30 JUNE 2013 - Banca Etruria

Transcription

CONSOLIDATED INTERIM FINANCIAL REPORT
AS AT
30 JUNE 2013
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Contents
Part I – Interim Report on Operations ....................................................................................... 5
1. The economy and the industry........................................................................................... 7
Economic conditions .............................................................................................................. 7
The economy in central Italy – focus on Tuscany ..................................................................... 11
The Italian financial and credit markets .................................................................................. 12
2. The Banca Etruria Group – organization and structure ....................................................... 14
The Group ........................................................................................................................... 14
Legislative, regulatory and organizational initiatives ................................................................ 23
Group marketing and commercial activities ............................................................................. 26
Social and cultural initiatives ................................................................................................. 28
The branch network and the workforce ................................................................................... 30
Risk management ................................................................................................................. 32
3. Financial position .......................................................................................................... 34
Customer loans .................................................................................................................... 35
Lending in gold .................................................................................................................... 36
Direct funding ...................................................................................................................... 37
Indirect funding .................................................................................................................... 38
Securities portfolio ............................................................................................................... 41
Interbank position................................................................................................................. 41
Changes in consolidated equity .............................................................................................. 41
4. Performance .................................................................................................................. 43
Income statement ................................................................................................................. 43
Key ratios for the Banca Etruria Group ................................................................................... 47
5. Other Information .......................................................................................................... 48
Shareholders ........................................................................................................................ 48
Banca Etruria shares ............................................................................................................. 48
Related parties ..................................................................................................................... 51
Significant events during the period........................................................................................ 52
Subsequent events ................................................................................................................ 53
Outlook for operations and the main risks and uncertainties to which the Group is exposed.......... 55
Part II - Condensed Consolidated Interim Financial Statements ................................................. 58
Consolidated financial statements .......................................................................................... 60
Explanatory notes ................................................................................................................. 68
Part A - Accounting policies .................................................................................................. 70
Part B - Information on the consolidated balance sheet ............................................................. 80
Part C - Information on the consolidated income statement ..................................................... 106
Part D - Consolidated comprehensive income ........................................................................ 123
Part E - Information on risks and related hedging policies ....................................................... 127
Part F - Information on consolidated capital .......................................................................... 167
Part G - Business combinations ............................................................................................ 179
Part H - Transactions with related parties .............................................................................. 181
Part L - Operating segments ................................................................................................ 187
Statement of the mananger responsible for the preparation of the financial reports .................... 194
Report of the independent auditors ....................................................................................... 198
Appendix - The Parent Company Banca Etruria ..................................................................... 203
Financial statements of Banca Etruria .................................................................................. 205
The main balance sheet aggregates of Banca Etruria .............................................................. 212
Customer loans .................................................................................................................. 212
Direct funding .................................................................................................................... 214
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Indirect funding .................................................................................................................. 215
Other balance sheet accounts ............................................................................................... 216
The income statement of Banca Etruria ................................................................................. 217
Key ratios .......................................................................................................................... 220
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Part I – Interim Report on Operations
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1. The economy and the industry
Economic conditions
In the early months of 2013 global economic activity benefited from the strengthening of the
recovery in the USA and the expansion in Japan. In the main emerging economies, specifically in
China, though growth remained rapid overall, it nevertheless lost pace. This deceleration in the
emerging economies of Asia and the persistent weakness in the euro area kept the expansion of
international trade at modest levels1. In the first three months of 2013, global trade grew 2.6% on
the previous year, in line with the growth recorded in the previous quarter. While expansion slowed
in emerging economies of Asia, Japan’s foreign trade recorded an upswing: despite this, the
expansion of global trade remained moderate in the second quarter of 2013.
In the first three months of the
current year, the GDP in the USA grew at an
annual rate of 1.8%: the feared negative
repercussions of budget policy were less
than expected. The strengthening of
economic activity reflected a pick up in
household consumption, while the reduction
in public spending had a negative effect on
growth in GDP, though to a lesser extent
than in the previous quarter. In the second
quarter of 2013, in the USA GDP growth
expanded at an annual rate near 2%, despite
the drag from the budget sequestration that
took effect in March 2013. Labour market
conditions continue to improve, and the
property market continues to recover, with
the index of housing prices in the ten largest
metropolitan areas of the US rising for the
fifth consecutive month.
In Japan the growth rate increased sharply in the first part of 2013, benefiting from the
sharp increase in household consumption as well as the budget expansion and the recovery in
exports.
In the main emerging economies, economic activity slowed in the first three months of the
year. In China GDP growth came down to 7.7% on the same period of the previous year (from 7.9%
in the previous quarter), primarily due to the deceleration in investment demand. GDP growth
further decreased in Russia (1.6%), while it remained at relatively weak levels in India compared to
the past (4.8%). The strengthening of growth in Brazil (to 1.9% from 1.4% in the previous quarter)
is attributable to the recovery in investment, in turn sustained by tax incentives. In China, GDP
growth in the second quarter of the current year decreased further, to 7.5%, reflecting, among other
factors, the renewed weakness of foreign demand. Industrial production indices and economic trend
surveys point to a further weakening of economic activity in the other main emerging countries as
well.
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The primary source of information on macroeconomic conditions in this report on operations is Bank of Italy
Economic Bulletin no. 73 – July 2013
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Based on the latest International Monetary Fund projections (Table 1), in 2013 world
economic growth will stand at 3.1%, unchanged compared to 2012. The slight downwards revision
on the estimates published in April is mainly due to slower growth in the main emerging economies
and the protraction of the recession in the euro area. On the whole, the outlook for growth in the
global economy is still subject to downside risks. The attenuation of the uncertainties about the
course of the crisis in the euro area and the handling of the budget imbalance in the USA is matched
by heightened doubts about growth in the main emerging economies.
To conclude the overview of the
global economy, it is noted that in the
first part of 2013 prices of energy and
non-energy commodities decreases,
favouring a generalised drop in
inflation. During the second quarter,
crude prices decreased, reflecting the
uncertain trend in global demand and
the increase in output. Despite the rises
due to the renewed tensions in Egypt in
the last few weeks (prices nearly
regained their end-March levels of
$109), futures contracts continue to
indicate that the price of Brent crude
will decline over the next twelve
months. In the second quarter of 2013
there was a greater decrease in
international prices of non-energy
commodities, specifically of metals.
Inflation pressures in advanced countries have abated in recent months and monetary
policies have remained accommodative. However, uncertainty over future strategies has spread
among market operators in the last few weeks. In June, the Federal Reserve announced that if data
should confirm the recent improvement in the economic outlook it could begin tapering the rate of
expansion of its balance sheet within the next few months with a view to phasing out the
programme of purchases by the middle of 2014. In July, however, it reaffirmed that it would
counter undesirable restrictions in financial conditions.
In order to attain its inflation target of 2%, the Bank of Japan confirmed its expansion
programme, accompanied by purchases of government bonds with long maturities. The Bank of
England and the British Treasury approved a one-year extension (to the end of January 2015) of the
programme designed to encourage credit to small and medium-sized businesses.
The policy measures taken by the monetary authorities of the main emerging countries have
not been uniform. The Bank of China adopted a more restrictive policy on liquidity supply; it then
intervened in the second half of June to calm the strains that had arisen in the interbank market.
In euro area countries, the GDP weakened further in the first quarter of the year, with a
drop that also extended to countries not directly exposed to the tensions on the financial markets.
However, the most recent economic indicators show signs of some progress and a possible
stabilisation of the economic cycle, though in business conditions that remain weak.
In the first quarter of 2013 the GDP in the euro area fell for the sixth quarter running (-0.3%
on the previous period, compared to -0.6% at the end of 2012), reflecting mainly the further
contraction in investment. Household spending remained stable, however, interrupting the
downward trend that began at the end of 2011. The reduction in exports (of about 1 percent, the
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second consecutive decline), was offset by a slightly greater fall in imports. The GDP declined in all
leading economies, with the exception of a modest rise in Germany (0.1%) where the main impetus
was a rise in household consumption.
Subsequently, in the period April-May 2013, industrial production increased by more than
half of a percentage point compared to the previous two months. This trend was common to all the
main economies and in June the European Commission’s Economic Sentiment Indicator showed an
improvement across the euro area and in the leading economies.
The improvement in the results of household and business quantitative opinion surveys
could be a sign of the attenuation of cyclical weakness. The most recent indicators on household
spending in the area showed some improvements. In April-May, on average, the volume of retail
sales and new car registrations increased slightly compared with the first quarter of this year.
The Eurosystem’s June projections indicate a decline in GDP of 0.6% for 2013, equal to that
of the previous year and 1.5 percentage points worse than forecast last September.
In the last three months consumer price inflation dropped significantly, by 1.4% on average.
In its meeting at the beginning of May, the ECB Governing Council reduced the rate on main
refinancing transactions (by 25 basis points to 0.5%) and the rate on marginal lending facilities (by
50 basis points to 1.0%). The rate on Eurosystem overnight deposits remained at zero. At the
beginning of July the Council announced that it expected to keep official rates at present or lower
levels for an extended period of time, based on the moderate outlook for inflation, the weakness in
the economy and the subdued monetary growth. Following this decision, forward interest rates
dropped sharply. The early repayment to the ECB of the funds distributed in the two three-year
LTROs of December 2011 and February 2012 continued. Together with banks’ reduced use of
refinancing operations, this resulted in a drop in excess liquidity in the system, which nevertheless
remained abundant. In May 2013 the Governing Council confirmed that the refinancing operations
would continue by means of tender procedures with full allotment for as long necessary, and at least
until the start of July 2014.
Starting in May 2013, there was a resurgence of volatility in the international financial
markets, triggered by market participants’ growing concerns about the possible early reduction of
monetary stimulus in the USA and by uncertainty about the outlook for the global economy. Interest
rates on ten-year US Treasury Bonds increased at the start of May 2013, though remaining at
historically low levels, amidst uncertainty as to the timing and method of the Federal Reserve’s
withdrawal from unconventional monetary policy measures. The yield spreads of ten-year euro-area
government bonds over the equivalent German security had narrowed in April 2013, benefiting
from a broad improvement in financial market conditions – in turn favoured by the launch of a
further expansion of monetary policy in Japan – and form the attenuation of political uncertainty in
Italy. From mid-May 2013, however, spreads
once again began to increase, reflecting the
uncertainty surrounding monetary policy
developments in the USA and the mounting
fears of an economic slowdown in China. They
began to come down again following the
meeting of the ECB Governing Council in July,
to then be affected by the fears of a political
crisis in Portugal. The spread on Italy’s ten-year
government securities, which in April 2013 had
fallen to end-of-January levels, rose to 292 basis
points.
After the drop in the GDP in the first
quarter of this year, industrial production in
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Italy fell again in April 2013, before picking up slightly in May 2013. This could presage a
stabilisation of economic activity. As mentioned in the Bank of Italy surveys, the opinion of
businesses, also on investment conditions, have improved slightly over recent months. However,
the cyclical outlook reflects the uncertainty caused by the latest financial market tensions.
In the first quarter of 2013 the GDP fell by 0.6% compared to the previous period (Table 2).
Domestic demand continued to decline. Investment in construction, in particular, recorded the
sharpest drop since the end of 2008 (-3.9% percent compared to the fourth quarter of 2012).
Household spending decreased further (-0.5%), albeit less markedly than in the previous quarters.
For the first time since spring 2009, exports also fell (-1.9% percent), mainly due to the contraction
in demand from other EU countries. Imports decreased by a slightly lower extent. Only the change
in stocks contributed 0.3 percentage points to GDP growth.
According to the estimates by the Bank of Italy, the GDP decreased further in the second
quarter, but at a slower pace. Most recent surveys indicate the possible stabilisation of investment
activities by businesses in the second half of the year.
Inflation fell further in June, to 1.4% from 1.8% in March, mainly owing to the downturn in
energy prices. Should the VAT increase currently planned for October 2013 enter into force,
inflation would remain around 1.5% on average for 2013 and the following year.
The forecasts on average GDP growth in 2013 presented by the Bank of Italy in July were
revised downwards compared to those presented in January (from -1.0 to -1.9%). The revision is
attributable to the trend in economic activity in the first half of the year, which was lower than
forecast in January 2013, primarily due to the slowdown in international trade and the continuing
tensions on the credit market, which delayed the exit from the recession. Economic activity will
stabilise only at the end of this year, with a recovery in 2014 (+0.7% for the yearly average), due to
the acceleration of foreign trade and the gradual recovery in investments in production. The latter
are expected to be favoured by companies’ liquidity conditions, associated with the effects of the
unfreezing of the trade payables due from public administration Household spending, restrained by
the performance of disposable income and by acute uncertainty regarding the labour market
outlook, is expected to remain weak, however; after declining further this year, it appears set to
stagnate next year. Conditions in the labour market, which typically reacts to changes in economic
activity with a lag, are expected to continue worsening, showing a timid recovery only in the second
half of 2014.
The number of persons in work is expected to decrease by approximately 1.5% in the two-year
period 2013-14. The seasonally-adjusted unemployment rate, which exceeded 12% in May, is
expected to come close to 13% in the course of 2014.
The projected recovery in economic activity in late 2013 and the start of 2014 is subject to
downside risks, mainly in connection with the outlook for the global economy, businesses’ liquidity
conditions and the terms of credit supply. The forecast scenario also depends on the full
implementation and effectiveness of economic policy measures. Moreover, the timing and strength
of the recovery could be jeopardised by an increase in spreads on Italian government securities,
which owing to the size of the public debt and the poor prospects for economic growth in the
country, remain sensitive to variations in investor confidence and the assessments of analysts.
Achieving the fiscal adjustment objectives is a necessary condition for the containment of risk
premiums, which must also be shielded from the possible adverse effects of uncertainties about the
domestic situation. An increase in spreads would have repercussions on banks’ funding and hence
on the availability and cost of credit to businesses and households.
In terms of demographics of Italian businesses, the quarterly data from the Union of
Chambers of Commerce show a highly negative balance in the first quarter of 2013: -31,351
businesses (net of automatic terminations), which reach -40,862 businesses also considering such
terminations, the worst balance since 2004. The highest price has been paid by companies in the
trades (with a balance of -21,185 businesses), many of which are sole proprietorships reporting the
highest losses (over 38 thousand businesses). The decreases are spread throughout the country, with
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the greatest concentration in the North East (-0.70%, equal to -8,350 businesses). In the second
quarter of 2013, the total growth rate of Italian businesses stopped at +0.43%. This was the result of
a particularly low registration rate (+1.66%) associated with a decidedly high termination rate
(1.23%). Despite the increase recorded in the second quarter of 2013, the entire half year closed
with a negative balance of -5,267 businesses, net of automatic terminations. This number becomes 24,261 businesses also considering such terminations.
The focus on the business crisis highlights the fact that in the first six months of 2013, bankruptcy
proceedings increased by almost 6%, equal to 6,456 companies that filed in court (this was the fact
of 6,095 companies in the same period of 2012). Arrangements, on the other hand, increased by
72.5% since the beginning of the year.
The economy in central Italy – focus on Tuscany
Based on the survey by Unioncamere – Confindustria Toscana2, the last quarter of 2012 saw
an easing of the recession in industrial production, which had reached a peak in the previous
quarter. The year-on-year rates of decrease slowed in the quarter in question, reaching -3.1%.
According to estimates, real regional output for the entire year 2012 declined by the same amount
as the downturn for the country (-2.4%), attributable to components of internal demand.
The breakdown of manufacturing production by sector surveyed by UnionCamere-Toscana
and Confindustria continued to show significant differences: the sectors with the largest decreases
included electronics, means of transport, metal products, wood and furniture. Textiles and apparel,
non-metal products, the mechanical sector, food products, leather, fur and footwear recorded
modest rates of decrease. The chemical and pharmaceutical industry strengthened its exit from the
recession, primarily driven by the highly positive performance of a large local company. In terms of
size, le medium-sized businesses are holding up in terms of turnover (+0.4% in the fourth quarter of
2012) and employment (+1%), while large companies continued their significant slowdown (8.9%).
The differentiation within the region was sharply accentuated, as it is much more sensitive to
sector specialisation. Industrial production in the provinces of Massa Carrara and Livorno recorded
values considerably below the average for the region, while there was a less intense decrease in
Pistoia, Pisa, Grosseto and Prato. The provinces of Lucca, Arezzo, Siena and, above all, Florence
performed considerably better than the average for the region.
The residential construction sector reported a worsening of the crisis, with all indices of
demand and production continuing to report harshly negative values.
Retail sales recorded a further sharp year-on-year drop of 6.3% in the fourth quarter of 2012
(though lower than the national figure of -8.4%). Only products sold in large retail chains showed
positive results. Demand generated by tourism spending remained stagnant.
Foreign demand for goods continued to be what saved the Tuscan business system, though it
slowed further compared to the previous quarters (+2.5% in the fourth quarter of 2012 compared to
+5% in the third quarter of 2012).
The data reported by the ISTAT survey on the workforce showed stagnation in employment,
which increased slightly by 0.2%, equal to 4,000 compared to the same period of 2011, with an
equivalent reduction in seasonally-adjusted economic terms. This figure, connected to the extreme
use of wage supplementation, confirms the critical nature of the demand for labour in the region.
Year-on-year, the unemployment rate increased by 0.3 percentage points, reaching 7.8%.
In the province of Arezzo in particular, in the last quarter of 2012, the fall in production
slowed (-1.9%), as well as the drop in turnover of manufacturing companies (-1.7%) and the trend
2
Source: IRPET – Tuscany issue no. 41, April 2013
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in exports turned negative (-9.4%), pulled downwards by precious metals. Domestic demand was at
critical levels, with an additional drop in retail sales (-7.4%). Business demographics are stagnating.
Initial figures released by UnionCamere for 2013 show a drop in both exports from the
region (-0.6% in the first quarter of the current year), and in manufacturing production (-4.9%). The
performance of retail sales in Tuscany was -6.8% in the first quarter of 2013.
In terms of demographics of Italian businesses in the region, the quarterly data from the
Union of Chambers of Commerce show a highly negative balance in the first quarter of 2013: 1,289 businesses also considering automatic terminations. Net of such terminations there would be
substantial stability. In the initial months of 2013, over seventy business crisis management round
tables were operating in the region, mainly relating to large companies.
In Tuscany, bank lending to businesses, including doubtful loans, started a downturn in mid2012, and bank lending to consumer households dropped from the end of 20123. This was the result
of continued restrictive terms offered and the downturn in demand, which, for businesses, was
affected by the decrease in economic activity and the lack of investments, and, for households, by
an increasingly prudent approach. The recession triggered a gradual deterioration of loans to
businesses. At the end of 2012 the total of positions with difficulties in repayment, with differing
levels of seriousness, was slightly more than one-fourth of total loans. This was reflected in an
increase in interest rates applied. Signs of a worsening began to be seen in loans to households,
where anomalous loans amounted to one-tenth of the total. On the whole, bank lending to customers
resident in the region, including doubtful loans and repurchase agreements, had increased by 0.2%
in December 2012 (+2.8% in 2011). In the first few months of the current year, this trend has not
changed (provisional March 2013 figure +0.1%).
Funding by banks from consumer households and businesses resident in Tuscany,
comprising deposits and bonds, gradually recovered over 2012, reporting an increase of 3.7% in
December (+0.4% in 2011). The deposit component grew by 5.7%, in particular driven by those
with long maturities. Bond funding in the region remained relatively stable on the whole (-0.2% at
the end of 2012). The trend in total bank funding attenuated slightly in the first quarter of 2013
(+2.5%), due to the downturn in the bond component.
The Italian financial and credit markets
Conditions on the financial markets improved slightly overall from the end of March 2013.
New tensions began emerged in May 2013 due to the uncertainty surrounding the future duration of
the quantitative easing policy in the USA and the spread of concerns regarding the outlook for
credit in China. The decline in prices mainly involved the emerging countries. It has been
transmitted, if only to a limited extent, also to the euro area, where government securities prices
have also been affected by the political uncertainty in Portugal. The decisions by the ECB
Governing Council at the beginning of July 2013 supported the markets.
In Italy, the spread between Italian ten-year government securities and the corresponding
German securities decreased by 55 basis points, reaching 292 points at the end of March. However,
this was the outcome of distinct phases: a decline up to mid-May, with the spread benefiting both
from a reduction in domestic political uncertainty and from a temporary improvement in market
confidence, followed by a rising phase due to the global events mentioned. Following the decisions
by the ECB Governing Council at the beginning of July 2013, tensions eased somewhat. On 9 July
2013, Standard & Poor’s downgraded Italy from BBB+ to BBB, maintaining a negative outlook;
the impact on the markets, i.e. on demand and yields on government securities, was modest. In the
first four months of 2013 non-resident investors made very large net purchases of Italian debt
3
Source: Bank of Italy, “Regional Economies- The Economy of Tuscany”, June 2013
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securities (€20.3 billion, approximately three-quarters of it at medium and long term), coinciding
with the abatement of the sovereign debt crisis in the euro area4.
The economic phase affecting banks in the first half of 2013 was even more complex. Loans
to businesses and households continued to fall. In addition to the weakness in demand for loans, this
continues to reflect banks’ considerable perception of credit risk. The unfavourable economic
conditions continued to negatively affect the quality of assets and profitability of intermediaries.
The equity position, strengthened in 2012, remained solid.
The downturn in bank lending to the non-financial private sector continued, dropping by
3.7% in May 2013 compared to the previous three months (annualized). If the public sector is also
considered, total loans to residents in Italy (excluding central counterparties) dropped by 2.4% yearover-year in May 2013, with loans to businesses decreasing by 3.6% and those to households by
0.9%. Despite abundant liquidity, bank lending policies were held back by the worsening in credit
risk triggered by the protraction of the recession. The increased risk of loans reflected on the cost of
credit, offsetting the favourable effects deriving from the reduction in official interest rates and the
partial abatement of tensions on the sovereign debt market. The annual default rate in the first
quarter of 2013 rose to 2.8% for total loans (the highest figure since the crisis began) and to 4.5%
for only loans to businesses (+60 basis points compared to the previous quarter). Based on the
monthly report published by the Italian Banking Association (ABI) in July, gross doubtful loans
grew by 22.4% in May on the previous twelve months, and net doubtful loans grew by 31.5%.
Based on forecast indicators, the flow of doubtful loans will remain high for the rest of the year.
Furthermore, according to figures published by the Chambers of Commerce and gathered by Crif, in
the first quarter of 2013, approvals of voluntary arrangements recorded by the courts grew by 70%,
in addition to an average of 40 petitions for bankruptcy per day.
Between the end of February 2013 and May 2013 deposits with Italian banks by resident
customers continued to expand, by approximately €11 billion. Their annual growth rate came to
7.4% in May. Following a long period of contraction, deposits of non-residents and net repurchase
agreement liabilities due to central counterparties, which reflect interbank transactions with foreign
operators, also recorded significant positive flows (€12 billion and €23 billion, respectively). The
performance of deposits offset the negative balance of gross issues and bond redemptions (yearover-year change of -9% in May 2013).
Based on the consolidated quarterly reports, in the first quarter of this year the profitability
of the Italian banking system decreased compared to the same period of 2012. Annualised return on
equity (ROE) dropped by about two percentage points. Gross income decreased by 13%, mainly
due to the downturn in net interest income, affected by the trend in market interest rates and the
drop in volumes intermediated. This was also the result of the drop in revenues on trading compared
to the first quarter of 2012. Cost reduction actions (-5.1%) attenuated the drop in operating profit (22.4%). Impairment losses on loans contributed about 60 percent of the latter drop (increasing by
3.8% in the first quarter of 2013).
4
Source: Bank of Italy, “Economic Bulletin no. 73 – July 2013”.
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2. The Banca Etruria Group – organization and structure
The Group
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The following is a description of the activities during the period for the various consolidated
companies of the Group.
Banca Popolare dell'Etruria e del Lazio Società Cooperativa, Parent Company for the Banca
Etruria Group:
Share Capital
342,645,5205
Number of employees
1,676
Italy’s economic situation is still sharply feeling the effects of the international crisis which
is particularly putting pressure on Europe. In the euro area, the GDP weakened further in the first
quarter of 2013, with a drop that also extended to countries not directly exposed to the tensions on
the financial markets. Even though recent economic indicators show a possible stabilisation of the
economic cycle, conditions remain particularly weak. The trend in economic activity in the first half
of the year, led all analysts to conduct a downwards revision of their forecasts for the entire year,
both for Europe and for Italy, primarily due to the slowdown in international trade and the
continuing tensions on the credit market, which is delaying the exit from the recession.
Credit market conditions remain tense. In the first four months of the year, the downturn in
loans to households sharpened and, to a greater extent, in loans to businesses. Difficulties are
generalised, but greater for small and medium-sized businesses, which have fewer opportunities to
replace bank loans with other financing. The downturn in loans reflects the lasting weakness in the
demand for credit, but continues to also be effected by the restrictive approach of supply. Bank
lending policies were effectively held back by the worsening in credit risk triggered by the
protraction of the recession.
Despite the economic scenario described above, remaining loyal to its role as a mutual bank,
the Bank has remained close to its geographical area, confirming its support to operators that
deserve support and assistance at a time of difficulty throughout the industry. Strategy focused on
sustainable growth led to a shift in composition of loans which, though decreasing compared to the
end of 2012, privilege greater granularity and, thus, expansion of lending, in addition to offering a
product portfolio that is increasingly complete and competitive, as a result of agreements with
leading partners.
The Bank’s support to local areas was also expressed through various initiatives carried out
in the half year. These included the renewed participation in the Tuscany Region Protocol “New
Commitments for the Economic Emergency”, in addition to support to the businesses flooded in
November 2012 as well as participation in the “Regional Project for Young Professionals and
Professions” agreement in April, implementing the memorandum of understanding with the
Tuscany Region to create better conditions for access to credit for parties operating in the Tuscany
area, in this case in the field of intellectual property. In May, Banca Etruria also created a special
agreement for businesses that have activated solidarity agreements for their employees. The special
agreement takes the form of partial advances of solidarity contributions. Specifically, in line with a
policy of focusing on and being sensitive to the needs of the local areas, employees of the
businesses participating in the special agreement have been provided the option of requesting a
current account overdraft from the Bank at special terms, to make the solidarity contribution due
from INPS immediately available. Furthermore, in the province of Arezzo where the Bank operates,
it answered the request launched by the Diocese to develop a micro-credit plan for households in
difficulty. Lastly, in June, in support of the “Focus on Businesses” project designed by the Arezzo
Confcommercio and CNA associations, the Bank provided a credit line of €2.5 million to support
5
At the date of publication of this Report, the share capital amounted to €422,645,514.94, following the share capital
increase concluded on 20 August 2013.
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new business initiatives within the city, an opportunity for both growth of new businesses and for
previously existing local enterprises. Following the end of the half year and, more specifically, at
the end of July, the Bank participated in the 4th ABI CDP Agreement for “Support to SMEs”. This
agreement provided a total of €10 billion to the banking system to support credit needs for longterm investments by SMEs, by directly financing the banks with Cassa Depositi e Prestiti.
With this commitment, Banca Etruria has maintained its service to the areas where it has
long-term roots. Effective proof of this work is provided by the successful share capital increase,
which shareholders showed confidence in participating in, as active protagonists of the life of the
Bank and thus of the future of all socio-economic entities that interact with it. This operation, for
the purpose of capital management and consolidation, with a renewed commitment, of the
objectives of development and sustainable growth of the Bank, was launched on 10 June and was
popular with members, shareholders and customers who, despite the recession in Italy, responded
by subscribing 98.35% of the shares offered. Subsequently, all of the rights unopted during the offer
period were sold during the first session of trading on the stock market. On 20 August 2013, a
private placement was carried out, in compliance with the applicable law and regulations, of the
remaining 1,433,678 BPEL shares not placed as part of the above transaction. In light of the above,
the share capital increase was thus fully subscribed for a total amount of €100 million.
In terms of figures, the Bank’s support to local areas was demonstrated in the first half of
2013 through the acceptance of loan applications from approximately 8,500 customers for a total of
more than €209 million disbursed to customers, of which around €184 million disbursed by the
Bank and the remainder through partnership agreements (Findomestic and ING for personal loans
and mortgages to individuals, GE Capital Interbanca for leases, Carta Nova and, starting from
March 2013, also Bieffe5 for the placement of salary and pension-backed loans (CQS and CQP)).
These results were made possible also due to the Bank’s significant commitment to funding
operations. The Bank achieved its business target of maintaining an adequate liquidity position and
a balanced ratio of loans to stable forms of funding, owing to a greater focus on core operations on
the retail segment and on small and medium-sized enterprises, without giving up adequate use of
ECB financing and collateralised funding.
The first half of 2013 closed with net profit for the period of €1.9 million.
Following the end of the half year, and, more specifically, on 11 July, the Bank finalised a
securitisation transaction of personal loans and loans which can be repaid through automatic
deductions from borrowers’ salaries or pensions or payment orders to borrowers’ employers. The
transaction, with the purpose of issuing ABS, was carried out through the special-purpose vehicle
Aulo SPV Srl. In June 2013, Banca Etruria assigned the above loans to the vehicle without
recourse, for an amount of €210.9 million, relating to 27,512 contracts. The issue of ABS is
characterised by a Senior Class of securities of €171.4 million, fully subscribed by a leading
international operator, and a Junior Class amounting to €39.5 million, subscribed by Banca Etruria.
With Aulo SPV 2013, Banca Etruria thereby executed the sixth securitisation transaction, thereby
strengthening its liquidity position.
16
Banca Federico Del Vecchio SpA
Group interest
- of which Banca Etruria
Share Capital
Number of employees
100%
100%
1,000,000
105
The first half of 2013 continued according to the guidelines of the Group Business Plan
2012-2014 which, for Banca Federico Del Vecchio SpA, with the completion of the Wealth
Management hub and the dissemination of the Advisory Model, focused on asset management as its
specific mission. In this regard, the Bank consolidated total funding, keeping the interest rate spread
stable, in spite of a varied, complex economic scenario.
In the first half of 2013, the administrative bodies appointed the members of the Supervisory
Body pursuant to Legislative Decree 231/2001 and the members of the Board of Directors of
Fondazione Federico Del Vecchio Onlus, among other activities. The initiatives developed during
the half year include: the organisation of the event “Emerging Markets & Investment” at the
National Museum of Bargello, for the restoration of the Maiolica Room; the meeting “FamilyOwned Businesses - Funding and Development” at the Four Seasons Hotel, where the new
company “LA MERCHANT”, which the Bank holds and investment in, was also presented; and the
conclusion of the second fundraising campaign with the recognition to the Bank of a percentage of
the amount raised (assignment fee) in favour of the Istituto Degli Innocenti of Florence, to support
the “trool.it” (All Kids Online Now) project, which promotes safe, aware use of the internet by
younger generations (children from first to eighth grades) and the adults in their families.
In the half year, the operations of the two divisions, Wealth Management and Commercial
Banking, contributed as follows to the pursuit of the plan objectives.
Wealth Management Department
The main activities performed in the provision of investment services in the first half of
2013 include trading in financial instruments which comprises a set of measures to support the
branches, with constant oversight of operations, with specific regard to the following important
transactions:
- Banca Etruria share capital increase (support for trading option rights and help desking on
the transaction for the entire commercial network of the Group);
- placement of the fourth edition of Italian Treasury Bonds;
- Moleskine IPO (March 2013).
As part of the share capital increase, preliminary activities of analysis of the transaction
were carried out, as well as procedural management of the transaction, communications to the
depositor customer, and support to the commercial structure and intermediaries, closure and
accounting for the transaction while drawing up the detailed list of recipients in order to update the
register of shareholders.
In terms of the expansion of the range of financial investment services offered, in the first
half of 2013 the range of units in collective investment undertakings offered was expanded through
a new placement agreement with Raiffeisen Zentralbank of Vienna. Furthermore, in the area of
product development and monitoring, in January 2013 the Wealth Management hub was assigned to
set up and launch bonds in the direct funding segment for all Group banks.
In relation to advisory services, in the first half of 2013 a new service was launched that
provides financial advisory services dedicated to banks. Specifically, in the first few months of the
year, a partnership with Banca Treviso was launched. In the second quarter of 2013 another new
service was launched which provides advisory services to institutional parties, in particular to Bank
17
Foundations. In May 2013 services to Fondazione CR Foligno were begun.
Commercial Operations
Continuing the significant development of Private Banking activities, in the first half of
2013, Branch No. 5 was definitively moved from number 131 to number 65 in Via delle Panche,
thus completing the branch reorganisation plan. The full operation of the new Branch no. 6 in
Piazza Pier Vettori has begun to show results in terms of the acquisition of new customers and
gaining a foothold in the local area. The logistics of Branch no. 2 were improved, in order to meet
with customers in private offices which are more suitable to advisory services.
747 accounts were opened during the period, and attention to commercial partnerships
continued. The entire businesses segment was concentrated on only two portfolios, assigning the
customers that do not need a manager with specific expertise to the branches. In detail, one manager
was in charge of overseeing the largest businesses, to monitor risk and resolve problem positions in
time, while the other dealt with new customer development in the “family business” segment
typical of the Florence area. This policy resulted in a considerable reduction in the average risk per
customer and the restructuring of over 40 positions, while in terms of development, partnerships
with the Tuscan CNA association and business guaranty consortiums were reactivated.
The private banking segment continued to focus on assets under management, increasing
from €69.2 million to €94.3 million (+ €25.1 million), resulting in an increase in profitability per
manager. The large customers portfolio, originally under the responsibility of the senior
management, was assigned to private banking managers. Specifically, one manager was assigned
the task of overseeing and developing institutional customers. Advanced advisory services grew by
15 contracts, for approximately €4.7 million in the affluent segment, while the private banking
segment concentrated on advisory plus services, with 11 new contracts with a value of
approximately €10.4 million.
At 30 June 2013, the net loss for the period of the Bank was €1.7 million.
Banca Popolare Lecchese SpA
Group interest
54.212%
54.212%
Share Capital
Number of employees
30,052,691
31
The current structure of Banca Popolare Lecchese SpA is composed of five branches: Lecco,
Oggiono, Monza, Merate and Bergamo. The Bank employs 31 people (-1 compared to December
2012) distributed between the head office (10) and the sales network (31).
In the first half of 2013 Banca Lecchese maintained a substantial balance of funding to
loans, which allowed the Bank to continue to support the local economy, though to a lesser extent,
mainly due to the impairment of customer loans, a phenomenon which accelerated sharply
compared to the previous period.
The reference scenario, marked by a further decrease in economic activity and weakening of
the production fabric forced the Bank to continue strengthening its credit positions by acquiring
collateral and consortium guarantees. These operations were applicable both to positions already
held and new transactions implemented by the Bank, and moved forward alongside the steady focus
on the search for greater granularity of loans.
The competitive environment and weakness in the macroeconomic scenario affected the
performance of funding in 2013: on one hand, the preference was for short-term transactions (6-12
18
months) through time deposits or certificates of deposit, and on the other hand, greater
diversification was sought for customer securities portfolios.
As regards direct funding, as it maintained a balance of funding to loans, the Bank did not
need to use the interbank market to support said loans. This approach led the Bank to a careful
funding cost reduction policy, with deposit rates that were not excessively burdensome in relation to
the return on loans. It is worth noting the activities in the area of indirect assets under management
which, exploiting the opportunities provided by numerous investment houses the Bank works with,
along with the “consensual” contribution from the Wealth Management hub operating a Banca
Federico Del Vecchio SpA, diversified customer portfolios towards investment types which
envisage greater use of insurance funds and assets.
At 30 June 2013, the net loss for the period of the Bank was €3.2 million.
Etruria Informatica Srl
Group interest
Share Capital
Number of employees
100%
100%
260,000
47
In the first half of 2013, the Company focused its operations on activities and support
regarding specific projects of the Banca Etruria Group and projects and services supporting the
outsourcer Cedacri SpA.
The main projects may be summarized in the following areas:
For the Banca Etruria Group: implementation of additional security policies; distribution, launch
and support for the new single branch front end; support for the upgrading of the Group’s data
transmission network; revision of the distributed technology infrastructure for the complete
restructuring of the server farm of the Banca Etruria Group, and extension of Help Desk services. In
addition to routine activities, the company is also involved in projects related to the Parent
Company’s plan of operations and to technological innovations aimed at monitoring and, as a result,
improving the efficiency of Banca Etruria.
Support provided to Cedacri SpA: consolidation of the Help Desk and Desktop Management
services, as well as the new front end platform for other banks that are customers of Cedacri SpA;
development of the Application Monitoring service and SAP; and the C-Bill project as part of
Interbank Corporate Banking functions. This service, created under the aegis of the Italian Banking
Association (ABI), permits users to view their debt positions in relation to all billers belonging to
the network, in real time, and to make secure payments. Structures of Cedacri and Etruria
Informatica are in charge of the project, which will be concluded by the end of 2013. Tests of the
system are being carried out with Arezzo Local Health Unit 8 (involving the Tuscany Regional
Authorities) and the Board of Surveyors.
At 30 June 2013 net profit for the period came to €219 thousand. The reporting package
drawn up to be included in the Parent Company’s consolidated financial statements showed profit
for the period of €215 thousand.
19
Mecenate Srl
Group interest
Share Capital
95%
95%
10,000
Mecenate Srl, a Banca Etruria Group company, is the special-purpose vehicle (SPV) through
which Banca Etruria has carried out four securitisations involving performing mortgage loans
pursuant to Law 130/1999 and Article 58 of the Banking Law, of which three are still in place. The
latter were carried out in May 2007, January 2009 and July 2011.
The 2007 transaction was carried out to optimise loan portfolio management and diversify
funding sources. The purpose of the 2009 transaction was to diversify and expand funding sources
by transforming loans assigned into securities eligible for refinancing. The Mecenate 2011
transaction was implemented to diversify medium/long-term funding sources and diversify the
management of funding costs.
Oro Italia Trading SpA
Group interest
Share Capital
Number of employees
100%
100%
500,000
2
From 30 June 2012 the value of production rose from €219.6 million to over €297 million at
the end of the first half of 2013, an increase of over €77 million. This figure was primarily achieved
in the first quarter of 2013, for €177.5 million, while in the second quarter slightly more than €119
million was accrued.
This lower contribution essentially derives from price levels more than quantities traded.
The second quarter of 2013 was marked by several phenomena that affecting the levels of pricing
applied by the company. Specifically, competition increased from several competitors with internal
refining departments. Above all, the sharp drop in the price of gold recorded on 12 April 2013
(following the sale of 124 tonnes, most likely ordered by the Central Bank of Cyprus), decreased
the propensity for sale by Italian households. It is estimated that the quantity of gold products
offered by the market in the second quarter of 2013 was 30% lower than that offered in the first
three months of the year.
The quantity of gold brokered rose from 4,207 Kg at 30 June 2012 to 6,517 Kg at 30 June
2013, a percentage increase of almost 55%. Quantities of silver rose from 60.7 tonnes to 76.4
tonnes, a percentage increase of 25.9%.
These operations resulted in a significant gross income for the half year, rising from €2.3
million in June 2012 to around €3 million in June 2013. In terms of charges, there was an increase
in the borrowing costs component, due to the need for spot funding to cover transactions, and an
increase in transportation and metal processing costs.
Net profit for the period came to €1.3 million, in line with the profit for the period in the
reporting package drawn up to be included in the Parent Company’s consolidated financial
statements.
20
BancAssurance Popolari SpA
Group interest
Share Capital
Number of employees
89.534%
89.534%
51,080,900
38
In 2012, the Italian insurance sector returned to achieving positive results, specifically due to
the sharp recovery in returns on investment: in 2012 profit for the year of Italian insurance
undertakings (€5.8 billion) returned to levels seen in the years prior to the crisis of 2008 and
compare with extreme losses accumulated in the previous two years (-€4.4 billion). The life
insurance segment made the greatest contribution to this result, despite a declining volume of
premiums and net funding of €5 billion. The first half of 2013 marked a new reversal of the trend,
also in the area of premiums. New life insurance business in Italy reached €32.1 billion since the
beginning of the year, recording growth of 24.9% on the first half of 2012. In 2013 total premiums
are estimated to increase following two consecutive years of decline. The increase will be
concentrated in the life insurance segment, which should exceed €80 billion (+15%), while the nonlife insurance segment is expected to decline (-3.5%), as it will be negatively affected by the
regressive economic cycle6.
In the first half of 2013 total premiums of BancAssurance Popolari SpA came to €184.6
million, an increase of approximately 152.7% on the same period of the previous year.
This result, also achieved due to the placement of €86 million through the Cassa di
Risparmio di Rimini SpA network, reflects a trend in funding that mainly involved with-profits
products in Classes I and V, which reported growth of 194.6% and 125.0% compared to the first
half of 2012, respectively and, to a lesser extent, pure risk products (+7.7%) and pension funds
(+7.5%). On the contrary, there was a downturn in Class III (unit-linked products). Compared to the
first half of 2012, the insurance company’s premiums grew at a rate much higher than the
performance of the Italian insurance market (24.9%), and the performance of the specific bank
branch and post office distribution channel (30.8%).
Claims during the half year totalled €39.5 million (+0.1% on the previous half year) and
refer to adjustments (€32.1 million), claims (€6.2 million) and maturities (€1.0 million).
On the whole net funding for the half year came to €145.1 million, a significant increase on
the €33.6 million in funding the previous half year. Assets under management at 30 June 2013
amounted to €1,063 million (€925 million at 31 December 2012).
Net operating expenses came to €2.4 million in the half year, in line with the budget
forecasts for 2013.
The Class C investment policy was implemented in line with the goal of providing the
insured with appropriate, stable returns over the medium to long term, while also improving the
matching of cash inflows and outflows using Asset-Liability Management (ALM) tools. Preference
was given to investments in government securities. The equity segment continued to remain at
residual values, equal to 1.7% of the Class C portfolio.
Profit for the first half of 2013 came to €2.5 million. The reporting package drawn up to be
included in the Parent Company’s consolidated financial statements showed profit for the period of
€1.4 million.
