Nucleus Italy

100% IMI Securities USA

Line-by-line scope of consolidation Equity method scope of consolidation Acquired as part of loan restructuring

SECTION 4 – EVENTS AFTER THE REPORTING PERIOD On 27 July 2017, the original text of Legislative Decree no. 99 of 25 June 2017 was ratified with no amendments, regarding the compulsory winding-up of Banca Popolare di Vicenza and Veneto Banca. As part of this process, Intesa Sanpaolo has acquired a number of assets and liabilities including financial transactions which had previously been entered into by Banca IMI with the two banks, now legally attributable to the Ultimate Parent. For details of these relationships, please see part H of the notes to the condensed interim consolidated financial statements, below. With reference to the AFS portfolio, positive developments in credit spreads since 30 June 2017 have further reduced the absolute value of the negative valuation reserves. No other events occurred after the reporting period that have resulted in effects on the Bank’s or Group's financial position, results of operations or cash flows to an extent worthy of mention in these notes.

SECTION 5 – OTHER ASPECTS

With reference to the Bank of Italy/Consob/IVASS Document No. 6 of 8 March 2013 “Accounting Treatment of long-term structured repos”, the analysis of the new transactions during the period has excluded the relevance of the instructions provided by the regulators. With reference to Bank of Italy Circular No. 1034598/14 of 21 October 2014 concerning the recognition of financial derivatives that at maturity require the repayment of all or part of the premiums paid, we also proceeded in this interim financial report with the classification within the “structured securities” of instruments of this type. These appear within the item “Financial liabilities held for trading” having as its reference the adopted business model and the turnover of new originated instruments, early redemptions and repurchases on the secondary market. Within the framework of the strategic guidelines for growth envisaged in the Group’s Business Plan for 2014- 2017, Banca IMI has developed a series of new operations on commodities, by extending the range of products it offers to futures on physical gas. The Bank does not operate in this market in order to meet the retail demand, but to profit from the margins from fluctuations in

65

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

commodity prices in trading. In light of this business model and bearing in mind IAS 39 Paper No. 2 IEAF (International Energy Accounting Forum), in these condensed interim consolidated financial statements, the contracts for gas which has not yet been physically delivered or withdrawn are recognised and measured at fair value in the income statement.

Amendments to IAS 39 On 24 July 2014, the IASB issued IFRS 9 “Financial Instruments”, substantially completing the process of total revision of IAS 39 “Financial Instruments: Recognition and Measurement”, divided into three areas: 1. Classification and Measurement 2. Impairment 3. General Hedge Accounting The standard was approved in November 2016. As regards the first area, IFRS 9 exceeds the existing concepts of “IAS portfolios” introducing a model for the classification of financial assets guided, on one side, by the contractual characteristics of the cash flows of the instrument itself and, on the other, by the management intention (business model) with which the instrument is held. There are three intended categories: (i) financial assets measured at amortised cost, (ii) financial assets measured at fair value through profit or loss and, finally, (iii) financial assets measured at fair value through equity. In this last case, the reserve is transferred to profit or loss in the event of transfer of the instrument. With regard to financial liabilities, no substantial changes are introduced - in terms of classification and measurement - compared with the current IAS 39. The only new aspect concerns the accounting treatment of own credit risk (i.e. value changes induced by the creditworthiness of the Company itself) for financial liabilities with the fair value option: the new standard provides that the portion of changes in fair value for such instruments is recognised in equity, keeping the remaining fair value changes induced by other financial factors (interest rate, exchange rate, etc.) to profit or loss. With regard to the second area (impairment), for instruments recognised at amortised cost and at fair value through equity, a model is introduced based on the concept of “expected loss” instead of the current “incurred loss”; the new model is intended to allow prompter recognition of impairment losses in the income statement. More specifically, IFRS 9 requires companies to record expected losses in the following 12 months (stage 1) right from the initial recognition of the financial instrument. The time frame for calculating the expected loss extends to the entire remaining life of the asset from the moment the credit quality of the financial instrument suffers a “significant” deterioration compared with the initial measurement (stage 2). Lastly, with reference to hedge accounting, the new model concerning specific hedges aims to align accounting elements with risk management activities and to strengthen the disclosure of risk management activities undertaken by the reporting entity. In view of the pervasive impact of IFRS 9, both on the business, the organisational model and reporting, the Intesa Sanpaolo Group undertook a special project in the fourth quarter of 2015 – driven by the CRO and CFO areas – aimed at gaining a greater insight into the standard’s different areas of influence, at defining its qualitative and quantitative impacts and also at identifying and implementing the organisational and application actions required for an adoption in the different companies that it consists of. Banca IMI plays an active part in this project with reference to its own corporate area and in support of the Corporate and Investment Banking Division. The main expected impacts of applying the new standard include: − the change in the accounting portfolios where financial instruments are currently classified according to IAS 39 and there is an expected increase in financial instruments measured at fair value;

66

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

−

− −

greater volatility in profit or loss due to the passage of financial instruments from stage 1 to stage 2 or vice versa, due to the different procedures for determining impairment and reversals of impairment compared to the current ones, and to greater convergence in the use of fair value through profit and loss; the greater the impact on the measurement of impairment in determining the expected “lifetime” loss on performing loans classified in stage 2, the greater the duration of each individual relationship; the redefinition of the mission of certain operating units – with the resulting implications on governance of portfolios, control procedures, risk measures and the related limits and ceilings.

On adoption of IFRS 9, the accounting effects of reclassifications and impairment will be recognised in equity as of 1 January 2018 (First Time Adoption). The magnitude of these effects will depend on the holdings and composition of financial asset portfolios at the end of the current year, with reference to the business model in force, and downstream the detailed definition of methodological aspects and valuation parameters, currently underway. The second half of the year will see progressive quantification of the expected deductions from equity, net of associated tax effects, together with the resulting effects on prudential ratios (“parallel run”). With reference to aggregates at 30 June 2017, it is reasonable to assume that the introduction of the new standard will not give rise to critical issues affecting the Bank’s levels of equity and regulatory capital.

A.2 – MAIN FINANCIAL STATEMENT CAPTIONS The accounting policies adopted in preparing the condensed interim consolidated financial statements, and specifically the criteria for classifying, recognising, measuring and derecognising the various captions of assets and liabilities, as well as the policies for recognising revenue and costs, remained unchanged with respect to those adopted in the separate and consolidated financial statements for the year ended 31 December 2016, to which the reader is referred.

A.4 – INFORMATION ON FAIR VALUE Qualitative information A.4.1 Fair value levels 2 and 3: measurement techniques and input used There are no changes with regard to the standards and methods of measurement in place as at 31 December 2016.

A.4.2 Measurement processes and sensitivity A sensitivity analysis was carried out on the level 3 financial instruments applying percentage and absolute changes to the non-observable parameters, in order to measure the relative effects on the positive and negative fair values. The analysis showed that the changes in value due to changes in the unobservable parameters are not material.

67

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

Financial asset/liability

Unobservable parameters

Sensitivity Change in (in thousands unobservable of euro) parameter

Held for trading and available-for-sale securities Credit spread

-108.00

1 bp

-4.00

1%

Held for trading and available-for-sale securities Correlation Held for trading and available-for-sale securities CPR

-18.00

1%

Held for trading and available-for-sale securities Recovery Rate

-41.00

-1% 0.10

OTC Derivatives - Interest Rates

Correlation for spread options between swap rates

-370.33

OTC Derivatives - Equity

Correlation between underlying equity baskets

-114.44

0.10

OTC Derivatives - Equity

Historical volatility

-653.00

10%

OTC Derivatives - Interest Rates

JPY swaption volatility

-403.08

10%

Valuation technique

Financial instruments

Main unobservable input (Level 3)

Minimum value of Maximum value of range of changes range of changes

Unit

(in thousands of euro) Favourable changes Unfavourable in FV changes in FV

Structured securities

Two-factor model

Correlation

-41.0%

28.0%

%

19

-22

ABSs

Discounting Cash Flows

Credit Spread

-31.0%

76.0%

%

897

-2,456

Credit Spread

-7.0%

97.0%

%

942

-13,803

CLO Cash

Discounting Cash Flows

Recovery rate

-25.0%

10.0%

%

-340

136

CPR

-10.0%

10.0%

%

182

-182

Credit Spread

-25.0%

25.0%

%

757

-757

Joint default correlation

-10.0%

10.0%

%

74

-74

Recovery rate

-25.0%

10.0%

%

272

-681

24.18%

93.45%

%

393

-210

CDO

Gaussian copula

OTC Derivatives - Equity Basket Option

Black - Scholes model

Correlation between underlying equity baskets

OTC Derivatives - Equity Option

Black - Scholes model

Historical volatility

13.48%

54.69%

%

1,336

-665

OTC Derivatives - Spread Options on Swap Rates

Bivariate lognormal model

Correlation between swap rates

-69.42%

97.35%

%

3,148

-1,660

OTC Derivatives - JPY swaption

Black model

Historical swap rate volatility

16.8%

56.8%

%

1,526

-

OTC Derivatives subject to FV adjustment for CVA/DVA

CVA

PD based on counterparty's internal rating

CCC

BBB

internal rating

167

-145

OTC Derivatives subject to FV adjustment for CVA/DVA

CVA

Loss Given Default Rate (LGD)

0.00%

100.00%

%

1,903

-1,211

Quantitative information

A.4.5 Fair value hierarchy

In this section, for the purposes of tables A.4.5.2 and A.4.5.3 below, it is assumed that the change of level has taken place at the beginning of the period.

68

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

A.4.5.1 Assets and liabilities measured at fair value on a recurring basis: breakdown according to fair value levels (in thousands of euro) 30 June 2017 Financial assets/liabilities at fair value

L1

1. Financial assets held for trading 2. Financial assets at fair value through profit or loss 3. Available-for-sale financial assets 4. Hedging derivatives 5. Property and equipment 6. Intangible assets Total 1. Financial liabilities held for trading 2. Financial liabilities at fair value through profit or loss 3. Hedging derivatives Total

31 December 2016

L2

8,976,751 12,792,863 21,769,614 13,147,872 13,147,872

L3

39,201,596 617,772 124,952 39,944,320 35,372,064 140,500 35,512,564

L1

449,691 417,580 867,271 107,734 107,734

L2

7,026,544 13,428,035 20,454,579 12,324,009 12,324,009

L3

45,900,575 923,271 154,440 46,978,286 41,093,243 196,639 41,289,882

550,472 342,559 893,031 134,368 134,368

Legend: L1 = Level 1 L2 = Level 2 L3 = Level 3

The derivative instruments classified as level 3 contributed approximately 23 million euro to the income statement (fair value measurement had a negative effect of 55 million euro). The debt securities classified as level 3, recognised under financial assets held for trading, generated around 3 million euro on the income statement during the first half of the year. Available-for-sale financial assets classified as level 3 contributed around 1 million euro to comprehensive income.

A.4.5.2 Annual changes in financial assets at level 3 fair value on a recurring basis (in thousands of euro) Financial assets at fair Available-forFinancial assets held for value through sale financial profit or loss assets trading

1.

Hedging derivatives

Property and equipment

Intangible assets

Initial amounts

550,472

-

342,559

-

-

-

2.

Increases

313,358

-

237,183

-

-

-

2.1

Purchases

258,594

-

227,414

-

-

-

2.2

Gain recognised in: 8,250

-

887

-

-

-

4,784

-

-

-

-

-

-

-

-

2.2.1 Profit or loss - of which: Gains from disposals 2.2.2 Equity

X

X

2,264

3,359

-

-

-

-

43,155

-

6,618

-

-

-

(414,139)

-

(162,162)

-

-

-

3.1 Sales

(217,613)

-

(40,739)

-

-

-

3.2 Reimbursements

(106,294)

-

(115,297)

-

-

-

(76,698)

-

(262)

-

-

-

(16,949)

-

(249)

-

-

-

(615)

-

-

-

(4,803)

-

-

-

2.3

Transfers from other levels

2.4

Other increases

3.

Decreases

-

3.3 Losses recognised in: 3.3.1 Profit or loss - of which: Losses from disposals 3.3.2 Equity

X

3.4 Transfers to other levels

(11,698)

-

(1,836)

-

(446)

-

-

-

449,691

-

417,580

-

-

-

3.5 Other decreases 4.

Final amounts

X

The "Other increases" in available-for-sale financial assets mainly relate to a partial repayment recorded under "Dividends" in the income statement - from a private equity fund, deriving from the capital gains realised by it.

69

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

A.4.5.3 Annual changes in financial liabilities at level 3 fair value on a recurring basis

Financial liabilities held for trading 1.

Initial amounts

2.

Increases

2.1

Issues

2.2

Losses recognised in:

(in thousands of euro) Financial liabilities at fair Hedging value through derivatives profit or loss

134,368

-

-

1,710

-

-

-

-

1,671

-

-

1,671

-

-

-

2.2.1 Profit or loss - of which: Losses from disposals X

2.2.2 Equity

X

-

-

-

-

Decreases

(28,344)

-

-

3.1 Reimbursements

-

-

-

3.2 Repurchases

-

-

-

3.3 Gains recognised in:

(28,299)

-

-

(14,959)

-

-

Transfers from other levels

2.4

Other increases

3.

39

-

2.3

3.3.1 Profit or loss - of which: Gains from disposals

X

3.3.2 Equity

X

-

3.4 Transfers to other levels

(45)

-

-

3.5 Other decreases

-

-

-

107,734

-

-

4.

Final amounts

Financial liabilities at level 3 refer exclusively to derivatives with a negative fair value, and mainly consist of rate options.

Transfer of assets and liabilities measured at fair value (levels 1 and 2) (in thousands of euro) 30 June 2017 Level 1 Level 2 Transfers from Level 2 Transfers from Level 1 A. 1. 2. 3. 4. B. 1. 2. 3.

Financial assets at fair value Financial assets held for trading Financial assets at fair value through profit or loss Available-for-sale financial assets Hedging derivatives Total A Financial liabilities at fair value Financial liabilities held for trading Financial liabilities at fair value through profit or loss Hedging derivatives Total B

206,348 206,348

5,810 5,369 11,179

114,334 114,334

4,147 4,147

Transfers between fair value levels are based on the empirical observation of intrinsic factors of the instrument taken into consideration or of the markets on which they are traded. The transfer from Level 1 to Level 2 is the result of there being an insufficient number of contributors, or of a limited number of investors holding the securities issued. This situation often arises as instruments near their maturity dates. Conversely, securities with low liquidity and number of trades − which are therefore classified as Level 2 – are transferred to Level 1 when the market is active. The transfer of financial liabilities held for trading from Level 1 to Level 2 mainly concerns technical overdrafts and securitised derivatives.

70

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

A.5 – INFORMATION ON “DAY ONE PROFIT/LOSS” The fair value of financial instruments in non-active market situations is determined using the valuation technique dictated by the provisions of IFRS 13. The same standard also states that the best evidence of an instrument’s fair value is provided when the transaction price (e.g. the fair value of the payment made or received) is initially recognised, unless the conditions set forth in paragraph AG76 of IAS 39 are met. The potential consequence, which is accentuated in certain market situations and for especially complex or illiquid products, is the existence of a difference between the fair value of the financial asset or liability at initial recognition and the amount that would have been determined on the same date by using the chosen measurement technique. This difference leads to the immediate recognition of a profit (loss) on first measurement after initial recognition, and the phenomenon is referred to as day-one profit or loss. This concept does not apply to profits on the core intermediation operations of investment banks where arbitrage between different markets and products, in the presence of risk positions that are modest and managed ‘on-the-book’, results in a commercial margin (having the nature of a trading fee) aimed at compensating the intermediary for the service rendered and the assumption of financial and credit risks.

In this report, the above described cases concern instruments characterised by particular financial complexity or illiquidity of the product or which are tailor made. The measurement techniques associated with such instruments introduce corrections to fair value aimed at capturing factors not envisaged in financial models or the breadth of the bid-ask spread observable on the market. The constant application of such techniques results in the gradual release of profit (loss) over the lifetime of individual instruments or as a result of development of the portfolios to which such corrections refer. During the first half of 2017, at the outcome of operations, there was no profit to be deferred in the initial recognition. The day one profits at 30 June 2017 amounted to 0.8 million euro. Day one profit as at 31 December 2016

(in millions of euro) 0.9

Decrease

(0.1)

Increase

-

Movements arising from changes in FV level

-

Day one profit as at 30 June 2017

0.8

71

Condensed interim consolidated financial statements – Notes Part A – Accounting policies

72

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

Part B Information on the Consolidated Statement of Financial Position

73

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

ASSETS Section 2 – Financial assets held for trading – caption 20 2.1 Financial assets held for trading: breakdown

31 December 2016

30 June 2017

A. Assets 1. Debt securities 1.1 structured securities 1.2 other debt securities 2. Equities 3. Quotas of UCI 4. Loans 4.1 repurchase agreements 4.2 other Total A B. Derivatives 1. Financial derivatives 1.1 trading 1.2 associated with fair value option 1.3 other 2. Credit derivatives 2.1 trading 2.2 associated with fair value option 2.3 other Total B Total (A+B)

Level 1

Level 2

Level 3

Level 1

Level 2

645,718 6,949,958 684,544 126,865

260,910 4,469,894 -

-

Level 3

518 328,513 484 -

321,631 5,075,375 883,707 99,104

240,636 5,191,547 -

6,730 350,909 638 -

-

-

-

-

-

8,407,085

4,730,804

329,515

6,379,817

5,432,183

358,277

569,666 -

33,105,640 14,616

120,176 -

646,727 -

39,095,878 63,426

192,195 -

-

1,350,536 -

-

-

1,309,088 -

-

569,666

34,470,792

120,176

646,727

40,468,392

192,195

8,976,751

39,201,596

449,691

7,026,544

45,900,575

550,472

Section 4 – Available-for-sale financial assets – caption 40 4.1 Available-for-sale financial assets: breakdown

30 June 2017 Level 1 1. Debt securities 1.1 Structured securities 1.2 Other debt securities 2. Equities 2.1 Measured at fair value 2.2 Measured at cost 3. Quotas of UCI 4. Loans Total

Level 2

31 December 2016 Level 3

Level 1

Level 2

Level 3

12,782,737

613,674

284,478

13,416,691

919,173

224,232

10,126 -

4,098 -

133,102 -

11,344 -

4,098 -

118,327 -

12,792,863

617,772

417,580

13,428,035

923,271

342,559

74

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

Section 6 – Due from banks – caption 60 6.1 Due from banks: breakdown

30 June 2017 Carrying amount A. Due from Central Banks 1. Time deposits 2. Compulsory reserve 3. Repurchase agreements 4. Other B. Due from banks 1. Loans 1.1 Checking accounts and demand deposits 1.2 Time deposits 1.3 Other loans: Repurchase agreements Finance leases Other 2. Debt securities 2.1 Structured 2.2 Other Total

31 December 2016 Carrying amount

Fair value

Fair value

6,171

X X X X

5,576

X X X X

12,364,727 45,399,267

X X

10,154,879 36,579,016

X X

11,488,492 119,623

X X X

6,472,063 94,008

X X X

69,378,280

X X 69,865,048

53,305,542

X X 53,651,531

Assets pledged as collateral for CSA agreements were recognised in the “checking accounts and demand deposits” for a total of 5.3 billion euro (5 billion euro at 31 December 2016). The compulsory reserve, the obligation for which has been discharged indirectly, is carried among “Time deposits” for 23 million euro (35 million euro at 31 December 2016).

