directors report on operations The banking group Banca popolare dell Emilia Romagna

Transcription

1 205 directors report on operations The banking group Banca popolare dell Emilia Romagna

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3 Directors' report on operations 207 directors report on operations

4 Shareholders, 208 directors report on operations The general and/or operational information relating to the Group, set out in the Bank's report on operations, is an integral part of this report, together with the information provided on the economic and market situation in the territories in which Group companies are active. This report illustrates the results of the banks and companies that are included within the scope of the. Composition of the Group In terms of the changes in Group structure, the Parent Bank's interest in Banca del Monte di Foggia was transferred to Banca della Campania during the year. Subsequently, in December, Banca della Campania absorbed Banca del Monte di Foggia with the consequence that this bank was struck off and is no longer included within the scope of consolidation. Accordingly, as of 31 December 2006, the Group comprises the companies listed below. The Parent Bank's interest in each is indicated in brackets, together with the interests held by other Group companies that act as their immediate parent. Parent bank: Banca popolare dell'emilia Romagna s.c., based in Modena A) Group banking companies: 1) Banca popolare di Ravenna s.p.a., based in Ravenna (75.957%); 2) Banca popolare di Lanciano e Sulmona s.p.a., based in Lanciano (Chieti) (3.372%), a subsidiary of Finbanche d Abruzzo which holds slightly more than a 50% interest; 3) Banca popolare del Materano s.p.a., based in Matera (67.685%); 4) Banca CRV Cassa di Risparmio di Vignola s.p.a., based in Vignola (Modena) (100%); 5) Banca popolare di Crotone s.p.a., based in Crotone (60.331%); 6) Banca popolare di Aprilia s.p.a., based in Aprilia (55.009%); 7) Banca popolare dell Emilia Romagna (Europe) International s.a., based in the Grand Duchy of Luxembourg (99%); 8) Banca della Campania s.p.a., based in Naples (89.121%); 9) Banco di Sardegna s.p.a., based in Cagliari: 51% of the ordinary shares, % of the preference shares and % of the savings shares (without voting rights, listed on the Stock Exchange) with a total interest of %. The savings shares held for trading by the Parent Bank were also taken into account for consolidation purposes, raising the direct interest held in this sub-holding company to %; 10) CARISPAQ - Cassa di risparmio della provincia dell Aquila s.p.a., based in L Aquila, a subsidiary of Finbanche d Abruzzo which holds % of share capital; 11) Banca di Sassari s.p.a., based in Sassari (10.331%), a subsidiary of Banco di Sardegna which holds % of share capital; 12) Eurobanca del Trentino s.p.a., based in Trento (49.900%).

5 B) Other Group companies: 14) Finbanche d Abruzzo s.p.a., based in L Aquila, a bank holding company (100%); 15) BPER International Advisory Company s.a., an investment holding company based in the Grand Duchy of Luxembourg (90%); 16) Em.Ro. popolare - finanziaria di partecipazioni s.p.a., based in Modena (77.443%); 17) EMRO Finance Ireland limited, an Irish investment company based in Dublin (Ireland) (100%); 18) Nadia s.p.a., a property company based in Modena (100%); 19) EM.RO Immobiliare s.p.a., a property company based in Modena (100%); 20) Modena Terminal s.r.l., based in Campogalliano (Modena), a company for the storage of goods, the storage and ageing of cheeses, and the cold storage of meat and perishable products (52.250%); 21) Metelliana s.p.a., a provider of IT services based in Cava de Tirreni (Sassari) (100%); 22) Mutina s.r.l., based in Modena, a vehicle company for the securitisation of receivables and subsidiary of Em.Ro. popolare s.p.a. which holds 90% of share capital; 23) Nettuno Gestione Crediti s.p.a., based in Bologna, a provider of debt recovery services (1%) and subsidiary of Em.Ro. popolare s.p.a. which holds 99% of share capital; 24) ABF FACTORING s.p.a., a factoring company based in Milan (90%); 25) ABF Leasing s.p.a., a leasing company based in Milan (100%); 26) Optima s.p.a. SGR, based in Milan, investment management company and subsidiary of Em.Ro. popolare s.p.a. which holds 58.3% of share capital; 27) Sardaleasing s.p.a., based in Sassari, a leasing company and subsidiary of Banco di Sardegna which holds % of share capital; 28) Numera s.p.a., based in Sassari, an IT company and subsidiary of Banco di Sardegna which holds 100% of share capital; 29) Tholos s.p.a., based in Sassari, a property company and subsidiary of Banco di Sardegna which holds 100% of share capital. 209 directors report on operations In addition, Group companies hold the following interests in other members of the Group: a) Banca popolare di Ravenna s.p.a. holds: % of Em.Ro. popolare s.p.a.; - 1% of Banca popolare dell Emilia Romagna (Europe) International s.a.; - 6.2% of Optima s.p.a. SGR; b) EM.RO Immobiliare s.p.a. holds 47.75% of Modena Terminal s.r.l.; c) Em.Ro. popolare s.p.a. holds 5% of Sardaleasing s.p.a.; d) Banca popolare dell Emilia Romagna (Europe) International s.a. holds 10% of BPER International Advisory Company s.a.; e) Banco di Sardegna s.p.a. holds: % of Em.Ro. popolare s.p.a., % of Optima s.p.a. SGR; f) Banca della Campania s.p.a. holds: % of Em.Ro. popolare s.p.a., - 4.3% of Optima s.p.a. SGR; g) Banca popolare di Lanciano e Sulmona s.p.a. holds: % of Em.Ro. popolare s.p.a., - 1.1% of Optima s.p.a. SGR; h) CARISPAQ - Cassa di Risparmio della provincia dell Aquila s.p.a. holds: % of Em.Ro. popolare s.p.a.,