6
Source: Ania Trends, July 2013
21
BancAssurance Popolari Danni SpA
Group interest
- of which BAP Vita SpA
Share Capital
Number of employees
90.298 %
46.22%
49.23%
5,000,000
11
New business in the first half of 2013 amounted to €0.9 million, up by 17.6% compared to
the same period of 2012. This change is mainly attributable to Classes 1 (Accidents) and 2 (Illness),
which report increases of 28.3% and 53.7%, respectively, compared to the first half of 2012.
Positive contributions were also provided to funding by Classes 13 (Third Party Liability), 17
(Legal Protection) and 18 (Assistance).
Earned premiums for the period, amounting to €1.1 million, increased by 17.3% on the
previous year, in line with the performance of new business.
Net claims totalled €0.2 million, a decrease of 10.5% from the first half of 2012. The
average loss ratio came to 19.2%, reporting a decrease on the previous year (25.6%).
Net operating expenses came to €0.8 million, in line with the budget forecasts for 2013.
During the half year, the net result from financial activities was a positive €0.2 million.
Profit for the first half of 2013 came to €0.1 million, in line with the profit for the period in
the reporting package drawn up to be included in the Parent Company’s consolidated financial
statements.
22
Legislative, regulatory and organizational initiatives
Legislative and organizational issues
The first half of 2013 was marked by regulatory changes aimed at guaranteeing constant,
rigorous compliance of the Group’s entire regulatory system with the provisions of external
legislation.
In line with the projects focused on the ongoing optimisation of company processes, the
internal rules and structure of delegated powers of the companies in the Banca Etruria Group were
updated through a systematic organisational and process analysis, implementing the numerous
technical and operational needs into the rules. The updates concerned the various business segments
of the financial companies of the Group and the companies in the insurance business.
In the first half of the year, the following regulations were the subject of specific focus and
involved in analysis and implementation of specific interventions:
- “Lending Rules for Group Banks”, which summarises the principles and rules concerning
credit disbursement and management which Group Banks must comply with, to ensure
effective credit risk management at Group level, as well as to set out common criteria and
methods for credit disbursement and management.
- “Rules for Managing Second Pillar Significant Risks”, which collects in a single document
the methods for managing types of risks deemed significant and governs the operational
process of mitigating concentration risk of the customer portfolio.
- “Rules for the Management of Inside Information”, issued in application of applicable
regulations concerning corporate information, to govern - with binding effect - the
management and handling of inside information within the Banca Etruria Group.
- “Investment Service Rules”, which implement the set of provisions of Legislative Decree
no. 58 of 24 February 1998 (Consolidated Law on Financial Intermediation) and the related
implementing regulations issued by Consob and the Bank of Italy. These Rules govern the
execution of investment services by Group Banks, by defining organisational procedures,
duties and responsibilities of the assigned personnel and the related control procedures.
- “Bond Issue Rules”, with the purpose of establishing, for Group Banks, the main strategic
guidelines concerning yearly planning of types of financial products and the related periodic
ceilings within which bond issues are scheduled, as well as the processes for individual bond
issues.
- “Rules on Transactions in OTC Financial Derivatives” to govern the Bank’s transactions in
unlisted financial derivatives with retail and institutional counterparties, as well as the
methods for managing and monitoring counterparty risk associated with entering into
transactions in such financial instruments.
- “Waste Management Rules”, which govern an activity in the public interest, to ensure
significant protection of the environment and effective checks on the activities relating to
waste disposal.
- “New Product Approval Policy” to ensure that the introduction of new business initiatives
by the Banks and/or product companies controlled by Banca Etruria are managed in a
structured and controlled manner, ensuring oversight and control of risks associated with the
introduction of the new product.
- “Internal Policy on Control of Exposures to and Conflicts of Interest with Related Parties” to
define the guidelines adopted by the Banca Etruria Group for managing relations with
associated parties pursuant to the Bank of Italy provisions of 12 December 2011, 9th update
to Circular 263, Title V, Chapter 5 “Exposures to and Conflicts of Interest with Associated
Parties”.
23
-
“CIV - Rapid Judgement Commissions - Lending Processes”. In compliance with the
provisions of the regulatory amendments introduced in application of Article 117-bis of the
Banking Law and the Emergency Decree of the Ministry of Economy and Finance no. 644
of 30 June 2012, all the measures necessary for the introduction of the new “Rapid
Judgement Commissions” were implemented (published in Circular No. 12 of 25 february
2013).
- “Anti-Money Laundering – Adoption of the New Due Diligence Form”. During the period, a
new version of the due diligence form was implemented, to comply with the anti-money
laundering regulations. The form provides greater integration with all operations, even those
already planned, from the establishment of ongoing relationships to individual transactions,
resulting in more effective, structured gathering of information.
- “Laws and regulations pursuant to Article 136”. In compliance with the provisions of new
regulations on company officers, related parties and associated parties, actions have been
taken to activate the new register of relevant parties. In future, this register will replace, in a
more comprehensive manner, the master record status in interacting with all operational and
reporting processes concerning transactions with said counterparties.
The “Privacy Policy” has also been published on the Banca Etruria website, to disclose the
methods of managing the website in relation to the processing of users’ personal data. This
disclosure is also provided pursuant to Art. 13 of Legislative Decree no. 196 of 30 June 2003
(hereinafter, the Privacy Code) to those interacting with the web services of Banca Etruria, which
can be accessed electronically.
Banca Etruria Group integration processes
In relation to the management of lending processes linked to the reintegration of the
subsidiary ConEtruria SpA, the processes for managing acquired loans have been defined and
outlined in the “Operating Instructions for Products Placed by ConEtruria”. The new processes
regard customer service and relationship management activities (payments, redemption/closure,
refund of insurance premiums, changes in debit details, refinancing of large instalments and special
commercial terms set forth by contract), up to debt collection organised through the collection
process which involves interaction with external collection companies.
Operations and control processes
The mapping of company processes continued with a view to simplifying the system of
internal regulations using an application that publishes the regulations via web so that users may
browse through them, with a resulting reduction and rationalisation of existing documents.
In the first half, a solution was developed to simplify the process of managing compliance
pursuant to Law 262/05 by developing a specific Mega GRC module. The methodology adopted by
Banca Etruria is characterised by a combination of the Audit and Self Assessment approaches.
Though the testing phase is conducted in Audit mode, the Process Owners are required to carry out
a data gathering stage, via Self Assessment, and certify the effectiveness of the controls under their
responsibility by attaching the related evidence. Implementation involves three separate macro
areas: synchronisation of significant data for compliance pursuant to Law 262, Control Self
Assessment and Control Testing. The first campaign for automated certification was launched in
May 2013, referring to the first half. The following Company Operational Processes were involved:
Lending; Credit Monitoring and Finance.
As regards lending processes concerning related party regulations, in compliance with the
new regulations on company officers, related parties and associated parties, the necessary measures
were taken to update the lending processes linked to approvals of credit and authorisations of
overdrafts, as well as the related procedural measures.
24
In March 2013 the intranet procedure for managing certifications of Banca Etruria
Shareholders was activated, an in the same month the application was launched for entry of the new
MiFID questionnaire by employees.
In April 2013 the IT communications protocol for accessing the IT System for the Detection
of Counterfeit Euro (S.I.R.F.E.) was activated. Using this system, the Banca Etruria Group can
report to the Treasury Department of the Ministry of Economy and Finance on the handling of
banknotes or coins suspected to be counterfeit.
In the first quarter the intranet procedure to monitor non/partial enforcement of guarantees
was activated as part of the management of residual risk.
In the same period, a web application was activated that publishes gold prices and the
related spreads with third party banks. Currently, the following banks are using this service: Banca
Popolare dell’Emilia Romagna Group, Banca del Piemonte, Banca Popolare di Marostica Group
and Banca CARIM.
IT and other technology issues
In relation to “Technological and IT System Architecture”, in the first half of 2013 the Banca
Etruria Group set up a Single Front End (SFE). The new platform replaced all operational
instruments currently available to the commercial network and the head offices, with the main goal
of providing a tool that integrates all the necessary functions for commercial and operational
management of customers into a single environment. With the release of the Single Front End, the
commercial network has been provided with a new CRM tool (CRM3 Individuals Profiling Matrix,
developed in partnership with Cedacri and the University of Parma) to identify customers with high
potential which are currently commercially underdeveloped.
The project launched during 2012 concluded in May 2013 with the launch of the new Banca
Etruria website. The goal of the project was to update the Bank’s previous website to favour the
move from an institutional image to a retail image.
The new Loan Monitoring procedure was also activated. Among other aspects, this involves
more structured processes, to which data is input through new rating models that are more
predictive compared to the previously used indicators, and through automated actions - collection
confirmation, promises to pay and balance monitoring plans.
The strengthening of security in the area where senior management works continued. With
this new intervention, encrypted data on the server is not accessible in any way by the system
administrators that manage the IT infrastructure. The data is unencrypted solely at the workstation
of the user who provides the correct credentials, ensuring that, if the data is shared over the
network, it is always encrypted when transmitted and inaccessible to attempts at fraud.
Law 262/05 – Art. 154 bis of the Consolidated Law on Financial Intermediation: Reference
Model. Banca Etruria Group Approach
Article 154-bis of Law 262/05 introduced the role of financial reporting officer and defined
the specific duties and responsibilities of the position.
The Board of Directors’ meeting of 11 January 2013, based on the favourable opinion of the Board
of Auditors, appointed Ms. Maria Stella Marietti, Head of the Administration and Accounting
Department, as Financial Reporting Officer. Assessment of the suitability of administrative and
accounting procedures in drafting the financial statements, the consolidated financial statements and
all other financial communications is based on a model developed by Banca Etruria based on an
internationally accepted framework.
The main characteristics of the system of internal controls as they relate to financial
reporting are described in Annex 1 to the “Report on Corporate Governance and Ownership
25
Structure” published on the Bank’s website (www.bancaetruria.it) in the section “About Us/
Corporate Governance”.
Group marketing and commercial activities
The activities carried out in the first half of 2013, developed in line with the Business Plan
2012 – 2014, were once again focused on promoting the central importance of customers,
consolidating attention to and satisfaction of shareholders and increasing the value of the Bank’s
range of products and services in the eyes of stakeholders in and outside of the Group.
-
Having confirmed the drivers of both planning and commercial communication activities:
updating the range of products to ensure the best response to the needs of customers in line
with market dynamics;
consolidating and developing product partnerships with operators that are market leaders;
heightening commercial communications to current and potential customers, also via
innovative media and channels;
improving positioning and increasing web communications with the launch of the new
website www.bancaetruria.it;
defining commercial actions aimed at achieving the network’s targets;
developing CRM tools to increase customer loyalty and cross-selling;
enhancing the relationship with the local areas the Group operates in.
In order to align the range of products and services with market best practice and, as a result,
improve the Bank’s competitive positioning, the development of new products has been
accompanied by intense market benchmarking, essentially of the segments of funding products and
loans to individuals. In this context, the On-Line Account (Conto Fico) was updated, evolving into
an offer of undifferentiated interest rates on amounts deposited and an approach to managing the
promotional offer in line with that of the main competitors, providing the option of accessing a
differentiated promotional rate linked to setting up a time deposit in the amounts deposited. Another
absolutely new feature for the domestic market of on-line accounts - customers with the Conto Fico
have been offered the option to subscribe a gold unit cost averaging plan (PAC-Oro), thus providing
customers that do not line in the areas served by the branch network the possibility to access the
opportunities of gold investment.
In the area of current accounts, as a result of the regulatory changes introduced by law on
condominium management, which requires that, starting from 18 June 2013, all amounts relating to
transactions of a single condominium transit on a specific current account, Banca Etruria set up two
modular accounts, “Conto Condominio Light” and “Conto Condominio Full”, which differ in the
number of free transactions, in addition to the different discounts applied to the main services
included in the account. All of this, while providing the single condominium with the possibility of
checking the funds in the current account dedicated to the property, using Home Banking.
In the insurance products segment, the range of products in the pension line designed to
meet the growing demand for supplementation of mandatory pensions was expanded. Specifically,
Bap’s range of products for the segment resurrected Bap Pensione 2007, the pension fund with the
option of choosing between three subfunds based on the customer’s risk appetite and time horizon,
and launched the new policy Bap Crescendo Previdente, the individual pension plan (PIP).
Moreover, to meet the growing requests from customers for insurance products, a complete
restyling was launched of the 7 BAP Vita and BAP Danni product lines, which was also useful for
the creation and launch of the new website www.bancassurancepopolari.it.
26
In the first half of 2013, the move from a “Made-Sell” product company model to a “SellSell” model was consolidated, based on the development of partnerships with leading market
operators. The goal of the partnerships is to allow customers of the Banca Etruria Group to benefit
from the best products offered by leading market operators, along with the privileged relationship
established with our commercial network. In addition to strengthening the partnerships launched at
the end of 2011 for the placement of financing and personal loans to individuals and automobile
leases for businesses and business-owners, the Group’s range of products and services was
expanded with operating asset leases and cessione del quinto loans, which are repaid through
automatic deductions from borrowers’ salaries or pensions, as a result of the agreement entered into
with BF5, a Findomestic Group company. With a view to consolidating the partnership with
American Express, involving the distribution of personal and business credit cards (Green, Gold
and Platinum), Banca Etruria entered into a specific agreement for the distribution of products in the
Premium AmEx segment, dedicated to our cluster of Private Banking customers, including the
exclusive “Centurion” card.
In the first half of 2013 the commercial initiatives launched on the Marketing IT System
involved around 26,000 customers (acquired or potential) in the various classes concerned. As
additional support to the network’s actions, contact with customers involved in the campaign was
intensified through dedicated mailings. The role of the head office contact center was confirmed
during the half, as it had telephone contacts with over 16,000 customers. Furthermore, for the
launch of the new website www.bancaetruria.it on 6 May 2013, the new customer care service was
activated, provided through the Banca Etruria toll-free number and contact forms on the website.
During the first two months of operations, the service managed over 130 calls and 250 emails from
current and potential customers requesting information.
In addition to the traditional branch communications channel, product communications were
also boosted in alternative channels (ATMs, website and Home Banking). Specifically the new
Virty platform and mobile banking have been launched to facilitate customers’ access to the Bank’s
services, and the restyling of the Banca Etruria website was concluded. The goal was to create a
website with a greater focus on customers, which facilitates access to the Bank’s products and
services. The new website, organised into three different home pages (individuals, businesses and
institutional), brings together the aspect of representation with the creation of a more commercial
identity, created to ensure that it is simple and easy to search the site and contact the Bank.
Accessible from any technological platform, from PCs, smartphones and tablets, the Bank’s portal
has expanded its role as a container of information and services targeted to all stakeholders, and,
above all, to households and businesses. The other changes in the new interface include a home
page designed to immediately and clearly communicate the opportunities linked to Banca Etruria’s
range of products and services, with vivid visuals dedicated to the main promotions and a
navigation bar organised by product type. It is also important to note the second level of navigation
by profile, which provides guided access to the main needs of the various types of customers:
households, private banking customers, young people and shareholders. In addition to the
interactive tools to facilitate browsing, the portal also contains significant informational content and
financial education, to provide information to customers that helps them better understand both the
Bank’s products and services and their different financing and investment needs. The website also
provides tools to link with the leading social platforms, and areas dedicated to multimedia content,
primarily thanks to the opening of Banca Etruria’s YouTube channel. Thus, this site was tailor
made for all users interested in interacting with the Bank, as also proven by the inclusion of forms
to search for the closest branch or to sent requests by email, telephone (toll-free number) or make an
appointment at the branch, paying specific attention to customer care.
Constant oversight of CRM tools and business intelligence systems was indispensable to
increase our knowledge of customers and favour the definition of consistent development strategies.
Specifically, an analysis project was completed for the purpose of creating a predictive model of the
27
risk of abandonment, to be supplemented with the results of the annual customer satisfaction
surveys. This project, developed with the assistance of a consulting firm specialising in advanced
statistical methods, was developed using a commercial support tool based on a statistical model
which allows the Bank to prevent customer abandonment risk about 6 months in advance.
The enhancement of CRM tools continued, mainly involving the launch of a training on the
following projects:
- single branch front end: cutting-edge, integrated platform to support the commercial
network both in the preparatory phase prior to contact with the customer and in the
operational phase, favouring customer satisfaction through a more advisory-based approach;
- the orientation matrix for individuals: a project developed in partnership with the University
of Parma which provides the commercial network with a tool that easily identifies the top
priority customers to be contacted.
With a view to consolidating its role as a local bank, the foundation was laid to activate
initiatives focused on providing concrete financial support to individuals and small businesses
undergoing temporary difficulties. Attention to local areas and stakeholders was also confirmed
through the management and development of the “NOI Banca Etruria” project, an internet portal
proposing events and initiatives for Shareholders. Furthermore, at the Shareholders’ Meeting of 28
April an exhibition space was set up in the meeting area where shareholders could have hands-on
contact with the value of some of the offers on the portal, including the offer developed through comarketing with Lavazza.
The link with the local area of operations was also confirmed through the promotion of the
leading role in the Gold sector. The main actions were as follows:
- creation of a specific line of communication through the development of a brochure
designed to cover the entire range of products for investing in gold and purchasing gold
bricks and ingots for individual customers;
- organisation of events throughout the area to disseminate awareness of the opportunities
relating to investment in gold and presenting the best solutions from the Bank; specifically,
in the first half of 2013 conventions focused on gold were organised in Siena, Perugia and
Rimini;
- publication of the Gold Survey 2013 in Italian, with a presentation event organised in Rome
in partnership with Thomson Reuters GFMS.
Social and cultural initiatives
Mutual banking as a service to the local community
Corporate responsibility has always been a hallmark of the Banca Etruria Group’s work. The
Group has taken even greater action in these recent months where the social fabric has been
strongly tested by the current economic trend to support the entities it serves. In the first few months
of 2013 doing sustainable business meant continuing to represent a real focal point for the needs of
businesses and households in the local area, taking action to combat the effects of the crisis by
quickly implementing specific projects and measures, in partnership with local entities and
organisations: from the agreement for businesses activating solidarity agreements with their
employees, to the “Shuttle” project to redefine companies’ credit structures, to the implementation
of microcredit transactions.
With this commitment, Banca Etruria has professional and carefully provided even greater
service to the areas where it has long-term roots: effective proof of this work is provided by the
successful share capital increase of the Parent Company, which shareholders showed confidence in
participating in. This response was in line with the slogan “Action!”, created for the new
informational and advertising campaign for the capital increase. Through the metaphor of a take on
28
a film, was intended to remind all stakeholders of the importance of being active players in the life
of the Bank and thus, in the future of all of the socio-economic entities that interact with it.
In this sense, also in the first few months of 2013, the Banca Etruria Group continued its
support of entities, institutions and associations to develop and promote top-level initiatives in
various sectors.
Project to support social quality and our youth
The commitment to the world of sport was maintained, supporting teams, associations,
organisers of competitions and athletes that practice or promote the values of sport, in addition to
positive social action especially among the very young. For the 2013-2014 season, Banca Etruria’s
support involves about 30 sport clubs, which in the current economic scenario have been subsidised
in accessing these sports.
In this area, the partnerships have been renewed with athletes that represent Italy in
international competitions, such as the tennis player Daniele Bracciali and the triathlon athlete
Fabio Guidelli. Support has also been renewed for national sports events, such as the Tuscany
Cycling Tour, the Casentino Rally and the 29th Summer Games of the Special Olympics, organised
in Arezzo from 22 to 28 April.
The Bank continued to support schools and education, to favour the dissemination of
awareness on the issues of saving, legality and financial education, through initiatives such as: the
Journalism Championship, in agreement with La Nazione newspaper, the “School for Parents”,
organised by Confartigianato, a series of lessons in secondary schools “Spending with Your Eyes
Open” by the Arezzo Chamber of Commerce, and the “Taxes and Legality” project, in partnership
with the Istituto Buonarroti of Arezzo.
The promotion of culture
Attention to superior quality cultural promotion activities continued to be a feature of Banca
Etruria’s commitment also in the first half of 2013, through support to structured initiatives and
projects to safeguard artistic heritage, with interventions that enhance the value of the local areas in
terms of social vivacity as well as economic impacts.
The most significant actions in the first half included:
- sponsorship of the Padiglione della Santa Sede present for the first time at the Biennale di
Venezia;
- the restoration of the Croce Monumentale in Pratomagno, a symbol of identity and tourist
destination in the province of Arezzo;
- support to the Municipality of Arezzo for two important events, i.e. the contemporary art
exhibition ICASTICA, a route of over four km through squares and museums dedicated to
international artists, and the purchase of new bleachers to expand participation in the
traditional event - Giostra del Saracino;
- the grant for the completion of the new lighting works for the cycle of frescos “La Leggenda
della Vera Croce” by Piero della Francesca, in the Basilica of San Francesco in Arezzo;
- the commitment to developing exhibitions and cultural activities in the Ivan Bruschi
Museum, to promote and maintain the vitality of antiques culture and passion for aesthetic
curiosity and collecting. Specifically, the original exhibition “From the Macchiaioli to the
1900’s. Works from the Olschki Collection”, curated by Prof. Carlo Sisi was promoted.
Commitment to solidarity
In line with the commitment to associations that provide social assistance to local areas, in
2013 Banca Etruria allocated the funds obtained through the annual fundraising activities, carried
out along with Group employees, to Caritas charities of the Diocese in the main cities where the
Bank operates. Also on this occasion, as in the previous years, the personal generosity demonstrated
by employees, along with the Bank’s contribution, supported the soup kitchen services and
29
donations of lunch vouchers organised by Caritas for households in difficulty, which were impacted
by the effects of the current economic scenario.
The Bank and the Environment
Banca Etruria pays attention to issues of energy saving and respect for the environment,
optimising the correct use of resources. In this view, the most common materials of the Bank
(Financial Statements, Corporate Social Responsibility Report, diaries and calendars) are printed on
FSC certified paper (made using raw materials from sustainably managed forests and from
controlled sources). CO2 emissions were also reduced by printing account statements and
communications to customers in black and white. The Bank has also participated in the Zero Impact
project from Lifegate for years now, favouring reforestation and environmental protection.
This commitment, along with the implementation of the “Printing Project”, to rationalise
and optimise the printing process involving all Group branches, was recognised in the Green Globe
Banking Award received by Banca Etruria, which rewards the “greenest” Italian banks for
environmentally sustainable conduct.
New website www.bancaetruria.it
In May 2013 the Bank presented its internet portal, which was completely updated in terms
of layout, content and technology. Accessible from any technological platform, the new portal has
expanded its purpose as a container of information and services for all stakeholders and, primarily,
customers and businesses.
Etruria Oggi Newsletter
In the first half of 2013 the new electronic newsletter “Etruria Oggi” was created, the most
recent communications tool developed to update all stakeholders of the Bank on the commercial
and institutional life of Banca Etruria. Users can register on the website to receive the newsletter via
email, a newsletter which simply and quickly presents the Group’s main products and services and
certain economic-financial information. The content is supplemented with that from the magazine
Etruria Oggi Informa and the programming language of the new tool provides links to news items
on the pages of the Bank’s website or to specific PDFs.
The branch network and the workforce
At 30 June 2013 the Banca Etruria Group had a distribution network made up of 186
branches, nine fewer than in December 2012. This change was the result of the closings carried out
in line with the optimisation of efficiency and rationalisation of the network set forth in the
Business Plan 2012-2014 and in implementation of the plan of operations approved by the Board of
Directors on 20 September 2012.
More specifically, on 25 February 2013, Arezzo Branch 14, Bologna Branch 1 and the
Osmannoro branch were closed and on 25 March 2013, Arezzo Branch 15, Sansepolcro Branch 1
and the Bastia Umbra branch were closed. Lastly, on 22 April 2013 the Vicenza office, Prato
Branch 1 and the Volterra branch were closed.
The network continues to be concentrated in central Italy, with 90 branches located in
Tuscany (including 6 of the subsidiary Banca Federico Del Vecchio SpA), 34 in Lazio, 20 in
Umbria, 16 in the Marche and 9 in Emilia Romagna. The Banca Etruria brand also has 6 branches
in Molise and 3 branches in Abruzzo. Lastly, there are 8 branches in Lombardy, including 5 of the
subsidiary Banca Popolare Lecchese SpA.
At the end of June 2013, the Group had a total workforce of 1,910 employees, most of
whom working at the Parent Company, Banca Etruria (1,676 employees). The workforce decreased
by 70 employees over the end of the previous year (-3.5%).
30
Most of the workforce is employed within the commercial branch network (1,218 resources,
approximately 64%), while 36% of the workforce - 692 resources - is employed at head office. In
the first six months of the year, a total of 81 people were hired, of which 50 on permanent
employment contracts and 31 on fixed-term employment contracts. Terminations totalled 151
people, with 109 of those having been on permanent contracts and 42 on fixed-term contracts.
Recruiting efforts to support the Group’s operations and growth declined significantly in the
first six months of 2013. This strategy aims to develop human resources in the Group through
targeted training and development, which has continued in 2013 with many of the most promising
employees being placed on specific career development paths.
In the first half of 2013 a total of 30,273 hours of training were provided to human resources
(equal to approximately 4,036 days). A large amount of the available hours, 1,498 hours (equal to
200 days) was provided to personnel on fixed-term contracts. Training involved all employees at all
levels. Specifically over 65% of training was provided to the professional areas, and the rest to
middle and senior management.
Training involved the areas listed below:
Topic Areas
Hours of training
%
SALES AND MARKETING
9,352
30.89%
LENDING
INTERNATIONAL
7,561
2,379
24.97%
7.86%
FINANCIAL-INSURANCE
2,373
7.84%
EMPLOYEE ORIENTATION
2,225
7.35%
MANAGEMENT
2,138
7.06%
LAWS AND REGULATIONS
PROCEDURES
2,057
1,013
6.79%
3.35%
COMMUNICATION AND CONDUCT
812
2.68%
SPECIALISED TECHNICAL
365
1.20%
Total
31
30,273 100.00%
Risk management7
Company and Group risks are monitored on an ongoing basis by dedicated company units.
More specifically, the Central Planning and Risk and Compliance Divisions of the Parent Company
- through the specific functions assigned - monitor daily all events that have or could have an
impact on the accounts of the Parent Company and its subsidiaries, in accordance with the “New
Regulations for the Prudential Supervision of Banks” (Bank of Italy Circular no. 263 of 27
December 2006 and subsequent updates), which transpose international convergence requirements
for capital measurement and capital ratios.
These rules, as amended over time, are part of the “Basel II” prudential banking regulations,
based on three pillars.
In compliance with the First Pillar regarding the calculation of capital requirements for
typical banking risks, the Group has adopted:
• the standardised approach for credit risk;
• the current exposure method for OTC derivatives and the net assets approach for SFT8 for
counterparty risk;
• the standardised approach for market risk;
• the standardised approach in combination with the basic indicator approach for operational
risk.
As part of the process of calculating and monitoring the credit risk capital requirements,
customers have been classified under the categories defined in the Basel II framework. All
necessary work has been completed for the application of credit risk mitigation techniques.
Starting from 2009, credit risk management activities included the implementation of the
monitoring and management system for concentration risk at the “single name” level in
accordance with the update to the supervisory measures, while the “geo-sector” concentration
estimation model was introduced based on instructions from the “ABI Laboratory”.
Monitoring of market risk in respect of the portfolio as a whole is performed on a daily
basis using specific procedures to calculate and process Value at Risk (VaR). Asset and liability
management techniques are used for interest rate risk.
The analysis system for collecting and processing data on loss events is now up and running
for operational risk, enabling correct monitoring of losses and risk self-assessment activities in
order to more accurately evaluate Group exposure to operational risks.
Lastly, in 2013, the systems for monitoring liquidity risk were subject to further development and
periodic monitoring of the LCR (Liquidity Coverage Ratio) indicator envisaged by the new Basel
III Accord continued.
Since 2008, the Group has calculated capital requirements for the individual First Pillar risks
using the chosen approaches. To that end, the procedural and organizational work to comply with
the conditions and deadlines provided for under applicable regulations regarding the use of the
calculation methods adopted has been carried out. In the first half of 2013 the refining of these
models continued.
Capital profile of the banks
The Second Pillar requires banks to establish monitoring strategies and processes designed
to ensure adequate capital on a continuing basis.
7
For more detailed information on risk management, please see the information in Part E of the notes to the
consolidated condensed financial statements, included herein.
8
SFT (Securities Financing Transactions) include repurchase agreements involving securities or commodities, securities
or commodities lending or borrowing transactions, and securities-related financing.
32
The Internal Capital Adequacy Assessment Process (ICAAP) consists of measuring the
Banking Group's risk profile and determining its available capital.
Accordingly, alongside compliance with First Pillar regulations, operational and technological
measures have been taken in order to ensure compliance with the requirements of the Second Pillar
of the Basel Accord.
As the company’s governance body, the Board of Directors of Banca Etruria has taken on
the role of providing strategic oversight and management, including, among other things,
establishing and identifying material risks.
In view of the specific activities of the Banca Etruria Group, and in addition to the risks
covered under the Second Pillar (concentration risk, interest-rate risk arising from activities other
than trading, liquidity risk, residual risk, securitisation-related risks, and strategic and reputational
risk), the Banca Etruria Group is exposed to insurance risk, as so defined by the Parent Company’s
Board of Directors.
Public disclosure
The Third Pillar of the Basel II framework establishes public disclosure requirements for
banks and banking groups concerning their capital adequacy, risk exposure, and the general
characteristics of their management and control systems.
In compliance with applicable law, and in performance of the coordination and control
functions for which it is responsible as Parent Company of the Banca Etruria Group, Banca Etruria
has complied with the disclosure requirements by publishing a specific document illustrating its risk
management strategies, including all of the qualitative and quantitative information required by law.
In 2009, the Parent Company’s Board of Directors formalised its strategies and procedures
for ensuring compliance with disclosure requirements and has made them subject to periodic review
in order to ensure that they remain compliant with internal and external regulations.
The disclosure document required under the Third Pillar has been published on the Parent
Company’s website at www.bancaetruria.it, , in the “Investors” section.
Other information
The Supervisory Body began an ordinary inspection at the Banca Etruria Group on 18 March 2013,
which is still under way. This inspection began after the conclusion of the specific inspection on
impaired loans which the Bank of Italy conducted on most of the banking system, starting from the
end of 2012.
33
3. Financial position
Main balance sheet aggregates
Change
BALANCE SHEET
(€/1000)
30/06/2013 31/12/2012
a
B
Total
%
Customer loans (1)
6,857,139
7,530,390
(673,251)
-8.9%
Net interbank position
(996,743)
(926,879)
(69,864)
7.5%
76,146
130,324
104,897
108,140
(3,243)
-3.0%
60,787
57,862
2,925
5.1%
7,851,539
5,481,940
864,843
103,781
10,821,259
8,175,104
2,861,601
2,899,644
13,682,860
11,074,748
611,775
641,367
Bonds (2)
Financial assets held for trading
Financial assets designated at fair value throught profit or loss
Financial assets available for sale
Financial assets held to maturity
Due to customers (A)
Outstanding securities (B) (3)
Direct funding (A + B)
Consolidated equity including net profit
(54,178) -41.6%
2,369,599 43.2%
761,062
n.s.
2,646,155 32.4%
(38,043)
-1.3%
2,608,112 23.6%
(29,592)
-4.6%
(1) Net loans and receivables classified under item 70 - Customer Loans in the amount of €0.6 million.
(2) Securities under loans and receivables classified as "Due from banks " (item 60) in the amount of €75.6 million and
as "Customer loans" (item 70) in the amount of €0.6 million.
(3) Items 30 and 50 of balance sheet liabilities.
34
Customer loans
As shown in the introductory macroeconomic analysis, the economic situation remains
extremely complex and difficult, in a scenario which forecasts a reduction of 1.9% in the Italian
GDP for 2013. However, the Banca Etruria Group continues to actively support businesses and
households in its local area of operations, aware that support of local intermediaries is necessary to
jump start a virtuous economic cycle.
At the end of June 2013, customer loans of the Banca Etruria Group came to €6.9 billion,
with a decline of 8.9% compared with 31 December of the previous year, equal to €673.2 million in
absolute value. Approximately half of this decrease - €317 million to be exact - is due to the
reduction in institutional loans and loans to central government administration (in the form of
repurchase agreements and other loans). For the remainder, though the contraction involved the
various types of loans, it is mainly attributable to the maturities recorded in the medium/long-term
segment, i.e. the product portfolio for which commercial agreements with third party partners are in
place for distribution thereof.
Overall, the declining trend seen in the previous periods has continued. This is once again
attributable to the weakness in the economic scenario, which led to a fall in the demand for credit,
but also to internal decisions to disintermediate institutional relationships and focus on partnerships
for the placement of certain types of loans. Outsourcing specifically regards leases, personal loans
and medium/long-term loans to individuals.
In accordance with the strategic policies of the latest Business Plans, the Group prioritised
the objectives of balancing structural liquidity and capital, as well as reclassifying the loans
portfolio, reducing the concentration of exposures, by favouring greater sector diversification and
promoting accounts with households and small businesses. This was joined by greater strictness in
selecting counterparties and commercial agreements with leading, highly specialised partners.
Despite the difficulties inherent in the current scenario, support to local areas was demonstrated in
the half year through the acceptance of loan applications from over 8,700 customers for a total of
€210 million disbursed to customers (and a further €25 million disbursed by third parties through
partnership agreements).
2011
2012
LOANS
35
6,858
2010
7,531
7,810
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
-
8,012
Developments in total lending– Asset item 70 (€/million)
06_2013
The table below shows the amounts of loans - compared with the figures at 31 December
2012 – broken down by type, illustrating a trend that confirms the lending policy followed by the
Group in the half year, as described above. The dynamics previously described were joined by the
effect of the writedowns performed during the half year which, increasing provisions covering
loans, reduced the corresponding net book value.
Customer loans (€/1000)
CUSTOMER LOANS
(€/1000)
Current accounts
Medium/long-term loans
Credit cards, personal loans and loans repaid by automatic
deductions from wages
Finance leases
Debt securities
Other lending
Performing loans
Impaired loans
Tot Customer loans
Repurchase agreements
TOTAL CUSTOMER LOANS
753,115
3,126,249
818,795
3,414,987
Change
Total
%
(65,680) -8.0%
(288,738) -8.5%
110,359
285,972
574
937,322
5,213,591
1,622,254
6,835,845
21,868
6,857,713
130,280
303,930
572
1,206,497
5,875,061
1,466,837
7,341,898
189,064
7,530,962
(19,921)
(17,958)
2
(269,175)
(661,470)
155,417
(506,053)
(167,196)
(673,249)
30/06/2013
31/12/2012
-15.3%
-5.9%
0.3%
-22.3%
-11.3%
10.6%
-6.9%
-88.4%
-8.9%
The impaired loans segment showed an increasing trend in volumes (+€155.4 million in net
value), as a result of a long-running crisis in Italy, which is not only resulting in difficulties for
businesses which are being forced to close in ever-increasing numbers, but also in the growth in
unemployment and problems for households to meet their commitments.
The impairment of loans and the resulting increase in writedowns from the end of the
previous year involved the financial statements of leading banks. Information gathered by the Bank
of Italy in its Economic Bulletin indicates that the impairment of loans (loans to businesses in
particular) was expected to remain high also in the first half of 2013.
In this scenario, being a local bank which has a keen interest in the needs of both consumers
and small and medium-sized businesses, the Banca Etruria Group has been affected by this
economic situation, continuing to record an increasing trend in non-performing loans. The gross
value of doubtful loans came to €1.4 billion at 30 June 2013, up by €283.6 million compared with
the end of the previous year. Provisions rose by €133.7 million compared with December 2012, and
the coverage ratio amounted to 52.8%. Substandard positions increased by €21.4 million in gross
value, with a coverage ratio of 16.9%. Overall, the coverage ratio of non-performing exposures is
35.7%, slightly higher than the ratio at 31 December 2012 (35.1%).
Lending in gold
At 30 June 2013, sales of physical gold to gold jewellery manufacturers came to 4.5 tonnes,
an increase of around 7.15% compared to 30 June 2012. The sale of ingots to institutional buyers on
the international market decreased (-36%), reaching approximately 14 tonnes.
Individual customers continue to show a strong preference for investment gold. Following a
first quarter marked by considerable fence-sitting, at the time the prices dropped in Mid-April 2013,
36
purchases on the retail market returned to the rising trend that began in 2011, amounting to 650 kg
at the end of the first half of 2013 (+10.3% compared to 30 June 2012). The Banca Etruria Group’s
expansion strategy showed significant results. Through partnership agreements with leading Italian
banking groups, at 30 June 2013 this strategy resulted in the placement of the Group’s gold products
at approximately 1,800 bank branches spread throughout the country.
Lending as at 30 June 2013 came to a total of 3,388 kg, with a value of approximately €129
million, down compared to the same period of 2012, also due to the sharp depreciation of gold
recorded since April.
Direct funding
The crisis which has impacted the international financial system for years now was, at its
origin, marked by low levels of confidence and by tensions on the capital market. It was thus a
priority for banks to ensure a suitable liquidity situation, by pursuing funding targets, with a
resulting intensification in competition and the cost of funding.
The current economic phase remains highly complex, and despite the easing of critical issues
on the markets from the second half of 2012 as a result of the actions by the European Central Bank,
banks continue to search for stable forms of funding. This goal is clearly not easy in the current
scenario of crisis and austerity which has harshly compromised households’ ability to save.
Attracting households and consumers with increasingly competitive products may not be enough in
a historical time where the labour market and savings are being threatened. This aspect must be
emphasises to better understand the difficulties of banks in pursuing their targets of funding from
customers, despite the fact that banks are offering investment products which, though seemingly
traditional, feature historically higher returns.
Direct funding (€/1000)
DIRECT FUNDING
(€/1000)
Financial liabilities at amortised cost
30/06/2013
31/12/2012
Change
Total
%
-81,111 -1.2%
6,493,623
6,574,734
- Current accounts and demand deposits
3,183,173
3,132,390
50,783
1.6%
- Other deposits
1,259,690
1,334,579
(74,889)
-5.6%
- Bonds (including subordinated bonds)
1,931,788
1,943,077
(11,289)
-0.6%
101
12,456
(12,355) -99.2%
118,871
152,232
(33,361) -21.9%
890,100
7,383,723
897,860
7,472,594
6,299,137
13,682,860
3,602,153
11,074,747
- Repurchase agreements
- Other liabilities at amortised cost
Financial liabilities designated at fair value throught profit
or loss
Direct funding
- Other financial liabilities
Total direct funding (book value)
37
(7,760)
-88,871
-0.9%
-1.2%
2,696,984 74.9%
2,608,113 23.6%
Despite the difficulties in this current economic phase, funding activities of the Banca
Etruria Group continued to grow in the first half of 2013: total direct funding recorded growth of
€2.6 billion in the period, thus reaching €13.7 billion
Net of transactions on collateralised markets (€6.3 billion in June 2013, there was only a
slight decrease in direct funding (-1.2%), equal to about €89 million. This trend reflects the
substantial steadiness of funding activities with customers, taking account of households’ lower
propensity to save, on the one hand, and the incomplete replacement of maturing sources of funding,
specifically of institutional bonds. The Group did not renew institutional bonds maturing in the first
half of 2013, amounting to €100.6 million, and moved up the repurchase of €63 million in
institutional bonds maturing subsequent to the end of the half year. The decision to steadily reduce
dependence on institutional counterparties and large counterparties resulted in development in
funding which privileged qualitative objectives of increased granularity and stability, rather than
simply quantitative objectives.
In detail, amounts due to customers9 decreased by €50.8 million, mainly attributable to the
drop in accounts with large customers, to the benefit of funding common to the network and in
small amounts. Conversely, payables represented by securities fell by €38 million, of which 19
million attributable to certificates of deposit, and the rest to bonds.
Thus, the Group is continuing on the path it started in 2012, of the disintermediation of
institutional customers, which increases the percentage weight of individuals and contributes to
keeping the sources of loan funding balanced and making them stable over time. In addition, in
2013 a renewed strategy was implemented, increasingly focused on offering customers products,
including indirect funding products, that match their needs and profiles, capable of meeting
customers’ expectations of profitability while supporting the Group’s service margins.
Indirect funding
INDIRECT FUNDING
(€/1000)
TOTAL INDIRECT FUNDING
- of which: Managed
Insurance
Administered
Managed + Insurance as % of total indirect
30/06/2013 31/12/2012
4,087,586
846,431
924,197
2,316,958
43.3%
3,950,170
1,592,301
842,616
1,515,253
61.6%
Change
Total
%
137,415 3.5%
(745,870) -46.8%
81,580 9.7%
801,706 52.9%
(*) The figures shown are based on management data.
Starting in May 2013, there was a resurgence of volatility in the international financial
markets, triggered by market participants’ growing concerns about the possible early reduction of
monetary stimulus in the USA and by uncertainty about the outlook for the global economy. Longterm rates on government securities began to grow once again in several countries (USA, United
Kingdom, and to a lesser extent, in Japan and Germany). In Italy the spread of ten-year government
bonds over the equivalent German security, which had narrowed in April 2013, benefiting from a
broad improvement in financial market conditions and from the attenuation of political uncertainty,
started to rise again in May 2013. Share prices fluctuated widely: following the sharp rises in the
first few months of the year, stock market indices slumped in the second half of May.
9
Amounts due to customers calculated net of transactions on collateralised markets
38
At the end of the first half of 2013, indirect funding of the Group came to a total of €4.1
billion, an increase of €137.4 million compared to the end of the previous year (+3.5%).
In June 2013 there was a shift of approximately €800 million in the segment, from assets
under management to assets under administration, following the decision to internally manage
Bap’s assets, which had been assigned to third party separate portfolios (Anima Sgr) up to April
2013. In relation to this, assets under management at 30 June 2013 came to €846.4 million, while
assets under administration came to over €2.3 million.
Net of this shift, the trend in assets under management would be positive overall: in this
segment, investment funds grew by 10.2%, or approximately €64 million, while net of said effect,
assets under management showed a change of -€9.4 million.
