Financial Statements As of 31 December 2013

Transcription

1 Financial Statements As of 31 December 2013 Balance sheet as of 31 December 2013 Income statement as of 31 December 2013 Consolidated Statement of Comprehensive income Statement of changes in shareholders equity Financial statement Notes to the Financial Statements Annual Report

2 Balance Sheet as of December 31 st, 2013 Assets items * Absolute variation 10. Cash and cash equivalents 6,097,171 8,721,586 (2,624,415) 20. Financial assets held for trading 3,746,274 2,611,423 1,134, Financial assets at fair value Financial assets available for sale 44,807,151 44,214, , Financial assets held to maturity Receivables due from banks 15,432,495 33,311,162 (17,878,667) 70. Receivables due from customers 2,518,174,352 3,030,459,835 (512,285,483) 80. Hedging derivatives 268, ,029 (208,689) 90. Fair value change of financial assets in hedged portfolios Shareholdings 3,431,613 3,431, Tangible assets 32,072,217 44,897,338 (12,825,121) 120. Intangible assets hereof: - goodwill 114, ,190,041 0 (1,075,445) 130. Tax assets 69,161,160 40,638,336 28,522,824 a) current 11,680,157 11,395,132 b) deferred 57,481,003 29,243,204 Of which, compliant with: Law no. 214/11: 57,481,003 29,243, Non-current assets and discontinued groups of assets Other assets 25,532,128 28,285,579 (2,753,451) Total assets 2,718,837,497 3,238,238,076 (519,400,579) (*) Balances of the previous business year, with reference to the present ones, reflect variations illustrated in the chapter Adjustment of balances of the previous financial year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. 44 Annual Report 2013

3 Liabilities and Shareholders Equity * Absolute variation 10. Payables due to banks 1,674,540,210 1,806,885,744 (132,345,534) 20. Payables due to customers 419,793, ,631,583 (259,837,926) 30. Securities issued 240,874, ,165,662 (125,291,223) 40. Financial liabilities held for trading 3,204 6,045,719 (6,042,515) 50. Financial liabilities at fair value 0 5,997,064 (5,997,064) 60. Hedging derivatives Fair value change of financial liabilities in hedged portfolios ( +/- ) Tax liabilities 1, ,286 a) current b) deferred 1, , Liabilities related to discontinued operations Other liabilities 56,037, ,814,680 (86,780,698) 110. Provision for employment termination indemnities (TFR) 2,095,088 2,633,530 (918,684) 120. Provisions for risks and charges: 43,868,747 14,040,154 10,610,748 a) retirement benefitsand similar obligations b) other allowances 43,868,747 14,040,154 10,610, Revaluation reserves (437,458) (734,395) (728,061) 140. Redeemable shares Equity instruments Reserves 62,400,225 (57,654,106) (143,401,521) 170. Share premiums Share capital 318,187, ,187, Treasury shares ( - ) Profit (Loss) for the financial year (98,527,031) (35,775,159) 56,928,551 Total liabilities and Shareholders Equity 2,718,837,497 3,238,238,076 (519,400,579) (*) Balances of the previous business year, with reference to the present ones, reflect variations illustrated in the chapter Adjustment of balances of the previous financial year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. Annual Report

4 Income statement as of December 31 st, 2013 Income statement items * Absolute variation 10. Interest and similar income 90,433, ,366,261 (19,932,674) 20. Interest and similar expenses (33,087,649) (48,472,504) (15,384,855) 30. Net interest income 57,345,938 61,893,757 (4,547,819) 40. Commission income 13,522,187 15,785,090 (2,262,903) 50. Commission expenses (5,849,595) (6,672,442) (822,847) 60. Net commissions 7,672,592 9,112,648 (1,440,056) 70. Dividend and similar income Profits (Losses) on trading (4,112,927) 2,697,432 (6,810,359) 90. Fair value adjustments in hedge accounting 82,407 (84,482) (166,889) 100. Profit (Losses) on disposal or repurchase of: 386, ,338 39,024 a) receivables b) financial assets available for sale 2,693 3,080 (387) c) financial assets held to maturity d) financial liabilities 383, ,258 39, Profit (Losses) on financial assets/liabilities at fair value 3,733 (165,544) (169,277) 120. Operating income 61,378,105 73,801,149 (12,423,044) 130. Losses/provisions/ write-ups on impaired: (120,461,267) (65,187,596) 55,273,671 a) receivables (120,461,267) (65,187,596) 55,273,671 b) financial assets available for sale c) financial assets held to maturity d) other financial liabilities Net income from banking activities (59,083,162) 8,613,553 (67,696,715) 150. Administrative expenses: (48,960,894) (58,827,653) (9,866,759) a) personnel expenses (22,457,567) (5,632,249) (5,632,249) b) other administrative expenses (26,503,327) (4,234,510) (4,234,510) 160. Net provisions to provisions for risks and charges (15,466,241) (11,698,267) 3,767, Valuation adjustments to tangible assets (13,904,375) (3,248,850) 10,655, Valuation adjustments to intangible assets (1,601,256) (605,964) 995, Other operating expenses/income 9,391,289 12,622,427 (3,231,138) 200. Operating expenses (70,541,477) (61,758,307) 8,783, Profits (losses) from shareholdings Net result of tangible and intangible assets valuation at fair value Goodwill impairment 0 (1,113,941) (1,113,941) 240. Profit (loss) from disposal of investments (279,450) 56,400 ( 335,850) 250. Profit (loss) before tax from current operations (129,904,089) (54,202,295) 75,701, Income taxes on current operations for the financial year 31,377,058 12,603,815 18,773, Profit (loss) after taxes from current operations (98,527,031) (41,598,480) 56,928, Profit (loss) from discontinued groups of assets, net of income taxes on current operations for the financial year Profit (loss) for the financial year (98,527,031) (41,598,480) 56,928,551 (*) Balances of the previous business year, with reference to the present ones, reflect variations illustrated in the chapter Adjustment of balances of the previous financial year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. 46 Annual Report 2013

5 Consolidated statement of comprehensive income Items * 10. Profit (loss) for the year (98,527) (41,598) Other comprehensive income after tax that cannot be reclassified to the P&L 20. Tangible assets Intangible assets Defined benefit plans 103 (431) 50. Non-current assets held for sale Share of valuation reserves of shareholdings carried at equity 0 0 Other comprehensive income after tax that can be reclassified to the P&L 70. Hedging of foreign investments Foreign exchange differences Cash flow hedging Financial assets held for trading 625 1, Non-current assets held for sale Share of valuation reserves of shareholdings carried at equity Total comprehensive income after tax Total comprehensive income (Item ) (97,799) (40,626) (*) Balances of the previous business year, with reference to the present ones, reflect variations illustrated in the chapter Adjustment of balances of the previous financial year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. The statement above highlights the aggregate Total comprehensive income of the bank as the sum of the economic result of the period (profit/loss) and the cost and income items that are not indicated in the income statement, but in the net shareholders equity, due to a specific IAS/IFRS provision. Basically, this provides better information regarding the company s totalcomprehensive income thanks to the identification of an aggregate that, differently from the profit/loss of the period, indicates in the most comprehensive way possible - the wealth generated/absorbed by company operations, by also including cost/income items pertinent to the period in question -, which are recorded in the net shareholders equity and which have therefore caused variations to revaluation reserves. Annual Report

6 Statement of changes in shareholders equity Statement of changes in shareholders equity as of Share capital Balance as of Change in opening Balances* Balance as of Allocation of profit from previous financial year Dividends and other Reserves provisions a) ordinary shares 318, , b) other shares Share premiums Reserves: a) profits (6,519) 0 (6,519) b) others Revaluation reserves: (1,432) 0 (1,432) 0 0 Equity instruments Treasury shares Net profit/loss for the financial year (6,272) 0 (6,272) (152) (2,864) Shareholders equity 303, ,965 0 (2,864) (*) The column Change in opening balances reflects the adjustments, as of 31/12/2011, illustrated in the chapter Adjustment of balances of the previous business year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. Statement of changes in shareholders equity as of Share capital Balance as of Change in opening Balances* Balance as of Allocation of profit from previous financial year Dividends and other Reserves provisions a) ordinary shares 318, , b) other shares Share premiums Reserves: a) profits (57,655) (23,347) (81,002) (41,598) 0 b) other Revaluation reserves: (734) (431) (1,165) 0 0 Equity instruments Treasury shares Net profit/loss for the financial year (35,775) (5,823) (41,598) 41,598 0 Shareholders equity 224,024 (29,601) 194, (*) The column Change in opening balances reflects the adjustments, as of 31/12/2011, illustrated in the chapter Adjustment of balances of the previous business year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. 48 Annual Report 2013

7 Variations during the year Shareholders equity operations Variation of Reserves Issue of new shares Purchase of own shares Extraordinary dividend distribution Variations in capital instruments Treasury Stock Derivatives Stock Option Total comprehensive income for the financial year 2012 Shareholders equity , (9,288) 0 0 (42,000) (57,655) (705) ,403 (734) , (35,775) (35,775) (705) 0 0 (42,000) (34,372) 224,024 Variations during the year Shareholders equity operations Variation of Reserves Issue of new shares Purchase of own shares Extraordinary dividend distribution Variations in capital instruments Treasury Stock Derivatives Stock Option Total comprehensive income for the financial year 2013 Shareholders equity , (122,600) 185, ,000 (705) ,403 (437) (35,775) (98,527) 185, (34,372) 281,624 Annual Report

8 Statement of cash flows - Indirect method * A. OPERATING ACTIVITIES 1. Cash flow from operations 28,974 15,389 - profit/loss for the financial year ( +/- ) (98,527) (41,598) - capital gains/losses on financial assets held for trading valued at fair value ( -/+ ) 4,109 (2,532) - capital gains/losses on hedging operations ( +/- ) (82) 84 - losses/provision/write-upsdue to impairment ( +/- ) 120,461 65,187 - net adjustmentson tangible and intangible assets ( +/- ) 15,506 3,855 - net provisions to funds forrisks and charges and other expenses/income ( +/- ) 18,884 2,997 - taxes to be paid ( + ) (31,377) (12,604) - net adjustmentson groups of discontinued assets Net of tax effect ( +/- ) other adjustments ( +/- ) Cash flow from / used in financial assets 402, ,728 - financial assets held for trading (1,135) (2,133) - financial assets valued at fair value financial assets available for disposal (593) (1,364) - receivables due from banks: payable on demand 17,879 (22,753) - receivables due from banks: other receivables 0 13,393 - receivables due from customers 404, ,872 - other assets (18,934) 774, Cash flow from /used in financial liabilities (617,214) (938,137) - payables due to banks: payable on demand 18,484 25,986 - payables due to banks: other payables (150,830) (185,094) - payables due to customers (259,838) 68,771 - securities issued (125,291) (48,316) - financial liabilities held for trading (6,043) (7,303) - financial liabilities valued at fair value (5,997) (17,768) - other liabilities (87,699) (774,413) Net cash flow from /used in operating activities (186,030) 52,980 Continua nella pagina successiva > 50 Annual Report 2013

9 Statement of cash flows - Indirect method B.INVESTING ACTIVITIES 1. Cash flow from sale of shareholdings dividends collected on shareholdings sale of financial assets held to maturity sale of tangible assets sale of intangible assets sale of business branches Cash flow from/used in (1,773) (1,878) - purchase of shareholdings purchase of financial assets held to maturity purchase of tangible assets (1,247) (1,604) - purchase of intangible assets (526) (274) - purchase of businessbranches 0 0 Net cash flow from /used in investment activities (1,595) (1,748) C. FINANCING ACTIVITIES - issue/purchase of own shares issue/purchase of Equity instruments 185, dividend distribution and other purposes 0 (44,864) Net cash flow from /used in financing activities 185,000 (44,864) Net increase (decrease) in cash and cash equivalents (2,625) 6,368 Reconciliation Balance sheet items Amount Amount * Cash and cash equivalents at the beginning of the period ,354 Net increase (decrease) in cash and cash equivalents (2,625) 6,368 Cash and cash equivalents: foreign exchange effect 0 0 Cash and cash equivalents at the end of the period 6,097 8,722 (*) Balances of the previous business year, with reference to the present ones, reflect variations illustrated in the chapter Adjustment of balances of the previous financial year pursuant to IAS 8 provisions (accounting principles, variations of accounting assessments and errors). Please refer to this chapter for further details. The financial statement was prepared according to the indirect method please refer to IAS 7. Variations of net liquidity flows generated/absorbed during the financial year in comparison to the financial year 2012 amount to a negative result of EUR 2,625 thousand, ascribable to: Operating activities: cash flow used for EUR 186,030 thousand; Investing activities: cash flow used for EUR 1,595 thousand; Financing activities due to Shareholder Capital contribution: liquidity generated for EUR 185,000 thousand. Annual Report

10 Notes to the financial statements Structure and content of the Financial Statements as of 31 December 2013 Part A Accounting policies A.1 General section A.2 Section related to main balance items A.3 Information on transfers between financial asset portfolios A.4 Information on fair value A.5 Information on so-called day one profit/loss Part B Information on the balance sheet Assets Liabilities Other information Part C Information on the income statement Part D Totalcomprehensive income Part E Information on risks and related hedging policies Part F Information regarding the Shareholders equity Part G Aggregation operations regarding companies or company branches Part H Operations with related parties Part I Equity settled payment agreements Part L Sector-related information note 52 Annual Report 2013

11 Part A Accounting policies A. 1 General section Section 1 Statement of compliance with international accounting principles The Financial Statements for 2013 have been prepared in compliance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), international accounting principles issued by the International Accounting Standards Board (IASB), as well as with interpretations of the International Financial Reporting Interpretations Committee (IFRIC) approved by the European Commission, in force at the financial statements date. The list of homologated IAS/IFRS (hereinafter IFRS) accounting principles and related Implementing regulations are indicated in the annex to the financial statements. Besides the instructions contained in the Bancad ItaliaCircular letter no. 262, dated 22 December 2005, Bank financial statements: schemes and rules for their compilation, we also took into consideration, from an interpretative point of view, documents regarding the application of IFRS in Italy, prepared by the OrganismoItaliano di Contabilità (Italian Accounting Body) (O.I.C.). Hereunder, we list modifications to principles and interpretations approved by the European Commission during 2013 or in previous financial years, compulsorily applicable starting from the financial year 2013, limited to the area of activity of the Bank, which were not applied in advance during previous financial years: Regulation n. 475, June L. 146, June IAS 1 Presentation of Financial statements : changes to the mentioned principle aim to guarantee a greater level of clarity regarding the total income prospect, requiring the separation of items which will not be reversed to profit or loss in the future from those that, on the contrary, can later be reclassified in the profit (loss) of the financial year, should certain conditions be met (e.g. sale, impairment). IAS 19 Benefits to employees : changes should help users of financial statements to better understand how defined benefits plans influence the capital-financial situation, the economic result and the financial flows of the company. The goal of the Principle is to define the accounting modalities for integrative information related to benefits to employees. Regulation n. 1255, December L. 360, December IFRS 13: new IFRS standard 13 Fair value evaluation : establishes a single reference set for the determination of fair value, replacing the rules scattered in various accounting principles and providing a complete guide on how to measure the fair value of financial and non-financial assets and liabilities, even in the presence of inactive and illiquid markets. The new standard does not extend the use of the fair value accounting principle - which is instead required or consented by other standards - but does provide practical, complete and shared instructions on the modalities to determine fair value. Regulation n. 1256, December L. 61, March IFRS 7 Financial instruments integrative information : Changes introduced to IFRS principle 7 have the double goal of allowing users of financial statements to evaluate the real or potential effects of all compensation agreements on the financial situation of the company and to analyze and compare the accounting results prepared with international accounting principles to those prepared with American accounting principles. In particular, companies are required to provide information on financial instruments which have been compensated in the balance sheet in compliance with IAS 32 and on those subjected to a compensation agreement or similar agreements, which, given that the criteria of IAS 32 regarding compensation is not respected, are recorded separately in the financial statements between assets and liabilities, including financial collaterals. Regulation n. 301, March L. March IAS 16, IAS 32, IAS 34, IFRIC 2, regards the homologation of the Annual cycle of the improvements of international accounting principles, approved by IASB on May The limited changes introduced by the aforementioned improvement cycle have the goal of solving a series of inconsistencies detected in the IFRS body, of providing terminological clarifications and of formulating additional guidelines regarding the application of certain requisites. Annual Report

12 Section 2 General preparation principles The financial statements consist of the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in shareholders equity, the statement of cash flows and the note to the financial statements and by the Report on Operations concerning the Bank s management performance and situation. The financial statements have been prepared in clear fashion and provide a true and fair description of the company s financial standing, equity structure and income results for the financial year in question. Assessment criteria applied to the preparation of the balance sheet comply with the current legal provisions and refer to accounting principles in force at the time of its approval. The financial statements therefore respect the general principles listed below: valuation consistency; substance over form; prudence; competence; separateness and coherence in valuations; going concern. In compliance with the clauses of art. 5 of Legislative Decree no. 38 dated 28th February 2005, the financial statements have been drawn up by using the Euro as monetary unit: financial statements schemes are drawn up in units of Euros, while the notes to the financial statements refer to thousands of Euros. The financial statements were prepared following the principle of accounting on an accrual basis, in compliance with the principle of information relevance and pertinence, by respecting the principle of the prevalence of substance over form and in order to favor coherence with regards to future statements. In light of the communication by Bancad Italia, Consob and Isvapdated February 6th, 2009, in the report on operations, and in the notes to the financial statements, evidence is given regarding the main risks and possible elements of uncertainty our Bank is exposed to, pursuant to art of the Italian Civil Code, as required by IAS1 and IFRS 7. Going concern assumption The financial statements for the year which ended on December 31st, 2013, record a loss of 98.5 million euro, mainly attributable to risk provisions related to the progressive credit deterioration due to the difficult economic scenario, in addition to the reduction of the shareholder s equity due to the correction of errors in compliance with procedures required by IAS 8, as described below. Moreover, the subsequent paragraph Uncertainty in the utilization of estimates, presents financial statements items which required that the Bank resort to estimates and assumptions characterized by elements of uncertainty with particular reference to the estimated recovery of non-performing loans. With regards to the issue of illegitimately calculated interests on indexed leasing contracts, we highlight that - as reported extensively within the Report on Operations - the Public Prosecutor s Office of Udine initiated proceedings against the Bank for an administrative crime pursuant to art. 24 ter, 2 of Legislative Decree no. 231/01. The significant operating loss, together with the equity restatement explained above, led to the Parent Company Hypo Alpe-Adria-Bank International AG (Austria) interveningvia two recapitalizations, on July 8 and December , for 85 million and 100 million euro respectively, thus allowing the company to maintain the capital adequacy ratio required by Bancad Italia from our institute. More specifically, as part of the Group Hypo AlpeAdria, the Bank was subjected to a joint assessment process by the Financial Supervisory Authority, the Joint Risk Assessment and Decision (JRAD) process, that was concluded with the issuing of a joint decision on January 31st, In this decision, Bancad Italia recommends that Hypo Alpe-Adria-Bank S.p.A. maintain its Tier 1 capital ratio above 11.5%. The capital adequacy ratio (CAR) and the tier 1 ratio of the Bank are equal, as of December 31st, 2013, to 11.86%. Furthermore, the Parent Company, in order to maintain the going concern, committed to ensuring besides the above mentioned capital measures - the necessary financial support for the company to continue normal operations, even in the context of business reduction as established by the European Commission Decision dated September 3rd, outlined extensively in the Report on Operations - that stipulates, among other elements, the impossibility of granting new business. To tackle the strong dependency on funding received from Hypo Alpe-Adria Bank International AG, which represents the Bank s prevalent funding source, the Parent Company committed formally to maintain the funding currently in 54 Annual Report 2013

13 place until maturity thereof, and also expressed its commitment to guaranteeing Hypo Alpe-Adria Bank S.p.A. the financial resources necessary to continue normal operations for a period of at least 12 months from the end of the financial year. Finally, in referring the reader to the Report on Operations for further details, we wish to stress the fact that on September 3rd, 2013 the European Commission deliberated on the procedure regarding state aid received by Hypo AlpeAdria Bank International AG. In particular, the restructuring plan that proposes measures to be adopted by the Group regarding reimbursements of state aid was formalized, and hence there may be elements of uncertainty regarding the implementation of the plan itself, the time schedule involved and also due to the volatility of market conditions; therefore further, potentially significant, losses cannot be excluded. With regards to the proceedings initiated by the Public Prosecutor s Office of Udine mentioned above, we report that the MB, basing their actions not only on the opinions of their legal advisors, but also in consideration of the Bank s organizational model, maintain that the bank can be deemed as exempt from liabilities with regards to the administrative crime and they have consequently not allocated a specific provision in the financial statements. Finally, with regards to the guidelines provided in document no. 2 dated 06/02/2009 issued jointly by Bancad Italia, Consob and Isvap, it is stressed that the circumstances described above indicate considerable uncertainty regarding whether or not the Bank can continue operating on the basis of the going concern assumption. Nevertheless, after having evaluated these circumstances, and in consideration of the previously carried out recapitalization, the commitment of the Parent Company to make available necessary funds for the continuation of normal operations, as well as the ability of the Parent Company to respect the restructuring plan, we believe that the Bank has adequate capital and financial resources to continue operations in the foreseeable future and, furthermore, we continue to adopt the going concern assumption during the preparation of the financial statements for the year ending on December 31st, Uncertainty in the utilization of estimates The drafting of the financial statements also required recourse to estimates and assumptions that can determine significant effects on the amounts booked in the Balance Sheet and Income Statement tables, as well as on the information concerning potential assets and liabilities. The elaboration of these estimates implies the use of available information and the adoption of subjective evaluations based also on historical experience - utilized for the goal of formulating reasonable assumptions for the detection of events related to operations. For this purpose, we highlight that the situation caused by the ongoing crisis which characterizes the current general economic and financial scenario, as well as the specific environment of the Bank led to the need for assumptions regarding future trends characterized by uncertainty elements. Due to their nature, the utilized estimates and assumptions can vary from period to period; therefore we cannot exclude that the assumed hypotheses, however reasonable, could not be confirmed in the future scenarios within which the Bank will have to work. The results that will be achieved in the future could therefore be different from the estimates made for the drafting of these financial statements, and consequently adjustments that are now neither foreseeable nor assessable, with regards to the accounting value of assets and liabilities allocated in the financial statements, may be necessary. The main cases for which subjective assessments were required by the Board of Directors are the following: quantification of losses due to the reduction of the value of credits and, in general, of other financial assets; determination of the fair value of financial tools; the use of evaluation modules to determine the fair value of financial tools not listed on active markets; quantification of staff funds and of funds for risks and charges; estimates and assumptions regarding the recoverability of deferred tax assets. The description of accounting policies applied to the main aggregated items of the financial statements provides the informative details that are needed to identify the main subjective assumptions and assessments used for the present financial statements. For more detailed information regarding the composition and relevant recording value of items involved by such assessments, please refer to the specific sections of the notes to the financial Annual Report

14 statements. We highlight, in particular, that the financial year 2013 was characterized by a significant deterioration of the credit portfolio. The Bank, when evaluating its exposures as of December , adopted the necessary prudence in consideration of the available objective elements, and also adopted the indications formulated by Bancad Italia following theiraudit which took place over the course of the year. With regards to the sale priceof repossessed lease assets and collaterals backing the granted loans, in particular when these are real estate properties, in consideration of the fact that the trend of the real estate market continues to be negative, the presumable sale price, as well as the expected recovery times, are hard to be quantified due to the significant decrease in the number of negotiations with potential buyers.this explains the uncertainty regarding the capacity of the aforementioned valuations to correctly estimate actual cash flows deriving from real estate sales - due to the enforcement of the aforementioned collaterals or in order to allow for the recovery of exposures - and the recovery times used to determine relevantdiscounting.thus, we cannot rule out that the presumable recovery value of non-performing loans indicated in the present financial statements may also undergo variations, due to misalignments between the appraisal value of real estate collaterals, used in order to ascertain the relevant provisions, and the cash flows actually achieved and/or due to deviations in terms of recovery time. For evaluations regarding credit risk management and control, please see the notes to the financial statements Part E Section 1. Exoneration from the preparation of Consolidated Financial Statements The consolidated financial statements were not prepared, given that this task is reserved to the direct parent company Hypo Alpe- Adria-Bank International AG, with registered offices in Klagenfurt (Austria), AlpenAdriaPlatz no.1. Section 3 Subsequent events For forecasts regarding the evolution of operations, please refer to the appropriate section provided within Directors management report. Section 4 Other issues The Financial Statements of the Bank were audited by the auditing company PricewaterhouseCoopers S.p.A., which has been entrusted with this task for the period in compliance with Art ter of the Italian Civil Code, modified by the coming into force of Legislative Decree No. 39 of January 27th, As noted in the Report on Operations, during the year the Bank has been subject to an audit by Bancad Italia. The results of this audit were communicated on November 27, With regards to the outcome, classified as unfavorable, the Corporate Bodies on January 24, 2014 submitted their rebuttal arguments. Adjustments to balances from the previous year pursuant to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors In June 2011 the IASB approved IAS 19, related to benefits to employees. With the publication of the EU regulation n. 475/2012, June in the Official Gazette of the European Union, the relevant endorsement procedure was completed. The main novelty is the requirement, for defined benefit plans (severance treatment), of a single accounting principle for actuarial profits and losses to be immediately included in the calculation of net payables due to employees, per contra of a net equity item (OCI Other Comprehensive Income), to be included in the totalcomprehensive income prospect for the period. In the context of its accounting policies, the Bank had adopted the corridor method: indication in the P&L of the part exceeding 10% of the highest value between the actual value of the obligation to defined benefits and the fair value of assets involved in the plan. 56 Annual Report 2013

15 In compliance with IAS 8, the retrospective application of the new version of IAS 19 had a negative impact on the net equity of the Bank, as of 31/12/2012 equal to 380 thousand euro. Accounting tables for the previous financial year were recalculated in order to reflect modifications introduced by the new principle. We list hereunder the comparative prospects of the balance sheet and the re-determined P&L in order to include impacts deriving from the retrospective application of the new IAS 19 principle. During the month of February 2013, the Bank ascertained the presence of interests illicitly charged on indexed lease contracts and therefore corrected errors in the financial statements dated December , in compliance with procedures required by IAS 8. During the financial year 2013, the Bank detected further discrepancies that resulted in further losses than previously determined with reference to the financial year 2012 and therefore resulted in the re-application of procedures required by IAS 8. In detail, the following booking entries were made: Reimbursement of amounts owed to customers due to misinterpretation of contractual clauses that emerged during a more detailed analysis, for a total of 19,6 million euro (thereof 17,5 million referred to the equity at the beginning of the financial year); Accurate redetermination of liabilities estimated during the course of the previous financial year following the detection of new circumstances, that led to expenses equal to 14,3 million euro (thereof 11,7 million referred to the equity at the beginning of the financial year); we highlight that the accumulation from financial year 2013 mainly refers to accrued interest on sums subject to reimbursement; Reimbursement of fees erroneously debited to customers, recorded in the income statement for an amount equal to 2,8 million euro. As more thoroughly described in the Report on Operations, currently all activities related to the IT manipulation have been completed and all relevant charges were allocated in the financial statements. In the following table, in the column Year 2013, the retrospective correction of these events is detailed. The same column also includes further provisions, effectuated to reimburse to customers a series of commissions charged in previous periods. Year Accounting item 2012* 2013 PN Reserve Income Statement Sums available for customers 74,788 10, Funds for risks and fees: - compensation interests 6,701 2,315 1,757 - further allocations 0 16,903 5,485 Total 81,489 29,222 7,446 (*) For further information on the correction of these mistakes, please refer to Adjustments tobalances from the financial year pursuant to IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) in the Notes to Financial Statements Annual Report

16 Balance sheet as of Hereunder, please find a summary of all adjustments: Assets items * Adjustments Adjusted 10. Cash and cash equivalents 2,353, ,353, Financial assets held for trading 477, , Financial assets valuedat fair value Financial assets available for sale 42,850, ,850, Financial assets held to maturity Receivables due from banks 23,951, ,951, Receivables due from customers 3,290,087, ,290,087, Hedging derivatives 613, , Fair value change of financial assets in hedged portfolios ( +/- ) Shareholdings 3,431, ,431, Tangible assets 43,380, ,380, Intangible assets 2,635, ,635,971 hereof: - goodwill 1,113, ,113, Tax assets 25,200, ,200,971 a) current 6,720, ,720,941 b) deferred 18,480,030 18,480, Non-current assets and groups of discontinued assets 791,136, ,136, Other assets 33,789, ,789,764 Total assets 4,259,909, ,259,909, Annual Report 2013

17 Liabilities and Shareholders equity * Adjustments Adjusted 10. Payables due to banks 1,965,993, ,965,993, Payables due to customers 610,860, ,860, Outstanding securities 414,481, ,481, Financial liabilities held for trading 13,348, ,348, Financial liabilities valuedat fair value 23,765, ,765, Hedging derivatives Changes in value of macro-hedged financial liabilities (+/-) Tax liabilities a) current b) deferred Liabilities related to groups of discontinued assets 789,136, ,136, Other liabilities 128,461,682 8,934, ,396, Provision for employment termination indemnities (TFR) 2,647,163 59,420 2,587, Provisions for liabilities and charges: 7,249,889 14,463,184 21,713,073 a) retirement benefits and similar obligations b) other provisions 7,249,889 14,463,184 21,713, Revaluation reserves (1,432,678) (110,302) (1,542,980) 140. Redeemable shares Equity instruments Reserves (6,518,513) (23,347,190) (29,865,703) 170. Share premiums Share capital 318,187, ,187, Treasury shares ( - ) Profit (Loss) for the year (6,271,905) 0 (6,271,905) Total liabilities and Shareholders equity 4,259,909, ,259,790,435 (*) In this column the balances are recorded, as indicated in the financial statements approved for the financial year The following adjustmentswere effectuated: In item 100. Further liabilities, sums available for leasing customers related to credit notes to be issued. In item 110. Employee severance treatment, the provision related to previously suspended actuarial profit/losses (due to application of the corridor method up until the financial year 2012 as indicated in the old accounting principle IAS 19) was recorded. In item 120. Funds for risks and charges: b) other funds, the provision related to currency indexation and compensation interests for the damage due to late reimbursement, calculated up until 2011, was recorded. In item 130, Revaluation reserves, due to the modification of IAS 19, the total actuarial losses on defined benefits plans as of the financial year 2011 was recorded (OCI other comprehensive income ). In item 160. Reserves a sum amounting to 22,293 thousand euro was recorded, due to the negative effect deriving from the retrospective correction of indexed leasing contracts and a sum amounting to 51 thousand euro, related to actuarial profits pending as of December (IAS 19). Annual Report

