2002 Group Annual Report Eng1

The (consolidated) financial statements have been translated from those issued in Italy, from the Italian into the English languages solely for the convenience of international readers.

Group Annual Report

2002

1st financial year

VERONA Church of San Zeno

Banco Popolare di Verona e Novara Limited liability cooperative company Registered offices and headquarters: Piazza Nogara, 2 – 37121 Verona Stock capital as of 31-12-2002: euro 1,332,174,214.80 fully paid Tax code, VAT no. and enrollment no. in the Verona Enterprise Registry: 0323127 023 6 Member of the Interbanking Fund for Deposit Protection Member of the Banks’ Registry Parent company of the Banking group Banco Popolare di Verona e Novara Member of the Banking Groups’ Registry

4

Group Annual Report 2002

Corporate Boards, Management and Auditors Board of Directors Chairman:

Carlo Fratta Pasini

Deputy Vice-president:

Siro Lombardini

Vice President:

Alberto Bauli

Chief Executive Officer:

Fabio Innocenzi

Directors:

Gian Carlo Bellentani Marco Boroli Pietro Buzzi Maurizio Comoli Ugo Della Bella Giulio Dolcetta Giuseppe Fedrigoni Federico Guasti Sergio Loro Piana Maurizio Marino Giuseppe Nicolò Francesco Pasti Claudio Rangoni Machiavelli Luigi Righetti Gian Carlo Vezzalini Franco Zanetta Board of Statutory Auditors

Chairman:

Flavio Dezzani

Standing auditors:

Giuliano Buffelli Maurizio Calderini Carlo Gaiani Giovanni Tantini

Alternate auditors:

Bruno Anti Emilio Rossi Board of Advisors

Standing:

Marco Cicogna Luciano Codini Sergio Mancini

Alternate:

Aldo Bulgarelli Vittorio Cocito General Manager Massimo Minolfi Independent auditing company Deloitte & Touche Italia S.p.A.

5

Group Annual Report 2002

Contents Group structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page

8

Group financial highlights and ratios . . . . . . . . . . . . . . . . . . . . page 10 Report on operations Introductory note . . . . . . . . . . . . . . . . . . . . . . . . . . Group setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in the Group structure as of June 1st, 2002 Noteworthy events . . . . . . . . . . . . . . . . . . . . . . . . . Operating performance . . . . . . . . . . . . . . . . . . . . . Ownership and sale of own shares . . . . . . . . . . . . . Reconciliation between the Parent company’s equity and income and the consolidated equity and income Significant equity investments . . . . . . . . . . . . . . . . . Noteworthy events after year-end . . . . . . . . . . . . . . Operational outlook . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

........ ........ ........ ........ ........ ........

page page page page page page

15 16 18 19 27 40

. . . .

. . . .

. . . .

. . . .

page page page page

41 42 70 71

. . . .

. . . .

. . . .

. . . .

. . . .

.. .. .. ..

Independent auditors’ report on the consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 74 Consolidated financial statements Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 78 Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . page 81 Notes to the consolidated financial statements Introductory note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidation criteria . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter A – Accounting criteria . . . . . . . . . . . . . . . . . . . Chapter B – Notes to the consolidated balance sheet . . . Chapter C – Notes to the consolidated income statement Chapter D – Other information . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

.. .. .. .. .. ..

page 85 page 89 page 94 page 106 page 155 page 163

Charts and attachments to the consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 166

7

Gruppo Banco Popolare di Verona e Novara

Banco Popolare di Verona e Novara Banca Popolare di Novara Credito Bergamasco

Aletti Invest SIM

Leasimpresa

BPV Vita

Arena Broker

Novara Vita

Assisebino BPVN (France) BPVN (Luxembourg)

Società Gestione Servizi - BPVN Banca Aletti & C.

Sestri

Banca Aletti & C. (Suisse)

Holding di Partecipazioni Finanziarie Popolare di Verona - S. Geminiano e S. Prospero

Aletti Gestielle SGR

BPVN Immobiliare

Aletti Gestielle Alternative SGR

Novara Immobiliare

Aletti Merchant

Immobiliare BPV

Aletti Fiduciaria

TecMarket Servizi

Aletti Private Equity SGR

Seefinanz Compagnia Finanziaria Ligure Piemontese Other companies

Corporate Banking Retail Banking Private & Investment Banking Operations and other

Group Annual Report 2002

Group financial highlights and ratios Financial highlights

(millions of euros) Income statement Net interest income Net commissions Net interest and other banking income Operating costs Operating income Income before extraordinary items Extraordinary income Net income for the period

1,261.5 699.1 2,214.0 1,366.0 848.0 571.3 188.9 429.2

31-12-2001 Pro-forma

1,213.5 717.3 2,124.1 1,338.9 785.2 550.0 34.5 308.8

Changes

48,0 4.0% - 18.2 -2.5% 89.9 4.2% 27.1 2.0% 62.8 8.0% 21.3 3.9% 154.4 447.5% 120.4 39.0%

Balance sheet Total assets Customer loans (gross) Securities Shareholders’ equity

48,247.5 32,865.6 4,997.3 3,288.5

50,804.9 - 2,557.4 32,239.3 626.3 5,606.0 - 608.7 2,988.2 300.3

Customers’ financial assets Direct customer funds Indirect customer funds - Assets under management - Mutual funds and GPF (1) - Other portfolio management - Insurance policies - Assets under custody

35,227.9 53,467.9 26,945.1 16,410.7 6,698.9 3,835.5 26,522.8

35,137.8 49,409.1 26,252.0 17,251.7 6,185.5 2,814.8 23,157.1

90.1 4,058.8 693.1 - 841.0 513.4 1,020.7 3,365.7

0.3% 8.2% 2.6% -4.9% 8.3% 36.3% 14.5%

13,008 1,150

13,275 1,139

- 267 11

-2.0% 1.0%

2,526.6

2,428.6

98.0

4.0%

170.2

160.0

10.2

6.4%

Operational structure and productivity Employees Bank branches Customer loans (gross) per employee (€/1000) Net intr. & other banking income per employee (€/1000) (1) GPF: segregated assets invested in mutual funds

10

31-12-2002

-5.0% 1.9% -10.9% 10.0%

Group Annual Report 2002

31-12-2002

31-12-2001 Pro-forma

Profitability ratios (%) ROE Adjusted ROE (1) Interest income / Interest and other banking income Net commissions / Interest and other banking income Administrative expenses / Interest and other banking income Operating costs / Interest and other banking income

15.0% 19.3% 57.0% 31.6% 54.9% 61.7%

11.5% 15.3% 57.1% 33.8% 56.3% 63.0%

Credit quality ratios (%) Net NPLs / Customer loans (net) Net watchlist loans / Customer loans (net) Net NPLs / Shareholders’ equity

3.07% 2.25% 29.8%

3.22% 2.04% 33.7%

Solvency ratios (%) Shareholders’ equity / Customer loans (net)

10.3%

9.6%

BPVN shares Outstanding shares of which: treasury shares Base share price - Max - Min - Average Earnings per share

Financial highlights

370,048,392 13.897 10.233 12.107 1.1596

(1) Adjusted for goodwill net of estimated tax burden

Base share prices have been inferred from share price performance from June 3rd to December 31st, 2002.

11

Report on operations

NOVARA Basilica of S. Gaudenzio

Report on operations

Introductory note Gruppo Banco Popolare di Verona e Novara is the result of the merger between Banca Popolare di Verona – Banco S.Geminiano e S. Prospero s.c.c.r.l. (for short BPV) and Banca Popolare di Novara s.c.r.l. (for short BPN). The merger plan, set up and approved on January 26th, 2002 by the Board of Directors of the two Banks, was approved by the vast majority of their shareholders in the Special Shareholders’ Meetings held on March 9th, 2002. Further to the merger act entered into on May 20th, 2002, that came into legal effect as of June 1st, 2002, a new bank was incorporated, called “Banco Popolare di Verona e Novara”, taking on the legal form of a limited liability cooperative company, with registered and operating offices in Verona, Italy. For accounting and fiscal purposes only, the merger took effect retroactively on January 1st, 2002. As a result, the transactions of the two merging banking entities were stated in the accounts of Banco Popolare di Verona e Novara as of January 1st, 2002. These consolidated financial statements represent the financial and operating position as of December 31st, 2002 of the new entity resulting from the above described merger. Since this is its first financial year, in order to provide a more thorough information on the annual performance, the balance sheet and income statement data is compared with the corresponding pro-forma data as of December 31st, 2001. Pro-forma data correspond to those already published in the Offering circular for admission to trading of common shares and bonds, adjusted to include the changes to the accounting criteria described in the Notes to the Financial Statements under Chapter A, Section 3. The criteria applied to compute proforma data are described in the Introduction to the Notes to the Consolidated Financial Statements. For an overview of the Italian and international macro-economic backdrop to the operations of the companies of the Group, see the relevant sections of the Parent Company’s annual report. In order to provide a synoptic but still meaningful representation of the Group’s performance, this Report includes the reclassified consolidated balance sheet and profit and loss account.

15

Report on operations

Group setup The integration of the two Groups Popolare di Verona – BSGSP and Popolare di Novara, set in motion by the merger that took effect on June 1st, 2002, is now being rolled out through a number of reorganization processes (described below) that will allow the Group to be fully operational – in line with our business plan – already in 2005, when all the turnaround actions aiming at achieving the expected synergies shall be implemented: I.

Setup of the organizational and corporate structure. This first stage was started by vesting Banca Popolare di Novara S.p.A. with the banking unit of Banca Popolare di Novara s.c.r.l., and it shall be carried forward with the reorganization of the bank branches, to be achieved by redistributing part of them among the different Banks of the Group, in order to enhance our “close knit" distribution model, and strengthen the leadership of each “distribution network” within its own “area of origin”;

II.

Reorganization of the new Group. Among other things, in this stage Head office functions were integrated, the network reorganized, the information system used by the former Banca Popolare di Verona – Banco S.Geminiano e S.Prospero was adopted across the Group, back offices were integrated and multi-polarized, private banking, investment banking and asset management activities were integrated and reporting systems harmonized across the Group. The reorganization of the branch network shall make it possible to bring service levels and business productivities in line with internal best practices, while leveraging local brands in their franchise area. In order to integrate the private banking activities, the private units of the two banks had to conform to one single model, and the activities were consolidated into Banca Aletti, while the two foreign structures (Banca Aletti Suisse) and BPVN Luxembourg were retained. Also investment banking activities shall be consolidated in Banca Aletti. As to asset management activities, all activities performed by the former Sogepo SGR were concentrated in Aletti Gestielle SGR, and distinctive asset allocation expertise and skills were reinforced.

Benefiting from the greater scale gained through integration, from the dissemination of internal business and operational best practices and from the greater competitiveness on its base markets, the Group intends to strengthen its core business, where it can leverage its vantage to compete against market leaders. In particular, the Group intends to strengthen and develop its operations on traditional customer segments and business areas, as well as to grasp whatever new opportunities may arise, with the aim of:

16

-

strengthening and promoting its presence in its franchise areas, with a distinctive focus on retail and corporate (SMEs) customers. Through Banca Aletti, the Group shall also retain and enhance its relations with the private clientele, and pave the way for future growth, that may not be restricted to traditional franchise areas alone;

-

disseminating business and distribution best practices for the different cus-

Report on operations

-

tomer segments across the Group; strengthening its presence on the territory also by way of future agglomerations in keeping with its strategic and business plan.

In order to achieve the above aims, specific strategies targeted to the different customer segments shall have to be pursued, entailing specific operational consequences for: -

the retail area, that is to be organized along the departmentalization model already put to test by former Banca Popolare di Verona - Banco S.Geminiano e S.Prospero;

-

the corporate segment, that should focus business with Small and Medium Enterprises and with local Authorities that have deeper ties with their territory, to leverage the existing service units. Specifically, traditional corporate banking services shall be complemented by more innovative banking products and services, as well as by corporate finance and capital market services;

-

the Private clientele, with private banking operations to be consolidated in Banca Aletti.

The above objectives shall be pursued through consistent strategic and organizational actions targeted at the different business areas covered by the Group (traditional banking business, private banking, investment banking, lease, bankassurance, asset management). In particular: -

all the main components of the traditional banking activities are expected to show a progressive growth rate over the next years, fostered also by a decline of operating costs and by the rationalization processes that were further accelerated by the current economic downturn;

-

the Group shall endeavor to improve and strengthen its market position, both by adequately leveraging the distribution activities of its banking network, as well as by strengthening the role of production and management, developing the necessary distinctive skills and expertise in the field of selection, negotiation and management of third party agreements;

-

the Group shall devote great attention to the bank-assurance sector, through the distribution of insurance products, especially life products, and pension funds, through the sales networks of the banks of the Group, along a geographical perspective that shall conform to existing agreements with select insurance partners;

-

the Group shall engage in lease activities through two companies that together at present already hold a 10% market share. Here again, the strategy of providing Small and Medium Enterprises with a comprehensive range of products shall be pursued, to be distributed by the branch network of the commercial banks;

17

Report on operations

-

the Group shall consolidate the two existing networks of financial advisers, in order to take advantage of the economies of scale and to share the best business practices;

-

the Group shall be active also in the tax collection area, that is considered a non- core sector, and as such shall be managed, in view of its rationalization.

Changes in the group structure as of june 1st, 2002 The multifunctional Group model of Gruppo Banco Popolare di Verona e Novara is based upon the allocation of competences and functions among the various companies, with the accent on the commercial vocation of Banks, the consolidation of financial intermediation, merchant banking, asset management, bankassurance, and leasing activities in specific “product companies”, and above all upon “Società Gestione Servizi - BPVN S.p.A.”, in charge of the consolidation, development and management of information systems in support of all the other companies of the Group. In July, the sale contracts were finalized, that put into effect the agreement between Banco and Società Cattolica di Assicurazione, aiming at streamlining reciprocal shareholdings. Specifically, the following shareholding transfers were finalized: -

purchase of 4,500,000 shares of Aletti Invest SIM (former Creberg SIM), equal to 50% of the share capital, for a total investment of ¤ 11.4 million. As a result of said purchase, the Group acquired the full ownership of the subsidiary’s share capital;

-

purchase of 2,504,000 shares of Credito Bergamasco, equal to 4.057% of its share capital, for a total investment of ¤ 45.8 million;

-

sale of the shareholding in Duomo Previdenza, equal to 20% of the share capital, for ¤ 15.1 million, giving rise to a ¤ 1.2 million capital gain, and sale of the shareholding in Duomo Assicurazioni, equal to 20% of the share capital, for ¤ 40.6 million, delivering a ¤ 3.4 million capital gain.

