Consolidated half-year report at 30 June 2006

Transcription

1 Consolidated half-year report at 30 June 2006

2 Table of contents Introduction 4 Banca CR Firenze Group - Summary consolidated data 6 Directors' Report on consolidated activities 1. Reclassified consolidated financial statements schedules 7 Reclassified consolidated income statement 9 Reclassified consolidated balance sheet The Group composition The economic and business area background Overall earnings 17 Preface 17 Results summary 17 The interest margin 18 The overall business margin 19 The net business margin 21 Net operating result 21 Gains/(losses) from current operations, including taxes 23 Parent Company net profit 23 Return on Equity and other ratios Analysis of assets and structure 26 Assets management on behalf of customers 26 Customer loans 28 Loan portfolio quality 29 Transactions on financial markets and own shares transactions 30 Equity investments 31 Capital accounts Regulatory capital and solvency ratios Statement of reconciliation between the Parent Company s shareholders equity and net profit for the period and the corresponding values in the consolidated accounts The cash flow statement 34 The Group s organisational activities 35 The Group s commercial activities 38 The Group s credit activities 44 Risk Management 45 Human Resources and the local area network 47 Communications The Group s segments of activity 52 Preface 52 Identification of the segments of activity 52 Criteria for calculation of profitability by segment of activity 53 2

3 Segment information Other information 55 The rating 55 Share price performance in the first half-year 55 Shareholder composition 55 Significant events after the end of the half-year 58 Outlook 59 Consolidated financial statements 60 Parent Company s financial statements 64 Notes to the consolidated financial statements and supplementary information 68 Part A - Accounting policies 68 Part B - Information on the consolidated balance sheet 81 Part C - Information on the consolidated income statement 109 Appendix to the half-year report 129 Report of the Independent Auditors 136 3

4 Introduction The half-year report at 30 June 2006 of Banca CR Firenze SpA has been prepared based on the regulations issued by CONSOB ( Issuers Regulations ) for the companies whose shares are listed in the official list of Borsa Italiana, in compliance with Legislative Decree No. 87/1992 and the Bank of Italy s Circular Letter n Financial statements of Banks: formats and rules for compilation. The half-year report at 30 June 2006, accompanied by the Directors Report on consolidated activities prepared by the Parent Company directors, comprises the accounting statements (balance sheet, income statement, statement of changes in shareholders equity and cash flow statement) of both the Group and the Parent Company, as well as the notes to the consolidated financial statements and supplementary information, all drawn up in the formats prescribed by the abovementioned Circular Letter; according to such Circular Letter, the statement of reconciliation between the Parent Company s shareholders equity and Parent Company net profit/(loss) and the corresponding values in the consolidated accounts has been set out in the Directors Report on consolidated activities. In accordance with the Issuers Regulations, data under the balance sheet and income statement formats are expressed in thousands of Euros, whereas values of the other accounting statements and the explanatory and supplementary notes are expressed in millions of euros, except as otherwise indicated; comparative data at 30 June 2005 and 31 December 2005 are also provided in relation to economic balances and equity data, respectively. Specifically, for the purposes of providing a correct representation of the business performance, balances at 30 June 2005 under the reclassified income statement were re-determined and a specific column reporting these balances was also added to the official format of the consolidated income statement, bearing the wording pro-forma and taking account of the modified accounting recognition of the balances related to the companies operating in the tax collection sector, currently being disposed of, as well as the entry of the subsidiary Banca CR Firenze Romania SA, acquired in the first half of 2006, in the consolidation area. Finally, note that in compliance with the Consob Communication no. DEM/ of 28 July 2006, the reconciliation statements of the equity and net results of Banca CR Firenze SpA will be explained in an appropriate appendix; these statements were obtained by using the accounting balances determined according to the Italian generally accepted accounting principles and the same values determined based on IAS/IFRS and prepared in accordance 4

5 with the provisions under IFRS 1, regulating the first-time adoption of IAS/IFRS (First Time Adoption - FTA ), together with the explanatory notes of the items shown under these statements; in this regard, note that the abovementioned statements have been prepared by adopting the accounting policies reported under Part A of the Notes to the consolidated financial statements and supplementary information of this report. In accordance with the aforementioned regulations and the CONSOB recommendations, this half-year report was subject to limited review by PricewaterhouseCoopers SpA, whereas the balances shown in the abovementioned reconciliation statements will be analysed within the full audit of the accounts of Banca CR Firenze SpA at 31 December 2006; in this regard, note that the abovementioned balances have been verified for the purposes of auditing the consolidated reconciliation statements included in the 2005 consolidated financial statements of the Banca CR Firenze Group. 5