18 Balance sheet as of Hereunder, please find a summary of all adjustments: Assets items * Adjustments Adjusted 10. Cash and cash equivalents 8,721, ,721, Financial assets held for trading 2,611, ,611, Financial assets valued at fair value Financial assets available for sale 44,214, ,214, Financial assets held to maturity Receivables due from banks 33,311, ,311, Receivables due from customers 3,030,459, ,030,459, Hedging derivatives 477, , Fair value change of financial assets in hedged portfolios (+/- ) Shareholdings 3,431, ,431, Tangible assets 44,897, ,897, Intangible assets 1,190, ,190,041 hereof: - goodwill Tax assets 40,638, ,638,336 a) current 11,395, ,395,132 b) deferred 29,243,204 29,243,204 - in compliance with Law n.214/11: 29,243, Non-current assets and groups of discontinued assets Other assets 28,285, ,285,579 Total assets 3,238,238, ,238,238,076 (*) In this column the balances are recorded, as indicated in the financial statements approved for the financial year Annual Report 2013

19 Liabilities and Shareholders equity * Adjustments Adjusted 10. Payables due to banks 1,806,885, ,806,885, Payables due to customers 679,631, ,631, Outstanding securities 366,165, ,165, Financial liabilities held for trading 6,045, ,045, Financial liabilities valued at fair value 5,997, ,997, Hedging derivatives Change in value of macro-hedged financial liabilities ( +/- ) Tax liabilities a) current b) deferred Liabilities related to groups of discontinued assets Other liabilities 132,814,680 10,003, ,818, Provision for employment termination indemnities (TFR) 2,633, ,242 3,013, Provisions for liability and charges: 14,040,154 19,217,845 33,257,999 a) retirement benefits and similar obligations b) other provisions 14,040,154 19,217,845 33,257, Revaluation reserves (734,395) (431,124) (1,165,519) 140. Redeemable shares Equity instruments Reserves (57,654,106) (23,347,190) (81,001,296) 170. Share premiums Share capital 318,187, ,187, Treasury shares ( - ) Profit (Loss) for the year (35,775,159) (5,823,321) (41,598,480) Total liabilities and Shareholders equity 3,238,238, ,238,238,076 (*) In this column the balances are recorded, as indicated in the financial statements approved for the financial year The following adjustments have been performed: In item 100, Other liabilities, sums available to leasing customers due to credit notes to be issued. In item 110. Employee severance treatment, the provision related to previously suspended actuarial profit/losses (due to application of the corridor method up until the financial year 2012, as indicated in the old accounting principle IAS 19) was recorded. In item 120. Funds for risks and charges: b) other funds, the provision related to currency indexation and compensation interests for damages due to late reimbursement, calculated up until 2012, was shown. In item 130, Revaluation reserves, due to the modification of IAS 19, the total actuarial losses on defined benefits plans as of the financial year 2012 were shown(oci other comprehensive income ). In item 160. Reserves the effect of the aforementioned adjustments was recorded. In item 200. Profit (Loss) of the financial year, the effect of the cancellation of interests related to financial lease installments for 2012 and of the new provisions to Funds for risks and charges was recorded. Annual Report

20 Income statement as of Hereunder, please find a summary of all adjustments: Income statement items * Adjustments Adjusted 10. Interest income and similarincome 111,434,722 (1,068,461) 110,366, Interest expense and similarcharges (48,472,504) 0 (48,472,504) 30. Net interest income 62,962,218 (1,068,461) 61,893, Commission income 15,785, ,785, Commission expenses (6,672,442) 0 (6,672,442) 60. Net commissions 9,112, ,112, Dividends and similarincome Profits (losses) on trading 2,697,631 (199) 2,697, Fair value adjustments in hedge accounting (84,482) 0 (84,482) 100. Profit (losses) on disposal or repurchase of: 347, ,338 a) receivables b) financial assets available for sale 3, ,080 c) financial assets held to maturity d) financial liabilities 344, , Profit (losses) on financial assets/liabilities at fair value (165,544) 0 (165,544) 120. Operating income 74,869,809 (1,068,660) 73,801, Valuation adjustments on impaired: (65,187,596) (65,187,596) a) receivables (65,187,596) (65,187,596) b) financial assets available for sale c) financial assets held to maturity d) other financial activities Net income from banking activities 9,682,213 (1,068,660) 8,613, Administrative expenses: (58,827,653) 0 (58,827,653) a) personnel expenses (28,089,816) 0 (28,089,816) b) other administrative expenses (30,737,837) 0 (30,737,837) 160. Net provisions to provisions for risks and charges (6,943,606) (4,754,661) (11,698,267) 170. Valuation adjustments to tangible fixed assets (3,248,850) 0 (3,248,850) 180. Valuation adjustments to intangible fixed assets (605,964) 0 (605,964) 190. Other operating expenses income 12,622, ,622, Operating expenses (57,003,646) (4,754,661) (61,758,307) 210. Profits (losses) from shareholdings Net result of tangible and intangible assets valuation at fair value Goodwill impairment (1,113,941) 0 (1,113,941) 240. Profit (loss) from sale of investments 56, , Profit (loss) before tax from current operations (48,378,974) (5,823,321) (54,202,295) 260. Income taxes on current operations for the financial year 12,603, ,603, Profit (loss) from current operations after taxes (35,775,159) (5,823,321) (41,598,480) 280. Profit (loss) of groups of discontinued assets, net of income taxes on current operations for the financial year Profit (loss) for the financial year (35,775,159) (5,823,321) (41,598,480) (*) In this column the balances are recorded, as indicated in the financial statements approved for the financial year Annual Report 2013

21 The following adjustments have been performed: In item 10. Interest receivable and similar income, the effect of the cancellation of interests related to financial leasing installments was recorded. In item 80. Profits (losses) on trading, the transfer of exchange indexations to be recognized to customers was reclassified. In item 160. Net provisions to provisions for risks and charges, the provisions for compensation interests due for damages due to late reimbursement of the amounts due to customers, were adjusted. Annual Report

22 A.2 Section concerning the main items of the financial statements Accounting principles The accounting principles that have been adopted with reference to the main assets and liabilities items for the drawing up of the annual financial statements as of the 31st December 2013 are described as follows. 1. Financial assets held for trading Recognition criteria Financial assets are initially recognized at the settlement date, as far as issued bonds and equities are concerned and at trade date for derivative contracts. Financial assets held for trading are initially measured at cost, namely at their fair value. Classification criteria This category includes financial assets acquired principally for the purpose of generating a profit from short-term fluctuations in price. This category includes exclusively issued bonds and equities and the positive value of all derivatives, except those designated as effective hedging instruments. Derivative contracts include embedded derivatives which are a component of combined instruments which have been separately recognized because: their economic characteristics and risks are not closely related to those of the underlying contract; separate instruments with the same terms as embedded derivative meet the definition of derivative; the hybrid instruments to which they belong aren t calculated at the fair value with the relevant changes recorded into the Profit and Loss Statement. Assessment criteria After initial recognition, financial assets held for trading are measured at fair value, with indication of offset changes of the Income Statement items. For the determination of the fair value of the financial instruments listed on an active market, market quotations are used. Lacking an active market, generally accepted assessment methods and valuation models are used, that are based on traceable data on the market, such as: methods based on the assessment of listed tools having similar features, actualization of future cash flows, models of determination of the price of options, values learnt from recent comparable transactions. Equities and correlated derivative instruments, for which it is not possible to determine the fairvalue reliably according to the above-mentioned guidelines, are entered at cost value, rectified against losses for value reduction. These losses due to value reduction are not restored. De-recognition When the contractual rights to the financial flows from the same financial assets expire or the financial assets are transferred, by substantially transferring all the risks/benefits related to it, the financial assets shall be de-recognized. Measurement and recognition of the income components Profits and losses deriving from the fair value variation of financial assets are listed under the item Net result of trading activities of the Income statement, with the exception of those concerning derivative instruments connected to the Fair Value Option, which are classified in the item Net result of financial assets and liabilities assessed at fair value. 64 Annual Report 2013

23 2. Financial assets available for sale Recognition criteria Financial assets available for sale are initially recognized at settlement date. On initial recognition the financial assets classified in this category are measured at fair value plus transaction expenses directly attributable to financial instrument acquisition. Classification criteria Non-derivative financial assets that are not classified under the above-mentioned categories or among receivables (money market instruments, other debt and Equity instruments, mutual fund quotes) and that are held for an indefinite period of time and that can be sold for the purpose of ensuring liquidity, responding to interest rate, exchange rate and market price changes, are classified under this item. Investments in equities not qualifying for control, connection or joint control are included under this category. Assessment criteria Following the initial appraisal, financial assets available for sale are still assessed at fair value, with the entering onto the income statement of interests, as resulting from the application of the amortized cost and of the effect of foreign exchanges on debt instruments, with the entering of a separate equity reserve of profits/losses deriving from the variation of the fair value net of the related fiscal effect, with the exception of losses due to reductions of value. Equities, for which it is not possible to determine the fair value reliably, are kept at cost, rectified against the assessment of losses for value reduction. The verification of the existence of objective evidences of value reduction is carried out at the time ofany financial statements closure or infra annual situation. The amount of any detected devaluation, as a consequence of the impairment test, is entered onto the income statements as an operating cost.in the case in which the reasons of value loss are later removed, due to an event subsequent to the assessment of value reduction, adjustments are carried out, in the shareholders equity, on share instruments and, in the income statement, on bonds. De-recognition Financial assets available for sale are derecognized when the right to receive cash flows from financial assets is extinguished, or when all risks and benefits related to the possession of that specific asset are transferred in a substantial manner. Valuation and appraisal criteria of the income components At the time of disposal, exchange with other financial instruments or in the presence of a value loss detected as a consequence of the impairment test, the results of assessments accumulated in the reserve concerning assets available for sale are transferred onto the income statement: in the item Profit/loss from purchase/assignment of: b) financial assets available for sale, in case of divestment; in the item Losses/provisions/write-ups/write-backs for deterioration of: b) financial assets available for sale in case of loss of value. In the case in which the reasons of value loss are later removed, due to an event subsequent to the assessment of value reduction, write-backs are carried out. These adjustments are entered onto the income statement in the case of credit or debt instruments and on the shareholders equity in the case of equities. 3. Financial assets held to maturity Investments held until maturity are non-derivative financial instruments, with payments that are fixed or that can be calculated at a fixed expiry date, which the company intends to and has the capacity to hold until maturity. The Bank has not classified any financial assets in this category. 4. Receivables due from banks and from customers Initial recognition Receivables are initially recognized at the granting date, or in the case of a debt security, at the settlement date, on the basis of the fair value of the financial instrument. This is usually equal to the amount granted, or to the underwriting price, including the expenses/income directly attributable to the specific loan and that can be calculated right from the beginning of the operation, even if liquidated subsequently. Expenses that, although characterized by these features, are subject to repayment by the debtor counterparty, or that can be included among normal internal administrative expenses, are excluded. Assets to be leased are entered at the signature of the contract among receivables due to Other operations and are transferred to receivables due to Financial lease at the time when the contracts are granted. Annual Report

24 Classification criteria These Receivables include loans to customers and banks, either granted directly or acquired from third parties, and which specify payments that are fixed or in any case calculable, that are not listed on an active market and that are not originally classified among financial assets available for sale. Receivables also include commercial receivables, repurchase agreements operations, receivables deriving from leasing operations (that, pursuant to IAS17, are indicated according to the so-called financial method ) and securities purchased by underwriting or private placement, with payments that are calculated or that can be calculated, not listed on active markets. Valuation and appraisal criteria of the income components After the initial appraisal, Receivables are measured at the depreciated cost, equal to the first entry increased/decreased by capital repayments, write-downs/write-backs and depreciation calculated using the effective interest rate method of the difference between the amount granted and the amount repayable at maturity, typically attributable to expenses/income directly charged to the individual loan. The actual interest rate is identified by calculating the rate corresponding to the current value of future credit flows, including principal and interest, of the disbursed amount, including the cost/income linkable to the credit. The financial logic followed by this accounting method makes it possible to distribute the economic impact of the expenses/income throughout the expected residual life of the loan. The depreciated cost method is not used for short-duration receivables, which are felt to be negligibly affected by the actualization approach. These receivables are measured at the historical cost and the related expenses/incomeare entered on the Income Statement in a linear manner, throughout the duration of the contract. A similar assessment criterion is adopted for credits without a defined maturity or those defined as until further notice. At the closure of every financial year or any infra-annual balance, receivables are recognized in order to identify those that, following events subsequent to registration, objectively show signs of a potential loss in value.at first, we evaluate the need to adjust impaired loans individually (non-performing loans), classified in different risk categories in accordance with regulations issued by Bancad Italia and with inner regulations that establish the rules for the inscription of receivables into the following risk categories: sofferenze (non interest bearing non-performing loans): loans to subjects that are in a state of insolvency or in substantially equivalent situations;; incagli : loans to subjects that are temporarily in a situation of clear difficulty that it is expected to be overcome over a consistent period of time; esposizioni ristrutturate (Restructured loans): loans for which the bank (or a group of banks), because of the deterioration of the debtor s economic conditions, accepts modifications to the original contractual conditions that cause losses; esposizioniscadute (overdues): exposures towards subjects not classified in the previous risk categories that, at the closing date of the period, presentloans that are overdue or that have more than 90 days in delay. These non-performing loans are assessed analytically and the amount of the provisions for each loan is equal to the difference between the book value at the time of assessment(amortized cost) and the current value of the expected future cash flows, calculated by applying the original effective interest rate. The expected cash flows take into consideration the expected recovery times, the presumable execution value of any collateral as well as the expenses that it is thought will need tobe sustained in order to recover the loan amount. The provision is entered into the Income Statement. The provision component that can be traced to the discounting of financial flows is released in accordance with the effective interest rate mechanism and it is recorded among write-backs. The original value of loans is restored in subsequent financial years should the reasons behind the provision no longer exist, provided that this valuation can be objectively linked to an event subsequent to the provisionitself. The provision is entered onto the Income Statement and cannot in any case exceed the amortized cost that the loan would have had in the absence of previous provision. Non-performing loans that have been assessed individually and for which no objective evidence of loss in value has been observed are included in groups of financial assets with similar features by proceeding with a single risk provision for each group. Loans that have not been individually related with any objective evidence of loss, and that aretherefore, normally, performing loans, are subject to the assessment of the need for ansrpci. This valuation is made on the basis of loan categories that are ho- 66 Annual Report 2013

25 mogeneous in terms of credit risk, and the relative loss percentages are estimatedby taking into consideration historical data, based on elements that can be observed on the valuation date, which make it possible to estimate the value of the latent loss in each credit category. SRPCis are recorded in the Income Statement. At the date of reference of the financial statements, eventual additional provisions or write-backs are recalculated differentially. The risk provisions are recorded in the income statement under the item «Net adjustments due to impairment of Loans», as are the recoveries of part or all previously depreciated amounts. Writebacks are recorded both in the case of improved loan quality that leads to forecast the reasonable certainty of a timely recovery of the capital, in accordance to original loan agreement terms, and in the case of a gradual reduction of thediscountingvalued at the time of the registration of the provisions. In case of SRPCi, the possible additional provisions or write-backs are recalculated differentially with reference to the entire loan portfolio. Income and losses resulting from transfer of loansare registered under item 100 of the income statement «Profit(losses) from transfer or re-purchase of a) Loans». De-recognition De-recognition regulations, pursuant to IAS39, were applied in compliance with IFRS1. Transferred loans are de-recognized from the balance sheet assets only if all the related risks and benefits have been substantially transferred. Conversely, should the related risks and benefits be maintained, these loans will continue to be recorded among the balance sheet assets, even if the legal ownership of the loan has effectively been transferred. Should it not be possible to ascertain the substantial transfer of the risks and benefits, the loans are de-recognized from the balance sheet if no control of any kind has been maintained over them. Conversely, conservation, even if partial, of this control leads to the loans being maintained in the balance sheet to the extent equal to the residual involvement, measured by the exposure to the value changes of the transferred loans and to changes in the financial flows of these same loans. Finally, transferred loans are derecognized from the balance sheet if contractual rights to receive the relative cash flows have been conserved, and if at the same time an obligation has been assumed to pay these flows, and these flows only, to third parties. 5. Financial assets valued at fair value Initial recognition Financial assets are initially recorded at settlement date if this is established in the regular way, while they are recorded at the trade date in all other cases.if the financial assets are recorded at settlement date, the profits and losses detected between the trade date and the settlement date are recorded in the Income Statement. These financial assets are measured at fair value from the moment they are first entered, since this generally corresponds to the amount paid. The related transaction expenses or income are recorded directly in the Income Statement. Classification criteria This item includes financial assets or groups of financial assets designated at fair value with the measurement results entered onto the Income Statement, in accordance with the Fair Value Option (FVO) specified by IAS 39. In particular, the FVO is utilized when it is permissible to eliminate or significantly reduce the accounting deficit deriving from the non-coherent accounting of financial instruments that are inter-related (natural hedge) or hedged by derivative contracts for which the application of hedge accounting is complex and difficult. The FVO is also used in the presence of an instrument containing an implicit derivative that satisfies certain conditions, to avoid dividing this same host instrument into parts, and thus allowing to valuate the financial instrument, as a whole, at fair value. Annual Report

26 Measurement and appraisal criteria of income components Following the initial entry, they are aligned with the relative fair value. The fair value of investments quoted on active markets is calculated with reference to the bid prices noted on the reference date of the financial statements. With regards to investments for which the active market bid price is not available, the fair value is calculated by using estimation methods and measurement models that take into consideration the risk factors associated with the instrument, that consider all related risk factors and that are based on market data when available. These techniques may consider the prices recorded for similar transactions recently concluded at market conditions, discounted cash flow calculations, option price calculation models and other techniques commonly used by market operators. The profits and losses realized on the sale or reimbursement, and the un-realized profits and losses arising from changes in the fair value in comparison with the purchase cost, calculated on the basis of the daily weighted average cost, are recorded in the Income Statement for the period in which they occur, under Net value result of financial assets and liabilities valued at fair value. De-recognition Financial assets are de-recognized at the expiry of the contractual rights to the financial flows deriving from them, or when the financial assets are sold, thus substantially transferring all the related risks/benefits. Appraisal criteria of income components Profits and losses deriving from variations of fair value of financial assets are recorded under the item Net result of financial assets and liabilities assessed at fair value of the Income statement. This item also includes derivative instruments connected to the Fair Value Option, whose economic effect is classified in the item Net result of financial assets and liabilities assessed at fair value. 6. Hedging operations Initial recognition Hedging derivatives are initially recognized at fair value and are classified under the balance sheet item Hedging derivatives, depending on whether -on the reference date of the financial statements - they have a positive or negative fair value. Classification criteria This item covers derivative contracts designated as effective hedging instruments, whose function is to reduce or transfer the risks associated with individual assets or liabilities or groups of assets and liabilities. These instruments are classified on the balance sheet under credit or debit Hedging derivatives, according to the whether a positive or negative fair value is recorded on the reference date of thefinancial statements. Derivatives held for purposes other than hedging are classified among the financial assets held for trading. The applied hedging typologies are: fair value hedge: hedging the exposure to the variations of the fair value of assets, liabilities, unaccounted commitments, or of a portion of these, that can be attributed to a specific risk; cash flow hedge: hedging the exposure to the variability of future cash flows that can be attributed to specific risks associated with an asset or liability; hedging the effects of an investment denominated in foreign currency; this relates to hedging the risks of an investment in a foreign company, expressed in foreign currency. An operation is considered a hedge operation if there is formal documentation of the relation between the hedging instrument and the hedged risks, indicating the risk management objectives, the hedging strategy and the methods that will be used to monitor the efficacy of the hedge. Tests must also be conducted to check that the hedge is effective from the start, and, predictably, during its lifespan. Hedge effectiveness is monitored by: projection tests: these justify the application of hedge accounting,given that they show the expected future efficacy of 68 Annual Report 2013

27 the hedge; retrospective tests: measuring, over the course of time, the differences between actual results and perfect hedging. A hedge is considered to be effective if the hedge instrument is able to generate a cash flow or a change in fair value that is consistent with that of the hedged instrument. More specifically, it is effective when the fair value (or cash flows) variations of the hedge financial instrument neutralize the variations of the hedged instrument, for the hedged risk element, within an % interval. Moreover, operations are no longer classified as hedging if: the hedging operated by means of the derivative ceases to be effective, or is no longer significantly effective; thehedged element is sold, expires or is reimbursed; the definition as a hedging element is revoked; the derivative expires, is sold, annulled or exercised. With the very first adoption of the IAS/IFRS, derivative instruments designated as hedging in accordance with prudent national accounting standards were virtually entirely reclassified among financial assets held for trading, since these same assets are management-type hedges, or under the specific item for financial instruments measured in accordance with the Fair Value Option. Measurement and appraisal criteria of the income components Following initial entry, hedging derivatives are measured at fair value. Calculations of the fair value of derivatives are based on prices taken from regulated markets or provided by operators, on option measurement models, or on future cash flow discounting models. There are various accounting procedures for profits and losses deriving from fair value variations, according to the hedging typologyin question: fair value hedge: the change in the fair value of the hedged element (which can be traced back to the hedged risk) is recorded in the Income Statement, at the same amount as the change in the fair value of the derivative instrument; any difference, which represents the partial inefficacy of the hedge, therefore causes the net economic effect. Should the hedge relation no longer respect the conditions specified for hedge accounting and should the hedge relationship be annulled, the difference between the charge value of the hedged element at the end of the hedge, and what would have been the charge value should the hedge never have existed, is amortized in the Income Statement throughout the residual life of the hedged element, on the basis of the effective yield rate. Should this difference refer to non-interest bearing financial instruments, it is immediately recorded in the Income Statement. If the hedged element is sold or reimbursed, the fair value quota not yet amortized is immediately recorded in the Income Statement. Cash flow hedge: the fair value changes of the hedging derivative are entered under theshareholders equity among the revaluation reserves of cash flow hedging operations, for the effective hedge quota, and under the Income Statement for the part not considered as effective. When the hedged cash flows appear and are recorded in the Income Statement, the relative profit or relative loss on the hedging instrument is transferred from the shareholders equity to the corresponding Income Statement item. When the hedge relation no longer respects the conditions established for hedge accounting, the relation itself comes to an end and all losses and profits recorded under theshareholders equity upuntil this point remain there, until flows related to the original hedged risk begin to appear: these losses/profits are then recorded in the Income Statement under the item net profit/loss from trading. Hedging of an investment in foreign currency: is entered in the same way as future cash flow hedges. Derivatives which the Fair Value Option is applied toare measured at fair value, with value variations appearing in the Income Statement. Derivative contracts are the only instruments that can be used as hedging instruments: internal deals or other kinds of financial instrument are not permissible. De-recognition If sold, hedge derivatives are de-recognized from the balance sheet assets provided this sale has led to the substantial transfer of all the risks and benefits relating to these same derivatives. Annual Report

28 If the hedge became ineffective, as specified above, the hedge operations are no longer registered in the books and the derivative hedge contract is reclassified among the financial assets held for trading. 7. Shareholdings Initial recognition Shareholdings are recorded on the settlement date. When initially recognized, shareholdings are entered at cost, including the expenses or income directly associated with the transaction. Classification criteria This item includes the shares held in subsidiaries, related companies and companies subject to joint control. Measurement and appraisal criteria of the income components Shareholdings in subsidiaries are entered in the financial statements by using the cost method as appraisal criteria. If there is any evidence that the value of ashareholding might have decreased, an estimate is made of the collectable value of this same holding, taking into consideration the current value of the future cash flows that the shareholding will be able to generate, including the final sale value of the investment. Should the collection value be lower than the book value, the difference is entered in the Income Statement. Should the reasons behind the loss of value no longer apply, due to an event subsequent to the value reduction appraisal, write-backs are recorded in the Income Statement. De-recognition Shareholdings are de-recognized at the expiry of the contractual rights to the cash flows deriving from them, or when the shareholding is sold, substantially transferring all the related risks and benefits. 8. Tangible assets Initial recognition Tangible assets are initially entered at cost, including all the expenses directly chargeable to the implementation of the asset. Extraordinary maintenance expenses are either included in the book value of the asset, or entered as separate assets only when it is likely that the future associated economic benefits will flow toward the company and the cost can be measured reliably. Expenses for repairs, maintenance or other actions taken to ensure the functioning of the assets are recorded in the Income Statement of the financial year in which they are sustained. Classification criteria This item mainlyincludes land properties, instrumental properties, structures, vehicles, furniture, furnishing and equipment of any kind. Land properties and buildings are separable assets and are therefore recorded separately for accounting purposes. Land propertieshave an unlimited lifespan and cannot therefore be amortized, unlike buildings, which can be amortized, since they have a limited lifespan. Tangible assets (for functional use) also include those recorded due to financial leasing contracts, although their legal ownership remains of the leasing company. Tangible assets include the expenses for improving third-party-owned goods, when these improvements can be separated from the goods themselves; if these expenses do not display any functional and usable autonomy, but are expected to generate future benefits, they are recorded among other assets and are amortized in the shorter between the following two time periods: the expected utilization period of these improvements, or the duration of the leasing contract. Measurement and appraisal criteria of the income components Following the initial entry, tangible assets are entered in the balance sheet at cost, net ofthe accumulated depreciation and any devaluation due to lasting value reductions. Tangible assets are amortized systematically throughout their utilization lifespan, by adopting as amortization criteria the constant quota method. Land properties are not subject to amortization, whether purchased individually or incorporated in the value of buildings, since they have an indefinite utilization lifespan. The amortization process begins when the asset is available and ready to use, or when it is in the location and in the conditions necessary for its utilization. In the first financial year, the amortization is recorded in pro- 70 Annual Report 2013

29 portion to the effective utilization period of the asset. Assets subject to amortization are adjusted in the case of potential value losses should events or changed circumstances indicate that the book value might not be recoverable. Devaluation due to value loss is recorded for an amount equal to the difference between the book value and the recoverable value. The recoverable value of an asset is equal to the lower amount between the fair value, net of any sale expenses, and the relative utilization value of the asset, intended as the current value of future flows originated by the source of income. Any adjustments are recorded in the Income Statement. Should the reasons leading to the recognition of the loss cease to exist, a write-back is effectuated, which cannot exceed the value that the asset would have had, net of the amortization calculated in the absence of previous losses. De-recognition Tied-up fixed assets are eliminated from the shareholders equity at the time of sale or when they are permanently withdrawn from use, and thus there is no expectation for future economic benefits from their transfer or use. Equity gains and losses deriving from the demobilization or from the sale of tangible assets are calculated as the difference between the net sale amount and the book value, and they are registered in the Income Statement on the same date in which they are eliminated from the books. 9. Intangible assets Initial Recognition An intangible asset can be entered as goodwill when the positive difference between the fair value of the asset elements purchased and the purchase cost (including accessory charges) represents the future income capacity of the holding (goodwill). Should this difference be negative (badwill), or should the future income capacity of the holding fail to justify its listing as goodwill, this difference is entered directly in the Income Statement. Other intangible assets are entered at cost, adjusted in the case of any accessory charges, only if it is likely that the future economic benefits attributed to the asset can be realized, and if the cost of the asset itself can be measured reliably. Should this not be the case, the cost of the intangible asset appears in the Income Statement in the financial year in which it is sustained. Classification criteria This item basically includes multi-year use application software and goodwill. Goodwill is the positive difference between the purchase cost and the fair value of the assets and liabilities purchased. Measurement and appraisal criteria of the income components After the initial registration, intangible fixed assets with specific lifespans are entered at cost, net of the total amortization and of accumulated value losses. Intangible assets are systematically amortized every year in accordance with their estimated utilization lifespan, by adopting the constant quota method. The amortization process begins when the asset is available for use or when it is in the location and in the conditions in which it can function as specified. In the first year, the amortization is recorded in proportion to the effective utilization period. Amortization of intangible assets transferred and/or sold over the course of the year is calculated up until the date of the transfer and/or sale. Following the initial entry, goodwill is recorded at cost, net of the devaluations for accumulated losses of value. Goodwill is not amortized, but is instead subjected to an annual impairment test. This test may be conducted more frequently, should events or changed circumstances indicate any potential loss of value. De-recognition Intangible assets are eliminated from the shareholders equity at the time of sale, or if they are not expected to generate any future economic benefits. Equity gains/losses arising from the mobilization or sale of an intangible asset are calculated as the difference between the net payment due to the transfer and the book value of the asset. 10. Non-current assets or groups of assets/liabilities held for disposal Classification criteria Non-current assets, or groups of assets/liabilities for which a sales process has been started and their sale is considered as highly probable, are classified in the assets item Non-current assets and groups of discontinued assets and in the liabilities item Liabilities related to discontinued assets, in accordance with IFRS 5. Annual Report