The trend in assets under administration was substantially in line with the year-end figure if
the shift is considered, which involved a flow of approximately €800 million in assets mainly
channelled to government securities, and a portion to bonds. Lastly, in this segment, the reduction in
investments in equity investments and in their market value continued (-14.1% compared to the end
of 2012).
Insurance funding, which accounts for 22.6% of all indirect funding, registered a total of
9.7% growth for the period (+€81.6 million) to reach a total of €924.2 million.
Developments in direct and indirect funding (€/million)
6,299
14,000
3,602
348
10,000
245
12,000
8,000
2010
DIRECT FUNDING
2011
other financial liabilities
39
2012
06_2013
INDIRECT FUNDING
4,088
7,384
3,950
7,473
7,490
3,612
2,000
3,870
4,000
7,799
6,000
40
Other balance sheet accounts
Securities portfolio
The securities portfolio reached €9 billion, compared with €5.9 billion at the end of the
previous year. The aggregate includes the bank bonds classified under “Due from banks” (item 60),
which came to €75.6 million at the end of June 2013. It also includes bonds issued by other financial
intermediaries classified under “Customer loans” (item 70), the balance of which came to €0.6
million.
SECURITIES PORTFOLIO
(€/1000)
Financial assets designated at fair value trought profit or loss
TOTAL
Bank bonds
OVERALL TOTAL
30/06/2013 31/12/2012
104,897
60,787
7,851,539
864,843
8,882,066
76,145
8,958,211
108,140
57,862
5,481,940
103,781
5,751,723
130,324
5,882,047
Change
Total
%
(3,243) -3.0%
2,925 5.1%
2,369,599 43.2%
761,062
n.s.
3,130,343 54.4%
(54,178) -41.6%
3,076,165 52.3%
In line with the strategic approach of the Business Plan concerning asset allocation, growth
in the portfolio - achieved starting from 2012 - was boosted in the first half of 2013 specifically in
relation to the segment of financial assets classified as available for sale. Also in the first half of the
year, the performance of returns on government securities in the euro area and the measures aimed
at the structural rebalancing of liquidity of the Group made it efficient to invest in short-term
government securities, which were highly liquid and were eligible for use in refinancing
transactions on collateralised markets, to support net interest income (still penalised by interest rates
offered to customers).
Interbank position
Also increasing alongside the securities portfolio was exposure from transactions on
collateralised markets (€6.3 billion classified in the financial statements, under “Due to customers
(liability item 20) compared to €3.6 million at the end of 2012), while interbank exposure,
calculated as the difference between “Due from banks” (asset item 60) and “Due to banks” (liability
item 10), increased slightly, amounting to approximately €-1.0 billion at the end of June 2013. This
exposure is mainly attributable to the use of refinancing operations with the European Central Bank
as an alternative to the traditional forms of interbank borrowing.
Changes in consolidated equity
Compared with the end of 2012, shareholders’ equity declined by approximately €29.6
million (-4.6%). The change in the share premium reserve was essentially attributable to coverage of
the Parent Company’s loss for the previous year, as approved by the shareholders’ meeting that
approved the financial statements at 31 December 2012, on 28 April 2013.
41
The change in the valuation reserve related to the AFS portfolio was also the result of the
fair value measurement of the securities included in this component as at 30 June 2013. Specifically,
at the end of the first half of 2013, Italian government securities were penalised, though to a lesser
extent than at other times in the past, by the uncertainty surrounding the future duration of the
quantitative easing policy in the USA, the spread of concerns regarding the outlook for credit in
China and the political situation in Portugal. This impacted the performance of spreads, i.e. the
difference in yields compared to debt securities issued by other EU governments, especially German
government securities. The increase in yields of government securities was partly transitory in
nature: the decisions taken by the ECB Governing Council in July 2013 and the prices of
government securities from peripheral countries buoyed the markets
EQUITY
(€/1000)
Share capital
Share premium reserves
Reserves
Valuation reserves
Treasury shares
Equity pertaining to shareholders of the Parent
Company
Non controlling interests
Total equity
Net profit for the period
Consolidated equity
42
342,646
103,663
172,913
(20,349)
(5,185)
342,646
319,725
166,393
5,401
(8,823)
Change
Total
%
0.0%
(216,062)
-67.6%
6,520
3.9%
(25,750)
n.s.
3,638
-41.2%
593,688
825,342
(231,654)
-28.1%
17,538
611,226
549
611,775
18,861
844,203
(202,836)
641,367
(1,323)
(232,977)
203,385
(29,592)
-7.0%
-27.6%
n.s.
-4.6%
30/06/2013
31/12/2012
4. Performance
Income statement
At the end of June 2013 net interest income came to €119.3 million, up by €7.4 million
(+6.7%) compared to the figure in the same period of 2012. Specifically, interest income closed the
half year at €217.5 million compared to €222.3 million in June 2012 (-2.2%) and interest expense
came to €98.1 million compared to €110.5 million in June of the previous year (-11.2%).
NET INTEREST INCOME
(€/1000)
30/06/2013
Customer margin
- Interest income from customers
- Interest expense to customers
Bank margin
- Interest income from banks
- Interest expense to banks
Securities margin
- Interest income from securities
Net interest income
40,055
126,584
(86,529)
(7,942)
3,655
(11,597)
87,218
87,218
119,331
30/06/2012
64,437
161,185
(96,748)
(7,242)
6,469
(13,711)
54,689
54,689
111,884
Change
Total
%
(24,382)
(34,601)
10,219
(700)
(2,814)
2,114
32,529
32,529
7,447
-37.8%
-21.5%
-10.6%
9.7%
-43.5%
-15.4
59.5%
59.5%
6.7%
This result was also supported by a careful ALM policy, which allowed the Group to set up a
securities portfolio that provided significant support to net interest income on the whole, starting
from the second half of 2012. At 30 June 2013 interest income from the securities portfolio
amounted to €87.2 million, compared to €54.7 million in interest income in the first half of 2012.
At the same time, net interest income for the period was affected by a decrease in the net
contribution from assets with customers, which decreased from a net €64.4 million at 30 June 2012
to €40.1 million at 30 June 2013. Despite the spread between lending and borrowing rates applied
by the Group to customers remaining substantially stable, the declining trend in volumes specifically in loans - resulted in a decrease in profitability from customers.
An analysis of loan pricing shows a reduction over the twelve months, deriving from a drop
in interest rates on medium/long-term loans, in line with the trend in the Euribor, which was not
completely offset by growth in returns on short-term loans. Nonetheless, the trend in the margin on
lending was also affected by the great emphasis placed on credit quality, which favoured less risky
forms of lending. Interest income collected from customers is falling due to both the change in
interest rates and the declining trend in loan volumes. On the funding side, interest rates gradually
decreased, substantially due to maturities of medium/long-term types of funding with higher returns.
Compared to the pre-crisis situation, returns on short-term types of debt remain structurally high, in
2013 have started to feel the impact of cost containment achieved following the downward trend
seen throughout the system in 2011-2012. Also in this case, the performance of borrowing rates
along with the of declining volumes of customer funding have resulted in a drop in interest paid by
customers.
Lastly, the bank margin declined from -€7.2 million at 30 June 2012 to -€7.9 million at 30
June 2013, also due to the increase in funding on the collateralised markets, which in operational
terms is considered equivalent to interest paid on interbank funding.
43
Items
(€/1000)
Interest income and similar revenues
Interest expense and similar charges
Net interest income
Commission income
Commission expense
Net commissions
Dividends and similar revenues
Net result on trading, hedging and financial assets and
liabilities designated at fair value (*)
Gross income
30/06/2013
30/06/2012
Change
Total
%
217,457
(98,126)
119,331
46,032
(4,886)
41,146
730
222,343
(110,459)
111,884
52,069
(4,687)
47,382
910
(4,886)
12,333
7,447
(6,037)
(199)
(6,236)
(180)
-2.2%
-11.2%
6.7%
-11.6%
4.2%
-13.2%
-19.8%
54,448
215,655
34,185
194,361
20,263
21,294
59.3%
11.0%
Net commissions for the period came to €41.1 million, down by €6.2 million compared to
June 2012.
Commission income collected in the half year came to €46 million, down by €6 million
compared to 30 June 2012. In light of the fact that starting from the fourth quarter of 2012, “rapid
judgment commissions” (CIV) – amounting to approximately €3.6 million at 30 June 2013 – were
reclassified under other operating income, the downturn decreases to €2.4 million.
With regard to Group banks, revenues from traditional banking activities account for 49.2%
of total commission income, a percentage which has been falling for some time (56.4% one year
ago). Revenues from management, intermediation and consulting activities accounted for 31.2% of
the total (up compared to 24.3% one year ago), while revenues on collection and payment services
and from other services were equal to 25% of total commission income (approximately 21%).
The net result on trading, hedging and financial assets and liabilities designated at fair
value was a positive €54.4 million, up compared to the €34.2 million recorded in June 2012. This
result was impacted by the positive figure of €34 million in item 100 of the income statement,
mainly owing to the sale of several government securities classified in the AFS portfolio.
At the same time, the situation of the financial markets at the end of the first half of 2013 marked by the uncertainty surrounding the future duration of the quantitative easing policy in the
USA, the spread of concerns regarding the outlook for credit in China and the political situation in
Portugal - resulted in an increase in risk premiums compared to the same period of 2012, and the
corresponding decline in prices of bank bonds. This has resulted in a positive component of
approximately €15.2 million - as an effect of designating the Bank’s financial liabilities at fair
value, under item 110 of the income statement, with a total effect of €+9.1 million compared to 30
June 2012.
In addition, the Banca Etruria securities portfolio has been structured to support net interest
income by collecting short and medium-term coupons, not just as a mere trading instrument. As a
result, the Parent Company’s profits on trading amounted to approximately €2.5 million, 15.7%
lower than in June 2012.
Gross of dividends received in the period, amounting to €0.7 million, in the first half of 2013
gross income came to €215.7 million, an increase of €21.3 million (+11%) compared to 30 June
2012.
44
Items
30/06/2013
(€/1000)
Net interest income
Net commissions
Gross income
Net impairment losses
Net result from financial activities
NET PREMIUMS
NET OTHER INCOME/EXPENSES FROM
INSURANCE ACTIVITIES
Net result from financial and insurance activities
Administrative expenses:
a) personnel expenses
b) other administrative expenses
Net provisions for risks and charges
Net writedowns/writebacks of property, plant and
equipment
Net writedowns/writebacks of intangible assets
Other operating (expenses) income
Net operating expenses
Profit (loss) from current operations before tax
30/06/2012
Change
Total
%
119,331
41,146
215,655
(118,093)
97,562
185,111
111,884
47,382
194,361
(67,518)
126,843
64,295
7,447
(6,236)
21,294
(50,575)
(29,281)
120,816
6.7%
-13.2%
11.0%
74.9%
-23.1%
n.s.
(198,423)
84,250
(107,780)
(59,027)
(48,753)
22,247
(76,204)
114,934
(108,158)
(63,608)
(44,550)
(165)
(122,219)
(30,684)
378
4,581
(4,203)
22,412
n.s.
-26.7%
-0.3%
-7.2%
9.4%
n.s.
(1,975)
(1,510)
13,103
(75,915)
8,335
(2,667)
(1,143)
8,116
(104,017)
10,917
692
(367)
4,987
28,102
(2,582)
-25.9%
32.1%
61.4%
-27.0%
-23.7%
As regards the valuation of the loan portfolio, the deterioration in asset quality continues to
impact the financial statements of banks. As mentioned above, the persistence of a complex, varied
economic scenario continues to cause significant difficulties for businesses in Italy. In the banking
sector, the effects of the recession have translated into an inevitable worsening in credit quality,
leading to the recognition of increased volumes of impaired loans and, as a result, increases in the
related provisions.
Given the above, at 30 June 2013 net impairment losses amounted to €118.1 million. This
figure also includes the portion of writedowns (€22.5 million), recognised by the Parent Company
following the approval of the draft financial statements (on 15 March 2013), classified, due to
technical reason, under Provisions for risks and charges, at the time of supplementing the draft
financial statements (on 27 March 2013). Net of these provisions, which entail the accurate
classification of the credit risk incurred in the previous year, the writedowns for the first half of
2013 would amount to €95.6 million, up compared to the €67.5 million at 30 June 2012.
At the end of the period in question, the net result from financial activities amounted to
€97.6 million, influenced by the impact of writedowns to loans, which had a significant effect on the
gross income which, despite the continuing difficult economic scenario, increased on the same
period of 2012.
Net of the aforementioned transfer from provisions for risks and charges to writedowns, the
result from financial activities would have decreased slightly. This confirms the Group’s ability to
maintain good profitability, adjusting its management policies to an unfavourable operating
scenario.
The management of insurance-related products, though posting a loss of €13.3 million,
showing significant growth in figures as a result of the development and expansion of insurance
business. Net premium income amounted to €185.1 million (compared to €64.3 million at 30 June
2012), while insurance management costs came to approximately €198.4 million (€76.2 million at
30 June 2012).
45
Operating expenses recorded in the period came to €75.9 million. Net of the transfer of
€22.5 million from provisions for risks and charges (relating to adjustments to loans posted under
that item at 31 December 2012, as described above), costs for the first half of 2013 amounted to
€98.4 million, down by 5.4% compared to €104 million in June 2012. Personnel expenses,
amounting to €59 million, decreased by 7.2%, as a result of the initial savings in overheads resulting
from the exit of personnel due to voluntary use of the Redundancy Fund established by the Group
during 2012. Other administrative expenses (amounting to €48.8 million) increased by €4.2 million
compared to the same period of the previous year.
This increase was partly due to charges deriving from leases and operating expenses paid to
Consorzio Palazzo della Fonte. Offsetting these charges, there was an increase in other operating
income, which included the rapid judgement commissions reclassified to this item from 31
December 2012.
On the whole, operating expenses came to 45.5% of gross income, down from 53.4% in June
201210.
Items
(€/1000)
Net interest income
Net commissions
Gross income
Net impairment losses
Net income from financial and insurance activities
Income taxes on current operations for the period
Net profit (loss) for the period
Net profit (loss) pertaining to non-controlling interests
Net profit (loss) for the period pertaining to
shareholders of the Parent Company
30/06/2013
30/06/2012
119,331
41,146
215,655
(118,093)
97,562
84,250
(75,915)
8,335
(9,062)
(727)
(1,276)
111,884
47,382
194,361
(67,518)
126,843
114,934
(104,017)
10,917
(5,735)
5,182
(449)
549
5,631
Change
Total
%
7,447
(6,236)
21,294
(50,575)
(29,281)
(30,684)
28,102
(2,582)
(3,327)
(5,909)
(827)
6.7%
-13.2%
11.0%
74.9%
-23.1%
-26.7%
-27.0%
-23.7%
58%
n.s.
n.s.
(5,082) -90.3%
At the end of the first half of 2013 Profit (loss) from current operations before tax came to
€8.3 million, down compared to €10.9 million at 30 June 2012.
Net of taxes (totalling €9.1 million), net profit for the period amounted to €0.5 million
compared to €5.6 million in the same period of the previous year. It is worth noting that taxes at 30
June 2012 benefited from the positive effect (of approximately €4.7 million) relating to the IRES tax
credit recognised as a result of the deductibility of the IRAP tax paid on personnel expenses for the
tax periods 2007 to 2011.
10
The cost-income ratio is calculated as the ratio of net operating costs (having deducted net allocations to provisions for
risks and charges) to gross income.
46
Key ratios for the Banca Etruria Group
30/06/2013
31/12/2012
39.9%
52.1%
79.5%
29.9%
92.6%
51.2%
40.0%
75.3%
35.7%
98.3%
Equity ratio
Group equity/Total assets
3.5%
4.2%
Risk ratios
Bad debts/Customer loans
Bad debt Coverage Ratio
9.6%
52.8%
6.7%
54.3%
Profitability ratios
Net interest income/Gross income
Gross income/Total assets (3)
Cost-Income Ratio
55.3%
2.5%
45.5%
61.6%
2.6%
63.3%
Composition ratios
Customer loans/Total assets
Securities portfolio(1)/Total Assets
Direct funding/Total liabilities and shareholders’ equity
Indirect funding/Direct funding
Customer loans/Direct funding (2)
(1) Including Securities under Loans and Receivables
(2) The ratio is calculated net of transactions on collateralised markets, included under both customer loans and direct
funding.
(3) Ratio calculated on an annual basis.
An analysis of the main ratios shows:
-
-
the ratio of loans to assets (39.8%) decreased compared to 31 December 2012 and remained
below average industry levels 11(near 60% at the end of 2012), as a result of the business
policies concerning lending, which envisage growth also through support to external partners
and the expansion of the securities portfolio assets to boost profit margins;
the treasury portfolio-to-assets ratio continued to grow, with a view to establishing a reserve of
low-risk and high liquidity in order to support net interest income;
in 2012, the ratio of loans to customer funding dropped below 100% (the industry also reported
a figure near 98%). This indicator decreased further, to 92.6% at the end of June 2013;
in the composition of gross income, the weight of net interest income dropped to 55.3%,
compared to an industry figure of approximately 56% at the end of 2012.
reduction in the cost-income ratio, which dropped to 45.5% compared to an industry average of
59% at the end of 2012.
11
All figures for the Italian banking system indicated in this section are at 31 December 2012. (Source: Prometeia Analisi dei Bilanci Bancari, July 2013).
47
5. Other Information
Shareholders
The Parent Company Banca Etruria has always had a close relationship with its shareholders.
The presence of a significant number of businesses and the broad shareholder base among
customers are both key to establishing close relationships with our customers and to enhancing
customer loyalty. The shareholders have always been ready and willing to make their contribution
in support of the strategic decisions made by the Bank, including on important occasions in the life
of the business, such as the recent share capital increase. A “club” is dedicated to all shareholders,
which can be accessed via internet, and offers numerous advantages and opportunities for business
and free time.
This project achieves the goal of increasing the value created by the Bank for all Shareholders, i.e.
those that enable the Bank to reach its objectives and share in its projects, values and achievements.
According to the register of shareholders, at the end of June 2013, Banca Etruria
shareholders with voting rights in the Ordinary Shareholders’ Meeting numbered 67,217, including
1,345 new shareholders admitted in the first half. Such a large number strengthens the Bank's
vocation as a mutual bank for which the needs of customers in general, and shareholders in
particular, are a top priority.
Banca Etruria shares
The first half of 2013 was again a period of uncertainty concerning the Italian and global
economic outlook, with volatility in share prices which, at the end of the first half, reach values near
those of the beginning of the year.
1,3
1,2
1,1
1
0,9
0,8
FTSE MIB
26/06/2013
19/06/2013
12/06/2013
05/06/2013
29/05/2013
22/05/2013
15/05/2013
08/05/2013
01/05/2013
24/04/2013
17/04/2013
10/04/2013
03/04/2013
27/03/2013
20/03/2013
13/03/2013
06/03/2013
27/02/2013
20/02/2013
13/02/2013
06/02/2013
30/01/2013
23/01/2013
16/01/2013
09/01/2013
02/01/2013
0,7
FTSE Italia Banche
Cumulative performance of the FTSE MIB and FTSE Italia Banche indices in the first half of 2013 – Source: Banca Etruria based on
Bloomberg data
48
The banking index performed substantially in line with the FTSE MIB, though with a worse
result at 30 June 2013.
While the Banca Etruria Group share remained linked to the banking index, it significantly
underperformed the indices, as it was presumably impacted by the dilutive effects of the early
surrender of the €100 million convertible bond 28 December 2012. This was followed by the
announcement on 12 April of a share capital increase for an additional €100 million. On 29 April
2013, a reverse split of shares was carried out at a ratio of one new share to every five shares
previously held, to facilitate the administrative management of the Bank’s shares in consideration of
the share capital increase. The figures shown in the charts in this section have been recalculated for
consistency.
In brief, the FTSE MIB index closed the half year with a loss of 6.4%. The banking index
showed worse performance, declining 9.4%, also due to the more direct exposure of banks to the
European sovereign debt crisis. Conversely, Banca Etruria shares declined by 54.4% due to the
trends illustrated above. Taking a longer-term view, however, since the peaks of May 2007 Banca
Etruria shares have performed substantially in line with the sector.
However, the success of the Bank’s recapitalisation must not be underestimated. This
transaction confirmed the confidence of members and shareholders in supporting the Bank’s
traditional role in local areas. In terms of performance, with regard to similar transactions recently
conducted by other banks, it is hoped that the market will take account of the successful share
capital increase within a reasonable time.
2
12000
1,8
11000
10000
1,6
9000
1,4
8000
1,2
7000
1
6000
5000
0,8
4000
Banca Etruria
28/06/2013
21/06/2013
14/06/2013
07/06/2013
31/05/2013
24/05/2013
17/05/2013
10/05/2013
03/05/2013
26/04/2013
19/04/2013
12/04/2013
05/04/2013
29/03/2013
22/03/2013
15/03/2013
08/03/2013
01/03/2013
22/02/2013
15/02/2013
08/02/2013
01/02/2013
25/01/2013
18/01/2013
2000
11/01/2013
0,4
04/01/2013
3000
28/12/2012
0,6
FTSE Italia Banche
Comparison of the performance of the FTSE Italia Banche index and the Banca Etruria share – Source: Banca Etruria based on
Bloomberg data.
At 28 June 2013 the Banca Etruria stock price was €0.70.
49
05/06/2013
19/06/2013
22/02/2013
01/03/2013
08/03/2013
15/03/2013
22/03/2013
29/03/2013
05/04/2013
12/04/2013
19/04/2013
26/04/2013
03/05/2013
10/05/2013
17/05/2013
24/05/2013
31/05/2013
07/06/2013
14/06/2013
21/06/2013
28/06/2013
2
22/05/2013
15/02/2013
1,8
08/05/2013
08/02/2013
1,6
24/04/2013
01/02/2013
1,4
10/04/2013
25/01/2013
1,2
27/03/2013
18/01/2013
1
13/03/2013
11/01/2013
0,8
27/02/2013
04/01/2013
0,6
13/02/2013
Trading volume for Banca Etruria shares
30/01/2013
0,4
16/01/2013
Performance of the Banca Etruria share price in the first half of 2013 – Source: Banca Etruria based on Bloomberg data
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
50
The average daily trading volume in the first half of 2013 reached 845,294 shares,
significantly higher than the volumes for the previous year.
02/01/2013
28/12/2012
Related parties
Rules for transactions with related parties are designed to safeguard against the risk that the
close relationship of the parties with the decision-making bodies of the company may compromise
the objectivity and impartiality of business decisions, with possible distortions in the resource
allocation process, exposure of the company to risks that were not properly measured or protected
against and potential losses for the company and its stakeholders.
In 2002, Banca Etruria adopted a specific internal procedure for carrying out transactions
with related parties to implement the disclosure requirements envisaged in Consob Regulations and
recommendations of the Corporate Governance Code for Listed Companies. Banca Etruria also
adopted “Rules for transactions with related parties” in compliance with the provisions of Article
2391-bis of the Italian Civil Code and following Consob Resolution no. 17221 of 12 March 2010.
Replacing the previous internal procedures, the document governs the identification,
approval and execution of transactions with related parties carried out directly or indirectly by the
Bank and sets out rules to ensure the transparency and substantive and procedural propriety of those
transactions, establishing the procedures for compliance with disclosure requirements. The rules
ensure coordination with the administrative and accounting procedures referred to in Article 154-bis
of the Consolidated Law on Financial Intermediation.
According to the document, related parties also include the other entities or persons
envisaged in IAS 24 in force since 1 January 2011 and any subsequent amendments.
Specifically, the Rules on transactions with related parties:
- establish the procedures for handling and approving transactions with related parties,
differentiating between transactions of greater or lesser importance, in compliance with the
recommendations of Consob;
- establish the cases for partial or full exemption from application of the decision making
procedures pursuant to Article 13 of Consob Resolution no. 17221/2010;
- specifies the notion of “independent director” for the purposes of regulations in this area;
- establish the procedures and deadlines with which the Committee of Independent Directors,
which issues an opinion on transactions with related parties, and the administrative and
control bodies must be provided with information on transactions, accompanied by the
supporting documentation, before approval and during the subsequent execution of the
transaction;
- set rules governing transactions with related parties carried out with the subsidiaries of
Banca Etruria.
To supplement the Rules, the Bank also prepared operating rules in order to optimise
monitoring, management and control of transactions with related parties by personnel and levels of
decision-making powers.
Lastly, during 2012, Banca Etruria adopted new rules to comply with the supervisory
regulations issued in the area of prudential regulations for banks, concerning activities at risk and
conflicts of interest with associated parties. These Rules, available on the Bank’s website
www.bancaetruria.it (see the site for details), were drawn up pursuant to the aforementioned
provisions of the Bank of Italy and Consob concerning related parties.
The Board of Directors also approved a “Business Operating Process” (POA) (latest version
dated 25 March 2013) to fully govern the provisions implemented, with the purpose of:
- identifying the perimeter of parties considered relevant in accordance with regulations;
- identifying the transactions included in said perimeter;
- describing the different decision-making processes according to the type of transaction;
- monitoring relevant transactions;
- defining information flows;
- identifying audit controls.
51
With regard to the aforementioned regulations, in the first half of 2013, no notifications were
made of transactions of “greater importance” pursuant to Article 4, paragraph 1 (a) of Consob
Resolution no. 17221 of 12 March 2010 and the related Annex 3.
For quantitative data concerning a:
- remuneration of the General Manager, Deputy General Managers, Managing Directors, and
other key management personnel;
- relations between Group companies;
- other related parties;
see Section H - Transactions with related parties, of the notes to the financial statements.
Significant events during the period
Banca Etruria Ordinary Shareholders' Meeting
The Banca Etruria Ordinary Shareholders' Meeting, held in Arezzo on 28 April 2013,
approved the following items on the agenda:
- financial statements for the year ended 31 December 2012, the Board of Directors' report on
operations and the report of the Board of Auditors;
- remuneration policy documents;
- revocation of and concurrent authorisation for purchase and disposal of treasury shares;
- appointment of the Board of Auditors for the three-year period 2013 – 2015;
- determination of the compensation for the position and attendance fees of the Auditors;
- appointment of the Internal Appeals Board for the three-year period 2013 – 2015;
Pursuant to Art. 2386 of the Italian Civil Code and Art. 33 of the Articles of Association, the
Shareholders’ Meeting appointed Claudia Bugno and Luigi Nannipieri as members of the Board of
Directors. The Shareholders’ Meeting elected the standing auditors Paolo Cerini, Carlo Polci,
Giovanna Magnanensi, Gianfranco Neri and Massimo Tezzon, who holds the role of Chairman of
the Board of Auditors. Fabiola Polverini and Angelo Cuva were appointed as alternate auditors. The
Shareholders’ Meeting also appointed Attilio Brilli, Cosimo Ceccuti, Carlo Donati, Giulio Firpo and
Giampaolo Taddei as standing members of the Internal Appeals Board, and Marisa Boschi, Fabrizio
Ceccarelli and Giovanni Crociani as alternate members.
Reverse split of BPEL shares
The Board of Directors’ meeting of Banca Etruria, held on 12 April 2013, resolved to
exercise the full mandate to increase the share capital, granted in accordance with Art. 2443 of the
Italian Civil Code, by the Extraordinary Shareholders’ Meeting of 11 November 2012. In view of
said share capital increase and to facilitate the administrative management of the Bank’s shares after
the transaction, the Board of Directors also resolved a reverse split of ordinary shares outstanding at
that time, at a ratio of one new ordinary share to every five existing ordinary shares. The transaction
did not involve any changes to the Articles of Association.
In execution of the resolutions of 12 April 2013 described above, on 29 April 2013 the
reverse split of Banca Etruria ordinary shares was initiated, at a ratio of 1 new ordinary share to
every 5 ordinary shares held, through cancellation, only for the purposes of overall reconciliation of
52
the transaction, of 2 ordinary shares owned by Banca Etruria, without any reduction in share capital,
as the shares had no nominal value.
Specifically, a reverse split was carried out of the 252,620,802 ordinary shares outstanding at
that time, with no nominal value, with ordinary rights (ISIN IT0000060878), coupon no. 29, into
50,524,160 new ordinary shares, with no nominal value, with ordinary rights (ISIN IT0004919327),
coupon no. 1. On completion of the reverse split the share capital of Banca Etruria amounted to
€342,645,519.58, broken down into 50,524,160 ordinary shares with no nominal value.
In order to facilitate the reverse split transactions for individual shareholders and the
management of any remainders from said transactions, Banca Etruria appointed Banca Federico Del
Vecchio to act as a counterparty from 3 May 2013 to 17 May 2013 in liquidating fractions of Banca
Etruria shares involved in the reverse split which are missing or exceed the minimum amounts
needed for the shareholders to hold a whole number of ordinary shares. These fractions were
liquidated, without additional expenses, duties or fees, based on the official price of Banca Etruria
ordinary shares on 26 April 2013, i.e., the trading day prior to the date of the reverse split
transaction.
Statement of changes in share capital
Share capital at 30/06/2013
Euro
Total
- of which:
Ordinary shares
(rights: as from 01.01.2013)
No. of shares
Share capital at 31/12/2012
Euro
No. of shares
342,645,519.58
50,524,160 342,645,519.58
252,620,802
342,645,519.58
50,524,160 342,645,519.58
252,620,802
Subsequent events
Share capital increase
Following approval of the statement by Consob, notified via Note n. 13049861 of 5 June
2013, the Banca Etruria Board of Directors defined the definitive terms and conditions for the share
capital increase on 6 June 2013. It approved the issue of a maximum of 166,666,657 ordinary
shares, with no nominal value, with ordinary rights and the same characteristics as the shares
already outstanding, for a maximum total of €99,999,994.20, to be offered as option rights to
shareholders, at the unit price of €0.60, including €0.12 as share premium.
The shares were offered at a ratio of 17 new ordinary shares to every 5 BPEL shares held.
The period for exercising the option rights began on 10 June 2013 and ended on 5 July 2013. At the
end of the option period, 163,924,132 shares were subscribed, amounting to 98.35% of total shares
offered, for a total value of €98,354,479.20.
The option rights not exercised during that period, totalling 806,625, were fully placed
during the initial offering on the stock exchange, thus permitting the early closure of the auction.
Thus, on conclusion of the offer on the stock exchange, 1,308,847 newly issued ordinary shares
were subscribed, relating to unexercised rights, for a total value of €785,308.20. Therefore, after the
conclusion of the offer on the stock exchange, 1,433,678 shares were unsubscribed, for a value of
€860,206.80.
53
On 20 August 2013, a private placement was carried out, in compliance with the applicable
law and regulations, of the remaining 1,433,678 BPEL shares not placed as part of the above
transaction. In light of the above, the share capital increase was thus fully subscribed for a total
amount of €100 million.12
AULO SPV 2013 Securitisation
On 11 July 2013 Banca Etruria announced the completion of the securitisation of personal
loans repaid through automatic deductions from borrowers’ salaries or pensions or payment orders
to borrowers’ employers, loans falling within the scope of the regulations on consumer credit and
other personal loans. The transaction, with the purpose of issuing ABS (Asset Backed Securities),
carried out through the special-purpose vehicle Aulo SPV Srl to which, in June 2013, Banca Etruria
assigned the above loans without recourse, pursuant to the Securitisation Law no. 130/1999 and Art.
58 of the Banking Law, for an amount of €210.9 million, relating to 27,512 contracts.
The issue of ABS (Asset Backed Securities) for a total of €210.9 million is characterised by
a Senior Class of securities of €171,375,000 million, fully subscribed by a leading international
operator, and a Junior Class amounting to €39,540,000 million, subscribed by Banca Etruria. All
classes of ABS mature on 26 March 2024.
Deutsche Bank AG, London Branch acted as Arranger for the transaction. Studio Legale
Associato ad Ashurst LLP of Milan and Studio Legale Ashurst of London supported the various
parties in the completion of the transaction. Zenith Service SpA was assigned to act as Back-Up
Servicer for the transaction.
With Aulo SPV 2013, Banca Etruria executed its sixth securitisation transaction and
strengthened its liquidity position, by fully refinancing all the unsecured senior maturities issued
under the terms of the EMTN programme still outstanding on the institutional market.
12
The Bank’s new share capital amounts to €422,645,514.94, broken down into 217,190,817 ordinary shares with no
nominal value.
54
Outlook for operations and the main risks and uncertainties to which the Group
is exposed
The context within which the Banca Etruria Group operated in the half year was characterised by
the continuing extreme crisis in the real economy, which was reflected in significant declines in the
gross domestic product and industrial production, as well as in high levels of competition in the
traditional businesses areas of commercial banks, with significant effects on profitability. On the
other hand, as a result of the actions taken to support profitability implemented over the last twelve
months significant results were achieved in revenues, though in a scenario still marked by a high
cost of credit.
That being said, the main risks and uncertainties that could arise during the second half of 2013,
given the continuing highly complex scenario, will be managed through additional organisation
improvements and with the conviction that all the actions implemented will provide positive results,
consisting in a stable economic situation, while in the short term, the financial system and the Banca
Etruria Group along with it remain exposed to exceptional external factors.
Specifically, the following potential risks are noted:
- credit risk: despite the further improvement in the Group banks’ overall portfolios of performing
loans and the careful management of guarantees, there is reason to believe that the high levels of
risk and uncertainty could persist owing to the current economic environment, particularly in areas
where expectations remain pessimistic. Group banks are also exposed to concentration risk, in that
they have a number of significant positions at risk with specific borrowers and within specific areas
and industries. In particular, the status as banks that work as partners for the local communities in
which the Group is present can lead to particular levels of risk when economic distress has a
significantly negative impact on the local economy or when it significantly penalises businesses
operating in segments to which the banks in the Group have large exposures, including local and
public debt; The continuing recession and particular prudence required in this economic phase may
also expose the Group to additional impacts on profitability, relating to conservative credit
forecasts;
- market risk: given the situation of the financial markets, positions exposed to market risk and
exchange rate risk are expected to remain at very low levels. Nonetheless, the tensions on the
financial markets could have an adverse impact on earnings despite the extremely prudent risk
profile. In addition, the presence of a substantial portfolio of securities backing separate accounts of
the life insurance companies could engender additional risk in the management of the balance sheet
in especially adverse financial market conditions;
- interest rate risk for the banking book: assets and liabilities are generally managed so as to
preserve the economic value of the portfolio even in the event of unexpected changes in interest
rates. Given current conditions, there may be increases in risk over the medium to long term in
consideration of actions taken to support net interest income. In the short term, a reduction in
interest rates could put further pressure on a number of income items. There are also risks connected
with the performance of the refinancing spread on collateralised markets and the interest rates linked
to the main asset and liability items;
- Liquidity risk: though a structural balance of liquidity has been achieved, the continuing tensions
in the area of bank liquidity and the risks deriving from external shocks may have an adverse effect
on the future liquidity position, forcing the Bank to implement additional actions to contain such
risk, which could have additional impacts in terms of earnings;
- securitisation risk: given the developments in national and international legislation and the impact
of the economic crisis on the deterioration of credit quality, the Bank may have to incur costs related
to the efficient maintenance and use of existing transactions;
- strategic risk: because of the exceptionally adverse market environment and economic, monetary
and political uncertainties, the important measures envisaged in the 2012-2014 Business Plan will
55
need to be expanded and accelerated to enable achievement of the stabilisation and sustainable
profitability objectives of the Group. To this end, the Group must develop a new business approach
which can best capture the changed economic and regulatory context of the sector. The uncertainty
surrounding the final decisions on regulations and practices to be adopted as well as the related
implementation procedures and timing could represent a significant risk to the establishment of new,
more efficient strategies of the Group aimed at strengthening profitability and capital;
- reputational risk: the long-lasting recession which has resulted in negative results in terms of
earnings as well as the trend in share prices in the banking system could expose the Group to
reputational risk;
- operational risk: efforts to mitigate and contain operational risks are constantly evolving, and no
particular preventable uncertainties are currently foreseen. Nonetheless, the intense reorganisation
activities of the Group implemented and the completion of these activities may expose the Group to
future operational risks on said actions, which have not occurred in the previous years.
In this especially adverse environment, the Banca Etruria Group is preparing to tackle the
significant risks and uncertainties expected for the second half of 2013 with all due prudence, in the
conviction that we have implemented significant stabilisation measures for the main balance sheet
figures, which result in the concrete expectation that the Group will continue its current operations
in the foreseeable future. For this reason, the Group has therefore prepared these financial
statements on a going-concern basis.
56
Reconciliation of Parent Company equity and net profit and consolidated equity and
net profit
Shareholders’
Equity
(€/1000)
Balance at 30 June 2013 in Parent Company financial statements
Excess with respect to carrying amount of the Parent Company
Banca Etruria shares held by Group companies
Intercompany dividends received in period
Balance at 30 June 2013 in Consolidated Financial Statements
57
Net profit
568,529
1,872
24,434
(479)
(2)
1
-
(2,121)
1,276
1,276
594,237
549
Part II - Condensed Consolidated Interim Financial Statements
58
59
Consolidated financial statements
60
61
Consolidated balance sheet - Assets
Assets
(€/1000)
10
Cash and cash equivalents
20
30
Financial assets designated at fair value throught profit or loss
40
50
30/06/2013
31/12/2012
72,943
79,476
104,897
108,140
60,787
57,862
7,851,539
5,481,940
864,843
103,781
60
Due from banks
458,045
723,016
70
Customer loans
6,857,713
7,530,962
11
10
336
370
112,892
114,118
59,055
60,130
44,573
44,573
100
Equity instruments
110
Technical reserves attributable to reinsurers
120
Property, plant and equipment
130
Intangible assets
of which:
- goodwill
140
Tax assets
a) current
b) deferred
pursuant to Law 214/2011
231,281
26,968
204,313
154,529
206,991
2,427
204,564
160,248
160
Other assets
531,871
230,972
Total assets
17,206,213
14,697,768
62
Consolidated balance sheet - Liabilities and Shareholders’ equity
Liabilities and shareholders’ equity
(€/1000)
10 Due to banks
30/06/2013
31/12/2012
1,454,788
1,649,895
10,821,259
8,175,104
1,971,501
2,001,784
43,578
54,448
890,100
897,860
20,629
26,003
8,189
793
7,396
14,889
1,176
13,713
301,513
262,131
110 Provision for staff termination pay
31,793
34,733
120 Provisions for risks and charges:
a) pensions and similar commitments
b) other provisions
29,499
29,499
55,691
55,691
130 Technical reserves
1,021,589
883,863
140 Valuation reserves
(20,349)
5,401
170 Reserves
172,913
166,393
180 Share premium reserves
103,663
319,725
190 Share capital
342,646
342,646
200 Treasury shares (-)
(5,185)
(8,823)
210 Non-controlling interests (+/-)
17,538
18,861
549
(202,836)
17,206,213
14,697,768
20 Due to customers
30 Outstanding securities
40 Financial liabilities held for trading
Financial liabilities designated at fair value trought profit or
50 loss
60 Hedging derivatives
80 Tax liabilities
a) current
b) deferred
100 Other liabilities
220 Net profit (loss) for the period (+/-)
Total liabilities and shareholders’ equity
63
Consolidated income statement
Items
(€/1000)
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
280
290
300
330
340
Net interest income
Commission income
Commission expense
Net commissions
Net result on trading
Net result on hedging
Gain (loss) from disposal or repurchase of:
a) loans
b) financial assets available for sale
c) financial assets held to maturity
d) financial liabilities
Net result on financial assets and liabilities designated at fair value
Gross income
Net impairment losses on:
a) loans (*)
d) other financial transactions
Net premiums
Net other income (expenses) from insurance activities
Net result from financial and insurance activities
Net provisions for risks and charges (*)
Net writedowns/writebacks of property, plant and equipment
Operating expenses
Profit (loss) from current operations after tax
Net profit (loss) pertaining to shareholders of the Parent Company
30/06/2013
217,457
(98,126)
119,331
46,032
(4,886)
41,146
730
5,396
(134)
34,007
34,355
(348)
15,179
215,655
(118,093)
(117,677)
(416)
97,562
185,111
(198,423)
84,250
(107,780)
(59,027)
(48,753)
22,247
(1,975)
(1,510)
13,103
(75,915)
8,335
(9,062)
(727)
(1,276)
549
30/06/2012
222,343
(110,459)
111,884
52,069
(4,687)
47,382
910
4,441
(79)
23,781
19,048
418
4,315
6,042
194,361
(67,518)
(57,211)
(6,512)
(3,795)
126,843
64,295
(76,204)
114,934
(108,158)
(63,608)
(44,550)
(165)
(2,667)
(1,143)
8,116
(104,017)
10,917
(5,735)
5,182
(449)
5,631
(*) Item 130 “Net impairment losses on loans” includes impairment on loans (€22.5 million) accounted for as an
individual item. At 31 December 2012, this impairment was allocated for technical reasons to item 190 “Net provisions
for risks and charges”, as is also described in the notes to the 2012 financial statements. Therefore, this entry has no
effect on the income statement for the period, since the income resulted from the release in the same amount of the
aforementioned provisions for risks and charges (under item 190 - Net provisions for risks and charges).
64
Statement of comprehensive income
Items
10.
30/06/2013
30/06/2012
120.
130.
140.
Other income components net of taxes with no reversal to income
statement
Intangible assets
Actuarial gains (losses) on defined benefit plans
Non-current assets classified as held for sale
Share of valuation reserves of equity investments accounted for using equity
method
Other income components net of taxes with reversal to income
statement
Hedging of investments in foreign operations
Foreign exchange differences
Cash flow hedges
method
Total other income components net of taxes
Comprehensive income (Items 10+130)
150.
Consolidated comprehensive income pertaining to non-controlling interests
(1,301)
(419)
160.
Consolidated comprehensive income pertaining to shareholders of the
Parent Company
(26,170)
(6,860)
20.
30.
40.
50.
60.
70.
80.
90.
100.
110.
