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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ page 15
Group setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ page 16
Changes in the Group structure as of June 1st, 2002 . . . ........ page 18
Noteworthy events . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ page 19
Operating performance . . . . . . . . . . . . . . . . . . . . . . . . ........ page 27
Ownership and sale of own shares . . . . . . . . . . . . . . . . ........ page 40
Reconciliation between the Parent company’s equity
and income and the consolidated equity and income . . . . . . . . . .. page 41
Significant equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 42
Noteworthy events after year-end . . . . . . . . . . . . . . . . . . . . . . . .. page 70
Operational outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 85
Consolidation criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page 89
Chapter A – Accounting criteria . . . . . . . . . . . . . . . . . . . . . . . . .. page 94
Chapter B – Notes to the consolidated balance sheet . . . . . . . . .. page 106
Chapter C – Notes to the consolidated income statement . . . . . .. page 155
Chapter D – Other information . . . . . . . . . . . . . . . . . . . . . . . . .. 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

Sestri
Banca Aletti & C.
Holding di Partecipazioni Finanziarie
Banca Aletti & C. (Suisse) 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 31-12-2002
31-12-2001
Changes
highlights (millions of euros) Pro-forma

Income statement
Net interest income 1,261.5 1,213.5 48,0 4.0%
Net commissions 699.1 717.3 - 18.2 -2.5%
Net interest and other banking income 2,214.0 2,124.1 89.9 4.2%
Operating costs 1,366.0 1,338.9 27.1 2.0%
Operating income 848.0 785.2 62.8 8.0%
Income before extraordinary items 571.3 550.0 21.3 3.9%
Extraordinary income 188.9 34.5 154.4 447.5%
Net income for the period 429.2 308.8 120.4 39.0%

Balance sheet
Total assets 48,247.5 50,804.9 - 2,557.4 -5.0%
Customer loans (gross) 32,865.6 32,239.3 626.3 1.9%
Securities 4,997.3 5,606.0 - 608.7 -10.9%
Shareholders’ equity 3,288.5 2,988.2 300.3 10.0%

Customers’ financial assets

Direct customer funds 35,227.9 35,137.8 90.1 0.3%
Indirect customer funds 53,467.9 49,409.1 4,058.8 8.2%
- Assets under management 26,945.1 26,252.0 693.1 2.6%
- Mutual funds and GPF (1) 16,410.7 17,251.7 - 841.0 -4.9%
- Other portfolio management 6,698.9 6,185.5 513.4 8.3%
- Insurance policies 3,835.5 2,814.8 1,020.7 36.3%
- Assets under custody 26,522.8 23,157.1 3,365.7 14.5%

Operational structure and productivity

Employees 13,008 13,275 - 267 -2.0%
Bank branches 1,150 1,139 11 1.0%
Customer loans (gross)
per employee (€/1000) 2,526.6 2,428.6 98.0 4.0%
Net intr. & other banking income
per employee (€/1000) 170.2 160.0 10.2 6.4%

(1) GPF: segregated assets invested in mutual funds

10
 Group Annual Report 2002

31-12-2002
31-12-2001 Financial
Pro-forma
highlights
Profitability ratios (%)
ROE 15.0% 11.5%
Adjusted ROE (1) 19.3% 15.3%
Interest income / Interest and other banking income 57.0% 57.1%
Net commissions / Interest and other banking income 31.6% 33.8%
Administrative expenses / Interest and other banking income 54.9% 56.3%
Operating costs / Interest and other banking income 61.7% 63.0%

Credit quality ratios (%)

Net NPLs / Customer loans (net) 3.07% 3.22%
Net watchlist loans / Customer loans (net) 2.25% 2.04%
Net NPLs / Shareholders’ equity 29.8% 33.7%

Solvency ratios (%)

Shareholders’ equity / Customer loans (net) 10.3% 9.6%

BPVN shares
Outstanding shares 370,048,392
of which: treasury shares -
Base share price
- Max 13.897
- Min 10.233
- Average 12.107
Earnings per share 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 [Link] 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 coo-
perative 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 enti-
ties 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 inco-
me 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 pro-
forma 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 busi-
ness plan – already in 2005, when all the turnaround actions aiming at achiev-
ing 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 “dis-
tribution 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 [Link]
e [Link] was adopted across the Group, back offices were integrated
and multi-polarized, private banking, investment banking and asset man-
agement 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 inter-
nal 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 con-
solidated 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 concen-
trated in Aletti Gestielle SGR, and distinctive asset allocation expertise and
skills were reinforced.

Benefiting from the greater scale gained through integration, from the dissemi-
nation 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 tra-
ditional customer segments and business areas, as well as to grasp whatever
new opportunities may arise, with the aim of:

- strengthening and promoting its presence in its franchise areas, with a dis-
tinctive 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-

16
 Report on operations

tomer segments across the Group;

- strengthening its presence on the territory also by way of future agglomer-
ations 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 con-
sequences for:

- the retail area, that is to be organized along the departmentalization model

already put to test by former Banca Popolare di Verona - Banco
[Link] e [Link];

- the corporate segment, that should focus business with Small and Medium
Enterprises and with local Authorities that have deeper ties with their terri-
tory, to leverage the existing service units. Specifically, traditional corporate
banking services shall be complemented by more innovative banking prod-
ucts 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 organi-
zational actions targeted at the different business areas covered by the Group
(traditional banking business, private banking, investment banking, lease, bank-
assurance, 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 net-
work, as well as by strengthening the role of production and management,
developing the necessary distinctive skills and expertise in the field of selec-
tion, 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 strat-
egy 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 rationaliza-
tion.