Section 7 – Loans to customers – caption 70 7.1 Loans to customers: breakdown 30 June 2017 Carrying amount Non-performing Performing Purchased Other Loans 1. Checking accounts 2. Repurchase agreements 3. Mortgages 4. Credit card loans, personal loans and salary-backed loans 5. Finance leases 6. Factoring 7. Other Debt securities 8. Structured securities 9. Other debt securities Total

Fair value

31 December 2016 Carrying amount Non-performing Performing Purchased Other

Fair value

382,993 13,274,228 13,961,525

-

799,084

X X X X X X X

863,550 11,853,355 13,785,288

-

833,907

X X X X X X X

386,622

-

-

X X

462,210

-

-

X X

28,005,368

-

799,084

26,964,403

-

833,907

29,163,472

28,202,799

Assets pledged as collateral for CSA agreements were carried under “Other” for a total of 5.2 billion euro (6.4 billion euro as at 31 December 2016).

75

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

Section 8 – Hedging derivatives - caption 80 8.1 Hedging derivatives: breakdown by type of hedge and hierarchical levels

Fair value 30 June 2017 Level 1 A. Financial derivatives 1) Fair value 2) Cash flows 3) Investments in foreign operations B. Credit derivatives 1) Fair value 2) Cash flows Total

Level 2

Notional amount 30-Jun-17

Level 3

Fair value 31 December 2016 Level 1

Level 2

Notional amount 31-Dec-16

Level 3

-

124,952 -

-

10,311,592 -

-

154,440 -

-

8,437,450 -

-

124,952

-

10,311,592

-

154,440

-

8,437,450

Section 10 – Equity investments - caption 100 10.1 Equity investments: information on equity stakes Registered office B. Companies subject to significant influence 1. Consorzio Studi e Ricerche Fiscali 2. Intesa Sanpaolo Group Services 3. Infogroup 4. Epsilon 6. EuroTLX Sim 6. Schuttrange Nucleus ScA

Rome Turin Florence Milan Milan Luxembourg

Investment relationship Head office

Rome Turin Florence Milan Milan Luxembourg

Type of relationship

Significant influence Significant influence Significant influence Significant influence Significant influence Significant influence

Investor Banca IMI Banca IMI Banca IMI Banca IMI Banca IMI Banca IMI

held % 7.50% 0.010% 0.003% 49.00% 15.00% 15.80%

Votes available % 7.50% 0.010% 0.003% 49.00% 15.00% 15.80%

Section 14 – Tax assets and liabilities – asset caption 140 and liability caption 80 14.1 Deferred tax assets: breakdown 14.2 Deferred tax liabilities: breakdown Deferred tax assets and liabilities are recognised in connection with all temporary differences that arise from increases and decreases in the taxable base, without any time limits. The Group recognised deferred tax assets of 224 million euro and deferred tax liabilities of 13 million euro at 30 June 2017. The deferred tax assets recognised against the main temporary deductible differences refer to measurements of financial instruments classified in the available-for-sale securities portfolio (79 million euro); adjustments to on-balance sheet exposures and guarantees given (91 and 13 million euro, respectively) and accruals to provisions for risks and charges (8 million euro) and personnel expenses recognised on an accruals basis (11 million euro). Deferred tax assets of 22 million euro were also recognised on the tax savings to be achieved in future years deriving from the payment of substitute tax for goodwill, which has been in the statement of financial position since 31 December 2013. Deferred tax liabilities refer to measurements of financial instruments.

76

Carrying amount

19 50 1 14,831 1,105 -

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

LIABILITIES Section 1 – Due to banks – caption 10 1.1 Due to banks: breakdown

30 June 2017 1. Due to Central Banks 2. Due to banks 2.1 Checking accounts and demand deposits 2.2 Time deposits 2.3 Loans 2.3.1 Repurchase agreements 2.3.2 Other 2.4 Commitments to repurchase own equity instruments 2.6 Other payables Total Total Fair value

31 December 2016

259,976

354,936

936,844 4,115,406

934,195 399,821

10,674,974 57,427,217 6,368,292 79,782,709 79,845,564

9,923,964 42,048,985 7,054,690 60,716,591 60,761,981

“Other payables” included payables for collateral received under CSA agreements totalling 5.9 billion euro (6.5 billion euro as at 31 December 2016).

Section 2 – Due to customers – caption 20 2.1 Due to customers: breakdown

30 June 2017 1. Checking accounts and demand deposits 2. Time deposits 3. Loans 3.1 Repurchase agreements 3.2 Other 4. Commitments to repurchase own equity instruments 5. Other payables Total Total Fair value

31 December 2016

472,733 7,473

446,487 -

16,513,443 2,769 893,874 17,890,292 17,890,249

17,524,736 2,769 1,015,922 18,989,914 18,989,889

“Other payables” included payables for collateral received under CSA agreements totalling 0.7 billion euro (1 billion euro as at 31 December 2016).

77

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

Section 3 – Securities issued – caption 30 3.1 Securities issued: breakdown

30 June 2017

A. Securities 1. bonds 1.1 structured 1.2 other 2. other 2.1 structured 2.2 other Total

31 December 2016

Carrying amount

Level 1

2,719,788 7,246,147

385,241 3,250,198

2,326,384 3,993,395

9,965,935

3,635,439

6,319,779

Fair value Level 2

Carrying amount

Level 1

Fair value Level 2

-

3,781,078 7,501,561

575,228 2,989,457

3,181,982 4,449,006

-

-

11,282,639

3,564,685

7,630,988

-

Level 3

Level 3

Section 4 – Financial liabilities held for trading – caption 40

4.1 Financial liabilities held for trading: breakdown

30 June 2017 Nominal or notional amount A. Liabilities 1. Due to banks 2. Due to customers 3. Debt securities 3.1 Bonds 3.1.1 Structured 3.1.2 Other bonds 3.2 Other 3.2.1 Structured 3.2.2 Other Total A B. Derivatives 1. Financial derivatives 1.1 Trading 1.2 Associated with fair value option 1.3 Other 2. Credit derivatives 2.1 Trading 2.2 Associated with fair value option 2.3 Other Total B Total (A+B)

(*)

31 December 2016

Fair Value Level 1

Level 2

Fair Value(*) Level 3

5,285,798 -

5,826,233 -

16,210 -

-

-

-

-

-

4,662,548 9,948,346

4,325,184 10,151,417

221,623 237,833

-

2,988,129 -

33,722,307 55,509

107,734 -

8,326 2,996,455 13,147,872

1,356,415 35,134,231 35,372,064

107,734 107,734

X X X X X X X 9,948,346

5,842,443 -

Nominal or notional amount

X X X X X X X 5,842,443

Level 2

Fair Value(*) Level 3

3,144,547 -

3,475,070 -

25,300 -

-

-

-

-

-

5,303,939 8,448,486

5,098,023 8,573,093

26,970 52,270

-

3,741,152 -

39,626,815 89,772

134,368 -

9,764 3,750,916 12,324,009

1,324,386 41,040,973 41,093,243

134,368 134,368

X X X X 5,842,443

Fair Value Level 1

X X X X X X X 8,448,486

3,500,370 -

X X X X 3,500,370

X X X X X X X 3,500,370

fair value calculated excluding changes in creditworthiness of the issuer after issue date

By convention, amounts due to banks include short positions in securities. Other structured securities include 4.5 billion euro (5.1 billion euro at 31 December 2016) for securitised derivatives that require repayment at maturity of all or part of the premiums paid, pursuant to the Bank of Italy Circular No. 1034598/14 of 21 October 2014.

78

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

Section 6 – Hedging derivatives - caption 60 6.1 Hedging derivatives: breakdown by type of hedge and hierarchical levels Fair Value 30 June 2017 Level 2

Level 1 A. Financial derivatives 1) Fair value 2) Cash flows 3) Investments in foreign operations B. Credit derivatives 1) Fair value 2) Cash flows Total

Notional amount 30-Jun-17

Level 3

Level 1

Fair Value 31 December 2016 Level 2

Notional amount 31-Dec-16

Level 3

-

140,500 -

-

7,141,520 -

-

196,639 -

-

9,633,825 -

-

140,500

-

7,141,520

-

196,639

-

9,633,825

Section 8 – Tax liabilities – caption 80 Please refer to section 14 of the assets side for information on tax liabilities.

Other information As from 2013, in accordance with the provisions of Circular No. 262 of 22 December 2005 updated on 21 January 2014, and confirmed by the subsequent updates, there is a requirement to report specific information showing those financial assets and liabilities included in offsetting arrangements in accordance with IAS 32 §42, regardless of whether they have actually been offset in the statement of financial position. At 30 June 2017, the framework arrangements in place at Banca IMI comprised (i) 630 CSAs covering OTC derivatives, (ii) 261 GMRAs covering repurchase agreements and (iii) 98 GSMLAs covering securities lending transactions. The agreements are of material relevance for the monitoring and measurement of risks and related capital requirements, although they have not entailed the offsetting of assets and liabilities. In consideration of current accounting and market practice and the prevailing guidance on offsetting, it was decided, in line with policies adopted in previous statements of financial position, that OTC derivatives traded with the legal clearing houses (Swapclear, Eurex Clearing and ICE Clear Europe) satisfy the legal enforceable rights to set-off between the positive and negative gross balances. Thus, at 30 June 2017, the financial liabilities held for trading included a net offset negative amount of 4 billion euro referring to the fair value of OTC derivatives traded through legal clearing houses, resulting from the offsetting of a total of 35.8 billion euro of financial assets against a total of 39.8 billion euro of financial liabilities. More specifically, the net loss amounting to 4 billion euro relates to 3.6 billion in transactions on own account (of which 8 million euro related to hedging transactions) and 0.4 billion euro to transactions originated from customers and Group companies. The offsetting of the balances is performed separately on own account and for third parties. The net positive fair value of derivatives subject to netting framework arrangements was 34.4 billion euro.

79

Condensed interim consolidated financial statements - Notes Part B – Information on the statement of financial position

80

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Part C Information on the Consolidated Income statement

81

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 1 – Interest – captions 10 and 20 1.1 Interest and similar income: breakdown

Debt securities 1. Financial assets held for trading 2. Financial assets at fair value through profit and loss 3. Available-for-sale financial assets 4. Held-to-maturity investments 5. Due from banks 6. Loans to customers 7. Hedging derivatives 8. Other assets

Total

Loans

Other

1H 2017

1H 2016

69,901

-

-

69,901

95,006

100,788 7,039

277,094 142,327

X X

X X

177,728

419,421

14,196 2,237 16,433

100,788 277,094 149,366 14,196 2,237 613,582

95,940 291,668 148,193 50,066 1,975 682,848

1.4 Interest and similar expense: breakdown

Payables 1. 2. 3. 4. 5. 6.

Due to central banks Due to banks Due to customers Securities issued Financial liabilities held for trading Financial liabilities at fair value through profit and loss 7. Other liabilities and provisions 8. Hedging derivatives Total

Debt securities

(165,905) (48,435) X -

X X X (138,357) -

X X (214,340)

X X (138,357)

82

Other

1H 2017

(85) (85)

1H 2016

(165,905) (48,435) (138,357) -

(194,410) (29,304) (188,445) -

(85) (352,782)

(113) (412,272)

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 2 – Fees and commissions – captions 40 and 50 2.1 Fee and commission income: breakdown

1H 2017 a) guarantees given b) credit derivatives c) management, dealing and consultancy services 1. dealing in financial instruments 2. dealing in foreign currency 3. portfolio management 3.1 individual 3.2 collective 4. custody and administration of securities 5. depositary bank 6. placement of securities 7. acceptance and transmission of trading instructions 8. consultancy services 8.1 on investments 8.2 on structured finance 9. distribution of third party services 9.1 portfolio management 9.1.1 individual 9.1.2 collective 9.2 insurance products 9.3 other products d) collection and payment services e) servicing related to securitisations f) services related to factoring g) tax collection services h) management of multilateral trading systems i) management of checking accounts j) other services k) securities lending transactions Total

1H 2016

4,775 -

6,158 -

43,160 11,622

37,784 21,024

63,514 333

110,914 330

76 25,928

16,972

1,333 87,563 2,417 240,721

1,325 77,146 3,186 274,839

The amounts carried under ‘j) other services’ refer to fees for services rendered in the course of Structured Finance operations.

83

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

2.2 Fee and commission expense: breakdown

1H 2017 a) guarantees received b) credit derivatives c) management and dealing services 1. dealing in financial instruments 2. dealing in foreign currency 3. portfolio management 3.1 own customers 3.2 delegated 4. custody and administration of securities 5. placement of financial instruments 6. “door-to-door” sale of financial instruments, products and services d) collection and payment services e) other services f) securities lending transactions Total

1H 2016

(734) -

(764) -

(15,945) -

(17,134) -

(4,994) (55,264) (1,378) (1,614) (2,310) (82,239)

(4,301) (98,994) (1,296) (2,201) (2,456) (127,146)

Fee and commission expense is originated primarily by investment banking operations involving the primary market placement of financial instruments issued by third parties and by the distribution of Banca IMI certificates. The corresponding income item is given by fee and commission income from the placement of securities – item c.6 of table 2.1 above, and by income from derivatives dealing on own account, recognised as ‘profits from financial transactions’.

Section 3 – Dividends and similar income – caption 70 3.1 Dividends and similar income: breakdown

1H 2017

Dividends A. Financial assets held for trading B. Available-for-sale financial assets C. Financial assets at fair value through profit or loss D. Equity investments Total

17,095 823 17,918

1H 2016

Income from UCI quotas 146 7,843 X 7,989

Dividends 24,451 520 24,971

Income from UCI quotas 87 951 X 1,038

At 30 June 2017, ‘Income from UCIs quotas’ under ‘Available-for-sale financial assets’ included approximately 6.4 million euro of repayments received from a private equity fund following capital gains realised by it on the sale of investments.

84

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 4 – Profits (Losses) on trading – caption 80 4.1 Profits (Losses) on trading: breakdown

Revaluations (A) 1. Financial assets held for trading 1.1 Debt securities 1.2 Equities 1.3 Quotas of UCI 1.4 Loans 1.5 Other 2. Financial liabilities held for trading 2.1 Debt securities 2.2 Payables 2.3 Other 3. Financial assets and liabilities: exchange rate gains (losses) 4. Derivatives 4.1 Financial derivatives - On debt securities and interest rates - On equities and stock indices - On currencies and gold - Other 4.2 Credit derivatives Total

Profits on trading (B)

Write-downs (C)

Losses on trading (D)

Net profit (loss) (A+B ) - (C+D)

40,663 19,017 1,836 -

192,901 83,128 1,070 499,845

(49,221) (27,421) (1,301) -

(238,997) (53,634) (925) (512,114)

(54,654) 21,090 680 (12,269)

70,759 10,455

357,820 58,889

(6,238) (61,691)

(385,798) (101,190)

36,543 (93,537)

X

X

X

11,482,115 1,142,958 X 333,075 703,569 13,804,447

10,815,483 2,711,979 X 438,078 973,215 16,132,408

X

(11,565,335) (615,588) X (445,739) (692,711) (13,465,245)

(10,522,048) (3,164,558) X (314,286) (937,878) (16,231,428)

Section 5 – Profits (Losses) on hedging – caption 90 5.1 Profits (Losses) on hedging: breakdown

1H 2017 A. Income from A.1 Fair value hedging derivatives A.2 Hedged financial assets (fair value) A.3 Hedged financial liabilities (fair value) A.4 Cash flow hedging derivatives A.5 Foreign currency assets and liabilities Total (A) B. Expenses for B.1 Fair value hedging derivatives B.2 Hedged financial assets (fair value) B.3 Hedged financial liabilities (fair value) B.4 Cash flow hedging derivatives B.5 Foreign currency assets and liabilities Total (B) C. Total (A - B)

85

1H 2016

169,040 61,181 44,361 274,582

89,194 469,311 15,045 573,550

(112,768) (134,001) (24,845) (271,614) 2,968

(525,802) (438) (57,862) (584,102) (10,552)

(15,510)

210,215 74,791 (23,401) 11,128 46,195 201,271

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 6 – Profits (Losses) on disposals or repurchases – caption 100 6.1 Profits (Losses) on disposals or repurchases: breakdown

1H 2017 Profits Financial assets 1. Due from banks 2. Loans to customers 3. Available-for-sale financial assets 3.1 Debt securities 3.2 Equities 3.3 Quotas of UCI 3.4 Loans 4. Held-to-maturity investments

1H 2016

Losses

Net result

Profits

Losses

Net result

2 6,413

(3,622)

2 2,791

3,879

(2,495)

151,697 1,273 28 -

(33,948) -

117,749 1,273 28 -

113,394 5,386 -

(7,755) (6) -

105,639 5,386 (6) -

Total assets 159,413

(37,570)

