Report and Parent Company’s financial statements REPORT ON OPERATIONS Intesa Sanpaolo – Financial highlights and alternative performance measures Income statement figures (millions of euro) Changes amount % Net interest income 2,475 -281 -10.2 2,756 1,865 Net fee and commission income -96 -4.9 1,961 Profits (losses) on trading 1,359 1,187 172 Operating income 7,006 445 6.8 6,561 Operating costs -3,596 -191 -5.0 -3,787 Operating margin 3,410 636 22.9 2,774 -1,463 Net adjustments to loans -90 -5.8 -1,553 - Income after tax from discontinued operations - - - Net income (loss) 912 9,065 -8,153 Balance sheet figures (millions of euro) Changes amount % 217,406 Loans to customers 7,617 3.6 209,789 240,465 Direct customer deposits 392 0.2 240,073 142,241 Indirect customer deposits: 143,034 -793 -0.6 62,158 of which: Assets under management 61,780 378 0.6 Total assets 438,226 -34,126 -7.2 472,352 44,290 Shareholders' equity 19 - 44,271 Operating structure 2012 2011 Changes amount Number of employees 25,530 26,958 -1,428 - Italy 24,959 26,421 -1,462 - Abroad 571 537 34 Number of branches 2,076 2,274 -198 - Italy 2,064 2,262 -198 - Abroad 12 12 - Figures restated on a consistent basis. 2012 2011 442 442 Profitability ratios (%) Cost / Income 51.3 57.7 Net income / Average shareholders' equity (ROE) (a) 2.1 n.m. Risk ratios (%) 1.7 Net doubtful loans / Loans to customers 1.4 Cumulated adjustments on doubtful loans / 59.8 Gross doubtful loans to customers 69.0 Capital ratios (%) (b) (c) Tier 1 capital net of ineligible instruments / Risk-weighted assets 24.7 (Core Tier 1) 25.0 26.4 Tier 1 capital (c) / Risk-weighted assets 28.1 Total capital (d) / Risk-weighted assets 30.7 35.1 147,175 Risk-weighted assets (millions of euro) 144,338 Figures restated on a consistent basis. (a) Ratio between net income and average of share capital, share premium reserve, reserves and valuation reserves. (b) Ratios are determined using the methodology set out in the Basel 2 Capital Accord. (c) Paid-in share capital, share premium reserve, reserves and retained earnings minus treasury shares, goodwill, intangible assets and after the application of "prudential filters" set out by supervisory regulations. (d) Tier 1 capital plus eligible subordinated liabilities, valuation reserves, with the application of "prudential filters", net of equity investments as set out by supervisory regulations. 2012 2011 443 443 The Parent Company Intesa Sanpaolo Introduction The Intesa Sanpaolo S.p.A. separate financial statements 2012 show the same issues as the consolidated financial statements, which have been illustrated in the Consolidated Report on Operations and reflects the same solutions and, as far as applies, the same effects. General aspects For the purpose of a more effective presentation of results, the income statement and balance sheet of the Parent Company, Intesa Sanpaolo, as at 31 December 2012, reclassified as appropriate with respect to the scheme set out in Bank of Italy Circular 262/05, are presented hereafter. Moreover, for a homogeneous comparison, both the figures from 2012 and the comparative figures have been restated, by adjusting the historical figures as appropriate to retroactively reflect the effects of the corporate operations in 2012. Breakdowns of restatements and reclassifications performed are provided in separate tables included in the attachments to the financial statements, as also required by Consob in its Communication 6064293 of 28 July 2006. Restatements in the income statement involved: the incorporation of Banco Emiliano Romagnolo, legally effective as of 3 December 2012 and effective for accounting and tax purposes as of 1 January 2012, and the concurrent contribution of the commercial banking operations to Cassa di Risparmio di Bologna; the full demerger of Banca Infrastrutture Innovazione e Sviluppo in favour of Intesa Sanpaolo, with the exception of the leasing operations which were demerged to Leasint, legally effective as of 3 December and effective for accounting and tax purposes as of 1 January 2012; the contribution of branches in the second half of 2012 as part of the project to reorganise the network at the geographical level. In detail, the transactions involved: o Cassa di Risparmio di Pistoia e della Lucchesia, with effect from 23 July 2012; o Cassa di Risparmio di Firenze, with effect from 8 October 2012; o Banca dell’Umbria, with effect from 17 December 2012; the demerger of 23 branches of CR Firenze to Intesa Sanpaolo, finalised with effect from 12 November 2012 also as part of the Group’s territorial reorganisation of the network; the contribution of a business line including training, internal communications, general services, human resources administration and loan recovery, as well as the services