6 Banca CR Firenze Group Summary consolidated data 6

7 Directors Report on consolidated activities 1. Reclassified consolidated financial statements schedules In order to ensure greater understanding of Group management and the performance of the main economic-equity items related to the period under consideration, the reclassified income statement and balance sheet formats below have been prepared starting from the official accounting statements; specifically, the contribution from the insurance sector to the "Overall business margin" is customarily shown under the operating item "Net result from insurance activities". Below are the reclassifications made: 1. Reclassified consolidated income statement: breakdown of item 220- Other operating (expense)/income into the operating item Recoveries on savings deposits and creditors accounts (included in the Overall business margin) and sub-items Other operating (expense)/income (recoveries of expenses) (included in the administrative expenses) and Other residual operating (expense)/income (shown under Other costs and revenues from current operations ); breakdown of item 240- Gain/(Losses) from equity investments into the operating sub-items Profits of companies consolidated on an equity basis (combined with dividends under the Overall business margin) and Other gain/(losses) from equity investments (included in the Other costs and revenues from current operations ); aggregation of items 80- Net result from trading and 100- Gain/(Losses) from sale of loans and other financial assets under the operating item Result from financial assets and liabilities ; aggregation of items 110- Net result from financial assets and liabilities valued at fair value, 150- Net Premiums e 160- Other income from/(expense to) insurance activities under the operating item Net result from insurance activities ; aggregation of the above indicated operating sub-items ( Other residual operating (expense)/income and Other gain/(losses) from equity investments ), as well as items 250- Net result of valuation of property, plant and equipment and intangible assets at fair value, 270- Gains/(Losses) from sale of investments and 310- Net (after-tax) profit (loss) from groups of assets being disposed under the operating item Other costs and revenues from current operations ; 7

8 2. Reclassified consolidated Balance Sheet: inclusion of items 110- Actuarial reserves of reinsurers and 150- Non-current assets and groups of assets being disposed under the Other assets of the balance sheet assets; inclusion of item 90- Liabilities related to assets being disposed under the Other liabilities of the balance sheet liabilities; furthermore, the amount of Commitments to repurchase the Group s own assets has been extrapolated and shown separately; aggregation of items 140- Valuation reserves, 170- Reserves, 180- Share premiums, 190- Share capital, 200- Treasury Shares and 220- Parent Company net profit/(loss) under item Shareholders' equity of the balance sheet liabilities. 8

9 Reclassified consolidated income statement 9

10 Reclassified consolidated balance sheet 10

11 2. The Group composition CR Firenze Direct Holding CR Pistoia e Pescia CR Civitavecchia CR Orvieto CR Mirandola CR La Spezia Infogroup Citylife Total Companies in the Banking Group Cassa di Risparmio di Mirandola SpA (1) % % Cassa di Risparmio di Orvieto SpA % % Cassa di Risparmio della Spezia SpA % % Cassa di Risparmio di Pistoia e Pescia SpA % % Cassa di Risparmio di Civitavecchia SpA % % Centro Riscossione Tributi CERIT SpA(2) % % CR Firenze Gestion Internationale SA % % Perseo Finance Srl % % Infogroup SpA % 4.000% 1.000% 1.000% % Citylife SpA % % % Tebe Tours SpA % % S.R.T. Società Riscossione Tributi SpA (2) % % Subsidiaries Immobiliare Nuova Sede Srl % % Banca C.R. Firenze Romania SA (3) % % Centrovita Assicurazioni SpA % 8.000% % Banking and finance companies held at least 20% Findomestic Banca SpA % 2.830% % Centro Factoring SpA % 5.729% 0.033% 0.004% 0.164% % Centro Leasing Banca SpA (4) % 7.084% 0.561% 1.182% 0.006% 0.790% % Sviluppo Industriale SpA % % Other companies held at least 20% Ce.Spe.Vi. Srl % % ET Group Srl % % (1) merged by incorporation into Banca CR Firenze SpA as at 1 July (2) company currently being disposed of. (3) included under the other subsidiaries (rather than under the companies in the banking group) pending the updating by the Bank of Italy of the map of the Banca CR Firenze Group, of which Banca C.R. Firenze Romania SA will be a member. (4) Authorized to banking activity since 1st July

12 The Group composition Directors Report on consolidated activities 2. The Group composition At 30 June 2006 the Banking Group was made up as follows: Banca CR Firenze S.p.A. Bank, parent company with registered offices in Florence; Cassa di Risparmio di Civitavecchia S.p.A. Bank with registered offices in Civitavecchia (Rome area); Cassa di Risparmio di Mirandola S.p.A. Bank with registered offices in Mirandola (Modena area); Cassa di Risparmio di Orvieto S.p.A. Bank with registered offices in Orvieto (Terni area); Cassa di Risparmio di Pistoia e Pescia S.p.A. Bank with registered offices in Pistoia; Cassa di Risparmio di La Spezia S.p.A. Bank with registered offices in La Spezia; Centro Riscossione Tributi CERIT S.p.A. Tax Collection Finance Company with registered offices in Scandicci (Florence area) 1 ; CR Firenze Gestion Internationale S.A. Company managing common investment funds with registered offices in Luxembourg; Perseo Finance S.r.l. Finance company with registered offices in Conegliano Veneto (Treviso area); Infogroup S.p.A. Service company with registered offices in Florence; Citylife S.p.A. - Service company with registered offices in Florence; Tebe Tours S.r.l. Service company with registered offices in Mirandola (Modena area); S.R.T. Società Riscossione Tributi SpA. - Tax Collection Finance Company with registered offices in La Spezia. 1 Due to the reorganisation of the national tax collection service regulated by Legislative Decree 203/2005, tax collection has been assigned by law to Riscossioni SpA, a new public entity that may proceed to acquire, by 30 September 2006, at least 51% of the capital of the privately held concessionaires, including Cerit SpA and SRT SpA, wholly-owned by Banca CR Firenze SpA and by CR La Spezia SpA, respectively. Therefore, on 17 May 2006, Banca CR Firenze SpA executed a preliminary agreement for the transfer to Riscossioni SpA of the 100% stake in Cerit SpA. As to Srt SpA, 75% of the share capital may be transferred to Riscossioni SpA, subject to the spin-off of the branch of business relating to the local taxation management, which may be extended to the Group. 12

