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Banca Sistema

Interim / Quarterly Report Aug 7, 2015

4489_10-k-afs_2015-08-07_3d55316f-98a7-4add-b160-549a573e0882.pdf

Interim / Quarterly Report

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Banca SISTEMA GROUP

CONSOLIDATED HALF-YEAR FINANCIAL REPORT AS AT 30 JUNE 2015

(Translation from the Italian original which remains the de"nitive version)

CONTENTS

CONSOLIDATED INTERIM DIRECTORS' REPORT 5
COMPOSITION OF PARENT COMPANY'S MANAGEMENT BODIES 7
HIGHLIGHTS DATA AS AT 30 JUNE 2015 8
PROFILE OF THE PARENT COMPANY 9
ORGANISATIONAL STRUCTURE 11
HUMAN RESOURCES 12
SIGNIFICANT EVENTS DURING THE REFERENCE PERIOD 13
THE MACROECONOMIC SCENARIO 14
FACTORING 18
SERVICING ACTIVITIES 21
BANKING 22
TREASURY ACTIVITIES 26
THE MAIN BALANCE SHEET AGGREGATES 28
CAPITAL ADEQUACY 34
ECONOMIC RESULTS 35
RISK MANAGEMENT AND SUPPORT CONTROL METHODS 43
RESEARCH AND DEVELOPMENT 44
TRANSACTIONS WITH RELATED PARTIES 44
ATYPICAL OR UNUSUAL TRANSACTIONS 44
SIGNIFICANT EVENTS AFTER THE END OF THE REFERENCE PERIOD 45
SUBSEQUENT EVENTS AND OUTLOOK AND MAIN RISKS AND UNCERTAINTIES 47
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL REPORT 48
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 49
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 51
CONSOLIDATED STATEMENT OF PROFIT AND LOSS 52
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME 53
STATEMENT OF CHANGES IN CONSOLIDATED EQUITY 54
CONSOLIDATED STATEMENT OF CASH FLOWS (direct method) 56
NOTES TO THE FINANCIAL STATEMENTS 57
ACCOUNTING POLICIES 59
DETAILED TABLES 63
CERTICATION OF THE DESIGNATED MANAGER RESPONSIBLE FOR DRAFTING
THE COMPANY ACCOUNTING DOCUMENTSS 86
INDEPENDENT AUDITORS' REPORT 87

CONSOLIDATED INTERIM DIRECTORS' REPORT

COMPOSITION OF PARENT COMPANY'S MANAGEMENT BODIES

Board of Directors
Chairman Prof. Giorgio Basevi (Independent)
Directors: Mr Gianluca Garbi
Mr Claudio Pugelli
Prof. Giovanni Puglisi
Mr Daniele Pittatore (Independent)
Ms Lindsey McMurray
Prof. Giorgio Barba Navaretti
Mr Matthew James Gary Potter
Mr Michele Calzolari (Independent)
CEO and General Manager
CEO Mr Gianluca Garbi
Board of Statutory Auditors
Chairman Mr Diego De Francesco
Standing Auditors: Mr Massimo Conigliaro
Mr Biagio Verde
Alternate Auditors: Mr Gaetano Salvioli
Mr Marco Armarolli
Executive Committee
Chairman Mr Gianluca Garbi
Members Ms Lindsey McMurray
Prof. Giorgio Barba Navaretti
Internal Control and Risk Management Committee
Members Prof. Giorgio Basevi
Mr Daniele Pittatore
Mr Michele Calzolari
Appointments Committee
Members Mr Claudio Pugelli
Prof. Giorgio Basevi
Mr Michele Calzolari
Remuneration Committee
Members Prof. Giovanni Puglisi
Prof. Giorgio Basevi
Mr Michele Calzolari
Ethics Committee
Chairman Mr Marco Pompeo
Members Mr Gianluca Garbi
Prof. Giorgio Barba Navaretti
Supervisory Body
Chairman Mr Michele Calzolari
Members Prof. Giorgio Basevi
Mr Franco Pozzi

The Board of Directors and the Board of Statutory Auditors were appointed by decision of the Shareholders' Meeting of 22 April 2014; subsequently, the Board of Directors, on a meeting on the same date, appointed: (i) Mr Gianluca Garbi, CEO and General Manager; (ii) established the Executive Committee, the Internal Control Committee, the Appointments and Remuneration Committee, the Ethics Committee and the Supervisory Body. On 28 April 2015 and 28 May 2015, the Board of Directors, for the purposes of ensuring the compliance of the board committees with the legislative and self-regulatory provisions applicable to listed companies, approved the separation of the Appointments and Remuneration Committee into an Appointments Committee and a Remuneration Committee and the renaming of the Internal Control Committee as the Internal Control and Risk Management Committee.

Total assets 2,308,658
2,081,253
10.9% 30 June 2015
Securities portfolio 917,215
858,007
6.9% 31 Dec 2014
Factoring trade receivables 837,687
851,856
-1.7% 30 June 2014
Bank funding and REPOs 1,259,877
1,060,211
18.8%
Term deposits 560,195
569,410
-1.6%
Current accounts 309,541
311,751
-0.7%

HIGHLIGHTS DATA AS AT 30 JUNE 2015

Pro#t and loss data (€ ,000)
Interest margin 28,951
24,057
20.3%
Net fee and commission income 5,853
5,560
5.3%
Operating income 36,864
33,081
11.4%
Personnel expenses (*) (6,528)
(5,983)
9.1%
Other administrative expenses (*) (9,042)
(9,030)
0.1%
Pro"t before taxes (*) 19,388
15,251
27.1%
Performance indicators
Cost/income Ratio (*) 42%
48%
-11.4%
ROAE (**) 38%
62%
-39.5%

(*) Amounts and indicators calculated using pro#t and loss data adjusted for non-recurrent costs applicable to the listing process, as presented in the paragraph "Financial results" of this Report.

(**) The Return on Average Equity (ROAE) was calculated as the ratio of the pro#t for the annualised period to average shareholders' equity.

PROFILE OF THE PARENT COMPANY

The Group is active mainly in the Italian factoring market and specialised in the acquisition, management and #nancing of receivables due to companies by the Italian Public Administration entities ('PA').

In particular, the Banca Sistema Group provides #nancial support to Italian and foreign companies by acquiring trade receivables and VAT credits due from the PA.

The Group operates through a speci#c collection method which is not based on the recovery of receivables through systematic recourse to legal action against the debtors, but favours out-of-court settlements, with the purpose of establishing repayment plans or payment agreements with the assigned debtors, enabling a constant and gradual reduction in the collection time for the receivables and greater core business pro#tability. In such a model, the collection of late payment interest applicable to the PA in the event of payment after 30/60 days constitutes an instrument whose purpose is to discourage delays in payment, as well as a negotiating lever for reaching the aforementioned agreements and speeding up payment times.

Since 2011, the Group's primary objective has been to satisfy the #nancial requirements of companies who supply the PA by factoring, managing and recovering receivables, serving as a link between the public and private sectors. The Group offers a wide range of products aimed at companies which claim receivables from the Public Administration entities and consisting in the provision of factoring services, mainly without recourse, for the management of delays in payment by the Public Administration entities, as well as #nancing services for annual and quarterly VAT credits enjoyed by companies. The Group also offers its customers factoring services with recourse, maturity factoring and reverse factoring. Moreover, the Company offers online factoring and the certi#cation of receivables due from the Public Administration entities. Since 2014, thanks to the partnership established with a specialised operator, the Company has begun to purchase with recourse receivables and manage tax receivables (mainly VAT credits) arising from insolvency proceedings.

In 2014, the Group also launched operations in the private debt factoring sector (both with- and without recourse) and according to the maturity factoring formula.

In addition to operating on the factoring market, which constitutes the Group's core business, the Company has developed new business lines. Already active in managing and recovering receivables on behalf of third parties, through the subsidiary Solvi S.r.l. (merged by incorporation into the Issuer, effective from 01 August 2013), since 2014 Banca Sistema has begun to provide a diversi#ed range of other products and services, such as: (i) the acquisition of credit portfolios derived from the granting of #nancing in the particular form of salaryand pension-backed loans by quali#ed operators and (ii) #nancing to SMEs secured by the Ministry of Economy and Finance Guarantee Fund.

The main source for raising funds to #nance the Group's core business is banking activities, both retail and corporate, including the offer of traditional banking services such as current accounts and saving accounts for private clients, companies and businesses in Italy and Germany, as well as other ancillary banking services. These sources of funding, combined with the access to funding provided by the ECB through the ABACO (Collateralised Bank Assets) Procedure, treasury activities such as the management of Italian Republic securities held in portfolio and the management of the #nancial and credit assets and liabilities ('ALM') of the Issuer, as well as access to the interbank market, allow the Company stable access to reliable sources of liquidity at competitive rates. For the distribution of its products and services, the Issuer uses its own direct network, mainly composed of the Group's subsidiaries and representative of#ces, as well as an indirect network, comprising banks, real estate investment companies, #nancial advisors and #nancial intermediaries (credit brokers), who operate under speci#c distribution agreements concluded with the Issuer.

COMPOSITION AND STRUCTURE OF THE GROUP

On 30 June 2015, the Banca Sistema Group comprised the Parent Company, Banca Sistema S.p.A., and Specialty Finance Trust Holding Limited, a company incorporated under U.K. law and fully controlled by the Bank.

LISTING OF THE PARENT COMPANY

The global offering of the Bank's ordinary shares arising from a speci#c capital increase and from the shares already held by the shareholder SOF Luxco S.a.r.l. ended on 29 June 2015. The purpose of this offering was listing on the Star Segment of the MTA - Italian Equities Market organised and managed by Borsa Italiana (Italian Stock Exchange), with an offer price set at € 3.75 per share. Trading of the share began on the MTA on 2 July 2015. During the placement phase, the Bank received € 146 million, excluding the greenshoe option. For details, see the following paragraphs. At the start of the listing, the share capital amounted to € 302 million.

Barclays Bank PLC acted as the global coordinator of the Global Sale and Subscription Offer, Banca Akros acted as the Placement Manager for the Public Offer, while Intermonte acted as Sponsor. The Joint Bookrunners, in addition to Barclays, were Banca Akros, Intermonte and Jefferies.

ORGANISATIONAL STRUCTURE

ORGANISATIONAL CHART

The organisational chart of the Banca Sistema Group, updated as at 30 June 2015, is shown below:

GENERAL MANAGEMENT

The following report to the CEO and General Manager:

  • ƒ Central Finance Manager
  • ƒ Risk and Compliance Manager
  • ƒ Central Operating Manager
  • ƒ Legal and Corporate Affairs Manager
  • ƒ Central Banking Manager
  • ƒ Marketing and Communication Manager
  • ƒ Central Factoring Manager
  • ƒ Commercial Factoring Manager
  • ƒ Human Resources Manager

REGISTERED OFFICES AND BRANCHES OF THE BANCA SISTEMA GROUP

The Registered Of#ces and Branches of the Banca Sistema Group are as follows:

  • ƒ Milan Corso Monforte, 20 (Registered of#ce and branch)
  • ƒ Rome Piazzale delle Belle Arti, 8 (Administrative of#ce)
  • ƒ Pisa Galleria Chiti, 1 (Branch)
  • ƒ Padua Via N. Tommaseo, 78 (Branch)
  • ƒ Palermo Via della Libertà, 52 (Administrative of#ce)
  • ƒ London (UK) Dukes House 32-38 Dukes Palace (Administrative of#ce)

HUMAN RESOURCES

The human resources within the Group, as at 30 June 2015, are summarised as follows:

FTE 30.06.2015 31.12.2014 30.06.2014
Senior managers 14 14 14
Middle managers (QD3 and QD4) 32 27 23
Other personnel 83 72 69
Total 129 113 106

The Group has further reinforced its organisational structure by introducing, during the period, 21 new persons. During the same period, 5 persons left the Group, 4 of whom from the 'employees' level and 1 manager, who was replaced through internal promotion. Banca Sistema's listing on the STAR segment of the MTA involved the appointment of an Investor Relator, who supported the IPO and will manage the relationships with the #nancial markets, once the listing has taken place. Among the new arrivals, 5 persons joined the commercial sector, both factoring and banking; additionally, the Risk, IT, Credit Management and Back Of#ce areas were also reinforced.

The average age of Group employees is 38 for the men and 37 for the women, with women accounting for 42% of the total; these #gures are similar to the 2014 #gures.

SIGNIFICANT EVENTS DURING THE REFERENCE PERIOD

The main resolutions passed by the Board of Directors of the Parent Company of Banca Sistema S.p.A. are summarised below.

On 20 February 2015, the following were approved: (I) the '2014 Risks Division Annual Report', (II) the '2014 Compliance Department Annual Report', (III) the '2014 Anti-Money Laundering Department Annual Report' (IV) the 'Compliance Department Annual Report on complaints received by the Bank' (V) the 'Annual Report on the activities carried out by the Internal Audit Department during 2014' and (VI) the Periodic Report to the Board of Directors and Board of Statutory Auditors from the Supervisory Body concerning the application of the 'Organisation, management and control model pursuant to Legislative Decree 231/2001'.

The Board of Directors of Banca Sistema S.p.A., on 26 March 2015, approved (I) the 'Annual report on the procedures to provide investment services and activities and ancillary services and the distribution of #nancial products issued by insurance companies and banks, CONSOB decision no. 17297', (II) the '2014 ICAAP Report', (III) the update to the MiFid Policy and (IV) authorised the publication of the 'New prudential supervisory provisions, Third Pillar information for the public', in accordance with the procedures laid down by the applicable regulations.

The Banca Sistema S.p.A. Shareholders' Meeting, in its session on 26 March 2015, approved (I) the #nancial statements for the year ended 31/12/2014 and (II) the "Remuneration Policies for the year 2015".

During March 2015, with a view to developing the salary-backed loan product (CQS, Cessione del Quinto), commercial agreements were signed with two new specialised operators.

On 28 April 2015, the following were approved (I) the quarterly report from the Internal Control Departments at 31/03/2015 (Risk Reporting, Tableau de bord of the Compliance Department and Tableau de bord of the Internal Audit Department), (II) the annual report from the internal audit department concerning audits conducted on the externalised operating departments, (III) the update of the Liquidity Policy and Contingency Funding Plan, and (IV) the 'Board of Directors Self-Regulation Document' and the document on the "Optimal qualitative and quantitative composition of the Board of Directors", following the completion of the selfregulation process of the Corporate Bodies conducted in accordance with Bank of Italy Circular no. 285, Supervisory positions on bank corporate governance.

On 30 June 2014, the Board of Directors of Banca Sistema S.p.A. approved the following: (I) the 'Complex Securities Management Policy' (II) the "Annual report on the procedures for providing investment services and activities and ancillary services and the distribution of #nancial products issued by insurance companies and banks, CONSOB decision no. 17297".

On 3 June 2015, the Shareholders' Extraordinary Meeting decided on the following:

  • ƒ amendments to the articles of association, necessary for improving the cohesiveness and clarity of certain provisions, including bringing them in line with the provisions of Bank of Italy Circular no. 285 concerning corporate governance and incentives;
  • ƒ a share capital increase, against payment and with a premium, up to a maximum amount of € 10 million and therefore a maximum of € 1,549,473.42, through the issue of a maximum of 12,912,281 ordinary shares worth a nominal amount of € 0,12 (a decision subject to the condition precedent of the issuing, by the Italian Stock Exchange, of a measure admitting the Company for listing on the STAR segment of the MTA - Italian Equities Market;
  • ƒ amendments to the articles of association for the purposes of the Company's listing (a decision subject to the condition precedent of the start of the trading of the Company shares on the Italian Stock Exchange's MTA).