In order to further broaden the range of specialized services offered to its major customers, in July the subsidiary Banca Aletti & C. acquired the entire share capital of Sofidem Fiduciaria, now Aletti Fiduciaria, a company authorized to engage in trust activities under law n. 1996 of November 23rd, 1939, and R.D. n. 531 of April 22nd,1540. Through the above investee company, Banca Aletti can offer a range of high value added services so as to broaden its product port-

18

Report on operations

folio and strengthen its marketing action in the Private and Investment banking sectors. At the beginning of the month of August, the sale of the entire shareholding in the real estate company Impresol was finalized, and the stake sold to Deutsche Bank Real Estate Private Equity Group, to GE Capital Investment Holding and to Bonaparte S.p.A. (Gruppo Zunino), whose bid had been accepted on June 18th. In order to carry out the above transaction, a business line inclusive of the shareholding in Novara Immobiliare S.r.l. and part of the property originally owned by Impresol – equal to an asset value of €22.4 million – had to be demerged and contributed to the newly formed BPVN Immobiliare, a company fully owned by the Parent Company. The sale price of Impresol after the above mentioned demerger was €106.1 million, making it possible for the Group to post in its consolidated income statement a non recurring revenue of about ¤ 135 million net of taxes. Aletti Merchant purchased 99.677% of Aletti International, a real estate company based in Luxembourg, jointly with Verona Gest and sold part of its share in G.I. Holding. At present, the residual interest held in the latter company is 25.05%.

Noteworthy events The Integration Project In 2002, the integration process was fully in line with the Business Plan, and important results were achieved both in terms of organizational integration, as well as with regards to the fulfillment of the goals and objectives defined in the project for the year. Actions are coordinated by an “integration function”, in charge of the organization of the whole project, which is subdivided into seven areas: Management and control, BPN, Corporate, Retail, Private and Finance, Administrative Department, and Operations. In turn, these areas include 24 specific projects that cover the whole operational scope of the Group. Once each and every project had been assigned its targets, the planning stage was launched, to define the actions needed to accomplish said objectives. The main results achieved to date have been: •

Migration of Banca Aletti on the Group’s information system;

•

Transfer of the central processor of Banca Popolare di Novara S.p.A. to Verona; Contribution to Società Gestione Servizi - BPVN S.p.A. of the business line comprising the information systems and back office of Banca Popolare di Novara S.p.A.. The objective is to rationalize all IT and back office activities within S.G.S. in order to harmonize the Group’s IT, operational, administrative and accounting processes;

•

19

Report on operations

•

Integration of the “Management Center” (Centro Gestorio): consolidation in Banca Aletti of the asset management activities of Banca Popolare di Novara and Aletti Invest SIM;

•

Consolidation of the Group Purchasing Department;

•

Merger between Aletti Gestielle SGR and Sogepo SGR;

•

Rationalization of activities in Luxembourg;

•

Consolidation in Banca Aletti of the financial intermediation activities of Banca Popolare di Novara S.p.A.;

•

Expansion of the Parent company’s organizational model by geographical areas, to include the sales network of Banca Popolare di Novara, with the creation of leaner Areas, more focused on sales and distribution activities (especially towards corporate customers, specifically assisted by the so called “Corporate Centers” or Centri impresa);

•

Approval of the project for the integration of BPN’s private banking services, mainly aiming at promoting the ‘Banca Aletti’ brand and its services to the benefit of BPN’s private customers;

•

Integration of the financial advisors networks of Creberg SIM and Novara Invest SIM into a single financial advisors network under Aletti Invest SIM.

The next step along the project is the consolidation of the information systems. In order to prevent the operational risks that are typical of this phase, a complex procedure testing activity has been put in place, and contingency plans have been prepared. In order to support the IT migration process and BPN’s geographical network reorganization, an exacting and elaborate training and rollout support plan for branches was put in place, to help personnel acquire sufficient capabilities to get smoothly through the IT changeover period. The training plan involves 4,600 people, and it envisages classroom lectures, e-learning sessions and practical training, for a total number of 30,000 training days, of which 20,000 classes (equal to 4 per capita class days). Concurrently, an elaborate analysis is being carried out, to manage staff mobility, reorientation and rightsizing at best. It envisages the time distribution analysis of efficiency recoveries, considering corporate, geographical and functional constraints, the optimization between redundancy areas and potential personnel turnover areas, the definition of an action plan to guarantee said optimization (early retirement, solidarity funds, geographical and intra-group mobility, vocational reorientation). The Integration plan is pivotal to the implementation of the above project, due

20

Report on operations

to the organizational, process and information system-oriented actions, that are meant to generate efficiency recoveries, that in turn must be translated into an appropriate staff rightsizing by way of early retirement actions, management of natural turnover rates, redundancy funds, vocational reorientation, geographical mobility. The aim of the analysis is to verify whether planned actions are consistent with the economic objectives of the Integration plan; to complement organizationaloriented information with data on how human resources are going to be utilized; to set the overall balance between these elements; to pinpoint any time, geographical or corporate imbalances; to identify adequate actions to neutralize such imbalances. In keeping with the Industrial Plan, the Boards of Directors of the Banks concerned approved the project to redesign their local distribution networks. The Industrial Plan had attached a significant strategic importance to the strengthening and development of the commercial bank activities through the promotion of their brands and the leveraging and enhancement of their local distribution franchise, on the assumption that traditional franchises that enjoy a high density coverage of a given area deliver a better global profitability and a better control over the market. As a result, the plan aims at strengthening brands, increasing the market share, incrementing the Banks’ focus on their traditional franchise areas, mitigating the risk of internal competition, improving the profitability of the rationalized areas and increasing the effectiveness of the lending risk management. According to the plan, more than 150 branches shall change hands among the banks of the Group: Banca Popolare di Novara S.p.A. shall transfer 84 branches to the Parent company by way of a business line demerger and another 33 branches to Credito Bergamasco by way of a business line contribution, while in turn, Credito Bergamasco shall transfer 36 branches to the Parent company by way of a business line contribution. As a result, Banco Popolare di Verona e Novara shall be comprised by more than 500 branches located in the North-East area and in Tuscany; Banca Popolare di Novara S.p.A. shall be based in the NorthWestern and Southern areas with at least 400 branches; Credito Bergamasco shall be mainly located in Lombardy, all but unchanged in terms of size. Departmentalization per customer segments The Group’s distribution networks have been organized along a single distribution model distinguished by customer segments: Retail customers – which are in turn subdivided into Mass, Affluent and SOHOs, Corporate customers, and Private customers. in the Retail area, the business reorganization and conversion of the resources manning the branch network - aiming at improving internal efficiency - is almost through. A greater focus shall be lent to different business management modalities distinguished by customer segment type, to guarantee a service level best suited to the customer’s needs and profile, as well

21

Report on operations

as the greatest profitability from customer activities. This business organization model - that shall be applied across all the banks of the Group – shall be the launching platform for all the necessary actions aimed at strengthening and developing business activities within the different customer segments, along the guidelines and with the support of the Parent company and under the necessary control of the commercial banks presiding the territory; -

in the Corporate segment, the Group focused on the development of business activities with small and medium enterprises and with local Authorities, characterized by their deep ties with their territory, by promoting and leveraging the existing service unit and the excellent relations the two Banks entertain with their customers;

-

In the Private segment, the Group is following a distinctive and dedicated service model. In particular, by way of Banca Aletti, the Group is developing a distinctive service model featuring an adequate managerial focus. Banca Aletti in turn shall benefit from a capillary geographical coverage through the dedicated Private centers set up at each commercial bank of the Group.

Asset management With regards to asset management, during the year the merger of Sogepo SGR S.p.A., i.e., the asset management company of Banca Popolare di Novara S.p.A., into Gestielle Asset Management SGR SpA was finalized (as of June 1st, 2002 it changed its name in “Aletti Gestielle SGR S.p.A.”) as part of the broader merger scope of the two banking groups. Their respective Boards of Directors resolved to proceed with the consolidation of all 18 mutual funds of Sogepo SGR into as many Gestielle mutual funds as of December 31st, 2002. At the end of 2002, both SGR – together with the alternative investments SGR and the SICAV of the Group – were ranking eighth among asset management companies; Aletti Gestielle held a 1.94% market share, and Sogepo 0.99%. Compared with the previous year, Gestielle funds climbed up the annual performance lists of the different Assogestioni class distributions: more than half of the 35 funds that were operational at the beginning of 2002 (i.e., excluding the 3 ethical funds that went operational during the year) were positioned in the first 2 quartiles (8 in the 1st and 10 in the 2nd); 7 of said funds had been launched during 2001, and therefore had not been included in the previous year’s lists. Also Sogepo funds under consolidation showed a good performance, with 8 funds positioned in the first two quartiles.

22

Report on operations

Private banking and portfolio management With the arrival of Gruppo di Banca Popolare di Novara S.p.A. a new planning phase opened up, aiming at channeling the private clientele in Banca Aletti. According to the integration project, four new branches are to be opened in the second half of 2003 (Novara, Turin, Genoa and Naples), two existing branches should be extended (Milan and Rome) and the private customers of Banca Popolare di Novara S.p.A. based in our areas of influence should be allocated to the other Aletti branches. As of January 1st, 2002, in keeping with the resolutions passed by their Boards of Directors, the Banks of the Group (namely, Credito Bergamasco and the former Banca Popolare di Verona – Banco S. Geminiano e S. Prospero) decided to trust Banca Aletti with the management of their proprietary portfolios, and the relevant assets were taken charge of by setting up an ad hoc management office within the Asset Management Function. On occasion of the management contracts review, the whole product range offered to private customers was renewed and a number of exclusive and original management lines were launched. To this regard, during the year the distribution of capital guaranteed products proceeded, characterized by a sophisticated model of dynamic reallocation of assets depending upon market performance and volatility. In keeping with the guidelines of the BPVN – BPN Integration Plan, as of November 5th, asset management activities regarding Banca Popolare di Novara S.p.A. customers were consolidated in Banca Aletti. As a result, it was thus possible to achieve the integration of the management lines delegated by BPN in terms of strategies and analysis methods, and in the meantime the necessary processes have been set in motion, to unify the information systems and the asset management product ranges during 2003. It is worth mentioning the acquisition of the discretionary accounts of Aletti Invest SIM on December 28th, 2002, in line with the Group’s industrial plan guidelines pointing at the consolidation of the production/management activities of financial products in specialized companies. On December 31st, customer assets under management (retail, private and institutional) in Banca Aletti accounted for about €7 billion, with about 16,000 customer accounts. The sum of the assets portfolio of the Banks of the Group brings assets under management up to a total of € 8.7 billion.

23

Report on operations

Investment banking With regard to investment banking, the great organizational, IT and planning effort started in 2001, when Banca Aletti was promoted as investment bank of the Group, was rewarded during the year by the success its brand enjoyed on financial markets. The design and development of derivative products for both retail and corporate customers are worth mentioning. Due also to market conditions, but by and large prompted by the effective marketing actions carried out by the banking networks, this year they enjoyed a considerable momentum. As an example, €2.4 billion worth of interest rate and exchange rate risk management contracts destined to the corporate world were finalized, while with regards to retail customers, they exceeded €1.6 billion. Financial intermediation and dealing volumes reported by Banca Aletti reached €150 billion. Also trading activities on bond and equity markets were significant,

despite the highly negative performance of stock indices. To be noticed as well, that during the year the necessary organizational and IT actions were taken to acquire the role of direct participant in the main European stock markets, thus ensuring the highest efficiency levels possible to the Group, while bringing service costs down. Trading on the primary market was significantly affected by the underperformance of equity markets, that deeply affected underwriting transactions. With regard to Corporate Finance activities, 15 mandates for Strategic Finance transactions, mainly Mergers and Acquisitions (M&A), and 8 mandates for Structured Finance transactions were obtained. Risk management and control systems In the first half of 2002, in compliance with the guidelines set by the Group’s industrial plan, all market trading activities were centered in Banca Aletti, extending the position keeping and risk management systems to the operational desks of the Investment Banking Function. Banca Aletti was also put in charge of the planning and development of innovative financial products, in close cooperation with the sales departments of the Banks of the Group. The development of management models and risk monitoring for new types of derivatives (whose risk books are deposited at the subsidiary Banca Aletti) was carried on throughout the year. After a thorough analysis, the system adopted to accurately identify and measure risk factors (Greek letters) relating to the above positions was fine-tuned. In particular, position keeping applications are supported by a value at risk procedure guaranteeing an integrated risk analysis based on volatilities and correlations characterizing the various financial instruments. This procedure provides a homogeneous indicator corresponding to the maximum potential loss portfolios

24

Report on operations

may suffer over a given time horizon (holding period) and based upon a given probability (confidence level) due to an unfavorable unfolding of risk factors. The value at risk is calculated along a variance-covariance model following a deltagamma approach. Business line contribution At the end of October, SGS was vested by the Parent company with the business line comprising the information and back office systems of BPN, that were already part of Banco Popolare di Verona e Novara as a result of the merger occurred on June 1st, 2002. The central processor with its associated systems had already been moved to SGS. The aim of the operation is to centralize and rationalize IT and back office activities in SGS, in order to harmonize the Group’s IT, operational, administrative and accounting processes. As a result, it will be possible to further improve the operational efficiency levels and the quality of the services provided to the companies of the Group, while at the same time pruning the operational investment and cost structure and rightsizing staff. Stock option plan for the management of the Group During the special shareholders’ meetings of the former Banca Popolare di Verona – Banco S.Geminiano e S.Prospero and Banca Popolare di Novara, upon approving the merger plan, their shareholders also delegated Banco’s Board of Directors to launch a stock option plan for the management of the Parent company and its subsidiaries, and approved its main guidelines and characteristics. On the same occasion, shareholders granted the Board of Directors of the Parent company the faculty to carry out a dedicated capital increase, for a maximum amount of €26,431,362 through the issue of max. 7,342,045 common shares. In compliance with the above mentioned mandates, on July 2nd the Regulations of the stock option plan of Banco Popolare di Verona e Novara were approved. The plan aims at fostering a teamwork approach across the management, with a focus on the Group’s strategic objectives, as well as increasing the Group’s ability to retain its most valuable human resources and to cater for the best talents present on the market. The plan provides for the assignment of registered, personal and non transferable rights to subscribe newly issued Banco common shares to those managers who, according to the Board of Directors’ undisputable opinion, may have a relevant impact upon the success and the results achieved by the Parent company and by the Group at large. The plan envisages three yearly assignment cycles. Assigned options can be exercised later after three years from the assignment and within the following three years thereon, provided that on the exercise date there is still an outstanding employment relationship with any one company of the Group. The option exercise price shall not be lower than the greater between the share normal and nominal values. The normal value is the mean of the prices

25

Report on operations

registered by the Milan Stock Exchange in the time window between the option assignment date and the same date of the solar month before the assignment. On the same date, the validity was confirmed – and hence the suspension clause discontinued – of the effects of a total of 2,668,000 options already assigned on January 26th, 2002 to managers of the former Gruppo Banca Popolare di Verona - Banco S.Geminiano e S.Prospero, based upon the resolutions passed by its Board of Directors. As a result, said options shall still bear their effects on Banco Popolare di Verona e Novara upon a one to one exchange ratio between shares of Banca Popolare di Verona - Banco S.Geminiano e S.Prospero and those of Banco Popolare di Verona e Novara. The exercise price of said options is that fixed at the time of their original assignment, equal to €11.248 per share. On the same date, the completion of the first assignment cycle was approved, with the assignment of further 1,108,000 options, with an exercise price of ¤ 13.4 per share. Options outstanding as of December 31st, 2002 accounted for ¤ 3,776,000 and were assigned on July 2nd: Following year end, om January 2003, additional options were assigned accounting for ¤ 1,209,000.

