PRESS RELEASE BANCA POPOLARE DI VICENZA The Board of Directors approves the results for the first half of 2015. The half-year results are approved and the launch of a capital strengthening programme is resolved on, to be mainly achieved through a capital increase up to 1,500 million euro, to be submitted to the Extraordinary Shareholders’ meeting for approval. The new Business Plan to relaunch and develop the Bank is expected to be approved by September The Board of Directors of Banca Popolare di Vicenza met today and approved the consolidated results of the first half of 2015, in addition to starting a decisive boosting action to allow the BPVi Group to effectively tackle the major strategic changes. • Half-year negative net result equalling -1,053 million euro, almost entirely due to non-recurring valuation components, including: − − − − • the impairment on goodwill (equal to gross 269 million euro, with a neutral impact on the capital ratios) relating to past acquisitions; a significant increase in the overall coverage levels, with adjustments on receivables equal to 703 million euro (157 million euro in the first half of 2014). The coverage of the impaired loans went from 35.1% at 31 December 2014 to 39.6% at 30 June 2015 (+4.5%); net adjustments of the financial assets available for sale and equity investments for 119.3 million euro (27.4 million euro at 30 June 2014); provisions for risks and charges for 380.1 million euro (7 million euro at 30 June 2014), mainly referring to the provisions made on the basis of the outcome of the recent ECB inspection on the capital stock and the subsequent recognition of the Bank’s capital structure carried out by the management. Common equity Tier 1 equal to 6.81% (10.44% at 31 December 2014) and Total Capital Ratio equal to 7.63% (11.55% at 31 December 2014). The capital adequacy ratios are affected by the half-year result and the application of a “prudential filter” equal to 622.2 million euro in particular, which was introduced in accordance with the results of the mentioned ECB inspection and the recognition activities carried out internally on the capital, which does not show any requirements for inclusion among the common equity tier 1 elements based on articles 28 and 36 of Regulation (EU) no. 575/2013 (CRR), net of the adjustments concerning credit and of the amounts already included in the provisions for risks and charges for specific anomalous and risk profiles. • Ordinary management performing well. − − • The financial results of commercial management are improving. Operating income unchanged overall compared to the previous year (-1.1%), though with good growth in interest income, net of the contribution from the investment portfolio 1 (+2.7%) and the net commissions (+15.7%), with a drop of the net result of the trading books (-9.9%). The customer base grew by another 30 thousand units in the first half of 2015 (+2.2% compared to December 2014). Maintaining a solid structural liquidity profile. The ratio of loans to direct deposits net of the repurchase agreements with central counterparties is evenly placed at 98.2% (96.1% at 31 December 2014), while the level of the liquidity coverage ratio (LCR) is already above the regulatory requirements set by Basel III for 2015. The three-month liquidity position is stable at 2.5 billion euro. The Board of Directors and the new management launched an initiative to turnaround and bolster capital to relaunch the BPVI Group. − The capital strengthening programme resolved on. The Board of Directors resolved on starting a capital strengthening programme, to be mainly achieved through a capital increase for an amount up to 1.5 billion euro within the spring of 2016. The results of these actions may be strengthened further in light of the positive effects connected to the already agreed disposal of the equity investment held in ICBPI, which is expected to be executed at the end of the year. This capital strengthening programme will be submitted to the competent Supervisory and Control Authorities beforehand. − The new Business Plan 2015-2020 is being finalised. The new Plan to relaunch the BPVi Group, which will be approved in September, reasserts BPVi’s role as “Local Bank” in its core areas and outlines a “simple and streamlined Bank”, focusing on the traditional business of commercial banking. 1 Management figure. 