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 consoli-
dation of financial intermediation, merchant banking, asset management, bank-
assurance, 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 cap-
ital, 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 cap-
ital 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 share-
holding 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 organi-
zation 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 proj-
ect 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, administra-
tive 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 servic-
es, 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 mobili-

ty, reorientation and rightsizing at best. It envisages the time distribution analy-
sis of efficiency recoveries, considering corporate, geographical and functional
constraints, the optimization between redundancy areas and potential person-
nel turnover areas, the definition of an action plan to guarantee said optimiza-
tion (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 organizational-
oriented information with data on how human resources are going to be uti-
lized; 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 con-
cerned approved the project to redesign their local distribution networks. The
Industrial Plan had attached a significant strategic importance to the strength-
ening and development of the commercial bank activities through the promo-
tion of their brands and the leveraging and enhancement of their local distribu-
tion 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 North-
Western 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 distribu-
tion 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 effi-
ciency - is almost through. A greater focus shall be lent to different business
management modalities distinguished by customer segment type, to guar-
antee 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 organiza-

tion model - that shall be applied across all the banks of the Group – shall
be the launching platform for all the necessary actions aimed at strength-
ening and developing business activities within the different customer seg-
ments, along the guidelines and with the support of the Parent company
and under the necessary control of the commercial banks presiding the ter-
ritory;

- in the Corporate segment, the Group focused on the development of busi-

ness activities with small and medium enterprises and with local Authorities,
characterized by their deep ties with their territory, by promoting and lever-
aging 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 merg-
er 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 man-
agement companies; Aletti Gestielle held a 1.94% market share, and Sogepo
0.99%.

Compared with the previous year, Gestielle funds climbed up the annual per-
formance 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 for-
mer 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 origi-
nal management lines were launched. To this regard, during the year the distri-
bution of capital guaranteed products proceeded, characterized by a sophisti-
cated model of dynamic reallocation of assets depending upon market per-
formance 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 pos-
sible 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 activi-
ties of financial products in specialized companies.

On December 31st, customer assets under management (retail, private and insti-
tutional) in Banca Aletti accounted for about €7 billion, with about 16,000 cus-
tomer 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 cus-
tomers, 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 serv-
ice costs down.

Trading on the primary market was significantly affected by the underperfor-

mance 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 coop-
eration 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 pro-
cedure guaranteeing an integrated risk analysis based on volatilities and correla-
tions 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 delta-
gamma 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 activ-
ities 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 oper-
ational 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 [Link] e [Link] 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 com-
pany 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 abil-
ity 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 transfer-
able rights to subscribe newly issued Banco common shares to those managers
who, according to the Board of Directors’ undisputable opinion, may have a rel-
evant 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 [Link] e [Link], 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 [Link] e [Link] 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
31-12-02
31-12-01
Changes
Consolidated
Restated asstes (millions of euros) pro-forma
balance sheet
• Cash and funds witj central banks
and post offices 336.0 364.5 -28.5 -7.8%

• Due from banks 6,063.2 8,599.2 -2,536.0 -29.5%

• Due from customers 31,949.2 31,254.8 694.4 2.2%

• Securities 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%

• Positive differences arising from

consolidation and from equity method 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 31-12-01

31-12-02 Changes
Restated liabilities (millions of euros) pro-forma

• Due to banks 6,055.9 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%

• Reserves 981.6 900.0 81.6 9.1%

• Other liabilities 2,560.8 2,532.5 28.3 1.1%

• Third party assets 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%

Total liabilities 48,247.5 50,804.9 -2,557.4 -5.0%

27
Report on operations

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

30,000 35,137.8 35,227.9

20,000

10,000

0 31-12-2002
31-12-2001 PF

(in millions of euros) 31-12-2002 31-12-2001 Changes

pro-forma

Checking accounts, deposits and other accounts 17,980.3 16,716.6 1,263.7 7.6%
Bonds 9,782.0 9,713.6 68.4 0.7%
Repurchase agreements 3,455.1 4,477.3 -1,022.2 -22.8%
Certificates of deposit 2,740.2 2,898.9 -158.7 -5.5%
Subordinated liabilities 1,084.6 953.9 130.7 13.7%
Other liabilities 185.7 377.5 -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.