26

Report on operations

Operating performance CONSOLIDATED BALANCE SHEET Restated asstes (millions of euros)

31-12-02

31-12-01 pro-forma

and post offices

336.0

364.5

• Due from banks

6,063.2

Changes

Consolidated balance sheet

• Cash and funds witj central banks

• Due from customers

-28.5

-7.8%

8,599.2 -2,536.0 -29.5%

31,949.2

31,254.8

4,997.3

5,606.0

-608.7 -10.9%

• Equity investments

528.9

443.9

85.0 19.1%

• Tangible assets

823.4

916.6

-93.2 -10.2%

• Intangible assets

198.0

274.4

-76.4 -27.9%

353.9

334.4

19.5

5.8%

• Other assets

2,997.6

3,011.1

-13.5

-0.4%

Total assets

48,247.5

50,804.9 -2,557.4

-5.0%

CONSOLIDATED BALANCE SHEET Restated liabilities (millions of euros)

31-12-02

• Securities

694.4

2.2%

• Positive differences arising from

consolidation and from equity method

• Due to banks

6,055.9

31-12-01 pro-forma

Changes

9,077.0 -3,021.1 -33.3%

• Due to customers and debt

securities in issue

34,128.7

34,173.1

-44.4

-0.1%

981.6

900.0

81.6

9.1%

2,560.8

2,532.5

28.3

1.1%

147.4

180.2

-32.8 -18.2%

• Subordinated liabilities

1,084.6

953.9

130.7 13.7%

• Shareholders’ equity

3,288.5

2,988.2

300.3 10.1%

• Reserves • Other liabilities • Third party assets

Total liabilities

48,247.5

50,804.9 -2,557.4

-5.0%

27

Report on operations

Direct customer funds

On December 31st, 2002, direct customer funds, including subordinated liabilities, reached €35,227.9 million, virtually unchanged from the €35,137.8 million on December 31st, 2001. Direct customer funds 40,000 30,000

35,137.8

35,227.9

31-12-2001 PF

31-12-2002

20,000 10,000 0

31-12-2002 31-12-2001 pro-forma

(in millions of euros)

Changes

Checking accounts, deposits and other accounts Bonds Repurchase agreements Certificates of deposit Subordinated liabilities Other liabilities

17,980.3 9,782.0 3,455.1 2,740.2 1,084.6 185.7

16,716.6 1,263.7 7.6% 9,713.6 68.4 0.7% 4,477.3 -1,022.2 -22.8% 2,898.9 -158.7 -5.5% 953.9 130.7 13.7% 377.5 -191.8 -50.8%

Total direct customer funds (*)

35,227.9

35,137.8

90.1

0.3%

(*) Inclusive of Third party assets under administration

Excluding repurchase agreements, direct customer funds amounted to €31,772.8 million, up 3.6% from €30,660.5 million on December 31st, 2001.

Indirect customer funds

On December 31st, 2002 , indirect customer funds, including funds relating to insurance policies, amounted to €53,467.9 million, up 8.2% from €49,409.1 million at year end 2001. Indirect customer funds 60,000 53,467.9 45,000

49,409.1

30,000 15,000 0

28

31-12-2001 PF

31-12-2002

Report on operations

Specifically, the AuM portion of indirect customer funds at year-end accounted for €26,945.1 million, or 50.4% of total indirect funds.

(in millions of euros)

31-12-2002 31-12-2001 pro-forma

Changes

Assets under management - mutual funds. GPF and SICAV - portfolio management - insurances policies Assets under administration

26,945.1 16,410.7 6,698.9 3,835.5 26,522.8

26,252.0 17,251.7 6,185.5 2,814.8 23,157.1

693.1 2.6% -841.0 -4.9% 513.4 8.3% 1,020.7 36.3% 3,365.7 14.5%

Total indirect customer funds

53,467.9

49,409.1

4,058.8

8.2%

With reference to assets under management, during the year investment funds registered a decline, partly offset by the significant increase in insurance policies, that in the last year grew by 36.3%, and partly by the increase of discretionary accounts.

The main business target for the companies of the Group was to foster the loyalty of retail customers and promote our role of “Banking group of choice” for small and medium enterprises, that are a traditional and well established reference for our structures. In this respect, it is worth emphasizing that both the banks and the other companies of the Group relentlessly and keenly endeavored to innovate and update their range of products and services.

Loans to customers

As to the evolution of aggregates, gross loans to customers by the end of 2002 stood at €32,865.6 million, up 1.9% from €32,239.3 million at the end of 2001. Stripping out the impact deriving from the securitization of a portfolio of financial lease contracts amounting to €680 million, finalized in February 2002, gross loans to customers would have increased by 4.1%.

Gross loans to customers 40,000 30,000

32,239.3

32,865.6

31-12-2001 PF

31-12-2002

20,000 10,000 0

29

Report on operations

Net of total write-offs, on December 31st, 2002 total customer loans showed a 2.2% increase over the previous year, reaching €31,949.2 million.

31-12-2002 31-12-2001 pro-forma

(in millions of euros)

Changes

Impaired loans - NPLs - watchlist loans - loans under restructturing - restructured loans - unsecured loans to Countries at risk Performing loans

2,508.1 1,603.4 813.2 2.2 83.8 5.5 30,357.5

2,539.0 1,719.0 708.0 97.4 14.6 29,700.3

Total gross loans

32,865.6

32,239.3

626.3

1.9%

-734.4 -182.0

-800.2 -184.3

-65.8 -2.3

-8.2% -1.2%

31,949.2

31,254.8

694.4

2.2%

Write-downs on impaired loans Write-downs of performing loans Total net loans

-30.9 -1.2% -115.6 -6.7% 105.2 14.9% 2.2 -13.6 -14.0% -9.1 -62.3% 657.2 2.2%

Excluding repurchase agreements, that are typical treasury investments, as of December 31st, 2002 gross loans stood at €32,384 million, up 0.9% compared with €32,105 million of the previous year. The breakdown of loans by technical class shows a sustained growth of loans destined to repurchase agreements (+257%), mortgages (+7.71%), followed by finance operations and other subsidies (+5.33%), while loans extended for financial lease contracts reported a decrease (-18.83%). Excluding the impact deriving from the securitization transaction by Leasimpresa, amounting to about €680 million, financial lease contracts would have increased by 40,84%. At the end of 2002, the non-performing loans to gross customer loans ratio, gross of write-downs, went from 5.33% on December 31st, 2001 down to 4.88%. Net of write-downs, the NPL to loans ratio decreased from 3.22% at year-end 2001 to 3.07%.

Gross NPL/gross loans ratio 5.33%

4.88%

31-12-2001 PF

30

31-12-2002

Report on operations

On December 31st, 2002, the impaired loans coverage ratio (namely, the ratio between write-downs and nominal value) was 29.28% compared with 31.52% in the previous year. The coverage ratio for NPLs only was 38.9% compared with 41.4% in the previous year.

As of December 31st, 2002, the Group’s total securities portfolio, including the Parent company’s treasury shares, amounted to €4,997.3 million, compared with €5,606 million on December 31st, 2001. The investment securities portion accounted for €1,052.24 million, compared with €1,631.24 million on December 31st, 2001. The bulk of the portfolio, i.e., the trading securities portion, represents the operational basis for reverse repurchase agreements with customers.

Securities portfolio

Securities 6,000

5,606.0 4,997.3

5,000

1,631.5

1,052.2

3,974.8

3,945.1

investment

4,000 3,000 2,000

trading 1,000 0

31-12-2001 PF

31-12-2002

On December 31st, 2002, the consolidated shareholders’ equity stood at €3,288,5 million, up 10% compared with €2,988.2 million on December 31st, 2001.

Shareholders’ equity

Changes in the relevant accounts are shown under section “Charts and Attachments to the consolidated Financial Statements”. Consolidated shareholders’ equity 4,000 3,000 2,000

2,988.2

3,288.5

31-12-2001 PF

31-12-2002

1,000 0

31

Report on operations

Consolidated income statement The following chart shows the restated consolidated income statement.

CONSOLIDATED INCOME STATEMENT (millions of euros)

2001 pro-forma

Changes

2,345.5 -1,084.0

2,699.2 -1,485.7

-353.7 -13.1% -401.7 -27.0%

1,261.5

1,213.5

48.0

4.0%

699.1 67.1 150.8

717.3 53.4 116.1

-18.2 13.7 34.7

-2.5% 25.7% 29.9%

917.0

886.8

30.2

3.4%

35.5

23.7

11.8

49.8%

Net interest and other banking income

2,214.0

2,124.0

90.0

4.2%

• Personnel expenses • Other administrative expenses • Depreciation and amortization on tangible and intangible assets

-815.0 -400.4

-814.7 -380.9

0.3 19.5

0.0% 5.1%

-150.6

-143.3

7.3

5.1%

-1,366.0

-1,338.9

27.1

2.0%

848.0

785.1

62.9

8.0%

-62.7 -38.9

-58.4 -18.0

4.3 7.4% 20.9 116.1%

-288.2

-214.6

73.6

34.3%

117.4

66.6

50.8

76.3%

-4.3 -

-10.1 -0.7

-5.8 -57.4% 0.7 -100.0%

571.3

549.9

21.4

188.9

34.6

760.2

584.5

175.7

30.1%

-314.0 -17.0

0.2 -258.3 -17.6

-0.2 55.7 -0.6

21.6% -3.4%

429.2

308.8

120.4

39.0%

• Interest income • Interest expense Net interest income • Net commissions • Profits from financial transactions • Other net profits Non-interest income • Dividends and profits from equity investments carried at equity

Operating costs Operating income • Write-downs of goodwill, positive differences upon consolidation and on application of the equity method • Provisions for risks and charges • Write-downs of loans and provisions for guarantees and commitments • Write-back of loans and provisions for guarantees and commitments • Write-downs of financial fixed assets net of write-backs • Provisions to loan loss reserves Income before extraordinary items • Extraordinary income Income before taxes • Changes in the allowance for general banking risks • Income taxes for the period • Minority interest Net income for the year

32

2002

3.9%

154.3 446.0%

Report on operations

The chart below shows the changes in the restated consolidated income statement over the four quarters of financial year 2002.

Income statement (in millions of euros)

• Interest income • interest expense Net interest income • Net commissions • Profits from financial transactions • Other net profits Non-interest income • Dividends and profits from equity investments carried at equity Interest and other banking income • Personnel expenses • Other administratives expenses • Depreciation and amortization of tangible and intangible assets Operating costs Operating income

IV Q 2002

III Q 2002

II Q IQ 2002 PF 2002 PF

579.7 -274.9

581.7 -261.1

580.2 -255.6

603.9 -292.4

304.8

320.6

324.6

311.5

178.1 39.4 48.2

167.7 12.6 34.5

178.5 14.0 32.2

174.8 1.1 35.9

265.7

214.8

224.7

211.8

10.6

3.2

18.3

3.4

581.1

538.6

567.6

526.7

-213.9 -88.6

-203.9 -110.7

-201.2 -110.5

-196.0 -90.6

-39.2

-39.1

-37.8

-34.5

-341.7

-353.7

-349.5

-321.1

239.4

184.9

218.1

205.6

• Write-downs of goodwill, positive differences upon consolidation and on application of the equity method • Provisions for risks and charges • Write-downs of loans and provisions for guarantees and commitments • Write-backs of loans and provisions for guarantees and commitments • Write-downs of financial fixed assets net of write-backs • Provisions to loan loss reserves

-15.9 -15.0

-15.8 -4.1

-15.5 -15.5

-15.5 -4.3

-102.5

-62.3

-76.4

-47.0

24.9

17.1

48.2

27.2

-2.3 -

-0.8 0.1

-1.1 -0.1

-0.1 -

Income before extraordinary items

128.6

119.1

157.7

165.9

8.6

178.9

-1.8

3.2

137.2

298.0

155.9

169.1

-65.8 -5.1

-103.2 -3.4

-67.5 -3.3

-77.5 -5.2

66.3

191.4

85.1

86.4

• Extraordinary income (loss) Income before taxes • Income taxes for the period • Minority interest Net income for the period

33

Report on operations

The items contributing to the net income for the year 2002 have been analyzed and compared with the corresponding items of the previous year, with reference to the restated income statement reported before.

