dal 1859 LA BANCA DEL TERRITORIO
Cassa di Risparmio di Cento spa ANNUAL REPORT AND FINANCIAL STATEMENTS
2009 FINANCIAL YEAR
Approved by the Board of Directors on 23 March 2010
Draft of the Board of Directors to be submitted for shareholder approval
1
CASSA DI RISPARMIO DI CENTO SPA
CHAIRMAN Vilmo Ferioli
GENERAL MANAGER Ivan Damiano
BOARD OF DIRECTORS Vilmo Ferioli Chairman Mauro Manuzzi Deputy Chairman Antonino Balboni Director Luigi Chiari Director Ugo Poppi Director Aproniano Tassinari Director Vincenzo Tassinari Director
BOARD OF AUDITORS Domenico Livio Trombone Chairman Massimo Calanchi Auditor Dario Alessio Taddia Auditor
MANAGEMENT Ivan Damiano General Manager
INDEPENDENT AUDITORS RECONTA ERNST & YOUNG SpA
2
Shareholders at 31 December 2009
no. of shares %
Fondazione Cassa di Risparmio di Cento 6,714,291 51.33 % Cassa di Risparmio di Cento Holding 2,046,000 15.64 % Individual shareholders (about 6,350) 4,320,902 33.03 % ------Total 13,081,193 100.00%
3
BRANCH NETWORK at 31 December 2009 REGISTERED OFFICE AND Cento (FE) - via Matteotti, 8/b HEADQUARTERS tel. 051/6833111 - fax 051/6833443 www.crcento.it [email protected] BRANCHES (48) Province of Ferrara (21) Cento – headquarters branch office Cento – city branch no. 1 Cento – city branch no. 2 Cento – city branch no. 3 Alberone Bondeno Casumaro Coronella Dodici Morelli Dosso Ferrara Ferrara Est Ferrara Sud Ferrara4 Ferrara5 Mirabello Poggio Renatico Renazzo Sant'Agostino San Carlo Vigarano Mainarda Province of Bologna (17) Bologna Bologna DueTorri Bologna Murri Castello d'Argile Casalecchio di Reno Castel Maggiore Crevalcore Galliera - San Venanzio Lippo di Calderara di Reno Ozzano dell’Emilia Pieve di Cento Stiatico San Giovanni in Persiceto San Lazzaro di Savena San Matteo della Decima San Pietro in Casale Venezzano Province of Modena (10) Modena ModenaDue ModenaTre Castelfranco Emilia Campogalliano Finale Emilia Massa Finalese Nonantola Rami-Ravarino Sassuolo
4
NOTICE OF SHAREHOLDERS’ MEETING
Published in the daily newspaper Il Resto del Carlino on 3 April 2010
Shareholders are called to the Ordinary and Extraordinary Shareholders’ Meeting to be held at the convention center of the Grand Hotel Bologna in Pieve di Cento (FE), Via Ponte Nuovo 42, on Thursday 29 April 2010 at 3:30 p.m. at first calling and, if necessary, on the following day at second calling, at the same time and place to resolve the following:
Agenda: Ordinary business:
1) Financial statements at 31 December 2009 and related resolutions; 2) Appointment of members of the Board of Directors, determining the number of members of the Board and setting compensation, in accordance with Article 19 of the articles of association; appointment of the Chairman and Deputy Chairman (or Deputy Chairmen); 3) Appointment of the Board of Auditors and its chairman; establishing related compensation; 4) Auditing of the accounts: engagement of independent auditor for 2010, 2011 and 2012; 5) Treasury share purchasing fund and procedures for transactions in such shares; 6) Approval (in accordance with Article 6 of the articles of association) of the compensation policies for 2010 for the members of the Board of Directors, employees and other non-employee associates of the Company. Discussion of the implementation of the compensation policies adopted for 2009.
Extraordinary business:
1) Amendment of Articles 6, 12 and 20 of the articles of association.
Cento, 26 March 2010
for THE BOARD OF DIRECTORS THE CHAIRMAN Vilmo Ferioli
SUMMARY OF RESOLUTIONS
5
Contents
Highlights pag. 7
Directors' Report on Operations pag. 10
Proposed distribution of income pag. 38
Financial statements pag. 39
Notes to the financial statements pag. 47
Annexes pag. 159
Certification of financial statements pag. 170
Report of the Board of Auditors pag. 171
Report of the independent auditors pag.
6
Highlights
The Bank closed 2009 with a net profit of €7.145 million, a highly positive result given the severe economic crisis and a financial market that remains mired in uncertainty.
The year featured an increase in direct funding, which rose 13.4% over 2008 to reach €1,987.8 million, representing an effective response to the needs of our customers, who, made uneasy by the high degree of volatility on the financial markets, sought out safe, liquid financial instruments. Within this context, the composition of the Bank’s funding shifted towards demand and short-term instruments (up €80.3 million or 7.7%), along with a significant increase in term funding (up €154.3 million or 21.6%). This improved in the Bank’s already “safe” level of liquidity, with the ratio of lending to funding now at a reassuring level of less than 1.
Indirect funding came to €1,792.9 million (down €71.2 million or 3.8%), a decline attributable to the reduction in assets under administration due in part to the general decline in the prices of many securities (down €168.5 million or 13.9%), whereas assets under management posted a significant increase (€97.3 million or 14.9%).
Lending to ordinary customers totaled €1,843.2 million (-2.4%). Short-term borrowing declined by €107.6 million or 20.0%, whereas the medium/long-term component posted an increase of €60.6 million or 4.7% to a total of €1,357.7 million at year-end, accounting for 73.7% of all loans to customers. The decline in revenues for businesses and the need to consolidate debt had a significant impact on these aggregates. As a result of the particularly adverse economic environment, gross impaired assets reached €114.3 million, increasing by €68.8 million in 2009. Half of this increase (€35.6 million) was due to the recent changes in regulations introduced by the Bank of Italy, which broadened the concept of “impaired assets” by including over-limit positions past due by 90-180 days. The ratio of problem exposures to total lending rose to 6.09% (but would have been 4.20% without the regulatory change), up from the 2.37% of 2008 under the previous rules.
As regards the income statement at 31 December 2009, net interest income amounted to €53.9 million, a decline of 8.0% from 2008 due mainly to the significant reduction in interest rates, eroding much of the spread on funding, which was only partially offset by an increase in the spread on lending.
Net fee and commission income came to €20.3 million, a slight decline (-1.3%) from 2008 based on uniform classification criteria.
7
Business in the “finance” segment generated net revenues of €4.85 million, compared with the loss of €4.47 million in 2008, a change of €9.32 million. This improvement was due in part to the performance of the financial markets, which made it possible to recoup much of the losses posted in 2008. As a result, gross income reached €80.0 million (up €4.9 million over 2008, an increase of 6.6%).
Developments in economic conditions generated an increase of €3.34 million in net losses on impaired loans (up 33.7% over 2008) due mainly to the worsening in the stock of problem loans, partially mitigated by an improvement in the risk of performing loans due primarily to the strong shift towards secured forms of lending, underscoring the good quality and low risk of the Bank’s assets.
Personnel expenses came to €31.6 million, an increase of €2.6 million (+8.9%) over 2008 due to non-recurring charges in the amount of €2.7 million. Conversely, administrative expenses declined by 4.2% to €20.2 million, even after the extraordinary expenses related to the Bank’s 150th anniversary. The good performance achieved underscores the Bank’s constant focus on controlling administrative expenses, which increased by €1.7 million on the whole (+3.4% over 2008) due entirely to the non-recurring expenses incurred during the year in the amount of €3.3 million.
After income tax expense for the year (with the tax rate rising from 45.5% to 49.4%), net profit came to €7.145 million, a decline of €1.54 million (-17.8%) from the previous year. Without the non-recurring charges mentioned above, net profit would have been appreciably higher than in 2008.
The financial performance described above produced a cost-to-income ratio of 64.6% (vs. 65.6% in 2008), with return on equity (ROE) amounting to 4.0% (compared with 5.0% in 2008).
In approving the draft financial statements discussed above, the Board of Directors also decided to recommend that shareholders, at their meeting of 29 April, approve a dividend of €0.20 per share (compared with €0.30 for 2008), thereby achieving the twofold objective of self-financing our core business and strengthening capital as required of banks by the supervisory authorities.
The Bank pays especially close attention to capital levels, as our capital ratios demonstrate: the core Tier 1 ratio rose from 8.44% to 9.54% and the total capital ratio rose from 10.56% to 11.70%, both of which are well above regulatory minimums and even enough for the levels expected to be introduced with Basel III. The following are the main indicators:
8
31/12/2009 31/12/2008 31/12/2007 Profitability ratios ROE 3.98% 5.00% 8.82% Net interest income/operating income 64.74% 73.93% 66.25% Net fee and commission income/operating income 24.39% 25.96% 26.10%
Structural ratios Equity/total assets 7.40% 7.42% 7.61% Equity/direct funding 9.03% 9.92% 8.99% Loans/direct funding (excluding repos) 97.35% 117.58% 106.90% Gross lending/total assets 77.29% 81.78% 80.93%
Risk ratios Bad debts/loans (net) 1.17% 0.57% 1.52% Bad debts/ loans (gross) 1.74% 0.84% 2.53% Loan-loss provisions/gross loans 1.75% 1.42% 2.24% Bad debts (net)/equity 11.99% 6.17% 15.77%
Efficiency ratios Admin. expenses/operating income 62.29% 63.29% 53.77% Admin. expenses, amort. & depr./operating income 64.63% 65.56% 55.73%
9
Directors’ Report on Operations
Shareholders, We would have preferred for the 150th anniversary to have come in a much different economic, financial and social context. The winds of the crisis have blown hard on both businesses and families throughout the world, and Italy has not been spared. This has led to a quest for temperance in all initiatives. At the same time, however, this has not distracted us from the true objectives of this occasion, namely to remember and underscore how close the Bank has always been, and will continue to be, to the communities in which we operate. As such, a specific section of this report has been dedicated to the events and projects organized by the Bank and the Foundation, which have involved tens of thousands of people throughout 2009 and have reiterated the active role of both organizations as key elements of the economic, financial and social fabric of our communities.
*
1. The national and regional economies ISTAT’s main economic indicators for 2009 offer a picture of unremitting gloom for Italy, with the tax burden increasing, unemployment reaching highs not seen since 2004, gross domestic product collapsing (-5%, the largest fall in nearly 40 years), and the primary balance turning negative for the first time since 1991. More specifically, unemployment reached 8.6% in January 2010, with persons seeking employment numbering 2,144,000, an increase of 307,000 over the previous year. Unemployment among young people came to 26.8%. The financial situation of general government is also poor, with net borrowing (deficit/GDP) calculated for the purposes of Maastricht Treaty compliance reaching 5.3%, up from the 2.7% of the previous year. In value terms, net borrowing increased by some €38.2 billion to reach €80.8 billion. The public debt, in turn, rose to 115.8% of GDP at the end of 2009 according to the latest Bank of Italy estimates. At the same time, the tax burden reached 43.2% of GDP, compared with 42.9% for 2008. In 2009, final consumption declined by 1.2% in real terms, with consumption expenditure by resident households falling 1.8%, general government expenditure rising 0.6%, and spending by non-profit institutions serving households increasing by 1.1%. Domestic private consumption contracted by 1.9%. Compensation of employees and wages and salaries decreased by 0.6%. Exports fell 20.7% and imports by 22%. Banks’ bad debts reached an all-time high, increasing by 40% over the previous year. * Last year also had a profound impact on the economy of the Emilia-Romagna region. The collapse in demand throughout the world could not but have an impact on the
10 region as well, although the repercussions of the recession were less severe than for the rest of Italy. Indeed, GDP declined by 4.6%, while employment remained essentially stable. However, massive use was made of income support mechanisms, particularly their exceptional extension to all small businesses in industries that had previously not been covered, activated with the help of the regional government. An addition factor was the positive impact of the “crisis survival pact” agreed by the regional government, the social partners, and the local authorities, which prevented layoffs. No fewer than 500 special wage supplementation agreements were signed, while the number of agreements extending income support mechanisms was only slightly smaller. Overall, these measures involved and prevented layoffs for some 40,000 workers. The decline in GDP was paralleled by a decline in domestic demand. Industry was buffeted by the crisis, with the decline in value added estimated at around 13.0% in real terms. In agriculture, gross saleable production declined by 9.5%, which is a heavy loss for the industry, with cereal output being hit particularly hard. The impact of the international crisis was not uniform throughout the various areas of the region. According to estimates, the provinces that were the least affected by the crisis were Piacenza and Parma. Next came the Romagna provinces, followed by Bologna and Ferrara. Modena and Reggio Emilia were the provinces that were most severely affected. Forecasts for the region point to a subdued recovery. GDP is expected to grow by 0.9% in real terms. In 2011, we should see a more tangible improvement in both consumption and in gross fixed investment. For the latter part of the year, the main indicators measured by the chamber of commerce show a modest improvement for the province of Ferrara, although the overall context will remain markedly negative. However, manufacturing posted a sharp decline throughout the year, with a slight recovery seen only in the construction segment. Use of the Wage Supplementation Fund was substantial and widespread, with ordinary use rising by nearly 600% and extraordinary use by 400%. Exports also struggled significantly. Last year closed with a contraction in the number of businesses in the Ferrara province, with a reduction of 275 enterprises in absolute terms. Within this general trend, the various forms of business in the province performed differently: on the one hand, corporations posted growth, while the crisis tended to heighten the difficulties of smaller businesses, sole proprietorships in particular. Agriculture posted a sharp decline in gross saleable output, although the contraction was slightly smaller than for the region as a whole. As the Ferrara chamber of commerce noted, the global crisis has not yet entirely run its course. At this very fragile juncture, institutions are being called upon to support businesses by all available means, and particularly by promoting innovation and international expansion, as well as by further developing the modern, successful network and value chain models, which reward the ability to work together. In order to foster a more rapid recovery in the employment lost in recent months, it will be essential to take
11 action to make aggregation and innovation easier and more attractive for businesses, because, as the numbers now show, one is more likely to lose while standing alone. As one might expect, the economic environment in the province of Bologna is not encouraging, either. However, a small number of segments have helped mitigate the situation, namely food products, fashion and textiles. Mechanical engineering bore the most evident signs of the crisis, due in large part to the collapse in exports. In the province of Modena, the economic situation is also highly challenging as a result of the severe crisis experienced by the engineering segment, which plays a dominant role in the local economy. However, the satisfactory performance of food and agriculture and, to a lesser extent, textiles partially offset this decline. Economic and social performance in the Cento area was in line with this general trend. A number of leading companies reported sharp declines in new orders and were forced to make use of the income support mechanisms. Businesses in the service industry and outsourcing – particularly small-scale craft businesses – fared no better. Wholesale and retail trade was also affected by the decline in household disposable income and the psychological repercussions of the difficult economy on consumption. Finally, agriculture felt the impact of the sharp decline in the volume and value of output.
2. Developments in the financial markets For the first two months of 2009, the markets continued the downward trend of the previous year. Stock prices shed between 25% and 35%, while credit risk premiums reached new highs, particularly in the high-yield and financial service segments. The sharp decline in the market capitalization of banks and the continuation of the total lack of liquidity for various categories of assets made it necessary for central banks to take additional extraordinary measures, in addition to government rescue efforts, which in various cases resulted in actual nationalizations. However, the highly expansionary monetary policies began to have a reflationary impact on the prices of financial assets beginning in March. With official rates at zero in the U.S. and Japan, at 0.5% in the U.K. and 1% in the euro area, in addition to the substantial injections of liquidity by central banks, the banking system was able to resolve the problems related to the financing of assets that had turned illiquid. The expansionary policy stance of the central banks gradually fostered the return of liquidity on the bond market, which was exploited for carry trade transactions by banks themselves. This resulted in a further increase in the slope of yield curves and a compression of credit risk premiums, which were reduced by more than half from their highs by the end of 2009. The spread between the yields on Italian and German ten-year government bonds went from a high of 160 basis points to 75 basis points by year end. Both sovereign and corporate issuers took advantage of the abundance of liquidity and the record low level of interest rates to raise funds on advantageous terms. Initially, the market accepted issues by highly rated corporations before also absorbing high-yield issues. The recovery of the stock markets also began in March, posting increases of between 60% and 80% in just ten months to close the year with average increases of 20% over the end of 2008. In this context, the Italian stock 12 market posted an increase of 19.47% (FTSE-MIB index) from the end of 2008. Banking stocks in particular benefited from these increases, which enabled banks to improve their capital ratios and undertake capital increases, enabling them, especially in the United States, to repay much of the government aid received in 2008 and 2009. Although the worst of the financial crisis had most likely passed, the real economy continued to deteriorate. Rising unemployment led to an increase in defaults and bad debts. There was also a generalized deterioration in the public finances, which is expected to raise the debt-to-GDP ratios of the leading industrial countries to above 100% in just a few years. In addition to posing problems of sustainability, this could dampen potential growth in the coming years, although the markets do not appear to be giving much credence to this scenario.
3. The Bank’s activities The recessionary economy made it necessary to take a new approach involving the opening of discussions with local authorities, industry associations and the mutual guarantee consortia aimed at supporting businesses and their employees. In addition, the Bank promptly signed up to participate in the ABI debt moratorium for small and medium-sized enterprises. The Bank also reached an agreement with the provinces of Ferrara, Bologna and Modena for interest-free “social advances” from the extraordinary wage supplementation fund. This emergency measure is providing hundreds of employees of ailing businesses with relief from the now enormous difficulties created by delays in payments under income support mechanisms by INPS, Italy’s national social security institution. The beneficiaries of this measure are those employees of businesses that, as from 1 January 2009, requested activation of extraordinary wage supplementation benefits. Credit has also been made available for businesses associated with Unindustria Ferrara, Unindustria Bologna and Confindustria Modena for company recapitalization transactions, as have specific agreements for the financing of all types of short, medium and long-term investments, including: special financing for 13th- and 14th-month deferred wages, taxes and duties, energy-related loans for investments in energy savings and efficiency, financing for technological innovation and profit participation loans. New treasury agreements were also signed with small-business associations, such as the regional small craft business protocol and the Confintesa accord with craft businesses and small retailers in the province of Ferrara. The Bank, the first in the Emila-Romagna region to have adopted this measure, also extended the debt moratorium for small and medium-sized businesses to the agriculture industry. The Bank had immediately pledged to participate in the moratorium agreed between by the Ministry for the Economy and ABI, which is valid for all industries, with the exception of businesses that have received subsidized loans. One particular interpretation excluded farming businesses and blocked this aid. This prompted a long series of meetings between the regional government, banks and the agricultural loan guarantee consortia. The region had formalized a request not to 13 consider the subsidized loans granted to farmers as “government aid”. In addition to the ordinary agreements for the agricultural industry, a regional protocol was signed together with the agricultural guarantee consortia that made €20 million in credit available to agricultural businesses on highly advantageous terms. Finally, in the area of activities with the local authorities, agreements were established with the municipalities of the territory in which we operate aimed at supporting the businesses and the professionals with receivables due from them owing to the restrictions imposed by the Stability Pact, with the granting of financing against assignment of the related invoices. In the building industry, the Bank allocated €10 million in credit to projects aimed at assisting this key industry for our economy, incorporating the Government’s Piano Casa building legislation, which was made operational by the Emilia Romagna regional government and by local authorities. This financing is intended to meet the needs of individuals related to home expansions of up to 20% in volume, which can be increased to 35% when accompanied by energy-efficiency improvements and to 50% in the case of buildings being moved from protected areas or other areas at risk. The Bank ensures fast, low-cost loan origination on facilitated terms and conditions, particularly in cases in which the project includes energy efficiency enhancements. This set of initiatives to support businesses and households for energy savings projects falls under a broad, detailed plan designed specifically to contribute to the sustainable growth of the community and is in line with our “green bank” vision, focused on the issues of energy savings and smart consumption. In addition, €10 million in funds were also made available to support business recapitalization and international expansion. This is one of the main features of the agreement signed with Confindustria Modena, which includes interesting subsidy measures. Financing for capital increases (with a ceiling of €750,000) is granted at a fixed spread regardless of the credit rating of the company concerned, i.e. a fixed spread of 1.20% over 3-month Euribor. In relation to international expansion efforts, Cassa di Risparmio di Cento has chosen to support businesses in meeting the costs of purchasing, restructuring and leasing properties abroad for use by the company; purchasing the plant and equipment needed to establish and develop telecommunication connections; specialist consulting for joint ventures and other partnerships with businesses; and participating in international trade fairs. The interest rate applied is equal to 3-month Euribor plus a spread that varies depending on the company’s credit rating.
A - Operations
The amounts shown in the tables in this report are expressed in thousands of euros.
Funding from customers The following table shows the volume and percentage breakdown of total funding by technical form and percentage variation over the last three years.
14
31 Dec. 2009 31 Dec. 2008 31 Dec. 2007 Due to customers: Current accounts and 1,056,881 27.95% 913,266 25.25% 820,989 22.45% demand deposits Repurchase agreements 60,652 1.60% 123,852 3.42% 192,167 5.26% Other loans 1,630 0.04% 1,725 0.05% 2,128 0.06% Bonds 790,994 20.92% 646,671 17.88% 548,733 15.01% Certificates of deposit 77,626 2.05% 67,693 1.87% 31,379 0.86% Total direct funding - 1,987,783 52.58% 1,753,207 48.47% 1,595,396 43.64% from customers Liabilities in respect of assets assigned but not 217,446 5.75% 256,009 7.08% 237,100 6.48% derecognized Total direct funding 2,205,229 58.33% 2,009,216 55.54% 1,832,496 50.12%
Indirect funding* 1,792,935 47.42% 1,864,186 51.53% 2,060,815 56.36% Total funding 3,780,718 100.00% 3,617,393 100.00% 3,656,211 100.00%
Breakdown of indirect funding* 31 Dec. 2009 31 Dec. 2008 31 Dec. 2007 Administered 1,042,472 58.14% 1,210,994 64.96% 1,187,496 57.62% Under management 750,463 41.86% 653,192 35.04% 873,318 42.38% - of which: Investment funds 273,983 36.51% 238,234 36.47% 277,954 31.83% Portfolio management 278,434 37.10% 259,799 39.77% 401,759 46.00% Life insurance 198,046 26.39% 155,158 23.75% 193,605 22.17% Total indirect funding 1,792,935 100% 1,864,186 100% 2,060,815 100% * management control figures
As the table shows, total funding increased by 4.5% over the previous year. Direct funding continued growing at a rapid pace (+13.4%), while indirect funding declined by 3.8%. The most significant increase within direct funding came from bonds (+21.6%), with current accounts and demand deposits (+15.7%) and certificates of deposit (+14.7%) also posting growth. Repurchase agreements continued to decline. Regarding indirect funding, while the administered component declined (-13.9%), assets under management increased (+14.9%), with the growth being reflected in all three components: investment funds (+15.0%); portfolio management (+7.2%); and life insurance (+27.6%). The ratio of direct funding to total funding continued to increase, as a result of growth in all aggregates, with the exception of repurchase agreements with customers. The continuing uncertainty on the markets make the performance of direct funding even more encouraging, while indirect funding continued to decline as a percentage of the total (from 51.5% to 47.4%). Within indirect funding, the administered component accounts for 58.1% of the total, compared with 65% for the
15 previous year. Consequently, the managed component rose from 35% of the total to 41.9%.
Loans to customers NET LOANS TO CUSTOMERS 31 Dec. 2009 31 Dec. 2008 31 Dec. 2007 Current accounts 342,470 415,704 399,640 Medium/long-term loans 1,028,085 927,363 810,871 Credit cards and personal loans 9,508 12,565 15,113 Other transactions 148,506 235,969 203,224 Impaired assets 94,059 36,293 50,944 - of which: 90 to 180 days past 35,577 - - due Assets assigned but not 215,597 255,673 234,473 derecognized (performing) Debt securities 5,008 5,029 - Total carrying amount 1,843,233 1,888,596 1,714,265 Guarantees 122,730 129,718 146,497 Total loans to customers 1,965,963 2,018,314 1,860,762
NET LOANS TO CUSTOMERS (% composition) 31 Dec. 2009 31 Dec. 2008 31 Dec. 2007 Current accounts 17.4% 20.6% 21.5% Medium/long-term loans 52.3% 45.9% 43.6% Credit cards and personal loans 0.5% 0.6% 0.8% Other transactions 7.6% 11.7% 10.9% Impaired assets 4.8% 1.8% 2.7% - of which: 90 to 180 days past due 1.8% - - Assets assigned but not 11% 12.7% 12.6% derecognized Debt securities 0.3% 0.2% - Total carrying amount 93.8% 93.6% 92.1% Guarantees 6.2% 6.4% 7.9% Total loans to customers 100.0% 100.0% 100.0%
16
GROSS LENDING AND GUARANTEES TO ORDINARY CUSTOMERS BY SIZE OF EXPOSURE
31 Dec. 2009 31 Dec. 2008 31 Dec. 2007
% of total % of total % of total Amount Amount Amount lending lending lending
10 largest customers 93,643 4.69% 106,973 5.23% 98,194 5.17% 20 largest customers 146,788 7.34% 171,856 8.40% 161,015 8.47% 50 largest customers 261,691 13.09% 308,697 15.09% 289,057 15.21%
Total gross lending 1,998,755 2,045,538 1,900,084
LOANS BY BRANCH OF ECONOMIC ACTIVITY % COMPOSITION - 2009 SECTOR AND BRANCH Amount %
Government 15,098 0.8% Financial companies 47,172 2.6% Consumers 624,221 33.9% Agriculture, forestry and fishing products 54,758 3.0% Energy products 13,860 0.8% Ferrous and non-ferrous minerals/metals 4,435 0.2% Non-metal minerals and products 21,323 1.2% Chemical products 17,847 1.0% Metal products excluding transport equipment 41,245 2.2% Agricultural and industrial machinery 49,035 2.7% Data processing equipment 6,733 0.4% Electrical material and supplies 25,905 1.4% Transport equipment 7,743 0.4% Food products, beverages and tobacco 34,786 1.9% Textiles, leather products, footwear, clothing 20,278 1.1% Paper, paper products, publishing 11,270 0.6% Rubber and plastic products 12,103 0.7% Other industrial products 16,158 0.9% Construction and public works 248,077 13.5% Wholesale and retail trade services, recovery and repair services 165,649 9.0% Hotels and catering 26,114 1.4% Domestic transport 12,655 0.7% Transport-related services 8,830 0.5% Other market services 357,815 19.4% Communications services 123 0.0%
TOTAL 1,843,233 100.0%
17
LOANS BY ECONOMIC SEGMENT % composition 31 Dec. 2009 31 Dec. 2008 31 Dec. 2007 Government 0.55% 0.52% 0.34% Financial companies and quasi-corporate enterprises 2.56% 4.32% 3.11% Non-financial companies and quasi- corporate enterprises 54.92% 56.21% 55.38% Private and unclassified social institutions 0.27% 0.32% 0.79% Households (consumer and producer) 41.70% 38.62% 40.39% 100.00% 100.00% 100.00% The tables above confirm the substantial diversification of risk over time in the various economic segments.
Bad debts The ratio of bad debts to total lending shows the following trends:
31 Dec. BAD DEBT RATIOS 31 Dec. 2009 31 Dec. 2008 2007
Bad debts – principal amount 32,676 16,078 44,255 Doubtful loans 11,148 5,346 18,261 Net bad debts 21,528 10,732 25,994
Coverage percentage after recognition of loss (1) 34.1% 33.3% 41.3%
Gross loans 1,876,025 1,915,820 1,753,587
Writedowns 32,792 27,224 39,322 Net loans 1,843,233 1,888,596 1,714,265 (1) The coverage ratio of bad debts prior to recognizing the loss was 51.1% in 2009 and 44.6% in 2008.
Bad debts/loans gross of writedowns 31 Dec. 31 Dec. 2009 31 Dec. 2008 2007
Gross bad debts 32,676 16,078 44,255 Gross loans 1,876,025 1,915,820 1,753,587 Gross bad debts/gross loans 1.74% 0.84% 2.52%
Bad debts/loans net of writedowns 31 Dec. 31 Dec. 2009 31 Dec. 2008 2007
Net bad debts 21,528 10,732 25,994 Net loans 1,843,233 1,888,596 1,714,265 Net bad debts/net loans 1.17% 0.57% 1.52% 18
31 Dec. New bad debt ratios 31 Dec. 2009 31 Dec. 2008 2007
New bad debts 28,705 20,557 16,339 Average loans for the year 1,853,995 1,766,003 1,630,419 Ratio of new bad debts to loans 1.55% 1.16% 1.00%
Performance
31 Dec. 31 Dec. 31 Dec. % chg. Income statement 2009 2008 2007 08-09
Net interest income 53,889 58,575 52,229 -8.00%
Net fee and commission income 20,302 20,566 20,577 -1.29% Operating revenues (gross income + other operating income/expenses) 83,241 79,227 78,836 5.07% Operating expenses (administrative expenses + amortization/depreciation) 53,796 51,942 43,933 3.57%
Administrative expenses 51,853 50,142 42,388 3.41%
Net operating income 29,445 27,286 34,903 7.91%
Profit (loss) before tax on continuing operations 14,115 15,929 25,201 -11.39%
Net profit (loss) for the period 7,145 8,687 14,531 -17.76%
Administrative expenses 31 Dec. 31 Dec. 31 Dec. 2009 2008 2007 % chg. 08-09
Personnel expenses 31,643 29,045 26,137 8.95%
Other administrative expenses 20,210 21,097 16,251 -4.20%
Total administrative expenses 51,853 50,142 42,388 3.41%
Provisions for risks and charges and impairment of loans 31 Dec. 31 Dec. 31 Dec. 2009 2008 2007 % chg. 08-09 Net provisions for risks and charges -1,701 -986 -446 72.55% Net loss on impairment of loans -13,230 -9,893 -9,171 33.73%
The Bank’s performance was affected by the heightening of the crisis that swept through all industries and the consequent abrupt fall in interest rates following the monetary policy response of the world’s central banks. In this challenging environment, net interest income declined from the levels posted in 2008 due mainly
19 to the squeeze on the cost of funding and the decline in lending volumes, particularly to businesses. The margin on services increased as a result of the strategies implemented in previous years aimed at maintaining the positions achieved in asset management, based on the awareness that the quality of the products placed will also be a source of satisfaction for customers. Performance for the financial services segment returned to its usual high standards, thereby enabling us to achieve significant growth in gross income (+6.6% over 2008). Finally, net income from financial activities also increased (+2.6% over 2008), despite a considerable increase in provisions for credit risk (+31%). Net of extraordinary items totaling €3.3 million (150th anniversary, early retirement incentives and other significant items), expenses were significantly lower, which testifies to our strategic focus on containing the various individual components of spending.
B – The situation of the Bank
Lending Activity in the lending area was particularly intensive last year. The process of establishing approval powers was redesigned. The responsibilities of the authorizing bodies are now determined based on a combination of factors: the risk category of the loan type; the size of the exposure, both by risk class and globally; the customer segment concerned; the customer’s credit rating; the type of customer; and the type of transaction. The inclusion of credit ratings among the drivers of assigning approval powers was a response to the need to increase efficiency and use the loan approval process to direct the riskiest positions to more senior decision-making levels while also increasing approval powers for less risky positions in order to promote a more streamlined commercial approach. Internal rules were modified with regard to the maturity of transactions in response to the Bank of Italy's redefinition of "short-term" transactions. As part of the ongoing efforts in technological innovation, the new procedure to manage customer advances was launched. In the area of “problem loans”, the Bank saw an increase in positions being restored to performing status despite the challenging economic and social environment in which we operated as a result of the financial crisis. On numerous occasions, efforts involving the most seriously impaired positions also enabled more rapid start (compared with other creditors) of recovery action and judicial execution of mortgage claims.
Medium/long-term lending In 2009, the Bank promoted a great many initiatives in support of the community. Unfortunately, the recession, whose disruptive economic and social effects began to emerge in 2008, had a significant impact on consumer purchasing power and business 20 earnings, particularly for smaller firms, which account for the lion’s share of the local economy. This compromised both growth and investment and had a negative impact on employment. In particular, in order to limit the hardship for businesses as much as possible and to give relief to households experiencing the greatest challenges, last year the Bank was engaged in: a) renegotiating mortgage loans for primary residences, extending payment plans. This initiative, which is still in effect, was one of those that the Bank proposed in conjunction with our 150th anniversary in order to offer private borrowers in difficulty due to special circumstances (temporary layoffs, permanent job losses, etc.) the option of making payments of interest alone for up to 12 months and extending the maturity of loans for the same period of time; b) renegotiating unsecured and mortgage loans granted to small and medium-sized enterprises, in application of the accord between the Ministry for the Economy and Finance, ABI and industry associations for a 12-month moratorium on principal payments and extension of repayment plans for the same length of time. The accord is operational until 30 June 2010. Of particular note among the other initiatives the Bank has adopted in response to the crisis is the “Prestito sull’Onore” (honor loan) agreement reached with the city of Cento and the aforementioned protocol of understanding to support the income of employees of struggling companies. * In 2009, interest rates on medium and long-term loans continued the decline that began in the latter part of 2008. 6-month Euribor went from an average of 3.502% in December 2008 to 1.010% in December 2009. At the same time, 3-month Euribor fell from an average of 3.431% in December 2008 to 0.725% in December 2009. The demand for credit rose in terms of the number of loans, but declined in value. Loans to individuals for home purchases and/or renovations increased from the previous year. Mortgage lending to businesses also increased. Conversely, unsecured loans to companies declined, as did smaller loans to individuals (Prestito amico and Prontacassa, for example) used mainly to purchase consumer goods.
The Finance area At the beginning of this report, we underscored the gravity of the world’s economic and financial crisis. In such a difficult context, management of the securities portfolio, which is described in detail in Section E of the notes to the financial statements, focused on maintaining a prudent risk/return profile, while also taking advantage of any trading opportunities that the market had to offer. The predominance of bonds issued by Italian banks in the portfolio enabled us to achieve better-than-expected performance, thereby confirming that the impairment losses recognized last year were temporary and due to the lack of liquidity and the especially poor performance of markets at the end of 2008. The exposure of the portfolio to credit and interest rate risk remains limited, with a weighted average duration of less than 3 months for both the held-for-trading and
21 available-for-sale portfolios and a modified duration – which shows the sensitivity of prices to changes in interest rates – of 0.21. In 2009, nearly all investments in funds of hedge funds were sold, and relative-value strategies were implemented for the equity segment, but in amounts that never exceeded 2% of the trading book. Liquidity management continued to play a role of primary importance in 2009. Liquidity needs declined gradually from 2008, thanks to a carefully selected mix of direct funding and refinancing operations with the European Central Bank. In particular, participation in the 12-month auctions held by the ECB in September and December enabled us to replace liquidity with a weekly maturity with 12-month funds. The asset management segment also benefited from the recovery of the financial markets. The performance of the individual asset management lines, which was achieved at levels of volatility below that of the market, largely exceeded the respective benchmarks. In addition to the positive performance in terms of returns, net funding also increased. The multi-manager approach that has always been at the heart of the Bank’s asset management philosophy bore fruit by enabling us to overweight the best products for the individual managers while diversifying investments. Following the poor performance of the markets until March, customers remained highly risk averse and favored investments in financial instruments with a low risk/return profile. This was manifested as a preference for short-term securities with certain interest flows and guaranteed capital upon maturity. The sharp drop in 3-6 month rates also resulted in a decline in the volume of repo transactions and investments in 3-month Treasury bills. The bonds issued by the Bank continued to be well received by investors thanks to their simplicity and transparency, both at the time of placement (with a prospectus prepared by the Bank and approved by CONSOB) and in subsequent trading. The system of determining prices on the secondary market is also explained in the prospectus, which helps to limit the severe fluctuations generated by the financial markets.
The sales network The number of branches has risen to 48 with the opening of the branch in San Lazzaro di Savena. Of these, 21 are now located in the province of Ferrara, 17 in the province of Bologna, and 10 in the province of Modena. The Bank now serves 21 municipalities, of which 7 are in the province of Ferrara, 13 in Bologna and 7 in Modena. There are now a total of 55 automated teller machines and 1,507 point-of-sale terminals, accounting for a total of 1,128,510 transactions executed. In a testament to our role as a “local” bank, the Bank performs treasury activities for a number of local governments within the area. In 2009, we renewed the treasury services contract with the City of Nonantola, and again won the public tender for the treasury services contract for the City of Finale Emilia.
22
Partnerships with area schools are also strong. In 2009, cashier service contracts were acquired for the new schools established in the cities of Sant’Agostino, Poggio Renatico and Vigarano Mainarda following the reorganization of the primary and secondary schools in those areas.
Products and services Regarding actual commercial activities, the launch of new products and services has intensified in response to the need to provided customers with an increasingly diversified range of effective, up-to-date opportunities. In the funding/services segment, the “Ci Conto” deposit account was launched. On the financial services side, of particular note are the CRC bonds and certificates of deposit denominated in foreign currencies; the funds Arca Cedola Governativo Euro Bond, Corporate Bond, Governativo Euro Bond series II, and Corporate Bond series II; and the portfolio management accounts “Euro Quant” and “Black Diamond, which are being promoted particularly for private banking customers. Then there are the Eurovita policies “Special coupon 3.50%, Step up”, “Eurospring”, “Eurolight Spring”, “Special dual coupon”, “Eurofit single premium”, “Return” (for the “tax shield”); and the restyling of the Eurovita policies “Aurora VIP”, “Eurocash”, and “Eurocoupon”. On the lending side, new loan offerings include “150° Rata Light” (with the option to extend the payment plan) and “150° Zero%” (with a zero spread for the first 12 months). Other products have also been designed and launched in conjunction with our 150th anniversary, as discussed elsewhere in this report. Finally, new home banking functions have been launched (i.e. payment of the RAI television tax, online bank transfers, and information on savings deposits). Efforts in the services area were particularly intensive and resulted in an increase in the number and value of agreements or other initiatives implemented with associations and public entities. A factoring agreement was signed with GE Capital Finance. As a part of our constant, constructive partnership with businesses, the Bank has confirmed the offering of extraordinary financing for enterprises intended for payment of INAIL workplace insurance premiums. As has been done for a number of years now, special credit has also been made available to businesses for self- assessed tax payments, tax payments on account and settlement of final balances, and for natural disasters in order to support the local economy. Similarly, special loans were confirmed for businesses with fewer than 150 employees to help finance staff holiday pay during the summer break and for 13th- month deferred wage payments. The launch of most of these products was supported by extensive marketing campaigns, including advertising through various local and national media outlets.