On December 31st, 2002 , indirect customer funds, including funds relating to

Indirect insurance policies, amounted to €53,467.9 million, up 8.2% from €49,409.1
customer million at year end 2001.
funds
Indirect customer funds
60,000
53,467.9
45,000 49,409.1

30,000

15,000

0 31-12-2002
31-12-2001 PF

28
 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 Changes

pro-forma

Assets under management 26,945.1 26,252.0 693.1 2.6%

- mutual funds. GPF and SICAV 16,410.7 17,251.7 -841.0 -4.9%
- portfolio management 6,698.9 6,185.5 513.4 8.3%
- insurances policies 3,835.5 2,814.8 1,020.7 36.3%
Assets under administration 26,522.8 23,157.1 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
Loans to
loyalty of retail customers and promote our role of “Banking group of choice” customers
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 endeavo-
red to innovate and update their range of products and services.

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

20,000

10,000

0 31-12-2002
31-12-2001 PF

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.

(in millions of euros) 31-12-2002 31-12-2001 Changes

pro-forma

Impaired loans 2,508.1 2,539.0 -30.9 -1.2%

- NPLs 1,603.4 1,719.0 -115.6 -6.7%
- watchlist loans 813.2 708.0 105.2 14.9%
- loans under restructturing 2.2 - 2.2
- restructured loans 83.8 97.4 -13.6 -14.0%
- unsecured loans to Countries at risk 5.5 14.6 -9.1 -62.3%
Performing loans 30,357.5 29,700.3 657.2 2.2%

Total gross loans 32,865.6 32,239.3 626.3 1.9%

Write-downs on impaired loans -734.4 -800.2 -65.8 -8.2%

Write-downs of performing loans -182.0 -184.3 -2.3 -1.2%

Total net loans 31,949.2 31,254.8 694.4 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 31-12-2002

30
 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
Securities
with €5,606 million on December 31st, 2001. The investment securities portion portfolio
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 ope-
rational basis for reverse repurchase agreements with customers.

Securities
6,000 5,606.0
4,997.3
5,000
1,631.5 1,052.2 investment
4,000

3,000

2,000 3,974.8 3,945.1

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,
Shareholders’
2001. 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

1,000

0
31-12-2001 PF 31-12-2002

31
Report on operations

Consolidated income statement

The following chart shows the restated consolidated income statement.

CONSOLIDATED INCOME STATEMENT 2002 2001

(millions of euros) pro-forma Changes

• Interest income 2,345.5 2,699.2 -353.7 -13.1%

• Interest expense -1,084.0 -1,485.7 -401.7 -27.0%

Net interest income 1,261.5 1,213.5 48.0 4.0%

• Net commissions 699.1 717.3 -18.2 -2.5%

• Profits from financial transactions 67.1 53.4 13.7 25.7%
• Other net profits 150.8 116.1 34.7 29.9%

Non-interest income 917.0 886.8 30.2 3.4%

• Dividends and profits from equity

investments carried at equity 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 -815.0 -814.7 0.3 0.0%

• Other administrative expenses -400.4 -380.9 19.5 5.1%
• Depreciation and amortization on tangible
and intangible assets -150.6 -143.3 7.3 5.1%

Operating costs -1,366.0 -1,338.9 27.1 2.0%

Operating income 848.0 785.1 62.9 8.0%

• Write-downs of goodwill, positive

differences upon consolidation and
on application of the equity method -62.7 -58.4 4.3 7.4%
• Provisions for risks and charges -38.9 -18.0 20.9 116.1%
• Write-downs of loans and provisions
for guarantees and commitments -288.2 -214.6 73.6 34.3%
• Write-back of loans and provisions
for guarantees and commitments 117.4 66.6 50.8 76.3%
• Write-downs of financial fixed assets
net of write-backs -4.3 -10.1 -5.8 -57.4%
• Provisions to loan loss reserves - -0.7 0.7 -100.0%

Income before extraordinary items 571.3 549.9 21.4 3.9%

• Extraordinary income 188.9 34.6 154.3 446.0%

Income before taxes 760.2 584.5 175.7 30.1%

• Changes in the allowance for general

banking risks - 0.2 -0.2
• Income taxes for the period -314.0 -258.3 55.7 21.6%
• Minority interest -17.0 -17.6 -0.6 -3.4%

Net income for the year 429.2 308.8 120.4 39.0%

32
 Report on operations

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

Income statement IV Q III Q II Q IQ

(in millions of euros) 2002 2002 2002 PF 2002 PF

• Interest income 579.7 581.7 580.2 603.9

• interest expense -274.9 -261.1 -255.6 -292.4

Net interest income 304.8 320.6 324.6 311.5

• Net commissions 178.1 167.7 178.5 174.8

• Profits from financial transactions 39.4 12.6 14.0 1.1
• Other net profits 48.2 34.5 32.2 35.9

Non-interest income 265.7 214.8 224.7 211.8

• Dividends and profits from equity

investments carried at equity 10.6 3.2 18.3 3.4

Interest and other banking income 581.1 538.6 567.6 526.7

• Personnel expenses -213.9 -203.9 -201.2 -196.0

• Other administratives expenses -88.6 -110.7 -110.5 -90.6
• Depreciation and amortization of tangible
and intangible assets -39.2 -39.1 -37.8 -34.5