30 Measurement and appraisal criteria of the income components The single non-current assets or the groups of assets held for sale are assessed at the lower value between the book value and their fair value, net of transfer expenses, excluding the following assets, which are still assessed in compliance with the reference principle: Deferred tax assets; Assets deriving from benefits to employees; Financial instruments; Real-estate investments; Income (interests receivable and dividends, etc.) and expenses (interests payable, depreciations, etc.), referable to single noncurrent assets or to groups of discontinued assets and to related liabilities held for disposal are still recorded under the same item, while income (interests receivable and dividends, etc.) and expenses (interests payable, depreciations, etc.), referable to sold operative units, are indicated, net of current and deferred taxes, in the item Income (losses) of non-current assets held for sale after taxes in the Income Statement. 11. Current and deferred taxation Income taxes are recognized in the Income Statement, with the exception of those relating to items which are charged or credited directly to the net equity. The tax burden is measured in accordance with effective tax laws and prudential and reasonable expectations regarding current taxes and deferred tax assets and liabilities. With particular regards to the recognition of deferred tax liabilities and/or deferred tax assets in financial statements, it should be noted that the balance sheet liability method has been applied in compliance with IAS 12 and Bancad Italia s specific requirements. Therefore, the accounting treatment for deferred tax assets and liabilities implies the recognition of: a change in operating income taxes if the temporary difference relates to components which concern the income statement; a change in equity if the temporary difference relates to a transaction which directly concerns the equity without affecting the income statement. Nonetheless, we currently deem that there is no founded certainty that in the future a sufficient taxable profit will be available to justify the benefit of the utilization of all deferred tax assets. That is why: we maintained and recognized exclusivelythose deferred tax assets, in relation to indications contained in art. 2, commas 55 through 58, of Legislative Decree n. 225/2010 converted into Law 214/2011, as modified with the insertion of comma 56-bis.1, with regards to IRAP, from art.168 of Law n. 147/2013, thatcan be transformed into tax credits in the case of financial year losses or fiscal losses or, in the case of IRAP, of a negative value of the net product; these are deferred tax assets relating to risk provisionsand the amortization of goodwill which have not yet been deducted from the taxable income imposed by IRES and IRAP; we failed to recognize remaining deferred tax assets, which might exist as of 31/12/2013, since the tax deductibility of specific expenses was postponed to future fiscal years in accordance with TUIR (Income Tax Rules). We deem that the IRES and IRAP components of deferred tax assets relating to NPLs and the amortization of goodwill should be reported for the following reasons: in the event of future IRES taxable profits and of a positive net product for IRAP, these components will be recovered through deduction from the taxable income; in the event of future IRES tax losses, Article 2, sub-paragraph 56-bis of Legislative Decree 225/2010 converted into Law 10/2011, establishes that deferred tax assets accounted for tax loss to the extent of the loss reported in the tax declaration and relating to significant downward changes reported in the tax declaration (NPLs, amortization of goodwill and other intangible assets) can be transformed into tax credits; similarto IRES, also IRAP, art. 2, comma 56-bis.1, of Legislative Decree 225/2010 converted into Law 10/2011, as modified by art. 168 of Law 147/2013, indicates a transformation into tax credits of deferred fiscal assets which refer to negative components which concurred to determine a negative net product value, within the limits of the same negative net product value recorded in the IRAP declaration; this means that the components relating to NPLs and the amortization of goodwill impacting future fiscal years will reduce taxes in the event and to the extent of taxable profits or will turn into tax credits in the event of IRES tax losses or of a positive net product for IRAP; the economic benefit of these deferred tax assets is not basically lost in any case; 72 Annual Report 2013

31 this benefit is not lost even in the event of voluntary windup, compulsory wind-up or insolvency proceedings, since sub-paragraph 56-ter of the law itself widens the scope of this law and therefore the possibility of these prepaid deferred tax assets to be transformed into tax credits also applies to final financial statements related to a closure of business and to the relevant IRES tax declaration and IRAP declaration; with regards to this aspect, we stress that in the event of these extraordinary administrations, the amounts relating to NPLs and the amortization of goodwill (as well as all expenses whose deductibility has been postponed to future operating years), which have not yet been deducted, are fully deductible in the final tax declaration concerning the closure of business; in the event of a tax loss related to the closure of business or of a negative net product, all relevant prepaid tax assets, which consist of the downward changes due to the deduction of the amounts for remaining NPLs and amortization of goodwill, can be transformed into tax credit; finally, with regards to the probability that deferred tax assets may be utilized and therefore that a tax credit exists - whatever situation the Bank might be in - sub-paragraph 57 of the mentioned law establishes that a tax credit could be offset, without any limits to the amount, by any other tax or contribution (i.e. VAT, tax and social security contributions, etc.); any remaining tax credit after these offset operations is refundable by ticking in the specific box reported in the tax declaration and, therefore, also in the case of a hypothetical tax declaration related to the closure of business. Furthermore, we highlight that: the estimated tax burden for tax assets related to prepaid taxes has been measured by considering an IRESrate equal to 27.5%, which was reckoned to still be effective during the single operating years in which the same temporary differences will impact, and an IRAP rate equal to 5,41%, as detected following the deductible amortization of goodwill and the devaluation of credits which emerged starting in the financial year 2013, which are also convertible into tax credits, as specified in the aforementioned legislation; changes in the prepaid taxes are recorded under item 130 Tax assets ; Tax liabilities for deferred taxes as of 31/12/2013 were related to equity gains on property titles classified as available for sale and find their contra-item in the Shareholders Equity reserve which includes these equity gains. With regards to Article 9 of Law no. 214, 22/12/2011, a proportionate amount equal to the product of the operating loss perthe ratio between substantial prepaid tax assets and shareholders equity (share capital and reserves) of prepaid tax assets relating to NPLs and tax revaluation of goodwill will be transformed, following the approval of these financial statements, into tax credits, due to the existing obligation connected with the financial year operating loss, amounting to 14,897 thousand euro, equal to the value of deferred tax assets of 57,481 thousand euro multiplied per the ratio between the financial year loss of 98,527 thousand euro and the shareholders equity of 380,150 thousand euro, net of the loss itself. 12. Provisions for risks and charges Initial Recognition The sub-item other provisions includes provisions allocated for obligations burdening on the Bank, whose settlement is certain or highly probable, but which present elements of uncertainty regarding the sums involved or the time frames necessary for settlement. Classification criteria Provisions for risks and chargesinclude provisions related to current obligations, originating from a past event, for which it is likely that economic resources will be expended in order to meet the obligation, provided that it is possible to estimate the amount reliably. Measurement criteria and record of income components The amount indicated as reserve funds consists of the best appraisal of the expenses required to satisfy obligations on the reference date of the financial statements. In cases in which the time component is significant, provisions are discounted by employing current market rates. Allocated funds are periodically reviewed and, if necessary, corrected to reflect the best current assessment. When, after the review, sustaining the burden proves improbable, the provision is written off. The provision is recorded in the income statement under the item Net provisions to provisions for risks and charges. This item features the balance, positive or negative, between provisions and adjustments to the income statement of provisions that are considered redundant. Net provisions alsoinclude decreases in the provisions, due to the effect of discounting, as well as correspondent increases due to Annual Report

32 elapsed time (maturation of interest implicit in the discounting). With regards to provisions related to benefits to employees, please refer to the next chapter regarding Personnel severance payment. De-recognition In the case of a need to invest resources with the aim of producing economic benefits to fulfill the obligation, the provision should be written off. A provision must be recorded, concerning those expenses the original item was created for. 13. Payables and outstanding securities Initial recognition Initial recognition takes place on receipt of deposit sums or at the issue of debt securities, and the amount is entered in accordance with the fair value of the liabilities, usually equal to the amount collected or to the issue price, plus any additional expenses/income directly attributed to the specific funding or issue operation and not reimbursed by the creditor counter-party. Classification criteria Payables due to banks, to customers and outstanding securities include the various forms of inter-banking funding, funding with customers and the deposits made by means of deposit certificates and outstanding bond market securities, therefore net of any reacquired amount. Appraisal criteria After the initial recognition, financial liabilities are assessed at the amortized cost by employing the real interest rate method. An exception is represented by those short-term liabilities for which the time factor is negligible, which are entered at the cashed value, and whose expenses and income directly attributable to the operation are entered in the income statement, under the pertaining items. Liabilities subject to hedging via derivative instruments represented in hedge accounting are entered at the amortized cost, rectified by the fair value variation attributable to thehedged riskin question, which may have intervened between the start date of the hedging operationand the closing date of the business year. De-recognition These financial liabilities are removed from the financial statements when the obligation specified by the contract has been extinguished. Buy-backs of owned liabilities are considered as total or partial extinction of the liability. The difference between the accounting value of the extinguished liability and the amount paid to purchase it is recorded in the Income Statement. Should these liabilities be put back onto the own securities market following a repurchase transaction, this new operation is considered as a new issue and is entered at the new placement price, without affecting the Income Statement. Measurement criteria and record of income components Negative income components represented by interests receivable are entered in the items of the income statement concerning interests. Any differences between the repurchase value of shares issued by the Bank and the corresponding accounting value of liabilities are entered in the income statement under the item «Profit/losses from assignment or repurchase of: d) financial liabilities». 14. Financial liabilities - trading Initial recognition The initial recognition of financial liabilities takes place on the date of issue for the debit instruments and on the date of subscription for derivative agreements. At initial recognition, financial liabilities held for trading are recorded at their fair value, normally corresponding to theamount cashed without considering trading expenses or income directly attributable to the same instrument, directly entered in the income statement. This item includes the classification of implicit derivatives present in complex agreements not tightly correlated to the same derivatives, that, being in possession of the required features to satisfy the definition of derivatives, are separated from the host contract and entered at fair value. The pertinent accounting principle is applied to the primary contract. Classification criteria This category includes the negative value of derivative trading contracts measured at fair value, and financial liabilities held for trading. It also includes the implicit derivatives that, in compliance with IAS 39, have been separated from the composite host financial instruments. The profits and losses deriving from the fair value variation and/or from the sale of the trading instruments are entered in the 74 Annual Report 2013

33 Income Statement. De-recognition These financial liabilities are de-recognized from the balance sheet when they expire or become extinct. Measurement criteria and record of income components Profits and losses deriving from the variation of the fair value of financial liabilities are entered in the item Net result of trading activities of the Income statement, with the exception of those concerning negative derivative instruments connected to the Fair Value Option, which are classified in the item Net result of financial assets and liabilities valuation at fair value. 15. Financial liabilities valued at fair value Initial recognition Financial liabilities measured at fair value are initially entered at fair value, which generally corresponds to the amount collected. The related transaction expenses or income are recorded directly in the Income Statement. Classification criteria A financial liability is indicated at the fair value initially recognized in the Income Statement, only when: it is a hybrid contract containing one or more incorporated derivatives and the incorporated derivative significantly changes the cash flows that would otherwise be established by the contract; when the fair value designation on the Income Statement is more informative, since it eliminates or substantially reduces a lack of uniformity in the measurement or in the appraisal that would otherwise result from the measurement of the asset or liability or from the appraisal of the related profits and losses on different bases. Appraisal criteria Following the initial entry, these liabilities are aligned with their relative fair values. The fair value of issued securities (non-recorded) is calculated byusing estimation methods and measurement models that consider all the risk factors related to the instruments, and that are based on available market data. These techniques can consider the prices recognized for recent similar transactions concluded at market conditions, discounted cash flow calculations, option price calculation models and other techniques commonly used by market operators. The profits and losses realized on the reimbursement, and the unrealized profits and losses deriving from changes in the fair value compared to the issue price are recorded in the Income Statement relating to the economic period in which they arose, under the item Net profit/loss of financial assets and liabilities valued at fair value. Interest expenses on debt instruments are classified among interest paid and similarcharges. De-recognition Financial liabilities are de-recognized from the financial statements when they expire or become extinct. Repurchases of owned liabilities are considered as total or partial extinction of the liability. The difference between the accounting value of the extinguished liability and the amount paid to purchase it is recorded in the Income Statement. Should previously issued securities be bought back, they are de-recognized from the relative asset or liability items. Any subsequent sale of outstanding repurchased securities is considered, for accounting purposes, as a new issue, recorded at the new placement price, without affecting the Income Statement. Measurement criteria and record of income components Profits and losses deriving from the variation of the fair value of financial liabilities are entered under the item Net result of financial assets and liabilities assessed at fair value of the Income Statement; the same procedure is followed for negative derivative instruments connected to the Fair Value Option, whose economic effect is classified in the item Net result of financial assets and liabilities assessed at fair value. 16. Foreign currency transactions When initially recorded, foreign currency transactions are entered in the account currency, byconverting the foreign currency amount at the exchange rate in force on the transaction date. On the closing date of the financial statements, balance sheet items in foreign currency are measured as follows: monetary items are converted at the exchange rate recorded on the closing date; non-monetary items measured at historical cost are converted at the exchange rate in force on the date of the transaction; non-monetary items at fair value are converted using the exchange rate recorded on the closing date. Annual Report

34 With regards to monetary items, exchange rate differences generated between the transaction date and the relative payment date, deriving from the conversion of monetary elements, are entered in the Income Statement for the period in which they arose. The same method is used for items deriving from the conversion of monetary elements at rates other than those of the initial conversion rates, or the conversion rate at the closing date of the previous balance sheet. When a profit or a loss relating to a non-monetary element is recorded in the shareholders equity, the exchange rate difference associated with this element is also recorded in the shareholders equity. Conversely, when a profit or a loss is recorded in the Income Statement, the relative exchange rate difference is also recognized in the Income Statement. 17. Further information Personnelseverancepayment (Trattamento di Fine Rapporto, TFR) According to IFRIC, the T.F.R. is a benefit subsequent to the work relationship belonging to the type Defined performances for which IAS 19 defines that its value be determined via actuarial methodologies. Consequently, the period end evaluation of this item is effectuated on the basis of benefits matured by utilizing the specific unitary credit criteria. This method involves the projection of future expenses on the basis of historical, statistical and probability analyses, as well as via the adoption of adequate demographic technical bases. This allows us to calculate the matured T.F.R. by a certain date in actuarial terms, distributing this expense across the years of estimated permanence of the employees, and no longer as an expense to be liquidated in the case that the company should cease its activity on the date of the financial statements. Actuarial profits and losses, generated by adjustments of previously formulated actuarial hypotheses, due to effectively detected experience or due to modifications of the actuarial hypotheses themselves, involve a re-measuring of net liabilities and find their contra-item in a reserve recorded in the shareholders equity. These profits and losses are represented in the Prospect of total comprehensive income. The evaluation of the T.F.R. for employees is carried out by an independent actuary in compliance with the aforementioned methodology. The new version of IAS 19 Benefits to employees, homologated by the European Commission with Regulation n. 475/2012, June , and object of obligatory application from financial years starting on January , was applied for the first time in the present financial statements; its effects are illustrated in the previous Section 4 Further Aspects Other assets In this item assets are recorded which cannot be referred to other items of balance sheet assets. The item can include, for instance: anticipated payments to suppliers; accruals different from those which should be capitalized in the relative financial assets; improvements and incrementing expenses sustained with regards to third parties real estate properties, different from those referable to the item tangible assets, and therefore lackingindependent identifiability and separability. These expenses are allocated in other assets due to the fact that, due to the effect of the leasing contract, the user company has control of the assets and can obtain future economic benefits from them. items under construction Securitizations The financial statements feature no transactions completed before January 1st, Currently they include only transactions completed after this date, via which receivables are transferred to vehicle companies, and for which, evenin thepresence of a formal transfer of the juridical credit title, the control on financial flows deriving from these transactions and the substantiality of the risks and benefits is maintained; the cancellation of the credits related to such operations is not required. Therefore, the transferred credits are kept in the individual financial statements, by indicating a debit towards the vehicle company, net of the securities issued by the same company and repurchased by the transferor. Also for the income statement, the same recognition criteria are maintained Financial leasing operations - IAS 17 A financial leasing is a contract which substantially transfers all the risks and the benefits deriving from the ownership of an asset. The possessory title can be transferred or not at the end of the contract. The leasing starts its validity on the date on which the lessee is authorized to exercise his/her right to the use of the leased asset and therefore corresponding to the date of initial recognition of the leasing. 76 Annual Report 2013

35 Tangible assets acquired in financial leasing At the starting date of the contract, the lessee records financial leasing transactions as assets and liabilities in its financial statements, with values corresponding to fair value of the leased asset or, if lower, at the current value of minimum payments due. To determine the current value of minimum payments due, the discount rateutilized is the implicit contractual interest rate, if determinable; if not, the interest rate of the lessee s marginal loan is used. Any initial direct expenses paid by the lessee are added to the amount recorded as anasset. The minimum payments due are divided between financial expenses and reduction of the residual debit. The former are spread across the duration of the contract, so as to determine a constant interest rate on residual liability. The financial leasing contract requires the listing of the depreciation share of the assets that are the object of the contract and of the financial burdens for each financial year. The depreciation criterion used for leased assets is consistent with the one adopted for owned assets. Credits originated by financial leasing transactions On the starting date of the contract, the leaser registers the leased assets in the financial statements indicating them as receivables for a value corresponding to the net investment in the leasing. The initial direct expenses are often paid by the leaser and include sums such as commissions, court charges and internal expenses which increase and are directly attributable to leasing transactions and completion. These exclude general management expenses such as sales and marketing expenses. For financial leasing contracts different from those in which the leaser is a manufacturer or a dealer, the initial direct expenses are included in the initial assessment of financial leasing implicit receivables and reduce the value of the income recorded during the leasing. The implicit leasing interest rate is defined so that the initial direct expenses are automatically included in financial leasing implicit credits; it is not necessary to add them separately. With regards to the financial leasing, the listing of financial proceedings is based on modalities which reflect a constant periodic yield rate on the leaser s net investment. The leaser should subdivide the financial income along the duration of the leasing with a systematic and rational criterion. This income sharing is based on modalities which reflect a constant periodical yield on the leaser s net investment. Leasing installments related to the period, excluding services expenses, are imputed to the leasing gross investment in order to reduce gross investment are periodically reviewed. In case of a reduction in the valuation of the non-guaranteed residual value, the distribution of proceedings across the duration of the leasing is reviewed and any reduction concerning already recorded amounts is recorded immediately. Leasing under Construction ( Leasing in Costruendo ) The item Credits towards customers includes the reclassification ofassets under construction and awaiting to be leased, which presented a risk transfer, net of advances, if any, paid to the user at the time of entering into the agreement Other liabilities This item includes liabilities which aren t referable to other items in the liabilities of the balance sheet. The item includes, for example: amounts available to customers; debts connected with the payment of the supply of products and services; accrued expensesdifferent than those to be capitalized on pertinent financial liabilities; items under construction Revaluation reserves This item also includes revaluation reserves related to Financial assets available for sale. At the current time, we deem that there is no reasonable certainty that during future financial years the company will realize sufficient taxable income to allow the use of the benefit of the entire deferred tax assets, including those detected in contra of the evaluation reserve of financial assets available for sale. This is why: we failed to list potentially existent deferred tax assets related to the depreciations existent as of 31/12/2013; we recorded deferred tax liabilities related to surpluses existent as of 31/12/2013. Annual Report

36 17.07 Income statement The proceeds are recognized when they are received or when it is probable that future benefits will be received, and these benefits can be quantified in a reliable way. Expenses are accounted at the time they are borne. The expenses and income directly referable to the financial tools assessed at the amortized cost and determinable since their origin, independently of the moment in which they are liquidated, are allocated in the income statement by applying the effective interest rate. Default interests, if indicated in the agreement, are entered in the income statements only when they are actually cashed. Commission expenses are generally recorded on the basis of the supply of the service (net of discounts and allowances). Value losses are entered in the income statements in the financial year in which they are borne. A.3 Information on transfers between financial assets portfolios During the present and previous financial years, the Bank did not effectuate financial assets portfolio reclassifications from categories evaluated in terms of fair value towards categories evaluated in terms of amortized cost. 78 Annual Report 2013

37 A.4 Information on fair value Qualitative information In conformity with European Commission Regulation n. 1255/2012, companies preparation their financial statements in accordance to international accounting principles adopted by the European Union are required to apply IFRS 13 starting from the initial date of their first financial year starting on January or on a later date, in the case that another IFRS should require or allow for fair value evaluations or should require integration notes on fair value valuations. IFRS 13 establishes a single IFRS context for the valuation of fair value and provides a complete guide on how to valuate the fair value of financial and non-financial assets and liabilities. With the introduction of IFRS 13, therefore, a series of changes were applied to other international accounting principles, in terms of guidelines for fair value valuation, which are no longer included, today, in other standards (in particular the guidelines of IAS 39/IFRS 9, IAS 16, IAS 40, IAS 41 and IAS 19 were eliminated and replaced by references to IFRS 13) and in terms of definition of fair value, which was set in accordance with IFRS 13. Furthermore, the information related to the so-called fair value hierarchy was transferred from IFRS 7 to IFRS 13 The new principle defines fair value as the price that would be perceived due to the sale of an asset or that would be paid for the transfer of a liability in a regular operation between market operators on the date of valuation, while the previous definition referred to the amount at which an asset could be exchanged or a liability extinguished between conscious and motivated parts in a normal transaction, but does not introduce significant changes to the valuation techniques used previously. A.4.1 Fair value levels 2 and 3: valuation techniques and utilized inputs A financial instrument is classified in levels 2 and 3 in absence of listed prices on active markets. Classification in level 2 rather than 3 is instead determined on the basis of the observability on markets of significant inputs utilized in the determination of the fair value. Level 2 inputs: consist of different information than the prices of financial instruments listed on the market, that are however directly or indirectly observable. These include prices listed on active markets for similar financial instruments, or prices of identical instruments listed on non-active markets, observable inputs other than market prices (such as interest rates, exchange rates, volatility, credit risk, payment time frames and more) or inputs derived and validated by market data via correlations or other averages. These are also called mark-to-matrix inputs because in order to provide a measurement of fair value they cannot be utilized directly as they are found, but need to be adjusted and elaborated. Level 3 inputs: these are different from the previous categories because they are represented by values which are not observable on the market. These are inputs produced by the company itself on the basis of the best information available at the moment, which could even include data belonging to the company itself, and which should consider assumptions used by other participants in the market to evaluate the financial instrument in question. Third level inputs are also called mark-to-model inputs because before providing a measurement of fair value they must be allocated in more or less complex mathematic models elaborated within the company. Thus, the reliability of the value obtained depends almost exclusively on the validity of the utilized model. A.4.2 Valuation processes and sensitivity Appraisals at fair value are classified on the basis of a hierarchy of levels reflecting the relevance of the inputs used for the appraisals. The following levels must be distinguished: (a) quotations (without adjustments) detected on the active market pursuant to the definition given by IAS 39 for assets or liabilities subject to appraisal (level 1); (b) inputs different than the prices quoted at the previous point, which are directly (prices) or indirectly (derived from prices) observable on the market (level 2); (c) inputs which are not based on observable market data (level 3). A.4.3 Fair value hierarchy During the financial year the Bank did not transfer financial and non-financial assets and liabilities evaluated in terms of fair valuebetween different hierarchic fair value levels. (IFRS 13, paragraph 95) Annual Report

38 Quantitative information A.4.5 Fair value hierarchy A Assets and liabilities valued at fair value on a recurring basis: division per fair value levels Assets/liabilities measured at fair value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Financial assets held for trading 0 3, , Financial assets assessed at fair value Financial assets available for sale 44, , Hedging derivatives Tangible assets Intagible assets Total 44,817 4, ,214 3, Financial liabilities held for trading , Financial liabilities assessed at fair value , Hedging derivatives Total ,043 0 A Annual variations of financial assets assessed at fair value (level 3) The Bank does not pursue this type of operations. A Annual variations of financial liabilities assessed at fair value (level 3) The Bank does not pursue this type of operations. 80 Annual Report 2013

39 A Assets and liabilities not appraised at fair value or appraised at fair value on a non-recurring basis: division per fair value levels: Assets/liabilities not measured at fair value or measured on non recurring basis Level 1 Level 1 Level 2 Level 3 Level 1 Level 1 Level 2 Level 3 1. Financial assets held until expiry Receivables from Banks 15, ,432 33, , Receivables from Customers 2,518, n.d. 3,030, n.d. 4. Tangible assets held for investment purposes 6, ,259 6, , Non-current assets and groups of assets held for disposal Total 2,540, ,070, Payables to Banks 1,674, ,674,540 1,806, ,806, Payables to Customers 419, , , , Circulating bonds 240, , , , Liabilities related to assets in divestment Total 2,335, ,406 2,094,334 2,852, ,949 2,486,517 A.5 Information note on the so-called day one profit/loss The initial recognition of financial liabilities (debt securities) takes place on the issue date, by taking into consideration their fair value; in the case of bondsfor which the sum involved in the transaction does not correspond to the fair value, the Bank lists the day one profit. This difference is not immediately entered in the income statement, but it is suspended and then imputed depending on the duration of the operation. In the case of early extinction of the instrument, the non-amortized amount is indicated in the income statement. At the end of the year, the residual effects deriving from the day one profit/loss recorded in previous financial years were exhausted. The set-off to the income statement amounted to EUR 11 thousand, recorded under the item Interests payable. Annual Report

40 82 Annual Report 2013

41 Part B Information on the shareholders equity Assets Section 1 Cash and cash equivalents Item Cash and cash equivalents: composition Items/Values a) Cash 6,097 3,722 b) Free deposits with Central Banks 0 5,000 Total 6,097 8,722 This item features currencies with legal tender, including foreign banknotes. Section 2 Financial assets held for trading Item Financial assets held for trading: composition by type Items/Values Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Cash assets 1. Debt securities Structured securities Other debt securities Equity securities O.I.C.R. (collective savings investment org.) quotas Loans Repurchase agreem. receivables Other Total A B. Derivative instruments 1. Financial derivatives 0 3, , from trading 0 3, , associated with fair value option other derivatives on credits from trading connected with fair value option other Total B 0 3, ,611 0 Total(A+B) 0 3, ,611 0 Annual Report

42 The amount indicated in sub-item B point 1.1 refers to positive derivative agreements, not deriving from hedging transactions (hedge accounting), used formanagement hedges. 2.2 Financial assets held for trading: composition by debtor/issuer Items/Values A. Cash assets 1. Debt securities 0 0 a) Governments and Central Banks 0 0 b) Other public institutions 0 0 c) Banks 0 0 d) Other issuers Equities 0 0 a) Banks 0 0 d) Other issuers: insurance companies financial companies non-financial companies other O.I.C.R. (collective savings investment org.) quotas Loans 0 0 a) Governments and Central Banks 0 0 b) Other public bodies 0 0 c) Banks 0 0 d) Other 0 0 Total A 0 0 B. Derivative instruments a) Banks - fair value 3,701 2,548 b) Customers - fair value Total B 3,746 2,611 Total (A + B) 3,746 2, Annual Report 2013

43 2.3 Cash financial assets held for trading: annual variations Items/Values Debt securities Equities Quotas of O.I.C.R. Financing Total A. Opening balance B. Increases 2, ,017 B1. Purchases 2, ,013 B2. Positive fair value variations B3. Other variations C. Decreases 2, ,017 C1. Sales 2, ,017 C2. Reimbursements C3. Negative fair value variations C4. Trasfers to other portfolios C5. Other variations D. Closing balance Section 3 Financial assets at fair value Item 30 There are no financial assets at fair value as of December 31 st, Section 4 Financial assets available for sale Item Financial assets available for sale: composition by type Items/Values Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt securities 44, , Structured securities Other debt securities 44, , Equities Assessed at fair value Assessed at cost O.I.C.R. quotas Loans Total 44, , Sub-item 1.2 is composed exclusively by Italian Government debt securities (BOTs (ordinary treasury bills and CTTs (treasury certificates). These investments are part of astrategy aiming to manage the Bank s liquidity risk. Annual Report

44 4.2 Financial assets available for sale: composition per debtors/issuers Items/Values Debt securities 44,807 44,214 a) Governments and Central banks 44,807 44,214 b) Other public institutions 0 0 c) Banks 0 0 d) Other issuers Equities 0 0 a) Banks 0 0 d) Other issuers: insurance companies financial companies non-financial companies other O.I.C.R. quotas Loans 0 0 a) Governments and Central banks 0 0 b) Other public institutions 0 0 c) Banks 0 0 d) Other issuers 0 0 Total 44,807 44, Financial assets available for sale subject to specific hedging As of December 31 st, 2013, there are no financial assets available for sale subject to specific hedging. 86 Annual Report 2013

45 4.4 Financial assets available for sale: annual variations Items/Values Debt securities Equities O.I.C.R. quotas Financing Total B. Increases 44, ,214 B1. Purchases 60, ,563 B2. Positive fair value variations 59, ,538 B3. Revaluations Recorded in the income statement Recorded in the shareholders' equity 0 X B4. Transfers to other portfolios B5. Other variations C. Decreases C1. Sales 59, ,970 C2. Reimbursements C3. Negative fair value variations 59, ,369 C4. Depreciations due to impairment Recorded in the income statement Recorded in the shareholders' equity C5. Transfers to other portfolios C6. Other variations D. Closing balances D. Rimanenze finali 44, ,807 Section 5 Financial assets held to maturity Item 50 This section is not used since the Bank does not have any financial assets classified in this category. Annual Report

46 Section 6 Receivables due from banks Item Receivables due from banks: composition by type Balance Fair Value Balance Fair Value Operation typology/values Value Level 1 Level 2 Level 3 Value Level 1 Level 2 Level 3 A. Receivables due from Central Banks Term deposits Legal reserve Repurchase agreements - receivables Other B. Receivables due from banks Current accounts and free deposits Term deposits Other Loans Repurchase agreements - receivables Leasing Other Debt securities Structured securities Other debt securities Total In consideration of the prevalent short-term duration of receivables due from banks, a fair value is assumed, equal to the balance value. 6.2 Receivables due from banks: assets subject to specific hedging There are no receivables due from banks, with specific hedging, as of December 31 st, Financial Leasing There are no receivables due from banks, from financial leasing, as of December 31 st, Annual Report 2013