6 210 directors report on operations - 2.8% of Optima s.p.a. SGR; i) Banca CRV Cassa di Risparmio di Vignola s.p.a. holds: % of Em.Ro. popolare s.p.a., - 4% of Optima s.p.a. SGR; j) Banca popolare del Materano s.p.a. holds: % of Em.Ro. popolare s.p.a., - 1.6% of Optima s.p.a. SGR; k) Banca popolare di Crotone s.p.a. holds: % of Em.Ro. popolare s.p.a., - 1.5% of Optima s.p.a. SGR; l) Banca popolare di Aprilia s.p.a. holds: % of Em.Ro. popolare s.p.a., - 1% of Optima s.p.a. SGR. In addition to the above companies that belong to the banking group, the scope of consolidation also includes Forum Guido Monzani s.r.l., 90% held by Em.Ro. popolare s.p.a., with the remainder held by the Parent Bank, which is excluded from the banking group since it does not contribute to its banking activities.

7 No quotas or shares in Group companies are held via trust companies or other third parties; furthermore, such parties were not used during the year to buy or sell shares or quotas in Group companies. The carrying amount of the Group's interest in the treasury shares held by consolidated companies, classified as a deduction from liability caption 200, is Euro 34,828,936. The situation is analysed below: 211 directors report on operations Number of shares Total par value Group interest Banca popolare dell'emilia Romagna s.c. 2,191,588 6,574,764 34,804,523 Banca di Sassari s.p.a. 23,703 62,866 24,413 TOTAL ,215,291 6,624,888 34,828,936 TOTAL ,230 2,484,690 2,440,504 Group structure The Group structure at 31 December 2006 is presented below.