Operating costs -341.7 -353.7 -349.5 -321.1

Operating income 239.4 184.9 218.1 205.6

• Write-downs of goodwill, positive

differences upon consolidation and on
application of the equity method -15.9 -15.8 -15.5 -15.5
• Provisions for risks and charges -15.0 -4.1 -15.5 -4.3
• Write-downs of loans and provisions
for guarantees and commitments -102.5 -62.3 -76.4 -47.0
• Write-backs of loans and provisions
for guarantees and commitments 24.9 17.1 48.2 27.2
• Write-downs of financial fixed assets
net of write-backs -2.3 -0.8 -1.1 -0.1
• Provisions to loan loss reserves - 0.1 -0.1 -

Income before extraordinary items 128.6 119.1 157.7 165.9

• Extraordinary income (loss) 8.6 178.9 -1.8 3.2

Income before taxes 137.2 298.0 155.9 169.1

• Income taxes for the period -65.8 -103.2 -67.5 -77.5

• Minority interest -5.1 -3.4 -3.3 -5.2

Net income for the period 66.3 191.4 85.1 86.4

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.

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

2001
(in millions of euros) 2002 Changes
pro-forma

Interest income and similar revenues 2,345.5 2,699.2 - 353.7 - 13.1%

- on due from customers 1,795.7 2,011.6 - 215.9 - 10.7%
- on due from banks 288.7 386.4 - 97.7 - 25.3%
- other 261.1 301.2 - 40.1 - 13.3%
Interest expense and similar charges - 1,084.0 - 1,485.7 - 401.7 - 27.0%
- on due to customers - 355.2 - 469.0 - 113.8 - 24.3%
- on debt securities in issue (*) - 462.3 - 526.0 - 63.7 - 12.1%
- other - 266.5 - 490.7 - 224.2 - 45.7%
Net interest income 1,261.5 1,213.5 48.0 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 The Group’s net interest and other banking income in 2002 stood at €2,214.1
and other million, up 4.2% compared with €2,124 million of the previous year.
banking income 2001
(in millions of euros) 2002 Changes
pro-forma

Net interest income 1,261.5 1,213.5 48.0 4.0%

Dividends and profits/losses from equity
investments carried at equity 35.5 23.7 11.8 49.8%
Net commissions 699.1 717.3 - 18.2 - 2.5%
Profits from financial transactions 67.1 53.4 13.7 25.7%
Other net profits 150.8 116.1 34.7 29.9%
Net interest and other banking income 2,214.0 2,124.0 90.0 4.2%

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 mil-
lion, down 2.5% from €717.3 million being the pro-forma figure for 2001.

34
 Report on operations

2001
(in millions of euros) 2002 Changes
pro-forma

Managements, brokerage and advisory

services 373.3 419.1 - 45.8 - 10.9%
Expense recovery on deposits and c/a 53.9 45.4 8.5 18.7%
Payment and collection services 95.5 91.7 3.8 4.1%
Guarantees 21.3 20.8 0.5 2.4%
Other services 155.1 140.3 14.8 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 com-
missions 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 mil-
lion 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%.

2001
(in millions of euros) 2002 Changes
pro-forma

Asset management 228.6 265.6 - 37.0 - 13.9%

Distribution of third party services 68.4 59.3 9.1 15.3%
Securities trading 20.0 25.7 - 5.7 - 22.2%
Order collection 18.8 22.6 - 3.8 - 16.8%
Currency trading 12.6 15.4 - 2.8 - 18.2%
Custodian bank 14.9 15.6 - 0.7 - 4.5%
Securities placement 4.8 9.0 - 4.2 - 46.7%
Other services 5.2 5.9 - 0.7 - 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 repre-
sent financial investments and of derivative trading contracts that in spite of non
being listed on organized markets, still refer back to listed parameters. The cur-
rent effect caused by the above methodological change, included in the item
profits from financial transaction in financial year 2002, accounts for €32.8 mil-
lion. 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 mar-
ket 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 mil-
lion.
Income from currency trading amounted to €11.7 million, compared with the
2001 pro-forma figure of €16.3 million.

2001
(in millions of euros) 2002 Changes
pro-forma

Securities deals 10.9 25.1 - 14.2 - 56.6%

Currency deals 11.7 16.3 - 4.6 - 28.2%
Other transactions 44.5 12.1 32.4 267.8%

Profits from financial transactions 67.1 53.5 13.6 25.4%

of which: appreciation 198.2 11.7

of which: depreciation - 187.0 - 21.1
of which: other profits 55.9 62.9

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 intro-
duced by some of the banks of the Group. In keeping with the specific instruc-
tions 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 Operating
method stood at €35.5 million, up €11.8 million from the 2001 pro-forma fig-
ure. This increase is mainly ascribable to the higher dividends received from the income
shareholding in Crediop and to the Group’s share of profits of the affiliates val-
ued under the equity method, namely Istituto Centrale delle Banche Popolari
Italiane, Italease and BPV Vita.

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 mani-
fested 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 prin-
ciples 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 intangi-
ble 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 activ-
ities.

