Bper Banca — Governance Information 2017

Feb 21, 2017

Optimal quali-quantitative composition of the administrative Body Notice to Shareholders in view of the appointment of Board members

1		FOREWORD 3
2		THE OPTIMAL COMPOSITION OF THE BOARD OF DIRECTORS 3
	2.1	CHARACTERISTICS OF THE BANK 3
	2.2	TOTAL NUMBER OF DIRECTORS 4
	2.3	ROLES WITHIN THE BOARD OF DIRECTORS 5
	2.3.1	Chairman 5
	2.3.2	Executive Directors 5
	2.3.3	Non-executive Directors 5
	2.3.4	Independent Directors 6
	2.4	THE DIRECTORS' PROFESSIONAL COMPETENCIES 8
	2.5	EXTENSION AND DIVERSIFICATION OF THE COMPETENCIES 9
	2.6	AVAILABILITY OF THE DIRECTORS 9
	2.7	INCOMPATIBLE OFFICES 10
	2.8	GEOGRAPHIC REPRESENTATION 10

1 Foreword

To assure suitable governance and control over the business and the risks correlated thereto, Board members must have professional skills and experience that are adequate for their role and calibrated in relation to the operational and dimensional characteristics of the Bank. These professional skills and experiences must also be appropriately widespread and diversified in order for each member to be able to contribute, inter alia, to identify and pursue suitable strategies and to assure effective risk governance in all areas of the operations of the Bank and, if the case warrants it, of the Group. Lastly, it is necessary for the Board members to dedicate time and resources that are commensurate to their assigned duties.

The Regulatory Provisions of the Bank of Italy pertaining to corporate governance¹ pay particular attention to the adequacy of the composition of the strategic supervision and management bodies of banks and, for this purpose, they require them to identify their "optimal quali-quantitative composition", also in light of the size and complexity of the companies and of the groups to which they belong, and, on the occasion of appointments, to make available to the Shareholders the result of this analysis with sufficient time for the Shareholders to take it into account in selecting candidates.

On the occasion of the next partial renewal of the Board of Directors of BPER Banca S.p.A. (hereinafter also "BPER Banca", "BPER" or "Bank"), its "optimal quali-quantitative composition" is then made known to the Shareholders , so that the selection of the candidates can be taken into account.

2 The optimal composition of the Board of Directors

2.1 Characteristics of the Bank

The Extraordinary Shareholders' Meeting , held in Modena on 26 November 2016, approved the proposal for the transformation of Banca popolare dell'Emilia Romagna Società cooperativa to BPER Banca S.p.A. and the consequent adoption of Articles of Association which are in line with the new legal form.

The adaption measures have aimed to combine governance solutions which allow an even more flexible access to capital markets with the best practices followed in the reference sector, with the purpose of maintaining and enhancing the bank's existing strong links with the territories it serves .

It is recalled that, being a listed bank, pursuant to the Supervisory Provisions of the Bank of Italy, BPER is considered a "bank of major size or operating complexity"; it is, moreover, deemed significant in accordance with Article 6, Paragraph 4 of Regulations (EU) no. 1024/2013 which confers specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions.

2.2 Total number of Directors

The Supervisory Provisions of Bank of Italy concerning corporate governance prescribe, for banks of major size and operating complexity, that the total number of Directors must not exceed fifteen, barring well-justified exceptional cases.

The current number of members of the Board of Directors of BPER, deriving from the previous statutory structure consists of eighteen Directors. It should be noted however that, as a result of the transitional rules contained in the Articles of Association, in the Shareholders' Meeting (convened for 8 April 2017² ), the number of the Directors on the Board will be set at fifteen, in line with the requirements of art. 17 paragraph 1 of the Articles of Association and in line with the above-mentioned Supervisory Provisions. .

