BANCA POPOLARE VOLKSBANK BOARD OF DIRECTORS OF BANCA POPOLARE VOLKSBANK APPROVES THE SIX-MONTH FINANCIAL REPORT AS AT 30 JUNE 2014 Net income before tax of Euro 18.3 million and net profit of Euro 11.7 million Net interest and other banking income of Euro 89.3 million, up by 6.3% due to the positive results of the interest margin (+10.1%) and net fee and commission income (+4.8%). Net financial result at Euro 3.3 million Losses on impairment of loans at Euro 10 million. The cost of credit was 40 bps, basically the same as in 2013. Impaired loans remain substantially stable Capital strengthening continues: CET1 ratio at 13.7%, much higher than the levels established by the new provisions of Basel III. Quite favourable liquidity profile Shareholder base up to 41,263 shareholders Net income before tax at Euro 18.3 million, substantially in line with net income before tax of Euro 18.6 million in the first half of 2013 (-1.5%) Net profit of Euro 11.7 million, up by 4.6% compared to the same period of the previous year (Euro 11.2 million) Revenue from ordinary operations: interest margin up by 10.1% and net fee and commission income up by 4.8%, mainly due to growth in interest income (+3.5%), reduced interest expense (-5.9%) and growth in fee and commission income (+4.5%) Net interest and other banking income at Euro 89.3 million, up by 6.3% (Euro 84.0 million in the first half of 2013) Income from banking activities of Euro 79.3 million, substantially unchanged (+0.8%) due to strict risk monitoring (losses on impairment Euro -10.0 million) up by 89.0% compared to the same period of the previous year (Euro -5.3 million) Overall annualised cost of credit 40 bps compared to 39 bps in 2013 Regional support continues by granting loans (+1.2%), which reached Euro 4,982 million (Euro 4,922 million as at 31 December 2013), accompanied by continuous growth in direct funding (+2.2%), as a testament to customers trust in the bank 1
Growth in the shareholder base continues, with shareholders up to 41,263 compared to 37,574 at the end of 2013 Common Equity Tier 1 ratio ( CET 1 ratio) estimated at 13.7% compared to the Tier 1 Capital ratio of 12.9% as at 31 December 2013 (+80 bps), and Total Capital Ratio at 13.7% (12.9% as at 31 December 2013), both showing considerable improvement primarily due to profit for the period and the application of the SME supporting factor set forth in the new provisions of Basel III. Bolzano, 1 August 2014 Today, the Board of Directors of Banca Popolare Volksbank analysed and approved the six-month financial report as at 30 June 2014. The moderate recovery in economic growth expected to occur already in early 2014 has been gradually postponed to the end of this year and to 2015. Economic activity continues to suffer from a highly uncertain political and economic scenario and the conditions of the credit market, in which demand has improved only slightly. Spending on capital goods, an essential factor to launch a phase of growth, could be supported by more favourable company liquidity conditions as well as by the facilitated-rate refinancing transactions announced by the governing council of the ECB in early June, in addition to certain economic policy initiatives aimed at facilitating company investments in operating assets. In the second quarter of 2014, industrial production activities are basically stable. In the same period, the overall change in GDP should settle at between -0.1% and +0.3%. Amongst the positive factors is the performance of private spending on consumption, while net exports should be slightly negative. GDP should remain at similar levels in the second half. Overall, also taking into account first quarter performance, GDP is expected to be slightly up on the whole in 2014. In a context in which market interest rates remain anchored at minimum levels and the cost of funding is on the rise, in the first half of 2014 Banca Popolare Volksbank posted profits essentially in line with those achieved in the same period of the previous year. The Bank s net profit stood at Euro 11.7 million at the end of the first half, compared with Euro 11.2 million at the end of the same period of the previous year (+4.6%). The interest margin came to Euro 56.0 million, up by 10.1% (Euro 50.8 million in the first half of 2013). Net fee and commission income was up by 4.8% to Euro 30.0 million. Fee and commission income was up by 4.5%. Fee and commission expense (+2.7%) was impacted by costs related to the guarantee issued by the Ministry of Economy and Finance on bonds used as collateral for refinancing transactions with the ECB. Net financial revenue (trading, sales and repurchases, dividends) was positive at Euro 3.3 million, compared with Euro 4.5 million in 2013, in a particularly complex market environment characterised by abundant liquidity. Net interest and other banking income stood at Euro 89.3 million, up by 6.3% compared to the first half of 2013 (Euro 84.0 million). 2