65
(727)
5,182
(1,581)
-
(612)
-
-
-
-
-
(25,163)
-
(11,849)
-
(26,744)
(27,471)
(12,461)
(7,279)
Statement of changes in consolidated shareholders' equity
Change during the period
Allocation of profit for
previous period
Shareholders’
equity at
31/12/2012
Change in
opening
balance
Transactions on Shareholders’
equity
Shareholder
s’ equity at
01/01/2013
Changes in
reserves
Reserves
Dividends
and other
allocations
Issue of
new
shares
Purchas
e of own
shares
Changes
in equity
instrument
s
Shareholders’ equity at
30/06/2013
Comprehensiv
e income for
the period at
30/06/2013
Share capital:
a) ordinary shares
b) other shares
362,269
362,269
-
-
362,269
362,269
-
-
-
-
28
28
-
-
-
-
342,646
342,646
-
NONCONTROLLI
NG
INTERESTS
19,651
19,651
-
Reserves:
a) retained earnings
b) other
Valuation reserves:
a) available for sale
b) cash flow hedging
c) other:
- special revaluation laws
- actuarial gains/losses – staff
termination pay
320,921
165,005
152,295
12,710
5,441
(602)
6,043
3,442
-
320,921
165,005
152,295
12,710
5,441
(602)
6,043
3,442
(209,933)
6,487
6,487
-
-
(627)
342
(969)
969
969
969
(6,129)
-
-
-
(26,744)
(25,163)
(1,581)
-
103,663
172,913
161,172
11,741
(20,349)
(25,769)
5,420
4,411
1,196
(2,048)
(2,048)
15
4
11
-
2,601
-
2,601
-
-
-
-
-
-
(1,581)
1,009
11
-
-
-
-
-
-
-
-
-
-
-
-
(8,823)
-
(8,823)
-
-
-
15,990
(12,352)
-
-
(5,185)
-
(203,446)
-
(203,446)
203,446
-
-
-
-
(727)
549
(1,276)
622,506
-
622,506
-
-
392
9,861
(12,352)
(26,170)
594,237
18,861
-
18,861
-
-
(50)
28
-
GROUP
Equity instruments
Treasury shares
Shareholders’ equity
Non controlling interests
66
-
(1,301)
17,538
Allocation of profit
for previous year
Shareholders’
equity at
31/12/2011
Change
in
opening
balance
Shareholders’
equity at
01/01/2012
Equity transactions
Shareholders’ equity at
30/06/2012
Change
in
Dividends reserves
Reserves
and other
allocations
Issue of
new
shares
Comprehensive
income for the
period at
30/06/2012
Purchase
of own
shares
GROUP
Share capital:
a) ordinary shares
b) other shares
-
245,276
245,276
-
-
-
-
7,052
7,052
-
-
-
245,276
245,276
321,028
-
321,028
-
-
-
(74)
-
Reserves:
b) other
153,154
142,284
10,870
-
153,154
142,284
10,870
27,816
27,816
-
-
(140)
(140)
-
(7,052)
(7,052)
-
Valuation reserves:
a) available for sale
b) cash flow hedging
c) other:
- actuarial gains/losses – staff termination pay
(36,586)
(51,080)
14,494
8,105
6,389
-
(36,586)
(51,080)
14,494
8,105
6,389
-
-
(146)
(146)
(146)
-
2,458
-
2,458
-
-
Treasury shares
(8,369)
-
(8,369)
-
27,816
-
27,816
685,469
-
19,308
-
Equity instruments
Non-controlling interests
NONCONTROLLING
INTERESTS
19,613
19,613
-
-
232,715
232,715
319,758
-
-
175,214
164,344
10,870
(1,436)
(1,436)
-
-
-
(12,461)
(11,849)
(612)
(612)
(49,208)
(62,908)
13,700
7,959
5,741
15
(21)
36
36
-
-
-
-
2,458
-
-
-
172
(246)
-
(8,443)
-
(27,816)
-
-
-
-
5,182
5,631
(449)
685,469
-
-
(335)
98
(246)
(6,860)
678,125
19,308
-
-
49
-
-
(419)
67
1,196
18,939
68
Consolidated Cash Flow Statement
A. OPERATING ACTIVITIES
30/06/2013
1. Operations
46,388
- Net profit (loss) for the period (+/-)
- Gain/loss on financial assets HFT and financial assets/liabilities at FV (+/-)
- Gain/loss on hedging (+/-)
- Net writedowns/writebacks for impairment (+/-)
- Net writedowns/writebacks on property, plant and equipment and intangible assets (+/-)
- Net provisions for risks and charges and other expenses/revenues (+/-)
- Net premiums not collected (-)
- Taxes and duties not paid (+/-)
- Other adjustments (+/-)
2. Liquidity generated/absorbed by financial assets
- Financial assets held for trading
- Financial assets designated at fair value through profit and loss
- Financial assets available for sale
- Due from banks: on demand
- Customer loans
- Other assets
3. Liquidity generated/absorbed by financial liabilities
- Due to banks: on demand
- Due to customers
- Outstanding securities
- Financial liabilities held for trading
- Financial liabilities designated at fair value through profit and loss
- Other liabilities
Net liquidity generated/absorbed by operating activities
549
(15,827)
134
87,044
3,485
(21,400)
731
(6,066)
(2,262)
(1,843,636)
3,764
(2,026)
(2,394,762)
264,971
609,823
(325,406)
2,554,694
(195,107)
2,628,409
(30,283)
(22,489)
18,266
155,898
757,446
30/06/2012
46,430
5,631
(12,946)
79
63,615
3,810
1,146
(23)
(13,532)
(1,350)
(2,314,631)
11,900
(4,632)
(2,461,648)
27,282
267,482
(155,015)
2,268,010
(425,665)
2,946,433
(288,067)
6,716
(118,076)
146,669
(191)
B. INVESTMENT ACTIVITIES
1. Liquidity generated by:
- Dividends received
- Disposal/redemption of financial assets held to maturity
- Disposal of property, plant and equipment
- Disposal of subsidiaries and business units
730
730
2. Liquidity absorbed by:
- Purchase of equity investments
- Purchase of financial assets held to maturity
- Purchase of property, plant and equipment
- Purchase of intangible assets
Net liquidity generated/absorbed by investment activities
1,337
910
427
-
(762,246)
(761,062)
(749)
(435)
(761,516)
(2,847)
-
- Issue/purchase of own shares
- Issue/purchase of equity instruments
- Distribution of dividends and similar allocations
Net liquidity generated/absorbed by funding activities
(2,463)
(2,463)
(148)
(450)
(598)
NET LIQUIDITY GENERATED/ABSORBED DURING THE PERIOD
(6,533)
(2,299)
(2,098)
(749)
(1,510)
C. FUNDING ACTIVITIES
RECONCILIATION:
Amount
Balance sheet items:
- Cash and cash equivalents at the beginning of the period
Total net liquidity generated/absorbed during the period
Cash and cash equivalents at the end of the period
30/06/2013
79,476
(6,533)
72,943
67
30/06/2012
67,323
(2,299)
65,024
Explanatory notes
Part A - Accounting policies
Part B - Information on the consolidated balance sheet
Part C - Information on the consolidated income statement
Part D - Consolidated comprehensive income
Part E - Information on risks and related hedging policies
Part F - Information on consolidated capital
Part G - Business combinations
Part H - Transactions with related parties
Part L - Operating segments
68
69
Part A - Accounting policies
70
71
A. 1 – GENERAL INFORMATION
SECTION 1 -DECLARATION OF CONFORMITY WITH THE INTERNATIONAL
ACCOUNTING STANDARDS
The condensed interim consolidated financial statements of the Banca Etruria Group have
been prepared in accordance with the International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board
(IASB), as endorsed by the European Commission pursuant to Regulation 1606 of 19 July 2002.
The following documents, while not endorsed by the European Commission, have been
considered in interpreting and applying the new accounting standards:
- Framework for the Preparation and Presentation of Financial Statements of the International
Accounting Standard Board (IASB);
- Implementation Guidance, Basis for Conclusions and any other documents prepared by the
IASB or by IFRIC to supplement the accounting standards;
- interpretive documents concerning the application of IAS/IFRS in Italy prepared by the
Organismo Italiano di Contabilità (Italian Accounting Board; OIC) and the Italian Banking
Association (ABI).
SECTION 2 - GENERAL PREPARATION PRINCIPLES
The condensed interim consolidated financial statements have been prepared in accordance
with the following principles:
a) going concern: the assets, liabilities and off-balance-sheet transactions are measured on the
basis of operational values, since they are intended to last over time;
b) accruals accounting: costs and revenues are recognised in the period in which they accrue in
relation to the underlying services received and supplied, regardless of the date of monetary
settlement; the matching criterion for costs and revenues is applied;
c) consistency of presentation: in order to ensure that the information contained in the tables
and financial statements is comparable, the presentation and classification methods are kept
constant over time, except as required under international accounting standards or an
interpretation or where intended to make the presentation of the figures more meaningful
and reliable. When a certain presentation or classification method is changed, the new
method is applied retroactively, where possible, with explanation of the reasons for and the
nature of the change and indicating its impact on the financial statements;
d) materiality and aggregation: every material class of items that are similar in nature or
function is shown separately in the balance sheet and the income statement; items of a
different nature or function are shown separately, if material;
e) prohibition on offsetting: no offsetting has been performed, except where required or
permitted by international accounting standards or a related interpretation;
f) comparison with previous year: the tables and financial statements report the figures for the
previous year or period, adjusted, where possible, to ensure comparability.
In accordance with Article 5 of Legislative Decree 38 of 28 February 2005, the euro has
been used as the reporting currency in the preparation of the condensed interim consolidated
financial statements. Figures given in the notes are expressed in thousands of euros.
72
SECTION 3 – SCOPE AND METHOD OF CONSOLIDATION
1. Investments in subsidiaries and associates.
Scope of consolidation
The scope of consolidation comprises the Parent Company, Banca Etruria, and the
companies it directly or indirectly controls, including companies operating in business sectors
different from that of the Parent Company.
Therefore, the scope of consolidation includes the following companies:
Company name
Registered office
Type of
relationship
(1)
Equity Investment
Investor
% share of
votes (2)
% holding
A. COMPANIES
A.1 Consolidated on line-by-line basis
- Etruria Informatica Srl
Arezzo
1
Banca Etruria
100
100
- Mecenate Srl
Arezzo
1
Banca Etruria
95
95
- Oro Italia Trading SpA
Arezzo
1
Banca Etruria
100
100
- BancAssurance Popolari SpA
Arezzo
1
Banca Etruria
89,534
89,534
- Banca Federico Del Vecchio SpA
Florence
1
Banca Etruria
100
100
- BancAssurance Popolari Danni SpA
Arezzo
1
Banca Etruria
46,22
46,22
- Banca Popolare Lecchese SpA
Lecco
1
Banca Etruria
- Etruria Securitisation SPV
Arezzo
3
Banca Etruria
BAP SpA
Key
(1) Type of relationship
1 = Majority of voting rights in ordinary shareholders’ meeting
3 = consolidated in accordance with SIC 12
(2) % Votes in ordinary shareholders’ meetings
*** The type of relationship refers only to the equity investment of the Parent Company, Banca Etruria
73
49,23
49,23
54,212
54,212
2. Other information
Principles and methods of consolidation
The data relating to the Parent Company, its subsidiaries and joint ventures is consolidated using
the following criteria:
- subsidiaries: the assets, liabilities, equity, off-balance-sheet transactions, costs and revenues
of the Parent Company and the subsidiaries (regardless of type of business conducted) are
consolidated under the relevant accounts and sub-accounts of the consolidated financial
statements on a line-by-line basis, as provided for by IAS 27, except for eliminations
concerning equity investments in subsidiaries and the corresponding portions of
shareholders’ equity of such companies as well as other intercompany transactions in the
balance sheet and income statement. Any positive differences between the carrying amounts
of each equity investment and the respective portions of shareholders’ equity of the
subsidiary - after the allocation of the price paid to specific items in the financial statements
(purchase price allocation), is recognised as goodwill and subject to testing for impairment
connected with any deterioration in the company’s performance or financial position and the
estimated realisable value.
- Associates: equity investments in associated companies are measured using the equity
method, as permitted by IAS 28.
SECTION 4 – EVENTS SUBSEQUENT TO THE CONDENSED CONSOLIDATED
INTERIM BALANCE SHEET DATE
Share capital increase
Following Consob’s approval of the prospectus, announced in note no. 13049861 of 5 June
2013, on 6 June 2013, the Parent Company’s Board of Directors determined the final terms of the
share capital increase. They resolved to issue up to 166,666,657 ordinary shares with no indication
of nominal value, with regular entitlement and the same characteristics as the shares already
outstanding, for up to a total value of €99,999,994.20, to be offered in pre-emption to the
shareholders at the unit price of €0.60, including €0.12 for the share premium.
Seventeen new ordinary shares were offered for every five BPEL shares held. The options
could be exercised from 10 June 2013 to 5 July 2013. At the end of that option term, 163,924,132
shares had been subscribed, equal to 98.35% of all shares offered, for a total value of
€98,354,479.20.
All 806,625 option rights not exercised during that period were placed on the Stock
Exchange on first offer, making it possible to close the auction early. So, after the Stock Exchange
offer, 1,308,847 newly issued ordinary shares relating to unexercised rights had been subscribed,
for a total value of €785,308.20. Therefore, a total of 1,433,678 shares, with a total value of
€860,206.80, were not subscribed by the end of the offer on the Stock Exchange.
On 20 August 2013, the remaining 1,433,678 BPEL shares not placed during the
aforementioned transaction were placed privately in compliance with applicable legal rules and
regulations. In light of the above, the share capital increase is fully subscribed for a total value of
€100 million13.
13
The Bank’s new share capital amounts to €422,645,514.94, representing 217,190,817 ordinary shares with no nominal
value.
74
AULO SPV 2013 securitisation
On 11 July 2013, the Parent Company announced that it had completed the securitisation of
personal loans that are repaid through automatic deductions from borrowers’ salaries or pensions up
to the limit of 20% (“cessione del quinto” loans) and other loans repaid through automatic salary
deductions (“delegazione di pagamento” loans); loans subject to consumer credit rules and other
personal loans, with a total value of €210.9 million, relating to 27,512 contracts, in order to issue
ABS (Asset Backed Securities). The transaction was carried out through Aulo SPV S.r.l., to which
Banca Etruria had transferred the aforementioned loans without recourse last June, pursuant to
Securitisation Act no. 130/1999 and Art. 58 of the Banking Act.
The ABS (Asset Backed Securities) issue totalling €210.9 million includes a Senior Class of
€171,375,000, fully subscribed by a leading international operator, and a Junior Class of
€39,540,000, subscribed by Banca Etruria. All classes of ABS mature on 26 March 2024.
The transaction Arranger was DeutscheBank AG, London Branch. The Ashurst LLP
affiliated Law Firm in Milan and Ashurst Law Firm of London supported the various parties in
completing the transaction. The Back-up Servicer for the transaction was Zenith Service S.p.A.
With Aulo SPV 2013, Banca Etruria carried out its sixth securitisation transaction, and has
reinforced its liquidity position by fully refinancing all unsecured senior maturities issued in
relation to the EMTN program and still outstanding in the institutional market.
SECTION 5 – OTHER INFORMATION
The preparation of the condensed interim consolidated financial statements also requires the
use of estimates and assumptions that may have an impact on the amounts recognised in the balance
sheet and income statement as well as on the disclosures concerning contingent assets and
liabilities. The calculation of such estimates involves the use of available information and the
adoption of reasonable assumptions for the recognition of operational events. By their very nature,
the estimates and assumptions may change over the course of the year and, accordingly, the amount
recognised may differ, perhaps considerably, in subsequent years following changes in the
subjective assessments adopted.
The main situations in which management uses such subjective assessments are:
- the quantification of impairment losses on loans and other financial assets in general;
- the determination of the fair value of financial instruments to be used for reporting purposes;
- the use of valuation models for determining the fair value of financial instruments that are
not listed on an active market;
- the assessment of the appropriateness of the value attributed to goodwill and other intangible
assets;
- the quantification of personnel provisions and other provisions for risks and charges;
- the estimates and assumptions used in assessing current taxation and the recoverability of
deferred tax assets.
75
For additional information on the composition and carrying amounts of the items involved in
the estimation process, please see the specific sections of the notes to the financial statements.
In accordance with Legislative Decree 58/98, these condensed interim consolidated financial
statements have undergone limited auditing by PricewaterhouseCoopers SpA.
A. 2 - NOTES TO THE MAIN ITEMS OF THE FINANCIAL STATEMENTS
Accounting policies
For information on the criteria applied to prepare these condensed interim consolidated
financial statements, drawn up in compliance with IAS 34, please see - as set forth in paragraph 16
of the same standard - Part A.2 “Notes to the main items of the financial statements” in the notes to
the 2012 consolidated annual financial statements, since the accounting standards adopted have not
changed with respect to the criteria used to prepare the consolidated financial statements for the
year closed on 31 December 2012, with the following exceptions:
-
-
-
new version of IAS 19 “Employee benefits”, endorsed by the European Commission with
Regulation no. 475/2012 of 5 June 2012, which must be applied for financial years beginning
on or after 1 January 2013. This new standard has not had impacts on the balance sheet and
income statement of the Banca Etruria Group since all consolidated companies already reported
all actuarial gains losses on defined benefit plans among components of comprehensive
income, which is set forth as the only accounting methodology to be applied under the new
accounting standard;
amendment of IAS 1 “Presentation of items of other comprehensive income”, endorsed by
the European Commission with Regulation no. 475/2012 of 5 June 2012, which must be
applied for financial years beginning on or after 1 July 2012. The new standard, which requires
components in the statement of comprehensive income to be presented separately based on
whether they may be reclassified to profit or loss, has not impacted the Group’s balance sheet
and income statement. The statement of comprehensive income in the condensed consolidated
financial statements has been adjusted based on the new requirements of IAS 1.
new accounting standard IFRS 13 “Fair value measurement”, endorsed by the European
Commission on 11 December 2012 with Regulation no. 1255/2012, which must be applied for
financial years beginning on or after 1 January 2013. The new standard defines fair value,
provides guidelines for the use of valuation techniques and the classification of parameters
used, and requires greater disclosure in the financial statements of the relevant management
decisions. The new standard has not impacted the Group’s balance sheet and income statement.
However, it has led to the inclusion of new quantitative and qualitative information on the fair
value hierarchy and valuation techniques, as reported in the Notes to the financial statements Part A.3 - Fair value disclosure.
76
A.3 - FAIR VALUE DISCLOSURE
Following the entry into force of the new accounting standard IFRS 13 “Fair value measurement”,
the Parent Company conducted an internal analysis of the fair value classification criteria and
valuation techniques, and found that they are essentially aligned with the standard’s requirements.
In detail, within a specific Internal rule, the Group defined the rules based on which a financial
instrument is classified at fair value level 1, 2 and 3, based on the following:
Level1.
Level2.
Level3.
Financial instruments (not adjusted) listed in active markets, the fair value
corresponds to the quoted price of these instruments, as reported in those markets;
Financial instruments not listed on active markets, the fair value of which is
estimated by using inputs observable either directly or indirectly from the markets,
for example:
I. Quoted prices for identical or similar assets or liabilities, quoted in active or nonactive markets; prices in recent transactions regarding financial instruments
identical or similar to the instrument being evaluated; data other than observable
quoted prices of assets or liabilities, such as interest rates and yield curves
observable at commonly quoted intervals, implicit volatilities and credit spreads;
II. Prices corroborated by market data.
Financial instruments not listed on active markets, the fair value of which is
estimated using inputs that are not observable (in whole or in part) in the markets,
such as unlisted financial instruments whose current price is calculated on the basis
of internal models that use current market interest rates and internally estimated
parameters (based on the internal rating system) for calculating the credit risk
component.
The Rule also governs the criteria and techniques used to determine fair value, which in light of the
new IFRS 13, did not undergo significant changes since they are already market-based. In
particular, for level 1 securities, the goal of determining a financial instrument’s fair value is to
establish what the transaction price would have been on the measurement date for that instrument
(i.e., without changing or reconfiguring the instrument) in the most advantageous active market to
which the entity has immediate access. For level 2 securities, if there is no active market to use as a
proxy for the measurements, the goal is to implement a valuation technique which makes it possible
“to establish what the transaction price would have been on the measurement date in an arm’s
length exchange motivated by normal business considerations”. Lastly, for level 3 securities,
valuation techniques based on unobservable, and therefore more discretionary, inputs may be used
(mark-to-model approach). The valuation is based on various inputs, which do not all come directly
from parameters observable on the market, and therefore the entity must rely on estimates and
assumptions. In particular, level 3 also includes measurements for which fair value is estimated
based on market data, but which require a significant adjustment based on data that is not
observable in the market.
At the process level, on a monthly basis the Parent Company’s Finance Department identifies the
securities for which there is an active market and identifies their price, and those for which a
valuation technique must be applied to determine fair value and chooses the parameters to be used,
which are either inferred or taken directly from the market when available, or from internal sources
if not directly observable in the market. The Finance Department also recommends the fair value
levels of the individual instruments. Subsequently, the Parent Company’s Risk Management
Department checks the consistency of the techniques applied and the results obtained and confirms
the measurements carried out as well as the fair value levels.
77
At 30 June 2013, level 3 instruments other than derivatives and those valued at cost do not account
for a significant portion of the portfolio. These mainly consist of equity securities and structured
bonds, which are measured by using some inputs which are not directly observable in the market.
In addition, all derivative contracts negotiated with customers which entail credit exposure for the
Bank are classified as level 3 instruments, even if they are simple instruments on interest or
exchange rates that can be assessed based on market parameters, since parameters not observable in
the market are applied to determine the credit risk adjustment.
A.3.2 – Fair value hierarchy
A.3.2.1 Accounting portfolios: breakdown by fair value level
30/06/2013
Financial assets/liabilities measured at fair value
through profit or loss
L1
L2
1. Financial assets held for trading
11,905 66,779
2. Financial assets designated at fair value through
profit or loss
5,259 41,693
3. Financial assets available for sale
7,671,070 136,904
4. Hedging derivatives
Total 7,688,234 245,376
1. Financial liabilities held for trading
- 41,939
2. Financial liabilities designated at fair value
- 890,100
3. Hedging derivatives
- 20,629
Total
- 952,668
Key
L1 = Level 1
L2 = Level 2
L3 = Level 3
78
31/12/2012
L3
26,213
L2
62,621
L3
37,163
13,835
4,736 39,422
43,565 5,294,996 140,341
83,613 5,308,088 242,384
1,639
1 52,584
13,704
46,603
97,470
1,863
1,639
L1
8,356
- 897,860
- 26,003
1 976,447
1,863
79
Part B - Information on the consolidated balance sheet
80
81
ASSETS
Section 1 - Cash and cash equivalents - Item 10
1.1 Cash and cash equivalents: composition
30/06/2013
31/12/2012
a) Cash
72,943
79,476
b) Demand deposits with central banks
72,943
79,476
Total
Section 2 - Financial assets held for trading - Item 20
2.1 Financial assets held for trading: composition by type
30/06/2013
31/12/2012
Items/Values
Level 1
A. On-balance-sheet financial assets
1. Debt securities
1.1 Structured securities
1.2 Other debt securities
2. Equity securities
3. Units in collective investment undertakings
B. Derivatives
1. Financial derivatives
1.1 trading
1.2 associated with fair value option
1.3 other
2. Credit derivatives
2.1 trading
2.2 associated with fair value option
2.3 other
Total B
Total (A+B)
Level 3 Level 1 Level 2 Level 3
4,297
17
4,280
7,607
1,982
1,935
47
317
2,947
2,947
-
423
17
406
7,720
843
799
44
303
3,882
3,882
-
-
38
-
-
-
81
-
-
2,947
8,143
1,227
23,267
23,267
23,267
26,214
214
214
214
8,357
61,393
29,411
31,982
61,393
62,620
4. Loans
4.1 Repurchase agreements
4.2 Other
Total A
Level 2
11,904
11,904
82
2,337
64,442
39,310
25,132
64,442
66,779
3,882
33,281
33,281
33,281
37,163
Section 3 - Financial assets designated at fair value through profit or loss - Item 30
3.1 Financial assets designated at fair value through profit or loss: composition by type
30/06/2013
31/12/2012
Items/Values
Level 1
1. Debt securities
3. Units in collective investment
undertakings
4. Loans
4.1 Structured
4.2 Other
Total
Cost
Level 2
Level 3
Level 1
Level 2 Level 3
5,259
5,259
-
15,620
15,620
-
13,835
13,835
-
4,736 14,890 13,704
- 14,890 13,704
4,736
-
5,259
5,200
26,073
41,693
37,306
13,835
13,994
- 24,532
4,736 39,422 13,704
4,652 39,048 14,031
Section 4 - Financial assets available for sale - Item 40
4.1 Financial assets available for sale: composition by type
30/06/2013
31/12/2012
Items/Values
Level 1
1. Debt securities
2.1 Measured at fair value
2.2 Measured at cost
3. Units in collective investment
undertakings
4. Loans
Total
Level 2
Level 3
Level 1
Level 2
Level 3
7,668,590
35,018
7,633,572
2,480
2,480
-
31,863
18,791
13,072
44,153
44,153
-
13,133
13,133
30,432
9,817
20,615
5,294,369
30,716
5,263,653
627
627
-
48,362
9,466
38,896
41,445
41,445
-
14,208
14,208
32,395
7,589
24,806
7,671,070
60,888
136,904
43,565
- 50,534
5,294,996 140,341
46,603
83
Section 5 - Financial assets held to maturity - Item 50
5.1 Financial assets held to maturity: composition by type
30/06/2013
31/12/2012
FV
BV
1. Debt securities
- structured
- other
2. Loans
864,843
864,843
-
Level 1
FV
Level 2
866,733
866,733
-
BV
Level 3
-
-
Level 1
103,781
103,781
-
106,030
106,030
-
Level 2
Level 3
-
Key
FV = fair value
BV = book value
Section 6 - Due from banks - Item 60
6.1 Due from banks: composition by type
Type of transactions/Values
A. Claims on central banks
1. Fixed-term deposits
2. Reserve requirement
3. Repurchase agreements
4. Other
B. Due from banks
1. Current accounts and demand deposits
3. Other financing
3.1 Repurchase agreements
3.2 Finance leases
3.3 Other
4. Debt securities
Total (book value)
Total (fair value)
84
30/06/2013
31/12/2012
136,013
136,013
322,032
46,233
67,780
107,330
45,396
61,934
100,689
100,689
458,045
458,045
304,302
304,302
418,714
121,809
53,739
113,415
43,495
69,920
129,751
129,751
723,016
723,016
-
Section 7 - Customer loans - Item 70
7.1 Customer loans: composition by type
30/06/2013
Type of transactions/Values
31/12/2012
Impaired
Impaired
Performing
Purchased Other
Purchased Other
753,115
424,126
818,795
- 394,852
21,868
189,064
3,126,249
966,007
3,414,987
- 831,236
Performing
1. Current accounts
2. Repurchase agreements
3. Medium/long-term loans
4. Credit cards, personal loans and
loans repaid by automatic deductions
from wages
5. Finance leases
6. Factoring
7. Other
110,359
285,972
937,322
8. Debt securities
8.1 Structured
Total (book value)
Total (fair value)
-
574
574
5,235,459
5,710,955
4,993
103,303
123,825
130,280
303,930
1,206,497
-
- 1,622,254
- 1,622,254
572
572
6,064,125
- 1,466,837
- 1,466,837
6,568,893
7.4 Finance leases
30/06/2013
Minimum
lease
payments
Up to 1 year
From 1 to 5 years
More than 5 years
Total
Provision for
doubtfoul loans
Book value
82,258
179,240
172,591
434,089
Deferred
financial
profits
Present value
Minimum
of future
lease
minimum lease
payments
payments
12,358
43,257
28,530
84,145
69,900
135,983
144,061
349,944
(9,931)
340,013
85
94,964
199,421
180,875
475,260
31/12/2012
Present value
Deferred
of future
financial
minimum
profits
lease
payments
13,638
81,326
46,129
153,292
31,369
149,506
91,136
384,124
(6,192)
377,932
6,214
113,782
120,753
10.3 Equity investments: change for the year
30/06/2013
31/12/2012
10
1
11
-
A. Opening balance
B. Increases
B.1 Purchases
B.2 Writebacks
B.3 Revaluations
B.4 Other changes
C. Decreases
C.1 Sales
C.2 Writedowns
C.3 Other changes
D. Closing balance
E. Total revaluations
F. Total writedowns
22
(12)
(12)
10
-
Section 11 - Technical reserves attributable to reinsurers - Item 110
11.1 Technical reserves attributable to reinsurers: composition
30/06/2013
A. Non-life insurance
A1. Unearned premiums reserves
A2. Claims reserves
A3. Other reserves
B. Life insurance
B1. Mathematical reserves
B2. Reserves for outstanding claims
B3. Other reserves
C. Technical reserves where the investment risk is borne by the
insured
C1. Reserves for contracts whose benefits are linked to investment funds
and market indices
C2. Reserves from the operation of pension funds
D. Total technical reserves attributable to reinsurers
86
31/12/2012
304
181
123
32
32
-
307
174
133
63
63
-
-
-
336
370
Section 12 - Property, plant and equipment - Item 120
12.1 Property, plant and equipment: composition of assets measured at cost
Assets/Values
30/06/2013
A. Operating assets
1.1 owned
a) land
b) buildings
c) movables
d) electronic plant
e) other
1.2 acquired under finance leases
a) land
b) buildings
c) movable
d) electronic plant
e) other
Total A
96,810
38,039
48,763
6,736
2,242
1,030
96,810
97,949
38,039
49,391
6,974
2,383
1,162
97,949
Total B
Total (A+B)
16,082
4,639
11,443
16,082
112,892
16,169
4,639
11,530
16,169
114,118
B. Investment property
2.1 owned
a) land
b) buildings
2.2 acquired under finance leases
a) land
b) buildings
87
31/12/2012
Section 13 - Intangible assets- Item 130
13.1 Intangible assets: composition by type of assets
30/06/2013
Assets/Values
Definite
life
A.1 Goodwill
A.1.1 pertaining to shareholder of the Parent Company
A.1.2 non-controlling interests
A.2 Other intangible assets
A.2.1 Assets measured at cost:
a) Internally-generated intangible assets
b) Other assets
A.2.2 Assets measured at fair value:
a) Internally-generated intangible assets
b) Other assets
Total
10,382
3,913
3,913
6,469
6,469
10,382
31/12/2012
Indefinite
Definite life
life
44,573
44,573
4,100
4,100
4,100
48,673
11,457
4,668
4,668
6,789
6,789
11,457
Indefinite
life
44,573
44,573
4,100
4,100
4,100
48,673
Goodwill includes higher values paid by the Parent Company for the acquisition of the following
companies:
- Banca Federico Del Vecchio SpA €40.9 million;
- BAP – BancAssurance Popolari SpA €3.6 million.
In line with the requirements of internal rules and IAS 36, since no trigger events (indicators of
impairment) were found at 30 June 2013, impairment testing was not conducted on the
aforementioned intangible assets, with the exception of goodwill deriving from higher values paid
by the Parent Company for the acquisition of Banca Federico del Vecchio. In particular, it was
found that the result obtained by Banca Federico del Vecchio in the first half of 2013 was
significantly different from the forecast plans. Therefore, it was considered necessary to test the
value of goodwill as at 30 June 2013 as well.
So, as concerns the verification of the stability of goodwill, an analysis was conducted on the main
variances found for the Banca Federico del Vecchio CGU. The macroeconomic outlooks at the
basis of long-term projections were also updated, their impacts for 2013 were estimated and a delay
over time of the economic recovery cycle was incorporated.
The new economic, financial and capital projections, which incorporate 2013 budget objectives and
the guidelines of the Group’s 2012-2014 Business Plan, were made by referring to the structure of
the subsidiary, and they do not consider any future incoming or outgoing cash flows which it is
estimated will be generated by future restructurings or improvements or optimisations of business
performance.
The forecast period covers four years and six months, rendering the analysis uniform with the
forecast made in the 2012 consolidated financial statements, which considered a five-year period.
88
Assumptions relating to operating volumes during the years covered by the forecast (2013-2017)
include, also in relation to the actual results of Banca Federico del Vecchio in the first half of 2013:
- loans will undergo a more significant decrease than previously forecast (CAGR of -5.4%);
- overall, the 2012-2017 CAGR of direct funding will amount to 5.0%, also lower than
previous assumptions;
- the 2012-2017 CAGR of indirect funding will amount to 10.7%.
With regard to the income statement:
- net interest income, determined on the basis of expected growth in loan and funding
amounts, will have a 2012/2017 CAGR of 2.8%. The estimate contains a downward revision
to take into account the different forecast of macroeconomic variables and the relative
effects on amounts of assets and liabilities. The rates and spreads on loans and funding to
customers were estimated based on the rate scenario used. The trends of both lending and
funding rates were revised downwards with respect to previous estimates to take into
account tensions that will remain, on the basis of the current macroeconomic outlook, in
reference rates and in lending activities. On the other hand, differences in the scenario, in
particular on government security yields, the reduction in the spread compared to the Bund
and less liquidity tension both over recent months and estimated for the periods in question,
make it possible to forecast a significant reduction in the cost of funding;
- the new estimates also revise downwards the interbank margin recognised by the Parent
Company to take into account the decrease in the spread on Italian securities and the partial
“recovery” from liquidity tensions;
- the evolution in the margin on services was projected with reference to the particular activity
of the Bank, which is the Group-wide investment competence centre, also in relation to the
presence of the Wealth Management hub. Overall, the 2012-2017 CAGR of net
commissions is 8.2%, in line with the recovery in profitability already achieved in the first
six months of 2013 as regards the traditional business and indirect funding;
- the 2013 estimate of writedowns on receivables considers the aforementioned
macroeconomic forecasts, results achieved at June 2013 and precise forecasts on the final
part of the year. The previous forecasts have been confirmed for the subsequent years, also
in relation to Italian GDP estimates, which are already positive in 2014 (Prometeia, May
2013 +0.7%) and above 1% beginning in 2015 (+1.2%), leading to the forecast of a return to
normal levels;
- estimated personnel expenses assume a stable workforce at the levels established in the
budget for the end of 2013 and average growth of -0.4% in 2012-2017, a rate above that
forecast by Prometeia for the system (-2.1%);
- other administrative expenses were prudentially quantified assuming inertial growth of 1.4%
in 2012-2017, a growth rate above the indications provided by Prometeia for the system (2.4%);
- it is therefore estimated that net operating expenses will have a CAGR of -0.3%, prudently
with respect to system expectations;
- income taxes were calculated on the basis of current tax regulations.
The method to calculate the recoverable amount is the value in use. Specifically, the value in use
was calculated using a generally accepted Dividend Discount Model with the excess capital variant,
following the best practices for valuing financial companies. This model measures the future cash
flows generated by the CGU using not only the discounted dividend flows, but also taking into
account the capital restrictions imposed by the supervisory regulations and simulating the
distribution/injection of excess/deficit capital with respect to these restrictions for each future period
for which a forecast is made.
89
The forecast projections described were used to determine projections of regulatory capital and riskweighted assets, particularly with regard to credit risk simulations, applying the average weighting
percentages based on operating assessments at 30 June 2013 on the projected volumes.
The evaluations reported above take into consideration the introduction of regulations set forth by
the Basel Committee, generally referred to as “Basel III”. For that purpose, for the determination of
capital requirements for risks, the level of weighting used was prudentially increased from 8.0% to
8.5% for all years covered by the plan. In other words, given regulatory uncertainty, capital
calculations were obtained by prudentially increasing the estimates calculated on the basis of
current regulations.
The excess, or any deficit, of cumulative capital for all years covered by the projection is calculated
as the difference between supervisory capital and the requirements, and projected profits will be
adjusted with respect to the simulated liquidity inflow/outflow, which is expected to be made up
through recourse to the short-term interbank market, net of the related tax effect.
Terminal value is calculated by discounting the perpetual yield based on the CGU’s long-term
ability to distribute excess capital.
The discount rate (Ke) applied to the future projections was set at a net 8.87% and was arrived at by
determining the rate investors would demand to invest in the CGU or an entity with a similar
risk/return profile. The rate, defined by using a capital asset pricing model (CAPM) approach, is
determined by using the following formula:
Ke = irf + β * MRP + ER
where:
irf is the risk-free interest rate over a ten-year time horizon, equal to the half-year average of the net
rate on 10-year Italian Treasury bonds observed in the first half of the year, as reported by
Bloomberg (3.675%);
β is the beta to be applied to the risk premium based on the average historical beta for the CGU’s
business sector, determined as the average of the weekly 2-year beta reported by Bloomberg for a
sample of medium-sized listed banks (0.869);
MRP is the risk premium over the risk-free rate of 5.0%, in line with valuation practice;
ER is the additional execution risk of 85 bps, included to account for the implementation of the new
Business Plan, in line with the figure used at the end of 2012.
The long-term growth rate (g) is assumed to be 2.0% based on forecasts disclosed by the primary
econometric analysis institutions.
90
Taking into consideration the main valuation elements described, the CGU is valued at €94.6
million, €6.4 million more than the carrying amount, which makes it possible to confirm the value
of goodwill recognised.
The following table summarises the sensitivity analysis conducted in relation to changes in the cost
of capital (Ke) and the long-term growth rate (g) expressed in terms of the value of the equity
investment.
Ke
(€ millions)
g
8.00%
8.25%
8.50%
8.87%
9.00%
9.25%
9.50%
1.80%
102.6
99.7
97.0
93.3
92.1
89.9
87.9
1.90%
103.5
100.5
97.7
94.0
92.7
90.5
88.4
2.00%
104.4
101.3
98.5
94.6
93.4
91.1
89.0
2.10%
105.4
102.2
99.3
95.3
94.1
91.7
89.6
2.20%
106.4
103.1
100.1
96.1
94.7
92.4
90.1
Equalising the value in use with the carrying amount would require increasing the discount rate by
0.73%.
91
Section 14 - Tax assets and tax liabilities - Item 140 of assets and Item 80 of liabilities
14.1 Deferred tax assets: composition
30/06/2013
134,171
367
19,743
5,377
15,508
47
70
1,762
10,196
973
16,399
204,313
204,313
Loans pursuant to Law 214/2011
Other loans
Goodwill pursuant to Law 214/2011
Goodwill
Other financial instruments
Deferred charges
Provisions for risks and charges
Entertainment expenses
Personnel costs
Tax losses
Other
Gross deferred tax assets
Offsetting against deferred tax liabilities
Net deferred tax assets
31/12/2012
133,554
251
26,743
5,422
11,705
76
70
7,785
10,141
963
7,924
204,564
204,564
Deferred tax assets in respect of loans regard the deferral (over 18 years) of the portion of
writedowns recognised in the income statement in the various years in excess of the percentage
amount that can be recognised for tax purposes.
These credits, along with those that resulted from discharge of the tax liability on goodwill, carried
out in 2011 according to Legislative Decree 98/2011, are deemed to be recoverable in future years,
partly owing to the new regulations issued with Decree Law 201/2011 (the “Monti Decree”) and the
consequent amendments of Decree Law 225/2010 (the “Omnibus Extension Decree”).
The deferred tax receivables in respect of tax losses were recognised pursuant to Article 84 of the
Uniform Income Tax Code, as amended by Decree Law 98/2011. They regard Banca Lecchese SpA
and the two insurance companies.
14.2 Deferred tax liabilities: composition
30/06/2013
A. Gross deferred tax liabilities
A.1. Capital gains taxed in instalments
A.2. Goodwill
A.3. Property, plant and equipment
A.4. Financial instruments
A.5. Personnel costs
A.6. Other
B. Offsetting against deferred tax assets
C. Net deferred tax liabilities
7,396
624
4,585
2,085
102
7,396
92
31/12/2012
13,713
624
10,323
2,210
556
13,713
14.3 Changes in deferred tax assets (recognised in the income statement)
Opening balance
Increases
2.1 Deferred tax assets recognised during the year
a) in respect of previous periods
b) due to change in accounting policies
c) writebacks
d) other
2.2 New taxes or increases in tax rates
2.3 Other increases
Decreases
3.1 Deferred tax assets derecognised during the year
a) reversals
b) writedowns due to non-recoverability
c) due to change in accounting policies
d) other
3.2 Reduction in tax rates
3.3 Other decreases
a) conversion into tax credits as per Law 214/2011
b) other
Closing balance
30/06/2013
181,782
39,216
39,211
39,211
5
(48,835)
(7,911)
(7,863)
(48)
(40,924)
(40,924)
31/12/2012
86,792
107,764
107,607
107,607
157
(12,774)
(12,628)
(5,565)
(7,063)
(146)
(146)
172,163
181,782
14.3.1 Changes in deferred tax assets pursuant to Law 214/2011
(recognized in the income statement)
30/06/2013 31/12/2012
1. Opening balance
2. Increases
3. Decreases
3.1 Reversals
3.2 Conversion into tax credits
a) resulting from losses for the year
b) resulting from tax losses
3.3 Other decreases
4. Closing balance
160,248
35,288
41,007
(60)
(40,924)
(40,924)
(23)
154,529
69,451
94,116
(3,319)
(168)
(146)
(41)
(105)
(3,005)
160,248
Pursuant to paragraphs 55 and 56-bis of Art. 2 of Decree Law no. 225/2010 (Omnibus Extension
Decree), the Parent Company and the subsidiary Banca Lecchese SpA converted deferred tax assets
recognised in the financial statements related to writedowns on loans not yet deducted from taxable
income, the value of goodwill, as well as tax losses as per Art. 84 of the Uniform Income Tax Code
into current income tax credits, for a total value of €40.9 million.