23
REMOTE BANKING PRODUCTS 31/12/2009 31/12/2008 31/12/2007 BANCOMAT Number of active ATMs 55 52 50 Number of withdrawals 777,804 1,007,641 964,299 Amount 114,864 138,421 132,548
PAGOBANCOMAT P.O.S. Number of machines installed 1,507 1,523 1,342 Number of debits 1,128,510 1,086,992 1,021,114 Amount 77,747 76,383 72,175
Private banking customers In 2009, the Bank reached the important milestone of having all of our private bankers certified as European Financial Advisors (EFAs), in addition to their longstanding certification as financial advisors in Italy. This is yet another step along a broader training path, which seeks, over time, to place the customer increasingly at the heart of our day-to-day operations by agreeing goals and the vision for achieving those goals with them. In order to provide the most advanced solutions to our private banking customers, last year we activated a multi-manager asset management line known as “Black Diamond”. Under this line, the Bank and the customer agree the asset allocation of the portfolio, highlighting the expected return, the duration of the bond component, and overall volatility. The asset allocation can be altered at customers’ discretion, based on their risk profiles and investment objectives, discussing the process with the financial advisor. In the spring of 2009, the Bank sponsored a series of conferences in Ferrara as part of the “Scuola per Genitori” (school for parents) project. Coordinated by Prof. Paolo Crepet, this project was extremely well received, with more than 800 people signing up, including customers of the Bank’s private banking operations.
Retail customers Competition in this segment of the banking industry intensified during the year, as the large national and international banks have begun to consider what was until now the realm of smaller banks to be a strategic target. For this reason, our focus has been directed at keeping service quality high and service terms and conditions attractive to our customers. In the area of direct funding, such a difficult year meant that certificates of deposit were popular, as they meet the needs of security that many customers have and complement the bond offering that, for us, has always featured clear, transparent products, which has enabled us to increase the offering further, while also offering securities with longer maturities in order to lend additional stability to the Bank’s
24 funding. Towards the end of the year, a campaign (Ci Conto) was also launched with the goal of acquiring new customers on the funding side.
Corporate customers Our traditional consulting and support for businesses is provided through a wide range of financial services. During the year, innovative tools and methodologies were proposed in the form of financial products and consulting for investments in renewable energy and energy efficiency. Inspired by the increasingly pressing problem of energy costs and climate change, the Bank has distinguished itself as a “green bank”, finding real opportunities for economic recovery by investing in energy, eco-sustainable building, and agro-industrial businesses. In concert with the Foundation, we also launched information initiatives targeting businesses and households regarding energy and climate change. Considerable effort was spent on organizing conferences in the various provinces in which we operate (Ferrara, Bologna and Modena) regarding renewable energy generation, with a particular emphasis on photovoltaic systems, co-generation, and energy efficiency for new and renovated homes, while also launching initiatives with leading local and national proponents of these fields. These efforts were well received by both businesses and households and provided an adequate return for the Bank. An agreement was also signed with the Agency for Energy and Sustainable Development (AESS – Agenzia per l’Energia e lo Sviluppo Sostenibile) for the installation of photovoltaic systems, which was supported by Geovent Srl, a service firm established by 11 municipalities in the provinces of Modena and Bologna. A similar agreement is also being defined for the cities of the upper Ferrara area. Also of note are the two new loans for energy-efficient building and photovoltaic and other renewable energy systems (“Efficienza energetica edifici: per le ristrutturazioni agevolate 55% e la nuova edilizia ad alta efficienza” and “Fotovoltaico e impianti energie rinnovabili”), as well as the credit allocated for building expansion projects in accordance with the “Piano Casa” legislation. Intensive activities also involved specialist products for businesses. In the leasing segment, the repercussions of the economic crisis for the business world continued to have a negative impact on investment and, consequently, on the demand for finance leasing, which in 2009 had already posted a decline compared with 2008. In 2009, the number of lease transactions decreased again, although considerably less than for the Italian market as a whole. The “global assistance” service provided to customers to help prepare applications under Law 1329/65 (the “Sabatini” Act), was particularly well received. Derivatives operations continued to target the corporate segment in 2009, although transactions were concluded with individual customers as well. In the area of factoring, the year saw an increased commitment to developing contacts and establishing relations with customers, which was done mainly with the help of Emil Ro Factor, in which the Bank has a stake. Finally, operations expanded in the area of credit insurance, as well as in business consulting on investment-related public subsidies and tax incentives. 25
The organizational and IT systems During the year, the following important processes related to the organization took place: the launch of new web-based branch procedures that reorganize and improve all transaction with customers and increase the quality and quantity of the real-time information provided; adaptation of company processes to the transparency regulations issued by the Bank of Italy, which resulted in a revision of all contracts related to customer-oriented services; adaptation of payment services to the European Payment Services Directive, which establishes new rules for such services.
Logistics Extraordinary maintenance of the Bank’s properties included the following: the refurbishing of the entire façade of Palazzo Rusconi, the Bank’s historic headquarters, in conjunction with the 150th anniversary; the start of restructuring work on the new headquarters in Cento. In addition, the new branch in San Lazzaro di Savena was completed.
Security The data security policy document was drafted and completed as required by law (Legislative Decree 196/2003). In accordance with the obligations of Law 626/94, the general document regarding the assessment of risks related to worker health and safety was prepared and drafted. Regarding the risk of theft, pursuing the strategy of not keeping cash in our safes and maintaining effective video surveillance 24 hours a day, just 2 thefts were recorded.
Human resources At 31 December 2009, the Bank had 426 employees, of whom 417 were on permanent contracts and 9 on fixed-term contracts (an overall increase of 7 employees from 31 December of the previous year). The average workforce for 2009 came to 421 employees, compared with 416 in 2008. There were a total of 16 new hires (1 on a permanent contract and 15 on fixed-term contracts). There were a total of 9 terminations of employment (5 on permanent contracts and 4 on fixed-term contracts). Finally, 22 fixed-term contracts were converted into permanent contracts. In 2009, much work was done with the trade unions in order to execute a project for participation in the Solidarity Fund, which would call for the potential early retirement of employees that meet the requirements for retirement over the next five years. These efforts resulted in the actual participation of 17 employees, who will be retiring between January and September 2010. In order to support skills development in conjunction with this generational change, with experienced employees leaving the company during the year, work was also done to prepare a project to bring in new employees on four-year professional training contracts beginning in March 2010. These efforts included screening applicants, recruiting and selection, designing the contract, defining the individual 26 training program, etc. Similarly, considerable commitment was dedicated to extensive efforts to recruit experienced personnel in order to find people to bring in for future branch openings, as well as for the new branch that was opened at the end of the year in San Lazzaro di Savena (Bologna). In 2009, we also turned to the services of temporary employment agencies for the first time, an experience which proved to be the ideal solution to managing peaks in operations, which came about, in particular, in response to the need to roll out the new IT platform for branch operations. This project involved four pilot branches in 2009. The commitment of previous years was kept alive in order to ensure continuity in the quality and quantity of training initiatives, focusing particular attention on the development of specific knowledge in the professional areas within the company. In November, a detailed training plan was presented to obtain full financing from Fondo Professionale Banca Assicurazione (FBA), which was granted. The plan was organized as follows: an initiative aimed at developing the skills of management; a project designed to identify the aptitudes and potential of young, less senior employees ( “PER.FORM.A.R.E – PERcorso FORMativo Aziendale per Risorse in Evidenza”); and, finally, a diverse series of initiatives regarding lending, finance, legislation and other areas of interest. Particular emphasis was also placed on conducting the training called for by the protocol for maintaining ISVAP certification, which is essential for employees listed with this register in order to continue being able to sell insurance products. During the year, computerized evaluation forms were again used to obtain a clear and transparent overall professional assessment for all employees. No significant changes were made to the form, given that the feedback from the evaluators and those being evaluated was very positive.
The control system Again in 2009, the Bank placed emphasis on refining the skills and tools for the assessment, measurement and management of risk. In particular, efforts focused on refining the internal ratings system, which is described in detail in Section E of the notes to the financial statements, as well as on the constant analysis of interest rate and liquidity risk, which included appropriate stress tests. Last year was the first full year of annual reporting to the Bank of Italy under the Internal Capital Adequacy Assessment Process (ICAAP). The Bank dedicated a great deal of technical energy to the detailed measurement of exposures to all types of material risk. In 2009, the structure of the overall system was further refined with the establishment of the position of financial reporting manager, who has certified these financial statements. Many internal codes of conduct/operations were revised in order to make the control processes more efficient and effective and to comply with the following regulations regarding corporate governance and organization, which were issued by the Bank of Italy on 4 March 2008 and became effective in July 2009: rules for transactions with
27 related parties; rules for personal transactions with relevant parties; and rules for the various control functions, such as Internal Audit, Compliance and Risk Management. The Compliance unit was especially committed both to ensuring compliance with the above regulations and to the constant verification of the conformity of internal rules with regulatory requirements, with particular regard to money laundering and the “tax shield” capital repatriation scheme. Another issue faced was that of transparency in relation to both the Consolidated Banking Act issued by the Bank of Italy and the rules being issued by the Government regarding commissions charged to customers. The Compliance and Internal Audit units worked together with the Supervisory Body established in accordance with Law 231/2001, whose mission is to analyze the Bank’s activities concerning the preparation of an appropriate compliance model. In 2009, the efforts of Internal Audit focused on verifying compliance with the legislation and internal regulations regarding securities intermediation and employee compliance with the rules and principles set out in the internal Self-Disciplinary Code and the Code of Ethics. Particular emphasis was placed on compliance with transparency regulations and the fulfillment of the obligations established by money laundering legislation. Control activities also involved the Bank’s branches and headquarters. These activities sought to verify and identify any risks related to lending and financial services, as well as to identify the most significant operational risks, so as to remove, reduce or continue monitoring such risks. Regarding the management of customer complaints, controls were conducted, in addition to the analysis, definition and settlement of such complaints, in order to determine the causes of any disservice reported.
Cassa di Risparmio di Cento and the local community As always, numerous initiatives were undertaken throughout the territory, ranging from society to culture, sports to hobbies. This year, these activities were often conducted in concert with the programs for our 150th anniversary. The numerous technical workshops and conferences for businesses are described elsewhere in this report. Among the most significant projects for the community, “Sapori senza maschera”, which was repeated and enhanced in 2010, involved conferences and other meetings designed to be an opportunity to promote the territory and its cuisine, as well as the food and agriculture firms of the area: quality localism right here in Cento. The official name of the event came from its connection with the Cento Carnival, which is famous throughout Europe, as well as from the need for in-depth knowledge of the value chain underlying the food we eat; all of which was done with a view to transparency and safety. Speakers at the event, featuring industry experts, researchers, business people and spokespeople, included Giovanni Rana, Francesco Amadori, Luigi Cremonini, Paolo Bruni, and Vincenzo Tassinari, as well as the Fava group, Andalini and Negrini. Two sessions were held each day: one in the morning
28 with schools and one in the afternoon with industry experts and mere citizens interested in the topic. As discussed in another section of this report, a number of conferences were also promoted regarding the topic of renewable energy. Other events specifically for businesses were held to discuss challenges in foreign trade. This was carried out in close collaboration with the Ferrara Chamber of Commerce and within the scope of an interesting series of seminars and workshops promoted by the chamber of commerce. The Bank was present with stands and booths in a number of trade shows in the region, beginning with the historic Cento and Misen event (Bondeno). In the area of culture, the Bank was again involved in “Invito a Palazzo”, an initiative enabling hundreds of thousands of people to visit the historic buildings of Italian banks. As such, Palazzo Rusconi, with its works of art and its architecture, was opened to the public on the first Sunday of October. The Bank provided its traditional support in organizing the international youth literature award “Fondazione CariCento” and contributed to the success of an excellent book on the solidarity and commitment of young people in helping the victims of the Abruzzo earthquake. Another initiative in support of the young people of the community was our renewed sponsorship of the “Giochi della Gioventù” (youth games). A sponsorship agreement for the Cento Carnival was signed and then confirmed in 2010. This event provides a great deal of international visibility and interesting media opportunities, and the Bank’s customers and shareholders again received an entrance pass free of charge. Finally, special assistance was established for our customers in relation to the exhibits at Palazzo dei Diamanti in Ferrara. On the whole, a total of some 700 contributions were made in support of sports, culture and society, for a total of some €500,000.
Our 150th anniversary In conjunction with the 150th anniversary of the founding of Cassa di Risparmio di Cento, the Bank and the Foundation carried out numerous initiatives with and for the community, involving the latter in the awareness that their fortunes have always been tied to those of the Bank and vice versa. A simple, but well attended celebration kicked off the various initiatives at the end of March, and these events were repeated at the various bank branches. In April, our anniversary was celebrated at the employee convention and at the meetings of shareholders of the Foundation and the Bank. A marvelous photography exhibit was inaugurated in May, at the Representation Hall, in collaboration with the prestigious Alinari archives. Entitled “In Cento50 anni”, the exhibit sought to promote awareness of the relationship that the Bank has had with the community and of what the Bank has done to support our community. More specifically, the exhibit was designed to show the moments, the places and the 29 people that have characterized Cento and the nearby cities such as Modena, Bologna and Ferrara, as well as the profound economic, social, architectural and environmental changes that have taken place over the last hundred and fifty years. In June, we held the “Festa del Volontariato e dello Sport”, an important event for volunteer work and sports for young people, their families, the local sports organizations, and those working in social realms. Prominent figures from the world of sports come to the crowded Cento sports arena, including world champions such as the cyclist Francesco Moser, the canoeist Antonio Rossi, the boxer Alessandro Duran, and the jujitsu duo of Michele Vallieri and Vito Zaccaria, as well as the soccer coach Osvaldo Bagnoli and goalkeepers Nello Cusin and Fabrizio Ferron. From the world of volunteer work, among the thousand active companies and individuals from the local area and beyond, speakers at the event included Franco Pannuti, chairman of ANT; Brother Lucio Cariani, a missionary working in Africa; the Department of Civil Protection, the Crocetta Association, and the Sagre Association. The event was hosted by Red Ronnie and Chiara Buratti and closed with a concert by Paolo Belli and his band. In the summer, a video was produced about the history of the Bank and the territory in which we operate, which included meaningful references to the most important events of Italian and world history. The height of the Bank’s celebrations was reached with the conference “Fondazioni e Banche: i sistemi economici locali”, a day dedicated to the ethics of finance and economics and to the active role that the community’s banks and banking foundations play. The conference was held in Cento’s “Borgatti” theater, with the morning session featuring the presence of authorities such as Gianfranco Fini, President of the Chamber of Deputies, Vasco Errani, President of the Region of Emilia Romagna, and Giuseppe Guzzetti, the chairman of ACRI, all of which was moderated by Enrico Mentana. The afternoon session was dedicated to an important, in-depth roundtable discussion on finance, moderated by the economist Fabrizio Onida. First and foremost, the event highlighted the central role the Bank has played in the social and economic development of the region, while also recalling the values that underlie the activities of the Foundation, based on the principles of subsidiarity – the same principles mentioned a number of times by Pope Benedict XVI in his recent encyclical. The Bank and the Foundation are a particularly effective unified whole, thanks to their efforts socially and to the parallel work of the Bank, controlled by the Foundation and with deep roots in the community. In October, we presented the grand social project featuring Cento’s Giordani preschool, the building of which is to be refurbished, including restoration of the school’s theater, which will also be made available to the community of Cento. This preschool has a long, important history. Officially opened in 1870 (some fifty days before the breach of Porta Pia and just a few years after the Bank), the school is a classic example of a project brought about by a small, “inevitable” group of visionaries, but completed, consolidated and then further developed with the commitment of the community. While Antonio Giordani, director of the Bank, was among the leading promoters of the association, together with the rector, Don Vito 30
Facchini (secular and religious together), Giuseppe Borselli, the first chairman, donated great amounts of his own funds until his death in 1892. Cassa di Risparmio di Cento played a key role when, in the early 1880s, it bought the current location with incorporated homes and refurbished them. A few years later, the property was expanded to the adjacent building. We owe a great deal to Chairman Borselli, who was, at the same time, chairman of the bank. The preschool’s inevitable financial difficulties were always overcome thanks to the generosity of many, beginning with Cassa di Risparmio di Cento and now Fondazione CR Cento. Dear to the hearts of the people of Cento, the preschool has historically been a symbol of the desire of the Bank and of the Foundation to act in the best interests of the city. In the fall, as well as in other periods of the year, seminars and other meetings for businesses were held to discuss economics. The celebrations came to a close with the publication of the book for the 150th anniversary, featuring Cento, its history and its territory, but above all its Bank and its Foundation at the service of its community and its economy for over a century and a half. Indeed, the mandate of the organizing committee for the 150th anniversary was clear: to publish not a celebratory book, but one that would describe the key moments in the history, the growth, the expectations, the projects and the challenges both of Cassa di Risparmio di Cento and of the community in which we operate. Indeed, both have been supporting each other with strength and conviction since 1859 and have been working together to find solutions of benefit to all. One would not be the same without the other. This “symbiosis” was the inspiration not only of the book’s coordinators, but also of the authors called upon to write pieces on a wide range of specific topics, all related to the Bank’s “universe” – finance and economics, of course, but also social issues, history, art and culture. What has the Bank (and then the Foundation) done? How as this benefited the community? And who has been chosen to lead the Bank over the years? What were their values? How did the bank and its organization evolve? In terms of methodology, we wanted to avoid presenting history in a traditional, chronological manner. Instead, we sought variety in expression, including essays, tables, interviews, images of yesterday and today, and even a short story written for the occasion. We also distributed an exquisite numbered engraving by Claudio Bortoluzzi representing Palazzo Rusconi, the Bank’s headquarters since the turn of the 20th century. * Initiatives, yes. But also financial action with a social component. Thus we have decided to donate one euro for each current account opened during the year to the ANT Foundation. This initiative was widely promoted by both the Bank and the foundation, and culminated in the Festa del Volontariato described above. ANT will be receiving more than €5,000. In conjunction with the Festa del Volontariato, the competition “150 per tre” was also launched. This scratch-and-win competition featured a great many prizes (e.g. prepaid cards, mobile phone top-ups, iPods, digital photo and video cameras, and GPS navigators).
31
Generally speaking, a great many opportunities to meet and communicate during the year were centered around our anniversary. Of particular note was the Bank’s presence at the Cento fair with a stand dedicated to our 150th anniversary.
Research and development In the early part of 2009, the main research efforts concerned issues of governance in response to the new regulations regarding bank governance and organization issued on 4 March 2008, which called for significant changes in corporate governance and even a revision of the articles of association. The Corporate Governance project came out of this research and was submitted to the Bank of Italy on 30 June 2009. We have also spoken previously of the refinement of the techniques for measuring risks related to the ICAAP, but intelligence activities related to product marketing and distribution were also important, particularly with regard to financial services, for which the Bank has refined the strategies and procedures for the new investment consulting service and cutting-edge products particularly in the area of portfolio management products, such as “Black Diamond”.
32
4. Report on corporate governance In accordance with Article 123-bis of the Consolidated Law on Financial Intermediation, Cassa di Risparmio di Cento has prepared a report on corporate governance for 2009. The report, which the Board of Directors approved on 23 March 2010, is available to shareholders and the public on the company’s website (www.crcento.it), as well as at the company’s headquarters, and has been distributed at the meeting of shareholders.
5. Capital and shareholder structure At 31 December 2009, the Bank’s equity, before payment of dividends, came to €186,718,550, as follows:
SHAREHOLDERS’ EQUITY 31/12/2009 31/12/2008 31/12/2007 Share capital 67,499 67,499 66,030 Share premium reserve 30,851 30,851 26,627 Reserves 60,203 55,436 47,687 Valuation reserves 21,021 20,106 24,179 Equity instruments - - 278 Sub-total 179,574 173,893 164,801 Earnings for the period 7,145 8,687 14,531 Total equity 186,719 182,580 179,332
The total number of shares was 13,081,193. They were held as follows: Fondazione Cassa di Risparmio di Cento: 6,714,291 shares (51.33%); the holding company “Fondazione Cassa di Risparmio di Cento”: 2,046,000 shares (15.64%); individual shareholders: 4,320,902 shares (33.03%). At 31 December 2009, there were no treasury shares held. In any event, such shares are traded by way of a system of weekly auctions. During 2009, a total of 97,368 of the Bank’s shares were traded, as compared with 113,792 for the previous year. The weighted average price was €27.03 per share for a total value of €2,632,005, as compared with €3,404,657 for the previous year. The share price declined by 14.48% during the year. The high for the year was €29.00, and the low was €24.80.
33
Regulatory capital and capital ratios Regulatory capital at 31 December 2009 came to €194,957,611. The total capital ratio was 11.70%, and the Tier 1 ratio was 9.54%.
31/12/2009 31/12/2008 31/12/2007 Tier 1 capital before prudential filters 163,081 158,549 148,093 Total IAS/IFRS filters -753 -2,602 -217 Elements to deduct from Tier 1 capital -3,370 -1,395 -3,352 Total Tier 1 capital 158,958 154,553 144,524 Tier 2 capital before prudential filters 45,411 47,708 49,396 Total IAS/IFRS filters -6,042 -6,510 -7,354 Elements to deduct from Tier 2 capital -3,370 -1,395 -3,352 Total Tier 2 capital 35,999 39,804 38,690 Other elements to deduct 0 -990 -991 Regulatory capital 194,957 193,367 182,223 Risk-weighted assets 1,666,425 1,831,842 1,963,823 - for credit risk 1,520,152 1,681,255 1,890,904 - for market risk 3,121 13,438 72,919 - for operational risk 143,152 137,149 Total capital ratio 11.70% 10.56% 9.28% Tier 1 capital ratio 9.54% 8.44% 7.36%
Outlook The hoped-for signs of recovery did not emerge in the first quarter of 2010, although the first faint improvements in production indicators could be glimpsed. The Bank has therefore maintained its focus on credit risk and has further developed efforts in the area of reputation risk, which, as the Bank of Italy has underscored, has become essential to assessing a bank’s ability to cope with a crisis and to contribute to economic recovery.
Significant post-period events A number of regulatory developments had an impact in the first part of 2010: - Legislative Decree 27 of 27 January 2010 concerning the transposition of the Directive regarding the rights of shareholders of listed companies, including the issuers of widely-held listed financial instruments such as those of the Bank, as well as the procedures for shareholder participation and techniques for presenting agendas for meetings of shareholders. These changes will require another revision of the articles of association. - The new CONSOB regulations regarding transactions with related parties, which will require another change to internal regulations and operations. - The legislative decree that modifies the activity of independent auditors, which also affected the procedures by which the auditing firm is to be proposed in this general meeting of shareholders.
34
Conclusions An extremely challenging 2009 is now behind us, but it would be overly optimistic to think that the current year will allow for substantially different performance. Thus, we are expecting another stretch of bumpy road ahead. We do not know how long it will be, but it will be challenging. This is shown in a number of unmistakable indicators, namely the low level of orders, the likely fall in employment and the forecasts for interest rates, which are expected to remain at their current, unusually low levels for many more months. The real economy will continue to struggle. Faced with this discouraging scenario, the Bank must leverage its best qualities: our strong roots within the community, the trust that businesses and individuals have in us, the expertise of our staff, the commitment of all areas of our organization, and the vitality of a region that has always overcome even the hardest of times. The range of growth factors for the Cento area is also expanding, although, as mentioned above, critical issues are also on the rise. All of this has emerged from the in-depth study conducted by Centro Documentazione Studi (CDS) of Ferrara on behalf of the Bank and published in the volume dedicated to our 150th anniversary. A summary of the conclusions of the research is presented here. We would like to point out that the study underscored the six traditional keys to the success of the region, which dates back to before the Second World War, and clarified a number of other aspects. These six keys are: the Partecipanze agrarie (agrarian commons; Cassa di Risparmio di Cento; social cohesion; the local identity; the fact that it is a “border land”; and the creation of a new governing class and a dynamic, entrepreneurial middle class. This combination of factors sparked a new “made in Cento” entrepreneurial identity, which developed in the 1950s and 1960s, but growth did not stop there. It continued and strengthened thanks, in part, to the success of the “Taddia” professional institute. CDS further noted that a unique form of political autonomy developed in Cento, one infused with little ideology, but with a staunch defense of an administrative identity “against” the province and the region. The industrial district was then established at the same time that human capital was being strengthened through high levels of education and of training generally. Now, the road ahead has become more challenging; the obstacles have multiplied, as have the critical issues. According to CDS, the “dark side” of the “Cento Model” is twofold: its political autonomy (this time not always a positive factor) and the governance of social change. For the former, the study shows that, although political autonomy assisted growth in the area, it has also placed limits on the infrastructure and economic policies of the province and the region. In other words, in the past Cento was able to stand alone (and obtain various benefits), given that the area was self-sufficient, but this is no longer sustainable today. As for the second cause for concern, CDS has found that the Cento model has been changing rapidly, beginning with the systems of social mobility that created it in the first place. Perhaps the people of Cento are finding it difficult to interpret the new model. At the same time, skilled labor is declining, while immigrant labor, which needs to be socialized in line 35 with the local identity, is increasing. The CDS study continues by noting that we need to reinterpret the mechanisms of inclusion that ensure social cohesion, and new policy planning is a priority for the area. This substantial slowing has also been confirmed by another study by Rivo Ghelfi of the University of Bologna, which is also presented in the same volume and which speaks of “tired heroes” and the clear signs of stasis (with few new patents and a decline in the number of university graduates compared with other areas, particularly in the field of engineering). Nonetheless, the Cento area remains the province’s most dynamic, and is one of the most vibrant in the region. However, we need to understand the repositioning our area is experiencing, so that we can maintain a course suited to facing the challenges of both the present and future. The difficulties of this moment in history, discussed repeatedly here, should not distract us from the Bank’s strengths, particularly its increasingly deep roots in the community, its image earned over many years of professionalism and transparency, and the value added provided through the social initiatives carried out both directly and, above all, through our parent, Fondazione Cassa di Risparmio di Cento. And that’s not all. In terms of performance, while the banking system as a whole is showing clear signs of strain, the Bank is not just holding ground, it is also able to generate revenue. In that regard, it is important to note that all of our branches have broken even: a great achievement. Moreover, regardless of the slogans, banks are not all the same. This is the message that has been repeated throughout the celebration of our 150th anniversary and which has become the leitmotiv of many discussions about banking. The Bank’s leaders are not the only ones to be convinced of this. Many businesses, investors, and our other stakeholders generally, i.e. all those who are in some way involved with the bank, a bank that is, not coincidentally, viewed as a “local” bank, distanced from the disastrous creative finance that has run rampant in recent years. * In closing this report, the Board of Directors would like to reiterate the cause for satisfaction represented by the buoyancy the Bank has displayed throughout this challenging year. There is an increasing need for cohesion and unity among all stakeholders – including businesses, associations, the consumer and public institutions – in order to confirm and develop the Bank’s extensive presence throughout the territory. The current Board of Directors is ending its three-year term with the satisfaction of having given its utmost commitment, a commitment rewarded with especially strong performance given the difficult economic and financial circumstances we have faced. * Our heartfelt thanks go to the Bank’s shareholders and all our customers for the trust, support and collaboration provided, all of which again testifies to your appreciation of the professional relationship that has been created and is the key to the positive results that have been illustrated here.
36
We would also like to thank the General Manager, Ivan Damiano, for the commitment, professionalism, constant presence and care that have characterized his efforts throughout such a long series of challenges this financial year. We further add our appreciation for the effective, diligent work of management and of all the personnel of both general management and the various branches. We are grateful for the work they have done, which was made objectively more difficult by a context that was anything but simple. They, first and foremost, have made Bank’s positive performance possible, and we are convinced that their ongoing commitment will be indispensable in growing the business in the future. Our thanks also go to the Bank of Italy and to Roberto Marchetti, Director of the Bologna branch, and all of his colleagues for the invaluable suggestions and support they have provided. Finally, we would like to thank ABI and ACRI for their ongoing support and professionalism, as well as the Universities of Ferrara, Bologna and Modena, the authorities and public bodies of our territory, the industry associations, the various professional bodies, and the volunteer groups for their extensive and effective collaboration.
THE BOARD OF DIRECTORS
37
PROPOSED DISTRIBUTION OF INCOME FOR 2009
NET PROFIT FOR THE YEAR 7,144,537.61
- allocation to the legal reserve 357,226.88 (5% Art. 24 of the articles of association) - allocation to the statutory reserve 714,453.76 (10% Art. 24 of the articles of association)
-allocation to the extraordinary reserve 3,456,618.37
- dividend distribution of €0.20 per share 2,616,238.60 to the 13,081,193 shares (36.6% payout)
Total 7,144,537.61
After the allocation of net profit as proposed above, shareholders’ equity will comprise:
Item 130 – Valuation reserves 21,020,813.42 Item 150 – Equity instruments - Item 160 – Reserves 64,731,212.90 Item 170 – Share premium reserve 30,851,329.00 Item 180 – Share capital 67,498,955.88
Total shareholders’ equity 184,102,311.20
38
FINANCIAL STATEMENTS
39
BALANCE SHEET
ASSETS 31/12/2009 31/12/2008 10. Cash and cash equivalents 11,041,753 11,323,096 20. Financial assets held for trading 35,577,750 67,261,619 40. Financial assets available for sale 108,620,420 112,151,844 60. Due from banks 322,615,985 161,765,917 70. Loans to customers 1,843,232,964 1,888,595,987 80. Hedging derivatives 8,506,602 5,419,698 110. Property and equipment 44,125,413 42,640,593 130. Tax assets 17,991,028 18,157,383 a) current 8,673,859 9,337,947 b) deferred 9,317,169 8,819,436 150. Other assets 35,428,575 35,346,858
TOTAL ASSETS 2,427,140,490 2,342,662,994
40
BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY 31/12/2009 31/12/2008 10. Due to banks 174,076,859 315,085,902 20. Due to customers 1,119,162,770 1,038,842,962 30. Securities issued 868,620,357 714,363,722 40. Financial liabilities held for trading 8,482,610 7,854,090 60. Hedging derivatives 198,295 1,319,826 80. Tax liabilities 15,040,946 14,982,226 a) current 8,653,393 8,349,897 b) deferred 6,387,552 6,632,329 100. Other liabilities 46,305,255 54,506,226 110. Employee termination benefits 5,110,497 4,994,175 120. Provisions for risks and charges 3,424,352 8,133,847 a) retirement and similar liabilities 0 4,299,568 b) other provisions 3,424,352 3,834,280 130. Valuation reserves 21,020,813 20,106,349 160. Reserves 60,202,914 55,435,938 170. Share premium reserves 30,851,329 30,851,329 180. Share capital 67,498,956 67,498,956 200. Net profit (loss) for the period 7,144,538 8,687,448
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,427,140,490 2,342,662,994
41
INCOME STATEMENT
31/12/2009 31/12/2008
10. Interest and similar income 96,797,093 131,710,141 20. Interest and similar expense (42,907,999 ) (73,134,750 ) 30. Net interest income 53,889,094 58,575,391 40. Fee and commission income 24,299,532 23,853,964 50. Fee and commission expense (3,997,687 ) (3,287,570 ) 60. Net fee and commission income 20,301,844 20,566,394 70. Dividends and similar income 961,876 399,138 80. Net gain (loss) on trading activities 2,524,536 (3,959,391 ) 90. Net gain (loss) on hedging activities 598,482 (804,285 ) 100. Gains (losses) on disposal or repurchase of 1,722,101 289,044 a) loans 404,043 766,474 b) financial assets available for sale 1,064,497 (725,624 ) d) financial liabilities 253,560 248,194 120. Gross income 79,997,933 75,066,291 130. Net losses/recoveries on impairment of : (13,623,599 ) (10,399,118 ) a) loans (13,229,691 ) (9,892,892 ) b) financial assets available for sale (737,805 ) (514,654 ) d) other financial transactions 343,898 8,428 140. Financial income (expense), net 66,374,335 64,667,173 150. Administrative expenses (51,852,720 ) (50,141,719 ) a) personnel expenses (31,642,998 ) (29,044,893 ) b) other administrative expenses (20,209,722 ) (21,096,826 ) 160. Net provisions for risks and charges (1,700,569 ) (985,562 ) 170. Net adjustments of property and equipment (1,943,467 ) (1,799,817 ) 190. Other operating income (expense) 3,242,873 4,161,187 200. Operating costs (52,253,883 ) (48,765,911 ) 240. Gains (losses) on disposal of investments (5,914 ) 27,931 250. Income (loss) before tax from continuing operations 14,114,538 15,929,193 Income tax expense for the period on continuing 260. operations (6,970,000 ) (7,241,744 ) 270. Profit (loss) after tax on continuing operations 7,144,538 8,687,448 290 Profit (loss) for the year 7,144,538 8,687,448
42
STATEMENT OF COMPREHENSIVE INCOME
31/12/2009 31/12/2008
10. Profit (loss) for the year 7,144,538 8,687,448
Other comprehensive income net of taxes 20. Financial assets available for sale 914,464 (4,072,489 )
110. Total other comprehensive income net of taxes 914,464 (4,072,489 ) 120. Comprehensive income (items 10+110) 8,059,002 4,614,959
43
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AT 31 DECEMBER 2008
Changes for the period e '
t v s
Allocation of net profit t i a r 8 8 a
s e 0 0
for the period s n s d 0 0 a l Equity transactions e a
2 2
o h / / e y e h Changes 2 2 t r m i e Change 1 1 / / r p Dividends in Issue of Purchase Special Changes in Derivatives o u 1 1 a c q
As at to As at Stock m 3 3 h reserves n e
Reserves and other new of own dividend equity on own i o 31/12/2007 opening 1/1/2008 options S allocations shares shares distribution instruments shares C balance Share capital a) ordinary shares 66,030,059 66,030,059 0 1,468,897 0 67,498,956 b) other shares 0 0 0 0 0 Share premium reserve 26,626,826 26,626,826 0 4,224,503 30,851,329 Reserves: a) earnings 42,213,994 0 42,213,994 7,748,801 0 0 0 0 49,962,795 b) other 5,473,143 0 5,473,143 0 0 0 0 0 0 5,473,143 Valuation reserves: 24,178,838 0 24,178,838 (4,072,489 ) 20,106,349 Equity instruments 277,907 277,907 (277,907 ) Treasury shares 0 0 0 0 Net profit (loss) for the year 14,530,958 0 14,530,958 (7,748,801 ) (6,782,157 ) 8,687,448 8,687,448
Shareholders' equity 179,331,725 0 179,331,725 0 (6,782,157 ) 0 5,693,400 0 0 (277,907 ) 0 0 4,614,959 182,580,020
44
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AT 31 DECEMBER 2009
y t
i Changes for the period 9 e u
t 0 Allocation of net profit v q
i a 0 e 9
s
2
for the period ' 0 s / n s 0
Equity transactions a 2 e r
2 1 h / e e / e Changes 2 d 1 l r m 1
Change 3 / o p in o
Dividends Issue Purchase Special Changes in Derivatives t 1 c h a As at to As at Stock m 3 e reserves n
Reserves and other of new of own dividend equity on own i o r 31/12/2008 opening 1/1/2009 options s a C allocations shares shares distribution instruments shares a balance h S Share capital a) ordinary shares 67,498,956 67,498,956 0 (0 ) 0 67,498,956 b) other shares 0 0 0 0 0 0 Share premium reserve 30,851,329 30,851,329 0 0 30,851,329 Reserves: a) earnings 49,962,795 0 49,962,795 4,763,090 3,886 0 0 0 54,729,771 b) other 5,473,143 0 5,473,143 0 0 0 0 0 5,473,143 Valuation reserves: 20,106,349 0 20,106,349 X 914,464 21,020,813 Equity instruments 0 0 0 0 Treasury shares 0 0 0 0 0 Net profit (loss) for the year 8,687,448 0 8,687,448 (4,763,090 ) (3,924,358 ) 7,144,538 7,144,538
Shareholders' equity 182,580,020 0 182,580,020 0 (3,924,358 ) 3,886 0 0 0 0 0 0 8,059,002 186,718,550
45
STATEMENT OF CASH FLOWS
A. OPERATING ACTIVITIES 31/12/2009 31/12/2008 1. Operations 33,143,356 32,856,239 - net profit for the year (+/-) 7,144,538 8,687,448 -gains/losses on financial assets held for trading and on financial (556,383 ) 1,061,901 assets/liabilities at fair value (- /+) - gains/losses on hedging activities (+/-) (598,482 ) 804,285 - net impairment adjustments (+/-) 13,963,346 8,901,125 - net value adjustments to property and equipment and intangible assets 1,943,467 1,799,817 (+/-) - net provisions and other costs/revenues (+/-) 1,700,569 985,562 - unpaid taxes and duties (+) 6,970,000 7,241,744 - net adjustments of disposal groups held for sale 0 0 net of tax effects - other adjustments (+-) 2,576,302 3,374,357 2. Net cash flows from/used in financial assets (95,811,154 ) (177,704,044 ) - financial assets held for trading 34,036,688 134,972,964 - financial assets at fair value 0 0 - financial assets available for sale 2,447,698 (75,204,623 ) - due from banks : on demand (42,310,674 ) (20,690,958 ) - due from banks : other loans (119,143,212 ) (22,622,453 ) - loans to customers 27,352,808 (181,984,461 ) - other assets 1,805,539 (12,174,513 ) 3. Net cash flows from/used in financial liabilities 69,739,099 155,003,308 - due to banks : on demand (9,144,819 ) 21,650,742 - due to banks : other (131,864,297 ) 235,885,468 - due to customers 80,868,712 (213,279,022 ) - securities issued 153,296,375 122,946,443 - financial liabilities held for trading 628,520 363,621 - financial liabilities at fair value 0 - other liabilities (24,045,392 ) (12,563,944 ) Net cash flows from/used in operating activities 7,071,301 10,155,503 B. INVESTING ACTIVITIES 1. Cash flow from 340,143 416,774 - sales of equity investments 0 - dividends from equity investments 0 - sales/redemptions of financial assets held to maturity 0 - sales of property and equipment 340,143 416,774 - sales of intangible assets 0 - sales of business units 0 2. Cash flow used in (3,768,429 ) (1,950,547 ) - purchases of equity investments - purchases of financial assets held to maturity 0 - purchases of property and equipment (3,768,429 ) (1,950,547 ) - purchases of intangible assets 0 - purchases of business units 0 Net cash flows from/used in investing activities (3,428,286 ) (1,533,773 ) C. FINANCING ACTIVITIES - issues/purchases of own shares 0 0 - issues/purchases of equity instruments 0 (277,907 ) - dividend distribution and other (3,924,358 ) (6,782,157 ) Net cash flows from/used in financing activities (3,924,358 ) (7,060,064 ) NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (281,343 ) 1,561,666
Reconciliation 31/12/2009 31/12/2008 Cash and cash equivalents at beginning of period 11,323,096 9,761,430 Net increase/decrease in cash and cash equivalents (281,343 ) 1,561,666 Cash and cash equivalents at end of period 11,041,753 11,323,096
In order to provide the reader with a better basis for understanding the Bank’s ability to generate, as well as use, cash and cash equivalents, the Bank has decided to use the indirect method in presenting its statement of cash flows. The figures for the previous year were reclassified for comparative purposes.