On the same date, the Shareholders' Meeting #nally approved, in ordinary session, the "Meeting Regulations".As regards the listing process and the relevant decisions, please refer to the paragraph "Signi#cant events after the end of the reference period".

THE MACROECONOMIC SCENARIO

As shown by the ECB Economic Bulletin no. 4/2015 of 18 June 2015, during the #rst quarter of 2015, the real GDP percentage change over the previous period rose to 0.4%, from 0.3% during the fourth quarter of 2014. The data show that the economic recovery has improved owing to several different factors. The ECB monetary policy measures are contributing to the easing of the general #nancial conditions and facilitating access to credit, both for SMEs and larger companies.

In addition, the fall in oil prices is boosting the real disposable income and pro#tability of companies, supporting private investments and consumption, while the weakening of the Euro exchange rate has bolstered exports. In line with the growth in recovery, the labour market in the Euro Area has

continued to improve slightly, as shown by the gradual fall in unemployment, which, nevertheless, remains high both in the entire Euro Area and, at national level, in the majority of countries.

The monetary policy measures have contributed to a generalised easing of the #nancial conditions, which remain highly accommodating. In&ation expectations are high compared with the minimums of mid-January and the #nancing conditions for households and businesses have continued their positive development. The effects of these measures are impacting positively on the economy and making an additional contribution to improving prospects.

Against a background of extremely low interest rates, money market and loan growth have continued their recovery. Partly as a consequence of the expanded Asset acquisition plan (PAA), monetary indicators have improved further and lending has continued to grow, albeit at modest levels. In April, the decline in loans to non-#nancial companies continued to ease and the growth rate for loans to households increased slightly. These trends were supported by a signi#cant fall in bank loan rates in most of the Euro Area, from summer 2014, and also by signs of improvement both in the supply and demand of such loans. Globally, recent trends are con#rming that the ECB monetary policy measures are contributing to restoring the correct functioning of the monetary policy transmission mechanism and easing bank lending conditions. Indeed, the bank lending survey (BLS) carried out in the Euro Area in April 2015 by the ECB shows that the easier conditions for the granting of loans are continuing to support further reinforcement of the growth in lending, especially to businesses. Moreover, the greater competition between banks during the #rst quarter of 2015 has encouraged an easing of lending conditions, which has gone hand in hand with a growth in loan applications from companies. This adds to the fact that, as the survey on the access to #nance of enterprises in the Euro Area has con#rmed, the improving conditions on the credit market concern both small and medium-sized enterprises (SMEs) and not only large businesses.

The yields of long-term AAA government bonds, after falling to historical lows around mid-April, returned, in early June, to the levels recorded in January, in line with the announcement of the expanded asset acquisition plan (PAA).

Nevertheless, in a longer-term perspective, the majority of the government bond yields in the Euro Area remain very low across all maturities.

The corporate bonds and shares yields were driven by those of the sovereign bond markets.

The real Euro exchange rate towards the main trade partners of the Euro Area remained essentially stable over the last few months.

In June 2015, market volatility was caused mainly by the Greek crisis, which caused signi#cant variations in the yields of securities in Euro, especially in peripheral countries. The impact was partly mitigated by the plentiful liquidity injected by the European Central Bank through the MRO transactions and the QE securities purchase programme, decided in the #rst few months of the year.

The recent agreement reached between the European Institutions and the Greek government has restored the con#dence of the operators, with a resulting reduction in the volatility and yields of government securities. Despite the fact that the Greek Parliament has pledged to adhere to its commitments to creditors and implement a system of macroeconomic reforms, enabling a gradual recovery of the economic cycle over the next few years, there is still some uncertainty concerning the outcome of the #nal agreement, notwithstanding the belief that the country's exit from the Euro Zone has been avoided.

The macroeconomic forecasts for the Euro Area issued by Eurosystem experts in June and contained in the ECB Economic Bulletin no. 4/2015 of 18 June 2015 provide for annual GDP growth in real terms of 1.5% in 2015, 1.9% in 2016 and 2% in 2017 and for average annual in&ation to reach 0.3% in 2015, 1.5% in 2016 and 1.8% in 2017.

According to forecasts, the economic recovery in the Euro Area should strengthen over the next three years, with positive contributions to growth from both internal and external demand.

ITALY

As shown in the ECB Economic Bulletin no. 2/2015 of 17 April 2015, during the fourth quarter of 2014, the fall in GDP came to an end, thanks to the acceleration in exports, the continuing growth in consumption and a slight increase in investments. During the #rst few months of 2015, the con#dence of households and businesses grew considerably, even if the relaunch of the industrial sector cycle awaits consolidation.

Household consumption continued to expand moderately. Foreign trade was the main spur to GDP growth, with considerable acceleration in exports and more modest growth in imports. Added value increased in the tertiary sector, while falling in the construction, industry (in the strictest sense) and agriculture sectors.

During the #rst quarter of 2015, gross domestic product (GDP) rose by 0.3% compared with the previous quarter, while growth was 0.1%, compared with the #rst quarter of 2014 (Source: ISTAT, 29 May 2015).

The Ita-coin indicator developed by the Bank of Italy, which provides an estimate of the quarterly changes in GDP free from short-term &uctuations, shows improvement but continues to indicate the residual weakness of the underlying dynamics of the economy. More favourable signs are provided by the qualitative surveys, which indicate a framework of greater con#dence in the decisions of companies and households, especially as regards the future.

The Bulletin data indicate that since the autumn of 2014, industrial production has shown signs of improvement, con#rmed only in part during the #rst few months of the year. During the #rst quarter of 2015, industrial production recorded modest growth. However, the indicators taken from the surveys at companies have improved dramatically and anticipate a recovery in production. In March, con#dence continued to rise across all the main sectors, reaching the levels recorded four years ago.

Operators are considerably more optimistic with regard to the trend in demand for their products, both current and forecast, in particular for the foreign component, as well as the conditions for access to credit.

Households' expenditure continues to rise, albeit moderately, supported mainly by the acquisition of durable goods. Over the #rst few months of the year, the consumer con#dence index rose sharply, reaching June 2002 levels in March. The rise was particularly marked as regards decisions concerning the general economic framework and labour market prospects.

Exports grew over the last few months of 2014, in particular thanks to the recovery in demand from European Union countries. An analysis of the prospects of sales abroad indicate an expansive framework.

During the fourth quarter of 2014, the recovery in total hours worked was accompanied by a slight fall in employment. During the #rst few months of 2015, employment remained stable and the unemployment rate fell through lower participation in the labour market. Employment prospects are brighter.

In&ation is close to zero and the analysts of the main research and analysis companies believe it will remain at this value for the whole of 2015. However, over the #rst few months of the year, consumer expectations were improved slightly. The decline in loans to companies continues further, re&ecting, above all, weak demand. Loan conditions eased slightly for larger companies, while the tightening affecting smaller companies came to an end. Construction companies still face dif#culties in accessing loans, since they are characterised by a greater number of non-performing items. The interest rates on loans to companies and households continue to fall.

1 Ita-coin provides a monthly estimate of the trends in economic activity, using information from a broad set of.

According to ISTAT2economic provisions for 2015, Italian gross domestic product (GDP) will rise by 0.7% in real terms, followed by growth of 1.2% in 2016 and 1.3% in 2017. In 2015, the positive contribution of domestic demand net of stocks to GDP growth will be 0.3 percentage points, while that of net foreign demand will be 0.4 percentage points. Over the following two years, cyclical consolidation will generate a growing contribution from domestic demand (+0.8 and +1.1 percentage points), while the consequent rise in imports will reduce the contribution of net foreign demand in 2017. In 2015, households' expenditure will record a positive change of 0.5% in real terms, caused by the improvement in disposable income. Over the following two years, private consumption will grow (+0.7% and +0.9%), supported by a gradual rise in employment. Investments will start to grow again this year (+1.2%), driven by the improved conditions for access to loans and the expectations associated with a recovery in production.

The capital accumulation process is forecast to recover at a sustained pace in 2016 (+2.5%) and with greater intensity in 2017 (+2.8%). The rise in employment (+0.6% in terms of work units) will be accompanied by a moderate fall in the unemployment rate, which will consolidate at12.5% in 2015. In 2016, the unemployment rate will fall to 12.0% and the work units will rise signi#cantly (+0.9%).

This development will continue more rapidly in 2017, with the unemployment rate falling to 11.4% and the work units growing by 1.0%.

2 ISTAT: issue of 07 May 2015

FACTORING

The Italian factoring market

As highlighted by the Italian factoring trade association (Assifact), during 2014 the factoring market con#rmed the growth of the last few years recording a 7% increase. Factoring in Italy also showed growth of almost 3%, despite the economic crisis. The factoring volumes in Italy in terms of turnover exceeded 177 billion, representing 8% of the global market and 13% of the European market. This is an excellent result when you consider that GDP in the Euro Area grew by only 0.9% in 2014, despite more favourable expectations.

Therefore, factoring is keeping its promises and remains a trump card. Over the last thirty years, the factoring sector has grown four times faster than the global economy. In 1980, overall factoring volumes around the world were 50 billion; in 2015, the volume of annual turnover at global level exceeded € 2,300 billion (in 2000 it was 600 billion).

During 2014, we observed that the Government and the Public Administration entities in general were paying close attention to late payments by the PA. Recent legislation has promoted recognition of debts for the purposes of discharging previous arrears. However, these measures seem to have lost their momentum and the #rst half of 2015 saw a gradual deterioration in payment times.

Some 50 billion was allocated for the 2013-2014 period for the purposes of encouraging the repayment of trade payables by the Public Administration entities. Furthermore, during 2014, it is estimated that PA paid companies trade payables of around 10 billion, compared with approximately 19 billion in 2013. Indeed, these measures did generate an average improvement in payment times. Nevertheless, since last autumn, this trend has been reversed. The current average is 165 days. However, this is an average: repayment times range from 90 days in Lombardy to 2 years in certain regions and municipalities in the South.

Moreover, during the year new legislative instruments have been issued to ease the transfer to the #nancial system of payables due to companies from Public Administration entities. Yet despite the efforts of governments over the last few years and the media focus on the issue of late payments by the Public Administration, this issue remains a serious problem for Italy and represents approximately 3.1% of GDP. These #gures exclude receivables purchased by #nancial intermediaries; if these are taken into consideration, the total rises to € 70 billion.

The 'Debt certi#cation platform' developed by the Ministry of Economy and Finance has not updated the monitoring of debts accrued by the PA since 31 December 2013. Nevertheless, according to the European Payment Report, the payment times of the Italian public authorities continue to be much greater than the average in the other European countries.

The latest Bank of Italy annual report and the Intrum Justitia reports show that the Italian Public Administration entities are the worst payers in Europe. A study conducted by the CGIA of Mestre (Association of artisans and small enterprises) highlighted the extremely negative consequences of this unfavourable behaviour on the Italian business climate. According to the analyses of the CGIA of Mestre, at least 76% of Italian companies are suffering from a shortage of liquidity caused by the delay in receiving payments.

As for the national factoring market, without recourse factoring or factoring receivables sold at an agreed price represented over 66% of the total. An analysis of bad loans in our country, conducted by the trade association Assifact, has shown that, as regards factoring exposures, bad loans represented 3.46% of total exposures at the end of 2014. This data is particularly reassuring, albeit slightly worse than the previous year, when compared with the ratio of bad loans to total bank loans (approximately 10%).

In terms of turnover, the #rst few months of 2015 have con#rmed the positive trend recorded in 2014. Volumes purchased in the #rst quarter of the year increased by +4.58% and positive data is also provided from an initial summary analysis of the second quarter of 2015.

Due to its characteristics, the factoring sector represents an effective opportunity for using resources, especially when you consider the capital absorption and the capacity of the companies in the sector to support the #nancial component with an offer in terms of services and opportunities for growth.

At the end of 2014, with a view to tackling tax evasion more effectively, the so-called 'split payment' legislative instrument was introduced. This new measure requires the Public Administration entities, at the time of payment, to pay the VAT owed directly to the tax authorities, paying the supplier only the taxable amount. The modi#cation to the VAT system, introduced through the 2015 Stability Law, entered into force on 1 January of the same year, had a considerable impact on companies' liquidity. In the factoring sector, however, the number of tax receivables between companies has grown due to the aforementioned measure, involving companies which, in the past, were either not at all or only occasionally structurally entitled to a tax credit.

The same Law also established the "reverse charge" mechanism, vetoed by the European Union, which has nonetheless promoted split payment.

Data from Assifact, the trade association for factoring companies, have con#rmed that the so-called indirect factoring has recorded strong growth over the last few years.

The instrument calls for a deal between the factoring company and a major debtor which, through an agreement, enables the granting of favourable conditions to its suppliers. The Assifact #ndings, with reference to the #rst 5 months of 2015, show that indirect factoring reached a total of €3.4 billion and growth of 23% compared with the same period of the previous year.

Factoring has consolidated its position as the principle instrument for managing trade payables and receivables and a valid alternative to other means of #nancing for supporting suppliers of both Public Administration entities and individuals. It is also thanks to factoring that the country has managed to limit the drastic consequences of the longest post-war #nancial crisis to date.

The governance and #nancing of credit is essential for growth in our country. Bank of Italy data con#rm that trade receivables represented 35% of the total #nancial assets of Italian companies at the end of 2014.

The Banca Sistema Group and factoring Activities

The turnover for the #rst half of 2015 for the Banca Sistema Group was € 600 million, representing growth of 36% compared with the same period of 2014. Considering the third party receivables managed, total volumes came to € 747 million as at 30 June 2015.

Outstanding volumes totalled € 898 million as at 30 June 2015, a reduction of 3.7% compared with the € 932 million at the end of 2014, as a result of signi#cant collections from exposures to the Public Administration recorded in the #rst half of 2015 and totalling € 611 million (an increase of 9% compared with the collections recorded in the second half of 2014). The chart to the right shows the impact of debtors on the outstanding portfolio as at 30 June 2015. The Group's core business remains the Public Administration entities segment.

The Group works through both direct assignments by companies and within the framework of regional agreements for restructuring or reorganising public entity debts.

These operations include traditional factoring agreements, as well as reverse factoring agreements with highly reliable public entities which are seeking to use factoring with their suppliers in their role as debtors.

The following table shows the factoring turnover per product type.

PRODUCT 1H 15 1H 14 € Change % Change
Without recourse 440.7 367.5 73.2 20%
VAT 45.1 22.7 22.4 99%
With recourse 103.2 43.2 60.0 139%
Maturity 10.9 8.6 2.3 27%
TOTAL 599.9 441.9 158.0 36%

Tax credits include VAT credits from outstanding insolvency proceedings, totalling € 2.2 million. This business was launched at the end of the previous #nancial year, with the support of a special market operator.

Group collection and recovery activities

For the purposes of its debt recovery activities, the Group uses both its own internal structures, equipped with signi#cant skills and experience in the analysis, management and monitoring of the debt collection process, and a network of external operators specialised in debt recovery and active across the entire country.