93
14.4 Changes in deferred tax liabilities (recognised in the income statement)
1. Opening balance
2. Increases
2.1 Deferred tax liabilities recognised during the year
c) other
2.3 Other increases
3. Decreases
3.1 Deferred tax liabilities derecognised during the year
a) reversals
c) other
3.3 Other decreases
4. Closing balance
30/06/2013
3,376
3,384
3,384
3,384
(1,178)
(710)
(103)
(607)
(468)
5,582
31/12/2012
14,684
2,888
2,888
2,888
0
(14,196)
(13,656)
(3,526)
(10,130)
(540)
3,376
14.5 Changes in deferred tax assets (recognised in shareholders’ equity)
30/06/2013
1. Opening balance
2. Increases
2.1 Deferred tax assets recognised during the year
c) other
2.3 Other increases
3. Decreases
3.1 Deferred tax assets derecognised during the year
a) reversals
b) writedowns due to non-recoverability
c) due to changes in accounting policies
d) other
3.3 Other decreases
4. Closing balance
22,782
13,476
7,979
7,979
5,497
(4,108)
(4,108)
(4,108)
32,150
94
31/12/2012
38,093
3,452
2,298
2,298
1,154
(18,763)
(18,533)
(18,533)
(230)
22,782
14.6 Changes in deferred tax liabilities (recognised in shareholders’ equity)
30/06/2013
1. Opening balance
2. Increases
2.1 Deferred tax liabilities recognised during the year
c) other
2.3 Other increases
3. Decreases
3.1 Deferred tax liabilities derecognised during the year
a) reversals
c) other
3.3 Other decreases
4. Closing balance
31/12/2012
10,337
483
483
483
(9,006)
(9,006)
-
1,147
10,051
10,051
10,051
(861)
(861)
(861)
-
1,814
10,337
14.7 Other information - A) Current tax assets
IRES advance payments
IRAP advance payments
Other receivables and withholdings
Gross current tax assets
Offsetting against current tax liabilities
Net current tax assets
30/06/2013
31/12/2012
8,863
5,082
53,944
67,889
(40,921)
26,968
15,136
14,329
10,087
39,552
(37,125)
2,427
The sub-item “Other receivables and withholdings” includes:
- the transformation into tax credits of €40.9 million in deferred tax assets on loans and
goodwill pursuant to the provisions of Law 214/2011;
- the tax benefit of €6.1 million for the reimbursement of the deductibility of IRAP related to
personnel costs from the IRES taxable base for the years 2007-2011.
95
14.7 Other information- B) Current tax liabilities
30/06/2013
IRES liability
IRAP liability
Other current income tax payables
Gross current tax liabilities
Offsetting against current tax assets
Net current tax liabilities
31/12/2012
28,117
7,621
566
36,364
(35,571)
793
23,609
12,099
589
36,297
(35,121)
1,176
Section 16 - Other assets - Item 160
16.1 Other assets: composition
30/06/2013
Tax credits with tax authorities and other tax agencies
Cheques drawn on third parties
Enforceable coupons and notes
Tax stamps and other
Gold, silver and other precious metals
Transit items (branches)
Items being processed
Shortfalls, theft, robbery
Accrued income not otherwise allocated
Prepaid expenses not otherwise allocated
Leasehold improvements
Other
Total
Other includes the following items pertaining to the Parent Company:
- gold and currency to be settled (approximately €6.4 million);
- operating loans (about €1.9 million);
- accrued fees (about €6 million);
- credit transfers to be settled (about €8 million);
- sundry tax items (about €32.8 million).
96
31/12/2012
3,663
6,909
97
74
30,979
12,482
384,152
11,387
157
283
3,187
78,501
2,423
15,291
93
77
36,133
17,780
86,329
2,079
14
888
2,857
67,008
531,871
230,972
LIABILITIES
Section 1 - Due to banks - Item 10
1.1 Due to banks: composition by type
Type of transactions/ Group components
1. Due to central banks
2. Due to banks
2.1 Current accounts and demand deposits
2.2 Fixed-term deposits
2.3 Borrowings
2.3.1 repurchase agreements
2.3.2 other
2.4 Liabilities in respect of commitments to repurchase own equity instruments
2.5 Other payables
Total
30/06/2013
1,316,015
138,773
21,475
92,441
24,803
24,803
54
1,454,788
31/12/2012
1,311,591
338,304
217,192
95,019
23,989
23,989
2,104
1,649,895
Fair value
1,454,788
1,649,895
1. Current accounts and demand deposits
3. Loans
3.1 repurchase agreements
3.2 other
4. Liabilities in respect of commitments to repurchase own equity instruments
5. Other payables
Total
30/06/2013
3,183,183
1,259,690
6,348,252
6,299,238
49,014
30,144
10,821,259
31/12/2012
3,132,390
1,334,579
3,668,163
3,614,609
53,554
39,972
8,175,104
Fair value
10,821,259
8,175,104
Section 2 - Due to customers - Item 20
2.1 Due to customers: composition by type
97
Section 3 - Outstanding securities - Item 30
3.1 Outstanding securities: composition by type
Type of
securities/Values
A. Securities
1. Bonds
1.1 structured
1.2 other
2. Other securities
2.1 structured
2.2 other
Total
30/06/2013
Book
value
Level 1
1,971,501
1,931,788
3,488
1,928,300
39,713
39,713
1,971,501
31/12/2012
Fair value
Level 2
Level 3
- 1,582,159
- 1,542,446
3,467
- 1,538,979
39,713
39,713
- 1,582,159
387,586
387,586
387,586
Book
value
2,001,784
1,943,077
4,665
1,938,412
58,707
58,707
2,001,784
Fair value
Level 2
Level 1
-
1,561,832
1,503,125
4,673
1,498,452
58,707
58,707
1,561,832
Level 3
444,486
444,486
444,486
444,486
The fair value of the bonds was determined on the basis of swap rates at the measurement date,
applying the market credit spread for similar bonds issued by banks or similar issuers or using credit
indices.
3.2 Breakdown of item 30 “Outstanding securities”: subordinated securities
Type/Values
Issue date
Interest
Maturity Currency Rate
Book
Value
Jul-06
2016
Euro floating
28,684
Upper Tier II subordinated loan
Sep-07
2017
Euro floating
51,390
Upper Tier II subordinated loan
May-08
2018
Euro floating
11,972
Lower Tier II amortising subordinated loan
Oct-09
2015
Euro floating
3,021
Lower Tier II amortising subordinated loan
Mar-08
2018
Euro floating
5,056
Lower Tier II subordinated loan (*)
Total
100,123
98
Section 4 - Financial liabilities held for trading - Item 40
4.1 Financial liabilities held for trading: composition by type
30/06/2013
NV
A. On-balance-sheet liabilities
1. Due to banks
2. Due to customers
3. Debt securities
3.1 Bonds
3.1.1 Structured
3.1.2 Other bonds
3.2 Other securities
3.2.1 Structured
3.2.2 Other
FV
L2
L1
31/12/2012
FV*
L3
N
V
FV
L2
L1
FV*
L3
Total A
-
-
-
-
-
-
-
-
-
-
B. Derivatives
1. Financial derivatives
1.1 Trading
1.2 Associated with fair value option
1.3 Other
2. Credit derivatives
2.1 Trading
2.2 Associated with fair value option
2.3 Other
Total B
Total (A+B)
-
-
41,939
39,739
2,200
41,939
41,939
1,639
1,639
1,639
1,639
-
-
1
1
1
1
52,584
52,584
52,584
52,584
1,863
1,863
1,863
1,863
-
99
Section 5 - Financial liabilities designated at fair value through profit
or loss - Item 50
5.1 Financial liabilities designated at fair value through profit or loss: composition
by type
Type of
transactions/Values
1. Due to banks
1.1 Structured
1.2 Other
2. Due to customers
2.1 Structured
2.2 Other
3. Debt securities
3.1 Structured
3.2 Other
Total
30/06/2013
NV
FV
L2
L1
45,884
45,884
869,168
380
868,788
-
915,052
31/12/2012
FV*
L3
NV
L1
FV
L2
FV*
L3
-
45,884
45,884
844,216
380
843,836
- 45,884
- 45,884
- 870,055
- 870,055
45,895
45,895
850,764
368
850,396
- 45,895
- 45,895
- 851,965
365
- 851,600
-
-
890,100
- 915,939
896,659
- 897,860
-
45,895
866,011
866,011
911,906
Key
FV = fair value
FV* = fair value calculated excluding changes in value due to changes in the credit rating of the issuer with respect
to the issue date.
NV = nominal or notional value
L1 = Level 1
L2 = Level 2
L3 = Level 3
This item includes all liabilities that the Group intends to measure at fair value through profit or
loss, as this classification allows the elimination, or significant reduction, of distortions in the
accounting representation of the financial instruments involved.
Pursuant to paragraph 10 of IFRS 7, the following information is provided regarding the Parent
Company:
- the change (reduction in the financial liability) in the fair value attributable solely to credit
risk during the year amounted to €8,652 thousand. This value was determined by calculating
the difference between the full fair value at 30 June 2013 and the value at the same date
calculated by applying to each security the credit spread estimated at the previous
measurement date.
- The change (cumulative) in the fair value (reduction in the value of the financial liability)
attributable solely to the credit spread amounted to €25,827 thousand.
- The difference between the carrying amount of the bonds issued at 30 June 2013 and the
amount to be repaid by the Parent Company at maturity (nominal value) is €24,952
thousand.
100
5.2 Breakdown of item 50 "Financial liabilities designated at fair value through profit or loss ": subordinated
liabilities
Type/Items
Issue date
Maturity
Currency
Interest
rate
Book value
Step-up subordinated loan (*)
Oct-06
2016
Euro
4.25%
49,132
Step-up subordinated loan (**)
Dec-07
2017
Euro
5.00%
18,497
SD Lower Tier II amortising subordinated loan
Oct-09
2016
Euro
4.00%
7,610
SD Lower Tier II amortising subordinated loan
Dec-10
2017
Euro
4.00%
17,490
Lower Tier II subordinated loan
Jun-13
2,018
Euro
3.50%
51,748
144,477
Total
(*) Refers to a callable bond, with an early redemption clause that may be activated every six months from
30 October 2011.
(**) Refers to a callable bond, with an early redemption clause that may be activated every six months from
28 December 2012.
Section 6 - Hedging derivatives - Item 60
6.1 Hedging derivatives: composition by type and level
30/06/2013
31/12/2012
Fair value
Fair value
NV
L1
A. Financial derivatives
1) Fair value
2) Cash flow
3) Foreign operations
B. Credit derivatives:
1) Fair value
2) Cash flow
Total
L2
-
20,629
20,629
20,629
L3
NV
L1
-
Key
NV = notional value
L1 = Level 1
L2 = Level 2
L3 = Level 3
101
120,000
120,000
120,000
L2
-
26,003
26,003
26,003
L3
-
120,000
120,000
120,000
Section 10 - Other liabilities - Item 100
10.1 Other liabilities: composition
Consolidation adjustments
Tax authorities
Social security institutions
Amounts available to customers
Other payables to employees
Transit items (branches)
Items being processed
Advances on maturing receivables
Accrued expenses not otherwise allocated
Deferred income not otherwise allocated
Payables in respect of impairment of guarantees issued
Other
Total
30/06/2013
31/12/2012
1,460
23,854
445
23,117
515
7,143
77,561
171
145
943
1,312
164,847
753
34,477
408
12,337
827
11,336
67,906
131
5
13
7
133,931
262,131
301,513
At 30 June 2013, “Other” includes the following items pertaining to the Parent Company:
- operating liabilities (about €7.3 million);
- security deposits (about €8.2 million);
- debit items to be settled (about €42.5 million);
- amounts to be paid to employees (about €9 million);
portfolio risk (about €59 million).
Section 11 - Provision for staff termination pay - Item 110
11.1 Staff termination pay: change for the year
30/06/2013
A. Opening balance
B. Increases
B.1 Accrual for the period
B.2 Other changes
C. Decreases
C.1 Termination payments
C.2 Other changes
D. Closing balance
34,733
3,036
847
2,189
(5,976)
(5,976)
31,793
102
31/12/2012
30,182
6,811
1,949
4,862
(2,260)
(2,260)
34,733
Section 12 - Provisions for risks and charges - Item 120
12.1 Provisions for risks and charges: composition
Items/Components
30/06/2013
1 Company pension plans
2. Other provisions for risks and charges
2.1 legal disputes
2.2 personnel costs
2.3 other
31/12/2012
29,499
5,516
23,358
625
29,499
Total
55,691
5,371
25,337
24,983
55,691
Item 2.2 “Personnel costs” includes the amounts allocated for the amounts to be paid for employee
participation in the Solidarity Fund, established by the Banca Etruria Group last year.
Item 2.3 “Other” included provisions made by the Parent Company to incorporate additional
writedowns which emerged following the inspection carried out by the Supervisory Authorities,
subsequent to approval of the draft financial statements at the meeting on 15 March 2013. At 30
June 2013, the provision was allocated to the individual positions.
Section 13 - Technical reserves – Item 130
13.1 Technical reserves: composition
Direct
A. Non-life insurance
Indirect
30/06/2013
31/12/2012
4,571
-
4,571
4,996
A1. Unearned premiums reserves
A2. Claims reserves
A3. Other reserves
B. Life insurance
4,103
468
1,017,018
-
4,103
468
1,017,018
4,543
453
878,867
B1. Mathematical reserves
B2. Reserves for outstanding claims
1,008,272
7,719
-
1,008,272
7,719
854,753
23,226
1,027
-
1,027
888
C. Technical reserves where the investment risk is borne
by the insured
-
-
-
-
C1. Reserves for contracts whose benefits are linked to
investment funds and market indices
-
-
-
-
C2. Reserves from the operation of pension funds
-
-
-
-
1,021,589
-
1,021,589
883,863
B3. Other reserves
D. Total technical reserves
103
Section 15 - Group shareholders’ equity - Items 140, 160, 170, 180, 190, 200 and 220
15.1 “Share capital” and “Treasury shares”: composition
As at 30 June 2013, the Parent Company’s share capital is €342,646 thousand, representing
50,524,160 ordinary shares. There are 1,502,793 treasury shares in the portfolio as at 30 June 2013,
with a countervalue of €5,177 thousand.
15.2 Share capital - number of Parent Company shares: change for the year
Items/Type
Ordinary shares
A. Shares at start of period
- Fully paid
- Partly paid
A.1 Treasury shares (-)
A.2 Shares in circulation: opening balance
B. Increases
B.1 New issues
- For consideration:
- Business combinations
- Conversion of bonds
- Exercise of warrants
- Other
- Bonus issues:
- To employees
- To directors
- Other
B.2 Sale of treasury shares
B.3 Other changes
C. Decreases
C.1 Cancellation
C.2 Purchase of own shares
C.3 Disposal of companies
C.4 Other changes
D. Shares in circulation: closing balance
D.1 Treasury shares (+)
D.2 Shares at end of the year
- Fully paid
- Partly paid
252,620,802
252,620,802
(1,633,747)
250,957,055
7,464,180
7,464,180
(209,399,868)
(7,303,226)
(202,096,642)
49,021,367
1,502,793
50,524,160
50,524,160
-
Item C.4 - “Other changes” relates to the decrease in the number of shares deriving from the
grouping operation carried out by the Parent Company on 29 April 2013.
104
Section 16 – Non-controlling interests – Item 210
16.1 Non-controlling interests: composition
Items/Values
Banking group
Insurance
undertakings
Other entities
30/06/2013
31/12/2012
1. Share capital
13,761
5,880
10
19,651
19,623
2. Share premium reserves
3. Reserves
1,196
(2,551)
503
-
1,196
(2,048)
1,196
(1,388)
15
-
-
-
15
-
40
-
(1,449)
10,972
173
6,556
10
(1,276)
17,538
(610)
18,861
4. (Treasury shares)
5. Valuation reserves
6. Equity instruments
7. Net profit (loss) pertaining to
non-controlling interests
Total
105
Part C - Information on the consolidated income statement
106
107
Section 1 - Interest - Items 10 and 20
1.1 Interest income and similar revenues: composition
Items/Technical forms
1
2
Debt securities
Financial assets held for
trading
Financial assets designated at
fair value through profit or
loss
3
Financial assets available for
sale
4
6
Financial assets held to
maturity
Due from banks
Customer loans
7
8
Hedging derivatives
Other assets
5
Total
Loans
Other
30/06/2013 30/06/2012
50
-
6,949
6,999
2,807
438
-
-
72,303
-
-
72,303
49,464
7,478
-
-
7,478
2,418
1,116
1,489
955
3,600
6,005
306
126,278
-
126,584
161,185
-
-
55
55
464
81,691
127,767
7,999
217,457
222,343
-
438
Interest income on impaired customer loans and related impaired assets amounted to €12.8 million
at 30 June 2013.
1.4 Interest expense and similar charges: composition
Items/Technical forms
1.
2.
3.
4.
5.
6.
7.
8.
Debt
Due to central banks
Due to banks
Due to customers
Outstanding securities
Financial liabilities held for trading
Financial liabilities designated at fair
value through profit or loss
Other liabilities and fund
Hedging derivatives
Total
Securities
Other
30/06/2013 30/06/2012
(4,424)
(971)
(44,498)
-
(30,378)
-
(300)
(640)
(4,424)
(971)
(44,798)
(30,378)
(640)
(6,389)
(7,322)
(34,118)
(46,039)
(1,097)
-
(14,582)
-
(367)
(1,966)
(14,582)
(367)
(1,966)
(14,078)
(403)
(1,013)
(49,893)
(44,960)
(3,273)
(98,126)
(110,459)
108
Section 2 – Commissions - Items 40 and 50
2.1 Commission income: composition
Types/Values
30/06/2013
a) guarantees issued
b) credit derivatives
c) management, intermediation and advisory services:
1. trading in financial instruments
2. foreign exchange
3. asset management
3.1 individual
3.2. collective
4. securities custody and administration
5. depository services
6. securities placement
7. order collection
8. advisory services
8.1. investing
8.2. financial planning
9. distribution of third-party services
9.1. asset management
9.1.1. individual
9.1.2. collective
9.2. insurance products
9.3. other
d) collection and payment services
e) servicing activities for securitisations
f) services for factoring transactions
g) tax collection services
h) management of multilateral trading systems
i) holding and management of current accounts
j) other services
Total
109
30/06/2012
1,873
9,638
7
815
1,193
3,956
1,434
77
77
2,156
282
282
2
1,872
8,573
155
22,586
3,207
2,572
12,427
163
714
1,247
3,009
1,210
43
43
6,041
348
348
3,837
1,856
4,921
132
29,363
2,654
46,032
52,069
2.2 Commission expense: composition
Services/Values
30/06/2013
a) guarantees received
b) credit derivatives
c) management and intermediation services:
1. trading in financial instruments
2. foreign exchange
3. asset management:
3.1 own portfolio
3.2 third-party portfolios
4. securities custody and administration
5. placement of financial instruments
6. off-premises distribution of securities, products and services
d) collection and payment services
e) other services
30/06/2012
(3,037)
(118)
(11)
(304)
(2,604)
(1,254)
(595)
(4,886)
Total
(4)
(2,926)
(113)
(11)
(269)
(2,533)
(1,329)
(428)
(4,687)
The item “Placement of financial instruments” includes commissions paid toItalina Ministry of
Economy and finance. following the granting of the government guarantee on bonds issued by the
Parent Company pursuant to Art. 8 of Decree Law no. 201 of 6 December 2011, converted into Law
no. 214 of 22 December 2011.
Section 3 - Dividends and similar revenues - Item 70
3.1 Dividends and similar revenues: composition
30/06/2013
30/06/2012
Income from
Income from
units in
units in
dividends collective dividends collective
investment
investment
undertakings
undertakings
Items/Gains
A. Financial assets held for trading
B. Financial assets available for sale
Financial assets designated at fair value
C.
D. Equity investments
228
141
361
268
100
542
-
-
-
-
-
-
-
-
Total
369
361
368
542
110
Section 4 - Net result on trading - Item 80
4.1 Net result on trading: composition
Transactions/Income components
Capital
gains (A)
1. Financial assets held for trading
1.1 Debt securities
1.2 Equity securities
1.3 Units in
collective investment
undertakings
1.4 Loans
1.5 Other
2. Financial liabilities held for trading
2.1 Debt securities
2.2 Payables
2.3 Other
3. Other financial assets and liabilities:
exchange rate differences
4. Derivatives
4.1 Financial derivatives:
- On debt securities and interest rates
On equity securities and equity
- indices
- On foreign currencies and gold
- Other
4.2 Credit derivatives
Total
Trading
profits (B)
Capital losses
(C)
Trading
losses (D)
Net result
[(A+B)-(C+D)]
363
33
330
3,595
149
230
(978)
(63)
(903)
(35)
(23)
(10)
2,945
96
(353)
-
3,216
-
(12)
-
(2)
-
(14)
3,216
-
-
-
-
-
(10,528)
113,119
113,119
113,117
2,439
2,439
2,439
(111,983)
(111,983)
(111,979)
(2,249)
(2,249)
(2,249)
12,979
12,979
1,328
2
113,482
6,034
(4)
(112,961)
(2,284)
(2)
11,653
5,396
111
Section 5 - Net result on hedging - Item 90
5.1 Net result on hedging: composition
Income components/Values
A.
A.1
A.2
A.3
A.4
A.5
30/06/2013
Income on:
Fair value hedge derivativess
Hedged financial assets (fair value)
Hedged financial liabilities (fair value)
Cash flow hedge derivatives
Assets and liabilities in foreign currencies
Total income on hedging (A)
B.
B.1
B.2
B.3
B.4
B.5
Expenses on:
Fair value hedge derivatives
Hedged financial assets (fair value)
Hedged financial liabilities (fair value)
Cash flow hedge derivatives
Assets and liabilities in foreign currencies
Total expenses on hedging (B)
C.
Net result on hedging (A - B)
30/06/2012
5,456
-
4,761
-
5,456
4,761
(5,590)
-
(4,840)
-
(5,590)
(4,840)
(134)
(79)
The items reported under income (item A.1) and expense (item B.2) regard asset swap contracts
subscribed by the Parent Company to hedge the interest rate risk on government securities in the
nominal amount of €120 million, classified as financial assets available for sale.
112
Section 6 - Proift (loss) on disposal or repurchase - Item 100
6.1 Profit (loss) on disposal or repurchase: composition
Financial assets
1. Due from banks
2. Customer loans
3. Financial assets available for sale
3.1 Debt securities
3.3 Units in collective investment undertakings
3.4 Loans
4. Financial assets held to maturity
Net profit
(loss)
Loss
Profit
30/06/2012
Net profit
(loss)
Profit
Items/Income components
Loss
30/06/2013
223 (223)
43,126 (8,771) 34,355 28,518 (9,470) 19,048
43,126 (8,771) 34,355 27,763 (8,467) 19,296
24
24
731 (1,003)
(272)
418
418
Total assets 43,126 (8,771) 34,355 29,159 (9,693) 19,466
Financial liabilities
1. Due to banks
2. Due to customers
3. Outstanding securities
Total liabilities
113
604
604
(952)
(952)
(348)
(348)
5,336 (1,021)
5,336 (1,021)
4,315
4,315
Section 7 - Net result on financial assets and liabilities designated at fair value through profit or loss - Item 110
7.1 Net result on financial assets and liabilities designated at fair value through profit or loss: composition
Gain on
realisation
(B)
Capital
gains (A)
1. Financial assets
1.1 Debt securities
899
899
-
-
-
1.3 Units in collective investment undertakings
-
-
1.4 Loans
-
-
26,783
26,783
376
376
2.2 Due to banks
-
-
2.3 Due to customers
-
-
3. Financial assets and liabilities in foreign
currency: exchange rate differences
-
-
21,457
49,139
376
2. Financial liabilities
2.1 Debt securities
4. Credit and financial derivatives
Total
Capital
losses (C)
Loss on
realisation
(D)
-
-
899
899
-
-
-
-
-
-
(503)
(503)
25,899
25,899
-
-
-
-
-
-
(503)
(11,619)
15,179
(757)
(757)
(33,076)
(33,833)
Net result
[(A+B)(C+D)]
Section 8 - Net impairment losses - Item 130
8.1 Net impairment losses on loans: composition
Writedowns (1)
Writebacks (2)
A. Due from banks
- Loans
- Debt securities
B. Customer loans
Purchased impaired
positions
- Loans
- Debt securities
Other loans
- Loans
- Debt securities
C. Total
Portfolio
Other
Writeoffs
Specific
Transactions/Income
components
Specific
A
B
(2,544) (181,550) (8,199) 18,873 55,743
(2,544) (181,550) (8,199) 18,873 55,743
(2,544) (181,550) (8,199) 18,873 55,743
114
Portfolio
A
B
-
30/06/2013
(3) = (1)- 30/06/2012
(2)
-
(117,677)
(117,677)
(117,677)
(57,211)
(57,211)
(57,211)
8.2 Net impairment losses on financial assets available for sale: composition
Writebacks (2)
Specific
Specific
A. Debt securities
30/06/2013
(3) = (1)-(2)
Other
Writeoffs
Writedowns (1)
A
B. Equity securities
-
-
C. Units in collective investment
undertakings
-
-
D. Loans to banks
E. Loans to customers
F. Total
B
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30/06/2012
-
(3,12)
-
(3,304)
-
(88)
-
-
-
-
-
(6,512)
Key
A = Interest
B = Other writebacks
8.4 Net impairment losses on other financial transactions: composition
Writedowns (1)
Other
Writeoffs
Specific
Portfolio
Specific
Writebacks (2)
Portfolio
30/06/2013
(3)=(1)-(2)
A
B
A
30/06/2012
B
A. Guarantees issued
B. Credit derivatives
C. Commitments to disburse funds
D. Other transactions
- (331)
(2)
-
(220)
(3)
-
-
140
-
-
-
(411)
(5)
-
(3,379)
(416)
-
E. Total
- (333)
(223)
-
140
-
-
(416)
(3,795)
Key
A= interest
B = other writebacks
115
Section 9 - Net premiums - Item 150
9.1 Net premiums: composition
Premiums from insurance operations
Direct
A. Life insurance
A.1 Gross premiums written (+)
A.2 Premiums ceded in reinsurance (-)
A.3 Total
B. Non-life insurance
B.1 Gross premiums written (+)
B.2 Premiums ceded in reinsurance (-)
B.3 Change in gross unearned premium reserve (+/-)
B.4 Change in technical reserves attributable to reinsurers (-/+)
B.5 Total
C. Total net premiums
116
Indirect
30/06/2013
30/06/2012
183,985
(41)
183,944
-
183,985
(41)
183,944
63,412
(40)
63,372
919
(199)
440
7
1,167
-
919
(199)
440
7
1,167
703
(173)
411
(18)
923
185,111
-
185,111
64,295
Section 10 - Net other income (expense) from insurance activities - Item 160
10.1 Net other income (expense) from insurance activities: composition
Items
30/06/2013
1.
Net change in technical reserves
2.
Accrued claims paid during the year
3.
Other income and charges from insurance operations
Total
30/06/2012
(159,724)
(40,997)
(38,038)
(34,798)
(661)
(409)
(198,423)
(76,204)
Section 11 - Administrative expenses - Item 180
11.1 Personnel expenses: composition
Type of expense/Sector
30/06/2013
1) Employees
a) wages and salaries
b) social security contributions
c) termination pay
d) pensions
e) allocation to employee termination pay provision
f) allocation to provision for pensions and similar commitments:
- defined contribution
- defined benefit
g) payments to external pension funds:
- defined contribution
- defined benefit
h) costs in respect of agreements to make payments in own equity
instruments
i) other employee benefits
2) Other personnel
3) Board of Directors and Board of Auditors
4) Retired personnel
Total
117
30/06/2012
(57,263)
(41,282)
(11,081)
(2,311)
(28)
(847)
(64)
(64)
(1,290)
(69)
(1,221)
(61,675)
(43,708)
(11,840)
(2,134)
(12)
(981)
(1,393)
(67)
(1,326)
-
-
(360)
(266)
(1,498)
-
(1,607)
(290)
(1,643)
-
(59,027)
(63,608)
11.5 Other administrative expenses: composition
30/06/2013
- building lease expense
- ordinary maintenance
- other property expenses
- postal and telephone expenses
- electricity, heating and water
- machinery and software leasing
- data processing
- systems assistance and software leasing
- advertising and entertainment
- legal and notary services
- sundry services and consulting
- subscriptions
- transport
- collection of information and enquires
- insurance undertakings
- security
- cleaning
- charity and other donations
- office supplies and printing
- association and union dues
- general expenses
- other administrative expenses
- indirect taxes and duties
Total
30/06/2012
(7,843)
(945)
(1,914)
(1,416)
(808)
(8,359)
(600)
(1,169)
(1,809)
(2,999)
(7)
(487)
(5,883)
(1,180)
(10)
(2,172)
(1,584)
(601)
(9,267)
(619)
(1,514)
(1,799)
(2,896)
(4)
(538)
(1,259)
(131)
(346)
(887)
(161)
(749)
(528)
(3,453)
(2,798)
(10,085)
(1,697)
(91)
(595)
(825)
(512)
(390)
(1,059)
(1,114)
(3,411)
(6,759)
(48,753)
(44,550)
Section 12 - Net provisions for risks and charges - Item 190
12.1 Net provisions for risks and charges: composition
30/06/2013
Payment of
damages and
bankruptcy
revocatory
actions
(15)
Items/Values
- Accrual for the period
- Use for the period
Total
30/06/2012
Legal
disputes
(1,511)
Payment of
damages and
Other
bankruptcy
revocatory
actions
(251)
(57)
Legal
disputes
Other
(482)
(253)
178
77
23,769
627
-
-
163
(1,434)
23,518
570
(482)
(253)
118
The item “Use for the period” includes the reversal of provisions made to incorporate additional
writedowns which emerged following the inspection carried out by the Supervisory Authorities,
subsequent to approval of the 2012 draft financial statements at the meeting on 15 March 2013,
which were allocated to the individual items, for technical reasons, in the first half of 2013.
Section 13 - Net writedowns/writebacks of property, plant and equipment - Item 200
13.1. Net writedowns/writebacks of property, plant and equipment: composition
Net
writedowns
(a+b-c)
Depreciation (a)
Writedowns for
impairment (b)
(1,975)
(1,773)
(202)
-
-
-
(1,975)
(1,773)
(202)
-
(1,975)
-
-
(1,975)
A. Property, plant and equipment
A.1 Owned
- Operating assets
- Investment property
A.2 Acquired under finance leases
- Operating assets
- Investment property
Total
Writebacks
(c)
Section 14 - Net writedowns/writebacks of intangible assets - Item 210
14.1 Net writedowns/writebacks of intangible assets: composition
Depreciation
(a)
A. Intangible assets
A.1 Owned
- developed internally
- Other
A.2 Acquired under finance leases
Total
(1,510)
(1,510)
(1,510)
119
Writedowns for
impairment (b)
Writebacks Net writedowns
(c)
(a+b-c)
-
-
(1,510)
(1,510)
(1,510)
Section 15 - Other operating expenses and income - Item 220
15.1 Other operating expenses: composition
30/06/2013
Reductions in assets not otherwise allocated
Out-of-period expenses not otherwise allocated
Robbery and theft
Amortisation of expenditures for leasehold improvements
Settlement of disputes and claims
Other expenses
Total
30/06/2012
(22)
(23)
(432)
(473)
(1,790)
(406)
(8)
(269)
(34)
(600)
(277)
(2,111)
-
(3,146)
(3,299)
15.2 Other operating income: composition
30/06/2013
Out-of-period income not otherwise allocated
Rental income
Recovery of taxes and duties
Recovery for services provided to group companies
Recovery of legal and notary costs
Recovery of postal expenses
Other income
Total
35
284
6,821
17
2
4,732
4,337
21
16,249
30/06/2012
135
407
5,496
4
71
812
4,307
183
11,415
Section 20 - Income taxes on current operations for the period - Item 290
20.1 Income taxes on current operations for the period: composition
Income components/Sectors
1.
2.
3.
3.bis
4.
5.
6.
Current taxes (-)
Changes in current taxes from previous periods (+/-)
Reduction of current taxes for the period (+)
Reduction of current taxes for tax credits as per Law no. 214/2011 (+)
Change in deferred tax assets (+/-)
Change in deferred tax liabilities (+/-)
Taxes for the period (-) (-1+/-2+3+/-4+/-5)
120
30/06/2013
(38,258)
565
40,924
(9,619)
(2,674)
(9,062)
30/06/2012
(12,555)
2,960
3,860
(5,735)
Section 24 - Earnings per share
24.1 Basic and diluted earnings per share
The following table reports basic and diluted earnings per share at 30 June 2013.
As envisaged in paragraph 10 of IAS 33, the value for basic earnings per share was calculated by
dividing the net profit or loss attributable to holders of ordinary shares of the Parent Company by
the weighted average number of ordinary shares in circulation.
Attributable
income
Basic EPS
Weighted average
ordinary shares
549
149,989,211
121
Earnings per share
30/06/2013
31/12/2012
0.004
(2.23)
122
Part D - Consolidated comprehensive income
123
124
Detailed breakdown of consolidated comprehensive income
Gross
amount
Items
10.
20.
30.
40.
50.
60.
70.
80.
90.
100.
110.
120.
110.
Income
tax
Other income components with no reversal to income statement
Intangible assets
Share of valuation reserves of equity investments accounted for using
equity method
Other income components with reversal to income statement
Hedging of investments in foreign operations
a) fair value changes
b) reversal to income statement
c) other changes
Foreign exchange differences
a) value changes
c) other changes
Cash flow hedges
c) other changes
- impairment adjustments
- realised gain/loss
c) other changes
c) other changes
Share of valuation reserves of equity investments accounted for using
equity method
- impairment adjustments
- realised gain/loss
c) other changes
Total other income components
120. Comprehensive income (items 10+110)
Net
amount
(727)
(2,173)
592
(1,581)
(36,954)
(19,179)
(17,775)
(17,775)
-
11,791
5,913
5,878
5,878
(25,163)
(13,266)
(11,897)
(11,897)
(39,127)
12,383
(26,744)
(27,471)
130. Consolidated comprehensive income pertaining to non-controlling interests
Total comprehensive income pertaining to shareholders of the Parent
140. Company
125
(1,301)
(26,170)
126
Part E - Information on risks and related hedging policies
Note: as provided for under the provisions of Bank of Italy Circular no. 263 of 27 December 2006, Title IV,
the disclosures under the Third Pillar of the Basel II will be published on the website of the Parent
Company, Banca Etruria, at: www.bancaetruria.it/Investitori/BasileaII-PillarIII
127
128
Risk Management
Being able to identify and carefully manage the risks to which the Group is potentially
exposed is an essential element of assuming such risks as well as effectively managing them in
order to limit the volatility of performance. Therefore, consistent with the supervisory regulations,
Bank of Italy Circular no. 263 of 27 December 2006 “New Regulations for the Prudential
Supervision of Banks”, the Banca Etruria Group has implemented a process to bring all its
companies into compliance with these regulations, each according to its own needs, in order to
achieve integrated risk management at the Group level.
Banca Etruria is the company that contributes the most to the composition of the consolidated
financial statements; therefore the activities involved in risk measurement, management and control
and the related hedging policies refer for the most part to the Parent Company.
The Board of Directors of the Banca Etruria, as Parent Company, sets the strategic guidelines and
risk management policies for the Banking Group, taking into account the particular operational
needs and risk profiles of each Group company. It also establishes the general guidelines for
measuring capital adequacy with respect to the risks assumed, sees that they are adjusted in a timely
manner with regard to significant changes in the strategic guidelines, the organisational structure
and the operating environment and promotes the full use of the results in setting strategies and in
making business decisions. Moreover, the Bank is responsible for setting a culture of risk awareness
in the various Parent Company functions as well as in the subsidiaries.
The Board of Directors assesses the adequacy, effectiveness and efficiency of the internal control
and risk management systems, including specific aspects concerning identification of the main
company risks, with the support of the Control and Risks board committee.
The General Manager has overall responsibility for the establishment and maintenance of an
effective risk management and control system, in implementation of the strategic and operational
guidelines established by the Board of Directors.
The Risk Committee, the collegial technical body through which the Board of Directors implements
its strategic and operational guidelines, meets at least monthly or whenever the General Manager
should deem it necessary to call a meeting. The Committee is responsible for ensuring that risk
measurement methods are effective on an on-going basis and for analysing all components of
company and Group risks on a current, prospective and operational basis. In this framework, the
Risk Committee provides the Board of Directors with information to be used in conducting
systematic and specific assessments of the Group's exposures, recommending uniform and
consistent criteria and guidelines for lending, asset and capital allocation and the prevention and
management of large exposures at the Group level to the Board of Directors. As regards the Internal
Capital Adequacy Assessment Process (ICAAP), among other things the committee ensures that it is
compliant with strategic policies, updating the process to ensure full consistency with the
operational characteristics of the Bank and the Group and the strategic context in which they
operate. A specific Risk Management area, which reports directly to senior management, has been
operational within Banca Etruria since 2005. It supports top management in the integrated
management of risks. The Central Planning, Risk and Compliance Department supervises the
correct implementation of risk management models, promoting a culture of risk awareness at the
Group level, develops and implements methodologies and tools for identifying, assessing,
managing, controlling and reporting the risks faced by the company and the Group, in order to
minimise exposure to credit, market and operational risks and all other risks identified under the
Second Pillar. In this regard it is responsible for the measurement and integrated control of risks
through the monitoring and analysis of the Bank's overall risk exposure. Among its duties, the
Central Planning, Risk and Compliance Department is charged with calculating the capital
requirement for operational risks and contributing to the calculation of the capital requirements for
credit and market risks. Furthermore, the Central Planning, Risk and Compliance Department
129
defines the stress scenarios and the methodologies behind the related tests. The Risk Committee is
responsible for assessing the adequacy of the stress tests and the related methodologies, reporting
their findings to the Board of Directors. To calibrate the stress scenarios, the Central Planning, Risk
and Compliance Department considers the proportionality principle ratified by governing
regulation, preparing models that subject the key parameters to stress conditions that reflect the
dynamics of the individual risks independently identified and considered relevant for the stress tests,
based on the operational dimensions of the Group, the level of sophistication of its operations, the
specific characteristics of the portfolios, types of exposure and related risk sources. The results of
the stress test analyses are included in management reporting.
The section of the Central Planning, Risk and Compliance Department that deals with Group risks is
currently made up of two sections: Financial and Operational Risks and Capital Management and
Credit Risk, with a total staff of 11 as well as the central department head, who takes on the role of
Risk Manager.
130
SECTION 1 - BANKING GROUP RISKS
1.1 - CREDIT RISK
QUALITATIVE DISCLOSURES
1. General aspects
In general, within the framework of the Banca Etruria Group’s strategic approach, efforts
have focused on improving the quality of its loan portfolio, pursuing the following priority lines of
action:
• selective growth of lending and strengthening the asset profile by focusing expansion on
the Retail segment and secured lending;
• reduction of the concentration of lending by reducing the exposures of the main customer
positions;
• reduction of the cost of credit;
• differentiation of initiatives based on the risk profile of the customer’s segment and
geographic area.
Beginning in 2008, for the credit risk component, the Group companies began using the
Basel II methodology, consistent with governing regulation, with the aim of initially adopting the
standardised approach and then evaluating whether to gradually move towards the application of
more advanced methods envisaged in the applicable regulations, subject to authorisation by the
Bank of Italy.
During the first half of 2013, the activities envisaged under the standardised approach continued,
with specific regard to the tools for calculating and monitoring capital requirements while
consolidating and further enhancing the efficiency of internal guarantee management processes for
the purpose of applying credit risk mitigation techniques.
In line with Group strategies, the internal rating system is used by Banca Federico Del
Vecchio SpA and Banca Popolare Lecchese SpA, as well as at the Parent Company, and has been
integrated into the key business processes.
As regards the probability of default of loans from Group banks, the values measured at 30
June 2013 using a model developed internally were equal to 3.61% for the retail segment and 5.22%
for the corporate segment. Compared to the previous year, these values increased for both the Retail
segment and, to an even greater degree, the Corporate segment, reflecting the continuing economic
crisis.
Finally, Banca Etruria and Banca Federico Del Vecchio SpA are currently implementing the 2013
Credit Plan, prepared annually and resolved by the boards of directors of each of the two banks.
More specifically, starting in 2010, lending policies and those for initiatives to expand lending and
govern credit risk were established as part of the new budgeting process based on an integrated
analysis by the various areas involved. It aims, on the one hand, to implement the strategies set out
in the Business Plan and, on the other hand, to establish the guidelines for commercial and lending
policies and determine how these actions impact performance and the financial position.
131
2. Credit risk management policies
2.1 Organizational aspects
The need for adequate credit risk control systems is not only driven by the need to ensure
that the Bank's activities comply with Basel II: it is also a response to operational opportunities that
cannot be postponed. Regular studies are conducted concerning the economic situation and analysis
of the strengths and weaknesses of the various industry segments. These findings are then used as
the basis for adopting specific techniques for measuring credit risk.
The Bank’s Capital Management and Credit Risk unit is responsible for developing and
maintaining the internal rating system and the management tools for estimating and monitoring
capital requirements. The goal is to foster greater awareness of the risks connected with lending
activities, with an emphasis on managing and monitoring such risks more effectively.
The Capital Management and Credit Risk unit continuously carries out training for the
commercial network of Group banks regarding both the key characteristics of the internal rating
system as well as the fundamental principles of the Basel II Agreement, in order to promote a
business culture that is increasingly aware of the management, monitoring and reduction of credit
risk.
2.2 Management, measurement and control systems
The banks of the Banca Etruria Group have classified customers in specific segments in
accordance with the criteria of the internal rating system, as follows: Private consumer, small
business, SMEs, corporate, financial companies, and institutions.
Customers have also been grouped into eight ratings grades (from “AAA” to “CC”) in which all
“performing” assets have been classified, as well as three grades for assets in default, which are
given ratings of “C+” (past-due loans), “C” (non-performing loans) and “D” (doubtful loan).
This classification and internal rating process for individual customer positions, which was
also introduced with a view to assessing the possibility of gradually transitioning to the advanced
Basel II approaches, subject to Bank of Italy authorisation, is of considerable operational
importance, as it enables us to carry out constant control and monitoring of the credit quality of the
portfolios of the individual Group banks.
The use of operational capital requirement estimation tools for Group banks also makes it
possible to conduct regular stress analyses, as well as to constantly monitor the eligibility of
collateral and other guarantees.