Net adjustments to loans and other financial assets reached Euro 10.0 million, up by 89.0% compared to the first half of 2013. Basically this entire change was due to the credit segment. The cost of credit amounted to 40 bps in the first half of 2013, basically unchanged with respect to 39 bps in the previous year. Net income from banking activities totalled Euro 79.3 million, marking a slight increase (+0.8%) over the same period of last year. Operating costs, net of operating income and expenses, amounted to Euro 68.0 million (+1.7%). Personnel expenses stood at Euro 37.5 million, unchanged with respect to the first half of 2013. Other administrative expenses amounted to Euro 26.9 million (+4.0%). Net adjustments to property and equipment and intangible assets totalled Euro 3.1 million (-7.6%). Other operating income (expenses) amounted to Euro 7.6 million, up by 3.5% compared to Euro 7.3 million in the first half of 2013. The cost to income ratio for the period, calculated as the ratio between total operating expenses and total operating income, came to 69.7%, an improvement compared to 70.1% in 2013. There were losses of Euro 0.6 million on equity investments due to the adjustment of the carrying amount of associate companies based on the 2013 results. Income (loss) before tax from continuing operations stood at Euro 18.3 million, substantially unchanged (- 1.5%) with respect to 2013. Income taxes amounted to Euro 6.6 million. At 36.1%, the tax rate was down compared to the first half of 2013 (39.9%). Income after tax stood at Euro 11.7 million, up by 4.6% compared to the first half of 2013 (Euro 11.2 million). Direct funding from customers including the wholesale component (due to customers, debt securities issued and financial liabilities designated at fair value through profit and loss) amounted to Euro 4,720.8 million, a rise of 2.2% over the figure at the end of 2013 (Euro 4,617.8 million). This change was primarily driven by growth in funding from current accounts and deposits (+0.6% and +18.3 million), debt securities issued (+1.9% and +29.9 million) and other payables (+54.8% and +87.4 million), partially offset by the downturn in funding through repurchase agreements (-93.0% and -32.5 million). Direct funding from customers not including the wholesale component increased by 3.9% to Euro 4,714.0 million. Funding in the wholesale market was down by 91.7% to Euro 6.8 million (Euro 81.7 million as at 31 December 2013). Therefore, it is possible to confirm customers positive opinion of the Bank, in terms of bonds as well as current accounts and deposits. In fact, the wholesale component represents just 0.14% of total funding from customers. The market price of indirect funding from customers totalled Euro 2,055.1 million (up by 2.7% compared to the start of the year). Custody and administration of securities was up 0.3% to Euro 1,179.2 million, investment funds were up 6.2% to Euro 735.6 million and the insurance component rose 5.4% to Euro 140.3 million. 3
Loans to customers, at Euro 4,982.8 million after write-downs, marked an increase of 1.2% since the start of the year due to continued support of local communities, particularly for medium/long-term loans and especially in the retail segment, as part of the prudent management required to maintain the proper balance between loans and funding. The relative ratio, excluding the wholesale component, is continuously improving and reached 105.7% (108.5% at the end of 2013). Net impaired loans totalled Euro 367.9 million, up 0.5% since the start of the year, with net doubtful loans equal to Euro 151.9 million (-0.2%). Of total net loans to customers, net impaired loans accounted for 7.4% and net doubtful loans for 3.1% (considering gross loan values, 9.8% and 5.1%, respectively). Hedging on impaired loans came to 27.4%, up compared to 26.0% at the end of 2013 due to continuous monitoring of credit risk. In particular, hedging covers 42.5% of doubtful loans (40.9% at the end of 2013), 13.2% of substandard loans (9.8% at the end of 2013) and 0.52% of performing loans (0.51% at the end of 2013). The total adjustment provisions amount to 3.2% of gross loans (3.0% at the end of 2013). The inter-bank balance was Euro -536.3 million (compared to Euro -526.7 million at the end of 2013) as a result of the difference between loans to banks of Euro 35.9 million (-69.9%) and amounts due to banks of Euro 572.2 million (-11.4%). The Bank s excellent liquidity profile, subject to further improvement over the already positive result in 2013, has been confirmed. The Bank is easily capable of meeting its deadlines in 2014 and in the next two years due to the significant amount of securities eligible for use