47 Section 7 Receivables due from customers Item Receivables due from customers: composition by type Performing Impaired Performing Impaired Operation typology/values Purchased Other Purchased Other 1. Current accounts 69, , , , Repurchase agreements - receivables Loans 303, , , , Credit cards, personal loans and transfer of fifth Financial leasing 1,309, ,392 1,666, , Factoring Other Loans 121,749 33, ,565 9, Debt securities Structured securities Other debt securities Total (book value) 1,803, ,193 2,484, ,838 Fair value Level Fair value Level Fair value Level 3 n.d. 0 n.d. n.d. 0 n.d. Total ( fair value ) n.d. 0 n.d. n.d. 0 n.d. Receivables due from customers are indicated in the balance at the amortized cost value and net of analytical and flat depreciations, as indicated by the IAS 39 principle. The sub-item3. Loans and in the under item 5. Financial leasing, featurestransferred and not derecognized assets, referable to mortgage loans and to receivables deriving from leasing contracts transferred in the sphere of the securitization operations called Dolomiti Mortgage 6 and Salina 5, respectively, which, because they do not meet the requisites established by IAS 39 for so-called de-recognition, were kept in the financial statements. With regards to the indication of the fair value of receivables from customers, given that it isn t possible to obtain an analytical indication of the market value of these credits from available information systems, it was not possible to determine their reliable fair value. Moreover, considering that the item in hand concerns settled relationships, at bothvariable and fixed rates, at market conditions, an analysis carried out internally leads us to deduct that the fair value is not significantly different than the values indicated in these financial statements. Annual Report

48 7.2 Receivables due from customers: composition by debtor/issuer Operation typology/values Performing Impaired Performing Impaired Purchased Others Purchased Others 1. Debt securities issued by: a) Governments b) Other public institutions c) Other issuers non-financial companies financial companies insurance companies other Loans to 1,803, ,194 2,484, ,838 a) Governments b) Other public institutions c) Other issuers 1,803, ,194 2,484, ,838 - non-financial companies 1,601, ,747 2,189, ,905 - financial companies 71, , , insurance companies other 131, , , ,808 Total 1,803, ,194 2,484, ,838 The arrangement of financial assets per pertinent debtor and security categories issueris carried out by following the classification criteria indicated by Bancad Italia. 7.3 Receivables due from customers: assets covered by specific hedging There are no receivables due from customers, covered by specific hedging, as of December Annual Report 2013

49 7.4 Financial Leasing Reconciliation between gross investment in leasing, and the current value of minimum leasing-related payments and non-guaranteed residual values due to the leaser Minimum payments Gross Non-guaranteed residual Operation tipology Principal Interests investment values (redemption) Financial leasing 1,685, ,908 2,165, ,842 - of which back-leased contracts 75,664 23,465 99,129 24, Value adjustments Minimum payments Gross Time brackets specific portfolio principal interest Investment Up to 3 months 8, ,748 16,963 85,711 From 3 months to 1 year 3, ,464 50, ,703 From 1 year to 5 years 15,158 2, , , ,025 More than 5 years 46,189 4, , ,996 1,136,271 Non-specified duration 3, ,139 52,139 Total 77,285 8,424 1,685, ,908 2,165,849 Annual Report

50 General description of significant agreements Outstanding debt Duration Fixed/ Typology of leased asset Starting Value at years Periodicity indexed 1 Real estate 16,001,602 12,520, Monthly Indexed 2 Real estate 11,225,668 9,126, Monthly Indexed 3 Real estate 12,500,000 8,631, Monthly Indexed 4 Real estate 12,026,833 8,162, Monthly Indexed 5 Real estate 8,492,350 7,770, Monthly Indexed 6 Real estate 9,872,000 7,617, Monthly Indexed 7 Real estate 8,326,327 7,234, Monthly Indexed 8 Real estate 9,167,083 7,198, Monthly Indexed 9 Real estate 9,201,028 6,986, Quarterly Indexed 10 Real estate 10,914,000 6,802, Monthly Indexed 11 Real estate 9,300,000 6,768, Monthly Indexed 12 Real estate 7,384,954 6,174, Monthly Indexed 13 Real estate 7,146,800 5,655, Monthly Indexed 14 Real estate 7,803,000 5,623, Monthly Indexed 15 Real estate 7,452,765 5,528, Monthly Indexed 16 Real estate 6,877,570 5,232, Monthly Indexed 17 Real estate 6,559,203 5,189, Monthly Indexed 18 Real estate 6,358,651 5,186, Monthly Indexed 19 Real estate 6,324,000 5,043, Monthly Indexed 20 Real estate 5,504,399 4,648, Monthly Indexed 21 Real estate 5,127,320 4,445, Monthly Indexed 22 Real estate 5,610,000 4,391, Monthly Indexed 23 Real estate 6,050,000 4,340, Monthly Indexed 24 Real estate 5,367,000 4,324, Monthly Indexed 25 Real estate 8,335,564 4,278, Monthly Indexed 26 Real estate 6,400,000 4,239, Monthly Indexed 27 Real estate 4,783,819 3,785, Monthly Indexed 28 Real estate 3,878,006 3,698, Monthly Indexed 29 Real estate 3,834,885 3,689, Monthly Indexed 30 Real estate 4,480,299 3,683, Monthly Indexed 31 Real estate 5,076,521 3,668, Monthly Indexed 32 Real estate 4,000,000 3,662, Monthly Indexed 33 Real estate 4,293,060 3,603, Monthly Indexed 34 Real estate 4,642,134 3,586, Monthly Indexed 35 Real estate 4,868,449 3,547, Monthly Indexed 36 Real estate 5,185,102 3,492, Monthly Indexed 37 Real estate 5,560,722 3,471, Monthly Indexed 38 Real estate 4,403,600 3,387, Monthly Indexed 39 Real estate 4,114,461 3,339, Monthly Indexed 40 Real estate 4,068,019 3,325, Monthly Indexed 92 Annual Report 2013

51 Outstanding debt Duration Fixed/ Typology of leased asset Starting Value at years Periodicity indexed 41 Real estate 4,330,000 3,294, Monthly Indexed 42 Real estate 5,230,000 3,287, Monthly Indexed 43 Real estate 8,800,000 3,201, Monthly Indexed 44 Real estate 4,828,800 3,196, Monthly Indexed 45 Real estate 3,683,173 3,177, Monthly Indexed 46 Real estate 3,705,860 3,129, Monthly Indexed 47 Real estate 4,161,944 3,118, Monthly Indexed 48 Real estate 3,750,000 3,114, Monthly Indexed 49 Real estate 3,950,000 3,110, Monthly Indexed 50 Real estate 4,202,400 3,100, Monthly Indexed Section 8 Hedging derivatives Item Hedging derivatives: composition per typology and hierarchical levels Fair value Fair value L1 L2 L3 VN L1 L2 L3 VN A. Financial derivatives , ,585 1) Fair value , ,585 2) Financial flows ) Foreign investments B. Credit derivatives ) Fair value ) Financial flows Total , ,585 Legend: VN = Notional value / L1 = Level 1 / L2 = Level 2 / L3 = Level 3 This section includes hedging financial derivatives that,on the reference date of the financial statements, have a positive fair value. Annual Report

52 8.2 Hedging derivatives: composition per hedged portfolios and hedging typology Fair Value Financial flows Specific Operations/Type of hedging Interest rate risk Exchange rate risk Credit risk Price risk More risks Generic Specific Generic Foreign investments 1. Financial assets available for sale X 0 X X 2. Receivables X 0 X 0 X X 3. Financial assets held to maturity X 0 0 X 0 X 0 X X 4. Portfolio X X X X X 0 X 0 X 5. Other operations X 0 X 0 Total assets Financial liabilities X 0 X 0 X X 2. Portfolio X X X X X 0 X 0 X Total liabilities Foreseen transactions X X X X X X 0 X X 2. Portfolio of financial assets and liabilities X X X X X 0 X 0 0 Section 9 Change in value of financial assets subject to generic hedging Item Change in value of hedged assets: composition per hedged portfolios. No data entry as of December 31 st, Assets covered by interest rate risk hedge. No data entry as of December 31 st, Annual Report 2013

53 Section 10 Equity investments Item Shareholdings in subsidiaries, companies under joint control or subject substantial influence: information on relations between shareholdingparties. Name Legal office Capital Shares held % Availability of votes % A. Totally controlled subsidiaries 1. Hypo Alpe-Adria-Finance S.r.l. Via Marinoni, 55 - Udine 1, Hypo Service S.r.l. Via Alpe Adria, 6 - Tavagnacco (UD) Shareholdings in subsidiaries, companies under joint control or under substantial influence: accounting information. Total Total Profit Shareholders Balance Fair value Name assets Rev. (Loss) equity value Level 1 Level 2 Level 3 A. Totally controlled subsidiaries 1. Hypo Alpe-Adria-Finance S.r.l (19) HypoService S.r.l (455) Total (474) Shareholdings in subsidiaries are evaluated at cost. The data above are taken from the financial statements, as of The column total income indicates the total amount of positive income components, before taxes. Annual Report

54 10.3 Shareholdings: annual changes. Items/Values A. Opening balance 3,432 3,432 B. Increases 0 0 B1. Purchases 0 0 B2. Write-backs 0 0 B3. Adjustments 0 0 B4. Other variations 0 0 C. Decreases 0 0 C1. Sales 0 0 C2. Adjustments 0 0 C3. Other variations 0 0 D. Closing balance 3,432 3,432 E. Total revaluations 0 0 F. Total adjustments Commitments related to shareholdings in subsidiaries There are no commitments related to equity investments in subsidiaries Commitments related to shareholdings in companies under joint control There are no commitments related to equity investments in companies under joint control Commitments related to shareholdings in companies under substantial influence There are no commitments related to participating interests in companies under substantial influence. 96 Annual Report 2013

55 Section 11 Tangible assets Item Tangible assets for functional use: composition of assets appraised by cost Assets/valuations Proprietary assets 9,397 11,432 a) land plots 3,311 3,381 b) buildings 1,932 2,746 c) furniture 819 1,275 d) equipment 0 0 e) other 3,335 4, Assets acquired in financial leasing 16,022 26,822 a) land plots 2,751 4,446 b) buildings 12,977 21,741 c) furniture 0 0 d) equipment 0 0 e) other Total 25,419 38,254 The present item includes tangible assets (buildings, installations, machinery and other tangible assets, including art works) for functional use disciplined by IAS 16 and real estate investments (land lots and constructions) disciplined by IAS 40. Sub-item2 Assets acquired in leasing refers to the balance value of the property in Tavagnacco (UD) Via AlpeAdria 6, the administrative centre of the Bank. Please refer to the next paragraph 11.5 Tangible assets for functional use: annual changes with regards to the listing of income components of the item in question; this information is identical to item 170 Net adjustments on tangible assets of the income statement Tangible assets held for investment purposes: composition of assets appraised by cost Book Fair Value Book Fair Value Assets/valuations value Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 1. Proprietary assets 6, ,259 6, ,296 a) land plots b) buildings 6, ,259 6, , Assets acquired in financial leasing a) land plots b) buildings Totale 6, ,259 6, ,296 Annual Report

56 11.3 Tangible assets for functional use: composition of revaluated assets There are no revaluated tangible assets for functional use Tangible assets held for investment purposes: composition of assets appraised at fair value There are no tangible assets held for investment purposes appraised at fair value Tangible assets for functional use: annual changes Land Buildings Furniture Electronic systems Other Total A. Gross opening balance 7,827 30,483 6, ,417 72,140 A.1 Total net value reductions 0 5,995 5, ,754 33,886 A.2 Net opening balance 7,827 24,488 1, ,663 38,254 B. Increases ,209 1,249 B.1 Acquired ,208 1,245 B.2 Expenses for capitalized improvements B.3 Write-backs B.4 Positive fair value variations charged to a) shareholders' equity b) income statement B.5 Positive exchange rate differences B.6 Transfers from property held for investment purposes B.7 Other variations C. Decreases: 1,765 9, ,243 14,083 C.1 Sales C.2 Depreciation ,695 2,871 C.3 Write-downs for impairment charged to a) shareholder's equity 1,765 8, ,033 b) income statement C.4 Negative fair value variations charged to 1,765 8, ,033 a) shareholders' equity b) income statement C.5 Negative exchange rate differences C.6 Transfers to: a) tangible assets held for investment purposes b) assets held for disposal C.7 Other variations D. Net closing balance 6,062 14, ,629 25,420 D.1 Net total value reductions 0 6,740 5, ,450 36,757 D.2 Gross closing balance 6,062 21,649 6, ,079 62,177 E. Assessments at cost Annual Report 2013

57 11.6 Tangible assets held for investment purposes: annual changes Land Buildings Total A. Opening balance 0 6,643 6,643 B. Increases: B.1 Purchases B.2 Expenses for capitalized improvements B.3 Positive variations of fair value B.4 Write-backs B.5 Positive foreign exchange differences B.6 Transfers from functional-use properties B.7 Other variations C. Decreases: C.1 Sales C.2 Depreciations C.3 Negative variations of fair value C.4 Value adjustments due to impairment C.5 Negative foreign exchange differences C.6 Transfers to other asset portfolios: a) functional-use properties b) non-current assets held for disposal C.7 Other variations D. Closing balance 0 6,652 6,652 E. Assessment at fair value 0 8,259 8, Commitments for purchases of tangible assets (IAS 16/74.c) No commitments are recorded for purchases of tangible assets. Annual Report

58 Section 12 Intangible assets Item Intangible assets: composition by asset typology Assets/Values Established duration Established duration Established duration Established duration A.1 Goodwill X 0 X 0 A.2 Other intangible assets ,190 0 A.2.1 Assets appraised by cost: ,190 0 a) Intangible assets generated internally b) Further assets ,190 0 A.2.2 Assets appraised at fair value: a) Intangible assets generated internally b) Further assets Total ,190 0 The present item includes intangible assets defined in IAS 38, which are appraised by cost. The sub-item A2 Further intangible assets with limited duration, refers to accessory taxes related to the opening of branch offices. 100 Annual Report 2013

59 12.2 Intangible assets: annual changes Other intangible assets generated internally Other intangible assets Limited Illimited Limited Illimited Goodwill duration duration duration duration Total A. Opening balance , ,253 A.1 Net total value reductions , ,063 A.2 Net opening balance , ,190 B. Increases: B.1 Purchases B.2 Increases in internal intangible assets X B.3 Write-backs X B.4 Positive fair value variations X shareholders' equity X income statement X B.5 Positive exchange rate differences B.6 Other variations C. Decreases: , ,601 C.1 Sales C.2 Write-downs , ,601 - Depreciation X Devaluations , ,039 + shareholders' equity X income statement , ,039 C.3 Negative variations of fair value shareholders' equity income statement C.4 Transfer to non-current assets held for sale C.5 Negative exchange rate differences Err:522 C.6 Other variations D. Net closing balance D.1 Net total value reductions , ,226 E. Gross closing balance , ,341 F. Valuations at cost Other information On the basis of requirements indicated by IAS 38, paragraph 122 and 124, we specify that: no revaluated intangible assets are present; as a consequence there are no impediments to the distribution - to the shareholders - of equity gains related to revaluated intangible assets (IAS 38, paragraph 124, letter b); no intangible assets acquired through government concession are present (IAS 38, paragraph 122, letter c); no intangible assets in debit guarantees are present (IAS 38, paragraph 122, letter d); no intangible assets subject to leasing operations are present. Annual Report

60 Section 13 Tax assets and tax liabilities Assets Item 130 and Liabilities Item Deferred tax assets: composition Deferred Tax assets With contra in Income Statement - Goodwill Devaluation of receivables 57,300 Total 57, Deferred tax liabilities: composition Deferred tax liabilities With contra in Shareholders equity Financial assets available for sale 1 Total Changes to prepaid taxes (income statement contra-entry) Initial amount 29,243 17, Increases 32,265 13, Pre-paid taxes during the financial year 32,265 13,076 a) related to previous years b) due to changes in accounting criteria 0 0 c) revaluations 0 0 d) other 32,235 12, New taxes or fiscal rate increases Other increases Decreases 4,027 1, Pre-paid taxes cancelled during the financial year 0 1,603 a) reversals 0 1,200 b) devaluations due to sudden irretrieveability c) changes in accounting criteria 0 0 d) other fiscal rate decreases other decreases 4,027 1 a) transformations into tax credits as in L. 214/2011 4,027 0 b) other Final amount 57,481 29, Annual Report 2013

61 Changes to deferred tax pursuant to Law 214/2011 (income statement contra-entry) Initial amount 29,243 17, Increases 32,265 13, Decreases 4,027 1, Reversals 0 1, Transformation into tax credits 4,027 0 a) deriving from financial year losses 4,027 0 b) deriving from fiscal losses Other decreases Final amount 57,481 29, Changesto deferred taxes (income statement contra-entry) Opening balance Increases Deferred taxes arising during the year 0 0 a) relating to previous years 0 0 b) due to change in accounting criteria 0 0 c) other New taxes or tax rate increases Other increases Decreases Deferred taxes derecognised during the year 0 0 a) transfers 0 0 b) due to change in new accounting criteria 0 0 c) other Tax rate reductions Other reductions Final amount 0 0 Annual Report

62 13.5 Changes to prepaid taxes (shareholders equity contra-entry) Opening balance Increases Deferred taxes arising during the year 0 0 a) relating to previous years 0 0 b) due to change in accounting criteria 0 0 c) other New taxes or tax rate increases Other increases Decreases Deferred tax derecognised during the year a) transfers b) devaluations due to sudden irretrievability c) due to change in new accounting criteria Tax rate reductions Other reductions Final amount Changes to deferred taxes (shareholders equity contra-entry) Initial amount Increases Taxes deferred during the financial year 1 0 a) related to previous years 0 0 b) due to changes in accounting criteria 0 0 c) other New taxes or fiscal rate increases Other increases Decreases Deferred taxes cancelled during the financial year 0 0 a) reversals 0 0 b) due to changes in accounting criteria 0 0 c) other Fiscal rate decreases Other diminutions Final amount Annual Report 2013

63 13.7 Other information Composition of current taxation Current tax assets Description IRES -IRAP tax deposits 1,629 7,407 Tax credits 11,286 6,202 Gross current tax assets 12,915 13,609 Compensation with current tax liabilities 1,235 2,214 Net current tax assets 11,680 11,395 Current tax liabilities Description Tax liabilities on direct taxes 1,235 2,214 Payables for gross current taxes 1,235 2,214 Compensation with current fiscal assets 1,235 2,214 Payables for net current taxes 0 0 Other information With regards to current fiscal disputes, please refer to the detailed descriptions included in a specificsection of the Report on Operations. Section 14 Non-current assets and groups of discontinued assets, and associated liabilities Assets Item 140 andliabilities Item Non-current assets and groups of assets held for disposal: composition per asset typology As of the date of the Financial Statements, no non-current assets and groups of discontinued assets and related liabilities are present. Annual Report

64 Section 15 Other assets Item Other assets: composition Unpaid bills - third party protest Protested cheques Credits and advance payments for indirect taxes 3,067 2,215 Suppliers for invoices to be issued Advance payments to suppliers Income and charges not attributed to specific items 4,430 4,681 Items in transit with branches Incrementing costs on third party goods 3,271 3,788 Various debtors 6,447 6,785 Items under construction 6,886 9,407 Total 25,532 28,286 The Incrementing expenses on third party goods consist ofexpenses for improvements that cannot be separated from the assets, differently than those included in the item material assets. Items being processed refer to transactions processed during the last days of the year, which have mostlybeen settled during the first days of the following year. 106 Annual Report 2013

65 Liabilities Section 1 Payables due to banks Item Payables due to banks: composition by typology Operation typology/values Payables due to Central Banks 117, , Payables due to Banks 1,557,113 1,644, Current accounts and free deposits , Term deposits 996, , Loans 560, , Repurchase agreements payable Other 560, , Payables for buyback commitments related to proprietary asset instruments Other debts 0 0 Total 1,674,540 1,806,886 Fair value - level Fair value - level Fair value - level 3 1,674,540 1,806,886 Total fair value 1,674,540 1,806,886 These aggregates mainly refer to short and medium-term collection operations with our Parent company Hypo Alpe-Adria-Bank-International AG, located in Klagenfurt. The fair value of payables due to banks is recorded as equal to the balance value, given thatthese are on demand or variable rate payables. 1.2 Details of item 10 Payables due to banks : subordinate payables As of the date of the financial statements, no subordinate payables due to banks are present. 1.3 Details of item 10 Payables due to banks : structured payables As of the date of the financial statements, no structured payables due to banks are present. 1.4 Payables due to banks: debts covered by specific hedging As of the date of the financial statements, no payables due to banks or payables covered by specific hedging are present. 1.5 Leasing debts As of the date of the financial statements, no payables due to banks for leasing are present. Annual Report

66 Section 2 Payables due to customers Item Payables due to customers: composition per typology Operation typology/values Current accounts and free deposits 362, , Term deposits 43, , Loans 12,336 13, Repurchase agreements payable Other 12,336 13, Payables for buyback commitments related to proprietary asset instruments Other debts 1,301 1,148 Total 419, ,632 Fair value - level Fair value - level Fair value - level 3 419, ,632 Total fair value 419, ,632 This item includes all typologies ofpayables due to customers different than those indicated in items 30, 40 and 50. These payables are not subjected to specific hedging. The Fair value of the payables due to customers is recorded asequal to the balance value, given that these are on-demand or shortterm rate payables. 2.2 Details of item 20 Payables due to customers : subordinate payables As of the date of the financial statements, no subordinate payables due to customers are present. 2.3 Details of item 20 Payables due to customers : structured payables As of the date of the financial statements, no structured payables due to customers are present. 2.4 Payables due to customers: payables subjected to specific hedging As of the date of the financial statements, no payables due to customers subject to specific hedging are present. 2.5 Payables for leasing As of the date of the financial statements, sub-item 3.2 loans - other indicated in table 2.1 Payables due to customers: composition per typology consists exclusively of payables due to Hypo Alpe-Adria-Leasing S.r.l. for the leasing acquisition of the real estate property where theheadquarters of our Bank are located. Debt, consisting of the loaned value, amounting to EUR 33,500 thousand, net of the capital share of leasing fees paid from the time of their employment until December 31 st, 2013, corresponding to EUR 21,164 thousand, amounts to a total of EUR 12,336 thousand. 108 Annual Report 2013

67 Section 3 Outstanding securities Item Outstanding securities: composition per typology Balance Fair value Balance Fair value Security typology/values value L1 L2 L3 value L1 L2 L3 A. Securities 1 bonds 239, , , , structured other 239, , , , other securities 1, , structured other 1, , Total 240, , , ,949 0 Legend: L1 = Level 1 / L2 = Level 2 / L3 = Level 3 This item includes issued securities assessed at amortized cost. Securities that, as of the date of the financial statements, have expired but have not yet been repaid are also included. This item also includes securities subjected to specific hedging, in compliance with hedge accounting regulations. Sub-item 2.2 Other securities - other, refers entirely to deposit certificates. For the determination of the fair value of issued securities, a cash flow discounting model - based on the yield rate curve for the period up to the maturity - was used. Annual Report

68 3.2 Details of item 30 Outstanding securities : subordinate securities Typology Balance value of supervision Denomination Issue date Expiry date Currency Rate Tier 2 HYPOBANK 30GIU13 SUB 30/06/ /06/2013 EUR variabile 0 28,000 Totale 0 28,000 At the end of the year, no such securities are recorded. 3.3 Outstanding securities: securities subject to specific hedging Operation typology/values Securities subject to specific fair value hedging: 11,831 12,606 a) interest rate risk 11,831 12,606 b) exchange rate risk 0 0 c) more risks Securities subject to specific financial flow hedging: 0 0 a) interest rate risk 0 0 b) exchange rate risk 0 0 c) more risks 0 0 Securities subject to specific fair value hedging refer to a series of bonds indicated in the previous sub-item 3.1 Outstanding securities: composition per typology. The amount indicated consists of the principal, the maturing accrual on the date of the financial statements and thehedging share that is considered effective. 110 Annual Report 2013

69 Section 4 Financial liabilities held for trading Item Financial liabilities held for trading: composition per typology Fair value Fair value Operation typology/values VN L1 L2 L3 FV* VN L1 L2 L3 FV* A. Cash liabilities 1. Payables due to banks Payables due to customers Debt securities Bonds Structured X X Other bonds X X 3.2 Other securities Structured X X Other X X Total A B. Derivative instruments 1. Financial derivatives X 3 0 X X 6,046 0 X 1.1 Trading X 3 0 X X 6,034 0 X 1.2 Associated with the fair value option X 0 0 X X 12 0 X 1.3 Other X 0 0 X X 0 0 X 2. Credit derivatives X 0 0 X X 0 0 X 2.1 Trading X 0 0 X X 0 0 X 2.2 Associated with the fair value option X 0 0 X X 0 0 X 2.3 Other X 0 0 X X 0 0 X Total B X 3 0 X X 6,046 0 X Total (A+B) , Legend: FV* = fair value calculated excluding value variations due to the change in credit worthiness of the issuer in comparison with the issue date VN = nominal or notional value / L1 = Level 1 / L2 = Level 2 / L3 = Level 3 The amount indicated in sub-item B refers to derivative agreements which present a negative value, that are not related to hedging transactions, and are used for management hedging. Financial liabilities held for trading recorded in sub-item B. 1.2 of the table indicate the negative value of derivative instruments (IRS, options) for which the fair value option is applicable, given thatthese liabilities aremanagerially connected to hedged liabilities appraised at fair value. Annual Report

70 4.2 Details of item 40 Financial liabilities held for trading : subordinate liabilities As of the date of the financial statements, no subordinate trading financial liabilities are present. 4.3 Details of item 40 Financial liabilities held for trading : structured debts As of the date of the financial statements, no subordinate trading financial liabilities related to structured debts are present. 4.4 Cash financial liabilities (excluding technical deficits ) held for trading: annual variations As of December 31 st, 2013, no cash financial liabilities are present, so no variations need to be reported for the period in question. Section 5 Financial liabilities at fair value Item Financial liabilities at fair value: composition per typology Fair value Fair value Operation typology/values VN L1 L2 L3 FV* VN L1 L2 L3 FV* 1. Payables due to banks Structured X X 1.2 Other X X 2. Payables due to customers Structured X X 2.2 Other X X 3. Outstanding securities , , Structured X 6, ,997 0 X 3.2 Other X X Total , , Legend: FV* = fair value calculated excluding value variations due to the change in credit worthiness of the issuer in comparison with the issue date VN = nominal or notional value / L1 = Level 1 / L2 = Level 2 / L3 = Level Details of item 50 Financial liabilities at fair value : subordinated liabilities As of the date of the financial statements, no financial liabilities at fair value represented by subordinatesecurities are present. 112 Annual Report 2013

71 5.3 Financial liabilities at fair value : annual variations Payables due to banks Payables due to customers Outstanding securities Total A. Opening balance 0 0 5,997 5,997 B. Increases B.1 Issues B.2 Sales B.3 Positive fair value changes B.4 Other changes C. Decreases 0 0 6,000 6,000 C.1 Purchases C.2 Reimbursements 0 0 5,995 5,995 C.3 Negative fair value changes C.4 Other changes D. Closing balance With regards to increases related to Circulating securities, subitem B.4 Other changes refers to sales losses recorded in the income statement under item 110 Net result of financial assets and liabilities at fair value. Section 6 Hedging derivatives Item Hedging derivatives: composition per typology of hedging and hierarchical levels As of December 31 st, 2013, the Bank presents no negative Hedging derivatives. Section 7 Change in value of financial liabilities subject to generic hedging Item Change in value of hedged financial liabilities No hedged liabilities are present as of December 31st, Financial liabilities subjected to generic hedging of the interest rate risk: composition As of the date of the financial statements, no liabilities subjected to generic hedging of the interest rate risk are present. Section 8 Tax liabilities Item 80 For information regarding tax liabilities, please refer to Section 13 of Assets. Section 9 Liabilities associated with assets held for sale Item 90 With regards to the information note regarding liabilities associated with assets held for sale, please refer to Section 14 of Assets. Annual Report

72 Section 10 Other liabilities Item Other liabilities: composition temporary items transferred to/from the branches Liabilities related to personnel 1,121 1,229 Payables due to insurance institutions 854 1,083 Sums to be paid to the revenue authorities on the part of third parties 1,148 2,065 Sums available to customers 2,838 3,711 Sums available to " leasing" customers 14,484 84,791 Payables due to suppliers 12,414 16,886 Income and charges not attributable to specific items 2,435 2,765 Various creditors 14,577 14,383 Items under construction 4,102 12,033 Adjustment of illiquid items related to invest. portfolio and others 2,013 3,806 Total 56, ,818 In the sub-item Sums available to leasing customers, which includes sums due to the correction of mistaken calculation of interests charges on leasing contracts with indexed installments, a sum of EUR 11,549 thousand is included, to be paid to the Company Hypo Alpe- Adria-Leasing Srl. Items being processed refer to transactions processed during the last days of the year, which have mostlybeen settled during the first days of the following year. 114 Annual Report 2013

73 Section 11 Benefits to employees Staff severance payment (TFR) Item TFR: annual variations A. Opening balance 3,014 2,588 B. Increases B.1 Provisions during the year B.2 Other increases C. Decreases C.1 Payments made C.2 Other decreases D. Closing balance 2,095 3,014 Data referring to the financial year 2012 were redefined in compliance with the new accounting principle IAS 19 Benefits to employees. Sub-item B.1 Provisions during the year includes, besides the effective provision of the year determined in conformity with current legislation and the CCNL, also the corrective effect of the actuarial appraisal recorded in the income statement in compliance with IAS 19. Sub-item C.2 Other decreases includes the effect of the actuarial appraisal, recorded as contra-part of the specific valuation reserve of the shareholders equity, in compliance with IAS 19. The main actuarial hypotheses can be summarized as follows: Annual technical discount rate 3.17% 2.70% Annual inflation rate 2.00% 2.00% Annual TFR increase rate 3.00% 3.00% Annual Report