The reduction of the number of Directors will gradually be accompanied by the transition, authorized in the Extraordinary Shareholders' Meeting on 16 April 2016, from the system of appointing Directors with differentiated expiration of their term ("staggered board") to adoption of a system whereby all members of the administrative Body are elected at the same time. This innovation also has led to the adoption of transitional rules which envisage a one-year only term of office for Directors elected in April 2016 and those to be elected in the next Shareholders' meeting, in order to obtain the renewal of the entire Board at the meeting called to approve the 2017 financial statements, in conjunction with the renewal of the Board of Statutory Auditors.

As a consequence of the above-mentioned statutory requirements of a transitional nature³ , in relation to the expiry of the term of ten Directors, in the next Shareholders' Meeting eight Directors will be appointed, with a one-year term of office .

In the opinion of the Board the number of fifteen Directors will enable the full and efficient performance of the tasks conferred upon it by law, by the Supervisory Provisions and by the Articles of Association. This assessment, performed in view of the characteristics of the Bank and of the Group, has among other things taken into account the following factors:

• the presence on almost the entire national territory, the strong local roots and the very origins of the BPER Group created though a multi-annual process of integration of different local banks , which suggest considering the advisability of maintaining the presence in the Board of representatives with knowledge of the main territories in which the Group operates;

¹ "Supervisory provisions for banks", Bank of Italy, Circular no. 285 of 17 December 2013, Part One, Title IV.

² See the press release dated 9 February 2017 published on the Bank's website in the Press & Media – Press release Section.

³ See art. 45 of Bper Banca's Articles of Association

• the size and the operational complexity of the Bank and the Group which require the presence in the Board of a number of Members who are suitable for effectively presiding over the entire company operations, also with respect to the performance of activities for the guidance and co-ordination of the Group companies ;
• the need to have such a number of components available as to assure the efficient operation of the Committees where the Board's activity is carried out, also taking into consideration the need to assure an adequate balance of the competencies contained therein;
• the advisability of maintaining a size that promotes debates and a more efficient collective operation of the Administrative Body.

2.3 Roles within the Board of Directors

Within the administrative Body, different roles can be identified: Chairman, Managing director Executive Directors, Non-executive Directors and Independent Directors.

2.3.1 Chairman

The Chairman of the Board of Directors, also though the performance of the tasks assigned to him related to the organization of Board activities and the circulation of information, performs an important function directed at promoting internal debates and assuring the balancing of powers; for this purpose, as prescribed by the said Regulatory Provisions, (s)he has a non-executive role and performs no managerial functions, not even de facto.

2.3.2 Executive Directors

Executive Directors are those Directors who:

• a) are members of the executive Committee or are the recipients of delegations of individual executive powers (Managing director) or carry out, even if merely de facto, functions pertaining to company operations;
• b) perform directive duties, i.e. they have been tasked with supervising determined areas of company operations.

2.3.3 Non-executive Directors

Non-executive Directors participate in the decisions made by the entire Board and they are called to perform a dialectical and monitoring function on the choices made by the executive representatives and by the management of the Bank, also within the Board's Committees in which they are called to participate.

2.3.4 Independent Directors

Within the Board and its Committees, Independent Directors are called to oversee corporate management with independent judgement contributing towards assuring that it is performed in the company's interest and in a manner consistent with the principles of sound and prudent management. They constitute a control over the risk of conflict of interest to avoid possible distortions in the resource allocation process. The independent Directors must have such professional capabilities and authority as to assure a high level of dialectics within the body to which they belong and to provide a significant contribution to shaping its will. The minimum number of Directors who must fulfil the independence requirement is determined by the Articles of Association⁴ as 5 (five).. In relation to the latter, it is considered desirable to have the presence on the Board of an even higher number of independent Directors, in order to allow a more efficient composition of the Executive Committees.

The Board of Directors shall verify compliance with the independence requirement for the Directors who are qualified as such and shall assure, over time, compliance with the minimum number of Independent Directors prescribed by the Articles of Association and by the aforementioned Supervisory Provisions. Verification of compliance with the independence requirement shall be carried out after the appointment of the Directors, within the terms prescribed by applicable regulations, and it shall be repeated, subsequently, upon the occurrence of modifying circumstances that affect independence and otherwise at least once a year.