with the ECB (Euro 1,357.9 million), after the haircut, of which around 60% is regularly unused. The estimated LCR (liquidity coverage ratio) and NSFR (net stable funding ratio) both exceed targets currently set by Basel III. On 1 February 2014, the Bank completed a self-issued securitisation of Euro 479.4 million in performing mortgage loans in order to obtain securities eligible for refinancing with the European Central Bank. We also expect to activate the ABACO (collateralised bank assets) procedure in the second half in order to further boost collateral available for use in Eurosystem refinancing transactions. Also as regards the overall liquidity situation, on 4 July 2014 the Bank completed the early repayment of Euro 170 million in liabilities backed by government guarantees. Such liabilities had been issued in compliance with art. 8 of Italian Law Decree no. 201 of 6 December 2011, converted with amendments by Italian Law no. 214 of 22 December 2011. As a result of the extinction of this liability, the corresponding government guarantee in the same amount has also been extinguished. The extinction is primarily associated with the Bank s constant and positive cash profile. Financial assets amounted to Euro 807.5 million, up by 11.6% compared to the end of 2013 primarily due to investments in Italian government securities. Debt securities, at Euro 711.3 million, represent 88.1% of the total portfolio. Government securities account for Euro 491.5 million of this amount (with Italian government securities accounting for Euro 479.6 million). The Bank holds no securities issued by peripheral Eurozone countries (Portugal, Ireland, Greece and Spain). While assets available-for-sale ( AFS ) amounted to Euro 697.3 million, the positive net valuation reserves came to Euro 7.8 million, representing the sum of negative reserves relating to debt securities, equity securities and mutual investment fund units (Euro 0.5 million) and the positive reserves (Euro 8.3 million). 4
The regulatory aggregates calculated on the basis of the standard method of Basel III increased with respect to the end of 2013, largely due to profit for the period as well as the application starting in the report as at 31 March 2013 of the SME supporting factor set forth in the new provisions of Basel III: Common Equity Tier 1 of Euro 583.2 million (+2.0% compared to regulatory capital as at 31 December 2013); Common Equity Tier 1 ratio estimated at 13.7% (compared to the Core Tier 1 ratio of 12.9% at the end of 2013); Total capital ratio estimated at 13.7% (12.9% at the end of 2013). As at 30 June 2014, the shareholding structure includes 41,263 shareholders and 970 shareholders not listed on the shareholders register. Also at the end of the period, there were 1,050 employees, 11 fewer than at the end of last year (1,061). There are still 134 branches, unchanged compared to the end of 2013. Bolzano, 1 August 2014 General Manager Johannes Schneebacher Chairman Otmar Michaeler The Manager in charge of preparing the corporate financial report of Banca Popolare dell Alto Adige Società Cooperativa, Alberto Caltroni, states pursuant to art. 154-bis, paragraph 2 of Italian Legislative Decree no. 58/1998 (Consolidated Law on Finance) that the accounting disclosure set forth in this press release corresponds to the accounting records, books and entries. Bolzano, 1 August 2014 Manager in charge of preparing the corporate financial report Alberto Caltroni This press release is available on the websites www.volksbank.it and www.bancapopolare.it. 5
Balance Sheet Asset items 30.06.2014 31.12.2013 (in Euro) 10. Cash and cash equivalents 52,615,140 54,320,430 20. Financial assets held for trading 50,563,782 57,806,611 40. Financial assets available-for-sale 697,302,340 605,539,715 50. Investments held to maturity 54,948,271 55,125,535 60. Due from banks 35,895,728 119,224,875 70. Loans to customers 4,982,824,416 4,922,442,920 100. Investments in associates and companies subject to joint control 4,690,552 5,157,239 110. Property and equipment 105,538,608 104,396,565 120. Intangible assets 42,119,219 42,580,700 of which goodwill 40,392,116 40,392,116 130. Tax assets 58,272,646 66,936,699 a) current 33,550,656 41,849,356 b) deferred 24,721,990 25,087,343 140. Non-current assets and groups of assets held for sale - 833,714 150. Other assets 74,324,083 68,643,936 Total 6,159,094,785 6,103,008,939 Liabilities and shareholders equity items 30.06.2014 31.12.2013 (in Euro) 10. Due to banks 572,193,524 645,875,022 20. Due to customers 3,098,260,247 3,025,035,687 30. Debt securities issued 1,425,127,920 1,295,118,833 40. Financial liabilities held for trading 3,494,763 7,275,879 50. Financial liabilities designated at fair value through profit and loss 197,411,808 297,624,069 80. Tax liabilities 37,705,902 46,924,163 a) current 9,813,608 21,237,188 b) deferred 27,892,294 25,686,975 100. Other liabilities 167,262,937 135,069,495 110. Employee termination indemnities 19,918,516 18,830,697 120. Provisions for risks and charges: 2,923,353 2,468,937 a) retirement benefits and similar commitments - - b) other provisions 2,923,353 2,468,937 130. Valuation reserves 5,282,089 (475,646) 160. Reserves 262,856,546 255,527,992 170. Share premium reserve 202,458,684 202,458,684 180. Share capital 152,508,440 152,508,440 200. Net income (loss) for the period 11,690,056 18,766,687 Total 6,159,094,785 6,103,008,939 6