1 Key financial figures at 30 June 2015 257.5 million € 225.9 million € % change compared to 1st half 2014 -1.0% +2.7% 170.1 million € 559.3 million € 339.9 million € 219.4 million € 1,089.1 million € -1,052.9 million € 60.8% 5.25% 39.6% +15.7% -1.1% +2.4% -6.0% n.s. n.s. +2.1% +420 bps +4.5% 1st half 2015 Net interest income Net interest income (net of contribution to investment portfolio) 2 Net fee and commission income Operating income Operating costs Income from operating activities Adjustments Net income Cost Income Cost of credit Coverage of impaired loans Key capital and structural results at 30 June 2015 30/06/2015 Gross loans with customers 3 Direct deposits 4 Assets under management and retirement savings Equity (including result of the period) CET 1 ratio Total Capital Ratio Branches Personnel Number of customers 29.6 billion € 27.0 billion € 7.4 billion € Change compared to 31/12/2014 -0.7% -5.6% +12.4% 2,954 million € 6.81% 7.63% 653 outlets 5,519 people 1,380,977 -20.8% -3.63% -3.92% -0.2% +0.1% +2.2% 2 Management figure Net of the active repurchase agreements and the related guarantee margins. 4 Net of the operations with the Cassa di Compensazione e Garanzia. 3 2 Economic and financial impacts on the consolidated half-year financial statements at 30 June, deriving from the findings of the ECB inspection and the subsequent analysis carried out by the management The consolidated half-year financial statements at 30 June 2015 consider the findings that the ECB inspection team reported to the Bank, as well as the additional recognition activities that the Bank’s management performed with the support of leading legal, financial, accounting and taxation consultants. In particular, the ECB inspection work, for which the outcome has not been formalized yet, and the further verifications conducted by the Bank brought to light various positions where the signing or purchase of the Bank’s shares by customers was carried out by resorting to loans disbursed by the Bank. The total amount of the loans disbursed by the Bank, identified following the analyses carried out as related to the purchase or subscription of the Bank’s shares, equals 974.9 million euro. With reference to this phenomenon, the consolidated half-year financial statements at 30 June 2015 show the entry of a restricted reserve pursuant to article 2358, paragraph 6 of the Italian Civil Code for an amount equal to this capital subject to refinancing, less the adjustments for creditworthiness (equal to 23.5 million euro) and the specific provisions for risks and charges (equal to 339.7 million euro), which were prudentially recognised in consideration of the risks associated to specific positions. Therefore the amount of this restricted reserve equals 611.6 million euro. In addition, the checks carried out also found other risk profiles in connection with some specific positions, for a current amount calculated at 26.5 million euro, against which provisions for risks and charges of 15.9 million euro were prudentially recorded. The above also affects, and for the entire amount of the capital concerned by the mentioned phenomena, the Bank’s own funds at 30 June 2015, which - in line with ECB guidelines - were applied a “prudential filter” whose amount, considering the write-downs and provisions made, amounts to 622.2 million euro. Consolidated results Statement of financial position aggregates At 30 June 2015, the Group’s banking product, comprising the total funding and the loans to customers, amounts to 74.2 billion euro, down 6.1% compared to the 79 billion euro of 31 December 2014. The Group’s total funding, comprising the sum of direct deposits and indirect deposits, amounts to 47.4 billion euro at 30 June 2015 and is down 6.8% compared to the 50.9 billion euro of 31 December 2014. In detail, direct deposits amount to 27.6 billion euro, down 9% in the six months, mainly due to the decrease in repurchase agreements made with central counterparties, bonds and, to a lesser extent, restricted deposits. Net of the transactions with central counterparties (Cassa di Compensazione e Garanzia), the drop in direct deposits fell to -5.6% compared to the end of 2014 and is mainly linked to the increase in asset management and the lower funding requirements connected with the slowdown in lending. The good performance of indirect deposits which, net of BPVi shares under custody and administration, progressed by 2.2% compared to 31 December 2014, driven in particular by the positive trend of the assets under management and retirement savings (+12.4%). Gross loans to customers, excluding repurchase agreements and the related guarantee margins, amount at 30 June 2015 to 29.6 billion euro, resulting overall stabile compared to the figure at the end of 2014 (0.7%). Net loans to customers amount to 26.8 billion euro at 30 June 2015, down 4.7% compared to the figure at 31 December 2014, and were affected by the drop in repurchase agreements made with central counterparties and the important adjustments