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 dis-
posal 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 Moreover, the following items were charged to income for the year:
ordinary - amortization of goodwill, positive consolidation differences and positive dif-
activities ferences on application of the equity method for €62.7 million, compared
with €58.4 million in 2001. The above amortizations break down as fol-
before lows: the goodwill amortization deriving from the merger of Banco
exceptional [Link] e [Link] into the Parent company accounts for €34.9 mil-
items and lion, the amortization of the positive difference upon consolidation of the
shareholding in Credito Bergamasco S.p.A. accounts for €20.2 million,
taxation 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 mil-
lion in 2001. Provisioning was increased mainly to prudentially align reserves
for risk and charges to the risks arising from outstanding disputes and reme-
dial 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 com-
mitments 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 mil-
lion 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 mil-

lion.

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 corre-
sponding 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
Income
€34.6 million. before taxes
€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 vest-
ed with a substantial part of its real estate.

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 Net income
rate of 41.3%, compared with 44.2% in 2001. The lower taxation of the 2002 for the year
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 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:

Nominal Book
Common shares of the Parent company Number value values
(€) (€)

Balance as of 1 June 2002 - -

Purchases 10,904,731 39,257,032 138,164,277

Sales -10,904,731 -39,257,032 -138,156,669
Trading profit/loss -7,608

Balance as of 31 December 2002 - -

Subordinated convertible bonds Nominal Book

“Banca Popolare di Verona value values
- BSGSP 1999/2005” (€) (€)

Balance as of 1 June 2002 595 542

Purchases 13,409,777 12,748,350

Sales -13,409,585 -12,748,204
Trading profit/loss 50

Balance as of 31 December 2002 787 738

Subordinated convertible bonds Nominal Book

“Banca Popolare di Novara value values
1,5% 2006” (€) (€)

Balance as of 1 June 2002 - -

Purchases 518,172 631,209

Sales -518,172 -627,977
Trading profit/loss -3,232

Balance as of 31 December 2002 - -

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 com-
panies, trust companies, or through a nominee”, is shown in the financial state-
ments 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 equi-
ty and income and the consolidated equity and income.

Shareholders’ Income
(in millions of euros) equity for the year

Balance as of 31/12/02 as in the Parent company’s accounts 3,129.0 233.6

Elimination of adjustments and provisions made exclusively for

fiscal purposes in the Parent company’s accounts:
- provisions to loan loss reserves 34.2 - 31.4
- accelerated depreciation 5.7 1.4

Parent copany adjusted balance as of 31/12/02 3,168.9 203.6

Alignment of goodwill entered in the Parent company’s accounts

with values in line with those entered in the consolidated
financial statements - 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 - 4.1

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 154.6

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 27.4 6.5

Balance as of 31/12/02 as in consolidated accounts 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 busi-
ness sector.

Shareholding Total Shareholders’ Profit

(in millions of euros) Direct Total asstes equity (*) (Loss)

Lending institutions
Banco Popolare di Verona
e Novara Parent company 26,215.7 3,129.0 233.6
Banca Popolare di Novara 100.000% 100.000% 14,815.7 865.6 84.0
Credito Bergamasco 81.252% 81.252% 10,445.0 753.4 85.1
Banca Aletti & C. 74.225% 100.000% 8,749.4 107.2 12.6
BPVN (France) 99.977% 99.977% 417.9 37.4 0.5
BPVN (Luxembourg) 99.966% 100.000% 324.3 37.8 0.3
Banca Aletti & C. (Suisse) 100.000% 22.2 8.3 -0.5

Financial companies
Leasimpresa 100.000% 1,353.5 56.6 8.1
Holding di Partecip. Finanziarie
Popolare di Verona -
[Link] e [Link] 100.000% 100.000% 123.4 123.2 10.1
Aletti Merchant 60.000% 100.000% 90.5 17.8 -4.0
Aletti Gestielle SGR 32.612% 100.000% 90.0 30.0 -0.1
Aletti Invest SIM 50.000% 100.000% 14.2 11.5 -1.0
Novara Invest Sim 99.000% 100.000% 4.2 0.9 -2.2
Aletti Gestielle Alternative SGR 100.000% 2.5 1.6 -0.3
Aletti Private Equity SGR 100.000% 1.2 1.1 -0.3

Insurance companies
Novara Vita 50.000% 50.000% 2,165.8 70.0 2.6
BPV Vita 35.000% 50.000% 1,583.5 45.3 5.0
Arena Broker 51.000% 4.6 0.9 0.1

Other companies
Sestri 100.000% 100.000% 326.4 3.6 -1.1
Società Gestione Servizi - BPVN 75.490% 100.000% 299.8 108.4 4.0
BPVN Immobiliare 100.000% 100.000% 46.4 22.3 -0.1
SARI Sannitica Riscossioni 99.950% 99.950% 21.0 2.7 0.2
Immobiliare BPV 100.000% 100.000% 3.7 3.7 0.1
Novara Immobiliare 100.000% 2.5 0.4 0.1
Tecmarket Servizi 47.500% 100.000% 2.2 1.5 0.5

(*) Inclusive of income for the period

42
 Report on operations

Banca Popolare di Novara Lending

Banca Popolare di Novara S.p.A., directly owned by the Parent company, is a
institutions
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 function-
ally organized to perform banking and financial activities in stand-alone as well
as through the whole Italian branch network.