121,843

122,659

(10,256)

112,403

2,188

(12,934)

(10,746)

11,703

(25,542)

(13,839)

2,188

(12,934)

(10,746)

11,703

(25,542)

(13,839)

Financial liabilities 1. Due to banks 2. Due to customers 3. Securities issued Total liabilities

1,384

Section 8 – Impairment losses / reversals of impairment losses – caption 130

8.1 Net impairment losses on loans and receivables: breakdown

Impairment losses (1)

Reversals of impairment losses (2)

Individual Derecognition A. Due from banks - Loans - Debt securities B. Loans to customers Purchased non-performing due - Loans - Debt securities Other - Loans - Debt securities

-

C. Total

-

Individual Collective

Other

-

-

-

-

A

-

Collective

B

A

1H 2017

1H 2016

B

-

-

-

X X

-

-

-

(67,475) -

(2,624) -

-

13,000 -

-

45 -

(57,054) -

(12,799) (124)

(67,475)

(2,624)

-

13,000

-

45

(57,054)

(17,914)

Legend A = from interest B = other reversals

-

-

X X

-

(1) - (2)

86

(4,991) -

-

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

8.2 Net impairment losses on available-for-sale financial assets: breakdown

Impairment losses (1)

Reversals of impairment losses (2)

Individual

Individual

Derecognition

Other

A. Debt securities B. Equities C. Quotas of UCI D. Loans to banks E. Loans to customers

-

(249) -

F. Total

-

(249)

A

1H 2017

1H 2016

B -

-

-

-

(249) -

-

-

(249)

X X

X

Legend A = from interest B = other reversals

(1,366) (1,366)

(1) - (2)

8.4 Net impairment losses on other financial assets: breakdown

Impairment losses (1)

Reversals of impairment losses (2)

Individual Derecognition

Individual Collective

Other

A

Collective

B

A

1H 2017

1H 2016

B

A. Guarantees given B. Credit derivatives C. Commitments to lend D. Other

-

(4,593) -

-

-

1 -

-

6,751 -

2,159 -

3,975 -

E. Total

-

(4,593)

-

-

1

-

6,751

2,159

3,975

Legend A = from interest B = other reversals

(1) - (2)

87

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 11 – Administrative expenses – caption 180 11.1 Personnel expenses: breakdown

1H 2017 1) Personnel employed a) wages and salaries b) social security charges c) post-employment benefits d) pension costs e) accruals for post-employment benefits f) accruals for pension and similar provisions - defined contribution plans - defined benefit plans g) payments to external pension funds - defined contribution plans - defined benefit plans h) costs of share-based payment plans i) other employee benefits 2) Other personnel 3) Directors and statutory auditors 4) Retired personnel

1H 2016

(51,361) (14,640) (1,116) 830 -

Total

(2,073) (4,451) (1,918) (92) (659) (75,480)

(50,792) (13,613) (160) (179) (1,884) (4,915) (1,767) (129) (603) (74,042)

In addition to the charges required by law, the provisions for post-employment benefits include the effects of the application of actuarial valuations in accordance with the IFRS. The costs shown in point 1) letter h) relate to the personnel incentive scheme known as LECOIP.

Section 12 – Net accruals to provisions for risks and charges – caption 190 12.1 Net accruals to provisions for risks and charges: breakdown

1H 2017

Accruals for legal disputes Accruals for risks and charges Total

1H 2016

(22,063) (1,000)

(1,000)

(23,063)

(1,000)

The provisions for legal risks relate to the subsidiary IMI Securities.

88

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 16 – Net gains on sales of equity investments – caption 240 16.1 Net gains on sales of equity investments: breakdown

1H 2017 1) Jointly controlled companies A. Gains 1. Fair value gains 2. Profits on disposal 3. Reversals of impairment losses 4. Other B. Losses 1. Fair value losses 2. Impairment losses 3. Losses on disposal 4. Other

1H 2016

Net Gains

-

Net Gains Total

6,611 6,611 6,611 6,611

2) Companies subject to significant influence A. Gains 1. Fair value gains 2. Profits on disposal 3. Reversals of impairment losses 4. Other B. Losses 1. Fair value losses 2. Impairment losses 3. Losses on disposal 4. Other

21,169 2,941 15,198 3,030 (5) (5) 21,164 21,164

The 6.6 million euro of fair value gains relate to the share of the profit of the equity-accounted investees (Epsilon and EuroTLX).

89

Condensed interim consolidated financial statements - Notes Part C – Information on the income statement

Section 20 – Income tax expense – caption 290 20.1 Income tax expense: breakdown

1H 2017 1. Current taxes (-) 2. Changes in current taxes of previous years (+/-) 3. Reduction in current taxes of the year (+) 3.bis Reduction in current taxes of the year for tax assets, as per Law no. 214/2011 (+) 4. Changes in deferred tax assets (+/-) 5. Changes in deferred tax liabilities (+/-) 6. Tax expense for the year (-) (-1+/-2+3+/-4+/-5)

1H 2016

(119,523) -

(205,107) -

(13,862) (5) (133,390)

(13,005) (4) (218,116)

Section 23 – Other information

Given the particular nature of operations, a significant portion of which is carried out through remote access to organised trading systems or multilateral trading circuits, the geographical breakdown of revenue is not directly correlated to the geographical location of the Group’s branches.

Section 24 – Earnings per share Consolidated earnings per share came to 0.302 euro and 0.458 euro respectively in the first half of 2017 and 2016. The foregoing amounts were determined by considering the profit for the period in relation to the weighted average of the number of ordinary shares outstanding in the individual periods.

24.1 Average number of ordinary shares (fully diluted) There were no changes in share capital during the reporting or comparative period. The number of shares was 962,464,000 for the entire period.

90

Financial Statements - Notes Part E – Information on risks and control

Part E Information on risks and related hedging policies

91

Financial Statements - Notes Part E – Information on risks and control

Risk monitoring and control system

Banca IMI has always attached great importance to risk monitoring and control and viewed these as essential to: • Ensuring the reliable, sustainable creation of value in a context of controlled risk. • Protecting the Bank’s financial solidity and reputation. • Permitting a transparent representation of the degree of risk associated with the Bank’s portfolios.

It is in this light that one ought to interpret the initiatives aimed at obtaining validation from the Supervisory Authorities, also for regulatory purposes, of the internal models on market risk, credit/counterparty risk and operational risk, and at further increasing the effectiveness of the monitoring tools included in the internal processes.

Risk monitoring, which is spread along the Bank’s entire decision-making chain, extends all the way to individual operating units and desks. The functions of the Ultimate Parent responsible for risk management, internal audit and compliance activities are Risk Management, Internal Audit and Compliance. Within the system of controls and in accordance with specific service agreements, these periodically meet with the departments of the Bank entrusted with monitoring the line controls and also with the heads of the operational units, both in the course of dayto-day operations and in specific Committees, particularly the Risk Committee, the Credit Committee and the Investment Committee.

The definition of operational limits linked to risk indicators, such as VaR, and the management’s use of the measurement of “capital-at-risk” implicit in various portfolios represent some of the steps taken in accordance with the strategic and decisionmaking guidelines laid down by the Board of Directors.

Risk management activity aims to ensure constant monitoring of the main risks, regulatory compliance and effective support for the decision-making process. This entails: • the rigorous and timely measurement of risks: the analyses are conducted primarily on actual positions with respect to normal and historical market conditions and are enriched by portfolio analyses, stress test estimates, and what-if and scenario simulations; • the definition of the rules and parameters for measuring contracts subject to mark-to-market and fair value, and direct structuring and measurement where this may not be achievable through the standard tools available to business units; • the interaction with the Supervisory Authority for the validation and development of internal models; • the provision of information in support of company planning and top management to enable measurement of value creation; • support to communication to pursue goals of transparency towards customers and the market. The scope of the risks identified may be broken down as follows: • credit risk and counterparty risk; • market risk, including position, settlement and concentration risk on the trading portfolio; • financial risk on the banking book, primarily due to interest and exchange rates; • operational risk, including legal risk, with which “insurance risk” is associated; • liquidity and forex risks.

92

Consolidated financial statements – Notes Part E – Information on risks

Section 1 – BANKING GROUP RISKS 1.1 CREDIT RISK Qualitative information The credit risk management policies and the relevant measurement and control systems, as well as the mitigation techniques, are the same as those in use as at 31 December 2016.

Quantitative information A. CREDIT QUALITY A.1 PERFORMING AND NON-PERFORMING EXPOSURES: AMOUNTS, IMPAIRMENT LOSSES, CHANGES AND BREAKDOWN BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA

Other performing loans

Total

Performing past due loans

Unlikely to pay

Non performing past due loans

Breakdown of financial assets by portfolio classification and credit quality (carrying amount) Doubtful loans

A.1.1

Available-for-sale financial assets Held-to-maturity investments Due from banks Loans to customers Financial assets at fair value through profit or loss 6. Financial assets held for sale

29,970

761,734

7,380

38,450

13,680,889 69,378,280 27,966,918

13,680,889 69,378,280 28,804,452

-

-

-

-

-

-

Total 30 June 2017 Total 31 December 2016

29,970 41,982

761,734 791,925

7,380 -

38,450 -

111,026,087 94,830,041

111,863,621 95,663,948

1. 2. 3. 4. 5.

93

Consolidated financial statements – Notes Part E – Information on risks

A.1.2 Breakdown of credit exposures by portfolio classification and credit quality (gross amount and carrying amount)

799,084

1,186,227 1,153,880

(387,143) (319,973)

799,084 833,907

Gross exposure 13,680,889 69,383,271 28,091,145 X

Cumulative write-downs 1. Financial assets held for trading 2. Hedging derivatives Total 30 June 2017 Total 31 December 2016

(4,991) (85,777)

13,680,889 69,378,280 28,005,368

13,680,889 69,378,280 28,804,452

(90,768) 111,064,537 (88,194) 94,830,041

111,863,621 95,663,948

X

111,155,305 94,918,235

Assets of evidently low credit quality

Other assets

Carrying amount

Carrying amount

8,877 8,877 80,425

47,807,268 124,952 47,932,220 52,568,157

3,293 3,293 20,376

Total (carrying amount)

(387,143)

Carrying amount

1,186,227

Carrying amount

Individual impairments

Available-for-sale financial assets Held-to-maturity investments Due from banks Loans to customers Financial assets at fair value through profit or loss 6. Financial assets held for sale Total 30 June 2017 Total 31 December 2016

Gross exposure 1. 2. 3. 4. 5.

Individual impairments

Performing assets

Non-performing assets

A.1.3 Banking group: on- and off-balance sheet loans and receivables with banks: gross amount, carrying amount and past due time bracket Individual impairment

Gross amount

Collective impairment

Carrying amount

X X X X X X (4,991) -

75,326,307 -

-

(4,991)

75,326,307

-

X (2,251)

33,779,487

-

(2,251) (7,242)

33,779,487 109,105,794

X X X X

Total B Total A + B

X X X X -

Total A B. Off-balance sheet exposures a) Non-performing b) Performing

X X X X

X X X X

X

-

X X X X X X 75,331,298 -

-

75,331,298

-

X 33,781,738

X -

94

Performing assets

-

-

X

-

-

-

X

Over 1 year

Between 3 and 6 months

Up to 3 months A. On-balance sheet exposures a) Doubtful loans - of which: forbearance exposures b) Unlikely to pay - of which: forbearance exposures c) Non performing past due loans - of which: forbearance exposures d) Performing past due loans - of which: forbearance exposures e) Other performing loans - of which: forbearance exposures

Between 6 months and 1 year

Non-performing assets

-

33,781,738 109,113,036

X X X X

X

Consolidated financial statements – Notes Part E – Information on risks

A.1.6 Banking group: on- and off-balance sheet loans and receivables with customers: gross amount, carrying amount and past due time bracket

Individual impairment

Gross amount

Collective impairment

Carrying amount

A. On-balance sheet exposures a) Doubtful loans - of which: forbearance exposures b) Unlikely to pay - of which: forbearance exposures c) Non performing past due loans - of which: forbearance exposures d) Performing past due loans - of which: forbearance exposures e) Other performing loans - of which: forbearance exposures Total A B. Off-balance sheet exposures a) Non-performing b) Performing Total B Total A + B

1,040,892 920,053 8,764 8,764 X X X X

X X X X

1,049,656 71,852 X 71,852 1,121,508

Over 1 year

Between 6 months and 1 year

Between 3 and 6 months

Up to 3 months

Non-performing assets

-

99,052 38,456 37,519 37,519 X X X X

X X X X X X 39,848 39,848 48,439,670 382,022

(69,082) (27,503) (316,677) (240,574) (1,384) (1,384) X X X X

X X X X X X (1,398) (1,398) (84,379) (7,048)

29,970 10,953 761,734 716,998 7,380 7,380 38,450 38,450 48,355,291 374,974

-

136,571

48,479,518

(387,143)

(85,777)

49,192,825

X

X 39,635,206

(27,325) X

X (1,514)

44,527 39,633,692

136,571

39,635,206 88,114,724

(27,325) (414,468)

(1,514) (87,291)

39,678,219 88,871,044

X X X X -

X

X

-

Performing assets

-

Gross exposures include approximately 10 billion euro of loans in the Structured Finance segment. The relative impairment losses on loans and provisions for guarantees amount to 504 million euro, with a coverage ratio of the collective impairment losses on performing exposures of 1%.

EXPOSURES TO SOVEREIGN CREDIT RISK In accordance with the IFRS (specifically IAS 1 and IFRS 7), as regards in particular the disclosures to be made concerning exposures to sovereign credit risk (as the issuer of debt securities, counterparty to OTC derivatives contracts and reference entity for credit derivatives), the following breakdown is provided of Banca IMI’s exposures at 30 June 2017.

95

Consolidated financial statements – Notes Part E – Information on risks

Sovereign risk exposure (issuer, counterparty, reference entity) - Financial instruments (in millions of euro)

Debt securities HFT Fair Value (1)

EU Countries - Austria - Belgium - Croatia - France - Germany - Ireland -

Italy (3) Latvia Lithuania Netherlands Poland Portugal United Kingdom Slovak Republic Romania Spain Hungary

Other Countries - Argentina - Australia - Brazil - Chile - Colombia - Ecuador - Egypt - Philippines - Israel - Indonesia - Malaysia - Morocco - Mexico - Peru - Republic of Serbia - Russia - South Africa - South Korea - Turkey - USA - Venezuela Total

AFS Fair Value

5,464.1 3.9 0.6 1.2 395.3 1,086.0 17.4

7,926.4

3,595.0

4,464.3 11.3 26.7

Financial derivatives L&R Amortised cost 198.8

Notional amount

Net Positive Value

7,225.0

3,441.8

591.4 1,812.2 198.8

7,225.0

3,441.8

0.2 50.4 38.1

Notional amount (2)

Credit derivatives Gross Notional Positive amount (2) Value

Gross Negative Value

1,972.4 8.8

161.9 0.1

2,204.5 0.0

(145.0)

13.1 188.4 8.8 21.9

0.6 0.2

(0.1) (0.2)

0.6

8.8 170.9 8.8 21.9

1,078.4

155.9

1,318.5

(137.5)

0.0 26.3 78.5

0.5 0.5

0.0 57.0 76.2

(1.1) (0.4)

539.4 8.8

3.4 0.1

533.6 8.8

(5.0) (0.2)

455.6

5.6

477.6

(5.5)

61.3

0.7

61.3 8.8

(0.7) (0.2)

17.5

0.2

21.9

(0.2)

83.2

0.5

96.4

(0.7)

118.3 57.0

1.3 1.1

109.5 57.0

(1.2) (1.0)

118.3

1.8

122.7

(1.5)

2,428.0

167.5

2,682.1

(150.5)

(0.5)

88.1 18.0 4.1 301.8 2.5 252.1 25.0

5.2 876.8

3,907.7

0.0

0.0

0.0

117.1 2.4 0.4

28.1 62.1

3.0

16.0

4.4 3.2 0.4 2.8

0.1 193.3 1.1 5,716.2

1.0 89.5 53.6 14.1 4.6 106.4 64.3 9.2 26.8 17.5 81.3 3,232.1

11,834.1

198.8

7,225.0

3,441.8

Total exposure

17,048.0 4.0 0.6 1.7 986.7 2,898.2 17.5 11,718.3 11.3 26.7 0.2 49.8 38.2 88.1 18.0 9.3 1,177.0 2.4 4,159.9 25.0 117.1 2.4 28.3 62.1 3.0 1.0 89.5 53.6 30.1 0.0 4.6 110.6 67.5 0.4 12.1 26.9 17.5 81.7 3,425.4 1.1 21,207.9

(1) It escludes the short positions of the HFT porftolio but includes interest accrued as at 30 June 2017. (2) Absolute amount of protection purchases and sales. (3) The short positions of the HFT portfolio amount to 2,716.4 million euro.

The “Total exposure” column represents net total assets attributable to an individual sovereign country included in the statement of financial position. Any derivative contracts listed on regulated markets are excluded since the earnings impact from these is directly recognised as a balancing entry to liquid assets as a result of the settlement of margins of change on a daily basis. Overall, the exposure to sovereign credit risk came to 21.2 billion euro, about 55% of which is represented by the Italian Republic, about 16% by the USA, approximately 14% by Germany, around 6% by Spain and approximately 5% by France.

96

Consolidated financial statements – Notes Part E – Information on risks

1.2 – BANKING GROUP - MARKET RISKS Qualitative information The market risk management policies and measurement and control systems are the same as those in use as at 31 December 2016. Quantitative information Regulatory trading book: internal models and other sensitivity analysis methods Composition and capital-at-risk The quantitative information below refers to the operational scope of the trading book subject to 1 market risks . In the section that follows, capital subject to market risk is estimated by adding the operational VaR and the simulations on illiquid parameters. The development of capital-at-risk In order to ensure constant control of all risks, risk monitoring using VaR technology also extends for operating purposes to positions in securities classified as AFS. Over the second quarter of 2017, market risks originated by Banca IMI decreased on average compared to the first quarter (an average of 58.4 million euro compared to an average of 73.7 million euro in the first quarter).