made by the Group in the six months on loans and advances to customers, which reduced the aggregate in question. At 30 June 2015, net impaired loans to customers amount to 4.6 billion euro, up 400 million euro. The related incidence on the total of the net loans to customers rose from 14.95% at 31 December 2014 to 17.18% at 30 June 2015. The coverage of impaired loans improved by almost 4.5% which, overall, went from 35.10% at 31 December 2014 to 39.57% at 30 June 2015. When including the partial write-offs of receivables for bankruptcy proceedings still in progress at 30 June 2015 (so-called “write-offs”), the coverage of impaired loans equals 41.75% compared to 37.90% at 31 December 2014. Net non-performing loans to customers amount to 1,778.1 million euro and represent 6.64% of the total net loans. The related coverage percentage, including the “write-offs”, stands at 59.56%, up by about 5.5% compared to the end of 2014. 3 At 30 June 2015, the ratio of loans to customer/direct deposits equals 96.9% (98.2% net of transactions with central counterparties) against 92.6% at 31 December 2014 (96.1% net of transactions with central counterparties). The liquidity coverage ratio (LCR) stands at 91.8%, at levels well above the regulatory requirements set by Basel III for 2015. Furthermore, at 31 July 2015 the LCR recorded a significant improvement, reaching 107.5%. The net exposure on the interbank market at 30 June 2015 amounts to -2.4 billion euro, slightly down compared to the end of 2014. The consolidated equity pertaining to the Group, including the result for the period, stands at 2,954 million euro against the 3,731 million euro at the end of 2014. Regulatory ratios and capital strengthening programme Own funds calculated for supervisory purposes at 30 June 2015 amount to 1,997.4 million euro against the 3,349 million euro at 31 December 2014. This change is mainly due to the loss in the period and the “prudential filter” previously described, which was introduced on the basis of the results of the ECB inspection and the recognition activities carried out internally on the part of the capital which does not show requirements for inclusion among the common equity tier 1 elements based on Regulation (EU) no. 575/2013 (CRR). The Common Equity Tier 1 Ratio and the Tier 1 Ratio both amount to 6.81%, whilst the Total Capital Ratio is equal to 7.63%. The Board of Directors resolved on the issue of a subordinated bond (Lower Tier 2) for 200 million euro and on a capital increase up to 1.5 billion euro to be submitted to the next Extraordinary Shareholders’ meeting for approval. Beforehand the Bank will submit this capital strengthening plan to the competent Supervisory and Control bodies. The agreed disposal of the investment held in ICBPI is added to the interventions, which is expected to be carried out by the end of the year. The completion of these activities as part of the new Business Plan 2015-2020, being finalised, will allow the Group to continuously comply with the strict regulatory constraints and, in the forecasts, show suitable profitability levels. Financial results The financial results are illustrated below with a “managerial” view. For the reconciliation between the aggregates commented on below and the items which comprise the income statement required by Bank of Italy Circular no. 262, reference is made to the key at the bottom of the reclassified income statement, which is attached to this press release. The consolidated income statement at 30 June 2015 shows a loss of 1,052.9 million euro, mainly due to the significant adjustments on loans and goodwill as well as the provisions for risks and charges carried out. The net financial income at 30 June 2015 stands at 288.9 million euro and is up 3.6% compared to the figure of 30 June 2014. Net interest income stands at 257.5 million euro (-1% compared to the 260 million euro of 30 June 2014). The trend for dividends (18.6 million euro, +86.7%) and the result of the period of the equity-accounted investments (12.8 million euro against 8.9 million euro of 30 June 2014) is positive. Net fee and commission income at 30 June 2015 equals 170.1 million euro, up 15.7% compared to the 147 million euro of 30 June 2014. Regarding revenues, the income linked to management and intermediation services and to the services related to assets under management and retirement savings in particular, is up. Regarding costs, charges paid to customers for securities lending and borrowing are down and also the cost ceased, which is connected to the guarantee issued by the government on own-issue securities following their early repayment in August 2014. The net profit from the property