8 3,372% 99,000% 90,000% BANCA POPOLARE DI LANCIANO E SULMONA S.P.A. 53,372% 50,000% FINBANCHE D ABRUZZO S.P.A. 100,000% BANCA CRV CASSA DI RISPARMIO DI VIGNOLA S.P.A. 100,000% BANCA POPOLARE DI APRILIA S.P.A. 55,009% BANCA POPOLARE di RAVENNA S.P.A. 75,957% CARISPAQ CASSA DI RISPARMIO DELLA PROVINCIA DELL AQUILA S.P.A. 79,922% 77,443% EM.RO. POPOLARE S.P.A. 100,000% (b) ABF Leasing S.P.A. 100,000% 1,000% 58,300% BANCA POPOLARE DELL EMILIA ROMAGNA (EUROPE) INTERNATIONAL S.A. 100,000% BANCA POPOLARE DI CROTONE S.P.A. 60,331% OPTIMA S.P.A. SGR 100,000% (c) BANCA DI SARDEGNA S.P.A. 51,000% (a) 10,000% 10,33% 79,732% BPER INTERNATIONAL ADVISORY COMPANY S.A. - LUXEMBOURG 100,000% ABF FACTORING S.P.A. 90,000% MUTINA S.R.L. 90,000% BANCA DI SASSARI S.P.A. 90,063% EMRO FINANCE IRELAND LIMITED 100,000% 1,000% NETTUNO GESTIONE CREDITI S.P.A. 100,000% 99,000% SARDALEASING S.P.A. 5,000% 87,077% 92,077% (a) equivalent to 47,229% of the entire Capital Stock consisting of ordinary, preferred and savings shares, the latter being non voting shares. (b) the following banks also are shareholders of Em.Ro. popolare s.p.a.: - Banco di Sardegna s.p.a. (11,447%), - Banca popolare di Lanciano e Sulmona s.p.a. (1,567%), - Banca popolare di Ravenna s.p.a. (1,480%), - Banca della Campania s.p.a. (2,000%), - Carispaq s.p.a. (1,430%), - Cassa di Risparmio di Vignola s.p.a. (1,333%), - Banca popolare del Materano s.p.a. (1,233%), - Banca popolare di Crotone s.p.a. (1,180%), - Banca popolare di Aprilia s.p.a. (0,887%). situation as at EUROBANCA DEL TRENTINO S.P.A. 49,900% BANCA DELLA CAMPANIA S.P.A. 89,121% BANCA POPOLARE DEL MATERANO S.P.A. 67,685% NADIA S.P.A. 100,000% METELLIANA S.P.A. 100,000% EM.RO IMMOBILIARE S.P.A. 100,000% 47,750% NUMERA S.P.A. MODENA TERMINAL S.R.L. 52,250% 100,000% 100,000% THOLOS S.P.A. 100,000% (c) the following banks are shareholders of Optima S.G.R. s.p.a.: - Banco di Sardegna s.p.a. (19,200%), - Banca popolare di Ravenna s.p.a. (6,200%), - Cassa di Risparmio di Vignola s.p.a. (4,000%), - Banca della Campania s.p.a. (4,300%), - Carispaq s.p.a. (2,800%), - Banca popolare del Materano s.p.a. (1,600%), - Banca popolare di Crotone s.p.a. (1,500%), - Banca popolare di Lanciano e Sulmona s.p.a. (1,100%), - Banca popolare di Aprilia s.p.a. (1,000%).

9 Development and scale of the Group The "Banca popolare dell'emilia Romagna" Group was registered - in the Register established pursuant to art. 64 of Decree 385 dated 1 September on 7 August 1992, no directors report on operations The following changes in controlling interests took place during the year: Banca della Campania s.p.a.: previously % held and now % owned following the purchase and subsequent exercise of option rights following a capital increase; Banca del Monte di Foggia s.p.a.: during the year, the Parent Bank transferred control of this bank to Banca della Campania s.p.a. which absorbed it on 28 December 2006; Banca popolare del Materano s.p.a.: formerly % held, now %, following the acquisition of interests from other shareholders; Banca popolare di Lanciano e Sulmona s.p.a.: formerly % held, now %; Banca popolare di Crotone s.p.a.: formerly % held, now %, following the subscription for shares at the time of a capital increase and further purchases from other shareholders; Banca popolare di Ravenna s.p.a.: formerly % held, now %; Banca di Sassari s.p.a.: already % held by Banco di Sardegna s.p.a., the Parent Bank also held a 9.447% interest; this holding has now been increased to % following minor purchases. Group companies The following paragraphs summarise the performance of each of the companies included in the consolidation, bearing in mind that Banco di Sardegna, a sub-holding company, has prepared its own (consolidated by the Group) which contain complete information on the performance of its subsidiary companies. The amounts stated were taken from their official financial, prepared under the accounting standards applicable to each of them. The balance sheets and of income of each company included in the consolidation as of 31 December 2006 could be consulted on the Italian version. Banca popolare di Ravenna The commercial network comprises 56 branches at the end of 2006, 2 more than in December 2005 following the opening of branches in Piove di Sacco (Padua) and Monselice (Padua). The new branch plan for envisages the opening of a further 9 branches and confirms the general direction of expansion into the eastern provinces of the Veneto region (Padua, Venice, Treviso). The economy in this area, where the presence of the BPER Group is still limited, is particularly lively and dynamic. The bank employs 455 persons at year end, up 11 with respect to the prior year. The delegation of personal asset management tasks to Optima Sgr has allowed redeployment of the related human resources to customer relations activities. Work proceeded rapidly throughout the year on the alignment of the organisational structure with the Parent Bank's IT system, which was adopted on 1 October 2005.In addition, considerable effort was dedicated to compliance with the new regulatory instructions