74 11.2. Other information In consideration of what is stated above, the severance fund, estimated in compliance with art of the Italian Civil Code,not assigned to complementary severance funds or to INPS (Italian social security) Treasury fund, amounts to EUR 2,199 thousand (EUR 3,013 thousand on 31 December 2012). Section 12 Provisions for risks and charges Item Provisions for risks and charges: composition Items/Values Provisions for company pensions Other provisions for risks and fees 43,869 33, legal disputes 1, personnel-related expenses other 42,439 32,285 Total 43,869 33, Provisionsfor risks and fees: Annual changes Provisions for severance Other provisions Total A. Opening balance 0 33,258 33,258 B. Increases 0 15,466 15,466 B.1 Provisions during the year 0 15,466 15,466 B.2 Variations due to the passing of time B.3 Variations due to changes in the discount rate B.4 Other increases C. Decreases 0 4,855 4,855 C.1 Used in the year 0 4,855 4,855 C.2 Variations due to changes in the discount rate C.3 Other decreases D. Closing balance 0 43,869 43, Annual Report 2013

75 Sub-item B.1 Provisions during the year of Other funds consists of: EUR 15,496 thousand for net provisions related to legal controversies and different charges, recorded under item 160 of the income statement Net provisions to funds for risks and charges ; EUR 30 thousand for retributions to the income statement of funds allocated in previous financial years and resulting in a surplus. Sub-item C.1 Used in the year consists of: EUR 280 thousand for utilization related to various legal controversies; EUR 1,006 thousand for utilization related to complaints from customers; EUR 3,569 thousand for utilization related to different charges Provisions for company pensions and for defined benefits As of the date of the financial statements, no provisions for company pensions and defined benefits are present Provisionsfor risks and charges other provisions Sub-item 2.1 Provisions for legal disputes, recorded for an amount equal to EUR 1,430 thousand, regards potential liabilities due to law suits against the Bank. Sub-item 2.3 Other provisions for risks and charges other provisions, consisting of provisions recorded in 2013 and in previous financial years, is composed of: EUR 701 thousand for end-of-mandate indemnity for Board Members EUR 802 thousand for compensation for termination of Agency relationships; EUR 1,164 thousand for eventual lacking of petty cash strong room of the cash-in-transit company ; EUR 2,165 thousand for possible expenses regarding the restructuring of the company; EUR 37,656 thousand for potential liabilities related to complaints from customers and external collaborators as well as for the provisions for potential charges resulting from the voluntary liquidation of the subsidiary company, Hypo Finance Srl, for which the Bank assumed a formal commitment. Section 13 Redeemable shares Item 140 This item is not used. Section 14 Capital Items 130, 150, 160, 170, 180, 190 and 200 Annual Report

76 14.1 Corporateassets and own shares: composition Items/components Share Capital (EUR) 318,187, ,187,600 No. of shares 318,187, ,187,600 From nominal: Euro each 1 1 Of which no. own shares 0 0 From nominal: Euro each 0 0 As of the date of the financial statements, the Share capital of the Bank is subscribed and paid in full Share capital Number of shares: annual variations Items/Typologies Ordinary Others A. Shares at the opening of the year 318,187, completely freed 318,187, not completely freed 0 0 A.1 Own shares (-) 0 0 A.2 Outstanding shares: opening balance 318,187,600 0 B. Increases 0 0 B.1 New issues on payment: company aggregation operations warrant exercise other free of charge: to employees to directors other 0 0 B.2 Sale of own shares 0 0 B.3 Other changes 0 0 C. Decreases 0 0 C.1 Annulment 0 0 C.2 Purchase of own shares 0 0 C.3 Company sale operations 0 0 C.4 Other variations 0 0 D. Outstanding shares: closing balance 318,187,600 0 D.1 Own shares (+) 0 0 D.2 Shares at the end of the year 318,187, completely freed 318,187, not completely freed Annual Report 2013

77 14.3 Share capital: other information There are no own shares in the portfolio as of the date of the financial statements. The Share Capital of the Bank is variable and consists of nominal shares with a nominal value of EUR 1 (one) each. The shares are free from rights, privileges and binds Profit reserves: other information Items/Components Legal reserve 9,238 9, Statutory reserve 5,397 5, Other (of profits) Losses carried forward (137,935) (96,336) 5. Other (of capital) 185,000 0 Total 62,400 (81,001) On the basis of what is established by IAS 1, paragraph 79, letter b), hereunder we are indicating the description of the nature and purposefor each reserve included in the shareholders equity. Reserves: Legal reserve: art Italian Civil Code requires the obligatory creation of a legal reserve, to protect the share capital from possible losses. The legal reserve is created via annual withdrawals from the netprofit of the financial year, in percentages indicated by the law (Legislative Decree 385/93 so-called Bank Law ), up until the achievement of an amount corresponding to one fifth of the share capital. Statutory reserve: is created via annual withdrawals from the net profit of the financial year, for an amount varying according to the moment - determined by the Shareholders meeting, following aproposal by the Boards of Directors, and in compliance with the conditions established by art. 31 of thebank Statute; it is not subject to legal or statutory obligations during its utilization. Other profits reserves: includes the Reserve for general bank risks referable to former LegislativeDecree no. 87/92 which, on the basis of IAS, was reclassified directly among the items of the shareholder s equity; it is not subjected to legal or statutory obligations during its utilization. Other capital reserves: includes payments by the Parent Company, to be destined by the Shareholders Assembly to the coverage of unsettled losses. Valuation reserves: Special revaluation laws: includes reserves created on the basis of legal provisions issued before the coming into force of international accounting principles. Financial assets available for sale: includes unrealized profits and losses (post-tax) of financial assets classified in the category available for sale, as indicated in IAS 39. Actuarial profit (loss) related to defined social security benefits plans: includes actuarial profit/loss, deriving from the application of the new version of IAS 19. Hereunder, in compliance with art. 2427, subsection 1, no. 7-bis) of the Italian Civil Code, we are providing analytical indications of the single items of the Bank s net equity, by distinguishing them per origin, perutilization possibilities and per distributability. Annual Report

78 Capital Possibility of utilization and distributability (pursuant to art paragraph - bis) Summary of employments carried out in the three previous business years Nature/description Amount Possibility of utilization* Available amount hedging of losses Capital Reserves Legal B - Statutory B - Other 700 B Losses carried forward ( ) B Other reserves - Other B Valuation reserves (437) - Reserves from special revaulation laws 16 B Defined benefit plans (328) - Reserves from valuations of assets held for sale (125) Profit (loss) for the period (98.527) Total Non-distributable quota (1) for other purposes (*) Legend: A = for capital increase / B = for the hedging of losses / C = for distribution to the shareholders (1) The non-distributable quota includes: EUR 3,386 thousand: part utilized to hedge as yet non-amortized multi-annual expenses Equity instruments: composition and annual variations This item is not used Other information Composition of valuation reserves: Items/Components Valuation reserves: - Financial assests available for sale (125) (750) - Actuarial Profit (loss) related to defined social security benefit plans (328) (431) - Special revaluation laws Total (437) (1,165) 120 Annual Report 2013

79 Other information 1. Guarantees issued and commitments Operations ) Guarantees issued, of a financial nature 2,524 3,333 a) Banks 1,150 1,327 b) Customers 1,374 2,006 2) Guarantees issued, of a commercial nature 1,455 1,594 a) Banks 0 0 b) Customers 1,455 1,594 3) Irrevocable commitments to issue funds 33,896 42,170 a) Banks 0 0 i) use certain 0 0 ii) use uncertain 0 0 b) Customers 33,896 42,170 i) use certain ii) use uncertain 33,818 42,112 4) Commitments related to credit derivatives: sales of protection 0 0 5) Assets comprising guarantee of third-party bonds 0 0 6) Other commitments 1,421 3,159 Total 39,296 50, Assets backing own liabilities and charges Portfolios Financial assets held for trading Financial assets at fair value Financial assets available for sale 19,955 19, Financial assets held to maturity Receivables due from banks Receivables due from customers Tangible assets 0 0 Item 3 indicates the fair value, including maturing accruals, of securities used as collaterals of advances for syndicated transactions (Eurosystem credit transactions). 3. Information on operative leasing As of December 31 st, 2013, no assets or liabilities in operative leasingare present. Annual Report

80 4. Third party management and brokerage Service typology Financial instrument trading for third parties a) Purchases regulated not regulated 0 0 b) Sales regulated not regulated Asset management a) Individual b) Collective Security management and custody a) Third-party securities in deposit: associated with deposit bank operations (excluding asset management) securities issued by the bank compiling the fin. statements other securities 0 0 b) Third-party securities in deposit (excluding asset management): other securities issued by the bank compiling the fin. statements other securities c) Third-party securities deposited with third parties d) Own securities deposited with third parties Other operations 4.1 Collection of credits for third parties: debit/credit adjustments a) "debit" adjustments Current accounts Central portfolio Cash Other accounts b) "credit" adjustments Current accounts Assignors of bills and documents Other accounts Other operations a) Third parties' portfolio held for collection Annual Report 2013

81 Part C Information on the income statement Section 1 Interests Items 10 and Interest receivable and similar income: composition Items/technical forms Debt securities Loans Other operations Financial assets held for trading Financial assets available for sale , Financial assets held to maturity Receivables due from banks Receivables due from customers 0 89, , , Financial assets at fair value Hedging derivatives Other activities X X Total , , , Interest receivable and similar income: differentials associated with hedging operations Items/values A. Positive differentials related to hedging operations: B. Negative differentials related to hedging operations: 0 0 C. Balance (A + B) Interest receivable and similar income: other information Interest receivable on financial assets in foreign currency Items/values Interest receivable on financial assets in foreign currency Interestreceivable on leasing operations Items/values Interest receivable on leasing operations 62,941 76,260 Annual Report

82 1.4 Interest payable and similar charges: composition Items/Technical forms Debts Securities Other operation Payables due to central banks 863 X Payables due to banks 14,523 X 0 14,523 20, Payables due to customers 10,288 X 0 10,288 15, Outstanding securities X 7, ,397 11, Financial liabilities held for trading Financial liabilities at fair value Other liabilities and funds X X Hedging derivatives X X Total 25,674 7, ,088 48, Interest payable and similar charges: differentials associated with hedging operations No interest payable and similar charges are present, as of December 31 st, Interest payable and similar charges: other information Interest payable on liabilities in foreign currency Items/Values Interest payable on liabilities in foreign currency 2,460 3, Interest payable on liabilities for leasing operations Items/Values Interest payable on liabilities for leasing operations This interest is referred to the leasing contract for the property in Tavagnacco (UD) Via Alpe Adria 6, where the administrative headquarters of our Bank are located. 124 Annual Report 2013

83 Section 2 Commission Items 40 and Commission income: composition Service Typology/Values a) Guarantees issued b) Derivatives on receivables 0 0 c) For asset management, trading and consultancy services: 7,926 8, security trading foreign currency trading asset management: 3,085 3, individual 3,085 3, collective custody and administration of securities deposit bank security placement 3,098 2, order collection and transmission 649 1, consultancy services regarding investments reharding financial structure distribution of third-party services: 886 1, asset management individual collective insurance products 868 1, other products d) Collection and payment services 1,303 1,763 e) Servicing for securitizations 0 0 f) Services for factoring operations 0 0 g) Tax collection services 0 0 h) Managing activities of multilateral trading systems 0 0 i) Maintenance and management of current accounts 1,367 1,569 j) Other services 2,882 3,989 Total 13,522 15,785 Annual Report

84 2.2 Commission income: distribution channels for products and services Service typology/values a) In the Bank branches: 2, asset management security placement 1, third-party products and services b) External network: 4,673 6, asset management 2,271 2, security placement 1,809 2, third-party products and services 593 1,057 c) Other distribution channels: asset management security placement third-party products and services Passive commissions: composition Service typology/values a) Guarantees issued 5 8 b) Derivatives on receivables 0 0 c) Asset management and trading services: 4,849 5, financial instrument trading foreign currency trading asset management: own portfolio third-party portfolios custody and administration of securities placement of financial instruments external network supply of finan. instrum. products & serv. 4,733 4,876 d) Collection and payment services e) Other services Total 5,850 6, Annual Report 2013

85 Section 3 Dividends and similar income Item Dividends and similar income: composition No dividends or similar income are present, as of December 31 st, Section 4 Profit (Loss) from trading activities Item Net profit from trading activities: composition Plusvalenze Utile da negoziazione Minusvalenze Perdite da negoziazione Risultato netto Operazioni/Componenti reddituali ( A ) ( B ) ( C ) ( D ) [(A+B) - (C+D)] 1. Financial assets held for trading Debt securities Equities O.I.C.R. quotas Financing Other Financial liabilities held for trading Debt securities Debts Other Other financial assets and liabilities: exchange rate diff. X X X X (4,131) 4. Derivative instruments Financial derivatives On debt securities and interest rate On equities and stock market indexes On foreign currencies and gold X X X X 0 - Other Derivatives on receivables Total (4,113) Annual Report

86 Section 5 Net profit from hedging activities Item Net profit from hedging activities: composition Items/Values A. Proceeds associated with: A. 1 Fair value hedging derivatives 0 0 A. 2 Hedged financial assets (fair value) 0 0 A. 3 Hedged financial liabilities (fair value) A. 4 Financial derivatives hedging financial flows 0 0 A. 5 Assets and liabilities in foreign currency 0 0 Total income from hedging operations ( A ) B. Fees associated with: B. 1 Fair value hedging derivatives B. 2 Hedged financial assets (fair value) 0 0 B. 3 Hedged financial liabilities (fair value) 0 0 B. 4 Financial derivatives hedging financial flows 0 0 B. 5 Assets and liabilities in foreign currency 0 0 Total fees from hedging operations ( B ) C. Net profit from hedging activities (A + B) 82 (84) 128 Annual Report 2013

87 Section 6 Profit (Loss) from sale/repurchase Item Profit (Loss) from sale/repurchase: composition Items/revenue components Profit Losses Net result Profit Losses Net result Financial assets 1. Receivables due from banks Receivables due from customers Financial assets available for sale Debt securities Equities O.I.C.R. quotas Loans Financial assets held to maturity Total assets Financial liabilities 1. Payables due to banks Payables due to customers Outstanding securities Total liabilities Total Annual Report

88 Section 7 Net profit from financial assets and liabilities at fair value Item Net change in the value of financial assets/liabilities at fair value: composition Capital gains Trading profit Capital losses Trading loss Profit (loss) Operations/Revenue components ( A ) ( B ) ( C ) ( D ) [(A+B) - (C+D)] 1. Financial assets Debt securities Equities O.I.C.R. quotas Loans Financial liabilities (2) 2.1 Outstanding securities (2) 2.2 Payables due to banks Payables due to customers Other financial assets and liabilities: exchange rate differences X X X X 0 4. Derivative instruments Total Section 8 Net adjustments due to impairment Item Net adjustments due to impairment of receivables: composition Write downs Write backs Specific Specific Portfolio Operations/Revenue comp. De-recognition Other Portfolio A B A B A. Receiv. due from banks Loans Debt securities B. Receiv. due from cust. 3, , ,086 9, , ,461 65,188 Purchased Loans 0 0 X X Debt securities 0 0 X X 0 0 Other receivables 3, , ,086 9, , ,461 65,188 - Loans 3, , ,086 9, , ,461 65,188 - Debt securities C. Total 3, , ,086 9, , ,461 65,188 Legend: A = From interest / B = Other 130 Annual Report 2013

89 8.2 Losses/provisions/write-ups for impairment of financial assets available for sale: composition As of December 31 st, 2013,no write-downs for impairment of financial assets available for saleare present. 8.3 Net write-downs for impairment of financial assets held to maturity: composition As of December 31 st, 2013, no write downs for impairment of financial assets held to maturityare present. 8.4 Net write-downs for impairment of other financial assets: composition As of December 31 st, 2013, no write downs for impairment of other financial assetsare present. Section 9 Administrative expenses Item Personnel expenses: composition Type of costs/values ) Employees 21,664 27,137 a) salaries 15,771 19,977 b) welfare charges 4,534 5,330 c) TFR (staff severance payment) 877 1,153 d) national insurance costs 0 0 e) TFR provision f) provision for retrement funds or similar obligations: specific contribution for specific service 0 0 g) payments to supplementary external insurance funds: specific contribution for specific service 0 0 h) costs deriving from payment agreements based on own asset instruments 0 0 i) other staff benefits ) Other personnel in activity ) Directors and statutoryauditors ) Retired personnel 0 0 5) Recovery of costs for personnel transferred to the company 0 0 6) Reimbursement of costs for third party staff members transferred to the company 0 0 Total 22,458 28,090 Annual Report

90 9.2 Average number of employees per category Cost typology/values Employees a) Top managers 8 8 b) Managerial staff rd and 4th level c) Remaining personnel Other personnel 2 0 Total The average number of employees is calculated as a weighted average of employees (both with subordinate contracts and other types of contracts). In the case of part-time employees, we conventionally consider 50%. In the sub-item Other personnel, the atypical forms of contract different than subordinate ones are included, such as temporary work contracts. 9.3 Company pension funds, for specific service: total expenses This item does is not present as of December 31 st, Other staff benefits Cost typology/values Lunch vouchers Training costs Insurance premiums paid Other expenses Total Annual Report 2013

91 9.5 Other administrative expenses: composition Items/values Indirect fees and taxes 3,448 4,541 Electricity, gas, water 1,083 1,117 Telephone Fees payable - miscelleneous services 2,805 2,834 Fees payable - data transmission and processing Transport Stationery and printing supplies Postal expenses Expenses for owned cars Expenses for collection of receivables Expenses for lawyers and notaries 2,983 4,123 Consultancy services 1,209 1,570 Expenses for other professional services 1,543 1,613 Financial statements auditing services Rents payable 2,914 2,974 Maintenance expenses- buildings and furnishing 1,382 1,179 Insurance premiums 1,152 1,171 Reimbursement of expenses - employees Reimbursement of expenses - not employees 6 8 Staff training - not employees 1 2 Contributions to professional associations Business expenses Advertising Charity and sponsorships 2 6 Condo maintenance fees 1,098 1,175 Miscellaneous contributions Company registration and commercial information searches Night surveillance service Cleaning of bank premises Subscriptions and publications Other payments to third parties Other leasing services expenses 1,752 2,816 Other miscellaneous expenses Total 26,503 30,738 Annual Report

92 Section 10 Net provisions to reserves for liabilities and charges Item Net provisions to reserves for liabilities and charges: composition Items/Values Provisions 15,496 11,698 Legal disputes Other risks and fees 14,728 11,375 Re-assignments 30 0 Legal disputes 30 0 Total 15,466 11,698 For further details regarding provisions to funds for risks and charges, please refer to Section 12 of Part B of this Integration Note. Section 11 Net adjustments on tangible assets Item Net adjustments on tangible assets: composition Amortisation Write downs for impairment Write backs Net result (a) (b) (c) (a + b - c) A. Tangible assets A.1 Owned 2, ,105 - For functional use 2, ,105 - For investment A.2 Purchased in leasing , ,799 - For functional use , ,799 - For investment Total 2,871 11, , Annual Report 2013

93 Section 12 Net adjustments on intangible assets Item Net adjustments on intangible assets: composition A. Intangible assets Amortisation Write downs for impairment Write backs Net result (a) (b) (c) (a + b - c) A.1 Owned 562 1, ,601 - Generated internally by the company Other 562 1, ,601 A.2 Purchased in leasing Total 562 1, ,601 Section 13 Other operating expenses/income Item Other operating expenses: composition Amortis. of expenses for improvements to third party goods Other 1,570 1,067 Total 2,035 1, Other operating income: composition Charged to third parties on deposits and current accounts 1, Charged to third parties for recovery of taxes 1,836 1, Charged to third parties for recovery of various costs 6,392 8, Rents and fees receivable Other proceeds 1,374 2,260 Total 11,426 14,142 Annual Report

94 Section 14 Profits (losses) from shareholdings Item Profits (Losses) on shareholdings: composition This item is not used. Section 15 Net result of tangible and intangible assets at fair value Item Net result of the revalued value of tangible and intangible assets at fair value This item is not used. Section 16 Adjustments to goodwill Item Adjustments to goodwill: composition Revenue components/values Adjustments to goodwill 0 1, ,114 Section 17 Profit (Loss) from sale of investments Item Profit (loss) from sale of investments: composition Revenue components/values A. Real Estate Profits from sale Losses from sale 0 0 B. Other assets (279) 56 - Profits from sale Losses from sale Net profit (279) 56 Section 18 Income taxes from continuing operations for the year Item Annual Report 2013

95 18.1 Income taxes on continuing operations for the year: composition Components/Values Current taxes ( - ) (992) (1,270) 2. Changes in current taxes of previous years (+/-) 0 2, Reduction in current taxes for the year (+) Reduction in current taxes for the year due to tax credits pursuant to law no. 214/2011 (+) Change in pre-paid taxes ( +/- ) 32,369 11, Change in deferred taxes ( +/- ) Taxes for the year 31,377 12,604 The tax burden for the year includes both the current and the deferred tax burden. The current taxes represent the estimate of taxes based on calculating the taxable income from the year and applying current tax rates. Deferred taxes are allocated according to the method based on the balance sheet Balance Sheet Liability Method, and thus by calculating the temporary differences between values of assets and liabilities entered in the financial statements and the corresponding values recognized for tax purposes. Deferred tax assets and deferred tax liabilities are valuated byusing fixed rates that are expected to be applied in the financial year in which the asset will be used or the liability will be paid off. Deferred tax assets are detected, independently from future taxable incomes, as indicated in art. 2, paragraphs 55 to 58, of Legislative Decree 225/2010, converted into Law 214/2011 and modified by art. 168 of Law 147/2013, as outlined in greater detail in part A2, paragraph 11 Accounting Principles Current and Deferred Taxation Reconciliation between theoretical fiscal burden and effective financial statements fiscal burden Components/Values IRES Taxes with application of nominal rate 35, % IMU and other non-deductible taxes (101) -0.08% Non-deductible passive interests (364) -0.28% Non-deductible Allocations to funds for risks (4,232) -3.26% Non-deductible Amortizations and devaluations of revenue (3,292) -2.53% Fiscal losses not listable as deferred tax assets (2,449) -1.89% Other (mobile phones, fines, board, non-deductible costs) (168) -0.13% Total fiscal effect increasing variations (10,606) -8.16% Deductible IRAP % Utilization of deductible funds for risks , % Deductible PN variations % Other non taxable components % Total fiscal effect decreasing variations 1, % IRES TAX listed in the income statement 26, % Annual Report

96 Components/Values IRAP Taxes with application of nominal rate 7, % IMU (28) -0.02% Non-deductible passive interests (89) -0.07% Costs and allocations for subordinate work and administrators (1,254) -0.97% Other administrative expenses (10%) (141) 0.11% Non-deductible allocations to funds for risks (798) 0.61% Devaluation of revenue and non-deductible amortizations (661) -0.51% Other (124) -0.10% Total fiscal effect increasing variations (3,095) -2.38% Subordinate work deductions % Utilization of funds for risks % Other non taxable operating profits % Write-down of pre-paid taxes % Total fiscal effect decreasing variations % Taxes listed in the income statement 4, % Total taxes listed in the income statement 31, % Section 19 Profit (Loss) of groups of assets held for sale, net of income taxes Item 280 As of December 31 st, 2013, no Income/Losses coming from Groups of assets held for sale were recorded. Section 20 Other information There is no other information to report in this section. 138 Annual Report 2013

97 Section 21 Earnings per share The earnings per share (Eps) reported in the following section in compliance with IAS 33 are the net profit of an institution divided by the number of ordinary shares: in other words, this number indicates how much of the annual profit would theoretically be due to the owner of one share of the Registered Stock. International accounting standards indicate how this measurement should be carried out, and provide two earnings indicators: Basic earnings per share, calculated by dividing the net profit (numerator) by the weighted average of outstanding ordinary shares (denominator); Diluted earnings per share calculated by dividing the net profit by the weighted average of into account classes of instruments with diluting effects. outstanding shares, while also taking Basic earnings per share (0,310) (0,131) Diluted earnings per share (0,310) (0,131) 21.1 Average number of diluted capital ordinary shares Weighted average of ordinary shares 318, ,188 Write down for diluting effect 0 0 Weighted average of diluted capital ordinary shares 318, ,188 The average number of ordinary shares used as the denominator in the calculation of the basic earnings per share has been calculated by using the number of outstanding ordinary shares at the start of the year, adjusted by the number of ordinary shares issued during the year multiplied by the number of days in which the shares were outstanding in proportion to the total number of days in the year Other information Our Bank has ordinary shares only. As of December 31 st, 2013 all shares are authorized and paid in full and enjoy the same rights in terms of dividend payments and capital reimbursements. There are no own shares in the portfolio on the date of the financial statements. Annual Report

98 Part D Total comprehensive income Analytical prospect of total comprehensive income Items Gross amount Income tax Net amount 10. Profit (loss)of the period (129,904) 31,377 (98,527) Other income components without reversal to income statement 30. Tangible assets Intangible assets Defined Benefits Plans non-current assets held for sale Quotas of revaluation reserves of participations assessed at net assets: Other income components with reversal to the income statement 70. Coverage of foreign investments: a) variations of fair value b) reversal to the income statement c) other variations Foreign exchange differences: a) variation of value b) reversal to the income statement c) other variations Coverage of financial flows: a) variations of the fair value b) reversal to the income statement c) other variations Financial assets available for sale: 626 (1) 625 a) variations of fair value 659 (1) 658 b) reversal to the income statement (33) 0 (33) - adjustments due to impairment profits/losses from sales (33) 0 (33) c) other variations non-current assets held for sale a) variations of the fair value b) reversal to the income statement c) other variations Quotas of revaluation reserves of participations assessed at net assets: a) variations of fair value b) reversal to the income statement adjustments due to impairment profits/losses from sales c) other variations Total other revenue components 729 (1) Total profitability (Item ) (129,175) 31,376 (97,799) 140 Annual Report 2013

99 Part E Information on risks and related risk hedging policies Section 1 Credit risk Quality-related information 1. General aspects The aims of the bank, with regards to credit, are the following: To improve borrower selection by means of careful analyses of creditworthiness and guarantees, in order to limit the risk of insolvency. To diversify the portfolio by limiting, as much as possible, phenomena of exposure concentration on single counter-parties/ groups, or on single business sectors or geographic areas. To carefully monitor the trend of the relationshipwith the customers in order to promptly recognize (before default) any symptoms of deterioration in their positions, so that these same positions can be allocated within special credit management processes. 2. Credit risk management policies 2.1 Organizational aspects The credit portfolio risk profile is checked upon during the opening, management/revision and monitoring phases, via: the analysis of the requirements of the applier, which are evaluated in relation to the present economic and capital situation, to the trend of outstanding credit relationships, to the position of the counterpart with regards to the system, to considerations regarding the economic sector in which they operate, to the existence of links to other borrowers and to the assessment of the guarantees they presented; the ongoing monitoring of assumptions of reliability, i.e. the capacity of the customers to face their debits both currently and in the future via their income resources and consequent cash flows. il continuativo accertamento dei presupposti di affidabilità ovvero della capacità del cliente di fronteggiare in chiave attuale e prospettica i propri debiti con le sue risorse reddituali e con i flussi di cassa conseguenti. The credit process requires various levels of autonomy, all concentrated in the Central Management, and requires the attribution of a rating to all counterparts subjected to verification during the credit granting and revision phases. The rating is generallyupdated on a monthly basis in relation to the most recently acquired information and to the changed operating conditions of the involved individual, or immediately in the case of specific events (changes of status, acquisition of new balance, etc.). In addition to the preliminary investigation and revision, the (ordinary) monitoring activity ensures preventive control on positions showing symptoms of impairment. In particular, the loan portfolio is filtered by specific anomaly indicators, including rating changes occurring over time, in order to move critical positions to special, locked-up control and revision processes. The objective is to allow the sales network - and the customer himself to correct their behavior and, if possible, to restore normal conditions. Additionally, the Risk ControlArea, which autonomously performs its activity with regards to the organizational units involved in the opening, management and monitoring processes, creates synthetic indicators to indicate the credit risk sustained by the Bank, with specific attention to the components identified by Basel, namely PD and LGD, and compiles the required reports for the Steering Bodies. 2.2 Management, measurement and control systems During the analysis phase of loan applications, the units involved in the opening and granting processmake use of all information at disposal of the Bank to analyze the financial and economic soundness of the applicant, in order to assess the feasibility of the operation. In particular, the Units also make use of the CRS (Credit Rating System) which, via a structure of indexes, summarizes the set of available information at the time of the analysis. Credit Monitoring, on the other hand, assesses the credit deterioration via an ongoing analysis of the single cases and therefore checking that payments are made regularly and timely, the consistencyof the utilizations with the initially approved amounts, the existence of prejudicial elements and the quality of the rating assigned by the core system on a monthly basis. Clients for which negative elements are detected during this analysis phase undergo a special control and reviewprocess which foresees not only the involvement of the market divisionsbut also the intervention of qualified staff. Annual Report