13 The Group composition Below are the main changes occurred during the first half of 2006: Mirafin SpA Mirafin SpA, a service company wholly owned by Cassa di Risparmio di Mirandola SpA, was merged by incorporation into the latter effective from 20 June Banca C.R. Firenze Romania SA (former Daewoo Bank Romania SA) On 9 March 2006, a deed of transfer was signed for the purchase by Banca CR Firenze of the controlling interest (56.23%) of Daewoo Bank Romania SA, with registered office in Bucharest and including 11 branches. At the same time as the deed of transfer of the shares, an option contract was also signed to regulate a put option and a call option which will allow Banca CR Firenze to subsequently obtain a shareholding of at least 75% in the Rumanian bank. The extraordinary shareholders meeting held on the same date as the closing approved the new bylaw of the bank with the name changed to Banca C.R. Firenze Romania SA, owned by the Banca CR Firenze Group in which it will be included subject to updating the map by the Bank of Italy. Centro Leasing Banca SpA Centro Leasing SpA has been authorized by the Bank of Italy to exercise banking activities with the name of Centro Leasing Banca SpA as from 1 July Following the exit from the capital of Sanpaolo Imi Spa at the same time as its transformation into a bank, the ownership structure was reorganized and the percentage held by the Parent Company rose to %. The Group achieved a % stake in the company. Cassa di Risparmio di Mirandola SpA Take note that on 20 June 2006 a deed was signed to merge Cassa di Risparmio di Mirandola SpA by incorporation into Banca CR Firenze SpA, realized starting from 1 July 2006 and effective from 1 January 2006 for all accounting and tax purposes. Following this transaction, as resolved upon by the Board of Directors of Banca CR Firenze SpA on 19 December 2005 and of Cassa Risparmio di Mirandola SpA on 19 January 2006, the former subsidiary became a Division of Banca CR Firenze. It will perform certain operational duties in collaboration with a Local Committee in the areas of credit and promotion as well as contacts with the area in question. 13

14 The economic and business area background Directors Report on consolidated activities 3. The economic and business area background Compared to 2005, the recent macroeconomic framework appears to be dominated by further growth in petrol prices on the one hand, and positive economic trends in the leading world economies on the other. According to Eurostat, the increase in production activities has started to speed up in the EMU: the growth rate of the GDP was reported at +0.6% in the first quarter. The prediction for the end of 2006 is for a growth of GDP of around 2% supported mainly by internal demand and industrial production. Even the Italian economy seems to be going through an expansion cycle. Confirmation comes from the indications available on the first quarter of the year, since the GDP increased by 0.6% in the last quarter of 2005 at the same rate as the EMU average. Excluding reserves, all the components have contributed positively to this result: family consumption, investments and exports are showing strong growth. Industrial production has also increased, even though it is still far off its high point of The estimates for the end of 2006 confirm this phase of expansion with a growth in family consumption estimated at 1.4%, growth in investments in machinery, equipment and means of transport around 3.4%, and a significant improvement in exports at more than 4.8%. In total, the growth of the Italian GDP is set to reach 1.3% for As far as the EMU monetary policy is concerned, after the 25 basis points hikes in reference interest rates made by the ECB in its meetings of 1 December 2005, 2 March and 8 June 2006 and 3 August 2006, expectations for restrictions are mounting. Currently, the market continues to expect further increases in the official rates. The idea that the growth is going to intensify, as suggested by the macroeconomic forecasts, also through a strong development of the internal demand which is such as to require an inflation control by means of a more restrictive monetary policy, prevails on these expectations. Regarding bond markets, in April, the critical phase that characterised the previous quarter intensified, while the final two months of the six-month period showed greater stability. In the main industrial zones, total yield in the second quarter was negative, even though to a lesser extent than the first quarter. From the beginning of the year, negative yield was 1.7% in the United States, 2.5% in the EMU, and 1.5% in Japan, 14