Daily operating VaR for Banca IMI – comparison between the 2017 quarters average 2Q

minimum 2Q

58.4

52.9

Banca IMI

(in millions of euro) maximum average 1Q 2Q 63.7

73.7

The development of daily operating VaR, as shown in the table, has been calculated on Banca IMI quarterly historical series.

The overall risk profile (half-year average) for 2017 (66.1 million euro) was lower than the average levels for the first half of 2016 (87.7 million euro).

Daily operational VaR for Banca IMI (minimum, average and maximum for the period) (in millions of euro) 2017

Banca IMI

2016

average 1H

minimum 1H

maximum 1H

average 1H

minimum 1H

maximum 1H

66.2

52.9

93.2

87.7

64.8

122.4

The development of daily operating VaR, as shown in the table, has been calculated on Banca IMI annual historical series.

Over the second quarter of 2017, operational VaR averaged around 51% of the limit, rising to a maximum of 72%.

1

The regulatory scope of application of the internal model is a sub-set of the internal operating model of market risks; this is a function both of the different status of the approaches used, which have not yet been authorised for extension for the purposes of prudential regulation (e.g. the bonds and CDSs spread VaR), and of current legislation, which regulates the exclusion from the scope of the internal models of some risk items dealt with using the standardised approach (for example, investments in UCI).

97

Consolidated financial statements – Notes Part E – Information on risks

An analysis of the operational VaR over the first half of the year shows that risks first increased as a result of the scenario (at the beginning of February a particularly volatile scenario arose with respect to credit spread risk), following this they rose as a result of the increased credit and equity exposure. During the month of March, VaR fell due to a technical timing effect, whereby, as the days pass, historical scenarios (in this case volatile ones) are assigned a lower weighting for the purposes of calculating risk. Over the second quarter of 2017, in addition to the aforementioned technical effect, which also saw the "Brexit scenario" being timed out of the VaR calculation horizon, there was a further decline in risk as a result of the reduction of the securities portfolio.

Daily evolution of market risk – daily VaR Evolution Banca Imi (TRD + AFS)

Mln

140 130 120 110 100 90 80 70 60 50 40 Jul-16

Aug-16

Sep-16

Nov-16

Dec-16

Jan-17

Mar-17

Apr-17

Jun-17

In the second quarter of 2017, the composition of the risk profile by factor showed a prevalence of risk linked to credit spread volatility, representing 77% of the total. Contribution of risk factors to daily operational VaR (percentage of the total area for the period) 2Q 2017

Banca IMI

Equity

5%

Hedge Interest Rates fund 0%

Credit spread

Currency

77%

1%

7%

Other Commodities parameters 6%

4%

The table showns the contribution of risk factors considering the overall VaR 100%

Issuer risk associated with the trading portfolio is subject to fair value analysis through the aggregation of exposures by rating class and is monitored using a system of operational limits founded on both rating classes and concentration indicators. The use of the IRC limits (maximum 430 million euro) at the reporting date amounted to 43.4%.

98

Consolidated financial statements – Notes Part E – Information on risks

Breakdown of exposures by type of issuer for Banca IMI (percent values of the total area at period end, excluding government securities and the Group’s securities and including hedging CDS)

Total June 2017

100%

of which Corporate

Financial

Emerging

Covered

Securitisations

Government

1%

38%

3%

5%

56%

-3%

At the end of June, the securitisations predominated. The composition of the trading book by rating is mainly investment grade. The effectiveness of the VaR calculation model must be monitored on a daily basis using backtesting, which allows comparison within the regulatory scope of: – daily estimates of value-at-risk; – daily measurements of profits/losses based on backtesting, which are calculated using the daily operating reports of the actual profit and loss made by each desk, excluding the components that are not relevant to backtesting (such as fees and intraday trading).

Millions

Backtesting checks the model’s capacity to correctly measure variations in the daily valuation of trading positions from a statistical point of view, covering a one-year observation period (around 250 estimates). Any critical issues in the internal model’s suitability arise when the daily backtesting measurements of profits/losses show more than three instances over the year of observation, in which the daily loss is higher than the value-at-risk estimate. Current legislation requires backtesting to be carried out on both actual and theoretical P&L series. This latter is based on revaluation of the portfolio value using the pricing models adopted in calculating the VaR measure. The number of significant backtesting exceptions is determined as the maximum amount between those in the actual P&L and the theoretical P&L.

Jul-16

Sep-16

Dec-16

Mar-17

Effective P&L

Daily VaR

During the last 12 months, there were no backtesting exceptions.

99

Jun-17

Consolidated financial statements – Notes Part E – Information on risks

The monitoring of risks in Banca IMI’s trading operations also involves the use of scenario analyses and stress tests. The following table provides an overview of the impact of selected scenarios involving trends in equity prices, interest rates, credit spreads and exchange rates on the income statement. (in millions of euro)

EQUITY

Total

INTEREST RATES

CREDIT SPREAD

CURRENCY

COMMODITIES

Bearish

Bullish

+40bp

lower rate

-25bp

+25bp

-10%

+10%

Crash

Bullish

-38.0

8.0

-28.0

22.0

248.0

-241.0

6.0

4.0

4.0

-1.0

In particular, as at 30 June 2017: for equity market positions, a fall in prices of 15% and an ensuing increase in volatility of 25% would have resulted in a loss of approximately 38 million euro; on interest rate exposures, a parallel +40 basis point shift would have led to a 28-million-euro loss; for exposures sensitive to changes in credit spreads, a 25-basis point widening in spreads would have led to a 241-million-euro loss; for foreign currency market exposures, all scenarios would have led to potential gains; as for exposures to commodities, a 20% rise in prices (and a 15% reduction in the gold price) would have resulted in a loss of 1 million euro. The structure of operational limits reflects the level of risk deemed acceptable for individual business areas in accordance with the management and strategic guidelines laid down by the top management. Limits are set and monitored at the various hierarchical levels by assigning powers to the various managers of the business units, with the aim of achieving the optimal trade-off between a controlled risk environment and the requirements of operational flexibility. The effective operation of the system of limits and delegated powers is founded on the basic concepts of hierarchy and interaction, the application of which led to the definition of a structure organised into: • first level limits (VaR): these are approved by the Management Board at the same time as the approval by the RAF (Risk Appetite Framework). The trend in the absorption of these limits and the assessment of the adequacy thereof is the subject of periodic analysis by the Group’s Financial Risks Committee. After their approval, and after consultation with the Business Units, these limits are allocated to the desks of the individual legal entities; • second level limits (sensitivity and Greeks): their aim is to control the operations of individual desks on the basis of measures differentiated according to the specific nature of the instruments treated and operational strategies, such as sensitivities, Greeks and equivalent exposures. Counterparty risk is measured in terms of the cost of replacing derivative contracts and is monitored in terms of both future exposure and aggregations by sector and class of risk. Banca IMI’s typical counterparties on the OTC market are lending institutions, financial and insurance companies and, to a small extent, corporate counterparties. The model adopted for distributing derivatives to non-institutional customers (mainly IRSs and currency trades) involves maintaining the credit risk on the commercial bank books, and transferring the market risks to Banca IMI. The design of the internal counterparty risk model has led to the use of the PFE (Potential Future Exposure) and the EPE (Expected Positive Exposure) metrics. The former applies to exposures within credit facilities with respect to OTC derivatives and Securitised Financing Transactions - SFT (Repo and Securities Lending). The latter applies to exposure at default (EAD) and is used to calculate regulatory capital requirements relating to OTC derivatives and ETDs (Exchange Traded Derivatives).

100

Consolidated financial statements – Notes Part E – Information on risks

The internal model is applied according to the guidelines of Basel III. It follows that the requirement vis-à-vis counterparty risk is the sum of the default and CVA risks. The risk of default is established from the higher of the EAD between that calculated according to current risk parameters and that calculated in accordance with risk parameters calibrated on a stress period. The CVA Capital Charge is the result of the sum of the CVA VaR calculated on the credit spread movements of the counterparties in the past year and the CVA VaR calculated on the movements of a stress period that currently has been identified as the two-year period of 2011-2012. Following the adoption of the internal model, the following internal processes have been activated: – definition and periodic calculation of stress tests on market scenarios and joint market/credit scenarios on counterparty risk measures; – definition and periodic analysis of Wrong-Way Risk, i.e. the risk of a positive correlation between the future exposure to a counterparty and that counterparty’s probability of default; – definition and monitoring of operational limits at portfolio level, authorised by the Group’s Financial Risks Committee for derivatives transactions; – contribution of collateral inflow/outflow risk measures, calculated on the basis of the internal counterparty risk model, for OTC derivative transactions with collateral agreements (CSA); – backtesting: in order to test the validity of the model. The tests are carried out on the risk factors, financial instrument and netting set; – reporting to the various committees on the advanced risk measures, capital requirement, level of use of management limits, results of stress tests and analyses of wrong-way risk. OTC derivative contracts entered into with approximately 380 counterparties, are over 77,000: they have an average maturity of 5 years and 77% are interest rate instruments. Collateralised deals make up 67% of the total, and comprise a sub-set of all the contracts subject to netting arrangements. The chart below shows the distribution of contracts by type of payoff.

101

Consolidated financial statements – Notes Part E – Information on risks

1.2.4 DERIVATIVES A. FINANCIAL DERIVATIVES A.1 Regulatory trading book: reporting date notional amounts 31 December 2016

30 June 2017 Over the counter 1. Debt securities and interest rates a) Options b) Swaps c) Forwards d) Futures e) Other 2. Equities and stock indices a) Options b) Swaps c) Forwards d) Futures e) Other 3. Currencies and gold a) Options b) Swaps c) Forwards d) Futures e) Other 4. Commodities 5. Other underlying assets Total

Central counterparties

Over the counter

Central counterparties

103,486,775 2,686,501,062 -

79,224,591 178,404,743 -

117,049,780 2,486,645,585 -

26,037,993 193,766,571 -

16,298,977 22,001 170,938 -

21,888,667 2,272,377 -

15,904,292 31,499 184,651 -

17,524,314 1,500,651 -

26,511,707 45,909,716 6,981,129 4,310,692 5,994,523 2,896,187,520

15,352 192,845 2,368,221 284,366,796

22,523,483 47,165,074 5,926,506 943,282 7,108,292 2,703,482,444

60,431 213,311 3,207,880 242,311,151

A.2 Banking book: reporting date notional amounts

A.2.1 Hedging 30 June 2017 Over the counter 1. Debt securities and interest rates a) Options b) Swaps c) Forwards d) Futures e) Other 2. Equities and stock indices a) Options b) Swaps c) Forwards d) Futures e) Other 3. Currencies and gold a) Options b) Swaps c) Forwards d) Futures e) Other 4. Commodities 5. Other underlying assets Total

31 December 2016

Central counterparties

Over the counter

Central counterparties

90,079 16,543,924 -

-

113,080 17,021,568 -

-

-

-

-

-

819,109 17,453,112

-

936,627 18,071,275

-

102

Consolidated financial statements – Notes Part E – Information on risks

A.2.2 Other derivatives 30 June 2017 Over the counter 1. Debt securities and interest rates a) Options b) Swaps c) Forwards d) Futures e) Other 2. Equities and stock indices a) Options b) Swaps c) Forwards d) Futures e) Other 3. Currencies and gold a) Options b) Swaps c) Forwards d) Futures e) Other 4. Commodities 5. Other underlying assets Total

31 December 2016

Central counterparties

Over the counter

Central counterparties

168,000 -

-

129,000 -

-

612,961 -

-

1,299,042 -

-

50,691 831,652

-

200,511 1,628,553

-

A.3 Financial derivatives: gross positive fair value – breakdown by product Positive fair value 30 June 2017 Over the counter A. Regulatory trading book a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures e) Other B. Banking book - hedging a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures e) Other C. Banking book - other derivatives a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures e) Other Total

31 December 2016

Central counterparties

Over the counter

Central counterparties

3,139,440 27,481,623 2,283,169 628 134,341 186,616

569,665 -

3,871,331 31,974,322 2,893,141 346 220,065 328,867

646,728 -

2,247 85,345 37,360 -

-

3,361 95,785 55,294 -

-

14,616 33,365,385

569,665

63,426 39,505,938

646,728

103

Consolidated financial statements – Notes Part E – Information on risks

A.4 Financial derivatives: gross negative fair value – breakdown by product Negative fair value 30 June 2017 Over the counter A. Regulatory trading book a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures e) Other B. Banking book - hedging a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures e) Other C. Banking book - other derivatives a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures e) Other Total

31 December 2016

Central counterparties

Over the counter

5,867,486 27,103,795 2,868,607 125,660 133,856

718,766 -

7,179,447 31,602,236 3,459,558 57 192,558 350,009

718,470 -

107,900 32,600 -

-

165,840 30,799 -

-

55,509 36,295,413

718,766

89,772 43,070,276

718,470

B. CREDIT DERIVATIVES B.1 Credit derivatives: reporting date notional amounts Regulatory trading book

Banking book

various various single counterparties single counterparties counterparty (basket) counterparty (basket) 1. Protection purchases a) b) c) d)

Credit default products Credit spread products Total rate of return swaps Other

TOTAL 30 JUNE 2017 TOTAL 31 DECEMBER 2016

8,702,741 -

41,014,597 -

-

-

8,702,741

41,014,597

11,255,098

41,363,713

-

-

11,454,354 -

38,045,002 -

-

-

11,454,354

38,045,002

13,951,775

40,336,161

-

-

2. Protection sales a) b) c) d)

Credit default products Credit spread products Total rate of return swaps Other

TOTAL 30 JUNE 2017 TOTAL 31 DECEMBER 2016

Central counterparties

104

Consolidated financial statements – Notes Part E – Information on risks

B.2 OTC credit derivatives: gross positive fair value – breakdown by product Positive fair value 30 June 2017

31 December 2016

A. Regulatory trading book a) b) c) d)

Credit default products Credit spread products Total rate of return swaps Other

1,350,536 -

1,309,088 -

-

-

1,350,536

1,309,088

B. Banking book a) b) c) d)

Credit default products Credit spread products Total rate of return swaps Other Total

B.3 OTC credit derivatives: gross negative fair value – breakdown by product Negative Fair value 30 June 2017

31 December 2016

A. Regulatory trading book a) b) c) d)

Credit default products Credit spread products Total rate of return swaps Other

1,364,741 -

1,334,150 -

-

-

1,364,741

1,334,150

B. Banking book a) b) c) d)

Credit default products Credit spread products Total rate of return swaps Other Total

1.4 BANKING GROUP - OPERATIONAL RISKS QUANTITATIVE INFORMATION To determine capital requirements, Banca IMI uses the Advanced Measurement Approach (AMA, internal model). The capital absorption as at 30 June 2017 was 117.7 million euro.

105

Consolidated financial statements – Notes Part E – Information on risks

Legal risks Risks relating to legal disputes, potential disputes and claims are regularly analysed. Where there are legal obligations for which it is likely that there will be a need to make payments, and it is possible to make a reliable estimate of the relative amount, appropriate accruals are made to the provisions for risks and charges. The size of these accruals is consequently adjusted to take into account changes in the underlying risks. At the end of the period, the subsidiary Banca IMI Securities reached the final phase of discussions with the SEC (Securities and Exchange Commission). A draft settlement agreement has been reached following complex negotiations to mitigate the risk of sanctions for breach of supervisory obligations relating to activities involving pre-released ADRs (certificates of deposit representing shares issued by non-US companies), as referred to in Articles 15(b)(4)(E) of the Exchange Act and 17(a)(3) of the Securities Act. This agreement, which provides for the payment of approximately USD 35 million, has been approved by the SEC technical and investigative unit; said amount was fully provided for at the date of this Report. We are confident that the SEC will definitively close the proceeding at these terms. There were no new developments with regard to the investigation launched in October 2016 by the Antitrust Division of the Department of Justice (DoJ) relating to alleged cartel activities between a number of broker dealers - including IMI SEC - in the abovementioned pre-released ADR business area.

106

Condensed interim consolidated financial statements - Notes Other information

Part F - Equity Section 1 – EQUITY A. Qualitative information The objectives pursued in the management of the Bank’s equity are based on the prudential supervision regulations, and are aimed at maintaining appropriate levels of capital adequacy in order to manage the typical risks of structured finance, capital markets and investment banking. Risks that can – among other things – involve temporary absorption of regulatory capital following placement operations performed on primary markets or due to concentration requirements for certain issuers or business groups. The earnings appropriation policy aims to reinforce the Bank's capital structure, with a particular emphasis on tier 1 regulatory capital, to value the economic capital and to ensure a properly balanced financial position. Credit risk mitigation techniques (netting) and internal models, validated also for regulatory purposes, have been introduced with the aim of optimising the use of regulatory capital.

B. Quantitative information

Share capital Share premium reserve Reserves Interim dividends (-) Equity instruments (Treasury shares) Valuation reserves: - Available-for-sale financial assets - Property and equipment - Intangible assets - Hedges of investments in foreign operations - Cash flow hedges - Exchange rate gains (losses) - Non-current assets held for sale - Actuarial gains and losses on defined benefit plans - Portion of valuation reserves of equity-accounted investees - Special revaluation laws Profit for the period

Total

Eliminations and consolidation adjustments

Other

Insurance Companies

Banking Group

B.1 Consolidated equity: breakdown by type of company

962,464 581,260 1,650,989 1,200,000

(133,537)

(1,080)

Total

107

4 290,413 4,550,513

-

-

-

962,464 581,260 1,650,989 1,200,000 (133,537) (1,080) 4 290,413 4,550,513

Condensed interim consolidated financial statements - Notes Other information

Section 2 OWN FUNDS AND CAPITAL RATIOS Banca IMI is not the parent of a banking group. The following figures refer to Banca IMI S.p.A. only.