It should be noted that the Articles of Association envisages that if a Director no longer meets the independence requirements this does not automatically lead to his forfeiture, if there is still the required minimum number of Directors on the Board who meet them.⁵ The Articles of Association⁶ define the notion of independence of the Directors of BPER referring to the prescriptions that - in accordance with the combined provisions of Articles 147-ter and 148, Paragraph 3, of Italian Legislative Decree no. 58 of 24 February 1998 establish the reasons for ineligibility and for disqualification of the statutory auditors in companies with shares listed on regulated markets.

In application of the mentioned provisions, the Board of Directors, again in accordance with the requirements of the Articles of Association⁷ , has established parameters on which to set out these provisions in practice, in order, in particular, to identify the suitability from an economic and professional point of view of the relationships maintained by the Directors which are likely to compromise their independence. More specifically, the Board has established that:

With reference to cash or endorsement facilities or other financial transactions with the BPER Group, regardless of the relative technical form, the independence requirements are considered no longer met if even only one of the following conditions is confirmed:

(i) The total loan amount granted by the Group – to an independent Director – is equal to or over Euro

⁴ See art. 21, paragraph 2 of the BPER Banca Articles of Association

⁵ See art. 21, paragraph 3 of the BPER Banca Articles of Association

⁶ See Article 18, paragraph 2, letter d of the BPER Articles of Association.

400.000;

• (ii) When the total loan amount granted by the Group to an independent Director is equal in absolute terms to Euro 200.000 and represents an amount equal to or above 50% of his/her total credit exposure on the Italian banking system resulting from the data provided by Bank of Italy's Credit Bureau;
• (iii) When the independent Director is the holder of accounts with the Group reported in the "unlikely to pay" category for Supervisory purposes;
• with reference to self-employment or professional activities or other relations of a financial nature, when the overall annual income of the Independent Director received from the BPER Group and/or from Directors of the BPER Group and/or spouses, relatives or persons with a similar relationship up to the forth degree with a Director of the BPER Group, is equal to at least 30% of the overall annual income of the interested party⁸

For the purposes of the above, indirect interests in companies, bodies or entities owned by or in which the Director who qualifies himself as independent has an interest are also considered, as well as professional associations, of which he/she a member.⁹

Without prejudice to the above, the Board of Directors, by means of a justified resolution, may consider that, despite the presence of the above situations, a Director does however meets the independence requirements when, in the light of all significant circumstances, it arises that these situations are not suitable, in a concrete and individual manner, to compromise his/her independence.

At the same time, the Board of Directors, with a justified resolution, may consider that, even in the absence of the above situations, a Director no longer meets the independence requirements, when in the light of all

9 In this respect it should be noted that:

⁷ See art. 21, paragraph 2, of the BPER Banca Articles of Association

In this respect it should be noted that the following are excluded from the calculation:

^- remuneration and refund of expenses arising from activities as Director on behalf of the Group

^- income from ordinary banking and/or corporate relationships held at standard or market conditions

^- in cases of passive relations with a company, body or entities owned by or in which the Director who qualifies himself as independent has an interest, the overall annual exposure is attributed to the Director, regardless of the shareholding held

^- in the case of joint accounts, the Director who qualifies himself as independent is attributed with the overall annual amount of the exposure whenever joint responsibility is envisaged for the passive parties; otherwise, only the quota referring to the Director is attributed;

^- the Director who qualifies himself as independent is attributed with the overall annual amount of income deriving from companies, bodies or entities owned by or in which the Director who qualifies himself as independent has an interest, regardless of his/her shareholding;

^- as regards professional associations of which the Director who qualifies himself as independent is a member:

^{- (}i) the Director under assessment is attributed with the overall annual amount of the exposure of the professional association, whenever joint responsibility of all the members is envisaged; otherwise, only the amount of the subscription to the association is attributed

^{- (}ii) the Director who qualifies himself as independent is attributed with the overall annual amount of sums received from the professional association, regardless of the subscription amount.

circumstances, recognize the presence of other significant situations which are, in a concrete and individual manner, suitable to compromise his/her independence.