15 The economic and business area background respectively. These levels mean that full recovery is unlikely to occur for the rest of the year. In May, the stock markets were distinguished by a perceptible correction phase, which strongly reduced the performances that had previously posted over the course of a few weeks. In the second quarter, average losses of 9% were realized in the EMU and 12% in Japan and the emerging countries, while the losses were less than 4% in the Unites States markets which had been less active for several months. The levels reached by the share prices probably fuelled the profit taking. As for the credit market, as at June 2006, the Italian bank lending came to 1,269 billion, with a net flow of new loans of almost 124 billion compared to June 2005, mainly supported by the long-term segment compared to the short-term one; as at June 2006 show, in fact, that trend changes in such segments of bank loans amounted to +13% for medium/long-term segment (+14.0% in June 2005) and +7.4% for short-tem segment (+0.2% in June 2005). Bank borrowing at June 2006 amounted to 1,143 billion, recording a tendential positive growth of 7.7%, compared to 8.1% in May 2006 and 9.1% in June During the previous year, the borrowing stock had risen by 81.5 billion euro. The analysis of the dynamics of the various borrowing components, as at June 2006, shows an adjustment in both the trends in customer deposits, up 6.4% (6.7% in May 2006 and 6.6% in June 2005), and in bank bonds, which continue to enjoy strong growth patterns: +9.6% in June 2006 (10.1% in May 2006, 13.2% in June 2005). Regarding bank rates, the interest rate on deposits from families and non-financial companies - based upon the harmonized statistics of the European System of Central Banks - went up lately: as at June 2006, in particular, the figure was 1.14% (0.89% in June 2005). Then, in June 2006, the average weighted rate on total lending to families and non-financial companies inched up slightly as well, to reach 4.96% (4.65% in June 2005). Regarding indirect borrowing, latest figures show how the total amount of securities (including securities under management), equal to 1,660.7 billion at the end of April 2006 (the last available figure), slightly rose against the corresponding period of the previous year (+2.4%). As far as managed savings are particularly concerned, the situation as at April 2006 (the last available figure) shows annual growths in common funds (+11.2%), shares (+2.0%) and bonds (+11.1%), offset by a drop in Treasury bills (-5.4%), Treasury Credit Certificates (-17.6%) and Long-term Treasury Bonds (-5.6%). 15

16 The economic and business area background Asset management, as at the end of April 2006 (the last available figure), performed extremely well, showing a tendential growth of about 9.6% to reach roughly billion. As at April 2006, asset management accounted for 9.8% of total securities owned by residents (9.1% in April 2005). As at June 2006, the equity in common investment funds handled by Italian operators stood at billion. 16

17 Overall earnings Directors Report on consolidated activities 4. Overall earnings Preface This consolidated half-year report was prepared by applying the IAS/IFRS international accounting standards; in this regard, note that to determine the comparative figures on profits with reference to the first half 2005, the amounts used were also calculated by applying such standards. During the first six months of 2006, the Group's business continued to focus, in compliance with the objectives set forth in the budget and the three-year plan, by effective clientoriented commercial actions to improve customer service while streamlining and containing costs. Significant results were recorded in economic, equity and financial terms, with much attention always being paid to achieving a better and more efficient allocation of capital, while monitoring risks and creating value. Results summary 17

18 Overall earnings Net profit earned in the first half of 2006, equal to 89 million, reported an increase of 14 million (+18.7%) compared to the corresponding period of the previous year (equal to 75 million), which is reflected in the growth of all the overall income margins shown in the table above and that are examined in detail below. The interest margin The significant increase in the interest margin at 30 June 2006 compared to 30 June 2005 (+8.1%) is essentially due to the growth in interest charged to customers, which was driven mainly by the growth in volumes, in particular those relating to the medium/longterm lending. This increase, added to the effects of the hedge accounting, caused a growth in net interest margin of 8.9%. 18

19 Overall earnings Regarding average stock and interest rate trends, the following table shows how the growth in interest margins was sustained by an increase in average stock of interestbearing assets and lending rates, which were only partially offset by the dynamics of parallel interest-bearing liabilities. The overall business margin The overall business margin showed an increase of 29 million (+6.3%), compared to the previous period, connected mainly to the growth in the interest margin described above, as well as to the positive performance of insurance activities management that has more than offset the decrease in the result from financial assets and liabilities that, at 30 June 2005 included a capital gain of about 10 million on the transfer of part of the 19

20 Overall earnings interest held in Fondiaria-SAI. The table below shows the breakdown of commissions, recoveries and net insurance activities management. The commercial push on insurance products of the III branch, distinguished by their significant insurance components, determined a substantial increase in the Net results from insurance activities and a light downturn in the bank-insurance commissions. This is due to the different accounting treatment applied to the aforesaid insurance products according to IFRS 4. Revenues from customer commissions as at 30 June 2006: breakdown Recovery of expenses and management of current accounts and savings deposits Stored value Administered funds Loan 1% 10% 27% 6% 10% 3%8% 35% Receipts and payments Managed savings of which: Bankinsurance Net result from insurance activities 20

21 Overall earnings The net business margin Net business margin shows a growth of about 31 million (+7.0%) that is influenced by the dynamics of interest margin and the other revenue items described above as well as by the presence of minor adjustments to loans and to financial assets available for sale. Net operating result Net operating result increased by 22.5% compared to 30 June This performance was positively affected by the decrease in operating expenses, equal to about 3 million (-1.0%), which was in turn generated by: the increase in staff costs (+5.4%), due to the higher charges consequent to renewal of the National Collective Labour Agreement and the higher proportion of 21

22 Overall earnings charges for incentives to early retirements, resolved in the first half of 2006 compared to the same period of the previous financial year; lower amortisation of intangible assets and property, plant and equipment; the significant decrease in Current expenses whose breakdown is reported below. The reduction in current expenses, which is particularly relevant in terms of technology and outsourcing costs and overheads, is mainly due to the different way of accounting for the costs and manufacturing revenues for third parties of the subsidiary service company Infogroup SpA which took over all the Group s IT services after the merger of Data Centro SpA by incorporation into the Parent company; accordingly, such income components are presently included under the item other costs and revenues from current operations. For further details concerning the changes in the aggregates under consideration, reference is made to Part C of the Notes to financial statements and supplementary information. Current expenses Cost of technology and outsourcing Management of property and plant General expenses Professional and insurance costs Marketing and publicity 22

