BANCA SISTEMA: APPROVED RESULTS AS AT 30 SEPTEMBER 2021

PRESS RELEASE

BANCA SISTEMA: APPROVED RESULTS AS AT 30 SEPTEMBER 2021

• Business performance:

• Factoring: volumes ran at 2,495 million, +14% y/y

• CQ: loans totaled 955 million, +3% y/y

• Pawn loans: loans came to roughly 87 million, +16% y/y

• Net interest income: 57.0 million, +7% y/y

• Total income: 74.8 million, +3% y/y

• Total operating costs: 44.3 million, +15% y/y, driven also by the consolidation of the pawn lending business line acquired in Q3 2020

• Loan loss provisions: 8.8 million, on the rise y/y due to the non-recurringwrite-downs reported in the previous two quarters

• Net income: 14.8 million

• The retail component accounted for 68% of total funding

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• CET1 ratio at 12.2% and Total Capital ratio at 15.4%. Following the guidelines related to the adoption of the definition of default pursuant to article 178 of EU Regulation no. 575/2013 and communicated by the Supervisory Authority at the end of the working day of 28 October 2021, a thorough analysis and review of the operational solutions currently in place will be conducted, that may lead to negative impacts on the CET1 ratio and on the Total Capital ratio reported in this release, currently estimated to amount to around 0.60% and 0.8%, respectively

Milan, 29 October 2021

The Board of Directors of Banca Sistema has approved the consolidated results as at 30 September 2021, reporting a net income of 14.8 million.

Business Performance

In a market characterized by a gradual improvement of the production system, the factoring business line reported a turnover of 2,495 million, with a growth rate of 14% y/y driven by the commercial receivables component, buoyed by the diversification implemented in recent years, while the performance of the tax receivables component, similarly to the first two quarters of 2021, was weaker compared to the previous year.

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As at 30 September 2021, factoring receivables (management data) stood at 1,707 million (of which 26% under legal action, 12% when considering only the portion relevant to the late-payment interest accrual model), basically stable compared to 30 September 2020 (1,749 million), and slightly up compared to 30 June 2021 (1,669 million). Non-recourse factoring, accounting for 76% of receivables, includes tax receivables (accounting for 17% of receivables).

As to the CQ business line, the Group purchased/funded 194 million of loans, less compared to last year (230 million), and the loan stock at 30 September 2021 came to 955 million, up by 3% y/y (931 million) and basically stable compared to 30 June 2021 (959 million), in spite of prepayments.

At 30 September 2021, pawn loans added up to 87.3 million, up by 16% y/y (75.0 million) and by 5% over 30 June 2021 (82.8 million), driven by the Q3 volumes that exceeded those of the prior quarters.

Operating results as at 30 September 2021

Net interest income, at 57.0 million, rose by 7% y/y, as the slight decline in interest income was more than offset by a lower interest expense. In the first nine months of 2021, the fall in interest income (69.8 million vs 71.6 million as at 30.9.2021 and 30.9.2020, respectively) was mainly due to the smaller contribution of factoring, which was not fully offset by the greater contribution of pawn loans and of State-guaranteed loans that Banca Sistema has been offering to its factoring clients since last year (loans stood at 131 million at 30 September 2021), following the adoption by the Government of measures to support the economy.

In today's market environment, interest income from the factoring business has been declining y/y (-11%),late-payment interest reported a slight increase, while interest income from tax receivables has been 2/10 going down as in the prior quarters.

The overall P&L contribution as at 30 September 2021 from late-payment interest under legal action came to 16.3 million (16.1 million at 30 September 2020).

Total late-payment interest under legal action accrued at 30 September 2021 and relevant to the accrual model came in at 101 million (166 million when including municipalities under conservatorship, against which no late-payment interest is accrued), while receivables already on the books totaled 52.2 million. The amount that was not recognized through profit and loss will be recognized, on an accrual or cash basis, in the next financial years, based on collection expectations that exceed 80%.

Total cost of funding, which came in at 0.4%, posted a y/y decline (0.6% in 2020), as a result of the reduction reported by the Wholesale component (where the impact from the substitution of Tier II issues with AT1 instruments classified as equity - that has been greater as of Q3 2021- is to be accounted for).

Net fees and commissions, amounting to 11.9 million, were stable y/y (11.9 million in 9M 2020), as the lower commission income from factoring was offset by the higher commission income from pawn loans. The contribution in terms of total revenues from factoring, i.e., the sum of interest income, commission income and revenues from portfolio disposals, has been declining in absolute terms year on year; a decline is reported also when revenues are considered as a percentage over the average of receivables. For CQ loans, the interest income to average loans ratio has declined year on year, while it has remained stable compared to H1 2021.

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At 30 September 2021, proprietary trading income generated by the sale of Italian government bonds totaled 4.2 million, down y/y (5.0 million). As usual, in 9M 2021 factoring receivables portfolios were sold, generating a revenue of 1.4 million (P&L line-item 100.a), down y/y (2.1 million).

Total income stood at 74.8 million, up 3% y/y, driven by the growth in interest income.

At 30 September 2021, loan loss provisions added up to 8.8 million, up y/y (7.2 million in the same period of 2020). This line-item includes a provision of 2.4 million referring to certain invoices falling within the conservatorship scope of a municipality, recognized in Q1 2021. Moreover, in Q2 2021 provisions against borrowers under conservatorship increased due to the expected lengthening of the collection time (1.4 million).