2.4 The Directors' professional competencies

To determine the optimal qualitative composition of the administrative Body, a set of competencies deemed necessary for the Board as a whole to perform its duties correctly and more effectively has been defined. These competencies were determined taking into account:

• the provisions of the reference regulations;
• the indications of the European Banking Authority (EBA)¹⁰;
• the best practices in the industry.

The identified competence areas are as follows:

• 1. knowledge of the banking business (e.g. credit, finance, payment systems, securities brokerage, customer services, bancassurance), acquired through multi-year experience as a company representative with credit or financial institutions or the exercise of professional activity or universitylevel teaching of economic subjects.
• 1. knowledge of the dynamics of the economic-financial system (e.g. domestic and international markets, system forecast models), acquired through multi-year experience as a company representative with companies or by exercising entrepreneurial or professional activities or teaching economic subjects at universities, or by serving in positions of responsibility with agencies, institutions, foundations or associations;
• 1. knowledge of the local environments (where the Bank and the Group are active) and of their socioeconomic and market characteristics, acquired through multi-year experience as a company representative with firms or by exercising entrepreneurial or professional activities or by serving in positions of responsibility with agencies, institutions, foundations or associations in the areas of interest;
• 1. knowledge of industry regulations (e.g. banking, financial, fiscal), acquired through multi-year experience as a company representative or as a manager in charge of specific functions (e.g. audit, compliance, risk management, legal) with credit or financial institutions, or by exercising entrepreneurial or professional activities or teaching economic - juridical subjects at universities, or by serving in positions of responsibility with agencies, institutions, foundations or associations;

¹⁰ EBA "Guidelines on internal governance" (GL44) September 2011. In this regard it is noted that the EBA, on 28 October 2016, published, jointly with ESMA (European Security and Markets Authority), Guidelines on the assessment of the suitability of members of the management body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU. The consultation phase was terminated on 28 January 2017.

• 1. knowledge of internal control systems and of risk management and control methods (e.g. control functions, credit risk, market risk) acquired through multi-year experience as a company representative or as a manager in charge of specific functions (e.g. audit, compliance, risk management) with companies, or by exercising entrepreneurial or professional activities or teaching economic - juridical subjects at universities;
• 1. knowledge of corporate governance aspects and of company management processes (e.g., financial statements, legal, group management and coordination, management control, conflicts of interest, relations with stakeholders, management of key resources, remuneration, corporate social responsibility) acquired through multi-year experience as a company representative or as a manager in charge of specific functions (e.g. general secretarial office, financial statements, external relations) with companies, or by exercising entrepreneurial or professional activities, or teaching economic juridical subjects at universities;
• 1. knowledge of the organisational structure and of the information systems (e.g. organisation, ICT, outsourcing policies, business continuity) acquired through multi-year experience as a company representative or as a manager in charge of specific functions (e.g. organisation, ICT) with companies, or by exercising entrepreneurial or professional activities or teaching economic - juridical subjects at universities;
• 1. knowledge of the structure, of the governance and of the organisation of the BPER Banca Group.

2.5 Extension and diversification of the competencies

Managing the high level of complexity of the Bank and of the Group entails the need for the presence of a wider range of professional competencies in the Board; thus, each area of competence should be covered with specialised professional skills and competencies, able to assure overall effective, knowledgeable management.

To allow an adequate and effective debate within the Body, to make decision with ever increasing knowledge and to assign different duties to the Directors within the Board and in the Board's Committees, it is deemed advisable that, for each of the identified areas, persons with proven competencies be present in the Board..

2.6 Availability of the Directors

To assure the correct performance of their duties and to guarantee the effectiveness of the role, Directors must dedicate adequate time and resources to the execution of their appointed tasks. This availability must be greater for the Directors who have been assigned specific executive duties or who are involved in the Board's Committees.