10 214 directors report on operations regarding, in particular, banking transparency, bank transfers and the changes introduced by the Consolidated Banking Law and the Consolidated Finance Law. With regard to the principal aggregates, direct funding increased by 10.67% of the year to Euro 1,392 million. This increase involved all technical forms, with peaks in relation to bonds and repurchase agreements. Indirect deposits also expanded by 6.37% over the year, to 1,367 million euro, despite a slow-down with regard to the management of assets. Lending also performed well, rising by 9.69% over the year to Euro 1,270.6 million at 31 December This aggregate benefited from the growth in mortgages and other lending (+10%), following strong demand from the construction sector including, in particular, housing, commerce and hotels. This said, the statement of income reports the best results: income from banking activities, including a gain of Euro 6.1 million on the disposal of part of the interest held in C.S.E. Soc.Cons., rose by 17.62% to Euro 77.3 million, while the profit from current operations increased by 50.13% to Euro 31.9 million due to the containment of operating costs. After the deduction of income taxes totalling Euro 11.7 million, net income for the year amounted to Euro 20.1 million. This represents an increase of more than 67% with respect to Banca popolare di Lanciano e Sulmona There are 65 branches in the network at year end, located in 8 different provinces; two new branches were opening during 2006: at Loreto Aprutino (Pescara) and San Benedetto del Tronto (Ascoli-Piceno). In addition, the branch at Cepagatti was closed and re-opened at Spoltore (Pescara). The branch plan for focuses the bank's development on the strengthening of its presence in the home territories (Abruzzo and Molise), together with expansion along the Adriatic coast of the Marches. Ten branches will be opened over the next three years. The number of employees increased by 32 during 2006, from 522 to 554 (including those on secondment to Finbanche d Abruzzo), ahead of the new branch openings and the related expansion of activities. BPLS is pursuing the development of alternative distribution channels with respect to the traditional branch network: with regard to virtual banking, the number of POS installations and home banking contracts is significant. Towards year end, Giuseppe Carletti reached pensionable age and retired as General Manager, after having contributed effectively for many years to the growth of the bank. He was replaced by Guido Serafini, the bank's former deputy general manager. The results confirm the growth in the scale and profitability of the bank experienced over the past several years. With regard to the principal aggregates, direct funding rose by 11.57% over the year to Euro 2,383 million, largely via the placement of bonds and the Oriente certificates of deposit. Conversely, indirect deposits were slightly lower (-0.97%) at Euro 234 million. Loans to customers grew significantly (+14.73%) with respect to 2005, reaching about Euro 2,129 million at year end. This rise was mainly due to the demand for home mortgages. Net income was 23.07% higher at Euro 23.5 million. This positive performance was assisted by a marked rise in the interest margin (+26.77% over the year) and the growth in net commission income (+4.56% with respect to 2005) following the higher revenues earned from collection and payment services.