23 Overall earnings Gain (losses) from current operations, including taxes As a result of the substantial stability of the provisions for risks and charges and net costs from current operations, the gains from current operations including taxes increased by 25.6% (equal to 33 million); in this regard, note that the item other costs and revenues from current operations is made up of the industrial costs of the service company Infogroup SpA. Parent Company net profit/(loss) Notwithstanding the growth in minority interests net profit/loss and the high increase in tax burden, due to lower non-taxable revenues compared to the first half 2005, Parent Company net profit increased by approximately 14 million (+18.7% compared to the previous period). 23

24 Overall earnings Return on Equity and other ratios The annualised Group s Return on Equity, calculated as the Parent Company net profit for the first half of 2006 over weighted average equity for the period 31 December 2005 to 30 June 2006, excluding accruing net profit, is 13.6% (12.9% at 30 June 2005) and notwithstanding a considerable increase in the equity that increased by about 294 million in the last year, passing from 1,218 million to 1,512 million, mainly due to the capital increase against payment made by the Parent Company for 150 million and to the allocation of part of the 2005 net profit to reserves. Half-year net profit and ROE 90 14% % % June 05 December 05 June 06 Parent company net profit ROE ROE and Consolidated Shareholders' Equity 14% 12% 10% June 05 December 05 June 06 Consolidated shareholders' equity ROE 1,500 1,400 1,300 1,200 1,100 1, As to some economic ratios of the Banca CR Firenze Group, compared to 30 June 2005, take note of the following positive trends: 24

25 Overall earnings a decrease in cost/income, calculated by comparing operating expenses to overall business margin, passing from 63.4% to 59.0%; an essential stability of staff costs impact on total assets (equal to 0.84%) and the decrease of total administrative expenses impact on total assets, passing from 1.38% to 1.24%. Business margin and Cost/income % % 60% 55% Half-year overall business margin Cost / income 400 Jun-05 Dec-05 Jun-06 50% 25

26 Analysis of assets and structure Directors Report on consolidated activies 5. Analysis of assets and structure The significant economic results achieved by the Group in the first half of 2006 are confirmed by the positive performance of the main economic and financial components represented below. Assets management on behalf of customers Borrowing Compared to 31 December 2005, total borrowing represented by clients financial assets, showed a growth of about 1,158 million (+3.2%), due to the increase in direct borrowing (+3.0%) and in indirect borrowing (+3.4%). Direct borrowing 30 June December 2005 Change 30 June 2006 / 31 December 2005 millions of euros absolute % Sight borrowing 9,316 9, % Outstanding securities 5,414 5, % Repurchase agreements 1, % Other cost liabilities % Direct borrowing 15,993 15, % 26

27 Analysis of assets and structure The aggregate under examination showed a growth of 3.0% compared to the end of the previous year, which is mainly due to the increase in bonds and repurchase agreement. Indirect borrowing Indirect borrowing, represented by administered and managed funds, showed an increase of about 3.4%, due to the sharp rise in the administered funds (+10.6%), that has more than offset the decrease recorded in the assets management and in the insurance technical reserves of managed funds Managed funds Insurance Asset management (GPM - GPS - GPF) Funds Dec-2005 June

28 Analysis of assets and structure Customer Loans Customer loans reached 14,031 million at 30 June 2006, showing, since the start of the period, a growth of 6.7% that was particularly high in the medium/long term loans component; the abovementioned loans, excluding doubtful loans, totalled 13,882 million, showing a growth rate similar to that registered by total loans. 16,000 Customer loans 14,000 12, ,000 8,000 6,039 6,849 6,000 4,000 2,000 6,475 6,315 0 Dec-05 Jun-06 Current accounts and loans Mortgage loans Other lending 28

29 Analysis of assets and structure Loan portfolio quality The Group has continued to strongly oversee asset quality, based on selection criteria to grant loans through objective allocation policies extended to all the Group banks. Accordingly, the coverage ratio of both doubtful loans and other problem loans maintained itself at adequate levels, also considering the guarantees acquired; instead, the total coverage ratio increased by more than 3%, passing from 32.5% at 31 December 2005 to 35.7% at 30 June The impact of net deteriorated loans on net loans significantly decreased (2.75% against 3.31% at 31 December 2005), following the considerable reduction (-11.0%) in the total amount of such loans and the simultaneous increase in the number of loans granted to customers. Deteriorated loans: breakdown 100% 80% 60% 40% Expired/overdue by more than 180 days - net Net non-performing and restructured loans Net doubtful loans 20% 0% Dec-05 June-06 29