46
NOTES TO THE FINANCIAL STATEMENTS
Part A – Accounting policies
Part B – Information on the balance sheet
Part C – Information on the income statement
Part D – Comprehensive income
Part E – Risks and risk management policies
Part F – Information on capital
Part G – Business combinations
Part H – Transactions with related parties
Part I – Share-based payments
Part L – Operating segments
47
Part A – Accounting policies
A.1 – GENERAL INFORMATION
Section 1 – Declaration of conformity with International Accounting Standards
The financial statements at 31 December 2009 of Cassa di Risparmio di Cento, Società per Azioni, in accordance with Art. 4 of Legislative Decree 38 of 28 February 2005, have been prepared in compliance with the international accounting standards issued by the International Accounting Standards Board (IASB) and the related interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as endorsed by the European Commission under Regulation (EC) no. 1606 of 19 July 2002.
The accounting policies in effect at 31 December 2009 (including SIC and IFRIC interpretations) used in preparing these financial statements are listed in an attachment to this document.
Cassa di Risparmio di Cento does not holding controlling interests in other companies and is therefore not a parent company under supervisory regulations. The Bank does not believe that it is required to prepare consolidated financial statements since it does not meet the requirements under Art. 24 of Legislative Decree 87/1992.
Changes in accounting policies
Below is a description of the primary changes made to the accounting policies, approved by the IASB and endorsed by the European Commission, that affect the Bank’s current operations and that have been applied in preparing the 2009 financial statements.
Revised IAS 1“Presentation of financial statements” – adopted with Regulation (EC) no. 1274 of 17 December 2008 The policy, applicable starting from 1 January 2009, requires that the statement of changes in shareholders’ equity provide information on just transactions with shareholders. Therefore a new statement—the statement of comprehensive income – reporting the costs and revenues recognized directly in equity was introduced. In other words, it reports changes in equity not attributable to transactions with shareholders (“non-owner changes in equity”). Specifically, IAS 1 permits all costs and revenues, including those taken directly to equity, to be shown in a single statement or in two separate statements. In its update of Circular no. 262, the Bank of Italy opted to require the presentation of two separate statements, a practice the Bank follows herein.
48
IAS 1 is important for the purposes of disclosure, but it has no impact on how assets and liabilities are measured in the financial statements.
Amendment of IFRS 7 “Financial instruments: disclosures” – adopted with Regulation (EC) no. 1165 of 27 November 2009 The amendment of IFRS 7 marks the IASB’s attempt to improve the clarity of disclosures following the crisis in the financial markets by requiring additional information on fair value measurement and liquidity risk. Specifically, in measuring the fair value of financial instruments, additional disclosures must be provided on how the fair value is determined using a three-level hierarchy (level 1, 2, 3) based on observable market inputs, as described further herein. As to liquidity risk, the amendment of IFRS 7 introduced a new definition of risk relating to the difficulty of paying financial liabilities settled through the delivery of cash and other financial assets. The disclosure on liquidity risk, prepared based on Circular no. 262, is found in Part E – Risks and risk management policies, Section 3 – Liquidity risk.
IFRS 8 – Operating segments IFRS 8 was issued in November 2006 and replaces IAS 14 – Segment reporting. The policy is in effect starting from 1 January 2009. The Bank adopted this policy and the pertinent disclosure is found in Part L –Operating segments.
Section 2 – General preparation principles
The financial statements consist of the balance sheet, the income statement, the statement of changes in shareholders’ equity, the statement of cash flows, the statement of comprehensive income and the explanatory notes. They are accompanied by the report on operations.
The financial statements and the notes were prepared in accordance with the instructions contained in Bank of Italy Circular no. 262 of 22 December 2005, as amended on 18 November 2009.
The financial statements were prepared based on historical cost, except for derivative financial instruments and financial assets available for sale, which are instead recognized at fair value. The carrying value of assets and liabilities hedged at fair value that would otherwise be recognized at cost is adjusted to take account of the changes in fair value caused by the hedged risks.
In accordance with Article 5 of Legislative Decree 38/2005, the financial statements were prepared using the euro as the reporting currency. Amounts in the financial statements are expressed in euros, while amounts reported in the notes are presented in thousands of euros. The financial statements were prepared by applying the general principles provided by the accounting standards endorsed by the European Commission and explained in Part A.2 of these Notes. Transactions undertaken by the company are recognized based on the settlement date, with derivatives based on the contract date. Income statement and balance sheet figures are recognized on an accruals and going-concern basis. The general principles of the materiality and significance of information and the prevalence of substance over form have also been taken into account. Every material class of items that are similar in nature or function is shown separately in the balance sheet. Items of a different nature or function are shown separately, if material. Assets and liabilities and revenues and costs have not been offset except where expressly required or permitted by an accounting standard or interpretation.
49
Accrued income and prepaid expense and accrued expense and deferred income referring to the main balance sheet categories are recognized under the items to which they refer, while the other are reported among “other assets” or “other liabilities”. The financial statements and the accompanying notes set out the figures for the present period as well as comparative figures at 31 December 2008 for the balance sheet, the income statement, the statement of comprehensive income, the statement of change in shareholders’ equity and in the statement of cash flows.
Contents of the financial statements
Balance sheet and income statement The balance sheet and the income statement are formed of items and sub-items. The statements do not report items for which no amount has been posted for both the year under review and the previous year. In the income statement, revenues are shown without a sign, while costs are shown within parentheses as provided by law (a graphical convention equivalent to showing numbers preceded by the negative sign).
Statement of changes in shareholders’ equity The statement of changes in shareholders’ equity reflects the information required by Circular no. 262 of 2005 issued by the Bank of Italy and shows the composition and change in shareholders’ equity items that occurred in the year under review and in the previous year.
Statement of comprehensive income The statement of comprehensive income shows the profit or loss for the year and the changes in assets recognized during the period in the valuation reserves.
Statement of cash flows The statement of cash flows for the year under review and the previous year were prepared using the indirect method and show net cash flow generated by operating, investing and funding activities. Cash flows generated during the year are presented without a sign, while figures representing liquidity absorbed are shown within parentheses.
Section 3 – Events subsequent to the balance sheet date
No events subsequent to the balance sheet are reported beyond those already described in the relevant section of the report on operations.
50
Section 4 – Other information
In June 2009, the Bank signed contracts to initiate an EMTN program for the issue of bonds targeted at institutional investors. The first two issues occurred on 16 September 2009 and 22 September 2009 for a total of €140 million.
In 2009, the defined-benefit portion of the pension program was partly liquidated and partly outsourced to a specialist pension fund management firm.
Comparative information The following comparative information in respect of the previous period is provided in accordance with IAS 1 – “Presentation of Financial Statements”. Items in the financial statements are classified using the same criteria used in the previous period, with the exception of:
§ €3,563 thousand relating to recoveries of stamp duty and special taxes, reclassified in the financial statements and the explanatory notes from “Other administrative expenses” to “Other operating expenses/income”. The equivalent amount for 2009 came to €3,429 thousand. § €2,026 thousand relating to fee and commission income on current accounts and deposits, reclassified in the financial statements and the explanatory notes from “Other operating expenses/income” to “Fee and commission income”. This item amounted to €2,067 thousand in 2009. § €143 thousand relating to the compensation of members of the Board of Auditors, reclassified in the financial statements and the explanatory notes from “Other administrative expenses” to “Personnel expenses”. The equivalent amount at 31 December 2009 came to €144 thousand. § €77 thousand relating to fees and commissions for management of securities, reclassified in the financial statements and the explanatory notes from “Other administrative expenses” to “Fee and commission income”. This item amounted to €117 thousand in 2009.
The reclassifications were made to comply with the update to Bank of Italy Circular no. 262 and to present the information more accurately.
51
A.2 – NOTES TO THE MAIN ITEMS OF THE FINANCIAL STATEMENTS
This section sets out the accounting policies adopted in preparing the financial statements at 31 December 2009. The presentation of the accounting policies adopted by Cassa di Risparmio di Cento, Società per Azioni comprises a discussion of the stages of recognition, classification, measurement and derecognition of the various asset and liability items. A description of the impact on profit or loss, if any, is provided for each of these stages.
1. Financial assets held for trading
Recognition Debt and equity securities are initially recognized at the settlement date, while derivatives contracts are recognized at the date they are signed. Debt and equity securities are recognized at fair value at the settlement date, without taking into account transaction costs or revenues.
Classification This category includes debt and equity securities and the positive values of derivatives held for trading. Derivates held for trading include embedded derivatives that are subject to separate recognition in the following circumstances: - the financial and risk characteristics of the embedded derivative are not strictly correlated with those of the host instrument; - embedded instruments, even separately recognized, satisfy the definition of a derivative; - the hybrid instrument is not subject to measurement at fair value with the difference recognized in the income statement. No transfer to other categories is allowed, except where there are unusual circumstances that are unlikely to recur in the short term.
Measurement Financial assets held for trading are measured at fair value following initial recognition. The effects of this measurement are taken to profit or loss. For financial instruments listed on active markets, the fair value is determined on the basis of the official prices. For financial instruments that are not listed on active markets, fair value is determined using commonly adopted estimation/valuation models that take into account all the risk factors associated with the instruments: realizable value determined based on the price of listed instruments with similar features, calculation of discounted cash flows, option pricing models, prices registered in recent similar transactions, the solvency and country risk of the debtor. For equity securities and derivatives on such securities, if the fair value cannot be reliably determined following the guidelines above, they are measured at cost.
Derecognition
Financial assets held for trading are derecognized when substantially all of the risks and rewards connected with ownership of the asset are transferred to a third party. Conversely, when a prevalent share of the risks and rewards associated with ownership of the financial asset is retained, the assets continue to be recognized even if legal title has been transferred. If the Bank retains even a portion of
52 control, the assets continue to be recognized to the extent of the continuing involvement, measured by exposure to changes in the value of the assets transferred and to changes in the related cash flows.
Criteria for recognizing costs and revenues Interest is recognized on an accrual basis. The effect of the measurement at fair value is recognized through profit or loss. Dividends are recognized at the time of distribution is authorized. The Bank has changed its practice with respect to 2008 when the assets were recognized on a cash basis. This change resulted in the recognition of €454 thousand through profit or loss.
2. Financial assets available for sale
Recognition Financial assets available for sale are initially recognized at the settlement date. Financial assets are initially recognized at fair value, including transaction costs or revenues directly attributable to the instrument. If a financial asset held to maturity is reclassified as available for sale in certain cases permitted under these accounting policies, the amount recognized is the fair value at the time of transfer. For the reclassification of financial assets held for trading prior to 1 November 2008 in relation to the amendment of IAS 39, it is explicitly provided that the fair value of the instrument at 1 July 2008 become its recognized value in the category to which it is reclassified.
Classification This category includes financial assets other than derivatives that are not classified in the balance sheet as “loans and receivables”, “financial assets held to maturity” or “financial assets held for trading”. This item includes: Ÿ bonds that are not frequently traded; Ÿ equity securities resulting from the reclassification of equity investments that are not held for trading and do not qualify as a subsidiaries, associates or joint ventures; Ÿ other equity securities that are not listed and holdings in private equity funds and other units in collective investment undertakings.
Financial assets available for sale can be reclassified as financial assets held to maturity if: • there has been a change in the intention or ability to hold the instrument to maturity; • it is no longer possible to reliably measure the fair value (rare circumstances); • the period under the tainting rule has passed and the portfolio of assets held to maturity can be reformed. It is also possible to reclassify the instruments to the category “loans and receivables” if the conditions outlined in the “Other information” section below are met.
Measurement Following initial recognition, financial assets available for sale are measured at fair value, while measurement gains and losses are recognized in a special equity reserve until the asset is derecognized or an impairment loss is recognized. The interest accrued on bonds using the effective interest rate is taken to the income statement. At the time of transfer or recognition of an impairment loss, the reserve is reversed, in whole or in part, to the income statement. Fair value is determined using the same methods adopted for financial assets held for trading. Equity instruments whose fair value cannot be reliably determined are carried at cost.
53
Available-for-sale financial assets undergo impairment testing to determine whether there is objective evidence of impairment. The amount of the loss is measured as the difference between the carrying amount of the asset and the present value of projected cash flows, discounted using the effective interest rate, or using specific valuation methods for measuring equity instruments. Where the reasons for the impairment should cease to obtain, writebacks are recognized in the income statement for debt securities and in equity in the case of equity securities. The amount of the value of the asset after the writeback shall not in any event exceed the amortized cost that the instrument would have had in the absence of the prior writedown.
On 7 May 2009, IFRIC offered an interpretation on the meaning of the concepts of a “significant” or “prolonged” reduction in the fair value of an equity instrument classified as AFS. As a result, the Board of Directors of the Bank decided at its 15 September 2009 meeting to change the policy approved on 24 March 2009 for drawing up the financial statements at 31 December 2008. These policy changes were required given the characteristics of the equity instruments held by Cassa di Risparmio di Cento as available for sale, and due to the high degree of market instability reported starting from the second half of 2007. The policy now better defines the quantitative criteria to be used to determine whether impairment has occurred, namely where the fair value at the balance sheet date is more than 30% lower than the original carrying amount or the fair value remains below the initially recognized value for 48 straight months for private equity securities and 12 months for stock. As a result of the Board’s decision, a negative reserve with respect to provisions for private equity was established in the amount of €123 thousand.
Derecognition Financial assets available for sale are derecognized when substantially all of the risks and rewards connected with ownership of the asset are transferred to a third party. When a prevalent share of the risks and rewards associated with ownership of the financial asset are retained, the assets continue to be recognized even if legal title has been transferred. If the Bank retains even a portion of control, the assets continue to be recognized to the extent of the continuing involvement, measured by exposure to changes in the value of the assets transferred and to changes in the related cash flows.
Criteria for recognizing costs and revenues Dividends from shareholdings are recognized in the period in which their distribution is authorized. The Bank has changed its practice with respect to 2008 when the assets were recognized on a cash basis. This change resulted in the recognition of €454 thousand through profit or loss. Accrued interest on debt instruments is recognized using amortized cost.
3. Financial assets held to maturity Cassa di Risparmio di Cento S.p.A. does not have financial assets held to maturity. Nevertheless, the accounting policies that apply to these assets are provided.
Recognition Financial assets held to maturity are initially recognized at fair value, including transaction costs or revenues directly attributable to the asset. If the assets recognized have been reclassified from financial assets available for sale, the assets are initially recognized at the fair value on the date of transfer, the value which is taken as the new amortized cost of the assets.
Classification This category covers securities for which the Bank must have the ability and the intention to hold such assets to maturity. If an asset is disposed of before maturity, even for valid economic reasons, the entire category is subject to the “tainting rule”, i.e. the transfer of the entire portfolio to the category “financial
54 assets available for sale”. The portfolio of “financial assets held to maturity” cannot be reinstated for a period of two years. The intention and ability to hold the instruments to maturity is reviewed annually. Instruments must meet the following requirements to qualify as held to maturity: Ÿ fixed maturity; Ÿ produce steady, measurable income flows; Ÿ in accordance with the stricter rules issued by the Bank of Italy concerning the financial statement of banks, they must also be listed on a regulated market.
Measurement Following initial recognition, financial assets held to maturity are recognized at amortized cost using the effective interest rate method. The instruments undergo impairment testing to determine whether there is evidence of significant or prolonged impairment. If so, the amount of the loss is measured as the difference between the carrying amount of the asset and the present value of projected cash flows, discounted using the effective interest rate, and is taken to profit or loss. Where the reasons for the impairment should cease to obtain, writebacks are recognized in the income statement. The amount of the value of the asset after the writeback shall not in any event exceed the amortized cost that the instrument would have had in the absence of the prior writedown.
Derecognition Financial assets held to maturity are derecognized when substantially all of the risks and rewards connected with ownership of the asset are transferred to a third party. When a prevalent share of the risks and rewards associated with ownership of the financial asset are retained, the assets continue to be recognized even if legal title has been transferred. If the Bank retains even a portion of control, the assets continue to be recognized to the extent of the continuing involvement, measured by exposure to changes in the value of the assets transferred and to changes in the related cash flows.
Criteria for recognizing costs and revenues Costs and revenues are recognized on an accruals basis using the amortized cost method.
4. Loans and receivables
Recognition Loans and receivables are initially recognized at the date of the signing of the contract which generally corresponds to the disbursement date for the amount disbursed, or at the subscription price, including costs and revenues attributable to the individual loan or receivable and determinable from the date of disbursement. The initially recognized amount does not include costs that, despite possessing the above characteristics, are to be reimbursed by the counterparty or that can be characterized as normal administrative costs. For the reclassification of financial assets held for trading prior to 1 November 2008 in relation to the amendment of IAS 39, it is explicitly provided that the fair value of the instrument at 1 July 2008 becomes its recognized value in the category to which it is reclassified.
Classification Loan and receivables includes loans to customers and receivables due from banks, whether disbursed directly or acquired from third parties, with fixed or determinable payments, that are not listed on an active market. This category includes trade receivables, reverse repurchase agreements, but does not include loans listed on active markets.
55
Financial assets in this category cannot be reclassified to other categories.
Measurement Following initial recognition, loans are measured at amortized cost using the effective interest method. Amortized cost is arrived at using: Ÿ the initial recognition amount; Ÿ less principal repayments; Ÿ plus or minus amortization using the effective interest method (difference between the initial amount and the maturity amount); Ÿ minus impairment; Ÿ plus revaluation. The effective interest method is used to calculate the amortized cost and interest income of the loan for its entire life. The effective interest rate is the rate that exactly discounts estimated future payments over the expected life of the loan to the net carrying amount at the time of initial recognition, including directly attributable transaction costs and amounts paid or received between the contracting parties. In estimating cash flows and the term of loans, the Bank takes into account all the clauses in the contracts that could affect the amounts and maturities, and does not consider expected losses associated with the loan. This method is applied to medium and long-term loans, regardless of whether measured individually or collectively. The amortized cost method is not used for short-term loans because discounting these loans has no material impact. Loans without a specified maturity and revocable loans are also not discounted. Loans are tested for impairment at every annual and interim balance sheet date to determine whether, in response to events that occurred subsequent to initial recognition, there is objective evidence of impairment. Impaired loans include bad debts, substandard loans, restructured loans or loans past due in accordance with the current regulations issued by the Bank of Italy, consistent with IAS. Specifically, impaired loans are divided into the following classes: - bad debts: loans to parties that are insolvent or in a substantially similar situation; - substandard loans: loans to parties in objective temporary difficulty, from which they are expected to emerge within an appropriate period of time. Substandard status may be normal for a loan when based on the measurement of the Problem Positions unit or “objective” where the characteristics set out in the Supervisory Instructions are found. “Objectively substandard loans” are exposures with the following characteristics: a) are fully secured by real property and granted to a natural person for the purchase of residential property, for the debtor’s own use or for rental to a third party, when notice of foreclosure has been served. These loans must also meet the preferential risk weight of 35% in the event the standardized approach is used in the supervision of credit and counterparty risk. b) loans other than that described in a) above where both of the following conditions are met: i. are past due and/or overlimit on an ongoing basis: 1. by more than 150 days, in the case of consumer credit exposures of an original duration of less than 36 months; 2. by more than 180 days, in the case of consumer credit exposures of an original duration of more than 36 months. 3. by more than 270 days, for exposures other than those listed in 1) and 2) above. ii. the total amount of the exposure described in “i” above and the other portions falling due in less than 150, 180 or 270 days is at least equal to 10% of the entire exposure to that debtor (excluding penalty interest). - restructured loans: loans to parties to whom a moratorium in the form of repayment at below- market interest rates has been granted; - loans past due and/or overlimit: loans to debtors that, at the end of the year, are past due or overlimit for more than 90 days when assessed individually (up to 180 days until 31 December
56
2011). These exposures can be measured with respect to the individual debtor or the individual transaction. a) individual debtor: the exposure must be recognized as past due and/or overlimit when, at the reporting date, the larger of the two following amounts is equal to or greater than 5%: • the average of the past due and/or over-drawn portions of the entire exposure recognized on a daily basis over the last preceding quarter; • the past due and/or over-drawn portion of the entire exposure at the reporting date. b) individual transaction: past due and/or over-drawn exposures secured by real property. The past-due status must be ongoing and not subject to settlement using existing undrawn amounts from other credit lines granted to the same debtor nor materiality thresholds.
These impaired loans are measured individually. The amount of the impairment loss on individual loans, equal to the negative difference between the recoverable amount and the amortized cost of the loans, is reported in the income statement. The recoverable amount is equal to the present value of expected future cash flows, calculated based on the following: - cash flows provided for under the contract, as estimated based on the debtor’s ability to meet the obligations assumed and on the collateral and unsecured guarantees pledged as security; - estimated recovery time, also taking account of the status of any pending procedures; - internal rate of return. Subsequently, the original amount of the loans is written back when the reason for the impairment ceases to obtain. This writeback is taken to profit or loss.
Loans for which no objective evidence of impairment has been found undergo collective impairment testing. Impairment is measured based on uniform categories of credit risk and the relative loss percentages using historical loss rates based on data observable at the measurement date. Loans are grouped by similar risk classes, based on the characteristics that indicate the debtor’s ability to meet its contractual obligations (type of relationship, economic sector, guarantees, insolvency status and other relevant factors). The group classifications reflect the same rating categories established in the new Capital Accord (Basel II).
Loans are transferred from a collectively-measured group to one measured individually using the gross amount since the writedowns do not follow the loan, but the amounts will be adjusted based on the results at the end of the period, with “mass” writedowns or writebacks. Collectively-measured value adjustments are taken to profit or loss.
Derecognition Loans and receivables are derecognized when substantially all of the risks and rewards connected with ownership of the asset are transferred to a third party. When a prevalent share of the risks and rewards associated with ownership of the financial asset are retained, the asset continues to be recognized even if legal title has been transferred. If the Bank retains even a portion of control, the asset continues to be recognized. If the risks and rewards associated with the asset are retained, the loan continues to recognized to the extent of the continuing involvement in the asset, measured by exposure to changes in the value of the assets transferred and to changes in the related cash flows.
Criteria for recognizing costs and revenues Individual and collective writedowns are recognized in the income statement. The cash flows of individually measured loans are discounted and the related cost is recognized in the income statement. The amount is adjusted annually.
57
The collective impairment provision is not discounted since the effective rate is estimated to be the same as the contractual interest rate. The reversal of the discounting effect in subsequent years is recognized in the income statement. If the adjusted amount declines in subsequent years due to events (such as an improvement in the debtor’s solvency status), a writeback is taken to the income statement. The maximum value of the loan after the writeback cannot exceed the amortized cost that the loan would have at the time the writeback is made. Default interest on bad debts is recognized only upon collection.
5. Financial assets designated at fair value The Bank has elected not to exercise the fair value option.
6. Hedging
Recognition Derivative hedging instruments, like all derivatives, are initially recognized and subsequently measured at fair value.
Classification: type of hedge Derivatives instruments qualify as hedges where there is formal documentation of the relationship between the hedged item and the hedging instrument and where the hedge is considered effective at inception and throughout its life. The effectiveness of the hedge depends upon the extent to which the changes in the fair value of the hedged item or the related expected cash flows are offset by those of the hedging instrument. Therefore effectiveness is measured and determined by comparing these changes, based on the intent of the company at the time the hedge is created. The hedge is effective when changes in the fair value (or the cash flows) of the hedging instrument almost entirely offset, within the established interval of 80% to 125%, the changes in the hedged instrument with respect to the hedged risk. The effectiveness of the hedge is tested monthly using: - prospective tests, which justify the application of hedge accounting and demonstrate that the hedge is effective; - retrospective tests, which show the degree of effectiveness achieved during the relevant period and measure the difference between the effectiveness achieved and perfect hedging. The hedge is terminated only in cases where the retrospective tests reveal that the hedge continues to be ineffective, with the consequent accounting operations performed. Hedging instruments can be used to hedge: - exposure to the risk of changes in the fair value of assets and liabilities or irrevocable commitments; - exposure to the risk of changes in cash flows and exchange rates associated with assets or liabilities or forecast transactions.
Fair value hedges are employed to reduce credit risk and interest rate risk. A fair value hedge is generally used for fixed-rate assets with cash flows that do not vary during the life of the instrument. The purpose of the hedge is to protect the present value of the asset or liability hedged and so the focus is on the balance sheet. This kind of hedge is also employed to hedge the market risk of fixed-rate or structured bond issues.
58
Cash flow hedges are employed to reduce the variability of future cash flows connected with a particular floating-rate asset or liability in order to manage and control the future variability of the corresponding cash flow and so the focus is on the income statement.
Measurement Hedging derivatives are always measured at fair value.
Derecognition If the tests do not confirm the prospective and retrospective effectiveness of the hedge, the hedge will no longer be recognized as such. In this event, the derivative hedging instrument is reclassified as held for trading. The hedged instrument is recognized in the category to which it belongs at its fair value at the time the hedge ceases to be effectiveness and will once again be measured according to the criteria for its original category.
Criteria for recognizing costs and revenues Recognition depends on the type of hedge: 1) in the case of fair value hedges, the change in the fair value of the hedged item is offset by the change in the fair value of the hedging instrument. This offsetting is recognized in the income statement when the values of the derivatives contract and the hedged asset are adjusted. Any difference representing the partial ineffectiveness of the hedge represents the net impact on profit or loss. The fair values of the hedged assets and liabilities are adjusted through profit or loss; 2) in the case of cash flow hedges, changes in the fair value of the derivative are taken to equity for the effective portion of the hedge, and are recognized in the income statement only when a change in cash flows from the hedged position (compared with expected cash flows) occurs or when the hedge is found to be ineffective. The Bank does not hold any such position. Hedges of a net investment in a foreign operation are recognized using the method applicable to cash flow hedges. The Bank does not have any hedges of investments in foreign currency.
7. Equity investments Does not apply to Cassa di Risparmio di Cento S.p.A.
8. Property and equipment
Recognition Property and equipment is initially recognized at cost, which includes all incidental expenses directly attributable to the transaction and to placing the asset in service in addition to the purchase price. Extraordinary maintenance costs that increase the future economic benefits of such assets are recognized as an increase in the value of the assets, while ordinary maintenance costs are recognized in the income statement.
Classification Property and equipment includes land and buildings used in operations and investment property, technical plant, furnishings and equipment. This item includes property and equipment: - used in operations, such as land, buildings, furniture and furnishings, plants, machinery and technical equipment; - held for investment purposes, such as land and buildings.
59
Property and equipment includes assets held under finance leases for which substantially all the risks and rewards of ownership have been assumed by the Bank as lessee. Leased assets are initially recognized at a value equal to the lesser of the fair value and the present value of the minimum payments provided for under the lease contract. This amount is subsequently subject to depreciation. Assets for which negotiations are under way for their sale and for which disposal is highly likely are recognized among disposal groups.
Measurement Property and equipment, including investment property, is measured at cost, less any depreciation and impairment loss. Property and equipment is measured systematically on a straight-line basis over the asset’s useful life. The depreciable amount is represented by the cost of the assets since the value remaining at the end of the depreciation process is not deemed material. Buildings are depreciated applying the depreciation rate that best reflects the deterioration of the assets following their use, taking into account extraordinary maintenance, which goes to increase of the value of the assets. Land is not depreciated as it has an indefinite useful life. If there is evidence of impairment of the value of the asset, its carrying amount is compared with its recoverable value and any difference is recognized in the income statement. If the reasons for the impairment cease to obtain, a writeback is recognized. Equipment, excluding works of artistic value, are recognized with respect to their useful life. For uniform categories of assets, a useful life has been established, based on which depreciation is determined on a straight-line basis starting from the month in which the asset is put into service.
Derecognition An asset is derecognized when divested or when no future economic benefits are expected to be obtained from it.
Criteria for recognizing costs and revenues Depreciation based on the useful life of each category of asset is recognized in the income statement.
9. Intangible Assets
The Bank does not hold any intangible assets, nevertheless their accounting treatment is described below.
Recognition Intangible assets are recognized at the price paid at the time of acquisition, adjusted for any incidental expenses.
Classification Intangible assets are recognized as such only if they are identifiable, measurable, controlled by the entity that prepares the financial statements and are capable of generating future economic benefits. Intangible assets are identifiable when they can be separated from the entity or are based on legal or contractual rights and include: - software applications; - trademarks and patents.
60
Criteria for recognizing costs and revenues The cost of intangible assets is amortized over the course of their useful life.
Derecognition Assets are derecognized when there is evidence of impairment, or when no future economic benefits are expected.
10. Non-current assets held for sale Does not apply to Cassa di Risparmio di Cento S.p.A.
11.Current and deferred taxation
Recognition Income tax provisions are accrued based on a prudential estimate of current tax liabilities and deferred tax assets and liabilities. Deferred tax assets and liabilities are calculated in respect of temporary differences between the carrying value of the assets and liabilities recognized in the financial statements and their value recognized for tax purposes. Deferred tax assets are recognized to the extent their recovery is deemed likely given future taxable income. Deferred tax liabilities are recognized to the extent to which it is likely that the related conditions for payment will occur in future years. The tax rates used, distinguished by type of tax, are those in effect when the temporary differences reverse, without time limitations.
Classification Tax assets and liabilities are shown separately from other assets and liabilities in the balance sheet. Deferred tax assets and liabilities are recognized separately from current tax assets and liabilities.
Measurement Deferred tax assets and liabilities are measured at the end of the period to take account of any regulatory changes or changes in tax rates and are not discounted.
Derecognition Tax assets and liabilities are derecognized when there is no longer a valid reason for the existence of receivables from or payables to the tax authorities. At the end of the period, the “provision for deferred taxes” and “current tax assets” are adjusted to reflect the reversal to the income statement of taxes that became current during the year.
Criteria for recognizing costs and revenues Current taxes accrued during the year, deferred tax assets and liabilities arising during the year and changes in stocks for the previous year are recognized in the income statement. They are taken to equity when allocated to an equity reserve. Taxes with respect to assets held for sale directly reduce the relevant items in the income statement.
12. Provisions for risks and charges
61
Recognition The provisions for risks and charges consists of liabilities for which the amount or maturity is uncertain and recognized when: - the company has a present legal or constructive obligation resulting from a past event; - it is likely that resources will have to be used to perform the obligation; - the amount of the obligation can be reliably estimated. Provisions are recognized only for events preceding the closing date for the interim financial statements and represent the best estimate possible of the amount required to satisfy the current obligation at the balance sheet date.
Classification “Other provisions for risks and charges” is comprised of amounts that could be owed in the event of the loss of revocatory actions against the Bank, the estimated outlays for claims made by customers with regard to securities trading activity, as well as a reliable estimate of other outlays for any other present legal or constructive obligation at the balance sheet date. During the year, the defined-contribution section of the retirement plan portion was liquidated.
Measurement The amounts of the provisions are reviewed at every balance sheet date and are adjusted to reflect the best current estimate, based on the Bank’s historical data. Where the impact of the passage of time is material, the amounts are discounted using the current market interest rate (Euribor).
Derecognition Each provision is used only for the purpose for which is was originally established.
Criteria for recognizing costs and revenues Costs and revenues relating to provisions include: - personnel costs for the provisions relating to current or retired staff; - net accruals to provisions for risks and charges in other cases. The impact of discounting is reflected in the income statement.
13. Debt and securities issued
Recognition These financial liabilities are initially recognized at the date of signing of the contract, which usually corresponds to the date on which amounts are received or debt securities are issued. They are initially recognized at fair value, which is normally equal to the amounts received or the issue price, plus or minus any additional costs or revenues directly attributable to the individual transaction. Internal administrative costs are excluded.
Classification The items “due to banks”, “due to customers” and “securities issued” include the various forms of interbank and customer funding, reverse repurchase agreements and customer funding through certificates of deposit, outstanding bond issues and subordinated loans, excluding any amounts repurchased. They also includes the payable recognized by the Bank as lessee under a finance lease arrangement.
62
Measurement Following initial recognition, financial liabilities are measured at amortized cost using the effective interest method. Short-term liabilities are excluded, since the time factor is insignificant, and are instead recognized in the amount received. Any portions representing equity are separated from debt securities. Financial instruments covered by effective fair value hedges are recognized at fair value.
Derecognition These financial liabilities are derecognized when expired or extinguished. They are also derecognized when previously issued securities are repurchased. The difference between the carrying amount of the liability and the amount paid to repurchase it is recognized in the income statement. If the repurchased security is subsequently placed again on the market, this is treated as a new issue and is recognized at the new placement price.
Criteria for recognizing costs and revenues Interest is recognized on an accruals basis. The amortized cost method applies to medium and long-term liabilities, including any up-front costs.
14. Financial liabilities held for trading
Recognition Debt and equity securities representing financial liabilities held for trading are recognized at the settlement date, while derivatives are recognized at the date they are signed. Derivative contracts embedded in financial instruments or other contracts, which have financial and risk characteristics that are not correlated with the host instrument or which meet the requirements to be classified themselves as derivative contracts, are recognized separately, if they have a negative value, among financial liabilities held for trading, except in cases in which the complex instrument containing the derivative is measured at fair value through profit or loss.
Classification The item includes the negative value of trading derivatives as well as the negative value of derivatives embedded in complex contracts.
Measurement All financial liabilities held for trading are measured at fair value through profit or loss.
Derecognition Financial liabilities held for trading are derecognized when expired or extinguished.
Criteria for recognizing costs and revenues Costs and revenues from the measurement of financial liabilities held for trading are recognized through the income statement.
15. Financial liabilities at fair value
63
The Bank has elected not to exercise the fair value option. Therefore it does not carry financial liabilities at fair value, other than those indicated by IAS 39 based on their specific functional destination.
16. Foreign currency transactions
Initial recognition Foreign currency transactions are initially recognized in the reporting currency by applying the exchange rate prevailing at the transaction date.
Subsequent recognition At each balance sheet date: - monetary items are translated using the exchange rate prevailing at the balance sheet date; - non-monetary items measured at historic cost are translated using the exchange rate prevailing at the transaction date; - non-monetary items carried at fair value are translated using the exchange rate prevailing at the balance sheet date.
Criteria for recognizing costs and revenues Exchange rate differences resulting from the settlement of monetary items or from the translation at exchange rates other than the initial translation rate are recognized in the income statement in the period in which they emerge.
17. Other information
Employee termination benefits During 2007, the regulations governing the way in which employee termination benefits (trattamento di fine rapporto) are handled were changed significantly (Law 296/2006, in effect from 1 January 2007). In the case of Cassa di Risparmio di Cento, a company with more than 50 employees, accrued benefits where transferred, at the employee’s election, to the treasury fund managed by INPS (Italy’s National Social Security Institute) or to specialized supplementary pension funds authorized and supervised by COVIP (Italy’s Pension Oversight Commission). As a result, the obligations accrued through 31 December 2006 and portions accrued through the option exercise period (up to 30 June 2007) are reported in the financial statements in a special provision that is revalued annually in accordance with the law (this requirement has not changed). The applicable revaluation rate consists of two components, a fixed rate (1.5%) and a variable rate (75% of the change in the consumer price index as calculated by ISTAT). This provision continues to represent defined- benefit plans under which benefits are paid on a deferred basis. Consequently, the recognized value is determined on the basis of a specific actuarial estimate. The portions of employee termination benefits accrued starting from 1 January 2007 are treated as a “defined-contribution plan” regardless of whether the employee opts to pay into the supplementary pension scheme or the treasury fund management by INPS. The amount of the portions, recognized among personnel expenses, is calculated based on the contributions owed without applying actuarial accounting methods. At 31 December 2009 the actuarial value of the entire provision came to €5,110,497, compared with €4,994,175 at 31 December 2008, with a use of the provision amounting to €137,266 and an overall net effect on the income statement of €253,588. The external portion of the provision for employee termination benefits, identified as “accruing after 1 January 2007” by Law 296/2006, has been added to the external supplementary pension scheme. The
64 amount recognized in the income statement for 2009 came to €1,485 thousand, while the figure for 2008 amounted to €1,572 thousand.