2.1 OWN FUNDS A. Qualitative information

Own funds, risk-weighted assets and solvency ratios are determined according to the harmonised banks and investment company regulations contained in Directive 2013/36/EU (CRD IV) and Regulation (EU) No. 575/2013 (CRR) of 26 June 2013, and based on the Bank of Italy Circulars No. 285 and 286 (issued in 2013 and 2014) and the update to Circular No. 154. The regulations governing own funds involve the introduction of the new regulatory framework in a gradual manner, involving a transition period, generally up until the end of 2017, during which only a percentage of some elements that will eventually be accounted for or deducted entirely under Common Equity, will have an impact on the Common Equity Tier 1 (the so-called Phase In). Under the regulations, the residual non-applicable percentage is accounted for or deducted from the additional Tier 1 capital (AT1) and Tier 2 capital (T2) or included under risk-weighted assets. Phase-in mechanisms introduced with the introduction of European supervisory rules were subject to additions and changes during 2016, both with regard to the Leverage Ratio and with reference to Own Funds. As regards the latter, it is no longer possible to exclude the entire valuation reserves from Own Funds as regards EU-area government securities (the so-called “grandfathering”). These reserves are now excluded at 20% for 2017 and shall be considered in their entirety with effect from 1 January 2018, as provided for by Regulation (EU) 2016/445 of the European Central Bank. In light of the information provided by the EBA (6 February 2015), it is possible to include the profit or loss for the reporting date or, in the case of interim reports, the interim profit or loss, based on two major assumptions: • formal request to the EBA and consequent authorisation; • external certification. The conditions must be verified by the date of submission of the related Reports. In any case, the profit or loss for the reporting period should be reduced by the expected distribution of dividends or any other charges that would affect such profit or loss. This must be done on the basis of official, internal or external evidence. As at 30 June 2017, Banca IMI has not used this option.

108

Condensed interim consolidated financial statements - Notes Other information

1. Common Equity Tier 1 – CET1 Common Equity is composed primarily of equities, share premiums, income-related reserves, valuation reserves, in addition to items that are deducted and prudential filters. The relevant items for Banca IMI to be deducted from Common Equity Tier 1, in absolute terms or on exceeding a certain threshold, are the following: • goodwill, intangible assets and residual intangible assets; • excess of expected loss compared to overall adjustments (shortfall reserve) for the weighted positions according to the IRB methods; • non-significant investments in CET1 instruments issued by companies in the financial sector (reduced for the part that exceeds the allowance provided for by legislation); • direct investments in unrated securitised instruments. Some prudential filters are also provided for with effect on Common Equity; those relevant to Banca IMI are: • filter on profits or losses due to liabilities at fair value (derivatives and non-derivatives) related to changes in their creditworthiness; • adjustments on assets at fair value related to the so-called “Prudent valuation”.

2. Additional Tier 1 Capital – AT1 This category generally includes the equity instruments other than ordinary shares (which are computable in Common Equity) complying with the regulatory requirements for inclusion in this level of Own Funds (e.g. savings shares). As at 30 June 2017, Banca IMI had a nominal 1.2 billion euro of Additional Tier 1 capital; these instruments were subscribed in their entirety by the Ultimate Parent Intesa Sanpaolo.

3. Tier 2 Capital – T2 Tier 2 Capital is composed mostly of calculable subordinated liabilities and any excesses in value adjustments compared to the expected losses (excess reserve) for the weighted positions according to the IRB methods. As at 30 June 2017, Banca IMI has not issued any Tier 2 Capital instruments.

B. Quantitative information As mentioned above, the new regulatory framework is being introduced gradually over a transitional period where some of the elements that would be calculable or deductible in full from the Common Equity have an effect on the Common Equity Tier 1 for only a certain percentage, then affecting the remaining levels of capital – to the extent that their capacity allows. Consequently, the items initially attributable to T2 were subsequently included in the remaining items of Own Funds.

109

Condensed interim consolidated financial statements - Notes Other information

30 June 2017 A. Common Equity Tier 1 (CET1) before the application of prudential filters of which: instruments of CET1 due to transitional adjustments B. Prudential filters of CET1 (+ / -)

31 December 2016

2,932,141

2,876,775

-

-

1,574

C. CET1 gross of items to be deducted and effects of transitional adjustments (A +/- B) D. Items to be deducted from CET 1

2,933,715

(78,115) 2,798,660

(82,527)

(185,533)

E. Transitional adjustments - Effects on CET1 (+/-)

35,025

106,119

F. Total Common Equity Tier 1 (CET1) (C-D +/-E)

2,886,213

2,719,246

G. Additional Tier 1 (AT1) before items to be deducted and effects of transitional adjustments

1,200,000

1,000,000

-

-

of which: instruments of AT1 due to transitional adjustments H. Items to be deducted from AT1

(9,374)

(49,840)

I. Transitional adjustments - Effects on AT1 (+/-)

(3,147)

(22,858)

L. Total Additional Tier 1 (AT1) (G - H +/- I) M. Tier 2 (T2) before items to be deducted and effects of transitional adjustments of which: instruments of T2 due to transitional adjustments N. Items to be deducted from T2 O. Transitional adjustments - Effects on T2 (+ / -)

1,187,479

927,302

-

-

-

-

3,147

22,858

(3,147)

(22,858)

P. Total Tier 2 (T2) (M - N +/- O)

-

-

Q. Total Own Funds (F + L + P)

4,073,692

3,646,548

Own funds have benefited from the rule which allows the effects arising from the application of the revised IAS 19 to be recognised gradually in the regulatory capital. The amount of the “prudential filter” applied to the negative actuarial reserve is less than 1 million euro.

110

Condensed interim consolidated financial statements - Notes Other information

2.2 CAPITAL ADEQUACY A. Qualitative information Capital adequacy is assessed by taking into account the planned development of activities in Global Markets and Corporate & Strategic Finance. In the strategic management of capital adequacy, which is a critical factor to support the expansion of assets and consolidating earnings profiles, adequate consideration is given to the expected or prospective developments of prudential regulatory provisions.

B. Quantitative information

Unweighted amounts 30 June 2017

31 December 2016

Weighted amounts / requirements 30 June 31 December 2017 2016

A. RISK ASSETS A.1 CREDIT AND COUNTERPARTY RISK 1. Standard methodology 2. Internal ratings based methodology 2.1 Base 2.2 Advanced 3. Securitisations

80,356,422

74,144,504

3,303,433

4,623,734

13,007,374 1,000,286

8,358,581 1,097,423

7,863,329 228,222

6,462,882 231,478

911,599

905,448

42,181

52,142

-

-

111,121 1,011,699 -

70,846 1,120,219 -

117,714

120,866

-

-

2,194,313

2,269,520

27,428,914 10.52% 14.85% 14.85%

28,368,999 9.59% 12.85% 12.85%

B. CAPITAL REQUIREMENTS B.1 CREDIT AND COUNTERPARTY RISK B.2 CREDIT VALUATION ADJUSTMENT RISK B.3 SETTLEMENT RISK B.4 MARKET RISK 1. Standard methodology 2. Internal models 3. Concentration risk B.5 OPERATIONAL RISK 1. Basic indicator approach (BIA) 2. Traditional standardised approach (TSA) 3. Advanced measurement approach (AMA) B.6 OTHER ITEMS B.7 TOTAL CAPITAL REQUIREMENTS C. RISK-WEIGHTED ASSETS AND CAPITAL RATIOS C.1 Risk-weighted assets C.2 Common equity Tier 1 / Risk-weighted assets (CET1 capital ratio) C.3 Tier 1 / Risk-weighted assets (Tier 1 capital ratio) C.4 Total own funds / Risk-weighted assets (Total capital ratio)

On the basis of the provisions of prudential supervision for banks (Bank of Italy circular No. 285 of 17 December 2013 and subsequent updates), which implement the directives in respect of regulatory capital and capital ratios measurement (Basel 3), own funds must be, upon full implementation, at least 10.5% of total risk-weighted assets (Total capital ratio) resulting from typical risks of banking and finance activities (credit risk, counterparty risk, market risk and operational risks), weighed according to regulatory segmentation of the debtor counterparties and taking into account the techniques for mitigating credit risk and reducing operational risk as a result of insurance coverage.

111

Condensed interim consolidated financial statements - Notes Other information

The implementation path at an individual level for Banks belonging to banking groups is set to be fully completed in 2019, starting with the minimum requirement of 8.625% for the three-year period 2014-2016 with the gradual increase (from 0.625% to 2.5%) of the required ratio for the “Capital conservation buffer”. With regard to credit risks, the Group has received permission to use its internal ratings-based approaches for the Corporate portfolio report starting from 31 December 2008. Subsequently, the scope has been gradually extended to SME Retail and Mortgage portfolios and other Italian and foreign companies in the Group. It was adopted by Banca IMI on 30 June 2012, at a date that was later, therefore, than the conferral of the "structured finance" business unit (September 2009). Banks are also required to comply with capital requirements with regard to market risks calculated over the whole trading portfolio but separately for the different types of risk: position risk on debt securities, equities and concentration risk. With reference to the entire financial situation, it is also necessary to determine currency risk, settlement risk and the commodity position risk. The use of internal models is allowed for determining the capital requirement for market risks; in particular, Banca IMI applies the internal model to calculate generic position risk (price volatility risk) and specific position risk (issuer risk) for equities and generic position risk (interest rate risk) on debt securities. As from the report as at 30 September 2012, the scope was extended also to the specific risk on debt securities. The extension of the model was based on the current methodology (full historical simulation evaluation) and required the integration of the Incremental Risk Charge in the context of the calculation of the capital requirement for market risks; the internal model also includes for Banca IMI the position risk in UCI units (for the Constant Proportion Portfolio Insurance-CPPI component) and for dividend derivatives, as well as commodity position risk. Since December 2011, the Stressed VaR has been used for the calculation of the requirement as regards market risks. With regard to counterparty risk, this is calculated independently from the allocation portfolio. With effect from the report dated 31 March 2014, authorisation was received from Bank of Italy for the use of the internal model for counterparty risk for regulatory purposes. As from that reporting date, the internal models have also been used for the purposes of calculating the new requirement of CVA capital charge. Starting with reporting as at 31 December 2016, for the purpose of calculating regulatory requirements of counterparty risk for the SFT (Securitised Financing Transactions – Repo and Securities Lending) component, the Bank makes use of its internal model. With regard to operational risks, it should be noted that the Group obtained authorisation to use the Advanced Measurement Approach (internal model) to determine its capital requirement from the report as at 31 December 2009. The approach has been progressively extended to Banca IMI, as an alternative to the calculation of the requirement on the basis of the simplified methodology based on a percentage of total income. As from June 2013, the model has included, as a mitigating device, the signing of an appropriate insurance policy to cover “operational risks”.

112

Condensed interim consolidated financial statements - Notes Other information

Part H – Related party transactions 1. Information on the compensation of key management personnel In accordance with IAS 24, the Bank has decided to include within the scope of “key management personnel” (hereinafter “officers”) the Directors, Statutory Auditors, CEO, General Manager, the Heads of Global Markets, Corporate & Strategic Finance and Operational Governance, and the Manager in charge of financial reporting. The table below shows the main benefits paid by the Bank to officers in the first half of 2017 (figures in thousands of euro). The figures exclude the maximum amount of variable remuneration that will be paid in cash and/or shares by the Ultimate Parent under Group remuneration and incentive policies. In accordance with the incentive plan, the actual payment of variable remuneration will be deferred over a number of years and is subject to the achievement of assigned targets and approval by the appropriate Bodies in the Ultimate Parent.

1,520

Short-term benefits Post-employment benefits

102

Other long-term benefits

-

Termination benefits

-

Stock option plans

Total

1,622

2. Information on related party transactions The economic and financial relations with entities considered “related parties” essentially consist of standard financial dealing and investment services. In most cases, such relations, also assessed according to the potential conflict of interest, are carried out as arm’s-length transactions. For the aggregates included in the income statement and statement of financial position figures of the two periods under review, reference should be made to the following tables (figures in thousands of euro), which show the accounting effects of transactions with related parties other than companies in the Intesa Sanpaolo Group. With regard to information on the latter, please see the tables below. Related party transactions (no intercompany) 1H 2017

Related party transactions (no intercompany) 1H 2016

Net interest income

6,794

7,075

Net fee and commission income

8,054

3,077

Administrative expenses Provisions and impairment losses Other operating income (expenses) Total

113

(1,213)

(1,145)

(37,807)

14,960

(134,581)

(12,594)

(158,753)

11,373

Condensed interim consolidated financial statements - Notes Other information

Related party transactions (no intercompany) 30 June 2017 Financial assets Loans Equity investments Other assets

Related party transactions (no intercompany) 31 December 2016

3,988

61,602

87,533

173,557

-

-

325

14

91,846

235,173

Due

10,521

11,332

Financial liabilities

53,849

23,214

Other liabilities

Guarantees and commitments

184

5,740

64,554

40,286

38,000

260,062

Consistently with IAS 24, the Bank identified its related parties and fulfils its disclosure obligations on transactions with these parties. As regards procedural aspects, with a resolution passed on 12 October 2016, the Board of Directors of Banca IMI implemented, in accordance with the procedures laid down by regulations, the new Group Procedures regulating the conduct of transactions with related parties of Intesa Sanpaolo S.p.A., associated entities of the Group and relevant parties pursuant to Article 136 of the Consolidated Law on Banking and adopted its supplementary Addendum (hereinafter Procedures). The new rules substitute the previous ones approved in 2012. The Procedures, in line with the previous one, comply with Consob rules, in accordance with Article 2391-bis of the Italian Civil Code, and the supervisory provisions introduced by Bank of Italy on 12 December 2011 governing risks and conflicts of interests of banks and banking groups with “associated entities”, implementing Article 53.4, et seq. of the Consolidated Banking Act and complying with resolution No. 277 of 29 July 2008 of the Interministerial Committee for Credit and Savings (CICR), as well as the rules established by Article 136 of the Consolidated Law on Banking. The Procedures govern the following aspects for the entire Intesa Sanpaolo Group: • the criteria for identifying Related parties and associated entities; • the process of analysis, decision-making and information for Corporate Bodies in connection with transactions with Related Parties and Associated Entities; • market disclosure for transactions with Related Parties; • the prudential limits and obligations of periodic reporting to Bank of Italy for risk in relation to Associated Entities; • the rules governing controls and organisational safeguards; • the general rules for disclosure and abstention for the management of the personal interests of officers, employees and company staff, including other than Associated Entities. Pursuant to these Procedures, the following are considered to be Related Parties of Intesa Sanpaolo: parties that exercise control or significant influence, subsidiaries and associates, joint ventures, pension funds of the Group, Officers and Key Managers of Intesa Sanpaolo and their close family members and significant investees.

The set of Associated Entities of the Group consists of the Associated Entities of each bank of the Group (including Banca IMI) and each significant intermediary monitored with regulatory capital greater than 2% of the consolidated equity. As regards each significant bank or monitored intermediary in

the Group, Associated Entities are: i) shareholders that exercise control or significant influence or that are required to request authorisation pursuant to Article 19 of the Consolidated Banking Act or that may appoint a member of the management or strategic supervisory body and the relative

114

Condensed interim consolidated financial statements - Notes Other information

corporate groups; ii) subsidiaries, jointly controlled subsidiaries and associates, as well as the companies controlled by the latter, also jointly with others; iii) company officers and their close family members up to the second degree and significant investees.

entities with potential risk of conflict of interest – by subjecting them to the same requirements for assessment, approval and subsequent disclosure to the Corporate Bodies and the market as for transactions with Related Parties and Associated Entities – and by keeping the risks carried out by the Group with said parties within the prudential limits set by Bank of Italy. The overall scope of the parties considered “relevant” by the Procedures includes the Bank’s related parties identified pursuant to IAS 24.

As a form of self-regulation, the Ultimate Parent has extended the regulations in terms of transactions with Related Parties, as well as those on risks and conflicts of interest with respect to Associated Entities, to: i) shareholders of Intesa Sanpaolo and related company groups with an equity investment in the Ultimate Parent with the right to vote that is above the minimum threshold requiring disclosure of the investments in listed companies, calculated only based on shares owned or under management; ii) companies in which executive offices are held by close family members of the key managers in the banks and the Significant Monitored Intermediaries of the Group; iii) the companies with which the Group has significant investment and financial connections. This approach allows closer monitoring of transactions with the main

The Procedures set forth the assessment processes that must be followed by the Bank’s units when carrying out transactions with Related Parties of Intesa Sanpaolo, Associated Entities of the Group and Relevant Parties pursuant to Article 136 of the Consolidated Law on Banking, to ensure appropriateness of the transactions. The Procedures also require detailed examination of the reasons, interests and economic, financial and equity effects and the conditions of the transaction.

In line with the regulations implemented by Consob and by Bank of Italy, a regime of full and partial exemptions from the application of the regulations is also envisaged. With regard to decision-making, the process distinguishes between: • small transactions: those with a value of less than or equal to 250,000 euro for individuals and 1 million euro for entities (excluded from application of the regulations); • transactions of lower significance: those with a value higher than the small-amount thresholds as defined above but lower than or equal to the most significant thresholds indicated below; • transactions of major significance: those with a value higher than the threshold of 5% of the indicators defined by Consob and by Bank of Italy (approximately 2.5 billion euro for the Intesa Sanpaolo Group); • transactions attributed to the Shareholders’ meeting by law or the Articles of Association.

The Technical Audit Committee, whose members meet the necessary independence requirements, plays an important role in the approval process for the transactions with Related Parties of Intesa Sanpaolo and Associated Entities of the Group. The Committee can make use of independent experts, where considered appropriate, according to the degree of importance of the transaction, its specific economic or structural characteristics and the nature of the related party or affiliated entity.

For more significant transactions, the Committee must be promptly involved in the analysis and negotiation phases, receiving a complete and timely flow of information, with the right of the Committee to request additional information and make observations.