The network of freelancers used by the Company enables an exact adjustment of the debt collection activities with regard to each speci#c debtor and, at the same time, the replacement of representatives should they fail to achieve satisfactory results or an increase in the number of operators when it becomes necessary to focus on speci#c areas.

SERVICING ACTIVITIES

The Group provides debt management and recovery services on behalf of third parties, operating mainly for companies which claim receivables (mainly in the healthcare sector) from Public Administration entities or healthcare structures.

To this end, the Group uses both its own internal structures, equipped with signi#cant skills and experience in the analysis, management and monitoring of the debt collection process, and a network of external operators specialised in debt recovery and active across the entire country. The network of freelancers used by the Company enables an exact adjustment of the debt collection activities with regard to each speci#c debtor and, at the same time, the replacement of representatives should they fail to achieve satisfactory results or an increase in the number of operators when it becomes necessary to focus on speci#c areas. Thanks to the considerable experience accrued in the collection of debts through factoring and the capabilities acquired in managing relationships with the managers and of#ces of public and private entities through its network of specialised staff, the Group offers its customers an ongoing and effective reduction in the collection time for receivables due from both PA entities and individuals.

On 30 June 2015, the Group signed a series of agreements with a network of persons (the 'Collectors') operating across the whole of Italy, tasked with managing, within speci#c geographical areas, the collection activities of a prede#ned amount of debts on behalf of the Group and to the bene#t of customers who turn to the Company for the collection of their receivables.

More speci#cally, the Group operates through 14 Collectors who, in accordance with the banking provisions applicable to the Company and the non-competition requirements in force from time to time, conduct the following activities: (I) verifying the certainty, liquidity and collectability of the debts; (II) establishing a relationship between the Group and the debtors to facilitate the collection of the debts and (III) continuously updating the information and data available.

On 30 June 2015, the amount of third-party receivables managed by the Group totalled € 147 million, while the fee and commission income generated by this business segment totalled € 506 thousand.

During 2014, Banca Sistema also launched and concluded a project with a two-fold purpose: #rstly, to improve the debt collection processes and secondly, to migrate the Group's IT systems to a new platform.

Direct funding

The funding policy of the banking division is strictly linked to changes in trade loans and market conditions. Today, funding is also geared towards current accounts, whereas, in the past, term deposits took precedence. This choice was based on the need to make the relationship with the customers less volatile, and at the same time ensure a fee and commission return through the offering of traditional services. A positive effect on the average cost of funding can be added to the above.

The Group therefore achieved its goals, by setting a ceiling limit to the rates on term deposits, which have always remained in line with market rates, without being a market leader and structuring a current account with easy terms and a good return. Consequently, the Group will continue to operate consistently with this strategy.

Total term deposits as at 30 June amounted to €540 million (the #gure does not include accruals pertaining to the period), a positive change (+ €33 million) with respect to the same period of the previous year.

There were 10,983 individual customers with term deposits as at 30 June 2015, a fall compared with the #gures as at 30 June 2014 (11,078). The average deposit was € 49 thousand, an increase compared with the #gures as at 30 June 2014 (€ 46 thousand). The breakdown of funding by term is shown on the right.

Breakdown of deposit accounts as at 30 June

The number of customers with a current account as at 30 June 2015 moved from 2,838 (31 December 2014) to 3,280, while the current account balance as at 30 June 2015 was € 309 million, revealing a net negative balance of -€ 2 million.

Indirect funding

Indirect funding from assets under administration as at 30 June 2015 totalled €224 million (€362 million as at 30 June 2014).

The breakdown is as follows:

Type (€ million) 30 June 2015 30 June 2014 € Change % Change
Bonds 111,820 203,519 -91,699 -45.06%
Equities 105,448 96,870 8,578 8.86%
Warrants 217 60,044 -59,827 -99.64%
Funds 6,651 1,633 5,018 307.29%
TOTAL 224,136 362,066 -137,930 -38.10%

During 2015, a process was launched to expand the offer of products/services such as new funds and to strengthen the structure through the hiring of new personnel in the Private Banking area. In addition, the opening of branches in Pisa and Padua generated a territorial expansion of customers with assets under administration in Banca Sistema.

Guaranteed loans to small and medium-sized enterprises

In 2014, the Banca Sistema Group started granting loans to SMEs, guaranteed by the SME guarantee fund of the Ministry of Economic Development (law 662/96).

This instrument allows companies to access secured credit under easy terms, and allows the Group to grant low risk loans with a reduced impact on the capital in view of the Government guarantee (up to 80%);

the average guarantee coverage for the Group is 80%.

In the #rst half of 2015, the Group disbursed € 46.5 million (€ 20.8 million in 2014), with € 59.9 million outstanding at the end of the period.

During the #rst half of 2015, the volumes disbursed were more than double the total in 2014.

1H 15 FY 14 € Change % Change
No. of applications 103.0 52.0 51.0 98%
Volumes disbursed 46.5 28.8 25.7 124%

As the graphs below show, the geographic and sector distribution is very varied, enabling the Group to bene#t from a highly diversi#ed portfolio.

The following shows the volumes disbursed per geographic area.

Salary-backed loans (CQS) and Pension-backed loans (CQP)

The Banca Sistema Group entered the salary- and pension-backed loan (CQS/CQP) market in 2014, through the acquisition without recourse from other specialised portfolio intermediaries of receivables arising from the granting of these speci#c types of #nancing. As at 30 June, the Bank had entered into 3 distribution agreements.

that allows customers to allocate up to a #fth of their salaries to the payment of loan instalments.

The volumes acquired amounted to about €54 million, broken down between private-sector employees (22%), pensioners (50%) and public-sector employees (28%). Therefore, over 78% of the volumes refer to pensioners and employees of the PA, which remain the Bank's main debtor.

A salary-backed loan (CQS) is a consumer loan product

CQS disbursed volumes - Breakdown

1H 15 FY 14 € CHANGE % CHANGE
No. of applications 2,623.0 656.0 1,967.0 300%
Volumes 53.6 13.4 40.2 300%

As shown in the table, the amounts disbursed in the #rst half of 2015 were considerably more than in 2014, as a result of the two new agreements concluded by the Bank during the period.

CQS disbursed volumes - Breakdown by geographical area

TREASURY ACTIVITIES

The treasury function consists mainly in managing the operating and structural liquidity generated by the Bank's core business, characterised by the considerable movement of &ows arising from the ordinary acquisition of receivables without recourse.

The treasury is responsible for assessing, within a shortterm time frame, the impacts of funding and lending transactions, generated by the intermediation activities, on the Bank' #nancial balance, for the purposes of preparing suitable measures able to offset the positive or negative #nancial balances arising from the succession of incoming and outgoing #nancial &ows, while ensuring economically viable conditions.

In this regard, the treasury seeks out pro#table forms of short-term investment for temporary surpluses of #nancial resources which would otherwise represent non-interest bearing or low yield assets for the Bank; alternatively, it is the responsibility of the treasury to identify sources which will enable the Bank to address, at an acceptable cost, the liquidity needs generated by ordinary management.

The treasury is also responsible for managing the Group's #nancial and credit assets and liabilities (ALM) and is required to maintain a suitable dynamic relationship between medium- to long-term assets and liabilities, ensuring diversi#cation of the sources and maturities.

The management of treasury also involves the recourse to the main settlement markets and to the major #nancial markets for trading securities.

The need to swiftly address imbalances in corporate #nancial &ows requires the treasury function to have a certain amount of liquidity reserves in the form of money market instruments (short-term deposits with other banks or instruments which can be easily sold on the market, such as short-term government bonds); in addition, the treasury is entrusted with short-term borrowing transactions, conducted through the collection of interbank deposits or by accessing Bank of Italy credit as well as credit in the form of advances on current account securities pledges (Repurchase Agreements, Buy and Sell Back, Stock Lending).

Treasury portfolio

A portfolio of owned securities has been established in order to better support liquidity commitments through the short-term investment in Italian Government Bonds. The portfolio of owned securities as at 30/06/2015 amounted to € 917 million (858 as at 31/12/2014) and only comprised Italian short-term government bonds.

During the period, the portfolio of owned securities did not change in terms of value, type of securities and residual duration. In particular, as at 30 June 2015, the duration of the portfolio was 9.3 months (8.5 months as at 31 December 2014).

Traded volumes increased compared to the previous year, along with the number and amount of monetary settlements by the Treasury Area.

In the #rst half of 2015, the transactions involving government bonds totalled € 7,198 billion (compared with € 5,928 billion traded in the #rst half of 2014). Government bonds are mainly traded on the MTS Italian markets (in which the Bank trades as a market dealer), the European Bond Market (EBM), through the BondVision deal-to-client platform, or on BrokerTec. The performance of investments in securities was in line with the improvement in spreads until the #rst quarter of 2015, i.e. with the improvement in the perception of risk by the markets in respect of peripheral countries in the Euro Area, before slowing from May onwards.

Wholesale funding

Wholesale funding represented about 59% of the total as at 30 June 2015 and mainly comprised repurchase agreements traded on the MTS MMF Repo platform and re#nancing mechanisms with the ECB (54% as at 31 December 2014). These transactions were carried out during the period by using treasury portfolio Italian Government securities as the underlying asset, along with eligible trade receivables due from Public Administration entities arising from factoring activities (ABACO).

The choice between the above-mentioned funding sources mainly depends on the contingent market performance of short-term liquidity. In particular, compared with 31 December 2014, priority was given to repurchase agreements, rather than the MRO transactions proposed by the ECB, due to their cost.

The Group also used the interbank deposit market both through the e-MID market and bilateral agreements with other banks.

During the #rst half of 2015, the volumes exchanged on the MMF REPO market amounted to approximately € 43,757 billion (€ 32,1 billion for the whole of 2014), while deposits on the e-MID and OTC markets totalled € 1.7 billion.

Short and medium-term operating cash &ows were always maintained well above the levels needed to ensure the conversion of assets into cash at any moment throughout the period.

THE MAIN BALANCE SHEET AGGREGATES

The comments on the main aggregates on the asset side of statement of #nancial position are shown below.

ASSETS (€ ,000) 30.06.2015 31.12.2014 CHANGE
Cash and cash equivalents 87 66 21
Financial assets held for trading - 63 (63)
Financial assets available for sale 917,215 858,007 59,208
Due from banks 46,013 16,682 29,331
Loans to customers 1,326,403 1,193,754 132,649
Equity investments 2,596 2,448 148
Property and equipment 1,149 1,201 (52)
Intangible assets 1,891 1,904 (13)
of which: goodwill 1,786 1,786 -
Tax assets 3,989 2,752 1,237
Other assets 9,315 4,376 4,939
Total assets 2,308,658 2,081,253 227,405

The Group ended the #rst half of 2015 with total assets of approximately € 2.3 billion, 10.9% up on the results at the end of the previous year.

The Bank's securities portfolio is entirely composed of Italian government bonds with an average duration of about 9.3 months as at 30 June 2015 (the average duration at the end of 2014 was 8.5 months), in line with the Group's investment policies to keep securities with durations of less than 12 months. Compared with year end, the nominal value of the securities grew from € 860 to € 919 million. Following market tensions in June caused by the "Greek crisis", the fair value, as at 30 June, of the Italian government bonds in the portfolio was negative by € 1.3 million. By mid-July, the prices of securities started to rise again, bringing the fair value to positive levels.

As at 31 December, there was only one credit default swap contract, recognised among "Financial assets held for trading", which was settled before the contractual deadline on 28 February 2015, following the collection of the underlying credit portfolio subject to hedging.

LOANS TO CUSTOMERS (€ ,000) 30.06.2015 31.12.2014 CHANGE %
Factoring 837,687 851,856 (14,169) -1.7%
Reverse repurchase agreements 334,554 290,316 44,238 15.2%
Loans to SME 59,872 18,664 41,208 220.8%
Salary/pension-backed loans (CQS/CQP) 65,367 13,228 52,139 394.2%
Current accounts 15,409 15,876 (467) -2.9%
Compensation and Guarantee Fund 13,194 3,556 9,638 271.0%
Other receivables 320 258 62 24.0%
Total 1,326,403 1,193,754 132,649 11.1%

The "Loans to customers" item is mainly composed of outstanding loans in the factoring receivables portfolio, totalling € 838 million (-2% compared with year end). On the other hand, government-backed loans to SMEs are rising, along with salary- and pension-backed loans.

€ 45 million (€ 53 million as at 31 December 2014 and € 23 million as at 30 June 2014), which recorded a 96% increase compared with the #rst half of 2014.

The factoring receivables turnover for the #rst half of 2015 totalled € 600 million (€ 1.2 billion as at 31 December 2014 and € 441 million as at 30 June 2014), recording a 36% increase compared with the #rst half of 2014. This amount includes tax receivables of

Government-backed loans to SMEs disbursed during the #rst half of 2015 totalled € 46.5 million (€ 20.8 million as at 31 December 2014 and € 3.2 million as at 30 June 2014), while the volume of the salary- and pensionbacked loans acquired was € 53.6 million (€ 13 million as at 31 December 2014 and € 0.8 million as at 30 June 2014).

The following table shows the quality of the credit in the 'loans to customers' item, without considering the amount relating to reverse REPO.

LOANS TO CUSTOMERS 30.06.15 31.12.14
Bad loans 22,266 11,439
Unlikely to pay 11,278 10,078
Gross exposure Past due 21,386 20,680
Non-performing 54,930 42,197
Performing (excluding REPO) 943,940 866,171
Total 998,870 908,368
Provision for individual adjustments 4,566 2,473
Provision for collective adjustments 2,455 2,457
Total provision for adjustments 7,021 4,930
Net exposure 991,849 903,438

The impact of net non-performing loans on the total outstanding portfolio is low and amounts to 5%. The increase in bad loans compared with 31 December 2014 is physiological, related to the Bank's business.

The Bad loans ratio (calculated as the ratio of net bad loans to the total of loans to customers, net of reverse REPO) changed from 1.01% as at 31 December 2014 to 1.82% as at 30 June 2015, even though it remained at reasonable levels.

Loans to customers also include temporary investments in reverse repurchase agreements of € 335 million (€ 290 million at the end of 2014). The amounts deposited against the cash used in the Compensation and Guarantee Fund for #nance transactions in repurchase agreements with bank customers rose in accordance with the greater number of REPO operations.

Equity investments include the Bank's equity stake of

25.80% in CS Union S.p.A. (a company created from the merger between the companies Candia S.p.A. and St.Ing. S.p.A.), operating on the bad #nancial and commercial loans management market, as well as in the management and recovery of receivables between individuals.

The increase of € 148 thousand represents the pro-quota result for the period.

Other assets include amounts being processed spanning period-end and trade invoices to be issued and mainly attributable to collection. The item is physiological and the increase compared with the previous #nancial year is mainly linked to a receivable relating to a deposit totalling € 1.5 million made in order to participate in the acquisition of a tax credit arising from an insolvency procedure and an equal increase of € 1.5 million in advances paid for interest with holding tax.

Comments on the main aggregates of balance sheet liabilities are given below.