The Risk Committee and the Board of Directors of the Parent Company Banca Etruria
regularly receive an analysis of the Group’s credit risk situation based on the output of the
operational risk management tools used.
The analysis of the individual Group banks is reviewed by their respective boards of
directors. Finally, the other Group banks carry out targeted internal checks of lending activities in
compliance with specific sector regulations and in line with the guidelines issued by the Parent
Company.
132
2.3 Credit risk mitigation techniques
In order to reduce the risks inherent in granting credit to customers, the risk of the various positions
is mitigated using funded credit protection (mortgages and pledges of collateral) and unfunded
credit protection (sureties) and insurance guarantees, which are an essential means of covering
credit risk. Guarantees are requested on a selective basis in relation to the borrower's credit rating
and the type of transaction in order to reduce credit risk, considering their impact in terms of capital
requirements.
In addition, during the first half of 2013 the process of updating the database of property securing
mortgage loans to customers continued in order to verify compliance with the statutory eligibility
requirements for each type of guarantee pledged and enable the use of credit risk mitigation
techniques to reduce capital requirements. During the first half of the year, work continued on the
large project to organise and align previous mortgage guarantees, which began in the last part of
2012. Moreover, the process of managing financial collateral and insurance guarantees was
consolidated, specifically for financial collateral, and, effective 31 December 2012, the Bank
switched from the “simplified” to the “complete” methodology as part of the process of moving to
more advanced management methods. The process of optimising efficiency for the area related to
guarantee consortiums also continued and the management process regarding counter-securities
issued by the MCC fund and guarantees obtained for “cessione del quinto” loans, repaid through
automatic salary or pension deductions, was implemented.
2.4. Impaired financial assets
Management of impaired positions, an activity carried out at the Parent Company, Banca Federico
Del Vecchio SpA and Banca Popolare Lecchese SpA, is performed by units specifically responsible
for monitoring credit positions and identifying any problem loans.
These units collaborate with the Parent Company units, which are responsible for
assessing the degree of impairment, which is translated into a specific classification of the position
involved.
Once impairment status has been defined, position managers coordinate with the commercial
network to bring the positionsback to performing status where possible. Where this proves to be
impossible, the exposures are classified as impaired positions and specific action
is taken to safeguard the credit position.
Impaired positions (doubtful loans, non-performing loans, positions past-due/overlimit by more than
90 days and restructured positions) are managed and monitored with the support of specific
technical and organisational procedures, structured in relation to the degree of impairment of the
positions. In addition to ensuring accurate classification, these enable constant monitoring of the
situation. This activity involves:
• taking appropriate steps to return the positions to normal status, assessing - in the light of the
degree of difficulty involved - possible loan workout plans, revision of the loan positions and
conditions, etc.;
• pursuing payment of arrears and reduction of over limit borrowing also through the
engagement of external companies specialised in dunning procedures and door-to-door
collection;
• assessing the results achieved and, in the event of failure, taking appropriate decisions;
• evaluating, on the basis of the aging of the arrears, compliance with agreed loan workout
plans and any supervening adverse events with an impact of accurate classification of the
positions.
133
In order to prevent problems arising as a result of the deterioration of positions, monitoring is
conducted for positions past-due/overlimit by more than 31 days.
Exposures to borrowers in a situation of temporary difficulty that can reasonably be expected to be
remedied in an appropriate period of time are classified as non-performing loans.
Impaired positions can be restored to performing status once the reasons for their classification as
impaired no longer obtain.
Loans are classified as doubtful where the borrower is in a state of insolvency; in this case the
dedicated central unit:
• manages the positions, also with the use of external legal counsel to undertake judicial action
against the borrower and any related guarantors;
• engages specialised loan collection companies;
• assesses recovery forecasts and periodically verifies the appropriateness of the forecasts.
Beginning in November 2012, after the merger of ConEtruria SpA into Banca Etruria, a
specialised unit was established within the Bank’s Central Loan Department to monitor private
customers at the first signs of irregularities with the loans. This unit, as part of a thorough analysis,
identifies the positions to be assigned to external management and those that will be monitored from
within the Bank through a team of specialists who design a “personalised” solution for the
resolution of the issue.
QUANTITATIVE DISCLOSURE
A. CREDIT QUALITY
A.1 IMPAIRED AND PERFORMING CREDIT EXPOSURES: STOCKS, WRITEDOWNS,
CHANGES, DISTRIBUTION BY SECTOR AND GEOGRAPHICAL AREA
A.1.3 Banking group - On-balance-sheet and off-balance-sheet credit exposures to banks: gross and net
values
Gross
exposure
Type of exposures/Notes
A. On-balance-sheet exposures
a) Bad debts
b) Substandard loans
c) Restructured positions
d) Past-due positions
e) Other assets
Specific
adjustment
Portfolio
adjustment
Net exposure
TOTAL A
453,642
453,642
-
-
453,642
453,642
TOTAL B
87,332
87,332
-
-
87,332
87,332
TOTAL (A+B)
540,974
-
-
540,974
B. Off-balance-sheet exposures
a) Impaired
b) Other
134
A.1.6 Banking group - On-balance-sheet and off-balance-sheet credit exposures to customers: gross and net values
Gross
exposure
Type of exposure/Values
A. On-balance-sheet exposures
a) Bad debts
b) Substandard loans
c) Restructured positions
d) Past-due positions
e) Other assets
Specific
adjustments
Portfolio
adjustments
Net exposure
TOTAL A
1,389,571
848,309
54,402
230,252
12,967,274
15,489,808
(733,890)
(143,282)
(13,270)
(9,838)
(900,280)
(22,305)
(22,305)
655,681
705,027
41,132
220,414
12,944,969
14,567,223
TOTAL B
TOTAL (A+B)
57,763
536,983
594,746
16,084,554
(581)
(581)
(900,861)
(754)
(754)
(23,059)
57,182
536,229
593,411
15,160,634
B. Off-balance-sheet exposures
a) Impaired
b) Other
B.4 Large exposures (in accordance with supervisory regulations)
Items/Values
A. Large exposures
B. Zero-weighted positions
Total large exposures (A-B)
Number
4
3
1
30/06/2013
31/12/2012
Nominal Weighted
Nominal Weighted
value
value
value
Number
value
8,041,785
20,748
4
5,292,597 97,614
7,946,152
3
5,191,481
95,633
20,748
1
101,116
97,614
135
C. SECURITISATIONS AND ASSET DISPOSALS
Banca Etruria Group include 5 securitisation transactions of performing loans carried out in
recent years through specific special-purpose vehicles (SPV), established in accordance with Law
130/1999.
More specifically, Mecenate Srl (“Mecenate”), a Banca Etruria Group company, is the
vehicle company through which the four securitisation transactions of performing residential
mortgages were completed, of which three are currently on the books (Mecenate 2007, Mecenate
2009 and Mecenate 2011). The May 2007 transaction was carried out to optimise loan portfolio
management and diversify funding sources. The purpose of the January 2009 transaction was to
diversify and expand funding sources by transforming assigned loans into securities eligible for
refinancing. The Mecenate 2011 transaction is intended to diversify medium/long-term funding
sources and diversify the management of funding costs.
Each securitised portfolio is managed separately and individually, with its own regulations
governed by the specific contracts of each securitisation signed with the parties.
Etruria Securitisation SPV Srl (“Etruria SPV”) is the special-purpose vehicle through which
performing mortgages, real estate loans and unsecured loans disbursed by Banca Etruria to small
and medium-sized companies were securitised in October 2012. The transaction was designed to
allow for a more flexible management of assets and to increase the liquidity profile.
The different type of securitised assets, as compared to the previous transactions, made it opportune
to establish a new special-purposes vehicle (pursuant to Law 130/99), named Etruria Securitisation
SPV Srl, with registered office in Italy, whose share capital is held by a sole shareholder, Stichting
Etruria, with registered office in the Netherlands and subject to Dutch law.
Lastly, AULO SPV Srl (“AULO SPV”) was established in May 2013 for the securitisation of loans
held by Banca Etruria as at 31 May 2013, deriving from contracts for personal loans, consumer
credit, “cessione del quinto” loans with repayment through automatic salary or pension deductions
and other loans with repayment through automatic salary deductions (“deleghe di pagamento” or
“DP”).
With this transaction, completed in July 2013, Banca Etruria reinforced its liquidity position
by fully refinancing all unsecured senior maturities issued in relation to the EMTN program and still
outstanding in the institutional market.
All of the aforementioned transactions were carried out pursuant to and in accordance with the
regulations set out in Art. 4 of Law 130 and Art. 58 of the Banking Act. Each transaction was
advertised individually, through a notice published in the Official Italian Gazette within the
timeframes established by regulations. Furthermore, each borrower was notified of the transaction
through a dedicated personal communication.
Mecenate Srl assigned Banca Etruria (i) a Servicing Agreement for each of the 2007, 2009 and 2011
portfolios of securitised mortgages; (ii) a Corporate Services Agreement; and (iii) an Agency and
Account Agreement for current accounts related to the collection of securitised loans in reference to
each portfolio.
Similarly, Etruria SPV and AULO SPV assigned Banca Etruria, each for its respective portfolio, a
Servicing Agreement, a Corporate Services Agreement and an Agency and Account Agreement for
current accounts related to the collection of securitised loans.
136
Hence, Banca Etruria continues to maintain direct relationships with customers whose mortgages
and loans were securitised.
C.1 SECURITISATIONS
C.1.1 BANCA ETRURIA/MECENATE SRL SECURITISATIONS
1. Securitisation of performing home loans - 2007
On 29 March 2007, Banca Etruria assigned without recourse a portfolio of performing loans,
and the legal relationships, consisting of 8,083 mortgage and real estate loans disbursed to private
customers during the period 31 March 1998 to 30 June 2006, with a total value of €633 million, to
Mecenate Srl (“Mecenate 2007 Portfolio”). In terms of the geographical location of the borrowers,
98.34% of the portfolio was concentrated in central Italy, of which 59.48% in Tuscany and 23.98%
in Lazio.
On 11 May 2007, Mecenate issued bonds totalling €633 million (listed on the Irish Stock
Exchange), €630.1 million of which was rated, all floating-rate with quarterly coupons and final
maturity in 2048.
The Class D bonds were subscribed entirely by Banca Etruria.
Nominal value at issue
Tranches
Class A
Class B
Class C
Class D
Total
(€ millions)
577.85
13.60
39.75
1.89
633.10
% composition Rating
Spread
Moody's Fitch
91.27
Aaa AAA
13bp
2.15
Aa2
AA25bp
6.28
Baa2
BBB
57bp
0.30 unrated unrated 200bp
100.00
Banca Etruria granted Mecenate Srl a loan of €15 million, €50 thousand of which was used to
establish a specific Expenses Account, and €14.924 million to establish the Cash Reserve. The Cash
Reserve, which represents a guarantee for the investors in the Mecenate bonds, is equal to 2.87% of
the bonds issued as part of the securitised portfolio in 2007 and totals €18.2 million.
As set forth in the agreement, the Class A securities began being redeemed (repaid) in
January 2009. The total nominal value is currently approximately €139 million (22 July 2013).
In July 2013, the portfolio of securitised loans still outstanding had a principal balance of
roughly €207.2 million, while the total amount of the securities came to about €194.2 million.
During 2011, in order to comply with the Operational Risk Criteria regulation issued by
Moody’s Agency and to ensure an adequate rating on the notes, Mecenate appointed Cassa di
Risparmio di Volterra as the Back-Up Servicer for the Mecenate 2007 Portfolio transaction.
137
With its note dated 20 July 2011, Moody’s confirmed the rating attributed to Class A as
“Aaa” and to Class B as “Aa2”. Nevertheless, following the downgrade of Italy’s sovereign rating
by Moody’s and in line with the guidelines of the rating agency, on 21 February 2012 the latter
reduced the maximum rating that can be assigned to RMBS bonds issued in securitisations of
residential mortgage loans originated in Italy. Consequently, for more than 220 “most senior”
classes of Italian RMBS, the rating was reduced from “Aaa” and “Aa1” to “Aa2”, the highest rating
assignable by Moody's given the conditions in Italy.
The notes rated Aaa by Moody’s issued by Mecenate 2007 Portfolio were therefore downgraded,
specifically, Class A was rated “Aa2” effective 21 February 2012.
Subsequently, on 13 July 2012, Moody's once again lowered its rating on Italian government
bonds from A3 to Baa2, and as a result, set the maximum rating attainable for bonds from Italian
issuers at A2.
This resulted in an automatic lowering of the rating attributed to Italian RMBS and ABS
issues, which affected Class A and Class B of the Mecenate 2007 Portfolio, reducing its rating to
“A2” effective 2 August 2012.
With its note dated 26 June 2013, Moody’s announced that it had assigned a “Baa2” rating to Class
C, which was placed under review for a potential downgrade in March 2013.
On 6 March 2013, the Fitch ratings agency:
- confirmed the rating attributed to Class A as “AAAsf” with a Negative Outlook;
- confirmed the rating attributed to Class B as “AAsf” with a Stable Outlook;
- confirmed the rating attributed to Class C as “BBBsf” with a Negative Outlook.
On 11 March 2013, Fitch lowered the rating assigned to 103 classes of securities issued by Italian
special-purpose vehicles as part of the securitisation programme following the downgrade of Italy’s
rating to BBB+. As a result, the maximum rating that can be attained by all Italian RMBS issues is
“AA+sf”.
This review resulted in the automatic adjustment of Fitch’s rating of Mecenate 2007 Class A from
“AAAsf” to “AA+sf”.
On 7 January 2009, Banca Etruria completed the assignment without recourse of performing
receivables in respect of a portfolio of home, real estate and mortgage loans through the transfer to
Mecenate. The transaction regarded 6,026 loans to private customers worth a total of €497 million
(“Mecenate 2009 Portfolio”). Geographically, 49.90% of the loans are in the region of Tuscany
and 29.28% in the region of Lazio.
Following the acquisition of the loans and execution of the aforementioned contracts, on 2
February 2009 Mecenate issued bonds (RMBS) worth a total of €497 million, subdivided into three
classes, two of which are rated by Fitch Ratings.
The securities issued by the “Mecenate 2009 Portfolio” have the following characteristics:
138
Nominal value at issue
Tranches
Class A
Class B
Class C
Total
% composition
(€ millions)
401.3
82.7
13.0
497.0
80.74
16.65
2.61
100.00
Rating
Spread
Fitch Moody’s
AAA Aaa
20bp
BBB50bp
unrated
150bp
All the securities mature in 2047 and have been fully subscribed by Banca Etruria against payment
of the assignment price. The rated securities are listed on the Dublin Stock Exchange. The Class A
notes were entered in the list of securities eligible for use in refinancing transactions with the ECB.
Their eligibility was confirmed by the Bank of Ireland.
In order to be eligible to use the senior securities in refinancing transactions with the ECB under
rules that came into force in March 2011, on 20 January 2011 the Class A securities obtained a
second rating of “Aaa” from Moody’s.
Following the issue of the rating, and in compliance with Moody's Global Structured Finance
Operational Risk Criteria, Cassa di Risparmio di Volterra was appointed as Back-up Servicer for the
Mecenate 2009 Portfolio and the Cash Reserve was increased from €10.4 million to €21.2 million.
Additionally, a number of amendments were made to the contract terms and conditions to ensure the
conformity of the securitisation documentation with the requirements above and the fact that the
Class A notes have a second rating.
Class A began to be redeemed in October 2010, 18 months after issue. The outstanding nominal
balance of the securities currently amounts to approximately €230.7 million (July 2013), including
€135 million relating to Class A.
At 6 July 2013 (observation date) the portfolio of securitised loans still had a principal amount
outstanding of €238.6 million.
On 6 March 2013, Fitch announced the rating of the two Classes A and B of the RMBS as “AAAsf”
and Stable Outlook for Class A and “BBB-sf” and Negative Outlook for Class B.
Following the downgrading of the Italian sovereign rating assigned by Moody’s discussed in the
previous section 1., the rating of the Class A series of the Mecenate 2009 Portfolio was also reduced
to a level of “Aa2”, effective 21 February 2012.
The subsequent maximum rating limit set on 13 July 2012 by Moody’s for Italian bonds for the A2
level, as discussed in paragraph 1 above, resulted in a further reduction of the rating level for the
Class A series of the Mecenate 2009 Portfolio, which is now rated “A2”.
Likewise, Fitch revised Italy’s rating in March 2013, as discussed in paragraph 1 above. This
downgrade resulted in an automatic adjustment of the Class A rating to “AA+sf”, the highest
assignable rating.
On 7 June 2011, Banca Etruria completed the assignment without recourse of performing
receivables in respect of a portfolio of home, real estate and mortgage loans through the transfer to
Mecenate Srl. The transaction regarded 3,877 loans to private customers worth a total of €465.8
million (“Mecenate 2011 Portfolio”). Geographically, 43.9% of the loans are in the region of
Tuscany and 27.3% in the region of Lazio.
Following the acquisition of the loans and execution of the aforementioned contracts, on 26 July
2011 Mecenate issued bonds (RMBS) worth a total of €465.8 million, subdivided into four classes,
three of which are rated by Fitch Ratings and Moody's.
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The securities issued by the “Mecenate 2011 Portfolio” have the following characteristics:
Tranches
Class A1
Class A2
Class A3
Class Z (junior)
Total
Nominal value
at issue(€
millions)
160.000
90.000
99.400
116.406
465.806
%
composition
34.35
19.32
21.34
24.99
100.00
Rating
Fitch Moody’s
AAA
Aaa
AAA
Aaa
AAA
Aaa
unrated unrated
Spread per
year/Step-up in
Oct 2016 (3m
Eur + spread)
190bp/380bp
225bp/445bp
35bp
150bp
All the securities mature in 2060 and have been fully subscribed by Banca Etruria against
payment of the assignment price. The rated securities are listed on the Dublin Stock Exchange. The
Class A notes were entered in the list of securities eligible for use in refinancing transactions with
the ECB.
Class A1 and Class A2 have a step-up and call clause beginning in October 2016.
Banca Etruria also granted Mecenate a loan of €17.5 million to establish the Cash Reserve, used as
collateral in respect of the creditors of Mecenate to meet their claims in the event the flow of
repayments on the loans is not sufficient to do so, and to establish an Expenses Account of €50
thousand.
In accordance with the rules introduced with CDR2, Article 122, as also provided for in the New
Regulations for the Prudential Supervision of Banks (update of 28 January 2011), Banca Etruria
declared its intention to subscribe at least 5% of the RMBS and continue to comply with that
requirement for the entire duration of the operation.
outstanding of €399.1 million.
Following Moody’s downgrade of the Italian sovereign rating mentioned above in paragraph 1,
Classes A1, A2 and A3 of the Mecenate 2011 Portfolio were reduced and, effective 21 February
2012, carried a rating of “Aa2”. Subsequently, on 2 August 2012, the rating was further downgraded
to “A2”.
With its note dated 26 June 2013, Moody’s announced that it had assigned an “A2” rating to Class
A3, which was placed under review for a potential downgrade in March 2013.
On 6 March 2013, Fitch confirmed the rating for the three classes A1, A2 and A3 as “AAAsf” with
a Negative Outlook.
As noted above in paragraph 1, following Fitch’s downgrade of Italy, the rating of the three
Mecenate 2011 Senior Classes was automatically reduced to “AA+sf”.
After redemptions made, Class A1 currently amounts to €92.1 million.
The Mecenate 2011 Portfolio transaction was initially structured as a public operation,
involving the sale of Classes A1 and A2 on the institutional market. However, when the closing
(July 2012) was approaching, Banca Etruria decided to purchase all of the Classes issued by the
special-purpose vehicle in consideration of negative market trends.
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On 4 December 2012, as set out in the notes’ conditions, it was possible to sell Class A1 to an
institutional investor, at a price equivalent to 100.10%, for the total countervalue of €115.645
million. This transaction enabled a net recovery of liquidity of roughly €27 million, calculated as the
difference between the amount received from the sale and the countervalue recognised by the ECB
on the REPO transaction, to which recourse is normally made.
Cassa di Risparmio di Volterra SpA was appointed as the Stand-by Servicer for the Mecenate 2011
Portfolio transaction.
4. Securitisation of performing mortgages, real estate loans and unsecured loans to small and
medium business - 2012
On 12 July 2012, Banca Etruria assigned without recourse a portfolio of performing
receivables consisting of 4984 contracts of mortgage, real estate and unsecured loans disbursed
during the period 31 July 1998 (inclusive) to 30 March 2012 (inclusive), with a total residual debt as
at 6 July 2012 of €643.9 million, to Etruria Securitisation SPV Srl. Geographically, 67.5% of the
loans are in the region of Tuscany, 11.3% in the region of Lazio, and 9.2% in the region of Umbria.
To finance this acquisition, on 10 October 2012, Etruria SPV issued ABS securities for a
total nominal value of €643,987,000 (the “Securities”), divided into 2 classes:
Tranches Nominal value at issue
Rating
Spread
(€ millions)
% composition DBRS Moody’s
Class A
427.000
66.31
A (high) (sf)A2(sf) 50bp
Class B
216.987
33.69
Unrated Unrated
150bp
Total
643.987
100.00
All the securities mature in October 2055 and have been fully subscribed by Banca Etruria
against payment of the assignment price. The rated securities are listed on the Luxembourg Stock
Exchange. The Class A notes were entered in the list of securities eligible for use in refinancing
transactions with the ECB, having met this requirement by the Luxembourg Central Bank. The
country was chosen by Etruria SPV as a reference member state of the EEC.
Although all of the securities were entirely subscribed by Banca Etruria, in accordance with the
rules introduced with CDR2, Article 122, as also provided for in the New Regulations for the
Prudential Supervision of Banks (update of 28 January 2011), Banca Etruria declared its intention to
subscribe at least 5% of the RMBS and continue to comply with that requirement for the entire
duration of the operation.
When the securities were issued, Banca Etruria granted a loan to the company for €24 million,
which was used to establish the following reserves:
1.
2.
Cash Reserve of €10,875,000;
Commingling Reserve of €13,050,000; and
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3.
Expenses Account of €80,000.
The first reserve represents a guarantee against claims by the company’s creditors, if the flow of
repayments of the loans is not sufficient to do so, while the second is used as a guarantee in the
event the amounts collected are temporarily unavailable due to a default event by the Servicer.
These reserves are subject to amortisation (redemption) carried out on each interest payment date
(IPD) and specifically, having established the maximum target levels of the nominal outstanding
value of the Class A securities as 2.5% for the Cash Reserve and 3% for the Commingling Reserve,
at the IPD of July 2013, the reserve levels were as follows:
-
Cash Reserve of €8.5 million
Commingling Reserve of €10.2 million.
The funds released by the two reserves were used to increase the funds available for the quarterly
payments of the transaction and in reference to the order of priority indicated in the contract.
The introduction of Law 148/2011, standardising the tax system of rates applicable to interest on
securities, regardless of their duration, resulted in the possibility to begin amortising the bonds
immediately. Hence, the Class A securities issued by Etruria SPV began to be reimbursed at the IPD
of 28 January 2013. The value of these securities was €306.9 million in July 2013.
outstanding of approximately €531 million.
With its note dated 3 May 2013, DBRS confirmed the “A (high) (sf)” rating for Class A issued by
Etruria SPV, and removed Class A from “Under review for potential negative impacts” status.
Cassa di Risparmio di Asti SpA was appointed as the Stand-by Servicer for the Etruria
Securitisation SPV 2012 Portfolio transaction.
5. Securitisation of personal loans, consumer credit and “cessione del quinto” loans repaid
through automatic salary or pension deductions
On 6 June 2013, Banca Etruria assigned without recourse to Aulo SPV Srl a portfolio of 27,512
performing receivables with a total value of approximately €211 million, consisting of contracts for
personal loans, consumer credit and “cessione del quinto” loans repaid through automatic salary or
pension deductions and other loans repaid through automatic salary deductions (“deleghe di
pagamento”) entered into and disbursed by Banca Etruria during the period 6 June 2005 (inclusive)
to 2 November 2012 (inclusive), or by ConEtruria SpA, held by Banca Etruria beginning in 31
October 2012 after the merger by incorporation of ConEtruria on 21 November 2012.
To finance the acquisition of the loans, on 3 July 2013, Aulo SPV issued ABS securities for a total
nominal value of €210,915,000 (the “Securities”), divided into 2 classes:
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Tranches Nominal value at issue
(€ millions)
% composition
Class A
171.375
81.25
Class B
39.540
18.75
Total
210.915
100.00
All the securities mature on 26 March 2024. Class A has been subscribed by a leading institutional
investor and Class B has been subscribed by Banca Etruria. The securities are not rated and are not
listed on any regulated market.
Banca Etruria granted Aulo SPV a €5.3 million loan, which was also used to establish the following
reserves:
1. Commingling Reserve of €2,109,150;
2. Set-Off Reserve of €2,680,000; and
3. Expenses Account of €50,000.
The first reserve represents a guarantee in the event the amounts collected are temporarily
unavailable due to a default event by the Servicer. The second reserve is to cover the potential risk
of offsetting by assigned debtors which are also Bank customers. Both reserves are subject to
quarterly redemption, in compliance with specific minimum levels set forth in the contract.
The Expenses Account is used to meet cash requirements.
Aulo SPV has appointed Zenith Service SpA as Back-up Servicer.
*****
The Mecenate 2007 Portfolio securitisation is defined as a “traditional securitisation” pursuant to
supervisory regulations, while the Mecenate 2009 Portfolio and the Mecenate 2011 Portfolio
securitisations are not considered as exposures to a securitisation. Similarly, the Etruria SPV 2012
and Aulo SPV transactions are not considered as exposures to a securitisation.
In compliance with supervisory rules, exposures to securitisations do not include transactions in
which the risk is not effectively transferred or those for which the risk-weighted value of all the
positions in respect of a single securitisation exceeds the risk-weighted value of the securitised
assets calculated as if the assets had never been securitised (cap test).
Considering the types of securitisations involved, the explicit risk is treated in accordance with
credit risk rules, using the standardised approach, and is calculated as a deduction in calculating
total capital.
For the purposes of calculating regulatory capital, the exposures held in the form of RMBS issued
by Mecenate have not been considered as the requirement for “exposures to securitisations” is
greater than the requirement for “securitised assets”. Similar treatment was applied to the ABS
issued by Etruria SPV and Aulo SPV.
All of the securitisations are monitored constantly through periodic analysis of their respective
quarterly servicing reports.
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The Risk Committee is notified regularly of the performance of the securitisations and any potential
risks.
For the “traditional” Mecenate 2007 Portfolio securitisation, the maximum risk of Banca Etruria in
the event of default by the borrowers with the securitised loans is equal to total financing granted
(subordinated loan and accrued interest income not yet collected) and the value of the Class D
securities, in addition to the amount of the other classes of securities acquired by Banca Etruria at a
price below par, totalling a nominal €75.2 million, of which €48.1 million in respect of the Class A
notes (figures at 20 July 2013). The Class A securities are currently being redeemed on a quarterly
basis in parallel with the payments made by Mecenate (in January, April, July and October each
year).
Mecenate has signed swap agreements with UBS Ltd for two of the securitisations (Mecenate 2007
Portfolio and Mecenate 2009 Portfolio) to hedge fluctuations in the interest rates on securitised
loans. For the Mecenate 2011 Portfolio securitisation, Mecenate has signed a swap agreement with
Credit Suisse International to hedge interest rate risk on the securitised loans, with the simultaneous
execution of a “back to back” contract between Banca Etruria and Credit Suisse International.
Given the portfolio composition, 82% of which are floating-rate loans, for the Etruria SPV 2012
transaction it was decided to not undertake any hedging for interest rate risk and therefore, no swap
contracts were signed.
AULO SPV entered into a direct contract to hedge interest rate risk on the notes and an offsetting
operating hedge contract.
For more information on the hedging techniques used directly by Banca Etruria, please refer to
Section 2 - “Interest rate risk and price risk - Banking book - Qualitative disclosures, paragraph B Fair value hedging”.
*****
Commingling risk
Following the revision of ratings assigned by Fitch to Banca Etruria in August 2010, in order to
hedge against commingling risk related to the Mecenate 2007 Portfolio and the Mecenate 2009
Portfolio, Banca Etruria established two deposits, or commingling reserves, at BNP Paribas, for an
initial amount of €9.2 million for the Mecenate 2007 Portfolio Commingling Reserve and €7.7
million for the Mecenate 2009 Portfolio Commingling Reserve. These amounts were subject to
quarterly adjustments (current amounts are €6.8 million and €5.4 million) based on the average
amount of the collections for the two portfolios, relative to payments on the securitised loans.
These reserves will only be used if (and to the extent to which) the available funds (“issuer available
funds”) of the two transactions are not sufficient to meet their respective payment obligations. In any
case, in view of the regular repayment of the loans, the amount of the reserves will tend to decline
over time until the termination of the securitisations.
For the Mecenate 2011 Portfolio securitisation, the commingling risk is already covered by the
current level of the Cash Reserve.
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The downgrading of the corporate rating of Banca Etruria assigned by Fitch Ratings on 25
November 2011 had no operational impact for the Mecenate 2007 Portfolio and Mecenate 2009
Portfolio securitisations, while for the Mecenate 2011 Portfolio, a mechanism for transferring
collections was established to make them immediately available in the current accounts held by
Mecenate Srl at BNP Paribas - London.
For Etruria SPV 2012 and AULO SPV, the commingling risk is covered for each transaction by the
duly established specific reserve, as previously described.
Loan by Loan data
In order to improve the process for information transparency in support of investment decisions, the
European Central Bank issued a series of provisions that include the launching of an information
system, in which all securities issuers for securitisation transactions (e.g., ABS and RMBS) and
originators must participate. In summary, the information system will consist of a database for each
loan portfolio underlying the related securities issues, in which data and information inherent to each
securitised loan is collected (“loan by loan data”).
All securities, for which the database of the underlying loan portfolio was correctly populated with
the related bond information, may be eligible for admission to financing transactions with the
European Central Bank.
The requirement to submit loan by loan data became effective 1 January 2013.
Banca Etruria sent the loan by loan database to the European Central Bank for each of the Mecenate
2007, Mecenate 2009, Mecenate 2011 and Etruria SPV 2012 portfolios, thereby attaining eligibility
for the ABS and RMBS securities issued by the two special-purpose vehicles.
*****
The Investor Reports on developments in the securitisations described in this section are published
quarterly in the " Gli investitori" section of the site www.bancaetruria.it.
D. MODELS FOR MEASURING CREDIT RISK
During the first half of 2013, the use of management tools for estimating and monitoring
capital requirements for credit, counterparty and concentration risk continued, with the classification
of positions into the classes defined by Basel II in accordance with the standardised approach.
Stress testing of current and prospective values also continued for the credit, counterparty
and concentration risk components for the purpose of the ICAAP report at 31 December 2012.
For some time, a control process has been envisaged at the Group level for concentration
risk, for both the single-name component and the geo-sector component. The control process would
encompass both ex-ante risk, at the level of individual loan applications, as well as ex-post risk, at
an overall level, and allow the monitoring of trends for said risk and compliance with established
operating limits. In addition, a process has been in place for some time for checking the level of
concentration of exposures to bank counterparties and those secured by guarantee consortiums. In
this regard, in the first half of the year, the internal rules on the definition of criteria for assessing
the credit rating of individual guarantee consortiums, determining the associated limits and
monitoring them, were updated.
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The use of the internal rating system for management purposes continued. This system has
been integrated into the key business processes of the Group Banks for some time, and the related
implementations that have occurred in recent years have allowed the Bank to associate qualitative
aspects with quantitative parameters in order to enhance the system's capacity for differentiating
with regard to specific types of loans. The specific process for managing positions in respect of
firms in the goldsmith industry has also been in place for some time, with a view to taking account
of their special features in the analysis of the related risk. In addition, the use of the measurements
from the rating system for regular monitoring of the primary variations in the credit portfolios of the
Group banks continued during the first half of the year.
Work was completed on the comprehensive revision of the rating system in order to enhance its
compliance with the Basel II regulations. The initial activities are underway for implementing the
new model and integrating it in both the related information system and the business processes
concerned. Commercial Network training has also begun. The new rating system is expected to be
fully implemented in the second half of 2013.
As regards the override process in particular, it has long used within the Group Banks for the
individual analysis of positions and for analysis of groups of customers by economic sector/legal
form.
Furthermore, the estimation model for LGD, developed as part of the project launched in the
fourth quarter of 2010, continued to be applied during the year.
However, a project to review this estimation model has been launched to achieve greater
consistency with the Basel II regulatory requirements and in consideration of the still negative
economy and its implications on collections and the value of guarantees, as well as the viewpoints
expressed in the document recently issued by the Supervisory Authorities concerning reporting
losses historically recognised on assets in default.
In addition, the Group Credit VaR estimation model has been implemented, which allows
analysis of the risk profile at an overall portfolio level as well as for individual customer positions
whose risk profile is more affected by “intra-group contagion”.
A project to enhance and consolidate the internal pricing-risk-adjusted model has been
launched to better reflect the specific risks assumed in the price applied to customers. A re-pricing
model for conditions based on changes in the customer’s credit rating has been implemented.
Lastly, a new loan monitoring system was implemented during the first half of 2013, by
implementing a new early warning system and reviewing the processes and procedures for
managing impaired positions
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1.2 MARKET RISK
Market risk is the risk that the economic value of or the cash flows generated by a financial
instrument could change as a result of changes in market factors. Market risk comprises interest rate
risk, exchange rate risk and other price risks.
With regard to market risks for the trading book, control of market risk is done by way of
calculating Value at Risk (VaR), which is an estimate of the maximum potential loss of a portfolio
over a given time horizon with a given probability. Banca Etruria calculates VaR using the ObjFin
platform in order to determine the maximum loss that the company's portfolio could incur with a 10day holding period and a 99% confidence interval. The VaR estimation uses a parametric approach
that may not fully capture certain aspects of the credit spread. For the Asset Allocation portfolio
consisting ofunits in collective investment undertakings, part of the banking book, the VaR used is
not parametric but rather is based on simulations and is calculated with a 10-day holding period, a
99% confidence interval and a historical depth of 2 years, with daily observations, which is more
appropriate for this type of portfolio. The parametric VaR, on the other hand, is a function of a rigid
parameterisation of the equity and bond components of the individual funds. Interest rate risk for the
banking book is also managed with the aid of Asset & Liability Management (ALM) techniques.
For 2013, the Board of Directors of the Parent Company Banca Etruria, in approving the
“Strategies concerning the financial policies for the proprietary portfolio
and treasury operations”, set two VaR limits in view of the expected growth in the portfolio to
support the liquidity position.
The maximum VaR limit for trading activities, equivalent to €5 million, refers to the entire
trading portfolio, while the Asset Allocation VaR, whose maximum is set at €4 million, refers to the
part of the portfolio consisting of ETF or units in collective investment undertakings purchased as
part of asset allocation strategies.
The VaR limits were never exceeded during the course of the first half of 2013.
Again for 2013, with a view to limiting liquidity risk, the Bank’s Board has emphasised the
goal of maintaining a stock of assets that could easily
be liquidated on the market or through refinancing operations with the ECB.
For supervisory purposes, capital requirements for market risk are calculated using the
standardised approach, and with the delta-plus method for the handling of options.
1.2.1 INTEREST RATE RISK AND PRICE RISK – SUPERVISORY TRADING BOOK
A. General aspects
Interest rate risk is the risk of adverse changes in economic value or profit margins as a
result of changes in interest rates. In relation to the trading book, it refers to the risk of undesired
changes in the value of the debt securities and other instruments exposed to this type of risk in
respect of positions that the bank intends to sell at short term and/or positions held to take shortterm advantage of differences between purchase and selling prices or other changes in prices or
interest rates.
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The Banca Etruria Group's trading book at 30 June 2013 was small, equal to about €9
million, and about 55% was accounted for by Italian government securities and about 45% by bank
bonds.
The main component of the trading book in recent periods was securities issued by the
Italian Republic or Italian banks that are affected by possible changes in issuer/country risk. During
the first half of 2013, the prices for these securities continued to be extremely volatile due to the
wide range of perceived risk of Italy and other European countries.
Trading in derivatives on interest rates for speculative purposes can be considered
immaterial in view of the size of the positions held.
As to price risk, trading in equities is negligible.
The Risk Management Department prepares reports which are submitted periodically to the Risk
Committee and the Board of Directors of the Parent Company.
B. Management and measurement of interest rate risk and price risk
First-level controls of market risks are conducted by the Finance Department of the Parent
Company, while the second-level controls are conducted by the Risk Management Department of
the Parent Company.
A report of the VaRs of the portfolios is generated daily and submitted to senior
management, the Central Planning, Risk and Compliance Department, the Central Internal Audit
Department and the various functions within the Finance Department.
In order to calculate capital requirements, the delta-plus method is used for options, and the
standardised approach is used for all other instruments.
3. Supervisory trading book: internal models and other sensitivity analysis methodologies
Interest rate risk as expressed in terms of undesired changes in the economic value of assets
and liabilities is measured with ALM methods in addition to VaR. The sensitivity analysis carried
out at 30 June 2013 on the supervisory trading book estimated that the value of the portfolio would
change insignificantly in the event of either an upward or downward 25 basis point shock.
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1.2.2 INTEREST RATE RISK AND PRICE RISK – BANKING BOOK
A. General aspects, management and measurement of interest rate risk and price risk
Interest rate risk in respect of the banking book refers to the losses that could occur as a
result of adverse developments in market rates and to the mismatching of maturity and repricing
dates (repricing risk) and divergent developments in the references rates of assets and liabilities
(basis risk).
This risk is measured using ALM techniques to estimate the impact of a change in interest
rates on net interest income and the present value of assets and liabilities.
The assets and liabilities affected are those which are not held for trading purposes, i.e. those
associated with services provided to customers and strategic investments.
The analyses were conducted using the ALMPro information system on a quarterly basis.
The Parent Company’s Board of Directors approved a control system, within the broader strategy
for managing interest rate risk for the banking book, based on monitoring the exposure of material
balance sheet items to interest rate risk with a view to periodically verifying the Group’s overall
interest rate risk exposure.
To measure interest rate risk for the banking book, an internal model has been adopted at
both the Group and individual Bank level that uses a sensitivity analysis approach to estimate the
decrease in the Banking Group’s economic value in the presence of a given change in the yield
curve at the reference date. The use of an internal model enables the generation of more precise
estimates compared with parametric models, as it allows the use of expected yield curve scenarios
that are more realistic than those indicated in the applicable regulations and thus more effective for
management purposes.
The sensitivity analysis of sensitive asset and liability items is conducted by assuming a
change in the yield curve at the reference date based on a statistical survey of the past changes in
rates (historical simulation) that represent the individual nodes of the curve. The resulting expected
curve is not necessarily parallel to that at the observation date also used for the purposes of
determining internal capital for interest rate risk in the banking book.
At 30 June 2013, the Group’s financial assets excluding those in the trading portfolio net of equity
investments, the notes issued in Banca Etruria’s securitisations and the securities classified under
“loans and receivables”, consist of Italian government securities (about 99%), while about 1% are
bonds issued by Italian banks. The amount invested in funds is 0.81%. The amount invested in
funds is 0.53%.
The Board of Directors of the Parent Company approved the “Strategy and policy for
managing interest rate risk (ALM) for 2013” which included, among other things, active
management of the ALM position in order to maintain net interest income in adverse situations and
to stabilise changes in the economic value of assets and liabilities by time buckets.
The limit on the risk indicator was not exceeded at any time in the first half of 2013.
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As regards price risk, the assets in the banking book exposed to price risk are mainly
composed of equity investments and bonds whose prices also reflect the credit risk of the issuer.
Pursuant to Bank of Italy Circular no. 665970 of 27 June 2008 containing instructions on
market disclosures, the Banca Etruria Group reports that it has no direct exposure to structured
credit products with the exception of the bonds issued within the scope of securitisations originated
in past years by Group companies.
More specifically, Banca Etruria holds the entire unrated junior tranche of the securitisation
of performing mortgage loans assigned to Mecenate Srl in 2007 with a total nominal value and
carrying amount of about €1.89 million at 30 June 2013.
In the past, Banca Etruria repurchased notes issued in the highest rated tranche of the
securitisation of performing mortgage loans carried out in 2007, having a current nominal value of
approximately €52 million in June 2013. The total nominal value of the Mecenate 2007 Class B and
Class C issues was approximately €27 million at the same date.
At the end of 2012, Banca Etruria sold the entire senior tranche (approximately €115 million) of
a Mecenate self-securitisation from 2011. The bank holds all other tranches.
The Risk Management Department prepares reports which are submitted periodically to the Risk
Committee and the Board of Directors of the Parent Company.
B. Fair value hedging
Fixed-rate bonds issued by the Parent Company, Banca Etruria, continued to be hedged on a
selective basis during the first half of 2013.
The hedged positions received fair value option accounting treatment.
Hedging is performed using unlisted interest rate swaps of the same amount and maturity as the
bonds, with which the issuer receives cash flows in the same amount as those paid to the
bondholders, paying amounts indexed to money market rates (floating leg). Securities that can be
redeemed early by the issuer are hedged using cancellable IRSs with the same characteristics as
those embedded in the bond.
Banca Etruria also hedged fixed-rate government securities with interest rate derivatives at
the time of purchase, sterilising the interest rate risk on the assets by creating synthetic floating rate
assets. These instruments received hedge accounting treatment, as they passed effectiveness tests.
The financial instruments and related hedging
derivatives are measured each month by the Finance Department and checked by the Risk
Management Department.
No securities in the banking book are currently hedged for price risk.
C. Cash flow hedging
There are currently no open cash flow hedge positions for any Group company.
D. Hedging of investments in foreign operations
There are no hedges of investments in foreign operations.
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2 Banking book: internal models and other sensitivity analysis methods
For purposes of measuring interest rate risk on the banking book, internal model are used
(ref. Part A above), and the results of these scenario analyses, at 30 June 2013, show that a 100 bps
increase in interest rates would result in a negative change in assets of €108 million, while a 100 bps
decrease would have a positive effect of €98 million. These effects also depend on the application of
stickiness parameters on the on-demand items.