Pension funds Starting 1 July 2007, the defined-contribution pension program was terminated, with employees being given the choice between a closed fund and an open fund. This action was required since the internally managed fund no longer met the regulatory requirements for handling employee termination benefits. In 2009, the defined-benefit portion of the fund was dissolved, in part by paying out benefits directly to the beneficiaries and in part by outsourcing the responsibility to a leading insurance company. In July 2009, the Bank paid the insurance company a lump-sum premium to guarantee those still enrolled a life-time monthly payment. On 31 July 2009, the Bank finally formally terminated the pension fund, notifying the relevant authorities. In response to the requests of the fund participants, the Bank included a clause in the agreements with said participants stating that it would intervene should the insurance company find itself unable to satisfy its obligations. Given the supplementary guarantee, the Bank continues to recognize the obligation with respect to a defined-benefit plan. IAS 19 provides that the plan must be recognized at the current amount of the obligation at the balance sheet date, net of the fair value of the assets servicing the plan. In this specific case, the asset servicing the plan is the insurance policy entered into with the payment of a sole premium in July 2009. Given the high credit rating of the investments underlying the insurance policy and of the insurance company counterparty, the Bank did not believe it necessary to adjust the value of the assets servicing the plan and, therefore, has shown an obligation of null under the pension plans. On 31 December 2009, the entire mathematical reserve amounted to €1,295,655.
Guarantees and commitments “Guarantees issued” includes all guarantees granted by the Bank. Guarantees of a “financial nature” are those given to support transactions involving the acquisition of financial resources, while guarantees of a “commercial nature” are those given to back specific commercial transactions. Guarantees are reported in respect of the borrower, i.e. the party whose obligations are backed by the guarantee. Guarantees are recognized at nominal value, net of actual loans and any writedowns. Commitments to disburse funds are irrevocable commitments of certain or uncertain use, and may give rise to credit risk (commitments in respect of derivatives contracts are excluded). The recognized value does not include amounts already disbursed and any writedowns. Irrevocable commitments certain to be used include commitments to disburse funds the use of which by the borrower is certain and defined: they are contracts that bind both the guarantor and the borrower. They include, inter alia, securities purchases that are not yet settled (the company recognizes the securities at the settlement date) and deposits and funding to be disbursed at an agreed future date. Irrevocable commitments of uncertain use regard positions where use by the borrower is optional. In this case, it is not certain whether and in what amount the funds will be effectively disbursed. With regard to commitments underlying credit derivatives, sales of protection are commitments arising from the sale of protection against credit risk. They are recognized at nominal value, net of amounts disbursed and any writedowns determined specifically for impaired positions and generally for performing positions.
Provisions for guarantees and commitments The risk in respect of guarantees granted is determined individually for positions categorized as bad debts or substandard and collectively for other loans. The provision is recognized under “Other liabilities”.
65
Recognition of revenues Revenues are recognized when realized or when it is probable that future benefits will be received. When these future benefits cannot be reliably determined, revenues are measured to the extent the relative costs incurred are recoverable. Specifically: § interest is recognized on an accruals basis using the contractual interest rate or the effective interest rate where the duration of the contract is beyond short term; § dividends are recognized when their distribution is authorized. This marks a change from the practice in 2008 when dividends were recognized on a cash basis. This change led to the recognition of €454 thousand in the income statement. § commissions for revenues from services are recognized, in accordance with the terms of the contracts, in the period in which the service is rendered; § revenues from the sale of non-financial assets are recognized upon completion of the sale, unless the Bank has retained most of the risks and rewards associated with ownership of the asset. Default interest is recognized upon collection.
Leasehold improvements Expenses incurred to renovate premises owned by third parties are recognized among “other assets” and are taken to profit or loss based on the assets ability to generate future economic benefits, normally corresponding to the term of the underlying lease agreement. These expenses primarily relate to the renovation of third-party premises used as bank branches.
Determining fair value Fair value is the primary standard used in measuring financial instruments under the IAS, and it is also the measurement standard applied to derivatives, regardless of the purpose for which these instruments were acquired (trading or hedging). Moreover, the notes to the financial statements must also report the fair value of financial instruments recognized at amortized cost in the balance sheet. The IAS define fair value as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable parties in an arm’s length transaction. However, such transactions must take place on the assumption that the business is a going concern.
Listed instruments In the case of instruments listed on active markets, the fair value is equal to the listed price. A market is deemed active when securities markets, intermediaries, dealers or information providers have prompt and regular input into the price of the financial instrument and when the price itself represents actual transactions in the instrument being measured. The current definition of regulated market does not always coincide with the notion of “active market”. An “official regulated market” operates properly where: - there are rules, issued or approved by the relevant authority of the market’s country of origin, that govern operating and access conditions, as well as the requirements that a contract must meet to be traded effectively; - has a netting mechanism in place that requires that derivatives contracts be subject to daily margins requirements that provide adequate protection. However, a regulated market does not provide “significant” prices if it does not represent a significant daily trading volume. As a result, it is necessary to adopt appropriate procedures for identifying active markets, i.e. those markets in which the prices of traded instruments represent the value at which market transactions are effectively carried out. This process is based on an analysis of the following factors: - the number of participants and the involvement of any dealers, brokers and market makers;
66
- the frequency with which the listed figure is updated and the difference from the previous listed price; - the existence of an acceptable difference between the bid price and the ask price; - the trading volumes involved. Specifically, the prices used for balance-sheet valuations are: - the bid price in the case of assets held; - the ask price in the case of liabilities to be issued; - the mid-market price in the case of offsetting risk profiles (the difference between the bid price and the ask price is attributable to transaction costs alone). When the same financial instrument is listed on more than one market, the most advantageous listed price is the one used. If a rate rather than a price is listed on active markets, the Bank must use that rate as the input for the valuation techniques for determining the instrument’s fair value. Investment funds The fair value of open funds in which participants have the right to demand reimbursement of their shares at any time and of hedge funds is determined based on the latest published net asset value. In the case of closed and private equity listed funds, the fair value is equal to the listed price provided by the market, if active. Otherwise, the most recently published net asset value is used.
Unlisted instruments If the financial instruments are not listed on active markets, fair value is determined using valuation techniques that: - tend to maximize the use of market input and minimize estimates and internal assumptions; - reflect the methods used by the market in pricing instruments; - use inputs that represent market expectations and the risk-return ratio of the instruments measured; - incorporate all factors that market participants would consider in setting a price; - are consistent with commonly accepted methodologies; - undergo periodic testing and calibration to test their ability to represent the fair value in line with the prices of actual transactions involving the instrument being measured so as to ensure the comparability, reliability and neutrality of the process of setting the values of financial instruments required by regulations.
Fair value of derivative instruments The fair value of derivative instruments is determined using a variety of valuation models based on the type of instrument, specifically: - to determine the fair value of options, volatility estimation models are used; - to determine the fair value of swaps, discounted cash flow analysis is used. These valuations have been adjusted for the creditworthiness of the counterparty (counterparty risk).
Equity instruments classified as available for sale The fair value of equity investments is determined with reference to the price set by independent, external experts or based on trading prices observed in recent transactions. If the amount involved is insignificant and it is too difficult to arrive at a reliable price, the items are recognized at cost. Other equity instruments are recognized at cost. Fair value hierarchy IFRS 7 introduced new disclosure requirements that distinguish the fair value of financial instruments based on the materiality of the inputs used in making the measurements. It presents three levels:
Level 1: the measurement is the market price of the financial instrument being measured, obtained using quoted prices in active markets. A market is active when the prices quoted reflect normal market transactions, are regularly and readily available from exchanges, pricing
67
services, brokers and if these prices represent actual and regularly occurring market transactions.
Level 2: the measurement is based on the quoted prices for similar assets in active markets or is arrived at using valuation techniques for which all the material factors – including credit and liquidity spreads – can be derived from observable market data. For this level only a modest amount of discretion is involved in making the measurement since all the inputs used are drawn from the market and the calculation methods replicate the quotation of prices on active markets.
Level 3: measurements are made using a variety of inputs, not all directly derived from observable market inputs, and therefore involve a significant amount of estimation and assumptions on the part of the measuring party.
Cassa di Risparmio di Cento has established the following criteria to be used in assigning the proper fair value hierarchy level to the individual financial instruments it owns:
Level 1: instruments for which there is at least one active market. Therefore, the Bank may take into account, if material, prices reported on regulated markets, the Italian exchange for trading funds (MTF), or quotes by market markers. In this case, Bloomberg must publish quotes by at least three market markers, and the average bid-ask spreads must not exceed 2%. The Bank may also consider the net asset values provided by the asset management company, provided that they are values at which it is possible to liquidate the investment.
Level 2: instruments for which Bloomberg reports quotes by fewer than three market makers and/or having an average bid-ask spread higher than 2%; instruments for which comparable securities (by issuer, financial characteristics, degree of risk) classifiable as Level 1 exist or that are measured using valuation models commonly used by professional traders using directly or indirectly observable market inputs. Any adjustments made by the measuring party must not have a material impact on the determination of the fair value.
Level 3: instruments for which no active market exists and that cannot be measured using the criteria established for Level 2; net asset value provided by the asset management company, not representing the values at which it is possible to liquidate the investment.
Reclassification of Financial Instruments On 13 October 2008, the IASB approved an amendment to IAS 39 and IFRS 7, which was endorsed on an urgent basis by the European Commission on 15 October 2008 with Regulation (EC) no. 1004/2008.
Under the amendment, financial instruments recognized at the time of purchase as financial assets held for trading or financial assets available may be reclassified to other categories upon the satisfaction of certain conditions. Prior to this amendment, the general rule was that transfers between categories were not allowed except for transfers between financial assets available for sale and financial assets held to maturity.
Based on paragraphs 50D and 50E of the new version of IAS 39, the following can be reclassified:
• financial instruments, other than derivatives, previously classified as financial instruments held for trading can be reclassified as loans and receivables. It is not possible to reclassify financial assets at fair value following adoption of the fair value option. In order to be reclassified, the
68
financial instrument must, at the date of transfer, satisfy the requirements for classification among loans and receivables and the company must not plan to trade the reclassified security, but rather must have the intention to hold the financial instrument for the foreseeable future or until maturity; • non-derivative financial instruments classified as financial assets available for sale can be reclassified as loans and receivables if the financial instrument would have met the definition for loans and receivables at the date of reclassification and the company presently has the intention and ability to hold it for the foreseeable future or until maturity.
Any other non-derivative debt or equity instrument may be reclassified from financial assets held for trading to assets available for sale or from assets held for trading to assets held to maturity (for debt instruments only), if said instruments are no longer held for short-term trading. However, according to paragraph 50B, this is permitted only in rare circumstances.
The reclassified financial asset is recognized in the new category (loans and receivables, financial assets held to maturity, financial assets available for sale) at its fair value at the date of reclassification, which represents its new cost or amortized cost.
Once transferred, the financial instruments follow the measurement and recognition rules for their new category, except as specified herein. Therefore, the actual rate of return to be used starting from the date of reclassification must be determined for assets measured as amortized cost. In 2009, the Bank did not carry out any reclassifications as provided by the amendment to IAS 39 and described in this paragraph.
Assets sold and not derecognized: securitizations As described in Part E – Section C, Cassa di Risparmio di Cento has introduced a securitization program. As in 2008, the assigned receivables are recognized in the financial statements of Cassa di Risparmio di Cento. In accordance with IAS 39, if the Bank retains significant involvement in the assets transferred, it must continue to recognize the instruments. In our case, significant involvement is represented by ownership of the entire security issue.
Repurchase agreements Securities received as part of transactions that contractually require their later resale (reverse repurchase agreements) and securities delivered as part of transactions that contractually require their later repurchase (repurchase agreements) are not recognized or derecognized, respectively. Therefore, the amount paid for securities in reverse repurchase agreements is recognized under “loans to customers or due from banks”, while the amount received for securities sold in repurchase agreements is recognized among liabilities as “due to customers or banks”. Interest is recognized as accrued on loans granted and payables to customers and banks.
Use of estimates and assumptions in preparing the financial statements
In applying certain accounting policies it is necessary to make estimates and assumptions that have an impact on asset and liability figures reported in the financial statements and on the disclosures made concerning contingent assets and liabilities. The assumptions underlying the estimates made take into consideration all the information available at the date the financial statements are prepared as well as assumptions deemed reasonable in light of both past experience and current financial market conditions. The situation caused by the current economic and financial crisis has made it necessary to make assumptions concerning future developments in a climate of significant uncertainty.
69
Given this uncertainty, it is quite possible that the assumptions made may, despite their reasonableness, not be borne out in the future situation in which the Bank will be operating. Future actual results could differ from the estimates made for the purposes of preparing the financial statements and could, therefore, require adjustments to the carrying values of assets and liabilities recognized in the financial statements that currently cannot be foreseen or estimated. Valuation processes that rely heavily upon estimates and assumptions in order to determine the amounts to be recognized in the financial statements are represented by: 1) the quantification of impairment losses of financial assets, particularly loans and receivables and financial assets available for sale; 2) the determination of impairment of goodwill and equity investments; 3) the determination of the fair value of financial assets and liabilities in cases in which it is not directly observable on active markets. The subjective aspects relate, in that case, to the choice of the valuation models or the inputs that may not be observable in the market; 4) the quantification of the provisions for risks and charges and of the pension funds due to the uncertainty of the relief sought, the timing of the contingency and the actuarial assumptions used; 5) the estimate of the recoverability of deferred tax assets.
The above list of valuation processes is provided solely to give the reader a better understanding of the main areas where uncertainty exists, but it is not intended in any way to suggest that alternative assumptions may currently be appropriate. In addition, measurements made in the financial statements are based on the assumption that the Bank will continue as a going concern, since no risks were found that would jeopardize the orderly conduct of business by the Bank.
70
A.3 – FAIR VALUE DISCLOSURES
A.3.1 Transfers between categories
A.3.1.1 Reclassified financial assets: carrying amount, fair value and impact on comprehensive income
Comprehensive income Fair value Type of Carrying in the absence of the Comprehensive income Category to which transfer is at financial amount at transfer recognized during the made instrument 31/12/2009 (before taxes) year (before taxes) 31/12/2009 Valuations Other Valuations Other Debt securities Financial assets available for sale 39,618 39,618 2,216 - - 293 Debt securities Loans to customers 5,008 5,000 - - - - Debt securities Due from banks 17,243 17,218 1,455 - - 68
A.3.1.2 Reclassified financial assets: impact on comprehensive income before transfer
No transfers were made in 2009.
A.3.1.3 Transfer of financial assets held for trading
No transfers were made in 2009.
A.3.1.4 Effective interest rate and expected cash flows of reclassified assets
No transfers were made in 2009.
A.3.2 Fair value hierarchy
A.3.2.1 Portfolios: breakdown by fair value input level
31/12/2009 31/12/2008 Financial assets/liabilities measured at fair value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
1. Financial assets held for trading 7,541 26,289 1,748 5,981 59,295 1,986 2. Financial assets at fair value 3. Financial assets available for sale 37,078 34,724 36,818 28,668 45,076 38,407 4. Hedging derivatives 8,507 5,420
Total 44,619 69,520 38,566 34,649 109,791 40,393 1. Financial assets held for trading 8,483 7,854 2. Financial liabilities at fair value 3. Hedging derivatives 198 1,320 Total 0 8,681 0 0 9,174 0
The Bank is unable to report on the sensitivity analysis for Level 3 instruments as required by paragraph 40 of IFRS 7 since the fair value figures were provided directly by the asset management companies for units in collective investment undertakings, by the issuers for structured securities and from recent transactions for stock. Refer to the following tables for information by asset class.
71
A.3.2.2 Change for the year in financial assets at fair value (level 3)
FINANCIAL ASSETS available at held for trading for hedging fair value sale 1. Opening balance 1,986 38,407 2. Increases 4 5,363 2.1 Purchases 3 3,968 2.2 Profits taken to: 2.2.1 Income statement 1 117 - of which: capital gains - - 2.2.2 Shareholders' equity X X 1,278 2.3 Transfers from other levels - - B.3 Other increases - 3. Decreases 242 6,952 3.1 Sales 55 4,506 3.2 Redemptions - 1 3.3 Losses taken to: 3.3.1 Income statement 187 1,209 - of which: capital losses 187 738 3.3.2 Shareholders' equity X X 1,233 3.4 Transfers to other levels - 3.5 Other decreases - 3 4. Closing balance 1,748 36,818
A.3.2.3 Change for the period in liabilities at fair value (Level 3) There were no such financial liabilities.
A3.3. Disclosures on “day one profit/loss” The Bank does not hold such positions.
72
Part B – Information on the balance sheet
ASSETS
SECTION 1 – CASH AND CASH EQUIVALENTS – ITEM 10
1.1 Cash and cash equivalents: composition
31/12/2009 31/12/2008 a) Cash 11,042 11,323 b) Demand deposits with central banks - - Total 11,042 11,323
SECTION 2 – FINANCIAL ASSETS HELD FOR TRADING – ITEM 20
2.1 Financial assets held for trading: composition by type
31/12/2009 31/12/0008
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. On-balance-sheet assets 1. Debt securities 7,538 18,847 1,745 5,965 52,132 1,981 1.1 structured securities 4 7,617 1,736 50 3,353 1,972 1.2 other debt securities 7,534 11,230 9 5,915 48,779 9 2. Equity securities 3. Units in collective investment
undertakings. 4. Loans 4.1 repurchase agreements 4.2 other Total A 7,538 18,847 1,745 5,965 52,132 1,981 B. Derivatives 1. Financial derivatives 3 7,442 3 16 7,163 5 1.1 trading 3 7,431 3 16 5,563 5 1.2 associated with fair value option 1.3 other 11 1,600 2. Credit derivatives 2.1 trading 2.2 associated with fair value option 2.3 other Total B 3 7,442 3 16 7,163 5 Total (A+B) 7,541 26,289 1,748 5,981 59,295 1,986
73
2.2 Financial assets held for trading: composition by debtor/issuer
31/12/2009 31/12/2008 A. On-balance-sheet assets 1. Debt securities 28,130 60,078 a) Government and central banks 2,531 3,422 b) Other government agencies 0 20 c) Banks 25,598 56,164 d) Other issuers 1 472 2. Equity securities 0 0 a) Banks 0 0 b) Other issuers 0 0 - insurance undertakings 0 0 - financial companies 0 0 - non-financial companies 0 0 - other 0 0 3. Units in collective investment undertakings 0 0 4. Loans 0 0 a) Government and central banks 0 0 b) Other government agencies 0 0 c) Banks 0 0 d) Other 0 0 Total A 28,130 60,078 B. Derivatives a) Banks 3,542 3,673 - fair value 3,542 3,673 b) customers 3,906 3,511 - fair value 3,906 3,511 Total B 7,448 7,184 Total (A+B) 35,578 67,262
2.3 On-balance-sheet financial assets held for trading: changes for the period
Units in Debt Equity collective Loans Total securities securities investment undertakings A. Opening balance 60,078 - - - 60,078 B. Increases 256,529 14,700 1,401 - 272,630 B1. Purchases 255,136 14,062 1,394 270,592 B2. Fair value gains 358 - - 358 B3. Other changes 1,035 638 7 1,680 C. Decreases 288,477 14,700 1,401 - 304,578 C1. Sales 236,948 14,366 1,400 252,714 C2. Redemptions 50,763 50,763 C3. Fair value losses 187 187 C4. Transfers from other portfolios - C5. Other changes 579 334 1 914 D. Closing balance 28,130 - - - 28,130
SECTION 3 – FINANCIAL ASSETS AT FAIR VALUE – ITEM 30
Does not apply to Cassa di Risparmio di Cento.
74
SECTION 4 – FINANCIAL ASSETS AVAILABLE FOR SALE – ITEM 40
4.1 Financial assets available for sale: composition by type
31/12/2009 31/12/2008
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt securities 36,885 34,724 3,400 28,486 45,076 3,074 1.1 structured securities 7,403 - - 6,999 - 1.2 other debt securities 36,885 27,321 3,400 28,486 38,077 3,074 2. Equity securities 193 - 31,909 182 - 30,726 2.1 at fair value 193 16,574 182 22,287 2.2 carried at cost 15,335 8,439 3. Units in collective investment undertakings 1,509 4,607 4. Loans - - Total 37,078 34,724 36,818 28,668 45,076 38,407
Securities measured at cost at 31 December 2009 that were measured at fair value a year earlier amounted to €6,895 thousand. This was required due to the lack of prices representing the fair value.
The item “Equity securities” breaks down as follows:
31/12/2009 31/12/2008 Shareholdings 31,772 30,542 Other securities 330 366 Total 32,102 30,908
For a breakdown of equity investments, see the specific annex to the financial statements.
4.2 Financial assets available for sale: composition by debtor/issuer
31/12/2009 31/12/2008
1. Debt securities 75,009 76,636 a) Governments and central banks 9,545 14,872 b) Other government agencies - - c) Banks 58,787 56,587 d) Other issuers 6,677 5,177 2. Equity securities 32,102 30,908 a) Banks 7,790 6,434 b) Other issuers 24,312 24,474 - insurance undertakings 2,221 2,879 - financial companies 10,414 10,918 - non-financial companies 11,677 10,677 - other - 3. Units in collective investment undertakings 1,509 4,607 4. Loans - - a) Government and central banks - - b) Other government agencies - - c) Banks - - d) Other - - Total 108,620 112,151
4.3 Financial assets available for sale hedged specifically
None.
75
4.4 Financial assets available for sale: change for the period
Units in Debt Equity collective Loans Total securities securities investment undertakings A. Opening balance 76,636 30,908 4,607 112,151 B. Increases 47,441 9,629 2,252 - 59,322 B1. Purchases 42,917 9,618 1,617 54,152 B2. Fair value gains 2,223 11 90 2,324 B3. Writebacks - - recognized through income statement - - recognized through equity - B4. Transfers from other portfolios - B5. Other changes 2,301 - 545 2,846 C. Decreases 49,068 8,435 5,350 62,853 C1. Sales 45,916 7,267 4,433 57,616 C2. Redemptions 2,600 - - 2,600 C3. Fair value losses 4 1,168 64 1,236 C4. Writedowns for impairment - - - recognized through income statement (1) 738 738 - recognized through equity - C5. Transfers from other portfolios - C6. Other changes 548 115 663 D. Closing balance 75,009 32,102 1,509 108,620
(1) The writedown for impairment taken to profit or loss amounted to €738 thousand and is attributed to three private equity funds for which “prolonged” impairment, in excess of 30% for the Bank specifically, has been found pursuant to IAS 39.
SECTION 5 – FINANCIAL ASSETS HELD TO MATURITY – ITEM 50
No financial instruments have been classified under this item.
SECTION 6 – DUE FROM BANKS – ITEM 60
6.1 Due from banks: composition by type
31/12/2009 31/12/2008 A. Claims on central banks 16,627 29,827 1. Fixed-term deposits 2. Reserve requirement 16,627 19,827 3. Repurchase agreements 4. Other 10,000 B. Due from banks 305,989 131,939 1. Current accounts and demand deposits 82,999 40,688 2. Fixed-term deposits 2,360 1,796 3. Other financing 705 1,055 3.1 repurchase agreements - 3.2 finance leases - 3.3 other 705 1,055 4. Debt securities 219,925 88,400 4.1 structured securities - - 4.2 other debt securities 219,925 88,400 Total (carrying amount) 322,616 161,766 Total (fair value) 322,616 161,766
76
6.2 Due from banks: assets hedged specifically
None.
6.3 Finance leases
None.
SECTION 7 – LOANS TO CUSTOMERS – ITEM 70
7.1 Loans to customers: composition by type
31/12/2009 31/12/2008
Performing Impaired Performing Impaired
1. Current accounts 342,470 19,554 415,704 11,688 2. Repurchase agreements 3. Medium/long-term loans 1,243,682 72,113 1,182,796 23,474 4. Credit cards, personal loans and loans repaid by 9,508 480 12,565 429 automatic deductions from wages 5. Financial leasing 6. Factoring 7. Other 148,506 1,912 235,920 991 8. Debt securities 5,008 5,029 8.1 Structured securities 8.2 Other debt securities 5,008 5,029 Total carrying amount 1,749,174 94,059 1,852,014 36,582 Total fair value 1,749,174 94,059 1,852,014 36,582
The item “medium/long-term loans” includes loans assigned as part of securitizations net of collective writedowns. This item includes net securitized loans totaling €217,394 thousand. For more details on the securitization transactions, please see Part E – Section C of the notes to the financial statements.
77
7.2 Loans to customers: composition by debtor/issuer
31/12/2009 31/12/2008
Performing Impaired Performing Impaired 1. Debt securities: 5,008 0 5,029 0 a) Governments 0 0 0 0 b) Other government agencies 0 0 0 0 c) Other issuers 5,008 0 5,029 0 - non-financial companies 5,008 0 5,029 0 - financial companies 0 0 0 0 - insurance undertakings 0 0 0 0 - other 0 0 0 0 2. Loans to: 1,744,166 94,059 1,846,985 36,582 a) Governments 2,214 0 3,243 0 b) Other government agencies 7,969 0 6,629 0 c) Other 1,733,983 94,059 1,837,113 36,582 - non-financial companies 1,106,621 65,296 1,197,378 25,540 - financial companies 47,172 0 81,652 0 - insurance undertakings 0 0 0 0 - other 580,190 28,763 558,083 11,042 Total 1,749,174 94,059 1,852,014 36,582
7.3 Loans to customers: assets hedged specifically
31/12/2009 31/12/2008
1. Loans with specific fair value hedges 2,673 2,913 a) interest rate risk 2,673 2,913 b) exchange rate risk c) credit risk d) multiple risks
2. Loans with specific cash flow hedges - - a) interest rate risk b) exchange rate risk c) other Total 2,673 2,913
Loans with specific fair value hedges refers to a single fixed-rate mortgage loan falling due on 1 July 2017.
7.4 Finance leases
None.
78
SECTION 8 – HEDGING DERIVATIVES – ITEM 80
8.1 Hedging derivatives: composition by type of contract and level
Fair value 31/12/2009 NV Fair value 31/12/2008 NV 31/12/2009 31/12/2008 L1 L2 L3 L1 L2 L3
A. Financial derivatives - 8,507 - 188,000 5,420 - 174,762 - 1) Fair value 8,507 188,000 5,420 174,762 2) Cash flows 3) Investments in foreign
operations
B. Credit derivatives ------1) Fair value 2) Cash flows
Total - 8,507 - 188,000 5,420 - 174,762 -
Key: NV = Notional value L1 = Level 1 L2 = Level 2 L3 = Level 3
8.2 Hedging derivatives: composition by hedged portfolio and type of hedge
Fair Value Cash flows Invest ments Specific in Exchang foreig Interest Credit Price Multiple Generic S p e c ific G e n eric e rate n rate risk risk risk risks risk operat ions 1. Financial assets available X X X for sale 2. Loans X X X X 3. Financial assets held to X X X X X maturity 4. Portfolio X X X X X X X 5. Other X X
Total assets ------1. Financial liabilities 8,507 X X X X 2. Portfolio X X X X X X X
Total liabilities 8,507 ------1. Forecast transactions X X X X X X X X 2. Portfolio of financial assets X X X X X X and liabilities
The table above reports the positive fair values for hedging derivatives, broken down by hedged financial asset or liability and the type of hedge. Derivatives hedging financial liabilities refer to contracts entered into to specifically hedge the fair value of the bonds issued.
SECTION 9 – VALUE ADJUSTMENTS OF FINANCIAL ASSETS HEDGED GENERICALLY – ITEM 90
Does not apply to Cassa di Risparmio di Cento. 79
SECTION 10 – EQUITY INVESTMENTS – ITEM 100
Does not apply to Cassa di Risparmio di Cento.
SECTION 11 – PROPERTY AND EQUIPMENT – ITEM 110
11.1 Property and equipment: composition of assets carried at cost
Operating assets comprise all non-current assets used directly in the ordinary business of the Bank, while investment property regards assets not used in operations that are held for the purpose of earning rental income or long-term capital gains. The total rental income received in 2009 came to €300 thousand, while the ordinary maintenance expense incurred for these assets amounted to €22 thousand.
31/12/2009 31/12/2008
A. Operating assets 1.1 owned 32,571 30,536 a) land 9,637 9,637 b) buildings 14,767 15,274 c) movables 1,946 1,989 d) electrical plant 953 1,209 e) other 5,268 2,427 1.2 acquired under finance leases 2,856 2,900 a) land 1,584 1,584 b) buildings 1,272 1,316 c) movables - - d) electrical plant - - e) other - - Total A 35,427 33,436 B. Investment property 2.1 owned 8,698 9,205 a) land 3,580 3,686 b) buildings 5,118 5,519 2.2 acquired under finance leases - - a) land - - b) buildings - - Total B 8,698 9,205 Total A+B 44,125 42,641
Property and equipment are recognized at cost.
11.2 Property and equipment: composition of assets at fair value or revalued
None.
80
11.3 Operating property and equipment: change for the year
Electrical Land Buildings Movables Other T otal plant A. Opening gross balance 11,221 18,745 5,131 3,300 9,501 47,898 A.1 Total net writedowns (2,155 ) (3,142 ) (2,091 ) (7,074 ) (14,462 ) A.2 Opening net balance 11,221 16,590 1,989 1,209 2,427 33,436 B. Increases 0 0 81 106 3,651 3,838 B.1Purchases 73 106 3,590 3,769 B.2 Capitalized improvement costs 0 B.3 Writebacks 0 B.4 Fair value gains recognized in: 0 a) equity 0 b) income statement 0 B.5 Positive exchange rate differences 0 B.6 Transfers from investment property 0 B.7 Other changes 8 61 69 C. Decreases 0 (551 ) (124 ) (362 ) (810 ) (1,847 ) C.1 Sales (1 ) (18 ) (19 ) C.2 Depreciation (551 ) (124 ) (361 ) (722 ) (1,758 )
C.3 Writedowns for impairment recognized in: 0
a) equity 0 b) income statement 0 C.4 Fair value losses recognized in: 0 a) equity 0 b) income statement 0 C.5 Negative exchange rate differences 0 C.6 Transfers to.: 0
a) Investment property 0
b) assets held for sale 0 C.7 Other changes (70 ) (70 ) D. Closing net balance 11,221 16,039 1,946 953 5,268 35,427 D.1 Total net writedowns 2,706 3,261 2,452 7,738 16,157 D.2 Closing gross balance 11,221 18,745 5,207 3,405 13,006 51,584 E. Measurement at cost
81
11.4 Investment property: change for the year
Land Buildings Total
A. Opening balance 3,686 5,519 9,205 B. Increases 0 0 0 B.1 Purchases 0 B.2 Capitalized improvement costs 0 B.3 Net fair value gains 0 B.4 Writebacks 0 B.5 Positive exchange rate differences 0 B.6 Transfers from buildings to operating assets 0 B.7 Other changes 0 C. Decreases (106 ) (401 ) (507 ) C.1 Sales (106 ) (216 ) (322 ) C.2 Depreciation (185 ) (185 ) C.3 Net fair value losses 0 C.4 Writedowns for impairment 0 C.5 Negative exchange rate differences 0 C.6 Transfers to other portfolio's assets 0 a) operating assets 0 b) non-current assets held for sale 0 C.7 Other changes 0 D. Closing balance 3,580 5,118 8,698 E. Measurement at fair value 3,580 6,013 9,593
The fair value figure reported is equal to the revaluation amount determined by independent experts in 2006. This amount still represent the best estimate of the fair value of these assets.
11.5 Commitments to acquire property and equipment (IAS 16/74.c)
There are no commitments to acquire property and equipment.
Other information on “Property and equipment”
Pursuant to Article 10 of Law 72/83, the following table reports information on revaluations of buildings held by the Bank at 31 December 2009:
31/12/2009 31/12/2008 Law 576/75 (1) 285 310 Law 72/83 (1) 2,763 2,846 Law 218/90 (1) 13,850 13,900 Law 413/91 (1) 3,311 3,323 First Time Adoption IAS (1)(2) 13,506 13,693 Total revaluations 33,715 34,072 (1) revaluation of buildings (2) this item includes: €12,413 thousand for revaluations of buildings and €1,092 thousand for revaluations of artwork.
82
The following table reports the useful life (in months) and the equivalent tax rates used in calculating the depreciation for the various asset categories:
Useful life (in ASSET CATEGORIES months) Tax rates Buildings 400 3% Valuable artwork 0 0% Furniture 80 15% Furnishings and ordinary office equipment 100 12% Vehicles used solely in operations 60 20% Vehicles not used in operations worth < €18,075.99 48 25% of 40% of cost Vehicles not used in operations worth > €18,075.99 48 25% of 40% of cost up to €18,075.99 Vehicles available for employee personal use 48 25% of 90% of cost Armored teller stations 60 20% Light buildings 120 10% Alarm and video equipment 40 30% Telephone and cell phone systems 48 20% of 80% of cost Electronic equipment 60 20% Machinery and sundry plants 80 15% Data processing systems 48 20%
SECTION 12 – INTANGIBLE ASSETS – ITEM 120
None.
SECTION 13 – TAX ASSETS AND TAX LIABILITIES– ITEM 130 OF ASSETS AND ITEM 80 OF LIABILITIES
13.1 Deferred tax assets: composition
31/12/2009 31/12/2008 Provisions for risks and charges 1,111 1,136 Loan writedowns 7,778 5,066 Entertainment expenses 10 24 Personnel expenses 0 1,155 Securities writedowns 60 0 Securities available for sale 358 1,439 Total 9,317 8,819
13.2 Deferred tax liabilities: composition
31/12/2009 31/12/2008 Capital gains 142 248 Revaluation of property and equipment 5,954 6,139 Penalty interest to be received 39 - Dividends to be received 6 - Securities available for sale 247 245 Total 6,388 6,632
83
13.3 Changes in deferred tax assets (recognized in income statement)
31/12/2009 31/12/2008 1. Opening balance 7,380 6,572 2. Increases 3,535 1,219 2.1 Deferred tax assets recognized during the year a) in respect of previous periods b) due to change in accounting polices c) writebacks d) other 3,358 1,219 2.2 New taxes or increases in tax rates 2.3 Other Increases 177 3. Decreases 1,956 411 3.1 Deferred tax assets derecognized during the year a) reversals 1,956 411 b) writedowns for supervening non-recoverability c) due to change in accounting polices d) other 3.2 Reduction in tax rates - 3.3 Other decreases - 4. Closing balance 8,959 7,380
13.4 Changes in deferred tax liabilities (recognized in income statement)
31/12/2009 31/12/2008 1. Opening balance 6,387 6,629 2. Increases 136 33 2.1 Deferred tax liabilities recognized during the year a) in respect of previous periods b) due to change in accounting policies c) other 101 33 2.2 New taxes or increases in tax rates 2.3 Other increases 35 3. Decreases 382 275 3.1 Deferred tax liabilities derecognized during the year 275 a) reversals 382 200 b) due to change in accounting policies c) other 75 3.2 Reduction in tax rates 3.3 Other decreases 4. Closing balance 6,141 6,387
84
13.5 Changes in deferred tax assets (recognized in shareholders' equity)
31/12/2009 31/12/2008 1. Opening balance 1,439 109 2. Increases 14 1,330 2.1 Deferred tax assets recognized during the year 14 1,330 a) in respect of previous periods b) due to change in accounting policies c) other 14 1,330 2.2 New taxes or increases in tax rates 0 2.3 Other increases 3. Decreases 1,095 0 3.1 Deferred tax assets derecognized during the year 1,095 0 a) reversals 1,095 0 b) writedowns for supervening non-recoverability 0 c) due to change in accounting policies 0 d) other 3.2 Reduction in tax rates 0 3.3 Other decreases 0 0 4. Closing balance 358 1,439
The amounts exclusively regard tax items in respect of the negative reserve generated by the measurement of the AFS securities portfolio.
13.6 Changes in deferred tax liabilities (recognized in shareholders' equity)
31/12/2009 31/12/2008 1. Opening balance 245 315 2. Increases 191 60 2.1 Deferred tax liabilities recognized during the year 58 60 a) in respect of previous periods - b) due to change in accounting policies - c) other 58 60 2.2 New taxes or increases in tax rates - 2.3 Other increases 133 - 3. Decreases 189 130 3.1 Deferred tax liabilities derecognized during the year 189 39 a) reversals 189 39 b) due to change in accounting policies - c) other - 3.2 Reduction in tax rates - 3.3 Other decreases 91 4. Closing balance 247 245
The provision regards tax items in respect of the positive reserve for securities reclassified in the AFS portfolio.
13.7 Other information
Current tax assets:
This item includes tax credits in respect of the central tax authorities:
31/12/2009 31/12/2008 - tax credits - principal 111 111 - tax credits - interest 7 7 - advance payments 8,556 9,220 Total current tax assets 8,674 9,338 85
Current tax liabilities
The provision for current tax liabilities includes:
31/12/2009 31/12/2008 carryover from previous year 74 658
tax provisions accrued in balance sheet: - IRAP and IRES for the year 8,653 8,350 - uses of carryover from previous year (74 ) (658 ) Total provision for current taxes 8,653 8,350
SECTION 14 – NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND ASSOCIATED LIABILITIES – ITEM 140 OF ASSETS AND ITEM 90 OF LIABILITIES
Does not apply to Cassa di Risparmio di Cento.
SECTION 15 – OTHER ASSETS - ITEM 150
15.1 Other assets: composition
31/12/2009 31/12/2008 Tax receivables Tax payments on account, stamp duty and special taxes and VAT 2,302 2,023 Indirect tax receivables 168 364 Tax credits for stamp duties and withholdings of 27% 3,381 286 Total receivables 5,851 2,673
Current account checks drawn on other banks 8,321 8,202 Checks to be received from clearing house 82 58 Checks drawn on customer accounts 3,409 3,564 Sundry receivables for fees and commissions 4,921 2,933 Sundry operations to be charged to customers 1,441 2,243 Transitory ATM account 1,354 1,238
Leasehold improvements on assets other than property and 345 307 equipment Accrued income 1,159 2,306 Prepaid expenses 596 1,337 Receivables with respect to securities to be received 1,372 1,708 Transitory invoices account 422 487 Illiquid portfolio items removed from original account 1,266 - Other 4,890 8,291 Total 35,429 35,347
The main existing items and new items are discussed below:
Current account checks drawn on other banks and customer accounts These items regard checks being processed that will be debited in the first few days of the following month.