LIABILITIES AND SHAREHOLDERS' EQUITY (€ ,000) 30.06.2015 31.12.2014 CHANGE
Due to banks 166,535 821,404 (654,869)
Due to customers 1,991,504 1,153,797 837,707
Securities issued 20,104 20,109 (5)
Tax liabilities 3 6,248 (6,245)
Other liabilities 45,473 36,441 9,032
Employee termination indemnities 1,364 1,173 191
Provisions for risks and charges 384 1,030 (646)
Valuation reserves (872) 2 (874)
Reserves 67,096 13,059 54,037
Share capital 8,451 8,451 -
Pro#t for the period/year 8,616 19,539 (10,923)
Total liabilities and shareholders' equity 2,308,658 2,081,253 227,405

Wholesale funding represents about 59% of the total (54% as at 31 December 2014), and mainly comprises repurchase agreements traded through the MTS platform (classi#ed under 'due to customers' since there is no direct balancing entry with banks) and, to a lesser extent, re#nancing operations with the ECB and funding from other banks through the E-Mid market and term deposits.

There is only residual funding from bond loans, amounting to about 2% of the total.

Retail customer deposits remained in line with the previous #nancial year and were mainly linked to the SI Conto! Deposito product.

DUE TO BANKS (€ ,000) 30.06.2015 31.12.2014 CHANGE %
Due to Central banks 35,000 730,020 (695,020) -95.2%
Due to banks 131,535 91,384 40,151 43.9%
Current accounts and demand deposits 10,485 36,366 (25,831) -71.0%
Term deposits 121,050 55,018 65,982 119.9%
Total 166,535 821,404 (654,869) -79.7%

The composition of the "Due to banks" item has changed compared with the end of the previous #nancial year following greater funding from repurchase agreements instead of re#nancing operations with the ECB,

since during the period REPOs proved more convenient than Central Bank rates.

Funding from other banks rose compared with the previous #nancial year.

Customer deposits, following what has been illustrated above, recorded a 73% increase compared with the previous #nancial year, mainly following greater use of funding through repurchase agreements, rather than ECB funding, in order to #nance the securities portfolio. The breakdown is as follows:

DUE TO CUSTOMERS (€ ,000) 30.06.2015 31.12.2014 CHANGE %
Term deposits 560,195 569,410 (9,215) -1.6%
Funding (repurchase agreements) 1,093,342 238,807 854,535 357.8%
Current accounts and demand deposits 309,541 311,751 (2,210) -0.7%
Other amounts due 28,426 33,829 (5,403) -16.0%
Total 1,991,504 1,153,797 837,707 72.6%

The year-end stock of term deposits showed a slight decline compared with the previous #nancial year, as a result of negative deposits of € 12 million; gross deposits during the #rst six months were € 203 million, against withdrawals caused mainly by non-renewals totalling € 215 million (net deposits for the whole of 2014 were positive and amounted to € 35 million, € 10 million in the #rst half of 2014).

Other amounts due include payables related to receivables acquired but not funded.

The composition of the securities issued is the same as at 31 December 2014 and is as follows:

  • ƒ TIER 2 subordinated loan totalling € 12 million,
  • ƒ TIER 1 subordinated loan totalling € 8 million.

The main changes in the provision for risks and charges were as follows:

  • ƒ release of € 300 thousand following the elimination of a potential risk connected to the collection of a tax credit acquired without recourse;
  • ƒ release of the allowance made over the previous #nancial years for the residual part of the long-term incentive plan;
  • ƒ allowance of € 310 thousand for the new bank resolution fund described below.

"Other liabilities" mainly include payments received after the end of the period by the assigned debtors and which were still being assigned and items being processed during the days following period-end, as well as trade payables and tax liabilities.

The following shows the changes in shareholders' equity since 31 December 2014:

SHAREHOLDERS'
EQUITY (€ ,000)
31.12.2014 ALLOCATION OF
PROFIT
OTHER
CHANGES
NET RESULT
FOR THE
PERIOD
30.06.2015
Dividends Reserves
Share capital 8,451 8,451
Reserves 13,059 17,567 36,470 67,096
Valuation reserves 2 (874) (872)
Pro#t (Loss) for the
year/period
19,539 (1,972) (17,567) 8,616 8,616
Total 41,051 83,291

The other shareholders' equity reserves include the amount collected during the placement for the new shares issued during the listing phase (10 million shares at the unit price of € 3.75) less the listing costs of € 1.5 million, net of deferred tax assets of € 0.5 million deductible over #ve years. In accordance with the international accounting standards, all incremental costs strictly linked to the listing process were capitalised (chie&y placement commissions for the new shares and consultancy costs) in proportion to the number of new shares issued compared with the total number of new shares.

The following table provides a summary of the changes in reserves:

(€ ,000) OTHER
RESERVES
Other reserves 37,500
Capitalised listing costs (1,525)
Deferred tax assets 504
Total reserves 36,479

The share capital increase from € 8.4 million to € 9.7 million was recorded on 2 July after the entry in the Companies' Register records; the remainder of the cash deposited was allocated to the share premium reserve.

The reconciliation between the net result and shareholders' equity of the parent company and the #gures from the consolidated #nancial statements is shown below.

(€ ,000) NET
RESULT
SHAREHOLDERS'
EQUITY
Banca Sistema's balances as at 30/06/2015 8,804 84,126
Assumption of value of investments
Pro#t (loss)/shareholders' equity-subsidiaries (188) (835)
Other changes
Adjustments to transfers of investments
Banca Sistema's consolidated balances as at 30/06/2015 8,616 83,291

CAPITAL ADEQUACY

By means of a letter dated 05 May 2014, the Parent Company informed the Bank of Italy of its desire to exercise its option to be exempt from #ling consolidated reports (an option laid down in paragraph 1.4 of circular 115 "Instructions for preparing banks' supervisory reports on a consolidated basis").

Provisional information concerning the regulatory capital and capital adequacy of Banca Sistema is show below.

OWN FUNDS (€ ,000) AND CAPITAL RATIOS 30.06.15 31.12.14
Common Equity Tier 1 (CET1) 82,038 37,849
TIER1 8,000 8,000
Additional Tier 1 capital (AT1) 90,038 45,849
TIER2 12,000 12,000
Total Own Funds (TC) 102,038 57,849
Total risk weighted assets 458,869 363,771
Ratio - CET1 17.9% 10.4%
Ratio - AT1 19.6% 12.6%
Ratio - TCR 22.2% 15.9%

Total own funds, as at 30 June 2015, totalled € 102 million.

In the absence of a formalised dividend policy, for the sole purposes of calculating own funds as at 30 June 2015, retained earnings included in the Common Equity Tier 1 capital, totalling € 7.7 million, were estimated by taking as a reference the average pay out over the last three years, as laid down in Delegated Regulation (EU) No 241/2014 supplementing Regulation (EU) No 575/2013 of the European Parliament.

ECONOMIC RESULTS

INCOME STATEMENT OF PROFIT AND LOSS (€ ,000) 30.06.2015 30.06.2014 CHANGE
Interest margin 28,951 24,057 4,894
Net fee and commission income 5,853 5,560 293
Dividends and similar income - 33 (33)
Net income from trading activities 109 672 (563)
Pro#t from disposal or repurchase of #nancial assets 1,951 2,759 (808)
Operating income 36,864 33,081 3,783
Net value adjustments due to loan impairment (2,091) (2,018) (73)
Net income from banking activities 34,773 31,063 3,710
Personnel expenses (6,528) (5,983) (545)
Other administrative expenses (9,042) (9,030) (12)
Net allowance for risks and charges (10) (300) 290
Net value adjustments to property and equipment/intangible assets (154) (89) (65)
Other operating income (expenses) 128 (410) 538
Operating expenses (15,606) (15,812) 206
Pro#t (loss) from equity investments 221 - 221
Pro"t from current operations before taxes 19,388 15,251 4,137
Income taxes for the period (6,029) (5,408) (621)
Pro"t (loss) for the period 13,359 9,843 3,516

The economic results for the #rst half of 2015, represented and commented on below, have been normalised in order to eliminate non-recurrent costs pertaining to the listing process; these costs are mainly attributable, as described in detail in the #nal part of the paragraph, to placement and consultancy costs as well as from a cost resulting from the revaluation of the long-term incentive plan recognised in the previous #nancial years.

The net result for the #rst half was € 13.4 million (+36%), a dramatic increase compared with the corresponding six months of the previous year.

INTEREST MARGIN (€ ,000) 30.06.2015 31.12.2014 € CHANGE % CHANGE
Interest and similar income
Credit portfolios 39,653 34,987 4,666 13.3%
Securities portfolio 616 2,228 (1,612) -72.4%
Other 231 889 (658) -74.0%
Total interest income 40,500 38,104 2,396 6.3%
Interest expense and similar charges
Due to banks (498) (1,105) 607 -54.9%
Due to customers (10,435) (11,955) 1,520 -12.7%
Securities issued (616) (987) 371 -37.6%
Total interest expense (11,549) (14,047) 2,498 -17.8%
Interest margin 28,951 24,057 4,894 20.3%

Total interest income is mainly composed of revenue generated from the factoring receivables portfolio, which totalled € 39.7 million (+13% compared with the previous six months), representing 98% of the total. Moreover, the contribution from pension- and salarybacked loan products and SME funding also rose, contributing 5.6%. Compared with the previous six months, however, the result shows less dependence on interest from securities, which fell by € 1.6 million due to a reduction in government bond yields during the period. Moreover, there was a smaller contribution from Other interest income mainly caused by a decrease in income generated by revenue from investments in hot money transactions and reverse repurchase agreements with institutional clients, which fell by € 0.5 million overall compared with the previous six months. Compared with the previous period, the increase in interest from the factoring portfolio is marked by greater average volumes compared with 2014, as well as an increase in interest generated by agreements.

Funding costs fell compared with the same period of the last year following a general reduction in market rates which has had a positive impact on wholesale funding, accompanied by a reduction in deposit and current account rates; the effect of the reduction in current account funding rates has been mitigated since the average volumes obtained in the #rst half of 2015 were considerably higher than in 2014.

Interest due to banks is mainly attributable to the cost of funding from the ECB, which was reduced mainly through a limited use of this form of #nancing.

Interest payable on bond loans issued bene#ts from loans which expired during 2014.

Funding through REPOs, as a result of the current interbank rates and ECB policies, has not generated overall expenses.

COMMISSION MARGIN (€ ,000) 30.06.2015 30.06.2014 € CHANGE % CHANGE
Fee and commission income
Collection activities 506 592 (86) -14.5%
Factoring activities 5,834 5,078 756 14.9%
Other 326 321 5 1.6%
Total fee and commission income 6,666 5,991 675 11.3%
Fee and commission expenses
Placement (528) (344) (184) 53.5%
Other (285) (87) (198) 227.6%
Total fee and commission expenses (813) (431) (382) 88.6%
Net fee and commission income 5,853 5,560 294 5.3%

Net fees and commissions, equalling € 5.9 million, grew by 5.3%.

The volumes of the purchase of receivables connected with products that involve higher management fees and commissions increased compared with the previous period. Fees and commissions from customers for collection activities fell slightly due to the lower number of third party invoices managed.

Other fee and commission income mainly includes commissions linked to the placement of insurance sureties, collection and payment services and the holding and management of current accounts (€ 37.2 thousand).

Fee and commission expenses include, under the placement item, the costs of origination of factoring receivables for € 437 thousand (€ 259 thousand in the previous period) while the remaining part includes the returns to third party intermediaries for the placement of the SI conto! Deposito product.

The other fee and commission expenses include commissions due for interbank collection and payment services. In 2015, the item also includes € 63 thousand for commissions from the CDS premium taken out at the end of 2014 and € 57 thousand for commissions reversed to Insurance Companies for premiums placed and collected by the Bank.

RESULTS OF THE SECURITIES
PORTFOLIO (€ ,000)
30.06.2015 30.06.2014 € CHANGE % CHANGE
Pro"t (Loss) on trading
Pro#t (loss) realised on trading portfolio
debt securities 109 672 (563) -83.8%
Total 109 672 (563) -83.8%
Pro"t (loss) from disposal or repurchase
Pro#t (loss) on AFS portfolio debt securities 1,951 2,759 (808) -29.3%
Total 1,951 2,759 (808) -29.3%
Total pro"t (loss) from securities portfolio 2,060 3,431 (1,371) -40.0%

In the #rst half of 2015, pro#ts generated by the owned portfolio and from the trading portfolio made a smaller contribution compared with the same period of the previous year, following less favourable market trends and a decrease in the volumes traded on behalf of third parties, respectively.

PERSONNEL EXPENSES (€ ,000) 30.06.2015 30.06.2014 € CHANGE % CHANGE
Wages and salaries (5,004) (4,681) (323) 6.9%
Social security contributions and other costs (1,258) (1,037) (221) 21.3%
Directors' and statutory auditors' remuneration (266) (265) (1) 0.4%
Total (6,528) (5,983) (545) 9.1%

The Group's human resources moved from 106 as at 30 June 2014 to 129 at period-end.

The increase in personnel expenses, totalling € 545 thousand, is therefore mainly attributable to the growth in the size of workforce, with an average of more than 15 units, switching from an average of 109 to 124.

OTHER ADMINISTRATIVE EXPENSES
(€ ,000)
30.06.2015 30.06.2014 € CHANGE % CHANGE
Servicing and collection activities (3,329) (3,391) 62 -1.8%
Consultancy (713) (997) 284 -28.5%
Computer expenses (1,462) (1,481) 19 -1.3%
Rent and related fees (794) (715) (79) 11.0%
Indirect taxes and duties (735) (646) (89) 13.8%
Advertising (363) (412) 49 -11.9%
Auditing fees (123) (183) 60 -32.8%
Other (305) (181) (124) 68.5%
Car hire and related fees (291) (232) (59) 25.4%
Legal and notary expenses (269) (158) (111) 70.3%
Expense reimbursement and entertainment (225) (196) (29) 14.8%
Membership fees (127) (135) 8 -5.9%
Infoprovider expenses (120) (110) (10) 9.1%
Maintenance of movables and real properties (90) (115) 25 -21.7%
Telephone and postage expenses (87) (74) (13) 17.6%
Discretionary payments (9) (4) (5) 125.0%
Total (9,042) (9,030) (12) 0.1%

Other administrative expenses, totalling € 9 million, remained essentially in line with the previous six months.

The amounts due to third parties for the collection and servicing of trade receivables are in line with the #rst half of 2014; in particular, payment for third-party servicers has fallen mainly because of the lower volumes managed and a reduction in the percentage cost applied to income.

Pro#t (loss) from equity investments re&ects the net proquota result of the company CS Union S.p.A. from 1Q15.

The other management income/expenses item as at 30 June 2015 have deviated from the six months of the previous year mainly through the allocation of a one-off payment of € 0.3 million made in the #rst half of 2014, in response to a request for hedging from the National Interbank Deposit Guarantee Fund for the default of Banca Tercas.

The allowance to the provision for risks and charges, totalling € 10 thousand, was the result of an allocation made during the #rst half of 2014 and totalling € 300 thousand, following the elimination of a potential risk connected to the collection of a tax credit acquired without recourse and the simultaneous allowance resulting from an estimate of the contribution to the new bank resolution fund.

The following shows the reconciliation of the normalised and statutory Statements of pro#t and loss.