All transactions, which are not exempt based on the Procedures, undertaken by the Bank with a Related Party or Associated Entity, are subject to the approval of the Ultimate Parent and submitted to the decision making power of the Board of Directors, upon recommendation by the Technical Audit Committee. In addition, with the adoption of

115

Condensed interim consolidated financial statements - Notes Other information

the new rules, transactions with Related Parties or Associated Entities which are not members of the Intesa Sanpaolo Group are still subject to the opinion of the Technical Audit Committee of the Bank and resolutions by the Board of Directors, even if of an ordinary nature and conducted under market conditions, when they are subject to a resolution of the Board of Directors on the basis of the internal corporate rules. The Procedures envisage specific controls when the Board of Directors approves a more or less significant transaction, despite the negative opinion of the independent Committee (which for Banca IMI is the Technical Audit Committee).

transactions of lower significance at market conditions, reporting is on an aggregate annual basis. The new Procedures also govern the transactions with Relevant Persons pursuant to Article 136 of the Consolidated Banking Act and must be applied by all Italian banks in the Intesa Sanpaolo Group, including Banca IMI. This requires the adoption of a more thorough decision-making process (unanimous decision by the management body, with the exclusion from voting of the key person involved, and favourable vote of the members of the control body) in order to allow the bank’s officers to contract obligations, directly or indirectly, with the bank in which the same persons hold office.

The Procedures also define the general criteria for the disclosure to be provided to the Board of Directors and the Board of Statutory Auditors, at least quarterly, regarding transactions with Related Parties and Associated Entities completed in the reporting period by the Bank. All of the above is aimed at providing a complete overview of the transactions of greater importance, as well as the volumes and the main features of all those delegated.

This is without prejudice to the obligations laid down in the Italian Civil Code (Article 2391) and Article 53 of the Consolidated Banking Act on directors’ interests. Article 2391.1 of the Italian Civil Code establishes that each Director gives notice of any interest held on his/her own account or on behalf of third parties, which may be significant in the performance of their management function, with reference to a specific transaction. Within the meaning of that provision, the Board of Directors has the task of passing resolutions relating to such transactions, also with Related Parties, in which the managing director holds an interest on his/her own account or on behalf of third parties and is therefore obliged to refrain from performing the transaction, thus assigning the decision to the board under Article 2391 of the Italian Civil Code.

Reports must include all transactions, even if exempt from the decision-making process, for amounts greater than the small-amount thresholds. Financing and intragroup funding transactions of lower significance are excluded from this requirement (provided they do not regard a subsidiary with significant interests of another related party or an associate and do not present market or standard conditions). For ordinary intragroup

In addition, Article 53 of the Consolidated Banking Act specifies that the shareholders and directors of banks should abstain from resolutions in which they have a conflict of interest on their own account or on behalf of third parties.

The following table shows the financial and business transactions with companies in the Intesa Sanpaolo Group. The following section provides details of the relationships with the business units acquired by the Ultimate Parent as part of the compulsory administrative liquidation proceedings affecting Veneto Banca and Banca Popolare di Vicenza (together, the "Venetian Banks").

116

Condensed interim consolidated financial statements - Notes Other information

Assets and liabilities with group companies (in millions of euro)

Ultimate parent

Intesa Sanpaolo subsidiaries

52,483.1 67,157.2 4,002.9 18.8 3,199.9 520,980.0 2,777.6 383.5 85.8

2,296.1 1,558.7 48.2 23.5 8.0 52,124.7 1,426.1 336.0 40.5

Due from banks and customers Due to banks and customers HFT Financial assets - Fixed income securities AFS Financial assets - Fixed income securities Securities issued and equity instruments Financial derivatives (notional amount) Financial derivatives - Net fair value Credit derivatives (notional amount) Credit derivatives - Net fair value

Percentage of caption

Caption

55.8% 70.4% 32.0% 0.3% 28.7% 17.9%

98,182.8 97,673.0 12,655.5 13,680.9 11,165.9 3,197,504.7

0.7%

99,216.7

Costs and income with Intesa Sanpaolo group companies (in millions of euro)

Ultimate parent

Interest income Fee and commission income Interest expense Fee and commission expense Administrative expenses and Other operating income (expenses)

Intesa Sanpaolo subsidiaries

260.9 31.9 (78.4) (33.1) (11.1)

Percentage of caption

13.3 11.8 (3.3) (12.7) (88.0)

44.7% 18.2% 23.2% 55.7% 37.4%

Caption

613.6 240.7 (352.8) (82.2) (264.9)

Dealings with the Ultimate Parent relate primarily to financial transactions, as detailed in the following table: Transactions with Intesa Sanpaolo as at 30 June 2017 (in millions of euro)

Assets Checking accounts Deposits Repurchase agreements Collateral paid Invoices and other assets Fixed income securities

Total assets

Amount

Liabilities

6,353.4 Checking accounts 45,393.5 705.4 30.8 4,021.7

Loans and deposits Repurchase agreements Collateral received Invoices and other payables Securities issued and equity instruments

56,504.8 Total liabilities

Amount 504.0 61,537.7 1,819.6 3,015.0 280.9 3,199.9

70,357.1

With effect from 26 June 2017, Intesa Sanpaolo signed an agreement with the liquidators of Banca Popolare di Vicenza and Veneto Banca, concerning the acquisition, for a token price of one euro, of certain assets, liabilities and legal relationships of the Venetian Banks. The latter were placed into compulsory administrative liquidation on 25 June 2017, as envisaged by the Consolidated Banking Act and Law Decree No. 99 of 25 June 2017 concerning “Urgent provisions for the compulsory administrative liquidation proceedings of Banca Popolare di Vicenza S.p.A. and Veneto Banca S.p.A.” (Venetian Banks Decree). This decree was subsequently converted into Law on 27 July 2017. The assets and liabilities with the Venetian Banks as at 30 June 2017 are typical in standard capital market operations undertaken by the acquired business units.

117

Condensed interim consolidated financial statements - Notes Other information

As at the date of this report, the due diligence process regarding the business units acquired by the Ultimate Parent is still underway; when this process is concluded, it is believed that the above relations will be confirmed as part of the business scope transferred from the two banks being liquidated, and that the consideration will be in line with that shown here. Assets and liabilities with former VB and BPV business units (in millions of euro)

Assets Repurchase agreements

Amount

Liabilities

Amount

1,388.7

Positive fair value OTC derivatives Collateral and cash Fixed income securities - of which AFS - of which HFT

545.7 Negative fair value OTC derivatives 148.5 Collateral and cash 189.4 Securities issued and certificates 5.2 184.2

Total assets

2,272.3 Total liabilities

661.6 34.8 27.1

723.5

Repurchase agreements are covered by GMRA agreements with underlyings of approximately 1.2 billion euro in Italian Government-guaranteed bonds (GGB); the remainder is secured by pledges on quoted shares. The positive and negative fair values of OTC derivatives are all covered by CSA agreements with payment of guarantees in cash.

118

Condensed interim consolidated financial statements - Notes Other information

Part L – Segment reporting Banca IMI’s segment reporting is based on the elements that its management uses on a daily and periodic basis to monitor profit margins, allocate resources and make its operational decisions (known as “management approach”). It is thus compliant with the disclosure requirements set forth in IFRS 8. The organisational model breaks down into three business segments with specific operational responsibilities: Global Markets, Investment Banking and Structured Finance.

BANCA IMI Group Consolidated highlights by Business Segment (in millions of euro) Global Markets

Investment Banking

Structured Finance

Total

Financial assets held for trading

48,628.0

Available-for-sale financial assets

13,773.4

54.8

13,828.2

Due from banks and customers

91,109.4

7,073.4

98,182.8

Financial liabilities held for trading

48,627.7

48,627.7

9,965.9

9,965.9

Bond issues Due to banks and customers Guarantees given and commitments to lend (*) Total income

48,628.0

91,349.6

6,323.4

97,673.0

3,829.0

2,611.8

6,440.8

573.4

57.0

134.0

764.4

(166.9)

(32.7)

(26.2)

(225.8)

(77.7)

(12.1)

(25.0)

(114.8)

(160.8)

10.7

16.7

(133.4)

Profit for the period

168.0

22.9

99.5

290.4

Cost / income ratio

29.1%

57.4%

19.6%

29.5%

569

158

156

883

20,955.0

105.0

6,368.8

27,428.8

Operating costs Impairment losses, provisions, other operating income (expense) (**) Income tax

Number of employees (***) Risk Weighted Assets

(*) Excluding commitments underlying credit derivatives (protection sales) (**) The expense for the Resolution Funds was divided equally between segments (***) Includes pro-quota the staff employees

Aggregates are allocated to business segments on the basis of management figures for total income and operating costs, appropriately reconciled with accounting records, and according to the specific allocation and distribution of financial statements aggregates, including risk-weighted assets, for the remaining captions. For the measurement of revenue and costs deriving from inter-segment transactions, the application of a contribution model with multiple Internal Transfer Rates for the various maturities permits the correct attribution of net interest income to the individual areas.

119

Condensed interim consolidated financial statements - Notes Other information

120

Attachments

Attachments Interim financial statements of Banca IMI S.p.A. Statement of reconciliation between the equity and profit of Banca IMI S.p.A. and the corresponding aggregates in the condensed interim consolidated financial statements Proposed allocation of the profit for the period of Banca IMI S.p.A. Details of bond issues as at 30 June 2017 Statement of the Manager in charge of financial reporting Independent Auditors’ Report

121

Attachments

Interim financial statements of Banca IMI S.p.A.

BANCA IMI S.p.A.

Statement of financial position (amounts in euro)

Assets

30 June 2017

31 December 2016

Changes amount

10.

Cash and cash equivalents

20.

%

2,701

2,240

461

20.6

Financial assets held for trading

48,566,566,423

53,411,056,514

(4,844,490,091)

-9.1

40.

Available-for-sale financial assets

13,828,215,238

14,693,865,190

(865,649,952)

-5.9

60.

Due from banks

69,297,426,435

53,222,624,016

16,074,802,419

30.2

70.

Loans to customers

28,804,452,015

27,798,309,828

1,006,142,187

3.6

80.

Hedging derivatives

124,952,088

154,439,553

(29,487,465)

-19.1

100.

Equity investments

29,900,217

29,900,217

110.

Property and equipment

466,384

497,150

(30,766)

120.

Intangible assets

54,459

14,341

40,118

130.

Tax assets

330,107,474

488,167,161

(158,059,687)

-32.4

a) current

106,593,979

250,980,949

(144,386,970)

-57.5

b) deferred

223,513,495

237,186,212

(13,672,717)

-5.8

- of which as per Law no. 214/2011

108,548,504

115,541,446

(6,992,942)

-6.1

150.

-6.2

Other assets

378,108,048

450,766,932

(72,658,884)

-16.1

Total Assets

161,360,251,482

150,249,643,142

11,110,608,340

7.4

Manager in charge of financial reporting Angelo Bonfatti

Managing Director Mauro Micillo

122

Attachments

BANCA IMI S.p.A.

Statement of financial position (amounts in euro)

Liabilities and equity

30 June 2017

31 December 2016

Changes amount

%

10.

Due to banks

79,782,709,302

60,716,591,026

19,066,118,276

31.4

20.

Due to customers

17,893,499,601

18,989,913,602

(1,096,414,001)

-5.8

30.

Securities issued

9,965,934,810

11,282,638,676

(1,316,703,866)

-11.7

40.

Financial liabilities held for trading

48,627,669,547

53,551,620,423

(4,923,950,876)

-9.2

60.

Hedging derivatives

140,500,147

196,638,532

(56,138,385)

-28.5

80.

Tax liabilities

185,127,339

424,486,858

(239,359,519)

-56.4

a) current

172,442,387

410,360,278

(237,917,891)

-58.0

b) deferred

12,684,952

14,126,580

(1,441,628)

-10.2

290,997,469

445,374,487

(154,377,018)

-34.7

8,974,341

9,177,963

(203,622)

-2.2

15,874,512

15,208,541

665,971

4.4

12,319

12,319

-

15,862,193

15,196,222

665,971

4.4

130. Valuation reserves

(134,589,634)

(131,134,943)

(3,454,691)

2.6

150. Equity instruments

1,200,000,000

200,000,000

20.0

160. Reserves

1,523,007,116

58,821,420

4.0

100. Other liabilities 110. Post-employment benefits 120. Provisions for risks and charges a) pension and similar obligations b) other provisions

165. Interim dividends (-)

-

1,000,000,000 1,464,185,696 -

-

170. Share premium reserve

581,259,962

581,259,962

-

180. Share capital

962,464,000

962,464,000

-

200. Profit for the period / year

316,822,970

741,218,319

(424,395,349)

-57.3

161,360,251,482

150,249,643,142

11,110,608,340

7.4

Total liabilities and equity

Manager in charge of financial reporting Angelo Bonfatti

Managing Director Mauro Micillo

123

Attachments

BANCA IMI S.p.A.

Income Statement (amounts in euro) 1H 2017

2016

1H 2016

Changes amount

10.

Interest and similar income

20.

Interest and similar expense

30. 40.

%

613,119,428

1,336,775,077

682,473,700

(69,354,272)

-10.2

(352,778,845)

(800,778,203)

(411,951,839)

59,172,994

-14.4

Net interest income

260,340,583

535,996,874

270,521,861

(10,181,278)

-3.8

Fee and commission income

234,098,696

581,884,620

265,836,664

(31,737,968)

-11.9

50.

Fee and commission expense

(85,039,815)

(235,198,795)

(139,256,232)

54,216,417

-38.9

60.

Net fee and commission income

149,058,881

346,685,825

126,580,432

22,478,449

17.8

70.

Dividends and similar income

36,067,252

43,377,364

31,351,007

4,716,245

15.0

80.

Profits (Losses) on trading

201,122,863

555,033,628

377,026,707

(175,903,844)

-46.7

90.

Profits (Losses) on hedging

2,968,106

(425,138)

(10,552,392)

13,520,498

100.

Profits (Losses) on disposal or repurchase of: a) loans and receivables b) available-for-sale financial assets c) held-to-maturity investments d) financial liabilities

111,095,947 2,792,807 119,049,588 (10,746,448)

150,754,215 1,480,527 170,072,262 (20,798,574)

98,563,133 1,384,049 111,018,558 (13,839,474)

12,532,814 1,408,758 8,031,030 3,093,026

-22.3

120.

Total income

760,653,632

1,631,422,768

893,490,748

(132,837,116)

-14.9

130.

Impairment losses / reversals of impairment losses on: a) loans and receivables b) available-for-sale financial assets c) held-to-maturity investments d) other financial assets

(55,143,837) (57,054,401) (248,967) 2,159,531

(2,249,134) (8,571,681) (1,618,340) 7,940,887

(15,304,977) (17,913,877) (1,366,148) 3,975,048

(39,838,860) (39,140,524) 1,117,181 (1,815,517)

-45.7

140.

Net financial income

705,509,795

1,629,173,634

878,185,771

(172,675,976)

-19.7

150.

Administrative expenses: a) personnel expenses b) other administrative expenses

(254,244,544) (69,592,255) (184,652,289)

(553,413,151) (153,443,099) (399,970,052)

(246,985,649) (67,786,092) (179,199,557)

(7,258,895) (1,806,163) (5,452,732)

2.9 2.7 3.0

160.

Net accruals to provision for risks and charges

(1,000,000)

6,400,000

(1,000,000)

170.

Depreciation and net impairment losses on property and equipment

(68,165)

(132,697)

(69,303)

1,138

-1.6

180.

Amortisation and net impairment losses on intangible assets

(5,893)

(9,280)

(4,640)

(1,253)

27.0

190.

Other operating income (expenses)

200.

Operating expenses

210.

Net gains on sales of equity investments

250.

Pre-tax profit from continuing operations

260.

Income tax expense

270.

Post-tax profit from continuing operations

290.

Profit for the period / year

12.7 7.2

-

631,777

8,275,175

1,580,202

(948,425)

(254,686,825)

(538,879,953)

(246,479,390)

(8,207,435)

18,924,638

18,223,203

(18,223,203) (199,106,614)

-30.6

-

3.3

450,822,970

1,109,218,319

649,929,584

(134,000,000)

(368,000,000)

(214,000,000)

80,000,000

-37.4

316,822,970

741,218,319

435,929,584

(119,106,614)

-27.3

316,822,970

741,218,319

435,929,584

(119,106,614)

-27.3

Manager in charge of financial reporting Angelo Bonfatti

Managing Director Mauro Micillo

124

Attachments

BANCA IMI S.p.A.

Statement of Comprehensive Income (amounts in euro) 1H 2017

1H 2016

Changes amount

10.

Profit for the period

316,822,970

435,929,584

%

(119,106,614)

-27.3

Other comprehensive income (expense), net of income taxes, that may not be reclassified to profit or loss 20.

Property and equipment

-

30.

Intangible assets

-

40.

Defined benefit plans

50.

Non-current assets held for sale

60.

Portion of valuation reserves of equity-accounted investees

82,540

(754,545)

837,085 -

Other comprehensive income (expense), net of income taxes, that may be reclassified to profit or loss 70.

Hedges of investments in foreign operations

-

80.

Exchange rate gains (losses)

-

90.

Cash flows hedges

-

100.

Available-for-sale financial assets

110.

Non-current assets held for sale

120.

Portion of valuation reserves of equity-accounted investees

(3,537,231)

(8,936,709)

5,399,478

0.0

-

130.

Total other comprehensive income (expense), net of income taxes

140.

Comprehensive income (Caption 10 + 130)

Manager in charge of financial reporting Angelo Bonfatti

(3,454,691)

(9,691,254)

6,236,563

313,368,279

426,238,330

(112,870,051)

Managing Director Mauro Micillo

125

-26.5

126 0 307,988,480 0 521,984,384

Equity instruments

Interim dividends (-)

Treasury shares (-)

Profit for the period 0

Amount as at 01.01.2016 3,160,645,680

521,984,384

0

307,988,480

0

(50,060,568)

1,447,976,071 5,010,311

581,259,962

962,464,000 0

0

(21,503,104)

21,503,104

Reserves

Changes in opening balances

Manager in charge of financial reporting - Angelo Bonfatti

3,160,645,680

(50,060,568)

Valuation reserves

Equity

1,447,976,071 5,010,311

581,259,962

962,464,000 0

Amount as at 31.12.2015

Reserves: a) income - related b) other

Share premium reserve

Share capital: a) ordinary shares b) other

(192,492,800)

(500,481,280)

307,988,480

Dividends and other allocations

0

0

0

0

Operations on equity

Changes during the period

Interim dividends

Allocation of profit of the previous year

Extraordinary dividends

Statement of changes in equity for the six months ended 30 June 2016

0 2,290,725

2,290,725

Stock Options

Derivatives on treasury shares

Comprehensive income for the period 426,238,330

435,929,584

(9,691,254)

Managing Director - Mauro Micillo

0 500,000,000

500,000,000

Changes in equity instruments

BANCA IMI S.p.A.