Net interest income

The main contributor to the operating income was net interest income, that totaled €1,261.5 million, showing a €48 million increase, up 4% compared with the pro-forma 2001 figure. This dynamic was favored by the increase in intermediated volumes in an environment characterized by a stable customer spread.

(in millions of euros)

Interest income and similar revenues - on due from customers - on due from banks - other Interest expense and similar charges - on due to customers - on debt securities in issue (*) - other Net interest income

2002

2001 pro-forma

Changes

2,345.5 1,795.7 288.7 261.1 - 1,084.0 - 355.2 - 462.3 - 266.5

2,699.2 2,011.6 386.4 301.2 - 1,485.7 - 469.0 - 526.0 - 490.7

- 353.7 - 215.9 - 97.7 - 40.1 - 401.7 - 113.8 - 63.7 - 224.2

1,261.5

1,213.5

48.0

-

13.1% 10.7% 25.3% 13.3% 27.0% 24.3% 12.1% 45.7% 4.0%

(*) inclusive of interest on subordinated debt

Net interest income as a percentage of net interest and other banking income went from 57.1% in 2001 to 57% in 2002.

Net interest and other banking income

The Group’s net interest and other banking income in 2002 stood at €2,214.1 million, up 4.2% compared with €2,124 million of the previous year. 2002

2001 pro-forma

Net interest income Dividends and profits/losses from equity investments carried at equity Net commissions Profits from financial transactions Other net profits

1,261.5

1,213.5

48.0

4.0%

35.5 699.1 67.1 150.8

23.7 717.3 53.4 116.1

11.8 - 18.2 13.7 34.7

49.8% - 2.5% 25.7% 29.9%

Net interest and other banking income

2,214.0

2,124.0

90.0

4.2%

(in millions of euros)

Changes

Non-interest income reached €917 million, reporting a €30.2 million increase, or 3.4% percentage wise. A breakdown of this aggregate shows net service commissions for €699.1 million, down 2.5% from €717.3 million being the pro-forma figure for 2001.

34

Report on operations

(in millions of euros)

2002

2001 pro-forma

Changes

Managements, brokerage and advisory services Expense recovery on deposits and c/a Payment and collection services Guarantees Other services

373.3 53.9 95.5 21.3 155.1

419.1 45.4 91.7 20.8 140.3

- 45.8 8.5 3.8 0.5 14.8

- 10.9% 18.7% 4.1% 2.4% 10.5%

Net commissions

699.1

717.3

- 18.2

- 2.5%

The unrelenting instability of financial markets represents the main cause for the 10.9% reduction in commissions from management, brokerage and advisory services, due to declining trading volumes and the reallocation of savings to investment products characterized by lower commissions and fees. The negative performance described above were partly offset by the 10.5% increase in commissions from “other services”. Specifically, the shrink in customer intermediated volumes caused a €3.8 million reduction in commissions from order collection, equal to 16.8%, and a €4.2 million decrease in commissions from securities placement, equal to 46.7%. The reallocation of assets under management in turn caused a €37 million decrease in commissions from UCITS, equal to 13.9%.

(in millions of euros)

2002

2001 pro-forma

Changes

Asset management Distribution of third party services Securities trading Order collection Currency trading Custodian bank Securities placement Other services

228.6 68.4 20.0 18.8 12.6 14.9 4.8 5.2

265.6 59.3 25.7 22.6 15.4 15.6 9.0 5.9

- 37.0 9.1 - 5.7 - 3.8 - 2.8 - 0.7 - 4.2 - 0.7

- 13.9% 15.3% - 22.2% - 16.8% - 18.2% - 4.5% - 46.7% - 11.9%

Net commissions from management. trading and advisory services

373.3

419.1

- 45.8

- 10.9%

Profits from financial transactions, equal to €67.1 million, increased by €13.7 million, up 25.4% compared with the pro-forma 2001 figure. It should be noted, that the 2002 figure includes the effect deriving from adopting the mark to market method for securities listed on organized markets that do not represent financial investments and of derivative trading contracts that in spite of non being listed on organized markets, still refer back to listed parameters. The current effect caused by the above methodological change, included in the item profits from financial transaction in financial year 2002, accounts for €32.8 million. The retrospective effect of such change amounts to €4.3 million, and is

35

Report on operations

reported under the item non-recurring revenues. The pro-forma figure for 2001 was calculated by applying the lower between the purchase price and the market value. Assuming that the above retrospective effect is totally stated in 2001, the increase in profits from financial transactions would be 16.3%. This growth is mainly to be ascribed to the development of derivative trading with customers. In detail, net income from securities trading and other financial transactions totaled €55.6 million, compared with the 2001 pro-forma figure of €37.2 million. Income from currency trading amounted to €11.7 million, compared with the 2001 pro-forma figure of €16.3 million.

(in millions of euros)

2002

2001 pro-forma

Changes

Securities deals Currency deals Other transactions

10.9 11.7 44.5

25.1 16.3 12.1

- 14.2 - 4.6 32.4

- 56.6% - 28.2% 267.8%

Profits from financial transactions

67.1

53.5

13.6

25.4%

198.2 - 187.0 55.9

11.7 - 21.1 62.9

of which: appreciation of which: depreciation of which: other profits

Other net income reports a €34.7 million increase (+29.9%), up to a total of €150.8 million. Said increase is mainly due to the realignment between charges asked from customers to recover expenses and the higher service charges introduced by some of the banks of the Group. In keeping with the specific instructions issued by the Bank of Italy, this aggregate comprises additional yields accrued on junior notes included in the securities portfolio originated by the securitization deals carried out by the companies of the Group, amounting to €15.3 million.

36

Report on operations

Dividends and equity profits from investee companies valued under the equity method stood at €35.5 million, up €11.8 million from the 2001 pro-forma figure. This increase is mainly ascribable to the higher dividends received from the shareholding in Crediop and to the Group’s share of profits of the affiliates valued under the equity method, namely Istituto Centrale delle Banche Popolari Italiane, Italease and BPV Vita.

Operating income

Personnel expenses amounted to €815 million, and were virtually unchanged from 2001, due to the combined effect deriving from the decrease in the Group’s average number of employees, offset by the wage increases introduced by the labor contract renewals that took place during the year and the incentive bonuses linked to the achievement of the integration plan objectives. The decrease in the average number of employees is mainly due to the early retirement program carried out by Banca Popolare di Novara s.c.r.l. in the second half of 2001. Following the agreement reached with the Trade Unions to utilize the industry “Solidarity Fund” (Fondo di Solidarietà di settore), a headcount reduction of some 600 units was reported, whose economic effects fully manifested in 2002. It should be noted, that in order to gain access to said Solidarity Fund, Banca Popolare di Novara s.c.r.l. had to incur a cost of €61.3 million, and that, in keeping with the relevant regulations – overriding the accounting principles providing for the whole cost to be fully charged to income in the financial year in which the liability was generated – said cost was posted under intangible assets, and is being amortized over five years along the straight line method starting from 2001. Net of the amortization charged to income in 2002, equal to €12.3 million, its residual net book value on December 31st, 2002 was €36.8 million. Amortization and depreciation of tangible and intangible assets were equal to €150.6 million, up €7.3 million compared with the previous year. This was mainly due to the significant investments carried out to further the Group’s activities. The remaining part of operating costs is represented by other administrative expenses, amounting to €400.4 million, up €19.5 million (+5.1%). Said increase is mainly due to the increment of real estate expenses caused by the disposal of Impresol’s properties, as well as to the fact that all costs incurred to carry out the merger and the following integration projects were fully charged to income. As a result of the performance of the above items, operating costs totaled €1,366 million, up 2% compared with the 2001 pro-forma figure. The resulting net operating income stood at €848 million, up 8% from the 2001 pro-forma figure.

37

Report on operations

Income on ordinary activities before exceptional items and taxation

Moreover, the following items were charged to income for the year: -

amortization of goodwill, positive consolidation differences and positive differences on application of the equity method for €62.7 million, compared with €58.4 million in 2001. The above amortizations break down as follows: the goodwill amortization deriving from the merger of Banco S.Geminiano e S.Prospero into the Parent company accounts for €34.9 million, the amortization of the positive difference upon consolidation of the shareholding in Credito Bergamasco S.p.A. accounts for €20.2 million, while the amortization of the positive difference upon consolidation of Banca Aletti & C. S.p.A accounts for €6,2 million;

-

provisions for risks and charges for €38.9 million, compared with €18 million in 2001. Provisioning was increased mainly to prudentially align reserves for risk and charges to the risks arising from outstanding disputes and remedial actions against the banks of the Group;

-

Write-downs on loans and provisions for guarantees and commitments, net of write-backs, for €170.8 million, from pro-forma €148.0 illion in 2001. Specifically, write-downs on loans and provisions for guarantees and commitments stood at €288.2 million, from pro-forma €214.6 million in 2001, while write-backs were equal to €117.4 million compared with €66.6 million in the previous year. Loan write-backs include the €13 million proceeds arising from the posting back of the credit with the Italian Social Security Agency I.N.P.S., following the favorable decision of the Court of Vicenza issued on March 1st, 2002, acting as an appellate court. The court’s opinion referred to the disputes on the alleged omission by Banca Popolare di Verona to pay social security contributions due on the profit share destined to the supplementary company pension fund for company employees before 1992, and on the corresponding value of the shares gratuitously assigned to employees upon the Bank’s 125th anniversary. Since the Court decisions give Banco the right to claim back the reprieve payments already charged to income, the ensuing credit was duly posted back. As a matter of fact, it should be noted that I.N.P.S. appealed to the Supreme Court of Cassation;

-

write-downs on financial fixed assets, net of write-backs, equal to €4.3 million.

Net of the above adjustments and provisions, income before extraordinary items stood at €571.3 million, up €21.4 million, or 3.9%, compared with the corresponding pro-forma figure for 2001.

38

Report on operations

Income before taxes reached €760.2 million, up 30.1%, as a result of an extraordinary income of €188.9 million. In 2001, the exceptional income ran at €34.6 million. €173.2 million of the above non-recurring profit was generated by the disposal of Impresol S.p.A., a subsidiary that Banca Popolare di Novara s.c.a r.l. had vested with a substantial part of its real estate.

Income before taxes

Income taxes for the year totaled €314 million, up 21.6% from the pro-forma figure of €258.3 million of the previous year. They correspond to an actual tax rate of 41.3%, compared with 44.2% in 2001. The lower taxation of the 2002 income is mainly due to the application of art. 1 of Law Decree N. 358/1997, that gives the opportunity to apply a 19% “substitutive tax” (i.e., substitute for income tax) on the capital gain ensuing from the disposal of the subsidiary Impresol.

Net income for the year

Net of the minority interest of €17 million, the net income for the year runs at €429.2 million, up 39% from the pro-forma net income for 2001 of €308.8 million.

39

Report on operations

Ownership and sale of own shares At year-end the companies belonging to the Group did not own any shares of the Parent company. The purchase and sale of shares and convertible bonds of Banco Popolare di Verona e Novara carried out over the year are detailed in the charts below:

Common shares of the Parent company

Balance as of 1 June 2002 Purchases Sales Trading profit/loss Balance as of 31 December 2002

Subordinated convertible bonds “Banca Popolare di Verona - BSGSP 1999/2005”

Balance as of 1 June 2002 Purchases Sales Trading profit/loss Balance as of 31 December 2002

Subordinated convertible bonds “Banca Popolare di Novara 1,5% 2006”

Balance as of 1 June 2002 Purchases Sales Trading profit/loss Balance as of 31 December 2002

Nominal value (€)

Number

Book values (€)

10,904,731 -10,904,731

39,257,032 -39,257,032

138,164,277 -138,156,669 -7,608

-

-

Nominal value (€)

Book values (€)

595

542

13,409,777 -13,409,585

12,748,350 -12,748,204 50

787

738

Nominal value (€)

Book values (€)

-

-

518,172 -518,172

631,209 -627,977 -3,232

-

-

The chart required under art. 79 of Consob’s resolution n. 11971/1999, listing “the shares of the Parent company and of its Subsidiaries held by Directors, Statutory auditors and the General Manager, as well as not legally separated spouses and minor children, either directly or indirectly, through subsidiary companies, trust companies, or through a nominee”, is shown in the financial statements of the Parent company.

40

Report on operations

Reconciliation between the parent company’s equity and income and the consolidated equity and income The consolidated shareholders’ equity as of December 31st, 2002 reached €3,288.5 million. The changes in the relevant accounts are stated under Chapter B, Section 8 (of the Notes and in the Charts and attachments to the consolidated financial statements). The table below clarifies the reconciliation between the Parent company’s equity and income and the consolidated equity and income.