The effect on the interest rate margin of changes in the reference interest rates of +100 bps
and -100 bps on the banking book would be €-35 million and €29 million, respectively.
1.2.3 EXCHANGE RATE RISK
A. General aspects, measurement and management of exchange rate risk
The Group’s exposure to exchange rate risk derives primarily from foreign currency
transactions with customers.
Exchange rate risk is monitored by the Group’s front office structures using the specific
procedures for this segment.
Exchange rate risk is also monitored within the overall position subject to VaR limits.
Capital requirements for exchange rate risk are calculated using the standardised method.
For regulatory purposes, a capital requirement for exchange rate risk was not recognised
since the difference between the asset and liability entries for the various currencies was negligible
and, therefore, no sensitivity analysis is carried out for such risk.
B. Exchange rate risk hedging
The Treasury office of the Parent Company conducts transactions to hedge exchange rate
risk through spot and forward foreign exchange trading and trading in derivatives such as cross
currency swaps and options.
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1.3 LIQUIDITY RISK
A. General aspects, measurement and management of liquidity risk
Liquidity risk regards the possibility that a bank might not be able to meet its payment obligations
or be forced to incur higher costs to do so.
The Board of Directors of the Parent Company, Banca Etruria, approved the liquidity risk
management strategy and policy that for 2013 envisages a monitoring system based on a maturity
ladder, which makes it possible to assess the matching of expected cash flows, and an analysis of
the concentration and tenor of the sources of funding with institutional counterparties.
The Group’s financial position is managed on a fully centralised basis by Parent Company Banca
Etruria.
Banca Etruria manages operating liquidity and structural liquidity differently.
Operating liquidity regards treasury and money market positions with a time horizon of three
months, while structural liquidity regards demand items and all maturing positions that generate
cash flows even at longer maturities.
The Group has a control system that monitors the net financial position and indicators of
concentration of funding sources to periodically assess liquidity risk as well as an emergency plan
that establishes, among other things, action plans and responsibilities delegated to corporate units.
The net financial position is monitored over a three-month horizon, with the construction of a
maturity ladder composed of nine time intervals, mainly concentrated at very short term (1, 2, 3 and
4 days, 1, 2 and 3 weeks, 1, 2 and 3 months). Maturing cash flows are allocated to each interval.
As regards operating liquidity, a net overall liquidity balance is calculated, with separate reporting
of interbank flows to identify the level of dependence on the banking system, given that all core
customer items are considered on a going concern basis.
Monitoring liquidity risk also takes account of holdings of financial assets, weighted appropriately
by ease of liquidation on the basis of parameters used by the European Central Bank.
Liquidity reserves are classified between reserves of first and second level based on their ease of
liquidation.
At 30 June 2013, the total reserves amount to €8,883 million, corresponding to €8,756 million of
countervalue utilisable for Central Bank funding.
Approximately 87.49% of the total reserves are of the first levels, which, net of cash and reserves at
the Central Bank, are made up solely of Italian government securities with a residual life of less than
7 years. Second level reserves make up 0.30% of total reserves, consisting of Italian government
securities with a residual life between 7 and 10 years. The remaining 12.21% is primarily made up
of senior bond tranches related to securitisations of the Bank’s customer loans and by bonds issued
by the Bank and guaranteed by the government.
The monitoring system provides for operating limits (regarding expected short-term cash flows),
structural limits (regarding all asset and liability items regardless of maturity) and early warning
indicators.
153
The operating limits, which are monitored on at least a weekly basis, regard the maintenance of
positive liquid balances at very short term and a positive overall one-month net financial position.
Two structural limits have been established and are monitored on a quarterly basis - the first is the
ratio of net loans to direct funding, for which there is a maximum threshold of 100.00 and an
operating limit of 99.37; the second is the ratio of funding from consumer households to total gross
loans, which is set at a minimum operating limit of 55%.
The early warning indicators, which make it possible to monitor or receive advance warning
of especially strained conditions, incorporate information concerning, among other items,
developments in the share prices of financial companies, volatility of equity indices, a decrease in
customer demand items and other factors defined in conformity with the Basel Committee
recommendations in “Principles for sound liquidity risk management and supervision”.
Finally, stress scenarios have been developed to anticipate possible liquidity crises and effectively
manage situations in which the market is under particular strains, such as a systemic crisis or a
specific crisis of the Group, assuming significant variations in the volumes of specific balance sheet
items or liquidity reserves. Scenarios regarding unique crises, systemic crises and a combined
scenario have been assumed. In the various scenarios, liquidity outflows are hypothesised for
unexpected customer withdrawals, non-renewal of interbank deposits, uses of available credit lines
by customers and impacts on liquidity reserves due to both negative trends in market factors on
which the securities values depend as well as for supposed drops in the ratings of the issuers of the
securities in the portfolio that result in an increase in guarantees required by the Central Bank, with
a consequent reduction in the usable reserve value.
The Risk Management Department prepares reports offering a comprehensive view of the system of
limits. It is submitted periodically to the Risk Committee and the Board of Directors of the Parent
Company, Banca Etruria. The “Internal transfer rates” model used to more effectively determine the
temporal correlation between the ITR and trends in balances was revised in the first half of 2013 to
limit the impact of components generated by internal negotiations so as to increase the resilience of
the analyses conducted, particularly with respect to liquidity risk and its interaction with the
operating and structural liquidity management model.
154
1.4 OPERATIONAL RISKS
A. General aspects, measurement and management of operational risk
Since 2008, the Banca Etruria Group has adopted the standardised approach combined with
the basic indicator approach to calculate consolidated capital requirements for operational risks,
implementing an operational risk management system at the Banking Group level that complies
with the organisational, qualitative and quantitative requirements established by the Bank of Italy in
Circular no. 263 of 27 December 2006.
The standardised approach has been in use by the Parent Company Banca Etruria since 2008
and by the subsidiary Banca Federico del Vecchio SpA as from 30 June 2010, while the companies
include in the scope for the calculation of capital requirements use the basic indicator approach.
In line with bank supervisory rules, the Banca Etruria Group defines operational risk as "the
risk of incurring losses due to the inadequacy or malfunctioning of procedures, human resources
and internal systems, or external events. The category includes, among other things, losses due to
fraud, human error, interruption of operations, unavailability of systems, breach of contract and
natural disasters. Operational risk also comprises legal risk but does not include strategic and
reputational risk”.
The primary objectives of the operational risk management system are to contain operating
losses and improve critical internal processes. These involve
the following activities:
•
•
•
•
•
collecting data on operational losses and related recoveries (Loss Data Collection) ;
making subjective estimates (Risk Self-Assessment);
calculating requirements and measuring exposure to operational risks;
reporting and mitigation;
assessing system quality and regulatory compliance.
As Parent Company, Banca Etruria, under an organisational model that assigns duties and
responsibilities to the various functions involved in these activities,
is given the task of setting strategic guidelines and coordinating the operational risk
management policies for all the subsidiaries belonging to the banking group.
The system for managing operational risks established at the Banking Group level, and the
loss data collection and risk self-assessment processes, in particular, are governed by dedicated
rules.
Loss data collection activity, pertaining to the collection and storage of data on events that
contribute to operational losses with the relative recoveries through insurance or otherwise, is
centralised within Banca Etruria's Operational Risk Management (ORM) unit in cooperation with
the relevant units of the subsidiaries in the Banking Group.
Risk self-assessment activity is the qualitative part of the system, consisting of risk mapping
followed by the assessment of the subjective estimates for each relevant risk area provided by the
organisational unit managers of the Parent Company and the managers of the companies involved in
the process, in order to assess the impact of real and hypothetical scenarios.
The Parent Company calculates the consolidated capital requirement using a combined
standardised/basic indicator approach by treating the standardised and the basic indicator
components separately. Exposure to operational risk at the overall banking group level and by
155
material operational segment (subsidiaries subject to individual capital requirements for operational
risks) is measured using subjective assessments, obtained through the risk self-assessment process.
Reporting consists of the periodic generation of reports containing information with various
degrees
of detail depending on the intended audience (among which the Boards of Directors of the banking
group companies, the Parent Company’s Risk Committee, and the risk management
officers of the subsidiaries) as well as
proposals for mitigation initiatives that are then discussed in the appropriate committees.
The assessment of the system quality and its compliance with regulatory requirements,
operational demands and changes in the reference market is performed at least annually by the
ORM of the Parent Company through a self-assessment process that takes into consideration the
features that characterise the operational risk management system and is regularly reviewed by the
internal audit function.
In addition, the operational use of the qualitative and quantitative findings of the analyses
performed by the ORM of the Parent Company was promoted in order take specific mitigation
actions for the most critical processes (for example, procedural improvements, rule changes,
training). The Group has stipulated insurance policies to cover operational risks, including BBB
policies (for malfeasance, robbery and theft), professional liability insurance, comprehensive
buildings policies, liability against third parties, employees and workers, insurance for work-related
and non-work-related injuries, D&O (insurance
for directors and senior managers), and “All Risks” insurance for artistic assets.
Reporting to the DIPO database on operational losses organised by ABI, in which the Bank
has participated since 2003, also continued.
Events recorded in the internal databases in the first half of 2013 generated operational
losses (gross of recoveries and including provisions) registered by the Banca Etruria banking group
in the amount of €11 million, broken down by event type as shown in the following chart.
The chart shows that external fraud has the greatest economic impact, but this figure is
considerably affected by one low-frequency high-impact event which resulted in a gross loss of over
€9 million, which is expected to be fully reimbursed.
156
As regards pending litigation for the Banking Group, net accruals to provisions in respect of
the exposure to civil damages claims amounted to about €1.57 million, of which €0.05 million in
respect of bankruptcy revocatory actions, €0.50 million for disputes over compound interest and
€1.02 million primarily for disputes over securities, also as a result of fraud.
157
SECTION 2 – RISKS FOR INSURANCE UNDERTAKINGS
2.1 INSURANCE RISKS
QUALITATIVE AND QUANTITATIVE DISCLOSURES
This section reports the disclosure required under IFRS 4.38 and 4.39, points (a) and (b).
Par. 38. An insurer shall disclose information that helps users to understand the amount, timing and
uncertainty of future cash flows from insurance contracts.
Par. 39. To comply with paragraph 38, an insurer shall disclose:
a) its objectives in managing risks arising from insurance contracts and its policies for
mitigating those risks.
b) those terms and conditions of insurance contracts that have a material effect on the amount,
timing and uncertainty of the insurer’s future cash flows.
***
Within the scope of the system of internal controls, the life insurance company
(BancAssurance Popolari SpA - BAP Vita) and the non-life insurance company (BancAssurance
Popolari Danni SpA - BAP Danni) have implemented a risk management system appropriate to the
nature, magnitude and complexity of the services provided and in line with prevailing industry
regulations, and specifically in accordance with IVASS (formerly ISVAP) Rule no. 20 of 26 March
2008 concerning risk management and Rule no. 36 of 31 January 2011 concerning guidelines for
investment and meeting requirements for technical reserves.
Life insurance
BAP Vita has identified and assessed the main risks associated with its business, with special
regard to identifying risks related to insurance contracts (IFRS 4).
In order to ensure business continuity and the sustainable creation of value, the company has
configured its risk management so as to minimise the impact of adverse events on future cash flows,
in order to prevent losses and to ensure the company’s solvency.
To that end, the company first categorised the contracts in its portfolio, bearing in mind that
it is largely made up of whole-life policies, in order to identify those for which there are significant
levels of insurance risk. The various aspects of the contracts from which insurance risk arises for
each contract type (e.g. clauses, embedded options, minimum guaranteed returns, etc.) were then
analysed. This was followed by the mapping of the insurance contract risks that could have a
material impact on expected cash flows.
The tables below show the minimum guaranteed return structure at 30 June 2013, broken
down by contract category (investment contracts, for which IAS 39 applies, and insurance contracts,
for which IFRS 4 applies):
158
Amounts in thousands of Euro
Mathematical reserves:
minimum guaranteed
returns
Investment contracts
(IAS 39)
Insurance contracts
(IFRS 4)
TOTAL
%
0% - 1%
40,953
544,467
585,421
61.69%
1% - 3%
4,195
366,928
371,123
39.11%
-7,587
-7,587
-0.80%
903,808
948,956
100.0%
Shadow reserve
Total reserves
45,148
The main contract terms and conditions that could generate risks with a material impact on
the company’s cash flows are concentrated in with-profits contracts, the yields of which are
connected with the Separate Accounts, and are associated with the following factors:
•
•
•
•
early surrenders;
premium instalment payments;
minimum guaranteed returns;
annuity options.
The company conducts periodic sensitivity analyses and stress testing on the most significant
risks relating to these variables.
With regard to the with-profits and term life policies, the company conducts periodic stress tests
based on the following variables:
•
•
•
•
mortality tables;
early surrenders;
suspension of instalment plans;
operating expenses.
For with-profits products, the connection of the benefit to be paid with the performance of
the Separate Accounts requires an integrated analysis of developments in assets and liabilities. For
this reason, the company also conducts stress testing on the main market variables involved (e.g.
interest rates, equity prices, etc.) and analyses adverse macroeconomic scenarios, so as to calculate a
series of indicators that can enable management to implement appropriate preventive measures.
The losses resulting from these simulations are also measured in terms of their impact on the
solvency ratio.
In the event of multiple risk factors, the company adopts risk mitigation policies that are
diversified in terms of pricing, involving the selection of the insured, the application of additional
premiums in the case of increased risk of mortality (products with death benefits), the selection of
prudent technical bases, the application of penalties in the event of early surrender, and the use of
reinsurance. For this reason, in developing a new product a profit-testing tool is adopted in order to
measure profitability and identify any weaknesses ahead of time. In addition, risk levels are assessed
using specific sensitivity analyses. The process for releasing a new product include the prior
presentation of the product to the Product Committee with the participation of the General Manager
and the heads of the various company departments, in order to agree and validate its structure and
features.
159
The table below reports the mathematical reserves related to contracts involving insurance
risks based on local GAAP (carrying amount) and based on international standards by estimating
future cash flows for the purposes of the Liability Adequacy Test pursuant to IFRS 4.
Insurance contracts
Book value
1,015,859
Fair value
938,977
Difference
76,882
Non-life insurance
The risks normally associated with the non-life portfolio mainly comprise pricing risk,
reserve risk and catastrophe risk.
Pricing risks are addressed by BAP Danni in defining the pricing and technical
characteristics of the product by way of sensitivity analysis of the main price variables.
Reserve risk is covered in the specific calculation of technical reserves, which mainly regard
the unearned premiums reserve and the claims reserve. The following table reports the amount of
the unearned premiums reserve and the claims reserve gross of reinsurance, broken down by official
insurance segment, with comparative figures for 31 December 2012:
Branches
Class 1 - Accidents
Class 2 - Illness
Class 8 - Fire and natural disasters
Class 9 – Other damages to assets
Class 13 - Third party liability
Class 16 – Financial losses
Class 17 – Legal protection
Class 18 - Assistance
Total
Unearned
premiums
reserve
as at 30-062013
1,725
1,497
368
33
9
515
7
5
4,159
Claims
reserve
as at 30-062013
162
63
90
17
10
124
1
467
Unearned
premiums
reserve
as at 31-122012
1,883
1,662
390
33
9
610
3
2
4,592
Claims
reserve
as at 31-122012
59
151
67
28
148
453
Source: Technical account as at 30/06/2013
The claims reserves are characterised by rapid run-off and therefore facilitate risk
monitoring, in addition to the benefits of reinsurance, which is also used to mitigate catastrophe risk.
160
2.2 FINANCIAL RISKS
There are three main categories of financial risk that are typical of the company’s business:
•
•
•
credit risk: the risk of default by issuers of financial instruments, by reinsurers and by
intermediaries and other counterparties;
market risk: the risk of losses arising from changes in interest rates, equity prices, exchange
rates and property prices;
liquidity risk: the risk of not being able to meet obligations to the insured and other creditors
due to difficulties in converting investments into cash without incurring losses.
The Board of Directors ensures that the risk management system allows for the
identification, assessment and control of the most significant risks.
The Investment Committee is the body within the company which is responsible for
determining the investments of own funds (BAP Vita and BAP Danni), the Separate Account Funds,
Internal BAP Vita Funds, and the Open Pension Fund.
In doing so, the committee takes account of the restrictions set by applicable regulations for the
various types of portfolio and the framework resolutions of the boards of directors of BAP Vita and
BAP Danni setting out their investment policies.
Financial risk management is of particular importance in the area of separate account
investments connected with with-profits policies. The goal of ensuring stable returns over the
medium to long term and providing the minimum returns required by contract must be pursued in
line with the goal of minimizing the impact of any losses incurred on the company’s solvency.
In that regard, given the particular characteristics of the separate accounts connected with
with-profits policies for which the correlation between trends in asset and liability flows is such that
it is not possible to separate the individual variables in order to measure risk and the related impact
on solvency, the company conducts periodic asset & liability management analyses, jointly stressing
the variables driving developments in assets and liabilities.
Taking account of these analyses, the company’s Finance Committee then determines the
most appropriate asset allocation based on the risk/return profile, setting qualitative and quantitative
restrictions, in accordance with the guidelines of the boards of directors, particularly as concerns
long-term securities and the use of derivatives.
The following table reports the composition of investments of Separate Account funds,
broken down by type of financial instrument and type of interest rate.
161
QUANTITATIVE DISCLOSURES
Composition of investments.
BAP Vita
Description
30/06/2013
%
31/12/2012
%
Change
Fixed-rate securities
706,845
69.01%
589,865
66.08%
116,980
Floating-rate securities
155,440
15.18%
142,389
15.95%
13,051
undertakings
21,905
2.14%
22,726
2.55%
-821
Property investments
5,220
0.51%
5,329
0.60%
-109
134,817
13.16%
132,285
14.82%
2,532
-
-
-
-
-
1,024,227
100%
892,594
100%
131,633
Equity securities and units in
Liquidity
Total other investments
Total investments
At 30 June 2013 the Separate Account Funds held bonds in the amount of €862 million
(84% of the portfolio), of which €707 million in respect of fixed-rate bonds. Government securities,
which amounted to €650 million, represent 63% of the portfolio and are mainly composed of
domestic issues (€642 million), with the remainder accounted for by other euro-area countries.
Corporate bonds totalled €211 million, 21% of total investments, and mainly regard issuers in the
euro area.
The equity segment, which amounts to €7 million, is focused on European markets, with
careful attention paid to sectorial diversification.
Property investments, which are entirely accounted for by specialised investment funds,
amounted to €5 million and represent less than 0.5% of the total portfolio.
BAP Danni
Description
30/06/2013
%
31/12/2012
%
Change
Fixed-rate securities
6,759
76.57%
7,431
87.80%
-672
Floating-rate securities
1,348
15.27%
353
4.17%
995
undertakings
-
-
-
-
-
Property investments
-
-
-
-
-
720
8.16%
680
8.03%
40
-
-
-
-
-
8,827
100%
8,464
100%
363
Equity securities and units in
Liquidity
Total other investments
Total investments
At 30 June 2013, the portfolio was entirely composed of bonds and liquidity.
162
163
Government securities amounted to €8 million or 90% of the portfolio. They are composed
entirely of Italian government issues. Corporate bonds came to €0.15 million (2% of the total) and
represent issues by leading Italian banks.
Credit risk is monitored by way of concentration limits and rating limits, with the latter
comprising both issuer ratings and individual issue ratings, as indicated by the financial manager.
Investment policy is also designed to obtain a sufficient degree of diversification of issuers of
financial instruments by geographical area and economic sector. The following table reports the
exposures in the bond portfolio by rating:
BAP Vita
Bonds by rating of issuer
Market value
%
AAA
0
0.00%
AA
4,409
0.51%
A
21,859
2.54%
BBB
745,202
86.42%
Non-investment grade
71,001
8.23%
Unrated
19,814
2.30%
Total bonds
862,285
100%
Bonds by rating of issuer
Market value
%
AAA
-
-
AA
-
-
BBB
7,955
98.13%
Non-investment grade
152
1.87%
Unrated
-
-
Total bonds
8,107
100%
BAP Danni
A
Interest rate risk is also managed with appropriate diversification of investments among
fixed and floating-rate instruments. The maturity distribution of the bond component is reported in
the following table:
164
BAP Vita
Market value
%
Duration
Fixed-rate bonds
706,845
81.97%
Less than 1 year
21,500
3.04%
0.45
From 1 to 5 years
219,767
31.09%
2.62
More than 5 years
465,578
65.87%
7.09
Floating-rate bonds
155,439
18.03%
Less than 1 year
102
0.07%
0.75
From 1 to 5 years
85,168
54.79%
2.98
More than 5 years
70,169
45.14%
9.81
Total bonds
862,284
100%
Market value
%
Fixed-rate bonds
6,759
83.37%
Less than 1 year
100
1.48%
0.29
From 1 to 5 years
5,639
83.43%
2.73
More than 5 years
1,020
15.09%
7.42
Floating-rate bonds
1,348
16.63%
From 1 to 5 years
1,348
100.00%
2.69
More than 5 years
-
-
-
Total bonds
8,107
100%
BAP Danni
Duration
Less than 1 year
BAP’s exposure in derivatives is controlled by the company’s Board of Directors, which
receives a specific half-yearly report on the use of derivatives and the overall exposure, in order to
assess and verify the consistency of the transactions with the strategy adopted.
165
SECTION 3 – RISKS OF OTHER ENTITIES
The governance of the risks of other companies that do not belong to the banking group is
handled in a manner consistent with that for banks where such companies are material.
Of particular note is the trading of gold and silver by the subsidiary Oro Italia Trading SpA. In these
transactions, derivatives are used to hedge the
risk of changes in the prices of precious metals.
More specifically, during 2013, forward sales contracts were stipulated to hedge metal sales
with a price to be determined within a certain time period (deferred)
QUANTITATIVE DISCLOSURES
At 30 June 2013, Oro Italia Trading SpA (OIT) had no hedging relationships in place as
defined by IAS 39.
166
Part F - Information on consolidated capital
167
168
SECTION 1 - CONSOLIDATED CAPITAL
A. QUALITATIVE DISCLOSURES
Capital is the foundation of managing the risks associated with banking. An adequate level
of capital allows the Group to pursue its entrepreneurial goals while at the same time preserving its
stability. Capital is also the primary reference variable for the supervisory authorities in their
monitoring of bank stability. It is the basis for determining the main control instruments, such as
capital requirements for credit and concentration risks, market risks, operational risks, rules
governing the concentration of exposures and maturity transformation. The amount of capital also
determines operations in various segments of the banking business.
The calculation of consolidated regulatory capital is based on the specific rules governing
this area, under which regulatory capital is the algebraic sum of a series of elements (positive and
negative) that, depending on the quality of each, can be used in the calculation with certain
restrictions. The positive elements of capital must be fully available to the bank, so that they can be
used without restriction to cover risks and losses. The amount of the elements is adjusted to remove
any tax obligations. Regulatory capital is equal to the sum of Tier 1 capital and Tier 2 capital, less
deductible elements.
The Banca Etruria Group has adopted the approach provided for in the Bank of Italy’s
Measure of 18 May 2010 permitting banks to fully neutralise capital gains and capital losses in
treating valuation reserves associated with debt securities issued by the central banks of EU Member
States classified as “financial assets available for sale”.
Banca Etruria Group’s current three-year Business Plan (2012-2014) was developed based
on, among other things, assumptions inherent in regulatory capital that are consistent with the
drivers of the Plan.
169
B. QUANTITATIVE DISCLOSURES
Share capital
Share premium reserve
Reserves
Advances on dividends
Equity instruments
(Treasury shares)
Valuation reserves
- Actuarial gains (losses) on defined benefit plans
- Special revaluation laws
Net profit (loss) for the period (+/-) pertaining to the
shareholders’ of the Parent Company and non-controlling
interests
Equity
Total
Consolidation
eliminations and
adjustments
Other entities
Items of shareholders’ equity
Insurance
undertakings
Banking group
B.1 Consolidated equity: by type of company
373,969
106,784
197,396
(5,183)
(20,337)
(25,768)
1,020
4,411
56,581
4,321
500
3
3
-
510
1,386
-
(88,414)
(3,121)
(30,190)
(500)
(2)
(15)
(4)
(11)
-
342,646
103,663
172,913
(5,185)
(20,349)
(25,769)
1,009
4,411
(1,317)
651,312
1,665
63,070
1,294
3,190
(1,093)
(123,335)
549
594,237
B.2 Valuation reserves for financial assets available for sale: composition
1. Debt securities
3. Units in collective
investment undertakings
4. Loans
Total 30/06/2012
Total 31/12/2012
Negative
reserve
Positive
reserve
30/06/2013
Negative
reserve
Negative
reserve
Positive
reserve
Negative
reserve
Positive
reserve
Assets/Values
Positive
reserve
Negative
reserve
Positive
reserve
Insurance
undertakings
Banking group
Consolidati
Other
on
compani eliminations
es
and
adjustments
-
(22,685)
26
(23)
-
-
-
-
26
(22,708)
4
(1,386)
-
-
-
-
-
-
4
(1,386)
-
(1,705)
-
-
-
-
-
-
-
-
(1,705)
-
4
(25,776)
26
(23)
-
-
-
-
30
(25,799)
178
(932)
134
-
-
-
-
-
312
(933)
170
SECTION 2 - CAPITAL AND CAPITAL RATIOS
2.1 - REGULATORY CAPITAL
2.2 – BANKING REGULATORY CAPITAL
1. Tier 1 capital
The elements of Tier 1 capital are as follows:
Positive Tier 1 elements:
- Share capital
- Share premium reserves
- Reserves
- Innovative capital instruments
- Net profit for the period
Prudential filters: increases in Tier 1 capital:
- Fair value option: changes in credit rating
- Redeemable shares
- Forward purchase commitments in respect of capital instruments that can be calculated in Tier 1
capital
- Other positive filters
Negative elements of Tier 1 capital:
- Treasury shares
- Goodwill
- Other intangible assets
- Net loss for the period
Prudential filters: deductions from Tier 1 capital:
- Fair value option: changes in credit rating
- Negative reserves for available-for-sale securities:
- Equity securities and units of units in collective investment undertakings - Debt securities
- Cumulative net capital loss on property, plant and equipment
- Forward purchase commitments in respect of capital instruments that cannot be calculated in Tier
1 capital
- Other negative filters
The algebraic sum of these items represents Tier 1 capital.
171
2. Tier 2 capital
The elements of Tier 2 capital are as follows:
Positive Tier 2 elements:
- Valuation reserves:
Property plant and equipment:
Special revaluation laws
Own use assets
- Positive reserves for available-for-sale securities:
Equity securities and units of units in collective investment undertakings
Debt securities
- Innovative capital instruments not eligible for inclusion in Tier 1 capital
- Hybrid capital instruments
- Subordinated liabilities
- Net capital gains on equity investments
- Other positive elements
Prudential filters: increases in Tier 2 capital:
- Cumulative net capital gain on property, plant and equipment
- Forward purchase commitments in respect of capital instruments that can be calculated in Tier 2
capital
- Other positive filters
Negative elements:
- Net capital losses on equity investments
- Receivables
- Other
Prudential filters: deductions from Tier 2 capital:
- Ineligible share of valuation reserve for operating property, plant and equipment
- Ineligible share of positive reserves for available-for-sale securities:
Equity securities and units in collective investment undertakings Debt securities
- Forward purchase commitments in respect of capital instruments that cannot be calculated in Tier
2 capital
- Forward purchase commitments in respect of subordinated liabilities and hybrid capital
instruments that cannot be calculated in Tier 2 capital
- Other negative filters
3. Tier 3 capital
The Group did not have any Tier 3 capital to report at 30 June 2013.
172
Information on regulatory capital
30/06/2013
31/12/2012
A. Tier 1 capital prior to the application of prudential fìlters
570,055
573,635
B. Tier 1 prudential filters:
(32,138)
(16,056)
B.1 Positive IAS/IFRS prudential filters (+)
-
-
B.2 Negative IAS/IFRS prudential filters (-)
(32,138)
(16,056)
C. Tier 1 capital including deductible elements (A + B)
537,916
557,578
D. Elements to be deducted from Tier 1 capital
(26,680)
(13,609)
E. Total Tier 1 capital (C - D)
511,237
543,969
F. Tier 2 capital prior to the application of prudential filters
236,052
185,048
G. Tier 2 prudential filters:
-
(113)
G.1 Positive IAS/IFRS prudential filters (+)
-
-
G.2 Negative IAS/IFRS prudential filters (-)
-
(113)
H. Tier 2 capital including deductible elements (F + G)
236,052
184,935
J. Elements to be deducted from Tier 2 capital
(26,680)
(13,609)
L. Total Tier 2 capital (H - J)
209,373
171,326
-
(24,521)
720,609
690,774
M. Elements to be deducted from Tier 1 and Tier 2 capital
N. Regulatory capital (E + L - M)
O. Tier 3 capital
P. Regulatory capital including Tier 3 (N + O)
-
-
720,609
690,774
At 30 June 2013 the regulatory capital of the Group amounted to €720.6 million, an increase
compared with the end of the previous year.
Specifically, Tier 1 capital declined to €511.2 million. The change is essentially due to the
effects of the prudential filters associated with changes in the credit rating.
Tier 2 capital increased due to the Parent Company’s issue of a new five-year Lower Tier II
subordinated debt in the amount of €60 million.
The following table shows the changes in the key components of
regulatory capital during the year.
173
REGULATORY CAPITAL – Opening balance (01/01/13)
Tier 1 capital
Opening balance (01/01/13)
Positive Tier 1 elements
Negative Tier 1 elements
Tier 1 prudential filters
Elements to be deducted from Tier 1 capital
Closing balance (30/06/13)
Tier 2 capital
Positive Tier 2 elements
Negative Tier 2 elements
Tier 2 prudential filters:
Elements to be deducted from Tier 2 capital
Elements to be deducted from Tier 1 and Tier 2 capital
Changes
Tier 3 capital
Changes
REGULATORY CAPITAL – Closing balance (30/06/13)
174
690,774
543,970
(211,914)
208,334
(16,082)
(13,071)
511,237
171,326
57,761
(6,757)
113
(13,071)
209,373
(24,521)
24,521
720,609
2.3 – CAPITAL ADEQUACY
Banking groups must maintain a minimum level of regulatory capital equal to 8% of assets
weighted for the risk of loss due to default (credit risk). In addition, banking groups must constantly
maintain a level of capital (including Tier 3 capital) at least equal to the total capital requirement,
which is equal to the sum of the capital requirements for credit risk, counterparty risk, market risk
and operational risk.
In 2002, banks were required to increase the capital requirement for credit risk by an
additional 2%. This specific requirement is reported under “Other prudential requirements”.
Information on regulatory capital: capital adequacy
Unweighted amounts
30/06/2013 31/12/2012
Categories / Values
A. EXPOSURES
16,250,038
A.1 Credit risk and counterparty risk
1.
Standardised approach
16,033,435
2.
IRB approach
2.1 Foundation
2.2 Advanced
3.
Securitisations
216,603
B. CAPITAL REQUIREMENTS
B.1 Credit risk and counterparty risk
B.2 Market risk
1.
Standardised method
2.
Internal models
3. Concentration risk
B.3 Operational risk
1. Basic indicator approach
2. Standardised approach
3. Advanced measurement approach
B.4 Other prudential requirements
B.5 Other measurement elements
B.6 Total prudential requirements
C. EXPOSURES AND CAPITAL ADEQUACY RATIOS
C.1 Risk-weighted assets
C.2 Tier 1 capital/risk weighted assets (Tier 1 capital ratio)
C.3 Regulatory capital including Tier 3/Risk-weighted assets (Total capital ratio)
175
13,993,593
13,758,945
234,648
Weighted amounts /
requirements
30/06/2013
31/12/2012
6,143,023
6,037,725
105,297
6,192,694
6,081,017
111,677
491,442
210
210
43,620
2,511
41,109
121,697
656,970
495,416
282
282
43,620
2,511
41,109
122,363
661,681
8,212,121
6.2%
8.8%
8,271,013
6.6%
8.4%
Quantitative disclosures (data reclassified for management purposes)
Weighted amounts /
requirements
30/06/2013 31/12/2012
C. EXPOSURES AND CAPITAL ADEQUACY RATIOS
C.1 Risk-weighted assets
C.2 Tier 1 capital/risk weighted assets (Tier 1 capital ratio)
C.3 Regulatory capital including Tier 3/Risk-weighted assets (Total capital ratio)
176
6,690,902
7.6%
10.8%
6,741,477
8.1%
10.2%
SECTION 3 – INSURANCE REGULATORY CAPITAL AND RATIOS
Following are the insurance companies controlled by Banca Etruria:
- BancAssurance Popolari SpA;
- BancAssurance Popolari Danni SpA.
BancAssurance Popolari SpA, as 49% owner of the insurance company BancAssurance
Popolari Danni SpA, calculated the aggregate solvency position of the insurance companies under
Italian insurance regulator IVASS’s (formerly ISVAP) Rule no. 18 of 12 March 2008. The method
used by insurance companies, such as BancAssurance Popolari SpA, that do not prepare
consolidated financial statements, to determine the adjusted solvency position is that laid out in Art.
7, paragraph 2 of the Rule. The data are drawn from the financial statements prepared on the basis
of Civil Code rules.
Under this method, the constituent parts of the solvency ratio are calculated by adding
together the constituent elements of the participating insurance company and the proportional
interest in the constituent elements of the of the subsidaryinsurance company. From these total
constituent elements are subtracted the book value of the equity investment, the solvency ratio of the
participating insurance company and the proportion of the solvency ratio of the subsidiary insurance
company.
The performance of BancAssurance Popolari SpA’s in the first half of 2013, and as resalt
equity,benefitted from good performance of the treasury portfolio and good net funding for the
period, as a result of the consolidation of a growing portfolio which ensures increasing commission
income. The solvency margin to establish at 30 June 2013 was €41,946 thousand, while the
constituent elements of the margin amounted to €50,878 thousand, leaving a surplus of €8,932
thousand and a solvency ratio of 121.29%.
BancAssurance Popolari Danni SpA had a solvency margin to establish at 30 June 2013 of
€3,700 thousand and an available margin of €4,423 thousand, with excess resources of €723
thousand.
In view of the equity interest of 49% in BancAssurance Popolari Danni SpA, and the
individual solvency positions of the companies, the adjusted solvency margin of BancAssurance
Popolari SpA is equal to €43,759 thousand, with constituent elements amounting to €49,586
thousand, leaving an excess of €5,827 thousand and a solvency ratio of 113.32%.
177
178
Part G - Business combinations
The Group was not involved in any business combinations during the period.
179
180
Part H - Transactions with related parties
181
182
Rules for transactions with related parties are designed to safeguard against the risk that the
close relationship of the parties with the decision-making bodies of the company may compromise
the objectivity and impartiality of business decisions, with possible distortions in the resource
allocation process, exposure of the company to risks that were not properly measured or protected
against and potential losses for the company and its stakeholders.
In 2002, Banca Etruria adopted a specific internal procedure for carrying out transactions
with related parties to implement the disclosure requirements envisaged in Consob Regulations and
recommendations of the Corporate Governance Code for Listed Companies. Furthermore, following
Consob Resolution no. 17221 of 12 March 2010, the policy “Rules for related party transactions”,
in compliance with the provisions of Article 2391-bis of the Italian Civil Code, was adopted.
The document, which replaces the previous internal procedure, governs the identification,
approval and execution of transactions with related parties carried out directly or indirectly by the
Bank and sets out rules to ensure the transparency and substantive and procedural propriety of those
transactions, establishing the procedures for compliance with disclosure requirements. The rules
ensure coordination with the administrative and accounting procedures referred to in Article 154-bis
of the Consolidated Law on Financial Intermediation.
The Group companies are required to comply with the provisions of the rules on transactions
with the related parties of Banca Etruria and the disclosure of transactions with their own related
parties in the framework of their financial reporting.
The subsidiary Banca Popolare Lecchese SpA, as an issuer of shares widely held by the
general public, has prepared analogous rules for transactions it undertakes with its own related
parties in addition to following the Parent Comapny Banca Etruria’s Rules.
The aforementioned document envisages that the concept of related parties includes
additional aspects than those included in IAS 24, whose update became effective 1 January 2011.
Specifically, paragraph 9 of IAS 24 defines the concept of related parties as follows.
a) A person, or a close family member of said person, is a related party to an entity that
prepares financial statements if said person:
i.
ii.
iii.
controls or has joint control of the entity that prepares financial statements;
has notable influence on the entity that prepares financial statements; or
is one of the managers with strategic responsibilities of the entity that prepares
financial statements or of one of its parent companies.
b) An entity is a related party of another entity that prepares financial statements if any one of
the following conditions apply:
i.
both the entity and the entity that prepares financial statements are part of the same
group (which means that each parent company, subsidiary or group company is a
related party of the others);
ii.
the entity is an associated company or joint venture of the other entity (or an
associated company or joint venture of a group to which the other entity belongs);
iii.
both entities are joint ventures of the same counterparty;
iv.
the entity is a joint venture of a third party entity and the other entity is an associated
company of said third party entity;
v.
the entity represents a defined benefit plan following the termination of the
employment relationship for employees of the entity that prepares financial
statements or is a related party to said entity. If the entity that prepares financial
statements also represents a plan of this type, the employers that sponsor said entity
are also related parties to the entity that prepares financial statements;
183
vi.
vii.
the entity is a subsidiary or jointly controlled subsidiary of a person identified under
letter a);
a person identified under letter a)/i) has significant influence on the entity or is one of
the managers with strategic responsibilities of the entity (or of one of its parent
companies).
At the operations level, the Rules for related party transactions:
• establish the procedures for handling and approving transactions with related parties,
differentiating between transactions of greater or lesser importance, in compliance with the
recommendations of Consob;
• establish the cases for partial or full exemption from application of the decision making
procedures pursuant to Article 13 of Consob Resolution no. 17221/2010;
• specify the notion of “independent director” for the purposes of regulations in this area;
• establish the procedures and deadlines with which the Committee of Independent Directors,
which issues an opinion on transactions with related parties, and the administrative and
control bodies must be provided with information on transactions, accompanied by the
supporting documentation, before approval and during the subsequent execution of the
transaction;
• set rules governing transactions with related parties carried out with the subsidiaries of
Banca Etruria.
To supplement the Rules, the Bank also prepared operating rules in order to optimise
monitoring, management and control of transactions with related parties by personnel and levels of
decision-making powers.
In 2012, no notifications were made of transactions of “greater importance” pursuant to
Article 4, paragraph 1 (a) of Resolution no. 17221 of 12 March 2010 and the related Annex 3.
Finally, note that on 28 June 2012, Banca Etruria approved the “Rules for transactions with
connected parties” with the aim of governing the acquisition, management and decision-making
processes of positions with connected parties. To determine the subjective perimeter of relevance,
Banca Etruria made use of the concept of “connected parties” provided in Supervisory regulations
and supplemented with additional cases of the notion of related parties envisaged in the Consob
regulation (Annex 1 of Regulation adopted with Resolution no. 17221 of 12 March 2010 and
subsequently amended with Resolution no. 17389 of 23 June 2010) and IAS 24.
The aforementioned Regulation identifies a unique procedure that combines the procedural,
organisational and technical profile contained in both the Consob regulation regarding transactions
with related parties and the new regulation issued by Bank of Italy. This decision was made in
consideration of instructions from Supervisory Authorities who, until the publication of the
reference documents, had specified that listed banks may prepare a single valid procedure for
transactions that fall under the application scope of both regulations, with regard to the coordination
of the Consob regulation on related parties.
At the Board of Directors meeting of 19 December 2012, a “Business Operating Process”
(POA) was resolved to fully govern the provisions implemented, with the purpose of:
- identifying the perimeter of parties considered relevant in accordance with regulations;
- identifying the transactions included in said perimeter;
- describing the different decision-making processes according to the type of transaction;
- monitoring relevant transactions;
- defining information flows;
- identifying audit controls.
184
1. Information on the remuneration of directors and management
1.1 Remuneration of directors and management
General Manager,
Deputy General
Managers and other
key management
personnel
Directors and
members of Board
of Auditors
Compensation and social security contributions
Post-employment benefits
Termination pay
1,498
-
1,957
79
40
1,498
2,076
-
Total
2. Information on transactions with related parties
2.1 Intercompany transactions
The following table reports the balances at 30 June 2013 for the main financing transactions
between the companies of the Banca Etruria Group:
Creditor
Banca
Etruria
Banca
Oro
Federico
Italia Mecenate
Del
TOTAL
Trading
Srl
Vecchio
Spa (*)
Spa
Banca
Popolare
Lecchese
Spa
BAP
Vita Spa
(*)
BAP
Danni
Spa (*)
Etruria
Informatica
Srl
115,497
967
436
15,109
33,082
1,509
10
166,610
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
122
-
-
883
-
12,551
Debtor
Banca Etruria
BAP Vita Spa (*)
-
BAP Danni Spa (*)
-
-
-
-
-
Banca Popolare Lecchese Spa
113
-
9
-
Banca Federico Del Vecchio Spa
827
-
17
-
39
Oro Italia Trading Spa (*)
12,551
-
-
-
-
-
Mecenate Srl
14,996
-
-
-
-
-
-
28,487
115,497
993
436
15,148
33,082
1,509
TOTAL
14,996
10
195,162
(*) Consolidated companies wich do not belongto the Group; all other companies belong to the Banca Etruria Group.