11 Banca popolare del Materano Consistent with the strategic guidelines set out in the business plan, this bank continues to perform well following the organisational and commercial improvements made in prior years. Three branches were opened during the year at Matera, Senise (Potenza) and Corato (Bari), raising the total to 43 at the end of At the same time, the number of employees has risen by 16 to 360. The Group's new branch plan for the next three years envisages further expansion in Puglia, especially in the provinces of Bari and Taranto, and in the province of Potenza. Six new branches will be opened in total. The controlling interest in Ritrimat S.p.A., a tax collection company recently returned to profitability, was sold in July In particular, pursuant to new regulations reforming the sector, this interest has been sold to Equitalia S.p.A. (formerly Riscossione S.p.A.), a stateowned company. The bank has been taken to court by the liquidators of a bankrupt customer, who are claiming a sizeable amount. No provisions have been made in this regard, since the directors and their legal advisors believe that this dispute will be decided in the bank's favour. With regard to the principal aggregates, direct funding has risen by 11.60% since 31 December 2005 to Euro 1,052 million; indirect deposits rose slightly less (+9.14%) to Euro 473 million at year end. Lending to customers totals Euro million; comparison on a consistent basis with 2005 (net of transitory treasury account items), highlights a significant 13.18% increase; net non-performing loans, Euro 5.7 million, have decreased since December 2005 and represent just 0.82% of net lending. The results for the year in terms of economic performance were most satisfactory: net income of Euro 10 million was up 40.01% due to a marked increase in all principal forms of income combined with a smaller rise in operating costs. 215 directors report on operations Banca CRV - Cassa di Risparmio di Vignola Banca CRV SpA achieved satisfactory results in 2006, both with regard to its commercial objectives for volume and earnings, and in qualitative terms. These relate to the improvement of customer loyalty and greater penetration of the target market (private individuals and small and medium-sized businesses). Two new branches were opened during the year at Funo di Argelato (Bologna) and Bologna Fiera, raising the total number of branches to 41. The new branch plan for envisages an increased presence in areas adjoining the bank's home territory in the province of Bologna, as well as in the Apennines near Modena. Four new branches will be opened. The number of employees fell by 8 during the year to 380 at the end of 2006;this largely reflects the direct employment by BPER of CRV personnel, following a period of secondment at the Parent Company due to the centralisation of various administrative activities. The average number of employees was however higher than in 2005, with a consequent impact on costs. In terms of the volume of business, customer deposits rose by 5.25% over the year to about Euro 1,146 million at 31 December 2006.Indirect deposits also rose by 5.07% in 2006, to almost Euro 1,132 million; this reflects the healthy performance of administered assets (+7.51%) and the further weakness of managed assets (-10.42%) due to low customer interest in this type of product.

12 216 directors report on operations There was a satisfactory 8.09% increase in net loans to customers during the year, which amount to Euro 1,143 million at year end. Growth was steady throughout the year, without particular peaks or troughs, thus confirming the renewed stability of customers' borrowing requirements. This performance marks an increased focus on lending to the retail sector and, in particular, to the leading small and medium-sized firms in the bank's catchment area. The apparent reduction in net income to Euro 14.2 million actually reflects, in consistent terms, an increase of % with respect to In particular, net interest income improved and income from banking activities was stable (net of almost 5 million euro of nonrecurring income reported in 2005 on disposal of the investment in Cedadri SpA), while careful credit control and the success of a business restructuring plan in relation to a major loan also contributed, despite a rise in operating costs. Banca popolare di Crotone The last tranche of the programme of capital increases was placed in early This completed action to strengthen the capitalisation of the bank, with four successive capital issues and the placement of a subordinated loan. In addition to gathering new resources for expansion, the purpose of this operation was to consolidate the bank's ties with the local territory. Given the considerable interest shown for the placement of the last tranche, the Parent Bank waived part of its pre-emption rights in order to allow a considerable expansion of the shareholder base. There are now more than 10,000 shareholders, about 1,000 more than at the start of the programme of capital increases at the end of There are 43 branches at year end, one more than at the end of The opening of the Catania branch in December was significant, being the Group's first foothold on the other side of the strait. Following years of growth, Sicily represents a new area of expansion for the bank, while respecting its vocation as a local operation focused on the needs of its home territory. Subsequent to the approval of the 2006 financial, Mimmo Guidotti has resigned as General Manager after leading the bank over the past decade with tireless commitment, care and loyalty. He will now perform important duties on behalf of the Parent Bank. Andrea Molinari, formerly the Deputy General Manager, has been appointed to succeed him with support in this challenging task from the team of professionals developed internally under the guidance and example of Mimmo Guidotti. In volume terms, there was a slight increase in total deposits during 2006, rising +0.76% to Euro 1,129 million from Euro 1,120 million in the prior year. Among these, current accounts continue to represent the largest component (62%). Indirect deposits confirmed the marked increase reported in the prior year (+17.49% since December 2005) to almost Euro 443 million due, in particular, to the growth of the private sector. Loans to customers also rose significantly during 2006 (+15.15% over the year),totalling more than Euro 924 million at year end. About 69% of lending was to businesses, confirming the bank's traditional vocation as a provider of support for the economy and regional growth. Popolare di Crotone reported excellent results due to the higher volumes mentioned, as well as to the constant attention paid to pricing policy, the control of interest rates and the containment of operating costs. Net income of Euro 18 million was 38.34% higher than in 2005, partly due to the gains realised on the disposal of the investments in Ktesios SpA and Eurofiditalia SpA, totalling about Euro 2.8 million gross of tax effect.