provided by the Legal Affairs Department to the consortium company Intesa Sanpaolo Group Services, with effect from 1 October 2012. The result of the restatements concerning the above contributions and the partial demerger of CR Firenze was conventionally included in profits on investment held to maturity and on other investments. The mergers by incorporation of SEP Servizi e Progetti, Finanziaria BTB and Intesa Investimenti in Intesa Sanpaolo were excluded given their slight importance in relation to overall results. Reclassifications and aggregations are as follows: – dividends on shares classified as assets available for sale and as assets held for trading have been recognised in Profits (Losses) on trading; – fair value adjustments in hedge accounting, which were reallocated to Profits (Losses) on trading; – profits and losses on disposal or repurchase of financial assets available for sale and of financial liabilities have been reclassified to Profits (Losses) on trading; – profits (losses) on financial assets and liabilities designated at fair value through profit and loss have been recognised in Profits (Losses) on trading; – Administrative expenses are net of recoveries of expenses and taxes from customers; – profits and losses on disposal or repurchase of loans are posted in Net adjustments to loans; – net impairment losses on other financial activities, relating to guarantees, commitments and credit derivatives, are reported in Net adjustments to loans; – net impairment losses on financial assets available for sale and investments held to maturity, which have been recognised in net impairment losses on other assets; – profits (losses) on equity investments together with profits (losses) on disposal of investments, are recognised in Profits (Losses) on investments held to maturity and on other investments; – the reversal in time value on loans is recorded in Net interest income instead of being allocated to Net adjustments to loans, since the phenomenon derives directly from the application of the amortised cost criterion in the absence of changes in expected future flows. A similar approach has been used for the time value of employee termination indemnities and allowances for risks and charges; – net impairment losses of property, equipment and intangible assets have been reclassified from Net adjustments to property, equipment and intangible assets – which therefore solely express depreciation and amortisation – to Net impairment losses on other assets, which also includes Net impairment losses on financial assets available for sale, investments held to maturity and other financial activities; 444 444 Intesa Sanpaolo financial statements – Report on operations – The results for Intesa Sanpaolo – impairment losses on Greek government bonds and the bonds of other Greek public entities were recognised to Net impairment losses on other assets, regardless of their balance sheet classification; – Taxes on income from continuing operations, to which the portions of deductible Interest expense associated with the application of settlement procedures for the tax dispute, along with the amounts of the related fines, recognised among Other operating expenses, have been attributed; – Charges (net of tax) for integration and exit incentives, which have been reclassified from Personnel expenses, Administrative expenses and, to a lesser extent, other captions of the income statement to a separate caption; – effect of purchase price allocation, net of tax, is indicated in a specific caption. It represents the adjustments to financial assets and liabilities and property, equipment and intangible assets which were measured at fair value as provided for by IFRS 3. Lastly, it should be noted that effective the 2011 financial statements, in the interest of providing a more accurate representation of ordinary operations, Goodwill impairment and impairment of investments in subsidiaries subject to revaluation following the Banca Intesa and Sanpaolo IMI merger in application of IFRS 3 and of other investments in subsidiaries are shown among "non- current" income components, as in the past for the Effect of purchase price allocation (net of tax). On the balance sheet, in addition to the restatement of figures for the corporate operations illustrated above, some assets and liabilities were grouped together, specifically: – the inclusion of Cash and cash equivalents in the residual caption Other assets; – the inclusion of Hedging derivatives and Fair value changes of financial assets/liabilities in hedged portfolios in Other assets/liabilities; – the aggregation in one single caption of Property and equipment and Intangible assets; – the aggregation of Due to customers and Securities issued in just one caption; – the aggregation