100 The Risk Control Areaperforms 2nd level control activities, as described in the Bancad Italia Supervisory Instructions. This level is called risk management control, and its objective is to define the risk measurement methodologies, check that the various operating functions adhere to their assigned limits, and control the operational coherence of individual production areas with their assigned risk-yield target. In general, the credit risk management and control consist of the analysis of: the impairment of the creditworthiness of the party taking out the loan; the inability of the debtor to honour his/her obligations in full and on time, without recourse to executive action; the value impairment of guarantees received; loan portfolio concentration on specific technical forms, customer categories, maturity dates, etc. 2.3 Credit risk mitigation techniques The preliminary investigation process for each loan always includes a careful evaluation of the guarantees involved. Ownership of the good involved in a leasing contract is a primary guarantee in favor of recovering the credit involved in the operation. The Bank s Risk ControlArea, via the internal LGD, specifies the average recovery times for the various types of goods. The LGD is estimated on an ongoing basis, also for technical forms other than leasing, and its particular aim is to recognize the difference between loans covered by mortgage guarantee or involving real estate properties and other types of operations. In compliance to what is indicated by regulations regarding prudential requisites (Basel), the Bank has arranged specific processes and procedures for the gathering of information regarding collateral and other forms of guarantee, and for their monitoring. Within its operative manuals, the Bank has formalized the minimum levels of guarantee which should be acquired in case of specific forms of loans and client segments. The General Management is uninterruptedly updated and involved in the management and control of credit quality via periodical reporting, but also via the meeting schedule set up with the Rehabilitation, Monitoring and Credit Management Divisions. Moreover, the Bank organizes a monthly meeting between the General Management and the Rehabilitation Division involving a detailed analysis with the goal of evaluating positions that are and will be transferred to Watch-list, Non-performing or Loss. 2.4 Impaired financial assets The Bank has special organizational units to manage impaired loans. These units apply different management and recovery methodologies, according to the type of loan in terms of amount and risk class. With regard to watch-list (creditiincagliati) and past due loans, a trend monitoring procedure is executed, in order to: check if the economic-financial situation of the counter-party is reversible or not; delegate positions to internal or external individuals who are in charge of the recovery of the credit via phone and script collection operations, as well as tax collection; evaluate the re-entry programs presented by debtors, with regards to the relative repayment capacities in the time frames specified by these same programs; examine the outcome of initiatives taken to normalize/collect these same loans, as well as the reasons behind any unsuccessful outcome; calculate the relative loss forecasts, analytically. For the purposes of the financial statements, when they are not assessed analytically, watch-list and past due loans are subjected to collective impairment assessment. The classification of non-performance is based on criteria indicated by the supervisory regulations. Therefore, this category includes exposures toward insolvent individuals, even if not established judicially, or in substantially equivalent situations, for the recovery of which legal actions or lawsuits have been started. Risk control on non-performing accounts is achieved by taking the following actions: for new accounts, revocation of loans and urgent requests to debtors asking them to settle their accounts; passing new positions over to internal and/or external legal advisors, for firm action to be initiated against debtors and related guarantors; for accounts already placed in recovery, checking that debtors 142 Annual Report 2013

101 respect the commitments they have assumed; periodically checking the adequacy of loss forecasts and the recoverability conditions of accounts. For purposes related to the financial statements, non-performing loans are subjected to analytical assessment in order to define the reserve funds related to expected losses. For each account and, in this context, for each relation, the amount of the expected loss is determined based on the debtors solvency, the type and value of the guarantees and the status of the procedures in effect. When managing collaterals involving non-performing loans with foreclosed property, the Bank income immediately, at the moment of foreclosure, to reappraise the property and to carry out the subsequent annual update. In relation to accounts for which foreclosure was initiated, we proceed with the immediate adjustment of the value of the collateral based on the expert report and subsequently we considerthe effects of bidding discounts. As for considerable exposure to contracts that have property as collateral, the ability to hedge the exposure depends significantly on the efficiency of the real estate market. Therefore, it is important for the Bank to analyze real estate market and market value trends in order to properly managethe hedging of its own credit portfolio. The original value of deteriorated credits is restored in the following business years if the reasons used to determine the adjustment are no longer valid, provided that this assessment is objectively relatable to an event that occurred after the adjustment itself. Annual Report

102 Quantity-related information A. Credit quality A.1 Impaired and performing loans: amounts, adjustments, trend, economic and geographic distribution A.1.1 Distribution of financial assets per portfolio and credit quality (book values) Impaired expired exposures Expired nonimpaired exposures Other assets Total Portfolios/quality Non performing loans Deadlock Restructured loans 1. Financial assets held for trading ,746 3, Financial assets available for sale ,807 44, Financial assets held to maturity Receivables due from banks ,432 15, Receivables due from customers 281, ,557 5, , ,177 1,568,804 2,518, Financial assets at fair value Financial assets held for disposal Hedging derivatives Total at 31/12/ , ,557 5, , ,177 1,633,057 2,582,427 Total at 31/12/ , ,230 7, , ,092 2,288,143 3,111,074 The table highlights the structure per credit quality, with regards to different financial assets portfolios, in compliance with the definition of impaired loans indicated by Bancad Italia and adopted for the drawing up of the financial statements. The values indicated are therefore net of related uncertain results. 144 Annual Report 2013

103 A.1.2 Distribution of financial assets per portfolio and credit quality (gross and net values) Impaired assets Performing Total Portfolios/quality Gross exposure Specific write downs Net exposure Gross exposure Portfolio write downs Net exposure (net exposure) 1. Financial assets held for trading X X 3,746 3, Financial assets available for sale , ,807 44, Financial assets held to maturity Receivables due from banks , ,432 15, Receivables due from cust. 911, , ,193 1,819,789 15,808 1,803,981 2,518, Financial assets at fair value Financial assets held for disposal Hedging derivatives X X Total at , , ,193 1,880,028 15,808 1,868,234 2,582,427 Total at ,028 85, ,839 2,582,663 20,517 2,565,234 3,111,073 The table highlights the structure per credit quality, with regards to different portfolios of financial assets, in compliance with the definition of impaired loans indicated by Bancad Italia and also adopted for the drawing up of the financial statements. Annual Report

104 A Distribution of performing loan exposures per pertinentportfolio Overdue portfolios/seniority Exposures object of renegotiation Overdue up to 3 months Overdue for more than 3 to 6 months Expired Overdue for more than 6 months to 1 year Overdue for more than a year Other exposures 1. Financial assets held for trading ,746 3, Financial assets available for sale ,807 44, Financial assets held to maturity Receivables due from banks ,432 15, Receivables due from customers 3, , ,610 27,704 12, ,555,792 1,803, Financial assets at fair value Financial assets held for disposal Hedging derivatives Total at , , ,610 27,704 12, ,620,045 1,868,234 Total at ,635 3, , ,755 43,339 22,300 3,809 2,228,048 2,565,234 Not overdue Overdue up to 3 months Overdue for more than 3 to 6 months Expired Overdue for more than 6 months to 1 year Overdue for more than a year Not overdue Total (net exposure) 146 Annual Report 2013

105 1.3 Cash exposures and off-balance sheet exposures toward banks: gross and net values Exposure typology/values A. Cash exposures Gross exposure Specific adjustments Portfolio adjustments Net exposure a) Non-performing loans 0 0 X 0 b) Deadlock 0 0 X 0 c) Restructured loans 0 0 X 0 d) Impaired expired exposures 0 0 X 0 e) Other assets 15,432 X 0 15,432 Total A 15, ,432 B. Off-balance sheet loans a) Impaired 0 0 X 0 b) Other 5,119 X 0 5,119 Total B 5, ,119 Total A + B 20, ,551 The table highlights the structure per credit quality, with regards to relations with banks, in compliance with the definition of impaired loans indicated by Bancad Italia and adopted for the drawing up of the financial statements. The values indicated are therefore balance values, gross and net of uncertain results. Off-balance sheet exposures include all financial transactions different from cash transactions (issued collaterals, obligations, derivatives, including hedging derivatives) requiring the assumption of a credit risk, assessed via the measurement criteria indicated by Bancad Italia. A.1.4 Cash loans to banks: trend of impaired exposures Since no impaired exposuresare present, there are no changes to be reported. A.1.5 Cash loans to banks: trend of total value adjustments. As of December 31 st, 2013, no adjustments due to cash loans to banks are present. Annual Report

106 A.1.6 Cash loans and off-balance sheet loans to customers: gross and net values Exposure typology/values Gross exposure Specific adjustments Portfolio adjustments Net exposure A. Cash exposures a) Non-performing loans 429, ,828 X 281,490 b) Deadlock 313,906 44,349 X 269,557 c) Restructured loans 6,916 1,553 X 5,363 d) Impaired expired exposures 161,244 3,461 X 157,783 e) Other assets 1,864,596 X 15,808 1,848,788 Total A 2,775, ,191 15,808 2,562,981 B. Off-balance sheet loans a) Impaired 7,640 0 X 7,640 b) Other 30,473 X 0 30,473 Total B 38, ,113 The table highlights the composition per credit quality, with regards to relations with customers, in compliance with the definition of impaired exposures indicated by Bancad Italia and also adopted for the drawing up of the financial statements. Since the object of the classification per credit quality is the entire financial assets portfolio, we specify that exposures include not only loans, but also financial assets towards customers, coming from item 40 Financial assets held for sale (securities). 148 Annual Report 2013

107 A.1.7 Cash loans to customers: trend of gross impaired exposures Watch-Loans Restructured Expired Causali/Categorie Npls (incagli) loans loans A. Opening gross loans 175, ,316 7, ,156 - of which: sold and not de-recognised 2,911 5, ,988 B. Increases 292, , ,126 B.1 Additions from performing loans 80, , ,791 B.2 Transfers from other categories of impaired loans 200,678 97, B.3 Other increases 11,722 3, C. Decreases 39, ,924 1, ,038 C.1 Outgoings toward performing loans 0 6, ,822 C.2 De-recognitions 13, C.3 Collected 25,896 13, ,713 C.4 Realized by sale C.5 Transfers to other categories of impaired loans 0 117,080 1, ,503 C.6 Other decreases D. Closing gross loans 429, ,906 6, ,244 - of which: sold and not de-recognised 7,009 15, ,652 A.1.8 Cash loans to customers: trend of total adjustments Restructured Expired Reasons/Categories NPLs Watch Loans loans loans A. Opening total write downs 55,451 20, ,162 - of which: sold and not de-recognised B. Increases 117,020 39,747 1,565 3,149 B.1.1 Write downs 95,410 37,454 1,565 3,140 B.1.2 Losses from transfers of impaired loans B.2 Transfers from other categories 17,705 1, B.3 Other increases 3, C. Decreases 24,643 15, ,850 C.1 Valuation write backs 10, ,257 C.2.1 Collection write backs 792 1, ,031 C.2.2 Revenues from transfers C.3 De-recognitions 13, C.4 Transfers to other categories of impaired loans 0 13, ,562 C.5 Other decreases D. Closing total write downs 147,828 44,349 1,553 3,461 - of which: sold and not de-recognised Annual Report

108 A. 2 Classification of exposures on the basis of external and internal ratings With regards to the credit portfolio of the Bank, mainly consisting of small and medium sized firms, the classification of exposures on the basis of external ratings is irrelevant. With regards, instead, to internal ratings, the Bank makes use of a procedure capable of classifying performing customers in eight rating classes. On the basis of a series of specific parameters (economic sector of activity, juridical form and operative dimensions), customers are split into analysis segments. Each analysis segment features specific criteria to calculate certain operative indexes which, via a mechanism of limits and weights, result in a total score for each single position. Trust approvals (the parameter is observed by instructor analysts and by the deliberating bodies). Automatic renewal of overdraft practices (the Bank features an automatic overdraft renewal procedure based on limits also set on the basis of the rating quality attributed to the position). Calculation of allowances on performing credits (the estimation of allowances corresponds to the forecast loss calculated according to the formula suggested by the Basel Committee). Autonomy of overdrafts (the rating, alongside other parameters such as loan risk category, duration of the allowance, etc., participates in determining the autonomy of the commercial network deliberations). Judgments expressed by the rating system act as a support and informative complementary element in the aforementioned processes. A.3 Distribution of guaranteed loans by type of guarantee A.3.1 Cash loans to guaranteed banks This item is not used. The Credit Rating System (CRS) carries out both the Fundamental analysis by elaborating information regarding the economic scenario or sector, the firm strategies and the economic/financial structure of the position, and the Trend analysis by elaborating information regarding the banking system and the trend of relations with the Bank up to this point. The informative basis for this analysis is integrated within the IT system. The procedure elaborates information on a monthly basis. Each rating class is associated to a Default Probability PD. A manual revision operation regarding ratings generated by the procedure is also implemented, on the basis of a codified authorization process. The perfecting of the Cedacri rating system and implementations to models have defined an evermore performing CRS, thus making both en masse and case-by-case manual interventions ever less necessary. The rating system is applied in the following operative segments: 150 Annual Report 2013

109 A.3.2 Guaranteed loan exposures towards customers Collaterals (1) Real estate Net exposure Mortgages Leasing Securities Other collaterals 1. Guaranteed loan exposures per cash: 2,380,508 1,466,836 2,937,341 13, , totally guaranteed 2,366,096 1,462,318 2,937,341 12, ,561 - of which impaired 701, , ,311 1,353 79, partially guaranteed 14,412 4, ,267 - of which impaired 4,932 3, Loan exposures "out of balance" guaranteed 19, totally guaranteed 18, of which impaired 6, partially guaranteed of which impaired C L N Derivatives on credits Other derivatives Government and central banks Other public bodies Banks Personal guarantees (2) Other bodies Governments and central banks Signature credits Other public bodies Banks Other bodies Total (1) + (2) 1. Guaranteed loan exposures per cash: ,345 3,258 2,699,930 7,389, totally guaranteed ,258 2,698,154 7,377,805 - of which impaired ,511 1,156,835 2,621, partially guaranteed ,776 12,022 - of which impaired ,080 5, Loan exposures "out of balance" guaranteed ,312 20, totally guaranteed ,144 19,881 - of which impaired ,426 6, partially guaranteed of which impaired Annual Report

110 B. Distribution and concentration of credit exposures B.1 Sector distribution of cash and off-balance sheet credit exposures towardscustomers (balance value) Governs Other public bodies Financial companies Spec. write downs Portf. write downs Loans/Counterparties Net exposure Net exposure Net exposure A. Cash loans A.1 Non-performing loans A.2 Deadlock A.3 Restructured loans A.4 Expired loans , A.5 Other loans 44, , Total A 44, , B. "Off-balance sheet" loans B.1 Non-performing loans B.2 Deadlock B.3 Other impaired assets B.4 Other loans , Total B , Total (A + B) , , Total (A + B) , Spec. write downs Portf. write downs Spec. write downs Portf. write downs 152 Annual Report 2013

111 Insurance companies Non-financial companies Other Net exposure Spec. write downs Portf. write downs Net exposure Spec. write downs Portf. write downs Net exposure Spec. write downs Portf. write downs , , ,888 6, ,750 42, ,596 1, ,363 1, ,128 2, , ,601, , , ,271, ,308 14, ,208 8, , , , , , ,306, ,308 14, ,246 8, ,742,378 79,049 19, ,413 5,928 1,042 Annual Report

112 B.2 Geographic distribution of cash and off-balance sheet credit exposures towardscustomers (balance value) Italy Other european countries America Asia Rest of the world Loan/Geographic areas E.N. R.V.C. E.N. R.V.C. E.N. R.V.C. E.N. R.V.C. E.N. R.V.C. A. Cash loans A.1 Non-performing loans 281, , A.2 Deadlock 265,523 43,861 4, A.3 Restructured loans 5,363 1, A.4 Expired loans 157,718 3, A.5 Other loans 1,847,148 15,801 1, Total A 2,557, ,502 5, B. "Off-balance sheet" loans B.1 Non-performing loans B.2 Deadlock 7, B.3 Other impaired assets B.4 Other loans 30, Total B 38, Total ,595, ,502 5, Total ,541 6, Legend: E.N. = Net exposure / R.V.C. = Total value write-downs 154 Annual Report 2013

113 B.3 Geographic distribution of cash and off-balance sheet credit exposures towards banks (balance value) Italy Other european countries America Asia Rest of the world Loan/Geographic areas E.N. R.V.C. E.N. R.V.C. E.N. R.V.C. E.N. R.V.C. E.N. R.V.C. A. Cash loans A.1 Non-performing loans A.2 Deadlock A.3 Restructured loans A.4 Expired loans A.5 Other loans 12, , Total 12, , B. "Off-balance sheet" loans B.1 Non-performing loans B.2 Deadlock B.3 Other impaired assets B.4 Other loans 1, , Total 1, , Total , , Total , , , B.4 Major risks Items/values a) Balance value 44,807 44,214 b) Weighted value 0 0 c) Number 1 1 On the basis of regulations, the major risk consists of the amount of cash and off-balance risk assets referred to a single customer or to groups of connected customers, which correspond or are higher than 10% of the regulatory capital of the Bank. In this context, the exposure is taken into consideration without applying related weighting factors. Subsequently to December 31 st, 2013, our Bank signals as a major risk its exposure towards the Italian Government, related to the nominal value of EUR 45 million of Securities held in its portfolio, with a weighting corresponding to zero. Annual Report

114 C. Transactions for securitization and sale of assets C.1 Securitizations Quality-related information Securitizations were generally structured by the Bank with the aim of finding new financial means, as an alternative to running into direct debt, and of decreasing mismatches of maturities between medium/long-term collections and loans. The risks which burden the Bank in quality of transferor, due to the effect of securitizations, consist of the securities undersigned by the Bank, junior and senior tranches. All current securitizations have been carried out by utilizing the following vehicle companies: Salina Leasing S.r.l., company incorporated in Italy, with registered offices in Via Vittorio Alfieri, Conegliano (Treviso) for the transaction called Salina Leasing. Securitized assets refer to credits deriving from performing leasing agreements, signed by the Bank with its customers. The rating of the credits underlying this transaction was assigned by the rating agencies Moody s and Dominion Bond Rating Service (DBRS). Dolomiti Mortgage S.r.l., company incorporated in Italy, with registered offices in Via Vittorio Alfieri, Conegliano (Treviso) for the transaction called Dolomiti Mortgage. Securitized assets refer to performing residential and commercial mortgage loans signed by the Bank with its customers. The rating of the credits underlying this transaction was assigned by the rating agencies Moody s and Dominion Bond Rating Service (DBRS). For all current securitizations, the Bank has subscribed specific servicing contracts with the vehicle company. The role of Servicer allows the Bank, in quality of credit collection and recovery agent, to maintain the management of the customer. As Servicer, the Bank sends quarterly informative reports to the appropriate vehicle company, regarding the status of the transferred credits involved in each single operation. Hereunder, we list the details of securitizations carried out by the Bank, in compliance with Law 130/99: Securitization Salina 5 The object of the fifth securitization called Salina 5 was the transfer of credits deriving from leasing credits. To carry out the transaction, on March 31st, 2011, the vehicle company Salina Finance S.r.l purchased, without recourse, from Dolomiti Finance, a credit portfolio coming from the third securitization. On May 25th, 2011, the Bank transferred, without recourse, to the vehicle company Salina Finance S.r.l. a further credit portfolio amounting to EUR 231 million. On November 30th, 2011, the Bank transferred a second leasing credits portfolio to the vehicle company Salina Finance S.r.l for a value of EUR 254 million. In July 2012, the issuance of the notes connected to this transaction was carried out. Class A B DBRS/Moody s Rating A2 not rated Denomination Nominal Amount in EUR Interest rate Issue date Foreseen redemption Salina Leasing S.r.l TV 361,200,000 3 M Euribor + 0,50% 26/07/ /10/2046 Salina Leasing S.r.l TV 207,559,000 3 M Euribor 26/07/ /10/ Annual Report 2013

115 With regards to the transferred portfolio, the Bank has signed the issued Asset Backed Securities (ABS), i.e.so-called self-securitization transactions. A -Class senior securities, after having achieved official eligibility, namely the suitability to be used in marginal refinancing transactions within the European Central Bank, were allocated in the Pooling account of Bancad Italia. The transaction is therefore not included among the information we are providing in this Section. On 30/01/2013, the senior security was partially reimbursed (pool factor) for a value of EUR 22,238 thousand. On 01/05/2013, the senior security was partially reimbursed (pool factor) for a value of EUR 23,624 thousand. On 31/07/2013, the senior security was partially reimbursed (pool factor) for a value of EUR 18,937 thousand. On 31/10/2013, the senior security was partially reimbursed (pool factor) for a value of EUR 37,307 thousand. Securitization Dolomiti Mortgage 6 Furthermore, in November 2011, the Bank performed a further securitization, the sixth one, consistingof a performing mortgage loan portfolio amounting to circa EUR 226 million. With regards to the transferred portfolio, the Bank has signed the issued Asset Backed Securities (ABS), i.e.so-called self-securitization transactions. A -Class senior securities, after having achieved official eligibility, namely the suitability to be used in marginal refinancing transactions within the European Central Bank, were allocated in the Pooling account of Bancad Italia. The transaction is therefore not included among the information we are providing in this Section. On 21/02/2012, Moody s downsized the rating of the senior note from Aaa to Aa2. On 02/08/2012, Moody s further downsized the rating of the senior note from Aa2 to A2. On 30/07/2013, the senior security was partially reimbursed (pool factor) for a value of EUR thousand. On 29/10/2013, the senior security was partially reimbursed (pool factor) for a value of EUR 14,313 thousand. In data 29/10/2013 il titolo senior è stato parzialmente rimborsato (pool factor) per migliaia di euro. Class A C DBRS/Moody s Rating AAA not rated Denomination Nominal Amount in EUR Interest rate Issue date Foreseen redemption Dolomiti Mortgage S.r.l TV 103,600,000 3 M Euribor + 0,50% 02/12/ /07/2051 Dolomiti Mortgage S.r.l TV 156,799,000 2,00% 02/12/ /07/2051 Annual Report

116 Internal risk measurement and control systems The bank, with its structure, carries out monthly and quarterly analysis regarding assets underlying the single securitizations, with the aim of verifying the efficient management of collections and recoveries of expired loans. Special attention in paid to the so-called trigger ratios trend, to default and delinquent performance indicators and to remuneration concerning the junior notes that the bank has kept in its portfolio. On a quarterly basis, at the least, Top management receives a concise and detailed scheme regarding securitization transactions carried out by the Bank over time, and highlighting any critical situations which require its interventions. Quantity-related information Securitization transactions in which the originator bank subscribes, at the issuance, the total issued liabilities (e.g. ABS securities, loans in the warehousing phase) are not indicated in this Part. Therefore, as of December 31st, 2013, no own or third party transactions need to be indicated. C.1.6 Co-interests in the vehicle company The Bank does not hold any co-interests in the vehicle companies: Salina Leasing S.r.l., Dolomiti Mortgage S.r.l. C.1.7Servicer activity collection of securitized loans and reimbursement of securities issued by the vehicle company. In both the aforementionedsecuritization transactions the Bank also plays the role of portfolio servicer, and therefore continues to invoice, collect and administer the sold loans. This servicer activity is remunerated by means of a servicing fee. The bank has the obligation to arrange monthly, quarterly and yearly reports containing information relevant to the collections and recoveries it carried out. Securitized assets (end-period figure) Credit collect. in the year Percentage quota of reimbursed securities (end-period figure) Senior Mezzanine Junior Vehicle company Impaired Performing Impaired Performing Impaired assets Perform. assets Impaired assets Perform. assets Impaired assets Perform. assets Dolomiti Mortgage 2011/12 Dolomiti Mortgage S.r.l. 26, ,431 5,750 35, % Salina 2011/2 Salina Leasing S.r.l 26, ,628 6,535 93, % Annual Report 2013

117 C.2 Sale operations A. Financial assets sold and not integrally de-recognized C.2.1 Financial assets sold and not de-recognized: balance value and full value As of December 31 st, 2013, the two current transactions are not featured in information to be provided in this Section. C.2.2 Financial liabilities for financial assets sold and not de-recognized: balance value This item is not indicated. C.2.3 Sales transactions whose liabilities have recourses exclusively on transferred assets: fair value. This item is not used. B. Financial assets sold and integrally de-recognized with indication of the uninterrupted involvement This item is not used. C.3 Covered bond transactions This item is not used. D. Models for the measurement of credit risk The bank has acquired a rating system which is integrated within the generality of company procedures and assesses the creditworthiness of the single client by analyzing, completely and integrally, a series of useful information for its determination. The main aim of the system is the classification of the customers into risk classes which present probabilities of homogeneous defaults. For further details please refer to paragraph 2 Credit risk management policies of the present part E. Annual Report

118 Section 2 Market risk 2.1 Interest rate risk and price risk supervisory trading portfolio Quality-related information A. General aspects Trading strategy The trading activity, intended as holding of positions aimed to a further short-term divestment, with the purpose of benefiting from differences between purchase and sale prices or other price variations and interest rates, is carried out by the Treasury/Financial ServicesArea in the sphere of the Trading Book and Market Risk Steering portfolio (regulated in the Operative Manual of Treasury/ Financial Services, in the annex 2 Treasury-Limit Application ). In strategic terms, the liquidity not involved ineconomic loans, which represent the core business of the Bank, and not classified in the strategic liquidity reserve, can be used for trading purposes. As in previous years, during the financial year 2014 we do not expect to carry out systematic trading activities, thus allowing the Bank to reserve the available liquidity to the function of strategic provision. On a yearly basis, the Treasury/Financial Services/Risk Control Divisions draw up the Treasury Limit Application, a document in which the bank requires the Parent Company to approve suitable limits (in terms of volumes, maximum profit/loss and VaR) for the Treasury trading activity, with regards to the financial instruments employed. After the holding has approved the document (eventually implementing some changes, coherently with the strategy of the Group), it becomes the basis for the daily and periodical controls of limits. Policies and procedures of active management a) Trading desk The management of the Trading Book portfolio and Market Risk Steering is carried out by the Treasury/Financial ServicesArea, and entrusted directly to the Area Supervisor, who may delegate the operating activity to the Head of the Treasury and Finance Department. The trading desk is therefore the Treasury and Finance Department. b) Position limits The activity on the Trading Book portfolio and Market Risk Steering has a total volume limit approved by the Holding and, today, it mainly focuses on: Investments in shares Not allowed. Forex swap with customers (Trading Book) Spot and forward sale activity regarding foreign currency, carried out with customers and related hedging transactions with bank counterparts. Forex Swap, Cross Currency Swap, Interest Rate Option (Market Risk Steering) Derivatives created with a basic goal of covering the Interest rate risk and Exchange rate risk, for which, however,it is complex to prove connections with the related balance items and the relation of effectiveness. Besides the aforementioned instruments, the Trading Book also features own-issued debt securities, purchased in order to create a secondary market on them. These instruments are not indicated in the financial statements, as they have been repurchased. Over time, the adequacy of limits is submitted to verifications by the Treasury/Financial Services and Risk Control Areas, coordinated by the Parent Company. In consideration of the compositions of the portfolios, no relevant risks need to be signaled. c) Signaling to the body with management functions On a daily basis, the Risk Control Area provides reports at portfolio level to the organ with management functions (as well as to the Treasury/Financial Services and Group Risk Control),featuring information regarding value at risk and economic performance of current trading positions. Furthermore, these reports are discussed on a monthly basis during the Finance Committee (Consulting Body which the General Management and the Heads of the Treasury/Financial Services, Risk Control and Commercial Divisions of the bank take partin) and, in the case in which the limit has been exceeded, also during the Liquidity Rounds (Information Committee based on the issue of liquidity; the General 160 Annual Report 2013

119 Management, the Treasury/Financial Services, Risk Control and Financial Controlling Divisions of the bank take partin this committee). Furthermore, information flows are sent to the Board of Directorson a regular basis. d) Negotiability/hedging of positions Positions are actively managed by the Treasury and Finance Department on the basis of information coming from the market, and an assessment is operated as to their negotiability or to the possibility of carrying out hedging transactions, regarding either the positions or the risks which constitute them, by verifying in particular: - the quality and availability of market data used for the assessment process; - the trade level on the market; - the dimensions of the positions negotiated on the market. B. Management processes and methods for the measurement of interest rate risk and price risk The monitoring of trading positions,in light of the Bank s negotiation strategy, is performed by the Finance Settlement Department, with regards tothe verification of regularity of operations, and by the Risk Control Area, for the assessment of positions. b) CCS The procedure carries its own assessment of the position on the basis of personal details recorded at the time of the stipulation of the operation, and of market data obtained from thebloomberg info provider. On a monthly basis, the position is compared with the assessment obtainable from the Bloomberg info provider. c) IRO The procedure carries out its own assessment of the position on the basis of personal details recorded at the moment of the operation stipulation, and of market data obtained from the from Bloomberg info provider. On a monthly basis, the position is compared with the assessment produced by the Orizzonte procedure (CEDACRI) and by the Bloomberg info provider. At present, the VaR model is not used to calculate capital requirements for market risks, but it is utilized for managerial and internal control purposes. The Value at Risk (VaR) expresses the maximum loss linked to market transactions in non-extreme conditions. The methodology used for the calculation of thevar belongs to the class of variance-covariance models, according to which it is supposed that factors of risk which affect value change distribution have a normal distribution. Appropriate evaluation systems and control procedureshave been established, to ensure that valuation assessments are cautious and reliable. The assessment responsibility is assigned to the Risk ControlArea -a division which is independent from the tradingdesk -via the daily control of reports produced by the Holding s PMS procedure. Controls regard the consistency/plausibility of data and the compliance with the position limits, VaR and economic performance from the beginning of the year. According to the type of financial product, the Holding s PMS procedure is fed by the following information flows: a) Fx-Swap The procedure is automatically fed by the ObjFin procedure (CEDACRI) whenever the trading deskstipulates a new operation and after the Settlement Finance Department has verified its correctness. Annual Report

120 Quantity-related information 1.A Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives. Currency: Euro Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives 0 53, ,448 1, With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security 0 53, ,424 1, Options + Long positions , Short positions , Other derivatives + Long positions 0 49, , Short positions 0 3, Annual Report 2013