30 Analysis of assets and structure Transactions on financial markets and own shares transactions The period-end exact balances show a decrease in the net interbank position - amounts owing by banks compared to 31 December In the first six months of the year, the securities portfolio owned by the Group showed an increase of 3.8% in the marketable financial assets in portfolio available for sales segment, which increased by about 232 million (equal to 7.7% compared to the end of the previous year). Management of the own securities portfolio in the first half 2006 was characterized by a partial portfolio rotation, achieved largely with replacing the Treasury Bills (BOTs) that reached their maturity with variable rate securities showing a more favourable relationship with the rate structure. Management of the bond portfolio gives preference, on the whole, to instruments that have frequent price changes, shorter terms, good liquidity and creditworthiness. In particular, the Group reinforced its position in bonds of primary bank issuers, together with variable-rate securities issued by the Italian Treasury. On the whole, the bond portfolio showed an increase of more than 100 million in the halfyear under consideration. On the stock markets, the Group continued to adopt its prudential approach following the performance of the main macro-economic indicators and attempting to take advantage of the opportunities offered by the market through an intensive trading effort. At the end of June 2006, the balance of total stock would seem essentially stable with respect to the start of the year. In view of a better diversification of the investments by core market, the Group purchased marginal quotas in balanced funds and hedge funds to replace the positions held in monetary funds of a similar amount. 30

31 Analysis of assets and structure Take note that at 30 June 2006, the Parent Company s trading portfolios included 23,144 shares of Banca CR Firenze SpA deriving from treasury shares operations carried out based on the mandate and in compliance with the restrictions under the regulations, and in any case for volumes which are not significant. Operations in derivatives contracts, finalized primarily at balancing financial risks and brokerage, was kept at interesting levels, in particular as regards customers activity in interest rate risk management instruments. As to the operations peculiar to derivatives, note that they mainly included the execution of swaps to hedge debenture loans issued. Equity investments The financial statement item, which reflects the most "relevant" participating interests, namely in companies in which the Group exerts considerable influence or in jointly-controlled companies consolidated on an equity basis, amounted to 450 million at 30 June A net increase of 15 million compared to 31 December 2005, due to the adjustment in the valuation of the participating interests to the share of equity at year-end, as a result of allocating financial year 2005 profits to reserves. The interests in question relate to the following main companies: Findomestic Banca SpA (under joint control); Centro Leasing Banca SpA (under considerable influence); Centro Factoring SpA (under considerable influence). Take note that with the transition to IAS/IFRS standards, other equity investments of the Group are now included among "Financial assets available for sale", which also include other equity securities. 31

32 Analysis of assets and structure Capital accounts Shareholders equity In the first half 2006 Group equity increased by about 186 million (+14.0%), mostly deriving from a capital increase against payment for a total of 150 million; furthermore, the items under the abovementioned equity show negative change of about 60 million due to the portion of profits in the financial year 2005 not allocated to reserves and a decrease of valuation reserves (equal to 89 million) mainly due to the capital increase without payment as resolved upon by the Shareholders Meeting on April 27, For more details concerning the equity movements in the first half of 2006 reference is made to what has been reported in the Statement of Changes in Shareholders equity and the Cash Flow Statement formats. 32

33 Analysis of assets and structure Regulatory capital and solvency ratios The consolidated regulatory capital showed an increase of about 301 million in the first half of 2006, mainly due to the growth in the primary capital that benefited from the capital increase in this period, both by a free increase and an increase against payment. The higher risk-weighted assets resulting from the expansion of the sales business only absorbed part of the aforesaid growth and therefore total requirements showed a significant improvement. 33

34 Analysis of assets and structure Statement of reconciliation between the Parent Company s shareholders equity and net profit for the period and the corresponding values in the consolidated accounts (in millions of euro) The cash flow statement In specifying that the financial statement under the formats of this consolidated half-year report draft was drawn up using the so called indirect method, in accordance with the Bank of Italy s Circular Letter no. 262 of 22 December 2005, note that during the first half of 2006 the Group operations generated a total of 9 million in net liquidity, broken down as follows (data expressed in millions of euros): - net cash flow from/for operating activities

35 Analysis of assets and structure - net cash flow from/for investing activities net cash flow from/for borrowing activities +92 For further details concerning the composition of such amounts please refer to what is reported in the Financial statement. The Group s organisational activities Regulatory actions In the first half of 2006 the following actions have been arranged: in compliance with the document issued by the Basel Committee on Banking Supervisions ( Compliance and the Compliance Function in Banks ) in April 2005, that provides that the Compliance Function is governed by specific corporate regulations, the new "Banca CR Firenze Group Compliance Regulation" was approved. with reference to Legislative Decree 231, the Group attributed responsibilities regarding offering circulars and staff recruitment, integrated the organizational model 231 following the new Market Abuse legislation, and reviewed the organizational models 231 of the Group Banks. Organisational structures Cassa di Risparmio di La Spezia Following the conclusion of the IT Systems migration process of CR Spezia, started at the beginning of the year, in order to keep a single supervisory point on the "end to end" centralized activities, several activities (Cassa Centrale, Banche e Controlli Contabili, Gestione Filiali Tecniche GPI and Pensioni) were delocalized at CR Spezia, with the creation of a local pole; therefore, outsourcing activities related to remuneration and pension schemes were started, as well as the automatic integration through the absences/presence procedures. Finally the Regulations for the adoption and management of credit risk" were amended to reflect those of the Parent Company and amendments were made to the personnel/organization chart of the Central Structures, separating the area of decisionmaking in the credit sector from the control functions. 35