Equity as at 30.06.2016 3,896,681,935

435,929,584

0

0

500,000,000

(59,751,822)

1,469,479,175 7,301,036

581,259,962

962,464,000 0

Attachments

Repurchase of treasury shares

Issue of new shares

Changes in reserves

127

Amount as at 31.12.2016

741,218,319 4,617,993,034

0 741,218,319 4,617,993,034

Treasury shares (-)

Profit for the period 0

0

0

Interim dividends (-)

1,000,000,000

(654,475,520) (654,475,520)

(86,742,799) 0

86,742,799

Reserves

Manager in charge of financial reporting - Angelo Bonfatti

(*) - Decreases in income-related reserves are referred to coupons paid on Equity instruments

Equity

0

1,000,000,000

Equity instruments

(131,134,943)

(131,134,943)

1,454,179,575 10,006,121

581,259,962

962,464,000 0

Valuation reserves

Changes in opening balances

1,454,179,575 10,006,121

581,259,962

962,464,000 0

Amount as at 01.01.2017

Reserves: a) income - related b) other

Share premium reserve

Share capital: a) ordinary shares b) other

Dividends and other allocations

Changes in reserves (30,103,813)

(*) (30,103,813)

0

0

0

0

0

2,182,434

2,182,434

Stock Options

Derivatives on treasury shares

Managing Director - Mauro Micillo

200,000,000

200,000,000

Operations on equity

Changes during the period

Interim dividends

Allocation of profit of the previous year

Extraordinary dividends

Statement of changes in equity for the six months ended 30 June 2017

Changes in equity instruments

BANCA IMI S.p.A.

Comprehensive income for the period 313,368,279

316,822,970

(3,454,691)

Equity as at 30.06.2017 4,448,964,414

316,822,970

0

0

1,200,000,000

(134,589,634)

1,510,818,561 12,188,555

581,259,962

962,464,000 0

Attachments

Repurchase of treasury shares

Issue of new shares

Attachments

BANCA IMI S.p.A. Statement of cash flows (indirect method) Amount

A. OPERATING ACTIVITIES

1H 2017

1H 2016

721,992,336

866,494,806

Profit for the period (+/-)

316,822,970

435,929,584

Gains/Losses on financial assets held for trading and on assets/liabilities at fair value through profit or loss (-/+)

1. Cash flows from operations

354,989,493

337,297,294

Gains/Losses on hedging activities (-/+)

(2,968,106)

10,552,392

Net impairment losses/reversals of impairment losses (+/-)

55,143,837

15,304,977

Net impairment losses/reversals of impairment losses on property, equipment and intangible assets (+/-) Net accruals to provisions for risks and charges and other costs/revenue (+/-) Taxes and duties to be settled (+) Other adjustments (+/-)

74,058

73,943

1,000,000

1,000,000

28,310,312

78,190,145

(31,380,228)

(11,853,529)

(11,553,070,766) (13,791,350,271)

2. Cash flows from / used by financial assets Financial assets held for trading Available-for-sale financial assets Due from banks: repayable on demand Due from banks: other Loans to customers Other assets

3. Cash flows from / used by financial liabilities Due to banks: repayable on demand

4,476,215,911

(7,897,096,666)

798,821,654

(2,786,706,053)

(1,897,789,789)

1,277,231,155

(14,180,226,071)

1,865,932,765

(1,052,574,766)

(5,648,076,265)

302,482,295

(602,635,207)

11,275,477,821

12,593,799,463

466,140,130

422,684,071

Due to banks: other

18,616,760,030

(1,800,970,744)

Due to customers

(1,092,038,833)

3,275,637,232

Securities issued

(1,286,028,170)

330,157,163

Financial liabilities held for trading

(4,922,907,667)

10,416,000,933

(506,447,669)

(49,709,192)

444,399,391

(331,056,002)

Other liabilities

Net cash flows from (used in) operating activities

The statement of cash flows has been prepared using the indirect method, according to which cash flows from operations are represented by adjusting profit for the period for the effects of non-cash transactions. These consist primarily of interest accrued but not yet collected or paid at the end of the period, coupons collected or paid but not accrued during the period and changes to equity reserves through the income statement. The caption ‘Other adjustments’ presents the net accounting balance of those effects. In the statement, cash flows generated during the period are presented without a sign, whereas cash used is shown in brackets.

128

Attachments

BANCA IMI S.p.A. Statement of cash flows (indirect method) Amount 1H 2017 1H 2016 10,160,000 23,564,878

B. INVESTING ACTIVITIES 1. Cash flows generated by Sales of equity investments

-

Dividends collected on equity investments

10,160,000

18,223,203 5,341,675

Sales of held-to-maturity investments

-

-

Sales of property and equipment

-

-

Sales of intangible assets

-

-

Sales of business units

-

-

(83,410)

(16,567)

2. Cash flows used for Purchases of equity investments

-

-

Purchases of held-to-maturity investments

-

-

Purchases of property and equipment

(37,399)

Purchases of intangibles assets

(46,011)

Purchases of business units

Net cash flows from (used in) investing activities

(16,567) -

-

-

10,076,590

23,548,311

C. FINANCING ACTIVITIES Issues / purchases of treasury shares Issues / purchases of equity instruments Dividend distributions and other

Net cash flow from (used in) financing activities

-

-

200,000,000

500,000,000

(654,475,520)

(192,492,800)

(454,475,520)

307,507,200

461

(491)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Reconciliation Amount 1H 2017 Cash and cash equivalents at beginning of the period Net increase (decrease) in cash and cash equivalents Cash and cash equivalents: foreign exchange effect Cash and cash equivalents at the end of the period

1H 2016 2,240

2,567

461

(491)

2,701

LEGEND: (+) cash flow from (–) cash flow used in

Manager in charge of financial reporting Angelo Bonfatti

Managing Director Mauro Micillo

129

2,076

Attachments

Statement of reconciliation between the equity and profit of Banca IMI S.p.A. and the corresponding aggregates in the condensed interim consolidated financial statements

BANCA IMI Group (in thousands of euro)

Separate financial statements of Banca IMI at 30 June 2017 Effects of consolidation of subsidiaries Effect of measurement at equity of companies subject to joint control

Equity

of which: profit for the period

4,448,964

316,823

92,366

(21,797)

9,183

(3,549)

Dividends collected in the period

-

-

Other changes

-

(1,064)

4,550,513

290,413

Consolidated financial statements at 30 June 2017

130

Attachments

Proposed allocation of the profit for the period Banca IMI S.p.A. (extract from the board of directors’ resolutions)

The following proposal for the allocation of the profit for the period, 316,822,970 euro, has been formulated for the purposes of determining the own funds of Banca IMI S.p.A. at 30 June 2017: • to dividends, with 0.32 euro being allocated to each of the 962,464,000 shares, the sum of 307,988,480 euro; • the remaining 8,834,490 euro to the extraordinary reserve. It should be noted that: • starting from 2013, no sum is set aside for the legal reserve, as this has already reached the legal maximum of a fifth of the share capital. • the final decisions regarding the distribution of dividends to the Ultimate Parent will be taken when the 2017 financial statements are prepared. Of the profit currently being generated, 8.8 million euro will be assigned to reserves, but this has not been included in the own funds of Banca IMI as at 30 June 2017 since it remains subject, pursuant to the provisions of Decision ECB\2015\4 of 4 February 2015, to prior authorisation by the ECB itself. It was decided not to request such authorisation as at 30 June 2017.

The carrying amount of equity of Banca IMI S.p.A. relevant for the purposes of regulations governing prudential ratios will be as follows as at 1 August 2017: Share capital Share premium reserve Equity instruments Legal reserve Extraordinary reserve Reserve for the purchase of Ultimate Parent’s shares (2359-bis Italian Civil Code) Valuation reserves Reserve from extraordinary “Under Common Control” transactions IFRS 2 equity reserve Other reserves

Euro Euro Euro Euro Euro Euro

962,464,000 581,259,962 1,200,000,000 192,492,800 1,301,153,657 44,955,644

Euro Euro Euro Euro

(134,589,634) (7,057,725) 12,188,555 (11,891,325)

Total

Euro

4,140,975,934

131

XS0366925377 XS0376935028 XS0683704000 XS0702208066 XS0789510012 IT0004893928 XS0891667486 IT0004923972 IT0004940745 IT0004953284 IT0004980485 IT0004982176 IT0004997927 IT0005172140

ISIN

XS0782588023 IT0005012817 IT0005042194

ISIN

BANCA IMI FR 23 EUR BANCA IMI FR 08 EUR BCA IMI TM 11/17 EUR BCA IMI TM 11/17 BANCA IMI FR 12/18 BCA IMI 13/19 OC BCA IMI CERT TELECOM BCA IMI 13/19 TV BCA IMI 13/19 TV EC BCA IMI 9/10/19 TV B IMI 14-20 LK B IMI 14-20 LK B IMI 14-20 LK B IMI 16-22 LK

Description

BCA IMI 5.75TM2018 B IMI 14-19 LK B IMI 14-20 LK

Description

EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY

Category

CURRENCY CURRENCY CURRENCY

Category

12-Jun-2023 31-Jul-2023 17-Nov-2017 28-Dec-2017 10-Jul-2018 5-Mar-2019 30-Apr-2019 31-Jul-2019 30-Sep-2019 9-Oct-2019 31-Jan-2020 6-Mar-2020 7-May-2020 5-May-2022

12-Jun-2008 30-Jul-2008 17-Nov-2011 28-Dec-2011 10-Jul-2012 5-Mar-2013 30-Apr-2013 31-Jul-2013 30-Sep-2013 9-Oct-2013 31-Jan-2014 6-Mar-2014 7-May-2014 5-May-2016

EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR

Currency

EUR EUR EUR

29-Jun-2018 30-May-2019 15-Oct-2020

Expiry Date

Currency

Expiry Date

Issue Date

29-Jun-2012 30-May-2014 15-Oct-2014

Issue Date

TOTAL

15,000,000.00 30,000,000.00 27,208,000.00 13,597,000.00 619,000.00 5,550,000.00 47,437,000.00 28,722,000.00 47,923,000.00 6,325,000.00 36,812,000.00 22,877,000.00 24,043,000.00 22,523,000.00

Nominal amount

TOTAL

41,249,000.00 29,900,000.00 39,990,000.00

Nominal amount

132

319,058,628.87

14,180,152.16 28,181,480.00 26,892,801.99 13,634,722.80 557,354.75 5,348,472.32 47,232,885.96 28,313,862.01 45,522,495.03 5,952,598.53 37,278,417.27 21,918,750.01 23,047,613.46 20,997,022.58

Carrying amount

107,884,780.35

40,000,588.76 28,869,121.18 39,015,070.41

Carrying amount

Structured Structured Structured Structured Structured Structured Structured Structured Structured Structured Structured Structured Structured Structured

Structured/ Non structured

Structured Structured Structured

Structured/ Non structured

NO NO NO NO NO NO NO NO NO NO NO NO NO NO

Inflation Yes/No

NO NO NO

Inflation Yes/No

Attachments

Details of bond issues as at 30 June 2017

IT0001271003 IT0001304341 IT0001349023 XS0415157592 XS0463026210 XS0468849814 XS0508527842 XS0514557973 IT0004626914 IT0004628050 IT0004648694 IT0004650740 XS0596947159 IT0004709892 IT0004745581 IT0004766587 XS0707705983 XS0695633767 IT0004796451 XS0779213627 XS0789996328 XS0787655181 IT0004826449 IT0004842701 IT0004842685 IT0004842719 IT0004842677 IT0004845084 IT0004845225 IT0004863723 IT0004863731 IT0004892755 XS0900877209 IT0004894462 IT0004894868 IT0004918402 IT0004923071 IT0004906308 IT0004938269 IT0004936545 IT0004960354 IT0004960362 IT0004953292

ISIN

BIM 98/18 STEP DOWN BIM 99/24 FIX ZERO BIM 99/24 TV BCA IMI FR 06/3/2018 B IMI 09-17 TV BCA IMI FR 22/12/17 BANCA IMI STEP 2020 BANCA IMI TM 2017 BCA IMI 10/17 TV BCA IMI 10/17 TV BCA IMI 10/17 T.M. BCA IMI SPA 10/17 TV BK IMI 4,6% 2018 EUR BCA IMI 11/18 S/U BCA IMI 11/17 4,2 % BCA IMI 11/21 OC BANCA IMI FR 11/31 BCA IMI 5 12/09/17 BCA IMI 12/18 S/U BCA IMI FR18 EUR BANCA IMI FR 12/18 BCA IMI FR 2017 BCA IMI 0 07/31/17 BCA IMI 12/17 BCA IMI 12/17 5% BCA IMI 12/17 TV BCA IMI 12/17 5% BCA IMI 28/09/18 TV BCA IMI 12/17 TV BCA IMI 12/19 4,10 BCA IMI 4,40% 12/19 BCA IMI 3,4 2018 USD BCA IMI 5Y EUR TV BCA IMI 13/19 TV BCA IMI 13/18 TM BCA IMI 13/18 2,30 BIMI 13/18 TV BCA IMI 13/19 TM BCA IMI 6.40% 18 AUD BCA IMI 13/19 S/U-D BANCA IMI 13/09/2013 BIMI TF 4,50% 13/09/ BCA IMI 09/10/19 TV

Description

INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE

Category

4-Nov-1998 1-Feb-1999 5-Jul-1999 6-Mar-2009 26-Nov-2009 22-Dec-2009 30-Jun-2010 12-Jul-2010 1-Sep-2010 3-Sep-2010 10-Nov-2010 10-Dec-2010 10-Mar-2011 21-Apr-2011 3-Aug-2011 9-Nov-2011 17-Nov-2011 9-Dec-2011 6-Mar-2012 11-Jun-2012 29-Jun-2012 4-Jul-2012 31-Jul-2012 11-Sep-2012 12-Sep-2012 12-Sep-2012 13-Sep-2012 28-Sep-2012 17-Oct-2012 18-Oct-2012 18-Oct-2012 12-Feb-2013 18-Mar-2013 28-Mar-2013 28-Mar-2013 19-Apr-2013 30-May-2013 31-May-2013 28-Jun-2013 30-Aug-2013 13-Sep-2013 13-Sep-2013 9-Oct-2013

Issue Date

4-Nov-2018 1-Feb-2024 5-Jul-2024 6-Mar-2018 26-Nov-2017 22-Dec-2017 30-Jun-2020 12-Jul-2017 1-Sep-2017 3-Sep-2017 10-Nov-2017 10-Dec-2017 10-Mar-2018 21-Apr-2018 3-Aug-2017 9-Nov-2021 19-Dec-2031 9-Dec-2017 6-Mar-2018 11-Jun-2018 29-Jun-2018 4-Jul-2017 31-Jul-2017 11-Sep-2017 12-Sep-2017 12-Sep-2017 13-Sep-2017 28-Sep-2018 17-Oct-2017 18-Oct-2019 18-Oct-2019 12-Feb-2018 19-Mar-2018 28-Mar-2019 28-Mar-2018 19-Apr-2018 30-May-2018 31-May-2019 28-Jun-2018 30-Aug-2019 13-Sep-2017 13-Sep-2019 9-Oct-2019

Expiry Date

ITL EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR USD EUR EUR USD USD EUR EUR EUR CHF EUR EUR AUD EUR NOK USD EUR

Currency

146,095,000,000.00 22,318,000.00 5,000,000.00 9,000,000.00 4,500,000.00 150,000.00 3,255,000.00 54,239,000.00 446,775,000.00 22,604,000.00 8,466,000.00 34,940,000.00 5,000,000.00 4,714,000.00 25,137,000.00 10,074,000.00 25,000,000.00 15,885,000.00 31,028,000.00 53,241,000.00 26,040,000.00 7,547,000.00 9,116,000.00 18,644,000.00 234,399,000.00 15,977,000.00 7,285,000.00 28,490,000.00 41,183,000.00 13,388,000.00 59,232,000.00 66,134,000.00 4,000,000.00 26,150,000.00 3,430,000.00 7,790,000.00 30,210,000.00 177,874,000.00 187,420,000.00 207,068,000.00 535,830,000.00 113,776,000.00 16,149,000.00

Nominal amount

115,327,824.09 48,005,539.41 5,189,259.77 9,322,921.06 4,538,253.30 151,132.04 1,404,251.84 55,303,488.55 459,084,593.74 23,259,129.48 8,435,609.01 35,613,033.66 5,066,231.68 4,777,484.09 26,174,383.05 12,355,757.22 27,055,910.10 15,793,782.32 32,126,282.86 52,066,609.87 25,199,740.98 7,612,624.23 9,394,475.51 19,408,118.40 243,983,767.82 15,992,024.64 7,577,349.97 25,033,996.63 41,591,272.73 14,120,696.05 52,709,513.32 58,266,383.49 3,979,427.26 25,679,967.37 3,423,520.85 7,211,466.22 30,115,001.81 176,642,246.73 127,391,425.61 218,429,454.13 57,337,491.39 102,230,440.17 15,388,908.65

Carrying amount

NS NS NS Structured Structured Structured NS Structured Structured Structured NS Structured NS NS NS NS NS NS NS Structured Structured NS Structured NS NS NS NS Structured Structured NS NS NS NS NS NS NS NS Structured NS NS NS NS Structured

Structured/ Non structured NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO YES NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO

Inflation Yes/No

Attachments

133

IT0004953821 IT0004966229 IT0004953151 IT0004957020 IT0004961360 IT0004965650 IT0004965627 IT0004977739 IT0004967623 IT0004990161 IT0004990310 IT0004983125 IT0004990302 IT0004990971 IT0005001422 IT0005001521 IT0005001372 IT0005000218 IT0005012932 IT0005009680 IT0005012825 IT0005023699 IT0005023970 IT0005026825 IT0005029100 IT0005029134 IT0005029175 IT0005030702 IT0005045221 IT0005045247 IT0005039794 IT0005038630 IT0005042160 IT0005047045 IT0005047052 IT0005055444 IT0005042087 IT0005042640 IT0005056608 IT0005068116 IT0005069627 IT0005069635 IT0005055071