(in millions of euros)

Shareholders’ Income equity for the year

Balance as of 31/12/02 as in the Parent company’s accounts Elimination of adjustments and provisions made exclusively for fiscal purposes in the Parent company’s accounts: - provisions to loan loss reserves - accelerated depreciation Parent copany adjusted balance as of 31/12/02 Alignment of goodwill entered in the Parent company’s accounts with values in line with those entered in the consolidated financial statements

3,129.0

233.6

34.2 5.7

- 31.4 1.4

3,168.9

203.6

- 31.8

7.2

Elimination of intercompany dividends collected over the year

- 59.3

Recognition of the capital gain from the contribution to Impresol that had previously been written off and is now realized as a result of the disposal of the subsidiary

120.7

Elimination of intercompany capital gains from the disposals and contributions of business lines carried out in 2002 and in previous financial years

- 13.8

Differences between the shareholders’ equity of consolidated affiliates and their carrying value, after deduction of minority interest

137.8

Net income of consolidated affiliates, after deduction of minority interest Differences between the pro-rata value of shareholders’ equity and net income for the year and the carrying value of equity investments valued along the equity method Balance as of 31/12/02 as in consolidated accounts

- 4.1

154.6

27.4

6.5

3,288.5

429.2

41

Report on operations

Significant equity investments Shown below is a summary list of the main equity holdings in companies of the Group, followed by a snapshot of the financial position, the profitability and the operational performance of the most important companies, subdivided by business sector. Shareholding Direct Total

(in millions of euros)

Lending institutions Banco Popolare di Verona e Novara Banca Popolare di Novara Credito Bergamasco Banca Aletti & C. BPVN (France) BPVN (Luxembourg) Banca Aletti & C. (Suisse)

Shareholders’ Profit equity (*) (Loss)

Parent company 26,215.7 3,129.0 100.000% 100.000% 14,815.7 865.6 81.252% 81.252% 10,445.0 753.4 74.225% 100.000% 8,749.4 107.2 99.977% 99.977% 417.9 37.4 99.966% 100.000% 324.3 37.8 100.000% 22.2 8.3

Financial companies Leasimpresa 100.000% Holding di Partecip. Finanziarie Popolare di Verona S.Geminiano e S.Prospero 100.000% 100.000% Aletti Merchant 60.000% 100.000% Aletti Gestielle SGR 32.612% 100.000% Aletti Invest SIM 50.000% 100.000% Novara Invest Sim 99.000% 100.000% Aletti Gestielle Alternative SGR 100.000% Aletti Private Equity SGR 100.000%

233.6 84.0 85.1 12.6 0.5 0.3 -0.5

1,353.5

56.6

8.1

123.4 90.5 90.0 14.2 4.2 2.5 1.2

123.2 17.8 30.0 11.5 0.9 1.6 1.1

10.1 -4.0 -0.1 -1.0 -2.2 -0.3 -0.3

50.000% 50.000% 51.000%

2,165.8 1,583.5 4.6

70.0 45.3 0.9

2.6 5.0 0.1

Other companies Sestri 100.000% 100.000% Società Gestione Servizi - BPVN 75.490% 100.000% BPVN Immobiliare 100.000% 100.000% SARI Sannitica Riscossioni 99.950% 99.950% Immobiliare BPV 100.000% 100.000% Novara Immobiliare 100.000% Tecmarket Servizi 47.500% 100.000%

326.4 299.8 46.4 21.0 3.7 2.5 2.2

3.6 108.4 22.3 2.7 3.7 0.4 1.5

-1.1 4.0 -0.1 0.2 0.1 0.1 0.5

Insurance companies Novara Vita BPV Vita Arena Broker

(*) Inclusive of income for the period

42

Total asstes

50.000% 35.000%

Report on operations

Banca Popolare di Novara Banca Popolare di Novara S.p.A., directly owned by the Parent company, is a banking corporation formed on May 31st, 2002, - operational since June 1st, 2002 – originating from the contribution of a banking business line of BPN S.c.a r.l. to Finanziaria Popolare di Novara S.p.A. (a company incorporated on January 10th, 2002). Said business line comprised a set of assets and relations functionally organized to perform banking and financial activities in stand-alone as well as through the whole Italian branch network. (in millions of euros)

Balance sheet Direct customer funds Indirect customer funds Gross loans Total assets Shareholders’ equity Other Employees (average) Branches

31-12-2002

Income statement Net interest income Net commissions Net interest & other banking income Operating costs Operating income Income before extraordinary items Extraordinary income 5,066 Net income 534

12,022.2 23,366.0 9,503.6 14,815.7 865.6

Lending institutions

2002

301.8 140.0 498.4 284.2 214.2 156.4 0.1 84.0

Credit intermediation At the end of 2002, direct customer funds, including subordinated liabilities, reached €12,022.2 million, down 4.8% from €12,624.6 million on June 1st, 2002. This downtrend is partly due to a reallocation of the offer, aimed at reducing its focus on large corporate accounts, and concentrating more on discretionary accounts. Specifically, due to customers ran at €8,131 million, while debt securities in issue stood at €3,797 million. The breakdown by technical class shows that 77% of due to customers are represented by current accounts, with €6,232 million; 17% are repurchase agreements (€1,354 million), and the remaining 6% is savings deposits, equal to €544 million. The dynamic of bond issues, that benefited from the group rating, appeared consistent with a funding policy aiming at a balanced use of the various funding sources to contain financial charges, while at the same time satisfying the needs of customers looking for structured products. In the time frame under consideration, 8 new bond issues were launched with maturities ranging between 2004 and 2009 for a total amount of €255.8 million. On the assets side, write-downs in anticipation of losses totaled €137.0 million against total gross customer loans for €9,503.6 million. Specifically, writedowns on watchlist loans amounted to €46.3 million, on restructured loans or

43

Report on operations

loans under restructuring €6.7 million, and on non-performing loans €35.7 million. The remaining write-downs (€48.3 million) concern performing loans (“physiological” risk equal to 0.53% of the aggregate, including the principal portion and the full amortization of default interest). Net customer loans stood at €9,367 million. Compared with June 1st, the aggregate shows a €884 million decrease (-8.6%), mainly due to the cutting down on purely financial transactions, with a focus on small and medium enterprises. However, it should be noted that the comparison is partly affected by a time mismatch (a financing transaction for €290 million was opened on May 31st and closed on June 3rd). Credit risk Net non-performing loans stood at €47.0 million. The NPL to total loans ratio was running at 0.87% gross and 0.50% net. The increase in substandard loans compared with June 2002 and the amount of NPLs stated above are ascribable to the deterioration of the macro-economic scenario, to the harmonization of BPN’s lending regulations with those adopted by the Parent company, and by a prudent valuation of loans, in keeping with the remarks raised by the Bank of Italy following and audit at BPN S.c.r.l.. The harmonization process focusing on the analysis of loans classified as watchlist loans and special mention (incagli and rientro bonario) was completed in February 2003. As a result of the new classification system, on December 31st, 2002 all “special mention” loans were included in watchlist loans. They have now been reclassified as “Incagli a rientro” – or watchlist loans under repayment. Indirect customer funds In order to rationalize the asset management sector and the portfolio management service, a delegation mandate, effective from November 5th, 2002, was entered between BPN S.p.A. and two companies of the Group (Banca Aletti & C. S.p.A. and Aletti Gestielle SGR S.p.A.). The latter have been delegated the management of investment portfolios. As of the above date, client authorizations for “delegations to third parties” started being collected, and as a result: -

Banca Aletti & C. S.p.A. shall manage the portfolio of contracts falling under one of the following classes: monetary, bonds, senior bonds, balanced 20-80, balanced 30-70, balanced 50-50, equity, top active and “BPN Contosuper”;

-

Aletti Gestielle SGR S.p.A. shall take care of the portfolio of contracts falling under one of the following classes: Multibrand (prudent, moderate, dynamic and aggressive profiles), and GPF (income, opportunity, value and growth).

The deeply negative phase experienced by the asset management sector only marginally affected the bank: on December 31st, 2002 total assets under management accounted for €8,766 million, up 1.8% from €8,611 million in June.

44

Report on operations

Commissions from management, trading and advisory services amounted to €68.6 million. On December 31st, 2002, mutual funds (excluding units in GPF) in BPN S.p.A.’s charge accounted for €3,412 million. Net inflows were running at €310 million. At the end of December 2002, discretionary accounts (traditional, invested in funds, multibrand and unit linked) stood at €4,060 million, as a result of an outflow of €143 million and of the unfavorable performance effect of the residual portion. Funds under administration at year-end 2002 were running at €14,600 million, up 9.58% from €13,324 million at the beginning of June. Operating performance for the period The focus on pricing policies, and in general the reallocation of the portfolio to more profitable classes of products were directed towards an improvement of customer spreads. In the second half of 2002, net interest income stood at €301.8 million, as a result of interest revenues for €472.3 million and interest charges for €170.6 million. Net commissions were running at €140.0 million. They break down into commission income for €150.1 million and commission expense for €10.1 million. Commission income was held up by revenues from management, trading and advisory services (totaling €68.6 million), representing about 46% of total commissions. The percentage of revenues from other services and guarantees issued is 32% (€48.4 million). The remaining 22% was generated by commissions on collection and payment services, standing at €33.1 million. Profits from financial transactions stood at €14.3 million. Securities trading generated a €17.4 million income, comprised by €5.0 million worth of trading income, and a mismatch between capital losses for €1.7 million and write-backs and capital gains for €14.1 million, resulting in a 12.4 million gain. Net operating costs amounted to €303.5 million, of which personnel costs for €152.9 million and other administrative expenses for €150.6 million. After factoring in €0.245 million worth of depreciation of tangible assets, the gross operating income stood at €214.2 million. Net provisions and write-downs at year-end 2002 totaled €57.7 million, as a result of write-downs and provisions for €68.2 million, and write-backs for €10.4 million. As a result, income before taxes was €156.5 million. Net of income taxes for €72.5 million, the net income for the period totaled €84.0 million.

45

Report on operations

Credito Bergamasco (in millions of euros)

31-12-2002 31-12-2001

Balance sheet Direct customer funds Indirect customer funds Gross loans Total assets Shareholders’ equity

Change

7,045.5 7,966.8 7,186.0 10,445.0 753.4

6,090.1 6,964.9 6,606.8 9,571.1 711.5

955.4 1.001.9 579.2 873.9 41.9

15.7% 14.4% 8.8% 9.1% 5.9%

Income statement Net interest income Net commissions Net interest and other banking income Operating costs Operating income Income before extraordinary items Extraordinary income Net income

264.4 101.7 405.5 223.2 182.3 140.4 12.6 85.1

255.0 106.9 392.9 219.6 173.3 132.4 7.3 79.5

9.4 -5.2 12.6 3.6 9.0 8.0 5.3 5.6

3.7% -4.9% 3.2% 1.6% 5.2% 6.0% 72.6% 7.0%

Other Employees (average) Branches

2.093 220

2.082 213

11 7

0.5% 3.3%

Credit intermediation Financial year 2002 closed with satisfactory results with regard to credit intermediation. Total direct customer funds (inclusive of third party assets under administration) stood at €7,045.5 million, up 15.7% from €6,090.1 million at year-end 2001. Against a backdrop still characterized by highly volatile financial markets, structured bonds kept on enjoying an adequate success among customers. Ordinary bonds reached €1,565.4 million, growing by 12.1% from €1,396.6 million at year-end 2001; Bond issues marketed on the Euromarket amounted to €573.4 million, while total bonds reached €2,138.7 million, compared with €2,058.3 million of the previous year. Among “time deposits”, it is worth highlighting the interesting growth rate enjoyed by certificates of deposit, that increased by 57.8% compared with the end of last year, reaching €185.7 million. Among the other funding classes, checking accounts grew significantly, running at €3,341.4 million, up 33% from €2,511.9 million on December 31st, 2001. During the year, the company carried on its effort to channel reverse repo flows towards investment products that could better meet customer needs, such as structured bonds and asset management products. This caused a reduction in

46

Report on operations

reverse repurchase agreements with customers, that dropped to €720 million from €871.4 million at year-end 2001 (-17.4%). On the assets side, total loans to customers, inclusive of €236.6 million worth of repurchase agreements, stood at €7,186.0 million, reporting a y/y increase of 8.8% from €6,606.8 million at the end of 2001. Among the different loan classes, mortgages showed a significant y/y growth, running at €1,522 million, up 18.3%, other medium and long term loans stood at €372.9 million (+10% compared with 31.12.2001) and advances under reserve against bills and notes that reached €696.1 million (+10.8% compared with the previous year). Credit risk As a result of the relentless and effective monitoring and control exercised over credit risks, the difficulties suffered by our domestic economy during 2002 only marginally affected the quality of extended loans. As of December 31st, 2002 gross non-performing loans, inclusive of the principal and interest portions, reached €105.3 million.

(in millions of euros)

31-12-2002 31-12-2001

Changes

Impaired loans - NPLs - watchlist loans - restructured loans - unsecured loans to Countries at risk Performing loans

284.0 105.3 164.3 14.2 0.2 6,902.1

276.5 93.7 162.6 20.0 0.2 6,330.4

7.5 11.6 1.7 - 5.8 571.7

2.7% 12.4% 1.0% - 29.0% 9.0%

Total gross loans Total write-downs

7,186.1 - 89.4

6,606.9 - 85.3

579.2 4.1

8.8% 4.8%

Total net loans

7,096.7

6,521.6

575.1

8.8%

Net of write-downs, they amounted to €70.3 million, i.e., 0.99% of total net loans. Also other impaired loans show a positive trend: the aggregate, comprising substandard loans, restructured loans and unsecured loans to Countries at risk, decreased by 2.2% gross and 2.1% net compared with December 31st, 2001. Out of a total of €283.9 million worth of gross impaired loans to customers, as of December 31st, 2002 total write-downs totaled €56.4 million. On the remaining performing loans, further write-downs for €33.1 million were carried out, in anticipation of possible physiological losses that might materialize in the future. On the liabilities side, €37.2 million are stated under the item “loan loss reserves”, (+16.2% from €32 million at year-end 2001), that have been posted

47

Report on operations

exclusively in adherence to tax regulations, in order to cover “possible” customer credit risks. Indirect customer funds With regard to assets under management, portfolio management reached €1,028.8 million, up 11.8% from €920.5 million at year-end 2001; segregated accounts invested in mutual funds amounted to €838.3 million, compared with €1,014.3 million on 31.12.2001. Mutual funds reported a significant progress, standing at €1,286.7 million, up 27.6% over the previous year, net of units pertaining to discretionary accounts. Assets under management invested in insurance policies reached €800.3 million (with net annual inflow of €218 million), up 37.4% from €582.6 million at yearend 2001. Operating performance for the period As of the drawing up of the financial statements on December 31st, 2002, the method followed to value securities and other notes representing off-balance sheet transactions (other than currency transactions) has changed, provided they do not represent long term investments and are listed on organized markets, thus shedding the “lower of cost or market” method, in favor of a “market value” valuation approach, albeit that “securities” and “notes” not listed on organized markets shall still be valued at the lower of cost or market. In addition, in order to be consistent with the new method and to allow purchased securities to gradually get closer to their market value, costs are no more calculated along the continuous LIFO method, but rather by way of the “daily average cost”, to be applied to both listed securities, as well as securities that are not listed on organized markets. In 2002, the growth of intermediated volumes with customers and the careful management of terms applied allowed Credito Bergamasco to achieve positive results in the field of money management. On December 31st, 2002, interest margin reached €264.4 million, up 3.7% from €255 million at year-end 2001. Interest income stood at €475.3 million compared with €503.4 million on December 2001, while interest expense amounted to €210.8 million from €248.4 million one year before. On December 31st, 2002, net service commissions were running at €101.7 million, reporting a €5.2 million decrease from the previous year (-4.9%). Specifically, net commissions from “management, trading and advisory services” decreased by €9.4 million. Said decrement was partly offset by the €4.2 million increase in net commissions from more operational activities (“collection and payment services”, “guarantees issued”, etc.). Profits from financial transactions amounted to €9.8 million, up 67.8% from €5.9 million at the end of 2001. To be noted, that the different accounting method adopted, namely the “market value” valuation method for securities

48

Report on operations

and other notes representing off-balance sheet transactions, produced a total of €4.5 million worth of gross revenues, mainly ascribable to operations with customers in the area of derivatives to hedge interest rate risks. Out of said amount, €3.873 million have been stated under “item 60 – profits from financial transactions”, whilst €0.657 million were posted under non-recurring revenues, in that they were considered a retrospective effect of the change in valuation method. Total operating costs, including amortization and depreciation, reached €223.2 million, reporting a 1.6% annual increase from €219.6 million at year-end 2001. Personnel expenses, net of the recovery of costs pertaining to seconded personnel, increased by 5.6%, mainly due to charges generated by the renewal of the supplementary employment contract. Income before extraordinary items reached €140.4 million, up 6% from €132.4 million on December 31st, 2001. Extraordinary income stood at €12.6 million, compared with €7.3 million of the previous year. It includes proceeds from default interest that had accrued in the past and were collected during the year, amounting to €5.2 million, insurance refunds (posted under non-recurring assets because claims that have been reimbursed had been charged to income in previous financial years), proceeds from the successful settlement of bankruptcy remedial actions (“revocatorie”). As a result, the income statement closed with a net income for the year of €85.1 million, up 7% from €79.5 million on December 31st, 2001. The year-end return on equity, resulting from the net income to net equity ratio, went from 12.7% last year up to 12.9%.