36 Analysis of assets and structure Cassa di Risparmio di Orvieto The Regulations for the adoption and management of credit risk" were amended to reflect those of the Parent Company and amendments were made to the personnel/organization chart of the Central Structures and to the Distribution Model of the Bank, with the creation of Business Customer Centre, operating at the Headquarters starting from 6 March Cassa di Risparmio di Civitavecchia The Regulations for the adoption and management of credit risk" were amended and new instruments for credit assessment - Internal Rating Model (MIRA) and Internal Scoring Model were introduced. The process of credit proposal and granting was also modified. Cassa di Risparmio di Pistoia e Pescia The credit offer and granting processes were changed and the new internal rating system was formalised at the Bank which makes use of new instruments for credit assessment - Internal Rating Model (MIRA) and Internal Scoring Model ; decision-making powers were also modified. Cassa di Risparmio di Mirandola Following approval of the merger plan of CR Mirandola in Banca CR Firenze, the following actions were done: creation of a specific division, called Cassa di Risparmio di Mirandola / Divisione di Banca CR Firenze, reporting to the Sales Department of the Parent Company; creation of the Bologna Area within the Distribution Network of Banca CR Firenze to integrate branches that were not in the old establishment of CR Mirandola. 36

37 Analysis of assets and structure The Parent Company In the first half 2006, the following activities have been carried out: an audit of the Planning and Risk Management Service for implementation of the new planning and control processes; restructuring of the Organization and Systems Coordination: the objective is to promote technological innovation as a stimulus to business, to couple and steer the various company divisions in the demands, and better define the spheres of responsibility with the subsidiary Infogroup; the divisions relating to ICT were redistributed, centring procurement activities and program & cost management at the Parent Company, and aggregating at Infogroup operating activities and management of technological infrastructure; the IT Systems Committee was also set up, to ensure the planning of the strategic evolution of the Group s IT activities; updating of the Sales Department to concentrate the product factories" into a unique structure that oversees the entire life cycle and consolidates the focus of the market/segment structures on segment analysis processes and on identifying client needs and making sales pushes, identifying specific means to monitor the quality of the services, communication with the clients, and client satisfaction. Operating Continuity A special Division supervising Operating Continuity was set up; the Group defined the training plans of the most critical human resources of the centralized divisions and the respective test plan and the Group Operating Continuity Plan was implemented. There are two expiry dates for this: the first was on 30 June 2006 for the Business Continuity Plan and has already been completed, the second is for 31 December 2006 and regards the Operating Continuity Plan and is currently being implemented. The plan of the activities was defined for Infogroup and the Business Impact Analysis phase is currently underway. Projects Now that project management is centralised at Group level, at the end of June 2006 Infogroup passed the planning to the Parent Company and Infogroup s IT systems were aligned accordingly. 37

38 Analysis of assets and structure As part of the plan implemented in 2006 for developing a new multi-channel technological platform for the office (PTM Project), the process to identify the partner supplier was conducted by expanding the supplier base, expanding the spectrum of activities involved in negotiation and renegotiating the expiration date; these operations allowed to obtain considerable advantages in terms of costs. Operating Services The Local Districts of the Operating Services at CR Spezia has been fully operational since May in its area. The security deposits of CR Spezia were centralised, and management of the CR Civitavecchia records has been taken over as well as the new procedure for GPM (Gestioni Patrimoniali Mobiliari, assets managed with any destination) and that regarding the securities records for the Group Banks. The Group s commercial activities The business activities performed in the first half of 2006, consistent with the commercial policy lines defined for the current financial year, focused on: improving the ability to acquire new clients; recapturing market shares in the lending sector, whether these are private or business customers; supporting the growth of several new and important lines of business (e.g., multichannel services, insurance policies, pension funds, factoring). In order to facilitate the implementation of this commercial policy, the Network of Financial Promoters provided for a logistical reassessment of the Financial spaces, which numbered 30 at 30 June, and spread out over 8 regions and 21 provinces, with 171 promoters, and with borrowing volumes of 482 million, showing an increase of about 40 million compared to 31 December With regard to the innovative channels, the Liberamente Web service, designed especially for private customers, reported approximately 82,000 contracts subscribed at the end of June 2006 up 20% compared to 31 December In the first half 2006 clients issued a total of 134,000 instructions, while 3,860,000 transactions (+47% compared to the first half 2005) were executed in the IT area. 38