(in millions of euros) 31-12-2002 2002

Balance sheet Income statement

Direct customer funds 12,022.2 Net interest income 301.8
Indirect customer funds 23,366.0 Net commissions 140.0
Gross loans 9,503.6 Net interest & other banking income 498.4
Total assets 14,815.7 Operating costs 284.2
Shareholders’ equity 865.6 Operating income 214.2
Income before extraordinary items 156.4
Other Extraordinary income 0.1
Employees (average) 5,066 Net income 84.0
Branches 534

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 reduc-
ing its focus on large corporate accounts, and concentrating more on discre-
tionary 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 rep-
resented by current accounts, with €6,232 million; 17% are repurchase agree-
ments (€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 fund-
ing 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, write-
downs 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 mil-
lion. 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 enter-
prises. 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 har-
monization 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 manage-
ment 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 authoriza-
tions 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, bal-
anced 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, dynam-
ic 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 man-
agement 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 out-
flow 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 com-
mission 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 com-
missions. 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 gen-
erated 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 Change

Balance sheet
Direct customer funds 7,045.5 6,090.1 955.4 15.7%
Indirect customer funds 7,966.8 6,964.9 1.001.9 14.4%
Gross loans 7,186.0 6,606.8 579.2 8.8%
Total assets 10,445.0 9,571.1 873.9 9.1%
Shareholders’ equity 753.4 711.5 41.9 5.9%

Income statement
Net interest income 264.4 255.0 9.4 3.7%
Net commissions 101.7 106.9 -5.2 -4.9%
Net interest and other banking income 405.5 392.9 12.6 3.2%
Operating costs 223.2 219.6 3.6 1.6%
Operating income 182.3 173.3 9.0 5.2%
Income before extraordinary items 140.4 132.4 8.0 6.0%
Extraordinary income 12.6 7.3 5.3 72.6%
Net income 85.1 79.5 5.6 7.0%

Other
Employees (average) 2.093 2.082 11 0.5%
Branches 220 213 7 3.3%

Credit intermediation

Financial year 2002 closed with satisfactory results with regard to credit inter-
mediation. 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, struc-
tured 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 284.0 276.5 7.5 2.7%

- NPLs 105.3 93.7 11.6 12.4%
- watchlist loans 164.3 162.6 1.7 1.0%
- restructured loans 14.2 20.0 - 5.8 - 29.0%
- unsecured loans to Countries at risk 0.2 0.2 - -
Performing loans 6,902.1 6,330.4 571.7 9.0%

Total gross loans 7,186.1 6,606.9 579.2 8.8%

Total write-downs - 89.4 - 85.3 4.1 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 sub-
standard 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 year-
end 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 mar-
kets, thus shedding the “lower of cost or market” method, in favor of a “mar-
ket 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 pur-
chased 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 mil-
lion, 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 cus-
tomers 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 trans-
actions”, 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 person-
nel, 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 reim-
bursed 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 vis-
ibility towards its counterparts. It is still directly controlled by the Parent compa-
ny, that holds a 99.977% stake, and it is based in Paris. It is a single-branch full-
service 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 Changes

Balance sheet
Direct customer funds 103.9 69.6 34.3 49.3%
Indirect customer funds 69.4 77.0 -7.6 -9.9%
Gross loans 238.3 195.2 43.1 22.1%
Total assets 417.9 319.6 98.3 30.8%
Shareholders’ equity 37.4 36.9 0.5 1.4%

Income statement
Net interest income 6.0 5.8 0.2 3.4%
Net commissions 3.2 1.8 1.4 77.8%
Net interestand other banking income 9.1 7.5 1.6 21.3%
Operating costs 7.2 7.1 0.1 1.4%
Operating income 1.9 0.4 1.5 375.0%
Income before extraordinary items 0.9 - 0.9 1.8
Extraordinary income - 0.4 - 0.2 0.2 100.0%
Net income 0.5 - 1.1 1.6

Other
Employees (average) 58 56 2 3.6%
Branches 1 1 - -

On December 31st, 2002, direct customer funds, inclusive of subordinated lia-

bilities, 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 – [Link] e
[Link]. It is headquartered in Luxembourg and it provides the Group with
yet another operational tool to support foreign transactions executed by cus-
tomers.