portfolios equals 100.4 million euro versus 111.5 million euro of the first half of 2014, while other net operating income at 30 June 2015 is negative by 143 thousand euro compared to +28 million euro in 30 June 2014 and is also affected by the lower contribution of the “fast preliminary commission” fee compared to last year and by some “one-off” charges that are almost entirely referred to re-credits made by customers in the six months for the reversal of commissions and recovered expenses charged in previous years. Operating income amounts to 559.3 million euro, down by 1.1% compared to the same period of 2014. Operating costs amount to 339.9 million euro in total, increasing by 2.4% compared to the figure of the first half of 2014. This increase is mainly due to the payroll costs (+3.6%), growing mostly as a result of the charges incurred in connection with the incentives paid to personnel who resigned or were made redundant, and the other administrative costs (+1.1%), while depreciation dropped by 1.5%. 4 Therefore, at 30 June 2015, the income from operating activities amounts to 219.4 million euro, down by 6% compared to the same period of 2014, with the cost/income 5 ratio rising to 60.8%, an improvement of 2.1 percentage points compared to 58.7% at 30 June 2014. Net impairment adjustments amount to 1,089.1 million euro, compared to 187 million euro at 30 June 2014. 703 million euro of the aforesaid adjustments refer to loans and advances to customers (157.4 million euro at 30 June 2014), up by almost 4.5% of the average hedging of impaired positions. This growth mainly reflects the evolution of anomalous loans and the new regulatory framework, which changed the concept of impaired position by expanding the areas of assessment of possible critical issues. In this respect the Group has reviewed its internal policies, also in light of the experience gathered through the Comprehensive Assessment exercise carried by the ECB in 2014, with the introduction of new trigger events for a more objective identification of the lending issues that may lead to non-performance or even insolvency as well as the review of some guidelines used to quantify the loss forecasts for non-performing positions. The coverage of performing loans, on the other hand, has remained essentially in line with the one at the end of 2014 (0.71% at 30 June 2015, 0.73% at the end of 2014). Due to the elements above, the credit cost 6 at 30 June 2015 amounts to 5.25% year on year, compared to 3.09% of 31 December 2014 and 1.05% of 30 June 2014. Net impairment adjustments to financial assets available for sale and equity investments amount to 119.3 million euro (27.4 million euro at 30 June 2014) and were recorded also by applying the specific policy adopted by the Group on the process for identifying impairment losses on financial assets available for sale. The adjustments also include the impairment of 268.8 million euro on goodwill regarding the Banca Popolare di Vicenza CGU (for 213.8 million euro) and the Banca Nuova CGU (for 55 million euro) - which are added to the adjustments of 600 million euro already made in 2014 - which were written down by 81.5% of their residual value at 31 December 2014 (remaining depreciation at 61.1 million euro). The net result of the first half of 2015 of -1,052.9 million euro is finally affected by the accounting of provisions for risks and charges for 380.1 million euro, mainly referable to the provisions (355.6 million euro) made against the risks linked to the profiles subject to the ECB inspection mentioned in the initial paragraph of this Press Release. New Business Plan 2015-2020 The Business Plan to relaunch and develop the Bank in the next 5 years (2015-2020) will be approved by September. The guidelines of this Plan, already shared by the Board of Directors, define a path to relaunch and confirm BPVi’s role as “Local bank” supporting businesses and households in their core areas. The Bank will start a path to simplify operations and focus on the traditional activity of commercial banking, concentrating on the activities of distribution and customer service. The Plan will allow BPVi to express profitability and capitalisation levels that are consistent with its great potential while continuing to be the main player in supporting the local economy, as it has always done and for which it has always been recognised. 5 This ratio is calculated by dividing “operating costs” by "operating income". 6 The ratio is calculated by annualising the ratio between “net impairment adjustments on loans” and “net loans to customers”. 