STATEMENT OF PROFIT AND LOSS
(€ ,000)
30.06.2014
NORMALISED
IPO COSTS 30.06.2015
STATUTORY
Interest margin 28,951 - 28,951
Net fee and commission income 5,853 - 5,853
Dividends and similar income - - -
Pro#t (Loss) on trading 109 - 109
Pro#t from disposal or repurchase of #nancial assets 1,951 - 1,951
Operating income 36,864 - 36,864
Net value adjustments due to loan impairment (2,091) - (2,091)
Net income from banking activities 34,773 - 34,773
Personnel expenses (6,528) (4,389) (10,917)
Other administrative expenses (9,042) (2,218) (11,260)
Net allowance for risks and charges (10) - (10)
Net value adjustments to property and equipment/intangible assets (154) - (154)
Other operating income (expenses) 128 - 128
Operating expenses (15,606) (6,607) (22,213)
Pro#t (loss) from equity investments 221 - 221
Pro"t from current operations before taxes 19,388 (6,607) 12,781
Income taxes for the period (6,029) 1,864 (4,165)
Pro"t (loss) for the period 13,359 (4,743) 8,616

Personnel expenses include a gross variable component recognised to the management and linked to the Bank's IPO. The other administrative expenses mainly include share placement commissions, consultancy costs and other costs linked to the listing process.

New legislation and taxation

New deposit guarantee and resolution mechanism systems

Directives 2014/49/EU (Deposit Guarantee Schemes Directive - DGS) of 16 April 2014 and 2014/59/EU (Bank Recovery and Resolution Directive - BRRD) of 15 May 2014 were introduced as part of the strategic objective of reinforcing the single market and systemic stability, along with the Single Resolution Mechanism, which was also established by EU Regulation no. 806/2014 of 15 July 2014.

Contribution expenses arising from the Deposit Guarantee Schemes Directive

The new directive calls for Italian banks to switch from an ex-post contribution system to a mixed system, which provides for funds to be paid ex-ante until reaching, within 10 years from the entry into force of the directive (before 03 July 2024), a minimum target level, amounting to 0.8% of covered deposits. The contributions of each entity are calculated according to the ratio of the amount of their own deposits to the overall amount of the Country's protected deposits.

The Directive required transposition by the Member States in their national legal systems before 03 July 2015. On the date of this Report, the Directive had not yet been transposed by the Italian State.

The FITD (National Interbank Deposit Guarantee Fund) has indicated its intention of collecting, for 2015, only the contribution related to the second half of the year. In consideration of the noti#cation from the FITD and since the legal obligation to pay the 2015 annual contribution will apply in the second half of 2015, no allocation was made to the statement of pro#t and loss. Based on currently available information, it is estimated that the expenses for the Bank could be around € 200 thousand gross of the relevant tax effects, considering the possibility of providing part of the #nancial resources through payment obligations, up to a maximum of 30% of the contribution owed.

Contribution expenses arising from the Bank Recovery and Resolution Directive

Directive 2014/59/EU de#nes the new resolution rules, which shall apply from 01 January 2015 to all the European Union banks in the event of #nancial dif#culties, even if only prospective. To this end, the aforementioned directive calls for national resolution funds to have #nancial resources which must be provided through compulsory contributions from authorised credit institutions. In this case, too, the #nancing mechanism is mixed. Amounts must be paid in advance until reaching a minimum target level of 1% of covered deposits by 31 December 2024. The contributions from each entity are calculated according to the ratio of the amount of own liabilities (net of own funds and covered deposits) to the overall amount of liabilities for all the authorised credit institutions across the country. In order to achieve the target level, the #nancial resources provided by the credit institutions may include payment commitments, up to a maximum of 30%. The allocation of resources from national resolution funds during 2015 will be transferred to the European Single Resolution Fund (SRF) managed by a new European Resolution Authority (Single Resolution Board - SRB), whose establishment is provided for by Regulation no. 806/2014, which introduced the Single Resolution Mechanism (SRM), which will enter into force on 01 January 2016. On the date of drafting of this half-year report, the regulations for transposing the directive into the national legal system have not yet been issued and unambiguous procedures for recognising expenses have not yet been de#ned. Against such an uncertain background, the Bank has estimated an allocation of € 310 thousand, taking into account the fact that 30% of the aforementioned contribution may be covered through secured payment commitments.

Legislative Decree no. 83 of 27 June 2015

For the purposes of accelerating the emergence of losses on receivables, aligning Italy with the other EU countries and eliminating the competitive gap that has existed to date, article 16 of the Decree calls for write-downs and losses on receivables due from customers, recognised in the #nancial statements of banks and insurance companies, to be fully deductible both for IRES and IRAP purposes in the relevant #nancial year.

In an initial phase, however, the deductibility for writedowns and losses on receivables for Ires and Irap purposes is limited to 75 per cent.

The remaining 25% may be deducted in various percentages up to the 2025 #scal period (e.g. 5% of the residual amount in 2016, 8% in 2017, 10% in 2018 etc.).

This measure both replicates and reinforces that implemented through the Stability law for 2013, by means of which, from 2013 onwards, the write-downs and losses on receivables due from customers recorded in the #nancial statements had become "deductible on a straight-line basis in the #nancial year during which they are recognised and the four subsequent years".

RISK MANAGEMENT AND SUPPORT CONTROL METHODS

In order to manage the signi#cant risks to which it is or could be exposed, the Group has set up a risk management system that re&ects the characteristics, size and complexity of its operations.

In particular, this system is based on four fundamental principles: appropriate supervision by corporate bodies and departments; adequate risk management policies and procedures (both in terms of exposure to credit risk and the disbursement of credit); suitable methods and adequate tools for risk identi#cation, monitoring and management and adequate measurement techniques; comprehensive internal controls and independent auditing.

The "Risk Management System" is monitored by the Risk and Compliance Division, which ensures that capital adequacy and the degree of solvency with respect to its business are kept under constant control. In order to reinforce its ability to manage corporate risks, the Group established the Risk Management Committee, which supports the CEO in de#ning strategies, risk policies and pro#tability targets.

The Risk Management Committee continuously monitors the relevant risks and any new risks, even if only potential, resulting from changes in the working environment or the planned Group operations.

In accordance with Bank of Italy Circular no. 263/06 as amended, the Parent Company, Banca Sistema S.p.A., has tasked the Internal Control and Risks Committee with the job of coordinating the second and third level Control Departments; to that end, the Committee allows integration and interaction between these Departments, encouraging synergy, reducing any overlaps and supervising operations.

The methods used by the Group to measure, assess and aggregate risks are approved by the Board of Directors, based on proposals from the Risk Division, subject to approval by the Risk Management Committee. In order to measure the 'Pillar 1 risks', the Group has adopted standard methods to calculate the capital requirements for Prudential Regulatory purposes.

In order to evaluate non-measurable "Pillar 2 risks", the Group adopts - where possible - the methods stipulated under Supervisory regulations or those established by trade associations. If there are no such indications, standard market practices by operators that work at a level of complexity and operation comparable to the Group are also assessed.

RESEARCH AND DEVELOPMENT

No research and development activity was carried out in the #rst half of 2015.

TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties and connected parties, including the relative authorisation and disclosure procedures, are governed by the "Procedure governing transactions with associated parties" approved by the Board of Directors and published on the Internet site of the Parent Company, Banca Sistema S.p.A.

Transactions between the Group companies and related parties or connected parties were carried out in the interests of the Company, including within the scope of ordinary operations; these transactions were carried out in accordance with market conditions and, in any event, on the basis of mutual #nancial advantage and in compliance with all procedures.

With respect to transactions with parties who exercise administration, management and control functions in accordance with article 136 of the Consolidated Law on Banking, they are included in the Executive Committee decision, speci#cally authorised by the Board of Directors and with the approval of the Statutory auditors, subject to compliance with the obligations provided under the Civil Code with respect to matters relating to the con&ict of interest of directors.

Please refer to the Notes to the #nancial statements for information concerning individual transactions with related parties.

ATYPICAL OR UNUSUAL TRANSACTIONS

During the #rst half of 2015, the Group did not carry out atypical or unusual transactions, as de#ned in Consob Communication no. 6064293 of 28 July 2006.

SIGNIFICANT EVENTS AFTER THE END OF THE REFERENCE PERIOD

For the purposes of fully exploiting the activities of Banca Sistema and supporting its growth, the Shareholders' Meeting, acting on a proposal from the Board of Directors, in its session of 26 March 2015, resolved to approve the proposal to apply for admission of the Company's ordinary shares for listing on the STAR Segment of the MTA - Italian Equities Market organised and managed by Borsa Italiana S.p.A.

The listing and resulting expansion of the shareholder base will enable the Bank to reinforce the visibility of its business model and boost, in such a way, its standing within the reference market, including through the entry into the capital of quali#ed, national and international investors.

Following the launch of the Banca Sistema listing project, the Board of Directors, in its meeting of 26 March 2015, approved the new 2015-2018 three-year project, thus modifying the one approved by the Board on 13 February 2014.

From an organisational and governance perspective, the Board of Directors, during its meetings of 26 March 2015, 28 April 2015 and 28 May 2015, in accordance with the stipulations of the primary and secondary legislation in force, completed the adjustment of the corporate governance system, approving various internal procedures, reorganising the advisory committees, as well as appointing an investor relator and a designated manager responsible for drafting the company accounting documents.

On 3 June 2015, the extraordinary shareholders' meeting thus debated the share capital increase from € 8,450,526.24 up to the nominal maximum amount of € 10 million, as a divisible increase and against payment, with the exclusion of option rights, pursuant to art. 2441, paragraph 5, of the Italian Civil Code, for the purposes of the public subscription and sale offer for the listing of the Company's shares, conditional upon the issuing, by Borsa Italiana S.p.A., of the measure admitting the Company's shares for trading on the STAR segment of the MTA - Italian Equities Market (provided the prerequisites exist), organised and managed by Borsa Italiana S.p.A.: on 15 June 2015, the Bank of Italy issued the relevant declaration of compliance.

On 17 June 2015, Borsa Italiana, through measure no. 8073, provided for the listing on the stock exchange of the Bank' shares for trading on the MTA - Italian Equities Market. On 18 June 2015, Consob issued a measure approving the prospectus, which enabled the launch of the public share offer: on this date, the institutional offer was launched, while, on 19 June 2015, the retail offer also began. Both offers ended on 29 June: the offer price was set at € 3.75 per share, equivalent to company capitalisation of around € 302 million, calculated on the basis of the Offer Price. Trading began on 2 July 2015.

On this date the conditions precedent as adopted by the extraordinary meeting on 3 June 2015 were checked; in particular, the share capital was subscribed and paid up, totalling € 1,200,000.00 with the issuing of 10,000,000 ordinary shares, each with a nominal value of € 0.12. Therefore, the new, fully subscribed and paid up share capital is € 9,650,526.24, subdivided into 80,421,052 shares, each with a nominal value of € 0.12.

On 15 July, the sale/purchase agreement for 200 nominal stakes of € 5 million, representing 0.066% of the share capital of Bank of Italy, was signed, with the simultaneous transfer of the holding certi#cate. The transfer is subject to the condition subsequent of veri#cation, by the Bank of Italy, of the existence of the legal requirements for Banca Sistema to be the holder of the stakes.

Lastly, on 17 July 2015, the Coordinator of the Global Sale and Subscription Offer, Barclays Bank PLC, including in the name and on behalf of the members of the Institutional Placement Consortium, fully exercised the Greenshoe Option granted by the Selling Shareholder, SOF Luxco S.a.r.l., for a global total of 3,897,865 ordinary Banca Sistema shares. The acquisition price for the shares which were the subject of the Greenshoe Option was € 3.75 per share - corresponding to the Offer Price for shares which are the subject of the Global Sale and Subscription Offer - for an overall amount of around € 14.6 million gross of the commissions and costs related to the operation. The settlement of the shares related to the Greenshoe Option occurred on 21 July 2015.

Globally, the Global Sale and Subscription Offer, including the Greenshoe Option, concerned 42,876,525 ordinary Banca Sistema shares, totalling 53.32% of the share capital, for an overall value of around € 160.8 million gross of the commissions and costs related to the operation.

Shareholding Structure

Based on evidence from the Shareholders' Register and more recent information available, as at 2 July 2015, the shareholders with stakes of more than 5%, the threshold above which Italian law (art.120 of the Consolidated Law on Finance) requires disclosure to the investee company and Consob, were as follows:

SHAREHOLDERS % HELD
SGBS S.r.l. (Management Company) 23.10%
Fondazione Sicilia 7.40%
Fondazione Cassa di Risparmio di Alessandria 7.40%
Fondazione Pisa 7.40%
Schroders 6.73%
Free Float 47.97%

SUBSEQUENT EVENTS AND OUTLOOK AND MAIN RISKS AND UNCERTAINTIES

During the second half of 2015, the growth in factoring volumes recorded during the #rst half of the year, is expected to continue, along with a greater contribution from loans to SMEs and salary-backed loans.

The interest margin, based on current market conditions, will continue to bene#t from essentially stable funding costs.

Over the reference period, new strategic commercial agreements and framework agreements were concluded, which have enabled the Group to launch a diversi#cation process for the products offered.

The objective is still to broaden the customer base and

exploit opportunities presented by the Banca Sistema Group's excellent strategic positioning on the Italian market.

Net income from the listing and consequent bolstering of the Bank's Own Funds will facilitate the achievement of its strategies and, therefore, more accurately, the strengthening and consolidation of the factoring 'core business' as well as the growth of the new business lines introduced in 2014, while promoting the possibility of continuing with the diversi#cation of the business through the identi#cation of new opportunities, including through strategic acquisitions.