(in millions of euros) 31-12-2002 31-12-2001 Changes

Balance sheet
Direct customer funds 158.0 255.3 -97.3 -38.1%
Indirect customer funds 537.1 511.9 25.2 4.9%
Gross loans 84.5 85.5 -1.0 -1.2%
Total assets 324.3 470.8 -146.5 -31.1%
Shareholders’ equity 37.8 37.4 0.4 1.0%

Income statement
Net interest income 3.1 3.7 -0.6 -16.4%
Net commissions 2.7 3.4 -0.7 -21.3%
Net interest and other banking income 4.5 5.5 -1.0 -18.5%
Operating income 0.9 1.8 -1.0 -52.8%
Net income 0.3 0.1 0.2 244.0%

Other
Employees (average) 35 35 - -
Branches 1 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 year-
end 2001, however, due to the turbulent market conditions, assets under man-
agement 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 mil-
lion 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 Changes

Balance sheet
Direct customer funds 1,372.6 474.6 898.0 189.2%
Indirect customer funds 8,749.4 251.4 8,498.0 3,380.3%
Shareholders’ equity 107.2 79.9 27.3 34.1%

Income statement
Net commissions 34.0 23.2 10.8 46.7%
Profits from financial transactions 29.8 0.9 28.9 3,206.2%
Net interest and other banking income 76.4 25.5 50.9 199.8%
Operating costs 48.7 29.3 19.4 66.3%
Operating income 27.7 - 3.8 31.5
Net income (loss) for the year 12.6 0.1 12.5 12,450.0%

Other
Employees (average) 137 122 15 12.3%
Branches 12 10 2 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 devel-
opment 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 opera-
tional 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 man-
agement of more considerable transaction volumes and to achieve Group-
wide economies of scale.
- general accounting, management control, back-office and asset manage-
ment 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 serv-
icing 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 man-
agement office was set up within the asset management function. It is worth
mentioning the launch of two new capital guaranteed asset management prod-
ucts, that distinguished themselves for their innovative and particularly sophisti-
cated 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 cus-
tomer 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 cus-
tomers.

In 2002, Banca Aletti backed the commercial banks in the covering of 41 struc-
tured 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 struc-
turing 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 opera-
tional on the Mts, they became members of other new electronic trading plat-
forms (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 per-
formance of financial markets in general – and in particular of primary equity
markets – that had a negative impact in terms of missed finalization of under-
writing 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 pro-
gressive strengthening of relations with the other banks and operating compa-
nies of the group. Said progress is evidenced by the 200% increase in net inter-
est 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 finan-
cial 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 mil-
lion 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 how-
ever much lower than the expected budget. The stringent control over costs and
the increase in transaction volumes contributed to the achievement of said tar-
get; 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 [Link] 2001. In spe-
cific, discretionary accounts posted a substantial increase, going from €18.3 mil-
lion 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,

Financial
even registered, and real property”, and it is indirectly controlled via Holding di companies
Partecipazioni Finanziarie and Credito Bergamasco.

(in millions of euros) 31-12-2002 31-12-2001 Changes

Business volumes
Value of finalized contracts 914.8 906.7 8.1 0.9%
Number of contracts 6.110 5.945 165.0 2.8%

Balance sheet
Goods under finance lease 1,540.0 1,110.5 429.5 38.7%
Total assets 1,353.5 1,399.8 -46.3 -3.3%
Due to lending institutions 1,075.6 1,188.3 -112.7 -9.5%
Shareholders’ equity 56.6 55.1 1.5 2.7%

Income statement
Net interest income 450.1 335.1 115.0 34.3%
Net interest and other financial income 19.2 17.1 2.1 12.1%
Operating income 8.7 7.9 0.8 10.7%
Net income 8.1 7.0 1.1 15.5%

Other
Employees (average) 97 93 4 3.8%

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 invest-
ment 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 560.4 544.9 15.5 2.8%

Equipment lease 270.4 287.3 - 16.9 - 5.9%
Vehicle lease 84.0 74.5 9.5 12.8%

Value of completed contracts 914.8 906.7 8.1 0.9%

Real estate lease 61.2% 60.1%

Equipment lease 29.6% 31.7%
Vehicle lease 9.2% 8.2%

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 mar-
ket 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 mar-
gin 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 man-
aged 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 post-
ing 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) 31-12-2002 31-12-2001 Changes

pro-forma

Business volumes
NAV of managed funds 13,885.0 14,209.7 -324.7 -2.3%
Subscriptions 9,182.4 8,052.4 1,130.0 14.0%
Redemptions 8,387.2 8,554.5 -167.3 -2.0%
Net inflow 795.2 - 502.1 1,297.3

Balance sheet
Total assets 90.0 116.8 -26.8 -22.9%
Shareholders’ equity 30.0 37.5 -7.5 -20.0%

Income statement
Commission income 166.5 200.0 -33.5 -16.8%
Commission expense 142.5 166.0 -23.5 -14.2%
Trading income 26.8 38.1 -11.3 -29.7%
Net operating income 1.0 14.3 -13.3 -93.0%
Net income - 0.1 7.9 -8.0

Other
Employees (average) 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 manage-
ment 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 bet-
ter quality of life.