ISIN

BCA IMI 0 10/18/19 BANCA IMI TM 10/2020 BCA IMI 13/19 TM B IMI 13-19 4.55 BCA IMI 13/19 TM BCA IMI 13/19 TM BCA IMI 13/19 TM BIMI COLLEZIONE TF D BIMI STUP 02/01/14-2 B IMI 14-19 5.3 B IMI 14-19 3.55 BIMI TVMM 10/02/2018 BCA IMI TM 19.02.14B IMI 14-18 2 B IMI 14-19 3.1 B IMI 14-19 6 B IMI 14-18 1.5 B IMI 14-20 2.75 B IMI 14-19 3.25 B IMI 14-18 1.4 B IMI 14-18 9.67 B IMI 14-20 3 B IMI 14-20 2.25 B IMI 14-19 4.2 B IMI 14-17 1 B IMI 14-19 TV B IMI 14-20 1.75 B IMI 14-14 3 B IMI 14-20 4.3 B IMI 14-18 5 B IMI 14-20 1.5 B IMI 14-21 2.5 B IMI 14-18 7.1 B IMI 14-18 2 B IMI 14-20 2 B IMI 14-19 2.5 B IMI 14-21 1.25 B IMI 14-20 1.8 B IMI 14-20 2 B IMI 14-21 2.9 BCA IMI 29/12/2014-2 BCA IMI 29/12/2014-2 B IMI 14-20 1.8

Description

INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE

Category

18-Oct-2013 18-Oct-2013 31-Oct-2013 31-Oct-2013 4-Nov-2013 11-Nov-2013 15-Nov-2013 29-Nov-2013 2-Jan-2014 28-Jan-2014 28-Jan-2014 10-Feb-2014 19-Feb-2014 10-Mar-2014 13-Mar-2014 13-Mar-2014 9-Apr-2014 30-Apr-2014 14-May-2014 15-May-2014 30-May-2014 3-Jun-2014 3-Jun-2014 17-Jun-2014 31-Jul-2014 31-Jul-2014 31-Jul-2014 31-Jul-2014 8-Sep-2014 8-Sep-2014 16-Sep-2014 22-Sep-2014 30-Sep-2014 14-Oct-2014 14-Oct-2014 23-Oct-2014 5-Nov-2014 5-Nov-2014 7-Nov-2014 27-Nov-2014 19-Dec-2014 19-Dec-2014 23-Dec-2014

Issue Date

18-Oct-2019 18-Oct-2020 31-Oct-2019 31-Oct-2019 4-Nov-2019 11-Nov-2019 15-Nov-2019 29-Nov-2019 2-Jan-2020 28-Jan-2019 28-Jan-2019 10-Feb-2018 19-Feb-2019 10-Mar-2018 13-Mar-2019 13-Mar-2019 9-Apr-2018 30-Apr-2020 14-May-2019 15-May-2018 30-May-2018 3-Jun-2020 3-Jun-2020 17-Jun-2019 31-Jul-2017 31-Jul-2019 31-Jul-2020 31-Jul-2020 8-Sep-2020 8-Sep-2019 16-Sep-2020 22-Sep-2021 30-Sep-2018 14-Oct-2018 14-Oct-2020 23-Oct-2019 5-Nov-2021 5-Nov-2020 7-Nov-2020 27-Nov-2021 19-Dec-2018 19-Dec-2017 23-Dec-2020

Expiry Date

EUR USD EUR EUR EUR EUR EUR CAD EUR AUD NOK EUR EUR EUR USD NZD EUR EUR GBP EUR TRY EUR EUR AUD EUR EUR USD EUR AUD NZD USD EUR TRY GBP USD NOK EUR USD USD USD EUR EUR USD

Currency

41,800,000.00 191,960,000.00 101,917,000.00 195,169,000.00 176,419,000.00 76,472,000.00 5,450,000.00 71,062,000.00 27,096,000.00 156,226,000.00 314,340,000.00 62,360,000.00 2,645,000.00 100,240,000.00 75,086,000.00 47,567,500.00 4,520,000.00 52,886,000.00 4,514,000.00 21,790,000.00 104,994,000.00 8,730,000.00 18,140,000.00 123,276,000.00 21,860,000.00 10,410,000.00 42,760,000.00 4,060,000.00 207,196,000.00 174,330,000.00 80,340,000.00 6,613,000.00 149,876,000.00 10,125,000.00 23,560,000.00 109,360,000.00 110,037,000.00 18,386,000.00 33,070,000.00 123,032,000.00 1,000,000,000.00 1,000,000,000.00 39,310,000.00

Nominal amount

41,038,030.26 166,411,044.18 102,738,858.63 205,421,719.59 178,162,725.37 76,798,101.70 5,328,329.87 48,844,133.56 28,099,198.36 107,759,649.77 33,828,631.06 62,684,865.56 2,596,363.38 100,661,392.47 64,767,447.12 30,465,686.62 4,502,416.98 54,425,454.97 5,102,730.94 21,828,638.12 23,833,202.61 8,607,088.98 17,888,360.85 83,842,415.97 22,053,583.90 10,311,018.50 38,560,773.27 4,016,143.64 144,894,853.04 119,356,557.84 72,768,458.24 6,732,252.91 38,283,702.17 11,618,009.30 20,602,247.81 11,423,295.86 108,676,194.47 15,853,316.65 29,405,260.70 110,051,895.26 993,347,524.78 997,878,816.71 33,424,818.89

Carrying amount

NS NS Structured NS Structured Structured Structured NS NS NS NS Structured NS Structured NS NS NS NS NS Structured NS Structured Structured NS NS NS NS Structured NS NS NS NS NS NS Structured NS Structured NS NS NS NS NS NS

Structured/ Non structured NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO

Inflation Yes/No

Attachments

134

IT0005059362 IT0005059610 IT0005075509 IT0005075517 IT0005071755 IT0005071938 IT0005086811 IT0005089336 IT0005114357 IT0005114365 IT0005107120 XS1251080088 XS1251080831 XS1251926967 XS1252215485 XS1254411736 XS1259647706 IT0005139958 IT0005139966 XS1298740314 XS1341083555 XS1341083639 IT0005161580 IT0005158537 IT0005163644 XS1369274425 XS1376683865 XS1378969072 XS1379091546 XS1394283078 XS1407936043 XS1433102214 XS1435073785 XS1435073512 IT0005202699 IT0005203408 XS1490786735 XS1490787113 IT0005216038 XS1522284576 XS1522284659 XS1520729614 XS1546193308

ISIN

B IMI 14-19 1.5 B IMI 14-20 2.15 B IMI 15-20 4.9 B IMI 15-18 8 B IMI 15-21 1.65 B IMI 15-21 1 B IMI 15-20 1.7 B IMI 15-21 3 B IMI 15-22 3.25 B IMI 15-22 3.6 B IMI 15-20 TV B IMI 15-22 3.55 B IMI 15-21 4.3 B IMI 15-20 2.5 B IMI 15-20 TV B IMI 15-22 2 B IMI 15-22 2 B IMI 16-23 2.05 B IMI 16-26 2 B IMI 15-22 2 B IMI 16-25 2.25 B IMI 16-23 3.9 B IMI 16-23 LK B IMI 16-24 2 B IMI 16-21 3.5 B IMI 16-21 1.75 B IMI 16-22 4 B IMI 16-24 3.2 B IMI 16-26 2.20 B IMI 16-26 ZC B IMI 16-22 2 B IMI 16-20 1 B IMI 16-18 9 B IMI -18 8.25 B IMI 16-21 TV B IMI 16-18 9 B IMI 16-22 3.2 B IMI 16-26 3 B IMI 16-21 TV B IMI 16/22 TM GBP B IMI 16/21 3.38% B IMI 16-20 1.05 B IMI 17-19 7.95

Description

INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE

Category

24-Dec-2014 24-Dec-2014 22-Jan-2015 22-Jan-2015 27-Feb-2015 27-Feb-2015 31-Mar-2015 7-Apr-2015 14-May-2015 14-May-2015 4-Jun-2015 26-Jun-2015 26-Jun-2015 28-Jul-2015 28-Jul-2015 31-Jul-2015 7-Aug-2015 16-Oct-2015 16-Oct-2015 11-Nov-2015 26-Jan-2016 26-Jan-2016 25-Feb-2016 26-Feb-2016 17-Mar-2016 30-Mar-2016 31-Mar-2016 15-Apr-2016 10-May-2016 25-May-2016 14-Jun-2016 20-Jun-2016 27-Jun-2016 6-Jul-2016 21-Jul-2016 5-Aug-2016 28-Sep-2016 28-Sep-2016 12-Oct-2016 23-Nov-2016 23-Nov-2016 12-Dec-2016 13-Jan-2017

Issue Date

24-Dec-2019 24-Dec-2020 22-Jan-2020 22-Jan-2018 27-Feb-2021 27-Feb-2021 31-Mar-2020 7-Apr-2021 14-May-2022 14-May-2022 4-Jun-2020 26-Jun-2022 26-Jun-2021 28-Jul-2020 28-Jul-2020 31-Jul-2022 7-Aug-2022 20-Jan-2023 20-Jan-2026 11-Nov-2022 26-Jan-2026 26-Jan-2023 25-Feb-2023 26-Feb-2024 17-Mar-2021 30-Mar-2021 31-Mar-2022 10-May-2024 10-May-2026 25-May-2026 14-Jun-2022 20-Jun-2020 6-Jul-2018 6-Jul-2018 21-Jul-2021 5-Aug-2018 28-Sep-2022 28-Sep-2026 12-Oct-2021 23-Nov-2022 23-Nov-2021 20-Dec-2020 13-Jan-2019

Expiry Date

USD USD NZD TRY USD EUR USD USD GBP USD EUR USD AUD USD EUR EUR EUR USD EUR EUR EUR USD EUR EUR USD EUR USD USD EUR EUR USD EUR TRY RUB USD BRL USD EUR USD GBP AUD EUR RUB

Currency

34,410,000.00 8,390,000.00 145,754,000.00 119,464,000.00 35,560,000.00 5,070,000.00 21,340,000.00 100,500,000.00 25,637,000.00 85,748,000.00 16,800,000.00 132,652,000.00 98,528,000.00 25,718,000.00 28,920,000.00 7,810,000.00 10,000,000.00 215,810,000.00 140,651,000.00 11,971,000.00 301,792,000.00 148,492,000.00 148,940,000.00 124,000.00 184,424,000.00 5,096,000.00 25,450,000.00 100,800,000.00 122,926,000.00 45,113,000.00 12,642,000.00 75,000,000.00 23,785,000.00 5,460,000,000.00 1,724,000.00 2,605,000.00 69,844,000.00 185,231,000.00 3,112,000.00 14,696,000.00 47,112,000.00 72,000,000.00 4,115,600,000.00

Nominal amount

30,420,481.92 7,299,723.33 97,322,744.21 30,539,225.32 30,970,077.28 4,992,713.84 18,634,144.86 84,150,332.13 28,511,347.92 73,266,297.73 16,545,850.76 114,585,502.35 67,118,018.52 22,945,075.85 28,520,452.81 7,799,795.49 9,965,235.82 185,022,342.61 135,539,983.51 11,853,334.78 291,578,001.90 125,408,862.51 144,852,493.01 122,228.93 156,831,743.53 5,070,622.99 21,333,436.07 84,515,014.12 118,509,325.28 37,993,395.88 10,914,113.34 74,495,422.89 6,382,967.53 85,120,974.36 1,523,668.71 745,589.10 61,517,667.25 183,351,276.96 2,696,114.54 17,080,052.24 32,342,015.95 71,854,410.49 63,203,373.09

Carrying amount

NS NS NS NS NS NS NS Structured NS NS NS NS NS NS NS Structured Structured Structured Structured Structured NS NS NS NS NS NS NS NS NS NS Structured NS NS NS NS NS NS NS NS NS NS Structured NS

Structured/ Non structured NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO YES NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO

Inflation Yes/No

Attachments

135

XS1551929760 XS1555142568 XS1534969511 XS1567900102 XS1575872699 XS1575872855 IT0005246902 XS1608207566 XS1608207640 XS1614419619 XS1588019650 XS1588019817

ISIN

B IMI B IMI B IMI B IMI B IMI B IMI B IMI B IMI B IMI B IMI B IMI B IMI

17-27 TV 17-23 TV 17-25 0 17-20 TV 17-21 4 17-19 10 17-24 4.15 17-27 STUP 17-25 4 17-20 TV 17-24 4 17-27 0

Description

INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE INTEREST RATE

Category

25-Jan-2017 25-Jan-2017 17-Feb-2017 20-Feb-2017 13-Mar-2017 13-Mar-2017 21-Apr-2017 17-May-2017 17-May-2017 29-May-2017 7-Jun-2017 7-Jun-2017

Issue Date

25-Jan-2027 25-Jan-2023 17-Feb-2025 8-Jan-2020 13-Mar-2021 13-Mar-2019 21-Apr-2024 17-May-2027 17-May-2025 6-Jul-2020 7-Jun-2024 7-Jun-2027

Expiry Date

EUR USD EUR EUR NZD TRY EUR EUR USD EUR USD EUR

Currency

TOTAL

77,766,000.00 75,040,000.00 60,424,000.00 33,000,000.00 20,426,000.00 37,550,000.00 5,748,000.00 48,717,000.00 56,734,000.00 6,000,000.00 43,386,000.00 39,093,000.00

Nominal amount

9,538,991,401.06

76,973,466.78 66,080,330.52 58,436,674.59 32,792,675.14 13,298,864.70 9,507,376.77 5,708,400.11 48,345,471.74 49,323,231.67 5,961,594.08 36,958,420.99 37,493,440.30

Carrying amount

NS NS NS NS NS NS NS Structured Structured NS NS Structured

Structured/ Non structured NO NO NO NO NO NO NO NO NO NO NO NO

Inflation Yes/No

Attachments

136

Attachments

Statement of the Manager in charge of financial reporting

137

Attachments

138

Statement pursuant to Art. 154-bis of Legislative Decree no. 58/1998 1.

The undersigned Mauro Micillo, as Managing Director and General Manager, and Angelo Bonfatti, as Manager in charge of financial reporting at Banca IMI, do hereby state, in accordance with the provision of Art. 154-bis 3/4 of Legislative Decree no. 58 dated 24 February 1988: - the adequacy in relation to the Bank’s characteristics and - the actual application of the administrative and accounting procedures implemented to prepare Banca IMI’s condensed interim consolidated financial statements during the first half of 2017.

2. The adequacy and actual application of the above-mentioned administrative and accounting procedures have been assessed based on methodologies defined by Intesa Sanpaolo Group, in accordance with the COSO and - with respect to the IT components - COBIT, which represent internationally accepted frameworks for internal control systems1. These methodologies have been tailored to the current organisational set-up of Banca IMI with specific reference to all service models agreements. 3. The undersigned also state that: 3.1 The condensed interim consolidated financial statements at 30 June 2017: - have been prepared according to the applicable IFRS endorsed by the European Community, pursuant to European Parliament and Council Regulation no. 1606/2002 dated 19 July 2002; - are consistent with the accounting records and entries; - are suitable to provide a true and fair view of the issuer’s financial position at 30 June 2017 and the results of operations and cash flows for the six months then ended. 3.2 The interim report on operations includes a reliable analysis of the performance and results, as well as of Banca IMI’s overall financial position, along with a description of the main risks and uncertainties to which the Bank is exposed. Milan, 1 August 2017 Mauro Micillo

Managing Director and General Manager (signed on the original)

Angelo Bonfatti

Manager in charge of financial reporting (signed on the original)

COSO Framework has been drawn up by the Committee of Sponsoring Organizations of the Treadway Commission, an organization established in the US, with the aim to improve the quality of corporate reporting, through the definition of ethical standards and through an efficient system of corporate governance. COBIT Framework - Control Objectives for IT and related technology is a set of rules established by the IT Governance Institute, a US organization that fixed these rules trying to define and to improve the company’s standards in the IT area. 1

Attachments

140

Attachments

Independent Auditors’ Report

141

KPMG S.p.A. Revisione e organizzazione contabile Via Vittor Pisani, 25 20124 MILANO MI Telefono +39 02 6763.1 Email [email protected] PEC [email protected]

(Translation from the Italian original which remains the definitive version)

Report on review of condensed interim consolidated financial statements To the sole shareholder of Banca IMI S.p.A.

Introduction We have reviewed the accompanying condensed interim consolidated financial statements of the Banca IMI Group comprising the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes thereto as at and for the six months ended 30 June 2017. The parent’s directors are responsible for the preparation of these condensed interim consolidated financial statements in accordance with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34), endorsed by the European Union. Our responsibility is to express a conclusion on these condensed interim consolidated financial statements based on our review.

Scope of review We conducted our review in accordance with Consob (the Italian Commission for Listed Companies and the Stock Exchange) guidelines set out in Consob resolution no. 10867 dated 31 July 1997. A review of condensed interim consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the condensed interim consolidated financial statements.

KPMG S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative (“KPMG International”), entità di diritto svizzero.

Ancona Aosta Bari Bergamo Bologna Bolzano Brescia Catania Como Firenze Genova Lecce Milano Napoli Novara Padova Palermo Parma Perugia Pescara Roma Torino Treviso Trieste Varese Verona Errore.

Società per azioni Capitale sociale Euro 10.150.950,00 i.v. Registro Imprese Milano e Codice Fiscale N. 00709600159 R.E.A. Milano N. 512867 Partita IVA 00709600159 VAT number IT00709600159 Sede legale: Via Vittor Pisani, 25 20124 Milano MI ITALIAErrore.

Banca IMI Group Report on review of condensed interim consolidated financial statements 30 June 2017

Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed interim consolidated financial statements of the Banca IMI Group as at and for the six months ended 30 June 2017 have not been prepared, in all material respects, in accordance with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34), endorsed by the European Union. Milan, 3 August 2017 KPMG S.p.A. (signed on the original) Luca Beltramme Director of Audit

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