By way of information, - it should be pointed out that in 2016, 25 meetings of the Board of Directors were held, along with 17 meetings of the Executive Committee, 14 meetings of the Strategy Committee, 26 meetings of the Control and Risk Committee, 17 meetings of the Remuneration Committee, 17 meetings of the Nomination Committee (in addition to 15 meetings of the Independent Directors' Committee. The Board meetings had an average duration of approximately 4 hours and 42 minutes.

In consideration of the above, it is recommended that interested parties should accept to run for the office if they think they can dedicate the necessary time to it, taking into account the time they must allocate for other work or professional activities, and for the execution of duties connected with offices held in other companies.

In this regard, it is considered appropriate to recall the provisions of Article 91 of CRD IV¹¹, although not yet transposed though the relative implementing measures and to remember that the Ministry of Economy and Finance will have to identify the relative criteria, in accordance with the principles of proportionality and taking into account the size of the intermediary.

2.7 Incompatible offices

In accordance with Article 36 of Italian Law no. 214/11, introducing provisions on "crossed personal participation in credit and financial markets" and with the prescribed prohibition for "office holders in the management, supervision and control bodies and for top-level officers of companies or groups of companies operating in credit, insurance and financial markets to assume or exercise similar offices in competitor companies or groups of companies", it is recommended to Shareholders to include, in the lists to be presented for the partial renewal of the administrative Body, candidates for whom the current and future absence of reasons for incompatibility, prescribed by the aforementioned regulation, was assessed beforehand.

2.8 Geographic representation

In view of the Bank's focus on local areas, it is deemed important for the Board of Directors to include subjects with profound knowledge of the various main areas where the Bank and the Group operate.

3 Professional profiles and partial renewal of the Board of Directors

Election to corporate office is reserved for the General Meeting of Shareholders, which shall renew the Board in accordance with the Articles of Association.

Taking into account the quali-quantitative composition of the Board of Directors deemed optimal, as defined herein, and taking into account the professional skills and competencies of the Directors in office and of those whose term is expiring, a brief indication is provided below of the areas of professional competence, as they are better identified in Paragraph 2.4, in which, in the Board's opinion, the Directors to be appointed could usefully provided additional valuable contributions, in view of the pursuit of an ever more effective action of the administrative Body:

• industry regulations;
• structure, governance and organization of the BPER Bank Group
• internal audit systems and risk management and control methods,
• banking business.

Without prejudice to necessary integrity and professionalism requirements, as well as compliance with the additional prescriptions of the current regulations¹² and to the possible possession of independence requirements, it is also deemed advisable for the administrative Body to be as closely representative of the main areas in which the Bank and the Group operate.

Lastly, in compliance with the prescriptions of the Bank of Italy in the Supervisory Provisions¹³, the disclosure about the personal and professional characteristics of each candidate for the office of member of the Board of Directors, to be deposited - in accordance with the Articles of Association - concurrently with the presentation of the candidacies, should include a CV directed at identifying for which theoretical profile each of the candidates is suited, having regard to the indications about the "optimal quali-quantitative composition" provided by the Board of Directors with the present document.

Shareholders may make their own assessment of the optimal composition of the administrative Body (and, more in general, of the corporate bodies) and present candidacies that are consistent therewith, explaining the reasons for any differences from the analyses carried out by the Board.

Lastly, it is recalled that – further to the transformation of BPER Banca into a joint stock company – in art. 18 of the Articles of Association, the Board of Directors has the faculty to present lists of candidates.

Pubblished on 21 February 2017

¹¹ Directive 2013/36/EU of 26 June 2013.

¹² Reference is made, in particular, to the causes of ineligibility and forfeiture pursuant to art. 2382 of the Civil Code.

¹³ "Supervisory provisions for banks", Bank of Italy, Circular no. 285 of 17 December 2013, Part 1, Title IV, Chapter 1, Section IV, Par. 2.1.