86
Sundry receivables for fees and commissions This regards commission income recognized on an accruals basis.
Leasehold improvements The item regards expenditure for leasehold improvements to buildings. The costs are amortized over the residual life of the lease contracts.
Receivables with respect to securities to be received This item regards securities sold for which payment would be received in 2010.
87
LIABILITIES
SECTION 1 –DUE TO BANKS – ITEM 10
1.1 Due to banks: composition by type
31/12/2009 31/12/2008 1. Due to central banks 151,701 275,230 2. Due to banks 22,376 39,856 2.1 Current accounts and demand deposits 13,486 22,630 2.2 Fixed-term deposits 8,890 17,226 2.3 Loans - - 2. 3.1 Repurchase agreements - 2. 3.2 Other - - 2.4 Liabilities in respect of commitments to repurchase own equity - - instruments 2.5 Other payables - - Total 174,077 315,086 Fair value 174,077 315,086
1.2 Breakdown of item 10 “Due to banks”: subordinated liabilities
There were no such positions.
1.3 Breakdown of item 10 “Due to banks”: structured debts
There were no such positions.
1.4 Due to banks: assets hedged specifically
There were no such positions.
1.5 Liabilities in respect of finance leases
Cassa di Risparmio di Cento in not party to finance leases with banks.
88
SECTION 2 – DUE TO CUSTOMERS – ITEM 20
Due to customers: composition by type
31/12/2009 31/12/2008 1. Current accounts and free deposits 1,056,881 913,266 2. Fixed-term deposits - - 3. Loans 62,030 125,420 3.1 Repurchase agreements 60,652 123,852 3.2 Other 1,378 1,568 4. Liabilities in respect of commitments to repurchase own - - equity instruments 5. Other liabilities 252 157 Total 1,119,163 1,038,843 Fair value 1,119,163 1,038,843
2.2 Breakdown of item 20 “Due to customers”: subordinated loans
There were no such positions.
2.3 Breakdown of item 20 “Due to customers”: structured debts
There were no such positions.
2.4 Due to customers: assets hedged specifically
None.
2.5 Liabilities in respect of finance leases
31/12/2009 31/12/2008 Liabilities in respect of finance leases 1,378 1,568
Liabilities in respect of finance leases amounted to €1,378 thousand, compared with €1,568 thousand the previous year. The liabilities regard a building hosting a branch. The asset is recognized under Section 11 of Assets. Total expected payments, including interest, amount to €1,979 thousand.
The residual maturity of the liabilities is as follows:
31/12/2009 31/12/2008 up to 1 year 195 190 from 1 year to 5 years 1,064 1,034 more than 5 years 119 344 Total 1,378 1,568
The total value of the building came to €3,080 thousand and the provision for depreciation amounted to €224 thousand, for a net value of €2,856 thousand recognized under “Property and equipment”.
89
SECTION 3 – SECURITIES ISSUED - ITEM 30
3.1 Securities issued: composition by type
31/12/2009 31/12/2008 Carrying Fair value Carrying Fair value amount Level 1 Level 2 Level 3 amount Level 1 Level 2 Level 3 A. Securities 1. Bonds 790,994 790,994 646,671 646,671 1.1 structured 7,391 7,391 16,215 16,215 1.2 other 783,603 783,603 630,456 630,456 2. Other 77,626 77,626 67,693 67,693 2.1 structured - 2.2 other 77,626 77,626 67,693 67,693 Total 868,620 77,626 790,994 714,364 67,693 646,671
In the fair value column, hedged securities are presented at fair value while unhedged securities are shown at amortized cost, which is deemed to approximate the fair value given that they are floating-rate liabilities.
Embedded derivatives that, at the issue date, met the requirements of IAS 39 for separation from the host instrument at 31 December 2009, came to a positive fair value of €11 thousand.
3.2 Breakdown of item 30 “Securities issued”: subordinated securities
At 31 December 2009, subordinated loans in issue amounted to €23,663 thousand, compared with €24,330 a year earlier.
Subordinated securities in issue break down as follows:
Nominal Interest Total nominal value (net of Book Security Issue ID Issue date Maturity rate value repurchases) value CRC 25/11/2015 TV Sub IT0003950273 25/11/2005 25/11/2015 Floating 10,000 9,100 9,110 CRC 16/01/20216 TV Sub IT0004000367 16/01/2006 16/01/2016 Floating 7,500 7,500 7,504 CRC 26/01/2016 TV Sub IT0004008345 26/01/2006 26/01/2016 Floating 7,500 7,037 7,049 25,000 23,637 23,663
The issue contracts contain clauses permitting early redemption subject to authorization by the Bank of Italy. More specifically, the Bank may redeem the securities in advance as from the following dates:
Issue ID IT0003950273 25/11/2010 IT0004000367 16/01/2011 IT0004008345 26/01/2011
In the event the Bank is liquidated, the bonds will be repaid together with other creditors with the same degree of subordination only after all preferred creditors, unsecured creditors and creditors with a lower degree of subordination have been repaid and before those with a higher degree of subordination.
3.3 Securities issued: securities hedged specifically
90
Securities hedged specifically amounted to €193,330 thousand, compared with €259,154 thousand a year earlier.
Specifically, this item reports bonds issued by the Bank on which the interest rate risk has been hedged with IRSs entered into with leading financial counterparties.
SECTION 4 – FINANCIAL LIABILITIES HELD FOR TRADING - ITEM 40
Financial liabilities held for trading: composition by type
31/12/2009 31/12/2008
FV FV NV FV * NV FV * L1 L2 L3 L1 L2 L3
A. On-balance-sheet liabilities 1. Due to banks - - - - 2. Due to customers - - - - 3. Debt securities - - - - 3.1 Bonds - - - - 3.1.1 structured X - - - X 3.1.2 other X - - - X 3.2 Other - - - - - 3.2.1 structured X - - - X 3.2.2 other X - - - X Total (A) ------B. Derivatives 1) Financial derivatives 8,483 - 7,854 1.1 trading X 8,483 X X 7,854 X 1.2 associated with fair value option X X X - X 1.3 other X X X X 2. Credit derivatives - - - 2.1 trading X - X X - - X 2.2 associated with fair value option X X X - - X 2.3 other X X X - - X Total (B) X - 8,483 X X - 7,854 X Total (A+B) X - 8,483 X X - 7,854 X
Key: FV = fair value; FV * = fair value calculated excluding changes in value due to changes in the issuer's creditworthiness since the issue date; NV = nominal or notional value L1 = Level 1; L2 = Level 2; L3 = Level 3.
(1) The item mainly consists of Cap agreements with customers, IRSs with leading financial counterparties in respect of corresponding contracts with customers.
4.2 Breakdown of item 40 “Financial liabilities held for trading”: subordinated liabilities
There were no such positions.
4.3 Breakdown of item 40 “Financial liabilities held for trading”: structured debts
There were no such positions.
4.4 On-balance-sheet financial liabilities (excluding technical overdrafts) held for trading: change for the year
91
There were no such positions.
SECTION 5 – FINANCIAL ASSETS AT FAIR VALUE – ITEM 50
Does not apply to Cassa di Risparmio di Cento.
SECTION 6 – HEDGING DERIVATIVES – ITEM 60
6.1 Hedging derivatives: composition by type of hedge and level of inputs
Fair value 31/12/2009 NV Fair value 31/12/2008 NV
L1 L2 L3 31/12/2009 L1 L2 L3 31/12/2008 A. Financial derivatives - 198 - 2,519 - 1,320 - 84,066 1) Fair value 198 2,519 1,320 84,066 2) Cash flow 3) Investment in foreign operation B. Credit derivatives ------1) Fair value 2) Cash flow Total - 198 - 2,519 - 1,320 - 84,066
Key: NV = nominal or notional value L1 = Level 1; L2 = Level 2; L3 = Level 3.
6.2 Hedging derivatives: composition by hedged portfolio and type of hedge
Fair value Cash flow Specific Investm
ent in c c c i i i f r r i foreign e e c n n Interest Exchange Multiple e operatio e e
Credit risk P r i c e risk p
rate risk rate risk risks G G S n
1. Financial assets available for X X X sale 2. Loans 198 X X X X 3. Financial assets held to X X X X X maturity 4. Portfolio X X X X X X X 5. Other X X
Total assets 198 ------1. Financial liabilities X X X X 2. Portfolio X
Total liabilities ------1. Forecast transactions X X X X X X X X 2. Portfolio of financial assets X X X X X X and liabilities
92
SECTION 7 – VALUE ADJUSTMENTS OF GENERICALLY HEDGED LIABILITIES- ITEM 70
Does not apply to Cassa di Risparmio di Cento.
SECTION 8 – TAX LIABILITIES - ITEM 80
See Section 13 under Assets.
SECTION 9 – LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE - ITEM 90
There were no such positions.
SECTION 10 – OTHER LIABILITIES – ITEM 100
10.1 Other liabilities: composition
31/12/2009 31/12/2008 - Amounts payable to tax authorities on behalf of third 1,958 2,356 parties - Amounts payable to tax authorities for indirect taxes 412 453 - Amounts for credit transfers awaiting execution 13,091 18,723 - Standing credit transfers 711 390 - MAV transfers by customers 152 737 - Invoices to be received 3,176 2,548 - Due to suppliers 2,465 1,054 - Amounts due to social security institutions 1,079 1,003 - Illiquid portfolio items removed from original account - 5,213 - Amounts available for unpaid checks 375 228 - Security deposits 51 52 - Temporary credit card account 2,024 1,860 - Temporary check account 3,005 2,919 - Items to be credited to customers 1,527 1,033 - Credit cards for installment payments 1,273 1,283 - VAT to be paid 9 11 - Provision for guarantees 702 1,045 - Accrued liabilities and deferred income 389 4,638 - Temporary bank account 4,745 - Due to employees 4,804 2,693 - Other 4,357 6,267 Total 46,305 54,506
The main existing or new items are discussed below:
Amounts for credit transfers awaiting execution The item mainly regards credit transfers to be credited, primarily transactions carried out in the final days of the year.
Invoices to be received The item reports the accrued liability in respect of invoices to be received.
Temporary check account
93
The item regards ICCRI checks issued awaiting settlement.
Provision for guarantees The provision covers writedowns of impaired and performing guarantees. The provision was calculated specifically for impaired positions and generally for performing positions.
Accrued liabilities and deferred income The item reports accrued liabilities and deferred income not allocated to a specific item.
Due to employees This regards liabilities due to employees for holiday leave not taken and bonuses that will be paid the following year.
SECTION 11 – EMPLOYEE TERMINATION BENEFITS– ITEM 110
Employee termination benefits: change for the year
31/12/2009 31/12/2008 A. Opening balance 4,994 4,954 A. Increases 254 325 B.1 Provision for the year 254 325 B.2 Other increases - - C. Decreases 138 285 C.1 Benefit payments 128 245 C.2 Other decreases 10 40 D. Closing balance 5,110 4,994 Total 5,110 4,994
The actuarial measurement resulted in a provision of €254 thousand.
11.2 Other information
As from 1 January 2007, the Finance Act and the related implementing decrees introduced significant changes to the rules governing the termination benefit system, giving employees a choice in allocating their accruing benefit entitlement. More specifically, while provisions accrued up to 31 December 2006 remain with the company, in the first half of 2007 employees were allowed to choose whether to allocate accruing contributions to a supplementary pension scheme or to keep them with the company, in which case the latter is required to pay those contributions into a treasury account with Italy’s National Social Security Institute (INPS). The employee termination benefit provision accrued through 1 January 2007 (or the date of election to accrue contributions to a supplementary pension scheme, if any) continues to take the form of a “post- employment benefit” classified as a “defined-benefit plan” and therefore the related liability is subject to actuarial assessment. Compared with the calculation employed through 31 December 2006, the current method does not take into account the annual average rate of increase of salaries since the employee benefits are deemed almost fully accrued (except for revaluation). The actuarial assumptions made by the independent actuary in calculating the liabilities at the balance sheet date are as follows:
Economic and financial bases Annual discount rate 4.00% Annual inflation rate 2.00% Annual rate of increase in employee termination 3.00%
94 benefits Demographic bases Mortality RG48 life expectancy table Incapacity INPS tables by age and sex Retirement age Reaching the minimum requirements set by the Mandatory General Insurance agency (AGO)
The annual rate of early receipt of employee termination benefits calculated using the Bank’s historic data came to 3.50%, while annual turnover amounted to 3%.
SECTION 12 –PROVISIONS FOR RISKS AND CHARGES – ITEM 120
12.1 Provisions for risks and charges: composition
31/12/2009 31/12/2008 1. Company pension plans - 4,300 2. Other provisions for risks and charges 3,424 3,834 2.1 legal disputes 2,585 3,140 2.2 personnel expenses 427 319 2.3 other 412 375 Total 3,424 8,134
Provisions for risks and charges: change for the year
Retirement Other Total provisions provisions A. Opening balance 4,300 3,834 8,134 B. Increases 423 1,961 2,384 B.1 Provision for the year 423 1,834 2,257 B.2 Changes due to passage of time - 28 28 B.3 Changes due to changes in discount rates - 4 4 B.4 Other increases - 95 95 C. Decreases 4,723 2,371 7,094 C.1 Use during the year 1,599 2,218 3,817 C.2 Changes due to changes in discount rates 14 14 C.3 Other decreases 3,124 139 3,263 D. Closing balance - 3,424 3,424
“Other decreases” in respect of pension plans mainly regard the portion of the fund transferred to a specialist pension fund management company.
12.3 Defined-benefit company pension plans
1. Description
In 2009 negotiations were held to reach an agreement on the liquidation of the defined-benefit section. The remainder was transferred to a specialist pension fund management company.
95
2. Change for the year
Developments in the two sections of the fund were as follow:
1) Defined benefit section Balance at 31/12/2008 4,211 INCREASES Employee contributions 0 Allocations 423 DECREASES - Termination payments 1,598 Use per fund transfer 3,036 Balance at 31/12/2009 0 Contingency account Balance at 31/12/2008 89 INCREASES Adjustment of mathematical reserve Withholdings DECREASES Other changes 89 Actuary's fees Payments Balance at 31/12/2009 0
SUMMARY 31/12/2009 31/12/2008
Defined benefit 0 4,211 Contingency account 0 89 Total 0 4,300
3. Change for the year in plan assets and other information There are no changes or other information to report beyond what has been provided above.
4. Reconciliation of present value of funds, present value of plan assets and assets and liabilities recognized in the financial statements This item is not applicable since the defined benefit provision was completely liquidated in 2009.
5. Description of main actuarial assumptions No actuarial assumptions were made since the define benefit provision was completely liquidated in 2009.
6. Comparative information There is no comparative information to report.
96
12.Provisions for risks and charges—other provisions
“Other provisions” include: - legal disputes: the provision is established to cover potential losses on litigation and revocatory actions in bankruptcy; - personnel costs: this includes the employee loyalty bonus provision and the contingency provision with respect to the commitment to pay an additional amount should employment terminate due to death or permanent disability; - other: this reports accruals for potential claims in respect of investments in defaulted securities.
SECTION 13 – REDEEMABLE SHARES – ITEM 140
13.1 Redeemable shares: composition
There were no such shares.
SECTION 14 – SHAREHOLDERS’ EQUITY – ITEM 130, 150, 160, 170, 180, 190, 200
14.1 “Share capital” and “Treasury shares”: composition
31/12/2009 31/12/2008 Share capital 67,499 67,499 Total 67,499 67,499
Share capital is fully subscribed and paid in. It is represented by 13,081,193 ordinary shares with a par value of €5.16 each. At the balance sheet date, the Bank did not hold any treasury shares.
14.2 Share capital – Number of shares: change for the year
There was no change in the number of shares in 2009.
14.3 Share capital: other information
There is no further information to report.
97
Earning reserves: other information
As required under Article 2427, paragraph 7-bis, of the Italian Civil Code, the following tables reports the components of shareholders’ equity and their corresponding origin, possible uses and availability for distribution.
Amount available for Amount Available Possible uses amount
Share capital 67,499 0 0 Share premium reserve 30,851 ABC (1) 30,851 Reserves Legal reserve 24,840 A.(2) B. 0 Reserve established in bylaws 25,172 ABC 25,172 Extraordinary reserve 18,336 ABC 18,336 Reserve from contribution of assets - Law 218/90. 218 /90 5,420 ABC 5,420 Reserve under Leg. Dec. 124/1993 53 ABC 53 FTA reserve -14,792 - - Retained earnings 1,174 ABC 1,174 Valuation reserves - FTA reserve for measurement of property and equipment at deemed cost 9,689 ABC 9,689 - Reserve from valuation of AFS assets 11,332 (3) Equity instruments 0 - -
TOTAL 179,574 90,695 Net profit for the year 7,145 BC TOTAL SHAREHOLDERS’ EQUITY 186,719
14.5 Equity instruments: composition and change for the year
Does not apply to Cassa di Risparmio di Cento S.p.A.
14.6 Other information
There is no further information to report.
98
Other information
1. Guarantees issued and commitments
31/12/2009 31/12/2008 1) Financial guarantees issued 46,479 56,349 a) Banks 2,439 2,264 b) Customers 44,040 54,085 2) Commercial guarantees issued 77,994 74,701 a) Banks - - b) Customers 77,994 74,701 3) Irrevocable commitments to disburse funds 142,446 204,138 a) Banks 10,450 15,493 i) certain use 8,450 15,493 ii) uncertain use 2,000 - b) Customers 131,996 188,645 i) certain use 142 266 ii) uncertain use (*) 131,854 188,379 4) Commitments underlying credit derivatives: sales of - - protection 5) Assets pledged as collateral for third-party debts - - 6) Other commitments - - Total 266,919 335,188
The risk in respect of guarantees was measured specifically for impaired positions and generally for performing positions through recognition of the provision under “Other liabilities”.
2. Assets pledged as collateral for own debts and commitments
Portfolio 31/12/2009 31/12/2008 1. Financial assets held for trading 21,727 31,790 2. Financial assets at fair value 3. Financial assets available for sale 13,438 61,575 4. Financial assets held to maturity - 5. Due from banks 176,806 78,440 6. Loans to customers 74,766 280,156 7. Property and equipment - -
Assets pledged as collateral break down as follows: 31/12/2009 31/12/2008 - Securities transferred in repurchase transactions 284,234 449,451 - Securities securing derivatives contracts 2,503 2,510 286,737 451,961
3. Information on operating leases
Assets leased by the Bank mainly refer to the buildings in which its branches are located.
Future payments on existing operating leases for leased buildings fall due as follows:
More than 1 More than 5 Up to 1 year year to 5 years years Buildings 1,717 5,541 3,380
99
4. Management and intermediation services
31/12/2009 31/12/2008 1. Execution of customer orders 216,045 392,183 a) Purchases 106,023 215,209 1. settled 106,023 215,209 2. unsettled 0 0 b) Sales 110,022 176,974 1. settled 110,022 176,974 2. unsettled 0 0 2. Asset management 277,745 258,807 a) individual 277,745 258,807 b) collective 0 0 3. Securities custody and administration 3,552,115 3,562,550 a) third-party securities held as part of depository bank 0 0 services (excluding asset management)
1. securities issued by reporting entity 0 0 2. other 0 0 b) other third-party securities on deposit 1,468,045 1,514,647 (excluding asset management) 1. securities issued by reporting entity 696,384 635,011 2. other 771,661 879,636 c) third-party securities deposited with third parties 1,431,634 1,505,409 d) securities owned by bank deposited with third 652,436 542,494 parties 4. Other 0 0
Trading in financial instruments on behalf of third parties regards transactions with customers.
The item “Asset management” represents the market value of the portfolios under management.
100
Part C – Information on the income statement
SECTION 1 – Interest – Items 10 and 20
1.1 Interest and similar income: composition
Debt securities Loans Other 31/12/2009 31/12/2008
1. Financial assets held for trading 1,257 1,257 7,208 2. Financial assets available for sale 2,536 2,536 673 3. Financial assets held to maturity 0 0 4. Due from banks 12,845 546 13,391 8,248 5. Loans to customers 76,385 76,385 115,558 6. Financial assets at fair value 0 0 7. Hedging derivatives X X 3,228 3,228 23 8. Other assets X X 0 0 Total 16,638 76,931 3,228 96,797 131,710
1.2 Interest and similar income: differences on hedging transactions
31/12/2009 31/12/2008
A. Positive differences on hedging transactions 3,284 23 B. Negative differences on hedging transactions 56 0 C.. Balance (A-B) 3,228 23
1.3 Interest and similar income: other information
1.3.1 Interest income on foreign-currency financial assets
31/12/2009 31/12/2008 Interest income on foreign-currency financial assets 752 1,156
1.3.2 Interest income from finance leases
No such transactions were carried out.
101
1.4 Interest and similar expense: composition
Debt Securities Other 31/12/2009 31/12/2008
1. Due to central banks X 0 2. Due to banks 3,489 X 3,489 2,672 3. Due to customers 10,515 X 10,515 29,497 4. Securities issued X 19,940 8,950 28,890 37,879 5. Financial liabilities held for trading 0 0 6. Financial liabilities at fair value 0 0 7. Other liabilities and provisions X X 14 14 9 8. Hedging derivatives X X 0 0 3,078 Total 14,004 19,940 8,964 42,908 73,135
1.5 Interest and similar expense: differences on hedging transactions
31/12/2009 31/12/2008
A. Positive differences on hedging transactions 0 0 B. Negative differences on hedging transactions 0 3,078 C. Balance (A-B) 0 (3,078 )
1.6 Interest and similar expense: other information
1.6.1 Interest expense on foreign-currency liabilities
31/12/2009 31/12/2008 Interest expense on foreign-currency liabilities 111 762
1.6.2 Interest expense on liabilities in respect of finance leases
31/12/2009 31/12/2008 Interest expense on liabilities in respect of finance leases 36 95
102
SECTION 2 – Fees and commissions – Items 40 and 50
2.1 Fee and commission income: composition
31/12/2009 31/12/2008
a) guarantees issued 904 1,010 b) credit derivatives c) management, intermediation and advisory services 1. trading in financial instruments 125 113 2. foreign exchange 219 221 3. asset management 3.1 individual 3,910 2,858 3.2 collective 4. securities custody and administration 303 355 5. depository services 0 0 6. securities placement 1,833 2,508 7. order collection and transmission 1,837 1,917 8. advisory services 8.1 concerning investments 8.2 concerning financial structure 9. distribution of third-party services 9.1 asset management 9.1.1 individual 9.1.2 collective 9.2 insurance products 898 982 9.3 other 1,788 2,216 d) collection and payment services 4,497 4,545 e) servicing activities for securitizations f.) services for factoring transactions g.) tax collection services h.) management of multilateral trading systems i) holding and management of current accounts 5,102 5,276 j) other services 2,884 1,853 Total 24,300 23,854
2.2 Fee and commission income: distribution channels for products and services
31/12/2009 31/12/2008
a) own branches: 7,745 7,916 1. asset management 3,267 2,248 2. securities placement 1,791 2,471 3. third-party services and products 2,687 3,197 b) off-premises distribution: 685 647 1. asset management 643 610 2. securities placement 42 37 3. third-party services and products 0 0 c) other distribution channels 0 0 1. asset management 0 0 2. securities placement 0 0 3. third-party services and products 0 0 Total 8,430 8,563
103
2.3 Fee and commission expense: composition
31/12/2009 31/12/2008
a) guarantees received b) credit derivatives c) management and intermediation services 1. trading in financial instruments 2. foreign exchange 3. asset management: 3.1 own portfolio 955 193 3.2 third-party portfolio 4. securities custody and administration 149 178 5. placement of financial instruments 8 6 6. off-premises distribution of securities, products and services 660 581 d) collection and payment services 1,916 1,611 e) other services 310 719 Total 3,998 3,288
SECTION 3 – Dividends and similar income – Item 70
3.1 Dividends and similar income: composition
31/12/2009 31/12/2008 Income from Income from units in units in Dividends collective Dividends c o ll ective investment investment undertakings undertakings A. Financial assets held for trading 17 0 25 0 B.. Financial assets available for sale 942 3 370 4 C.. Financial assets at fair value 0 0 0 0 D.. Equity investments 0 X 0 X Total 959 3 395 4
104
SECTION 4 – Net gain (loss) on trading activities – Item 80
4.1 Net gain (loss) on trading activities: composition
Net Capital Trading Trading Capital losses income gains losses profits (B) (C) [(A+B)- (A) (D) (C+D)] 1. Financial assets held for trading 359 1,470 187 348 1,294 1.1 Debt securities 359 826 187 14 984 1.2 Equity securities 0 638 0 334 304 1.3 Units in collective investment undertakings 0 6 0 0 6 1.4 Loans 0 0 0 0 0 1.5 Other 0 0 0 0 0 2. Financial liabilities held for trading 0 0 0 0 0 2.1 Debt securities 0 0 0 0 0 2.2 Payables 0 0 0 0 2.3 Other 0 0 0 0 0 3. Financial assets and liabilities: exchange X X X X 57 rate differences 4. Derivatives 2,729 2,870 2,344 2,081 1,174 4.1 Financial derivatives 2,729 2,870 2,344 2,081 1,174 - on debt securities and interest rates 2,729 2,870 2,344 2,081 1,174 - on equity securities and equity indices 0 0 0 0 0 - on foreign currencies and gold X X X X 0 - other 0 0 0 0 0 4.2 Credit derivatives 0 0 0 0 0 Total 3,088 4,340 2,531 2,429 2,525
SECTION 5 – Net gain (loss) on hedging activities– Item 90
5.1 Net gain (loss) on hedging activities: composition
31/12/2009 31/12/2008
A. Gain on: A.1 Fair value hedges 2,091 7,940 A.2 Hedged financial assets (fair value) 24 151 A.3 Hedged financial liabilities (fair value) A.4 Cash flow hedges A.5 Assets and liabilities in foreign currencies Total income on hedging activities (A) 2,115 8,091 B. Loss on: B.1 Fair value hedges B.2 Hedged financial assets (fair value) 28 156 B.3 Hedged financial liabilities (fair value) 1,488 8,739 B.4 Cash flow hedges B.5 Assets and liabilities in foreign currencies Total expense on hedging activities (B) 1,516 8,895 C. Net gain (loss) on hedging activities (A - B) 599 (804 )
105
SECTION 6 – Gains (losses) on disposal or repurchase – Item 100
6.1 Gains (losses) on disposal or repurchase: composition
31/12/2009 31/12/2008 Net Net gain Gains Losses Gains L o ss es ga i n (loss) (loss) Financial assets 1. Due from banks 404 0 404 0 0 0 2. Loans to customers 0 0 0 766 0 766 3. Financial assets available for sale 1,561 (497 ) 1,064 0 (726 ) (726 ) 3.1 Debt securities 1,477 (29 ) 1,448 0 0 0 3.2 Equity securities 0 0 0 0 (726 ) (726 ) 3.3 Units in collective investment undertakings 84 (468 ) (384 ) 0 0 0 3.4 Loans 0 0 0 0 0 0 4. Financial assets held to maturity 0 0 0 0 0 0 Total assets 1,965 (497 ) 1,468 766 (726 ) 40 Financial liabilities 1. Due to banks 0 0 0 0 0 0 2. Due to customers 0 0 0 0 0 0 3. Securities issued 254 0 254 248 0 248 Total liabilities 254 0 254 248 0 248
SECTION 7 – Net adjustments of financial assets and liabilities at fair value – Item 110
Does not apply to Cassa di Risparmio di Cento.
SECTION 8 – Net losses/recoveries on impairment – Item 130
8.1 Net losses/recoveries on impairment of loans: composition
Losses Recoveries Specific Portfol Specific Portfolio 31/12/2009 31/12/2008 Writeoffs Other io A B A B A Due from banks 0 0 0 0 0 0 0 0 0 - Loans 0 0 0 0 0 0 0 0 0 - Debt securities 0 0 0 0 0 0 0 0 0 B. Loans to customers 78 22,349 0 982 2,445 0 5,770 13,230 9,893 - Loans 78 22,349 0 982 2,445 0 5,770 13,230 9,893 - Debt securities 0 0 0 0 0 0 0 0 0 C. Total 78 22,349 0 982 2,445 0 5,770 13,230 9,893
Key: A: Recoveries from interest B: Other recoveries
106
8.2 Net losses/recoveries on impairment of financial assets available for sale: composition
Losses Recoveries Specific Specific 31/12/2009 31/12/2008 Writeoffs Other A B A Debt securities B Equity securities 0 738 X X 738 515 C. Units in collective investment undertakings X D. Loans to banks E. Loans to customers F. Total 0 738 0 0 738 515
Key: A: Recoveries from interest B: Other recoveries
Losses include €279 thousand in respect of the reversal of the negative reserve at 31 December 2009 for impaired securities, and €459 thousand to the change in the fair value for 2009.
8.3 Net losses/recoveries on impairment of financial assets held to maturity: composition
Does not apply to Cassa di Risparmio di Cento.
8.4 Net losses/recoveries on impairment of other financial transactions: composition
Losses Recoveries
Specific Specific Portfolio Portfolio 31/12/2009 31/12/2008 Writeoffs Other A B A B A Guarantees issued 19 325 344 8 B. Credit derivatives 0 0 C. Commitments to disburse funds 0 0 D. Other transactions 0 0 E. Total 0 0 0 0 19 0 325 344 8
Key: A: Recoveries from interest B: Other recoveries
Losses for guarantees issued were measured specifically for impaired positions and generally for performing positions.
107
SECTION 9 - Administrative expenses – Item 150
Personnel expenses: composition
31/12/2009 31/12/2008
1) Employees a) wages and salaries 19,083 18,994 b) social security contributions 5,336 5,442 c) termination benefits d) pensions e) allocation to employee termination benefit provision 1,485 1,367 f) allocation to provision for retirement and similar liabilities - defined contribution - defined benefit 423 1,024 g) payments to external pensions funds - defined contribution 619 578 - defined benefit h) costs in respect of agreements to make payments in own equity instruments i) other employee benefits 4,218 1,186 2) Other personnel 3) Board of Directors and members of Board of Auditors 461 454
4) Retired personnel 42 -
5) Recovery of expenses for employees seconded to other companies (24 ) - 6) Reimbursement of expenses for third-party employees seconded to the Company Total 31,643 29,045
Refer to Part A, Section 17 for more information on Line 1e) “allocation to employee termination benefit provision”.
9.2 Average number of employees by category
31/12/2009 31/12/2008
Employees a) Senior management 6 6 b) Middle management 95 94 c) Other employees 320 316 Other personnel 0 0 Total number of employees 421 416
At 31 December 2009, the Bank had 426 employees, compared with 419 at 31 December 2008.
9.3 Defined-benefit company pension plans: total costs
31/12/2009 31/12/2008 Total costs for the year include: - accrual for revenues from investments 0 0 - adjustments of fund liabilities to actuarial values 423 1,024 Total 423 1,024
108
9.4 Other employee benefits
The item "Other employee benefits" breaks down as follows:
31/12/2009 31/12/2008 - reimbursement of business trip expenses 262 281 - training expenses 133 133 - other contractual expenses (lunch vouchers and insurance) 697 682 - fringe benefits 420 90 - early retirement incentive expenses 2,634 0 - other expenses 72 0 Total 4,218 1,186
9.5 Other administrative expenses: composition
Absolute % 31/12/2009 31/12/2008 change change - office supplies and printing 255 442 (187 ) -42.3% - telephone and external network connection subscriptions 928 945 (17 ) -1.8% - lighting, power, heating and water 635 648 (13 ) -2.0% - postal expenses 958 1,120 (162 ) -14.5% - association dues 345 227 118 52.0% - collection of information and preliminary enquiries 881 926 (45 ) -4.9% - security and security transportation 512 551 (39 ) -7.1% - rental of buildings 1,642 1,509 133 8.8% - legal expenses 790 1,173 (383 ) -32.7% - expenses for treasury acquisition 169 175 (6 ) -3.4% - software purchases and maintenance 827 824 3 0.4% - advisory services 946 1,201 (255 ) -21.2% - advertising and promotional 1,537 1,289 248 19.2% - prize operations 1 6 (5 ) -83.3% - EDP outsourcing 3,786 4,099 (313 ) -7.6% - cleaning services 396 410 (14 ) -3.4% - maintenance of furnishings and machinery 614 662 (48 ) -7.3% - building maintenance 326 272 54 19.9% - insurance 276 296 (20 ) -6.8% - books and newspaper subscriptions 53 52 1 1.9% - transportation 365 366 (1 ) -0.3% - other 77 69 8 11.6% 16,319 17,262 (943 ) -5.47% Indirect taxes and duties: amounts paid during the year - stamp duty 2,680 2,667 13 0.5% - municipal property tax 120 117 3 2.6% - tax on medium/long-term loans 811 925 (114 ) -12.3% - other 280 126 154 122.2% totalling 3,891 3,835 56 1.47% Total other administrative expenses 20,210 21,097 (887 ) -4.20%
109
SECTION 10 – Net provisions for risks and charges– Item 160
10.1 Net provisions for risks and charges: composition
The item breaks down as follows:
31/12/2009 31/12/2008 - revocatory actions in bankruptcy 775 348 - litigation 579 610 - other 347 27 1,701 985
SECTION 11 – Net adjustments of property and equipment – Item 170
11.1 Net adjustments of property and equipment: composition
Writedowns Net Depreciation Writebacks for impairment income (a) (c) (b) (a + b - c)
A. Property and equipment 1,944 1,944 A.1 owned 1,899 1,899 - operating assets 1,714 1,714 - investment property 185 185 A.2 acquired under finance leases 45 45 - operating assets 45 45 - investment property Total 1,944 1,944
SECTION 12 – Net adjustments of intangible assets – Item 180
12.1 Net adjustments of intangible assets: composition
Does not apply to Cassa di Risparmio di Cento.
110
SECTION 13 – Other operating expenses/income – Item 190
13.1 Other operating expenses: composition
The item "Other operating expenses" breaks down as follows:
31/12/2009 31/12/2008 - maintenance of leased buildings 135 164 - interest on value date differences in collection and payment transactions 169 747 - charitable donations 63 123 - out-of-period expense and theft 1,682 837 Total other operating expenses (A) 2,049 1,871
13.2 Other operating income: composition
The item "Other operating income" breaks down as follows:
31/12/2009 31/12/2008 - recovery of stamp duty and withholding tax 3,429 3,564 - recovery of interest on value date differences in collection and payment transactions 155 833 - recovery of legal expenses 20 142 - recovery of expenses on outsourcing services provided 280 61 - rental income 301 305 - recovery of insurance expenses in respect of customers 134 141 - other non-recurring income 973 986 Total other operating income (B) 5,292 6,032
Net other operating income (B) - (A) 3,243 4,161
SECTION 14 – Gains (losses) on equity investments– Item 210
Does not apply to Cassa di Risparmio di Cento.
SECTION 15 – Net adjustments to fair value of property and equipment and intangible assets – Item 220
Does not apply to Cassa di Risparmio di Cento.
SECTION 16 – Value adjustments of goodwill – Item 230
Does not apply to Cassa di Risparmio di Cento.
111
SECTION 17 – Gains (losses) on disposal of investments – Item 240
17.1 Gains (losses) on disposal of investments: composition
31/12/2009 31/12/2008
A. Land and buildings - Gains on disposal 10 33 - Losses on disposal B. Other assets - Gains on disposal 2 2 - Losses on disposal (18 ) (7 ) Net gain (loss) (6 ) 28
SECTION 18 – Income tax expense from continuing operations – Item 260
18.1 Income tax expense from continuing operations: composition
31/12/2009 31/12/2008
1. Current taxes (-) (8,763 ) (8,496 ) 2. Change in current taxes from previous periods (+/-) 3. Reduction of current taxes for the year (+) 110 147 4. Change in deferred tax assets (+/-) 1,402 808 5. Change in deferred tax liabilities (+/-) 281 300 6. Taxes for the year (-)(-1+/-2+3+/-4+/-5) (6,970 ) (7,241 )
18.2 Reconciliation of theoretical tax liability and actual tax liability recognized
Reconciliation of theoretical tax liability and actual tax liability recognized for IRES
Taxable Tax Net profit (loss) for the period before tax income rate Tax Net profit before taxes/theoretical tax liability 14,115 27.50% 3,882
Permanent positive differences (1,691 ) Permanent negative differences 4,370 Temporary differences taxable in subsequent periods (1,188 ) Negative temporary differences deductible in subsequent periods 12,447 Reversal of negative deductible temporary differences from previous years (6,633 ) Reversal of positive taxable temporary differences from previous years 619 Total permanent and temporary differences 7,924 2,179
Taxable income and IRES liability 22,039 6,061
112
Reconciliation of theoretical tax liability and actual tax liability recognized for IRAP
Taxable Tax Net profit (loss) for the period before tax income rate Tax Net profit before taxes/theoretical tax liability 60,143 4.82% 2,899
Permanent positive differences (8,525 ) Permanent negative differences 4,977 Temporary differences taxable in subsequent periods Negative temporary differences deductible in subsequent periods Reversal of negative deductible temporary differences from previous years (1,142 )
Reversal of positive taxable temporary differences from previous years 619 Tax relief Total permanent and temporary differences (4,071 ) -196
Taxable income and IRAP liability 56,072 2,703
Total current taxes recognized in income statement 8,763
SECTION 19 – Profit (loss) after taxes from disposal groups – Item 280
Does not apply to Cassa di Risparmio di Cento.
SECTION 20 – Other information
There is no additional information to report.