185
The following table reports the main intercompany revenues and costs at 30 June 2013 between the
companies within the scope of consolidation:
Intercompany revenues
Banca
Etruria
Banca
Oro
Federico
Italia Mecenate
Del
TOTAL
Trading
Srl
Vecchio
Spa (*)
Spa
Banca
Popolare
Lecchese
Spa
BAP
Vita Spa
(*)
BAP
Danni
Spa (*)
Etruria
Informatica
Srl
781
22
568
359
8,309
-
1
10,040
-
15
30
224
-
-
4,778
-
1
3
-
-
220
-
-
-
-
53
80
-
-
455
-
-
572
-
485
Intercompany costs
Banca Etruria
BAP Vita Spa (*)
4,509
BAP Danni Spa (*)
101
115
53
-
-
Banca Popolare Lecchese Spa
350
-
-
25
Banca Federico Del Vecchio Spa
531
-
-
41
-
Oro Italia Trading Spa (*)
485
-
-
-
-
-
Mecenate Srl
412
-
-
-
-
-
-
6,441
896
22
649
390
8,616
-
TOTAL
412
1
17,015
(*)Consolidated companies wich do not belong to the Group; all other companies belong to the Banca Etruria Group.
All of the transactions listed above were carried out at market conditions.
2.2 Other related parties
Due to
Customer Percentag
Percentag
customer
loans
e of total
e of total
s
Financial
assets and
liabilities
held for
trading
Percentag Guarante Percentag Contribution
e of total es issued e of total
margin (*)
Percentag
e of total
Directors and
statutory auditors
Key management
personnel
Other related parties
308
n.s.
1,243
0.01%
-
-
-
-
6
n.s.
188
22,506
n.s.
0.32%
295
13,445
n.s.
0.12%
-
-
-
-
4
290
n.s.
0.13%
TOTAL
23,002
14,983
-
-
(*) The amount regards interest and commissions charged/paid on the various forms of lending and funding.
All of the transactions listed above were carried out at market conditions.
186
300
Part L - Operating segments
187
188
OPERATING SEGMENTS – CONSOLIDATED RESULTS BY BUSINESS SEGMENT AT
30 JUNE 2013
This section presents the consolidated results by business segment according to IAS 14 and
the more recent IFRS 8.
The allocation of the various aggregates is based on qualitative and quantitative thresholds
coherent with the customer segmentation used by the Group to define its commercial policies and
that constitutes the basis for management accounting. The identified business units have similar
economic characteristics and the segments are similar in each of the following respects:
-
the nature of the products and services and of distribution processes;
the type of customer;
marketing methods;
the nature of the regulatory environment.
Business units that do not meet the quantitative thresholds are still reported given their
strategic importance.
Hereinafter, the terms “sector”, “segment” and “business unit” are used as synonyms.
The primary basis of reporting envisages the following operational sectors:
o RETAIL: this includes activities directed at the internal categories denominated People,
Affluent, Small Business and Small and Medium-Sized Institutions and Entities.
The segment regards products such as: loans and deposits in any form, financial, banking and
payment services, financial, insurance and asset management products, debit and credit cards,
consumer credit and leasing. Operational and relationship management of retail customers is
carried out by individual branches, which are in turn coordinated by Territorial Centres.
The Territorial Centres are supported in their coordination role by the Retail department (in
turn organised into the Private Customers unit, the POE unit and the Development unit) of the
Central Commercial Department at Headquarters
The figures for this business unit also include the income statement and balance sheet results
of Banca Federico Del Vecchio SpA and Banca Popolare Lecchese SpA, which offer products
designed for retail customers.
o CORPORATE CUSTOMERS: this includes activities directed at business customers in the
Corporate, Corporate Oro, Corporate Key Client, and Corporate Key Client Oro sectors. The
product offering consists of loans and deposits in any form, financial, banking and payment
services, financial, insurance and asset management products, debit and credit cards,
consumer credit and leasing. Activities at the operational level are managed through the
branch network, while relationships are managed through a decentralised unit of Corporate
and Corporate Key Client managers coordinated by the Territorial Centres which include an
Enterprise Coordinator and the support of the Enterprise segment (in turn organised into the
Enterprise unit and the Key Client Relationships unit) of the Central Commercial Department
at Headquarters.
o PRIVATE BANKING: this covers activities directed at high-net-worth individuals. The
segment regards products such as: loans and deposits in any form, financial, banking and
payment services, financial, insurance and asset management products, debit and credit cards,
consumer credit and leasing. Activities at the operational level are managed through the
branch network, while relationships are managed through the decentralised unit of Private
189
Banking and Private Banker Executive coordinated by the Territorial Centres with the support
of the Private Banking unit within the Central Commercial Department at Headquarters.
o INVESTMENT BANKING/TREASURY: this sector includes management of the bankings
group’s own portfolio and treasury operations. The figures for the business unit include all
balance sheet and income statement data relating to funding, lending and service relationships
between the Parent Company and Group companies. They also comprise large-scale direct
funding relationships with institutional customers. The business unit is also allocated the
imputed costs and revenues from the funding and lending flows generated by the branch
networks of the Group banks, as determined on the basis of a system of internal transfer rates.
o INSURANCE: this comprises the activities of the insurance companies BAP – BancAssurance
Popolari SpA and BAP Danni SpA. The two companies place their products almost
exclusively through the Group banks.
o CORPORATE CENTRE: this segment comprises the Group’s governance and control
functions, which support operations and coordinate the business portfolio. It also includes
joint service activities for multiple business units with a view to ensuring operational
productivity and organisational consistency. The Corporate Centre structure is made up of
centralised functions at the Parent Company (administration, management control, risk
management, human resources administration, organisation, litigation, etc.), and the
centralised functions of Banca Federico del Vecchio SpA and Banca Popolare Lecchese SpA,
as well as functions at subsidiaries whose activity directly supports the governance function
(Etruria Informatica Srl, Oro Italia Trading SpA and Mecenate Srl).
Note that leasing and consumer credit are considered part of the product offering to customer
business units.
The principles defined by senior management in the internal management control model
were given preference over administrative criteria in constructing performance data for the
segments:
-
-
-
Contributions to net interest income were computed on the basis of internal transfer interest
rates differentiated by technical form, maturity, type of maturity and currency. These rates
take into account both the risk-free market component and the bank-specific components
(credit spread of Group banks, liquidity risk spread and operational risk spread).
The margin on services was obtained on the basis of direct allocation of actual individual
commission income and expense components.
Operating expenses were distributed among the individual organisational units in the sector,
either directly or using cost drivers, allocating the expenses directly correlated with specific
activities to each business unit.
Provisions and adjustments were assigned directly. In particular, writedowns of loans are
determined at the individual relationship level and allocated to the appropriate segment.
The balance sheet shows items attributed to the business units net of intercompany
transactions.
190
The figures for each business unit in the income statement are shown net of intercompany
transactions, considering the relationships between the various lines of business whose eliminations
are included in the final figure for the Corporate Centre.
Balance sheet data
CONSOLIDATED REPORT SEGMENT INFORMATION - BALANCE SHEET DATA AT 30.06.2013 (€/1000)
ITEM DESCRIPTION
BUSINESS SEGMENT
INVESTMENT
BUSINESSES
BANKING/TREASU
RY
PRIVATE
BANKING
RETAIL
TOTAL
CONSOLIDATED
CORPORATE
CENTRE
INSURANCE
FINANCIAL ASSETS
-
-
-
8,005,891
952,332
-
8,958,223
DUE FROM BANKS
-
-
-
349,053
32,652
768
382,472
3,658,260
44,324
2,760,234
317,677
1,762
74,882
6,857,139
-
-
-
1,454,788
-
-
1,454,788
DUE TO CUSTOMERS
3,140,088
490,177
607,594
6,557,465
59
25,877
10,821,259
OUTSTANDING SECURITIES AND LIAB. FVO
1,472,599
387,100
40,318
936,329
45,884
-
2,882,230
-
-
-
43,578
-
-
43,578
1,788,060
1,053,873
114,101
210,734
-
920,817
4,087,586
CUSTOMER LOANS
DUE TO BANKS
FINANCIAL LIABILITIES
INDIRECT ASSETS UNDER MANAGEMENT
AND ADMINISTRATION
Income statement data
CONSOLIDATED REPORT SEGMENT INFORMATION - INCOME STATEMENT DATA AT 30.06.2013 (€/1000)
BUSINESS SEGMENT
ITEM
RETAIL
PRIVATE BANKING
NET INTEREST INCOME
30,567
NET COMMISSIONS
GROSS INCOME
WRITEDOWNS FOR IMPAIRMENT
a) loans
b) AFS financial assets
c) HTM financial assets
BUSINESSES
INVESTMENT
BANKING/TREASURY
(4,489)
40,115
32,458
3,486
13,953
(2,846)
62,840
(1,003)
54,068
76,302
(55,928)
(55,715)
(213)
(35)
(35)
(1)
(62,126)
(61,925)
(201)
32,634
17,549
(6,206)
41,146
(420)
215,655
(3)
(3)
(1)
-
6,913
(1,039)
(8,058)
76,298
23,870
6,913
(1,039)
(8,058)
76,298
6,099
(73,371)
(1,858)
(3,367)
(66,456)
(2,896)
(11,425)
(1,257)
75,041
119,331
302
NET GAIN (LOSS) FROM FIN. ACTIVITIES AND INSUR.
NET OPERATING EXPENSES
2,956
23,871
NET RESULT FROM FINANCIAL ACTIVITIES
PRE-TAX OPERATING INCOME
TOTAL CONSOLIDATED
CORPORATE
CENTRE
INSURANCE
(1)
(1)
(421)
(118,093)
(117,677)
(416)
97,562
4,037
84,250
(2,782)
6,718
(75,915)
3,317
10,755
8,335
At 30 June 2013, the Group’s core business, which consists of the provision of banking and
financial services to customers (retail, private banking, and enterprise), generated losses before
taxes of €80.7 million, compared with a consolidated total loss of €8.3 million. The loss was
affected by impairment equivalent to €117.7 million (for the retail, private banking and enterprise
sectors).
The Retail segment had a pre-tax loss of €66.4 million and was impacted by writedowns of loans
totalling €55.7 million.
The Enterprise customers segment generated a pre-tax loss of €11.4 million, with profitability
affected by €61.9 million in writedowns of loans.
The Private Banking sector had a pre-tax loss of €2.9 million, due primarily to the negative interest
margin.
191
The Investment Banking and Treasury business unit reported a pre-tax profit of €75 million.
The companies in the insurance sector show a pre-tax profit of €3.3 million.
192
193
Statement of the maanger responsible for the preparation of the
financial reports
194
195
196
197
Report of the independent auditors
198
199
200
201
202
Appendix - The Parent Company Banca Etruria
203
204
Financial statements of Banca Etruria
205
206
BALANCE SHEET - ASSETS
Assets
30/06/2013
31/12/2012
10
Cash and cash equivalents
69,867,411
76,191,016
20
97,264,686
100,484,153
40
7,067,153,243
4,828,224,164
50
763,933,407
-
60
Due from banks
372,436,716
614,504,035
70
Customer loans
6,592,195,924
7,253,789,949
164,815,452
164,803,352
93,681,808
94,788,923
6,678,829
7,665,160
-
-
100
Equity investments
110
120
Intangible assets
- of which:
- goodwill
130
Tax assets
a) current
b) deferred
pursuant to Law 214/2011
207,703,834
26,303,176
181,400,658
147,957,671
194,246,415
1,510,381
192,736,034
155,864,062
150
Other assets
504,704,236
200,964,580
Total assets
15,940,435,548
13,535,661,746
207
BALANCE SHEET - LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities and shareholders’ equity
30/06/2013
10
20
30
40
Due to banks
Due to customers
Outstanding securities
Financial liabilities held for trading
Financial liabilities designated at fair value through
50 profit or loss
60 Hedging derivatives
80 Tax liabilities
a) current
b) deferred
31/12/2012
1,646,353,746
10,809,277,456
1,666,991,130
42,513,669
1,806,671,543
8,169,703,421
1,688,857,489
52,932,383
844,216,396
20,628,782
3,937,893
3,937,893
851,983,416
26,002,992
12,542,562
12,542,562
280,161,048
244,446,477
100
Other liabilities
110
Provision for staff termination pay
29,102,270
32,061,181
120
Provisions for risks and charges:
a) pensions and similar commitments
b) other provisions
28,723,595
28,723,595
54,845,347
54,845,347
130
Valuation reserves
(20,592,013)
4,917,322
160
Reserves
146,123,402
147,078,928
165
Advances on dividends (-)
-
-
170
103,663,116
319,725,238
180
Share capital
342,645,520
342,645,520
190
Treasury shares (-)
(5,182,510)
(8,818,690)
200
Net profit (loss) for the period (+/-)
1,872,048
(209,933,384)
15,940,435,548
13,535,661,744
Total liabilities and shareholders’ equity
208
INCOME STATEMENT
Items
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
230
240
250
260
290
30/06/2013
Net interest income
Commission income
Commission expense
Net commissions
Net result on trading
Net result on hedging
Gain (loss) from disposal or repurchase of:
a) loans
d) financial liabilities
Net result on financial assets and liabilities designated at
fair value
Gross income
Net impairment losses on:
a) loans (*)
Net provisions for risks and charges (*)
Net writedowns/writebacks of property, plant and
equipment
Operating expenses
Profit (loss) from equity investments
Goodwill impairment
Gain (loss) on disposal of investments
Net Profit (loss) for the period
30/06/2012
193,428,868
(97,536,809)
95,892,058
47,298,527
(8,161,797)
39,136,730
2,659,848
2,449,504
(133,610)
28,043,089
383,458
28,357,981
(698,350)
15,034,169
191,665,392
(111,327,655)
80,337,737
52,283,249
(7,129,117)
45,154,132
2,021,856
2,904,765
(79,112)
18,543,914
393,506
16,768,613
1,381,796
6,830,009
183,081,789
(108,957,922)
(108,575,125)
(382,798)
74,123,866
(94,378,820)
(51,201,641)
(43,177,179)
22,262,572
155,713,301
(55,235,377)
(50,588,726)
(877,196)
(3,769,455)
100,477,923
(92,841,522)
(54,343,990)
(38,497,533)
(71,049)
(1,806,016)
(1,206,454)
11,016,689
(64,112,029)
10,011,838
(8,139,790)
1,872,048
(2,473,735)
(460,548)
6,588,718
(89,258,134)
11,219,789
(4,813,639)
6,406,150
(*) Item 130 “Net impairment losses on loans” includes impairment on loans (€22.5 million) accounted for as an
individual item. At 31 December 2012, this impairment was allocated for technical reasons to item 160 “Net provisions
for risks and charges”, as is also described in the notes to the 2012 financial statements. Therefore, this entry has no
effect on the income statement for the period, since the income resulted from the release in the same amount of the
aforementioned provisions for risks and charges (under item 160 - Net provisions for risks and charges).
209
Statement of comprehensive income
Items
10.
20.
30.
40.
50.
60.
30/06/2013
Other income components net of taxes with no reversal to income
statement
Intangible assets
method
30/06/2012
1,872,048
6,406,150
(1,459,607)
-
(12,179,797)
-
-
-
-
-
(25,017,909)
-
(514,254)
-
(26,477,516)
(24,605,468)
(12,694,051)
(6,287,901)
Other income components net of taxes with reversal to income statement
70.
80.
90.
100.
110.
Hedging of foreign investments
Exchange rate differences
Cash flow hedges
Non-current assets held for sale
120. method
130. Total other income components net of taxes
140. Comprehensive income (Items 10+130)
210
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Equity Transactions
previous period
Shareholders'
equity at
31/12/2012
Change in
Shareholders'
opening
equity at
balance
01/01/2013
Share capital:
a) ordinary shares
b) other shares
342,645,520
342,645,520
-
342,645,520
342,645,520
-
-
-
319,725,238
319,725,238
(209,933,381)
(6,128,741)
Reserves:
b) other
147,078,928
130,898,568
16,180,360
-
147,078,928
130,898,568
16,180,360
-
4,917,322
(757,886)
2,232,842
3,442,366
-
-
4,917,322
(757,886)
2,232,842
3,442,366
-
Valuation reserves:
- available for sale
- actuarial gains/losses
Equity instruments
Treasury shares
Net profit (loss) for the
period
(8,818,690)
(209,933,381)
595,614,937
Dividend
and similar
Reserves
Change in
reserves
(955,526)
12,655
(968,181)
(209,933,381)
Purchase of
own shares
-
Comprehensive Shareholders’
equity at
income for
30/06/2013
period ended
30/06/2013
-
342,645,520
342,645,520
103,663,117
-
-
146,123,402
130,911,223
15,212,179
-
968,181
968,181
(26,477,516)
(25,017,909)
(1,459,607)
-
(8,818,690)
-
Issues of
new shares
Change in
Stock
Equity
Options
instruments
15,988,428
209,933,381
(12,352,248)
(5,182,510)
-
595,614,937
-
211
12,655
9,859,686
(12,352,248)
(20,592,013)
(25,775,795)
773,235
4,410,547
-
-
-
1,872,048
1,872,048
(24,605,468)
568,529,563
previous period
Shareholders'
equity at
31/12/2011
Share capital:
a) ordinary shares
b) other shares
225,662,616
225,662,616
-
319,832,091
Reserves:
b) other
141,413,382
127,073,120
14,340,262
Valuation reserves:
- available for sale
- actuarial gains/losses
(36,831,041)
(50,505,946)
5,570,213
8,104,693
Equity instruments
Treasury shares
Change
in
opening
balance
Shareholders'
equity at
01/01/2012
Change in
reserves
Issues of
new shares
225,662,616
225,662,616
319,832,091
-
7,051,957
7,051,957
-
-
(74,194)
-
141,413,382
127,073,120
14,340,262
24,192,384
24,192,384
-
-
(36,831,041)
(50,505,946)
5,570,213
8,104,693
2,458,258
2,458,258
(8,308,529)
24,642,384
(8,308,529)
24,642,384
668,869,160
Dividend
and similar
Reserves
Equity Transactions
-
668,869,160
28,578
28,578
-
(7,051,957)
(7,051,957)
-
Purchase Change in
Stock
of own
Equity
Options
shares
instruments
Comprehensive Shareholders’
equity at
income for
30/06/2012
period ended
30/06/2013
-
232,714,573
232,714,573
319,757,897
-
-
158,582,387
144,242,125
14,340,262
-
(145,658)
(145,658)
(12,694,051)
(12,179,797)
(514,254)
(487)
2,457,771
119,829 (246,523)
(24,192,384)
(450,000)
(450,000)
212
(117,079)
45,635 (246,523)
(487)
(49,670,750)
(62,685,744)
5,055,959
7,959,035
-
6,406,150
(8,435,223)
6,406,150
(6,287,902)
661,812,805
CASH FLOW STATEMENT
A. OPERATING ACTIVITIES
1. Operations (+/-)
- Net profit (loss) for the period (+/-)
- Gain/loss on financial assets HFT and financial assets/liabilities at FV (-/+)
- Gain/loss on hedging (-/+)
- Net writedowns/writebacks for impairment (+/-)
- Net writedowns/writebacks on property, plant and equipment and intangible
assets (+/-)
- Net provisions for risks and charges and other costs/revenues (+/-)
- Taxes and duties not paid (+)
- Other adjustments (+/-)
2. Liquidity generated/absorbed by financial assets (+/-)
- Financial assets held for trading
- Due from banks: on demand
- Customer loans
- Other assets
3. Liquidity generated/absorbed by financial liabilities (+/-)
- Due to banks: on demand
- Due to customers
- Outstanding securities
- Financial liabilities held for trading
- Financial liabilities designated at fair value through profit and loss
- Other liabilities
Net liquidity generated/absorbed by operating activities (+/-)
30/06/2013
30/06/2012
84,518,863
1,872,048
(38,476,342)
133,610
139,482,481
43,175,287
6,406,150
(15,201,306)
79,112
59,023,315
3,012,471
(21,576,264)
2,730,707
(2,659,848)
(1,865,154,240)
14,916,345
(2,263,946,989)
242,067,319
504,747,999
(362,938,914)
2,539,009,018
(160,317,796)
2,657,320,378
(21,866,359)
(10,418,715)
19,012,444
55,279,066
758,373,640
2,934,283
869,293
(8,913,705)
(2,021,856)
(2,241,469,850)
27,343,904
(2,404,825,994)
76,255,564
215,408,894
(155,652,217)
2,197,842,249
(314,813,063)
2,888,873,719
(317,452,020)
(6,163,697)
(124,068,649)
71,465,959
(452,312)
2,712,420
2,659,848
(764,917,103)
(12,100)
(763,933,407)
(751,473)
(220,123)
(762,204,683)
2,021,856
2,021,856
(2,288,009)
(255,000)
(2,492,562)
(2,492,562)
(6,323,605)
(200,888)
(487)
(450,000)
(651,375)
(1,369,841)
B. INVESTMENT ACTIVITIES
1. Liquidity generated by (+)
- Dividends received from equity investments
2. Liquidity absorbed by (-)
- Purchase of equity investments
- Purchase of financial assets held to maturity
- Purchase of property, plant and equipment
- Purchase of intangible assets
Net liquidity generated/absorbed by investment activities (+/-)
(1,950,560)
(82,449)
(266,154)
C. FUNDING ACTIVITIES
- Issue/purchase of own shares
- Issue/purchase of equity instruments
- Distribution of dividends and similar allocations
Net liquidity generated/absorbed by funding activities (+/-)
NET LIQUIDITY GENERATED/ABSORBED DURING THE PERIOD
RECONCILIATION
Amount
Balance sheet items:
30/06/2013
30/06/2012
Cash and cash equivalents at the beginning of the period
Net liquidity generated/absorbed during the period
Cash and cash equivalents: exchange rate effect
Cash and cash equivalents at the end of the period
76,191,016
(6,323,605)
69,867,411
63,796,443
(1,369,841)
62,426,602
211
The main balance sheet aggregates of Banca Etruria
Change
BALANCE SHEET AGGREGATES
30/06/2013
a
31/12/2012
b
6,591,622
7,253,218
(661,595)
-9.1%
(1,273,917)
(1,192,168)
(81,750)
6.9%
Bonds (2)
76,145
130,324
97,265
100,484
7,067,153
4,828,224
763,933
-
10,809,277
8,169,703
2,511,208
2,540,841
13,320,485
10,710,544
568,530
595,615
(€/1000)
Customer loans (1)
Net interbank position
Due to customers (A)
Outstanding securities(B) (3)
Direct funding (A + B)
Equity including net profit
Total
%
(54,178) -41.6%
(3,219)
-3.2%
2,238,929 46.4%
763,933
n.s
2,639,574 32.3%
(29,633)
-1.2%
2,609,941 24.4%
(27,085)
-4.5%
(1) Net of securities under loans and receivables classified in item 70 of the balance sheet assets (Customer loans), in
the amount of €0.6 million.
(2) Securities under loans and receivables classified in item 60 of the balance sheet assets (Due from banks), in the
amount of €75.6 million and classified in item 70 (Customer loans), in the amount of €0.6 million.
(3) Items 30 and 50 of the balance sheet liabilities.
Customer loans
At 30 June 2013, Customer loans came to €6.6 billion, with a decline of 9.1% (€661.6
million in absolute value) compared with 31 December of last year.
This trend, which was also seen in previous periods (there was a €328 million decrease in
the first quarter of 2013), is once again the result of the deterioration in the economic scenario,
which caused a drop in credit supply and demand, as well as the internal decision to create
partnerships to distribute certain types of loans. Outsourcing involves the medium-/long-term
product portfolio, particularly leases, personal loans and medium-/long-term loans to private
customers. In fact, the largest change relates to medium/long-term loans, particularly mortgages (€284.4 million), whilst in terms of short-term forms, current accounts declined by approximately €61
million. Institutional loans and loans to central banks were also down by over €317 million.
212
In accordance with the strategic policies of the latest Business Plans, the Bank therefore
prioritised the objectives of balancing structural liquidity and capital, as well as reclassifying the
loans portfolio, also through commercial agreements with leading, highly specialised partners. In
this respect, the Bank disbursed a total of €209.5 million to over 8,500 customers through its
network and commercial partnerships in the first half of 2013, confirming its support of the
community despite the difficult economic environment.
In fact, the Bank remains focused on exploiting as much as possible the potential of
providing credit to the economy, with the awareness that local intermediaries which are close to the
community need to provide support to re-start the economic engines.
The decision to form partnerships for the placement of some loan forms, the weak economic
environment and, last but not least, stricter rules for selecting counterparties, both for existing
relationships and new lending, resulted in a reduction in the stock of loans. This adds to the effect of
writedowns recognised during the half which, by increasing the provisions for loans, reduce the
corresponding net value in the financial statements.
The following table contains the values relating to the stock of loans, compared with the
same figures as at 31 December 2012, broken down by technical form, which demonstrate a trend
that confirms the description provided above on the credit policies followed by the Bank during the
first half.
Customer loans
LOANS
(€/1000)
30/06/2013
Current accounts
Medium/long-term loans
Credit cards and personal loans
Impaired loans
Other lending
TOTAL CUSTOMER LOANS
702,716
2,977,675
110,344
1,569,047
1,232,414
6,592,196
31/12/2012
763,734
3,262,119
130,264
1,410,753
1,686,920
7,253,790
Change
Total
%
(61,018) -8.0%
(284,444) -8.7%
(19,920) -15.3%
158,294 11.2%
(454,506) -26.9%
(661,594) -9.1%
Volumes increased in the impaired loans segment (€+158.3 million in net value), as proof of
the continuation of the crisis situation with tangible effects on the country’s economic and
productive fabric, evidenced not only in the crisis of an increasing number of enterprises which are
required to stop doing business, but also in unemployment growth and the difficulties faced by
households to meet their commitments.
Loan impairment and the resulting increase in writedowns already impacted the financial
statements of the main banks at the end of last year. Information provided by the Bank of Italy in its
Economic Bulletin indicated that the deterioration of credit quality (particularly for enterprises)
would remain high in the first half of 2013.
Being a community bank and with a keen interest in the needs of both households and small
and medium-sized businesses, Banca Etruria has been affected by this situation and continues to
record an increasing trend in non-performing loans. The gross value of doubtful loans amounted to
€1.3 billion as at 30 June 2013, up by €267.9 million compared with the end of the previous year.
There was a €125.2 million rise in provisions compared with December 2012. The coverage ratio
amounted to 52.9%. The gross value of substandard loans was up by €24.6 million, with a coverage
ratio of 16.8%. Overall, the coverage ratio of non-performing exposures is 35.5%, in line with 31
December 2012 (35.2%).
213
Direct funding
In this still very widespread economic scenario, banks continue to prioritise the pursuit of
funding objectives in order to ensure adequate liquidity. Although actions by the European Central
Bank have helped to ease critical market issues since the second half of 2012, banks have continued
to pursue stable forms of funding. Obviously, this objective is difficult to achieve in the current
scenario, in which households and businesses have seen their income and turnover decline.
Attracting households and consumers with increasingly competitive products may not be enough in
this historic moment of difficulty in the labour market and in the area of savings.
Direct funding
DIRECT FUNDING
(€/1000)
Financial liabilities at amortised cost
- Demand funding
- Bonds (including subordinated bonds)
- Repurchase agreements
- Other liabilities at amortised cost
Financial liabilities designated at fair value
Direct funding
- Other financial liabilities
Total direct funding (book value)
30/06/2013
6,177,132
2,982,715
1,629,334
1,565,083
844,216
7,021,348
6,299,137
13,320,485
31/12/2012
6,256,408
2,921,975
1,632,378
94
1,701,960
851,983
7,108,391
3,602,153
10,710,544
Change
Total
%
(79,276)
-1.3%
60,740
2.1%
(3,044)
-0.2%
(94) -100.0%
(136,878)
-8.0%
(7,767)
-0.9%
(87,044) -1.2%
2,696,984 74.9%
2,609,940 24.4%
Despite this difficult economic phase, Banca Etruria’s funding activity has continued to
develop over the course of the first half of 2013: during this period, total direct funding has grown
by a good €2.6 billion, reaching €13.3 billion.
Net of transactions on collateralised markets (€6.3 billion in June 2013, there was only a
modest dip of €87 million in direct funding (-1.2%). This performance, which reflects the basic
stability of funding activities with customers, is affected by households’ lower propensity to save as
well as by the fact that not all maturing funding sources have been replaced, particularly
institutional bonds. On the other hand, the decision to steadily reduce dependence on institutional
counterparties resulted in development in funding which privileged qualitative objectives of
increased granularity and stability, rather than simply quantitative objectives. In fact, relationships
with large customers especially recorded a significant reduction.
Amounts due to customers14 decreased by €57.4 million, while notes payable were down
€29.6 million, of which €18.8 million relates to certificates of deposit and the rest relates to bonds.
This last figure means that the Bank has a good capacity to replace its maturing funding: in
particular, the Bank did not renew institutional bonds maturing in the first half of 2013, amounting
to €100.6 million, and moved up the repurchase of €63 million in institutional bonds maturing
subsequent to the end of the half. The disintermediation of institutional customers - in addition to
the considerable progress already made in 2012 - and the higher percentage weight of funding from
individuals contributes towards keeping sources of loan funding balanced and stable over time.
14
Amounts due to customers calculated net of transactions on collateralised markets
214
We also highlight that direct funding trends (net of funding on collateralised markets) are
also related to the strategy outlined by the Bank in 2013 of offering customers increasingly targeted
products, including indirect funding products, which are consistent with the customer’s needs and
profile and are able to meet the customer’s profitability expectations while also supporting the
Bank’s margin on services. After 2012 in which the objective of increasing the percentage weight of
direct funding from individuals was reached through the disintermediation of institutional
customers, in 2013, aside from maintaining that balance in types of lending, the target is growth in
amounts of indirect funding, as shown below.
Indirect funding
INDIRECT FUNDING (*)
(€/1000)
TOTAL INDIRECT FUNDING (market value)
- of which: Managed
Insurance
Administered
Managed + Insurance as % of total indirect
30/06/2013 31/12/2012
3,755,500
758,894
866,710
2,129,897
43.3%
3,639,985
1,528,353
792,727
1,318,905
63.8%
Change
Total
%
115,516 3.2%
(769,459) -50.3%
73,983 9.3%
810,991 61.5%
(*) Figures reported are those used for managemet purposes.
At the end of the first half of 2013, the Bank’s indirect funding totalled €3.8 billion, up by
€115.5 million compared to the end of last year (+3.2%).
In June, there was an €800 million recomposition in this segment between assets under
management and assets under administration following the decision to manage BAP’s assets
internally. Until April, they were managed by a third-party asset management company (Anima
Sgr). As a result, as at 30 June 2013, assets under management reached €758.9 million, while assets
under administration exceeded €2.1 million.
Net of this recomposition, trends are positive for assets under management on the whole: in
fact, investment funds were up by 6.7%, equal to €40.7 million, and asset management net of the
aforementioned effect was down by approximately €10 million.
During the half, assets under administration were also up net of the recomposition, which
involved a flow of €800 million in assets channelled primarily to government securities and partly
to bonds. Finally, within this area, the reduction in investments in equity securities and their market
value (-15.4% compared to the end of 2012) continued.
Insurance funding, which accounts for 23.1% of all indirect funding, registered 9.3% (€+74
million) growth since the beginning of the year, to reach a total of €866.7 million.
215
Other balance sheet accounts
The securities portfolio reached €8 billion, compared with €5.1 billion at the end of the
previous year. The aggregate includes the bank bonds classified under “Due from banks” (item 60),
which came to €75.6 million at the end of June 2013. It also includes bonds issued by other
financial intermediaries classified under “Customer loans” (item 70), the balance of which came to
€0.6 million.
SECURITIES PORTFOLIO
(€/1000)
30/06/2013
TOTAL
Bank bonds
OVERALL TOTAL
97,265
7,067,153
763,933
7,928,351
76,145
8,004,497
31/12/2012
100,484
4,828,224
4,928,707
130,324
5,059,032
Change
Total
%
(3,219) -3.2%
2,238,929 46.4%
763,933
n.s.
2,999,643
60.9%
(54,178) -41.6%
2,945,465 58.2%
The expansion of the portfolio, carried out since 2012 in line with the strategic approach of
the Business Plan to asset allocation, particularly regarded the “available-for-sale” component of
the portfolio in the second quarter of 2013. Again in this first part of the year, the performance of
returns on government securities in the euro area and the measures aimed at maintaining the Bank’s
structural balance of liquidity made it efficient to invest in Italian short-term government securities,
which were highly liquid and eligible for use in refinancing transactions on collateralised markets,
to support net interest income (which is still penalised by interest rates offered to customers).
Also increasing alongside the securities portfolio was exposure from transactions on
collateralised markets (€6.3 billion classified in the financial statements, under “Due to customers
(liability item 20) compared to €3.6 billion at the end of 2012), while interbank exposure,
calculated as the difference between “Due from banks” (asset item 60) and “Due to banks” (liability
item 10), increased only slightly, to €-1.3 billion at the end of June 2013. This exposure is mainly
attributable to the use of refinancing operations with the European Central Bank as an alternative to
the traditional forms of interbank borrowing.
SHAREHOLDERS’ EQUITY
(€/1000)
30/06/2013
Share capital
Share premium reserve
Reserves
Valuation reserves
Treasury shares
Equity excluding net profit for the period
Net profit for the period
Equity
216
31/12/2012
342,646
103,663
146,123
(20,592)
(5,183)
566,658
342,646
319,725
147,079
4,917
(8,819)
805,548
1,872
568,530
(209,933)
595,615
Change
Total
%
0.0%
(216,062) -67.6%
(956)
-0.6%
(25,509)
n.s.
3,636 -41.2%
(238,891) -29.7%%
211,805
(27,085)
n.s.
-4.5%
Compared with the end of 2012,equity declined by €27.1 million (-4.5%). The change in the
share premium reserve basically results from covering the loss from the previous year, as resolved
upon by the shareholders’ meeting which approved the financial statements as at 31 December
2012, on 28 April 2013.
The change in the valuation reserve related to the AFS portfolio was affected by the fair
value measurement of the securities included in this component as at 30 June 2013. Particularly, at
the end of the first half of 2013, Italian government securities were penalised, although to a lesser
extent than at other historic moments, by investors’ uncertainties regarding the future of quantitative
easing in the United States, fears concerning the credit outlook in China and the political situation
in Portugal. This impacted yield spread trends compared with the debt securities issued by other EU
governments, especially German government securities. The increase in government security yields
was partly temporary: in July, the ECB Governing Council made decisions in support of financial
markets, including the listings of government securities of “peripheral” countries.
The income statement of Banca Etruria
INCOME STATEMENT
(€/1000)
30/06/2013
30/06/2012
Change
Total
%
Net interest income
95,892
80,338
15,554
19.4%
Net commissions
39,137
45,154
(6,017)
-13.3%
183,082
155,713
27,368
17.6%
74,124
100,478
(26,354)
-26.2%
(64,112)
(89,258)
25,146
-28.2%
10,012
11,220
(1,208)
-10.8%
1,872
6,406
(4,534)
-70.8%
Gross income
Net profit (loss) for the year
At the end of June 2013, net interest income stood at €95.9 million, up compared to €15.6
million in the same period of the previous year (+19.4%). In particular, interest income totalled
€193.4 million at the end of the half, compared to €191.7 million in June 2012 (+0.9%) and interest
expense amounted to €97.5 million, compared to €111.3 million in June of last year (-12.4%).
A significant contribution to the result was provided by interest income from the securities
portfolio, amounting to €70.6 million, compared to the €40.2 million in interest in the first half of
2012. This was made possible by a careful ALM policy, which allowed the Bank to set up a
securities portfolio beginning at the end of 2012, which provided significant support to net interest
income on the whole.
Indeed, this margin is impacted by the lower net contribution of operations with customers,
which decreased from €48.7 million net at 30 June 2012 to €37.7 million as at 30 June 2013.
Despite the fact that the immediate spread in the Bank’s rates has basically stabilised with respect to
twelve months ago, recovering a good 14 basis points in the first half of 2013, the decreasing trend
in volumes, particularly of loans, resulted in a decline in profit margins from customers.
An analysis of loan pricing shows a reduction over the twelve months, deriving from a drop
in interest rates on medium/long-term loans, in line with the trend in the Euribor, which was not
completely offset by growth in returns on short-term loans. Nonetheless, the trend in the margin on
lending was also affected by the great emphasis placed on credit quality, which favoured less risky
forms of lending. Therefore, interest income collected from customers is down due to both the
change in interest rates and the downwards trend of loan volumes. In terms of funding, rates have
217
decreased progressively, basically as a result of maturing medium/long-term forms of funding with
higher returns, leading to an increase in the percentage of short-term debt, in and of itself less
costly.
Lastly, the bank margin decreased from €-8.6 million at 30 June 2012 to €-12.4 million at 30
June 2013, also following the increase in funding on the collateralised markets, which in operational
terms is considered equivalent to interest paid on interbank funding. The increase in that exposure
was more than offset by the expansion of the treasury portfolio, which made a significant
contribution to net interest income.
Net commissions totalled €39.1 million during the period, and were down by €6 million
compared to June of last year.
Commission income collected during the half amounted to €47.3 million, down by
approximately €5 million compared to 30 June 2012. In light of the fact that rapid judgment
commissions (“CIV”), amounting to €3.3 million as at 30 June 2013, have been reclassified to other
operating income since the fourth quarter of 2012, the decrease reduces to €1.7 million.
The margin on services, supported primarily by revenues from traditional banking activities,
accounts for 45% of total commission income (€21.2 million) and has been decreasing for some
time (approximately 53% one year ago). Revenues from management, intermediation and
consulting activities accounted for 28% of the total (€13.2 million), up by 1.5 million. Commissions
from collection and payment services and the provision of other services were equal to 23% of total
commission income (€+0.7 million).
The net result on trading, hedging and financial assets and liabilities designated at fair
value was a positive €45.4 million, increasing compared to the €28.2 million recorded in June 2012.
The composition of this result was impacted by the positive figure of €28 million in item 100 of the
income statement, mainly owing to the sale of several government securities classified in the AFS
portfolio.
At the same time, the situation of the financial markets at the end of the first half of 2013,
characterised by investors’ uncertainties regarding the future of quantitative easing in the United
States, fears concerning the credit outlook in China and the political situation in Portugal, resulted
in a rise in risk premiums compared to the same period of 2012 and a corresponding decline in bank
bond prices. As an effect of designating the Bank’s financial liabilities at fair value, this results in a
positive component under item 110 of the income statement amounting to approximately €15
million, with an effect of €+8.2 million compared to 30 June 2012.
In addition, the Bank’s securities portfolio has been structured to support net interest income
by collecting short and medium-term coupons, not just as a mere trading instrument: so, the net
result on trading totalled €2.5 million, down by 15.7% compared to June 2012.
Gross of dividends received of €2.7 million, gross income for the first half of 2013 came to
€183.1 million, an increase of €27.4 million (+17.6%) over the same period in 2012.
218
As for the valuation of the loan portfolio, the deterioration in asset quality continues to impact the
financial statements of banks. As mentioned previously, the persistence of the complex and
widespread economic situation continues to cause significant difficulties for businesses in Italy. For
banks, the recession results in an inevitable worsening in credit quality, leading to the recognition of
increased volumes of impaired loans and, as a result, increases in the related provisions. At 30 June
2013 net impairment losses amounted to around €109 million. This figure also includes the portion
of impairment losses (€22.5 million) recognised by the Bank after the financial statements were
approved (on 15 March 2013) and classified, for technical reasons, to Net provisions for risks and
charges when the financial statements were supplemented (on 27 March 2013). Therefore, net of
this provision, which represents the precise classification of credit risk incurred in the last year, net
impairment losses totalled €86.5 million in the first half of 2013, compared with €55.2 million in
June 2012.
Writedowns on the loan portfolio determine a net result from financial activities of €74.1
million, down compared to the same period of 2012. This result was affected by the impact of
writedowns to loans, which depressed gross income which, in spite of the difficult economic
scenario, increased considerably with respect to the same period of 2012.
€64.1 million in operating expenses were accounted for in the period. Net of the reversal of
€22.5 million from the provision for risks and charges (relating to writedowns of loans recognised
under that item as at 31 December 2012, as described above), expenses for the first half of 2013
total €86.6 million, down by 3% compared to €89.3 million in June 2012. There was a 5.8%
reduction in personnel expenses, which amounted to €51.2 million, the result of the first savings
achieved from personnel leaving the company after voluntary participation in the Redundancy Fund
established by the Bank. Other administrative expenses (€43.2 million) increased by €4.7 million
compared to the same period of last year. This increase is partially due to the allocation to that item
of expenses linked to the structures of the two product companies incorporated in 2012, as well as
expenses from leasing and operating expenses paid to the Palazzo della Fonte Consortium. Against
these expenses, there was an increase in other operating income, which includes the rapid judgment
commissions reclassified to that item beginning from 31 December 2012.
On the whole, operating expenses stood at 47.2% of gross income15.
Profit (loss) from current operations before tax came out at €10 million at 30 June 2013
(€11.2 million as at 30 June 2012).
Net of taxes of €8.1 million, net profit for the period came to €1.9 million, down with
respect to €6.4 million in the first half of 2012. The tax figure as at 30 June 2012 included the tax
benefit of €4.3 million generated by the deductibility of IRAP related to personnel costs from the
IRES taxable base for the years 2007-2011.
15
The cost-income ratio is calculated as the ratio of net operating costs (having deducted net allocations to provisions
for risks and charges) to gross income.
219
Key ratios
30/06/2013
31/12/2012
41.3%
50.1%
83.4%
28.2%
93.6%
53.6%
37.4%
79.1%
34.0%
99.4%
3.6%
4.4%
Risk ratios
Bad debts/Customer loans
Bad debts Coverage Ratio
9.5%
52.9%
6.6%
54.5%
Profitability ratios
Net interest income/Gross income
Gross income/Total assets (3)
Cost/Income ratio
52.4%
2.3%
47.2%
59.6%
2.4%
69.2%
Balance sheet ratios
Customer loans/Total assets
Securities portfolio(1)/Total Assets
Direct funding/Total liabilities and shareholders’equity
Indirect funding/Direct funding
Customer loans/Direct funding (2)
Equity ratio
Equity/Total Assets
(1) Including securities under Loans and Receivables.
(2) The ratio is calculated net of transactions on collateralised markets, included under both customer loans and direct
funding.
(3) Ratio calculated on an annual basis.
220

30 JUNE 2013 - Banca Etruria

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