121 1.B Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives Currency: Swiss Franc Tipologia / Durata residua On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives 0 1, With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security 0 1, Options + Long positions Short positions Other derivatives + Long positions 0 1, Short positions Annual Report

122 1.C Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives Currency: Japanese Yen Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives 0 46, , With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security 0 46, , Options + Long positions Short positions Other derivatives + Long positions 0 1, Short positions 0 45, , Annual Report 2013

123 1.D Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives Currency: English Pound Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security Options + Long positions Short positions Other derivatives + Long positions Short positions Annual Report

124 1.E Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives Currency: US Dollar Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security Options + Long positions Short positions Other derivatives + Long positions Short positions Annual Report 2013

125 1.F Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives Currency: South African Rand Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security Options + Long positions Short positions Other derivatives + Long positions Short positions Annual Report

126 1.G Supervisory trading portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities for cash and financial derivatives Currency: other Currencies Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets Debt securities with early repayment option other Other assets Cash liabilities P.C.T. liabilities Other liabilities Financial derivatives With host security Options + Long positions Short positions Other derivatives + Long positions Short positions Without host security Options + Long positions Short positions Other derivatives + Long positions Short positions Annual Report 2013

127 2. Supervisory trading portfolio: distribution of exposures in equities and indexes in the main Countries of the quotation market This item is not used. 3. Supervisory trading portfolio: internal models and other methodologies for the analysis of sensitivity The supervisory trading portfolio is mainly composed of FOREX instruments. Therefore the analyses can be referred to what is described in the paragraph related to foreign exchange risk. 2.2 Interest rate and price risk bank portfolio Quality-related information A. General aspects, management procedures and measurement methods for interest rate risk and price risk General aspects The interest rate risk taken on by the Bank for its bank portfolio mainly derives from typical operations performed by the Bank and is causedin particular by differences between asset and liability items in terms of amount, maturity date of rate re-pricing, financial duration and interest rate. The interest-rate risk control of the bank portfolio is guaranteed by the Risk Control Division. The Treasury/Financial Services Division carries out the transactions by managing the interest rate risk; it performs this activity, subjected to the opinion of the Finance Committee (Consultancy Body in which the General Management and the Head of Treasury/Financial Services, Risk Control And Commercial Divisions of the bank take part), in order to optimize the economic return for the Bank. On a monthly basis, at least, the Bank summons the Finance Committee and the Liquidity Round. During the meetings, specific reports provided by the Risk Control Division, which summarize the interest rate risk position taken by the Bank, are analyzed, discussed and recorded. In detail, the following are analyzed: produces on the interest margin of the current accounting year (model of the Current Profits, in which we forecast a nonuniform variation of the rate curve); Analysis report of the impact which the variation of rates produces on the interest margin during the twelve months subsequent to the date of analysis (Current Profits model in which we forecast a variation of the rate curve). For the measurement of internal capital allocated in relation to the interest rate risk (in customary situations and in stress scenarios),the instructions indicated in Annex C to Title III, Chapter 1 of the Circular letter by Bancad Italia 263/2006 were followed. The model proposed by Bancad Italia was followed in-depth, and led tothe following variations: Replacement of accounting values of Assets and Liabilities items with their current value calculated by using non-flat spot curves and referring to all relevant currencies; Calculation of modified durations by using the aforementioned curves and not a single yield equal to 5%; Besides scenarios proposed by regulations, stress scenarios fixed by the Holding and a scenario deemed as more probable by the bank were also taken into consideration (as to decrease-related scenarios, non-negativity of rates restriction is guaranteed). The worst case scenario to emerge from the analyses we performed, is represented by the parallel movement of 200 bp,as established by regulations. The price risk derives from the purchase of government securities (BOT, BTP and CCT) held in the portfolio as ordinary liquid reserves (transfer of securities in the pooling account and their possible utilization in collection operations secured by the ECB) and as stress reserves (that can be used only with previous authorization by the Holding). The risk is monitored by the Risk ControlArea, according to the similar procedure used for the supervisory trading portfolio: daily verification of economic performance and Var limits. Analysis report of the mismatching between loans and deposits, with regards to there-pricing date on which the accounting entry is indexed (gap analysis); Analysis report of the impact which the variation of rates Annual Report

128 B. Fair value hedging operations Operations to limit interest rate risk have led to some fixed interest bonds being hedged by an Interest Rate Swap (IRS). Hedging portfolios of this kind, consisting of hedging instruments (IRS) and hedge assets (bond market loans), were subjected to Hedge Accounting checks, in accordance with IAS regulations, and were found to be totally effective. C. Hedging of financial flows Cash Flow Hedge As of December 31 st, 2013, the Bank does not have any hedging instrument against the interest rate risk from financial flows. Retrospective and prospective tests are conducted to check the level of efficacy. With regards to retrospective tests, the dollar off set method was used. This method consists of calculating the ratio between the Fair Value variations of the hedging instrument and the hedged asset, which must remain between 80% and 125%. The prospective efficacy test consists of analyzing the sensitivity, in relation to the Fair Value calculation of the hedging instrument and the hedged asset, hypothesizing a parallel shock of +/- 100 base points on the interest rates curve. At any evaluation time, regardless of the results of the perspective test, the non-performance of the retrospective test causes the divestment of the hedging assets only if the economic impact of the difference between Fair Value deltas of the Hedging instrument and of the hedged object is higher than 1% of the notional and, at the same time, this impact is higher than 1% of the economic result of the bank for the same reference period (before tax). On the contrary, the Fair Value Option regime was used by the Bank for derivatives that hedge structured debenture loans by making use of the possibility of not breaking up the derivative in question. Also in this case, both instruments (derivatives and debenture loan) are assessed at Fair Value. 170 Annual Report 2013

129 Quantity-related information 1.A Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: Euro Typology / Residual duration On demand up to 3 months 3-6 months 6 months - 1 year 1-5 years 5-10 years More than 10 years Unspec. duration 1. Cash assets 1,736,025 43,033 38,317 90, ,219 1,497 1, Debt securities 9,947 14,913 19, with early repayment option other 9,947 14,913 19, Loans to banks 7,176 5, Loans to customers 1,718,902 22,475 18,369 90, ,219 1,497 1, current accounts 80,400 1,111 1,343 4,277 20, other loans 1,638,502 21,364 17,026 86, ,212 1,497 1, with early repayment option 437, other 1,201,230 21,032 16,932 86, , Cash liabilities 476,884 1,220, ,187 19,925 27,668 5, Payables to customers 358,882 12,178 14,218 17, , current accounts 346,484 11,853 13,889 16,370 1, other payables 12, ,932 5, with early repayment option other 12, ,932 5, Payables to banks 118,002 1,069,459 15, current accounts other payables 117,427 1,069,459 15, Debt securities 0 138,432 78,967 2,886 20, with early repayment option other 0 138,432 78,967 2,886 20, Other liabilities with early repayment option other Financial derivatives , With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security , Options long positions short positions Other derivatives 0 25, long positions 0 12, short positions 0 12, Other off-balance transactions long positions short positions Annual Report

130 1.B Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: US Dollar up to months More than Unspec. Typology / Residual duration On demand months months - 1 year 1-5 years 5-10 years 10 years duration 1. Cash assets 894 1, Debt securities with early repayment option other Loans to banks Loans to customers 0 1, current accounts other loans 0 1, with early repayment option other 0 1, Cash liabilities 2, Payables to customers 2, current accounts 2, other payables with early repayment option other Payables to banks current accounts other payables Debt securities with early repayment option other Other liabilities with early repayment option other Financial derivatives With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security Options long positions short positions Other derivatives long positions short positions Other off-balance transactions long positions short positions Annual Report 2013

131 1.C Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: English pound up to months More than Unspec. Typology / Residual duration On demand months months - 1 year 1-5 years 5-10 years 10 years duration 1. Cash assets Debt securities with early repayment option other Loans to banks Loans to customers current accounts other loans with early repayment option other Cash liabilities Payables to customers current accounts other payables with early repayment option other Payables to banks current accounts other payables Debt securities with early repayment option other Other liabilities with early repayment option other Financial derivatives With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security Options long positions short positions Other derivatives long positions short positions Other off-balance transactions long positions short positions Annual Report

132 1.D Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: Japanese Yen up to months More than Unspec. Typology / Residual duration On demand months months - 1 year 1-5 years 5-10 years 10 years duration 1. Cash assets 1,081 70, Debt securities with early repayment option other Loans to banks Loans to customers , current accounts other loans , with early repayment option other , Cash liabilities 1,632 29, Payables to customers 1, current accounts 1, other payables with early repayment option other Payables to banks 0 29, current accounts other payables 0 29, Debt securities with early repayment option other Other liabilities with early repayment option other Financial derivatives With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security Options long positions short positions Other derivatives long positions short positions Other off-balance transactions long positions short positions Annual Report 2013

133 1.E Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: Rand Sud Africa up to months More than Unspec. Typology / Residual duration On demand months months - 1 year 1-5 years 5-10 years 10 years duration 1. Cash assets Debt securities with early repayment option other Loans to banks Loans to customers current accounts other loans with early repayment option other Cash liabilities Payables to customers current accounts other payables with early repayment option other Payables to banks current accounts other payables Debt securities with early repayment option other Other liabilities with early repayment option other Financial derivatives With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security Options long positions short positions Other derivatives long positions short positions Other off-balance transactions long positions short positions Annual Report

134 1.F Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: Swiss Franc up to months More than Unspec. Typology / Residual duration On demand months months - 1 year 1-5 years 5-10 years 10 years duration 1. Cash assets 5, , Debt securities with early repayment option other Loans to banks Loans to customers 5, , current accounts other loans 5, , with early repayment option 4, other , Cash liabilities 1, , Payables to customers 1, current accounts 1, other payables with early repayment option other Payables to banks 0 442, current accounts other payables 0 442, Debt securities with early repayment option other Other liabilities with early repayment option other Financial derivatives With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security Options long positions short positions Other derivatives long positions short positions Other off-balance transactions long positions short positions Annual Report 2013

135 1.G Bank portfolio: distribution per residual duration (re-pricing date) of financial assets and liabilities Currency: other Currencies up to months More than Unspec. Typology / Residual duration On demand months months - 1 year 1-5 years 5-10 years 10 years duration 1. Cash assets Debt securities with early repayment option other Loans to banks Loans to customers current accounts other loans with early repayment option other Cash liabilities Payables to customers current accounts other payables with early repayment option other Payables to banks current accounts other payables Debt securities with early repayment option other Other liabilities with early repayment option other Financial derivatives With underlying security Options long positions short positions Other derivatives long positions short positions Without underlying security Options long positions short positions Other derivatives long positions short positions Other off-balance transactions long positions short positions Annual Report

136 Bank portfolio: inner models and other methodologies for the analysis of sensitivity The price risk for the shares classified as shareholdings is not subjected to specific monitoring at the time. 2.3 Exchange rate risk Quality-related information A. General aspects, management processes and measurement methods for exchange rate risk The risk tied to currency positions derives from variations of interest rates and, in particular, from the effect that such variations have on open positions in different currencies held by the Bank. The exchange risk is monitored daily by the Treasury / Financial Services Division via the balancing of currency positions. At the end of each day, the Administrative Support Division verifies that the Exchange position is within the limits fixed by internal regulations, and the following day the Risk Control Division performs a second-level control by using available procedural printouts. Moreover, the Exchange position is sent daily to the Holding that, via the PMS procedure, performs the VaR calculation with a 99% confidence level and a time frame (holding period) of 1 day. In 2013, the correlated VaR calculated by the PMS procedure in all exchanged currencies fluctuated (in terms of end of month results) between a maximum of EUR 367 and a minimum of EUR 93. These are very low values, as the limit related to the Exchange open position is strongly contained (equal to EUR 200,000). B. Hedging foreign exchange risk The Forex method (Spot, Outright and Swap) is used by the Treasury/Financial Services Division with the intent of hedging transactions in foreign currency handled with the customers. This hedging is carried out cumulatively on a set of transactions of the same currency and separately (back to back) for high-value transactions. Even if the exchange position is balanced daily and therefore the risk is contained, the fluctuations in foreign exchange rates can indirectly generate a foreign exchange risk with regards to customers that have stipulated loans in a foreign currency. The negative trend of foreign exchange rates can in fact entail additional expenses for these customers (who carry this riskin its entirety),to such extentthat the installment payment is no longer sustainable. 178 Annual Report 2013

137 Quantity-related information 1. Distribution by currency of assets, liabilities and derivatives Currency Item US Dollar Pound Yen South African Rand Swiss Franc Others A. Financial assets 2, , , A.1 Debt securities A.2 Equities A.3 Loans to banks A.4 Loans to customers 1, , ,564 3 A.5 Other financial assets B. Other assets C. Financial liabilities 2, , , C.1 Payables towards banks , , C.2 Payables towards customers 2, , , C.3 Debt securities C.4 Other financial liabilities D. Other liabilities E. Financial derivates , , Options long positions Short positions Others , , long positions , , Short positions , Total assets , , Total liabilities , , Accounting deficit (+/-) 2 (3,826) 1 (25,602) 16 Annual Report

138 2.4 Derivative instruments A. Financial derivatives A.1 Supervisory trading portfolio: notional end-period and average values Underlying assets/typologies of derivatives Over the counter Central counterparts Over the counter Central counterparts 1. Debt securities and interest rates 2, ,052 0 a) Options 2, ,500 0 b) Swap c) Forward d) Futures e) Other Equities and share indexes a) Options b) Swap c) Forward d) Futures e) Other Currencies and gold 45, ,184 0 a) Options b) Swap 35, ,010 0 c) Forward 11, ,174 0 d) Futures e) Other Goods Other underlyings Total 48, ,236 0 Average value 98, , Annual Report 2013

139 A.2 Bank portfolio: notional end-period and average values A.2.1 Hedging Underlying assets/typologies of derivatives Over the counter Central counterparts Over the counter Central counterparts 1. Debt securities and interest rates 12, ,585 0 a) Options b) Swap 12, ,585 0 c) Forward d) Futures e) Other Equities and share indexes 0 0 a) Options b) Swap c) Forward d) Futures e) Other Currencies and gold 0 0 a) Options b) Swap c) Forward d) Futures e) Other Goods Other underlyings Total 12, ,585 0 Average value 12, ,585 0 Annual Report

140 A.2.2 Other derivatives Over the Central Over the Central Underlying assets/typologies of derivatives counter counterparts counter counterparts 1. Debt securities and interest rates 2, ,500 0 a) Options 2, ,500 0 b) Swap 0 0 6,000 0 c) Forward d) Futures e) Other Equities and share indexes 0 12,000 a) Options ,000 0 b) Swap c) Forward d) Futures e) Other Currencies and gold 0 4,680 a) Options b) Swap c) Forward 0 0 4,680 0 d) Futures e) Other Goods Other underlyings Total 2, ,180 0 Average value 13, , Annual Report 2013

141 A.3 Financial derivatives: gross positive fair value composition per products Positive Fair value Over the Central Over the Central Portfolio/Typologies of derivatives counter counterparts counter counterparts A. Supervisory trading portfolio 3, ,547 0 a) Options b) Interest rate swap c) Cross currency swap 3, d) Equity swap e) Forward ,541 0 f) Futures g) Other B. Bank portfolio - hedging a) Options b) Interest rate swap c) Cross currency swap d) Equity swap e) Forward f) Futures g) Other C. Bank portfolio - other derivatives a) Options b) Interest rate swap c) Cross currency swap d) Equity swap e) Forward f) Futures g) Other Total 4, ,087 0 Annual Report

142 A.4 Financial derivatives: gross negative fair value composition per products Positive Fair value Over the Central Over the Central Portfolio/Typologies of derivatives counter counterparts counter counterparts A. Supervisory trading portfolio 3 0 5,946 0 a) Options b) Interest rate swap c) Cross currency swap 0 0 5,929 0 d) Equity swap e) Forward f) Futures g) Other B. Bank portfolio - hedging a) Options b) Interest rate swap c) Cross currency swap d) Equity swap e) Forward f) Futures g) Other C. Bank portfolio - other derivatives a) Options b) Interest rate swap c) Cross currency swap d) Equity swap e) Forward f) Futures g) Other Total , Annual Report 2013

143 A.5 A. Over the counter financial derivatives supervisory trading portfolio: gross positive and negative notional values, fair value per counterparts contracts not included in offsetting agreements Contracts not included in offsetting agreements Governments and Central banks Other public bodies Banks Financial companies Insurance companies Non-financial companies Other subjects 1) Debt securities and interest rates 0 0 2, notional value 0 0 2, positive fair value negative fair value future exposure ) Equities and share indexes notional value positive fair value negative fair value future exposure ) Currencies and gold , ,755 - notional value , positive fair value 0 0 3, negative fair value future exposure ) Other values notional value positive fair value negative fair value future exposure A.6 Over the counter financial derivatives supervisory trading portfolio: gross positive and negative notional values, fair value per counterparts contracts included in offsetting agreements As of December 31 st, 2013, this item is not used. Annual Report

144 A.7 Over the counter financial derivatives bank portfolio: gross positive and negative notional values, fair value per counterparts contracts not included in offsetting agreements Contracts not included in offsetting agreements Governments and Central banks Other public bodies Banks Financial companies Insurance companies Non-financial companies Other subjects 1) Debt securities and interest rates , ,179 - notional value , ,167 - positive fair value negative fair value future exposure ) Equities and share indexes notional value positive fair value negative fair value future exposure ) Currencies and gold notional value positive fair value negative fair value future exposure ) Other values notional value positive fair value negative fair value future exposure A.8 Over the counter financial derivatives bank portfolio: gross positive and negative notional values, fair value per counterparts contracts included in offsetting agreements As of December 31 st, 2013, this item is not used. 186 Annual Report 2013

145 A.9 Residual life of OTC financial derivatives: notional values Underlying/Residual life Up to 1 year Over 1 year and up to 5 years Over 5 years Total A. Supervisory trading portfolio 11,546 34,549 2,167 48,262 A.1 Financial derivatives on debt securities and interest rates ,167 2,320 A.2 Financial derivatives on equities and share indexes A.3 Financial derivatives on exchange rates and gold 11,393 34, ,942 A.4 Financial derivatives on other values B. Bank portfolio 12, ,167 14,752 B.1 Financial derivatives on debt securities and interest rates 12, ,167 14,752 B.2 Financial derivatives on equities and share indexes B.3 Financial derivatives on exchange rates and gold B.4 Financial derivatives on other values Total ,131 34,549 4,334 63,014 Total ,406 56,595 5, ,001 A.10 OTC financial derivatives: counterpart risk/financial risk internal models The OTC financial derivatives held by the Bank have, as counterpart, primary bank institutes. Following a series of analyses on the data of held derivatives, the impact the counterpart risk may have in the entire assessment of the same derivative was considered to be non-significant. B. Credit derivatives This section is not used. C. Financial and credit derivatives C.1 OTC financial and credit derivatives: net fair values and future exposure per counterparts As of December 31 st, 2013, this item is not used. Annual Report

146 Section 3 Liquidity risk Quality-related information A. Liquidity risk: general aspects, management processes and measurement methods The liquidity risk is connected to the eventuality in which the Bank is no longer able to fulfill its payment obligations at their maturity because of its incapacity to obtain adequate funding (funding liquidity risk), or because of the presence of limitations to the divestment of its assets (market liquidity risk). This also includes the risk that the bank, in order to meet its payment commitments, is forced to bear a high cost for the funding, or to sustain capital losses in the case of divestment of its assets. The Bank manages liquidity according to Group centralized logics. The Holding Treasury represents the main body for the entire group s funding and coordination on international markets and is also the last resort lender for all companies belonging to the group, in quality of central compensation institute. The local Treasury finances the company through the local markets (local customers, local financial intermediaries) and through the Group Treasury; the access to the international markets is allowed in coordination with the Group Treasury. In the context of the Group ALCO Committee (Assets/Liabilities Committee), the specific liquidity management strategies to be applied by the Group in its entirety, as well as by single subsidiaries, were defined as follows: The Group Treasury is responsible for the liquidity management of the whole Group. The Local Treasury, in coordination with the Group Treasury, carries out local management: for this purpose, a local Liquiditymanager is appointedto act as chair of the Liquidity Rounds, i.e. local meetings regularly organized to facilitate information flows between the Board and all Divisions involved in the process of liquidity management and control. As a risk mitigation tool, the bank has set up a readily sellable asset portfolio (Italian Government bonds) to be utilized as liquidity reserve for ordinary management and a liquidity reserve to be used in stressed situations (the latter is usable only with the authorization of the Parent Company). Furthermore, the bank has signed a committed line agreement with the Parent Company, which provides for a credit line to cover potential liquidity stress situations. To this day, the principle source of funding consists of financing lines from the Parent Company: it is possible that, in the future, this component will assume even more relevance than it currently does. Control tools: ALManalysis - Long-term liquidity analysis On a monthly basis, the Risk Control Division arranges the reports illustrating the current and perspective dimension of the liquidity risk sustained by the Bank. These are ALM analysis prospects, which analyze the mismatchingsregarding the maturities of the various assets and liabilities recorded in the balance sheet. In synthesis, considering a long-term time frame, a maturity ladder is constituted, which allows us to assess the balance of expected cash flows by opposing those assets and liabilities whose maturity is recorded in each single time bracket. The creation of accumulated imbalances allows us to calculate the net balance of the financial requirement (or of the surplus) for the considered time frame. The reports are prepared in order to present data coherently with the conventions adopted by the Holding, with the aim of allowing it to create a consolidated Group-level report. Control tools: Cash Flow Balance short-term liquidity analysis The ALM analysis indicated in the previous paragraph is integrated by a specific short-term analysis (for time frames limited to one year) in which explicit recourse is made to the technique of scenarios and related sensitivities which hypothesize, with regards to asset and liability items, the occurrence of events which may modify certain aggregates within the different time slots composing the maturity ladder. In this case,the time framefor liquidity risk vigilance is restricted to one year, in order to obtain very close time buckets and therefore have an uninterrupted vision of mismatchings over time. The analysis is set up in a way that presents Bank data coherently with the standards adopted by the Holding, in order to allow it to 188 Annual Report 2013

147 arrange well-established reports on a Group level. On a weekly basis, the Risk Control Division arranges informative flows feeding a tool conceived by the Holding ( Liquidity Ratios Tool ) that offers a representation of the accumulated maturitymismatchings and, therefore, indicates liquidity deficits or surpluses linked to various hypothetical scenarios. The control activity takes into consideration the following elements, which generate a cash flow: 1. Existing asset and liability item (similarly to long-term liquidity analysis). 2. Perspective asset and liability item ( planned-delta budget ). 3. Items deriving from the re-lending of maturing assets and liabilities ( planned-expiring business ). 4. Liquidity reserves. Hypothetical scenarios (sensitivity analysis) short-term analysis A status of liquidity crisis is defined as a situation of difficulty or incapacity of the Bank to fulfill its maturing cash obligations without activating procedures and/or using tools not referable, in terms of intensity or modality, to ordinary administration. In order to prevent and manage these crises, a series of scenarios are identified and characterized ( mild, severe and extreme ones), in order to beused both to carry out preventive stress tests and to identify the level of emergency to be declared and addressed. Thus: the analysis of suitable indicators allows us to identify the existence of one of the scenarios described below and therefore to identify a status of crisis; the stress analysis allows us to simulate beforehand the features of the scenarios and the capacity of the Bank to face them. The existence of crisis scenarios can be deducted from the analysis of suitable indicators formalized by the Bank, which mayconcern the Bank s reputation or the situation of the market. The stress analysis on liquidity is performed for each scenario (reputation, market and combined, mild and severe) in the sphere of the short-term liquidity, by defining the sensitivity of each item that generates a cash flow ( sensitivity analysis ) and the sensitivity of liquidity reserves ( counterbalancing capacity ). These sensitivities are defined in an expert way by the LiquidityManager,who communicates with his Holding referent so that these data are as realistic as possible. In short, these are percentages which determine increases or reductions, within a normal scenario, in the income and expenditures related to liquidity assets and liabilities items (both stochastic and deterministic), reserves, planned items and out-ofbalance items. Therefore, in a stress hypothesis, these percentages (which are different according to the various scenarios) modify the absolute amount of mismatchings in the various time buckets in question. For each scenario, reports are obtained containing the following: the graphic representation of the trend of cumulative perspective liquidity, in the varioustime buckets, over a 12-month period; the calculation of Liquidity ratios (lower than the differentials between cumulated liquidity gaps and reserves available for their hedging). These reports are continuously made available to the General Management and the LiquidityManager,and are also simultaneously transmitted to the holding that, in the case of these close time frames, has the possibility of verifying liquidity requirements in the short/very short period. Furthermore, the local Liquidity Manager has the possibility of collating this analysis, in order to manage the relationship with the General Management alongside the defined Contingency Funding Plan, thus initiating the escalation process resulting from detected liquidity tensions. Moreover, reports become the basis for discussions which take place every two weeks, during LiquidityRounds, one of which is carried out in occasion of the Finance Committee. Control tools: Supervisory activity for Bancad Italia In the sphere of the monitoring activity of short-term liquidity positions defined by Bancad Italia, the Treasury/Financial Services Division Treasury and Finance Department and the Risk Control Division Market Risk Department draw up the Maturity ladder report on a daily basis. This report includes cash income/expenses that are certain and/ or foreseeable with reasonable certainty within the time frame involving the following 3 months, and differentiates the following sections: Annual Report

148 1. Operations with institutional counterparts 2. Operations with corporate / large corporate customers 3. Treasury budgetary document 4. Securities and finance management 5. Counterbalancing capacity Cash income/expenses, identified by following the indications above, generate the total liquidity net balance, calculated according to a maturity ladder defined as follows: 1 day, 2 days, 3 days, 4 days, 5 days, 2 weeks, 3 weeks, 1 month, 2 months and 3 months Regarding operations with the Parent Company, in determining the total liquidity net balance neither the committed credit line, nor anyinternal short term re-financing lines are considered and no roll-over hypothesis of maturing deposits is applied. Coherently with the provisions indicated in Circular letter no. 263 dated27th December thupdate, 13th December 2010 ( Without prejudice for theresponsibility of corporate bodies in determining the threshold of tolerance of the liquidity risk, the adopted survival horizon cannot be shorter than 30 days ), it is determined that normal treasury operations should guarantee that the total liquidity net balance from the 1 day time slot to the 1 month time slot is always positive: 1g 2g 3g 4g 5g 2s 3s 1m 2m 3m Total liquidity net balance >0 >0 >0 >0 >0 >0 >0 >0 Maturity Failure to comply with this condition generates an internal escalation process requiring the immediate involvement of the Bank s Management (also in discussions at periodical meetings, such as Liquidity Rounds and Finance Committees). In turn, the Management reports the exceeding of the limit to the Board of Directors, in order for it to define and implement of suitable measures. Contingency Funding Plan The Contingency Funding Plan formalizes the Bank s approach to liquidity management in conditions of emergency. The purpose of the plan is to guarantee the solvency of the Bank and of Hypo Group in these conditions of emergency, by trying to contain funding expenses as much as possible, to manage liquidity reserves both optimally and promptly, to avoid - as much as possible - that the situation cause losses, lack of solvency and negative publicity effects towards the customers, partners and supervisory bodies. The local Liquidity Manager is responsible for the drawing up of thebank s liquidity emergency plan. Each subsidiary of Hypo group has its ownemergency plan, connected to a more general Group emergency plan. The plan includes the following elements: Definition of scenarios of crisis: main features and risk indicators; Stress hypotheses included in the control models (in particular scenario hypotheses provided by the Cash Flow Balance), so that the suitable actions to be undertaken to safeguard the Bank liquidity balance can be evaluated from a preventive point of view; Modality of statement and identification of liquidity emergency statuses; Responsibility and roles in the management of liquidity crises. 190 Annual Report 2013

149 Quantity-related information 1. Time distribution per residual contractual duration of financial assets and liabilities Currency: Euro Currency: Euro Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets 221,614 1,509 5,738 28,235 76, , , , ,011 5,645 A.1 Government bonds ,029 20, , A.2 Other debt securites A.3 OICR quotas A.4 Loans 221,546 1,509 5,738 28,235 66,419 82, , , ,011 5,645 - Banks 7, ,645 - Customers 214,370 1,509 5,738 28,235 66,419 82, , , ,011 0 Cash liabilities 359,382 33,743 45, ,232 55,981 56, , , ,282 0 B.1 Deposits and current accounts 358, , ,244 27,702 29, , , , Banks ,000 20,080 15, , , , Customers 357, ,219 2,244 7,622 14,131 16,766 1, B.2 Debt securities 0 32, ,833 27,970 26,321 37, , B.3 Other liabilities 1, , ,282 0 Off-balance sheet transactions 12 3,505 11, , C.1 Financial derivatives with capital swap 0 3,505 11, , Long positions 0 1,307 10, Short positions 0 2,198 1, C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report

150 Currency: US Dollar Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets , A.1 Government bonds A.2 Other debt securites A.3 OICR quotas A.4 Loans , Banks Customers , Cash liabilities 2, B.1 Deposits and current accounts 2, Banks Customers 2, B.2 Debt securities B.3 Other liabilities Off-balance sheet transactions C.1 Financial derivatives with capital swap Long positions Short positions C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report 2013

151 Currency: English pound Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets A.1 Government bonds A.2 Other debt securites A.3 OICR quotas A.4 Loans Banks Customers Cash liabilities B.1 Deposits and current accounts Banks Customers B.2 Debt securities B.3 Other liabilities Off-balance sheet transactions C.1 Financial derivatives with capital swap Long positions Short positions C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report