39 Analysis of assets and structure From 16 June 2006, an important new feature has been the start up of a new free SMS advisory service for bank transfer operations and topping up prepaid cards. This initiative which is particularly appreciated by the customers (more than 2,000 requests in two weeks) is aimed at increasing operation safety subject to greater risk of fraud. Regarding businesses, at the end of June 2006, B@B light was launched. This is the new single company and single bank home banking service via Internet and is aimed at small businesses. The service comprises three distinct modules (Base, Plus and Extra), aimed at increasingly satisfying different computer and device needs for this particular client target. The Retail Market In order to achieve the objective of acquiring new clients, the Group launched the initiative Presenta un amico This plan represented an innovation compared to the 2005 campaign, as it offered the client/introducer to choose between a 78 bonus and a digitalterrestrial decoder (upon prior activation of the Liberamente contract). The idea was to promote the spread of multi-channels. The initiative resulted in 11,800 new accounts being opened, with the consequent acquisition of new borrowings and purchase of new products. In order to improve the capacity of retaining customers, attrition score was continued to be used and dedicated current account products have been created (attrition reduction accounts). In order to improve communications with the clientele, the Group completed a project that permitted the Bank to customize messages transmitted in the account statements tailored to meet the characteristics of the account holders. At 30 June 2006, the stock of package accounts held by private customers totalled 274,000 units, up 17% compared to the same period of The products which have achieved commercial success included prepaid cards: 57,200 cards had been activated at 30 June 2006 (+34% compared to 30 June 2005). As regards loans to customers, home mortgage loans were approved for more than 300 million in the first half of 2006; as regards marketing of the personal loans line of Findomestic, Prestissimo, loans of approximately 33 million were paid out, showing an increase of 11 million (48%) compared to the same period of As regards investment products, 50 bond loans were issued on the domestic market for a total of approximately 556 million in the first half of 2006, up 3.2% compared to the same 39

40 Analysis of assets and structure period of the previous year. The issue of the Lower Tier II subordinated loan of Banca CR Firenze amounting to 85 million, placed by all the Banks in the Group, was particularly significant, as well as the Index-Linked 29 June 2006 policy for a total amount of 78 million. In addition, as regards the insurance sector, in collaboration with Centrovita Assicurazioni S.p.A., the supply of product in the Protezione area has been strengthened, with a new version of the Obiettivo Protezione Persona accident policy and with the launch of Obiettivo Protezione Famiglia, a temporary death policy, with maximum coverage that can be adjusted in the event of death by accident or street accident. Gross premiums collected on a Group level amounted to about 323 million in the first half of 2006, showing a strong increase compared to the previous year (+40%). Another thing to point out is the contribution of recurring premiums and free deposits (about 76 million), up 52% compared to the same period of In the area of Individual Portfolio Management, the range of product has been increased with four new Management lines: 3 lines ETF Multistyle with Sicav (Mutual Funds) and ETFs and a different maximum share percentage (15%, 25% or 100%) and a bond line in GPM Obiettivo securities characterised by a pre-defined time horizon (about 4 years), approaching which the management changes into a money line. As of 30 June 2006 the value of assets managed by the Group, in the form of Individual Portfolio Management, amounted to 2,800 million. In the Pension Funds sector, CRF Previdenza continues to be the most attractive pension fund on the market, and has the highest number of new subscribers. On 30 June 2006 the number of individual subscribers came to 22,000 units (+22% compared to 31 December 2005). In addition, thanks to improving the collective subscription of employees of CR Civitavecchia, a significant increase of administered assets was recorded (about +50% compared to December 2005), that exceeded 52 million at 30 June In the first half of 2006, business activity in the Small Enterprises market concentrated primarily on the objectives of acquiring new clients and new volumes of lending, substantiating in some commercial initiatives specifically targeted at businesses operating in the farm and tourism sectors, which led to acquire more than 35 million in loans. In addition, the Group continued its efforts, with considerable success, to market the "Fido Unico" product, launched in November 2005: as of 30 June 2006 this had made it possible to acquire approximately 1,400 new customers for a total of over 22 million of credit lines. The activity with the Consortia for the Collective Protection of Credit Granted continued. Thanks to that, loans granted through this channel reported considerable increases. In this 40

41 Analysis of assets and structure area, the new on-line credit platform was implemented in collaboration with the Eurofidi consortium, which will allow the companies operating in Tuscany and Umbria to request syndicated financing operations via the web whether they are clients or non clients. Then, the very positive trend of marketing of current accounts of the Ioimpresa line continued to 30 June 2006, which reached a stock of approximately 29,000 accounts (up approximately 3,000 units compared to December 2005). The Business Customers Market The activities started up in the first half of 2006 were mainly: actions on Core Channel clients (medium-large enterprises with a high development potential) aimed at increasing market share; the development and acquisition of new commercial flows both in Italy and abroad; the launch of products in agreement with Confidi Toscana (Consorzio di Garanzia dell Associazione Industriali di Firenze) to comply with Basel 2 Accord; the development of the collaboration with Centro Factoring; the initiatives undertaken in the farm sector; the synergy with Banca CR Firenze Romania. Regarding the actions on Core clients, at the start of the year over 500 clients were identified based on profitability and risk level criteria, with the objective of becoming their reference Bank in terms of credit lines and acquisition of commercial flows. In the first half of the year, the activity of acquisition/development of new commercial flows led to a 6% increase in portfolio intake compared to the same period of The data regarding commercial operations in the first half of 2006 showed more than 13% growth in the foreign sector ( 1.58 billion against 1.39 billion of June 2005). The new products (Confidi Capital and Confidi Struttura Finanziaria) made in collaboration with Confidi Toscana led to new operation agreements for about 11 million in four months. Traditional operations actually doubled. Regarding Centro Factoring SpA activity, a method for making a structured client approach was developed, which led to creating a turnover of about 188 million at 30 June 2006 (up 72% compared the same period of 2005). Thanks to the product specialists, the market shares in the farm sector grew considerably. This result is especially due to intense acquisition of new positions and an increase in the 41