49

Report on operations

Banco Popolare di Verona e Novara (France) The company, that was previously called Banque de l’Union Maritime et Financiere, changed its name on February 1st, 2003 to benefit from a better visibility towards its counterparts. It is still directly controlled by the Parent company, that holds a 99.977% stake, and it is based in Paris. It is a single-branch fullservice bank, that provides corporate banking services to the main economic sectors, as well as private banking and commercial banking advisory services.

(in millions of euros)

31-12-2002 31-12-2001

Balance sheet Direct customer funds Indirect customer funds Gross loans Total assets Shareholders’ equity Income statement Net interest income Net commissions Net interestand other banking income Operating costs Operating income Income before extraordinary items Extraordinary income Net income Other Employees (average) Branches

Changes

103.9 69.4 238.3 417.9 37.4

69.6 77.0 195.2 319.6 36.9

34.3 -7.6 43.1 98.3 0.5

49.3% -9.9% 22.1% 30.8% 1.4%

6.0 3.2 9.1 7.2 1.9 0.9 - 0.4 0.5

5.8 1.8 7.5 7.1 0.4 - 0.9 - 0.2 - 1.1

0.2 1.4 1.6 0.1 1.5 1.8 0.2 1.6

3.4% 77.8% 21.3% 1.4% 375.0%

58 1

56 1

2 -

100.0%

3.6% -

On December 31st, 2002, direct customer funds, inclusive of subordinated liabilities, totaled €103.9 million, up 49.3% from €69.6 million on December 31st, 2001. The breakdown of direct funds show a 59.5% increase in savings accounts compared with December 31st, 2001 and the growth of certificates of deposit, up 217.7% compared with the end of the previous year. With regard to assets, gross customer loans reached €238.3 million, increasing by 22.1% from €195.2 million on December 31st, 2001. Net of write-downs, loans were running at €228.4 million, compared with €185.5 million on December 31st, 2001.

50

Report on operations

Banco Popolare di Verona e Novara (Luxembourg) The company (previously called BPV International), is directly controlled by the Parent company through a 99.966% stake, and for the remaining part by Holding di Partecipazioni Finanziarie Popolare di Verona – S.Geminiano e S.Prospero. It is headquartered in Luxembourg and it provides the Group with yet another operational tool to support foreign transactions executed by customers. (in millions of euros)

31-12-2002 31-12-2001

Balance sheet Direct customer funds Indirect customer funds Gross loans Total assets Shareholders’ equity

Changes

158.0 537.1 84.5 324.3 37.8

255.3 511.9 85.5 470.8 37.4

-97.3 25.2 -1.0 -146.5 0.4

-38.1% 4.9% -1.2% -31.1% 1.0%

Income statement Net interest income Net commissions Net interest and other banking income Operating income Net income

3.1 2.7 4.5 0.9 0.3

3.7 3.4 5.5 1.8 0.1

-0.6 -0.7 -1.0 -1.0 0.2

-16.4% -21.3% -18.5% -52.8% 244.0%

Other Employees (average) Branches

35 1

35 1

-

-

On December 31st, 2002, direct customer funds amounted to €158 million, down 38.1% compared with the end of the previous year, due to the “Tremonti shield” effect, allowing Italian investors to repatriate their assets held abroad back in Italy. Indirect customer funds stood at €537.1 million, up 4.9% compared with yearend 2001, however, due to the turbulent market conditions, assets under management were marked by a low number of operations that caused a decrease in commission revenues. The subsidiary closed the financial year with a net operating income of €0.9 million and a bottom line of €0.3 million. Last year they stood at €1.8 million and €0.1 million, respectively.

51

Report on operations

Banca Aletti & C. Aletti & C. Banca di Investimento Mobiliare S.p.A., for short “Banca Aletti & C. S.p.A.”, is directly owned by the Parent company through a 74.225% stake, and indirectly by Credito Bergamasco with the remaining 25.775%.

(in millions of euros)

31-12-2002 31-12-2001

Balance sheet Direct customer funds Indirect customer funds Shareholders’ equity

Changes

1,372.6 8,749.4 107.2

474.6 251.4 79.9

898.0 189.2% 8,498.0 3,380.3% 27.3 34.1%

Income statement Net commissions Profits from financial transactions Net interest and other banking income Operating costs Operating income Net income (loss) for the year

34.0 29.8 76.4 48.7 27.7 12.6

23.2 0.9 25.5 29.3 - 3.8 0.1

10.8 46.7% 28.9 3,206.2% 50.9 199.8% 19.4 66.3% 31.5 12.5 12,450.0%

Other Employees (average) Branches

137 12

122 10

15 2

12.3% 20.0%

The Group’s new industrial plan, that was redefined in view of the merger between Banca Popolare di Verona and Banca Popolare di Novara, sanctioned the strategic mission of Banca Aletti, by furthering its role as center for the development of investment banking, private banking and portfolio management (GPM) activities. In keeping with the Group’s strategic decision to consolidate production activities in dedicated “product companies”, at the end of 2002 Banca Aletti acquired the relevant asset management business line from Creberg SIM (now Aletti Invest SIM). In 2002, Banca Aletti underwent a significant evolution involving both the operational and organizational structures. The most significant events are described below: in the first weeks of the year, the transfer of the back-office activities to Società Gestione Servizi - BPVN was completed, in order to permit the management of more considerable transaction volumes and to achieve Groupwide economies of scale. general accounting, management control, back-office and asset management applications were brought in line with Group standards, in order to guarantee a full consistency among the IT architectures and ensure a robust system stability. in the first half of the year, the integration with the finance facilities servicing Banca Popolare di Novara was kicked off, and the structure of the offices in charge of trading and sales network support was strengthened.

52

Report on operations

Private banking and asset management During 2002, two new branches specialized in private banking were set up (Bologna and Venice-Mestre), bringing operational branches of the Bank up to twelve. The accreditation process of the private customers of Banco Popolare di Verona e Novara and Credito Bergamasco in Banca Aletti proceeded. Following the merger with Banca Popolare di Novara, a new planning phase started, aiming at transferring BPN’s private clientele to the Bank. According to the project, four new branches are to be opened in the first half of 2003 (Novara, Turin, Genoa and Naples), two existing branches are to be extended (Thousandn and Rome) and the Popolare di Novara private customers based in the areas where the Bank is already active are to be allocated to the remaining Aletti branches. As of January 1st, 2002, the shareholding Banks decided to put Banca Aletti in charge of the management of their proprietary portfolios, and an ad hoc management office was set up within the asset management function. It is worth mentioning the launch of two new capital guaranteed asset management products, that distinguished themselves for their innovative and particularly sophisticated profile. Investment Banking The organizational, IT and planning effort started in 2001, after Banca Aletti was identified as the Group’s investment banking vehicle, was rewarded during the year by the establishment on financial markets of the name Banca Aletti in this sector. The wide range of services and products made it possible to meet customer needs across the entire financial range: from investment advice on cash and derivative instruments, to trading and dealing of financial instruments, to the placement of newly issued instruments, to corporate advisory and support services for extraordinary and development finance operations. The targeted customers are the companies of the Group and their pool of customers, as well as the wider range of associated qualified operators. In order to broaden the catchment area of non captive perspective customers, a specific structure was set up in August, devoted to the business development of institutional customers. In 2002, Banca Aletti backed the commercial banks in the covering of 41 structured bond issues, for a value of about €380 million, and 4 insurance policies (index and unit-linked) for a value of about €265 million. With regard to the trading of derivatives for the corporate sector, Banca Aletti developed risk structuring and hedging services for about €2.4 billion. With regard to market trading activities, during the year the consolidation in Banca Aletti of all the financial activities that previously fell under the Group Finance function was completed. Trading on bond markets in 2002 proved rather satisfactory both in qualitative and in quantitative terms. In the first half

53

Report on operations

of the year the trading desks devoted to this business area became fully operational on the Mts, they became members of other new electronic trading platforms (Bond Vision and Market Axess), and an operational contribution page was activated on Bloomberg. Trading on capital markets in 2002 was deeply affected by the unfavorable performance of financial markets in general – and in particular of primary equity markets – that had a negative impact in terms of missed finalization of underwriting transactions directly organized by the Bank, and reduction in business volumes on transactions organized by third party finance institutions. As to structured finance, financial year 2002 represented the first year of actual operations. 8 mandates were assigned and finalized. The income statement for 2002 reflects the growth process followed by Banca Aletti both in private banking and in investment banking, as well as the progressive strengthening of relations with the other banks and operating companies of the group. Said progress is evidenced by the 200% increase in net interest and other banking income, from €25.5 million on December 31st, 2001 up to €76,4 million of year-end 2002. This increment is due to the strong increase in interest income, from €0.9 million at year-end 2001, up to €7.5 million at the end of 2002 (+717%), but even more so to the increase in net commissions, that went from €23.2 million in 2001 up to €34.0 million at the end of 2002 (+46%) and in financial profits, that increased from €0.9 million up to €29.8 million at year-end 2002 (+3,206%). In general, the above increments are ascribable to the Industrial plan, that turned Banca Aletti into the specialized center for the banks of the Group. The relevant increase in operating costs is mainly due to the implementation of the operational projects kicked off during the year, and in particular to the increase in the Bank’s size as a result of the progressive consolidation of financial activities that in the past were carried out within the Parent Company or other operational companies of the Group. Compared with 2001, net operating income increased by €31.5 million, while net income went from €0.1 million on December 31st, 2001 up to €12.6 million at year-end 2002.

Banca Aletti & C. (Suisse) The company is fully owned by Banco Popolare di Verona e Novara (Luxembourg) and it is headquartered in Lugano, Switzerland. In 2002 it changed its name into Banca Aletti & C. (Suisse) S.A., as a result of the Group’s decision to concentrate in Banca Aletti & C. all private and investment banking activities as part of the departmentalization process underway.

54

Report on operations

In 2002 the bank’s activity was affected by a number of inconveniences such as the underperformance of world equity markets, financial scandals uncovered in various US and European corporations, the possibility opened up by the so called “Tremonti shield” for Italian investors to repatriate in Italy their assets held abroad. As a result, the bottom line stated a loss of €0.5 million, that was however much lower than the expected budget. The stringent control over costs and the increase in transaction volumes contributed to the achievement of said target; among the different income items, it is worth mentioning the €1.1 million increase in net commissions. Direct customers fund at the end of December 2002 reached €153.6 million, more than double compared with the €72.1 million at year-.end 2001. In specific, discretionary accounts posted a substantial increase, going from €18.3 million at the end of 2001 up to €75.3 million at year-end 2002. Assets under administration, amounting to €73.9 million, grew by 39% from €53.3 million at the end of 2001.

Leasimpresa The company engages in “finance and operating leases of personal property, even registered, and real property”, and it is indirectly controlled via Holding di Partecipazioni Finanziarie and Credito Bergamasco.

(in millions of euros)

31-12-2002 31-12-2001

Changes

Business volumes Value of finalized contracts Number of contracts

914.8 6.110

906.7 5.945

8.1 165.0

0.9% 2.8%

Balance sheet Goods under finance lease Total assets Due to lending institutions Shareholders’ equity

1,540.0 1,353.5 1,075.6 56.6

1,110.5 1,399.8 1,188.3 55.1

429.5 -46.3 -112.7 1.5

38.7% -3.3% -9.5% 2.7%

450.1 19.2 8.7 8.1

335.1 17.1 7.9 7.0

115.0 2.1 0.8 1.1

34.3% 12.1% 10.7% 15.5%

97

93

4

3.8%

Income statement Net interest income Net interest and other financial income Operating income Net income Other Employees (average)

Financial companies

55

Report on operations

Business management For four years running, the subsidiary increased both the number and the value of lease contracts, reaching the remarkable number of 6,110 finalized contracts for a total worth of €914.8 million. As a result, in 2002 outstanding average loans increased by over 50% compared with the previous year. Similarly to the other main competitors, also for Leasimpresa the growth registered in 2002 is mainly ascribable to the performance of the real property leases, that exceeded, albeit slightly, 2001 volumes. The breakdown of the portfolio by operating compartment shows that 2002 for Leasimpresa was marked by the exploit of real estate, that compared with 2001 reported a substantial increase in the number of transactions (+32.47%) and now accounts for 61.26% of the company’s total production. Equipment leases, with €270.4 million worth of production, underwent a slight decrease (-5.9%) both in terms of value and in the number of contracts, due to the strong investment slowdown that took place in our country especially in the first part of the year. The car lease division, with €84 million, grew by more than 12% in value terms and by +7.58% in terms of number of contracts over 2001. The portfolio breakdown by channel shows that as a result of the strengthening of the business ties with the banks of the group, the banking channel accounts for 77% of the total volume of contracts entered by the company. A substantial part of this result can be ascribed to the rally of the real estate sector, where the banking channel accounts for about 80% of its total value.