Income Statement INCOME STATEMENT 30.06.2014 30.06.2013 (in Euro) 10. Interest and similar income 89,176,108 86,137,444 20. Interest and similar expense (33,203,683) (35,295,691) 30. Interest margin 55,972,425 50,841,753 40. Fee and commission income 34,472,643 32,978,161 50. Fee and commission expense (4,494,652) (4,374,484) 60. Net fee and commission income 29,977,991 28,603,677 70. Dividends and similar income 1,777,217 236,167 80. Profits (losses) on trading (1,221,701) 1,084,393 100. Profits (losses) on disposal or repurchase of: 2,754,015 3,067,319 a) loans - 187,596 b) financial assets available-for-sale 2,595,532 2,522,511 c) investments held to maturity 1,270 1,744 d) financial liabilities 157,213 355,468 110. Profits (losses) on financial assets and liabilities designated at fair value through profit and loss 19,597 121,546 120. Net interest and other banking income 89,279,544 83,954,855 130. Net losses/recoveries on impairment of: (9,961,703) (5,270,300) a) loans (9,981,878) (5,760,433) b) financial assets available-for-sale - - c) investments held to maturity - - d) other financial activities 20,175 490,133 140. Net income from banking activities 79,317,841 78,684,555 150. Administrative expenses: (64,383,425) (63,350,709) a) personnel expenses (37,514,691) (37,508,092) b) other administrative expenses (26,868,734) (25,842,617) 160. Net provisions for risks and charges (543,821) (203,485) 170. Net adjustments to /recoveries on property and equipment (2,572,838) (2,719,717) 180. Net adjustments to /recoveries on intangible assets (521,754) (628,706) 190. Other operating income (expenses) 7,592,338 7,332,903 200. Operating expenses (60,429,500) (59,569,714) 210. Profits (losses) on investments in associates and companies subject to joint control (596,688) (524,033) 240. Profits (losses) on disposal of investments 10,533 (757) 250. Income (loss) before tax from continuing operations 18,302,186 18,590,051 260. Taxes on income from continuing operations (6,612,130) (7,416,222) 270. Income (loss) after tax from continuing operations 11,690,056 11,173,829 290. Net income (loss) 11,690,056 11,173,829 7
Performance indicators PERFORMANCE INDICATORS 30.06.2014 31.12.2013 Financial Indicators Structural ratios (%) Loans to customers / total assets 80.90% 80.66% Loans to customers / direct funding 105.70% 108.52% Fixed assets / total assets 2.47% 2.49% Total risk-weighted assets (RWA)/ total assets (*) 69.37% 72.80% Goodwill / total assets 0.66% 0.66% Direct funding / total assets 76.65% 75.66% Managed funding / indirect funding 42.62% 41.25% Leverage (**) 10.32% 11.88% Inter-bank balance (thousands of Euro) (536,298) (526,650) Number of employees (exact number) 1,050 1,061 Number of bank branches 134 134 Profitability ratios (%) ROE 3.8% 3.1% ROA (net profit / total assets) 0.38% 0.31% Cost to income ratio 69.66% 70.13% Net adjustments to loans / net loans to customers 0.40% 0.39% Basic EPS 0.61 0.49 Diluted EPS 0.61 0.49 Risk ratios (%) Net doubtful loans / net loans to customers 3.05% 3.09% Net substandard loans / net loans to customers 3.07% 2.72% Value adjustments to doubtful loans / gross doubtful loans 42.46% 40.89% Value adjustments to performing loans / gross performing loans 0.52% 0.51% Regulatory capital (thousands of Euro) and capital ratios (*) Common Equity Tier 1 (CET 1) 583,218 571,842 Own Funds 584,767 573,305 Risk-weighted assets (RWA) 4,272,427 4,443,266 Common Equity Tier 1 ratio (CET 1 ratio) 13.7% 12.9% Total capital ratio 13.7% 12.9% Non-Financial Indicators Productivity ratios (in thousands of Euro) Direct funding per employee 4,496,000 4,352,289 Loans to customers per employee 4,745,547 4,639,437 Assets under management per employee 834,156 777,998 Administered assets per employee 1,123,083 1,108,096 Net interest and other banking income per employee 85,028 163,882 (*) The data as at 30 June 2014 are estimated on the basis of the Basel III regulatory framework applicable as of 31 March 2014. The data as at 31 December 2013 are calculated on the basis of the Basel II regulatory framework applicable until 31 December 2013. (**) Leverage = total tangible assets (total assets net of intangible fixed assets) / tangible equity (total equity net of intangible fixed assets). 8