152 Currency: Japanese Yen Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets 1, ,504 2,177 4,769 24,536 38,982 0 A.1 Government bonds A.2 Other debt securites A.3 OICR quotas A.4 Loans 1, ,504 2,177 4,769 24,536 38, Banks Customers ,504 2,177 4,769 24,536 38,982 0 Cash liabilities 1, ,075 6,926 21, B.1 Deposits and current accounts 1, , Banks , Customers 1, B.2 Debt securities B.3 Other liabilities Off-balance sheet transactions 0 2,135 9, , C.1 Financial derivatives with capital swap 0 2,135 9, , Long positions 0 1, Short positions 0 1,009 9, , C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report 2013

153 Currency: South African Rand Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets A.1 Government bonds A.2 Other debt securites A.3 OICR quotas A.4 Loans Banks Customers Cash liabilities B.1 Deposits and current accounts Banks Customers B.2 Debt securities B.3 Other liabilities Off-balance sheet transactions C.1 Financial derivatives with capital swap Long positions Short positions C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report

154 Currency: Swiss Franc Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets 3, ,371 3,111 9,612 13,206 26, , ,924 0 A.1 Government bonds A.2 Other debt securites A.3 OICR quotas A.4 Loans 3, ,371 3,111 9,612 13,206 26, , , Banks Customers 3, ,371 3,111 9,612 13,206 26, , ,924 0 Cash liabilities 1, ,704 89,606 0 B.1 Deposits and current accounts 1, ,785 16, Banks ,785 16, Customers 1, B.2 Debt securities B.3 Other liabilities ,919,0 73,314 0 Off-balance sheet transactions C.1 Financial derivatives with capital swap Long positions Short positions C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report 2013

155 Currency: other currencies Items/ Time periods On demand 1-7 days 7-15 days 15 days - 1 month 1-3 months 3-6 months 6 months - 1 year 1-5 years More than 5 years Unspec. Duration Cash assets A.1 Government bonds A.2 Other debt securites A.3 OICR quotas A.4 Loans Banks Customers Cash liabilities B.1 Deposits and current accounts Banks Customers B.2 Debt securities B.3 Other liabilities Off-balance sheet transactions C.1 Financial derivatives with capital swap Long positions Short positions C.2 Financial derivatives with capital swap Long positions Short positions C.3 Deposits and financing to be received Long positions Short positions C.4 Irrevocable committments to issue funds Long positions Short positions C.5 Issued financial guarantees Long positions Short positions C.6 Received financial guarantees Long positions Short positions C.7 Credit derivatives with capital exchange Long positions Short positions C.8 Credit derivatives without capital exchange Long positions Short positions Annual Report

156 A. General aspects, management processes and methods for measuring liquidity risk 2. Information on committed assets recorded in the financial statements Committed Non committed Total Exposures/portfolio Balance Value Fair Value Balance Value Fair Value Cash and liquidity 0 0 6, , Debt securities 19,955 19,955 24,852 24,852 44, capital securities Loans 509, ,689 2,023,918 2,023,918 2,533, Other financial assets 0 0 7,446 7,446 7, Other non-financial assets , , ,880 Total , ,644 2,189,193 2,183,096 2,718,837 The Debt securities Committed are related to Italian government bonds which can be used for the re-financing auctions of the European Central Bank. The Loans - Committed include receivables from customers transferred in the ambit of securitization operations denominated Salina 5 and Dolomiti Mortgage 6 which, not featuring the requisites indicated by IAS 39 for so-called de-recognition, were object of recovery in the financial statements. 3. Information on committed proprietorship assetsnot recorded in the financial statements Exposures/portfolio Committed Non committed Total Financial assets 141, , ,194 - Debt securities 141, , ,194 - Other Non financial assets Total , , ,194 In addition to what is described in part E, Section 1, Part C. Securitization Operations, the Bank is currently carrying out two self-securitization operations for which it has undersigned, at the moment of emission, the total liabilities emitted by the vehicle company. The Financial assets debt securities Committed listed in the table in question refer to eligible assets (proprietary debt securities) which the Bank utilizes as an alternative form of deposit collection, using them for marginal re-financing operations with the European Central Bank. We specify that in Financial assets debt securities Not committed the junior tranches deriving from proprietary securitizations are included for EUR thousand, and reacquired bonds emitted by the Bank are included for EUR 19,799 thousand. 198 Annual Report 2013

157 Section 4 Operating risk Quality-related information A. Operating risk: general aspects, management processes and measurement methods In the sphere of operating risks, our institute has codified and made operative a process to collect information related to errors causing an actual or only potential loss for the Bank. The collection and further analysis of the events related to operating risks, are carried out via an application supplied by the Parent Company, Inform. In the Bank, this activity is coordinated by the Risk Control Division, which supports the various Departments in the collection of reports which emerge in each time period and sets up recovery operations concerning past events, starting from reports from the employees and the analysis of internal accounting documentation. Quantity-related information With regards to what is indicated concerning the use of the BIA approach, we highlight that the capital requirement for operating risks, as of 31/12/2013, amounts to EUR 11,500 thousand. Information note to the public We would like to underline that information regarding the composition of the Supervisory Capital, capital adequacy, the exposure and the measurement of risks required by the New solvency supervisory provisions for the banks (Circular letter dated December 27th, 2006, no. 263), intitle IV «Information note to the public», will be published on the Internet site of the Bank, in the «normative» section, «Information note to the public». With regards to the calculation of capital requirements against Operating Risk, the Bank still uses the BIA (Basic Indicator Approach) method, which defines the requirement as: (average operating income for the last 3 business years) x 15% Operative Risk Mitigation tools: Insurances In order to face the possibility of harmful situations for the Bank, due to objective or subjective and in any case not foreseeable - reasons, over the course of timevarious insurance policies have been stipulated that, compatibly with the limitations set by the single companies, provide to cover various typologies of events. Specific and extended operations in the context of leasing products have furthermore led to the creation of specific risk covering modalities regarding the assets that are the subject of the contract, that even in case in which the lessee does not autonomously fulfill the obligation to stipulate suitable insurance policies, as established per contract - allow the Bank to obtain guarantees of indemnity in the case of damaging events. A specific resource within the Organizational Support Division, with experience in the sector, was identified and assigned to the management and monitoring of insurance agreements. Annual Report

158 Part F Information regarding shareholders equity Section 1 Capital A. Quality-related information Capital management involves all policies and choices required to define the dimension of the capital, as well as the optimal arrangement of the various alternative capitalization tools, in order to ensure that Bank assets and ratios are consistent with the adopted risk profile and observe regulatory requirements. The bank is subjected to capital adequacy requirements fixed by the Basel Committee on the basis of the standards determined by Bancad Italia. Regarding the policies adopted in orderto comply with capital requirements, as well as policies and processes adopted for capital management, please refer to Section 2, under Shareholders Equity and Banking Regulatory Ratios. B. Quantity-related information B. 1 Capital Items/Values Share capital 318, , Issue premiums Reserves 62,400 (81,001) - of profits a) legal 9,238 9,238 b) statutory 5,397 5,397 c) own shares 0 0 d) others e) losses carried forward (137,935) (96,336) - others 185, Capital Instruments (Own shares) Valuation reserves (437) (1,165) - Financial assets available for sale (125) (750) - Acturial Profit(loss) related to defined social security benefit plans (328) (431) - Revaluation Special laws Profit (Loss) for the year (98,527) (41,598) Total 281, ,424 The Bank s Net Equity, as of 31/12/2013, amounts to EUR 281,624 thousand, to be compared to the amount of EUR 194,424 thousand, as of 31/12/ Annual Report 2013

159 B. 2 Valuation reserves of financial assets available for sale: composition Assets/Values Positive reserve Negative reserve Positive reserve Negative reserve Debt securities Equities O.I.C.R. quotas Loans Total B.3 Valuation reserves of financial assets available for sale: annual variations Debt securities Equity O.I.C.R. quotas Financing 1. Opening balances (750) Positive variations Fair value increases Reversal to the income statement of negative reserves: due to impairment due to sales Other variations Negative variations Fair value decreases Write-downs due to impairment Reversal to the income statement of positive reserves: from sales Other variations Closing balances (125) Annual Report

160 Section 2 Regulatory Capital and capital ratios 2.1 Regulatory Capital A. Quality-related information With the issuing of Circular Letter no. 263, dated December 27th 2006 ( New regulations for the prudential supervision of banks ), and further updates, Bancad Italia has redesigned the regulations for the prudential supervision of banks and banking groups, thus implementing the EU decisions regarding capital adequacy of financial intermediaries: New Basel Capital Accord (so-called Basel 2 ). The new structure of the regulations for the prudential supervision is based on three Pillars: the First gives importance to risks and capital measurement, providing for the compliance with capital requirements to address some important typologies of risk (credit, counterpart, market and operating risks) for banking and financial enterprises; for this purpose, alternative methodologies are provided for the calculation of capital requirements characterized by various levels of complexity in the measurement of risks and organizational control requirements; the Second asks financial intermediaries to adopt a strategy and a process to check capital adequacy, both current and perspective, by highlighting the importance of governance as a fundamental element, also from the point of view of the Supervisory Authority, entrusted with the monitoring of the reliability and correctness of this internal assessment; the Third regards market discipline and requires banks to provide to the public information, so as to allow operators to assess the situation of the various institutes with regards to their field of operations, their capital, exposures to risk, risk managementprocedures and, as a consequence, capital adequacy. The regulatory capital consists of the core capital, admitted in full in the calculation, and the supplementary capital, which is admitted with a maximum limit equal to the core capital, net of deductions. On the basis of the enunciated rules, the Regulatory Capital of the bank, on the date of reference, is articulated as follows: 1. Core Capital (Tier 1) As of December 31 st, 2013, the capital consisted exclusively of the share capital, the legal reserve and other equity reserves that could be calculated in accordance with Bancad Italia s Circular Letter No. 155,dated December 18th, 1991, and its subsequent updates. 2. Supplementary capital (Tier 2) The supplementary capital of the bank consists of the revaluation reserves net of the estimates of provisions related to country risks. Participations issued by non-consolidated financial institutes, in the presence of negative supplementary capital, are deduced 100% from core capital. 3. Tier 3 As of the reference date of the financial statements, no instruments ascribable to Tier 3 are present. 4. Other information In order to consider the impact deriving from the application of international accounting principles on the calculation of the supervisory capital, some solvency filters, to be applied to the financial statements data (IAS/IFRS), have been introduced, aiming to safeguard the quality of the regulatory capital and to reduce its potential volatility deriving from the application of these same principles. In general, for operations different from trading ones, the Bank is required to integrally deduce from the base capital all capital 202 Annual Report 2013

161 losses due to fair value assessments and the partial estimation of fair value capital gains in the supplementary capital (socalled asymmetrical approach). On May 18th, 2010,Bancad Italia partially reviewed this approach, in line with the policies adopted by the main EU Countries, by allowing banks the possibility to completely neutralize both capital gains and capital losses, limited to securities issued by central administrations of Countries belonging to the European Union and included in the portfolio of financial assets available for sale (AFS). The bank has decided to make use of the option offered by Bancad Italia, therefore neutralizing both capital gains and capital losses - recorded starting from January 1st, on securities issued by central administrations of countries belonging to the European Union included in the Financial assets available for sale portfolio. This option was applied in the calculation of the supervisory capital starting from June 30th, In particular, we highlight that, as of December 31st, 2013, capital losses not deducted from the core capital amount to EUR 125 thousand. Furthermore, we specify that these results also take into consideration the effects deriving from the communication sent by Bancad Italia to all intermediaries on May , in which the Supervisory Body instituted, starting from March , specific prudential treatments regarding the effects deriving from the application of IAS 19. Annual Report

162 B. Quantity-related information A. Tier 1 before solvency filters 281, ,568 B. Tier 1 solvency filters 0 0 B.1 positive IAS/IFRS solvency filters(+) 0 0 B.2 negative IAS/IFRS solvency filters(-) 0 0 C. Tier 1 before deductions (A+B) 281, ,568 D. Deductions from core capital E. TIER 1 (C-D) 281, ,747 F.Tier 2 before solvency filters (5) (5) G. Tier 2 solvency filters 0 0 G.1 positive IAS/IFRS solvency filters (+) 0 0 G.2 negative IAS/IFRS solvency filters (-) 0 0 H. Tier 2 before deductions (F+G) (5) (5) I. Deductions from Tier L. Total Tier 2 (H-I) (5) (5) M. Deductions from Tier 1 and Tier N. Capital for regulatory purposes (E+L-M) 281, ,742 O. TIER P. Capital for regulatory purposes included Tier 3 (N+O) 281, , Annual Report 2013

163 2.2 Capital Adequacy A. Quality-related information As part of the Group Hypo AlpeAdria Austria, our Bank is subjected to a joint monitoring process by supervisory authorities - Joint Risk Assessment and Decision (JRAD) -which was finalized with the emission of the joint decision dated January , in which Bancad Italia recommended that Hypo Alpe-Adria-Bank S.p.A. maintain a core tier 1ratioabove 11.50%. Considering the effects of the capital contribution of EUR 185 million by the Parent Company as coverage of losses, the current situation resulting from the composition of the regulatory capital and from the following detail regarding capital ratios, the Bank has a Tier 1 capital ratio equal to 11.86% (8.77% as of ) and total capital ratio equal to 11.86% (8.77% as of ). The following table supplies quantitative information regarding risk operations and capital ratios. Furthermore, the Bank is required to constantly respect capital requirements for risks produced by operations on markets regarding financial tools, currencies and goods. With regards to market risks calculated on the entire trading portfolio, the law identifies and disciplines how to manage the various types of risk: risk of position on debit and capital securities, settlement risk and concentration risk. Furthermore, with regards to the entire balance, the Bank must determine exchange rate risk and risk of position on the goods. The following ratios also have remarkable importance for the assessment of capital solidity: Tier 1 capital ratio, consisting of the ratio between core capital and total risk weighted assets; Core Tier 1 capital ratio, consisting of the ratio between core capital (net of innovative capital tools) and total risk weighted assets. Annual Report

164 B. Quantity-related information Non-weighted amounts Weighted amounts/requir. Categories/Values A. Risk assets A.1 Credit and Counterpart Risk 2,676,472 3,162,082 2,164,717 2,327, Standard approach 2,676,472 3,162,082 2,164,717 2,327, Methodology based on internal ratings Base Advanced Securitization B. Regulatory capital requirements B.1 Credit and counterpart risk 173, ,218 B.2 Market risk 4,938 2, Standard methodology 4,938 2, Internal models Risk of concentration 0 0 B.3 Operative risk 11,500 14, Base method 11,500 14, Standardized method Advanced method 0 0 B.4 Other solvency requirements 0 0 B.5 Other calculation elements 0 0 B.6 Total solvency requirements 189, ,184 C. Risk assets and solvency coefficients C.1 Risk weighted assets 2,370,188 2,539,800 C.2 Core capital/risk weighted assets (Tier 1 capital ratio) 11.86% 8.77% C.3 Capital for regulatory purposes included TIER 3/risk weighted assets (Total capital ratio) 11.86% 8.77% 206 Annual Report 2013

165 Part G Aggregation operations regarding businesses or company branches This section is not used. Annual Report

166 Part H Transactions with related parties Transactions with related parties 1. Information on remuneration of dirigenti (top managers) with strategic responsibilities Members of the BoD remuneration personnel severance pay (TFR) Members of Stat. Board of Auditors Strategic top managers 1,071 1,002 This table indicates remunerations of the members of the Board of Directors and of the Board of Statutory Auditors, as well as the remunerationof the other top managers in charge of strategic responsibilities included in the concept of related parties. 2. Information on transactions with related parties Transactions with BoD members, BoSA members and General Management Loans and guarantees-cash Loans & guarantees-signature Related party Agreed Utilized Agreed Utilized Collected a) BoD and BoSA members b) Top managers with strategic responsibility b) Close relatives of the parties referred to under a) and b) Annual Report 2013

167 Infra-group relationships Company name a) Subsidiaries Receivables on granted loans Other receivables Debts on received loans Other depts Guarantees Commitments HypoService S.r.l. - Italia 7, H.A.A. Finance S.r.l - Italia 0 0 1, b) Companies within H.A.A.B - Austria Group H.A.A.B. International AG - Austria 0 3,691 1,556, H.A.A AG - Austria ,140 12, H.A.A. Leasing Srl - Italia H.A.A. Bank d.d. Lubiana - Slovenia H.A.A. Bank d.d. Zagabria - Croazia H.A.A. Bank d.d. Mostar - Bosnia H.A.A. Bank d.d. Banja Luka - Bosnia H.A.A. Bank d.d. Belgrado - Serbia H.A.A. Marketing und Advertising GmbH H.A.A. AD Podgorica - Montenegro H.A.A. Immobilien AG - Austria H.A.A. Leasing Holding GmbH - Austria H.A.A. Nekretnine D.O.O Croazia Probus Real Esate GMBH - Austria Malpensa Gestioni - Italia Company name a) Subsidiaries Interests receivable on granted loans Commission income and other income Interests payable on granted loans Commission expenses and other expenses HypoService S.r.l. - Italia H.A.A. Finance S.r.l - Italia ,106 b) Companies within group H.A.A.B - Austria H.A.A.B. International AG - Austria 64 9,469 13, H.A.A AG - Austria H.A.A. Leasing Srl - Italia H.A.A. Bank d.d. Lubiana - Slovenia H.A.A. Bank d.d. Zagabria - Croazia H.A.A. Bank d.d. Mostar - Bosnia H.A.A. Bank d.d. Banja Luka - Bosnia H.A.A. Bank d.d. Belgrado - Serbia H.A.A. Marketing und Advertising GmbH H.A.A. AD Podgorica - Montenegro H.A.A. Immobilien AG - Austria H.A.A.B. AG - Austria H.A.A. Leasing Holding GmbH - Austria H.A.A. Nekretnine D.O.O Croazia Probus Real Esate GMBH - Austria Malpensa Gestioni - Italia Annual Report

168 Interests receivable and payable are the payments at market rates of loans granted and received, of free and term deposit relationships and of current account relationships. The other expenses and income refer to commission income and expenses and to the various administrative expenses sustained for services rendered reciprocally among Group Companies. Parent Company direction and coordination activities In relation to accounting information on company coordination and direction activities, paragraph 4 Article 2497-bis specifies that the Bank must exhibit a table summarizing the main figures of the last approved Financial Statements of the company performing direction and coordination activities. The section below shows the balance sheet and economic figures relating to the financial statementsof our Parent Company as of December 31 st, Annual Report 2013

169 Balance sheet at December 31st, Hypo Alpe-Adria-Bank International A.G. Assets Cash and cash equivalent 2,115,684 3,238 Treasury sec. and similar securities 424, ,942 Receivables due from banks 4,465,166 9,080,954 Receivables due from customers 10,431,922 8,988,814 Bonds and other debt securities 623, ,503 Stocks, shares and other equities 10,298 29,201 Equity investments 7,730 8,174 Equity investments in Group comp. 2,464,906 2,626,076 Intangible fixed assets 3,279 1,178 Tangible fixed assets 6,793 1,671 Other assets 482, ,020 Accrued income and deferred charges 21,211 19,255 Total Assets 21,057,828 22,670,026 Liabilities Payables due to banks 3,904,584 4,263,837 Payables due to customers 1,680,748 1,767,537 Payables represented by securities 11,974,284 14,277,010 Other liabilities 130, ,781 Accruals and deferred income 45,262 55,547 Provisions 107, ,367 Fund for general banking risks 153,000 0 Subordinated liabilities 1,902, ,718 Share capital 1,308, ,637 Reserves 247, ,286 Annual loss -395, ,694 Total Liabilities 21,057,828 22,670,026 Annual Report

170 Income Statement Interest receivable and similar revenue 965,339 1,134,506 Interest payable and similar charges -891,376-1,080,537 Dividends and other income 95,542 83,863 Commission income 13,033 20,424 Commissions expenses -30,564-25,931 Profit/loss from financial transactions 11,237-1,823 Other operating income 27,534 54,645 Administrative expenses -122, ,558 a) personnel costs -53,678-52,395 b) other administrative costs -68, ,163 Write-downs on fixed assets -1,087-1,107 Other operating expenses -19,500-3,762 Net write-downs / Write back -278, ,004 Profit on ordinary activities -230, ,284 Extraordinary profit 7,357-15,950 Income tax -7,695-7,460 Profits after tax -231, ,694 Reserve movements 0 0 Previous Losses -164,694 0 Losses for the year -395, , Annual Report 2013

171 Part I Own equity settled share-based paymentagreements This section is not used. Annual Report

172 214 Annual Report 2013

173 Part L Sector report This section is not used. Annual Report

174 Annexes to the balance statement Disclosure of compensations regarding Auditservices and services different thanauditing The new point 16-bis) inserted in the first paragraph of art of the Italian Civil Code by art. 37, paragraph 16 of Legislative Decree 39/2010, requires that the note to the financial statements should indicate the total amount of compensations paid to the auditor or to the auditing company for the auditing of annual statements, the total amount of compensations paid for the other performed auditing services, the total amount of compensations paid for fiscal consultancy services and the total amount of compensations paid for other services different than auditing. Therefore, the following table lists all compensations to audit firms, divided per type of service provided. Type of service Firm providing the service Total Financial Statements revision Deloitte & Touche SpA 122 certification services Deloitte & Touche SpA 22 Other services Deloitte & Touche SpA 16 Financial Statements revision PricewaterhouseCoopers SpA 6 Other services PricewaterhouseCoopers SpA Sums are net of VAT tax 216 Annual Report 2013

175 International accounting principles approved on December 31 st, 2013 Regulation compliance Accounting principles Variations IAS 1 Presentation of the balance statements 1126/ /08; 1274/08; 53/2009; 70/09; 243/2010; 149/11; 475/12; 301/13 IAS 2 Surpluses 1126/08 70/09 IAS 7 Financial statements 1126/ /08; 1274/08; 70/09 IAS 8 Accounting principles, changes of assessments and mistakes 1126/ /08; 70/09 IAS 10 Facts happened after balance statements reference date 1126/ /08; 70/09 IAS 11 Long-term orders 1126/ /08; 1274/08 IAS 12 Income tax 1126/ /08;1255/12 IAS 16 Immovable assets, systems and machinery 1126/ /08; 70/09; 70/09; 301/13 IAS 17 Leasing 1126/08 243/10 IAS 18 Income 1126/08 69/09 IAS 19 Benefits to employees 1126/ /08; 70/09; 475/12 IAS 20 Computation of public contributions and informativenote on public assistance. 1126/ /08; 70/09 IAS 21 Effects of exchange rate variations of foreign currencies 1126/ /08; 69/09 IAS 23 Financial expenses 1126/ /08; 70/09 IAS 24 Balance report on operations with correlated parties 1126/ /08; 632/10 IAS 26 Record and representation in the balance statements of welfare funds 1126/08 IAS 27 Consolidated and separated balance statements 1126/ /08; 69/09; 70/09; 149/11; 1254/12 IAS 28 Participations in affiliated companies 1126/ /08; 70/09; 1254/12 IAS 29 Accounting information in over-inflated economies 1126/ /08; 70/09 IAS 31 Participations in joint ventures 1126/08 70/09 IAS 32 Financial tools: exposures in the balance statements 1126/ /08; 53/09; 70/09; 1293/09, 1256/12; 301/13 IAS 33 Profits per share 1126/ /08 IAS 34 Intermediate balance statements 1126/08 70/09; 149/11; 301/13 IAS 36 Durable value reduction of assets 1126/ /08; 69/09; 70/09; 243/10 IAS 37 Provisions, liabilities and potential assets 1126/ /08 IAS 38 Intangible assets 1126/ /08; 1274/08; 70/2009; 243/2010 IAS 39 Financial tools: record and assessment 1126/ /08; 53/09; 70/09 ; 1171/09; 243/10 IAS 40 Investments in immovable assets 1126/ /08; 70/09 IAS 41 Agriculture 1126/ /08; 70/09 IFRS 1 First adoption of International Financial Reporting Standards 1126/ /08; 69/09; 1136/09 ; 1136/09, 550/10; 574/10; 149/11; 1255/12; 183/13; 301/13 IFRS 2 Payments based on shares 1126/ /08 IFRS 3 Corporate Aggregations 1126/08 149/11 IFRS 4 Insurance Agreements 1126/ /08; 1165/09 IFRS 5 Non-current assets held for sale and ceased operating activities 1126/ /08; 70/09 IFRS 6 Exploration and assessment of mineral resources 1126/08 IFRS 7 Financial Tools: Integrative Information 1126/ /08; 53/09; 70/09; 1165/09; 149/11;1256/12 IFRS 8 Operating Sectors 1126/ /08; 1274/08; 243/10 ; 632/10 IFRS 10 Consolidated Financial Statements 1254/12 313/13 IFRS 11 Joint control agreements 1254/12 313/13 IFRS 12 Information on equity investments in other companies 1254/12 313/13 IFRS 13 Valuation of fair value 1255/12 Annual Report

176 Regulation compliance Interpretations Variations IFRIC 1 Changes of liabilities recorded per dismantlement, restoring and similar liabilities 1126/ /08; 1274/08 IFRIC 2 Shareholders shares in cooperative entities and similar tools 1126/08 53/09 IFRIC 4 Determine if an agreement contains a leasing 1126/08 IFRIC 5 Rights deriving from profit-sharing in funds for dismantlement, restoring and environmental improvements 1126/08 IFRIC 6 Liabilities deriving from the participation to a specific market Waste of electric and electronic apparatuses 1126/08 IFRIC 7 Application of the method of re-determination in compliance with IAS 29 Accounting information in over-inflated economies 1126/ /08 IFRIC 8 Application sphere of IFRS /08 IFRIC 9 Revaluation of incorporated derivatives 1126/ /09 IFRIC 10 Intermediate balance statements and durable interruption of value 1126/ /08 IFRIC 11 Operations with own shares and belonging to the group 1126/08 IFRIC 13 Customer fidelization programs 1126/08 149/11 IFRIC 14 IAS 19 Limit relevant to an activity at the service of a definite benefits plan, minimum contribution previsions and their interaction 1126/ /08; 633/10 IFRIC 15 Agreements for construction of real estates 1126/08 636/09 IFRIC 16 Net investment hedging in a foreign management 1126/08 460/09 IFRIC 17 Distribution to shareholders of assets not represented by liquid assets 1126/ /09 IFRIC 18 Transfer of assets by customers 1126/ /09 IFRIC 19 Redemption of financial liabilities through capital representative tools 662/10 IFRIC 20 Construction expenses in the production phase of an open-sky mine 1255/12 SIC 7 Introduction of Euro 1126/ /08 SIC 10 Public assistance No specific relation with operative activities 1126/ /08 SIC 12 Consolidation Company with specific destination (Vehicle company) 1126/08 SIC 13 Companies with joined control Purchases in nature by the participating parts to control 1126/ /08 SIC 15 Operative leasing - Incentives 1126/ /08 SIC 21 Income taxes Recover of re-valued non-amortizable assets 1126/08 SIC 25 Income taxes Changes of the tax positions of a company or of its shareholders 1126/ /08 SIC 27 The assessment of the substance of operations in the legal form of leasing 1126/08 SIC 29 Integrating information Agreements for contracting out 1126/ /08 SIC 31 Income Operations of barter including advertising services 1126/08 SIC 32 Intangible assets Expenses connected to websites 1126/ / Annual Report 2013

177 Annual Report

178 220 Annual Report 2013

179 Annual Report

180 222 Annual Report 2013

181 Annual Report

182 Statutory auditors report Statutory auditors report pursuant to art Italian civil code and art. 153 Italian legislative decree no. 58/1998. Dear Shareholders, in the past financial year we have carried out the supervisory activities required by art of the Italian Civil Code. Our activity followed the indications provided by the aforementioned statutory provisions and the rules of conduct of the Board of Statutory Auditors issued by the National Board of Accountants and Accounting Experts. We have examined the draft financial statements for the year which ended on 31 December 2013, prepared by the administrative body and forwarded to the Board of Statutory Auditors, in its final version, together with the schedules and detail annexes and the management report. In regard to all the foregoing, on 31 March 2014, we highlight the following. 1. Comments on compliance with the law and the Articles of Association The Board acknowledges that it has: examined the financial statements compliance with the law, and found them to be essentially compliant even if with remarkable and significant exceptions that have already been reported in detail in the report on the 2012 financial statements; please refer to this report for further details; in this regard, we underline that the 2013 financial statements contain all the provisions, re-checked and updated accordingly, resulting from the irregularities found in previous year regarding the illegitimate calculation of the indexation of interests on leasing contracts, in addition to further evidence, which was brought to our attention only subsequently, concerning the recognition of erroneous interpretations of certain contractual provisions and higher commissions - than those actually due - charged to customers; carried out 28 verifications during the financial year, drafting a report for each verification; these reports are recorded in the specific register; participated in the meetings of the corporate bodies; specifically, the Board participated, during the past financial year, in 13 meetings of the Board of Directors and 7 Shareholders Meetings. 2. Comments on the observance of the principles of correct administration The Board acknowledges that it has: Identified - with the exception of the cases indicated above - no transactions that, due to their nature or the amounts involved, could be defined as atypical or unusual. 3. Comments on the adequacy of the organizational, administrative and accounting structure The Board acknowledges that it has: analysed, since the beginning of its mandate, the organizational structure and examined the internal control system through repeated meetings with all the heads of the respective functional areas and supervisory and control bodies, both internal and external; the outcome of these findings and evidences led the Board to conclude, in the report on the 2012 financial statements, that it could not confirm the accuracy and reliability of the entire system, and thus to repeatedly recommend, even formally, that a comprehensive review of the system itself be performed; this review is currently underway, in accordance with the instructions outlined in the so-called Gap Analysis, approved by the administrative body and sent to Bancad Italia, on 28 January 2014, in order to adopt the requirements indicated by the Supervisory Institution, aimed at strengthening the capacity of banks and banking groups to monitor business risks; verified the administrative/accounting system by detecting, 224 Annual Report 2013