Milan, 30 July 2015

On behalf of the Board of Directors

The Chairman

Prof. Giorgio Basevi

The CEO

Gianluca Garbi

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL REPORT

AS AT 30 JUNE 2015

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Amounts in thousands of Euro
Assets 30.06.2015 31.12.2014
10. Cash and cash equivalents 87 66
20. Financial assets held for trading - 63
40. Financial assets available for sale 917,215 858,007
60. Due from banks 46,013 16,682
70. Loans to customers 1,326,403 1,193,754
100. Equity investments 2,596 2,448
120. Property and equipment 1,149 1,201
130. Intangible assets 1,891 1,904
of which goodwill 1,786 1,786
140. Tax assets 3,989 2,752
a) Current 366 41
b) Deferred 3,623 2,711
of which pursuant to Law 214/2011 3,149 2,261
160. Other assets 9,315 4,376
Total assets 2,308,658 2,081,253
Liabilities and shareholders' equity 30.06.2015 31.12.2014
10. Due to banks 166,535 821,404
20. Due to customers 1,991,504 1,153,797
30. Securities issued 20,104 20,109
80. Tax liabilities 3 6,248
a) Current - 6,234
b) Deferred 3 14
100. Other liabilities 45,473 36,441
110. Employee termination indemnities 1,364 1,173
120. Provisions for risks and charges 384 1,030
b) Other provisions 384 1,030
140. Valuation reserves (872) 2
170. Reserves 62,771 8,734
180. Share premium reserve 4,325 4,325
190. Share capital 8,451 8,451
220. Pro#t (loss) for the period (+/-) / year 8,616 19,539
Total liabilities and shareholders' equity 2,308,658 2,081,253

CONSOLIDATED STATEMENT OF PROFIT AND LOSS

Amounts in thousands of Euro
Items 30.06.2015 30.06.2014
10. Interest and similar income 40,500 38,104
20. Interest expense and similar charges (11,549) (14,047)
30. Interest margin 28,951 24,057
40. Fee and commission income 6,666 5,991
50. Fee and commission expenses (813) (431)
60. Net fee and commission income 5,853 5,560
70. Dividends and similar income - 33
80. Pro#t (Loss) on trading 109 672
100. Pro#t (loss) from disposal or repurchase of: 1,951 2,759
a) receivables
b) #nancial assets available for sale 1,951 2,759
c) #nancial assets held to maturity -
d) #nancial liabilities -
120. Operating income 36,864 33,081
130. Net value adjustments/write-backs due to impairment of: (2,091) (2,018)
a) receivables (2,091) (2,018)
140. Net income from banking activities 34,773 31,063
180. Administrative expenses: (22,177) (15,333)
a) personnel expenses (10,917) (5,983)
b) other administrative expenses (11,260) (9,030)
190. Net allowance for risks and charges (10) (300)
200. Net adjustments to/recoveries on property and equipment (123) (73)
210. Net adjustments to/recoveries on intangible assets (31) (16)
220. Other operating income (expenses) 128 (410)
230. Operating expenses (22,213) (15,812)
240. Pro#t (loss) from equity investments 221 -
270. Pro#t (Loss) on disposal of investments - -
280. Pro"t (loss) before tax from continuing operations 12,781 15,251
290. Taxes on income from continuing operations (4,165) (5,408)
300. Pro"t after tax from continuing operations 8,616 9,843
320. Pro#t (loss) for the period 8,616 9,843
340. Parent company pro"t for the period 8,616 9,843

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

Items 30.06.2015 30.06.2014
10. Pro"t (Loss) for the period 8,616 9,843
Other income items net of taxes without reversal to the
statement of pro"t and loss
20. Property and equipment - -
30. Intangible assets - -
40. De#ned bene#t plans 10 22
50. Non-current assets held for sale - -
60. Share of valuation reserves connected with investments - -
carried at equity: - -
Other income items net of taxes with reversal to the statement
of pro"t and loss - -
70. Hedges of foreign investments - -
80. Foreign exchange differences - -
90. Cash &ow hedges -
100. Financial assets available for sale 864 488
110. Non-current assets held for sale - -
120. Share of valuation reserves connected with investments -
carried at equity: -
130. Total other comprehensive income (net of tax) 874 510
140. Comprehensive income (Items 10+130) 9,490 10,353
150. Total consolidated comprehensive income pertaining to
minority interests - -
160. Total consolidated comprehensive income pertaining to the
Parent Company 9,490 10,353

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY AS AT 30/06/2015

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CONSOLIDATED STATEMENT OF CASH FLOWS (direct method)

Amounts in thousands of Euro

30.06.2015 30.06.2014
A. OPERATING ACTIVITIES
1. Managementinterest 2,426 13,894
ƒ
income collected
40,500 38,104
ƒ
interest expense paid
(11,549) (14,048)
ƒ
dividends and similar income
- -
ƒ
net fees and commissions
5,853 5,560
ƒ
personnel expenses
(16,552) (5,983)
ƒ
net premiums collected
- -
ƒ
other insurance income/expenses
- -
ƒ
other income
(11,143) (9,739)
ƒ
other expenses
- -
ƒ
taxes and duties
(4,684) -
ƒ
income/expenses relating to groups of assets held for disposal, net of taxes
- -
2. Cash \$ows from (used in) "nancial assets (227,697) 43,910
ƒ
#nancial assets held for trading
172 672
ƒ
#nancial assets designated at fair value through pro#t and loss
- -
ƒ
#nancial assets available for sale
(58,131) (8,218)
ƒ
receivables due from customers
(134,740) (4,239)
ƒ
due from banks: on demand
(29,331) 57,442
ƒ
due from banks: other receivables
- -
ƒ
other assets
(5,667) (1,747)
3. Cash \$ows generated by/used in "nancial liabilities 190,800 (54,448)
ƒ
due to banks: on demand
(654,869) (478,177)
ƒ
due to banks: other payables
- -
ƒ
due to customers
837,707 430,290
ƒ
securities issued
(5) (9,924)
ƒ
#nancial liabilities held for trading
- -
ƒ
#nancial liabilities designated at fair value through pro#t and loss
- -
ƒ
other liabilities
7,967 3,363
Net cash \$ow from (used in) operating activities (34,471) 3,356
B. INVESTMENT ACTIVITIES
1. Cash \$ows from - 33
ƒ
sales of equity investments
-
ƒ
dividends collected on equity investments
- 33
ƒ
sales/reimbursements of #nancial assets held to maturity
- -
ƒ
sales of property and equipment
- -
ƒ
sales of intangible assets
- -
ƒ
purchases of subsidiaries and business lines
- -
2. Cash \$ows used in (89) (2,677)
ƒ
purchases of equity investments
- (2,377)
ƒ
purchases of #nancial assets held to maturity
- -
ƒ
purchases of property and equipment
(71) (248)
ƒ
purchases of intangible assets
(18) (52)
ƒ
purchases of subsidiaries and business lines
- -
Net cash \$ow from (used in) investment activities (89) (2,644)
C. FINANCING ACTIVITIES
ƒ
issues/purchases of treasury shares
36,551 -
ƒ
issues/purchases of equity instruments
- -
ƒ
dividend distribution and other
(1,972) (704)
Net cash \$ow from (used in) "nancing activities 34,579 (704)
NET CASH FLOW GENERATED/USED DURING THE YEAR 19 8

RECONCILIATION - ITEMS

Cash and cash equivalents at the beginning of the year
66
71
Total net cash &ow generated/used during the year
19
8
Cash and cash equivalents: effect of change in exchange rates - -
Cash and cash equivalents at balance sheet date
85
79

NOTES TO THE FINANCIAL STATEMENTS

Statement of compliance with international accounting standards

This condensed, consolidated half-year report was drafted in accordance with Legislative Decree no. 38 of 28 February 2005, pursuant to the IAS/IFRS accounting standards issued by the International Accounting Standards Board (IASB) as authorised and in force on 30 June 2015, including the interpretation documents (SIC) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as established by EU Regulation no. 1606 of 19 July 2002. These standards were used to prepare the comparative data and opening balances as at 01 January 2015.

In preparing the condensed, consolidated half-year report, the Bank followed the instructions concerning #nancial statements issued by the Bank of Italy in its Regulation of 22 December 2005, the simultaneous Circular no. 262/05, the update of 22 December 2014 and the clari#cation notes, supplemented by the general provisions of the Italian Civil Code and other relevant legislative and regulatory provisions.

The condensed, consolidated half-year report was drafted in summary form and in accordance with IAS 34, with speci#c reference to the arrangements for disclosing #nancial information, supplemented by the other relevant legislative and regulatory standards.

The speci#c accounting standards adopted have been applied consistently with regard to the #nancial statements as at 31 December 2014.

There were no derogations to the application of the IAS/ IFRS accounting standards.

The condensed, consolidated half-year report was subject to a limited audit by KPMG S.p.A..

General basis of preparation

The condensed, consolidated half-year report comprises the Statement of #nancial position, Statement of pro#t and loss, Statement of other comprehensive income, Statement of changes in equity, Statement of cash &ows and Notes to the #nancial statements and is accompanied by a Directors' Report on management performance, the #nancial results achieved and the #nancial position of the Banca Sistema Group.

The #nancial statements, drawn up in accordance with the general guidelines laid down by the IAS, show the data for the period compared with the data from the previous #nancial year or corresponding period of the previous #nancial year as regards balance sheet and pro#t and loss #gures, respectively.

Pursuant to the provisions of art. 5 of Legislative Decree no. 38/2005, the #nancial statements use the Euro as the currency for accounting purposes. The amounts in the Accounting statements and Notes to the #nancial statements are expressed (unless expressly speci#ed) in thousands of Euro.

The #nancial statements were drafted in accordance with the speci#c accounting standards endorsed by the European Commission, as well as pursuant to the general assumptions laid down by the Framework for the preparation and presentation of #nancial statements issued by the IASB.

The Directors' Report and Notes to the #nancial statements provide the information required by international accounting standards, the Law and Bank of Italy, along with other non-mandatory information deemed equally necessary for giving a true and fair view of the consolidated position.

Scope and methods of consolidation

The condensed, consolidated half-year report includes Banca Sistema S.p.A. and the companies directly or indirectly controlled by or connected with it.

Compared with the situation as at 31 December 2014,

no changes to the scope of consolidation have been reported. The following statement shows the investments included within the scope of consolidation of the condensed, consolidated half-year report.

INVESTMENT
NAMES COMPANIES REGISTERED
OFFICE
TYPE OF
RELATIONSHIP
(1)
INVESTING
COMPANY
% HELD % OF VOTES
AVAILABLE (2)
Companies
Companies subject to full consolidation Banca
1 S.F. Trust Holdings Ltd London 1 Sistema 100% 100%
Consolidated at equity Banca
2 CS Union S.p.A. Italy 4 Sistema 25.80% 25.80%

Key:

(1) Type of relationship.

  1. = majority of voting rights at the ordinary shareholders' meetings

  2. = controlling in&uence

    1. = agreements with other shareholders 4. = other forms of control
    1. = unitary management as de#ned in Art. 26.1 of 'Legislative Decree 87/92'
    1. = unitary management as de#ned in Art. 26.2 of 'Legislative Decree 87/92'
  3. = joint control

(2) Available voting rights at ordinary shareholders' meeting, with separate indication of effective and potential rights

Changes in the scope of consolidation

The Group's scope has not changed compared with the end of the previous year.

Full method

The investments in subsidiaries are consolidated using the full consolidation method. The concept of control goes beyond owning a majority of the percentage of stakes in the share capital of the subsidiary and is de#ned as the power of determining the managerial and #nancial policies of the said subsidiary to obtain bene#ts from its business.

Full consolidation provides for line-by-line aggregation of the balance sheet and pro#t and loss aggregates from the accounts of the subsidiaries. To this end, the following adjustments were made:

  • ƒ the book value of the investments held by the Parent Company and the corresponding part of the shareholders' equity are eliminated;
  • ƒ the portion of shareholders' equity and pro#t or loss for the year is shown in a speci#c caption.

The results of the above adjustments, if positive, are shown - after allocation to the assets or liabilities of the subsidiary - as goodwill in item '130 Intangible Assets' on the date of initial consolidation. The resulting differences, if negative, are recognised in the statement

Consolidation with the equity method

Associated companies are consolidated with the equity method.

The equity method provides for the initial recognition of the investment at cost and subsequent value adjustment based on the relevant share of the shareholders' equity of the subsidiary.

The differences between the value of the equity investment and the shareholders' equity of the relevant subsidiary are included in the accounting value of the subsidiary.

In the valuation of the relevant share, any potential

of pro#t and loss. Intra-group balances and transactions, including revenue, costs and dividends, are entirely eliminated. The #nancial results of a subsidiary acquired during the #nancial year are included in the consolidated #nancial statements from the date of acquisition. At the same time, the #nancial results of a transferred subsidiary are included in the consolidated #nancial statements up to the date on which the subsidiary is transferred.

The accounts used in the preparation of the consolidated #nancial statements are drafted on the same date. The consolidated #nancial statements were drafted using consistent accounting standards for transactions and similar events.

If a subsidiary uses accounting standards different from those adopted in the consolidated #nancial statements for transactions and events in similar circumstances, adjustments are made to the accounting position for consolidation purposes. Detailed information with reference to Art. 89 of Directive 2013/36/EU of the European Parliament and Council (CRD IV), are published at the link www.bancasistema.it/pillar3.

voting rights are not taken into consideration.

The relevant share of the annual results of the subsidiary is shown in a speci#c item of the consolidated of pro#t and loss.

If there is evidence that the value of an equity investment may be impaired, the recoverable value of said equity investment is estimated by considering the present value of future cash &ows that the investment could generate, including the #nal disposal value of the investment. Should the recovery value prove lower than the book value, the difference is recognised in the of pro#t and loss.

Events after the reference date of the half-year "nancial report

After the reference date of the condensed, consolidated half-year report, there were no events worthy of mention in the Notes to the #nancial statements which

would have had an impact on the statement of #nancial position and statement of pro#t and loss of the Bank or Group.

Information on the main "nancial statement items

The accounting policies adopted for the drafting of the condensed consolidated half-year report, with reference to the classi#cation, recording, valuation and derecognition criteria for the various assets and liabilities, like the guidelines for recognising costs and revenues, have remained unchanged compared with those adopted in the annual and consolidated #nancial statements as at 31 December 2014, to which reference is made.

With reference to the condensed consolidated half-year report as at 30/06/2014, for the purposes of improving comparison, the amount of debt due to the National Interbank Deposit Guarantee Fund was reclassi#ed from other administrative costs to other charges.

INFORMATION ON TRANSFERS BETWEEN PORTFOLIOS OF FINANCIAL ASSETS

There were no #nancial assets transferred between portfolios.

INFORMATION ON FAIR VALUE

Qualitative information

Fair value levels 2 and 3: valuation techniques and inputs used

There were no deviations from the valuation guidelines and techniques in use as at 31 December 2014.

Processes and sensitivity of valuations

The portfolio of #nancial instruments classi#ed at level 3 has no signi#cant impact on the Bank's #nancial statements.

Fair value hierarchy

The following fair value hierarchy was used in order to prepare the consolidated half-year report:

  • Level 1 Effective market quotes: the valuation is the market price of said #nancial instrument subject to valuation, obtained on the basis of quotes expressed by an active market.
  • Level 2 Comparable Approach
  • Level 3 Mark-to-Model Approach

Transfer of assets and liabilities measured at fair value (levels 1 and 2) (levels 2 and 3)

Nothing to report.

INFORMATION CONCERNING 'DAY ONE PROFIT/LOSS'

Nothing to report.

DETAILED TABLES

ASSETS

CASH AND CASH EQUIVALENTS - ITEM 10

Cash and cash equivalents: breakdown

Items/Values 30.06.2015 31.12.2014
a) Cash 87 66
b) Demand deposits with Central Banks - -
Total 87 66

FINANCIAL ASSETS AVAILABLE FOR SALE - ITEM 40

Financial assets available for sale: breakdown by type

30.06.2015 31.12.2014
Items/Values Level
1
Level
2
Level
3
Level
1
Level
2
Level
3
1. Debt securities 917,215 - - 858,007 - -
1.1 Structured securities - - - - - -
1.2 Other debt securities 917,215 - - 858,007 - -
2. Equities - - - - - -
2.1 Measured at fair value - - - - - -
2.2 Measured at cost - - - - - -
3. Units of UCI - - - - - -
4. Loans - - - - - -
TOTAL 917,215 - - 858,007 - -

The Bank's securities portfolio is entirely composed of Italian government bonds with an average duration of about 9.3 months as at 30 June 2015 (the average duration at the end of 2014 was 8.5 months), in line with the Group's investment policies to keep securities with durations of less than 12 months.

Compared with year end, the nominal value of the

securities grew from € 860 to € 919 million.

Following market tensions in June caused by the 'Greek crisis', the fair value, as at 30 June, of the Italian government bonds in the portfolio was negative by € 1.3 million.

By mid-July, the prices of securities started to rise again, bringing the fair value to positive levels.