SECTION 21 – Earnings per share
21.1 Average number of ordinary shares and diluted share capital
As the Bank only has ordinary shares and does not have any stock option plans in place, share capital is not affected by dilution.
21.2 Other information
There is no additional information to report.
113
Part D – Comprehensive income
Detailed breakdown of comprehensive income
Gross amount Income taxes Net amount 10. Profit (loss) for the period X X 7,145 Other comprehensive income 20. Financial assets available for sale: 1,864 (950 ) 914 a) fair value changes 1,087 (720 ) 367 b) reversal to income statement 777 (230 ) 547 - impairment adjustments 279 (90 ) 189 - gain/loss on realization 498 (140 ) 358 c) other changes 30. Property and equipment 40. Intangible assets 50. Hedging of foreign investments a) fair value changes b) reversal to income statement c) other changes 60. Cash flow hedges a) fair value changes b) reversal to income statement c) other changes 70. Exchange rate differences a) fair value changes b) reversal to income statement c) other changes 80. Non-current assets held for sale a) fair value changes b) reversal to income statement c) other changes 90. Actuarial gains (losses) on defined benefit plans
Valuation reserves of equity investments accounted for with equity 100. method a) fair value changes b) reversal to income statement c) other changes 110. Total other comprehensive income 1,864 (950 ) 914 120. Comprehensive income (items 10+110) X X 8,059
114
Part E – Risks and risk management policies
Part E of the notes to the financial statements provides information on risks and risk management policies. In order to reinforce market discipline, Title IV of Bank of Italy Circular no. 263 of 27 December 2006 introduced a requirement to public information on capital adequacy, risk exposures and the general features of the systems used to identify, measure and manage such risks. In compliance with this requirement (the "Third Pillar" of Basel II), the disclosure document at 31 December 2009 will be published by the deadline set for the publication of the financial statements on the Bank's website (www.crcento.it).
SECTION 1 – CREDIT RISK
QUALITATIVE DISCLOSURES
1. General aspects
The Bank’s lines of strategic development are set out in the three-year plan and are translated into operational input in the annual budgets. As regards the lending sector, the adverse economic conditions that emerged in 2008 and deteriorated further in 2009 caused lending to slow, with a consequent decline in the stock of outstanding loans at the end of 2009 from its level the previous year. From the point of view of strategic positioning, the plan provides for a “generalist” approach to the Retail and SME segments and a more diversified and customized approach to higher value segments. The credit products offered are typical commercial banking products. Operations in innovative financial instruments is limited to plain vanilla interest rate derivatives: cap, floor and collar options and interest rate swaps (IRSs). The Bank's trading in derivatives with customers does not involve speculative structured products or complex instruments that would be difficult for customers to understand.
In the wake of the global recession, which is afflicting all economic sectors across the board, the Bank decided to participate in the ABI agreement for enterprises and the "Tremonti Decree" schemes for individuals with mortgage loans. The loans falling under these arrangements continue to be classified as performing as they are earning interest. The following table summarizes participation in the mechanisms:
No. of loans Outstanding debt Tremonti Decrees 615 58,108,731 ABI-MEF accord for SMEs 166 62,332,923
Total renegotiations 781 120,441,654
2. 2.Credit risk management policies
2.1 Organizational aspects
The quality of the loan portfolio is monitored through the operational procedures that govern the credit process (approval, disbursement, monitoring, management of problem positions). The factors underlying credit risk are controlled by assessing the customers current and future capacity to repay the 115 debt and the appropriateness of the loan (size, form, etc.) for the characteristics and needs of the borrower. The unit responsible for loan approval, disbursement and management is the Lending department, whose internal offices that are specialized in the various segments. Problem loans are handled by the Problem Position unit (for past due and substandard positions) and the General and Legal Affairs unit (bad debts). The former is part of the Lending department, while the latter is part of the Compliance department. The latter department also includes the Control unit, which performs second-level monitoring through analysis of individual positions, and the Risk Management unit, which performs second-level monitoring through aggregate analyses.
2.2 Measurement, management and control systems
The systems used to identify, measure, manage and control credit risk comprise a set of tools, procedures and internal rules. The main elements include:
- the credit watch procedure for the identification and management of performing positions with potential problems to assess; - a web procedure to manage overlimit positions; - a credit rating system to assign ratings to customers. Such ratings reflect the probability of default; - rules for the automatic renewal of low risk facilities, which seeks to enhance the efficiency of position management without neglecting risk controls.
Internal ratings in the lending process are one of the sources of information used to support position analysis as part of the credit risk management and monitoring process. They are used, together with other parameters, to determine which positions can be renewed automatically and to monitor exposures within the credit watch procedure, which governs the actions of the control units with respect to potentially dangerous credit positions. The classification of customers by rating grade (uniform risk categories) is also used for the collective assessment of performing loans and to attribute the cost of credit risk to positions as part of management control. As from the end of 2009, a new system of borrowing limits for performing positions was introduced. It associates the rating class with the technical form of the loan and its size.
In addition to the CRS, the Bank also uses – solely for calculating capital requirements for credit risk – the services of Lince SpA, an external credit assessment institution authorized by the Bank of Italy to issue unsolicited ratings. The Lince ratings are applied to the "corporates and other persons" exposure class envisaged under the standardized approach, namely enterprises that are not classified in the retail exposure class because they have a turnover of more than €5 million or exposures of more than €1 million.
Credit risk mitigation techniques
Cassa di Risparmio di Cento has always used guarantees to contain the risk associated with its loans. The range of instruments used is quite extensive, although the main tool is mortgages on property, both residential and commercial: the loan portfolio secured by property mortgages amounted to €1,130.3 million at 31 December 2009. Liens on securities, cash or goods are less commonly used.
The main form of unsecured guarantee adopted is the surety (fideiussione), while the support of credit guarantee consortia for their member companies also plays a significant role.
In 2009, partly with a view to more robust assessment of "residual risk" as part of the ICAAP, an internal working group was established to analyze the organizational and regulatory aspects of the portfolio of guarantees, focusing on the management process for the various forms of guarantees used and compliance with the requirements of the Bank of Italy for recognition of such guarantees as risk 116 mitigation instruments for the purposes of calculating capital requirements. The working group will complete its mission in the first half of 2010.
2.4 Impaired financial assets
Impaired financial assets are classified on a highly restrictive basis, with the approaches to managing positions varying in accordance with the degree of impairment. Impaired, or potentially impaired, positions are identified specifically and, in the case of persistent non- performance, substandard loans and bad debts, are assigned a specific rating. Performing positions with certain payment irregularities or developments that can be interpreted as a symptom or the start of problems can be placed on a watchlist for a limited period in order to monitor the situation more closely. Decision-making responsibility for such positions is transferred from the branches.
At 31 December 2009, substandard positions (temporary difficulty expected to be resolved within an appropriate period of time) amounted to €40.1 million. They are managed (including during the recovery stage) on a centralized basis by the Problem Position unit. They include positions for which the credit facility has been revoked or for which special difficulties have been identified, or for mortgage loans for which a specified number of installments are in arrears (2 half-yearly installments, 3 quarterly or 6 monthly) or unsecured loans in arrears (1 half-yearly installment, 2 quarterly, 4 monthly) or when unpaid positions in the commercial portfolio are more than 5 days past due. Positions may not remain in the substandard classification for more than 24 months and in any case no more than six months if no workout plan has been established. In addition to traditional substandard positions, the Bank also has €1.2 million in "objective" substandard positions, as recently defined by the Bank of Italy.
Other persistent past due positions include those that are overlimit/past due by more than 180 days, which at 31 December amounted to €3.1 million, or by more than 90 days if secured by property (€33.8 million). These positions, which do not yet qualify as problem loans, are assessed on the basis of defaults and setting the writedown much closer to those for substandard positions than performing positions. Finally, restructured positions amounted to €1.6 million.
The restoration of impaired positions to performing status is determined by the recovery of full solvency by the debtor, which means full payment of past due amounts and restoration of the conditions for reopening a normal position.
Estimated realizable value and writedowns are quantified in line with the recommendations of the various units responsible for managing and monitoring impaired positions. Ex post checks (performed, for example, on the occasion of the assignment of bad debts in May 2008) indicate that the overall amount of writedowns is appropriate.
117
QUANTITATIVE DISCLOSURES
A. CREDIT QUALITY
A.1 IMPAIRED AND PERFORMING CREDIT EXPOSURES: STOCKS, WRITEDOWNS, CHANGES, DISTRIBUTION BY SECTOR AND GEOGRAPHICAL AREA
On-balance-sheet and off-balance-sheet credit exposures to banks and customers comprise all on- balance-sheet financial assets regardless of classification (trading, available for sale, loans, etc.), with the exception of equity securities and units in collective investment undertakings. By contrast "exposure" also includes equity securities and units in collective investment undertakings.
A.1.1 Distribution of credit exposures by portfolio and credit quality (book value)
d s d
t
r e
s
s s e r t e a
n n s u l b d u s t s o o e a d n i i n c t a t t d a t
a i i
u o t r s r s s o d s T l t e a o o a b s h P p p t u e B O S R
1. Financial assets held for trading 121 35,457 35,578 2. Financial assets available for sale (*) 75,009 75,009 3. Financial assets held to maturity - 4. Due from banks 322,616 322,616 5. Loans to customers 21,528 33,929 1,481 37,121 1,749,174 1,843,233 6. Financial assets at fair value through profit or loss - 7. Financial assets held for sale - 8. Hedging derivatives 8,507 8,507 Total at 31/12/2009 21,528 34,050 1,481 37,121 2,190,763 2,284,943 Total at 31/12/2008 10,732 21,304 69 4,477 2,198,612 2,235,194
(*) Includes €800 thousand in impaired private equity securities.
A.1.2 Distribution of credit exposures by portfolio and credit quali ty (gross and net values)
Impaired assets Performing
)
e e e
r r r e e u u s s r r u
t t
s s s u u l o n n c i o o s s o a i l e e t f p p o o p i o o x f x m m x p p c t t t T e e e x x e r
s s e e t p o s s
u u e t t j j s s S P
e e n d d o o ( r r a a N N
G G
1. Financial assets held for trading 121 121 X X 35,457 35,578 2. Financial assets available for sale 0 75,009 75,009 75,009 3. Financial assets held to maturity 0 0 0 4. Due from banks 0 322,616 322,616 322,616 5. Loans to customers 114,297 20,238 94,059 1,761,728 12,554 1,749,174 1,843,233 6. Financial assets at fair value 0 X X 0 7. Financial assets held for sale 0 0 0 8. Hedging derivatives 0 X X 8,507 8,507 Total at 31/12/2009 114,418 20,238 94,180 2,159,353 12,554 2,190,763 2,284,943 Total at 31/12/2008 45,482 8,900 36,582 2,216,936 18,324 2,198,612 2,235,194
118
A.1.3 On-balance-sheet and off-balance-sheet exposures to banks: gros s and net values
e
r
e u r s s
s u n n o c i o i s l w w f p i o o o o x c f p t d d e e x r
e e p t t e o s i i S t r r s P e o w w r N G A. On-balance-sheet exposures a) Bad debts X b) Substandard loans X c) Restructured positions X d) Past due positions X f) Other assets 407,001 X 0 407,001 Total A 407,001 0 0 407,001 B. Off-balance-sheet exposures a) Impaired 0 0 X 0 b) Other 24,937 X 0 24,937 Total B 24,937 0 0 24,937 Total (A+B) 431,938 0 0 431,938
A.1.4 On-balance sheet exposures to banks: changes in gross impaired positions
The Bank has no impaired exposures in respect of banks.
A.1.5 On-balance sheet exposures to banks: changes in total adjustments
No writedowns have been recognized in respect of exposures to banks.
A.1.6 On-balance-sheet and off-balance-sheet credit exposures to customers: gro ss and net values
e
r s s
e u n n o c r i i s s l w w f u i o s o o o s c f p o t d d o e r x r e e p p t t e o G i i x S t r r P e e w w N
A. On-balance-sheet exposures a) Bad debts 32,676 11,148 X 21,528 b) Substandard loans 41,412 7,483 X 33,929 c) Restructured positions 1,552 71 X 1,481 d) Past due positions 38,657 1,536 X 37,121 f) Other assets 1,780,482 X 12,554 1,767,928 Total A 1,894,779 20,238 12,554 1,861,987 B. Off-balance-sheet exposures a) Impaired 2,390 151 X 2,239 b) Other 256,248 X 551 255,697 Total B 258,638 151 551 257,936
On- and off-balance-sheet exposures to customers include all on-balance-sheet financial assets held by the Bank regardless of their classification (trading, available for sale, loans, etc.).
119
A.1.7 On-balance-sheet credit exposures to customers: changes in gross impaired positions
Substandard Past due Bad debts Restructured Total loans positions positions
A. Opening gross exposure 16,078 24,316 74 5,014 45,482 - of which: exposures assigned but not derecognized 0 321 0 0 321 B.. Increases 27,775 62,564 1,500 55,193 147,032 B.1 from performing loans 4,620 55,877 0 53,041 113,538 B.2 transfers from other categories of impaired positions 22,247 3,266 1,472 2,052 29,037 B.3 other increases 908 3,421 28 100 4,457 C. Decreases 11,177 45,468 22 21,550 78,217 C.1 to performing loans 0 7,794 0 11,546 19,340 C.2 writeoffs 8,026 0 0 0 8,026 C.3 collections 3,103 11,903 22 6,738 21,766 C.4 assignments 48 0 0 0 48 C.5 transfers to other categories of impaired positions 0 25,771 0 3,266 29,037 C.6 other decreases 0 0 0 0 0 D. Closing gross exposure 32,676 41,412 1,552 38,657 114,297 - of which: exposures assigned but not derecognized 0 224 0 1,658 1,882
A.1.8 On-balance-sheet credit exposures to customers: changes in total adjustments
Substandard Restructured Past due Bad debts Total loans positions positions
A. Total opening adjustments 5,346 3,012 5 537 8,900 - of which: exposures assigned but not derecognized 0 30 0 0 0 B. Increases 14,945 7,443 71 1,545 24,004 B.1 writedowns 13,290 7,443 71 1,545 22,349 B.2 transfers from other categories of impaired positions 1,655 0 0 0 1,655 B.3 other increases 0 0 0 0 0 C. Decreases 9,143 2,972 5 546 12,666 C.1 writebacks from valuations 782 1,021 5 317 2,125 C.2 writebacks from collections 360 412 0 112 884 C.3 writeoffs 8,001 0 0 0 8,001 C.4 transfers to other categories of impaired positions 0 1,539 0 117 1,656 C.5 other decreases 0 0 0 0 0 D. Total closing adjustments 11,148 7,483 71 1,536 20,238 - of which: exposures assigned but not derecognized 0 28 0 57 85
120
A.2 Classification of exposures on the basis of external and internal rating grades
A.2.1 Distribution of on-balance-sheet and off-balance-sheet credit exposures by external rating grades
External rating grades n/a Total Class 1 Class 2 Class 3 Class 4 Class 5 Class 6 A. On-balance-sheet exposures 312,568 202,804 196,389 233,121 84,146 235 1,239,726 2,268,989 B. Derivatives 488 11,110 431 0 0 0 3,912 15,941 B.1 Financial derivatives 488 11,110 431 0 0 0 3,912 15,941 B.2 Credit derivatives 0 0 0 0 0 0 0 0 C. Guarantees issued 1,620 19,221 26,392 21,479 9,884 0 56,340 134,936 D. Commitments to disburse funds 0 0 0 0 0 0 131,996 131,996 Total 314,676 233,135 223,212 254,600 94,030 235 1,431,974 2,551,862
The following table maps the risk classes to the ratings issued by the rating agencies.
ECAI
Standard & Poor's Fitch Ratings Moody's Lince 1 from AAA to AA- from AAA to AA- from Aaa to Aa3 from Aa.1 to Aa.3 2 from A+ to A- from A+ to A- from A1 to A3 from A.4 to Baa.9 3 from BBB+ to BBB- from BBB+ to BBB- from Baa1 to Baa3 from Ba.10 to Ba.12 4 from BB+ to BB- from BB+ to BB- from Ba1 to Ba3 from B.13 to B.16 5 from B+ to B- from B+ to B- from B1 to B3 from C.17 to C.18 6 CCC+ and lower CCC+ and lower Caa1 and lower C.19
A.2.2 Distribution of on-balance-sheet and off-balance-sheet exposures by internal rating grades
The distribution at 31 December 2009 of total performing loans to customers by rating grade is as follows:
Internal rating grades Total AAA AA A BBB BB B. CCC CC C n/a A. On-balance-sheet exposures 7,451 473,082 185,373 286,832 185,199 279,894 128,659 196,369 94,059 432,071 2,268,989 B. Derivatives 0 558 824 943 161 617 116 544 121 12,057 15,941 B.1 Financial derivatives 0 558 824 943 161 617 116 544 121 12,057 15,941 B.2 Credit derivatives 0 0 0 0 0 0 0 0 0 0 0 C. Guarantees issued 3,614 21,345 17,482 11,157 23,490 25,111 6,681 11,395 1,750 12,911 134,936 D. Commitments to disburse funds 3,890 21,971 19,270 16,563 10,080 29,664 9,091 16,660 0 4,807 131,996 Total 14,955 516,956 222,949 315,495 218,930 335,286 144,547 224,968 95,930 461,846 2,551,862
The distribution of exposures securitized but not derecognized by rating grade is as follows:
Internal rating grades Total AAA AA A BBB BB B CCC CC C n/a
Exposures securitized 0 165,062 8,492 16,044 12,675 9,573 1,455 2,297 1,797 0 217,395 but not derecognized
121
A.3 DISTRIBUTION OF SECURED EXPOSURES BY TYPE OF GUARANTEE
A.3.1 Secured credit exposures to banks
The Bank does not have such exposures.
A.3.2 Secured credit exposures to customers
Unsecured guarantees
Collatera l
e
r
u
Credit derivatives Guarantees
s l
a
o
t s
t s
l p
Other derivatives t
t o
n
a x s
t n s t
d s e T
r
e
e e
e n t g n r s r
n s e i
s
s i t t e e k e e n l m a n s i k N m r s r i e c e s r e a h h a i n d n L m n e k e n m t t d d n r k r N u c a c l n r r t a
n h h n i n e C n e n c O O t n t e e r a B r n b a d a u g
v a e e v e h e e O O n s a L b B t o b
S v g o c v a g a o O o G g
G 1. Secured on-balance-sheet credit exposures: 1,456,732 1,147,679 10,302 8,628 0 0 0 0 0 0 1,269 40 261,917 1,429,835 1.1 fully secured 1,389,128 1,147,224 8,039 3,963 0 0 0 0 0 0 1,269 40 227,648 1,388,183 - of which: impaired 83,514 71,894 80 366 0 0 0 0 0 0 0 0 11,288 83,628 1.2 partially secured 67,604 455 2,263 4,665 0 0 0 0 0 0 0 0 34,269 41,652 - of which: impaired 2,559 0 79 133 0 0 0 0 0 0 0 0 1,621 1,833 2. Secured off-balance-sheet credit exposures 65,420 355 4,164 1,808 0 0 0 0 0 0 0 454 54,061 60,842 2.1 fully secured 54,857 355 2,778 1,154 0 0 0 0 0 0 0 454 50,115 54,856 - of which: impaired 1,448 0 87 0 0 0 0 0 0 0 0 0 1,361 1,448 2.2 partially secured 10,563 0 1,386 654 0 0 0 0 0 0 0 0 3,946 5,986 - of which: impaired 14 0 4 0 0 0 0 0 0 0 0 0 4 8
122
B. DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES
B.1 On-balance-sheet and off-balance-sheet credit exposures to customers by sector (book value)
)
e
Ot her government r
u
Governments agencies Fina ncial companies Insu rance undertakings Non -financial companies Other
s
o
p
x e e e e e e r r r r r r e
s s s s s s s s s s s s
u u u u u u t n o n n o n n o n n o n n o n n o n c c c c c c i i i i i i s s s s s s e i i i i i i l l l l l l w w w w w w w w w w w w f f f f f f o o o o o o n i i i i i i o o o o o o o o o o o o o o o o o o ( f f f f f f p p p p p p c c c c c c t t t t t t l d d d d d d d d d d d d x x x x x x e r e r e r e r e r e r a e e e e e e e e e e e e e e e e e e p o p o p o p o p o p o t t t t t t t t t t t t t
i i i i i i i i i i i i t t t t t t o S P S P S P S P S P S P r r r r r r r r r r r r
e e e e e e T w w w w w w w w w w w w N N N N N N
A. On-balance-sheet exposures A.1 Bad debts 0 0 X 0 0 X 0 0 X 0 0 X 17,706 9,560 X 3,822 1,587 X 21,528 A.2 Substandard loans 0 0 X 0 0 X 0 0 X 0 0 X 21,162 5,422 X 12,767 2,061 X 33,929 A.3 Restructured positions 0 0 X 0 0 X 0 0 X 0 0 X 1,415 71 X 66 0 X 1,481 A.4 Past due positions 0 0 X 0 0 X 0 0 X 0 0 X 25,014 1,054 X 12,107 482 X 37,121 A.5 Other 14,270 X 0 7,989 X 0 53,849 X 1,135 0 X 0 1,111,630 X 10,323 580,190 X 1,096 1,767,928 Total A 14,270 0 0 7,989 0 0 53,849 0 1,135 0 0 0 1,176,927 16,107 10,323 608,952 4,130 1,096 1,861,987 B.. Off-balance-sheet exposures B.1 Bad debts 0 0 X 0 0 X 0 0 X 0 0 X 42 0 X 24 5 X 66 B.2 Substandard loans 0 0 X 0 0 X 0 0 X 0 0 X 1,739 90 X 14 0 X 1,753 B.3 Other impaired assets 0 0 X 0 0 X 0 0 X 0 0 X 394 52 X 26 4 X 420 B.4 Other 0 X 0 13,224 X 0 1,055 X 0 0 X 0 226,436 X 526 14,840 X 24 255,555 Total B 0 0 0 13,224 0 0 1,055 0 0 0 0 0 228,611 142 526 14,904 9 24 257,794 Total at 31/12/2009 14,270 0 0 21,213 0 0 54,904 0 1,135 0 0 0 1,405,538 16,249 10,849 623,856 4,139 1,120 2,119,781 Total at 31/12/2008 21,536 0 0 20,594 0 0 104,207 0 647 2,879 0 0 1,529,249 7,348 15,820 583,308 1,722 2,733 2,261,773
123
B.2 On-balance-sheet and off-balance-sheet credit exposures to customers by geographical area (book value)
OTHER EUROPEAN REST OF ITALY AMERICAS ASIA COUNTRIES WORLD
s s s s s
n n n n n e e e e e r r r r r w w w w w u u u u u o o o o o s s s s s d d d d d o o o o o e e e e e t t t t t p p p p p i i i i i r r r r r x x x x x e e e e e w w w w w
t t t t t l l l l l e e e e e a a a a a t t t t t N N N N N o o o o o T T T T T A. On-balance-sheet exposures A.1 Bad debts 21,510 11,119 18 29 0 0 0 0 0 0 A.2 Substandard loans 33,925 7,482 4 1 0 0 0 0 0 0 A.3 Restructured positions 1,481 71 0 0 0 0 0 0 0 0 A.4 Past due positions 37,120 1,536 0 0 1 0 0 0 0 0 A.5 Other 1,755,308 12,551 12,496 3 121 0 0 0 3 0 Total 1,849,344 32,759 12,518 33 122 0 0 0 3 0 B.. Off-balance-sheet exposures B.1 Bad debts 66 5 0 0 0 0 0 0 0 0 B.2 Substandard loans 1,753 90 0 0 0 0 0 0 0 0 B.3 Other impaired assets 420 56 0 0 0 0 0 0 0 0 B.4 Other 255,413 549 142 2 0 0 0 0 0 0 Total 257,652 700 142 2 0 0 0 0 0 0 Total at 31/12/2009 2,106,996 33,459 12,660 35 122 0 0 0 3 0 Total at 31/12/2008 2,248,492 28,104 13,193 166 83 0 0 0 6 1
B.3 On-balance-sheet and off-balance-sheet credit exposures to banks by geographical area (book value)
OTHER EUROPEAN REST OF ITALY COUNTRIES AMERICAS ASIA WORLD
s s s s s
n n n n n e e e e e r r r r r w w w w w u u u u u o o o o o s s s s s d d d d d o o o o o e e e e e t t t t t p p p p p i i i i i r r r r r x x x x x e e e e e w w w w w
t t t t t l l l l l e e e e e a a a a a t t t t t N N N N N o o o o o T T T T T A. On-balance-sheet exposures A.1 Bad debts 0 0 0 0 0 0 0 0 0 0 A.2 Substandard loans 0 0 0 0 0 0 0 0 0 0 A.3 Restructured positions 0 0 0 0 0 0 0 0 0 0 A.4 Past due positions 0 0 0 0 0 0 0 0 0 0 A.5 Other 380,829 0 23,341 0 775 0 0 0 2,056 0 Total 380,829 0 23,341 0 775 0 0 0 2,056 0 B.. Off-balance-sheet exposures B.1 Bad debts 0 0 0 0 0 0 0 0 0 0 B.2 Substandard loans 0 0 0 0 0 0 0 0 0 0 B.3 Other impaired assets 0 0 0 0 0 0 0 0 0 0 B.4 Other 15,049 0 9,887 0 1 0 0 0 0 0 Total 15,049 0 9,887 0 1 0 0 0 0 0 Total at 31/12/2009 395,878 0 33,228 0 776 0 0 0 2,056 0 Total at 31/12/2008 267,397 0 30,465 0 715 0 0 0 9,405 0
124
B.4 Large exposures
31/12/2009 31/12/2008 a) amount 0 47,219 b) number 0 2
The strengthening of capital and the reduction of drawings by the largest borrowers meant that there were no large exposures as of the end of the year.
125
C. SECURITIZATIONS AND ASSET DISPOSALS
C.1 SECURITIZATIONS
QUALITATIVE DISCLOSURES
Cassa di Risparmio di Cento’s securitization activity largely regards a transaction initiated in 2006, which involved the Bank as originator and which is discussed in detail in the section on liquidity risk. In addition to this transaction, the Bank has only one other exposure, classified as "available for sale", in which it is an investor: - -XS0239175564 “Zoo II 12/96 X-P” a Collateralized Debt Obligation (CDO) amounting to €595 thousand.
The investment is consistent with the Bank's strategy of diversifying its proprietary investment portfolio.
126
QUANTITATIVE DISCLOSURES
C.1.1 Exposures in respect of securitizations by quality of securitized assets
On-balance-sheet exposures Guarantees issued Credit lines Senior Mezzanine J unior Senior Mezzanine J u n ior Senior Mezzanine J u n io r
e e e e e e e e e
r r r r r r r r r e e e e e e e e e u u u u u u u u u r r r r r r r r r s s s s s s s s s u u u u u u u u u
o o o o o o o o o s s s s s s s s s p p p p p p p p p o o o o o o o o o x x x x x x x x x p p p p p p p p p e e e e e e e e e x x x x x x x x x
e e e e e e e e e s s s s s s s s s
s t s t s t s t s t s t s t s t s t e e e e e e e e e o o o o o o o o o r r r r r r r r r N N N N N N N N N G G G G G G G G G
A. With own underlying assets 276,726 276,726 2,860 2,860 5,710 5,710 0 0 0 0 0 0 0 0 0 0 0 0 a) Impaired b) Other (*) 276,726 276,726 2,860 2,860 5,710 5,710 B. With third-party underlying assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a) Impaired b) Other
The exposure of €285,296 thousand regards the notes of the securitization carried out by the Bank through the vehicle Guercino Solutions S.r.l. For financial reporting purposes, the notes, all held by the Bank, were reclassified as a deduction from the overall debt generated by the securitization.
127
C.1.2 Exposures in respect of main own securitizations by type of securitized assets and type of exposure
On-balance-sheet exposures Guarantees issued Credit lines Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior c c c c c c c c c a a a a a a a a a b b b b b b b b b
e e e e e e e e e
e e e e e e t t t t t t t t t r r r r r r e e e i i i i i i i i i r r r r r r r r r u u u u u u u u u
l l l s s s s s s w w w w w w w w w a a a / / / / / / / / /
o o o o o o v s v s v s s s s s s s s s s s s s s s s
p p p p p p n n n n n n n n n k k k k k k k k k k k k x x x x x x w w w e w e w e w e w e w e w o o o
o o o t o t o t o t o t o t o o o o e e e e e e d d d d d d d d d B B B e e e e e e e e e N N N N N N t t t t t t t t t i i i i i i i i i r r r r r r r r r W W W W W W W W W A. 1 Fully derecognized B. 2 Partially derecognized C. Not derecognized 276,726 276,726 2,860 2,860 5,710 5,710 C.1 Siviglia finance Securities C.2 Guercino Solutions 276,726 276,726 2,860 2,860 5,710 5,710 Securities 276,726 276,726 2,860 2,860 5,710 5,710
C.1.3 Exposures in respect of main third-party securitizations by type of securitized assets and type of exposure
There is no exposure of this type in respect of transactions in which the Bank is originator.
128
C.1.4 Exposures in respect of securitizations by portfolio of financial assets and type
Financial Financial Financial Financial assets fair assets Total at Total at assets held assets held to Loans value available 31/12/2009 31 /12/2008 for trading maturity option for sale
1. On-balance-sheet exposures 0 0 0 0 285,296 285,296 286,293 - Senior 276,726 276,726 277,716 - Mezzanine 2,860 2,860 2,870 - Junior 5,710 5,710 5,707 2. Off-balance-sheet exposures 0 0 0 0 0 0 0 - Senior 0 0 - Mezzanine 0 0 - Junior 0 0
C.1.5 Total amount of securitized assets underlying junior securities or other forms of credit support
Traditional Synthetic
securitizations securitizations
A. With own underlying assets: 217,634 0 A.1 Fully derecognized 0 0 1. Bad debts X 2. Substandard loans X 3. Restructured positions X 4. Past due positions X 5. Other assets X A.2 Partially derecognized 0 X 1. Bad debts X 2. Substandard loans X 3. Restructured positions X 4. Past due positions X 5. Other assets X A.3 Not derecognized (**) 217,634 0 1. Bad debts 0 2. Substandard loans 224 3. Restructured positions 4. Past due positions 1,658 5. Other assets 215,752 B. With third-party underlying assets: 0 0 B.1 Bad debts B.2 Substandard loans B.3 Restructured positions B.4 Past due positions B.5 Other
(**) Gross value of loans.
C.1.6 Holdings in special purpose vehicles
None. 129
C.1.7 Servicer activities – collections on securitized assets and redemption of securities issued by vehicle
Securitized assets Collections in % of securities redeemed (end-period figure) (end-period figure) the year
Senior Mezzanine Junior
s s s
t t t
s s s g e e e g t t t d d n s s s e e e n i i e e s s s s s s r r m a a a i i s s s m
r r a a a a a g g g o o p p f f d d d n n n r i i i r e e e m m e I I e r r r
m m m i i i P P r r r
a a a o o o p p p f f f r r r m m m e e e I I I P P P
Servicer activities – collections on securitized assets and redemption of 1,882 215,564 106 38,439 0% 0% 0% 0% 0% 0% securities issued by Siviglia Finance
130
C.2 ASSET DISPOSALS
C.2.1 Financial assets assigned but not derecognized
Financial 9 8 0 0
Financial assets at fair Financial assets Financial assets held 0 0
assets held Due from banks Loans to customers 2 2 value available for sale to maturity / / for trading 2 2 1 1 / / 1 1 3 3 A B C A B C A B C A B C A B C A B C A. On-balance-sheet assets 16,719 0 0 0 0 0 10,927 0 0 0 0 0 178,606 0 0 221,149 0 0 427,401 174,274 1. Debt securities 16,719 10,927 178,606 3,515 209,767 174,274 2. Equity securities 0 X X X X X X X X X 0 0 3. Units in collective investment undertakings 0 X X X X X X X X X 0 0 4. Loans 0 217,634 217,634 0 5. Impaired assets 0 0 0 B. Derivatives 0 X X X X X X X X X X X X X X X 0 0 Total at 31/12/2009 16,719 10,927 178,606 221,149 427,401 174,274 Total at 31/12/2008 29,280 61,575 78,440 4,979 174,274
Key A = financial assets assigned but fully recognized (book value) B = financial assets assigned but partially recognized (book value) C = financial assets assigned but partially recognized (full value) ( # ) Loans to customers gross of impairment
131
C.2.2 Financial liabilities in respect of financial assets assigned but not derecognized
Financial Financial Financial Financial Loans assets assets Due from assets held assets at to Total available for held to banks for trading fair value customers sale maturity
1. Due to customers 0 0 0 0 0 284,450 284,450 a) in respect of assets fully recognized 284,450 284,450 b) in respect of assets partially recognized 0 2. Due to banks 0 0 0 0 0 0 0 a) in respect of assets fully recognized 0 b) in respect of assets partially recognized 0 Total at 31/12/2009 0 0 0 0 0 284,450 284,450 Total at 31/12/2008 0 0 0 0 0 284,450 284,450
C.3 Covered bond transactions
Does not apply to Cassa di Risparmio di Cento.
D. MODELS FOR MEASURING CREDIT RISK
The Bank does not use internal portfolio models to measure its exposure to credit risk, nor does it use internal models for calculating capital requirements for credit risk. However, it does use management models, notably the credit rating system to assign a rating to customers. Ratings are one of the elements supporting position analysis in the management and monitoring of credit risk. They are used, together with other parameters, to determine which positions can be renewed automatically and to manage exposures within the credit watch procedure, which governs the actions of the control units in the event of problems with potentially dangerous credit positions. The classification of customers by rating grades (uniform risk categories) is also used to quantify the collective writedowns of performing loans. For more on the quantification and distribution of exposures assessed using the credit rating system, please see table A.2.2.
132
SECTION 2 – MARKET RISKS
2.1 INTEREST RATE AND PRICE RISK – SUPERVISORY TRADING BOOK
QUALITATIVE DISCLOSURES
A. General aspects
The investment process for the Bank’s portfolio is structured and formalized in internal rules and documented by the framework resolutions of the Board of Directors. Asset allocation is determined on the basis of the objectives set out in the framework resolution, which considers: performance in terms of volumes, profitability and capital requirements; market analysis and forecasts; and the risk profile of investments. The profitability objectives and composition are set in line with the capital allocation policy and the interest rate risk policy set out in the three-year business plan and the budget. They take appropriate account of developments in the Bank’s overall liquidity position, with a view to supporting treasury operations.
Interest rate risk on the supervisory trading book is quite limited in view of the predominance of floating rate instruments in the portfolio, which produces a generally low overall duration (0.624 at 31 December 2009).
Investments in listed instruments on equity markets and in units of investment funds and Sicavs are, for Cassa di Risparmio di Cento, a residual activity compared with operations on the bond markets. The price risk in respect of the supervisory trading book is therefore very low.
B. Management and measurement of interest rate risk
The Risk Management unit measures interest rate risk and price risk of the supervisory trading book on a weekly basis using a VaR methodology. This measurement is part of a broader process for controlling the operations of the Finance area, which also provides for the establishment and verification of limits in terms of position, type of counterparty and risk.
In addition to the VaR approach, the sensitivity of the supervisory trading book is analyzed with an asset and liability management methodology (ALM) by way of analysis of the impact of alternative rate scenarios on the market value of the securities portfolio.
Internal models are not used to calculate capital requirements for market risks.
QUANTITATIVE DISCLOSURES
1. Supervisory trading book: distribution by residual maturity (repricing date) of on-balance- sheet assets and liabilities and financial derivatives
This table has not been prepared because, as envisaged in Bank of Italy Circular no. 262 of 22 December 2005, the following section provides a sensitivity analysis of interest rate risk on the basis of the models or methodologies used.
133
2. Supervisory trading book: distribution of exposures in equity securities and equity indices for the main markets in which the instruments are listed
This table has not been prepared because, as envisaged in Bank of Italy Circular no. 262 of 22 December 2005, the following section provides a sensitivity analysis of interest rate risk on the basis of the models or methodologies used.
3. Supervisory trading book: internal models and other sensitivity analysis methods
At 31 December 2009, the VaR of the trading book in respect of interest rate risk was equal to €154,596. This analysis measures the sensitivity of the portfolio to changes in interest rates, estimated on the basis of their level and volatility in the last year. Value at risk represents the potential loss that could be incurred in the ten days after the measurement date in 99% of possible cases. During the year, that exposures remained below €100 thousand almost continuously. The equity VaR of the held-for- trading book was nil, since there were no exposures in equity securities at the end of the year. The average for the year was equal to a few thousand euros, given the very small amount of shares in the portfolio.
At the same date, the sensitivity analysis shows that a change in interest rates such as that implicit in 12-month forward rates would have a negative impact on the trading book of about €230 thousand, equal to about 0.8% of the operating result for the year, confirming the small overall exposure of the Bank to this form of risk.
2.2 INTEREST RATE RISK – BANKING BOOK
QUALITATIVE DISCLOSURES
A. General aspects, management and measurement of interest rate risk and price risk
The main sources of interest rate risk on financial assets and liabilities other than those discussed in the previous section are related to the financial profile and indexing mechanisms of the various items involved.
Both financial assets and liabilities mainly bear floating interest rates, while assets and liabilities in respect of demand items are balanced. As a result, the exposure of the banking book to interest rate risk is limited. Responsibility for monitoring and managing this risk lies with the Asset and Liability Committee, which on a quarterly basis assesses the sensitivity of the Bank’s positions to interest rate risk in terms of the impact of a change in interest rates on net interest income (gap analysis) and shareholders’ equity (duration analysis).
The price risk for the banking book is concentrated in the AFS portfolio, for which risk measurement and monitoring is carried out using the same procedures and tools used for the supervisory trading book. The equity VaR of the AFS portfolio at 31 December 2009 amounted to €1.6 million including equity investments and €230 thousand excluding equity investments. This analysis measures the sensitivity of the portfolio to changes in share prices, estimated on the basis of their level and volatility in the last year. Value at risk represents the potential loss that could be incurred in the ten days after the measurement date in 99% of possible cases.