13 Banca popolare di Aprilia The network now comprises 20 branches following the opening of the branch in Latina. The Group's branch opening plan envisages further expansion for the bank in the suburbs of Rome (the Rome Eur-Marconi branch is scheduled to open on 10 April 2007). The commercial network and back-office functions employ 163 persons as of 31 December 2006 (8 more than at the end of 2005). The good profitability and growth achieved by the bank in the two prior years were confirmed and, indeed, significantly improved upon in the year just ended. This reflects both the changes made to commercial policy and effective outsourcing designed to benefit in full from the synergies released by sharing the Parent Bank's IT system. With respect to the traditional branch network, the progressive development of alternative distribution channels is worthy of note. In particular: telematic products (internet banking and corporate banking) and POS equipment. The bank's volume of business was satisfactory. Direct funding totals Euro million, up 9.19% over the year, and mainly comprises current accounts and bonds. There was a smaller increase in indirect funding (+5.64%) to Euro million, from Euro million at the end of The rise in lending was more significant, up from Euro 333 million to about Euro 385 million (+15.65%). This was largely due to the demand for secured loans. In terms of the economic indicators, net income was considerably higher at more than Euro 9 million (+35.70% with respect to 2005). In addition to the progress made by the balance sheet aggregates, this was partly due to a gain of about Euro 2.9 million on the disposal of available-for-sale securities. 217 directors report on operations CARISPAQ Cassa di Risparmio della Provincia dell Aquila Three new branches were opened in 2006, in the provinces of Frosinone (Anagni) and L Aquila (Avezzano and the Pile industrial area), raising the total to 47 in 5 different provinces. The Group's branch plan for envisages openings in Umbria, where the BPER Group is not yet present. The move beyond Abruzzo will also broaden the geographical diversification of revenues and risk. The bank employs 450 persons as of 31 December 2006, including 22 on secondment to the immediate parent, Finbanche d Abruzzo. With regard to customer aggregates, particular attention was dedicated to lending which rose by +2.94% over the year to Euro 993 million. Funding was slightly more lively, rising by 3.68% to Euro 1,327.6 million as of 31 December Analysis of this aggregate confirms that the bank's customers continue to prefer bonds, with a further increase in placements (+10.92%). Indirect deposits rose to Euro 1,023.6 million from Euro million at the end of 2005 (+11.31%), with a progressive shift of resources towards mutual funds. The bank achieved excellent results in terms of profitability, reducing the cost-income indicator to 67.63% (from 74.97% in 2005) and increasing productivity. Net income amounted to Euro 6.7 million, a considerable 50.20% increase with respect to the prior year. These results benefited, in particular, from both the increase in the interest margin (+19.03% over the year), due to the changes in interest rates and a widening of the spread, and the careful containment of administrative expenses.

14 Banca della Campania 218 directors report on operations In a significant move, this bank absorbed Banca del Monte di Foggia during This operation, part of the rationalisation and integration of the activities that comprise the BPER Group, means that Banca della Campania is no longer a regional bank and is set to become an important point of reference for banking in the entire South of Italy. The absorption - carried out on a simplified basis (pursuant to art bis of the Italian Civil Code), since the absorbing bank already held more than 90% of the shares in the bank to be absorbed - took place in a number of stages. During the summer, Banca della Campania increased its share capital by Euro 63 million in order to strengthen its equity base. Subsequently (on 4 October 2006), BPER sold Banca della Campania its 98.52% interest in the capital of Monte Foggia. Banca della Campania then approved the absorption of its direct Puglia-based subsidiary, in which a 99.05% interest was held. This operation was completed in December The new organisation of Banca della Campania involves an Area structure responsible for the local branches, thus ensuring that individual units benefit from the increased knowledge of their local markets and the specific nature of the strategic guidance provided in relation to market penetration. These Areas are then grouped into Departments, which are decentralised structures that perform certain governance functions in relation to Area activities. Eight new branches were opened during the year, including the Monte Foggia branch at Trinitapoli (Foggia) and the branch at Giffoni Villa Piana (Salerno), which was opened on the closure of the branch at Cava dei Tirreni. There are now 121 branches. Looking ahead, the Group's branch plan for envisaged 4 openings for Banca del Monte di Foggia and 10 for Banca della Campania. However, with a view to developing faster in Puglia, where the Group is less present than in Campania, the openings envisaged for the former Monte Foggia will be accelerated and rescheduled for In terms of commercial policy, Banca della Campania focuses particular and growing attention on the market represented by local public agencies, having regard for the growth potential of treasury management activities performed on their behalf, in a Region where this sector is especially significant. The bank is party to a significant dispute for which the directors, considering the opinion of their legal advisors, have made no provision. This decision reflects both the possible positive outcome of the dispute and the difficulty of quantifying reliably the extent of any charges that may be incurred. With regard to customer aggregates, direct funding amounts to Euro 3,851 million at year end, up strongly over the year (+8.19 per cent) and more than compensating for the essential stability of the indirect component (+0.42%). Total lending, Euro 2,212 million, was % higher than in the previous year due to more incisive commercial action, especially in relation to home mortgages and the discounting of receivables. Work has also continued on optimisation of the procedures followed for the control and management of risk, following alignment with the Parent Bank's instructions linked with the new internal regulations for lending. In economic terms, the results were satisfactory: net income rose to Euro 29.1 million, up 10.05% from Euro 26.4 million in the prior year.