DUE FROM BANKS - ITEM 60

Due from banks: breakdown by type

30.06.2015 31.12.2014
Type of transactions/Values BV FV
Level
1
FV
Level
2
FV
Level
3
BV FV
Level
1
FV
Level
2
FV
Level
3
A. Due from Central Banks 8,899 16,114
1. Term deposits - X X X - X X X
2. Compulsory reserve 8,899 X X X 16,114 X X X
3. Repurchase agreements - X X X - X X X
4. Other - X X X - X X X
B. Due from banks 37,114 568
1. Loans 37,114 X 568
1.1 Current accounts and demand deposits 551 X X X 568 X X X
1.2. Term deposits - X X X - X X X
1.3. Other loans: 36,563 -
- Reverse repurchase agreements - X X X - X X X
- Financial leases - X X X - X X X
- Others 36,563 X X X - X X X
2. Debt securities - -
2.1 Structured securities - X X X - X X X
2.2 Other debt securities - X X X - X X X
TOTAL 46,013 - - 46,013 16,682 - - 16,682

Key:

FV = fair value BV = book value

RECEIVABLES DUE FROM CUSTOMERS - ITEM 70

Receivables due from customers: breakdown by type

31.12.2014
Book value Fair value Book value Fair value
Type of transactions/Values Performing Purchased Non-performing
Other
L1 L2 L3 Performing Purchased Non-performing
Other
L1 L2 L3
Loans 1,276,039 13,616 36,748 1,326,403 1,154,030 6,117 33,607 1,193,754
1. Current accounts 15,409 - x x x 15,818 - 58 x x x
2. Reverse repurchase agreements 334,554 x x x 290,316 - - x x x
3. Mortgages 57,565 2,307 x x x 18,357 - 307 x x x
4. Credit cards, personal loans
and salary-backed loans
63,597 2,091 x x x 13,485 - - x x x
5. Financial leases x x x - - - x x x
6. Factoring 713,614 13,616 32,345 x x x 812,498 6,117 33,242 x x x
7. Other loans 91,300 5 x x x 3,556 - - x x x
Debt securities - - -
8. Structured securities x x x - - - x x x
9. Other debt securities x x x - - - x x x
TOTAL (book value) 1,276,039 13,616 36,748 - - 1,326,403 1,154,030 6,117 33,607 - - 1,193,754

On- and off-balance sheet credit exposures to customers: gross and net values

Type of exposures/Values GROSS
EXPOSURE
INDIVIDUAL
ADJUSTMENTS
COLLECTIVE
ADJUSTMENTS
NET
EXPOSURE
A. ON-BALANCE SHEET EXPOSURES
a) Bad loans 22,266 4,198 18,068
b) Probable defaults 11,278 280 10,998
c) Non-performing past due exposures 21,385 88 21,297
d) Other assets 2,196,684 2,455 2,194,229
TOTAL A 2,251,613 4,566 2,455 2,244,592
B. OFF-BALANCE SHEET EXPOSURES
a) Non-performing
b) Other 671 671
671 671

TOTAL B

The impact of net non-performing loans on the total outstanding portfolio is low and amounts to 5%.

The increase in bad loans compared with 31 December 2014 is physiological, related to the Bank's business. The Bad loans ratio (calculated as the ratio of net bad loans to the total of loans to customers, net of reverse REPO) changed from 1.01% as at 31 December 2014 to 1.82% as at 30 June 2015, even though it remained at reasonable levels.

EQUITY INVESTMENTS - ITEM 100

Assets/Values 30.06.2015 31.12.2014
A. INITIAL AMOUNT 2,448 -
B. INCREASES 148 2,448
B.1 Purchases 2,377
B.2 Write-backs
B.3 Revaluations
B.4 Other changes 148 71
C. DECREASES - -
C.1 Sales -
C.2 Impairment losses -
C.3 Other changes -
D. FINAL AMOUNT 2,596 2,448
E. TOTAL REVALUATIONS -
F. TOTAL IMPAIRMENT LOSSES -

Equity investments include the Bank's equity stake of 25.80% in CS Union S.p.A. (a company created from the merger between the companies Candia S.p.A. and St.Ing. S.p.A.), operating on the bad #nancial and commercial loans management market, as well as in the management and recovery of receivables between individuals.

The increase of € 148 thousand represents the pro-quota result for the period.

PROPERTY AND EQUIPMENT - ITEM 120

Property and equipment used in operations: breakdown of the assets valued at cost

Assets/Values 30.06.2015 31.12.2014
1.1. PROPERTY AND EQUIPMENT OWNED 1,149 1,201
a) land - -
b) buildings - -
c) furniture 309 309
d) electronic equipment 730 873
e) other 110 19
1.2. PROPERTY AND EQUIPMENT ACQUIRED UNDER FINANCE LEASE -
a) land - -
b) buildings - -
c) furniture - -
d) electronic equipment - -
e) other - -
TOTAL 1,149 1,201

INTANGIBLE ASSETS - ITEM 130

Intangible assets: breakdown per type of activity

30.06.2015 31.12.2014
Assets/Values FINITE
USEFUL LIFE
INDEFINITE
USEFUL LIFE
FINITE
USEFUL LIFE
INDEFINITE
USEFUL LIFE
A.1 GOODWILL 1,786 1,786
A.2 OTHER INTANGIBLE ASSETS 105 - 118 -
A.2.1 Assets measured at cost 105 - 118 -
a) Internally generated intangible assets - - -
b) Other assets 105 - 118 -
A.2.2 Assets measured at fair value - - - -
a) Internally generated intangible assets - - - -
b) Other assets - - - -
TOTAL 105 1,786 118 1,786

Other assets: breakdown

30.06.2015 31.12.2014
Tax advances 3,984 2,484
Other 1,884 561
Prepayments not attributable to a speci#c item 1,326 166
Items under processing 1,210 253
Leasehold improvements 698 825
Accrued income not attributable to a speci#c item 144 21
Security deposits 69 66
TOTAL 9,315 4,376

Other assets include amounts being processed after the end of the reference period and trade invoices to be issued and mainly attributable to collection. The item is physiological and the increase compared with the previous #nancial year is mainly linked to a receivable relating to a deposit totalling € 1.5 million made in order to participate in the acquisition of a tax credit arising from an insolvency procedure and an equal increase of € 1.5 million in advances paid for interest withholding tax.

LIABILITIES

DUE TO BANKS - ITEM 10

Due to banks: breakdown by type

Type of transactions/Values 30.06.2015 31.12.2014
1. Due to Central banks 35,000 730,020
2. Due to banks 131,535 91,384
2.1 Current accounts and demand deposits 10,485 36,366
2.2 Term deposits 121,050 55,018
2.3 Loans - -
2.3.1 Repurchase agreements - -
2.3.2 Other - -
2.4 Debts for commitments to repurchase own equity instruments - -
2.5 Other payables - -
TOTAL 166,535 821,404
Fair value - Level 1 - -
Fair value - Level 2 - -
Fair value - Level 3 166,535 821,404
Fair value 166,535 821,404

DUE TO CUSTOMERS - ITEM 20

Due to customers: breakdown by type

Type of transactions/Values 30.06.2015 31.12.2014
1. Current accounts and demand deposits 309,515 311,751
2. Term deposits 560,195 569,410
3. Loans 1,093,368 238,807
3.1 Repurchase agreements 1,093,342 238,807
3.2 Other 26
4. Debts for commitments to repurchase own equity instruments -
5. Other payables 28,426 33,829
TOTAL 1,991,504 1,153,797
Fair value - Level 1 - -
Fair value - Level 2 - -
Fair value - Level 3 1,991,504 1,153,797
Fair value 1,991,504 1,153,797

SECURITIES ISSUED - ITEM 30

Securities issued: breakdown by type

30.06.2015 31.12.2014
Type of securities/Values Fair value Fair value
Book
value
Level 1 Level 2 Level 3 Book
value
Level 1 Level 2 Level 3
A. SECURITIES
1. Bonds 20,104 20,104 20,109 20,109
1.1 structured
1.2 other 20,104 20,104 20,109 20,109
2. Other securities
2.1 structured
2.2 other
TOTAL 20,104 20,104 20,109 20,109

Details of item 30 'Securities issued'. subordinated securities

ISSUER TYPE OF ISSUE COUPON MATURITY
DATE
NOMINAL
VALUE
IAS
VALUE
Tier 1 capital Banca
Sistema
S.p.A.
Innovative equity
instruments: mixed rate
ISIN IT0004881444
Until June 2023, rate
#xed at 7%
From June 2023,
&oating rate 6-month
Euribor + 5.5%
Perpetual 8,000 8,014
Tier 2 capital Banca
Sistema
S.p.A.
Subordinate ordinary
loans (Lower Tier 2):
ISIN IT0004869712
6-month Euribor + 5.5% 15.11.2022 12,000 12,090
TOTALE 20,000 20,104

Other liabilities: breakdown

30.06.2015 31.12.2014
Items under processing 19,440 16,939
Tax payables to the Revenue Agency and other tax authorities 11,280 11,524
Due to employees 6,527 2,004
Accrued liabilities 5,414 3,448
Trade payables 2,447 2,068
Pension repayments 332 437
Other 33 21
TOTAL 45,473 36,441

"Other liabilities" mainly include payments received after the end of the period by the assigned debtors and which were still being assigned and items being processed during the days following period-end, as well as trade payables and tax liabilities.

EMPLOYEE TERMINATION INDEMNITIES − ITEM 110
---------------------------------------------

Employee termination indemnities: annual changes

30.06.2015 31.12.2014
A. INITIAL AMOUNT 1,173 732
B. INCREASES 275 569
B.1 Allowance of the year 264 379
B.2 Other changes 11 190
C. DECREASES 84 128
C.1 Bene#ts paid 15 21
C.2 Other changes 69 107
D. FINAL AMOUNT 1,364 1,173
TOTAL
1,364
1,173

The increase in "Other changes" refers to the actuarial adjustment amount accounted for as at 30/06/2015. The decrease in "Other changes" refers to the portions of the provision for employee termination indemnities accrued as at 30/06/2015 and paid to other supplementary pension funds.

The actuarial adjustment of employee termination indemnities was conducted as a closed group, based on "accrued bene#ts" through the "Projected Unit Credit" (PUC) criterion, as stipulated in paragraphs 64-66 of IAS 19.

The technical valuations were conducted on the basis of the assumptions described in the following table:

Annual discount rate 2.06%
Annual in&ation rate 0.60% for 2015
1.20% for 2016
1.50% 2017 and 2018
2.00% from 2019 onwards
Annual real salary increase rate 1.00%
Annual employee termination indemnities increase rate 1.950% for 2015
2.400% for 2016
2.625% 2017 and 2018
3.000% from 2019 onwards

The discount rate used for determining the present value of the obligation was calculated, pursuant to paragraph 83 of IAS 19, from the Iboxx Corporate AA index with 10+ duration during the valuation month. To this end, a choice was made to select the yield with a duration comparable to the duration of the set of workers subject to valuation.

PROVISIONS FOR RISKS AND CHARGES − ITEM 120

Provisions for risks and charges: breakdown

Items/Values 30.06.2015 31.12.2014
1. Provision for pensions - -
2. Other provisions for risks and charges 384 1,030
2.1 Legal disputes - -
2.2 Personnel charges 5 661
2.3 Other 379 369
TOTAL
384
1,030

Provisions for risks and charges: annual changes

PROVISION
FOR
PENSIONS
OTHER
PROVISIONS
TOTAL
A. INITIAL AMOUNT - 1,030 1,030
B. INCREASES - 310 310
B.1 Allowance of the year - 310 310
B.2 Time value changes - - -
B.3 Changes due to discount rate changes - - -
B.4 Other changes - - -
C. DECREASES - 956 956
C.1 Uses in the year - 956 956
C.2 Changes due to discount rate changes - - -
C.3 Other changes - - -
D. FINAL AMOUNT - 384 384

The main changes in the provision for risks and charges were as follows:

  • ƒ allowance of € 310 thousand for the new bank resolution fund described below;
  • ƒ release of € 300 thousand following the elimination of a potential risk connected to the collection of a tax receivable acquired without recourse and, for the remaining part, release of the allowance made over the previous #nancial years for the residual part of the long-term incentive plan.

GROUP SHAREHOLDERS' EQUITY - ITEMS 140, 160, 170, 180, 190, 200 and 220

"Share capital" and "Treasury shares": breakdown

The share capital of the Parent Company as at 30 June 2015 was entirely composed of 70,421,052 ordinary shares of a nominal value of € 0.12.

Since 02 July 2015, following the placement of new shares, the share capital is composed of 80,421,052 ordinary shares.

The Group does not hold treasury shares, neither of the parent company nor of its subsidiaries.

The following shows the Group's shareholder's equity:

Items/Values AMOUNT
30.06.2015
AMOUNT
31.12.2014
1. Share capital 8,451 8,451
2. Share premium reserve 4,325 4,325
3. Reserves 62,771 8,734
4. (Treasury shares) - -
5. Valuation reserves (872) 2
6. Equity instruments - -
7. Pro#t (loss) for the period 8,616 19,539
TOTAL 83,291 41,051

For changes in reserves, please refer to the statement of changes in shareholders' equity.

STATEMENT OF PROFIT AND LOSS

INTEREST - ITEMS 10 AND 20

Interest and similar income: breakdown

Items / Technical forms Debt
securities
Loans Other
transactions
30.06.2015 30.06.2014
1. Financial assets held for trading - - - - -
2. Financial assets available for sale 616 - - 616 2,228
3. Financial assets held to maturity - - - - -
4. Due from banks - 2,273 - 2,273 40
5. Loans to customers - 37,611 - 37,611 35,836
6. Financial assets designated at fair value
through pro#t and loss - - - - -
7. Hedging derivatives - - - - -
8. Other assets - - - - -
TOTAL 616 39,884 - 40,500 38,104

Interest expense and similar charges: breakdown

Items / Technical forms Payables Securities Other
transactions
30.06.2014 30.06.2013
1. Due to Central banks 68 - - 68 706
2. Due to banks 430 - - 430 399
3. Due to customers 10,435 - - 10,435 11,955
4. Securities issued - 616 - 616 987
5. Financial liabilities held for trading - - - - -
6. Financial liabilities designated at fair value
through pro#t and loss - - - - -
7. Other liabilities and provisions - - - - -
8. Hedging derivatives - - - - -
TOTALE 10,933 616 - 11,549 14,047

FEES AND COMMISSIONS - ITEMS 40 AND 50

Fee and commission income: breakdown

Type of services/Values 30.06.2015 30.06.2014
A) Guarantees given 3 -
B) Credit derivatives - -
C) Management, dealing and consultancy services: 204 227
1. Trading in #nancial instruments - 2
2. Currency trading - -
3. Portfolio management - -
3.1. Individual - -
3.2. Collective - -
4. Custody and administration of securities - 3
5. Depositary bank - -
6. Placement of securities 7 4
7. Income from reception and transmission of orders 21 30
8. Consultancy services - -
8.1. On investments - -
8.2. On #nancial structure - -
9. Distribution of third party services 176 188
9.1. Portfolio management - -
9.1.1. individual - -
9.1.2. collective - -
9.2. Insurance products 176 188
9.3. Other products - -
D) Collection and payment services 19 4
E) Servicing related to securitisations - 56
F) Services related to factoring 5,834 5,078
G) Tax collection services - -
H) Management of multilateral trading facilities - -
I) Management of current accounts 37 35
J) Other services 569 591
TOTALE 6,666 5,991

Fee and commission expenses: breakdown

Services/Values 30.06.2015 30.06.2014
A) Guarantees received - -
B) Credit derivatives 63 -
C) Management, dealing and consultancy services: 164 94
1. Trading in #nancial instruments 73 9
2. Currency trading - -
3. Portfolio management - -
3.1 Own portfolio - -
3.2 Third party portfolios - -
4. Custody and administration of securities - -
5. Placement of #nancial instruments 91 -
6. "Out-of-branch" sale of #nancial instruments, products and services -
D) Collection and payment services 61 46
E) Other services 525 291
TOTAL 813 431
PROFIT (LOSS) FROM DISPOSAL/REPURCHASE - ITEM 100
---------------------------------------------------