134
B. Fair value hedges
Designated hedging derivatives essentially involve interest rate swaps covering specific bond issues by the Bank, mainly fixed rate, in order to transform the fixed rate into a floating rate. These transactions have been designed to qualify for hedge accounting in order to limit the impact of measurement of the instruments on profit or loss. This approach provides for annual verification of the effectiveness of the hedge by way of specific tests to measure the change in fair value during the period, which must remain with a range of 80-125%. The effectiveness tests are conducted on a quarterly basis with the use of an application that draws the necessary data from the subsystems that manage the instruments and enables the creation of a time series of the calculation and output data (documentation of the effectiveness tests). At the end of the year, hedge accounting was continued for the derivatives designated as hedges on the basis of the outcome of the effectiveness tests.
In view of the reduced exposure to price risk, no hedges for that type of risk were established.
C. Cash flow hedges
No cash flow hedges are in place and no recourse was made to the fair value option.
QUANTITATIVE DISCLOSURES
1. Banking book distribution of financial assets and liabilities by residual maturity (repricing date)
This table has not been prepared because, as envisaged in Bank of Italy Circular no. 262 of 22 December 2005, the following section provides a sensitivity analysis of interest rate risk on the basis of the models or methodologies used.
2. Banking book: internal models and other sensitivity analysis methods
As noted above, the analysis of the interest rate risk on the banking book is conducted using an asset and liability management approach. At 31 December 2009 the estimated impact on net interest income of a 1% change in interest rates is on the order of 8.7%, while the impact on shareholders’ equity varies between 0.20% and 3.50% depending on the scenario (+1%, 6- and 12-month forward rates and the forecasts of infoproviders). In 2009 interest rate risk continued to be measured using the methodology set out in the "Second Pillar" of the new regulations for the prudential supervision of banks issued by the Bank of Italy with Circular no. 263 of 27 December 2006. The resulting risk ratio at 31 December 2009 was equal to 5.06%, well below the alert threshold of 20%.
135
2.3 EXCHANGE RATE RISK
QUALITATIVE DISCLOSURES
A. General aspects, management and measurement of exchange rate risk
Operations in foreign currencies are quite limited overall, as is the mismatch between foreign currency assets and liabilities. This is reflected in a virtually zero gap for currencies other than the euro and a VaR in respect of exchange rates that is traditionally very low (nil at 31 December 2009 and a few thousand euros on average for 2009 as a whole).
B. Hedging exchange rate risk
As noted above, hedging exchange rate risk is achieved by matching assets and liabilities denominated in currencies other than the euro in view of the small overall exposure, which would make recourse to derivatives expensive.
QUANTITATIVE DISCLOSURES
1. 1.Distribution by currency of assets and liabilities and derivatives
CURRENCIES Pound Canadian Swiss US dollar Yen Other sterling dollar francs A. Financial assets 5,616 206 5,174 13 1,687 125 A.1 Debt securities A.2 Equity securities A.3 Due from banks 3,926 43 221 13 91 125 A.4 Loans to customers 1,690 163 4,953 1,596 A.5 Other financial assets B. Other assets 156 53 16 15 43 47 C. Financial liabilities 5,753 248 15,423 0 1,716 0 C.1 Due to banks 1,909 248 5,183 0 1,551 0 C.2 Due to customers 3,844 165 0 C.3 Debt securities 10,240 0 C.4 Other financial liabilities D. Other liabilities 28 0 E. Financial derivatives 1,834 2 10,236 0 3 13 - Options 0 0 0 0 0 0 + Long positions 0 0 0 0 0 0 + Short positions 0 0 0 0 0 0 - Other derivatives 1,834 2 10,236 0 3 13 + Long positions 917 10,236 0 0 + Short positions 917 2 0 0 3 13 Total assets 6,689 259 15,426 28 1,730 172 Total liabilities 6,698 250 15,423 0 1,719 13 Difference (+/-) (9 ) 9 3 28 11 159
136
2. Internal models and other sensitivity analysis methods
Internal models are not used to measure and manage exchange rate risk.
2.4 DERIVATIVES
Operations in derivatives mainly regard transactions with customers and contracts to hedge bonds issued by the Bank. For customer transactions, Cassa di Risparmio di Cento does not operate in speculative products or products of such complexity that would be difficult for customers to understand. The instruments used to hedge the risk of interest rate changes on loans requested by customers include cap and floor options and related collar options and, above all, various forms of IRS. Market risk can be considered nil, thanks to the prudent counter-hedging policy of the Bank: positions opened with customers are simultaneously closed with external counterparties. In the case of individual low-value transactions, the corresponding transactions involve the aggregation of multiple positions, partly with a view to obtaining more favorable terms. As a result, the exposure to market risk is small and limited to the time necessary to achieve the critical mass needed to execute the connected market transaction. Transactions in listed derivatives is restricted to a small number of operations (none outstanding at 31 December 2009), while transactions in credit derivatives is limited to a number of protection sales contained in bond investments in the Bank’s proprietary portfolio.
137
A. FINANCIAL DERIVATIVES
A.1 Supervisory trading book: end-of-period and average notional values
31/12/2009 31/12/2008
Over the Central Over the Central counter counterparties counter counterparties
1. Debt securities and interest rates 704,410 0 763,915 - a) - Options 266,562 274,445 b) Swaps 395,638 412,214 c) Forwards d) Futures e) Other 42,210 77,256 2. Equity securities and equity indices 0 0 0 - a) - Options b) Swaps c) Forwards d) Futures e) - Other 3. Foreign currencies and gold 12,089 0 1,574 - a) Options b) Swaps 10,138 63 c) Forwards 1,951 1,511 d) Futures e) Other 4. Commodities 0 0 - 5. Other underlyings Total 716,499 - 765,489 - Averages 358,249 - 382,744 -
138
A.2 Banking book: end-of-period and average notional values
A.2.1 Hedging
31/12/2009 31/12/2008
Over the Central Over the Central counter counterparties counter counterparties 1. Debt securities and interest rates 190,519 258,828 a) Options b) Swaps 190,519 258,828 c) Forwards d) Futures e) Other 2. Equity securities and equity indices a) Options b) Swaps c) Forwards d) Futures e) Other 3. Foreign currencies and gold a) Options b) Swaps c) Forwards d) Futures e) Other 4. Commodities 5. Other underlyings Total 190,519 0 258,828 0 Averages 95,259 0 129,414 0
139
A.2.2 Other derivatives
Does not apply to Cassa di Risparmio di Cento S.p.A.
A.3 Financial derivatives: gross positive fair value – breakdown by product
Positive fair value
31/12/2009 31/12/2008
Over the Central Over the Central counter counterparties counter counterparties
A. Supervisory trading book 7,442 0 7,164 0 a) Options 3,944 2,263 b) Interest rate swaps 3,464 3,244 c) Cross currency swaps d) Equity swaps e) Forwards 18 57 f) Futures g.) Other 16 1,600 B. Banking book - hedging 8,507 0 5,420 0 a) Options b) Interest rate swaps 8,507 5,420 c) Cross currency swaps d) Equity swaps e) Forwards f) Futures g) Other
C. Banking book - other derivatives 0 0 0 0 a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f) Futures g) Other Total 15,949 0 12,584 0
140
A.4 Financial derivatives: gross negative fair value – breakdown by product
Negative fair value
31/12/2009 31/12/2008
Over the Central Over the Central counter counterparties counter counterparties
A. Supervisory trading book 8,482 7,855 a) Options 3,892 2,332 b) Interest rate swaps 3,796 3,868 c) Cross currency swaps d) Equity swaps e) Forwards 18 55 f) Futures g) Other 776 1,600 B. Banking book - hedging 198 1,320 a) Options b) Interest rate swaps 198 1,320 c) Cross currency swaps d) Equity swaps e) Forwards f.) Futures g) Other C. Banking book - other derivatives a) Options b) Interest rate swaps c) Cross currency swaps d) Equity swaps e) Forwards f.) Futures g) Other Total 8,680 9,175
141
A.5 Over-the-counter financial derivatives – supervisory trading book: notional values, gross positive and negative fair values by counterparty - contracts not covered by netting arrangements
s s
e i g s
t n n e d i i n a
n k n e p s a a a
t k m m p r s s
n n t o e e r s a r m i c n d e k e b o c e l
n v n h l c a n t
u i m o a a l
e r c O n g a B e t g
i r n c r n a c e a e n e v n n h a c i a o t r f - n u G O i n s F o n I N 1) Debt securities and interest rates - notional value 418,930 37,154 219,580 28,747 - positive fair value 3,178 344 3,743 153 - negative fair value 3,821 398 2,503 978 - future exposure 1,228 220 192 5 2) Equity securities and equity indices - notional value - positive fair value - negative fair value - future exposure 3) Foreign currencies and gold - notional value 1,041 1,052 9,995 - positive fair value 18 1 5 - negative fair value 0 35 747 - future exposure 5 5 0 4) Other assets - notional value - positive fair value - negative fair value - future exposure
142
A.6 Over-the-counter financial derivatives – supervisory trading book: notional values, gross positive and negative fair values by counterparty – contracts covered by netting arrangements
Does not apply to Cassa di Risparmio di Cento S.p.A.
A.7 Over-the-counter financial derivatives – banking book: notional values, gross positive and negative fair values by counterparty – contracts not covered by netting arrangements
l
s
s t l a t
s i s g n l a e n s e c e
r e a n c i i e t i i e r s r s n i n n n k n m c e k e k a m c a a a e a n n h n h n n n r t n
t r p i p t c a r a r a f u e e - e n O e O b m m B s d i g v v n d o o n n a F o I o o n c c a g u N G
1) Debt securities and interest rates - notional value 183,019 7,500 - positive fair value 8,420 87 - negative fair value 198 - future exposure 664 13 2) Equity securities and equity indices - notional value - positive fair value - negative fair value - future exposure 3) Foreign currencies and gold - notional value - positive fair value - negative fair value - future exposure 4) Other assets - notional value - positive fair value - negative fair value - future exposure
A.8 Over-the-counter financial derivatives – banking book: notional values, gross positive and negative fair values by counterparty - contracts covered by netting arrangements
Does not apply to Cassa di Risparmio di Cento S.p.A.
143
A.9 Residual life of over-the-counter financial derivatives: notional values
More than 1 More than 5 Up to 1 year Total year to 5 years years A. Supervisory trading book 185,043 75,215 456,240 716,498 A.1 Financial derivatives on debt securities and interest rates 172,955 75,215 456,240 704,410 A.2 Financial derivatives on equity securities and equity indices A.3 Financial derivatives on exchange rates and gold 12,088 12,088 A.4 Financial derivatives on other assets B. Banking book 57,260 132,189 1,070 190,519 B.1 Financial derivatives on debt securities and interest rates 57,260 132,189 1,070 190,519 B.2 Financial derivatives on equity securities and equity indices 0 B.3 Financial derivatives on exchange rates and gold 0 B.4 Financial derivatives on other assets 0 Total at 31/12/2009 242,303 207,404 457,310 907,017 Total at 31/12/2008 227,536 360,972 435,809 1,024,317
A.10 Over-the-counter financial derivatives: counterparty risk/financial risk – Internal models
Does not apply to Cassa di Risparmio di Cento S.p.A.
B. CREDIT DERIVATIVES
B.1 Credit derivatives: end-of-period and average notional values
Does not apply to Cassa di Risparmio di Cento S.p.A.
B.2 Over-the-counter credit derivatives: gross positive fair value – breakdown by product
There are no purchases of protection with a positive fair value.
B.3 Over-the-counter credit derivatives: gross negative fair value – breakdown by product
There are no purchases of protection with a negative fair value.
B.4 Over-the-counter credit derivatives: gross positive and negative fair values by counterparty – contracts not covered by netting arrangements
None.
B.5 Over-the-counter credit derivatives: gross positive and negative fair values by counterparty – contracts covered by netting arrangements
B.6 Residual life of credit derivatives: notional values
None.
B.7 Credit derivatives: counterparty and financial risk – Internal models
None.
144
C. FINANCIAL AND CREDIT DERIVATIVES
C.1 Over-the-counter financial and credit derivatives: net fair value and future exposure by counterparty
None.
SECTION 3 – LIQUIDITY RISK
QUALITATIVE DISCLOSURES
A. General aspects, management and measurement of liquidity risk
Liquidity risk is managed on two levels: - on a daily basis, the Treasury Finance unit maintains the balance of the Bank’s liquidity position using short-term interbank transactions; - every ten days Risk Management prepares a report comparing the inflows and outflows associated with the contractual maturities of asset and liability items, with outflows calculated by modeling demand items and the counterbalancing capacity, i.e. readily marketable assets available to meet immediate liquidity needs. - on a quarterly basis, the structural liquidity position is assessed in terms of the maturities of assets and liabilities. This task is carried out by the ALCO, which examines the gap in maturing principal flows and the maturity transformation rules, which even if they have been eliminated remain a useful tool for monitoring liquidity risk. No significant changes were made to management processes compared with the previous year.
145
QUANTITATIVE DISCLOSURES
1. Distribution of financial assets and liabilities by residual maturity
Currency: EURO
More More More More More More More Inde than 7 than 15 than 1 than 3 More On than 1 than 6 than 1 finit days to days to month months than 5 Total demand day to months year to 5 e 15 1 to 3 to 6 years 7 days to 1 year years life days m onth m on ths m onths
On-balance-sheet assets 392,114 11,560 1,129 15,466 126,227 55,093 80,559 742,793 626,810 - 2,051,751 A.1 Government securities 11,785 8 11,793 A.2 Debt securities 1 15,143 11,541 5,078 259,319 20,721 311,803 A.3 Units in collective investment undertakings 1,509 1,509
A.4 Loans 390,605 11,559 1,129 15,466 111,084 43,552 75,481 471,689 606,081 - 1,726,646 - banks 81,633 12 16,627 98,272
- customers 308,972 11,547 1,129 15,466 94,457 43,552 75,481 471,689 606,081 1,628,374 On-balance-sheet liabilities 1,069,458 7,855 1,965 18,764 97,758 76,586 246,153 580,113 27,720 - 2,126,372 B.1 Deposits and current accounts 1,066,777 ------3 - 1,066,780 - banks 13,907 13,907 - customers 1,052,870 3 1,052,873 B.2 Debt securities 821 2,013 1,660 12,634 68,556 57,464 95,104 580,110 27,720 846,082 B.3 Other liabilities 1,860 5,842 305 6,130 29,202 19,122 151,049 213,510 Off-balance-sheet transactions 24,764 7,378 329 8,678 4,569 2,606 3,742 17,985 31,817 101,868 C.1 Financial derivatives with exchange of principal 6,152 7,285 87 28 834 - 9 152 - 14,547 - long positions 3,076 3,555 46 417 9 133 7,236 - short positions 3,076 3,730 41 28 417 19 7,311 C.2 Financial derivatives without exchange of principal 15,096 73 - 613 1,301 1,815 2,987 7,677 65 - 29,627 - long positions 7,408 33 205 1,079 688 536 3,535 13,484 - short positions 7,688 40 408 222 1,127 2,451 4,142 65 16,143 C.3 Deposits and loans to receive ------long positions ------short positions ------C.4 Irrevocable commitments to disburse funds 3,008 - - 8,000 - 9 - 1,574 1,136 - 13,727 - long positions 144 4,000 9 1,574 1,136 6,863 - short positions 2,864 4,000 6,864 C.5 Financial guarantees issued 508 20 242 37 2,434 782 746 8,582 30,616 43,967
146
Currency: other
More More More More More More More More Ind On than 1 than 3 than 1 than 7 than 15 than 6 than 1 than efin deman month months Total day to 7 days to days to 1 months year to 5 5 ite d to 3 to 6 days 15 days m onth to 1 year years year life months m onths s On-balance-sheet assets 2,327 601 3,013 567 4,587 953 492 321 - - 12,861 A.1 Government securities - A.2 Debt securities - A.3 Units in collective investment undertakings - A.4 Loans 2,327 601 3,013 567 4,587 953 492 321 - - 12,861 - banks 2,059 2,360 4,419 - customers 268 601 653 567 4,587 953 492 321 8,442 On-balance-sheet liabilities 4,014 98 4,879 4,258 6,429 3,269 191 - - - 23,138 B.1 Deposits and current accounts 4,010 - 4,729 4,160 - - - - - 12,899 - banks 1 4,729 4,160 8,890 - customers 4,009 4,009 B.2 Debt securities 4 98 150 98 6,429 3,269 191 10,239 B.3 Other liabilities - Off-balance-sheet transactions 770 971 90 103 860 - - - - - 2,794 C.1 Financial derivatives with exchange of principal - 971 90 30 860 - - - - - 1,951 - long positions - 513 42 30 430 - - - - 1,015 - short positions - 458 48 - 430 - - 936 C.2 Financial derivatives without exchange of principal 770 ------770 - long positions 5 ------5 - short positions 765 - - - - - 765 C.3 Deposits and loans to receive ------long positions ------short positions ------C.4 Irrevocable commitments to disburse funds ------long positions ------short positions ------C.5 Financial guarantees issued - - - 73 ------73
This section provides an update on the securitization initiated in 2006 by the Bank, which in 2008 subscribed all of the notes at the end of the warehousing stage at the time of the transfer of the "bridge" securities from the first to the second vehicle, which raised funds by issuing rated notes that were purchased entirely by Cassa di Risparmio di Cento, classifying them under loans & receivables. The notes issued by Guercino Solutions S.r.l. in November 2008 totaled €284.45 million and were rated by Standard & Poor’s as follows: €275.9 million rated AAA, €2.85 million rated BBB and €5.7 million in unrated junior notes.
The securitized financial assets comprise residential mortgage loans to individuals with a residual outstanding debt of €217.4 million at 31 December 2009. They regard buildings in the provinces of Ferrara, Modena and Bologna with counterparties in Emilia Romagna. All assigned borrowers are consumer households. The credit risk in respect of the assigned loans is retained by Cassa di Risparmio di Cento. The risks in respect of the assigned loans are monitored and controlled in the same manner as that for loans directly on the Bank’s books.
147
Cassa di Risparmio di Cento has not provided credit facilities to support the transaction. It has entered into a “back-to-back” swap with Royal Bank of Scotland to hedge Guercino Solutions against interest rate risk.
148
SECTION 4 – OPERATIONAL RISKS
QUALITATIVE DISCLOSURES
A. General aspects, management and measurement of operational risk
Fully aware of the specific nature of legal and reputational risks, Cassa di Risparmio di Cento has established a Compliance department in line with the guidelines issued by the Bank of Italy. With regard to the measurement of the operational risk, the Bank has drafted internal rules establishing the process for the identification and registration of operational losses. They are used for management purposes since, for regulatory purposes, the Bank will apply the fixed percentage of 15% of average gross income in the last three financial years in order to calculate the related capital requirement.
The most significant pending litigation regards customer claims for damages in respect of defaulted securities issued by the Argentine government. Appropriate provisions have been recognized in respect of these and other disputes, as discussed in more detail in the notes to the income statement.
QUANTITATIVE DISCLOSURES
The tool used to manage operational risk consists of a database of operational losses recognized following completion of the internal processing of the events. In 2009 two cases of operational losses with a unit value of more than €500 were registered, for a total of €1,934. In both cases the losses were associated with material errors by employees. As regards other sources of operational risk, one branch of the Bank suffered a robbery with a nominal loss of about €24 thousand. The effective loss was €12,500, representing the deductible on the insurance coverage. As regards litigation, uses of provisions for risks and charges amounted to €1.7 million, divided among revocatory actions in bankruptcy (€1.1 million), suits involving defaulted securities (€570 thousand) and other minor disputes (€50 thousand). During the year, accruals to the provision amounted to €1.7 million. The Bank uses the basic indicator approach to calculate the related capital requirement, in line with the First Pillar regulations.
149
Part F – Information on capital
SECTION 1 – SHAREHOLDERS’ EQUITY
A. Qualitative disclosures Shareholders’ equity is composed of share capital and reserves of any sort. The aggregate, the components of which are reported below, covers all the corporate risks discussed above (credit, liquidity, market, operational and others). The Bank is subject to the capital requirements established under the supervisory regulations issued by the Bank of Italy. The ratio of capital to risk-weighted assets must be at least 8%. Compliance with the requirement is monitored on a quarterly basis and also undergoes prospective analysis and simulations during strategic and operational planning (preparation of business plans and budgets). Analogously, decisions concerning the pursuit of capital management objectives are one of the key pillars of strategic planning, as capital adequacy is an essential driver of any development project.
B. Quantitative disclosures
B.1 Shareholders' equity: composition
The Bank’s shareholders’ equity breaks down as follows:
31/12/2008 31/12/2008
1. Share capital 67,499 67,499 2. Share premium reserve 30,851 30,851 3. Reserves 60,203 55,437 - earnings 54,730 49,964 a) legal 24,840 24,402 b) established in bylaws 25,172 24,303 c) treasury shares 0 0 d) other 4,718 1,259 - other 5,473 5,473 4. Equity instruments 0 5 (Treasury shares) 0 6. Valuation reserves 21,021 20,106 - Financial assets available for sale 11,332 10,417 - Property and equipment 0 - Intangible assets 0 - Hedging of investments in foreign operations 0 - Foreign exchange differences 0 - Non-current assets held for sale 0 - Actuarial gains (losses) on defined benefit plans 0 - Share of valuation reserves of equity investments accounted for using equity method 0 - Special revaluation laws 9,689 9,689 Net profit for the period 7,145 8,687 Total 186,719 182,580
150
B.2 Valuation reserves for financial assets available for sale: composition
31/12/2009 31/12/2008
Positive Negative Positive Negative reserve reserve reserve reserve
1. Debt securities 469 1,890 2. Equity securities 11,908 13,039 3. Units in collective investment undertakings 107 732 4. Loans Total 11,908 576 13,039 2,622
B.3 Valuation reserves for financial assets available for sale: change for the period
Units in Debt Equity collective Loans Total securities securities investment undertakings 1. Opening balance (1,890) 13,039 (732) - 10,417 2. Increases 3,584 37 1,530 - 5,151 2.1 Fair value gains 2,223 11 90 - 2,324 2.2 Reversal of negative reserves to income statement: 29 0 1,206 - 1,235 for impairment 738 - 738 for realization 29 468 - 497 2.3 Other increases 1,332 26 234 - 1,592 3. Decreases 2,163 1,168 905 - 4,236 3.1 Fair value losses 4 1,168 64 - 1,236 3.2 Reversal of positive reserves to income statement: 1,477 84 - 1,561 for realization 3.3 Other decreases 682 757 - 1,439 4. Closing balance (469) 11,908 (107) - 11,332
SECTION 2 – CAPITAL AND CAPITAL RATIOS
2.1 REGULATORY CAPITAL
A. Qualitative disclosures
Regulatory capital is calculated on the basis of the instructions issued by the Bank of Italy in Circular no. 115 of 18 December 1991 – 12th update of 5 February 2008. The update establishes new reporting schedules following transposition of the Community Directives on capital adequacy.
1. Tier 1 capital
Tier 1 capital is composed of share capital, the share premium reserve and other reserves including the share of net profit to be used for self-financing. There are no negative elements, whereas the negative prudential filters applied to Tier 1 capital regard the negative reserve on available-for-sale securities. Gross Tier 1 capital is reduced by deducting 50% of shareholdings in credit and financial institutions exceeding 10% of the share capital of the company in which the interest in held and the shareholding in the Bank of Italy (total value of €2,902,204).
151
2. Tier 2 capital
Tier 2 capital is composed of valuation reserves, lower Tier 2 subordinated liabilities and positive reserves for available-for-sale securities. There are no negative elements, whereas the negative prudential filters applied to Tier 2 capital regard 50% of the positive reserves on available-for-sale securities. Gross Tier 2 capital is reduced by deducting 50% of shareholdings in credit and financial institutions exceeding 10% of the share capital of the company in which the interest in held; the shareholding in the Bank of Italy.
31/12/2009 31/12/2008
A. Tier 1 capital prior to the application of prudential filters 163,081 158,549 B. Tier 1 prudential filters: (753) (2,602) B.1 Positive IAS/IFRS prudential filters 0 0 B.2 Negative IAS/IFRS prudential filters (753) (2,602) C. Tier 1 capital after the application of prudential filters (A+B) 162,328 155,947 D. Elements to be deducted from Tier 1 capital (3,370) (1,395) E. Total Tier 1 capital (TIER 1) (C-D) 158.958 154,552 F. Tier 2 capital prior to the application of prudential filters 45,411 47,708 G. Tier 2 capital prudential filters (6,043) (6,510) G.1 Positive IAS/IFRS prudential filters 0 0 G.2 Negative IAS/IFRS prudential filters (6,043) (6,510) H.. Tier 2 capital including deductible elements (F+G) 39,368 41,198 I. Elements to be deducted from Tier 2 capital (3,369) (1,395) L. Total Tier 2 capital (TIER 2) (H-I) 35,999 39,803 M. Elements to be deducted from Tier 1 and Tier 2 capital 0 (990) N. Regulatory capital (E+L-M) 194,957 193,367 O. Tier 3 capital 0 0 P.. Regulatory capital including Tier 3 (N+O) 194,957 193,367
152
2.2 CAPITAL ADEQUACY
A. Qualitative disclosures
The Bank complies with the capital ratio limits required under supervisory regulations. The Bank's investment policies are directed at maintaining a balance between economic and financial investments and capital, while capital adequacy is also assessed through the Internal Capital Adequacy Assessment Process (ICAAP).
B. Quantitative disclosures
Unweighted amounts Weighted amounts/requirements
31/12/2009 31/12/2008 31/12/2009 31/12/2008 A. EXPOSURES A.1 Credit and counterparty risk 1. Standardized approach 3,614,241 3,835,909 1,520,152 1,681,209 2. IRB approach 2.1 Foundation 2.2 Advanced 3. Securitizations B. CAPITAL REQUIREMENTS B.1 Credit risk and counterparty risk 121,612 134,500 B.2 Market risk 250 1,075 1. Standardized method 250 1,075 2. Internal models 3. Concentration risk B.3 Operational risk 11,452 10,972 1. Basic indicator approach 11,452 10,972 2. Standardized approach 3. Advanced measurement approaches B.3 Other prudential requirements B.5 Other elements B.6 Total prudential requirements 133,314 146,547
C EXPOSURES AND CAPITAL RATIOS C.1 Risk-weighted assets 1,666,425 1,831,837
C.2 Tier 1 capital/risk-weighted assets (Tier 1 capital ratio) (1) 9.54% 8.44%
C.3 Regulatory capital/risk-weighted assets (Total capital ratio) 11.70% 10.56%
(*) The data have been drawn from supervisory reports on the basis of the regulations in force as of the respective reference dates. (**) The amounts at 31 December 2008 have been increased by €256,636 thousand and the related weighted amount by €89,587 thousand for the securitized loans, which in 2008 were not included in the calculation of exposures.
153
Part G – Business combinations No business combinations were carried out in 2009.
Part H – Transactions with related parties
1. Information on compensation of directors and management
Compensation of directors and key management personnel:
31/12/2009 31/12/2008 Directors 461 454 General Manager 377 373
2. Information on transactions with related parties
With regard to the provisions of Circular no. 262 of 22 December 2005 issued by the Bank of Italy containing instructions for the preparation of the separate and consolidated financial statements of banks in compliance with the IAS/IFRS, the following tables report the required information concerning the Bank’s related parties as defined under IAS 24. More specifically, the table reports loans and guarantees granted to related parties with the exclusion of transactions carried out in the year with the same counterparties. In addition to the explicit provisions of IAS 24, the information also comprises transactions envisaged in Article 136 paragraph 2 bis of the 1993 Banking Act where they involve people defined as “key management personnel” by IAS 24.
OUTSTANDING LOANS AT 31 DECEMBER 2009 (in thousands of euros)
Loans Guarantees Directors and key management personnel 13 Members of the immediate family of the 3 above parties Parent, subsidiary, associate or company subject to the significant influence of the 29,717 5,162 above parties
The above loans regard major industrial groups in our area controlled by directors of the Bank. Drawings on the credit facilities amounted to 43.2% of the total amount available, with contractual terms and conditions in line with those for market transactions.
OTHER TRANSACTIONS
"Other transactions" – meaning the supply of goods and services and lease agreements – with the related party Cedacri (it is a related party because the General Manager is a director on its board) are completed with the signing of the framework agreement.
154
Part I – Share-based payments
None.
155
Part L – Operating segments
Reporting by operating segment
This section reports the results at 31 December 2009 by operating segment, as envisaged under IFRS 8 “Operating Segments”, with a reconstruction of the comparable figures at 31 December 2008.
Definition of segments
For a number of years now the Bank has used a number of customer "segments" in its management models, with a view to identifying uniform macro-groups of customers. The primary subdivision is between "Individuals" and “Enterprises", which of which is broken down further as follows:
For "Individuals", we have identified the following groups: § Family – funding of less than €80 thousand and simple requirements; § Personal – funding of up to €450 thousand, with customized assistance provided by branch personnel; § Private – funding of more than €450 thousand, with highly customized assistance provided by dedicated relationship managers.
“Enterprises” have been subdivided on the basis of turnover and complexity of the company structure, generally indicated by the legal form of the enterprise involved. The broader category has been broken down as follows: § P.O.E. – very small businesses, with turnover of less than €250 thousand, generally craft businesses or retailers organized as sole proprietorships or partnerships; § Small Business – companies with turnover of up to €2.5 million, for which the branch manager can provide all necessary assistance; § Corporate – companies with turnover of more than €2.5 million, often with complex requirements and need for highly specialized consultants.
After segmenting the customer base, the top customers are assigned to Private and Corporate relationship managers.
In determining performance by segment, the criteria used to calculate the amounts reported are closely linked to the operational reporting used by management and, in part, the sales network. The amounts for the L&R securities of the securitization have been eliminated in order to avoid double counting after the incorporation of the data of the SPV.
In addition, please note that: "net interest income" is that used in the internal management model with multiple ITRs normally used to measure performance for all main analytical dimensions (centers, managers and segments) and so such income is governed by the rules that essentially shift management of interest rate risk and liquidity risk to the treasury pool; the balance-sheet data are reported at end-of-period values.
156
Segment income statement Thousands of euros
Individuals Enterprises
Family and P.O.E Headquarters Personal Private and S.M.E. Corporate centers Total Bank
A – at 31 December 2009
Net interest income 19,693 1,176 16,066 15,149 1,805 53,889
Net income from services 8,075 3,705 5,370 3,916 -764 20,302 Net income (loss) from financial operations 5,801 5,801 Gross income 27,768 4,881 21,436 19,065 6,842 79,992
B - at 31 December 2008
Net interest income 24,385 1,970 12,436 8,689 11,096 58,575
Net income from services 8,949 3,281 5,213 3,295 -172 20,566
Net income (loss) from financial operations -4,048 -4,048 Gross income 33,334 5,252 17,648 11,984 6,877 75,094
Changes = A - B
Net interest income -4,692 -794 3,630 6,460 -9,291 -4,686
Net income from services -874 424 157 621 -593 -265 Gross income -5,565 -371 3,787 7,081 -35 4,898
157
Segment balance sheet Thousands of euros
Individuals Enterprises
Family and P.O.E Family and Personal Private and S.M.E. Corporate Personal Private A - at 31 December 2009 Total assets 629,206 6,337 543,444 653,710 594,444 2,427,140
Total liabilities 953,207 370,761 204,263 207,098 691,812 2,427,140
Difference -324,001 -364,425 339,181 446,613 -97,368 0
B - at 31 December 2008
Total assets 588,795 6,981 562,259 714,955 469,672 2,342,663
Total liabilities 864,866 373,063 162,489 170,489 771,756 2,342,663
Difference -276,070 -366,082 399,771 544,466 -302,084 0
Changes = A - B
Total assets 40,411 -645 -18,816 -61,244 124,772 84,477
Total liabilities 44,214 -2,302 16,311 36,608 4,777 84,477
158
ANNEXES
§ List of property holdings § List of equity investments § Treasury services performed by the Bank § Disclosure of fees for audit and non-audit services pursuant to Article 149 duodieces of the Consob Issuers Regulation § List of accounting standards endorsed by the European Commission
159
LIST OF PROPERTY HOLDINGS AT 31/12/2009
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
CENTO Via Matteotti 8/10/12 and Via Guercino 32
Used in operations by designation 11,138 1,669 Land appurtenant to buildings used in operations by designation 6,827 0 Used in operations by nature 2,331 343 Land appurtenant to buildings used in operations by nature 1,385 0 Not used in operations 1,970 296 Land appurtenant to buildings not used in operations 1,214 0 Total 24,865 2,308
CENTO and Via Guercino 30
Used in operations by designation 194 29 Land appurtenant to buildings used in operations by designation 126 0 Used in operations by nature 731 110 Land appurtenant to buildings used in operations by nature 474 0 Total 1,525 139
CENTO Via Ferrarese
Used in operations by designation 981 147 Land appurtenant to buildings used in operations by designation 655 0 Used in operations by nature 423 63 Land appurtenant to buildings used in operations by nature 282 0 Total 2,341 210
CENTO Via Bologna
Used in operations by designation 491 74 Land appurtenant to buildings used in operations by designation 594 0 Total 1,085 74
CENTO Via Galvani
Used in operations by designation 300 0 Total 300 0
160
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
CASUMARO Via Correggio, 409
Used in operations by designation 38 6 Land appurtenant to buildings used in operations by designation 22 0 Used in operations by nature 5 1 Land appurtenant to buildings used in operations by nature 3 0 Not used in operations 120 18 Land appurtenant to buildings not used in operations 69 0 Total 257 25
MIRABELLO Corso Italia, 256
Used in operations by designation 278 42 Land appurtenant to buildings used in operations by designation 71 0 Used in operations by nature 135 20 Land appurtenant to buildings used in operations by nature 35 0 Not used in operations 7 1 Land appurtenant to buildings not used in operations 2 0 Total 528 63
VIGARANO MAINARDA Corso Roma, 3/5
Used in operations by designation 495 74 Land appurtenant to buildings used in operations by designation 208 0 Used in operations by nature 162 24 Land appurtenant to buildings used in operations by nature 68 0 Total 933 98
SAN CARLO Via Risorgimento, 41
Used in operations by designation 128 19 Land appurtenant to buildings used in operations by designation 45 0 Total 173 19
SANT'AGOSTINO Via Statale, 142
Used in operations by designation 257 39 Land appurtenant to buildings used in operations by designation 110 0 Not used in operations 0 0 Land appurtenant to buildings not used in operations 0 0 Total 367 39
161
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
ALBERONE Via Riga, 54
Used in operations by designation 81 12 Land appurtenant to buildings used in operations by designation 53 0 Total 134 12
DOSSO Via Verdi,24/26
Used in operations by designation 151 20 Land appurtenant to buildings used in operations by designation 45 0 Used in operations by designation 77 0 Total 273 20
POGGIO RENATICO Viale Roma, 15
Used in operations by designation 188 28 Land appurtenant to buildings used in operations by designation 66 0 Not used in operations 37 6 Land appurtenant to buildings not used in operations 13 0 Total 304 34
CORONELLA Via Coronella, 73
Used in operations by designation 119 18 Land appurtenant to buildings used in operations by designation 34 0 Total 153 18
PIEVE DI CENTO Via Garibaldi, 13/15
Used in operations by designation 195 29 Land appurtenant to buildings used in operations by designation 80 0 Not used in operations 0 0 Land appurtenant to buildings not used in operations 0 0 Total 275 29
PIEVE DI CENTO Piazza Costa, 1
Used in operations by designation 656 96 Land appurtenant to buildings used in operations by designation 281 0 Total 937 96
162
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
VENEZZANO Piazza Caduti 2 Agosto
Used in operations by designation 152 23 Land appurtenant to buildings used in operations by designation 44 0 Total 196 23
FINALE EMILIA Via per Modena 34/a
Used in operations by nature 91 14 Land appurtenant to buildings used in operations by nature 36 0 Total 127 14
CREVALCORE Via Amendola, 330
Used in operations by designation 272 41 Land appurtenant to buildings used in operations by designation 73 0 Total 345 41
RAMI DI RAVARINO Via Vivaldi, 11
Used in operations by designation 305 46 Land appurtenant to buildings used in operations by designation 125 0 Total 430 46
FERRARA Via M.Tassini
Used in operations by designation 508 31 Land appurtenant to buildings used in operations by designation 98 0 Total 606 31
FERRARA Via Giovanni XXIII
Used in operations by designation 243 36 Land appurtenant to buildings used in operations by designation 81 0 Total 324 36 0 0 TOTAL PROPERTY HOLDINGS 36,478 3,375
163
LEASED PROPERTY
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
BOLOGNA Strada Maggiore
Used in operations by designation 1,496 224 Land appurtenant to buildings used in operations by designation 1,584 Total 3,080 224
TOTAL LEASED PROPERTY 3,080 224
TOTAL PROPERTY 39,558 3,599
LIST OF INVESTMENTS UNDER WAY AT 31/12/2009
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
CENTO VIA MATTEOTTI Headquarters renovation
Used in operations by designation 149 Used in operations by nature 3,310 Total 3,459 0
TOTAL 3,459 0
SUMMARY
Book value at Accumulated Description of holdings located in 31/12/09 depreciation
Used in operations by designation 17,247 2,479 Land appurtenant to buildings used in operations by designation 9,638 0 Used in operations by nature 3,878 575 Land appurtenant to buildings used in operations by nature 2,283 0 Not used in operations 2,134 321 Land appurtenant to buildings not used in operations 1,298 0 Leasing - Used in operations by designation 1,496 224 Leasing - Land appurtenant to buildings used in operations by designation 1,584 0 Total property 39,558 3,599
Total investments under way 3,459 0
Total 43,017 3,599
164
LIST OF EQUITY INVESTMENTS AT 31 DECEMBER 2009 (amounts in euros)
No. of Revaluation Equity reserve at Equity reserve at Change in shares or Nominal value % holding Cost value Market value under Law 31.12.09 31.12.08 (1) 2009 capital parts 218/90
SOC. ATT. FIER. FER. (SAFF) 1,193 5,965 2,147% 1,472 1,472 - - - 965 CEDACRI SPA 818 818,000 6,487% 2,509,592 8,976,298 6,466,707 6,466,707 - EUROVITA SPA 29,615 1,333,267 1,694% 1,607,976 2,221,125 613,148 1,420,880 (807,732 ) BANCA D'ITALIA PART 311 162 0,104% 2,902,204 2,902,204 - - - 2,902,043 BANCO POPOLARE 36,589 131,720 0,006% 697,050 192,916 10,519 - 10,519 440,198 BCO DELLE TRE VENEZIE 3,637 3,637,000 13,789% 3,837,000 4,364,400 527,400 527,400 - LACOTE SRL 206,584 206,584 1,000% 206,584 206,584 - - - IMMOBILIARE FERRARA SUD 12,000 12,000 15,000% 12,000 12,000 - - - BILANCIAI INTERNATIONAL 516,000 516,000 3,753% 516,000 516,000 - - - DELTOS IMPIANTI 59,000 59,000 15,000% 59,000 59,000 - - - SO.TE.MA. PACK S.R.L. 16,000 16,000 8,000% 16,000 16,000 - - - SISTEMA WALCON 150,000 150,000 8,300% 150,000 150,000 - - - AIRE SRL IN LIQUIDAZIONE 130,000 130,000 10,000% 1 0 (1 ) (1 ) - FRAER LEASING SPA 73,358 378,527 4,891% 1,103,323 2,530,117 1,426,795 1,426,795 - SWIFT 2 250 0,001% 1,141 1,141 - - 526 PROFINGEST 2 5,165 0,190% 5,165 5,165 - - S.I.PRO. SPA 4,226 218,273 3,831% 220,077 218,273 (1,804 ) (1,804 ) - EMIL-RO SERVICE SRL 7,800 7,800 8,333% 7,747 7,745 (1 ) (1 ) - IMMOBILIARE CAT SPA 975 503,545 15,000% 503,545 503,545 - - EMILIA ROMAGNA FACTOR SPA 211,390 2,113,900 8,456% 2,946,158 3,836,729 890,571 890,571 - PART. PCO SCIEN. TEC. 4,000 4,000 3,738% 4,000 4,000 - VEGAGEST SGR 1,900,000 1,900,000 8,071% 1,900,000 4,047,000 2,147,000 2,470,000 (323,000 ) CPR SYSTEM PARTECIP 3,873 1,000,086 7,037% 1,000,086 1,000,086 - - - TOTAL 13,147,245 20,206,120 31,771,800 12,080,334 13,200,547 -1,120,213 3,343,732
165
LIST OF ENTITIES FOR WHICH THE BANK PERFORMS TREASURY SERVICES
The following list reports the entities for which the Bank performs treasury service, in alphabetical order:
1 ASILO INFANTILE CENTO 2 AUTOMOBILE CLUB FERRARA 3 CASA PROTETTA “G.B. PLATTIS” ONLUS 4 COMUNE DI CASTELLO D’ARGILE 5 COMUNE DI CENTO 6 COMUNE DI FINALE EMILIA 7 COMUNE DI GALLIERA 8 COMUNE DI MIRABELLO 9 COMUNE DI NONANTOLA 10 COMUNE DI PIEVE DI CENTO 11 COMUNE DI POGGIO RENATICO 12 COMUNE DI RAVARINO 13 COMUNE DI S. AGOSTINO 14 COMUNE DI VIGARANO MAINARDA 15 DIREZ. DIDATTICA SCUOLA ELEMENTARE CENTO 16 DIREZIONE DIDATTICA 2° CIRCOLO RENAZZO 17 DIREZIONE DIDATTICA 2° CIRCOLO SASSUOLO 18 DIREZIONE DIDATTICA SAN GIOVANNI IN PERSICETO 19 DISTRETTO SCOLASTICO N. 34 - CENTO 20 DISTRETTO SCOLASTICO N. 23 - S. PIETRO IN CASALE 21 FONDAZIONE “COLLEGIO BERTI” 22 FONDAZIONE “DON G. ZANANDREA” 23 FONDAZIONE “F.MANTOVANI” MIRABELLO 24 FONDAZIONE “S. MARIA CORPORENO” 25 I.P.S.I.A “F.LLI TADDIA” CENTO 26 I.S.I.T. “IND. BASSI-COMM.LE BURGATTI” CENTO 27 I.T.I.S. A.VOLTA SASSUOLO 28 ISIS ARCHIMEDE SAN GIOVANNI IN PERSICETO 29 IST. COMPR. DI S. PIETRO IN CASALE 30 IST. COMPR. SCUOLE PIEVE DI CENTO 31 ISTITUTO COMPRENSIVO - S. AGOSTINO 32 ISTITUTO COMPRENSIVO – POGGIO RENATICO 33 ISTITUTO COMPRENSIVO – VIGARANO MAINARDA 34 ISTITUTO COMPRENSIVO BONDENO 35 ISTITUTO COMPRENSIVO DI S.M. DECIMA 36 ISTITUTO COMPRENSIVO SALA BOLOGNESE 37 LICEO GINNASIO “G.CEVOLANI” CENTO 38 PARTECIPANZA AGRARIA DI CENTO 39 PARTECIPANZA AGRARIA DI NONANTOLA 40 PARTECIPANZA AGRARIA DI PIEVE DI CENTO 41 PATRIMONIO DEGLI STUDI CENTO 42 PENSIONATO LIVIA CAVALIERI GALLERANI – ONLUS 43 SCUOLA MEDIA STATALE - CENTO 44 SCUOLA MEDIA STATALE “PRIMO LEVI” SASSUOLO
166
DISCLOSURE OF FEES FOR AUDIT AND NON-AUDIT SERVICES PURSUANT TO ARTICLE 149 DUODIECES OF THE CONSOB ISSUERS REGULATION Pursuant to Article 149 duodecies of the Consob Issuers Regulation, the following table reports the fees paid to the auditing firm Reconta Ernst&Young SpA for the following services:
1) Audit services, which include:
§ auditing of annual accounts for the purpose of issuing a professional opinion on such accounts; § auditing of interim accounts;
2) Certification services, which includes engagements in which the auditors examine a specific element, the determination of which is carried out by another party, who is responsible for such determination, with a view to providing the beneficiary of the service with an opinion on the reliability of that specific element.