5 Outlook for operations The coming months will be characterised by a macroeconomic context that, though showing some positive signs of recovery, should continue to be highly volatile. In this scenario, the profitability prospects of the Italian banking system, albeit growing, should remain modest and mainly conditioned by the slow growth of the net interest income, penalised by the low interest rates and by the flow of loan adjustments, for which the normalisation process appears to have started. Concerning the BPVi Group, the operating income should essentially reflect the trend of the second quarter of 2015. The costs will be affected by the seasonal trend and the probable accounting of the redundancy fund, which is aimed at reducing the personnel, with reference to which talks with trade unions are expected to start after the coming approval of the Business Plan. A net reduction of the cost of credit is expected, at essentially physiological levels with respect to the current market conditions. In addition, the Bank may benefit, within the end of the year, from the capital gain deriving from the disposal of the investment in ICBPI, currently being analysed by the Supervisory Authorities, with a positive impact on the regulatory capital, also in relation to possible further negative evidence which may emerge in the second part of the year, due to the deeper capital recognition. Other information At the end of June 2015 the Group’s sales network had 653 bank branches (-1 compared to 2014), as well as 14 money shops and 36 private banking offices, for a total of 703 outlets (+2 compared to 2014). Personnel equals 5,519 people (+0.1% compared to 2014). During 2014 the customer development activity continued with an increase of 30 thousand customers (+2.2% compared to 2014) in the six months considered. This press release – prepared pursuant to Regulation no. 11971 approved by Consob with resolution of 14 May 1999 as amended (“Issuers’ Regulation”) – is available at www.popolarevicenza.it. The Consolidated Half-year Report at 30 June 2015 will be made available to the public according the terms of law at the company’s registered office and published on www.popolarevicenza.it as well as at the authorised storage mechanism “1Info” at www.1Info.it. Declaration pursuant to art. 154-bis paragraph 2 of Legislative Decree no. 58 of 24 February 1998 The Financial Reporting Manager, Massimiliano Pellegrini, declares, pursuant to paragraph 2 article 154 bis of Italy's Consolidated Financial Markets Act, that the accounting information contained in this press release corresponds to the document results, ledgers and accounting entries. The Financial Reporting Manager Massimiliano Pellegrini Vicenza, 28 August 2015 Press contact people: Silvia Pillan Press Relations dir +39 0444 339645 mob +39 335 7647397 [email protected] Image Building Cristina Fossati, Luisella Murtas, Federica Corbeddu Tel. +39 02 89011300 [email protected] Mara Deganello Press Relations dir + 39 0444 339651 mob +39 335 7761946 [email protected] *** Reclassified tables are attached of the Statement of Financial Position, Equity and Income Statement of the Bank and the Group, as well as some alternative performance indicators. 6 7 EQUITY Equity in millions of euro Capital stock Additional paid-in capital Reserves Valuation reserves Equity instruments Treasury shares Equity Profit (loss) for the period Equity - of which restricted reserves pursuant to article 2358, par. 30/06/2015 31/12/2014 374,3 3.209,5 237,5 209,9 1,4 (25,5) 351,9 3.365,1 608,9 186,8 3,2 (25,9) 4.007,1 (1.052,9) 2.954,2 4.490,0 (758,5) 3.731,5 Absolute change % 22,4 (155,6) (371,4) 23,1 (1,8) 0,4 6,4% -4,6% -61,0% 12,4% -56,3% -1,5% (482,9) -10,8% n.s. n.s. (777,3) -20,8% 611,6 The audit on the capital conducted by the ECB, to which reference is made in the specific paragraph of this Press Release, showed the existence of a correlation between purchases/subscription of BPVi shares and loans disbursed to some Members/Shareholders. On this point it is specified that the equity reserves, as shown in the table above, are subject to a non-availability restriction pursuant to article 2358, paragraph 6, of the Italian Civil Code equal to 611.6 million euro 7 7 In addition to the abovementioned amount of 611.6 million euro, also entered among the equity entries is a non-availability reserve pursuant to article 2358, paragraph 6, of the Italian Civil Code of 66.2 million euro against the two “ordinary” capital increase transactions aiming to broaden the social base which offered new Members the chance to subscribe BPVi shares with resources relating to a loan provided by the Bank, in compliance with the provisions of article 2358 of the Italian Civil Code. 8 9 10
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