Pro"t (loss) from disposal/repurchase: breakdown

Items/Income components 30.06.2015 30.06.2014
Losses Net pro#t
(loss)
Pro#ts Losses Net pro#t
(loss)
Financial assets
1. Due from banks - - - - - -
2. Loans to customers - - - - - -
3. Financial assets available for sale 2,088 (137) 1,951 3,143 (348) 2,759
3.1 Debt securities 2,088 (137) 1,951 3,143 (348) 2,759
3.2 Equities - - - -
3.3 Units of UCI - - - - - -
3.4 Loans - - - - - -
4. Financial assets held to maturity - - - - - -
Total assets 2,088 (137) 1,951 3,143 (348) 2,759
Financial liabilities
1. Due to banks - - - - - -
2. Due to customers - - - - - -
3. Securities issued - - - -
Total liabilities - - - - - -

NET VALUE ADJUSTMENTS/WRITE-BACKS DUE TO IMPAIRMENT - ITEM 130

Net value adjustments due to loan impairment: breakdown

Impairment losses (1) Write-backs (2)
Items/Income Individual Individual Collective
components Write-offs Other Collective A A B B 30.06.2015 30.06.2014
A. DUE FROM BANKS: - - - - - - - - -
- loans - - - - - - - - -
- debt securities - - - - - - - - -
B. LOANS TO CUSTOMERS: - (1,809) (451) 169 - - - (2,091) (2,018)
Non-performing loans purchased - - - - - - - - -
- loans - - - - - - - - -
- debt securities - - - - - - - - -
Other receivables - (1,809) (451) 169 - - - (2,091) (2,018)
- loans - (1,809) (451) 169 - - - (2,091) (2,018)
- debt securities - - - - - - - - -
C. TOTAL - (1,809) (451) 169 - - - (2,091) (2,018)

Key:

A = from interest

B = other

ADMINISTRATIVE EXPENSES - ITEM 180

Personnel expenses: breakdown

Type of expenditure / Values 30.06.2015 30.06.2014
1) Employees 10,585 5,601
A) Wages and salaries 4,092 3,163
B) Social security charges 941 732
C) Termination indemnities - -
D) Supplementary bene#ts - -
E) Allowance to the provision for employee termination indemnities 210 289
F) Allowance to the provision for pensions and similar obligations: 107 112
- De#ned contribution plans 107 112
- De#ned bene#t plans - -
G) Payments to external pension funds: - -
- De#ned contribution plans - -
- De#ned bene#t plans - -
H) Costs from share-based payments - -
I) Other bene#ts in favour of employees 5,235 1,305
2) Other personnel 35 68
3) Directors and statutory auditors 266 265
4) Early retirement costs - -
5) Recovery of expenses for employees of the bank seconded to other entities -
6) Reimbursement of expenses for employees of other entities seconded to the bank 31 49
TOTAL 10,917 5,983

Other administrative expenses: breakdown

Type of expenditure / Values 30.06.2015 30.06.2014
Servicing and collection activities 3,329 3,391
Consultancy 3,027 997
Computer expenses 1,468 1,481
Rent and related fees 794 715
Indirect taxes and duties 735 646
Advertising 369 412
Auditing fees 123 183
Other 177 181
Car hire and related fees 291 232
Legal and notary expenses 269 158
Expense reimbursement and entertainment 225 196
Membership fees 127 135
Infoprovider expenses 140 110
Maintenance of movables and real properties 90 115
Telephone and postage expenses 87 74
Discretionary payments 9 4
TOTAL 11,260 9,030

Taxes on income from continuing operations: breakdown

Item / Values 30.06.2014
Current taxes (-) (4,154) (5,968)
Changes in current taxes of previous years (+/-) - -
Reduction in current taxes of the year (+) - -
Reduction in current taxes of the year for tax credits pursuant
to Law no. 214/2011 (+) - -
Changes in deferred tax assets (+/-) (11) 560
Changes in deferred tax liabilities (+/-) - -
Income tax for the year (-) (-1+/-2+3+/-4+/-5) (4,165) (5,408)

INFORMATION CONCERNING THE PARENT COMPANY SHAREHOLDERS' EQUITY

OWN FUNDS AND CAPITAL RATIOS

Quantitative information

30.06.2015
A. COMMON EQUITY TIER 1 (CET1) BEFORE APPLICATION
OF PRUDENTIAL FILTERS 83,070
of which CET 1 instruments subject to transitional provisions 860
B. CET1 PRUDENTIAL FILTERS (+/-) -
C. CET1 gross of elements to be deducted and of the effects of the transitional
provisions (A+/-B) 83,070
D. ITEMS TO BE DEDUCTED FROM CET1 (1,891)
E. TRANSITIONAL PROVISIONS - IMPACT ON CET (+/-) 860
F. TOTAL COMMON EQUITY TIER 1 (CET1) (C-D+/-E) 82,038
G. ADDITIONAL TIER1 (AT1) GROSS OF ELEMENTS TO BE DEDUCTED
AND THE EFFECTS OF THE TRANSITIONAL PROVISIONS 8,000
of which AT1 instruments subject to transitional provisions -
H. ITEMS TO BE DEDUCTED FROM AT1 -
I. TRANSITIONAL PROVISIONS - IMPACT ON AT1 (+/-) -
L. TOTAL ADDITIONAL TIER 1 (AT1) (G-H+/-I) 8,000
M. TIER2 (T2) GROSS OF ELEMENTS TO BE DEDUCTED AND THE EFFECTS
OF THE TRANSITIONAL PROVISIONS 12,000
di cui strumenti di T2 oggetto di disposizioni transitorie -
N. ITEMS TO BE DEDUCTED FROM T2 -
O. TRANSITIONAL PROVISIONS - IMPACT ON T2 (+/-) -
P. TOTAL TIER 2 (T2) (M-N+/-O) 12,000
Q. TOTAL OWN FUNDS (F+L+P) 102,038

INFORMATION CONCERNING RISKS AND RELATIVE HEDGING POLICIES

CAPITAL ADEQUACY

Quantitative information

UNWEIGHTED AMOUNTS WEIGHTED
AMOUNTS/REQUIREMENTS
Categories / Values 30.06.2015 31.12.2014 30.06.2015 31.12.2014
A. RISK ASSETS
A.1 Credit and counterparty risk 1,992,288 1,799,310 393,913 298,803
1. Standardised approach 1,992,288 1,799,310 393,913 298,803
2. Internal ratings based approach - - - -
2.1 Basic - - - -
2.2 Advanced - - - -
3. Securitisations - - - -
B. CAPITAL REQUIREMENTS
B.1 Credit and counterparty risk 31,513 23,904
B.2 Credit assessment adjustment risk 0 1
B.3 Settlement risk 0 0
B.2 Market risk 0 0
1. Standard approach 0 0
2. Internal models 0 0
3. Concentration risk 0 0
B.5 Operational risk 5,196 5,196
1. Basic indicator approach 5,196 5,196
2. Standardised approach - -
3. Advanced measurement approach - -
B.6 Other calculation elements 0 0
B.7 Total capital requirements 36,710 29,102
C. RISK ASSETS AND CAPITAL RATIOS 458,869 363,771
C.1 Risk-weighted assets 458,869 363,771
C.2 CET1 capital/risk-weighted assets (CET1 capital ratio) 17,88% 10,40%
C.3 Tier1 capital/risk-weighted assets (Tier 1 capital ratio) 19,62% 12,60%
C.4 Total own funds/risk-weighted assets (Total Capital Ratio) 22,24% 15,90%

Large risks

As at 30 June 2015, the Parent Company's major risks are as follows:

a) Exposure Value = 2,781,109.343

b) Weighted Value (Value of the exposure after CRM and exemptions pursuant to art. 400 of CRR) = 123,114,472

c) No. positions 19.

TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties and connected parties, including the relative authorisation and disclosure procedures, are governed by the "Procedure governing transactions with associated parties" approved by the Board of Directors and published on the Internet site of the Parent Company, Banca Sistema S.p.A.

Transactions between the Group companies and related parties or connected parties were carried out in the interests of the Company, including within the scope of ordinary operations; these transactions were carried out in accordance with market conditions and, in any event, on the basis of mutual #nancial advantage and in compliance with all procedures.

With respect to transactions with parties who exercise administration, management and control functions in accordance with article 136 of the Consolidated Law on

Disclosure on the compensation of key management personnel

The following data show the compensation of key managers, as per IAS 24 and Bank of Italy Circular no. 262 of 22 Banking, they are included in the Executive Committee decision, speci#cally authorised by the Board of Directors and with the approval of the Statutory auditors, subject to compliance with the obligations provided under the Civil Code with respect to matters relating to the con&ict of interest of directors.

Pursuant to IAS 24, the related parties for Banca Sistema include:

  • ƒ shareholders with signi#cant in&uence;
  • ƒ companies belonging to the banking Group;
  • ƒ companies subject to signi#cant in&uence;
  • ƒ key management personnel;
  • ƒ the close relatives of key management personnel and the companies controlled by (or connected with) such personnel or their close relatives.

December 2005 as subsequently updated, which requires the inclusion of the members of the Board of Statutory Auditors.

Values in thousands of Euro BOARD OF
DIRECTORS
BOARD OF
STATUTORY
AUDITORS
OTHER KEY
MANAGERS
1ST
QUARTER
OF 2015
1ST
QUARTER
OF 2014
Values in thousands of Euro 235 54 1,710 1,999 1,733
Short-term bene#ts for employees - - - - -
Post-employment bene#ts - - - - -
Other long-term bene#ts - - - -
Termination bene#ts
Share-based payment - - - - -
Total 235 54 1,710 1,999 1,733

Disclosure on transactions with related parties

The following table shows the assets, liabilities, guarantees and commitments as at 30 June 2015, differentiated by type of related party with an indication of the impact on each individual caption.

Values in thousands of Euro SUBSIDIARIES DIRECTORS, BOARD OF
STATUTORY AUDITORS
AND KEY MANAGERS
OTHER
RELATED
PARTIES
% OF
CAPTION
Loans to customers 9,162 1,353 28 0.79%
Due to customers 71 408 21,484 1.10%
Securities issued - - 20,104 100.00%
Other liabilities 393 - - 0.86%

The following table indicates the costs and income for the #rst half of 2015, differentiated by type of related party.

Values in thousands of Euro SUBSIDIARIES DIRECTORS, BOARD OF
STATUTORY AUDITORS
AND KEY MANAGERS
OTHER
RELATED
PARTIES
% OF
CAPTION
Interest income 310 9 - 0.79%
Interest expenses - 795 6.88%
Other administrative expenses 349 - - 3.10%

The following table sets forth the details of each related party.

Values in thousands of Euro ASSETS LIABILITIES COSTS REVENUES
SF Trust Holding Ltd. 975 393 343 19
CS Union S.p.A. 8,186 71 6 291
Shareholders - SGBS - 24 - -
Shareholders - Sof Luxco - 1,752 7 -
Shareholders - Fondazione Pisa 20,104 18,789 781 -
Shareholders - Fondazione CR Alessandria - 185 2 -
Shareholders - Fondazione Sicilia - 276 1 -
29,265 21,490 1,140 310

SEGMENT REPORTING

For the purposes of segment reporting as per IFRS 8, the statement of pro#t and loss is broken down by segment as follows.

Breakdown by segment: pro"t and loss data at 30 June 2015

Items 30 JUNE 2015
Values in thousands of Euro FACTORING BANKING CORPORATE CONSOLIDATED
TOTAL
Interest margin 26,463 1,479 1,009 28,951
Net fee and commission income 5,841 160 (148) 5,853
Other costs/revenue 2,060 2,060
Operating income 32,304 1,639 2,921 36,864
Net value adjustments due to loan
impairment (1,061) (1,030) - (2,091)
Net income from banking activities 31,243 609 2,921 34,773

Breakdown by segment: balance sheet data as at 30 June 2015

Items 30 JUNE 2015
Values in thousands of Euro FACTORING BANKING CORPORATE CONSOLIDATED
TOTAL
Financial assets - - 917,215 917,215
Due from banks - - 46,013 46,013
Due to banks - - 166,535 166,535
Loans to customers 837,687 125,239 363,477 1,326,403
Due to customers 28,426 - 1,963,078 1,991,504

The Factoring division includes the business area related to the origination of trade and tax receivables with and without recourse. In addition, the division includes the business area related to the management and recovery of receivables on behalf of third parties.

The Banking segment includes the business area related to the origination of guaranteed loans to small and medium-sized enterprises, pension- and salary-backed loan portfolios and costs/income from assets under administration and the placement of third-party products. The Corporate segment includes activities related to the management of the Group's #nancial resources and costs/income in support of the business activities. Moreover, this segment includes all the consolidation entries, as well as all the inter-company cancellations.

The secondary disclosure by geographic area has been omitted as immaterial, since the customers are mainly concentrated in the domestic market.

CERTICATION OF THE DESIGNATED MANAGER RESPONSIBLE FOR DRAFTING THE COMPANY ACCOUNTING DOCUMENTS

CERTIFICATION OF THE CONDENSED, CONSOLIDATED HALF-YEAR FINANCIAL REPORT PURSUANT TO ART. 81- TER OF CONSOB REGULATION No. 11971 OF 14 MAY 1999 AS SUBSEQUENTLY AMENDED AND SUPPLEMENTED

  1. The undersigned, Gianluca Garbi, in his capacity as CEO, and Margherita Mapelli, in her capacity as Designated manager responsible for drafting the company accounting documents of Banca Sistema S.p.A. hereby certify, having taken into account the provisions of art. 154-bis, paragraphs 3 and 4, of legislative decree no. 58 of 24 February 1998:

  2. the suitability as regards the characteristics of the company, and

  3. the effective implementation of the administrative and accounting procedures for the drafting of the condensed, consolidated half-year #nancial report, during the #rst half of 2015.

  4. The Designated manager was appointed by resolution of the Board of Directors with effect from 02 July 2015, and since then has ful#lled her duties and acquired the necessary powers for the execution of the veri#cation activities prescribed by the law. A project geared towards the implementation of the instruments to be used for the execution of the periodic checks by the Designated manager on a structured and continuous basis, in line with the provisions of the generally accepted international reference standards for the internal control system is currently being #nalised. 3. Moreover, the undersigned hereby certify that:

3.1 the condensed, consolidated half-year #nancial report a) was drafted in accordance with the applicable international accounting standards endorsed by the European Community, pursuant to regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002; b) corresponds to the results of the accounting books and records;

c) is suitable for providing a true and fair view of the #nancial position of the issuer and all the companies included in the scope of consolidation.

3.2 The interim directors' report includes a reliable analysis of the important events which occurred during the #rst half of the year and their impact on the consolidated condensed half-year #nancial report, together with a description of the main risks and uncertainties for the remaining six months of the year. The interim directors' report includes, moreover, a reliable analysis of the information concerning major transactions with related parties.

Milan, 30 July 2015

Gianluca Garbi

CEO

Margherita Mapelli

Designated manager responsible for drafting the company accounting documents

-86-

INDEPENDENT AUDITORS' REPORT

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