31-12-2002 31-12-2001
(in millions of euros) Changes
pro-forma

Equity funds 2,788.1 4,357.3 - 1,569.2 - 36.0%

Fixed income funds 10,451.1 8,966.4 1,484.7 16.6%
Balanced funds 478.1 659.6 - 181.5 - 27.5%
Flexible funds 167.6 226.3 - 58.7 - 25.9%

Net assets under management 13,885.0 14,209.7 - 324.7 - 2.3%

Equity funds 20.1% 30.7%

Fixed income funds 75.3% 63.1%
Balanced funds 3.4% 4.6%
Flexible funds 1.2% 1.6%

Obviously, the poor market performance affected the asset management indus-
try. Against this backdrop, assets under management went from €9,400.6 mil-
lion 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 com-
pany 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 man-
date 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, call-
ing 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 37.4 22.0 15.4 70.0%

Holdings in private equity funds 11.8 11.3 0.5 4.4%
Debt securities 26.3 26.3 - -
Equity securities 5.2 - 5.2
Financial operations 6.6 6.1 0.5 8.2%

Total investments (1)

87.3 65.7 21.6 32.9%

(1)
Net of write-downs and capital redemptions

Among the investments in new companies carried out in 2002 it is worth men-
tioning:

• 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 dis-
tribution 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 man-
agement 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 final-
ized. Under the contract, Aletti Merchant should also invest part of the pro-
ceeding, for a total of €6.6 million, in shares of Freedomland ITN S.p.A., a com-
pany 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 con-
cerned on December 23rd, 2002, and thus making the Aletti Merchant-
Coorsfield contract binding. The actual execution of the Freedomland-
Tecnosistemi 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) 31-12-2002 31-12-2001 Changes

Business volumes
Gross inflow 588.6 558.6 30.0 5.4%
Net inflow 101.6 88.8 12.8 14.4%

Balance sheet
Securities - 0.6 -0.6 -100.0%
Total assets 14.2 10.4 3.8 36.5%
Shareholders’ equity 11.5 7.6 3.9 51.3%

Income statement
Net commissions 2.1 4.0 -1.9 -47.5%
Trading income 2.4 3.8 -1.4 -36.8%
Net operating income - 5.6 - 3.6 2.0 55.6%
Net income for the year - 1.0 - 3.5 -2.5 -71.4%

Other
Financial advisers
and insurance producers 356 321 35 10.9%
Employees (average) 25 27 -2 -7.4%

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, pen-
sion 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 man-
agement business shall entail the remittance of 90% of management commis-
sions 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 finan-
cial markets in 2002.

The breakdown analysis of net asset value and net inflows shows that the pre-
vious 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 cap-
ital 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 378.4 358.7 19.7 5.5%

Brokered assets 210.2 199.9 10.3 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 confront-
ed 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% equi-
ty 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.

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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 vol-
ume 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 – [Link] e [Link]

Holding di Partecipazioni Finanziarie Popolare di Verona - [Link] e

[Link] 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 finan-
cial 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 35.9 35.9 - -

Equity holdings in financial institutions 16.2 16.2 - -
Equity holdings in other institutions 2.2 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.

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Società Gestione Servizi - BPVN

Other
companies The company is directly controlled by the Parent company through a 75.49%
of the Group 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 [Link] e [Link]
and Credito Bergamasco to optimize the efficiency and effectiveness of the pro-
duction and administrative systems for back office, data processing, organiza-
tion and logistics activities, and to place a particular emphasis on technical inno-
vation.

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 299.8 232.2 67.6 29.1%
Shareholders’ equity 108.4 80.8 27.6 34.2%

Income statement
Value of production 189.7 148.8 40.9 27.5%
Cost of production 180.7 141.8 38.9 27.4%
Profit before extraordinary items 9.5 6.3 3.2 50.8%
Net profit for the year 4.0 5.5 -1.5 -27.3%

Other
Employees (average) 499 224 275 122.8%

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 pro-
vided 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, spe-
cific controls on the single procedures making up the company information sys-
tem 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

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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 cen-
tral equipment and the maintenance of technological infrastructures.
As to planning, S.G.S. was active on many fronts: suffice it to mention the proj-
ect “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 syn-
ergies 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 car-
ried 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 mil-
lion 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’ cus-
tomer 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-

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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 Changes

Balance sheet
Total assets 326.4 305.7 20.7 6.8%
Shareholders’ equity 3.6 4.7 -1.1 -23.4%

Income statement
Proceeds from tax collection 28.3 29.9 -1.6 -5.4%
Commission expense and fee
for treasury services 4.7 4.7 - -
Net interest and other financial income 23.3 23.0 0.3 1.3%
Net operating income - 0.6 - 0.5 0.1 20.0%
Net income (loss) - 1.1 1.1 -2.2

Other
Employees (average) 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 commis-
sions.

The unrelenting pursuit of the best management effectiveness and cost efficien-
cy, together with the need to free up resources in order to boost the forced col-
lection 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

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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 admin-
istrative 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 author-
ized tax collection agencies, that resulted in a fixed compensation of €355.2 mil-
lion 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 corrob-
orated 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.

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Noteworthy events after year-end

In occasion of the General meetings of Banca Popolare di Verona s.c.c.r.l. – Banco
[Link] e [Link] 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 character-
ized 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 compa-
ny, 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.

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Operational outlook
The outset of the new year was marked by a worsening of the geopolitical ten-
sions that had broken out in 2002, and by the protraction of the drown-out peri-
od 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 compa-
nies of the Group are active shall be consolidated. To this end, the distribution net-
works 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 strength-
ened 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

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