The cost of risk tied to customer loans, considering that the two impairments described above are deemed non-recurring, came in at 41 bps, slightly down compared to 42bps for full-year 2020.

The Group's headcount (FTE) came to 278 employees, stable when compared to the 273 resources reported in the same period of 2020.

Personnel expenses reflect the headcount evolution, which with respect to full-year 2021 was affected by the consolidation of 58 new resources from the business line acquired in Q3 2020. Other administrative expenses increased y/y, mainly driven by the consolidation of the acquired business line and by the higher cost for external servicers/collectors.

Total operating costs increased by 15% y/y, mainly driven by the dynamic of the two line-items described above, offset by the decline in net provisions for risks and charges.

The securities portfolio, made up of Italian government bonds, amounted to 632.7 million (of which 183.8 million are classified under the line-item "Financial assets measured at amortized cost", well below the amount reported at the end of 2020), with an average time to maturity of 34.4 months. The "Hold to Collect and Sell" (HTCS) component, amounting to 448.8 million at 30 September 2021, has increased compared with 31 December 2020 (425 million), and has an average time to maturity of about 34.5 months.

Financial assets measured at amortized cost (2,912 million), mainly represented by factoring receivables (1,443 million), went down by 2.6% over 31 December 2020 (1,482 million), while they slightly increased over 30 June 2021 (1,418 million), and they include also CQ loans (salary- and pension-backedloans), part of the securities portfolio, and 87.3 million of pawn loans (on a stable quarterly uptrend). More specifically, CQ loans added up to 955 million (934 million at 31 December 2020).

The gross non-performingloan stock of 294.5 million went up compared to 31 December 2020 (251.2 million), while it declined over 30 June 2021, mainly driven by the decline in bad loans (that instead had increased as at 30 June 2021, due to the reclassification as bad loans of exposures towards local governments under conservatorship, that up until the previous quarter were classified as Unlikely-to-pay loans).

The gross NPL to total loan ratio decreased from 11.1% at 30 June 2021 to 10.9% at 30 September 2021.

Tangible assets (PP&E) include the Milan building where the bank's headquarters are based, and a property purchased in Rome in Q1 2021.

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Retail deposits accounted for approx. 68% of total funding (59% at 31 December 2020), and comprise checking accounts and term deposits. The Retail component of funding has increased also in absolute terms when compared to year-end 2020.

Under Financial liabilities measured at amortized cost (3.036million), Due to banks went down compared to 31 December 2020 (592 million at 30.09.2021 vs 870 million at 31.12.2020), due to a smaller contribution from the "due to central banks" (BCE) component, which went from 690 million at 31 December 2020 down to 537 million at 30 September 2021, and is comprised exclusively of TLTRO III. A decline was reported also over 30 June 2021 (when it amounted to 737 million, of which 540 million of TLTRO III).

Under Financial liabilities measured at amortized cost, Due to customers went up compared to year-end 2020; more specifically this was mainly driven by the increase in checking accounts and deposits, which more than offset the decline in repos (the same increase has been reported over 30 June 2021).

Debt securities (169 million) went down compared to 31 December 2020, mainly driven by the redemption of the privately placed senior bond (in Q2 2021) and the replacement of a subordinated T2 bond with the issue of an Additional Tier 1 instrument (AT1) for the same amount (37.5 million), which however is classified as an equity instrument (line-item 140 of Balance sheet Liabilities), and by the reclassification described below, not fully offset by a greater use of funding collateralized by ABS, represented by salary- or pension-backed loans. The AT1 instrument (amounting to 8 million) outstanding at 31.12.2020 has been reclassified under line-item 140 "Equity instruments" of the Statement of financial position from line-item 10 "Financial liabilities measured at amortized cost, c) Debt securities".

Total own funds (Total Capital) at 30 September 2021 amounted to 219.8 million, up compared to 30 June

2021 (216.4 million), and they include the net income for the period (net of the estimated dividend 4/10 amount, corresponding to a payout ratio of 25% of the Parent company's net income).

At 30 September 2021, capital ratios1 remained basically stable compared to 30 June 2021, notwithstanding the increase in Risk Weighted Assets, and they stood as follows:

• CET1 ratio 12.2%;
• TIER 1 ratio 15.4%;
• Total Capital ratio 15.4%.

Following the guidelines related to the adoption of the definition of default pursuant to article 178 of EU Regulation no. 575/2013 and communicated by the Supervisory Authority at the end of the working day of 28 October 2021, a thorough analysis and review of the operational solutions currently in place will be conducted, that may lead to negative impacts on the CET1 ratio and on the Total Capital ratio reported in this release, currently estimated to amount to around 0.60% and 0.8%, respectively.

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As per communication dated 5 March 2021, the Bank of Italy carried out inspections on Banca Sistema pursuant to articles 54 and 68 of Legislative Decree no. 385/90, whose outcome was notified on 1st September 2021. The Bank has already fulfilled some of the requests raised by the Regulator during the inspections.

1 In compliance with EBA's Guidelines on common SREP (Supervisory Review and Evaluation Process), the Bank of Italy required the compliance with the following minimum capital requirements in 2020:

• Common equity Tier 1 ratio (CET1 ratio) of 7.75%;
• Tier 1 ratio of 9.55%;
• Total Capital ratio of 11.90%.

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amount.

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All financial amounts reported in the press release are expressed in euros.

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