3) Tax advisory services.
4) Other services, which include engagements of a minor nature.
The fees reported in the table for 2007 are contractual fees, including any indexing and VAT (but not out-of-pocket expenses and any supervisory contribution).
Type of service Entity providing the service Beneficiary of service Fees (thousands of euros) Auditing Reconta Ernst&Young S.p.A. Cassa di Risparmio di Cento SpA 79 Certification Reconta Ernst&Young S.p.A. Cassa di Risparmio di Cento SpA 4 Tax advisory - Other - Total 83
167
List of international accounting standards endorsed by the European Commission
Standard Description Endorsement regulation IFRS 1 First-time Adoption of International Financial Reporting 1126/2008 – amend. 1274/2008 - 69/2009 - 70/2009 – Standards 494/2009 – 495/2009 – 1136/09 IFRS 2 Share-based Payment 1126/2008 – amend. 1261/2008 – 495/2009 IFRS 3 Business Combinations 1126/2008 amend. 495/2009 IFRS 4 Insurance Contracts 1126/2008 - amend. 1274/2008 -494/2009 – 1165/2009 Non-current Assets Held for Sale and Discontinued IFRS 5 Operations 1126/2008 - amend. 1274/2008 - 70/2009 - 494/2009 IFRS 6 Exploration for and Evaluation of Mineral Assets 1126/2008 1126/2008 - amend. 1274/2008 - 70/2009 – 824/2009 – IFRS 7 Financial Instruments: Disclosures 1165/2009 IFRS 8 Operating Segments 1126/2008 - amend. 1274/2008 IAS 1 Presentation of Financial Statements 1274/2008 - amend. 53/2009 - 70/2009 - 494/2009 IAS 2 Inventories 1126/2008 - 70/2009 IAS 7 Statement of Cash Flows 1126/2008 - amend. 1274/2008 - 70/2009 - 494/2009 Accounting Policies, Changes in Accounting Estimates IAS 8 and Errors 1126/2008 - amend. 1274/2008 - 70/2009 IAS 10 Events After the Reporting Period 1126/2008 - amend. 1274/2008 - 70/2009 IAS 11 Construction Contracts 1126/2008 - amend. 1274/2008 IAS 12 Income Taxes 1126/2008 - amend. 1274/2008 -495/2009 IAS 16 Property, Plant and Equipment 1126/2008 - amend. 1274/2008 - 70/2009 -495/2009 IAS 17 Leases 1126/2008 IAS 18 Revenue 1126/2008 – amend. 69/2009 IAS 19 Employee Benefits 1126/2008 - amend. 1274/2008 - 70/2009 IAS 20 Accounting for Government Grants and Disclosure of 1126/2008 – amend. 70/2009 Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates 1126/2008 - amend. 1274/2008 – 69/2009 - 494/2009 IAS 23 Borrowing Costs 1260/2008 – amend. 70/2009 IAS 24 Related Party Disclosures 1126/2008 - amend. 1274/2008 IAS 26 Accounting and Reporting by Retirement Benefit Plans 1126/2008 IAS 27 Consolidated and Separate Financial Statements 1126/2008 - amend. 1274/2008 – 69/2009 - 494/2009 IAS 28 Investments in Associates 1126/2008 - amend. 1274/2008 - 70/2009 - 494/2009 - 495/2009 IAS 29 Financial Reporting in Hyperinflationary Economies 1126/2008 - amend. 1274/2008 - 70/2009 IAS 31 Interests In Joint Ventures 1126/2008 – amend. 70/2009 - 494/2009 IAS 32 Financial Instruments: Presentation 1126/2008 - amend. 1274/2008- 53/2009 - 70/2009 - 494/2009 -495/2009 – 1293/2009 IAS 33 Earnings Per Share 1126/2008 - amend. 1274/2008 - 494/2009 -495/2009
IAS 34 Interim Financial Reporting 1126/2008 - amend. 1274/2008 - 70/2009 -495/2009
IAS 36 Impairment of Assets 1126/2008 - amend. 1274/2008 – 69/2009 - 70/2009 - 495/2009 IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1126/2008 - amend. 1274/2008 -495/2009 IAS 38 Intangible Assets 1126/2008 - amend. 1274/2008 - 70/2009 -495/2009 IAS 39 Financial Instruments: Recognition and Measurement 1126/2008 - amend. 1274/2008 – 53/2009 - 494/2009 - 495/2009 – 824/2009 – 839/2009 – 1171/2009 IAS 40 Investment Property 1126/2008 - amend. 1274/2008 - 70/2009 IAS 41 Agriculture 1126/2008 - amend. 1274/2008 - 70/2009
168
INTERPRETATIONS ENDORSEMENT REGULATION IFRIC 1 Changes in Existing Decommissioning, Restoration and 1126/2008 - amend. 1274/2008 Similar Liabilities IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments 1126/2008 – 53/2009 IFRIC 4 Determining Whether an Arrangement Contains a Lease 1126/2008 IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 1126/2008 IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment 1126/2008 IFRIC 7 Applying the Restatement Approach under IAS 29 1126/2008 - amend. 1274/2008 – 53/2009 Financial Reporting in Hyperinflationary Economies
IFRIC 8 Scope of IFRS 2 1126/2008 IFRIC 9 Reassessment of Embedded Derivatives 1126/2008 amend. 495/2009 – 1171/2009 IFRIC 10 Interim Financial Reporting and Impairment 1126/2008 - amend. 1274/2008 IFRIC 11 Group and Treasury Share Transactions 1126/2008 IFRIC 12 Service Concession Arrangements 254/2009 IFRIC 13 Customer Loyalty Programmes 1262/2008 IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum 1263/2008 - amend. 1274/2008 Funding Requirements and their Interaction. IFRIC 15 Agreements for the Construction of Real Estate 636/2009 IFRIC 16 Hedges of a Net Investment in a Foreign Operation 460/2009 IFRIC 17 Distributions of Non-cash Assets to Owners 1142/09 IFRIC 18 Transfers of Assets from Customers 1164/09
SIC 7 Introduction of the Euro 1126/2008 - amend. 1274/2008 - 494/2009 SIC 10 Government Assistance – No Specific Relation to 1126/2008 - amend. 1274/2008 Operating Activities SIC 12 Consolidation – Special Purpose Entities 1126/2008
SIC 13 Jointly Controlled Entities – Non-Monetary Contributions 1126/2008 - amend. 1274/2008 by Venturers SIC 15 Operating Leases – Incentives 1126/2008 - amend. 1274/2008 SIC 21 Income Taxes – Recovery of Revalued Non-Depreciable 1126/2008 Assets SIC 25 Income Taxes – Changes in the Tax Status of an Enterprise 1126/2008 - amend. 1274/2008 or its Shareholders SIC 27 Evaluating the Substance of Transactions in the Legal 1126/2008 Form of a Lease SIC 29 Disclosure – Service Concession Arrangements 1126/2008 - amend. 1274/2008
SIC 31 Revenue – Barter Transactions Involving Advertising 1126/2008 Services SIC 32 Intangible Assets – Web Site Costs 1126/2008- amend. 1274/2008
169
Certification of the separate financial statements pursuant to Article 81-ter of Consob Regulation no. 11971 of 14 May 1999, as amended
1. The undersigned Ivan Damiano and Stefano Aldovrandi, in their respective capacities as General Manager and manager responsible for preparing the financial reports of Cassa di Risparmio di Cento SpA, hereby certify, taking account of the provisions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of 24 February 1998: 1.1 the appropriateness with respect to the characteristics of the company and 1.2 the effective adoption of the administrative and accounting procedures for the preparation of the separate financial statements for 2009.
2. The assessment of the appropriateness of the administrative and accounting procedures followed in preparing the separate financial statements was based on a model developed by Cassa di Risparmio di Cento SpA, in line with Internal Control standards which are generally accepted at the international level.
3. In addition, we certify that:
3.1 the separate financial statements: a) have been prepared in compliance with the International Financial Reporting Standards adopted in the European Union pursuant to Regulation (EC) no. 1606 of 19 July 2002; b) correspond to the information in the books and other accounting records; c) have been prepared in compliance with art. 9 of Legislative Decree 38/2005 and provide a true and fair representation of the performance and financial position of the issuer;
3.2 the Report on Operations contains a reliable analysis of operations and performance, as well as the situation of the issuer, together with a description of the main risks and uncertainties to which it is exposed.
Cento, 23 March 2010
General Manager Financial Reporting Manager
Ivan Damiano Stefano Aldovrandi
170
Report of the Board of Auditors on the 2009 financial statements Dear Shareholders,
The draft financial statements submitted for your attention reflect the results achieved during 2009.
The year just ended was once again affected by the challenging global economic climate that emerged in 2008. In an environment of declining prices, financial instability and weak signs of recovery, monetary policy continued to be expansionary, with official rates close to zero in the United States and 1% in the euro area. During the third quarter of 2009, there were tangible – albeit insufficient – signs of an increase in industrial orders and production, with a positive impact on gross domestic product (GDP). In some ways, the difficult situation was felt even more sharply in 2009 than in 2008 since the impact was mainly apparent on the real economy of the country as a whole, with a marked increase in the unemployment rate. Despite these objective difficulties, which currently can be easily seen in financial sector players, your Bank has been able to carry out its role of providing proactive support to businesses, especially those that can demonstrate that they possess the characteristics that will enable them to weather this present crisis, and is preparing for the awaited recovery.
In 2009, your Bank once again distinguished itself for the prudence and care shown in its operations, whether commercial investments made on behalf of its creditworthy customers or its own investments in securities, which contain no toxic instruments. The results of these financial investments partly mitigated the negative performance seen in the sector in 2008.
However, in 2009 we were not spared regulatory changes or the implementation of regulations already enacted. These include the new regulations on banks’ organization and corporate Governance, requiring greater order and transparency in corporate governance, as well as the new transparency regulations and the transposition of the Directive on cross-border payment services.
As in the past, our report is divided into two sections. The first looks at the financial statements, annexes and the Board of Directors’ report on operations, while the second provides information on the supervision and control exercised by the Board of Auditors in accordance with the law, on proper administration and on the adequacy of the organizational structure, particularly with respect to control arrangements. Our work was carried out by attending all the meetings of the Board of Directors and by conducting over 30 examinations and analyses of issues handled by corporate structures. All work involved the active collaboration of the Bank’s internal control units.
The financial statements and the report on operations
In accordance with the law, the Board of Directors made available to us the draft financial statements for the year ended 31 December 2009, which are submitted for your approval, along with its report on operations. The independent auditor has expressed its opinion on both of these documents. These financial statements have been prepared in accordance with the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as endorsed by the European Commission pursuant to Regulation 1606 of 19 July 2002. They consist of five separate documents: the balance sheet, the income statement, the statement of changes in shareholders’ equity, the cash flow statement, and the notes to the financial statements.
171 Report of the Board of Auditors on the 2009 financial statements
The balance sheet can be summarized as follows:. Assets 2,427,140,490 Liabilities and provisions 2,240,421,940 Equity 179,574,012 Net profit for the period 7,144,538
The net profit for the year amounted to €7,144,538, as shown in the income statement, which is summarized below: Gross income 79,997,933 Costs, sundry expenses 65,883,396 and adjustments Gross profit 14,114,538 Net profit 7,144,538
The draft financial statements were audited by Reconta Ernst & Young S.p.A., who are responsible for auditing the accounts. The auditing firm issued the attached report, without reservations or exceptions, as did the manager responsible for preparing the financial statements of the Bank, who issued his certification as required by law.
The notes to the financial statements contain all the information required by law. In particular, the balance sheet and the income statement are accompanied by extensive comments on the accounting policies used in preparing the financial statements and the criteria employed in measuring items, adopted on a going-concern and accruals basis, in keeping with the principles of the materiality and significance of the accounting information.
The financial statements do not contain items representing capitalized costs. We have given our consent with respect to the measurement criteria for intangible assets, where necessary.
We also carefully scrutinized the information provided on transactions with related parties to ensure its accuracy.
In our opinion the report on operations is exhaustive, complete and transparent. We have no observations concerning its compliance with the law.
The independent auditor shared our opinion on the consistency between the report on operations and the financial statements, in accordance with the law.
Significant facts that occurred following the close of the period include: - the enactment of Legislative Decree 7 of 27 January 2010, transposing the directive on the rights of shareholders in listed companies, which governs, including for issuers of widely held, listed financial instruments, as in the case of your Bank, the procedures for shareholder participation and the procedures for presenting the agendas for shareholders’ meetings. These changes will require amendment of the articles of association. - the issue by Consob of the new regulations relating to transactions with related parties that will require further changes to the Bank’s operations and its internal regulations.
Supervisory activities
We attended all the meetings of the Board of Directors and are able to confirm that the meetings were carried out in compliance with correct management principles, with a view to safeguarding the Bank’s assets, and in accordance with the law, external regulations and with most of the corporate governance codes that the Board of Directors has imposed. The Board of Auditors, in
172 Report of the Board of Auditors on the 2009 financial statements line with the frequently cited corporate governance rules issued by the Bank of Italy, adopted its own rules of operation.
In implementation of the work plan adopted during the year, we remained in constant contact with the General Manager and the Chairman of the Board of Directors, and kept them informed about our supervisory work at all times. While at Board of Directors’ meetings, we confirmed that the objective of separating strategic decisions from management and operational decisions was being pursued.
As required by law, the Board of Auditors met with the independent auditor during the year. These meetings were mainly to discuss the situation with the accounts and measurement of risks, and audited the general organization of the financial statements as well as the conformity of their structure and formation with the established criteria and the law. We have no particular comments to make in this regard.
During the year, in accordance with supervisory regulations, the Bank amended its articles of association with substantial innovations in the area of corporate governance, including with respect to the Board of Auditors, for which it introduced the voting list system of appointment. As to the Board of Directors, the most significant change was the introduction of the appointment of independent directors. Therefore, we closely monitored the Bank’s compliance with the regulations and the Board of Directors’ application of practices for continually verifying the independence of directors identified as such so as to ensure that there are always independent directors and that the required minimum number of such directors is met. As to the matter of governance, we verified that the rules on compensation policies have been properly applied given that this issue is on the agenda for this and subsequent annual shareholders’ meetings. Specifically, we found that: • there is no provision for compensation in the form of financial instruments; • there is no provision for a variable component in director compensation; • the variable compensation of the General Manager, the only director holding an executive position, is correlated to medium-term objectives and to capital preservation and strengthening; • payment of the variable portion of the General Manager’s compensation has been deferred as required by the instructions issued last October by the Bank of Italy. The Bank’ organizational structure underwent further changes in connection with the creation of the position of “Manager responsible for preparing the financial statements of the Bank”, as required by Law 262/2005 (the "Savings Act”) with the Board's resolution of 1 September 2009, supported by the favorable opinion of the Board of Auditors.
The Board of Auditors constantly monitored the operation of the Bank’s control systems, particularly looking at the effectiveness of the units involved in the process. We focused especially on steps taken to control credit risk and on the monitoring and management of reputational risk, which is becoming increasingly important for the banking system.
We devoted specific meetings to analyzing the outputs pertaining to the preparation of the ICAAP report, verifying that the risk measurements made were appropriate with respect to Basel II "first pillar" risks (credit, market and operational risk) and "second pillar" risks (other risks including concentration and liquidity risk – with regard to which no issues were encountered during the year – and the aforementioned reputational risk).
In 2009, the Bank of Italy overhauled the rules on transparency and the government took actions concerning maximum overdraft charges. We therefore focused on these issues in the course of our branch inspections, our analysis of the corporate internet site, and in following the progress made in the project, introduced by management, to review contracts and corporate documents for transparency.
173 Report of the Board of Auditors on the 2009 financial statements The Board of Auditors also monitored regulatory changes pertaining to payment services (the Payment Services Directive).
Note that in 2009, the Bank carried out transactions with related parties, which the Board of Directors has described in its report on operations and in the explanatory notes. In this regard, the Bank completed its rules governing transactions with related parties, which it included in its Corporate Governance Report to be submitted to the Bank of Italy by 30 June 2009. With regard to obligations with company officers, the Board of Auditors monitored transactions to check that management used prudence in addressing the matter including where interpretation was unclear. As far as business carried out in 2009 is concerned, we ascertained that there were no atypical or unusual transactions which might have caused doubts or arise with regard to the accuracy or comprehensiveness of information, conflicts of interest, or safeguarding of assets.
The Directors also approved a resolution pertaining to personal transactions by relevant persons pursuant to the joint regulation issued by the Bank of Italy and Consob. The relevant units continually monitor these transactions to determine whether Consob should or must be informed.
The Board of Auditors took great care in verifying that the measures required by the regulations on money-laundering have been implemented, particularly with respect to assets returning under the so-called “tax shield” capital repatriation scheme. We also verified that the control functions remain vigilant on this issue, that appropriate training programs have been put in place and that consulting on these matters is always available to the banking network.
Pursuant to Legislative Decree 196/2003 – the Data Protection Law – which took effect in January 2004, we checked that the Security Policy Document had been prepared in accordance with the law. This was noted by the Board of Directors at its meeting on 30 March 2010.
As far as pending disputes are concerned, we note that these are constantly being monitored and that more detailed information can be found in the Directors’ report on operations. The only event worthy of mention pertains to the inspection performed by the finance police (Guardia di Finanza). This audit is conducted bi-annually given the Bank’s status as a major taxpayer. No particular discrepancies were reported in the resulting report apart from irregularities of a purely formal nature relating to the allocation of capital gains taxes over five years. The Bank decided it would best to settle its position, taking advantage of the incentives for settlement, by paying a total of €53 thousand in penalties and interest The Board of Auditors expressed its opinion on the issues addressed by the Board of Directors both when expressly required to do so under the law and when asked to do so by the Directors. We carried out special examinations, primarily focusing on credit risk, both during our branch visits (4) and in the examinations carried out at the Control unit and the Lending area, and by continuing to urge the Board of Directors and the General Manager to be especially rigorous in analyzing these positions. We found both the Directors and the General Manager to be sensitive to this issue.
We did not find any serious breaches of the Code of Ethics.
We assessed the reliability of the administrative accounting system in accurately representing the Bank’s operations through several meetings with the supervisor and employees of the Planning and Financial Reporting unit, as well as with the independent auditor.
174 Report of the Board of Auditors on the 2009 financial statements Using information prepared by Ernst & Young, engaged by Cassa di Risparmio di Cento – like other banks in the Cedacri consortium – to audit the IT outsourcer, we verified the reliability of the IT system.
We were entirely satisfied with the work carried out by the Internal Audit unit, which has always been helpful to us in performing our duties. As in past years, we found their work to be extremely effective and we believe that the unit has the appropriate resources to perform its duties.
In 2009, the Supervisory Body took a particularly active role in analyzing activities and internal regulations in order to assess the adequacy of the new Compliance Model, pursuant to Legislative Decree 231/2001, and stepping in to assist in its implementation, where required.
We verified that the Bank is dedicated to the development of its subsidiary Banco delle Tre Venezie S.p.A., to which it provides administrative services on an outsourcing basis, as well as advice on organizational and compliance matters. The first “true” financial statements of the subsidiary (for 2009) show that the company beat the growth projections contained in the business plan.
We verified that your Bank is not subject to direction or coordination by other companies or entities, pursuant to Art. 2497 et seq. of the Italian Civil Code.
Our examinations did not find any acts or facts significant enough to be reported to the competent bodies, and there was no need to make any reports pursuant to Art. 2408 of the Civil Code.
Therefore, we can assure you that based on the verifications and audits conducted, the Bank conducted its business in 2009 in accordance with the law and the articles of association, and that the Board of Auditors found no censurable acts, omissions or irregularities to be reported to the competent bodies.
Finally, we did not find any breaches pursuant to Art. 149(3) of the Consolidated Law on Financial Intermediation.
In view of the foregoing, we invite you to approve the financial statements for 2009 presented by the Board of Directors and express our favorable opinion concerning the proposed allocation of the net profit of €7,144,537.61 as follows:
- €357,226.88 to the legal reserve; - €714,453.76 to the reserve established in the articles of association; - €3,456,618.37 to the extraordinary reserve; - €2,616,238.60 to the shareholders distributed as a single dividend of €0.20 per share.
We would like to conclude by giving a heartfelt thanks to the Board of Directors, management and all the staff at the Bank for their active support and their work. We would like to express our gratitude in particular to Chairman Vilmo Ferioli.
As the end of our term has arrived, the shareholders are called upon to appoint of a new Board of Auditors. We thank you for the confidence you have expressed in our work.
Cento (FE), 13 April 2010.
THE BOARD OF AUDITORS
Domenico Livio Trombone
175 Report of the Board of Auditors on the 2009 financial statements Massimo Calanchi
Dario Alessio Taddia
176
Cassa di Risparmio di Cento S.p.A.
Attachment to the Report of the Board of Auditors -- Financial statements at 31 December 2009
******************************* In compliance with Art. 144-quinquiesdecies of the implementing regulation for Legislative Decree 58 of 24 February 1998 concerning the Issuers Regulation adopted by Consob with Resolution no. 11971 of 14 May 1999 as amended, the tables below provide a list of the positions held by each member of the Board of Auditors of Cassa di Risparmio di Cento S.p.A. with companies under Book V, Title V, Chapters V, VI and VII of the Italian Civil Code.
Domenico Livio Trombone COMPANY POSITION END OF TERM CATEGORY OF WEIGHT COMPANY1 (see Note 1)
Unipol Gruppo Standing auditor April 2010 Issuer 1 Finanziario S.p.A.
UGF assicurazioni spa Chairman April 2012 Public 2 0.45 Board of auditors interest Cassa di Risparmio Chairman April 2010 Issuer 1 Di Cento Board of auditors Tutto per l’imballo spa Standing auditor April 2010 Large 0.40 Holding strategie e Chairman October 2012 Medium 0.40 Sviluppo dei teritori Board of auditors Modenesi spa
Arca Impresa gestioni Chairman April 2012 Public 0.75 SGR Board of auditors interest CARIMONTE Holding spa Director April 2012 Large 0.30 Acacia 2000 srl Standing auditor April 2011 Small 0 Cooperativa Immobiliare Chairman April 2011 Small 0 Modenese società Board of auditors cooperativa Cambiamo spa Chairman April 2012 Small 0 Board of auditors Cooperare spa Standing auditor April 2012 Small 0 Rino Greggio Argenterie Standing auditor April 2010 Medium 0.20 Spa Hotel Executive srl Chairman April 2010 Small 0 Board of auditors Torre Guiducci srl Sole director Open ended Small 0 GITANI srl Director Open ended Small 0
1 As determined in compliance with Annex 5-bis to the “Issuers regulation”, applying Art. 148-bis, paragraph 1 of Legislative Decree 58/1998.
2 Subsidiary of Unipol Gruppo Finanziario S.p.A.
GALLINARI srl Director Open ended Small 0 Vignoladue srl Sole director Open ended Small 0 Domenico Livio Trombone Total number of positions: 17 Number of positions with issuers: 2 Total weight of positions: 4.5
Dario Alessio Taddia COMPANY POSITION END OF TERM CATEGORY OF WEIGHT COMPANY2 (see Note 1)
Cassa di Risparmio Standing auditor April 2010 Issuer 1 Di Cento Rene' Guinot italia srl Standing auditor 2010 Medium 0.4
Holding C.R. Cento spa Standing auditor 2010 Small 0 H-Elite srl Standing auditor 2010 Small 0 Medical Instruments spa Standing auditor 2011 Small 0 BIELOMATIK SRL Standing auditor 2010 Medium 0.4
GA.MA. Standing auditor 2010 Medium 0.4 Molini Canonica & BologneStsea nding auditor 2012 TBD 0 spa Metalwork srl Standing auditor 2012 Medium 0.4 Dario Alessio Taddia Total number of positions: 9 Number of positions with issuers: 1 Total weight of positions: 2.6
Massimo Calanchi COMPANY POSITION END OF TERM CATEGORY OF WEIGHT COMPANY3 (see Note 1)
Cassa di Risparmio Standing auditor April 2010 Issuer 1 Di Cento Massimo Calanchi Total number of positions: 1 Number of positions with issuers: 1 Total weight of positions: 1
Cassa di Risparmio di Cento S.p.A.
Registered office: Via Matteotti 8/B 44042 Cento (FE) Entered in Register of Banks with no. 5099 Share capital: €67,498,955.88 Tax ID, VAT registration and Ferrara Company Register no. 01208920387 – REA no. 138272
ANNUAL CORPORATE GOVERNANCE REPORT
(drafted pursuant to Art. 123-bis of Legislative Decree 58/1998)
Approved by the Board of Directors on 23 March 2010 Available on corporate website at www.crcento.it
2009 FINANCIAL YEAR INTRODUCTION
The risk management and internal control system for financial reporting (the "System") is a part of the general internal control and risk management system established by Cassa di Risparmio di Cento S.p.A. (the Bank).
The System addresses the internal control and risk management issues associated with financial reporting in an integrated manner. It seeks to identify, measure and control the risks associated with the financial reporting process (financial reporting risk, i.e. the risk that an error might jeopardize the true and fair representation of the Bank's performance and financial position in the financial statements and in any other financial communication issued to investors) to which the Bank is exposed. The System is therefore intended to ensure the reliability, accuracy and timeliness of financial information. This objective was pursued by the Bank with the definition of a financial reporting risk model (the "Model") consisting of a set of principles and rules designed to ensure the implementation of an appropriate administrative and accounting system, including effective administrative and accounting procedures and organizational processes.
In particular, in accordance with the System and the provisions of Art. 154-bis of the Consolidated Law on Financial Intermediation, the manager responsible for preparing the Company's financial reports (the "Financial Reporting Manager") is responsible for preparing and effectively implementing adequate administrative and accounting procedures for the preparation of the annual financial statements and for any other financial communication issued to investors.
The Financial Reporting Manager, together with the General Manager, is required to issue a specific statement certifying:
§ the appropriateness and the effective adoption of the administrative and accounting procedures; § compliance with the International Financial Reporting Standards adopted in the European Union pursuant to Regulation (EC) no. 1606 of 19 July 2002; § the correspondence of the financial reports with the information in the books and other accounting records; § that the financial statements provide a true and fair representation of the performance and financial position of the Company; § that the report on operations contains a reliable analysis of operations and performance, as well as the situation of the issuer, together with a description of the main risks and uncertainties to which it is exposed; § (for the condensed half-year report) that the interim financial report contains a reliable analysis of the information concerning any important events that occurred during the first six months of the year and their impact on the half-year financial statements, together with a description of the main risks and uncertainties in the second half of the year and disclosures on significant transactions with related parties.
In addition, in compliance with the provisions of Law 262 of 28 December 2005 (“Law 262”), the Bank amended its articles of association with regard to the position of Financial Reporting Manager and, on 1 September 2009, the Board of Directors appointed the current Financial Reporting Manager and provided a summary description of the manager's powers and resources.
The model adopted by the Bank is based on frameworks that are generally accepted at the international level as examples of best practice by auditing firms and international auditing bodies and recommended by the main professional associations. More specifically, the reference framework adopted by the Bank is the Internal Control – Integrated Framework issued in 1992 by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission, which sets out guidelines for the assessment and development of an internal control system. Within the scope of the COSO Framework, the model developed by the Bank is designed to verify the reliability of its financial reporting, namely the component of the control system regarding the collection, processing and publication of financial information.
DESCRIPTION OF THE MAIN FEATURES OF THE RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM FOR FINANCIAL REPORTING
This section summarizes the main characteristics of the Model, focusing on the various phases and functions involved, their respective roles and the related reporting flows.
1) The phases of the Model a) Identification and assessment of financial reporting risks: this analysis envisages the identification of: i. the most significant financial statement accounts by amount and type; ii. the management, business and operating processes that can directly and indirectly impact the formation of these financial statement accounts and financial reporting in general. Within this framework, the Bank identifies the financial reporting risks to which it is exposed, mapping their materiality in terms of inherent risk, which expresses the level of risk without taking account of the mitigating effect of the associated controls. b) Identification and assessment of the controls used to manage the identified risks: for each process identified using the above criteria, the Bank identifies the controls used to mitigate the financial reporting risks at the company and individual process level and the information technology risks. The controls are characterized as follows: i. the timing of control execution: preventive or subsequent; ii. the manner of execution: automated, manual or semi-automated; iii. the nature of the controls (their structural characteristics): authorization, reconciliation, management review, etc.; iv. the frequency with which controls are performed; v. the check evidence: the documentation supporting the controls.
If any shortcomings are found during the verification of the appropriateness and effective adoption of the System, the Financial Reporting Manager takes steps to develop any necessary corrective actions and constantly monitors those actions.
Company-level controls are intended to verify the existence of organized and formalized company arrangements to contain risks and identify any shortcomings. The presence of rules, policies, service instructions and codes of conduct designed to instill ethical behavior and integrity all work to contain risk. The subsequent phase of assessment their effectiveness involves reconciling the system of rules and their actual application.
Process-level controls are intended mitigate risk through the entire system of financial reporting risk controls. Tests of controls are used to verify performance of the overall control of the various corporate processes.
Information technology controls involve the analysis of information and management flows in respect of the systems used to prepare the financial statements. As regards the applications used for business processes and closing the accounts, the analysis of the tests of controls provides for verification of the effectiveness of the main automated controls in significant processes.
This approach makes it possible to define a matrix of risks and controls for each financial statement account and process considered significant in qualitative and quantitative terms. The matrix summarizes the assessment of the risk exposure of administrative and accounting processes associated with operations and the effectiveness of risk controls.
2) The functions involved in the Model, roles and reporting flows
In accordance with the internal control and risk management system adopted by the Bank, the financial reporting risk model involves the corporate bodies, operating units and control units in an integrated effort to ensure the adequacy of the model, with each unit operating at its own level of responsibility.
The Board of Directors, supported by the Internal Audit unit, ensures that the Model and the System are capable of identifying, assessing and controlling all material risks through the definition of strategies and general guidelines. In addition, in compliance with the applicable law, the Board grants the Financial Reporting Manager adequate powers and resources to perform the duties assigned to that position under Law 262.
The Financial Reporting Manager is responsible for implementing, maintaining and monitoring the financial reporting risk model in conformity with the strategies developed by the Board of Directors. The manager is responsible for the adequacy of the System and the effective adoption of the administrative and accounting procedures, and the appropriateness of those procedures in providing a true and fair representation of the performance and financial position of the Bank. Assisted by the reporting units, the manager is also responsible for maintaining the map of administrative/accounting processes, performing the tests of controls and developing corrective measures and actions in response to any problems.
The Internal Audit Unit conducts periodic audits of the adequacy and effectiveness of procedures and the system of controls. It supports the Financial Reporting Manager in assessing risks and the related controls in the Bank’s administrative and accounting processes.
The Compliance function assesses the adequacy and effectiveness of administrative and accounting processes from the point of view of their ongoing compliance with any applicable laws and regulations.
The Process Owners are the heads of the individual organizational units of the Bank, appointed by senior management to manage one or more processes relevant for Law 262 purposes. They are tasked with ensuring the adequacy of the documentation associated with their duties, the effective performance of the activities and controls envisaged for the process involved and, with regard to the internal control system for financial reporting, the prompt implementation of any corrective actions.
The Bank has also developed an appropriate documentation system to ensure that all bodies and functions with specific duties in the internal control and risk management system collaborate in performing the activities assigned to them.
The Financial Reporting Manager reports periodically to the Board of Directors on the activities performed and the most significant decisions taken in the exercise of his or her functions.