(in millions of euros)

31-12-2002 31-12-2001

Changes

Real estate lease Equipment lease Vehicle lease

560.4 270.4 84.0

544.9 287.3 74.5

15.5 - 16.9 9.5

2.8% - 5.9% 12.8%

Value of completed contracts

914.8

906.7

8.1

0.9%

61.2% 29.6% 9.2%

60.1% 31.7% 8.2%

Real estate lease Equipment lease Vehicle lease

Securitization transaction In February 2002, a securitization transaction of a pool of receivables deriving from performing lease contracts was finalized with the Arrangers BNP Paribas, Finanziaria Internazionale Securitisation Group, UBS Warburg and Banca Aletti. The aim of the transaction was to raise the necessary funds on the financial market to invest in the further development of the Company, to improve the Parent

56

Report on operations

company’s solvency ratios and to reduce the risk of changes in the re-finance terms. The deal involved the sale of receivables deriving from lease contracts for about €680 million to the special purpose vehicle Leasimpresa Finance S.r.l.. Operating performance for the period The 2002 income statement closed with a net income of €8.1 million from €7 million in 2001. Among the different operational factors that influenced the improvement of the P&L bottom line, it is worth mentioning: the growth in performing loans, that with regard to the contribution margin made it possible to offset the increase in liability spreads generated by the securitization deal; the limited increase in structure costs versus the substantial growth in managed volumes; the posting of significant write-backs as a result of the positive settlement of disputes that had been written off at the end of the previous financial year, accounting for €3.5 million; the smaller impact compared with the previous year deriving from the posting of new deferred taxes.

Aletti Gestielle S.G.R. The company (that was previously called Gestielle Asset Management SGR) is directly controlled by the Parent company with a 32.612% stake and for the remaining part by Holding di Partecipazioni Finanziarie Popolare di Verona - S. Geminiano e S. Prospero (47.797%) and Credito Bergamasco (19.591%). (in millions of euros)

Business volumes NAV of managed funds Subscriptions Redemptions Net inflow Balance sheet Total assets Shareholders’ equity Income statement Commission income Commission expense Trading income Net operating income Net income Other Employees (average)

31-12-2002 31-12-2001 pro-forma

Changes

13,885.0 9,182.4 8,387.2 795.2

14,209.7 8,052.4 8,554.5 - 502.1

-324.7 1,130.0 -167.3 1,297.3

-2.3% 14.0% -2.0%

90.0 30.0

116.8 37.5

-26.8 -7.5

-22.9% -20.0%

166.5 142.5 26.8 1.0 - 0.1

200.0 166.0 38.1 14.3 7.9

-33.5 -23.5 -11.3 -13.3 -8.0

-16.8% -14.2% -29.7% -93.0%

128

142

-16

-10.2%

57

Report on operations

Among the most conspicuous events occurred in 2002, it is worth mentioning the consolidation of Sogepo SGR S.p.A., the asset management company of Banca Popolare di Novara. On April 17th, 2002, the Board of Directors of Gestielle Asset Management SGR S.p.A. (that as of June 1st, 2002 has changed its name into “Aletti Gestielle SGR S.p.A.”) and Sogepo SGR S.p.A. resolved to merge Sogepo into Gestielle. In the same meeting, both Boards of Directors also resolved to consolidate all 18 investment funds of Sogepo Sgr into as many mutual funds of Gestielle, starting on December 31st, 2002. The authorization to consolidate the management companies (SGR) and the Mutual funds was granted by the Bank of Italy on June 12th and 13th, 2002. In June, in occasion of special shareholders’ meetings, Aletti Gestielle and Sogepo approved the merger plan for the two companies: the merger act was entered on December 6th, 2002. The merger came into legal effect on December 31st, 2002, while from a fiscal and accounting viewpoint it took effect on January 1st, 2002. During the same special meeting of Aletti Gestielle SGR on June 19th, 2002, it was resolved to move the company’s headquarters in Novara, in Via Dominioni n.2, and to set up a secondary seat in Milan, Via Roncaglia n.12, where the head office and most of the company’s offices were to be based, commencing on December 31st, 2002, namely on the date the merger came into effect. This year as well Aletti Gestielle received various awards in the asset management area: the “Alto Rendimento” award promoted by the financial daily “Il Sole 24Ore”, with Gestielle Bilanciato 40 leading the classification as best Italian balanced three-year fund, and Gestielle Pacifico ranking third as best equity three-year fund, as well as other awards for single managed products. The Fondo Gestielle America was number one among best competitors and third among “Big Players” in the Large Team group (assets under management between €5 thousand and 10 thousand million). This survey was carried out by Bloomberg Investments “I Campioni dell’Azionario” – “The Equity Champions”. And Fondo Gestielle America won the Lipper Medal (Lipper Funds Awards Italia 2002 - Lipper A Reuters Company) for achieving over the average performance as of March 1999. For the first time this year, “Standard & Poor’s Fund Awards” were awarded to companies holding Funds and SICAV distributed in Italy that achieved the best performance in 2002; Gestielle America in Sector Equity USA over 5 years won in the Standard & Poor’s Global Investment Fund Sector class. Finally, also this year Aletti Gestielle was granted the international award “Le tre frecce della Finanza” (the three arrows of finance) (2° classified). With regard to product innovation, on September 2nd, 2002, the distribution of three new mutual funds was started, called Gestielle Etico Azionario, Gestielle Etico Obbligazionario and Gestielle Etico Bilanciato 30. They are all Ethical Funds, that is, socially conscious mutual funds that invest in securities of companies that

58

Report on operations

do not conflict with certain social priorities, such as the respect for humankind and fundamental human rights, the protection of juvenile labor, environmental and animal protection, and that perform activities that may contribute to a better quality of life.

(in millions of euros)

31-12-2002 31-12-2001 pro-forma

Equity funds Fixed income funds Balanced funds Flexible funds

2,788.1 10,451.1 478.1 167.6

Net assets under management

13,885.0

14,209.7

20.1% 75.3% 3.4% 1.2%

30.7% 63.1% 4.6% 1.6%

Equity funds Fixed income funds Balanced funds Flexible funds

Changes

4,357.3 - 1,569.2 8,966.4 1,484.7 659.6 - 181.5 226.3 - 58.7 - 324.7

- 36.0% 16.6% - 27.5% - 25.9% - 2.3%

Obviously, the poor market performance affected the asset management industry. Against this backdrop, assets under management went from €9,400.6 million at the end of 2001 down to €9.194.6 million at year-end 2002, plus €4,690.4 million worth of assets acquired with the consolidation of the Sogepo funds, occurred on 31/12/2002 (the first day following the funds’ financial year end). With regard to annual net inflows, out of the 38 Aletti Gestielle funds, the company reported net inflows for €595.71 million. Specifically, fixed income inflows reached €970.27 million, while the other funds registered outflows for €374.56 million. Also the consolidated company Sogepo at year end reported net inflows for €199.5 million. In this case as well, fixed income funds reported positive inflows for €303.8 million, while the other funds reported outflows for €104.3 million. With regard to fund performance, it should be noted that the industry at large is still faced with the open issue as to how actually recover “virtual” tax credits posted in the account statements of the managed funds, caused by the mandate assigned to the Government to review the taxation procedures of assets under management. The “virtual” tax credits accrued as a consequence of the negative performances reported by the funds managed by the subsidiary as of December 31st, 2002 amounted to €426.1 million. To be noted, that the asset of the managed funds are totally segregated from the assets of the management company. As to the profit and loss analysis, commission income in 2002 was equal to €166.5 million, whereas commission expense amounted to €142.5 million,

59

Report on operations

inclusive of the consolidated company Sogepo. The €33.5 million decrease in commission income and €23.7 million in commission expense over the previous year is due to a decrement in management commissions, on which distribution and rebate commissions are calculated, as a result of the shift of managed assets from equity funds to fixed income and monetary funds. The net interest and other financial income dropped off by €11.3 million.

60

Report on operations

Aletti Merchant The company (previously called Gestielle Merchant) is directly controlled by the Parent company through a 60% equity interest, and indirectly through Credito Bergamasco, with the remaining 40%. During the year, the company proceeded with the acquisition of holdings, calling for the following direct investments in the equity of companies, either new or already present in its investment portfolio: • new equity investments amounting to €21.0 million; • financing extended to investee companies for a total of €0.5 million. Moreover, during the year the entire holding in Dianos and a stake in G.I. Holding were disposed of, totaling €0.6 million. (in millions of euros)

31-12-2002 31-12-2001

Changes

Shareholdings Holdings in private equity funds Debt securities Equity securities Financial operations

37.4 11.8 26.3 5.2 6.6

22.0 11.3 26.3 6.1

15.4 0.5 5.2 0.5

70.0% 4.4% -

Total investments

87.3

65.7

21.6

32.9%

(1)

(1)

8.2%

Net of write-downs and capital redemptions

Among the investments in new companies carried out in 2002 it is worth mentioning: •

the acquisition of a 24% equity interest in Pama S.p.A., a company that can boast a worldwide leadership in the sector of medium to large milling and boring machines with mobile column. Aletti Merchant acquired the holding by subscribing to a capital increase, at nominal value, amounting to €1.2 million;

•

the acquisition of a 20% equity interest in Conceria Mastrotto S.p.A., the operating holding company that controls all the companies of the Gruppo Mastrotto participating in the core-business, namely the production and distribution of leather. The investment amounted to €16.0 million.

In 2002, Aletti Merchant increased its stake in Tecnosistemi S.p.A. from 7.29% to 14.5%. This company engages in the provision of system integration services in the sectors of telecommunications, networking, I.C.T. systems, facility management and safety systems. The subsidiary subscribed to a capital increase of Tecnosistemi with a total of €3.2 million, of which €0.8 million as own stakes and €2.4 million as stakes

61

Report on operations

optioned by Coorsfield BV (on this stake a call option was granted to Coorsfield). In October, a contract for the sale to Coorsfield of the entire holding was finalized. Under the contract, Aletti Merchant should also invest part of the proceeding, for a total of €6.6 million, in shares of Freedomland ITN S.p.A., a company listed on the stock exchange. Said agreement was contingent on the offer by Freedomland ITN to purchase 100% of Tecnosistemi, as specified in a contract entered into by the parties concerned on December 23rd, 2002, and thus making the Aletti MerchantCoorsfield contract binding. The actual execution of the FreedomlandTecnosistemi contract, and as a consequence, of the contract entered into by our company and Coorsfield, that was set in abeyance until the decision of the Antitrust authorities, shall take place in the first half of 2003. The company closed its 2002 income statement with a loss of €3.97 million, net of amortization and depreciation of tangible and intangible assets amounting to €32 thousand and write-downs on financial fixed assets for €2.8 million. The write-down on financial assets refers to the write-off of the holding in the Kiwi II Ventura Servicos de Consultoria S.A. fund, to account for the fund’s value loss. The shareholders’ equity at year-end amounted to €17.79 million.

62

Report on operations

Aletti Invest SIM (in millions of euros)

Business volumes Gross inflow Net inflow

31-12-2002 31-12-2001

Changes

588.6 101.6

558.6 88.8

Balance sheet Securities Total assets Shareholders’ equity

14.2 11.5

0.6 10.4 7.6

-0.6 -100.0% 3.8 36.5% 3.9 51.3%

Income statement Net commissions Trading income Net operating income Net income for the year

2.1 2.4 - 5.6 - 1.0

4.0 3.8 - 3.6 - 3.5

-1.9 -1.4 2.0 -2.5

-47.5% -36.8% 55.6% -71.4%

356 25

321 27

35 -2

10.9% -7.4%

Other Financial advisers and insurance producers Employees (average)

30.0 12.8

5.4% 14.4%

2002 was a very important year for the history of the company (previously called Creberg SIM). In keeping with the Group’s industrial plan, in July Banco acquired 50% of Aletti Invest SIM’s equity from Cattolica Assicurazioni, accounting for €11.4 million, and thus acquiring the full ownership; in December Banca Aletti was vested with the business line engaging in asset management with the aim of putting the company in a position to focus exclusively on the distribution of financial, pension and insurance products and services. Said operation entailed that all outstanding portfolio management contracts be transferred over to Banca Aletti, together with the licenses for the use of the information system outsourced to Kedrios and the relevant front and back office employees. Based upon the rebate agreement, the transfer of the asset management business shall entail the remittance of 90% of management commissions and 100% of acquisition commissions to the SIM. In 2002, Aletti Invest SIM was able to make headway in terms of inflows and sales network. As shown in the chart below, despite €101.6 million worth of net positive inflows, the investment company’s total assets report a positive variation of only €30 million, equal to 5.4%, due to the heavy losses reported by financial markets in 2002. The breakdown analysis of net asset value and net inflows shows that the previous year’s trends are still underway. The crisis of financial markets spurred investors to relocate their assets towards low-risk financial instruments, mainly

63

Report on operations

asset management products and mutual funds of the short term monetary and fixed income category and capital guaranteed products. These needs were fully met by monetary “GPM” (portfolio management), by short term monetary and fixed income funds of the Group’s SGR (management company) and by the capital guaranteed INDEX by BPV Vita. The shift towards these types of products causes a reduction in revenue volumes that percentage wise are higher than the corresponding payout reduction.