15 Banco di Sardegna (sub-holding) A number of small changes were made to Banco di Sardegna's scope of consolidation during These will be discussed first, before describing the consolidated results of operations of this sub-holding company. In particular: Bipiesse Riscossioni S.p.A. has been deconsolidated following its sale to Equitalia S.p.A. - formerly Riscossione S.p.A. - (pursuant to Decree 203/2005, converted with modifications into Law 248/2006); the interest in Krenesiel S.p.A., carried at equity, has risen from 39% to 44.65% since two shareholders did not subscribe to a capital increase. The number of branches operated by this Sardinian sub-holding company is unchanged with respect to the prior year (391), since neither the old nor the new branch plans envisage any new branch openings, but just a number of relocations. Together with the network operated by Banca di Sassari, the Sardinian group has a total of 449 branches. Turning to the consolidated numbers, as an initial comment there has been welcome progress with regard to the various aggregates. Direct funding from customers amounts to Euro 9,748 million as of 31 December This represents reasonable (+2.8%) growth since 31 December 2005 due, above all, to the increases in bonds (+10.7%), current accounts (+4.6%) and repurchase agreements (+ 6.3%). Indirect funding also made significant progress (+ 6.2%), mainly in relation to administered assets (+ 7.3%) and, to some extent, managed assets (+ 1.9%). Net lending amounts to Euro 7,380.9 million, down 7.6% over the year (Euro 7,984.3 million at the end of 2005);on a consistent basis, however, lending rose by 7.9% after excluding from the comparative amounts the repurchase agreements outstanding as of 31 December 2005 (Euro 1,140.7 million), given that the consolidated banks did not operate in the repurchase market during In terms of the technical forms of lending, secured loans remain the most significant element (43.8%), while current account overdrafts are also important, having grown significantly during the year (+15.8%). With regard to earnings, consolidated net income amounted to Euro 60 million in 2006, compared with Euro 54.3 million in the prior year. Among the aggregates contributing significantly to these results, the interest margin rose by Euro 30.9 million (about 10 percentage points) to Euro million. Income from banking activities amounted to Euro 424 million, compared with Euro million in 2005, up Euro 9.3 million (+2.2%). This includes income of more than Euro 7.6 million from the sale of substantial financial assets. The reduction in administrative expenses to Euro 309 million from Euro 325 million in 2005 partly reflects the deconsolidation of Bipiesse Riscossioni S.p.A. Significant adjustments were made to loans (net of write-backs) during These totalled Euro 23.4 million, compared with Euro 3.5 million in Such change was mainly due to the "discounting" effect on loans currently in place in favour of Sardegna Riscossione (former Bipierre Riscossioni). The provisions for risks and charges amounted to Euro 15.6 million, compared with Euro 13.6 million in the prior year. The above costs and revenues, together with other minor amounts, contributed to forming the profit from ordinary operations of Euro million which, after the provision for taxation (Euro 47.6 million), resulted in net income of Euro 62.3 million (+10.5%), of which Euro 60 million was attributable to the Group and Euro 2.3 million to the minority shareholders. 219 directors report on operations