(in millions of euros)

31-12-2002 31-12-2001

Changes

Assets under management Brokered assets

378.4 210.2

358.7 199.9

19.7 10.3

5.5% 5.2%

Total

588.6

558.6

30.0

5.4%

The year 2002 closed with a €1.042 million loss, after charging to income deferred tax assets for €1.530 million, posted in the previous financial years, and after realizing an exceptional operating income of €7.943 million as a result of the transfer of the asset management business line. The marked decrement in operating income is to be ascribed to the substantial increase in write-downs of loans to financial advisors for pre-paid commissions (€1.3 million increase), as well as to the decrease in contribution margin. Said increase accounts for 69% of the rise in costs (that went from €7.4 million in 2001 up to €9.4 million in 2002), and it was caused by the fact that confronted with the rough market conditions described above, the financial advisers’ ability to generate commissions was rather impaired.

Novara Invest SIM The company is directly controlled by the Parent company through a 99% equity interest and indirectly by way of Gestielle SGR, that holds the remaining 1%. The year closed with a loss of €2.2 million after setting aside an amortization provision of €63 thousand. Net of the non-recurring provisions made in view of the company’s shutdown in 2003 resolved by the Parent company, the year’s net loss was smaller than in 2001, when the loss was equal to €1.3 million. In keeping with the decisions of the Parent company, in the second half of 2002 the company’s top management acted along a very careful and deliberate approach, limiting both recruitment and business development activities as much as possible.

64

Report on operations

Based upon said guidelines, in spite of the business slowdown, the termination of all financial advisers (22) enrolled in the Redundancy Fund of Banca Popolare di Novara and the gradual integration of employed advisers within the Bank, yet Novara Invest SIM consolidated its financial advisers network, as well as the volume of assets under management - at year-end 2002 there were 151 advisers against 130 in 2001, and AuM accounted for €208.9 million compared with €127.98 in 2001.

Holding di Partecipazioni Finanziarie Popolare di Verona – S.Geminiano e S.Prospero Holding di Partecipazioni Finanziarie Popolare di Verona - S.Geminiano e S.Prospero S.p.A. is fully controlled by the Parent company. It engages in the acquisition of equity investments and the capital, financial and organizational coordination of companies active mainly in the banking and financial industries, or in ancillary sectors. The company also provides the companies of the Group and their affiliates with services aiming at fostering and coordinating their financial and business development. As of December 31st, 2002 the subsidiary held stakes in companies of the Group amounting to €33.3 million, and holdings in other companies for €54.4 million. In specific, the latter break down as follows:

(in millions of euros)

31-12-2002 31-12-2001

Changes

Equity holdings in lending institutions Equity holdings in financial institutions Equity holdings in other institutions

35.9 16.2 2.2

35.9 16.2 2.2

-

-

Total equity holdings

54.3

54.3

-

-

On October 31st, 2002 the company approved its annual report covering the financial year from July 1st, 2001 to June 30th, 2002 – that closed with a net income of €10.2 million. With regard to the income statement, revenues show dividends for €14.13 million, gross of the relevant tax credit.

65

Report on operations

Other companies of the Group

Società Gestione Servizi - BPVN The company is directly controlled by the Parent company through a 75.49% equity interest, and indirectly by way of Credito Bergamasco with the remaining 24.51%. Società Gestione Servizi - BPVN S.p.A. (for short “S.G.S.”) was set up in the last months of 1999 by Banca Popolare di Verona – Banco S.Geminiano e S.Prospero and Credito Bergamasco to optimize the efficiency and effectiveness of the production and administrative systems for back office, data processing, organization and logistics activities, and to place a particular emphasis on technical innovation. Novara’s back office and information systems were contributed to the company in October 2002 in keeping with this strategic line.

(in millions of euros)

31-12-2002 31-12-2001

Changes

Balance sheet Total assets Shareholders’ equity

299.8 108.4

232.2 80.8

67.6 27.6

29.1% 34.2%

Income statement Value of production Cost of production Profit before extraordinary items Net profit for the year

189.7 180.7 9.5 4.0

148.8 141.8 6.3 5.5

40.9 38.9 3.2 -1.5

27.5% 27.4% 50.8% -27.3%

499

224

275

122.8%

Other Employees (average)

In 2001 the subsidiary achieved significant results, as demonstrated by: • • •

the quality of the services provided; the relentless and incisive focus on costs; the credit for its technological planning and implementation skills.

With regard to quality, the services provided by all S.G.S.’s divisions proved to be in line with the levels agreed upon with customer companies and governed by specific service contracts (S.L.A.). The substantial correctness of the services provided by the company was also inspected by the Group’s Auditing function, that in 2002 as well could carry out general controls on the information systems, specific controls on the single procedures making up the company information system and on the operational effectiveness of the administration service offices consolidated in Modena (Back Office). With regard to costs, the savings achieved were even greater than expected, as

66

Report on operations

a result of the unrelenting and careful consideration devoted to relations with suppliers, and the painstaking effort to improve the efficiency of the services provided. In particular, an important three-year agreement was entered into with IBM, guaranteeing the containment and stability of costs for the supply of central equipment and the maintenance of technological infrastructures. As to planning, S.G.S. was active on many fronts: suffice it to mention the project “Integration with Banca Popolare di Novara” and the project “Banca Aletti”. The latter in particular aimed at bringing Aletti’s application architecture in line with the one adopted by the banks of the Group, to provide for the right synergies in the system’s technical and administrative management. Actions taken involved: • •

• •

the transfer in S.G.S. of the back office activities that were previously carried out in Banca Aletti, that was brought to completion; the transfer of the processing systems from Banca Aletti to S.G.S., and the retrieval of all the management activities that were previously outsourced back in-house; kickoff of the “clone” project, that by way of gradual releases allowed also Banca Aletti to adopt the Group’s information system; the provision of an adequate support to the transfer of discretionary accounts from Aletti Invest SIM to Banca Aletti.

The relevant development achieved by the subsidiary in 2002 in terms of size and production, as a result of the contribution of the business line by the Parent company, brought about a corresponding increase in the P&L variables, on the revenue as well as on the cost side. In particular, production costs went from €141.8 million in 2001 to €180.7 million in 2002, reporting a 27.4% increase. This result is the direct consequence of a number of exceptional transactions that took place in both financial years, and that make the analysis of cost dynamics particularly elaborate. In particular: • • •

•

the contribution of the business line by the Parent company, that showed its effects on the income statement over the last two months of 2002; the service carried out in favor of Banca Aletti, whose effects manifested throughout the entire 2002, compared with 4 months in 2001; the transfer in S.G.S in 2002 of the shipping service of all the Banks’ customer correspondence (BPVN and CB) by way of the so called “hybrid post"; the coming into production in 2002 of the investments carried out in 2001 with regard to the "Investment" project, and the inclusion as of October 2002 of Banca Aletti in the central application system.

As a result, production costs showed a considerable performance if compared with the budget assigned to the company by the Group’s planning function. Specifically, with regard to the companies of the former Gruppo BPV, it was pos-

67

Report on operations

sible to contain costs against the budget, achieving a 1% saving on costs for services provided.

SESTRI The company is directly controlled by the Parent company. It engages in the management of the tax collection services, collection of receivables in general and of delinquencies in the provinces of Asti, Biella, Imperia, Novara, Savona, Vercelli and Verbano-Cusio-Ossola. (in millions of euros)

31-12-2002 31-12-2001

Balance sheet Total assets Shareholders’ equity Income statement Proceeds from tax collection Commission expense and fee for treasury services Net interest and other financial income Net operating income Net income (loss) Other Employees (average)

Changes

326.4 3.6

305.7 4.7

20.7 -1.1

6.8% -23.4%

28.3

29.9

-1.6

-5.4%

4.7 23.3 - 0.6 - 1.1

4.7 23.0 - 0.5 1.1

0.3 0.1 -2.2

1.3% 20.0%

341

341

-

-

From the viewpoint of revenues, the collection activity reported a considerable drop-off compared with the previous year. This is mainly due to the reduction in the number of tax rolls issued (-135,213 units compared with 2001, equal to –27.2%), followed by the increase in volumes (+€135.2 million, +22.1%). In practice, a lower number of tax rolls were collected, representing however greater sums of money. The result, also in view of the massive forced collection activity carried out during the year, was the activation of a greater number of tax breaks and relieves, as well as more payments by installments by tax authorities, leading to a decrease in collections and therefore in lower collecting commissions. The unrelenting pursuit of the best management effectiveness and cost efficiency, together with the need to free up resources in order to boost the forced collection activity, called for a number of actions addressing the internal working organization. The activity carried out by local collection agents was completely shed, while tax rolls notification was totally outsourced. As of September, the cost- and time-consuming activity carried out by the company’s employees in Courts has been gradually outsourced to authorized legal offices. The charges generated by such activities are refunded by the tax payer upon paying taxes or

68

Report on operations

by tax authorities upon presenting them with the relevant refund or discharge applications. During the year, a number of new products/services for local agencies were developed, among which “OMNITAX”, a single slip consolidating several local taxes, and “euroPAY”, that can be used by Municipalities to collect dues from school canteens, nursery school fees, urbanization charges, property rents, etc. In addition, the new service called “MULTIFORME” was launched, for the administrative management of tickets issued by the municipal police. The unsatisfactory operating performance characterizing the first half of 2002, that brought the company close to requiring a recapitalization, in spite of the allocation of the previous year’s income to reserve, is the result of a number of negative factors: - first of all, the unfavorable adjustment of the remuneration system for authorized tax collection agencies, that resulted in a fixed compensation of €355.2 million for the year 2002 (-44.37% over 2001) and €321.6 million for the year 2003 (-9.46% over 2002), plus collecting commissions for the same percentage in effect on 31/12/2001; - then, the reduction in the number of tax rolls (as of June 30th, they were 34.8% less compared with 30/6/2001), that induced the Board of Directors to vet the possibility of ceding the tax collection activity under art. 9 of Law Decree n. 112/99. To this regard, the negative opinion that was expressed was corroborated by similar considerations by Banco Popolare di Verona e Novara. Only the massive increase in the forced collection activity, that reported double the number of executive orders, going from 12,444 in 2001 up to 23,891 in 2002, together with the different system used to enforce such warrants, made it possible to improve the bottom line. Goods distraint reports, that are a typical activity carried out by local collection agents, went from 4079 in 2001 down to 427 in 2002, while garnishments went from 115 up to 539, administrative impounding of vehicles from 1880 up to 8895, and mortgages from 1276 up to 3085.

69

Report on operations

Noteworthy events after year-end In occasion of the General meetings of Banca Popolare di Verona s.c.c.r.l. – Banco S.Geminiano e S.Prospero and Banca Popolare di Novara s.c.r.l., their shareholders had determined that, following the merger, the branches located outside of the traditional business territories of the former Banca Popolare di Novara s.c.r.l. be transferred from Banca Popolare di Novara S.p.A. to Banco Popolare di Verona e Novara by way of a demerger or other equivalent modality. In consequence, following year-end, a more extensive rationalization project involving the Group’s commercial network was launched, aiming at: • consolidating the brands of Banca Popolare di Novara S.p.A, and Banco Popolare di Verona e Novara, that represent an important value creation lever; • foster a “close-grained” distribution of branches in the traditional business regions of the banks concerned: the North-West of Italy for Banca Popolare di Novara S.p.A., and the Triveneto area for Banco Popolare di Verona e Novara; • contain the risk of intra-group competition in geographical areas characterized by a strong overlapping; • develop the commercial banking activity in the traditional business territories through a capillary distribution and a comprehensive and innovative range of product and services; • promote the sharing of the best business and management practices and skills with high efficiency levels. In the light of said objectives, a project was launched, envisaging: • the transfer by demerger of 84 branches of Banca Popolare di Novara S.p.A. to the Parent company, including “Area Affari Venezia” and other “Aree Affari” (Business development desks) supporting the network; • the transfer of 33 branches from Banca Popolare di Novara S.p.A. to Credito Bergamasco, including the “Aree Affari” supporting the network; • the transfer of 36 branches from Credito Bergamasco to the Parent company, including the “Aree Affari” supporting the network, and of the “Banco San Marco” brand, that shall be better promoted and consolidated if utilized on other branches located in the Venetian area.

70

Report on operations

Operational outlook The outset of the new year was marked by a worsening of the geopolitical tensions that had broken out in 2002, and by the protraction of the drown-out period of slackness that has been afflicting international equity markets for almost three years. Europe’s economy is hardly able to speed up, and the risks of a war, or of a recrudescence of terrorist attacks, make it impossible to predict the time when a sound recovery is due. At the same time, interest rates in Euro land went on decreasing throughout the maturity curve, and as a consequence the cost of money was pressed down to minimum historical levels. This descent was favored by two consecutive cuts in the cost of money introduced by the European Central Bank between December 2002 and March 2003, and by tangible expectations of further expansionary actions in response to the present economic crisis. Against this backdrop, that is undoubtedly unfavorable to credit intermediation, the Group remains consistent with the guidelines set out in its Industrial Plan, and aims at consolidating its profitability, by acting on both revenues and costs and by closely monitoring its credit quality. First, the cover and control over of the main business regions where the companies of the Group are active shall be consolidated. To this end, the distribution networks of the Banks shall be redesigned, so as to converge in each of them the branches that are located in their respective traditional business territories. This rationalization process, that calls for the transfer of more than 150 branches among the various Banks, shall make it possible to better promote brands, by enhancing their visibility and market share in their franchise areas, and at the same time reducing internal competition risks. As an indirect consequence, the deeper penetration and greater market share shall guarantee an increase in profitability and a more effective credit control. Second, the “Product Companies” belonging to the Group shall be further strengthened and developed, in line with another strategic assumption of the Industrial Plan. The various “product factories” shall make their contribution by enriching their range of specialized products and services available to the Distribution networks of the Banks, thus supplying them with a more effective marketing action. As regards costs, the main effort shall go towards a greater and greater focus on operational efficiency across the companies of the Group, lowering their breakeven point. In the meantime, the integration process launched the day after the merger that gave rise to the Gruppo BPVN is making headway, opening up substantial cost savings generated by the consolidation of business activities. The above joint actions on the Group’s costs and revenues should make it possible to overcome the current harsh crisis and to achieve the income targets set by the Three-year Industrial Plan. The maintenance, and even more so, the increase of the current risk-adjusted profitability level is the prerequisite to the possibility for our Group to fully grasp growth and development opportunities, while guaranteeing an adequate shareholders value creation and stakeholders protection. Verona, 25 March 2003 The Board of Directors

71